7 610 AA A 30

.NT RNAL R NU
BULL TIN
CC OLATITI BOLIITIH I 5 - A

uy-December 195 I -ygy U Z T C e. Ga-3
n / s ssue
ndng Lst n-v
Introducton 1
oreword 2
Ta Court of the Unted States, The 3-6
Part I. Rungs and Decsons Under the Interna
Revenue Code of 195 7-
Part II. Rungs and Decsons Under the Interna
Revenue Code of 1939 and Reated Pubc Laws 9- 2
Part III. Acoho Ta Rungs and Decsons:
Subpart A. Rungs and Decsons Under the
Interna Revenue Code of 195 3- 6
Subpart B. Rungs and Decsons Under the
Interna Revenue Code of 1939 7-566
Subpart C. Rungs and Decsons Under the
edera Acoho Admnstraton Act or Reated
Laws 567-593
Part I . Legsaton and Treates:
Subpart A. Legsaton 595-613
Subpart B. Ta Conventons . 61 -659
Subpart C. Commttee Reports 660-730
Part . Admnstratve and Msceaneous Matters. 731-735
Dsbarments and Suspensons rom Practce... 735
Inde 737-760
fTID IT1TII
OOTI1M Hnt rNTno ofne
AII1NOTO td
ot b by UM Superntendent of Document , U. . OoTerament PrnUn| Offos
Wubbcton. M, D. O. Prce O (Pper)
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INDING LIST
Pact
A o
Court Decsons:
170 ,
RcTnue Rung Contnued
-310
11
170
31
-317
1770
223
-31 . .
1771
239
-319
Revenue Rungs:
m
230
-320
M-251 . .
-321
22
IT2
-323
-252 ..
323
-323
-253
32
-32 ....
A
-25
32.1
-325
-255
M
-32B
691
-257 ,
at
-32
50
6 -25
01
-329
-259 _
3
-330
-200
572
-331 ..
M-2 1
73
-332
S -262
75
-333 .
-263

-33
-26
7
-339 ..
61
-2M
239
-336
. -
7
-337
-2 7

-33
M- t M

M-n
-2
11
-3 0
-270....
97
-3 1
6 -271
29
-3 2
6 -272 ,
2
-3 3
-273
. 110
-3
319
M-27
3 O
-3 5
-27
391
-3 9
3
-17
393
-3 7
-277....
10
-3
-27
67
-3 9
-279
2
-350
53
-2 0
90
-351
. ( .:

-352 .
75
6 -2S2
129
-3A3
77
6 -2 3
177
-35 ...
557
-2S
375
-355
f77
-20
303
-356 ...
2
-2S6
7
-357
125
-2 7
09
-35 ...
372
5 -2 ....
69
-359
3SS
S -2 9 ..
67
-3GO
6 -290....
09
-361
1
6 -291 ,
73
-302 ..
27
-2S2....
79
-363
3
M-2S3 ,
G
-30
212
M-2M....
71
M-M
13
M-295
73
-36S .
36
M-21W....
9
-367
109
-297
132
-30S
330
-29 ....
27
-309
N
-2W
39
-370
379
-300....
39
-371
3Stf
-301
6
-372
395
-303
10
-373
23
-303
70
-37
57
-30
39
-375
9
-30
127
-375.
56
-309
2 0
-377
577
-307
377
-37
2 (5
-303.
190
-379
121
-300
201
-3W
US
-310
30
-3S1
161
-311...,
3M
-3S2
279
-313. .........
337
-3.S3
ISO
-313 . ......... .
271
-3S
306
-31 . ..... ..
17
-3 5
335
-313....
3S9
-3 0
1
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INDING LIST Contnued
Revenue Rungs Contnued
Pare
Treasury Decbons:
6071
a
M-M9
M
2SO
M
6 -560 __
16
23
M
607
5 -S51...
6075
7
M :
6076
95
M
2SI5
276
117
11.
2-..S
32
T
(00
16
53
5 2
H12
92
7

3

57
69
523
361
113
367
307
07
. 277
120
61
137
179
61
01
6
160
IS
A6
5 -. U
303
317
339
6077 , . . .. . .
-SS
607 ..
W-M
m
60TS ...
6 -556 .
eoso . .......
5 -5.r7
37
M
60A1
6 -55 . ... .......
60 2 . ...
M-UB
A
MO
60S3
6 -500
60S
5 -501
0
603
60
7
M
M
103
110
1
21
239
3 1
312
(10S5
6 -5G2
60S
M-5G3
60S7
6 -56
doss
5 - A
6IIS
6 -. G
ftry,)
6 -507 :...
6031
M- fa
6IW2
6 -509 ....
IW 3
6 -570
6)9
M-571
ftA5
M 572
60M
5 573
w
6( /7
-57
609
5 -575
1 5
6(y|9
5 -576
72
A .-2
M
I
6100
M-577
6101 ... .
M-57
6102
6 -579
610.1
-5 0
m
6IU
5 -. 11 ....
112
12
15
212
2 .2
3 5
350
657
MO
MO
6105
M-. . .
eon
6 -5H3
: -
61M
M-5 5..
6109
6 -5 6 . ... ....
6110
6111
5 -5 .. ... .
112
M-. 9
6113
w
6 -590 ........................
77
SS
31
10
00
61
0
121
62
16
107
2A
123
373
3
33
177
611
511
0
6 -H
6115
M-A 2 ..........................
(N srcota)... ....
M-.
Treates:
.1
6 -59 .......................
62f
633
6 -595
Canada (Supp. state Tu)
5 -507
H
691
5 -svs
South Afrca, Unon of
Pubc Laws:
52
5 -599
5(5
5 -fyy) ... ....
517 ... ...... _ ...
595
57
597
t t
599
599
693
603
0 -601
5 -12 .... . .
53
M-G03
65 ......... .... . .
A -00 .....
SA 7
6 -605
67 . .. . _.
5 -600
729
6 - 07
s
7 6
5 -60

152
HO
761
en
767
5 -610
Com mss oner s Reorfknatton Order:
33
73
111
5 -611 ..... ....
10
20A
271
27
1
00
. -.
M
MO
IM
M
1
16

ecutve Orders:
10M . ................
5 -6)2
5 -613 ...
105 7
11
5 -f5 ..... ... .. ...
1W31 . ... ...
731
6 -610
105B
731
1 1
732
6 -617 .. ..............
OSTO . .............
M-61S
10.572 ...... .......
m
n
10 7
5 -620
Tnasurr Department Order:
6 -f
IR-Mmcnfrnpha:
6 -SI (Her. . -3 11..........
6 -111 (UeT. Bu M- 7 )._
M .. I
M
IN
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I
ABBR IATIONS
The foowng abbrevatons n current use and formery used w
eppear n matera pubshed n the Buetn:
As,B,, C, etc. The names of ndvduas.
A_ T. Acoho and tobacco ta rung.
B. T. A. Board of Ta Appeas.
C. B. Cumuatve Buetn. . .
C. . R. Code of edera Reguatons.
Ct. D. Court decson.
D- C. Treasury Department crcuar.
. O. ecutve Order.
. T. state and gft ta rung.
m. T. mpoyment ta rung.
. A. A. A. edera Acoho Admnstraton Act.
G. C. M. Chef Counse s memorandum (formery Genera Coun-
se s memorandum).
I. R. B. Interna Revenue Buetn.
IR-hn. Pubshed IR-Mmeograph.
I. T. Income ta rung.
AT, , , Y, Z, etc, The names of corporatons, paces, or busness
accordng to conte t.
AT. T. Msceaneous ta rung.
3fm. Pubshed mmeograph.
P.L. Pubc Law.
Rer. Ru. Revenue Rung.
S. T. Saes ta rung.
T. C. The Ta Court of the Unted States.
T. Z . Treasury Decson.
and y are used to represent certan numbers, and -when used wth
the word doars represent sums of money.
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INTRODUCTION
The Interna Revenue Buetn s the authortatve nstrument of
the Commssoner of Interna Revenue for the announcement of off-
ca Interna Revenue rungs, and for the pubcaton of Treasury
Decsons, ecutve orders, egsaton, and court decsons pertanng
to Interna Revenue matters.
It s the pocy of the Servce to pubsh n the Buetn a sub-
rtantve and procedura rungs of mportance or genera nterest, the
pubcaton of whch s consdered necessary to promote a unform
appcaton of the aws admnstered by the Servce. It s aso the
pocy to pubsh a rungs whch revoke, modfy, amend, or affect
any pubshed rung. Rungs reatng soey to matters of nterna
management are not pubshed. The rungs are prepared n the
varous dvsons of the Natona Offce, ncudng the Offce of the
Chef Counc for the Interna Revenue Servce. A pubshed
rungs have receved the consderaton and approva of the Chef
Counse.
Revenue Rungs reported n the Buetn do not have the force and
effect of Treasury Department Reguatons (ncudng Treasury Dec-
sons), but are pubsned to provde precedents to be used n the ds-
poston of other cases, and may be cted and reed upon for ths
purpose. However| snce each pubshed rung represents the con-
cuson of the Servce as to the appcaton of the aw to the entre
state of facts nvoved, Revenue offcers and others concerned are
cautoned aganst reachng the same concuson n other cases uness
the facts and crcumstances are substantay the same. In appyng
rungs pubshed n the Buetn, personne of the Servce w, of
course, consder the effect of subsequent egsaton, reguatons, court
decsons, and rungs.
ach rung s desgnated as a Revenue Rung and shoud be
cted by reference to the Buetn and page where reported. Thus,
Revenue Rung No. 5 - 0 shoud be cted as Rev. Ru. 5 - 0, C. B.
195 -1, 11. Rungs are keyed to the appcabe sectons of the
Interna Revenue Code and reguatons.
Interna Revenue Cumuatve Buetn 195 -2, contans a rungs,
decsons, and egsaton pertanng to Interna Revenue matters
pubshed n the weeky Interna Revenue Buetns 27 to 52, ncu-
sve, for the perod uy 1 to December 31, 195 . It aso contans a
cumuatve st of announcements reatng to decsons of The Ta
Court of the Unted States, pubshed n those Buetns.
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OR WORD
The Interna Revenue Buetn s prepared n s parts. Part I
ncudes rungs and decsons whch are Dased on the appcaton of
provsons of the Interna Revenue Code of 195 and, uness otherwse
stated n the rung or decson are pubshed wthout consderaton
as to any appcaton of the provsons of the Interna Revenue Code of
1939 or reated pubc aws. Part II ncudes rungs and decsons
whch are based on the appcaton of provsons of the Interna Reve-
nue Code of 1939 and reated pubc aws and, uness otherwse noted
theren, are pubshed wthout consderaton as to any appcaton of
the provsons of the Interna Revenue Code of 195 . Part III con-
tans rungs and decsons pertanng to the varous acoho ta es.
Ths part s subdvded nto three subparts accordng to matters ssued
under the Interna Revenue Code of 195 (Subpart A), the Interna
Revenue Code of 1939 (Subpart B), and the edera Acoho Admn-
straton Act (Subpart C). Part I contans ta egsaton and
treates, ncudng reated Commttee and Conference Reports. Ths
part s subdvded nto three subparts accordng to egsaton (Sub-
part A), ta conventons, Treasury Decsons and Revenue Rungs
ssued wth respect thereto (Subpart B) and Commttee Reports
(Subpart C). Part s devoted to admnstratve and msceaneous
matters. The weeky Interna Revenue Buetns contaned Part I,
consstng of some tems of genera nterest. Other than the dsbar-
ment st, whch has been ncorporated n Part of ths Buetn,
those tems are not reproduced heren.
(2)
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TH TA COURT O TH UNIT D STAT S
CUMULATI LIST O ANNOUNC M NTS R LATING TO
D CISIONS O TH TA COURT O TH UNIT D
STAT S PUBLISH D IN TH INT RNAL R NU
BULL TIN ROM ULY 1, 195 , TO D C MB R 31, 195 ,
INCLUSI
It s the pocy of the Interna Revenue Servce to announce n the
Interna Revenue Buetn at the earest practcabe date the deter-
mnaton of the Commssoner to acquesce or not to acquesce n a
decson of The Ta Court of the Unted States whch dsaows a de-
fcency n ta determned by the Commssoner to be due. Notce
that the Commssoner has acquesced or nonacqucsccd n a decson
of The Ta Court reates ony to the ssue or ssues decded adversey
to the Government. Actons of acquescences n adverse decsons
shoud be reed on by Revenue offcers and others concerned as con-
cusons of the Servce ony as to the appcaton of the aw to the
facts n the partcuar case. Cauton shoud be e ercsed n e tendng
the appcaton of the decson to smar cases uness the facts and cr-
cumstances are substantay the case, and consderaton shoud be
gven to the effect of new egsaton, reguatons, and rungs as we
as subsequent court decsons and actons thereon. Acquescence n a
decson means acceptance by the Servce of the concuson reached,
and does not necessary mean acceptance and approva of any or a
of the reasons assgned by the court for ts concuson. No announce-
ments are made n the Buetn wth respect to memorandum opnons
of The Ta Court.
Ta payer
Docket No.
Report
oume act
A
Ae ander, D.
Ae ander, D. ., et u .... ... ..........
Aen, W. O ,
Andrews, Ruth Hopper, transferee of estate of Char-
otte A. Hopper, deceased
Atanta Newspapers, Inc., transferee .. . ...
Avaton Country Cub, Inc.........
B
Baey, une L . .. .
Baey, ern W
Baey, ern W.. et u . .
Barrett, Gertrude P., estate of
Bauman, et u ., Cement A . . ....
Bake, r., Thomas W
Brown, ar M ..... . ..
Brown, Heen C .... . .
Burns, ay... . . .......... .......
C
35555
35556
3179
3 5
3 23
3 235
7316
3 29
3 2
3 30
S30
39575
36059
376 9
376
2531
22
22
22
22
20
21
21
22
22
20
22
22
21
23-
23
70
US
102
07
67
606
7
721
5
5
57
Cahoun, Myrte O. (formery Myrte 0. Worth)
Camp Woters nterprses, Inc .. ... ....
Carman, Wam W. ..
state ta decson.
Nouacqaeaeenoe pubshed In 0. B. 1950-1, 7, wthdrawn.
7593
35561
16796
23
22
13

737
1029
(3)
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Acqotescencm Contnued
Ta payer
Docket No.
Report
oume Pca
Cty Machne Too Co., The.
Cohen, dward L.............
Cramp Shpbudng Co.1.
Davs, Martha Hubbard . .................
De Retes-Marenwert, rwn ..................
Dnardo, et u ., Chares ...........
Dstrbutors nance Corporaton .....

re County Unted Bank, The

arrs, et u ., Leonard A ..... ...............

eder, Anne, estate of.. . . .. . .......
eder, ack M., e ecutor of estate of Anne eder ...
erber, acques, estate of, The Pennsyvana Com-
pany for Bankng and Trusts, coe ecutor .
orest Press, Inc
ossett, ohn, estate of, Mevn . epson, coe ecutor.
G
Gannon, Robert R., estate of.. . ... ....
Gazette Teegraph Company ........ .....
Gespe Trust, . A.
H
Hae. R WA :.
Hae, r, W. T.A
Ha, Lvngston, et a., survvng e ecutors of estate
of Mary Rumsey Movus, deceased
Hamcr, Burn B., et u
Hartford-Connectcut Trust Co., trustee and trans-
feree of estate of Charotte R. Hopper, deceased....
Harvey, red M ........ .......
Hopper, Charotte A., estate of... . .......
Hughes, Davd W -.
Hughes, Luce...................................
Hunt, Mar|ore... ...................... .........

epson, Mevn ., e ecutor of estate of ohn ossett.

ones, Carence B., et u ........
opn, Wam A., r., et a.

Cohn, oseph . ............

om, oseph .t et u . ........
L
203 5
30 00
12073
163 7
3 213
3 1
3 111
27309
356 6
37691
2216
2216
35 62
1590
300
3935
2 61
31 37
67750
67751
3 03
25
3 5 7
2 7
3S5S0
3 6 1
3S0 2
3 1 7
360
371)31
31 9
31 91
31 90
21
21
1
17
22
21
22
20
21
22
22
22
22
22
21
21
19
21
32
32
22
22
22
21
22
22
22
22
21
22
17
17
17
937
55
33
510
1091
6
30
70S
636
10
30
30
2G1
265
7
1073
692
739
356
356
391
3 3
13
1020
13
1
1
22
7
07
1526
1526
1526
Lande, Wam M., estate of
Leach, . Warren, transferee
Lovd-Srhtth, Mar|ore emng _
LoBue, Php .A
Lord, veyn Rumsey ...
Luton, oe B. A _
33532
39 2
3575
1595
3 039
32533
21
21
0
22
22
1
977
70
21
0
391
1153
. A ach decson emboded both dockets, but 1 T. C. covered the aowance 0/ certan amorttaUon deduc-
tons authorred by a cosng agreement, ony.
Acquescence on a Issues. state ta deeWon.
Nonacquescence pubshed In Cumuatve Buetn 1035-1, p. 29, wthdrawn.
Acquescence as to resut ony.
A Nonacquesccnce pubshed In Cumuatve Buetn 1939-2, p. 57, wthdrawn.
Acquescence reates ony to Issue of stock opton granted on anuary 1 , 19 5, whch gave pettoner
propretary Interest In corporaton and dd not resut In ta abe compensaton.
onacqucscence pubshed In Cumuatve Bu oUn 1953-2, p. , wth drawn. Acquescence to resut ony.
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Acquescences Contnued
Ta payer
Docket No.
Report
oume Pare
M
Medrun and ewgmth, Inc.
Mnoodn, Dora, e ecutr of estate of Samue
Mnookn u
Mnookn Samue, estate of u
Movus, Mary Rumsey, estate of . .
Murray, . .
N
Neo Company, oseph N.
Nevada O Co
Payne, George H.......
Payne, Madene
Pennsyvana Company for Bankng and Trusts, The,
e ecutor of estato of acques crber
Phps, Aroy S., e ecutor of estate of Gertrude P.
Barrett A
Perce, red H .
Peason, Davd
R
Restfo, et u ., Samue
Reynods, S. Crews u
Reynods, S. Crews, et u . u.
Rohmer, Sa
S
Scaes, oe W., et u .
Seasongood, Agnes...
Seasongood, Murray.
Seasongood, Murray, et u .
Shaken, et u ., ctor ..
Shanb, et u ., Morrs....... .................
Saughter, et u ., Carence B. P.......... ..
Stamos, Peter, et u ...
Stcnman, Php, e ecutor of estate of Isdore Wad-
man .
30077
35392
17210
3 03
37 S6
3192
35S
2717
271
35 62
30
6 12
3G95
3 113
31 93
31 92
3555
23G72
3 297
253
2537
2539
39S23
5116
2739
27395
3 112
397 7
2- 602
33S00
30929
311
31657
3CG79
20
12
22
21
22
22
22
22
22
22
22
22
22
17
17
21
1
22
21
19
22
22
15
Stokes, Ace H Pye, transferee...... .. ......
Stokes, . Ceve
Stokes, W. Ceve, et u ..
Stokes, W. Ceve, et u
Stone, Hyman B., et u
22
22
11 Acquesce dot reates to Issues regardng the vadty of partnershp as a separate busness entty for
ta purpovs ega and accountng fees partay aowed as busness e pense wth baance representng cap-
ta e pendture appro-vat of empoyees penson pan and aowance of deductons for contrbutons thereto
for fsca years ended March 31.19 3, and 191 .
a Acquescence reates to Issue that decedent s death dd not reqtre hs aocabe share of partnershp
earnngs to dnte of desth be Incuded In hs fna return: and acquescence reatve to the Issue of the Incu-
son In decedent s gross Income for 19 2 of credt saes for pror years, evdenced by accounts recevabe as
of anuary 1,19 2, not dsturbed. Nonacqucsccnoc pubshed In Cumuatve Buetn 19 9-2, p. . wth-
drawn.
u Acquescence restea to Issues Invovng the aocaton of attorneys fees Incurred In tgaton tor recovery
of property, one-ha to e pense and one-haf to cspu: and aowance for deprecaton or years pettoner
nether had possesson nor ega tte to property of whch be was equtabe owner.
state a decson. Acquescence as to resut ony,
u Nooacquesoeooa pubshed In Cumuatve Buetn 1MI-1, p. , wthdrawn.
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Acqcescencm Contnued
6
Ta payer
Docket No.
Report
oume Pago
Thompson, Carone D......... ..... . ...
Thompson, Cornne Pope.........................
.Twnam, Dasy M . ... ............
Tyree, oseph ., estate of
Tyree, Whemna C, e ecutr of estate of oseph
. Tyree
Unon Investment Co.
U
W
WAG , Ine
Wadman, Isdore, estate of .
Wash. Raou
Wnnck, Abert..............
Wnnck, Ida..........
36535
77 3
37530
35S9
35 9
0969
31G30
2 002
32317
23 7
23 79
22
22
22
20
20
21
19
15
21
21
21
507
275
3
675
675
659
2 9
606
Of.3
1029
1029
Nonaeoueseence pubshed In Cumuatve Buetn 19M-1, p. 9, wthdrawn.
Nonocqucscence pubshed In Cumuatve Ducn 1951-1, p. , wthdrawn.
The Commssoner does NOT AC UI SC n the foowng
decsons:
Ta payer
Socket No.
Report
oume Page
B
Bagey and Sewa Co., The

eatherstone, Martha..............
eatherstone, Ocn ... .......
eatherstone, Ocn ., et u ........
ory Mng Co., Inc
. L
Loewcnsten and Son, S. ...........
M
Medrum and ewamth, Ine. ......
p - ..
Pttsburgh Werton Bus Co......
S
Stocky et u ., Ayrea . ......
T
Teefm, Ine
Tmken-Detrot A e Company, The.
3 1 6
37 10
37 09
37 11
30105
0607
0977
35357
35696
35902
3 100
20
22
22
22
21
21
20
21
22
21
21
9 3
763
703
703
32
6
790
S
2
6
709
A Nonaequescenee as to Issue No. 2 reates to whether srht drafts drawn on pettoner for purchase prce
of vestock purchased by pettoner consttute borrowed capta wthn the meanng of secton 719(a)(1)
of the Interna Revenue Code of 1939.
A Nonacqucscrnee reates to whether respondent shoud have been permtted, by amendment, to answer
fed pror to bearng an Rue 0, to cam Increased Income tu defcency for 111 .
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PARTI
RULINGS AND D CISIONS UND R TH INT RNAL
R NU COD O 195
Rungs and decsons pubshed n Part I of the Interna Revenue
Buetn are based on the appcaton of provsons of the Interna
Revenue Code of 195 and, uness otherwse stated n the rungs or
decsons, are pubshed wthout consderaton as to any appcaton
of tho provsons of the Interna Revenue Code of 1939 or reated
pubc aws.
SUBTITL A. INCOM TA S
CHAPT R 1,-NORMAL TA S AND SURTA S
SUBCHAPT R Bv-GOMPUTATION O TA ABL INCOM
PART I. IT MIZ D D DUCTIONS OR INDI IDUALS AND CORPORATIONS
S CTION 16 . TA S
(Aso Part II, Secton 23(c) Regu- Rev. RuL 5 -530
atons 11 , Secton 39.23(c)-.)
The stamp ta mposed by chapter 92-22 of the Code of Georga,
Annotated, upon every person, frm, corporaton, cub or assocaton
wthn the state who ses and/or stores and/or receves for the purpose
of dstrbuton wthn the state, cgars or cgarettes or who receves.
retans, keeps, possesses, or brngs nto the state for hs own persona
uso n the state or for the use of any member of hs famy theren any-
such unstamped goods, s deductbe for edera ncomo ta purposes
under secton 10 (a) of tho Interna Revenue Codo of 195 by one who
purchases, aff es and cances the stamps provded for n that chapter.
The cgar and cgarette ta does not quafy as a reta saes ta
wthn the meanng of secton 16 (c) of the Code of 195 and s not
deductbe for edera ncome ta purposes by consumers who pur-
chase the cgars or cgarettes wth the stamps aready aff ed and
canceed.
(T)
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1 61.
SUBCHAPT R v-ACCOUNTTNG P RIODS AND
M THODS O ACCOUNTING
PAST Dv M THODS OP ACCOUNTING
SUBPART O TA ABL T AS OB WHICH D DUCTIONS TA N
S CTION 61. G N RAL RUL OR TA ABL T AR
O D DUCTION
(Aso Part II, Secton 3 Reg- . . Rev. Ru. 6 -60
atons 11 , Secton 39. 3-2.)
No accrua of vacaton pay can take pace unt the fact of a-
bty to a specfed empoyee has been ceary estabshed and the
amount of the abty to each ndvdua empoyee s capabe of
computaton wth reasonabe accuracy. No dstncton Is to be
made between pans under wrtten contracts and pans under ora
agreements.
I. T. 3950, C B. 10 9-1, 7 , revoked, and O. C M. 25201, C. B.
19 7-2. , modfed.
urther consderaton has been gven to I. T. 3956, C. B. 19 9-1,7 ,
and the opnons e pressed n G. C. M. 25261, C. B. 19 7-2, , re-
atng to the accrua of vacaton pay by ta payers empoyng tho
accrua method of accountng for edera ncome ta purposes. The
queston of whether an accrua bass ta payer s requred to enter nto
a wrtten contract n order propery to accrue vacaton payments
whch are to be made durng the succeedng year has aso been
consdered.
In I. T. 3956, supra, tho wrtten agreements (wth a abor unon)
provded that a vacaton wth pay was to be granted durng the cur-
rent caendar year to each empoyee who rendered compensated serv-
ce on not ess than ICO days durng the precedng caendar year.
The ta payer fed ts return on a caendar year bass. Under the
agreements, vacatons were to be taken between anuary 1 and De-
cember 31. An empoyee whose empoyment was termnated (by
reason of quttng or beng |ustfaby dscharged) pror to hs sched-
ued vacaton perod dd not receve a vacaton wth pay, nor dd he
receve payment n eu of a vacaton. It was hed that the em-
poyer s abty for vacaton pay accrued as of the end of the ta abe
year wth respect to whch the empoyees quafed for a vacaton
wth pay durng the succeedng year by reason of havng rendered
the necessary quafyng servce.
In the case covered by G. C. M. 25261, supra, the Secretary of the
Interor entered nto an agreement on May 29, 19 6, wth the M
Unon coverng, for the perod of Government possesson of certan
coa mnes, the terms and condtons of empoyment n such mnes.
The agreement provded for vacaton payments of 100.00 to a em-
poyees wth a record of one year s standng ( uno 1,19 5 to May 31,
19 6). Pro rata payments for fu months of empoyment were pro-
vded for empoyees begnnng empoyment or termnatng empoy-
ment durng the quafyng perod. The ta payer, whch kept ts
accounts and fed ts edera ncome ta return on a caendar year
bass, was a party to a contract dated Apr 11,19 5, whch contaned
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9 61.
a provson for vacaton pay of 75. It was hed n G. C. M. 23261,
supra, that no part of the vacaton pay provded for by the agree-
ment of May 29,19 6, was accruabe and deductbe as of December
1, 19 5, and that the accrua and deducton of vacaton pay coud
propery be made ony for amounts determnabe at December 31,
19 5, under the contract then n effect
Secton 3 of the Interna Revenue Code of 1939 provdes generay,
wth an e cepton that s mmatera here, that deductons and credts
shoud be taken for the ta abe year n whch pad or accrued or
pad or ncurred, dependent upon the method of accountng used,
uness n order to refect the ncome the deductons or credts shoud
be taken as of a dfferent perod.
In Tennessee Consodated Coa Company v. Commssoner, 15 T. C.
2 , an accrua bass, caendar year ta payer was dened a monthy
accrua of vacaton pay. The ta payer by contract was requred to
pay to a empoyees, wth a record of 12 months of contnuous em-
poyment mmedatey precedng une 1, a stpuated amount of vaca-
ton pay. A smar set of facts e sted n Morrsdae Coa Mnng
Company v. Commssoner, 19 T. C. 20 . In . H. Shedon Com-
pany v. Commssoner, 19 T. C. 1, an accrua bass, caendar year
ta payer was a party to an agreement coverng the perod May 1,19 5,
to Apr 30,19 6, ncusve, under the terms of whch t was obgated
to grant vacatons wth pay to certan of ts empoyees durng the
perod May 1,19 5, to December 1,19 5. acaton pay was, by spe-
cfc provson, to be determned and computed at the start of each
contract year. Any empoyee separated was entted to hs vacaton
pay. The tme of the vacaton was to be mutuay agreed upon be-
tween the empoyee and the department head. The contract, athough
for ony one year, woud contnue n effect for another year uness one
of the two partes served notce not ess than 60 days pror to Apr 30,
19 6, of a desre to termnate or change t. In the Tennessee Conso-
dated and Morrsdae Coa Mnng cases, the Ta Court nterpreted
the provsons of a contract smar to the one nvoved n G. C. M.
25261, supra, and, as stated above, the accrua of vacaton payments
was dened on the ground that there was no f ed and defnte fabty
at the end of the ta abe years nvoved. In the Shedon case, the
accrua was dened, the court hodng that abty for 19 6 vacaton
pay dd not accrue n 19 5 where there was no contract n e stence
coverng t and where the contract for 19 5, f aowed to reman n
effect, woud requre empoyment on May 1,19 6, as a condton prece-
dent for 19 6 vacaton pay. The Unted States Court of Appeas for
the S th Crcut, on uy 27,195 , n affrmng the Ta Court on the
vacaton pay ssue n the Shedon case, used the foowng anguage:
Tbe reasonabe probabty durng the ta abe year that a a-
bty w accrue Is not suffcent f, as a matter of fact It does not
actuay come Into e stence durng the ta abe year. A abty
does not accrue for ta purposes as ong as t remans contngent.
or If the events necessary to create the abty have not occurred.1
In accordance wth the decson n the Tennessee Consodated, Mor-
rsdae Coa Mnng, and Shedon cases, t s hed that no accrua of
vacaton pay can take pace unt the factof abty to a specfc per-
son has been ceary estabshed and the amount of the abty to each
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1033. 10
ndvdua s capabe of computaton wth reasonabe accuracy. It s
further hed that no dstncton shoud be made between vacaton pans
under wrtten contracts and vacaton pans under ora agreements
provdng the vacaton pan or pocy was communcated to the emA
poyee pror to the begnnng of the vacaton year and that under such
pan the empoyees rghts to a vacaton wth pay (or payment n eu
thereof) are vested at the tme that the empoyer seeks to accrue the
deducton.
I. T. 3956, supra, s hereby revoked and G. C. M. 25261, tupra, s
modfed to the e tent that t s nconsstent wth the vews e pressed
heren. However, under the authorty of sectons 3791 (b) of the 1939
Code and 7 05 (b) of the 195 Code, such revocaton and modfcaton
w not be appcabe wth respect to ta abe years to whch the pro-
vsons of the 1939 Code are appcabe. Ths Revenue Rung w be
apped ony to ta abe years endng on or after une 30,1955. See
secton 02 of the 195 Code whch permts ta payers on the accrua
bass to make an eecton to take nto account a reasonabe addton to
reserves for estmated e penses n computng ta abe ncome.
SUBCHAPT R N. TA BAS D ON INCOM ROM SOURC S
WITHIN OR WITHOUT TH UNIT D STAT S
PART I. D T RMINATION O SOURC S OP INCOM
S CTION 61 (a).-INCOM ROM SOURC S WITHIN TH
UNIT D STAT S: GROSS INCOM ROM SOURC S
WITHIN UNIT D STAT S
Dstrbuton of earnngs by New York mutua savngs banks pad
to a nonresdent aen. See Rev. Ru. 5 -623, page 1 .
Dstrbuton of earnngs by a edera savngs and oan assocaton
pad to a nonresdent aen. See Rev. Ru. 5 -62 , page 16.
SUBCHAPT R 0,-GAIN OR LOSS ON DISPOSITION O PROP RTY
. . PART III. COMMON NONTA ABL CHANG S
S CTION 1033. IN OLUNTARY CON RSIONS
(Aso Part II, Secton 112(f) Reguar Rev. RuL 5 -59
tons 11 , Secton 39.112(f)-.)
The provsons of T. D. 1C , C. B. TI-2, 13 (192 ), and T. D.
25 , C. B. IH-1,331 (1929), reatng to the computaton of ncome,
war profts, e cess profts, and estate ta es n cases where property
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11
has been sezed by the Unted States under the Tradng wth tHe
nemy Act (orgnay enacted n 1917), as amended, are equay
appcabe to smar acts of the Aen Property Custodan whch oc-
curred durng Word War II, and whch have occurred or may occur
subsequent thereto. Secton 2 (d) of the Tradng wth the nemy
Act (see T. D. 16 , tvpra), the appcaton of whch has not been
affected by any of the amendments to such Act, enttes persons whose
property has been sezed and then sod or e changed by the Aen
Property Cutodan or hs successor to take advantage of the non-
recognton benefts of secton 1033 of the Interna Revenue Code ot
If 5 or secton 112(f) of the Interna Revenue Code of 193G, whch
reate to nvountary converson of property, provded the repacement
provsons of such sectons are met. Cf. G. C. II. 51 , C. B. II-2,
CO (192 ).
CHAPT R 3. WITHHOLDING O TA ON NONR SID NT
ALI NS AND OR IGN CORPORATIONS AND TA - R
CO NANT BONDS
SUBCHAPT R NONR SID NT ALI NS AND OR IGN
CORPORATIONS
S CTION 1 1. WITHHOLDING O TA ON
NONR SID NT ALI NS
(Aso Secton 1 2.) Rev. Ru. 5 - 75
(Aso Part II, Sectons 1 3,1 Reguatons
11 , Sectons 39.1 3-1, 39.1 -1.)
Schedue of wthhodng ta rates under conventons, to whch
the Unted States a a party, to bo apped by wthhodng agents
wthn the Unted States wth respect to payments of dvdends, In-
terest, royates, and rea estnte rentas made to nonresdent aens
and nonresdent foregn corporatons.
The severa Treasury Decsons cted n the tabuaton set forth be-
ow dea wth wthhodng of ta at the source, n the case of nonres-
dent aens and nonresdent foregn corporatons, ncdent to the
admnstraton of the severa ncome taA conventons to whch the
Unted States s a party. The e emptons from, or reduced rates of,
Unted States ta , varyng as between countres and as to specfc tems
of ncome, requre wthhodng agents to consut, before dsbursement
of such ncome, the provsons of the Treasury Decson appcabe
to the country of the resdent to whch the payment s beng made.
To provde a more convenent source of nformaton to wthhodng
agents wthn the Unted States as an ad n the wthhodng of ncome
ta under sectons 1 1 and 1 2 of the Interna Revenue Code of
195 , the foowng tabe has been prepared. Ths tabe s based on
appcabe ta conventons and Treasury Decsons whch consttute
the authorty for appcaton at the source of the e empton from ta
or the reduced rate of ta n the case of each tem of ncome. The
tabe has been confned to dvdends, nterest, royates, and rea estate
rentas, whch, wth few e ceptons, ncudes practcay a ncome
333510 55 2
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11 1.
12
sub|ect to wthhodng under sectons 1 1 and 1 2 of the Interna
Revenue Code of 195 .
Ratet of Unted State tat to be wthhed at the source n the cate of nonres-
dent aen) and nonresdent foregn corporaton pursuant to e stng ncome
ta conventon
Coon try
DM.
dends
Interest
Roya-
tes e .
tate rent-
as and
natura
resource
royates
Appcabe Treasury
Decsons
A wtrata............
Msum .........
Can da.._.........
nmark_ ........
nand
rance..............
Orerce
Ireand .....M.
Netherands.. ........
New Zeaand
Norway ........
South Atrtra .,.
Sweden .......
Svtrrand .
Unted ngdom....


11


N


111


A

N
N


NB
N
N



e

N
N
13
N
N
N
N
1
N
AN
N
N
N
N
1
A 1 M,p.6M,th nuWIa.
tma, 0. B. 195 -1,5 .
am, C. B. u o-2, 9.
y-n. O. B. 19 9-1. o.
O03O, C. B. 1953-2, 1 3.
5 99, C. B. 1W6-1, 13 .
6109, P.C3S, ths Bueta
am. 0. b. 1912-1, sA.
AO O. O. B.19 0-1. 92.
5957, 0. B. 19. -1, 2M.
MM. 0. B. 1 53-1, 22 .
None Issued.
975. C. B. 19 0-2, 3.
7, C. B. 1931-2, 75.
5532, C. B. 19 0-2. 73.
Defntons:
- empt,
N - Not e empt Ta to be wthhed at the statutory rate prescrbed by sectons 1 1 and 1 2 of the
Interna Revenue Code of 195 .
Rettneas:
Appcabe whether or not engaged In trade or busness In Unted States.
Copyrght royates ony.
Appcabe u no permanent estabshment In Unted States.
Appcabe If no permanent estabshment In Unted States and sub|ect to Unted ngdom (or Irsh
or Austraan) ta .
The rate U 5 percent on dvdends pad by domestc subsdary corporaton sub|ect to prescrbed cond-
tons.
Does not appy to Interest pad by controed corporaton.
Does not appy to Interest pad by controed corporaton nor to Interest on mortgages secured on rea
estate.
Recpent may eect to be sub|ect to ta on a net bass by fng orm 10 0B.
Recpent may eect to be sub|ect to ta on a net bass but ony on rea property by fng orm 10 0B.
1 No e empton e cept moton pcture fm rentas net basts ta eectve (on fng orm 10 0B) on rea
property rentas, natura resource royates, and Industra royates (other than fm rentas).
11 Docs not appy to moton pcture fm rentas.
u See the Income Ta Conventon between the Unted States and the Unon of South Afrca effectve
uy 1,19 0, appearng on page M of ths Buetn.
The e emptons from, or reductons n rate of, Unted States ta set
forth above wth respect to nterest, royates, and rea property rentas
and natura resource royates are apped at the source upon the fng,
by the payee of the ncome, wth the wthhodng agent n the Unted
States, of the approprate certfcate (or etter, as the case may be) as
prescrbed by reguatons (Treasury Decsons cted above).
The reduced rates n the case of dvdends (other than those wth
respect to whch the rate of 5 percent s camed) s appcabe at the
source n every case n whch the address of the stockhoder on the
records of the dsbursng entty payng the dvdend (or on those of the
domestc agent recevng such dvdend on behaf of the nonresdent
aen or nonresdent foregn corporaton) s n the foregn country con-
cerned. The reduced rate of 5 percent s appcabe ony where the
Commssoner determnes, and so notfes the payng corporaton, that
such reduced rate appes.
Reease or refund of e cess ta wthhed, and e empton from, or
reducton n rate of, wthhodng n the case of resdents of Austraa,
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13 1501.
as affected by the ncome ta conventon between the Unted States and
Austraa, See T. D. 610 , page 61 .
Reease or refund of e cess ta wthhed and e empton from wth-
hodng of ta at source n the case of resdents of Greece, as affected
by the ncome ta conventon and protoco between the Unted States
and Greece. See T. D. 6109, page 63 .
S CTION 1 2. WITHHOLDING O TA ON
OR IGN CORPORATIONS
Reease or refund of e cess ta wthhed, and e empton from, wth-
hodng n the case of Austraan corporatons, as affected by the n-
come ta conventon between the Unted States and Austraa. See
T. D. 610 , page 61 .
Reease or refund of e cess ta wthhed and e empton from wth-
hodng of ta at source n the case of Greek corporatons, as affected
by the ncome ta conventon and protoco between the Unted States
and Greece. See T. D. 6109, page 03 .
Schedue of rates at whch ta s wthhed. See Rev. Ru. 5 - 75,
page 11.
CHAPT R 6. CONSOLIDAT D R TURNS
SUBCHAPT R AR TURNS AND PAYM NT O TA
S CTION 1501. PRI IL G TO IL
CONSOLIDAT D R TURNS
Rev. Ru. 5 -365
ecton wth respect to consodated returns
Inqures have been receved as to whether the enactment of the
Interna Revenue Code of 195 , Pubc Law 591, ghty-thrd Con-
gress, approved August 16,195 , w permt affated corporatons a
new eecton to fe separate returns n eu of consodated returns and
as to the year for whch such new eectons w be avaabe.
The scope of the new Code and the nature of ts provsons are
deemed to be such that n the nterests of sound ta admnstraton
the poston of the Treasury Department n regard to these matters
shoud be made known to the pubc as soon as possbe.
The Secretary of the Treasury has authorzed a new eecton to
fe separate returns for the frst ta abe year for whch returns are
due to be fed after the date of enactment of the new Code, and for the
frst ta abe year endng after the date of such enactment In ths
regard returns due to be fed after the date of enactment of the new
Code (ncudng any e tensons of tme granted by the Commssoner)
w be consdered as fed and the eecton e ercsed on such due date
regardess of the actua prevous date of fng.
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121051 1
Revsed orgna returns may be fed on or before the ast day
prescrbed by aw for fng a return, ncudng the ast day of the
perod of any e tenson of tme. The ast return (orgna or
revsed) fed before the e praton of such e tenson w be consdered
the return fed on such date.
The foregong does not affect any eecton avaabe under Revenue
Bung 152, C. B. 1953-2,1 .
SUBTITL B. STAT AND GI T TA S
CHAPT R 1L STAT TA
SUBCHAPT R R STAT S O NONR SID NTS NOT CITIZ NS
S CTION 2105. PROP RTY WITHOUT TH UNIT D
STAT S
(Aso Secton 01 (a).) Rev. Ru. 5 -623
(Aso Part II, Sectons 119, 63 Regu-
atons 11 , Secton 39.119(a)-
Reguatons 105, Secton 1.50.)
Mutua savngs banks organzed under tuo bankng aw of New
York State are persona carryng on the bankng busness wthn the
meanng of secton 2105(b) and secton (u) (1) (A) of the In-
terna Revenue Code of 105 . unds on depost n such banks owned
by a nonresdent decedent not a ctzen of the Unted States who was
not engaged In busness In the Unted States at the tme of bs death
are e empt from edera estate ta . Interest on such deposts pad
to persons not engaged In busness wthn the Unted States does not
consttute Income from sources wthn the Unted States.
These rues appy equay to mutua savngs banks organzed under
the aws of other States uness under the aws of that State the
depostor s In fact hed to be a share member of such organzaton
to the end that hs Interest theren Is propretary In nature.
Advce has been equested whether mutua savngs banks organzed
under the bankng aw of New York State are persons carryng on
the bankng busness wthn the meanng of secton 2105(b) of the
Interna Revenue Code of 195 (secton 63(b) of the 1939 Code) so
that moneys deposted wth such banks by or for a nonresdent decedent
who was not engaged n busness wthn the Unted States at the tme
of hs death are e empt from edera estate ta , and whether nterest
pad on deposts n such banks to persons not engaged n busness
wthn the Unted States s e cepted from ncome from sources wthn
the Unted States wthn the provsons of secton 61(a) (1) (A) of
the 195 Code (secton 119(a) (1) (A) of the 1939 Code).
Mutua savngs banks n New York may be organzed under the
New York bankng aw wth the approva of the Superntendent
of Banks. The ncorporators of a savngs bank are usuay desg-
nated the trustees of the bank. Secton 2 6 of the New York State
bankng aw provdes that the board of trustees sha have the entre
management and contro of the affars of savngs banks and that a
vacances n such membershp sha be fed by eecton by the reman-
ng trustees. In such an nsttuton there s no capta stock and there
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15 2105.
are no stockhoders. unds of depostors are paced n savngs ac-
counts and are nvested n securtes prescrbed by State aw. The
earnngs, ess e penses of conductng the busness and amounts re-
qured to be credted to surpus, nure to the beneft of the depostors
n dvdends. It s provded under secton 2 3 of the New York
State bankng aw that the surpus fund sha not be avaabe for
the payment of dvdends to depostors.
Mutua savngs banks are egbe for membershp n the edera
Reserve System and for nsurance coverage by the edera Depost
Insurance Corporaton. Wthdrawas of funds deposted are per-
mtted upon appcaton of the owner of the account.
Secton 2105(b) of the Interna Revenue Code of 195 provdes n
part as foows:
S C. 2105. rUCT RTY. WITHOUT TH UNIT D STAT S.
(b) Bank Deposts. or purposes of ths subchapter, any moneys
deposted wth any person carryng on the bankng busness, by or for
a nonresdent not a ctzen of the Unted States who was not engaged
In busness n the Unted States at the tme of hs death sha not
be deemed proerty wthn the Unted States.
Secton C1 of the Interna evenue Code of 195 provdes n part
as foows:
S C. 01. INCOM ROM SOURC S WITHIN TH UNIT D
STAT S,
(a) koss Income moA Sources Wthn the Unted States. The
foowng tems of gross Income sha be treated as ncome from sources
wthn the Unted States:
(1) Interest. not ncudng
(A) Interest on deposts wth persons carryng on the bank-
ng busness pad to persons not engaged In busness wthn the
Unted States .
In I. T. 1 G1, C. B. 1-2,1 (1922), t was hed that amounts pad to
depostors n a New York mutua savngs bank on ther deposts were
nterest rather than dvdends for whch no dvdends-credt was
aowabe under the provsons of secton 216 of the Revenue Act of
1921. It was stated n ths rung that the depostors n ths bank
are n no way sharehoders or members of the corporaton. Ceary
the ony members of the corporaton are the trustees. Athough a
reaton of trust and confdence e sts between the bank and each of
ts depostors, the prmary reatonshp between the bank and each of
ts depostors s that of debtor and credtor. Peope v. Barker, 0
N. Y. Supp., 1001. Decsons of the courts of one of two States go
so far as to hod that the reatonshp of a depostor to hs savngs
bank s anaogous to that of a stockhoder of a Dank of dscount, but
even these few decsons do not go so far as to hod that depostors
are stockhoders or members of a hankng corporaton.
Tho reaton e stng between a mutua savngs bank and ts de-
postor s that of debtor and credtor. In re Gross, 62 N. Y. S. 2d
392 and Myers v. Abany Savngs Bank, 19 0, 60 N. Y. S. 2d 77.
Under the New York State bankng aw a depostor n a savngs
bank has no voce n the management of the bank, such powers beng
vested soey n a board of trustees over whch the depostor has no
contro.
. A mutua savngs.bank s descrbed n 7 Corpus urs, 51, as:
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12105. 16
an Insttuton ony partay embodyng the features of a bank In
the fa sense of the term, the purpose of whch s to promote the prosperty
of persons of sma means and mted opportuntes of Investng them by re-
cevng ther savngs In even trva sums, and endng them n arger amounts,
whereby nterest may be ganed, to be dvded among the depostors. In to
strct sense of the term, a savngs bank s an Insttuton, the ob|ect of whch s,
to quote the anguage of some of the eary charters, to receve and safey Invest
the savngs of mechancs, aborers, servants, mnors and others, thus affordng
to such persons the advantages of securty and Interest for ther money, and n
ths way ameoratng the condton of the poor and aborng casses by en-
genderng habts of Industry and frugaty. The deposts consttute the ony
resources of the Insttuton no capta, as In the case of banks of depost and
dscount, stands between the depostor and oss . (I. T. 3070, C. 15.
1937-1, 110.)
In vew of the foregong, t s hed that mutua savngs banks or-
ganzed under the bankng aw of New York State are persons carry-
ng on the bankng busness wthn the meanng of secton 2105(b)
and secton 61(a)(1)(A) of the Interna Revenue Code of 195 .
unds on depost n such banks owned by a nonresdent decedent not
a ctzen of the Unted States who was not engaged n busness n the
Unted States at the tme of hs death are e empt from edera estate
ta . Interest on such deposts pad to persons not engaged n bus-
ness wthn the Unted States does not consttute ncome from sources
wthn the Unted States.
These rues appy equay to mutua savngs banks organzed under
the aws of other States uness under the aws of that State the depos-
tor s n fact hed to be a share member of such organzaton to the end
that hs nterest theren s propretary n nature. Cf. Rev. Ru.
5 -62 , beow, reatve to edera savngs and oan assocatons and
State-chartered savngs and oan assocatons and budng and oan
assocatons.
(Aso Secton 61 (a).) Rev. Ru. 5 -62
(Aso Part II, Sectons 119, 63 Regu-
atons 11 , Secton 39.119(a)-
Reguatons 105, Secton . 1.50.)
edera savngs and oan assocatons are not persons carryng on
the bankng busness wthn the meanng of secton 2105(b) and sec-
ton 61 (a) (1) (A) of the Interna Revenue Code of 195 . Dstrbu-
tons of earnngs by such assocatons to nonresdent aen members
not engaged n busness In the Unted States consttute dvdends
pad to such members and do not come wthn the e cepton con-
taned In secton 61(a) (1) (A) of the Code.
These rues appy equay to State-chartered savngs and oan
assocatons and budng and oan assocatons uness t can be
shown that such assocatons are not In fact smar n a matera
respects to the organzatona make-up of edera savngs and oan
assocatons.
Advce hns been requested whether edera savngs and oan asso-
catons and State-chartered savngs and oan assocatons and budng
and oan assocatons are persons carryng on the bankng busness
wthn the meanng of secton 2105(b) of the Interna Revenue Code
of 195 (sec 63(b) of the Interna Revenue Code of 1939), and
whether dstrbutons of earnngs by such assocatons to nonresdent
aen ndvduas not engaged n busness n the Unted States come
wthn the e cepton contaned n secton 61(a) (1) (A) of the 195
Code (sec. 119(a) (1) (A) of the 1939 Code).
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17 5 2103.
The prmary functon of edera savngs and oan assocatons s
to provde oca mutua thrft nsttutons n whch peope may nvest
ther funds and to provde a means for fnancng the purchase of
homes. They are chartered by the edera Home Loan Bank Board
under authorty of secton 5(a) of tho Home Owners Loan Act of
1033, Stat 123. unds deposted n a edera savngs and oan
assocaton are paced n savngs accounts, and earnngs, ess e penses
of operaton and surpus, are perodcay pad to, or credted to, the
hoders of such savngs accounts. A accounts are nsured by the
edera Savngs and Loan Insurance Corporaton up to an amount
not n e cess of 10,000. The ownershp of a savngs account may be
evdenced by ether an account book or a certfcate. Wthdrawas of
a or any part of the funds deposted are permtted upon appcaton
of the owner of the account. A hoders of an assocaton s savngs
accounts and a borrowers therefrom are members. The organza-
tona make-up of State savngs and oan assocatons and budng and
oan assocatons s smar n most respects to that of edera savngs
and oan assocatons.
Secton 2105 of the Interna Revenue Code of 195 provdes n part
as foows:
S C. 2105. PROP RTY. WITHOUT TH UNIT D STAT S.
A
(b) Bank Deposts. or purposes of tbs subchapter, any moneys
deposted wth any person carryng on the bankng busness, by or for a
nonresdent not a ctzen of the Unted States who was not engaged n
busness In the Unted States at the tme of bs death sha not be deemed
property wthn the Unted States.
Secton C1 of the Interna Revenue Code of 105 provdes n part
as foows:
S C. SCI. INCOM ROM SOURC S WITHIN TH UNIT D
STAT S,
(a) Gboss Income rom Sources Wthn Unted States. The fo-
owng tems of gross Income sha be treated as ncome from sources
wthn the Unted States:
(1) Interest. not Incudng
(A) Interest on deposts wth persons carryng on the bank-
ng busness pad to persons not engaged n busness wthn the
Unted States .
The word depost, as used n secton 2105(b) of the Code, refers
to the generay accepted use of that term n bankng practce. See
state of Annna abbrcott ara orn v. Commssoner, 7 B. T. A.
76. A genera depost s the payment of money nto the bank to be
repad on demand. The reaton between the bank and the genera
depostor s that of debtor and credtor. A speca depost s a devery
of property, securtes, or even money to the bank for the purpose of
havng the same safey kept and the dentca thng deposted re-
turned to the depostor, or one for some specfc purpose. There s no
debtor and credtor reaton between the bank n whch a speca
depost s made and ts speca depostor, ther status or reaton heng
that of agent and prncpa, baee and baor, or trustee and cestu
que trust, or a combnaton of such reatonshps. See G. C. I.
22 10, C. B. 19 0-2, 2SS.
A depostor n a bank has no voce n the management of the bank
and he does not share n the dstrbuton of the assets n the event of
qudaton, dssouton or wndng up of the busness. However,
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3201. 1
each member of a edera savngs and oan assocaton has, through
partcpaton n the eecton of a board of drectors, a voce n the
management of the assocaton. In addton to the rght to share n
the profts, a hoders of savngs accounts are entted to equa ds-
trbuton of assets, pro rata to the vaue of ther savngs accounts, n
the event of vountary or nvountary dssouton or wndng up of
the assocaton. The rghts possessed by the sharehoders of the asso-
caton are n the nature of propretary nterests whch are not at a
smar to the rghts of a genera or speca depostor n a bank.
In vew of the foregong, t s hed that a edera savngs and oan
assocaton s not a person carryng on the bankng busness wthn
the meanng of secton 2105(b) of the Interna Revenue Code of
195 . Accordngy, a savngs account n such assocaton owned by a
nonresdent not a ctzen of the Unted States who was not engaged n
busness n the Unted States at the tme of hs death, s not e empt
from edera estate ta as property wthout the Unted States.
Whether amounts dstrbuted by edera savngs and oan assoca-
tons come wthn the e cepton provded by secton 61(a) (1) (A)
of the Code depends upon whether such dstrbutons consttute n-
terest on deposts wth persons carryng on the bankng busness pad
to persons not engaged n busness wthn the Unted States.
In I. T. 0 5, C. B. 1951-1,3 , t s hed that dstrbutons of earn-
ngs by edera savngs and oan assocatons consttute dvdend n-
come to the members of the assocatons.
Accordngy, t s hed that dstrbuton of earnngs by a edera
savngs and oan assocaton pad to a nonresdent aen not engaged n
busness n the Unted States do not come wthn the e cepton con-
taned n secton 61 (a) (1) (A) of the Interna Revenue Code of 195 .
Such dstrbutons consttute dvdend ncome to the members of the
assocaton.
The foregong rues aso appy to State-chartered savngs and oan
assocatons and budng and oan assocatons, uness t can be shown
that such assocatons are not n fact smar n a matera respects
to the organzaton .d makeup of edera savngs and oan assocatons.
CHAPT R 22. RAILROAD R TIR M NT TA ACT
SUBCHAPT R A-TA ON MPLOY S
Due to the number of prntng errors appearng n the orgna tabe
pubshed n Buetn No. 7, dated November 22, 195 , the entre
evenue Rung s reproduced beow.
S CTION 3201. RAILROAD R TIR M NT TA ACT
RAT O TA
Rev. Ru. 6 -5 5
mpoyee ta tabe under the Raroad Retrement Ta Act, as
amended, wth respect to compensaton pad on and after uy 1,
105 , whch may be used by empoyers sub|ect to such Act.
The foowng tabe shows the amount of empoyee ta , n one-cent
steps, appcabe at the s and one-quarter percent rate under the
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19
I 3201.
aroad Retrement Ta Act subchapter B, chapter 9, Interna
Revenue Code of 1939, as amended by Pubc Law 7 6, 3d Cong., 6
Stat. 103 , approved August 31, 195 chapter 22, Interna Revenue
Code of 195 wth respect to compensaton pad on and after uy
1,195 .
The tabe has been constructed for the convenence of empoyers
sub|ect to the Raroad Retrement Ta Act, as amended, and may be
used n determnng the proper amount of empoyee ta to be deducted
from the compensaton of each empoyee.
The Raroad Retrement Ta Act, as amended, e cudes from the
empoyee ta the amount of compensaton n e cess of 350 whch s
pad for servces rendered durng any one caendar month. Accord-
ngy, the empoyee ta shoud be deducted ony from the frst 350 of
compensaton pad to the empoyee by the empoyer fur servces ren-
dered durng the caendar month.
Tabe shottng empoyee ta 6 percent under Itaroad Retrement Ta Act
to be wthhed from compensaton pad on and after uy I, 195)
Compensaton
Tat tone
wtbbed-
Compensaton
Ta tobe
wthhed
Compensaton
Ta tob
wth-
hed
At east-
But Ir S
than
At kast-
But ess
than
At eart
Bat ess
than
M
tO. 0
0
( . 0
.S6
to.u
16
17.0
11.0
.0
.2
.01
.56
.72
.5
17.0
17.20
1.07
.21
. 0
.02
.72
.
.65
17.20
17.36
1.0
. 0
.66
.03
.
9.0
.66
17,36
17.52
1.09
.66
.72
.0
9.0
9.20
.67
17.32
17.6
1.10
.72
.
.05
9.20
9.36
.6
17.6
17.
1.11
.
1.0
.06
9.36
9.52
.39
17.
1 .00
1.12
1.0
1.20
.07
9.62
9.6
. .60
1 .00
1 .16
1.13
1.20
1.36
.0
9.6
9.
.61
1 .16
1 .32
11
1.36
1.52
.09
9.
10.00
.62
1 .32
1 .
1.13
1.S2
1.6
.10
10.00
10.16
.63
1 .
1 .6
1.1
Las
1.
.11
10.16
10.32
.6
1 .6
1 . 0
1.17
1.
2.00
.12
10.32
10.
.65
1 . 0
1 .96
LIS
2.00
2.16
.13
10.
W.
.06
1 .96
19.12
1.19
I
2.32
.1
10.6
10. 0
.67
19.12
19.2
1.20
2.32
2.
.15
10. 0
10.96
.6
19.2S
19.
1.21
2.
2.6
.16
10.96
11.12
.09
19.
19. to
1.23
Z6
2. SO
.17
11.12
11.2
.70
19.60
19.76
1.23
2.60
2.90
.1
11.2
11.
.71
19.76
19.92
1.2
2.90
3.12
.19
11.
11.60
.72
19.92
20. OS
1.23
3.12
3.2
.20
11.60
11.76
.73
20.0
2a 2
1.2
3.2
3.
.21
11.70
11.92
.7
20.2
20. 0
1.27
3.
3. GO
.22
11.92
12.0
.75
20. 0
20.56
1.2S
. GO
3.76
.23
12.0
12.2
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20.56
2tt 72
L29
3.70
3.92
.2
12.2
12. 0
. t
20.72
20.
1.30
n
.0
.25
12. 0
12.56
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20.
21.0
1.31
.0
.2
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12.56
12.72
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21.0
21.20
1.32
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. 0
.27
12.72
12.
. 0
21.20
21.36
1.33
. 0
.56
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12.
13.0
. 1
21.36
21.52
1.3
IN
.72
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13.0
13.20
. 2
21.52
21.6
1.33
.72
.
.30
13.20
13.36
. 3
21.6
21.
1.36
n
6.0
.31
13.36
13.32
.
21.
22.00
1.37
6.0
620
.32
13.52
13.6
. 5
22.00
22.16
1.3
e.20
6.36
.33
13.6
13.
. 6
22.16
22.32
1.39
3.36
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.3
13.
1 .00
. 7
22.32
22.
1. 0
6.52
6.6S
.35
1 .00
1 .16
.
22.
22.6
1. 1
6.6
6.
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1 .16
1 .32
. 9
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6.00
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1 .
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1. 3
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6.16
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1 .6
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23.12
1.
6.16
6.32
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1 .6
1 . 0
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23.2
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23.2
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6.
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23.
23. 60
1, 7
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. 3
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23.76
23.92
1. 9
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2 .0
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7.2
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15.92
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1.53
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2 .
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.0
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2 .
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.0
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16.
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25.39
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3201.
20
Tte hoctng empoyee taw 9 percent under Raroad Retrement Ta Set
to be wthhed from compenaton pad on and after uy 1,195 Contnued
Compensaton
Compensaton
Compensaton
1
Tutobe
Ta to be
Te to be
Ateast-
But ea
than
wthbed-
Ateast-
Bu ea
than
wthhed
Atea.t-
Bat eu
than
wth-
btd-
125.36
125. 2
11.69
137.62
137.
51S
1 9.6
1 9.
13.11
25.62
23.3
1.00
37.6
37.
1 6
9.
6O.00
113
25. b
29. M
L61
37.
3 .00
137
60.00
6a 16
113
2 .
26. I
1.62
.00
3 .16
13
6a 16
0.32
11
26.00
26.16
1.63
3 .16
3 .32
139
6a 32
50.
11
26.16
26.32
1.6
3 .32
3 .
1 0
60.
60.6
11
26.32
2 .
1.65
3 .
3 .6
1 1
50.6
50. 0
117
26.
26.6
1.66
3 .6
3 . 0
1 2
50. 0
60.96
IIS
26.6
26.90
1.67
3 . 0
3 .96
1 3
50.96
61.12
119
26. 0
26.96
1.6
3 .96
39.13
1
61.12
61.2
I
26. 6
27.12
1.69
9.12
39.2
1 5
61.2
1.
121
27.12
27.2
1.70
39.2
39.
1 6
61.
61.60
123
27.2
27.
1.71
39.
9.60
1 7
61.60
1.76
123
27.
27.60
1.72
39.60
39.76
1
61.76
51.92
12
27.60
27.76
1.73
39.76
39.93
1 9
61.92
620
125
27.76
27.92
1.7
39.93
tt 0
150
2.0
512
I
22.92
2 .0
1.75
0.0
0.2
161
62.2
62 0
127
2 ,0
2 .2
1.76
0.2
0. 0
162
62 0
62 6
I
2 .2
2 . 0
1.77
a 0
0.56
163
62 66
62 72
I
2 . 0
2 .56
1.7
0.66
0.72
15
62 72
62
130
2 .56
2 .72
1.79
0.72
0.
156
62
63.0
131
2 .72
2 .
1. 0
0.
1.0
166
63.0
63.
132
2 .
29.0
1. 1
1.0
1.20
167
63.20
63.3
133
29.0
29.20
. 1. 2
1.20
1.36
16
63.36
63.52
13
29.20
29.3
1. 3
1.36
1. 2
159
63.52
63.6
136
29.36
29.52
1.
1.52
1.6
160
63.6
63.
136
29.52
29.6
1. 5
1.6
1.
161
63.
6100
137
29.6
29.
1. 6
1.
2.00
162
6 .00
6 .16
13
29.
30.00
1. 7
2.00
216
263
6 .16
6 .32
1S9
3ft 00
Sa 16
1.R
2.16
2.32
26
6 .32
6 .
1 0
30.16
3a 32
1. 9
Z32
2
265
6 .
6 .6
1 1
30.32
30.
1.90
2.
2.6
166
6 .6
6 . 0
1 2
sa
30.6
1.91
2.6
2 0
167
6 . 0
6 .96
1 3
30.6
saw
1.92
2. 0
2 96
10
6 .96
66.12
1
30.60
3a 96
1.93
2.96
3.12
269
65.12
65.2
1 5
sa 9
1.12
1.9
3.12
3.2
170
65.2
65.
1
31.12
11.2
1.95
3.2
3.
171
65.
65.60
1 7
31.2
31.
1.96
3.
3.60
272
55.60
65.76
1
31.
31.60
1.97
3. 0
3.76
273
66.76
66.92
1 9
31.60
31.76
1.9
3.7
3.92
2 7
65.93
66.0
150
31.76
31.92
1.99
3.92
.0
175
66.0
66.2
151
31.92
32.0
2.00
.0
.2
276
66.2
66. 0
162
310
32.2
2.01
.2
. 0
n
66. 0
66.56
153
32.2
32. 0
2.D2
. 0
.56
17
66. 66
66.72
16
32. 0
32.66
2.03
.56
.72
179
66.72
66.
156
32.56
3Z72
2.0
.72
.
1 0
66.
67.0
3.66
32.72
32.
2.03
.
5.0
1 1
67.0
67.
157
3Z
33.0
2.06
5.0
5.20
2 2
67.20
57.36
15
33.0
33.20
2.07
5.20
5.3
2 3
67.36
67.62
159
33.20
33.36
2.0
5.3
5.52
2
67.62
67.6
160
33.36
33.52
2.09
5.52
5.6
1 5
7.6
7.
161
33.52
33.6
2.10
5.6
5.
2 6
67.
6 .00
162
33.6
33.
111
5.
6.00
2. 7
6 .00
6 .16
163
33.
3 .00
2.12
6.00
6.16
1
6 .16
6 .32
16
3 .00
3 .16
113
6.16
6.32
1 9
6 .32
5 .
166
.16
3 .32
2.1
6.32
6.
190
6 .
6 .6
166
3 .32
3 .
2 15
6.
6.6
291
6 .6
6 . 0
167
3 .
3 .6
2.16
6.6
6. 0
292
6 . 0
5 .96
16
3 .6
3 . 0
2 17
6. 0
6.96
193
6 .96
69.12
169
3 . 0
3 .96
2. IS
6.96
7.12
29
69.12
69.2
170
3 .96
35.12
2.19
7.12
7.2
195
69.2
69.
171
35.12
35.2
2.20
7.2
7.
196
69.
69.60
173
35.2
35.
2.21
7.
7.60
197
69.60
69.76
173
35.
35.60
2.22
7.60
7.76
196
69.76
69.92
17
35.60
35.76
123
7.76
7.92
199
59.92
6a 0
17
35.76
35.92
2.2
7.92
- .0
3.00
CO. 0
6a2
176
35.92
36.0
2.15
.0
.2
3.01
60.2
m 0
177
36.0
36.2
2.26
.2
. 0
102
6O. 0
60.66
17
36.2
36. 0
2.27
. 0
.56
103
60.56
60.72
179
36. 0
36.56
2.2
.56
.72
10
6a 73
60
1 0
36.56
36.72
2.29
.72
.
106
6a
61.0
1 1
36.72
36.
2.30
.
9.0
106
61.0
61.
1 1
36.
17.0
131
9.0
9.
. 107
61.
61.36
1 3
37.0
37.20
133
9.20
9.36
10
61.36
61.53
1
37.20
37.36
133
9.36
9.62
109
61.52
61.6
1 5
37.36
. 37.52
1M
9.52
, . 9.6
110
61.6
61.
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21
A 3201
Tabe thmrny empoye taB y, percent under Raroad Retrement TaA A
to oe wthhed from compensaton pad on and after uy 1,193 Contnued
Compensaton
Tutob
Compensaton
Ta to be
Compensaton
Tutob
AtM5t-
Bu eu
wthhcM
Ateut-
But ea
wthbe d-
At east-
But ot
wtb-
btd-
thon
than
Uan-
I.M
fAOO
13. 7
17 .00
n. .
.63
IS . 16
S . 32
W.3I
(2.00
G2.16
1
7 .16
7 .32
.6
.32
.
5. 1
tt.10
62,32
a. 9
7 .32
7 .
.65
.
6.6
5. 1
(12.32
62.
.90
7 .
7 .6
.66
6.6
6. 0
. :
61
62.6
3.9
7 .6
7 . 0
.67
M.M
6.96
5.
62.6
62. 0
a. 92
7 . 0
7 .9
.6
6.96
7.12
. 1
62, 0
62. A 6
a. 93
7 .9
75.12
.09
7.12
7.2
S.
62. DO
63.12
9.9
75.12
75.2
.70
7.2
7.
. 1
63.12
63.2
a. 95
75.2
75.
.71
7.
7.60
1C
63. 2S
63.
a. 90
75.
75.60
.72
7.60
S7.76
. 1
63.
63. GO
a. 97
75.60
75.76
.73
7.76
7.92
. 1
63.60
63.76
3.9
75.7
75.92
.7
7.92
. OS
.51
63.76
63.92
3.99
75.92
76.0
.75
.0
.2
5.5
63. 2
6 .0
.00
76.0
76.2
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.2
. 0
.
6 .0
6 .2
.01
76.2
7 . 0
.77
. 0
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6 .2
6 . 0
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7 . 0
76.5
.7
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,
6 . 0
6 .5
.03
7 .56
7 .72
. .79
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. S
5.5.
6 .66
6 .7
.0
76.72
76. S
. 0
SS.SS
W. 0
6..
6 .72
6 .
.05
7 .
77.0
. 1
M.0
9.20
5.5
6 .
65.0
.00
77.0
77.20
. 2
9.3)
9.36
5.51
65.0
65.20
.07
77.20
77.3
- . 3
9 36
9.52
1.9
65.20
. 65.3(1
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77.36
77.52
.
H 99
9.6
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65.3(1
66.52
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77.52
77.6
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9.
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77.
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.6:
65.6
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. 7
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gate
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65.
66.00
.12
7 .00
7 .16
-
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90.32
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6 .00
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7 .16
7 .32
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66.32
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7 .
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I 3201.
Ta e thowng empoyee fa 6 percent under Rnttroa Retrement Tar Act
to A wthhed from compensaton pad on and after uy 1, 19H Contnued
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29 f 3 03.
CHAPT R 2 COLL CTION O INCOM TA AT
SOURC ON WAG S
S CTION 3 02. INCOM TA COLL CT D AT SOURC
Rev. Ru. 5 - O
Wthhodng of Income ta at the source for the caendar year
105 on payments sub|ect to secton 105(d) of the Interna Revenue
Code of 105 .
Advce has been requested whether wthhodng of ncome ta by
empoyers s requred wth respect to amounts pad empoyees n 195
that are e cudabe from the empoyee s gross ncome under secton
105(d) of the Interna ovcnuo Code of 195 . Secton 105 provdes
for the e cuson from gross ncome of certan amounts whch are
receved by an empoyee under an accdent and heath pan for persona
n|ures or sckness and whch are attrbutabe to contrbutons by the
empoyer whch were not ncudbe n the gross ncome of the em-
poyee, or whch are pad by the empoyer. Subsecton (d) of secton
105 reates to wage contnuaton pans and provdes n certan cases
for the e cuson from gross ncome of amounts whch consttute wages
or payments n eu of wages for a perod durng whch the empoyee
s absent from work on account of persona n|ures or sckness.
The Interna Revenue Servce |s pubshng a notce of proposed
ruemakng, pursuant to the Admnstratve Procedure Act, whch sets
forth amendments proposed to be prescrbed by the Commssoner of
Interna Revenue to Treasury Department Reguatons 120, reatng
to the rues for wthhodng ta on payments to empoyees. Under
the notce of proposed ruemakng, 30 days are provded for the sub-
msson to the Commssoner of Interna Revenue of any data, vews,
or arguments pertanng to the rues contaned n the proposed
amendments to the reguatons. After the consderaton of such
data, vews, or arguments as may be receved, the Commssoner w
prescrbe reguatons wth the approva of the Secretary.
In the meantme, however, by reason of the mportance of the matter
to ta payers generay, the rues provded n the proposed reguatons
ssued under the notce of ruemakng may be foowed by empoyers.
The rues so provded are, of course, sub|ect to modfcaton based
upon the further consderaton whch w be gven to the sub|ect as a
resut of any data, vews, or arguments receved durng the perod of
30 days foowng the pubcaton of the proposed reguatons. The
rues contaned n the proposed reguatons ssued under the notce of
ruemakng w be superseded by the rues contaned n the reguatons
prescrbed by_ the Commssoner wth the approva of the Secretary.
Such reguatons, however, w not be retroactve n ther appcaton
and empoyers who, n accordance wth the proposed reguatons, do
not wthhod ta for the perod pror to the appcaton of the regua-
tons prescrbed wth the approva of the Secretary w not be hed
abe oy the Interna Revenue Servce for faure to wthhod shoud
a dfferent rue be prescrbed by the fna reguatons.
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3 02.) 30
The rues contaned n the notce of ruemakng, whch may be gven
effect unt superseded, are as foows:
Wthhodng s not requred upon amounts whch are e cudabe
from the gross ncome of the empoyee by reason of secton 105 (d)
of the Interna Revenue Code of 195 , f the records mantaned
by the empoyer n accordance wth the provsons of secton
06.607(a) of Reguatons 120 (26 C R, pt 06)
(1) separatey show the amounts of such payments and
dstngush such amounts from a other payments, and
(2) estabsh the facts necessary to show that the empoyee
s entted to the e cuson provded by secton 105 (d), ether
by means of a wrtten statement from the empoyee as to the
n|ury, ness, or hosptazaton, or by any other nforma-
ton whch the empoyer beeves to be accurate and whch
he s wng to accept for purposes of payments under the
wage contnuaton pan.
or the purpose of secton 06.501 of Reguatons 120, reatng
to the requrement of recepts for empoyees, amounts e cudabe
from gross ncome under the provsons of secton 105(d) sha
be ncuded n the tota wages requred to be 6hown on orm
W-2, Wthhodng Statement. The amount of any such wages on
whch the empoyer, n reance on secton 105(d), docs not wth-
hod must be propery dentfed. The amount so dentfed sha
be shown n the ower rght-hand bo on orm W-2 n such man-
ner that t may be read on each cony of the form.
If, under an accdent or heath nsurance pan, payments for
a perod of absence from work on account of n|ury or sckness
are made to an empoyee by a person who s not the empoyer for
whom servces are performed but who s regarded as an empoyer
under the provsons of secton 06.205(c), and such payments
are attrbutabe to contrbutons by the empoyer whch were not
ncudbe n the gross ncome of the empoyee, the rues provded
n the precedng paragraphs sha appy. However, orm W-2
sha not be requred under the precedng paragraph n any such
case n whch, by reason of secton 105(d), no amount was wth-
hed on any of the payments. or e ampe, f under the n-
surance pan the weeky rate of payment does not e ceed 100
and no payment s made for absence on account of ness, uness
there s 1 day hosptazaton, so that a of the payments under
the nsurance pan are e cudabe under secton 105(d), no wth-
hodng need be made and no orm W-2 need be fed.
No ad|ustment s requred wth respect to ncome ta wthhed on
amounts pad to empoyees durng the caendar year 195 whch are
e cudabe from gross ncome under the provsons of secton 105(d).
However, f the empoyer has adequate records and desres to make
such ad|ustments, he may do so.
Rev. Ru. 5 -593
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31 (5 3 02.
An empoyer Is not requred In 195 to wthhod Income ta upon
the vaue of meas and odgng If such vaue Is ceary e cudabe
from the gross Income of the empoyee under secton 119 of the In-
terna Revenue Code of 195 .
Advce has been requested whether wthhodng of ncome ta by
empoyers s requred n 195 wth respect to the vaue of meas or
odgng furnshed an empoyee by hs empoyer f the vaue of such
meas or odgng s e cudabe from the gross ncome of the empoyee
under secton 119 of the Interna Revenue Code of 195 . Secton
119 provdes as foows:
There sha be e cuded from gross Income of an empoyee the vaue of any
meas or odgng furnshed to hm by hs empoyer for the convenence of
the empoyer, but ony If
(1) n the case of meas, the meas are furnshed on the busness
premses of the empoyer, or
(2) n the case of odgng, the empoyee Is requred to accept such
odgng on the busness premses of hs empoyer as a condton of hs
empoyment.
In determnng whether meas or odgng are furnshed for the convenence
of the empoyer, the provsons of an empoyment contract or of a State
statute f ng terms of empoyment sha not be determnatve of whether
the meas or odgng are ntended as compensaton.
Under secton 06.207(a) (5) of Reguatons 120 an empoyer s not
requred to wthhod ncome ta wth respect to the vaue of meas or
odgng furnshed by hm to hs empoyee f such vaue s e cudabe
from the gross ncome of the empoyee under the convenence of tho
empoyer rue.
Secton 119 of the 195 Code, whch s effectve as of anuary 1,
195 , contans provsons wth respect to the e cuson from the gross
ncome of an empoyee of the vaue of meas or odgng furnshed to
the empoyee by, and for the convenence of, hs empoyer. or the
purposes of secton 06.207(a) (5) of Reguatons 120, the provsons
of secton 119 may be foowed n determnng whether the vaue of
meas or odgng furnshed an empoyee n 195 by hs empover s
e cudabe from the gross ncome of the empoyee. Accordngy, -.n
empoyer s not requred n 195 to wthhod ncome ta upon the va.ue
of meas and odgng f such vaue s ceary e cudabe from the
gross ncome of the empoyee by reason of secton 119.
No ad|ustment between the empoyer and hs empoyee s requred
wth respect to ncome ta wthhed durng the caendar year 195
on the vaue of meas or odgng furnshed by the empoyer to hs
empoyee whch s e cudabe from the gross ncome of the empoyee
under the provsons of secton 119. However, f the empoyer desres
to make.such ad|ustments, he may do so.
The Commssoner, wth the approva of the Secretary, w pre-
scrbe ncome ta wthhodng reguatons under Chapter 2 of the
Interna Revenue Code of 195 , contanng provsons whch w cor-
reate wth secton 119. Ths Revenue Rung w be appcabe ony
for the perod pror to the ssuance of such forthcomng reguatons.
Ths Revenue Rung s not appcabe for purposes of the ta es
mposed by the edera Insurance Contrbutons Act and the edera
Unempoyment Ta Act.
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S 5 7.1 32
SUBTITL -ALCOHOL, TOBACCO, AND C RTAIN
. OTH R CIS TA S
CHAPT R 53 MACHIN GUNS AND C RTAIN OTH R
IR ARMS
SUBCHAPT R A-TA S
PART I TRANS R TA
S CTION 5 11(a). TA : RAT
Reguatons , Secton 319. 1: Rate of ta .
Appcaton of the transfer ta on frearms by reason of the transfer
of suffcent parts to assembe a frearm. See Rev. RuL 5 -606, page 33.
S CTION 5 12. MPTIONS
Reguatons Secton 319.91: Appcaton
for e empton.
Psto grp atered so that shouder stock may not be attached.
See Rev. Ru. 5 - 55, page 3 .
SUBCHAPT R B.-G N RAL PRO ISIONS
S CTION 5 7. R GULATIONS
Reguatons , Secton 319.10: portaton. Rev. Ru. 5 -515
The transportaton of a frearm from the Unted States nto a
foregn country for e hbton and/or demonstraton purposes ony
s not an e portaton wthn the purvew of secton 319.10 of Regu-
atons provded such frearm s not unted wth the mass of thngs
beongng to the foregn country nto whch the frearm Is trans-
ported. The frearm may, under such crcumstances, be returned to
the Unted States nsofar as the Interna Revenue Servce Is
concerned.
Advce s requested whether a frearm may be transported to a
foregn country for e hbton and/or demonstraton purposes ony
and subsequenty brought back to the Unted States.
Secton 319.10 of Reguatons defnes e portaton as the sever-
ance of goods from the mass of thngs beongng to ths country wth
the ntenton of untng them to the mass of thngs beongng to some
foregn country. Accordngy, the transportaton of a hrearm from
the Unted States nto a foregn country for e hbton and/or demon-
straton purposes ony woud not consttute an e portaton wthn
the purvew of secton 319.19 of Reguatons provded such frearm
s not unted wth the mass of thngs beongng to the foregn country
nto whch the frearm s transported. In such cases, the frearm may
subsequenty be returned to the Unted States.
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33 5 .
Where a frearm s to be transported n the manner ndcated, a
orm 3 ( rearms) must be fed wth the Drector, Acoho and
Tobacco Ta Dvson, Interna Revenue Servce, Washngton 25,
D. C. Informaton reatng to the dentfcaton ot the frearm must
be gven on such form| together wth the name of the person takng
the frearm to the foregn country and hs reatonshp to the person
or company ownng t. After the frearm has served ts purpose as
an e hbton and/or demonstraton tem and s returned to the prem-
ses n the Unted States from whch orgnay taken, a orm 2 ( re-
arms) must be e ecuted showng the date on whch the frearm was
returned to stock.
S CTION 5 . D INITIONS
Reguatons , Secton 319.12: rearm. Rev. Ru. 5 -606
(Aso Secton 5 11(a) Secton 319. 1.)
The possesson or contro of suffcent parts to assembe an opera-
tve frearm consttutes tbe possesson of a frearm, and the transfer
of suffcent parts to assembe an operatve frearm consttutes tbe
transfer of a frearm sub|ect to the transfer ta .
Advce has been requested whether the possesson of suffcent parts
to assembe a frearm consttutes the possesson of a frearm.
Where an ndvdua, partnershp, company, assocaton, or corpo-
raton has possesson or contro of suffcent parts to assembe an
operatve frearm as defned n secton 5 (1) o the Interna Revenue-
Code of 195 , the possesson or contro thereof consttutes the posses-
son of a frearm. urther, the transfer, as defned n secton 5 3(10)
of such Code, of suffcent parts to assembe an operatve frearm s
deemed to consttute the transfer of a frearm sub|ect to the ta
mposed under secton 5 11 (a) of the Code.
Reguatons , Secton 319.2 a: Shotgun. Rev. Ru. 5 - 92
A bunderbuss wth a barre of ess than 1 Inches In ength
a not a frearm under secton 5S of the Interna Revenue Code of
105 snce It Is not capabe of frng f ed ammunton.
Advce s requested whether a bunderbuss wth a barre of ess
than 1 nches n ength s a frearm (shotgun) under the Interna
Revenue Code of 195 .
Secton 5 (1) of the Interna Revenue Code of 195 provdes n
part that the term frearm means a shotgun or rfe havng a barre
of ess than 1 nches n ength, or any other weapon, e cept a psto or
revovert from whch a shot s dscharged by an e posve f such
weapon s capabe of beng conceaed on the person.
The queston hero nvoved s whether the bunderbuss coudbe
cassfed as a shotgun as ncuded n the above defnton. Secton
5 ( ) of the Interna Revenue Code of 195 and secton 319.2Sa of
Reguatons , as added by Treasury Decson G09 , page , ths Bu-
etn, defne a shotgun as a weapon desgned or redesgned, made or
remade, and ntended to be fred from the shouder and desgned and
made to use the energy of the e posve n a f ed shotgun she to fre
through a smooth bore ether a number of ba shot or a snge pro|ec-
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15 62. 3
te for each snge pu of the trgger. Snce the bunderbuss s not
capabe of frng f ed ammunton, t s not a frearm under secton
5 of the Interna Revenue Code of 195 .
S CTION 5 (1). D INITIONS: IR ARM
Reguatons , Secton 319.12: rearm Rev. Ru. 5 - 55
defned.
(Aso Secton 5 12, Secton 319.91.)
The attachment of a shouder stock to a psto desgned to utze
such attachment, brngs the weapon under the cassfcaton of a fre-
arm and therefore consttutes an unawfu act on the part of the
owner thereof uness he has made decaraton, In wrtng, of hs
Intenton to make a frearm, and sub|ects such owner to possbe
crmna prosecuton and/or ta assessment. Aso, the frearm may
be sub|ect to sezure and forfeture.
Advce s requested as to the regstraton status of pstos whch
have been converted to frearms by the attachment thereto of shouder
stocks.
Where the owner of a psto, whch was not cassfed as a frearm as
defned n secton 5 (1) of the Interna Revenue Code of 195 ,
equps such psto wth a shouder stock attachment, the psto so con-
verted s brought wthn the cassfcaton of a frearm defned n sad
secton.
If the owner s of good repute and dd not possess the frearm wth
ntent to voate the aw, such owner w be permtted to regster and
retan the frearm nvoved provded the weapon s rendered nopera-
tve as a frearm wthn thepurvew of secton 5 (1) of the Inter-
na Revenue Code of 195 . To accompsh ths ob|ectve the mae ug
or the recevng sot, as the case may be, on the grp of the psto must
be ground off or weded cosed. Such ateraton w permt the
operaton thereof as a hand gun but w prevent ts use as a shouder
weapon. Athough no onger consdered a frearm, the weapon shoud
then be regstered on orm 1 ( rearms) for contro purposes, nd-
catng thereon ts present condton. The subsequent ta e empt
transfer as an unservceabe frearm moy be permtted n accordance
wth the provsons of sectons 5 12 (a) (3) and 5 12(b) of the Interna
Revenue Code of 195 .
SUBCHAPT R D.-P NALTI S AND OR ITUR S
S CTION 5 C2. OR ITUR S
(Aso edera rearms Act, Secton 5 Sectons T. D. 6093
315.6, 315.11, 315.91, Reguatons 131.)
TITL 26 INT RNAL R NU CHAPT R I, SUBCHAPT R C, PART 15.
LIC NSING O MANU ACTUR RS OP, AND D AL RS IN, IR ARMS OR
AMMUNITION
Reguatons 131 amended to conform to the Interna Revenue
Code of 105 .
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35 If 5S62.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
In order to conform Reguatons 131 to chapter 52 of the Interna
Revenue Code of 195 , such reguatons are hereby amended as foows:
Paragraph 1. Pursuant to secton 7 52(b) of the Interna Revenue
Code of 195 , the reference n secton 315.6 (15 U. S. C. sec. 905) to
secton 2733 of tte 26 sha be deemed to refer to secton 5S S of
the Interna Revenue Code of 195 .
Par. 2. Secton 315.11 s amended to read as foows:
Sec. 315.11. okfetues.
20 U. S. C. 5S02 orkf|tcres (a) Latc Appcabe. Any frearm nvoved
n any voaton of the provsons of ths chapter or any reguaton promugated
thereunder sha he sub|ect to sezure and forfeture, and (e cept as provded In
subsecton (b)) a the provsons of Interna revenue aws reatng to searches,
sezures, nnd forfeture of unstamped artces are e tended to and made to
appy to the artces ta ed under ths chapter, and the persons to whom ths
chapter appes.
(b) Upoa. In the case of the forfeture of any frearm by reason of a
voaton of ths chapter: No notce of pubc sae sha be requred no such
frearm sha be sod at pubc, sae If such frearm Is forfeted for a voaton
of ths chapter ond there Is no remsson or mtgaton of forfeture thereof. It
shn be devered by the Secretary or hs deegato to the Admnstrator of Gen-
era Servces, Genera Servces Admnstraton, who may order such frearm
destroyed or may se It to any State, Terrtory, or possesson, or potca sub-
dvson thereof, or the Dstrct of Coumba, or at the request of the Secretary
or hs deegate may authorze Its retenton for offca use of the Treasury
Department, or may transfer t wthout charge to any e ecutve department
or Independent estabshment of the Government for use by It.
Par. 3. Secton 315.91 of Reguatons 131 s amended by deetng
the reference to secton 2733 and nsertng n eu thereof secton
5 .
Ths Treasury Decson sha be effectve as of the day on whch
chapter 53 of the Interna Revenue Code of 195 becomes effectve.
Because secton 7 51(a) (5) of the Interna Revenue Code of 195
provdes that chapter 53 of sad Code sha take effect the day after
the date of enactment of sad Code, and because the purpose of ths
Treasury Decson s merey to correct statutory references, t s found
that t s unnecessary to ssue ths Treasury Decson wth notce and
pubc procedure thereon under secton (a) of the Admnstratve
Procedure Act, approved une 11, 19 6, or sub|ect to the effectve
date mtaton of secton (c) of sad act.
(Ths Treasury Decson s ssued under authorty contaned n
sec. 7,52 Stat. 1252 15 U. S. C. 907).
M. B. o.som,
Actng Secretary of the Treasury.
August 16,195 .
( ed wth the Dvson of the edera Regster August 10, 195 , 1:10 p. m.)
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60 1. 36
SUBTITL PROC DUR AND ADMINISTRATION
CHAPT R 61. IN ORMATION AND R TURNS
SUBCHAPT R AR TURNS AND R CORDS
PART I T NSION O TIM OR ILING R TURNS
S CTION 60 1. T NSION O TIM OR
ILING R TURNS
(Aso Secton 6 110 Rev. Ru. 6 -366 f
(Aso Part II, Sectons 53, 37 0
Reguatons 11 , Sectons 39.53-2,
39.37 0-1.)
ng of returns and amended appcatons for tentatve carrybacks
after enactment of the 195 Code.
Secton 1. Purpose.
The purpose of ths Revenue Rung s to state the pocy n grant-
ng e tensons of tme for fng ncome ta returns requred to bo
fed durng 195 , whch returns are affected by the provsons of the
Interna Revenue Code of 195 to gve nstructons regardng the
forms to be used by corporatons n fng such returns and to e pan
the necessty for amendng prevousy fed ncome ta returns, and
appcatons for tentatve carryback ad|ustments, affected by the enact-
ment of the Interna Revenue Code of 195 .,
Sec. 2. tensons of Tme.
.01 In the case of any ncome ta return requred to be fed durng
195 after the date of enactment of the 195 Code, a statement by the
ta payer that he needs addtona tme to determne the appcabty
of the provsons of the 195 Code n preparng hs return w be
consdered an adequate ground for grantng an e tenson of tme for
fng the return. Dstrct Drectors of Interna Revenue w foow
a pocy of reasonabeness n gratng such e tensons of tme.
.02 The tme for fng ncome ta returns for ta abe years of ess
than tweve months begnnng n 195 and endng after the date of
enactment of the Interna Revenue Code of 195 s nereby e tended to
March 15,1955, n the case of corporatons, and to Apr 15,1955, n
the case of ndvduas, trust , and estates of decedents.
.03 tensons of tme for fng returns do not carry wth them
e tensons of tme for payment of ta . A ta payer other than a cor-
Soraton desrng to stay the accumuaton of nterest on any payment
ue may fe a tentatve return showng hs estmate of ta abty
and may make advance payments of the ta wth such return (n fu
e cept m the case of estates of decedents whch may make payments
ether n fu or on the nstament bass as provded by aw). Corpo-
rate ta payers are requred to fe a tentatve return (or a statement n
eu of a tentatve return, orm 700 ) showng an estmate of ta
abty and to make advance payment of the ta wth such tentatve
Orctna|- troed IR-MImeoernnb 5 -151. futed Aucut 20.103 .
I t Ths Revenue Rung woe ampfed by BeT. Ru. 65-22, L B. B. 1935-3, 60.
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37 S 60 1.
return ether n fu or n accordance wth the provsons of aw for
nstament payments.
Sec. 3. Returns bt Corporatons for sca Years Begnnng n
1953 and ndng After March 31,105 .
.01 The 105 Code amends the 1030 Code to emnate the reducton
of the norma ta rate for corporatons from 30 percent to 25 percent
(and the correspondng changes n the rates appcabe n determnng
certan corporaton credts) whch were to take pnco on Apr 1,195 .
Accordngy, a corporatons computng ther ta under the 1939 Code
for ta abe years endng after March 31, 195 , sha compute such
ta es wthout regard to such reducton n the corporaton s norma ta
rate and wthout regard to such changes n the determnaton of the
credt for dvdends receved on preferred stock of pubc uttes, for
dvdends pad on certan prt rred stock of pubc uttes, and the
credt for Western Hemspher Trade Corporatons.
.02 Corporatons havng ta abe years begnnng n 1953 and endng
after March 31, 195 , or short ta abe years begnnng n 195 and
endng after March 31,195 , but before the date of enactment of the
Interna Revenue Code of 195 , sha compute ther ta on and fe
orm 1120, 990-T, or 990- C, whchever s appcabe to them, dsre-
gardng nstructons contaned on such forms wth respect to the use
n con|uncton therewth of orms 1120- Y or 990-T- Y. The com-
putatons of ta on orms 1120, 990-T, and 990-C, refect the proper
rates of ta and the proper rate to be used n computng the credts for
such ta abe years under the amendments made by the Interna Reve-
nue Code of 195 .
.03 Any corporaton whch has made a return for a ta abe year
descrbed n paragraph .02 above on orm 1120- Y or on orm
990-T- Y shoud fe an amended return as prompty as possbe n
accordance wth paragraph .02, and shoud pay any addtona ta due.
Sec. . Other Returns Requred To Be ed Durng 195 .
Where returns have been fed n 195 under the provsons of the
1939 Code whch, because of the retroactve appcaton of provsons
of the 195 Code, are now ncorrect, t s the ta payer s responsbty
to fe a correct amended return and pay any addtona ta abty
found due. If the amended return dscoses an overpayment of ta ,
t may be used as the bass for a cam for refund ( orm 3).
Sec. 5. Appcatons for Tentatve Carryback Ad|ustments.
Ta payers who have made appcaton for tentatve carryback
ad|ustment n connecton wth net operatng osses affected by the pro-
vsons of the 195 Code (for e ampe, affected by the provson for a
two-year carryback) shoud submt corrected appcatons takng nto
account the provsons of the 195 Code.
Sec. 6. ffect on Other Documents.
.01 It s not ntended that ths Revenue Rung have any effect upon
estabshed poces reatng to the sub|ects covered heren other than
as such poces are specfcay modfed for the mted perods set
forth.
.02 A other nterna management documents the provsons of
whch are nconsstent or n confct wth the provsons of ths Rev-
enue Rung are hereby amended or superseded accordngy.
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I M. 3
Sec. 7. ffectve Date.
Ths Revenue Rung s effectve August 17,195 .
tenson of tme for fng corporaton ncome ta returns. See
Rev. RuL 6 - 31, page 116.
CHAPT R 65w ABAT M NTS, CR DITS, AND R UNDS
SUBCHAPT R A PROC DUR IN G N RAL
S CTION 6 03.-O RPAYM NT O INSTALLM NT
Rev. Ru. 6 - 25
Corporatons, unabe to determne the amount of ther ta abty
on or before the statutory due date for fng ther corporaton ncome
ta returns, as requred by secton 6072(b) of the Interna Revenue
Code of 105 , may obtan e tensons of tme not to e ceed the statutory
mtaton ot 6 months provded n secton 60 1(a) of the Code n
whch to fe such returns. tensons thus granted are condtoned
upon the fng of tentatve returns and the payment of that porton
of the ta shown thereon to be due on or before the date on whch the
competed returns are requred to be fed. Cf. Mm. 6157, C. B.
19 7-2, 6 . Payments mado on the bass of such tentatve returns,
as requred by secton 6152(a)(1) of the Code, n some nstances
e ceed the ta abty dscosed by the competed returns. Hed, the
e cess of the payments made on the bass of a tentatve return over the
amount of the ta abty dscosed by a competed return const-
tutes an overpayment of nstaments of ta wthn the meanng of
secton 6 03 of the Code, whch may be credted or refunded as pro-
vded by secton 6 02 of the Code. It s the pocy of the Interna
Revenue Servce to refund such overpayments (1) wthout awatng
the e amnaton of the competed return, (2) wthout awatng the
fng of a cam for refund, and (3) wthout submttng a report to
the ont Commttee on Interna Revenue Ta aton where the refund
|s n e cess of 100,000, snce such report s not requred n the case
of refunds of overpayments of nstaments of ta such as here
nvoved.
SUBCHAPT R B. RUL S O SP CIAL APPLICATION
S CTION 6 11 T NTATI CARRYBAC
AD USTM NTS
Amended appcatons for tentatve carrybacks after enactment of
the 195 Code. See Rev. Ru. 6 -366, page 36.
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39 A 660
CHAPT R 67-INT R ST
SUBCHAPT R A-INT R ST ON UND RPAYM NTS
S CTION 6601. INT R ST ON UND RPAYM NT.
PAYM NT, OR T NSIONS O TIM OR PAYM NT,
O TA
(Aso Secton 6G11.) Rev. Ru. 5 - 520
panaton of the provsons of the Interna Revenue Code of
195 reatng to Interest on underpayment, nonpayment, overpay-
ment, or e tensons of tme for payment, of ta .
S CTION 1. PURPOS .
The purpose of ths Revenue Rung s to set forth the changes
effected by the Interna Revenue Code of 195-1 wth respect to def-
cency, denquency, and overpayment nterest.
S O. 2. SCOP .
The nformaton furnshed heren reates on| to the genera nterest
provsons of the 195 Code.
S C. 3. APPLICATION or G N RAL INT R ST PRO ISIONS.
.01 The nterest provsons heren consdered are effectve on August
17,195 , the day foowng the date of enactment. The appcaton of
such nterest provsons s mted, however, to the ta es mposed by .
the 195 Code. Thus, the genera nterest provsons of the 195 Code
w appy:
1. In the case of ncome ta , wth respect to ta abe years
begnnng after 1953 (e cept any short ta abe year whch does
not end after August 16,195 , the date of enactment of the 195
Code)
2. In the case of the estate ta , wth respect to estates, of
decedents dyng after August 16, 195 , the date of enactment of
the 195 Code
3. In the case of machneguns and certan other frearms ta es,
on August 17, 195 , the day after enactment of the 195 Code
and
. In the case of gft ta es, empoyment ta es, e cse ta es, and
acoho and tobacco ta es, or ta abe perods begnnng after
December 31,195 .
.02 The genera nterest provsons of the 195 Code do not appy
to the ta es mposed under the Interna Revenue Code of 1939. As to
such ta es, the appcabe nterest provsons of the 1939 Code w
contnue n effect.
S C. . G N RAL RUL IN CAS O UND RPAYM NT OR NONPAYM NT.
Secton 6601 (a) of the 195 Code provdes a genera rue that n-
terest at the rate of 6 percent sha run from the due date to the date
pad, or to the date of notce and demand f pad wthn 10 days from
the date thereof, n the case of any amount of ta (ncudng stamp
ta es) whch s not pad on the due date. An e cepton to ths genera
rue s contaned n subsecton (b), whch contnues the percent rate
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16001. 0
charged under the 1939 Code n the case of the estate ta where an
e tenson of tme for payment s granted or where postponement of
the payment of an amount of such ta s permtted. Another e cep-
ton to the genera rue s contaned n subsecton (g), whch provdes
that secton 6601(a) of the 195 Code sha not appy to any faure
. to pay estmated ta requred by sectons 6153 or 615 of the 195
Code.
Sec. 5. Botes for Determnng Dot Date.
.01 The due date for payment of ta s determned wthout regard
to any e tenson of tme, and nterest contnues to run durng the
perod of the e tenson and for any further perod durng whch the
ta remans unpad.
.02 The foowng rues are provded for determnng the due date
of nstament payments of corporaton ncome ta es, edera unem-
poyment ta , or estate ta :
1. In the case of any porton of the ta not shown on the return,
the due date s deemed to bo the due date of the frst nstament
2. In the case of unpad nstament of ta shown on the return,
the due date s the date f ed for payment of such nstament
and
3. If any nstament s not pad when due and a notce and
demand for subsequent nstaments s ssued, the due date of such
subsequent nstaments s the date of notce and demand.
.03 In the case of ta es payabe by stamp and n a other cases n
whch the due date for payment s not otherwse prescrbed, the due
date w be deemed to be the date the abty for ta arses. If the
date the abty for ta arses s not ceary evdent, then n no event
w the duo date bo ater than tho dnto on whch notco and demnnd
s ssued. Thus, n the case of unpad stamp ta es, nterest w run
from the date the abty for such ta es arses nstead of the date of
assessment as provded n the 1939 Code.
.0 In cases where, by reason of |eopardy, payment s demanded
before the due date otherwse prescrbed, nterest w not begn to run
pror to the prescrbed duo date.
Sec. 6. Suspenson op Interest on Defcences.
In the case of a defcency n ncome, estate, or gft ta es, f a waver
of restrctons ( orm 70) on the assessment of such defcency has
been fed, and f notce and demand s not ssued wthn 30 days after
the fng of such waver, nterest w not be mposed on such defcency
for the perod begnnng after such 30th day and endng wth the
date of notce and demand (nstead of the date of assessment as pro-
vded by the 1939 Code).
Sec. 7. Net Operatng Loss Carrtbacks.
In the case of e tensons of tme for payment to certan corporatons
e pectng net operatng oss carrybacks, the 6 percent nterest rate
provded n secton 6601 (a) of the 195 Code w appy. The 3 percent
rate provded n secton 3779 () of the 1939 Code w contnue to be
appcabe to ta es mposed by that Code,
Sec. . No Interest on Interest.
.01 Under the 1939 Code, accrued nterest s charged on defcency
and denquency assessments (ncudng assessments based upon re-
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1 6611.
turns fed wthn an e tended due date) whch are not pad wthn 10
days after notce and demand s ssued. Such nterest s charged on
the entre assessment, ncudng penaty, addtons to the ta and
assessed nterest. Ths procedure w contnue to be appcabe n the
case of accounts presenty outstandng or assessed n the future under
the provsons of the 1939 Code.
.02 Secton 6601(f) (2) of the 195 Code specfcay prohbts the
chargng of nterest on unpad nterest. Accordngy, accrued nterest
w be computed on the tota assessment, e cept for assessed nterest,
n the case of ta es mposed by the 195 Code.
Sec. 9. Interest on Overpayments.
.01 Secton 6611 (a) of the 195 Code contnues the rue that nterest
sha be aowed on any overpayment n respect of any nterna revenue
ta at the rate of 6 percent per annum. In determnng the date of
overpayment n order to compute nterest on the overpayment, the
presumptve date of payment rue w appy to a ta es for whch
a return s requred. Under ths rue, the payment of any porton of
the tu made ucfore th ast date prescrbed for the payment of the
ta , sha be consdered made on such ast day. The ast day pre-
scrbed for payng the ta sha be determned wthout regard to any
e tenson of tme granted the ta payer and wthout regard to any
eecton to pay the ta n nstaments. (Ths rue shoud not be con-
fused wth the rue stated n secton 6513(c)(2) of tho 195 Code
whch provdes that, for the purpose of mtaton on credt or refund
of edera Insurance Contrbutons Act and ncome wthhodng ta es,
f a ta wth respect to remuneraton pad durng any perod endng
wth or wthn a caendar year s pad before Apr 15 of tho succeed-
ng caendar year, such ta sha bo consdered pad on Apr 15 of such
succeedng caendar year.)
.02 Secton 6 02 of tho 195 Code specfcay authorzes the credt-
ng of nterest aowabe on overpayments to any outstandng ta .
Ths s a carfcaton of pror aw and s consstent wth the e stng
admnstratve ruo for credtng overpayment nterest.
.03 Secton 6611(c) of tho 195 Code provdes that f any overpay-
ment of ncome ta s refunded wthn 5 days after the ast date pre-
scrbed for fng the return of such ta (determned wthout regard
to any e tenson of tme for fng the return), no nterest sha be
aowed on such overpayment. The effect of ths provson s to e -
tend tho nterest-free perod, n the case of refunds of ncome ta es
made shorty after the due date, by 15 days.
SUBCHAPT R B-INT R ST ON O RPAYM NTS
S CTION 6611. INT R ST ON O RPAYM NTS
Genera nterest provsons of the Interna Revenue Code of 195 .
See Rov. Ru. 5 - 26, page 39.
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6651 2
CHAPT R 6 ADDITIONS TO TH TA , ADDITIONAL
AMOUNTS, AND ASS SSABL P NALTI S
SUBCHAPT R A ADDITIONS TO TH TA AND ADDITIONAL
AMOUNTS
S CTION 6651. AILUR TO IL TA R TURN
Rev. Ru. 5 - 27
ffect of the denquency penaty provsons of the Interna
Revenue Code of 100 .
Secton 1. Purpose.
The purpose of ths Revenue Rung s to e pan the effect of the
denquency penaty provsons of secton 6C51 or the Interna Revenue
Code of 195 , enacted August 16,195 , and to drect attenton to tho
fact that there are no provsons n such Code correspondng to sec-
tons 1C31 and 3655(b) of the 1939 Code.
Sec. 2. Appcaton op Denquency Penaty Provsons.
.01 The penaty provsons consdered heren are effectve on
August 17,195 , tha day foowng the date of enactment. However,
the appcaton of such penaty provsons s mted to the ta es m-
posed by the 195 Code. Therefore, they w appy:
1. In the case of ncome ta , wth respect to ta abe years begn-
nng after December 31,1953 (e cept short ta abe years endng
on or before the date of enactment of the 195 Code)
2. In the case of the estate ta , wth respect to estates of dece-
dents dyng after the date of enactment of the 195 Code
3. In the case of machneguns and certan other frearms ta es,
on the day after enactment of the 195 Code and
. In the case of gft ta es, empoyment ta es, e cse ta es, and
acoho and tobacco ta es, for perods begnnng on or after
anuary 1, 1955.
.02 The penaty provsons of the 195 Code do not appy to the
ta es mposed under the 1939 Code. As to such ta es, the appcabe
penaty provsons of the 1939 Code w contnue n effect, wth the
e cepton of secton 3655 (b) whch s dscussed more fuy n secton
6.02 of ths Rung.
Sec. 3. aure To e Ta Return.
.01 Secton 6651(a) provdes that n case of faure to fe any
return (other than an nformaton return) on the date prescrbed
therefor, uness t s shown that such faure s due to reasonabe cause
and not due to wfu negect, there w be added to the amount re-
qured to bo shown as ta on such return 5 percent of tho amount of
such ta f the faure s for not more than 1 month, wth an addtona
5 percent for each addtona month or fracton thereof durng whch
such faure contnues, not e ceedng 25 percent n the aggregate. Ths
corresponds generay to the rue n sectons 291 and 3612 of the 1939
Code.
.02 It w be noted that secton 6651 (a) prescrbes a monthy bass
for computng the perod of denquency nstead of the 30-day bass
provded n sectons 291 and 3612 of the 1939 Code. Thus, for e ampe,
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3 H6S51.
the perod of denquency n the case of a corporaton ncome ta
return due on March 15 but fed Apr 15, s 1 month (31 caendar
days). Under secton 6C51(a), ony a 5-percent penaty woud appy
nstead of 10-pcrcent as provded n the 1039 Code,
Sec. . Penaty Imposed on Net Amount Dce.
Secton 6651(b) s a new provson and e pressy provdes that for
purposes of computng the denquency penaty, the amount of the ta
requred to be shown on the return sha bo reduced by the amount of
any part of the tn whch s pad on or before the date prescrbed
for payment of the ta and by the amount of any credt aganst the ta
whch mny bo camed upon the return. The effect of ths secton s
to provde specfc statutory authorty for the e stng admnstratve
rue whereby the denquency penaty s computed on the net amount
of tn duo on tho return rather than on to gross amount of tn
requred to be shown on tho return.
Sec. 5. cepton for Decaratons of stmated Ta .
Secton 6651(c) s a new provson whch specfcay e cepts any
faure to fe a decaraton of estmated ta from the denquency
penaty provsons of secton 6651.
Sec. 6. Omtted Penaty Provsons.
.01 There are no provsons n tho 195 Code smar to the prov-
sons of secton 1631 of the 1939 Code, reatng to the 5 mnmum
penaty for faure to fe an empoyment ta return. The effect of
ths omsson s to emnate the 5 mnmum penaty wth respect to
empoyment ta returns fed for ta abe perods begnnng on or after
anuary 1,1955. The 5 mnmum penaty w contnue to be asserted,
under e stng poces and procedures, on denquent empoyment ta
returns fed for ta abe perods pror to anuary 1,1955.
.02 The 195 Code does not ncude any provsons correspondng to
secton 3655(b) of the 1939 Code, reatng to the 5-percent penaty for
faure to pay ta es (other than ncome, estate, and gft ta es) wthn
10 days after notce and demand. The effect of ths omsson s to
emnate the nonpayment penaty for faure to pay wthn 10 days
from the date of a statement of ta due when such faure occurs after
December 31,195 . Thus, the penaty w not be added to any assess-
ment where tho 10-day perod for payment e pres after December
31,195 , even though the ta es nvoved have been mposed under the
1939 Code.
CHAPT R 70. OPARDY, BAN RUPTCY AND
R C I RSHIPS
SUBCHAPT R A.T OPARDY
PART I. T RMINATION OP TA ABL T AR
S CTION 6 51. T RMINATION O TA ABL Y AR
Rev. Ru. 5 - 2
ffect of the Interna Revenue Code of 105 on departng aens
The purpose of ths Revenue Rung s to ca attenton to certan
provsons of tho Interna Revenue Code of 195 whch have an effect
33516 I
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7 05.
on departng aens n connecton wth the termnaton of the ta abe
year under the provsons of secton 6 51 of such Code,
Under the provsons of secton 1 6(a) (1) of the Interna Revenue
Code of 1939, the Commssoner by reason of |eopardy was authorzed
to termnate the ta abe year of a departng aen. Secton 7(e) of
the Interna Revenue Code of 1939 provded for the proraton of per-
sona e emptons n such cases. Snce the Interna Revenue Code of
195 has no provson comparabe to secton 7(e), there can be no
proraton of the persona e empton n the case of a return fed for a
short perod by reason of the termnaton of the ta abe year due to
|eopardy. Departng aens are aowed the fu persona e empton.
Under the provsons of secton 71 of the Interna Revenue Code
of 195 , the ta base of nonresdent aens not engaged n trade or
busness n the Unted States, whch ncudes nterest (e cept nterest
on deposts wth persons carryng on the bankng busness), dvdends,
rents, saares, wages, premums, annutes, compensatons, remunera-
tons, emouments, or other f ed or determnabe annua or perodca
gans, profts, and ncome, has been enarged to ncude certan gans,
profts, and ncome whch are consdered gans from the sae or e -
change of capta assets. These ncude the foowng: (1) gan from
ump sum dstrbuton by a quafed penson trust (sec. 02(a) (2) of
the Interna Revenue Code of 195 ) (2) certan gans from tmber
and coa (sec. 631 (b) and (c) of the Interna Revenue Code of 195 .
and sec. 1231 of such Code) and (3) gans derved from transfer ot
an nterest n a patent (sec 1235 of the Interna Revenue Code of
195 ).
Unt such tme as orm 1010C, U. S. Departng Aen Income Ta
Return, and nstructons have been revsed and ssued, the present
orm 10 0C shoud be used. Where necessary, supportng schedues
can be attached to the return to reconce the appcabe provsons of
the Interna Revenue Code of 195 wth the outdated orm 10 IOC.
CHAPT R 0,-G N RAL RUL S
SUBCHAPT R A-APPLICATION O INT RNAL R NU LAWS
S CTION 7 05. RUL S AND R GULATIONS
Reguatons , Secton 319.5a: Any other T. D. 609
weapon.
(Aso Sectons 319.27a, etc)
TITL 2 INT RNAL R NU . CHAPT R I, SUBCHAPT R C, PART 19.
TA S R LATING TO MACHIN GCNS AND C RTAIN OTH R IR ARMS
Reguatons (1952 edton) amended to conform to the Interna
Revenue Code of 105 (Pubc Law 591, 3d Cong., 2d Sess.).
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5 R7SOS.
treasury department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D.C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
1 Concerned:
In order to conform Reguatons (1052 edton) (26 C R, pt.
319), as made appcabe to the Interna Revenue Code of 195 by-
Treasury Decson 6091, approved August 16,195 , to Pubc Law 591
( 3d Cong., 2d sess.), approved August 16,195 , such reguatons are
hereby amended as foows:
Paragraph 1. There s nserted mmedatey foowng secton
319.5 the foowng new secton:
Sec. 319.5a. Art Otheb Weapow. Any other weapon shnH mean any weapon
or devce capabe of beng conceaed on the person from whch a shot can be
dscharged through the energy of an e posve, but such term sha not Incude-
pstos or revovers or weapons desgned, made or ntended to be fred from the
shouder and not capabe of beng fred wth f ed ammunton.
Par. 2. There s nserted mmedatey foowng secton 319.27 the
foowng new secton:
Sec. 319.27a. Rfe. Rfe sha mean a weapon desgned or redesgned, made
or remade, and ntended to be fred from the shouder and desgned and made to
use the energy of the e posve In a f ed metac cartrdge to fre ony a snge
pro|ecte through a rfed bore for each snge pu of the trgger.
Par. 3. There s nserted mmedatey foowng secton 319.2 the
foowng new secton:
Sec. 319.2 a. SnoTaun. Shotgun sha mean a wenpon desgned or re-
desgned, umo or remade, and Intended to be fred from the shouder and desgned
and made to use the energy of the e posve In a f ed shotgun she to re through
a smooth bore ether a number of ba shot or a snge pro|ecte for each snge
pu of the trgger.
Par. . Secton 319.36(a) s amended to read as foows:
(a) The speca ta es are as foows: cryear
Cass 1: Importers or manufacturers of frearms, e cept manufacturers
In cass 2 500
Cass 2: Manufacturers of frearms whose producton Is mted to guns
wth combnaton shotgun and rfe barres. 12 nches or more but ess than
1 Inches In ength (10 In the case of rfes of .22 caber or ess), from
whch ony a snge dscharge can be made from ether barre wthout
manua reoadng, or guns desgned to be hed In one hand when fred and
havng a barre 12 Inches or more but ess than 1 Inches In ength, from
whch ony a snge dscharge can be made wthout manua reoadng, or
guns of both types . 25
Cass 3r Pawnbrokers, e cept those n cnss 5 00
Cass : Pcaers, other than pawnbrokers, e cept those In cass 5 200
Cass 0: Deaers, ncudng pawnbrokers, whose deang In frearms s
mted to guns wth combnaton shotgun and rfe barres, 12 Inches or
more but ess than 1 Inches In ength (10 In the case of rfes of .22 caber
or oss), 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 but ess than 1 nches In
ength, from whch ony a snge dscharge can be made wthout manua
reoadng, or guns of both types.. 1
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S7 05 : 6
Pah. 5. Secton 319.66 s amended to read as foows:
Sec. 319.66. Rat or Ta . The ta on the makng of frearms a at the rote of
200 for each frearm, e cept that the rate of ta Is 1 upon the makng of any
gn wth combnaton shotgun and rfe barres, 12 nches or more but ess than
IS Inches In ength (16 In the case of rfes of -- caber or ess), from whch
ony a snge dscharge can be made from ether barre wthout manua reoadng,
or any gun desgned to be hed In one hand when fred and hnvng a barre 12
Inches or more but ess than 1 nches n ength, from whch ony a snge ds-
charge can be made wthout manua reoadng.
Pah. 6. Secton 319. 1 s amended to road as foows:
Sec. 319. 1. Rate or Ta . The transfer ta to be eved, coected, and pad
wth respect to a artces wthn the term frearm transferred In the Unted
States Is at the rate of 200 for each frearm, e cept that the rate of ta Is 1.
upon the transfer of any gun wth combnaton shotgun and rfe barres, 12
Inches or more but ess than 1 -Inches In ength (16 n the case of rfes of 22
caber or ess), from whch ony a snge dscharge can be made from ether
bnrre wthout manua reoadng, or any gun desgned to be hed In one hand
when fred and havng a barre 12 Inches or more but oss than 1 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.
Pah. 7. Secton 319.100 s amended to road as foows:
Sec. 319.100 Regstraton or uf.arm. very person In the Unted States
possessng a frearm (a) not aready regstered, or (b) acqured by transfer,
Importaton or makng wthout conformng wth the provsons of Chapter 53 of
the Interna Revenue Code of 195 , (sees. 5S01-5S62 I. R. C 26 U. S. C.
5S01-OSC2) f such provsons were appcabe at the tme of such transfer,
mportaton or makng, must regster such frearm on orm 1 ( rearms), In
dupcate, wth the Drector, Acoho and Tobacco Ta Dvson, Washngton 25,
D. C The dupcate form, after proper endorsement, w be returned to the
regstrant by the Drector, Acoho and Tobacco Ta Dvson. The fng of
orm 1A ( rearms) n respect to the makng of a frearm, orm 2 ( rearms)
In respect of newy manufactured frearms and orm 6 ( rearms) n respect
of Imported frearms sha be deemed to consttute regstraton of the frearms
descrbed n such forms. Where the transfer of a regstered frearm Is reported
on orms 3, and 6 ( rearms) It w not be necessary for the transferee to
regster the frearm on orm 1 ( rearms).
Ths Treasury Decson sha be effectve as of the day on whch
chapter 53 of the Interna Revenue Code of 195 becomes effectve.
Because secton 7 51(a) (5) of the Interna Revenue Code of 195
provdes that chapter 53 of sad Code sha take effect the day after
the date of enactment of sad Code, and because the purpose of ths
Treasury Decson s merey to ncorporate n e stng Reguatons
new matera made necessary by enactment of the Interna Revenue
Code of 195 , t s found that t s unnecessary to ssue ths Treasury
Decson wth notce and pubc procedure thereon under secton (a)
of the Admnstratve Procedure Act, approved une. 11, 19 6, or
sub|ect to the effectve date mtaton of secton (c) of sad act.
(Ths Treasury Decson s ssued under the authorty contaned
n sec. 7 05 of the Interna Revenue Code of 195 ),
T. Coeman Andrews,
Commssoner of Interna Revenue.
Approved August 16,195 .
M. B. osom,
Actng Secretary of t e Treasury.
( ed wth the Dvson of the edera Regster August 16, 195 , 1:10 p. m.)
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7 7 07(a).
S CTION 7 07(a). RUL S IN CT UPON NACTM NT
O THIS TITL : INT RIM PRO ISION OR ADMINIS-
TRATION O TITL
Stopgap Reguatons. T. D. 6091
(Aso Secton 7 51(b).)
TITL 20 INT RNAL R NU . CHAPT R I
Prescrbng stopgap reguatons under the Interna Revenue Code
of .| eectons or other acts.
Treasury Department,
Washngton 15, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
In order to permt a proper admnstraton of the Interna Revenue
Code of 195 (heren referred to as the Code ), t s hereby pre-
scrbed n furtherance of the purposes of secton 7 07 and 7 51(b) of
the Code that
Paragraph 1. A reguatons (ncudng a Treasury Decsons)
prescrbed by, or under authorty duy deegated by, tne Secretary
of the Treasury, or |onty by the Secretary and the Commssoner
of Interna Revenue, or by the Commssoner of Interna Revenue
wth the approva of the Secretary of the Treasury, or |ontv by the
Commssoner of Interna Revenue and the Commssoner of Customs
or the Commssoner of Narcotcs wth the approva of the Secretary
of the Treasury, appcabe under any provson of aw n effect on
the date of enactment of the Codo, to the e tent such provson of aw-
s repeaed by the Code, are hereby prescrbed under and made ap-
pcabe to the provsons of the Code correspondng to the provson
of aw so repeaed nsofar as any such reguaton s not nconsstent
wth the Code. Such reguatons sha become effectve as reguatons
under the varous provsons of the Codo as of the dates he corre-
spondng provsons of aw are repeaed by the Code, ur superseded
by reguatons ssued under the Code.
Pah. 2. Wth respect to any provson of the Code whch depends
for ts appcaton upon the promugaton of reguatons or whch s
to be apped n such manner as may be prescrbed by reguatons, a
nstructons or rues n effect mmedatey pror to the enactment of
the Code, to the e tent such nstructons or rues coud be prescrbed as
reguatons under authorty of such provson of the Code, sha be
apped as reguatons under such provson nsofar as such nstruc-
tons or rues are not nconsstent wth the Code. Such nstructons
or rues sha be apped as reguatons under the appcabe provson
of the Code as of the date such provson takes effect.
Par. 3. If any eecton made or other act done pursuant to any pro-
vson of the Interna Revenue Code of 1939 or pror nterna revenue
aws woud (e cept for the enactment of the Code) be effectve for
any perod subsequent to such enactment, and f correspondng pro-
vsons are contaned n the Code, such eecton or other act sha be
gven the same effect under the correspondng provsons of the Code
to the e tent not nconsstent therewth. The term act ncudes, but
s not mted to, an aocaton, dentfcaton decaraton, agreement,
opton, waver, renqushment, or renuncaton
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17 51(b).)
Par. . The mts of the varous nterna revenue dstrcts have not
been changed by the enactment of the Code. urthermore, deega-
tons of authorty made pursuant to the provsons of Reorganza-
ton Pan No. 26 of 1950 and Reorganzaton Pan No. 1 of 1952 (as
we as redeegatons thereunder), ncudng those governng the au-
thorty of the Commssoner of Interna Revenue, the Regona Com-
mssoners of Interna Revenue, or the Dstrct Drectors of Interna
Revenue, are appcabe to the provsons of the Code to the e tent
consstent therewth.
Because ths Treasury Decson merey provdes for the contnuance
of e stng rues pendng further acton, t s hereby found that t s
mpractcabe ana contrary to the pubc nterest to ncur the deay
whch woud resut f ths Treasury Decson were ssued wth notce
and pubc procedure thereon under secton (a) of the Admnstratve
Procedure Act, approved une 11,19 6, or sub|ect to the effectve date
mtaton of secton (c) of sad act.
(These reguatons are ssued under authorty of the provsons of
sec 7 05 of the Interna Revenue Code of 195 (6 A Stat 917 26
U.S.C.7 05).)
M. B. osom,
Actng Secretary of the Treasury.
August 16,195 .
( ed wth the Dvson of the edera Regster August 10,105 ,12: 29 p. m.)
SUBCHAPT R R CTI DAT AND R LAT D PRO ISIONS
S CTION 7 51(b). APPLICABILITY O R NU LAWS:
CT O R P AL O INT RNAL R NU COD
O 1939 .
Stopgap Reguatons.
Stopgap Reguatons under the Interna Revenue Code of 195 .
See T. D. 6091, page 7.
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PART
RULINGS AND D CISIONS UND R TH INT RNAL.
R NU COD O 1939 AND R LAT D PUBLIC
LAWS
Rungs and decsons pubshed n Tart II of the Interna Revenue
Buetn are based on the appcaton of provsons of the Interna
Revenue Code of 1939 or the reated pubc aws nvoved and, uness
otherwse noted theren, are pubshed wthout consderaton as to
any appcaton of the provsons of the Interna Revenue Code of
195 .
CHAPT R 1.T-INCOM TA
SUBCHAPT R R-G N RAL PRO ISIONS
PART L RAT S O TA
S CTION 11. NORMAL TA ON INDI IDUALS
Reguatons 11 , Secton 39.11-2: Ctzens or Rev. Ru. 5 - 56
resdents of the Unted States abe to ta .
The Interna Revenue Code of 1939 contans no provson e emptng
an ndvdua from the payment of edera ncome ta es soey on the
ground that he s an Indan.
Based on the decsons of the Supreme Court of the Unted States
n /Superntendent of ve Cvzed Trbes v. Commssoner, 295 U. S.
1 , Ct. D. 97 , C. B. I -1, 15 (1935), and n Henry Choteau v.
Burnet, 2 3 U. S. 691, Ct. D. 352, C. B. -, 355 (1931), cted theren,
t s the poston of the Interna Revenue Servce that e empton
from the payment of edera ncome ta may not be mped, and
that f e empton of Indans from the payment of such ta e sts,
t must derve pany from the edera ta statutes, or from treates
or agreements wth the Indan Trbes concerned or some Act of Con-
gress deang wth ther affars. The poston so taken s n accord
aso wth the decson of the Unted States Court of Appeas for the
Tenth Crcut n Bert Taunah et ah, v. ones, 1 6 ed. (2d) 5, cer-
torar dened, 3 1U. S. 90 .
( 9)
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Regs. 11 , 39.22(a)-. 50
S CTION 12. SURTA ON INDI IDUALS
Reguatons 11 , Secton 39.12- : Surta
n case of head of househod.
Head of househod status n case of servceman supportngegt-
mate chdren n foregn country where he s statoned. See Rev.
uL 5 - 9 , page 107.
PART II. COMPUTATION O N T INCOM
The Interna Revenue Servce has concuded that the parta nter-
pretaton of the Unted States Treasury Department Reguatons,
Department Crcuar No. 530 (7th Rev.) dated May 21,1952, contaned
n Revenue Rung 5 -327, pubshed n I. R. B. 195 -33,5, under date
of August 16, 195 , may confuse hoders of Seres Unted States
savngs bonds as to the varous methods whch they may use to effect
changes n ownershp of such bonds. Accordngy, n order to avod
any msunderstandng and to mt the appcaton of the rung to
the specfc facts nvoved, that Revenue Rung s superseded to read
as foows:
S CTION 22(a). GROSS INCOM : G N RAL
D INITION
Reguatons 11 , Secton 39.22(a)-1: What . Rev. Ru. 5 -327
ncuded n gross ncome.
(Aso Secton 2, Secton 39. 2-1.)
A Seres Unted States savngs bond regstered n the name of a
father, payabe on death to hs son, was redeemed by the father before
maturty and a new bond was ssued at hs request n the soe name of
the son. Hed, nterest (ncrement n vaue) earned on the orgna
bond s ta abe to the father n the year he redeemed such bond and
had the new bond ssued n the soe name of hs son, uness the ncre-
ment n vaue was prevousy propery reported on the accrua bass or
pursuant to the provsons of secton 2(b) of the Interna Revenue
Code of 1939.
Reguatons 11 , Secton 39.22(a)-: What Rev. Ru. 5 -563
ncuded n gross ncome.
(Aso Secton 23(k), Secton 39.23(k)- .)
A hoder had been prevousy ssued debenture bonds by a corpora-
ton n whch no assets are now avaabe for the payment of ether
prncpa or nterest. However, the payment of the nterest s
guaranteed by another corporaton. Hed, f the hoder of the deben-
tures contnues to hod them after compete e hauston of the assets of
the ssuer, and receves thereafter semannua guaranteed nterest,
such amounts w be fuy ta abe as nterest The oss on the deben-
tures w be deductbe n the year n whch they mature or are
dsposed of, whchever occurs frst If hed to the date of maturty,
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51 Rrgs. 11 , 39.22 ( )-
the oss w be the cost or other bass of the debentures. Upon the
pae or other dsposton, the oss w be the dfference between the
cost or other bass and the amount receved for the debentures.
Reguatons 11 , Secton 30.22(a)-: What Rev. Ru. 5 -506
ncuded n gross ncome.
Whether amounts receved by a corporaton are Its own Income,
ta abe to It as such, or are the Income ot ts owners-prncpas,
ta abe soey to them, Is argey a queston of fact whch cannot
be ascertaned pror to e amnaton of the corporaton s edera
Income ta return by an Interna revenue agent.
Corporatons M and N are each engaged n pubshng separate
newspapers n the same ocaty. They agree to organze Corporaton
(whose stock they w own n equa amounts), and to permt to
manage and operate a aspects of ther respectve busnesses e cept
ther news and edtora departments whch they w, ndvduay
and separatey, contnue to manage and contro. They agree that
actua contro and custody of (.but not tte to) a of ther property
w be vested n to be used for ther |ont beneft s to b for
a advertsng, crcuaton, and other charges to receve and coect
a recepts and ncome from pubcaton to pay a operatng e -
penses to mantan books of account and records of operatons whch
are, at a tmes, to be ready accessbe to both M and N and to ds-
trbute equay between M and N the net proceeds derved. It s
provded n the agreement that a of the above actvtes by are
to bo performed by soey as agent for M and N. The agreement
s for a perod of 10 years, but may be contnued for an, addtona
10 years. Both M and N agree that nether w, durng such perod,
engage n the pubcaton of any other newspaper or se, pedge or
otherwse dspose of ther stock n . Advce s requested whether
the ncome derved from the proposed operatons w be ta abe to ,
or equay to M and N on the theory that receves t as ther agent.
In Natona Carbde Corporaton et a. v. Commssoner, 336 U. S.
22, Ct. D. 171 , C. B. 19 9-1, 1C5, a case deang wth a parent cor-
poraton and ts whoy-owned subsdares, the Supreme Court of the
Unted States hed that the reatonshp between the parent corpo-
raton and ts subsdares was not that of prncpa and agent, and
that the ncome receved by the subsdares was not the parent s n-
come but was, rather, the ncome of the subsdares. It found the
fact that the subsdares were requred by contract to turn over the
money receved by them to ther parent, after deductng e penses and
nomna profts, to be no sure ndcaton that they were mere coecton
agents. Such an agreement was decared to be consstent wth the
corporaton-soe stockhoder reatonshp whether or not any agency
e sted, and wth other reatonshps as we. None of the agreements
between the parent and ts subsdares was regarded as controng as
to the e stence of a purported agency reatonshp, and the Court n-
stead concuded that such reatonshps dd not e st upon a revew of
a pertnent facts n the record as to the organzaton and operaton
of the severa busnesses nvoved.
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Begs. 11 , 39.22(s)-. 52
Athough the Court recognzed that a contract of agency can e st
between a corporatn and ts owner-prncpa, t ceary warned that
such a contract cannot be avaed of to assgn ncome to other than
those who earn t As to the possbe e stence of true agency rea-
tonshps, the Court, n Natona Carbde Corporaton, et a., supra, at
page 37, stated:
What we have sad does not forecose a true corporate agent or trustee from
handng the property and Income of ts owner-prncpa wthout beng ta abe
therefor. Whether the corporaton operates n the name and for the account of
the prncpa, bnds the prncpa by ts notons, transmts money receved to the
prncpa, and whether recept of Income s attrbutabe to the servces of em-
poyees of the prncpa and to assets beongng to the prncpa are some of the
reevant consderatons In determnng whether a true agency e sts. If the
corporaton Is a true agent, ts reatons wth Its prncpa must not be de-
pendent upon the fact that t Is owned by the prncpa. If such s the case. Its
busness purpose must be the carryng on of the norma dutes of an agent.

It s consdered that the prncpes enuncated by the Court n Na-
tona Carbde Corporaton et a., supra, appy not ony n cases n-
vovng a parent and ts subsdares, or a whoy-owned corporaton
and ts soe stockhoder, but aso n other stuatons where there s a
cose reatonshp between controng stockhoders and the corpora-
ton. Under those prncpes the utmate ssue n such cases s argey
one of fact, and t s accordngy deemed napproprate that any rung
be ssued n a case such as ths pror to the ta payers fng of ther
edera ncome ta returns coverng a perod of operaton under the
agreement and an e amnaton of such returns by an nterna revenue
agent. Ths procedure s n accordance wth sectons 3 and 6 of Reve-
nue Rung 5 -172, C. B. 195 -1,39 .
Reguatons 11 , Secton 39.22(a)-1: What Rev. Ru. 5 -599
ncuded n grossncome.
Revenue Rung 5 - 09, page 17 , ths Buetn, hods that copy-
rghts are dvsbe nto separate propertes and that a grant of the
e cusve rght to e pot a copyrghted work n a specfc medum
such as rado, teevson, moves or the stage, throughout the fe of the
copyrght transfers a property rght. Accordngy, where a ta payer
by deed of gft transfers and dvests hmsef of a rghts, tte, and
nterest n the dramatzaton rghts to hs nove necessary for ts pro-
ducton n a specfc medum, such as rado, teevson, moton pctures
or on stage, he s not abe for edera ncome ta wth respect to any
ncome dervng from hs former nterest n these rghts. Any ncome
from such dramatzaton rghts woud be ta abe to the donee to the
e tent provded by the Interna Revenue Code of 1939. Cf. dward
T. Bar v. Commssoner, 300 U. S. 5, Ct. D. 1205, C. B. 1937-1,175.
Reguatons 11 , Secton 39.22 (a)-1: What
ncuded n gross ncome.
Satsfacton at maturty of negotated detached nterest coupons.
See Rev. Ru. 5 -251, p. 172.
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53 Regs. 11 , 3D.22(a)-2.
Reguatons 11 , Secton 39.22 (a) -2: Compen- Rev. Ru. 5 - 20
saton for persona servces. -
(Aso Secton 2 (a), Secton 39.2 (a)-.)
Where an empoyee Is transferred n the Interest of hs empoyer
from one offca staton to another for permanent duty, the aow-
ance or rembursement receved for movng hmsef, hs Immedate
famy, househod goods and persona effects, s not Incudbe n
the gross Income of the empoyee If the tota amount of the rem-
bursement or aowance Is e pended for such purpose. Any e cess
of the nowance or rembursement over the actua e penses ncurred
for such purpose s ncudbe n bs gross Income. Any movng
e penses pad or Incurred by the empoyee n e cess of the aowance
or rembursement Is not deductbe for edera Income ta purposes.
O. D. 1135, C. B. 5,17 (1921) and I. T. 3022, C. B. -2,70 (1030),
modfed.
Reconsderaton has been gven to the poston of the Interna Rev-
enue Servce reatve to the treatment, for edera ncome ta pur-
poses, of amounts receved by an empoyee| representng aowances
or rembursements for movng hmsef, hs mmedate famy, house-
hod goods and persona effects, n the case of a transfer, n the nterest
of hs empoyer, from one offca staton to another for permanent
duty.
O. D. 1135, C. B. 5,17 (1021), hods that transportaton charges
pad by the Government on account of the transportaton of the
fames of Army offcers are n the nature of addtona compensaton
and as such must be ncuded n gross ncome, I. T. 3022, C. B. -2,
76 (1930), smary hods that the cost of transportaton of depend-
ents of offcers and ensted men of the Coast Guard whch s pad by
tho Government must be reported as ta abe ncome, and no deduc-
ton therefor may be aowed n computng net ncome. However,
n G. C. M. 1 30, C. B. 1937-1,137, t s hed that where an empoyee
of tho State Department s transferred from one foregn post of
duty to another for the convenence of the Government, the amount
receved by hm as rembursement of cost of transportaton for hm-
sef and famy shoud not be ncuded n gross ncome.
Secton 22(a) of the Interna Revenue Code of 1939 provdes n
part as foows:
Genera Defnton. Gross Income Incudes gans, profts, and ncome de-
rved from saares, wages, or compensaton for persona servce of what-
ever knd and In whatever form pad .
The payment or rembursement by an empoyer of the cost of mov-
ng an empoyee, hs mmedate famy, househod goods, and per-
sona effects from one pace of empoyment to another permanent
pace of empoyment, prmary for the beneft of the empoyer, s
not compensatory n nature. There s no essenta dfference between
a payment of such cost drecty by the empoyer and the payment by
the empoyee and subsequent rembursement by the empoyer.
Accordngy, t s concuded that (1) amounts receved by an em-
poyee from hs empoyer representng aowances or rembursements
or movng hmsef, hs mmedate famy, househod goods and per-
sona effects, n case of a transfer n the nterest of hs empoyer, from
one offca staton to another for permanent duty, do not represent
compensaton wthn the meanng of secton 22(a) of the Code, and
are not ncudbe n the gross ncome of the empoyee f the tota
amount of the rembursement or aowance s e pended for such pur-
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Regs. 11 , 39.22(a)-21. 51
poses (2) any e cess of the aowances or rembursements over the
actua e penses ncurred s ncudbe n the empoyee s gross ncome
and (3) any movng e penses pad or ncurred by the empoyee n
e cess of the aowances or rembursements are not deductbe for
edera ncome ta purposes, snce they represent persona, vng
or famy e penses wthn the meanng of secton 2 (a) of the Code.
In any case n whch the transfer s made prmary or the beneft
of the empoyee any aowance or rembursement receved by the em-
poyee s ncudbe n hs gross ncome.
Amounts receved as aowances or rembursements for meas and
odgng of the empoyee and hs famy whe awatng permanent
quarters at the new post of duty are ncudbe n gross ncomo of the
empoyee.
O. D. 1135, C. B. 5,17 (1921), and I. T. 3022, C. B. -2,70 (1930),
are modfed to the e tent that they are nconsstent wth the vews
e pressed heren.
Reguatons 11 , Secton 39.22(a)-20: Gross
ncomo of corporaton n qudaton.
Corporate qudaton under a proposed sae and purchase agree-
ment. See Rev. Ru. 5 -500, page 15 .
Reguatons 11 , Secton 39.22(a)-21: Trust Rev. Ru. 5 -516
ncome ta abe to the grantor as substanta
owner thereof.
A transferred certan rea estate to a trust, namng hmsef as
tmstec and bs chdren as benefcares. Under the terms of the
trust Instrument, the trust Is to contnue unt the youngest of the
chdren, or the survvor of them, becomes 21 years of age. The
ncome of the trust, wth certan e ceptons, s to be accumuated
n the trust durng the term of ts e stence. The grantor has not .
retaned a reversonary nterest n the trust corpus or ncome
therefrom nor a power to contro the benefca en|oyment of such
corpus or ncome. Upon termnaton of the trust, the corpus and :
accumuated ncome thereon w be dstrbuted to the benefcares
n equa shares. Hed, the Income of the trust s ta abe to the trust
and not the grantor-trustee. However, any ncome of the trust ds-
trbuted and apped for the support or mantenance of a benefcary
whom the grantor s egay obgated to support or mantan w
be ta abe to hm.
Advce s requested whether the ncome of a trust s ta abe to the
grantor under the foowng crcumstances.
A transferred to a trust for the beneft of B and C, hs chdren,
certan rea estate aganst whch there s a mortgage. The trust
nstrument names A as donor and trustee, and states that the trust sha
be deemed a gft n equa shares to B and C. The nstrument provdes
that the trustee sha receve and add to the corpus of the trust, any
property whch at any tme may be transferred, assgned, devered,
bequeathed or devsed to the trustee for the trust by the donor or by
any other person, or whch may otherwse be acqured by hm, or
whch he may receve under any nsurance poces made payabe
to hm by the donor or any other person. .
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55 Regs. 11 , 39.22(a)-21.
The trust nstrument provdes further that the ncome from the
rea estate sha be used frst to pay the necessary e penses of the.
trustee n the admnstraton of the trust, ta es on the rea estate,
nterest and prncpa on the mortgage, and e pense of mantanng
the property. The baance of the ncome from a trust propertes
shn be accumuated and added to the prncpa of the trust.
Notwthstandng the provsons drectng the accumuaton of n-
come n the trust, the trustee has the power, when he deems that the
ncome from the trust s suffcent to effectuate the purpose of the trust
and to meet ts current obgatons, to pay any or a of the ncome
of the trust (whether accumuated from pror years or receved
durng the current year) to a duy apponted guardan for ether or
both of the benefcares of the trust. Shoud tho trustee make such
n dstrbuton of ncome, such dstrbuted ncome sha be the prop-
erty of the benefcary outrght, under the contro of hs guardan.
Tho trust w contnuo unt C, tho youngest of tho chdren, be-
comes 21 years of age. Shoud cther benefcary de before C becomes
21 years of age, the trust w, nevertheess, contnue unt the survvor
of tho benefcares becomes 21 years of age, and n such event the
survvng benefcary upon reachng the age of 21 years sha receve
the entre corpus and accumuated ncome of the trust. Shoud both
benefcares de before the trust s termnated, the trustee sha con-
vey the entre trust estate to the awfu hers of the benefcary who
des ast. Broad powers of management are granted to the trustee.
However, the trustee may not make oans of trust money to hmsef
nor convey trust assets to hmsef. In no event sha any of the trust
ncome ever be used to pay the ega obgatons of the donor-trustee.
The donor has no rght or power to revoke the trust, and he may amend
the trust nstrument ony for the purpose of grantng addtona pow-
ers to the trustee. Such addtona powers, however, may not e tend
to ncude the power to grant any rght or beneft to the donor/
Secton 39.22(a)-21 of Reguatons 11 provdes that ncome of a
trust s ta abe to the grantor under secton 22(a) of the Interna
Revenue Code of 1939 where (1) the grantor has a reversonary n-
terest n the corpus or the ncome therefrom whch w or may rea-
sonaby bo e pected to take effect n possesson or en|oyment wthn a
reatvey short term of years (see secton 39.22(a)-21(c) of Regua-
tons 11 ), or (2) tho benefca en|oyment of the corpus or the n-
como therefrom s sub|ect to a power of dsposton (other than cer-
tan e cepted powers) e ercsabe by the grantor or another person
ackng a substanta adverse nterest n such dsposton, or both,
or (3) the corpus or the ncome therefrom s sub|ect to admnstratve
contro, e ercsabe prmary for the beneft of the grantor. Where
any one or more of the above condtons s present the ncome of such
trust s ta abe to the grantor.
Under the trust agreement, the grantor has not retaned a rever-
sonary nterest n the trust corpus or ncome -wthn the meanng of
secton 39.22(a)-21 of Reguatons 11 . The benefca en|oyment of
the trust corpus or ncome s not sub|ect to a power of dsposton by
the grantor or other person. Athough broad powers of admnstra-
ton are granted to tne grantor-trustee, the trust nstrument specf-
cay provdes that nether the corpus nor the ncome of the trust 3
sub|ect to admnstratve contro e ercsabe prmary for the beneft
of the grantor.
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Regs. 11 , 39.22(b) ()-2.) 56
Accordngy, t s hed that the ncome of the trust s ta abe to the
trust and not to the grantor. However, f any of the ncome of the
trust s used for the support of ether of the benefcares durng the
perod that the grantor s egay obgated to support such benef-
cares, the ncome so used w be ta abe to the grantor under secton
167 of the Code. urthermore, f the grantor remans abe n any
capacty, other than as trustee, for the mortgage on the rea estate
transferred to the trust, any ncome of the trust whch s used to pay
prncpa or nterest on such mortgage w be ta abe to hm. See
secton 39.167-2 of Reguatons 11 .
S CTION 22(b).-GROSS INCOM : CLUSIONS
ROM GROSS INCOM
Reguatons 11 , Secton 39.22(b) (1) 2:
payment by empoyer amounts pad by reason
2: Death Rev. Ru. 5 -531
of the death of an empoyee.
Lump sum payments made to benefcares of deceased empoyee
partcpants nnder a penson, proft-sharng or stock bonus pan
quafed under secton 1(15 (a) of tbe Interna Revenue Code of 1939,
to tbe e tent e ceedng tbe amount that woud bare been payabe
bad tbe empoyee s servces been vountary termnated Immed-
atey pror to death, may be e cuded from tbe benefcary s gross
ncome, mted to 5,000.
Advce s requested whether any part of ump sum payments made
to benefcares of deceased empoyee partcpants under a penson,
proft-sharngor stuck bonus pan quafed under secton 165(a) of
the Interna Revenue Code of 1939, s sub|ect to the e cuson pro-
vded under secton 22(b) (1) (B) of the Code.
In the nstant case, the pan provdes that on termnaton of a
partcpant s servce, before death or retrement, he w not share
n the empoyer s contrbuton for the year n whch such termnaton
occurs, and hs account w be reduced by and charged wth the por-
ton of the empoyer s contrbutons credted to hs account as of
the 2 ne t precedng years. The pan further provdes that on the
retrement or death of a partcpant the baance n hs account sha
be dstrbuted.
Under secton 39.22(bW-2 of Reguatons 11 , the e cuson
provded by secton 22(b) (1) (B) of the Code may be appcabe to
payments made, on account of the death of an empoyee, v a trust
meetng the requrements of secton 165(a) of the Code. The fore-
gong secton of the reguatons further provdes that the e cuson
does not appy to amounts wth respect to whch the deceased em-
poyee possessed, mmedatey pror to hs death, a nonforfetabe
rght to receve the amounts whe vng.
If, n the nstant case, the empoyee s servces are termnated, other
than by death or retrement, he w forfet the empoyer s contrbu-
tons made on hs behaf for the year n whch the termnaton occurs
pus such contrbutons for the 2 ne t precedng years. Ths porton
of the amount pad to a benefcary of a deceased empoyee s consd-
ered an amount payabe soey by reason of the empoyee s death.
Accordngy, t s hed that ump sum payments made on account
of the death of an empoyee, to the e tent e ceedng the amount that
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57 . Reg . 11 , 39.22 (b) (2)-1.
woud have been payabe had the empoyee s servces been vountary
termnated mmedatey pror to death, may be e cuded from the
benefcary s gross ncome, mted to 5,000.
Reguatons 11 , Secton 39.22(b) ()72:Death Rev. Ru. 5 -5 7
payment by empoyer amounts pad by rea-
son of the death of an empoyee.
(Aso Secton 1 26, Secton 0 .20 , Reguatons
12 Secton 1607, Secton 03.20 , Regua-
tons 107.)
Where t s determned that a common aw empoyer-empoyee re-
atonshp e sts, for edera empoyment ta purposes, under sec-
tons 1 26(d) and 1607() of the Interna Revenue Code of 1030, such
reatonshp w be consdered to e st for purposes of secton 22(b)
(1) (13) of the Code.
Reguatons 11 , Secton 39.22 (b) (2)-: Lfe Rev. Ru. 5 -26I
nsurance endowment contracts amounts
pad other than by reason of the death of the
nsured.
A ta payer who surrenders a snge premum endowment pocy,
pursuant to an eecton nnde at or pror to the maturty of the
pocy, n e change for cash and a pad-up fe Insurance pocy,
reazes ta abe Income under secton 22(b) (2) (A) of tbe Interna
Revenue Code. The amount of such ta abe Income Is the e cess
of (1) the cash pus the Tnue of the pocy receved over (2) the
premums pad, reduced by any dvdends pad or credted to tbe
pocyhoder. The phrase vaue of the pocy receved means the
same prce that any person of tbe same age, se , and condton of
heath as the ta payer woud hnve to pay for a smar pocy wth
the same company on the date the pocy Is surrendered. The cash
surrender vaue of the pocy Is not to be used for thspurose. Ths
prncpe woud aso appy to any other type of endowment pocy or
fe nsurance pocy surrendered n e change for cash and a dffer-
ent type of pocy.
Advce s requested whether ta abe ncome resuts from the surren-
der at maturty of a snge premum 10-year endowment pocy n
e change for cash and a partcpatng pad-up fe nsurance pocy
payabe at death.
On December 15, 19 3, the ta payer purchased a snge premum
10-year endowment pocy for a doars. The pocy provded for
the payment of 5a doars to the ta payer upon maturty of the pocy,
or payment of the same amount to a desgnated benefcary n the event
of the ta payer s death pror to maturty. Aso, t provded for two
optons whch the ta payer may e ercse at maturty n eu of other
benefts:
(1) Surrender of the pocy for a partcpatng pad-up fe
nsurance pocy for a doars payabe at death, or
(2) Surrender of the pocy for a partcpatng pad-up fe
nsurance pocy for 5a doars payabe at death, and the mmed-
ate wthdrawa of cash n the amount of 2a doars.
On December 15,1953, the maturty date of the pocy, the ta payer
under opton (2) above eected to surrender the pocy for a partc-
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Regs. 11 , ) 39.22(b)(2)-5.) 5
patng pad-up fe nsurance pocy for 5o| doars paynbe at death
and to receve 2sr doars n cash.
The Interna Revenue Servce has hed that f an nsured e ercses
hs rght under an opton to receve a pad-up fe nsurance pocy n
eu of a cash payment, he n effect e changes one knd of a pocy for
another and under certan crcumstances reazes ta abe gan as A
resut of such e change. SeeSo. Op. 55,C. B. 3,5 (1920). Apocy
s consdered surrendered for a dfferent type of pocy when a suppe-
mentary nsurance contract s ssued or the orgna pocy s amended
or endorsed n such a manner that the pocyhoder s nsured under
a dfferent type of pocy. S. M. 5G 0, C. B. -, 32 (1926), s ds-
tngushabe snce the pocyhoder n the case descrbed theren eected
to contnue the same pocy as pad-up fe nsurance.
In vew of the foregong, t s hed that where a snge premum en-
dowment pocy s surrendered, pursuant to an eecton made at or
pror to the maturty of the pocy, n e change for cash and a pad-up
fe nsurance pocy, ta abe ncome s reazed under secton 22(b)
(2) (A) of the Interna Revenue Code. The amount of such ta abe
ncome s the e cess of (1) the cash pus the vaue of the pocy receved
over (2) the premums pad, reduced by any dvdends pad or credted
to the pocyhoder. However, f the amount of the premums pad,
reduced by any dvdends pad or credted to the pocyhoder, e ceeds
the cash pus the vaue of the pocy receved, the dfference represents
a persona e pense wthn the ambt of secton 2 (a) (1) of the Code
and, therefore, s not deductbe for edera ncome ta purposes.
The phrase vaue of the pocy receved means the same prce that
any person of the same age, se and condton of heath as the ta -
payer woud have to pay for a smar pocy wth the same company
on the date the pocy s surrendered. The cash surrender vaue s not
to be used for ths purpose. Ths prncpe woud aso appy to any
other type of endowment pocy or fe nsurance pocy surrendered
n e change for cash and a dfferent type of pocy.
Reguatons 11 , Secton 39.22(b) (2)-5: m- Rev. Ru. 5 -267
poyees annutes.
Where annutes are purchased t y an organzaton e empt from
edera ncome ta under secton 101(6) of the Interna Rev-
enue Code for empoyees who have requested that ther saary pay-
ments be decreased by certan amounts and that such amounts be
apped towards the purchase of annuty contracts, the Incuson
In the gross Income of an empoyee of amounts thus pad by the
empoyer for the annuty contracts Is not deferred unt the year of
recept as provded n secton 22(b) (2) (II) of tuo Code.
Advoe s requested reatve to the ta abty for edera ncome
ta purposes of amounts pad by an organzaton e empt under secton
101(6) of the Interna Revenue Code to purchase annuty contracts
for empoyees who have requested that ther saary payments be
decreased by certan amounts and that such amounts be apped toward
the purchase of annuty contracts.
In the nstant case certan empoyees of an educatona organzaton
have requested ther empoyer to purchase annuty contracts for them
and to charge the cost of such contracts to ther saary payments.
mpoyees who have requested that ths be done ncude (1) some of
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59 Regs. 11 , 39.22(b) ( )- -
the fu tme empoyees now partcpatng n the organzaton s pres-
ent retrement pan, (2) some fu tme empoyees not now so partc-
patng, (3) some part tme empoyees not now partcpatng, and
( ) some grats empoyees (empoyees who perform certan servces
but receve no monetary compensaton) who desre to make annua
contrbutons to the organzaton and have t pay the annua premums
on annuty contracts.
Secton 22(b) (2) of the Code provdes n part as foows:
(b) cusons from Gkoss Income. The foowng Items sha not he In-
cuded In gross Income and sha be e empt from ta aton under ths chapter
chapter 1 of the Code :

(2) ANNUITI S, TC

(B) If an annuty contract Is purchased for an em-
poyee by an empoyer e empt under secton 101(6), the empoyee
sha Incude In hs Income the amounts receved under such con-
tract for the year receved e cept that If the empoyee pad any
of the consderaton for the annuty, the annuty sha be In-
cuded In hs Income as provded In subparagraph (A) of ths
paragraph, the consderaton for such annuty beng consdered
the amount contrbuted by the empoyee. .
It s hed that where annutes are purchased by an organzaton
e empt from edera ncome ta under secton 101(6) of the Code for
empoyees who, under the above crcumstances, have requested that
ther saary payments be decreased by certan amounts and that such
amounts be apped toward the purchase of annuty contracts, the
ncuson n gross ncome of an empoyee of the amounts thus pad
by the empoyer for the annuty contracts s not deferred unt the
year of recept as provded n secton 22(b)(2)(B) of the Code.
Revenue Rung 1 1, C. B. 1953-2, 111, reatng to amounts contrbuted
by the empoyer s not appcabe to the crcumstances e pressed
heren.
Reguatons 11 , Secton 39.22(b) ( )-: Inter- Rev. Ru. 5 -296
est upon State obgatons.
Income to be earned from the rentas of a muncpay owned
budng by a nonproft corporaton to be formed under the genera
corporaton aws of the State by a group of pubc sprted ct-
zens to cfTect desred Improvements to such budng, and whch
Income w never accrue to the beneft of any person, frm or
corporaton e cept the muncpaty, w be e empt from edera .
Income ta . Protmsed debenture notes to be Issued by the corpora-
ton for the purpose of fnancng the desred Improvements w
be consdered as ssued In behaf of the muncpaty, whch Is
the soe stockhoder of the corporaton, and the Interest pad
thereon w be e empt from edera ncome ta under secton
22(b) ( ) of the Interna Revenue Code.
Advce s requested regardng the treatment, for edera ncome
ta purposes o (1) a nonproft corporaton to be formed under the
genera corporaton aws of the State for the purpose of convertng
certan muncpay owned property to communty use and (2) n-
terest on the debenture notes to be ssued by the corporaton for the
purpose of fnancng such mprovements.
3331S S3 B
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Regs. 11 , 39.22(b)( )-. . 60
A group of pubc sprted ctzens fee that the cty of M has
pressng need of a structure sutabe for genera purposes, cvc and
recreatona use such as sportng events, varous schoo functons and
other muncpa enterprses. fforts have been made to get the cty
to convert certan of ts muncpay owned property nto such a
structure. However, due to many other demands for e pendtures
by the cty for capta mprovements of a very pressng nature, the
cty counc has been reuctant to approprate funds to effect such
converson.
It s proposed that a nonproft corporaton be formed to effect the
desred mprovements to the muncpay owned property and that a
of the capta stock of the corporaton be ssued to the cty of M n
e change for a ease on the property, the ease to provde that at the
end of ts term or as soon as the ndebtedness of the corporaton
s retred by t, or when the cty assumes or dscharges the out-
standng debt of the corporaton, whchever occurs frst, the cty
woud then become absoute owner of the mprovements.
Under the pan the funds necessary to make he mprovements
woud be borrowed on debenture notes ssued by the corporaton, se-
cured by a pedge of the net revenues from the rentas of the m-
proved property, and the debt woud be qudated from the proceeds
of operatons over a perod appro matey the ength of the ease.
None of the revenue w ever accrue to the beneft of any person, frm,
or corporaton, e cept the cty of M, whose ony drect beneft woud
be the vaue of the mprovements.
On the bass of the facts present n ths case, t s hed that the
ncome to be earned from the rentas of a muncpay owned budng
by a nonproft corporaton to be formed under the genera corporaton
aws of the State by a group of pubc sprted ctzens to effect de-
sred mprovements to such budng, and whch ncome w never
accrue to the beneft of any person, frm, or corporaton e cept the
muncpaty, w not be sub|ect to edera ncome ta .
Secton 22(b) ( ) of the Interna Revenue Code provdes, n part,
as foows:
(b) cusons rom Gross Income. The foowng Items sha not be
Incuded n gross Income and sha be e empt from ta aton under ths chapter:
A
( ) Ta -free nterest. Interest upon (a) the obgatons of a State,
Terrtory, or any potca subdvson, thereof, .
_ Accordngy, proposed debenture notes to be ssued by the corpora-
ton for the puropse of fnancng the desred mprovements w be
consdered as ssued n behaf of the muncpaty whch s the soe
stockhoder of the corporaton, and the nterest pad thereon w be
e empt from edera ncome ta under secton 22(b) ( ) of the In-
terna Revenue Code. Cf. Rev. Ru. 5 -10G, C. B. 195 -1,2 .
Reguatons 11 , Secton 39.22 (b) ( ) -1: Inter- Rev. Ru. 5 - 9C
est upon State obgatons.
The States of Mssour and Inos entered nto a compact creatng
the B-State Deveopment Agency of the Mssour-Inos Metro-
|tan Dstrct. Ths compact was confrmed by Congress, out
esouton of August 31,1950,6 Stat 5C .
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61 Regs. 11 , 39.22(b) (13)-1.
The Agency s desgnated as a body corporate and potc wth
authorty, among other thngs, to construct, mantan, own and oper-
ate brdges, tunnes, arports and termna factes generay bene-
fca to the dstrct. The Agency, s authorzed to ssue bonds upon
the securty of the revenues to be derved from the factes t operates
and/or upon any property hed by t Hed, the B-State Deveop-
ment Agency of the Mssour-Inos Metropotan Dstrct s a pot-
ca subdvson wthn the meanng of secton 22(b) ( ) of the Inter-
na Revenue Code of 1939. Accordngy, the nterest on the bonds
ssued by the Agency s e empt from edera ncome ta . See Com-
mssoner v. state of Ae ander Shamberg, 1 ed. (2d) 99 , Ct. D.
16 , C. B. 19 5,335, certorar dened 323 U. S. 792.
Reguatons 11 , Secton 39.22(b) (13)-1: Com- T. D. 6105
pensaton of members of the Armed orces of
the Unted States for servce n a combat zone
before anuary 1, 195 , or for servce whe
hosptazed as a resut of such combat-zone
servce.
(Aso Secton 25, Secton 39.25-2 Secton 29.25-3,
Reguatons 111.)
TITL 26 INT RNAL R NU . CHAPT R I, SUBCHAPT R A. PARTS 39 AND 29
Reguatons 113 and 111 amended to conform to sectons 1 and 3
of Pubc Law 213 ( 3d Cong.) approved August 7, 1053, reatng
to the e tenson of the appcabe perod of secton 22(b) (13) of the
Interna Revenue Code of 1039 and to the defnton of dependent.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On Apr 3, 195 , notce of proposed ruemakng wth respect to
amendments conformng the ncome ta reguatons to sectons 1 and
3 of Pubc Law 213 ( 3d Cong.) C. B. 1953-2, 75 , approved
August 7,1953, was pubshed n the edera Regster (19 . R. 1909).
No suggestons or protests were presented regardng the proposas,
and the foowng amendments to Reguatons 11 (26 C , pt. 39)
and 111 (26 C R, pt. 29) are hereby adopted:
R GULATIONS 11
Paragraph 1. Secton 39.22(b) (13) s amended as foows:
(A) By strkng the date anuary 1,195 from secton 22(b) (13)
wherever t appears, and by nsertng n eu thereof anuary 1,
1955 , and
(B) By nsertng sec. 1, Pubc Law 213 ( 3d Cong.) before the
cosng bracket of the hstorca note foowng secton 22(b) (13).
Par. 2. Secton 39.22(b) (13)-1 s amended as foows:
(A) By strkng from the headng and from the secton the date
anuary 1,195 wherever t appears, and by nsertng n eu thereof
anuary 1,1955 , and
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Regs. 11 , 39.22(b)(13)-1.) 62
(B) By strkng from the second sentence of paragraph (b) the
parenthetca phrase (ncudng a year after 1953) and by nsertng
n eu thereof (ncudng a year after 195 ) .
Par. 3. Secton 39.25 s amended as foows:
(A) By strkng the thrd sentence from secton 25(b) (3) whch
sentence reads or the purposes of determnng 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. and by nsertng n
eu thereof the foowng sentence:
or the purposes of determnng whether any of the foregong reatonshps e st
(1) a egay adopted chd of a person or (2) a chd for whch petton for
adopton was fed by a person n the approprate court and dened because of
menta ncapacty of survvng natura parent to agree to such adopton, sha be
consdered a chd of such person by bood.
and
(B) By nsertng sec. 3, Pubc Law 213 ( 3d Cong.) before
the cosng bracket of the hstorca note foowng secton 25.
Pah. . Secton 39.25-2 s amended as foows:
(A) By nsertng mmedatey precedng the frst sentence of para-
graph (e) the numera (1) , and
(B) By strkng the s th sentence of paragraph (e) (1), as so desg-
nated n (A) above, whch sentence reads A egay adopted chd of
a person sha be consdered a chd of such person by bood. and by
nsertng n eu thereof the foowng sentences:
A egay adopted chd of a person, or a chd for whch petton for adopton has
been fed by a person n the approprate court and dened because of the meuta
ncapacty of the survvng natura parent to agree to such adopton, sha be
consdered to become a chd of such person by bood as of the date on whch the
decree for adopton s ssued, or the petton for adopton Is dened because of
the menta ncapacty of the survvng natura parent to agree to such adopton.
or e ampe, durng 1952, a caendar yenr ta payer furnshed the chef support
of n chd wo had oss than 00 of gross Income for that year. A decree of
ndopto wh respect to that chd wan I surd In Pec nhcr 052. The ta payer
Is ru d to an e empton on behaf of the chd fur tn1 ta abe year 11). -, pro-
vdcd the other requrements of ts subparagraph, such rs ctzenshp or res-
dence of the dependent, are met. On the other hand, f the decree was ssued
n anuary 11)53, no e empton wth respect to the chd woud be aowabe to
the ta payer for the ta abe year 1052. Smary, If the petton for adopton
was dened n December 1052, because of the menta Incapacty of the survvng
natura parent to agree to such adopton, the ta payer woud be entted to an
e empton on behaf of t.e chd for the tn a oe year 1052, provded the requre-
ments of ths subparagraph are otherwse met. On the other hand, If such a
petton was dened n anuary 1053, no e empton woud be aowabe to the
ta payer wth respect to the chd for the ta abe year 1952. or the purposes
of ths secton a decree of adopton Incudes an Interocutory decree of adopton,
ony f under the appcabe State aw the ega effect of such decree s to de-
care the chd for a ntents and purposes to be the chd of the person so
adoptng.
R GULATIONS 111
Par. 5. There s nserted mmedatey precedng secton 29.25-1 the
foowng:
PUBLIC LAW 213, IGHTT-THIRD CONGR SS
APPRO D AUGUST 7, 1053
,
Sec. 3. (a) That the thrd sentence of secton 25(b) (3) of the Interna
Revenue Code, reatng to the defnton of dependent, s amended to read
as foows: or the purposes of determnng whether any of the fore-
gong reatonshps e st (1) a egay adopted chd of a person or (2)
a chd for whch petton for adopton was fed by a person n the appro-
prate court and dened because of menta Incapacty of survvng oat .
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63 Regs. US, 39.22(b)(13)-.
ora parent to agree to such adopton, sha be consdered a chd of such
person by bood.
(b) The provsons of subsecton (a) sha be appcabe to ta abe
rears begnnng after December 31,10 5.

Par. 6. Secton 29.25-3, as amended by Treasury Decson 5903
C. B. 1953-1,9 , approved ebruary 1 ,1953, s further amended as
foows:
(A) By nsertng after the eghth sentence of paragraph (M whch
sentence reads A egay adopted chd of a person sha be con-
sdered a chd of such person by bood. the foowng sentence:
See paragraph (d) (5) of ths secton.
(B) By nsertng at the end of paragraph (c) the foowng
sentences:
In addton, a chd for whch petton for adopton was fed by a person n the
approprate court and dened because of the menta Incapacty of the survvng
natura parent to agree to such adopton sha be consdered a chd of such person
by bood. See paragraph (d) (5) of ths secton.
and
(C) By deetng the s th sentence of the frst unnumbered sub-
dvson of paragraph (d)(5) (26 C R. sec, 29.25-3(d) (5)()),
whch sentence reads A egay adopted chd of a person sha be con-
sdered a chd of such person by bood. and by nsertng n eu
thereof the foowng sentences:
A egay adopted chd of a person, or a chd for whch petton for adopton
has been fed by a person In the approprate court and dened because of tbe
menta Incapacty of the survvng natura parent to agree to such adopton, sha
be cousdcred to become a chd of such person by bood as of the date on whch
the decree for adopton Is Issued, or the petton for adopton Is dened because
of the menta Incapacty of tho survvng natura parent to agree to such
adopton. or e ampe, durng 101 , a caendar year ta payer furnshed the
chef support of a chd who had ess than fCOO of gro s Income for that year.
A decree of adopton wth respect to that chd was suet In December .
The ta payer Is entted to an e empton on behaf of the chd for the ta abe
year 10 3, provded the other requrements of ths subdvson of ths subpara-
graph, such as ctzenshp or resdence of the dependent, are met. On the
other band, f the decree was Issued u anuary 10 9, no e empton wth respect
to the chd woud be aowabe to the ta payer for the ta abe year 10 .
Smary, If the petton for adopton was dened In December 19 , because of
the menta Incapacty of the survvng natura parent to agree to such adopton,
the ta payer woud be entted to an e empton on behaf of the chd for the
ta abe year 1913, provded the requrements of ths subdvson of ths sub-
paragraph are otherwse met. On the other band. If such a petton was dened
n anuary 19 9, no e empton woud be aowabe to the ta payer wth respect
to the chd for the ta abe year 10 . or the purposes of ths secton a decree
of adopton Incudes.an Interocutory decree of adopton, ony f under the
appcabe State aw the ega effect of such decree Is to decare the chd for a
ntents and purposes to be the chd of the person so adoptng.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 of the Interna Revenue Code of 1939 (53 Stat 32,
67 26U.S.C.62,3701).)
O. Gordon Dek,
Actng Commssoner of Interna Revenue.
Approved October 1,195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster October 0,105 , : 5 a. m.)
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Reg-. 11 , 39.22(b)(16)-. 6
Reguatons 11 , Secton 39.22 (b) (13)-1: Com- ev, Ru. 6 -517
pensaton of members of the Armed orces of
the Unted States for servce n a combat zone
before anuary 1, 1955, or for servce whe
hosptazed as a resut of such combat-zone
servce.
urope s not a combat zone wthn the meanng of secton
22(b) (13) of the Interna Revenue Code of 1939 as added by the
Revenue Act of 1950 and amended by the Act of August 7,1953, 67
Stat 71, C. B. 1953-2, 75. Hence, the e cusons provded by sec-
ton 22(b) (13) of the Code do not appy to compensaton receved
by members of the armed forces statoned n urope. The ony area
whch the Presdent of the Unted States has desgnated as a combat
zone, under the provsons of that secton, s orea and waters ad|a-
cent thereto. See ecutve Order 10195, C. B. 1951-1, 6.
Reguatons 11 , Secton 39.22(b) (16)-1: Pro- T.D. 6110
ceeds from certan sports programs conducted
for the beneft of the Amercan Natona Red
(Aso Secton 23(a), Secton 39.23 (a)-1 Secton
23(q), Secton 39.23 (q)-.)
TITL 20 INT RNAL R NU . CHAPT R I, .SUBCHAPT R A, PA T SO.
INCOM TA : TA ABL T A S B GINNING A T R D C MB R 31, 1031
Hernatons 11 amended to conform to sectons 1, 2, and 3 of
Pubc Law C3 C. B. 1052-2, 35G , ghty-second Congress.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On uy 2,195 , a notce of proposed ruemakng regardng amend-
ments to conform Reguatons 11 (26 C R, pt. 39) to the provsons
of sectons 1,2, and 3 of Pubc Law G5 C. B. 1952-2, 35G ghty-
second Congress, approved uy , 1952, reatng to e cuson from
gross ncome of proceeds of sports programs conducted for the Amer-
can Red Cross, was pubshed n the edera Regster (19 . R. 035).
No ob|ectons to the rues proposed havng been receved, the amend-
ments set forth beow are hereby adopted:
Paragraph 1. There s nserted mmedatey precedng secton
39.22(c) the foowng:
Sec. 30.22(b) (1 )-1. nocrros rom Certan Srorrs Programs Conducted for
the Beneft of the Amercan Natona IIed Cross (a) In genera. Under
secton 22(b) (10), a corporaton prmary engaged n the furnshng of sports
programs may e cude from ts gross Income amounts receved as proceeds from
a sports program conducted by such corporaton f each of the foowng requre-
ments Is met:
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65 Reus. 11 , I 39.22(b) (16)-1.
(1) The corporaton agrees In wrtng wth the Amercan Natona Bed
Cross after uy , 1952, to conduct such sports program e cusvey for the
beneft of the Amercan Natona Red Cross
(2) The sports program Is conducted after uy ,1932
(3) The corporaton turns over to the Amercan Natona Red Cross a
the proceeds from such sports program, ess ony the e penses pad or
Incurred by such corporaton whch woud not have been pad or Incurred
but for such sports program and whch woud be aowabe as deductons
under secton 23(a) (1) (A) but for the ast sentence of such secton and
( ) The factes of the corporaton used In conductng such sports pro-
gram are not reguary used durng the ta abe year for the conduct of
aports programs to whch secton 22(b) (10) appes.
(b) Certan corporatons negbe. Secton 22(b) (16) does not appy In the
case of a corporaton organzed or operated prmary to conduct or furnsh, or
to partcpate n the conduct or furnshng of, one or more sports programs for
the Amercan Natona Red Cross.
(c) Proceeds from a sports program. The proceeds from a sports program
conducted for the beneft of the Amercan Natona Red Cross Incude a amounts
receved by the conductng corporaton, rrespectve of when receved, on account
of such sports program, whch amounts woud be Incudbe In the gross Income
of such conductng corporaton, e cept for the provsons of secton 22(b) (16).
Where the actvtes carred on In connecton wth the sports program Incude
the sae or renta of rado, teevson, or move rghts, refreshments, souvenrs,
parkng factes, programs, advertsng, or other goods and servces, whether
sod or rented drecty or through concessonares, the amounts receved by the
conductng corporaton from such sports program Incude a amounts receved
from such actvtes, but ony where such amounts woud not have been receved
by tho conductng corporaton but for the presentaton of the partcuar sports
program. Where the conductng corporaton receves payments for concessons
on an annua or seasona bass, and such payments are not Increased because of
the partcuar sports program, such payments are not consdered as proceeds
from such sports program, and any e penses pad or Incurred by the conductng
corporaton on account of such concesson operatons are not deductbe under
secton 22(b) (16) (B) n determnng the amount of the proceeds from such
sports progrnm whch the conductng corporaton Is requred to turn over to
the Amercan Natona Red Cross nor are the proceeds of a sports progTam
consdered to Incude amounts receved by the conductng corporaton for the
State and turned over to the State, such as ta es or the breakage on a par-
mutue wagerng poo.
(d) Sports programs. (1) Secton 22(b)(16) appes where the program
furnshed by the conductng corporaton conssts of snorts events such as base-
ba, footba, or basketba games, racng programs, or the ke, but It does not
appy to programs or events such as moton pctures, crcuses, dance programs,
or the ke, whch are prmary amusement rather than compettve athetc
portng events.
(2) A sports program Incudes a of the events normay makng up a fu
program In the partcuar sport A snge race of a racng program consstng
of more than one race woud not consttute a sports program, nor woud one
baseba or basketba game of a doubebeadcr program consttute a sports
program.
Par. 2. Secton 39.23 (a)-1 s amended by addng at the end thereof
tho foowng sentence:
In the case of any sports program to whch secton 22(b) (16) appes, e penses
descrbed In secton 22(b) (16) (B) shn be aowabe as deductons under sec-
ton 23(a) ony to tho e tent that such e penses e ceed the amount e cuded
from gross ncomo under secton 22(b) (16).
Par. 3. Secton 39.23(q)-(a) s amended by addng at the end
thereof the foowng sentence:
or the purposes of secton 23(a), amounts e cuded from the gross Income of
the ta pnyer under secton 22(b) (10) are not to be consdered contrbutons or
gfts.
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Regs. 11 , 39.22(d)- . 66
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 of the Interna evenue Code of 1939 (53 Stat 32,
67 26U.S.C.62,3791).)
T. Coeman Andhews,
Commssoner of Interna Revenue,
Approved October 20,195 .
M. B. oLSOr,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster October 25, 105 , : 0 a. m.)
S CTION 22(b) (7). GROSS INCOM : CLUSIONS ROM
GROSS INCOM : INCOM MPT UND R TR ATY
Trade or busness status of an agency under the ncome ta conven-
ton between the Unted States and the Unted ngdom. See Rev.
Ru. 5 -5SS, page 657.
S CTION 22(d). GROSS INCOM : IN NTORI S-
L CTI M THOD
Reguatons 11 , Secton 39.22(d)-: Last-n Rev. Ru. 5 - 53
frst-out nventores.
Prce Inde es for uy 105 , pubshed by the Bureau of Labor Sta-
tstcs on September 3, 103 , for use by department stores empoy-
ng the reta Inventory and eectve Inventory methods.
The foowng prce nde es for uy 195 , pubshed by the Bureau
of Labor Statstcs on September 3,195 , for use by department stores
empoyng the reta nventory and eectve nventory methods, are
accepted by the Interna Revenue Servce pursuant to Treasury De-
cson 5605, C. B. 19 -1,16, and Mmeograph 62 , C. B. 19 -1,21,
for approprate appcaton to nventores for ta abe years of 12
months ended on une 30,195 , and uy 31,195 .
Inde es are gven on a natona bass for the store tota, for 20 ma|or
groups of departments, and for two speca group combnatons. The
store tota ncudes a departments n the store, both those sted n
the groups and those not specfcay sted, e cept for candy, foods,
quor, toDacco, and pants and wapaper. Contract departments are
aso e cuded.
ffectve wth the uy 195 Department Store Inventory Prce
Inde , the revson program whch began n 1952 has been competed.
The fna change, that of the necessary ad|ustments n the depart-
menta groupng to make them conform wth the new departmenta-
zaton pan of the Controers Congress of the Natona Reta Dry
Goods Assocaton, was ncorporated nto the uy 195 nde . These
ad|ustments were mnor and had practcay no effect on nde for the
20 departments.
The Controers Congress of the Natona Reta Dry Goods Assoc-
aton has revsed ts system of numberng the departments n ts
Manua of Departmenta Merchandse Content for Dcpartmentzcd
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67
IRegs. 11 , 39.22(d) I.
Stores. or ta payers empoyng the new numberng system, tabe
II shows the department or departments to whch each of the 20
group nde es s appcabe:
Tabu I. Bureau of Labor Statstc , department tore nventory prce Mercs,
by department group),
( anuary IW-oo
Percent
chance from
uy 19.53 to
Department groups
uy 1053
uy IBM
uy 195
203.3
203.1
196. U
215.5
212.7
170.9
171.9
2113.3
212.1
212.1
172.7
172.7
172.7
170.6
ITS. 2
201.6
201.6
21)1.6
163.
163.5
163.
210.
105.
1 3.
157.
157. 5
n. 3
17a 5
.
1.A
0.3
. Men s cothng ........... .....
205.3
19 .7
201.9
16 .
11 12
165.
I. Men sfurnshngs . .
-HI 1
I . Notons
. Toet artces and drugs
1.1
II. oor coverng
2as
19a
2.9
197.9
151.0
-ft. I
.3
152.1
-3.S
Tota Oroups I-
ISO. 3
1S .7
1 9.0
a |
Tota Oroups I-
ea 6
-as
as
1 9.6
1 .7
The uy 1953 Inde tor each of the 20 revsed groups Is the same as the Inde for the former group of
whch the revsed group was a part. or e ampe, the. uy 1953 Inde for former roup 1 has become
uy 1953 Inde for tho rcvsod Oruups I and II.
Tabe II. Revsed codng of Controer Congreu Department
RetUe Department Croups Hated Con/rot/trs Cmtreu Department
No.
Nama
No.
Name
I. Pece goods
II. Domestcs and draperes
III. Women s and chdren s
shoes
I . Men s and boys shoes
. Infants wear
I. Women s underwear
II. Women s and grs hosery
III. Women s and grs acces-
sores
I . Women s outerwear and
grs wear
11-00 Pece goods
15-00 Househod te tes
6 -11 Curtans, draperes and decorator
fabrcs
39-00 Women s and chdren s shoes
63-00 Men s and boys shoes
-12 Infants appare and furnture
36-00 Corsets and brasseres
3 -00 Underwear and neggees
37-00 Women s and chdren s hosery
32-00 Neckwear and accessores
33-00 Handbags and sma eathers
35-00 Women s and chdren s goves
and mttens
3 -00 Mnery
1-00 Coats and suts, women s, msses
and |unors
2-00 Dresses, women s, msses and
|unors
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Regs. 11 , 39.22(n)-.
6
Tad . Revsed codng of Controer Congress Departments Contnued
Redd Department Groups evtted Controers Congress Department
No.
Nome
No.
Nnma
I . Women s outerwear and
grs wear Contnued
. Men s cothng
I. Men s furnshngs
II. Boys cothng and fur-
nshngs
III. ewery and sverware
I . otons
. Toet artces and drugs
I. urnture and beddng
II. oor coverng
III. Housewares
I . Ma|or appances
. Rado and teevson sets
I. No separate nde com-
puted
5-00
3-00
6-00
-11
51-11
or
51-1
and
51-26
61-12
or
51-15
and
51-27
52-00
2 -00
12-00
21-00
25-00
31-00
22-00
61-00
62-00
63-00
65-00
66-21
67-00
6 -12
66-12
6 -00
69-00
26-00
66-22
71-00
72-00
73-00
7 -00
75-00
76-00
77-00
7 -00
79-00
1-00
Houscdrcsses, aprons, and unform
mouses and sportswear
urs
Grs and teen age appsre
Men s cothng
Men s cothng
Men s sport cothng
Men s furnshngs
Men s furnshngs
Men s casua furnshngs
Boys cothng and furnshngs
ewery and sverware
Patterns
Notons, aces, trmmngs and
rbbons
Art needework
Umbreas
Toet artces and drug sundres
urnture and beds
Orenta rugs
Domestc foor coverng
Chna, gassware and gft shop
Housewares
Pctures, frames and mrrors
Lamps and shades
Ma|or appances
Rado, teevson and records
Panos and musca nstruments
Books and statonery
Wapaper and pant
ower shop
Automobe accessores
Pet accessores and pet shop
Toys, sportng goods and cameras
LuRgago
Candy
oods and groceres
resh and smoked meats
Lquor shop
Smoke shop
S CTION 22(n). GROSS INCOM : D INITION O
AD UST D GROSS INCOM
Reguatons 11 , Secton 39.22 (n)-: Ad|usted
gross ncome.
Wagerng osses of a ta payer, not n the trade or busness of
gambng. See Rev. Ru. 5 -339, page 9.
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69 Regs. 11 . 39.23(a).
R GULATIONS 11 , S CTION 39.22(n)-: Ad-
|usted gross ncome.
Traveng e penses of ndvdua ta payers n connecton wth the
performance of servces as empoyee. See Rev. Ru. 5 - 97, page 75.
R GULATIONS 11 , S CTION 39.22(n)-: Ad|usted
gross ncome.
Ta es pad by ndvduas pursuant to Cty Ordnance No. 3, Seres
1950, as amended, of Lousve, entucky. See Rev. Ru. 5 -593,
page 121.
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S
R GULATIONS 11 , S CTION 39.23 (a): penses. T.D.6096
(Aso Secton 23(m), Sectons 39.23(m)-,
39.23(m)-15 Secton 23(cc). Secton
39.23 (cc)- Secton , Sectons 39. -3,
39. - Secton 51, Secton 39.51-1 Secton
131, Secton 39.131 (b)- Secton 1 3, Sec-
ton 39.1 3-7 Secton 217, Secton 39.217-1.)
TITL 20 INT RNAL R NC . CHAPT R I, SUBCHAPT R A. PART S9. IN-
COM TA : TA ABL T A S B GINNING A T R D C MB R 31. I 31
Reguatons 11 amended to Incorporate theren a provson of
Pubc Law 17 ( 3d Cong.), to change the desgnaton of the off-
ca wth whom certan documents sha be fed, and to correct
certan cerca errors.
TR ASURY D PARTM NT,
O IC O COMMISSION R O INT RNAL R NU ,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
T.n order to ncorporate n Reguatons 11 (26 C R, pt. 39) a pro-
vson of the Legsatve- udcary Appropraton Act, 195 (Puoc
Law 17 ( 3d Cong.) C. B. 1953-2, 73 , 67 Stat 31 ), to change
the desgnaton of the offca wth whom certan documents sha be
fed, and to correct certan cerca errors n Reguatons 11 whch
occurred n the revson of Reguatons 111 (26 C R, 19 9 ed., Supps.)
for Reguatons 11 , such reguatons are amended as foows:
PARAGRAPH 1. Secton 39.23(a) s amended by addng at the end
thereof the foowng statutory provson:
S C. 39.23(a). STATUTOBT PRO ISIONS D DUCTIONS ROM GROSS INCOM
P NS S.

Legsatve- udcary Appropraton Act, 105 .
In the case of ta abe years begnnng after December 31, 1953, the
pace of resdence of a Member of Congress (Incudng any Deegate and Res-
dent Commssoner) wthn the State, congressona dstrct. Terrtory, or pos-
sesson whch be represents n Congress sha be consdered hs home for te
purposes of secton 23(a)()(A) of the Interna Bevenue Code, bat amounts
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Regs. 11 , 39.23(a).) 70
e pended by such Member wthn each ta abe year for vng e penses sha not
be deductbe for Income ta purposes n e cess of 3,000.
Pub.Law 17 ( 3d Cong.)
ab. 2. The ne t to the ast sentence of secton 39.23(m)-(e)( ),
as amended by Treasury Decson 6059 C. B. 195 -1, 0 , approved
anuary ,195 , s amended by strkng the words as the transporta-
ton ncuded wthn the term mnng s to such tota transportaton
at the end of the sentence and nsertng n eu thereof the words as
the e cess transportaton s to such tota transportaton . As
amended, secton 39.23(m)-(e) ( ) w read as foows:
Sec. 39.23(m)-. Depeton of Mnes, Ore and Gas Wets, Oteb Natura
Deposts, and Tmber Deprecaton or Improvements. ,
( )
( ) In determnng grow Income from the property , the soe prce of the
product sha not e reduced by the costs and proportonate profts attrbutabe
to the transportaton whch Is treated for such ta abe year as mnng, that Is,
so much of the transportaton of ores or mneras (whether or not by common
carrer) from the pont of e tracton from the ground to the pants or ms In
whch the ordnary treatment processes nro apped thereto as Is not In e cess
of SO mes (or, f the Commssoner fnds that both the physca and other
requrements are such that the ore or mnera must be transported a greater
dstance to such pants or ms, such greater dstance). Where such pants
or ms are In e cess of 50 mes (or of such greater dstance) from the pont
of e tracton from the ground, then costs ncurred for transportaton n e cess
of 50 mes (or of such greater dstance) to the treatment pant and, f trans-
ported by the ta payer, the proportonate profts attrbutabe to such e cess
transportaton shoud be subtracted from the sae prce of tbe product to deter-
mne gross Income from the property. In the absence of methods whch w
ceary refect costs of the varous phases of transportaton, the costs attrbutabe
to such e cess transportaton sha be an amount whch s n the same rato to
the costs ncurred for the tota transportaton to the treatment pant as the
e cess transportaton s to such tota transportaton. If the ta payer estab-
. shes to tbe satsfacton of the Commssoner that another method of compu-
taton other than the computaton of profts proportonate to cost ceary
refects the gross Income from the property, then such gross Income sha be
computed by tbe use of such other method.

Par. 3. Secton 39.23(m)-15 (a) s amended to read as foows:
Sec. 39.23(m)-15. Aowabe Capta Addtons n Case of Mnes. (a)
Genera rue. pendtures for pant and equpment and for repacements, not
ncudng e pendtures for mantenance and for ordnary and necessary repars,
sha ordnary be charged to capta accouut recoverabe through deprecaton.
pendtures for equpment (Incudng ts Instaaton and housng) and for
repacements thereof, whch are necessary to mantan the norma output soey
because of the recesson of the workng faces of the mne, and whch (1) do not
Increase the vaue of the mne, or (2) do not decrease tbe cost of producton
of mnera unts, or (3) do not represent an amount e pended n restorng prop-
erty or In makng good the e hauston thereof for whch an aowance s or has
been made, sha be deducted as ordnary and necessary busness e penses.

Par. . Secton 39.23 (cc)- s amended by
(A) Strkng from the ast sentence of paragraph (a) (1) the
parenthetca e presson readng (notwthstandng the provsons
ofsec.39.23(m)-15) and
(B) Strkng the ast sentence of paragraph (b) (1) and nsertng
n eu thereof a sentence readng
The mne w ,be consdered to have passed from a deveopment to a producng
status when the ma|or porton of tbe mnera producton s obtaned from work-
ngs other than those opened for the purpose of deveopment, or when the
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71 (Rep. 11 , 39.23(a.).
prncpa actvty of ths mne becomes the producton of deveoped ore rather
than the deveopment ot addtona ores for mnng.
As amended, secton 39.23(cc)-1(a)(1) and (b)(1) w read as
foows:
Sec. 39.23(ce)-. Mnrg Deveopment pendtures. (a) Aowance of de-
ducton. (1) Secton 23(cc)() provdes for a deducton from gross Income
of a e pendtures for the deveopment of a mne or other natura depost (other
than an o or gas we) pad or Incurred by the ta payer after the e stence
of ores or mneras n commercay marketabe quanttes has been dsco.-ot
sub|ect to the foowng rues. The deducton Is not aowabe wth resp - rt
to e pendtures for the acquston or Improvement of property of a character
sub|ect to aowance for deprecaton under secton 23(1). However, aowances
for deprecaton sha be consdered for the purposes of ths secton as e -
pendtures for deveopment to the e tent aocabe to deveopment. Such de-
veopment e pendtures are deductbe under secton 23(cc)() whether pad
or ncurred by the ta payer whe the mne or depost Is In the deveopment
or who In the producton stage,

(b) ecton to defer. (1) A ta payer entted to the deducton under sec-
ton 23(cc)() may, In eu of takng snch deducton In the year when the
e pendtures for deveopment were pad or Incurred, eect under secton
23(cc)(2) to treat such e pendtures as deferred e penses to be deducted
rataby as the unts of the produced ore or mneras beneftted by the e -
pendtures are sod. In the case Of such e pendtures pad or Incurred whe
the mne or depost Is In the deveopment stage, the eecton s appcabe ony
In respect of the e cess of such e pendtures pad or Incurred durng the ta abe
year over the net recepts durng the ta abe year from the ore or mneras
produced from the mne or depost. The amount of such e pendtures not n
e cess of net recepts from the ore or mnera for the ta abe year whe
the mne or depost s In the deveopment stage sha be deductbe In fu. The
mne w be consdered to have passed from a deveopment to a producng
status when the ma|or porton of the mnera producton s obtaned from
workngs other than those opened for the purpose of deveopment, or when the
prncpa actvty of the mne becomes the producton of deveoped ore rather
than the deveopment of addtona ores for mnng.

Par. 5. Secton 39. -3(a) s amended by strkng secton
39. -2(a) (1) and nsertng n eu thereof secton 39. -2(b) (1), .
As amended, secton 39. -3(a) w read as foows:
Sec. 39. -3. Sae or Rea Property on Instament Pan. (a) In trans-
actons ncuded n secton 39. -2(b) (1), the vendor may return as Income
from such transactons In any ta abe year that proporton of the Instament
payments actuay receved n that year whch the tota prot reazed or to be
reazed when the property Is pad for bears to the tota contract prce.

Par. 6. Secton 39. - (a) s amended by strkng secton
39. -2(a) (2) and nsertng n eu thereof secton 39. -2(b) (2) .
As amended, secton 39. - (a) w read as foows:
Sec. 39. - . Deferred-Payment Sat or Rea Property Not on Insta-
ment Pan. (a) In transactons Incuded In secton 39. -2(b) (2), the ob-
gatons of the purchaser receved by the vendor are to be consdered as the
equvaent of cash to the amount of ther far market vaue n ascertanng
the proft or oss from the transacton.

Par. 7. A new subdvson (v), readng as foows, s added to
secton 39.51-(b) (1).
Sec. 39.51-1. Indvdua Returns
(b) ont return (1) In genera.
(v) A ont return of a husband and wfe (If not made by an agent) sha
be sgned by both spouses. An oath Is not necessary, but both spouses sha
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Regs. 11 , 39.23(a).
72
verfy the return as provded In secton 51. If sgned by one spouse as agent
for the other, authorzaton for such acton must accompany the return. The
ponse actng as agent for the other sha, wth the prncpa, assume the re-
sponsbty for makng the return and ncur abty for the penates provded
for erroneous, fase, or frauduent returns. See secton 30.51-2.
Pah. . Secton 39.131 (b)-(g) s amended to read as foows:
Income and
COUNTRY
Net Income
Loss
profu taes (pad
157, 500
30, 000
20, 000
0, 000
GO, 000
or accrued)
17, 000
12, 000
100, 000
5 SOO
10, 000
50,000
20, 000
2, 250
19, 000
I, 000
Sec. 9 31(b)-. Lmtatons on Credt tor oregn Ta es.
(g) The appcaton of paragraph (f) of ths secton may be Iustrated by
the foowng e ampe:
ampe: (1) The net Income for the caendar year 1052 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 are as foows:
Net ncome 2 7,500
Less: Unted States bond Interest e empt from norma ta . 25,000
Norma-ta net Income . 202,500
Surta net ncome -_: 2 7,500
Tota foregn net ncome . 130,000
Unted States ta (not Incudng ta Imposed under secton
102):
Norma ta 7 , 750 .
Surta 57.750
130,500
The Income 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 corpora-
ton, a ma|orty of the votng stock cf whch was owned by the domestc corpora-
ton. The rench cor oraton pad to rance Income and profts ta es on ncome
earned by t and n addton a dvdend ta for the account of ts sharehoders
on ncome dstrbuted to them, the atter ta beng wthhod nnd pad at the
source.
(2) The credt Is 07,C0O computed as foows:
GR AT BRITAIN
Income and profts ta es pod or accrued . .
Lmtaton under secton 131(b) (1):
gg A.
Tentatve credt _
17,000
15,000
15,000
CANADA
Income and profts ta es pad or accrued.. . . ... ...... .. 12,000
Lmtaton under secton 131(b) (1) :
20 OOO
13G,500 . _._.__ 10, 00
2C2,500
Tentatve credt..
.10, 00
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73
Regs. 11 , 39.23(a).
BRAZIL
Income and profts ta es pad or accrued.
Lmtaton under secton 131(b) (1):
Tentatve credt..
Tentatve credt......
NICARAGUA
M ICO
Tentatve credt...............
PU RTO ICO
Income and profts ta es pad or accrued.......
Lmtaton under secton 131 (t) (1):
10,000.
262, COO
Tentatve credt.
136,500
RANC
Dvdend ta pad at source . ...._.__
Income and profts ta es pad or accrued on brancb operatons
Income and profts ta es deemed under secton 131(f) to bave been
pad, computed as foows:
Dvdend receved on Dec. 31 of the ta abe year 50,000
Income of rench corporaton earned durng ta abe year 200,000
Income and profts ta es pad to rance on 200,000 30,000
Accumuated profts ( 200,000 mnus : 0,000) 170,000
rench ta es appcabe to accumuated profts dstrbuted:
5, 00
20, 00
5. 00
None
None
2,250
5,200
2, ISO
10,000
11.000
50.000 . 170,000
170,000
of
200,000
of 30,000.
7,500
Tota Income and profts ta es pad or accrued and deemed to have
been pnd to rance .... ., , 37,500
Lmtaton under secton 131 (b) (1):
70,000
262,500
Tentatve credt
130,500.
Oreat Brtan
Canada . ...
Braz
Puerto Rco..
rance
SUM O T NTATI CR DITS
67,600
36,100
15,000
10, 00
5.R0O
2,230
36, 00
Lmtaton on sum of tentatve credts under secton 131 (b) (2) to
determne credt:
130,000
2G2.500 1 ,0 o00
70, 50
Tota amount of credt aowabe (sum of tentatve credts or the mta-
ton under secton 131(b) (2), whchever Is the esser)..
AAA
07,000
67,600

Par. 9. Secton 39.1 3-7, as amended by Treasury Decson 6059,

approved anuary .195 , s further amended by
(A) Insertng before the perod at the end of the second sentence
of paragraph (a) a cause readng
, e cept that, for ta abe years endng on or after December 31,105 , the return
shoud be fed wth the Dstrct Drector of Interna Revenue, Batmore 2,
Maryand
and
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Regs. 11 , 5 39.23(a).) 7
(B) Insertng after the phrase n whch such person s ocated n
paragraph (b) the foowng parenthetca e presson:
(to the Dstrct Drector of Interna Revenue, Batmore 2, Maryand, In the case
of returns for ta abe years endng on or after December 31,11)5 ).
As amended, secton 39.1 3-7(a) and (b) w read as foows:
Sec. 39.1 3-7. Retuhn and Payment or Ta Wthhed. (a) very wth-
hodng agent sha mnke on or before March 15 an annua return on orm
-1013 of the ta wthhed from Interest on bonds or other obgatons of corpora-
tons and nterest on obgatons ssued by the Unted States or any agency
or nstrumentaty thereof on or after March 1, 19 1. Ths return shoud be
fed wth the dstrct drector for the Interna revenue dstrct In whch the
wthhodng agent s ocated, e cept that, for ta abe years endng on or after
December 31, 195 , the return shoud be fed wth the Dstrct Drector of
Interna Revenue, Batmore 2, Maryand. The wthhodng agent aso sha
make a quartery return on orm 1012 on or before the ast day of the month
foowng the termnaton of the quarter for whch the return Is made. The
ownershp certfcates. orms 1000 and 1001, must be forwarded to the Com-
mssoner wth the quartery return e cept that, on and after uy 19, 1953,
such certfcates and return sha be forwarded to the Dstrct Drector of
Interna Revenue, Batmore 2, Maryand. orms 1001 shoud be sted on the
quartery return. Whe orms 1000 need not be sted on the return, the
number of such forms submtted and the tota amount of Interest pad and of the
ta wthhed on such of the forms as report nterest from whch the ta a to
be wthhed shoud be entered In the spaces provded.
If orm 1000 Is modfed to show the name and address of a fsca or payng
agent n the Unted States (see sec. 39.1 3-5), orms 1012 and 1013 shoud be
kewse modfed. In the case of Interest on obgatons of the Unted States or
of any agency or Instrumentaty thereof the wthhodng agent sha be: (1)
The Commssoner of the Pubc Debt for nterest pad by checks Issued through
the Bureau of the Pubc Debt (2) the Treasurer of the Unted States for a
nterest pad by hm, whether by chock or otherwse and (3) each edera
reserve bank for a nterest pad by t, whether by check or otherwse.
(b) very person requred to deduct and wthhod any ta from Income other
than such bond Interest sha make an annua return thereof to the dstrct
drector of uterna revenue for the Interna revenue dstrct In whch such
person s ocated (to the Dstrct Drector of Interna Itevenue, Batmore 2,
Maryand, In the case of returns for ta abe years endng on or after December
31, 195 ) on or before March 15 on orm 10 2. showng the amount of ta
requred to be wthhed from each nonresdent aen, nonresdent partnershp
composed n whoe or n part of nonresdent aens, or nonresdent foregn cor-
poraton to whch ncome other than bond Interest was pad durng the prevous
ta abe year.

Par. 10. Secton 30.217-1 (a) s amended by nsertng before the
comma at the end of the prncpa cause of the fourth sentence the
foowng parenthetca e presson:
(wth the Dstrct Drector of Interna Revenue at Batmore, Maryand, In the
case of returns for ta abe years endng on or after December 31,195 ).
As amended, secton 39.217-1 (a) w read as foows:
Sec. 39.217-1. Tme and Pace fob .vo Returns or Nonresdent Aen
Indvduas. (a) In the case of a nonresdent aen Indvdua who for the
ta abe year does not have wages sub|ect to wthhodng at the source under
secton 1022, the return must be made on or before the ffteenth day of the
s th fu caendar month foowng the cose of the ta abe year. In the case
of any return for a fractona part of a year, the Commssoner may, upon a
showng by the ta payer of unusua crcumstances, prescrbe a ater tme for
the fng of the return, but such tme sha not be ater than the ffteenth day of
the eghteenth fu caendar month endng after the begnnng of the fractona
part of the year. or certan cases In whch the tme for fng the return Is.
postponed, see secton 3S0 . The return must be fed wth the dstrct drector
of Interna revenue for the Interna revenue dstrct In whch the nonresdent
aen ndvdua has hs prncpa pace of busness a the Unted. States (wth
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75 Regs. 11 , 39.23 fA-2-
tbe Dstrct Drector of Internn Revenue nt Batmore, Maryand, In the case
of returns for ta abe years endng on or after December 31,105 ), or If be fans
no prncpa pace of busness u the Unted States, then wth the Dstrct
Drector of Interna Revenue at Batmore, Maryand. ur faure to make and
fe return wthn the tme prescrbed, see secton 21)1. or cases n whch no
return s requred, see paragraph (a) of secton 30.217-2.
Because ths Treasury Decson merey amends Reguatons 11S to
ncorporate theren a provson of Pubc Law 17 ( 3d Coup.), to
change the desgnaton of the ofca wth whom certan documents
sha bo fed, and to correct certan cerca errors n Reguatons IIS,
t s found unnecessary to ssue ths Treasury Decson wth notce
and pubc procedure thereon under secton (a) of the Admnstratve
Procedure Act, approved une 11,19 0, or sub|ect to the effectve date
mtaton of secton (c) of that Act
(Ths Treasury Decson s ssued under the authorty contaned n
secton 02 and 3791 of the Interna Revenue Code (53 Stat 32, G7
2G U. S. C. 02, 3791.)
T. Coeman Andrews,
Commssoner of Interna Revenue.
Approved August 23,195 .
LB IfT P. TuTTL ,
Actng Secretary of the Treasury,
( ed wth the Dvson of the edera Regster August 26, 105 , :51 a. m.)
Reguatons 11 , Secton 39.23(a)-: Busness
e penses.
Reguatons 11 amended. See T. D. 6110, page 6 .
Reguatons 11 , Secton 39.23(a)-1: Busness
e penses.
Deductbty of an amount pad for the acquston of the entre
roster of a gong baseba team. See Rev. Ru. 5 - 1, page 101.
Reguatons 11 , Secton 39.23(a)-2: Rev.Ru.5 - 97
Traveng e penses.
(Aso Secton 22(n), Secton 39.22(n)-.)
Prncpes appcabe n resovng probems concernng (1) the
substantaton of deductons camed by an ndvdua for travens
e H nses, (2) the determnaton of whether a ta payer Is In trave
status, aud (3) the deductbty of automobe and other transporta-
ton e penses Incurred by an empoyee.
Advce has been requested wth respect to certan probems concern-
ng deductons, for edera ncome ta purposes, camed for traveng
and transportaton e penses by ndvdua ta payers n connecton
wth the performance of servces as empoyees. The probems are
presented n the ght of stuatons whch have come to the attenton
of the Interna Revenue Servce n connecton wth deductons camed
33310 BB 0
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Regs. 11 , 39.23M-2. 76
by raroad empoyees. However, the controng prncpes n such
cases are equay appcabe to a empoyees smary stuated.
The courts n consderng questons nvovng deductons for trave-
ng e penses have frequenty stated that each case must be decded on
ts own partcuar facts. urthermore, there appears to be no snge
rue whch w produce the correct resut n at stuatons. It s be-
eved, however, that an understandng of the prncpes outned
heren w materay factate the souton of many of the recurrng
probems concernng traveng and transportaton e penses camed
by empoyees on a bass satsfactory to both the ta payer and the
Government.
The probem most frequenty presented reates to the amount proper-
y aowabe as a deducton for the cost of meas and odgng ncurred
by an empoyee whe n a trave status, partcuary where he has
not mantaned an adequate record to substantate hs camed de-
ducton.
Secton 23(a) (1) (A) of the Interna Revenue Code of 1939 pro-
vdes for the deducton of 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. Athough the statute aows a ta -
payer to deduct the entre amount e pended for hs meas and odgng
whe n a trave status, controverses concernng the amount actuay
e pended and aowabe as a deducton for such purposes frequenty
arse because the deducton camed by the ta payer s based merey
upon rough estmates whch are not supported by adequate records.
The ony whoy satsfactory and certany the most desrabe
method of resovng controverses of ths character s for ta payers
to mantan a record of such e penses n order to substantate ther
camed deductons. Ths s n accord wth secton 39.23(a)-2(h)
of Reguatons 11 , whch specfcay provdes that amounts camed
as deductons for traveng e penses must be substantated, when re-
qured, by evdence showng n deta the amount and nature of the
e penses ncurred. If ths practce s adopted such controverses w
be vrtuay emnated.
Despte the desrabty of sovng such probems n ths manner,
t s recognzed that where an ndvdua has evdenty ncurred some
deductbe e penses but docs not possess documentary proof thereof
he shoud be aowed a reasonabe appro maton of such tems by re-
sortng to reabe secondary sources of nformaton and coatera
evdence. See Rev. Ru. 5 -195, C. B. 195 -1, 7. The burden of
proof n a such cases necessary fas upon the ta payer, and doubts
resutng from vague and unsatsfactory evdence may propery be
resovecf aganst hm whose ne acttude s of hs own makng.
Ths s based upon the rue frst e pressed n George M. Cohan v.
Commssoner, 39 ed. (2d) 5 0, and snce foowed by the courts and
the Revenue Servce n a great number of cases.
To substantate hs e penses, a ta payer s not requred to secure,
retan, and produce recepts for each mea and for each nght s odgng.
See Rev. Ru. 5 -195, supra. As stated n the Cohan case, supra, ab-
soute certanty n such matters s usuay mpossbe and s not neces-
sary. Accordngy, the Revenue Servce aows consderabe attude
wth respect to recordkeepng or evdence tendng to prove such e -
penses. An adequate record, however, shoud be mantaned day by
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77 (Regs. 11 , 5 39-230O 2-
day and shoud be kept n suffcent deta to determne the ta payer s
correct ta abty. Ordnary, such a record shoud at east nd-
cate the dates, duraton and destnaton of each trp durng whch
the ta payer was requred to obtan odgng or necessary rest whe
away from home the amounts pad for such odgng or quarters
and the actua cost of each mea consumed on such trps. Where
empoyees have kept no such records, there must, of course, be some-
thng more than a bare ump-sum estmate or banket asserton to
support the deducton. Despte the absence of adequate records, man_y
such empoyees can st substantate most of the deductbe e penses
whch they ncurred n past years wth some degree of accuracy. Pre-
sumaby, they shoud be abe to compute such e penses, wth reason. -
abe precson, by estmatng conservatvey the amounts p d for
odgng and the average cost of the varous meas, provded they can
ascertan from tme sheets, assgnment sts or other avaabe data,
or f they can fary reconstruct, the number and duraton of those
trps durng whch they were requred to obtan odgng or necessary
rest whe away from home, and the varous meas whch they had
to purchase on such trps.
Many of the other probems reatng to aowabe deductons for
traveng e penses stem from the basc queston: When s a ta payer
n trave status, or more specfcay when can the empoyee deduct
hs e penses for meas and odgng
As noted above, secton 23(a) (1) (A) of the Code aows the de-
ducton of e penses ncurred for meas and odgng ony whe the
ta payer s traveng away from home n the pursut of a trade or
busness. Congress dd not ntend, however, to aow as a busness
e pense those outays whch are not caused by tho 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. See Maurce ctor Bamh et a. v. Commssoner, 1
ed. (2d) 013, Ct. D. 1C1G, C. 13. 19 5, 00. Cf. Commssoner v. . N.
owers, 31 G U. S. 05, Ct. D. 1C50, C. B. 10 0-1, 57. It s funda-
menta, therefore, that a ta payer cannot deduct the cost of hs meas
and odgng who performng hs dutes at hs pace of busness,
even though he mantans hs permanent resdence esewhere. Ac-
cordngy, t s now we-setted aw that a ta payer s home, for
purposes of ths statute, s ocated at the pace where he conducts hs
trade or busness uness e s so engaged at two or more separate o-
cates, n whch event hs home s ocated at hs prncpa or reguar
post of duty durng the ta abe year.
The ta or busness home of a raroad empoyee, ko that of
other ta payers, s hed to be at hs prncpa or reguar post of duty
durng the ta abe year, regardess of the physca ocaton of hs
resdence. The prncpa or reguar post of duty of a member of a
tran crew s not regarded as beng aboard the tran, but at the ter-
mna where ho ordnary, or for an ndefnte (as dstngushed from
a temporary) perod, begns and ends hs actua runs. Such pace s
referred to, for ta purposes, as the empoyee s homo termna, tho
ocaton of whch may not concde wth the raroad s desgnaton of
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Regs. 11 , S 39.2300-2. 7
the home termna for a partcuar run, such as n the case of a ong
run whch begns and ends at a dstance from the empoyee s prncpa
or reguar post of duty, or of a short run to whch the empoyee s
assgned on a strcty temporary bass. If the empoyee does not have
a home termna where he ordnary or for an ndefnte perod, be-
gns and ends hs actua runs, but receves ony temporary assgnments
to varous runs begnnng and endng at a number of dfferent ter-
mnas, hs prncpa or reguar post of duty may be regarded as hs
busness headquarters or the center of hs busness actvtes. It
shoud, of course, be emphaszed that the ocaton of an empoyee s
home termna, or hs prncpa or reguar post of duty, s necessary
a queston of fact whch must be determned on the bass of the par-
tcuar crcumstances n each case.
penses ncurred by an empoyee for meas and odgng at hs
prncpa or reguar post of duty are not deductbe even though such
pace s ocated at a dstance from hs resdence. Ths rue s gen-
eray appcabe to a raroad and other empoyees regardess of
ther poston on the senorty roster, and notwthstandng ether the
possbty of ther beng bumped from such |obs by empoyees hav-
ng hgher senorty, or the rues of the trade requrng |unor em-
poyees to accept the ess desrabe |obs. _ The mportance of deter-
mnng the ocaton of an empoyee s prncpa or reguar post of duty
s evdent not ony because the empoyee cannot deduct the cost of hs
meas and odgng whe there, but aso because that ocaton must
serve as the pont of orgn for computng hs traveng e penses n-
curred whe away from home . See Harod R. ohnson v. Com-
mssoner, 17 T. C. 1261, acquescence, C. B. 1952-1,2.
A ta payer cannot deduct the cost of hs meas and odgng as away-
from-home e penses merey because hs dutes requre hs physca
absence from hs prncpa or reguar post of duty durng part or a
of hs actua workng hours. In order to deduct such e penses, t s
essenta that hs absence on busness from hs prncpa or reguar
post of duty bo of such duraton that ho cannot envo from and return
to that ocaton at the start and fnsh of, or before and after, each
day s work or at east that he cannot reasonaby do so wthout beng
reeased from duty for suffcent tme to obtan necessary seep ese-
where.
Thus, t s hed that a raroad empoyee assgned to a turn-around
run, or any other |ob requrng day round trps, on whch he s abe
to eave hs home termna and return to t wthn the same workday
(and s not reeased from duty to obtan necessary seep esewhere)
cannot deduct the cost of meas consumed on such trps because he s
not traveng away from home wthn the meanng of secton
23(a) (1) (A) of the Code. Ths poston s n accord wth numerous
Ta Court decsons whch have consstenty dened ta payers any de-
ducton for the cost of meas consumed on trps of such short duraton,
for the reason that they were not n trave status, even though the
eapsed tme of such round trps e tended from 12 to even more than
16 hours. See red M. Osteen et a. v. Commssoner, 1 T. C. 1261
Lous Dr v. Commssoner, T. C. 902 Avn A. Hataway, r. v.
Commssoner, Ta Court Memorandum Opnon entered November
1 , 19 Arthur L. arey v. Commssoner, Ta Court Memoran-
dum Opnon entered August ,19 R. . Henry v. Commssoner,
Ta Court Memorandum Opnon entered December 22,19 .
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79 Regs. 11 , 39.23 (a)-2
On the other hand I. T. 3395, C. B. 19 0-2, 6 , hods that raroad
empoyees who are requred to reman at an away-from-homc termna
n order to obtan necessary rest pror to makng a further run, or
begnnng a return run, may deduct ther actua e penses for meas
and odgng whe away from ther home termna on such runs. ho
rest perod contempated by that rung s not satsfed by the bref
nterva frequenty schedued on turn-around servce between the
outbound and return runs durng whch the empoyee may be reeased
from duty for the purpose of eatng rather than seepng. The ne
of demarcaton between the two stuatons s generay referred to,
for edera ncome ta purposes, as an overnght trp, that s, a
trp on whch the ta payer s dutes requre hm to obtan necessary
seep away from hs home termna. On an overnght trp of ths
nature, and partcuary n vew of the unusua hours worked n the
raroad ndustry, the empoyee need not be away from hs homo
termna for an entre 2 -hour day or throughout the hours from dusk
unt dawn, as evdenced by the recent decson n Davd G. Anderson
v. Commssoner, 1 T. C. 6 9, acquesce C. 1 . 1952-2,1. In that case
the ta payer, an empoyee of the Raway press Agency, worked
e cusvey on trans and made two consecutve round trps on each
tour of duty. Hs frst round trp began at 2 a. m. and ended at
6 p. m. on the frst day, an eapsed tme of 16 hours durmr whch e
was reeased from duty for a rest perod of 2 2 hours. Hs second
round trp began at 11:15 a. m. on the second day and ended at
5: 10 a. m. on the thrd day, an eapsed tme of about 1 hours durng
whch ho was reeased from duty for a rest perod of 3 hours. Snce
the ta payer was reeased from servce at hs away-from-home ter-
mna after each outbound run for a rest perod durng whch ho
purchased one or two meas and sept on a cot n the baggage car, the
Ta Court concuded that both such trps wcro overnght trps
(rather than turn-nromd rms) and nvoved trave on busness
away from homo am, therefore, that tho ta payer coud deduct
hs actua e penses for meas consumed whe away from hs homo
termna on such trps. Tho fundamenta rue foowed by both the
Ta Court and the Interna Revenue Servce n a such cases s that
a raroad empoyee can deduct hs e penses for meas and odgng
ony when on a busness trp necesstatng hs absence from hs prn-
cpa or reguar post of duty for a mnmum perod whch asts
substantay onger than an ordnary day s work and durng whch
hs dutes requre hm to obtan necessary seep away from such post
of duty.
A raroad empoyee may, of course, be assgned to a temporary or
mnor pace of empoyment whch requres a much more proonged
absence from hs reguar or prncpa post of duty than such mnmum
perod of tme. or e ampe, f a member of a tran crew receves a
temporary, as dstngushed from an ndefnte, assgnment to a run
(whether or not overnght ) whch begns and ends at a termna
stuated at a dstance from hs reguar post of duty, he can deduct
not ony hs e penses for meas and odgng whe makng runs from
and to that termna, but a such e penses for the entre tme durng
whch hs dutes prevent hm from returnng to hs reguar post of
duty. Lkewse, any other raroad empoyee whose assgnment away
from hs home termna s strcty temporary (that s, ts termnaton
can be foreseen wthn a f ed or reasonaby short perod of tme) s
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Begs. 11 , 5 39.23(a)-2. 0
consdered to be n trave status for the entre perod durng whch
hs dutes requre hm to reman away from hs reguar post of duty.
Typca of temporary assgnments necesstatng such an absence from
the empoyee s reguar post of duty are repacement or reef |obs
durng sck or vacaton eave of the ndvduas reguary performng
such dutes.
A seasona |ob whch s not ordnary fed by the same ndvdua
year after year may aso requre a temporary departure from the
empoyee s reguar post of duty durng the ta abe year. or e -
ampe, durng seasona shppng perods for the marketng of crops an
empoyee may be assgned for severa months to one or more paces
whch are ocated at a dstance from hs reguar pace of empoyment.
Such an empoyee s regarded as beng n trave status for the dura-
ton of such temporary assgnment, e cept for ntervenng nonworkng
days when he actuay does, or reasonaby coud, return to hs reguar
post of duty.
It s mportant to note, however, that a seasona |obs are not
necessary temporary n nature merey because they are not year-
round assgnments. or e ampe, a raroad empoyee mght habtu-
ay work for or 9 months each year transportng ore from the same
termna. Durng the wnter, when the ore-haung servce, s sus-
pended, that same ndvdua mght aso be customary empoyed for
3 or months each year at another seasona post of duty. Snce both
of those annuay recurrng, seasona assgnments woud usuay be
fed by the same empoyee durng correspondng perods n other
years, each such |ob woud be consdered ndefnte rather than tempo-
rary. Ordnary, when an empoyee abandons one ndefnte |ob to
accept another ndefnte |ob at a dstance from hs former home
termna, hs prncpa post of duty shfts from hs od to hs new
pace of empoyment. But, the empoyee n the above e ampe woud
not be regarded as abandonng hs ore-haung assgnment durng
the perod n whch that servce s suspended, f he reasonaby e pected
to return to t durng the approprate season n the foowng year.
Such an empoyee woud be conductng hs trade or busness each year
at two recurrng, seasona paces of empoyment, and under those
crcumstances hs busness or ta home woud not shft durng ater-
nate seasons from one busness ocaton to the other, but woud reman
statonary at hs prncpa post of duty durng the ta abe year. In
each case of ths nature, a factua determnaton must be made (pr-
mary on the bass of the tota tme whch he s ordnary requred
to spend at each of hs seasona headquarters) n order to estabsh
whch of those ndefnte paces of empoyment woud consttute hs
prncpa post of duty, because such an empoyee coud deduct the cost
of hs meas and odgng ony whe hs dutes at hs mnor pace of
empoyment requred hm to reman away from hs prncpa post
of duty.
As ndcated above, the genera rue s that a raroad empoyee,
ke any other ta payer can deduct the cost of hs meas and odgng
as a traveng e pense ncurred n carryng on hs trade or busness
ony whe hs dutes requre hm to be away overnght from hs
home termna, or hs prncpa or reguar post of duty, durng the
ta abe year. That rue s appcabe even n those unusua stua-
tons where the empoyee mantans hs famy and permanent res-
dence at or near hs away-from-home termna, or hs mnor or tern-
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1 Regs. 11 , 39.23(a)-
porary post of duty. In such cases, the deducton s mted, of cours
to that porton of the famy e penses for meas and odgng vhc
s propery attrbutabe to the ta payer s presence there n the actua
performance of hs dutes. (See ast two sentences n ev. U
5 -1 7, C. B. 195 -1,51.)
Where e penses for mens and odgng are deductbe under tn
above prncpes, they consttute traveng e penses whe away f rorr
home and shoud be deducted by an empoyee, under secton 22 (n ) (2)
of the Code, n computng ad|usted gross ncome on pnge 1 of hs
edera ncome ta return, orm 10-10. The deducton of such e -
penses docs not prevent the empoyee from eectng to compute hs
tu ether by usng the ta tabe or the optona standard deducton,
nstead of temzng hs actua deductons.
There remans to be consdered the ncome ta treatment accorded to
automobe and other transportaton e penses actuay ncurred by
ta payers, ncudng raroad empoyees.
Secton 39.23(a)- () of Reguatons 11 provdes that commuters
fares are not consdered as busness e penses and are not deductbe.
Thus, amounts pad for transportaton between the ta payer s res-
dence and hs home termna, or hs prncpa or reguar post of duty,
regardess of the dstance nvoved, consttute noudeductbe persona
e penses
On the other hand, when the empoyee s dutes requre hm to be
away at east overnght from hs prncpa or reguar post of duty,
reasonabe and necessary e penses ncurred for transportaton between
hs home termna and a mnor or temporary pace of empoyment
(or from one mnor or temporary post of duty to another) may be
deducted as traveng e penses whe away from home 1 n comput-
ng ad|usted gross ncome. However, f the empoyee begns and
ends such a busness trp at hs resdence and that resdence s ocated
at a dstance from the cty or comparabe area whch consttutes hs
prncpa or reguar post of duty, he may deduct, n computng ad-
|usted gross ncome, ony hs actua transportaton e penses to the
e tent they do not e ceed the reasonabe and necessary transporta-
ton e penses he woud have ncurred had such round trps been made
between hs home termna and such other pace of empoyment. Such
ad|ustments, of course, are necessary ony when the empoyee docs not
ve near hs homo termna. In determnng whether a raroad em-
poyee s automobe or other transportaton e penses represent reason-
abe and necessary traveng e penses, consderaton shoud be gven to
the questons whether the raroad woud furnsh the empoyee wth
adequate free transportaton servce between such paces of empoy-
ment to enabe hm to dscharge hs dutes n a reasonabe and eco-
nomca manner, and whether the empoyee needs hs automobe at
hs mnor or temporary post of duty for busness use.
An empoyee s e penses for transportaton wthn the vcnty of
the cty or other comparabe area whch consttutes hs mnor or tem-
porary post of duty, such as for commutng between hs mnor or
temporary termna and the pace or paces where he obtans hs meas
and odgng n that area, are hed to be nondeductbe persona e -
penses. However, when an empoyee s mnor or temporary termna
s ocated n a remote area and he must trave 10 or 15 mes, for e -
ampe, to the nearest town or other ocaton where he can obtan nec-
essary vng accommodatons, hs transportaton e penses so ncurred
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Begs. 11 , ( 39.23(a)- . 2
are not regarded as beng n the nature of commutng e penses, but
may be deducted n computng ad|usted gross ncome.
When an empoyee s assgned for severa -weeks or months to a
mnor or temporary post of duty, he w often return from that oca-
ton on ntervenng nonworkng days to hs famy and dstant res-
dence. Secton 39.23(a)-2(f of Reguatons 11 provdes that ony
rch e penses as are reasonabe and necessary n the conduct of the
busness and drecty attrbutabe to t may be deducted. Ths prn-
cpe prohbts the deducton of e penses ncurred on such trps to the
e tent they e ceed the cost of meas and odgng whch otherwse woud
have been deductbe f the empoyee had remaned durng hs non-
workng days at or near hs mnor or temporary post of duty. In
order to segregate the empoyee s busness e penses from hs persona
e penses n returnng to hs famy and reguar pace of abode, that
prohbton shoud be combned wth the mtaton appcabe to the
empoyee who ves at a dstance from both hs prncpa or reguar
pace of empoyment and hs mnor or temporary post of duty to
formuate the foowng genera rue: penses ncurred on such trps
for transportaton between the empoyee s temporary or mnor post
of duty and hs dstant resdence (together wth the cost of meas
and odgng enroute) may be deducted n computng ad|usted gross
ncome as traveng e penses whe away from home to the e tent
euch e penses do not e ceed ether (1) the otherwse deductbe cost
of procurng meas and odgng had he remaned at hs temporary or
mnor post durng such o-duty perods, or (2) the reasonabe neces-
sary e penses he woud have ncurred n traveng between such mnor
or temporary pace of empoyment and hs prncpa or reguar post
of duty.
Sub|ect to the same mtatons contaned n such genera rue, e -
penses ncurred for day, round-trp transportaton between the em-
poyee s mnor or temporary pace of empoyment and hs dstant
resdence (e cudng the cost of meas and odgng) may be deducted
as ordnary and necessary busness e penses, rather than as traveng
e penses whe away from home. Under the Interna Revenue Code
of 1939, such unrembursed, day, round-trp transportaton e penses
may be deducted by an empoyee ony from ad|usted gross ncome
n computng net ncome and then ony on condton that he does not
eect to compute hs ta by usng the ta tabe or the optona stand-
ard deducton, n eu of temzng hs actua deductons.
Reguatons 11 , Secton 39.23 (a) - : Repars. Rev. Ru. 5 -356
pendtures made for pressure-groutng and for drvng poes
Into the roadbed of raways, to correct the effects of water pockets
and mud heaves thereon, consttute busness e penses deductbe
currenty under secton 23(a) (1) (A) of the Interna Revenue Code.
Advce s requested as to the treatment for edera ncome ta pur-
poses of e pendtures made to correct the effects of water pockets and
mud heaves n the roadbed of a raroad track.
Secton 23(a) of the Interna Revenue Code provdes n part that
n computng net ncome there sha be aowed as deductons:
(1) Trade ob busness e penses.
(A) In Genera. A the ordnary and necessary e penses pad or
Incurred durng the ta abe year.In carryng on any trade or bus-
ness .
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3 Regs. 11 , 39.23(a) .
Secton 39.23(a)- of Reguatons 11 provdes that the cost of
ncdenta repars whch nether materay add to the vaue of the
property nor apprecaby proong ts fe but keep t n an ordnary
ecent operatng condton mav be deducted as e pense.
pendtures whch add to the vaue of property are treated as
permanent nvestments to be added to the cost bass of the property
and charged off by a deprecaton or obsoescence aowance. A repn r
s an e pendture for the purpose of keepng the property n an ord-
nary effcent operatng condton. It does not add to the vaue of
the property nor docs t apprecaby proong ts fe.
One method of emnatng water pockets and mud heaves n the
roadbed and restorng the gradng to ts orgna condton s pres-
sure-groutng. It has been the poston of the Interna Revenue
Servce that e pendtures for such pressure-groutng are proper-
charges to mantenance e pense under secton 23(a)(1)(A) of the
Code.
Wth respect to e pendtures for poe drvng to correct the effects
of water pockets and mud heaves n raway roadbeds t has been tho
pocy of the Servce to requre such e pendtures to be captazed
and amortzed over a perod of 15 years. Ths pocy was sustaned
by The Ta Court of the Unted States n the case of Te as cf Pacfc
Raway Co. v. Commssoner, memorandum opnon, entered March
25,10 3. The court hed that the ta payer s e pendtures for drvng
posts nto the roadbed are e pendtures for an mprovement of a sem-
permanent nature and not a repar and those e pendtures whch were
captazed under nstructons from the Interstate Commerce Com-
msson arc not deductbe n the ta abe year. At the tme of the
hearng n ths proceedng, a rung of the Interstate Commerce Com-
msson was n effect whch drected that the e pendtures n queston
shoud be charged to a capta account.
By order No. 291 0 dated March 26,19 5, the Interstate Commerce
Commsson requred poe drvng to be captazed. However, the
order was reversed on ebruary 10, 19 7, and both poe drvng and
pressure-groutng to emnate water pockets were found propery
chargeabe to the roadway mantenance account.
In a decson of une 2,1953, n the case of ansas Cty Southern
Ry. Co., et a. v. Unted States, 112 ed. Supp. 16 , the Court of Cams
hed that e pendtures made by tho raroad for drvng poes to cor-
rect the effect of water pockets n the roadbed of that raroad const-
tute deductbe busness e penses. The court stated that the water
pockets whch necesstated the e pendtures appear casuay, present-
ng a probem of mantanng an e stng competed track n a safe and
economca operatng condton and that even though the benetca
effects of poe drvng may ast for many years the cost thereof s not
a capta e pendture. The court ponted out that n the ordnary
nature of repars to a budng or machnery, t s not unusua that the
repared porton s better than and w outast the parts that have
not yet needed repar but the raroad track after the poes are drven
s st |ust a raroad track and tho parts of t where the poes are
drven are no more usefu than the other parts whch had not needed
ths work.
In vew of ths recent decson, and the poston of the Servce n
aowng as a current deducton e pendtures made for pressure-grout-
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Regs. 11 , 39.23 (a)- .
ng, whch s of more permanent effect than poe drvng n stabzng
a raroad bed, t s hed that the cost of poe drvng n the roadbed
of raways to correct the effects of water pockets and mud heaves may
be deducted as a current operatng e pense under secton 23(a) (1) (A)
of the Code for the ta abe year n whch the e pense was ncurred
Ta payers who have, pror to the pubcaton of ths Revenue Rung,
captazed e pendtures for such poe drvng may contnue to amor-
tze, through deductons from ncome, the amounts so captazed,
unt recovered.
Regcato s 11 , Secton 39.23(a)- : Repars. Rev. Ru. 5 -57
The determnaton of whether an e pendture for repars s to be
cassfed as a deductbe e pense or a capta e pendture Is not
affected by the fact that the asset wth respect to whch the e pend-
ture has been made has been amortzed In fu or In part as an
emergency facty.
Advce ha3 been requested reatve to the treatment for edera
ncome ta purposes of e pendtures made n order to keep n a serv-
ceabe condton raroad freght cars whch have been fuy amortzed
under sectons 12 and 12 A of the Interna Revenue Code of 1939.
The ta payer s makng e pendtures wth respect to certan seres
of ts freght cars whch nave been fuy amortzed over a 60-month
perod or ess under sectons 12 and 12 A of the Code. The norma
tota e pected servce fe (. e., the tota servce fe used n deter-
mnng deprecaton rates) of the cars s about 27 years.
Secton 39.12 A(a)- of Reguatons 11 provdes that a person s
entted at hs eecton to a deducton wth respect to the amortzaton
of the ad|usted bass (for determnng gan) of an emergency facty,
such amortzaton to be based on a perod of 60 months. Secton 12 A
of the Code provdes n part as foows:
The amortrnton deducton A sha be In Iea of
tbe deducton provded by secton 23(1) reatng to e hauston, wear
and tear, and obsoescence.
Secton 39.23(a)- of Reguatons 11 provdes that the cost of
ncdenta repars whch nether materay add to tho vuno of tho
property nor apprecaby proong ts fe, but keep t n an ordnary
efccnt operatng condton, may bo deducted as e pense, provded tho
cost of acquston or producton or tho gan or oss bass of the ta -
payer s pant, equpment, or other property, as tho case may be, s
not ncreased by the amount of such e pendtures. Repars n the
nature of repacements, to the e tent that they arrest deteroraton and
apprecaby proong the fe of the property, shoud be charged aganst
the deprecaton reserve f such account s kept.
Whether the cost of any repars made shoud be charged to operatng
e penses or captazed s a queston of fact to be determned n each
case and s not affected by the fact that the asset wth respect to whch
the e pendture has been made has been amortzed n fu or n part as
an emergency facty. In ths connecton, the usefu fe of a facty
s ts norma e pected servce fe as dstngushed from the 60-month
amortzaton perod.
Accordngy, t s hed that e pedtures for repars made wth re-
spect to unts of equpment amortzed as emergency factes under
sectons 12 and 12 A of the Interna Revenue Code over a 60-month
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5 Regs. 11 , 39.23 A . A .
perod or ess, as we ns for unts subect to deprecaton over the tota
norma e pected servce fe perod of the equpment, are proper-
charges to operatng e penses provded the e pendtures are n fact
for repars and not for rebudng whch apprecaby e tends te
tota norma e pected servce fe or materay adds to the vaue of te
asset.
Reguatons 11 , Secton 39.23(a)-5: Professona
e penses.
Membershp dues pad to organzatons, contrbutons to whch are
deductbe under secton 23 (o) and (q) of the Interna Revenue
Code of 1930. See Rev. Ru. 5 -5G5, page 95.
Reguatons 11 , Secton 39.23(a)-9: Pensons: Rev. Ru. 5 -G25
Compensaton for n|ures.
Where a corporaton on the accrua bass of accountng, obges
Itsef to pay to the wdow of a deceased empoyee, In perodc n-
staments over a perod of years, an addtona amount to cover
compensaton for past servces rendered by such empoyee, such
amount s generay deductbe under the provsons of secton
(a) (1) (A) of the Interna tcveme Code of 11)31) as a busness
e pense for the year In whch such abty Is ncurred. However,
where such payments are contngent upon the wdow s remanng
ave and unmarred the corporaton may deduct n each year ony
those amounts whch are actuay pad durng the year to the wdow
under the pan. In such cases the term for a mted perod as
used n Secton 39.1 3(a)-9 of Reguatons 11 reates to the reason-
abeness of the tota amount to be pad rather than the ength of
the perod In whch such amount s to be pad. urthermore, pay-
ments receved by the wdow subsequent to December 31, 10uO, are
ncudbe n her gross ncome for edera ncome ta purposes.
Advce has been requested wth respect to the deductbty, for
edera ncome tn purposes, of an amount authorzed to be pad by
a corporaton to te wdow of a deceased offcer under crcumstances
where (1) the tota amount payabo represents reasonabe compensa-
ton for past servces rendered by te deceased offcer and (2) the tota
amount payabe s to bo pad to the wdow n nstaments over a perod
of 12 years, but payments w censo pror thereto upon her death or
remarrage, whchever occurs frst. Advce s aso requested as to
what s meant by te term for a mted perod as used n secton
9.23(o)-9 of Reguatons 11 .
or some years pror to hs death, the decedent receved a saary
and bonus appro matng 72(b) doars. The corporaton,, of whch
the decedent was an offcer, pans to pay hs dependent wdow an
amount equa to hs saary and bonus for the fu year mmedatey
pror to hs death or a tota not to e ceed 720 doars. The authorza-
ton for such acton s based upon a resouton of the board of drectors.
Te corporaton proposes to make payments to the wdow at the rate
of 5 doars per month unt the fu amount of 720a doars s pad
or unt the wdow des or remarres, whchever occurs frst. The
corporaton empoys the accrua method of accountng for the purpose
of fng ts edera ncome ta returns.
The specfc queston presented s whether the amounts of perodc
payments made to the wdow consttute aowabe deductons from
Ths Revenue Rung wns modfed by Rev. Ru. B5-212, 1. R. P. 1055-13, 11.
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Regs. 11 , 39.23(a)-9. 6
gross ncome under secton 23(a)(1)(A) of the Interna Revenue
Code of 1939, as ordnary and necessary busness e bense, for the ta -
abe year or years n whch pad or whether the fu amount of 720A
doars s deductbe n the year n whch the abty was ncurred by
the authorzaton to make such payments n vew of the corporaton s
use of the accrua method of accountng. A coroary queston rased
s what s meant by the term for a mted perod as used n secton
39.23 (a)-9 of Reguatons 11 .
Secton 23(a) (1) (A) of the Interna Revenue Code provdes that
A the ordnary and necessary e penses pad or ncurred durng the
ta abe year n carryng on any trade or busness, ncudng a reason-
abe aowance for saares or other compensaton for persona servces
actuay rendered sha be aowed as deductons.
The frst sentence of secton 39.23(a)-9 of Reguatons 11 provdes
that Amounts pnd by a ta payer for pensons to retred empoyees
or ther fames or others dependent upon them are proper
deductons ns ordnary and necessary e penses. No menton s tnndo
of tho perod of tme for makng such payments. The thrd sentence
of secton 39.23(a)-9 of Reguatons 11 provdes:
When the amount of saary of nn ndcer or empoyee Is pad for a mted perod
after s death to hs wdow or hers In recognton of the servces rendered by
the Indvdua, such payments may bo deducted. .
Snce secton 23(a) of tho Code meroy requres that n ordor to bo
deductbe payments of the knd nvoved must consttute a reason-
abe aowance for saares or other compensaton for persona servces
actuay rendered, t s beeved that the thrd sentence of secton
39.23 (a)-9 of Reguatons 11 , supra, shoud be beray construed so
as to refect the true purpose of secton 23(a)(1)(A), namey, that
the words for a mted perod shoud be regarded as reatng to the
rues of reasonabeness empoyed by the statute, rather than the ength
of tme durng whch payments may be made.
The cases nvovng ths ssue whch have been decded by The Ta
Court of the Unted States are not nconsstent wth the above poston.
In McLaughn Gormey ng Company v. Commssoner, 11 T. C.
569, the Commssoner aowed the deducton of the amounts pad to
the wdow of the corporaton s former presdent for 29 months but
dsaowed a addtona payments. Athough The Ta Court ap-
proved the determnaton of the Commssoner, the pont s stressed
that the deducton depends on the reasonabeness of the amounts pad
and that the determnaton of the Commssoner paces on the pet-
toner the burden of estabshng the reasonabeness of the tota com-
pensaton.
In /. Putnam v. Commssoner, 15 T. C. 6, n whch a smar stua-
ton was nvoved the court reed on McLaughn Gormey ng Com-
pany, supra, and stated what s a mted perod wthn the meanng
of the Reguatons w depend on the facts of each partcuar case.
Ths woud seem to ndcate that the words for a mted perod are
to be construed as a measure n the reasonabeness of the amounts to be
pad rather than merey statng a tme mtaton for ther payment.
In the nstant case t woud requre 12 years to pay the entre amount
provded none of the specfed contngences occur durng such perod.
Inasmuch as the 720a doars consttutes reasonabe compensaton for
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7 Regs. 11 , 39.23(c)-.
past servces rendered by the husband such amount s generay deduc-
tbe by the corporaton under secton 23(a)(1)(A) of the Code n
computng net ncome for the year n whch such abty s ncurred.
However, snce under the pan the corporaton w have commtted
tsef ony to the payment of perodc nstaments whch are contn-
gent upon the wdow remanng ave and unmarred, and snce death
or remarrage of the wdow w reeve the corporaton of pavng
nstaments subsequenty comng due, the corporaton may deduct
ony, for edera ncome ta purposes, that amount whch s actuay
pad to the wdow under the pan. See D e Pne Products Company
v. Commssoner, 320 U. S. 510, Ct. D., 159 , C. 13. 19 , 509.
Accordngy, where a corporaton on the accrua bass of account-
ng obges tsef to pay to the wdow of a deceased empoyee, n per-
odc nstaments over a perod of years, an amount representng rea-
sonabe compensaton to tho deceased empoyee n recognton of past
servces rendered by such empoyee, such amount s generay deduct-
be under tho provsons of secton 23(a)(1)(A) of tho Interna
Revenue ( ode o 1939 as a busness e pense for the year n whch such
abty s ncurred. However, where such payments are contngent
upon tho wdow remanng avo and unmarred, tho corporaton may
deduct n each year ony thoso amounts whch aro actuay pad dur-
ng tho year to tho wdow under tho pan. In such case, the term
for a mted perod as used n secton 39.23(a)-9 of Reguatons
11 reates to the reasonabeness of tho tota amount to be pad rather
than tho ength of tho perod n whch such amount s to be pad.
urther, payments receved by the wdow subsequent to December 31,
1950, are ncudbe n her gross ncome for edera ncome ta pur-
poses. Sec I. T. 027, C. B. 1950-2,9.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : TA S G N RALLY
Reguatons 11 , Secton 39.23(c)-: Ta es. Rev. Ru. 5 -5G
The ad vaorem ta es Imposed by the State of Okahoma on rea
estate and persona property accrue, (or edera Income ta pur-
poses, on October 1 of each year, the date on whch such ta es be-
come due and payabe by the owner of the property.
G. O. II. ISSS, C. 3.1937-2, 7, modfed.
A queston has arsen as to the date on whch the Okahoma ad
vaorem ta es on rea estate and persona property accrue for edera
ncome ta purposes.
In G. C. M. 1 S2 , C. B. 1937-2, 7, t s hed that under the aw of
the State of Okahoma the ownershp of rea and persona property
(e cept unmanufactured farm products) on anuary 1 s the event:
whch f es the abty for ta es thereon, and that rea and persona
property ta es accrue as of that date.
In Nobe v. ones, 5 ed. Supp. 50 , t s hed that even though
rea and persona property ocated n the State of Okahoma was re-
qured to be sted and assessed on anuary 1 of each year, the ad
vaorem ta es thereon dd not become due and payabe unt October
1 the ast day of the perod durng whch the county board of equaza-
ton had for deverng the ta ros to the county treasurer.
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Regs. 11 , 39.23(e)-.
In . A. Gespe Trust v. Commssoner, 21 T. C. No. 1 ( ebru-
ary 19, 195 ) acquescence page , ths Buetn, the court, foow-
ng the decson n Nobe v. ones, supra, hed that the ad vaorem ta es
on rea estate and persona property accrue on October 1 of each year,
the date on whch they become due and payabe.
Accordngy, t s hed that the Okahoma ad vaorem ta es on rea
estate and persona property accrue, for edera ncome ta purposes,
on October 1 of each year, the date on whch such ta es become due
and payabe by the owner of the property.
G. C. M. 1 2 , C. B. 1937-2, 7, modfed.
Reguatons 11 , Secton 39.23(c)-: Ta es. Rev.Ru. 5 -609
The stamp ta es mposed by the State of South Carona, Code of
Laws of South Carona (1952) tte 65, chapter 1 , artce 2, sectons
65-1265 and 65-12G6 and chapter 10, artces 3, and 5, on acohoc
beverages, tobacco, beer and soft drnks are aowabe deductons un-
der the provsons of secton 23(c) (1) of the Interna Revenue Code
of 1939 ony n the returns of the manufacturer, whoesaer, or re-
taer on whom they are mposed and by whom they are pad. Such
ta es do not quafy as reta saes ta es wthn the meanng of secton
23(c) (3) of the Code and are not deductbe for edera ncome ta
purposes by consumers who purchase those artces wth the stamps a-
ready aff ed and canceed. Any addtona amount whch a pur-
chaser pays for any of the above-mentoned products because of the
stamp aff ed thereon represents an addtona cost of the product
purchased.
Reguatons 11 , Secton 39.23(c)-1: Ta es.
Georga State cgar and cgarette stamp ta and ta on such un-
stamped goods receved for persona use. See Rev. Ru. 6 -530,
page 7.
Reguatons 11 , Secton 39.23 (c)-: Ta es.
Ta es pad pursuant to Cty Ordnance No. 3, Seres 50, as
amended, of Lousve, entucky. See Rev. Ru. 5 -59 , page 12L
S CTION 23(e).-D DUCTIONS ROM GROSS INCOM :
LOSS S BY INDI IDUALS
Reguatons 11 , Secton 39.23 (e) -1: Loss by Rev. Ru. 5 -26
ndvduas.
A oss sustaned from the sae of a coecton of stamps accumuated
as a hobby does not represent a oss ncurred n a trade or busness.
or n a transacton entered nto for proft, wthn the meanng of
secton 23(e) of the Interna Revenue Code. Accordngy, such a
oss s not deductbe for edera ncome ta purposes.
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9 Regs. 11 , A 39.230O-1-
S CTION 23(h). D DUCTIONS ROM GROSS
INCOM : WAG RING LOSS S
Reguatons 11 , Secton 39.23 (h)-: Wager- Rev. Ru. 5 -339
ng osses.
(Aso Sectons 22(n), 39.22(n)- Secton
23(aa),39.23(aa)-.)
or edera Income tn purposes, n wngerng gnns mast be
Incuded In gross Income. Losses therefrom, by a ta payer who
Is not In the trade or busness of gambng, are not deductbe In
determnng ad|usted gross Income ns such osses do not come wthn
the provsons of secton 22(n) of the Interna Revenue Code. Nor
are such osses deductbe from ad|usted gross ncome In determn-
ng net ncome where the ta payer hns eected to use the standard
deducton.
Advce s requested whether a ta payer, not engaged n the trade
or busness of gambng, may deduct wagerng osses to the e tent of
wagerng gans n addton to camng the optona standard deduc-
ton provded n secton 23(aa) of the Interna Revenue Code.
Secton 23(h) of the Code provdes that n computng net ncome
Losses from wagerng transactons sha be aowed ony to the e tent
of the gans from such transactons.
Unt the enactment nto aw of the optona standard deducton and
ad|usted gross ncome concepts n 191 , ths ssue coud not have arsen.
However, the Indvdua Incomo Ta Act of 19 added sectons 22 (n)
and 23(aa) to the Code, the atter secton provdng that f a ta payer
eects to take the standard deducton he s not entted to any addtona
deductons e cept those specfed n secton 22(n) of the Code.
Secton 22(n), as amended, defnes ad|usted gross ncome as gro.-s
ncome mnus trade or busness deductons, e penses of trave and
odgng n connecton wth empoyment, rembursed e penses n con-
necton wth empoyment, deductons attrbutabe to rents and roy-
ates, certan deductons of fe tenants and ncome benefcares of
property, osses from the sae or e change of property and the deduc-
ton aowed by secton 23(ee) wth respect to ong-term capta gans.
Secton 23 of the Code provdes that n computng net ncome there
sha be aowed as deductons:
(aa) Optona Standard Deducton for Indvduas.
(1) Aowance. In the case of an Indvdua, at hs eecton a standard
deducton ns foows:
(A) Ad|usted Gross Income . 000 or More.
(U) Ad|usted Gross Income Less Than . ,000. A
(2) In eu or certan deductons and credts. The standard deducton
sha be n eu of: (A) n deductons other than those whch tnder secton
22(n) arc to be subtracted from gross ncome In computng ad|usted gross
Income, .
In the nstant case the wagerng osses do not come wthn the pur-
vew of secton 22(n) of the Code and therefore cannot be deducted
n the computaton of ad|usted gross ncome. urthermore, such
osses are not deductbe from ad|usted gross ncome n determnng
net ncome snce the ta payer has camed the standard deducton,
whch s n eu of a aowabe deductons other than those enumerated
n secton 22 (n) of the Code.
Accordngy, t s hed that for edera ncome ta purposes, a
wagerng gans must be ncuded n gross ncome. Losses therefrom,
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Regs. 11 , 39.23 (k)- . 00
by a ta payer who s not n the trade or busness of gambng, are not
deductbe n determnng ad|usted gross ncome as such osses do not
come wthn the provsons of secton 22(n) of the Interna Revenue
Code reatng to the determnaton of ad|usted gross ncome. Nor
are such osses deductbe from ad|usted gross ncome n determnng
net ncome where the ta payer has eected to use the standard
deducton.
S CTION 23(k).-D DUCTION ROM GROSS
INCOM : BAD D BT
muatons 11 , Secton 39.23 (k)- : Worth-
ess bonds and smar obgatons.
Interest receved on debentures, under coatera guarantee, after
e hauston of the assets of the corporaton. See Rev. Ru. 5 -563,
pngo 50.
muatons 11 , Secton 39.23 (k)-5: Reserve Rev. Ru. 5 -597
for bad debts.
A hank usng the movng average percentage of bad debt osses to
outstandng oans n determnng addtons to Its bad debt reserve
as provded n Mmeograph G20 A, C. B. 10 7-2, 26, or the aternatve
average e perence factor based on any 20 consecutve years of e -
perence after the year 1027 as provded n Itevenue Rung 5 -1 IS.
C. B. 195 -1, 60, may compute ether percentage on the bass of the
tota net osses for the 20-year perod dvded by the tota outstand-
ng oans for that perod, or on the bass of an average of the tota
percentages computed for each of the 20 years, provded that the
method of computaton adopted s consstenty foowed.
Advce has been requested as to whether, n computng the movng
average percentage of bad debt osses to outstandng oans n deter-
mnng addtons to a bank s bad debt reserve as provded n Mmeo-
graph 6209, C. B. 19 7-2, 26, the percentage s to bo computed on
the bass of tota net osses for the 20-year perod dvded by the tota
outstandng oans for that perod, or on an average of tho tota per-
centages computed for each of the 20 years.
or e ampe, a bank has a tota net outstandng oan amount for
20 years of A 31,700,000 and a tota bad debt oss after recoveres for
the same 20-year perod of 139,600. The tota of percentages of bad
debts computed for each of the 20 years s .150627. In the frst method,
that of dvdng the tota net bad debts by the tota oans, a percentage
of bad debt osses of .00 03 s obtaned. In the second method, that
of determnng the average of the tota percentages computed for each
of the 20 years, the percentage of .007531 s obtaned (/20th of
.150627).
No specfc method for the computaton of the movng average per-.
centage s prescrbed n Mmeograph 6209, supra. Accordngy, t s
hed that ether of the foregong methods are acceptabe for the com-
putaton of the movng average percentage provded n Mmeograph
6209, supra, and for the computaton of the average e perence fac-
tor based on any 20 consecutve years of e perence after the year. 1927
as provded n Revenue Rung 5 -1 , C- B.195 -1,60, provded that
the method of computaton adopted s consstenty foowed.
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91 . Regs. 11 , 5 39.23(m)-.
S CTION 23(1). D DUCTIONS ROM GROSS INCOM :
D PR CIATION
Reguatons 11 , Secton S9.23()-1: Rev. Ru. 5 -579
Deprecaton.
A corporaton s engaged n the manufacture of mtary arcraft
and guded msses for the Unted States Government. In vew of
safety requrements n andng arcraft at arports t s necessary for
the corporaton to construct barrcades at both ends of a runway n
order to catch arcraft usng the ma mum ro-out afforded by the
runway. The barrcades arc ocated on and owned by a muncpaty
and are constructed, mantaned and owned by the corporaton at ts
own e pense. Hed, that athough the barrcades are constructed on
cty owned property and party controed by others, the corporaton
s entted to an aowance for deprecaton on the factes and may
aso deduct as ordnary e penses the cost of mantenance and opera-
ton.
Reguatons 11 , Secton 39.23(1)-1: Deprec-
aton.
Reguatons 111, Secton 29.23(1)-1: Deprec-
aton.
Ad|ustment of bass of property for deprecaton for perod ta -
payer was ta -e empt. See Rev. Ru. 5 -3 1, page 163.
S CTION 23(m). D DUCTIONS ROM GROSS
INCOM : D PL TION
Reguatons 11 , Secton 39.23(m)-: Depeton Rev. Ru. 51 5
of mnes, o and gas wes other natura de-
posts, and tmber deprecaton of mprove-
ments.
In determnng percentage depeton aowabe payments measured
by producton made by a essee of a mnera property to the essor
for the use of pant and equpment must be e cuded from the gross
Income of the essee and ncuded In the gross Income of the essor.
Consderaton has been gven a case where a essor owns a mnera
depost and part or a of the pant and equpment necessary for ts
e potaton. The essor requres ether a banket royaty for the
entre property or a royaty for the mnera and a separate renta
measured by producton for the pant and equpment.
The Interna Revenue Servce hods that the entre amount of such
payments to the essor, ncudng the porton thereof aocabe to the
f)ant and equpment, must be e cuded from the gross ncome of the
essee, and that such payments consttute depetabe ncome to the
essor under secton 39.23(m)-(b), Reguatons 11 . See aso
G. C. M. 22730, C. B. 19 1-1,21 , and Leechurg Mnng Company v.
Commssoner, 15 T. C. 22. Under the crcumstances the pant and
equpment represent part of the essor s nvestment n the mnera n
pace and hs ad|usted bass n the pant and equpment becomes part
333510 B5 7
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Regs. 11 , 39.23(m)-6. 02
of hs depetabe bass. Accordngy, deprecaton n respect of the
pant and equpment s not aowabe to the essor durng the ease
term. Snce the essee has no capta nvestment n the pant and
equpment he kewse may not take deprecaton thereon. (Rentas
measured by tme are deductbe e pense to the essee and n such a
stuaton the essor s entted to deprecaton but not depeton.)
or purposes of computng cost depeton (or, as to coa, for com-
putng capta gan under secton 117(k) (2) of the Interna Revenue
Code of 1939), n cases n whch payments to the essor for the use of
pant and equpment are measured by producton and n whch the term
of the ease s as great as or greater than the e pected fe of the pant
and equpment, the essor s entre ad|usted bass n the pant and equp-
ment shoud be added to the ad|usted cost of the mnera at the tme tne
essor enters nto the ease. or the same purposes n cases n whch
the term of the ease s ess than the e pected fe of the pant and
equpment there shoud be added to the ad|usted cost of the mnera at
the tme the essor enters nto the ease ony that porton of the essor s
ad|usted bass n such pant and equpment whch represents the df-
ference between such ad|usted bass at the tme the ease was entered
nto and the e pected vaue of the pant and equpment upon termna-
ton of the ease. In the event the ease s termnated and the essor
resumes possesson, the essor s ad|usted bass n the pant and equp-
ment at the tme of termnaton w be hs ad|usted bass theren at
the begnnng of the ease ess the depeton aowed or aowabe to hm
n connecton wth the porton of the payments attrbutabe to the
pant and equpment durng the ease.
Reguatons 11 , Secton 39.23(m)-: Depeton
of mnes, o. and gas wes other natura de-
posts, and tmber deprecaton of mprove-
ments.
Reguatons 11 amended. See T. D. 6096, page 69.
Reguatons 11 , Secton 39.23(m)-: Depeton
of mnes, o and gas wes, other natura de- ,
posts, and tmber deprecaton of mprove-
ments.
Ad vaorem property ta es pad for essor by essee wth respect to
mnera-bearng ands. See Rev. Ru. 5 -600, page 16 .
Reguatons 11 , Secton 39.23 (m)-5: Compu-
taton of depeton based on percentage of
ncome n case of certan mnes or other
natura deposts.
uartzte defned. See Rev. Ru. 5 - 3, page 16
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93 Regs. 11 , 39.23 (o)-.
R GULATIONS 11 , S CTION 39.23(m)-5: Compu-
taton of depeton based on percentage of
ncome n cases of certan mnes or other
natura deposts.
The meanng of refractory and fre cay for the purpose of the
aowance of depeton. See Rev. Ru. 5 -550, page 16 .
S CTION 23(o).-D DUCTIONS ROM GROSS INCOM :
CHARITABL AND OTH R CONTRIBUTIONS
R GULATIONS 11 , S CTION 39.23(o)-: Contr- Rev.Ru.5 - 65
butons or gfts by ndvduas.
(Aso Secton 23(q), Secton 39.23(q)-, Sec-
ton 3, Secton 39. 3-1.)
A chartabe contrbuton n the form of a check s deductbe, n
the manner and to the e tent provded by secton 23(o) and (q) of the
Interna Revenue Code of 1939. n the ta abe year n whch the
check s devered provded the check s honored and pad and there
are no restrctons as to tme and manner of payment thereof. See
state of Mode . Spege v. Commssoner. 12 T. C. 52 , acquescence.
C. B. 19 9-2, 3.
R GULATIONS 11 S CTION 39.23(o)-: Contr- Rev. Ru. 5 - 66
butons or gfts by ndvduas.
(Aso Secton 23(q), Secton 39.23(q)-.
A commttee has been estabshed for the purpose of deveopng
and, donated to a potca subdvson of a State as a pubc park.
Inasmuch as the potca subdvson does not have suffcent funds
vth whch to deveop the and, a drve w be conducted to secure the
necessary funds to deveop the park. Hed, contrbutons made to the
commttee to be used n deveopng the and as a pubc park w be
deductbe by the donor n the manner and to the e tent provded by
secton 23 (o) and (q) of the Interna Revenue Code of 1939.
R GULATIONS 11 , S CTION 39.23 (o) -1: Contr- Rev. Ru. 5 -532
butons or gfts by ndvduas.
(Aso Secton 23(q), Secton 23(q)-.) .
Amounts pad to a State Department of Hghway Safety for use
n deveopng a hghway safety program consttute aowabe de-
ductons for edera Income ta purposes to the e tent provded n
secton 23(o) of the Interna Revenue Code of 1039 wth respect to
Indvduas and secton 23(q) of the Code wth respect to cor-
poratons.
Advce s requested whether amounts pad by an ndvdua or a cor-
poraton toward a state hghway safety program consttute contrbu-
tons whch are deductbe from gross ncome for edera ncome ta
purposes.
The program for hghway safety set up under a State Department of
Hghway Safety and drected by the Governor s Traffc Safety Com-
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egs. 11 , 30.23(o)-.) 0
mttee s supported by varous ndustres and ndvduas. Safety
themes are emphaszed by dspayng posters on bboards, by ds-
trbutng crcuars and brochures and by e hbtng short safety fms.
The cost of statonery, prntng, renta of bboards and servces of an
advertsng company, etc. are pad by ndustra corporatons and nd-
vduas nterested n assstng and deveopng a sound hghway safety
program.
Secton 23 (o) of the Interna Revenue Code of 1030 appcabe to an
ndvdua and secton 23(q) appcabe to a corporaton provde that
n computng net ncono deductons (sub|ect to the mtatons pre-
scrbed n those sectons) sha be aowed for contrbutons whch are
made wthn the ta abe year, to or for the use of the Unted States,
any State or any potca subdvson thereof, for e cusvey pubc
purposes.
It s hed that the payment by an ndvdua or a corporaton for any
matera used bv the State Department of Hghway Safety or tho
Governor s Traffc Safety Commttee n connecton wth tho traffc
safety program s a contrbuton to or for the use of the State and
such payment s aowabe as a deducton for edera ncome ta pur-
poses under sectons 23 (o) or 23 (q) of the Code.
Reguatons 11 , Secton 30.23 (o)-1: Contr- Rev. Ru. 5 -310
butons of gfts by ndvduas.
If a ta payer (an empoyee of a corporaton havng a so-caed
nnted chartes pan admnstered by e ecutve offcers of the cor-
poraton) who Itemzes bs deductons on bs return, orm 10 0,
w attach a copy of a statement furnshed to hm by the admns-
r trators of the pan, showng the tota amount of bs contrbutons
and the percentage of such tota amount whch was dstrbuted to
each desgnated chartabe organzaton, he may enter opposte
Contrbutons on page 3 of hs return the name of the pan and the
. tota amount contrbuted durng tbe year through the pan wthout
, stng each of the organzatons to whch hs contrbutons were pad
durng the caendar year.
Advce has been requested whether an empoyee of a corporaton
havng a pan under whch t coects funds by means of vountary
payro deductons to be dstrbuted to varous desgnated chartes
may enter on hs Indvdua Income Ta Return, orm 10 0, the tota
amount contrbuted durng any gven year to the pan n eu of the
amount dstrbuted to each of the chartes.
In the nstant case a corporaton, n order to emnate the frequent
canvassng of personne by varous chartabe organzatons and to
make t mechancay easer for such personne to contrbute to basc
communty chartes, has worked out a pan of vountary payro
deductons ntended to hande a requests for chartabe contrbutons
made formery to ndvdua empoyees. The pan, whch s caed a
unted chartes pan, w be admnstered by three of the corpora-
ton s e ecutve offcers.
ach empoyee w sgn a card whch w authorze the payro
department to deduct a specfed amount from hs pay and consttute
the admnstrators of the pan hs agents to dstrbute the amount so
deducted among desgnated chartabe organzatons n prescrbed
proportons. The tota amount deducted from the empoyees pay s
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05 . Hen 1 1 , 30.23(o) .
to be dstrbuted to organzatons whch meet the requrements for
e empton from edera ncome ta under secton 101(0) of the Inter-
na Revenue Code of 1939.
After the cose of each caendar year durng whch the pan s n
effect, the admnstrators w furnsh to each partcpatng empovc-e
a statement, n dupcate, showng the tota amount of hs contrbu-
tons and the manner n whch such amount was dstrbuted by tcs
admnstrators.
In tho cuse presented the pan s not set up as a separate entty an
as no form of organzaton. It s merey an agency arrangement.
whereby tho partcpatng empoyees may channe ther chartabe
contrbutons, and, as such, has no status under secton 101 of the Code.
It s hed that f a ta payer, an empoyee of a corporaton havng a.
so-caed unted chartes pan admnstered by e ecutve offcers of
the corporaton, who temzes hs deductons on hs return, orm 10 O,
w attach a copy of the statement furnshed to hm by the admns-
trators of the pan, showng the tota amount of hs contrbutons and
tho percentage of such tota amount whch was dstrbuted to each,
desgnated organzaton, he may enter opposte Contrbutons on.
page 3 of hs return the name of the pan and tho tota amount con-
trbuted durng tho year through the pan wthout stng each of the
organzatons to whch hs contrbutons were pad durng the caendar
year.
R GULATIONS 11 , S CTION 39.23 (o)-: Contrbu- Rev. Ru. 5 -5 G5
ndvduas.
, Secton 39.23 (q)- Secton
-
Membershp dues pad to an organzaton, contrbutons to whch
arc deductbe under sectons 23 (o) and (q) of the Interna Rev-
enue Code of 1939, whch do not bestow upon the member any bene-
fts or prveges n return for ther payment are deductbe as con-
trbutons under sectons 23 (o) and (q) of tbc Code.
Where the payment of dues enttes the member to certan bene-
fts and/or prveges such as the rght to receve monthy buetns,
etc., such dues are not deductbe under sectons 2. (o) and (q)
of the Code but may represent ordnary busness e penses whch
woud be deductbe under secton 23 (a) of the Code.
Advce has been requested whether membershp dues pad to_ an
organzaton, contrbutons to whch are deductbe under sectons
23 (o) and (q) of the Interna Revenue Code of 1939, are deductbe
by members n computng ther ta abe net ncome n the manner
and to the e tent provded by sectons 23 (o) and (q) of the Code.
The queston whether membershp dues pad to organzatons of
the type set out n sectons 23 (o) and (q) of the Code are deductbe
as contrbutons by members under those provsons of aw depends on
tho partcuar facts of each case. If membershp n the organzaton
does not bestow upon the members any benefts or prveges n return
for the payment of dues, the payment of such dues may represent the
payment of contrbutons under the provsons of sectons 23 (o) and
(q) of the Code. If, however, membershp n the organzaton be-
stows upon members certan benefts and/or prveges n return for
the payment of dues, such as monthy buetns or |ournas, the free
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Regs. 11 , 39.23(o)-. 96
nse of a brary, etc., the prveges of attendng uncheons, muscas,
moton pcture programs, and ectures, etc., the dues do not consttute
a contrbuton or gft and they are not deductbe under sectons
23 (o) and (q) of the Code.
In such case, however, membershp dues may quafy as ordnary
and necessary e penses pad or ncurred n carryng on a trade or
busness wthn we meanng of secton 23(a) of the Code, Secton
39.23(a)-5 of Reguatons 11 provdes that a professona man may
cam as deductons n computng net ncome the dues to professona
socetes and subscrptons to professona |ournas. Aso that
amounts currenty e pended for hooks, the usefu fe of whch s
short, may be deducted.
Snce the subscrptons for pubcatons of educatona organza-
tons do not represent gfts, the cost of such subscrptons ncudng
mang e penses pad by recpents of the pubcatons, woud not be
deductbe under sectons 23 (o) and (q) of the Code. However, the
e penses ncurred for such tems coud very we represent a busness
e pense and be deductbe under secton 23(a) of the Code as sub-
scrptons to professona |ournas. Whether such subscrptons are
ordnary and necessary busness e penses deductbe under secton
23(a) of the Code depends upon the partcuar facts n each case.
If the ta payer s trade or busness s the performance of servces as
an empoyee, the dues pad to professona socetes and subscrptons
to professona |ournas, as we as amounts currenty e pended for
boo S, the usefu fe of whch s short, may not be deducted n com
putng ad|usted gross ncome. Such e penses may be deducted ony
f such ta payer temzes hs deductons on page 3 of Indvdua In
come Ta Return, orm 1010.
Reguatons 11 , Secton 39.23 (o)-: Contr- Rev. Ru. 6 -566
butons or gfts by ndvduas.
(Aso Secton 23(q), Secton 39.23(q)-.)
A foundaton whch s e empt from edera ncome ta under the
provsons of secton 101(6) of the Interna Revenue Code of 1939,
receved contrbutons from donors whch were earmarked for a par-
tcuar purpose. The donors took deductons for such contrbutons n
ther edera ncome ta returns sub|ect to the mtatons of secton
23 (o) and (q) of that Code. Subsequenty the oundaton abandoned
the partcuar pro|ect and upon request of a donor, transferred hs
contrbuton to a und desgnated by that donor. Records of the
Interna Revenue Servce do not dscose that the und has apped
for e empton. Hed: The amount desgnated by the donor to be
transferred to the und consttuted ta abe ncome to the donor for
the year n whch the transfer was made, to the e tent of the porton
hereof whch was prevousy taken as a deducton by hm. In the
event the und quafes as an organzaton of the type referred to n
secton 23 ,(o) or (q) of the Code, contrbutons to t woud quafy as
an aowabe deducton n the edera ncome ta return of the donor
sub|ect to the statutory mtatons.
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97 Regs. 11 , g 39.23(p)-10.
Reguatons 11 , Secton 39.23(o)-1 : Cohtr- Rev. Ru. 5 -5 0
butons or gfts by ndvduas.
Tuton pad on behaf of chdren attendng parocha, or other
types of church sponsored schoos Is not deductbe as contrbutons
or gfts In computng net Income for edera Income ta purposes
under Secton A (o) of the Interna Ituveuue Code of 1U3LA.
Advce has been requested whether payments for tuton made on
behaf of chdren attendng parocha, or other types of church
sponsored schoos are deductbe as contrbutons or gfts under sec-
ton 23(o) of the Interna Revenue Code of 1939.
Secton 23(o) of the Code provdes that n computng net ncome
there sha be aowed as deductons, n the case of an ndvdua, con-
trbutons or gfts payment of whch s made wthn the ta abe year
to or for the use of specfed organzatons organzed and operated
e cusvey for regous, educatona, etc., purposes, to an amount
whch, n a cases n secton 23(o) of the Code combned, does not
e ceed 20 percent of the ta payer s ad|usted gross ncome.
In atherne M. Channng v. Unted States, Supp. 33, affrmed
67 . (2d) 9 6, certorar dened 291 Unted States C36, the Court
hed that tuton pad to educatona nsttutons for the educaton of
the ta payer s daughter was not deductbe as a contrbuton.
In S. . Thomason v. Commssoner, T. C. 1, the Ta Court hed
that amounts pad for the beneft of, and to provde speca advantages
for, a partcuar chd n the Inos Chdren s Home and Ad Socety,
were not deductbe as chartabe contrbutons.
The amounts pad n the nstant case kewse were made for the
beneft of a partcuar chd or chden and, therefore, cannot bo
regarded as contrbutons or gfts to tho organzatons nvoved n
operatng tho schoos. However, payments made to or for the use
of such organzatons n carryng out ther genera purposes and not
n any way earmarked for the beneft of partcuar chdren woud
consttute deductbe contrbutons or gfts under secton 23 (o) of
the Code.
In vew of the foregong, t s hed that the tuton pad for chdren
attendng parocha, or other types of church sponsored schoos does
not consttute gfts or contrbutons pad to or for the use of the
organzatons operatng such schoos wthn the meanng of secton
23 (o) of the Code, and that deducton of such tuton s not aowabe
n computng net ncome for edera ncome ta purposes.
S CTION 23(p). D DUCTIONS ROM GROSS INCOM :
CONTRIBUTIONS O AN MPLOY R TO AN MPLOY-
S TRUST OR ANNUITY PLAN AND COMP NSATION
UND R A D RR D-PAYM NT PLAN
Reguatons 11 , Secton 39.23(p)-10: Contr- Rev. Ru.5 -270
butons of an empoyer to an empoyees proft-
sharng or stock bonus trust that meets the
requrements of secton 165(a) appcaton of
secton 23(p)()(C).
If a quafed empoyees proft-sharng trust tns been qudated
by the empoyer, no contrbuton carryover may be aowed as a
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Regs. 11 , 39.23(p)-10. 9
deducton, for edera Income ta purposes, n any ta abe year
subsequent to tbe year n whch the trust was qudated.
Advce s requested wth respect to the e tent to whch a contrbu-
ton carryover, under a quafed empoyees proft-sharng pan, may
be aowed as a deducton for edera ncome ta purposes after a
termnaton of such pan and the qudaton of the empoyees trust.
A corporate empoyer fes ts edera ncome ta returns on a fsca
year bass endng anuary 31. The empoyees proft-sharng pan,
whch was estabshed and became effectve on anuary 31,19 7. was
hed to quafy under secton 165(a) of the Interna Revenue Code.
Under the pan s contrbuton formua, an annua contrbuton of 50
percent of net ncome after certan deductons was requred. Con-
trbutons were made as specfed for the ta abe years ended anu-
ary 31, 19 ,19 9, and 1950, whch amounts e ceeded the 15 percent
mtaton of compensaton pad or accrued to ts empoyees for each
year as provded bv secton 23(p) (1) (C) of the Code. The pan was
dscontnued as of ebruary 1,19 9, and the trust was qudated dur-
ng the ta abe year ended anuary 31,1950.
Secton 23 of the Interna Revenue Code provdes n part as foows:
S C. 2a D DUCTIONS ROM GROSS INCOM .
In computng net ncome there sha be aowed as deductons:
.
(p) Contrbutons or an mpoyer to at mpoyees Tbust ot Annuty
Pan a.nd Compensaton Under a Deferred-Payment Pan.
(1) Genera rue. If contrbutons are pnd by an empoyer to or under
a stock bonus, penson, proft-sharng, or annuty pan, or If compensaton
s pad or accrued on account of any empoyee under a pan deferrng the
- recept of sucb compensaton, such contrbutons or compensatons sha not
be deductbe under subsecton (a) but sh. be deductbe, f deductbe
under subsecton (a) wthout regard to ths subsecton, under ths sub-
secton bnt ony to the foowng e tent:
.
(C) In tbe ta abe year when pad, If the contrbutons are pad
Into a stock bonus or pro t-sbarng trust, and f sucb ta abe year ends
wthn or wth a ta abe year of tbe trust wth respect to whch the
. . . trust s e empt under secton 165(a), In an amount not n e cess of 15
per centum of the compensaton otherwse pad or accrued durng the
, , ta abe year to a empoyees under tbe stock bonus or prott-sharng
-,. , pan. In addton, any amount pad nto the trust n a ta abe
year begnnng after December 31,19 1, n e cess of the amount aow-
abe wth respect to such year under the precedng provsons of ths
subparagraph sha be deductbe n tbe succeedng ta abe years n
order of tme, but the amount so deductbe under ths sentence n any
one such succeedng ta abe year together wth the amount aow-
abe under the frst sentence of ths subparagraph sha not e ceed 15
per centum of the compensaton otherwse pad or accrued durng such
ta abe year to the benefcares under tbe paD.
Secton 39.23(p)-10 of Reguatons 11 , promugated wth respect
to secton 23(p) (1) (C) of the Interna Revenue Code, provdes tnat,
n order that contrbutons carred over may be deducted n a suc-
ceedng ta abe year of the empoyer n accordance wth the thrd
sentence of secton 23 (p) (1) (C) of the Code (the ast sentence quoted
above), the succeedng year aso must end wth or wthn a ta abe
Year of the trust for whch t s e empt under Code secton 165(a).
The amount deductbe under such thrd sentence, when added to the
amount aowabe, (f any) under the frst sentence, may not e ceed
15 per cent of to compensaton otherwse pad or accrued durng such
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99 RegA . 11 , 39.23(q)-.
ta abe year to the empoyees who, n such year, are benefcares of
the trust funds accumuated under the pan. Inasmuch as the trust
n the nstant case was qudated durng the ta abe year ended
anuary 31,1950, asde from the fact that t had no ta abe year after
that date, there was no pan n e stence durng the succeedng ta abe
years whch can be sad to have partcpants n those succeedng ta -
abe ydars. Therefore, there can be no compensaton otherwse pad
or accrued under the pan to persons who quafy as partcpants n
those succeedng ta abe years to form the bass for appyng the
15-percent mtaton.
In vew of the foregong, t s hed that the ta payer s contrbuton
carryover, under quafed empoyees proft-sharng trust, may not
be aowed as a deducton for federa ncome ta purposes n any ta -
abe vear subsequent to the year n whch the empoyees trust was
qudated. The amount of such contrbuton carryover aowabe as
a deducton for the ta abe year n whch the trust was qudated
s mted to 15 percent of the compensaton otherwse pad or accrued
durng such year to those empoyees who were partcpants of the
pan at the begnnng or durng the ta abe year of the trust s
qudaton.
S CTION 23(q). D DUCTIONS ROM GROSS INCOM :
CHARITABL AND OTH R CONTRIBUTIONS BY COR-
PORATIONS
Reguatons 11 , Secton 39.23(q)-: Contr-
butons or gfts by corporatons.
Reguatons 11 amended. See T. D. C110, page 6 .
Reguatons 11 , Secton 39.23 (q)-: Contr-
butons or gfts by corporatons.
Treatment of contrbutons pad by check. See Rev. Ru. 5 - 65,
page 93.
Reguatons 11 , Secton 39.23(q)-: Contr-
butons or gfts by corporatons.
Contrbutons to a commttee estabshed to deveop and owned
by a potca subdvson of a State as a pubc park. See Rev. u.
5 - G6, page 93.
Reguatons 11 , Secton 39.23 (q)-: Contr-
butons or gfts by corporatons.
Contrbutons to a State Department of Hghway Safety toward a
hghway safety program are aowabe deductons under secton 23 (q)
of the Inferna Revenue Code of 1939 to the e tent provded theren.
Sec Rev. Ru. 5 -532, page 93.
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Regs. 11 , 39.23(aa)-.) 100
Reguatons 11 , Secton- 39.23(q)-: Contr-
butons or gfts by corporatons.
Membershp dues pad to organzatons, contrbutons to whch are
deductbe under secton 23 (o) and (q) o the Interna Revenue Code
of 1039. Sec Rev. Ru. 5 -5G5, page 05.
Reguatons 11 , Secton 39.23(q)-: Contr-
butons or gfts by corporatons.
Contrbutons transferred from one donee organzaton to another.
See Rev. Ru. 5 -500, page 96.
S CTION 23( ). D DUCTIONS ROM GROSS INCOM :
M DICAL, D NTAL, TC., P NS S
Reguatons 11 , Secton 39.23( )- : Medca Rev. Ru. 5 - 57
denta, etc., e penses.
A unversty provdes medca and hospta care for ts students,
contractng for such care at a stpuated rate per student and paync
actua hospta bs for those students hosptazed durng the schoo
term. The amount of the fee for the heath pan, whch s ncuded n
the tuton fee charged, s not separatey temzed. Hed, that f the
student pays a ump sum fee whch ncudes hs educaton, board med-
ca care, etc., and no breakdown s made of such fee as to the amount
aocabe to medca care, no specfc part of the tuton fee charged
may be consdered to be an amount pad for medca care wthn the
meanng of secton 23( ) of the Interna Revenue Code of 1939 de-
ductbe by ndvduas n computng net ncome for edera ncome
ta purposes. However, f such a breakdown s provded, or s ready
obtanabe from the unversty, that porton of the fee charged whch
s aocated to medca care w consttute a proper deducton under
secton23( ) of the Code.
S CTION 23(aa).-D DUCTIONS ROM GROSS INCOM :
OPTIONAL STANDARD D DUCTIONS OR INDI ID-
UALS
Reguatons 11 , Secton 9.23(aa)-: Standard
deducton.
ffect of eecton of standard deducton on wagerng osses by a
ta payer who s not n the trade or busness of gambng. See Rev.
Ru. 5 -339, page 9.
Reguatons 11 , Secton 39.23(aa)-: Stand-
ard deducton.
Treatment of the Unted ngdom standard ncome ta approprate
to dvdends of a Unted ngdom corporaton. See Rev. Ru. 5 -533,
page 210.
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101 Regs. 11 , 39.2 (a)-2.
S CTION 23 (cc). D DUCTIONS ROM GROSS
INCOM : D LOPM NT O MIN S
Reguatons 11 , Secton 39.23(cc)-1: Mne
deveopment e pendtures.
Reguatons 11 amended. See T. D. C09C, page 69.
S CTION 2 . IT MS NOT D DUCTIBL
Reguatons 11 , Secton 39.2 (a)-: Rev.Ru. 5 - 30
Persona and famy e penses.
No part of the founder s fee pad by a ta payer to a nonproft cor-
oraton for the prvege of takng up resdence n a home operated
y the corporaton, whch together wth payment of a requred en-
trance fee enttes hm to fe care n such home, s deductbe for
edera ncome ta purposes. Such fee represents a persona e pense,
the deducton of whch s prohbted by secton 2 (a) of the Interna
Revenue Code of 1939.
Reguatons 11 , Secton 39.2 (a)-2: Capta . Bev. Ru. 6 - 1
e pendtures.
(Aso Secton 23(a), Secton 9.23(a)- Sec-
ton 3, Secton 39. 3-1.)
edera ncome ta treatment to be accorded to the cost of 1-year
unform professona baseba payers contracts acqured through
purchase of an entre or substantay entre baseba cub.
I. T. 07 , C. B. 1052-1, 30, dstngushed.
Advce s requested reatve to the appcaton of I. T. 07 , C. B.
1952-1, 39, under crcumstances n whch 1-year unform professona
baseba payers contracts are acqured through the purchase of an
entre or substantay entre baseba cub.
_ I. T. 07 , supra, hods that the cost of a 1-year unform profes-
sona baseba payer s contract, wth the standard optona renewa
cause, purchased after the end of the payng season to whch the
contract reated, consttutes a busness e pense for the ta abe year
n whch pad or ncurred dependng on the method of accountng
used by the purchaser. I. T. 07 reates to the e pensng of the
cost of baseba payers contracts acqured n the norma and usua
operaton of a gong baseba cub ana s not appcabe to a transac-
ton or seres of transactons whereby an entre or substantay entre
roster of a gong baseba cub s payers contracts are acqured at
one tme for the reason that such an acquston consttutes an e traor-
dnary e pendture whch f e pensed n the year of acquston woud
dstort net ncome.
Accordngy t s hed that where an entre or substantay entre
roster of a gong baseba cub s acqured at one tme, the cost of
the 1-year unform professona baseba payers contracts thus ac-
qured w be treated for edera ncome ta purposes under the rues
set forth beow.
(1) Any aggregate amount assgnabe to-the entre or substantay
entre roster of a gong baseba cub s payers contracts upon acqus-
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Regs. IIS, A 39.2 (c)-. : 102
ton sha be captazed and recovered over the usefu fe of such
asset n order to ceary refect ncome.
(2) The perod of tme over whch such contracts sha be spread
s a factua matter to be determned n each pecuar stuaton. One
acceptabe method s to use a perod based on a reasonabe cyce of
years e perence of the predecessor cub owners e perence n e er-
csng the 1-year renewa optons of ts baseba payers contracts
provded such perod contans no abnorma or unusua factors.
(3) There sha be deducted each year from the aggregate bass
assgned to the baseba payers contracts descrbed above the amounts
receved n that year from the sae or dsposton of any such con-
tracts and the remanng baance sha be spread over the une pred
perod as determned n paragraph (2) hereof. Ths method sha
be foowed unt the aggregate bass assgned to baseba payers
contracts descrbed above has been recovered, and any amounts re-
ceved upon the sae or dsposton of such contracts that may reman
on hand after sad aggregate bass has been recovered sha be reported
as ordnary ncome.
( ) The cost of subsequent ndvdua payers contracts (other
than bv acquston of an entre or substantay entre roster of a gong
baseba cub) purchased n the norma course of busness w be
fuy deductbe n the year of purchase n accordance wth the rue
enuncated n I. T. 07 , supra.
Beouatons 11 ,Secton39.2 (c)-: Dsa- T.D. 60 9
owance of deductons for unpad e penses
and nterest
(Aso Secton 29.2 -7, Reguatons 111.)
TITL 20 INT RNAL R NU . cnArT .R I. BUBCDArT R A, PART 0 AND
PART 30
Reguatons 11 and Reguatons 111 amended to conform to
secton 202 of tbe Technca Changes Act of 103 , reatng to ds-
aowance of deductons for certan unpad e penses and Interest
Treast|ut Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. O.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On March 30,195 , notce of proposed ruemakng wth respect to
amendments conformng the ncome ta reguatons to secton 202
of to Technca Changes Act of 1953 C. 13. 1953-2, 5031. approved
August 15,1953, was pubshed n the edera Regster (191. It. 1715).
After consderaton of such reevant suggestons as were presented by
nterested persons regardng the proposas, tho foowng amendments
to Reguatons 11 (20 C R, pt. 39) and Reguatons 111 (20 C R,
1919 ed. and supps., pt. 29) are hereby adopted:
R GULATIONS 11
Paragraph 1. Secton 39.2 (c) s amended as foows:
(A) By strkng paragraph (1) of secton 2 (c) and nsertng tho
foowng:
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103 Regs. 11 , 39.2 (c)- .
(1) If wthn the perod consstng of the ta abe year of the ta payer and
2 months after the cose thereof (A) such e penses or Interest are not rad,
and (B) the amount thereof Is not Incudbe In the gross Income of the person
to whom the payment Is to be made and
(B) By addng a hstorca note at the end thereof as foows:
Sec. 2 (c) as amended by sec. 202(a). Technca Changes Act of 1033. Under
sec. 1102(b)(1), Technca Changes Act of 1953, the amendment made by sub-
secton (n) sha appy ony wth respect to ta abe years begnnng after
December 31,1950
As amended, secton 2 (c)(1) and the hstorca note n secton
39.2 (c) w read as foows:
Sec. 39.2 (c) Statutory Provsons Items hot Deductbe Unpad
penses and Interest.
S C. 2 . IT MS NOT D DUCTIBL .
(c) Unpad penses and Interest.
(1) If wthn the perod consstng of the ta abe year of the ta -
payer and two and one-haf months after the cose thereof (A) such
e penses or Interest arc not pad, nnd (B) the amount thereof s not
Incudbe In the gross Income of the person to whom the payment s
to be made and

Sec. 2 (c) as amended by sec. 202(a), Technca Changes Act of 1953.
Under sec. 20- (b) (1), Technca Changes Act of 1953, the amendment
made by subsecton (a) sha appy ony wth respect to ta abe years
begnnng after December 31,1950
Par. 2 Secton 39.2 (c) -1 s amended to read as foows:
Sec. 39.2 (c)-. Dsaowance of Deductons for Unpad penses and
Interest (a) In genera. Secton 2 (c) provdes for the dsaowance of a
deducton for accrued but unpad e penses and Interest under the crcumstances
prescrbed In paragraphs (1), (2), and (3) of secton 2 (c). Uness n con-
dtons prescrbed theren e st, the deducton Is not dsaowed. The provsons
of secton 2 (c) do not otherwse affect the genera rues governng the aow-
ance of deductons under thA accrua method. Henco, If the e penses or Interest
are ptd after to deducton hns been dsaowed, no deducton woud bo
aowabe for the ta abe year In whch pnytneat Is made.
(b) The appcaton of 2 (c) may bo ustrated by the foowng
c nmpo:
ampe. A Is the hoder and owner of an Interest bearng note e ecuted
by tho M Corporaton n of tho stock of whch Is owned by bm. A and the
M Corrarnton mnko ther ncome ta returns on the bass of a caendar year,
but tho M Corporaton makes Its returns on the accrua bnss and A makes
hs returns on the cash recepts and dsbursements bnss. The M Corporaton
docs not pay any nterest on such note durug the caendar year 1932 or wthn
2 months after the coso thereof, but cams a deducton for the year 1952
wth respect to the Interest accrung on the note n that year. Snce A s on
the onsh recepts nnd dsbursements bnss, such Interest Is not ncudbe In hs
gross Income for tho yenr 1932 or wthn 2 | months thereafter. By the appca-
ton of secton 2 (c), no deducton for such Interest Is aowabe In computng the
net Income of tho M Corporaton for tho yenr 1052. However, If tho Interest
payment bnd been Hndu avaabe to A on anuary 15, 10. I, nnd tho amount
thereof wns therefore Incudbe In the gross Income of A at thnt tme, a deduc-
ton hy M Corporaton fur the Interest nccrued for 1052 woud not be dsaowed
under the secton snce tho condton of secton 2 (c) (1) (II). (thnt the nmount
bo not Incudbe In tho grows Income of tho pnyec durng 111. . or the trst MU|
months of 1 I5. I) woud not be Rntsed. If the nmount Is actuay pad before
2 d months after the coso of the ta abe year, or If for tn purposes, It Is to
be treated by the payee, as constructvey receved wthn that perod, secton
2 (c) does not dsnow the deducton. or e ampes of constructve recept
of Hems of gross Income, see secton 39. 2-3.
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Regs. 11 , 5 39.2 (c)-. 10
R GULATIONS t
Pah. 3. There s nserted mmedatey precedng secton 295 -1 the
foowng:
S C 202. D DUCTION OP C RTAIN UNPAID P NS S AND
INT R ST. (T CHNICAL CHANG S ACT O 1953. AP-
PRO D AUGUST 15, 1053.)
(a) Amendment or Secton 2 (c). Paragraph (1) of secton 21(c)
(reatng to dsaowance of certan deductons for e penses Incurred and
Interest accrued) Is hereby amended to read as foows:
(-) If wthn the perod constatng of the ta abe year of the ta -
payer and two and one-haf months after the cose thereof (A) such
e penses or Interest are not pad, and (B) the amount thereof Is
not Incudbe In the gross Income of the person to whom the pay-
ment Is to be made and .
(b) ffectve Date.
(1) cept as otherwse provded In paragraph (2), the amend-
ment made by subsecton (a) sha appy ony wth respect to ta a-
abe years begnnng after December 31,1050.
(2) At the eecton of a ta payer (herenafter In ths paragraph
referred to as the payor ) made wthn one year after the date of
the enactment of ths Act, the amendment made by subsecton (a)
sha aso appy wth respect to such ta abe years of the payor
begnnng after December 31, 19 5, and before anuary 1, 1951,
as are specfed by the payor In makng such eecton. Such eec-
ton for any ta abe year sha not be vad as to any amount un-
ess, at or before the tme when such eecton Is fed
(A) the person (herenafter In ths paragraph referred to s
tn- payee ) to whom such amount was pnyno Incuded Md
amount In gross ncomo for bs ta abe year for whch such
amount was Incudbe In gross Income, or
(B) tho payee fes a wrtten consent to the assessment and
coecton of any defcency and nterest resutng from tho
payee s faure to Incude such amount In gross Income for such
ta nbe year, or
(C) the payor pays an amount equa to the defcency and
Interest whch woud be payabe by the payee pursuant to sub-
paragraph (B) If be fed such consent (Any amount pad
tnder ths subparagraph sha be assessed, notwthstandng
any aw or rue of aw to the contrary, as an addton to tho
ta of the payor for the year for whch tho eecton Is fed.)
The perods of mtaton provde In sectons 275 and 270 of tho In-
terna Revenue Code on the makng of an assessment and the be-
gnnng of dstrant or a proceedng n court for coecton sha, wth
, respect to any defcency and Interest thereon resutng from any
consent fed pursuant to subparagraph (B), Incude one yenr Im-
medatey foowng the date such consent s fed, and such assess-
ment and coecton may be made notwthstandng any provson .
of aw or any rue of aw whch otherwse woud prevent such assess-
ment and coecton. If an eecton by a payor shoud be fed for
a ta abe year of the payor for whch aowance of credt or refund
of an overpayment Is barred (at the tme of such fng) by any aw
or rue of aw, any consent fed by the payee In respect of any
amount whch represents e penses Incurred or Interest accrued by
the payor for such year sha be vod. If a consent requres the In-
cuson n the gross Income of the payee for any ta abe year of an
amount whch was erroneousy Incuded In the gross Income of the
payee for another ta abe year and, on the date the consent Is fed,
correcton of the effect of the error s prevented by the operaton of
any provson of the Interna-revenue aws other than secton 3701
of the Interna Revenue Code (reatng to compromses), then the
effect of the error sha be corrected In accordance wth secton
3S01 of the Interna Revenue Code as If the consent were a deter-
mnaton under such secton 3S01 In whch there Is adopted a pos-
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105 fRegs. 11 , 5 39.2 (e)-.
ton mantaned by the Secretary of the Treasury. The Secretary
of the Treasury sha prescrbe such reguatons as may be neces-
sary to carry out the provsons of ths paragraph.
Par. . Secton 29.2 r-7 s amended to read as foows:
See. 20.2 -7 Dsaowance or Deductons fob Unpad penses and In-
tebest (a) In genera. Secton 2 (c) provdes for the dsaowance of a deduc-
ton for accrued but unpnd e penses and nterest under certan crcumstances.
Sub|ect to the mtatons on the appcaton of paragraph (1) (B) to certan
ta abe years, the deducton Is not dsaowed uness a the condtons theren
e st The provsons of secton 2 (c) do not otherwse affect the genera rues
governng the aowance of deductons under the nccrua method. Hence, If the
e penses or Interest nre pad after the deducton has been dsaowed, no deduc-
ton woud he aowabe for the ta abe year In whch payment s made.
(b) Ta abe yean begnnng before anuary 1,1057, vrhcre no eecton made.
or ta abe years begnnng before anuary 1, 1031, where no eecton Is mnde In
accordance wth paragraph (d)(2) of ths secton, the appcaton of secton
2 (c) may be Iustrated by the foowng e ampe:
ampe. A Is the hoder and owner of an Interest-bearng note e ecuted by
the M Corporaton a of the stock of whch Is owned by hm. A and the M
Corporaton make tber Income ta returns on the bass of a caendar year,
but the M Corporaton makes Its returns on the accrua bass and A makes hs
returns on the cash recepts and dsbursements bass. The M Corporaton does
not pay nny Interest on such note durng the caendar year 10 or wthn 2 ,
months after the cose thereof, but cams a deducton for the year 19 S wth
respect to the Interest accrung on the note In that year. Snce A Is on the cash
recepts and dsbursements bass, the Interest Is not Incudbe In hs gross
Income for the year 101 . y the appcaton of secton 2 (c). no deducton
for such Intormt Is aowabo In computng tho net como of the M Corporato-v
for the year 10 .
(c) Ta abe years begnnng after December St, 7.050. or ta abe years
begnnng nftcr December 31. 1030, the appcaton of secton 2 (c) may be us-
trated by the foowng e ampe:
ampe. Assume the same facts as In the e nmpo In paragraph (h) e cept
that the year Invoved Is 11132. nnd, In addton, thnt on anuary 13, 1933. the M
Corporaton prepared a check payabe to tho order of A In the amount of
tho Interest for the year 1032. At a tmes thereafter, the check was avaabe
to A, and there were suffcent funds n the bank to cover the check. The check
was not receved by A unt anuary 10, 103 . Under the crcumstances, the
amount Is ncudbe In the gross Income of A when made avaabe to hm
athough not then nctuay reduced to possesson. By reason of paragraph
(1) (II) of secton 2 (c), n deducton by M Corporaton for the nterest accrued
for 1032 s not dsaowed under the secton even though the Interest woud not be
Incudbe In the gross Income of A for the year 1032 provded that the Interest
Is Incudbe wthn 2 months thereafter. If the amount s actuay pad before
2 months after the cose of the ta abe year, or If for ta purposes, It Is to be
treated by the payee as constructvey receved wthn that perod, secton 2 (c)
does not dsaow the deducton. or e ampes of constructve recept of tems
of gross ncome, see secton 20. 2-3.
(d) Ta abe peart begnnng after December St, 195, and before anuary
1, 1951, where eecton made (1) Genera rue. or ta abe years begnnng
after December 31, 19 5, and before anuary 1. 1051, If the ta payer makes an
eecton as provded In subparagraph (2) of ths paragraph, the provsons of
secton 2 (c), ns amended by secton 202 of the Technca Changes Act of 1033.
and the prncpes set forth In the e ampe In paragraph (c) of ths secton
sha be appcabe.
(2) Rues Reatng to ecton. (I) Secton 202(b) (2) of the Technca
Changes Act of 1053 provdes three aternatve prerequstes to the makng of an
eecton to be sub|ect to secton 2 (c) ns amended ether, under subparagraph
(A), the payee ncuded the amount n hs gross Income for the year n whch
It was ncudbe, or, under subparagraph (U), the payee consents to the assess-
ment and coecton of nny defcency nnd Interest due to the payee s faure to
Incude the amount In gross Income for such ta abe years or, under subpara-
graph (C), the ta payer pays the amount whch woud be payabe under sub-
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Regs. I, 5 29.2 -7. 106
paragraph (B) had the payee fed a consent. The condton reed upon, that Is,
the ncuson In Income by the payee, consent to assessment and coecton by
the payee, or payment by the payor, must be satsfed at or before the tme when
the eecton s fed.
() The eecton sha be n the form of a statement In wrtng and sha state
the name and address of the ta payer makng the eecton, and that the ta payer
eects to have the provsons of secton 2 (c), as amended by secton 202 of the
Technca Chances Act of 1053, appy to specfed ta abe years begnnng after
December,31, 10 5, and before anuary 1, 1031. A separate eecton sha o
fed for each year. The eecton sha aso Incndc tbo nnmo of the payee, (ho
ta abe year In whch the amount was Incuded In cross Income by the payee
(If Incned), and the dstrct In whch the return of the payee for that ta abo
year was fed. If the ta payer Is reyng upon a consent by the payee pursuant
to subparagraph (D) of sad secton 202(b) (2), the ta payer sha attach a copy
of the consent upon whch there Is noted the tme and pace of fng of the
orgna. If the ta payer pays or has pad an amount pursuant to subparagraph
(C) of sad secton 202(b) (2) he sha state the amount of the payment and tbo
: date thereof. The eecton sha be sgned by the ta payer. If an Indvdua,
or, f the ta payer s not an Indvdua, the eecton sha be sgned In the same
manner as the Income ta return of the ta payer.
(I) The wrtten eecton must be fed on or before August 15, 103 , In the
offce of the dstrct drector of Interna revenue for the dstrct In whch the
return was fed for the ta abe year to whch the eecton reates. An eecton
sha be consdered as tmey fed f It Is paced In the ma on or before md-
nght of August 15. 105 , as shown by the postmark on the enveope contanng
the eecton or as shown by other avaabe evdence of the mang date.
(v) A consent by a payee sha be fed In the offce of the dstrct drector of
Interna revenue for the dstrct In whch hs return was fed for the year to
whch the consent reates. A separate wrtng, sgned by the payee, sha be
fed for each year for whch a consent Is made.
(v) Payment by the ta payer of an amount pursuant to subparagraph (C)
- of sad secton 202(b) (2) sha be made to the dstrct drector of nterna rev-
enue for the dstrct In whch the ta payer fed hs return for the year to
whch the eecton reates.
(v) A copy of the eecton must be fed wth a cam for refund fed on or
after the date on whch the eecton Is made. Secton 202 of the Technca
Changes Act of 1053 does not authorze a refund wth respect to any ta abe
year whch s barred by any aw or rue of aw.
(v) An eecton whch conforms In substance to the provsons of ths secton
sha not be deemed Invad soey because It was fed pror to the date on whch
the amendment to the reguatons n ths secton was promugated.
(Ths Treasury Decson s ssued under the authorty contaned n
sectons 62 and 3791 of the Interna Revenue Code (53 Stat, 32, 67
26U,S.C.62,3791).)
O. Gordon Dek,
Actng Commssoner of Interna Revenue.
Approved August 10,195 .
M. B. osou,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster August 13, 105 , : a. m.)
S CTION 2 . IT MS NOT D DUCTIBL
k|ot-atons 111, Secton- 29.2 -7: Dsaowance
of deductons for unpad e penses and nterest.
eguatons 111 amended. See T. D. 60 9, page 102.
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- 107 Regs. 11 , 39.25-2.
S CTION 2 (a). IT MS NOT D DUCTIBL :
G N RAL RUL
Reguatons 11 , Secton 39.2 (a)-: Persona
and famy e penses.
Transportaton espouses of empoyees n movng from one post of
duty to another. See Rev. Ru. 5 - 29, page 53.
S CTION 25. CR DITS O INDI IDUAL AHA INST
N T INCOM
Reguatons 11 , Secton 39.25-2: Credts of . ,: Rev. Ru. 5 - 9
ndvduas for purpose of norma ta and , . .
surta .
(Aso Secton 12, Secton 39.12- .)
A servceman who has contrbuted more than haf of the support
of bs Iegtmate chd wthn the country In whch he s statoned
durng the caendar |ear, estabshes a bass for a dependency e -
empton wth respect to such dependent. However, he Is not
entted to the head of househod benefts on account of supportng
hs Iegtmate chd uness t ves In the same bouse wth hm.
Advce s requested whether the egtmate chd of a servceman
whom he supports wthn the country n whch he s statoned s hs
dependent and whether he quafes as the head of a househod for
edera ncome ta purposes.
Acknowedgment by a ta payer that a chd born out of wedock
s hs and proof that he contrbuted more than haf of the chd s
support durng the caendar year woud estabsh a bass for aow-
ance of an e empton wth respect to such dependent provded the
other tests n secton 25(b) (3) of the Interna Revenue Code of 1939
are met. In regard to questons of dua ctzenshp of sad dependent,
see I. T. 3S S, C. . 19 7-1, 30.
If a ta payer s not marred (or s egay separated) at the end
of hs ta abe year, he quafes as a head of a househod provded he
furnshes over haf the mantenance of a home whch s hs prncpa
resdence and whch, e cept for temporary absences, he shares durng
the entre ta abe year wth
(n) Any person for whom he s entted to an e empton, or
(b) Hs unmarred chd, grandchd, or stepchd, even though
such chd s not a dependent.
Secton 12(c) ( ) (C) of the Code provdes that for the purpose of
determnng whether a ta payer quafes as head of househod, r
ta payer s consdered as not marred at the cose of hs ta abe year
f at any tme durng the ta abe year hs spouse s a nonresdent
aen. Accordngy, f a ta payer s marred to n nonresdent aen
at any tme durng hs ta abe year but otherwse meets the above
tests, he s consdered the head of a househod. However, the Revenue
Servce takes the poston that an ndvdua who makes t possbe
for a ta payer to gan the benefts of the head of househod status
must actuay ve n the ta payer s househod durng the entre ta -
abe year uness he s temporary absent due to speca crcumstances.
Accordngy, t s hed that a servceman who has contrbuted more
33510- 63
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Regs. IIS, 39.25-2.) 10
than haf of the support of hs egtmate chd wthn the country
n whch he s statoned durng the caendar year, estabshes a bass
for a dependency e empton wth respect to such dependent How-
ever, the servceman under the crcumstances s not entted to the head
of househod benefts on account of supportng hs egtmate chd
uness t actuay ves n the same house wth hm.
Reguatons 11 , Secton 39.25-2: Credts . Rev. Ru. 5 -567
of ndvduas for purpose of norma ta
and surta .
(Aso Secton 322, Secton 39.322-3.)
A ta payer who furnshes more than SO percent of the rapport
of hs son and bs son s wfe durng a ta abe year whe the son Is
attendng coege may cam hs son and hs son s wfe as dependents
for such year even though the son n that year earned wages of
1,000 consttutng communty ncome of hmsef and hs wfe ( 500
for each) and fed a |ont return to secure refund of the ta wthhed
from hs wages.
Advce has been requested whether a ta payer who furnshes the
amount of 1,500 (more than 50 percent) for the support of hs son
and hs son s wfe w be aowed a dependency credt for them f the
son who s domced n the State of Te as, a communty property
State, earns ony 1,000 but fed a |ont return to obtan a refund of the
ta wthhed from hs wages.
Under the communty property aws of Te as the 1 000 earned by
the son consttutes communty ncome to hm and hs wfe n the
amount of 500 each. See George C. Hopkns, Coector v. C. W.
Bacon, Ct D. 260,2 2 U. S. 122, C. B. I -2,201 (1930). Snce nether
had a gross ncome of C00 or more nether was requred to fe an
ncome ta return for such year.
Secton 39.322-3 of Reguatons 11 requres that cams by the ta -
payer for the refund of ta es erroneousy or egay coected sha
be made on orm 3, or on Indvdua Income Ta Return, orm
10 0 or orm 10 0A, or an amended return, and shoud be fed wth
the Dstrct Drector of Interna Revenue. Such secton further pro-
vdes that a propery e ecuted return on orm 10 0 sha at the eec-
ton of the ta payer, consttute a cam for refund or credt wthn the
meanng of secton 322 of the Code for the amount of the overpayment
dscosed by such return, and that the fng of a propery e ecuted
return on orm 10 0A sha consttute an eecton by the ta payer to
have the return treated as a cam for refund. Such return sna con-
sttute a cam for refund wthn the meanng of that secton.
Secton 05. 01 of Reguatons 116 provdes that the entre amount
of the wages from whch ta s wthhed sha be ncuded n gross
ncome n the return requred to be made by the recpent of the ncome
wthout deductons for the amount of ta wthhed. The ta wth-
hed s aowabe as a credt aganst the ta mposed by chapter 1 of
the Interna Revenue Code of 1939 upon the recpent of the ncome.
In secton 322(a) (2) of the Code (chapter 1) t s provded that where
the amount of the ta wthhed at the source under subchapter D of
chapter 9 of the Code e ceeds the ta es mposed by chapter 1 aganst
whch the ta so wthhed may be credted wthn the provsons of
6ecton 35 of the Code, the amount of such e cess sha be consdered
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109 Regs. 11 , 5 30. 1-1.
an overpayment. Under secton 322(a) (1) of the Code where there
has been an overpayment of any ta mposed by chapter 1, the amount
of such overpayment sha be credted aganst any ncome, war-profts,
or e cess-profts ta or nstament thereof then due from the ta payer,
and any baance sha be refunded mmedatey to the ta payer.
Secton 25(b) (1) (D) of the Code provdes that a ta payer sha
be aowed an e empton of G0O for each dependent whose gross n-
come for the caendar year n whch the ta abe year of the ta payer
begns s ess than 600. But as an e cepton to the rue that secton
further provdes 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 n such caendar year.
The son and hs wfe n ths case were not requred under secton
51 of the Code to fe a |ont return. The return form whch was
fed s not regarded as a |ont return wth hs spouse under secton
51 for the purpose of the e empton set forth n secton 25(b) (1) (D)
of the Code but nstead consttutes a cam for refund wthn the scope
of secton 322 of the Code. Accordngy, t s hed that the ta payer
may cam hs son and hs daughter-n-aw as hs dependents for ed-
era ncome ta purposes provded the other requrements for a de-
pendency credt are met.
Reguatons 11 , Secton 39.25-2: Credts
of ndvduas for purpose of norma
ta and surta .
Reguatons 11 amended. See T. D. 6105, page 61.
Reguatons 111, Secton 29.25-3: Persona
e empton, surta e emptons, and e emp-
tons for both norma ta and surta .
Reguatons 111 amended. See T. D. 6105, page 61.
PART I . ACCOUNTING P RIODS AND M THODS OP ACCOUNTING
S CTION 1.-G N RAL RUL
Reguatons 11 , Secton 39. 1-1: Compu- Rev. Ru. 5 -367
taton of net ncome.
Mutua nvnes banks, whch are carryng arge numbers of
Interest-bearng Instament mortgages purchased at dscounts, may
eect to report such purchase dscounts on a composte bass, pro-
vded, the method used Is reguary empoyed, the bank s annua
dscount ncome Is ceary refected (rather than materay ds-
torted) thereby, and a of ts ncome from such mortgage trans-
actons Is eventuay reported for edera ncome ta punoses.
S. M. 3S20, C. B. 1 -2, 32 (1025), and G. C. M. 1 39, C. B. 1 -1,
73 (1930), modfed.
Advce s requested whether a mutua savngs bank, whch s carry-
ng a arge number of mortgages purchased at a dscount, may eect
to report purchase dscounts) on nterest-bearng nstament mortgages
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Regs. 11 , 39. 1- . 110
on a composte bass by reference to the average perod of payments of
such mortgages.
Revenue Rung 216, C. B. 1953-2, 3 , hods that mutua savngs
banks, budng and oan assocatons, and cooperatve banks may
amortze mortgage premums and other mortgage acquston costs on
a composte bass.
Reportng mortgage purchase dscount on a composte bass seems
to nvove essentay the same consderaton as amortzng mortgage
purchase premums and other mortgage acquston costs on a com-
poste bass. When each mortgage s treated ndvduay, purchase
premums on nstament mortgages are amortzed by mutua savngs
banks n the same manner that dscount on nstament mortgages s
reported, that s, the premum or dscount s deducted or taken nto
ncome pro rata as payments on prncpa are receved.
Accordngy, t s hed that mutua savngs banks whch are carry-
ng arge numbers of nterest-bearng nstament mortgages pur-
chased at dscounts may eect to account for the purchase dscounts
on a composte bass, provded the method used s reguary empoyed,
the bank s annua dscount ncome s ceary refected (rather than
materay dstorted) thereby, and a of ts dscount ncome from
such mortgage transactons s eventuay reported for edera ncome
ta purposes. Cf. Mount ernon Trust Co. v. Commssoner, 75 ed.
(2d) 93 , Ct D. 10 2, C. B. -1,176 (1936), certorar dened 296
U. S. 5 7.
S. M. 3 20, C. B. I -2,32 (1925), and G. C. M. 1 39, C. B. 1 -1,
73 (1935), are modfed to the e tent that the hodngs theren woud
precude the use of a composte bass such as consdered heren.
Reguatons 11 , Secton 39. 1- : Accountng Rev. Ru. 5 -273
perod.
A ta payer who begns a busness on a date other than the frst
day of a caendar month and adopts an accountng perod of e acty
12 months begnnng wth such date and endng on a date other
than the Inst day of a caendar month has faed to estabsh an
annua accountng perod wthn the meanng of secton 1 of the
Interna Revenue Code. The net Income of such ta payer, for
edera ncome ta purposes, must be computed on the bass of a
caendar year.
Advce s requested whether a ta payer who begns a busness on a
date other than the frst day of a caendar month and adopts an
accountng perod of e acty 12 months from the date busness was
begun has estabshed an annua accountng perod wthn the mean-
ng of secton 1 of the Interna Revenue Code. Advce -s aso re-
quested whether such ta payer s requred to obtan the approva of
the Interna Revenue Servce to change hs accountng perod from
such 12-month perod to a caendar year.
Secton 1 or the Interna Revenue Code, reatng to accountng
perods and methods of accountng reads as foows:
Genera Rue. The net Income sha be computed upon the bass of the
ta payer s annua accountng perod (fsca year or caendar year, as the case
may be) In accordance wth the method of accountng reguory empoyed In
keepng the books of such ta payer but If no such method of accountng has
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Regs. 11 , ( 39. 3-1.
been so empoyed, or If the method empoyed does not ceary refect the Income,
the computaton sha be mode In accordance wth such method as In the
opnon of the Commssoner does ceary refect the Income. If the ta payer s
annua accountng perod Is other than a fsca year as defned In secton S
or If the ta payer has no annua accountng perod or docs not keep books, the
net Income sha be computed on the bass of the caendar year.
Secton (b) of the Interna Revenue Code defnes a fsca year as
foows:
sca Tear. sca year means an accountng perod of tweve months
endng on the ast day of any month other than December.
Under the crcumstances here stated, the ta payer has faed to
estabsh an accountng perod whch mav be recognzed under the
Interna Revenue Code. Under the provsons of secton 1 of the
Code, the ta payer s requred to make hs return on the bass of a
caendar year. Accordngy, the approva of the Commssoner s not
requred to enabe the ta payer to compute hs net ncome on the bass
of a caendar year.
Snce such ta payer has faed to estabsh a fsca year wthn the
meanng of the aw, any return fed on the ncorrect bass of e acty
12 months from the date busness was begun shoud have been fed,
on the bass of a caen ar year. Park-Chambers, Inc. v. Commssoner,
6 B. T. A. 1 , affrmed 131 ed. (2d) 65. The matter of fng
corrected returns shoud be taken up wth the Dstrct Drector of
Interna Revenue for the dstrct n whch such returns were fed.
S CTION 2. P RIOD IN WHICH IT MS O GROSS
INCOM INCLUD D
Reguatons 11 , Secton 39. 2-1: When
ncuded n gross ncome.
Increment n vaue of a Seres Unted States savngs bond regs-
tered n the name of a father, payabe on death to hs son, where the
bond s redeemed and a new bond s ssued n the name of the son.
See Rev. Ru. 5 -327, page 50.
S CTION 3. P RIOD OR WHICH D DUCTIONS
AND CR DITS TA N
Reguatons 11 , Secton 39. 3-1: Pad or
ncurred and pad or accrued.
Amount pad for the entre or substantay entre roster of a base-.
ba cub. See Rev. Ru. 5 - 1, page 101.
Reguatons 11 , Secton 39. 3-1: Pad or
ncurred and pad or accrued.
Treatment of contrbutons pad by check. See Rev. Ru 5 - 65,
page 93.
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Regs. 11 , 5 39. 3-2. 112
Reguatons 11 , Secton 39. 3-2: When Rev. Ru. 6 5 1
charges are deductbe.
A deducton for an abandonment oss wthn the purvew of sec-
ton 23(e) or secton 23(f) of the Interna Revenue Code of 1039
Is aowabe ony for the ta abe year n whch such oss Is actuay
sustaned.
Advce has been requested whether the overt act of abandonment s
aways the dentfabe event whch estabshes for a partcuar year
an abandonment oss for the purposes of sectons 23(e) and 23(f)
of the Interna Revenue Code of 1939.
Secton 23(e) of the Code provdes that n computng net ncome a
deducton under certan condtons s aowabe to an ndvdua for
osses sustaned n a ta abe yenr and not compensated for by n-
surance or otherwse. Secton 23(f) contans smar provsons re-
atng to corporatons. A deducton s aowabe under the above
sectons for a oss n the year n whch the oss s sustaned. Secton
39.23(e)-3 of Reguatons 11 reates prmary to the requstes for
the aowance of a oss from the abandonment of some or a of tho
assets used n a busness when ther usefuness s suddeny termnated.
Ths secton requres that the ta payer sha have dscontnued the
busness or dscarded such assets permanenty from use n order to
cam an abandonment oss for the year n whch he takes such acton.
However, under the statute the year n whch a deducton for a oss
s aowabe s not necessary the year n whch an overt act of aban-
donment of the property or oss of tte thereof occurred. In Ace
. Gordon v. Commssoner, 6 B. T. A. 1201, affrmed 13 ed. (2d)
6 5, acquescence C. B. 1951-1.2, t was stated the ogc of
the stuaton requres that f, n the case of ether rea or persona
property, t can be shown that no vaue whatever remans, a deducton
for oss may then be permtted even though a sae, abandonment, or
other rrevocabe oss of tte s postponed to a ater perod.
In accordance wth secton 39. 3-2 of Reguatons 11 a ta payer
has a rght to deduct a authorzed 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 cannot deduct them from the n-
come o the ne t or any succeedng year. Ths secton further pro-
vdes that f subsequent to ts occurrence, a ta payer frst ascertans
the amount of a oss sustaned durng a pror ta abe year whch has
not been deducted from gross ncome, he may render an amended re-
turn for such precedng ta abe year ncudng such amount of oss
n the deductons from gross ncome and may fe a cam for refund
of the e cess ta pad by reason of the faure to deduct such oss n
the orgna return. Accordngy, f the oss n tho vaue of property
was sustaned n a prevous year, the ta payer may not, by subsequent
act of abandonment, estabsh a deductbe oss for the year of such
abandonment. The court stated n Superor Coa Co. v. Comms-
soner, Ta Court Memorandum Opnon entered November 13, 19 3,
affrmed 1 5 ed. (2d) 597, certorar dened 32 U. S. 6 , It s we
setted that the retenton of bare ega tte to property does not pre-
vent a ta payer from takng a deducton n the year n whch the prop-
erty becomes worthess. It s equay we setted that a
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113 (Regs. 11 , A 39. 6-1.
ta payer may not be permtted to postpone the takng of a deducton
for a oss actuay sustaned unt a year n whch the deducton w
resut n a arger savng n ta .
Accordngy, t s hed that an abandonment oss s deductbe ony
n the ta abe year n whch t s actuay sustaned- An abandon-
ment oss whch wa3 actuay sustaned n a ta abe year pror to the
year n whch the overt act of abandonment took pace s not aowabe
as a deducton n the atter ta abe year.
muatons 11 , Secton 39. 3-2: When charges
are deductbe. .
Accrua of vacaton pay by ta payers usng accrua method of
accountng. See Rev. Ru. 51-60 , pago .
S CTION . INSTALLM NT BASIS
Reguatons 11 , Secton 39. -3: Sae of
rea property on nstament pan.
Reguatons 11 amended. See T. D. 6096, page 69.
S CTION 6. CHANG O ACCOUNTING P RIOD
Reguatons 11 , Secton 39. 6-1: Change of T. D. 6099
accountng perod.
TITL 26 INT RNAL R NU . CHAPT R I. SUBCHAPT R A. PART SO.
INCOM TA : TA ABL T ARS B GINNING A T R D C MB R 1. 1031
Secton 39. G-1 of Reguatons 113 amended to change the tme
wthn whch retans for certan short ta abe years sha be fed.
Treasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
In order that ta payers fng returns for short ta abe years re-
sutng from a change of accountng perod may have the same ength
of tme to fe such returns as they have n the case of returns coverng
ta abe years of 12 months, secton 39. 6-(b) (1) of Reguatons
11 (20 C R, 39. 6-1 (b) (1)) s amended by strkng the second sen-
tence and nsertng n eu thereof two sentences readng as foows:
To make such a change, the ta payer sha fe a retnrn for the short ta abe
year wthn the perod whch woud be appcabe f the ta payer were fng
a return for a ta abe year of 12 months endng on the ast day of the short
ta abe year. The return sha be accompaned by a statement that t s made
under the authorzaton conferred by ths secton.
As amended, secton 39. 6-1 (b) (1) w read as foows:
Sec. S9. 0-1. Change of Accotwnwo Perod.
(b) Short ta abe years endng after une SO, 1053 (1)Genera. A change
of accountng perod for Income ta purposes requrng a return for a short
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Regs. 11 , 39.52-. 11
ta abe year endng after une 30, 1953, Is authorzed, e cept where Incon-
sstent wth secton 1, requrng the use of the caendar year bass In certan
specfc cases, and e cept as provded In subparagraph (2) of ths paragraph,
and no appcaton for such change need be fed. To make such a change, the
ta payer sha fe a return for the short ta abe year wthn the perod whch
woud be appcabe f the ta payer were fng a return for a ta abe year of
12 month endng on the ast day of the short ta abe year. The return sha
be accompaned by a statement that It Is made under the authorzaton con-
ferred by ths secton. Once a change of accountng perod bns been made,
the ta payer sha thereafter make hs returns and compute bs net Income on
the bass of the new accountng perod.

Because the amendment mn.de by ths Treasury Decson merey
e tends the due dates for certan returns for short ta abe years n
connecton wth the change of an accountng perod, t s found un-
necessary to ssue such Treasury Decson wth notce and pubc pro-
cedure thereon under secton (a) of the Admnstratve Procedure
Act, approved une 11,19 6, or sub|ect to the effectve date mtaton
of secton (c) of that act.
(Ths Treasury Decson s ssued under the authorty contaned
n sees. 62 and 3791 of the Interna Revenue Code of 1939 (53 Stat. 32,
67 26 U.S.C. 62,3791).)
T. Coeman Andbews,
Commssoner of Interna Revenue.
Approved September 13, 195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 16,105 , : 50 a. m.)
S CTION 51. INDI IDUAL R TURNS
muatons 11 , Secton 39.51-1: Indvdua
returns.
Reguatons 11 amended. See T. D. 6096, page 69.
S CTION 52.-CORPORATION R TURNS
Reguatons 11 , Secton 39.52-1: Corporaton Rev. Ru. 5 -269
returns.
Where a corporaton surrendered ts corporate charter and re-
Incorporated pursuant to the provsons of secton 1052b, 1051 Sup-
pement of the Genern Statutes of the State of Connectcut, the
new corporaton sha be regarded as a contnuaton of the od
and the surrender of the charter and rencorporaton w not be
consdered to have created a new and separate entty for edera
Income ta purposes.
O. C. II. 2T0S0, C. B. 1952-1, 1, dstngushed.
Advce s requested as to whether M Corporaton, ncorporated
under speca acts of the Connectcut Legsature, and rencorporated
under the genera corporaton aws of that State, s after such re-
ncorporaton to be consdered, for edera ncome ta purposes, as a
contnuaton of the same corporaton or as a new and separate ta abe
entty.
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115 Regs. 11 , 30.52-1.
Secton 1052b, 1051 Suppement of the Genera Statutes of the State
of Connectcut, provdes n part as foows:
Any corporaton of ths state heretofore or hereafter Incorporated by speca
act for any of the purposes permtted by secton 5151 may surrender Its charter
and sub|ect tsef to, and hare the benetts of, the provsons of ths chapter and
contnue In e stence ntd operaton as If organzed thereunder, upon Its fng n
the offce of the secretary of the state n the manner requred by the provsons
of secton 6135 the certfcate herenafter provded. Such certfcate sha be
made by a ma|orty of the drectors and sha set forth: (1) A statement thnt
the surrender of the speca charter of such corporaton and the adopton of
the provsons of ths chapter were duy approved by vote of a ma|orty of the
tota number of shares of the ssued and outstandng capta stock of each cass
nt a meetng caed to consder such change (2) the act of the egsature by o
under whch the corporaton was created (3) the Informaton requred by
secton 5152 to be ncuded In a certfcate of ncorporaton. A copy of sch
certfcate duy certfed by the secretary of the state sha be fed In the offce
of the town cerk of the town where such corporaton Is ocated. Upon the fng
of such certfcate wth the town cerk, such corporaton sha thereafter con-
tnue ts corporate e stence under ths chapter and no onger have ether the
prveges or obgutous of the act or acts under whch It was orgnay
Incorporated .
The facts n the nstant case are dstngushabe from those con-
sdered n G. C. M. 270 0, C. B. 1952-1, 1. There, a corporaton had
been organzed under the aws of a certan State, ts corporate fe
beng f ed by ts charter to 30 years. A short tme after the e pra-
ton of the 30-year perod a new corporaton was organzed under the
aws of the same State wth the same name and the same capta struc-
ture. The assets of the od corporaton were conveyed to the new
corporaton n e change for the capta stock of the atter, and the
stock of the new was.ssued to the stockhoders of the od n the same
proporton as ther stockhodng n that corporaton. oowng the
prncpo set forth n New Coona Ice Co., Inc. v. Heverng, 292
U. S. 35, Ct. D. 1, C. B. III-1,19 (103 ), and Weber our M
Co. v. Commssoner, 2 ed. (2d) 76 , G. C. M. 270 0, supra, hods
that, for edera ncome ta purposes, the two corporatons shoud be
treated as two dstnct enttes and they were requred to fe separate
edera ncome ta returns.
In addton to the mentoned dstncton between the factua stua-
ton n the present case and the one nvoved n G. C. M. 270S0, supra,
t s aso to be observed that G. C. M. 2 23, C. B. 19 5,1 5, however,
hods that a new ta abe entty was not created upon the converson
of a State bank nto a Natona bank pursuant to secton 35, tte 12,
Unted Stntcs Code, and thnt ony one edera ncome ta return was
requred for the entre ta abe year. The ssue was found to be de-
pendent upon an nterpretaton of the secton of aw pursuant to
whch the converson was accompshed.
In the facts of the nstant caso the Connectcut statute s regarded
ns smary controng. The anguage of such statute s very spe-
cfc n provdng for the contnuaton of the corporaton soey by the
surrender of ts charter and the fng of the requred certfcate and
certan other nformaton. Accordngy, t s hed that, snce the M
Corporaton was rencorporated pursuant to the provsons of secton
1052b, 1951 Suppement of the Genera Statutes of the State of Con-
nectcut, such corporaton under the new charter s consdered, for
edera ncome ta purposes, as a contnuaton of the same corpora-
ton, and not as a new ta abe entty.
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55. 116
S CTION 53 TIM AND PLAC OR ILING R TURNS
Reguatons 11 , Secton 39.53-2: tenson Rev. Ru. 5 - 31
of tme for fng returns.
(Aso Secton 60 1, Interna Revenue Code of
195 .)
Addtona e tenson of tme for fng corporaton Income ta
returns.
Rev. Ru. 5 - 0, C. B. 105 -1,79, modfed.
Revenue Rung 5 - 6, C. B. 195 -1,79, authorzes the use of orm
700 , Appcaton for tenson of Tme to e U. S. Corporaton
Income Ta Return, and Statement n Leu of Tentatve Return, n
pace of a request for an e tenson and the tentatve return otherwse
requred to be fed by the ta payer corporaton on or before the
statutory fng date. Secton 2.0 of Revenue Rung 5 - 6, supra,
provdes that any further e tenson beyond that of the 90-day e tenson
automatcay granted by fng orm 700 must be apped for n
wrtng and specfcay granted.
Secton 60 1 (b) of tho Interna Revenue Code of 195 provdes that
an e tenson of 3 months for the fng of returns of ncome ta es sha
be aowed any corporaton. Secton 7 51(a) (6) of the 195 Code
provdes that subtte , of whch secton 60 1 (b) s a part, sha take
effect the day after the date of enactment wth respect to any ta m-
posed by the 195 Code accordngy, an automatc e tenson under
secton 00 1(b) may be obtaned ony by corporatons wth ta abe
years begnnng after December 31,1953, and endng after the date of
enactment of the 195 Code. However, the Revenue Servce reazes
that n the nterm a substanta number of fsca year corporatons
whch have fed or w fe orm 700 cannot obtan a short e tenson-
beyond the 90 days aowed by orm 700 wthout compance wth
the specfc requrement of secton 2.0 of Revenue Rung 5 - 6, supra.
Accordngy, n every case where an automatc e tenson of tme
for fng a corporaton ncome ta return for a ta abe year (ncudng
a short ta abe year) endng after March 31,195 , s obtaned by the
fng of orm 700 , a further e tenson to the 15th day of the s th
month foowng the cose of the ta abe year specfed n orm 700
s hereby granted.
Revenue Rung 5 - 6, supra, s modfed to the e tent nconsstent
herewth.
Reguatons 11 , Secton 39.53-2: tenson
of tme for fng returns.
Amended appcatons for tentatve carrybacks after enactment of
the 195 Code. See Rev. Ru. 5 -366, page 36.
S CTION 53(a). TIM AND PLAC OR DLING
R TURNS: TIM OR H NG
Reguatons 11 , Secton 39.53-2: tenson Rev. Ru. 5 -56
of tme for fng returns.
The authorty deegated to the Dstrct Drectors of Interna Rev-
enue to gant e tensons of tme for fng ncome ta returns under
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117
secton 39.53-2 of Reguatons 11 aso e tends to the grantng of
reducton n an e tenson of such tme where a ta payer fes
approprate request therefor pror to the ast day of such e tended
perod.
S CTION 5 .-R CORDS AND SP CIAL R TURNS
R GULATIONS 11 , S CTION 39.5 -1: Records and
ncome tn forms.
Returns of organzatons pror to the estabshment of an e empt
status wth the Interna Revenue Servce. See Rev. Ru. 5 -303,
page 125.
S CTION M, PUBLICITY O R TURNS
T. D. 60 0
TITL 20 INT RNAL H NU .-OnAPT R I. DBCHAPT R , PART 3 .
INSP CTION O TUUNS
Reguatons governng the nspecton of corporaton Income ta
returns by the edera Trade Commsson.
TR ASUHT D PARTM NT,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned.
S C. 5 .303b. INSP CTION BT D RAL TRAD COMMISSION or COR-
PORATION INCOM TA R TURNS. (a) Pursuant to the provsons of
secton 55 (a) of the Interna Revenue Code (53 Stat 29 5 Stat 100
65 Stat. 722 26 U. S. C. 55 (a)), and n the nterest of the nterna man-
agement of the Government, corporaton ncome ta returns made for
the year 1953 and subsequent years sha be open to nspecton by the
edera Trade Commsson as an ad n e ecutng the powers conferred
upon such Commsson by the edera Trade Commsson Act of
September 26, 191 , 3 Stat. 717. The nspecton of such returns
heren authorzed may be made by any offcer or empoyee of the
edera Trade Commss|on duy authorzed by the Charman of the
edera Trade Commsson to make such nspecton. Upon wrtten
notce by the Charman of the edera Trade Commsson to the
Secretary of the Treasury, the Secretary or any offcer or empoyee of
the Treasury Department, wth the approva of the Secretary of the
Treasury, may furnsh the edera Trade Commsson wth any data
on such returns or may make the returns avaabe for nspecton and
the takng of such data as the Charman of the edera Trade Com-
msson may desgnate. Such data sha be furnshed, or such re-
turns sha be made avaabe for nspecton, n the offce of the
Commssoner of Interna Revenue. Any nformaton thus obtaned
sha be hed confdenta e cept to the e tent that t sha be pubshed
or dscosed n statstca form, provded such pubcaton sha not
dscose, drecty or ndrecty, the name or address of any ta payer.
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f 55. 11
(b) Ths Treasury Decson sha be effectve upon ts fng for
pubcaton n the edera Regster.
G. M. Humphrey,
Secretary of the Treasury.
Approved uy 12,195 .
Dwout D. senhower,
The Whte House.
( ed wth the Dvson of the edera Regster uy 13, 105 , 9: 1 a. m.)
ecutve Ordes 105
nspecton of ncome ta returns b federa trade commsson
By vrtue of the authorty vested n me by secton 55(a) of the
Interna Revenue Code (53 Stat. 20 5 Stat. 100 , 55 Stat. 722 26
U. S. C. 55(a)), and n the nterest of the nterna management of
the Government, t s hereby ordered that corporaton ncome ta re-
turns made for the year 1953 and subsequent years sha be open to
nspecton by the edera Trade Commsson as an ad n e ecutng
the powers conferred upon such Commsson by the edera Trade
Commsson Act of September 20,191 ,3 Stat 717, such nspecton to
be n accordance and upon compance wth the rues and reguatons
prescrbed by the Secretary of the Treasury n the Treasury Decson
reatng to the nspecton of returns by the edera Trade Commsson,
approved by me ths date.
Ths ecutve order sha be effectve upon ts fng for pubcaton
n the edera Regster.
Dwot D. senhower.
The Whte House,
uy 12, 1951
( ed wth the Dvson of the edera Regster uy 13, 195 , 9: 1 a. m.)
T.D.60 1
TITL 2 INT RNAL R NU . CHAPT R I. SUBCHAPT R . PART 5 .
INSP CTION O R TURNS.
Reguatons governng the nspecton by the Board of Governors
of the edera Reserve System of statstca transcrpt cards
submtted wth, or prepared from, corporaton Income ta returns.
Treasury Department,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
Sec 5 .322. Inspecton by Board of Governors of edera Re-
serve System of Statstca Transcrpt Cards Submtted Wth, or
Prepared rom, Corporaton Income Ta Returns. (a) Pursuant
to the provsons of secton 55(a) of the Interna Revenue Code (53
Stat 29 5 Stat. 100 55 Stat. 722 20 U. S. C. 55(a)), and n the
nterest of the nterna management of the Government and the per-
formance of Governmenta functons, statstca transcrpt cards sub-
mtted wth, or prepared by the Interna Revenue Servce from, cor-
poraton ncome ta returns for the ta abe years endng after une
30, 1951, and before uy 1, 1952, sha be open to nspecton by the
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, 119 A 55.
Board of Governors of the edera Reserve System as an ad n e e-
cutng the powers conferred upon such Board by the edera Reserve
Act, approved December 23, 1913, 3 Stat. 251, as amended. The
nspecton of such transcrpt cards heren authorzed may be made by
any offcer or empoyee of the Board of Governors of the edera
Reserve System, or any offcer or empoyee of the edera Reserve Bank
of New York, to the e tent that such offcer or empoyee of such Board
or Bank has been duy authorzed by the Charman of such Board
of Governors to make such nspecton. Upon wrtten notce By the
Charman of the Board of Governors of the edera Reserve System
to tho Secretary of the Treasury, statng the type of statstca tran-
scrpt cards of whch nspecton s desred, the Secretary or any offcer
or empoyee of the Treasury Department, wth the approva of the
Secretary, may furnsh the Board of Governors of the edera Reserve
System wth any data on such cards or may make such cards avaabe
for the takng of such data as the Charman of tho Board of Gover-
nors of the edera Reserve System may desgnate. Any nformaton
thus obtaned sha bs hed confdenta e cept to tho e tent that t
sha bo pubshed or dscosed n statstca form, provded such
pubcaton sha not dscose, drecty or ndrecty, the name or ad-
dress of any ta payer.
(6) Ths Treasury Decson sha be effectve upon ts fng for
pubcaton n the edera Regster.
G. M. Humphrey,
Secretary of the Treasury.
Approved uy 27,105 .
DW GHT D. S NnOW R,
The Whte House.
( ed wth the Dvson of the edera Regster uy 27, 105 , : p. m.)
rcunv Oroeb 105 7
INSP CTION OP STATISTICAL TRANSCRIPT CA DS BY TH BOARD Or
GO RNORS O TH D RAL R S R SYST M
By vrtue of the authorty vested n me by secton 55(a) of the
Interna Revenue Code (53 Stat. 29 5 Stat 100 55 Stat 722 26
U. S. C. 55(a)), and n the nterest of the nterna management of
the Government and the performance of Governmenta functons, t s
hereby ordered that statstca transcrpt cards submtted wth, or
prepared by the Interna Revenue Servce from, corporaton ncome
ta returns for the ta abe years endng after une 30, 1951, and
before uy 1,1952, sha be open to nspecton by the Board of Gover-
nors of the edera Reserve System as an ad n e ecutng the powers
conferred upon such Board by the edera Reserve Act, approved
December 23, 1913, 3 Stat. 251, as amended, such nspecton to be n
accordance and upon compance wth the rues and reguatons pre-
scrbed by the Secretary of the Treasury n the Treasury Decson
reatng to the nspecton of such transcrpt cards by the Board of
Governors of the edera Reserve System, approved by me ths date.
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I 55. 120
Ths ecutve order sha be effectve upon ts fng for pubcaton
n the edera Regster.
dwoht d. esenhower.
The Whte House,
uy 27,1951
( ed wth the Dvson of the edera Regster uy 27, 105 , : p. m.)
T. D.610
TITL 2 INT RNAL R NU . CHAPT R I, SUBCHAPT R , PART .
INSP CTION O R TURNS
Treasury Decson 6012 amended
Treasurt Department,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
Paragraph 1. Pursuant to the provsons of sectons 55 (a), 50 ,
603,729(a), and 120 of the Interna Revenue Code of 1939 (53 Stat.
29, 111, 171 5 Stat 9 9,100 55 Stat. 722 26 U. S. C. 55(a), 50 .
603,729(a), and 120 ), and of the ecutve order of ths date ssued
thereunder, Treasurv Decson 6012 C. B. 1953-1, 95 , approved on
May 22, 1953 26 C R 5 .320 , s hereby amended by strkng out
1952 and nsertng n eu thereof 1953 .
Par. 2. Because of the necessty of the mmedate appcaton of
the aforementoned amendment, t s found that t s mpractcabe
and contrary to the pubc nterest to ssue ths Treasury Decson wth
notce and pubc procedure thereon under secton (a) of the Admn-
straton Procedure Act, approved une 11, 19 6, or sub|ect to the
effectve date mtaton of secton (c) of sad Act.
Par. 3. Ths Treasury Decson sha be effectve upon ts fng for
pubcaton n the edera Regster.
Approved September 29,195 .
Dwght D. senhower,
The Whte House.
G. M. HUMPHR T,
Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 30,195 , 1: OS p. m.)
ecutve Obdes 10506
e ecutve orueb 10 33 amended
By vrtue of the authorty vested n me by sectons 55 (a), 50 , 603,
729(a), and 120 of the Interna RevenaerCode of 1939 (53 Stat 29,
111, 171 5 Stat. 9 9,100 55 Stat 722 26 U. S. C. 55(a), 50 , 603.
729(a), and 120 ), ecutve Order 10 55 C. B. 1953-1, 97 , dated
Mav 22,1953, s hereby amended by strkng out 1952 and nsertng
n eu thereof 1953 .
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121 Regs. 11 . 39.55-1.
Ths ecutve order sha be effectve upon ts fng for pubca-
ton n the edera cgster.
DWIOHT D. IS NHOW R.
TII WHIT HOUS ,
September 29,
( ed wth the Dvson of the edera Regster September 30, 105 , 1 : 0 p. m.
R GULATIONS 11 , S CTION 30.55-1 : Inspecton ev. Ru. 5 -379
of returns.
Where the her at aw, ne t of kn, or benefcary s a dstrbutee,
under appcabe State aw. of the estate of a decedent who des n-
testate, such person sha be consdered as havng a matera n-
terest n the assets of the estate wthn the meanng of secton
03C.2(c) of Treasury Decson 929, C. B. 1939-2,91, snce the ncome
ta returns fed for the decedent pror to death may dscose assets
or nformaton materay affectng the dstrbuton to each dstrbutee
of the estate. Accordngy, such returns of a decedent who des n-
testate sha be open to nspecton, rrespectve of the ndcated vaue
of the decedent s estate, to any her at aw, ne t of kn, or benefcary,
who s a dstrbutee, under appcabe State aw, of the estate of the
decedent, or by any duy consttuted attorney n fact of such her at
aw, ne t of km, or benefcary.
R GULATIONS 11 , S CTION 39.55-1: Inspecton Rev. Ru. 5 -59
of returns.
(Aso Secton 23(c), Secton 39.23(c)- Sec-
ton 22(n), Secton 39.22(n)-.)
Cty Ordnance No. 3, Seres 1950, as amended, of Lousve, en-
tucky, provdes that every person, assocaton, corporaton, or other
entty engaged n an occupaton, trade, professon, or other actvty
n the cty sha pay nto the Snkng und of the cty an annua
cense fee for the prvege of engagng n such actvtes. The fee
s measured by 1 percent of a saares, wages, commssons and other
compensaton earned by every person who works n the-cty, and the
net profts of a busnesses, professons, or other actvtes conducted
n the cty. As defned n the ordnance, the terra assocaton
ncudes a partnershp and, wth certan e ceptons not here matera,
the term busness ncudes an actvty of any nature conducted for
proft by a partnershp. Hed, Cty Ordnance No. 3, fupra. actuay
mposes a ta rather than a cense fee snce t s deemed to be a
revenue and not a reguatory measure. See Howard v. Commssoners
of the Snkng und of the Cty of Lousve, 3 U. S. 62 Cty of
Lousve v. Scbree, 21 S. W. (2d) 2 . Accordngy, the ordnance
s a ta aw of a potca subdvson wthn the scope of secton
55(b)(2) of the Interna Revenue Code of 1939, and, therefore upon
compance wth the requrements theren prescrbed, nformaton from
edera ncome ta returns fed under chapter 1 of that Code may be
furnshed to any offcas of the cty awfuy charged wth the admn-
straton of sucn ordnance, but ony for the purpose of the admnstra-
ton of such, ordnance.
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Regs. 11 , A 39.55-1. 122
It s further hed that ta es mposed by such ordnance are deduct-
be under secton 23(c) of the 1939 Code n computng the ta payer s
net ncome provded, of course, that they are not deducted as a bus-
ness e pense or otherwse used to reduce net ncome. Cf. I. T. 3370,
C. B. 19 0-1,32. Any such ta mposed upon a partnershp s deduc-
tbe from partnershp gross ncome under secton 23(c) n computng
ts net ncome but s not aowabe as a deducton to the partners. The
partners, however, are not precuded from camng the optona
standard deducton under secton 23 (aa). Cf. I. T. 37C6, C. B. 19 5,
3, modfed by I. T. 3 29, C. B. 19 6-2, 3 . However, any such ta
mposed upon saares and wages s not deductbe by an ndvdua n
computng hs ad|usted gross ncome under secton 22 (n) of the 1939
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 em-
poyee. But the ta mposed on the net profts of a busness or pro-
fesson operated as a soe propretorshp s deductbe n the computa-
ton of the ta payer s ad|usted gross ncome, snce t s drecty
attrbutabe to a trade or busness carred on by ta payer wthn the
meanng of secton 22(n). Cf. I. T. 3 29, C. B. 19 6-2, 3 .
S CTION 55(b). PUBLICITY O R TURNS:
INSP CTION BY STAT S
Reguatons 11 , Secton 39.55-1: Inspecton Rev. Ru. 5 -3 9
of returns.
Inspecton of Income returns and reated documents by State
governments.
Secton 1. Purtose.
The purpose of ths Revenue Rung s to restate and revse the pro-
cedures reatng to the nspecton by State governments of ncome
returns and reated documents, the furnshng to State governments of
copes of such returns and documents, and the furnshng to State gov-
ernments of abstracts of data from such returns and documents.
Sec. 2. Authorty to Inspect.
.01 Permsson may be granted by the Commssoner to propery
authorzed offcas, bodes, or commssons, awfuy charged wth the
admnstraton of anv State ta aw, or the propery desgnated repre-
sentatves of such offcas, bodes, or commssons, to nspect ncome
returns for the purpose of such admnstraton, upon appcatons by
Governors of the States n accordance wth the provsons of secton 55
of the Interna Revenue Code and the reguatons thereunder.
.02 Upon proper appcaton to the Commssoner, the desgnated
ta offcers ot a State w bo granted permsson to nspect a edera
ncome returns, or desgnated groups of such returns, whch were fed
n Dstrct Drectors offces ocated wthn the State. A State w bo
granted permsson to nspect edera ncome returns whch were fed
n Dstrct Drectors offces ocated outsde of the State ony upon
specfc requests addressed to the Commssoner dentfyng the ta -
payers, ther addresses, and the ta abe years nvoved, and ndcatng
that the nspecton s desred for the purpose of admnsterng the ta
aws of the State.
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123 Regs.11 , 39.55-1.
.03 State ta offcers authorzed to nspect ncome returns may aso
nspect nformaton returns, schedues, etc, desgned to be suppemen-
ta to or to become part of the returns, as we as certan records and
reports reatng to the returns. The pocy wth respect to what docu-
ments may be nspected s generay as foows:
1 If the nspecton of returns s authorzed, schedues, nfor-
maton returns, protests, brefs, face of cams, wavers, and
other statements or documents desgned to be suppementa to or
become part of the return, may aso be nspected.
2 amners reports may be nspected to the e tent that such
reports have prevousy been furnshed to the ta payers there-
fore, the transmtta etter porton of a revenue agent s report, or
a separate confdenta report, whch contans nformaton for
Servce use ony, may not be nspected.
3 Conference reports may not be nspected wth the e cepton
of the pages showng recomputaton of ta abty.
Work papers of e amners, engneers reports, cover etters
of the reports n whch opnons are e pressed, reports of speca
agents, and nteroffce communcatons, may not be nspected
uness specfc authorzaton s gven by the Commssoner.
5 Inspecton of cams for refund w be mted to the face
of the cam ony, snce the back of the cam contans Servce
records. Typed copes of offce copes of certfcates of overassess-
ment may be f urnsned no photostat copes of certfcates of over-
assessment are to bo made.
Sec. 3. Cor s or Abstracts.
State offcers authorzed to nspect returns and reated documents
w aso be furnshed, upon request, copes of such returns and reated
documents, or abstracts of nformaton contaned theren.
Sec. . Procedure for urnsno Servces.
.01 Dstrct Drectors, upon specfc authorzaton by the Comms-
soner, w provde the,necessary nspecton, copyng, or abstract
servces wth respect to those returns whch are retaned n ther offces
for permanent fng. The Natona Offce w perform these servces
wth respect to the returns t retans for permanent fng. A copy of
each etter authorzng the offcers of a State to nspect returns n
Dstrct Drectors offces w be furnshed to the Dstrct Drectors
concerned.
.02 Where a State s authorzed to nspect returns and reated docu-
ments n a Dstrct Drector s offce the State generav w be advsed
that t w be necessary for the State to contact the Dstrct Drector
for the purpose of ascertanng when the returns and reated docu-
ments w be avaabe for nspecton, or for copyng or abstract serv-
ce. Dstrct Drectors w aso receve from tho Natona Ofce, from
tme to tme, sts of names, addresses, and ta aho years nvoved, wth
nstructons to furnsh copes of the returns and reated documents, or
abstracts of nformaton therefrom, when they are avaabo for ths
urpose, to desgnated States. Dstrct Drectors shoud cooperate
uy wth propery desgnated State ta offcers and arrange mutuay
convenent dates for the nspecton of, or the obtanng of nformaton
from, returns and reated documents. Care shoud be taken that any
ssaO 65
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Regs. 11 . 39.5 (e)-(b). 12
dates arranged w not nterfere wth the norma fow of returns
durng the ncome ta fng perod, or nterrupt nvestgatve and
admnstratve processes nvovng actve use of returns and reated
documents.
.03 Charges w be made n accordance wth the procedure con-
taned n Mmeograph 67 7, C. B. 1952-1,5 , for copes of returns and
reated documents whch are furnshed to States. The States w be
requred to provde forms upon whch abstracts are to be furnshed.
Charges w be made for abstract servce at the rate of 1.50 per hour
for tme spent preparng the abstracts. No charges w be made
pursuant to ths Revenue Rung for abstracts of nformaton whch
are furnshed to States as a test pro|ect pursuant to speca agree-
ments between the States and the edera Government for the mutua
e change of nformaton.
.0 Payments receved n connecton wth the furnshng of copes
of returns or documents, or for abstract servces, w be deposted as
msceaneous recepts.
.05 A requests by States for certfed copes of returns or docu-
ments w be handed by the Audt Dvson n the Natona Offce.
Sec. 5. ffect on Other Documents.
A other nstructons whch are nconsstent or n confct wth the
provsons of ths Rung are amended or superseded accordngy.
Sec. 6. ffectve Date.
Ths Revenue Rung s effectve as of une 30,195 .
S CTION 5 .-D CLARATION O STIMAT D TA BY
INDI IDUALS
Reguatons 11 , Secton 39.5 (e) -1 (b): ten- Rev. Ru. 5 -5 2
son of tme for fng decaratons.
A Unted States ctzen domced n or temporary resdng n
Aaska Is entted to the e tenson of tme granted by secton
30.5 (e)-1(b) of Reguatons 11 for the fng of a decaraton of
estmated ta .
Advce has been requested whether the e tenson of tme granted by
secton 39.5 (e)-1(b) of Reguatons 11 to Unted States ctzens for
fng decaratons or estmated ta appes to Unted States ctzens
n Aaska.
Secton 29.5 - of Reguatons 111 granted an e tenson of tme
for fng the decaraton of estmated ta otherwse due on or before
the oth day of the thrd month of the ta abe year to and ncudng
the 15th day of the s th month of the ta abe year n tho cases o
Unted States ctzens outsde the States of the Unon, the Dstrct
of Coumba, and Hawa on the 15th day of the thrd month of the
ta abe year. Thus, Unted States ctzens n Aaska were ceary
entted to such e tenson under those reguatons.
Secton 39.5 (e)-(b) of Reguatons 11 , whch supersedes Regu-
atons 111, provdes for the grantng of an e tenson of tme for fng
a decaraton of estmated ta as descrbed n secton 29.5 - , supra,
to Unted States ctzens outsde the contnenta Unted States,
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125 Regs. 11 , 39.101 -
Hawa, and Puerto Rco. The term contnenta Unted States
used n ths secton s not defned.
Secton 1160) A f the Interna Revenue Code of 1939 provdes for
the e cuson from gross ncome by certan cvan offcers and em-
poyees of the Government of the Unted States statoned outsde tko
contnenta Unted States of amounts receved as cost-of-vng
aowances n accordance wth reguatons approved by the Presden fc_
Secton 39.116 (b) of Reguatons 11 provdes that for the purposes
of secton 116(|) the term contnenta Unted States ncudes ony
the States of the Unon and the Dstrct of Coumba.
It appears that n the adopton of Reguatons 11 t was not n-
tended that any changes n genera rues be made. Snce Aaska s
e cuded from the term contnenta Unted States as denned n
secton 39.116- (b) of Reguatons 11 for the purposes of secton
116(|) of the Code, t s concuded that Aaska shoud not be ncuded
n that term as used n secton 39.5 (e)-(b) of Reguatons 11 .
Accordngy, t s hed that a Unted States ctzen domced n
or temporary resdng n Aaska s entted to the e tenson of tme
granted by secton 39.5 (e)-1(b) of Reguatons 11 for the fng of
a decaraton of estmated ta .
S CTION 5 (d). D CLARATION O STIMAT D TA BY
INDI IDUALS: TIM AND PLAC OR ILING
Reguatons 11 , Secton 39.5 (d)-: Tme and
pace for fng decaratons.
Requrements of cotton gnners and oyster panters. See Rev.
Ru. 5 -357 beow.
S CTION 60. SP CIAL RUL S OR APPLICATION O
S CTIONS 5 AND 59
Reguatons 11 , Secton 39.60-1: armers. Rev. Ru. 5 -357
(Aso Secton 5 (d), Secton 39.5S(d)-.)
Cotton gnners and oyster panters are not consdered farmers wthn
the meanng of secton 60(a) of the Interna Revenue Code Conse-
quenty, they are not entted to the benefts of such secton and must
fe ther decaratons of estmated ta n accordance wth secton 5 (d)
of the Code.
SUBCHAPT R G-SUPPL M NTAL PRO ISIONS,
SUPPL M NT A RAT S OP TA
S CTION 101. MPTIONS ROM TA
ON CORPORATIONS
Reguatons 11 , Secton 39.101-1: Proof of Rev. Ru. 5 -393
e empton annua returns.
(Aso Secton 5 , Secton 39.5 -1.)
Informaton returns on orm 900 and orm 990-A are not re-
qured to be fed by an organzaton camng an e empt status un-
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Regr- t , I 39.101 (1)-1 126
der secton 101 of the Interna Revenue Code of 1030 pror to thA
estabshment by the organzaton of an e empt status under the pro-
vsons of secton 30.101-1 of Reguatons 11 . Organzaton not
hed to be e empt but camng e empton may secure e tensons of
tme for fng ordnary Income ta returns and payng the ta .
Advce s requested whether an organzaton camng e empt status
under the provsons of secton 101 of the Interna Revenue Code of
1939 s requred to fe an annua nformaton return on orm 990 or
orm 990-A pror to estabshment of e empt status under the prov-
sons of secton 39.101-1 of Reguatons 11 .
The Interna Revenue Servce does not requre the fng of an n-
formaton return pror to the estabshment of e empt status by the
organzaton concerned. In any case n whch an organzaton fes
an nformaton return pror to the estabshment of e empt status,
the Dstrct Drector w return t to the organzaton together wth an
approprate e empton appcaton and a request that such e empton
appcaton be competed and returned to hs offce.
The mere cam or contenton by an organzaton that t s e empt
from edera ncome ta under secton 101 of such Code does not
reeve that organzaton of fng edera ncome ta returns and
payng the ta . The orgna due date for fng a return and payng
ta may occur before an organzaton has receved a rung or deter-
mnaton ette from the Servce grantng e empt status. In such
a case, n eu of fng a return and payng the ta . the organzaton
may request an e tenson of tme for performng those acts.
A request for an e tenson of tme or fng an ncome ta return
must be made n accordance wth the provsons of Mm. 6157, C. B.
19 7-2, 6 , or Rev. Ru. 5 - 6, C. B. 195 -1, 79. A request for an
e tenson of tme for payment of the ta must be made n accordance
wth the provsons of secton 39.56-2 of Reguatons 11 .
An organzaton whch has estabshed ts e empt status wth the
Interna Revenue Servce s requred to fe an nformaton return on
orm 990 or 990-A, annuay, uness specfcay e cepted under sec-
ton 5 (f) of such Code, on or before the 15th day of the ffth fu
month foowng the cose of ts annua accountng perod, begnnng
wth the frst of such dates that fas after the e empton etter s
ssued by the Servce.
or nformaton regardng the return forms requred to be fed n
the case of a cooperatve assocaton e empt under secton 101(12)
or a regous or apostoc assocaton or corporaton e empt under
secton 101(1 ), see secton 39.101-1 (e) of Reguatons 11 .
Revenue Rung 5 -2 2,1. R. B. 195 -29, , s superseded to read
as foows:
Reguatons 11 , Secton 39.101(1)-1: Rev. Ru. 5 -2 2
Labor, agrcutura, and hortcutura
organzatons.
A corporaton, organzed by an organzaton of farm bureaus and
governed by farm bureau boards for the purpose of testng so for
farmers and other members of the communty (members and nonmem-
bers of the farm bureau), mantans a aboratory and conducts so
tests at ther request on a cost bass.. The sos aboratory mantaned
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127 Regs. 11 , A 39.101-2-
by the State unversty checks the accuracy of the tests and suppes
research nformaton reatve to testng procedures and so treatment
based on the resuts of such tests. Resuts of so tests, wrtten and
ora e panatons and other recommendatons are furnshed to edu-
cate communty members n so treatment and probems reatng to
the appcaton of pant food. No ncome nures to the beneft of
any prvate ndvdua. Hed, the corporaton s an agrcutura
organzaton e empt from edera ncome ta under secton 101 (1)
of the Interna Revenue Code.
Reguatons 11 , Secton 39.101-2: Lmtatons Rev. Ru. 5 -305
on e empton.
A corporaton organzed and operated for the prmary purpose of
operatng and mantanng a purchasng agency for the beneft of Its
otherwse unreated members who are e empt from edera Income
ta as chartabe organzatons. Is engaged n busness actvtes
whch woud be unreated actvtes If carred on by any one of the
ta -e empt organzatons served. Therefore, the corporaton Is not
entted to e empton under secton 101 (U) of the Interna Revenue
Code.
Advce s requested whether a corporaton organzed and operated
for the prmary purpose of operatng and mantanng a purchasng
agency for the beneft of ts otherwse unreated members who are
e empt from edera ncome ta as chartabe organzatons, s tsef
e empt from edera ncome ta under the provsons of secton 101
of the Interna Revenue Code.
The purposes of the nstant organzaton are to secure for hosptas
and other chartabe nsttutons the advantages of cooperaton n
estabshng unform standards as to quaty and knd of suppes and
the purchasng of the same n accordance wth defnte specfcatons
and agreements aso to promote the economca and effcent admns-
traton of hosptas and other nsttutons and to estabsh and man-
tan a centra purchasng agency. Any hospta or smar nsttu-
ton not conducted for proft and engaged n whoe or n part n
chartabe work s egbe for membershp. The organzaton s n-
come s derved from dues, cash dscounts on purchases for members,
and servce charges. Substanta profts are reazed by the organza-
ton from these operatons. Ony a porton of such profts are ds-
trbuted by the organzaton to ts members.
Secton 101 of the Code provdes n part that:
An organzaton operated for the prmary purpose of carryng on a trade or
busness for proft sha not be e empt under any paragraph of ths secton on
the ground that a of Its profts are payabe to one or more organzatons e empt
under ths secton from ta aton.
Secton 39.101-2 of Reguatons 11 construng such secton of the
aw provdes n part that f a subsdary organzaton of a ta -e empt
organzaton woud tsef be e empt on the ground that ts actvtes
are an ntegra part of the e empt actvtes of the parent organza-
ton, ts e empton w not be ost because, as a matter of accountng
between the two organzatons, the subsdary derves a proft from ts
deangs wth ts parent organzaton, for e ampe, a subsdary or-
ganzaton whch s operated for the soe purpose of furnshng eec-
trc power used by ts parent organzaton, a ta -e empt educa-
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Regs. 11 , t 39.101(6)-1.) 12
tona organzaton, n carryng on ts educatona actvtes. How-
ever, the subsdary organzaton s not e empt from ta f t s op-
erated for the prmary purpose of carryng on a trade or busness
whch woud be an unreated trade or busness (that s, unreated to
e empt actvtes) f reguary carred on by the parent organzaton.
or e ampe, f a subsdary organzaton s operated prmary for
the purpose of furnshng eectrc power to consumers other than ts
parent organzaton (and the parent s ta -e empt subsdary organ-
zatons), t s not e empt snce such busness woud be an unreated
trade or busness f reguary carred on by the parent organzaton.
Smary, f the subsdary s owned by severa unreated e empt or-
ganzatons, and s operated for the purpose of furnshng eectrc
power to each of them, t s not e empt snce such busness woud be
an unreated trade or busness f reguary carred on by any one of
the ta -e empt organzatons.
In determnng whether an organzaton s sub|ect to ta under
the edera statutes tho facts nvoved n each case must be carefuy
consdered. In the nstant caso the actvtes of tho organzaton
concerned consst prmary of tho purchaso of suppes and tho per-
formance of other reated servces for the severa otherwse unreated
chartabe organzatons that consttute ts membershp. It s appar-
ent that such actvtes n themseves cannot be termed chartabe, but
are ordnary busness actvtes.
Under the provsons of secton 101 of the Code an organzaton
whch s operated for the prmary purpose of carryng on a trade or
busness for proft s not e empt from edera ncome ta , notwth-
standng that any profts derved are payabe to one or more e empt
organzatons. urthermore, under the reguatons whch nterpret
such secton, t s cear that a corporaton formed to servce severa
ta -e empt organzatons s not tsef e empt f the servces per-
formed woud be unreated actvtes f carred on by any one of the
ta -e empt organzatons served.
Accordngy, t s hed that a corporaton organzed and operated
for the prmary purpose of operatng and mantanng a purchasng
agency for the beneft of ts otherwse unreated members, who are
e empt from edera ncome ta as chartabe organzatons, s en-
gaged n busness actvtes whch woud be unreated actvtes f
carred on by any one of the ta -e empt organzatons served. There-
fore, the corporaton s not entted to e empton under secton 101
of the Interna Revenue Code.
Reguatons 11 , Secton 39.101 (6) -1: Re- Rev. Ru. 5 - 20
pous, chartabe, scentfc, terary, and
educatona organzatons and communty
chests.
(Aso Secton 21, Secton 39. 21-1 Secton
22, Secton 39. 22-1 Secton 3 1 , Secton
39.3 1 -1.)
A foundaton whch acqures a of the outstandng stock of a
busness corporaton, dssoves the corporaton and ses, eases, or
cences the assets to an operatng company, recevng a substanta
porton of the profts of tho operatng company and usng those
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129 Regs. 11 , 39.101 (6)-L.
profts to qudate the Indebtedness Incurred In acqurng the bus-
ness. Is not engaged In actvtes comng wtn tbe contempaton
of secton 101(0) of the Interna Revenue Code of 1939.
If the foundaton were otherwse e empt nnder secton 101(6)
of the Code, the recept of rents and royates by t from the ease
and cense agreements wth the operatng company do not fa
wthn the meanng of the e ceptons to unreated busness net n-
come as set forth In secton 22 of the Code, and such rents and
royates woud be sub|ect to ta under secton 21 of the Code.
Moreover, In such a case the provsons of secton 3S1 of the Code
may be appcabe on the ground that the foundaton s unreasonaby
accumuatng ncome If t uses a arge part of Its Income to retre
ndebtedness Incurred n the acquston of ncome producng
property.
Advce s requested whether a foundaton s entted to e empton
from edera ncome ta under the factua crcumstances descrbed
beow.
The foundaton n the nstant case was ncorporated for scentfc,
chartabe, educatona, and regous purposes. The foundaton pro-
poses to acqure a the outstandng capta stock of a busness cor-
poraton, dssove the corporaton, receve tho assets and se, ease or
censo the assets to an operatng company. The operatng company
w then enter nto a management contract wth the orgna stock-
hoder. Part of the current assets w be transferred to the operatng
company (sub|ect to abtes), and the remanng assets (e cusve
of patents) w be eased to the operatng company for a term of 5
years. A part of the consderaton to be receved by the foundaton
for the current assets w be evdenced by a promssory note of the
operatng company, payabe wthout nterest on or before the termna-
ton of the 5-year ease. The annua renta under tho ease w be
equa to 10 percent of the annua net ncome of the operatng company
before edera and State ncome, franchse, e cess profts and other
smar ta es.
The patents receved by the foundaton upon qudaton of the
corporaton w be censed to the operatng company for annua
royates equa to 70 percent of the annua net ncome of the operatng
company before suc ta es. The perod of tho cense was not def-
ntey f ed and may be n e cess of 5years.
An nta payment to the orgna stockhoder under the agreement
w be mado from the assets receved by the foundaton upon quda-
ton of the corporaton and the baance w be pad at the rate of dO
percent of the renta ncome and royates receved by the foundaton
or the ease of the f ed assets and the cense of the patents.
As securty for the note evdencng the unpad baance under the
agreement, the foundaton w gve to the orgna stockhoder a frst
mortgage on a rea estate and budngs and a chatte mortgage on
a the other tangbe assets receved by the foundaton, e cept the
current assets transferred to the operatng company. As further secu-
rty, the foundaton w gve to the orgna stockhoder a condtona
assgnment of patents, a condtona assgnment of tho foundaton s
nterests as essor n the ease and censo to tho operatng company,
and tho note of tho operatng company evdencng the consderaton
receved for the current assets. Tho foundaton w have no abty
whatsoever for payment of the unpad baance e cept out of the assets
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Regs. 11 , 39.101(f)-. 130
(ncudng ncome therefrom) receved upon qudaton of the corpo-
raton.
Secton 101 (6) of the Code provdes for the e empton from ta a-
ton of:
Corporatons and any communty chest, fund, or foundaton organzed and
operated e cusvey for regous, chartabe, scentfc, terary, or educa-
tona purposes, no part of the net earnngs of whch Inures to the
beneft of any prvate sharehoder or Indvdua .
Under the crcumstances of the nstant case t s the poston of the
Interna Revenue Servce that the foundaton s not engaged e cu-
svey n actvtes comng wthn the contempaton of secton 101(6)
of the Code.
If the foundaton were otherwse e empt under secton 101(6) of
the Code, the amounts termed rents and royates receved by t under
the nstant ease and cense agreements woud be consdered to be
ncome from an unreated trade or busness sub|ect to the Suppe-
ment U ta mposed by secton 21 of the Code. Secton 22 of the
Code, whch e cepts royates and certan rents from the defnton of -
unreated busness net ncome, s not appcabe to the nstant case.
Secton 39. 22-1 (b) of Reguatons 11 states that whether a partc-
uar tem of ncome fas wthn the meanng of the e ceptons, add-
tons, and mtatons provded n secton 22 of the Code sha be
determned by a the facts and crcumstances of each case. or
e ampe, f a payment termed rent by the partes s n fact a return
of profts by a person operatng the property for the beneft of the
ta -e empt organzaton or s a share of the profts retaned by such
organzaton as a partner or a |ont venturer, such payment does not
quafy as rent for purposes of the e cepton n secton 22(a) of the
Code.
Attenton s aso caed to secton 3 1 of the Code whch denes
e empton under secton 101(6) of the Code to certan organzatons
f the amounts accumuated out of ther ncome, whch are not actuay
pad out for e empt purposes by the end of the ta abe year, are
unreasonabe, or f such accumuated ncome s used to a substanta
degree for purposes other than those consttutng the bass of the
organzaton s e empton. Where an organzaton, whch cams e -
empton under secton 101(6) of the Codo and s not e cepted from
the provsons of secton 3 1 of the Code, uses ncome to retre ndebt-
edness ncurred n tho acquston of ncome producng property or
busness, thereby ncreasng ts equty, t s accumuatng ncome
wthn the meanng of secton 3 1 . The queston as to whether the
ncome accumuated s unreasonabe for the purpose of such secton
s not one susceptbe of resouton by a genera statement, but s de-
pendent upon the partcuar facts and crcumstances n each case.
Transactons of the type nvoved n ths case aso present a serous
queston as to the essenta nature of the agreement entered nto by
the foundaton. It s the poston of the Servce that n cases of ths
genera nature, the amounts receved from the foundaton n fuf-
ment of the terms of the agreement w not bo recognzed as proceeds
from a sae requrng capta gans treatment.
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131 Regs. 11 , ( 39.101 ( )-.
Reguatons 11 , Secton 39.101 (7)-: Bus- Rev. Ru. 51 112
ness eagues, chambers of commerce, rea
estate boards, and boards of trade.
A corporaton organzed and operated prmary for the pnrposes
of promotng a common busness Interest and betterng the cond-
tons of ndependent busness, whose actvtes ncude the further-
ance of a egsatve program n connecton therewth, s e empt
from edera ncome u aton under the provsons of secton 101(7)
of the Interna Itevcnue Code of 3 ).
Advce s requested whether a corporaton organzed and operated
prmary for the purposes of promotng a common busness nterest
and betterng the condtons of ndependent busness, whose actvtes
ncude the furtherance of a egsatve program n carryng out those
purposes, s e empt from edera ncome ta aton under the pro-
vsons of secton 101 (7) of the Interna Revenue Code of 1939.
Secton 101(7) of the Code provdes for the e empton of:
(7) Rusness engues, chambers of commerce, rea estate boards,
or boards of trade, not organzed for proft and no part of the net
earnngs of whch uures to the beneft of any prvate sharehoder
or ndvdua
There s no prohbton n the statute or reguatons reatng to
secton 101(7) whch dsquafes a corporaton from e empton for
egsatve actvtes so ong as such actvtes are ony ncdenta and
the purposes of the organzaton are to promote a common busness
nterest and to mprove busness condtons of one or more nes of
busness, and t s shown by ts actua actvtes that t s operatng for
those purposes.
Accordngy, t s hed that a corporaton organzed and operated
prmary for the purposes of promotng a common busness nterest
and betterng the condtons of ndependent busness, whose actvtes
ncude the furtherance of a egsatve program n connecton there-
wth, s e empt from edera ncome ta aton under the provsons of
Bocton 101(7) of the Code.
However, wth respect to dues, assessments or other payments to
organzatons such as the foregong, t shoud be noted that secton
39.23(o)-(f) and 39.23(q)-(a) of Reguatons 11 provde that
sums of money e pended for obbyng purposes, the promoton or
defeat of egsaton, etc., are not deductbe from gross ncome.
Ths provson s aso appcabe to deductons for busness e penses
under sucton 23(a) of the Code. Te te Ms Securtes Corp. v.
Commssoner, 31 U. S. 32C, Ct. D. 1532, C. B. 19 1-2, 200 Roberts
Dary Co. v. Commssoner, 195 . 2d 9 , cert. den. 3 U. S. 65.
It accordngy foows that a payments made to such organzatons
are not necessary deductbe. Whether or not any porton of such
payments s deductbe must be determned on the facts of each case.
Reguatons 11 , Secton 39.101 ( )-1: Cvc Rev. Ru. 5 -39
eagues and oca assocatons o empoyees.
An organzaton Incorporated for chartabe, regous, educa-
tona, and cvc purposes and for the purpose of engagng n actv-
tes n connecton wth the dstrbuton, servcng, mantenance, and
repar of teevson, but whose soe actvty s to provde teevson
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RcgB. 11 , 9.101 (12)- . 132
recepton n an area not ready adaptabe to ordnary recepton,
for whch It receves Instaaton and servce fees, s not entted to
e empton from edera ncome ta under secton 101( ) of the
Interna Revenue Code of 1939 as a cvc eague operatng e cu-
svey for the promoton of soca wefare.
Advce s requested whether an organzaton ncorporated for char-
tabe, regous, educatona, and cvc purposes and for the purpose of
engagng m actvtes reatve to the dstrbuton, servcng, mante-
nance, and repar of teevson, but whose soe actvty s to provde
teevson recepton n an area not adaptabe to ordnary recepton,
for whch servce t charges nstaaton and servce fees, s entted to
e empton from edera ncome ta as a cvc eague under secton
101 ( ) of the Interna Revenue Code of t W.
Tho organsaton furnshes teevson recepton for ts members on
a cooperatve bass. The requrements for membershp aro to contract
for servces and to pay nstaaton fees. The nature of tho programs
avaabe for recepton s determned by tho teevson statons and
networks from whch tho programs orgnate and s not controed by
the organzaton.
Secton 101 ( ) of the Code provdes, n part, for tho e empton of:
( ) Cvc eagues or organzatons not organzed for proft but operated
e cusvey for te promoton of soca wefare .
A cvc eague or organzaton entted to e empton under ths
secton s one operated e cusvey for purposes benefca to the com-
munty as a whoe, and, n genera, s an organzaton engaged n
promotng the wefare of manknd. (See Reguatons 11 , secton
39.101 ( )-.)
Determnaton of an organzaton s egbty for e empton under
secton 101( ) of the Code s based not ony on ts 6tated purposes but
aso on ts method of operaton n carryng out such purposes. When
an organzaton s ony.actvty s to provde teevson recepton on a
cooperatve bass to ts members, who contract and pay for such serv-
ces, such organzaton s hed to operate for the beneft of ts members
rather than for the promoton of the wefare of manknd. Tho func-
ton of such an organzaton s dstngushabe from that of one whch
s n the busness of broadcastng and whch contros the nature of ts
programs and the e tent to whch such programs promote soca
wefare.
Accordngy, t s hed that an organzaton ncorporated for char-
tabe, regous, educatona and cvc purposes and for tho purpose
of engagng n actvtes n connecton wth the dstrbuton, servcng,
mantenance and repar of teevson, but whoso soo actvty s to
provde teevson recepton n an area not adaptabe to ordnary
recepton, for whch servce t charges nstaaton and servce fees,
s not entted to e empton from edera ncome ta under secton
101( ) of the Code as a cvc eague operatng e cusvey for the
promoton of soca wefare.
Pecuatons 11 , Secton 39.101 (12)- : Patron- Rev. Ru. Mr-297
age dvdends, rebates, or refunds treatment as
to cooperatve assocatons entted to ta treat-
ment under secton 101(12) (B).
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133 Regs. 11 , 39.101 (12)-C
The deducton for amortzaton of emergency factes, where an
eecton has been made under secton 12 A of the Interna Revenue
Code, must be taken nto consderaton n computng the net n-
come of a none empt cooperatve assocaton for the purpose of
determnng the ma mum aowabe e cuson for patronage
dvdends under the rue set forth n A. R. R. 6967, C. B. III-.
2 7. edera Income ta es pad by the assocaton shoud not be
taken nto consderaton n makng ths determnaton.
Advce s requested as to the proper treatment of amortzaton of
emergency factes and edera ncome ta es n the determnaton of
the ma mum aowabe e cuson for patronage dvdends n the case
of a none empt cooperatve assocaton.
A cooperatve assocaton, ns that term s defned n secton
0.101(12)-2(b)() of Reguatons 11 , ncudes, wth certan e cep-
tons, n y corporaton operatng on a cooperatve bass and aocatng
amounts to patrons on o bass of busness done wth or for such
patrons. The. Interna cvenuo Servce has consstenty hed that
such assocatons, even though not e empt from ta aton, may e cude
from gross ncome certan amounts returned to ther patrons ns true
patronage dvdends. Seo I. T. MOD, C. B. 1-2, 1 0, and A. R, .
C9G7,C. B.I 11-1,2 7.
Secton 23 of the Interna Revenue Code provdes that n computng
net ncome tero sha bo aowed as deductons a ordnary and
necessary e penses pad or ncurred durng a ta abe year ncudng,
among other thngs, a reasonabe aowance for deprecaton. Snce
the deducton for amortzaton of emergency factes provded for
n secton 12 A of the Code s n eu of the deducton for deprecaton
aowabe under secton 23(1) of the Code, such deducton shoud be
used n tho determnaton of net ncome for the purpose of com-
putng the ma mum amount of patronage dvdends that may be
e cuded from gross ncome n tho case of a none empt cooperatve
assocaton under tho rue set forth n A. R. R. G9G7, supra.
In armers Unon Cooperatve change v. Commssoner, 2
B. T. A. 1200, (appea dsmssed), 122 . (2d) 71 , acquescence
C. B. 19 , , was hed that for the purpose of determnng the
ma mum aowabe e cuson for patronage dvdends n the case
of a none empt cooperatve assocaton under the rue set forth n
A. R. R. G9G7, supra, tho net ncome of the assocaton shoud not
bo reduced by edera ncome ta es.
Durng the year 1917 refunds were pad to members of the coopera-
tve consdered n A. R. R. G9G7, supra, n the amount of 39.16a
doars. That rung hods, n effect, that the amount avaabe for
refund conssts of that proporton of the net profts, after deductng
the f ed dvdend on outstandng capta stock, whch the amount of
busness transacted wth members bears to the entre amount of bus-
ness transacted. Up to the amount avaabe for refund thus computed,
a dstrbuton by a cooperatve assocaton to ts members, upon the
bass of the busness transacted wth them w be deemed to be a true
patronage dvdend, e cudabe by the assocaton n computng ts
ta abe net ncome for edera ncome and profts ta purposes. Ths
hodng s based on the assumpton that the deangs wth members and
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Rega. I, ( 29.107-3. 13
nonmembers are eauay proftabe. Appyng ths roe to the facts
there nvoved the foowng computaton was set forth:
Doars
Net Income per agent s wpnr 73.93a
Deduct: Interest at percent on capta stock
97.96 (12 months) 7.
.6 (r montbs)_ , , , .05
2 .30 ( months) .7
. 59
Profts from nonmembers1 busness pus amount avaabe for refund 65.3
Tota busness (members and nonmembers) , ,6 2. 3
Busness transacted wth members -.- - _ _ 3,006.0
Percentage of members busness to tota busness transacted . 65. 2
Avaabe for refunds to members (05.3 doars 6. . 2 percent)___ 3.
Therefore, nasmuch as but 39.16a doars was dstrbuted to mem-
bers durng the year 1917 as patronage dvdends, whch amount s
ess than the amount avaabe for dstrbuton as above computed, the
fu amount of 39.1Ga doars shoud be aowed as an e cuson for
1917.
Accordngy, t s hed that the deducton for amortzaton of emer-
gency factes, where an eecton has been made under secton 12 A.
of the Interna Revenue Code, must be taken nto consderaton n
computng the net ncome of a none empt cooperatve assocaton
for the purpose of determnng the ma mum aowabe e cuson for
patronage dvdends under the rue set forth n A. R. R. 69G7, supra,
descrbed above. edera ncome ta es pad by the assocaton shoud
not be taken nto consderaton n makng ths determnaton.
S CTION 107. COMP NSATION- OR S R IC S R N-
D R D OR A P RIOD O THIRTY-SI MONTHS OR
MOR AND BAC PAY
Reguatons 111, Secton 29.107-5: Back pay Ct D. 176 -
attrbutabe to pror ta abe years.
INCOM TA S INT RNAL R NG COD D CISION O COUR1
1. Income Ta Back Pat Attuwutabe to Pror Ta abe Tears
Bona de mpoyment or Attorney Wth Authorty to
Commence Sut to Coect Amounts Camed To Be Due s
vent Smar n Nature to Commencement or Court Pro-
ceedngs.
Where a dspute arose between ta payer and hs former empoyer
as to the ntter s abty for overtme servces performed n 10 ,
19 5, and 19 6, and payment therefor was not made unt after ta -
payer had hred an attorney and had gven nstructons to nsttute
proceedngs to coect, the amount so pad n 19 7 quafed as back
,. pay wthn the meanng of secton 107 (d) of the Code, athough sut
was not commenced before payment The crcumstances under whch
the payment was made were so unusua as to consttute an event
smar n nature to those specfed n the statute.
2. Decson oowed.
Thompson v. Commssoner, 203 ed. (2d) 21 (C. A. , 1053)
foowed.
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135 Regs. I, 5 29.107-3.
S. Decson Reversed.
Decson of the Unted States Ta Court (T. C. M. Aug. 5, 1952)
reversed.
Unted States Court or Appeas fob tht Second Crcut
Andrew Dngca, pettoner, v. Commssoner of Interna Revenue, respondent
Petton to revew a decson of the Ta Court that an amount receved by pettoner In
10 7 wna not ta abe aa bark nay under secton 107(d) of the Interna Revenue Code.
Samue B. m. udge, cvereed.
Before Cark, Medna, and Haran, Crcut udges
Apr 5,193
opnon
Medna, Crcut udge: The queston before us s a narrow one. Was the
sum of 10,0 .05, pad to pettoner n 10 7 by Owens-Inos Gnss Company,
back pny, attrbutabe to servces performed by pettoner n 19 , 19 5, and
19 0, whch woud have been pnd In those years e cept for the nterventon
of a dspute as to the abty of the empoyer to pay such remuneraton, whch
Is determned after the commencement of court proceedngs, or any other
event smar n nature The Treasury reguaton, after repeatng
the events contaned In the statute, provdes that An event w be consdered
smar In nature to those events specfed n the statute ony If be crcum-
stances are unusua .
Doctor Dngwa rendered servces as a consutng scentst on a part-tnv
bass pursuant to an ora agreement supported by a etter of une 30,19 3, whch
provded:
The fee for the servces to be rendered s to be 3,000 for appro matey
.10 , c of my tme and ut the end of the year an accountng s to be made as to
the actua tme that has been spent on the probems and any ad|ustment
that may be necessary for overtme demands to be amcaby setted.
In fact, durng each of the three fsca years endng n une 19 , 19 5, and
19 0, pursuant to the agreement |ust referred to, servces were rendered to hs
empoyer whch consumed more than hnf of Doctor Dngwa s tme. The
matter was dscussed nformay off and on over the perod rght up to Chrstmas.
19 C, but the offca of the company wth whom the matter was dscussed kept
postponng, postponng, postponng unt fnay, as Doctor Dngwa testfed,
t became e tremey acrmonous I fnay decded I wasn t gettng
anywhere and I woud start sut. Accordngy, a forma demand was made n
19 7, and e act data and amounts submtted on the bass of nformaton contaned
n pettoner s dares. An attorney was empoyed, the amount demanded was
not pad, and the attorney was authorzed to commence sut but, before the
servce pf process, the empoyer pad In fu.
The Ta Court reed upon Its own decson n Thompson t. Commssoner,
1 T. C. 7 2 (1932), where It was hed that the empoyment of an attorney under
smar crcumstances and the pressng of demands for payment, a n good fatb,
dd not consttute nn event smar In nature to the commencement of court
proceedngs. But the Thompson case was reversed and we agree wth the
reasonng of the ourth Crcut, whch hed that the statute Is remeda and
shoud be beray construed, and that the bona f e empoyment of an attorney
to tnke approprate steps toward the coecton of the amount camed to be due.
Incudng the makng of a satsfactory settement, was suffcenty smar n
nature to the commencement of court proceedngs to |ustfy an apportonment
over the years when the amounts were earned and payabe. Thompson v. Com-
mssoncr, 203 . 2d 21 (C. A. , 1933). The case here Is even stronger, as
Doctor Dngwa had gven e pct Instructons to commence court proceedngs.
That the Congress ntended the equtabe benefts of ths reef statute to
depend upon the mere crcumstances of the actua servce of process seems hghy
20 U. S. C. fee. 107 (nA added by nee. 220(a) of thA Revenue Act of 1939 C. B. 1930-2.
50 ). c. 2 7. 53 Stat ( 2, and Ar amendt-d by aec. 139(a) of the Revenue Act of 19 2,
c. 019, 00 Stat. 7U , and by aec. 119 of the Revenue Act of 19 3 C. B. 19 , 75 , c. C3,
CS Stat. 21).
Treasury Reguaton 111 (aec. 29.107-3. aa added by T T R3 9, C. B. 19 . 190).
The Ta Court found that pror to 1917 the probem was dscussed Informay off and
on over a perod of about two years.
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Begs. IIS, 39.112(b)(3)-6.) 136
Improbabe, especay In vew of the other appcabe terms whch provde reason-
abe safeguards aganst cams for apportonment made n bad fath.
Ths concuson s In harmony wth that arrved at n the anaogous stuaton
where the deay n payment was caused by fnanca dffcutes whch were hed
to be smar to bankruptcy or recevershp, athough no court proceedngs
seekng an ad|udcaton of bankruptcy or the appontment of a recever were
Insttuted. Angtt t state v. CommUtoncr, 1 3 . 2d 75 (C. A. 9,1950). See
aso Bcdack v. Commtttoncr, 203 . 2d 25 (C. A. 7,1953).
That tc crcumstances under whch the payment was made n ths case ore
unusua s sef-evdent And t Is equay cear that there was a dspute,
even though no forma demand supported by data showng the e act amount due
was made unt 10 7.
Pettoner shoud have been aowed to aocate the back pay receved In 10 7, -
over the years In whch t was earned, vz: 10 , 10 5, and 10 0.
Beversed.
SUPPL M NT B COMPUTATION O N T INCOM
S CTION 111. D T RMINATION O AMOUNT O , AND
R COGNITION O , GAIN OR LOSS
Reguatons 11 , Secton 39.111-1: Computa-
ton of gan or oss.
Gan recognzed on deferred payment sae of a ta payer s prncpa
resdence where a new resdence s purchased wthn 1 year. See
Rev. Ru. 5 -3 0, page 155.
S CTION 112(a).-R COGNITION O GAIN OR LOSS:
G N RAL RUL
Reguatons 11 , Secton 39.112(a)-: Saes or
e changes.
Recovery of war oss n case of certan German pre-war doar bonds
and e change for new bonds. See Rev. RuL 5 -501, page 197.-
S CTION 112(b). R COGNITION O GAIN OR LOSS:
CHANG S SOL LY IN IND
Reguatons 11 , Secton 39.112(b) (3)-(5): Stat-
utory provsons recognton of gan or oss
e changes soey n knd stock for 6tock on
reorganzaton gan of corporaton transfer to
corporaton controed by transferor.
Treatment by a corporaton, a party to a reorganzaton, of stock of
another corporaton receved n e change for property. See Rev.
RuL 5 - 99, page 150. :
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137 Regs. 11 , 30.112(b) CD-I.
Reguatons 11 , Secton 39.112(b) (T)-: Cor- T. Z . 6106
porate qudaton n caendar month n 1952
or 1953.
(Aso Secton 39.112(b) (7)-3 Secton 113(a),
Secton 39.113(a) (1 )-1 Secton 113(b),
Secton 39.113(b) (1)-1 Secton 113(d),
Secton 39.113(d)- Secton 127(c), Secton
. 59.127(c)- Secton 15 , Secton 39.15 -1
Secton 201, Sectons 39.201-1, 39.201-5,
39.201-0 Secton 202, Secton 39.202-2 Sec-
ton 203A, Sectons 39.203A-1, 39.203A-2
Secton 33(a), Secton 0. 33(a)-2, Regua-
tons 130.)
TITL 20 INT RNAL R NU . CHAPT R L SUBCHAPT R A. PARTS 9
AND 0
Reguatons 11 r.c 130 amended to conform to certan sectons
of tte I of the Technca Cbnnges Act of 1953, approved August 15.
1933, reatng to the e tenson of certan provsons of the Interna
Revenue Code of 1939.
Treasurt Department,
Offce of Commssoner of Interna Reventte,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
In order to conform Reguatons 11 (26 C R, pt 39) and Regu-
atons 130 (2G C R, pt. 0) to sectons 101-105, ncusve, of the
Technca Changes Act of 1953 C. B. 1953-2, 5 , approved August
15,1953, reatng to the e tenson of certan provsons of the Interna
Revenue Code of 1939, such reguatons are hereby amended as
foows:
R GULATIONS 11 (2 C R, rr. 39)
PARAORArn 1. Secton 39.112(b) (7) s amended by
(A) Strkng out 1951 or 1952 n secton 112(b) (7) (A) () and
nsertng n eu thereof 1951,1952, or 1953 , and
(B) Insertng sec. 101, Technca Changes Act 1953 before
the cosng bracket of the hstorca note set forth at the end of
secton 112(b)(7). As amended, secton 112(b) (7) (A) () and the
hstorca note n secton 39.112(b) (7) w read as foows:
Sec. 39.112(b) (7). Statutory provsons recognton of gan or ots e changes
soey n knd: eecton as to recognton of gan n certan corporate qudatons.
Skc. 112. Recognton of gan or oss.
( ) changes soey n knd.
(7) ecton as to recognton of gan n certan corporate qudatons
(A) Genera rue. A
(11) The dstrbuton Is In compete canceaton or redempton of a the stock,
and the transfer of a the property under the qudaton occurs wthn some
one caendar month In 1931,1932, or 1953
A A
Sec. 112(h) (7) ns added by sec. 120 (a). Rev. Act 1913: omended by sec. 20 (a),
Rev. Act 1930 sec. 310(a), Rev. Act 1951 sec. 101, Technca Changes Act 1953
Par. 2. Secton 39.112(b) (7)- s amended by strkng from the
headng and the body of the secton the phrase n 1952 , wherever
appearng theren, and nsertng n eu thereof n 1952 or 1953 .
Par. 3. The second sentence of secton 39.112(b) (7)-3 s amended
to read as foows:
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Regs. 11 , S f.2(b)(7)-1. 13
Wtbn 30 days after the adopton of the pan of qudaton, occurrng wthn
one caendar month n 1952 or 1953, the orgna and one copy of orm 90
(revsed) sha be fed by the sharehoder or by the qudatng corporaton wth
the Commssoner of Interna Revenue, Washngton, D. C.
Par. . Secton 39.113(a) (1 )-(a) (2) () s amended by strkng
the words caendar year 1951 or 1952 wherever appearng theren,
and nsertng n eu thereof caendar years 1951-1953. ncusve .
As amended, secton 39.113(a) (1 )-(a) (2) () w read as foows:
Sec. 39.113(a) (1 )-1. Bat of property receved n certan corporate quda-
ton (a) Property ncuded. Secton 113(a) (1 ) appes ony to property
(other than money) acqured

(2) Upon a dstrbuton n compete qudaton of a domestc corporaton

(H) Pursuant to a pan of qudaton adopted after December 31, 1950, In
accordance wth whch the dstrbuton Is n compete canceaton or redempton
of a the stock and the transfer of a the property n the qudaton occurs
wthn some one caendar month of the caendar years 1951-1953, Incusve and

Par. 5. Secton 39.113(b) ()-(c) (7) s amended to read as foows:
ec 39.113(b) (1)-1, Ad|usted bart.
(c) hauston, tccar and tear, obroccence, amortsaton, and depeton for
perod nce ebruary tS, 1913
(7) Property wth tranferred bat. The foowng rues appy n the deter-
mnaton of the ad|ustments to bass of property n the bands of a transferee,
donee, or grantee whch are requred by secton 113(b) (2) wth respect to the
perod the property was hed by the transferor, donor, or grantor:
(1) An eecton, or a revocaton of an eecton whch was made on or before
December 31, 1952, under secton 113(d), by a transferor, donor, or grantor,
whch Is made after the date of the transfer, gft, or grant of the property sha
not affect the bass of such property n the bands of the transferee, donee, or
grantee. An eecton, or a revocaton of an eecton whch was made on or
before December 31, 1952, made before the date of the transfer, gft, or grant of
the property sha be taken nto account n determnng under secton 113(b) (2)
the ad|ustments to bass of such property as of the date of the transfer, gft, or
grant, whether t r not an eecton or a revocaton of an eecton under secton
113(d) was made by the transferee, donee, or grantee.
() An eecton by the transferee, donee, or grantee, or a revocaton of such
an eecton whch was made on or before December 31, 1952, sha be appcabe
In determnng the ad|ustments to bass for the perod durng whch the property
was hed by the transferor, donor, or grantor, whether or not the transferor,
donor, or grantor had made an eecton or a revocaton of an eecton, provded
that the property was hed by the transferee, donee, or grantee at any tme on or
before the date on whch the eecton was made.
Par. 6. Secton 39.113(d) s amended to read as foows:
Sec. 39.113(d) Statutory provson adfuted ba for determnng gan or
Ion deprecaton, etc., aowed before 1952.
Sec. 113. Adfuted ba for determnng gan or Ion.
(d) ecton n retpect of deprecaton, etc., aowed before 1952. Any person
may eect to have cause (11) of subsecton(b) (1) (B) appy n respect of perods
snce ebruary 2 , 1913, and before anuary 1,1952. Such an eecton sha be
made In such manner as the Secretary may by reguatons prescrbe and sha be
rrevocabe when made, e cept that an eecton made on or before December 31,
1902, may be revoked at any tme before anuary 1, 1955. A revocaton of an
eecton sha be made In such manner as the Secretary may by reguatons pre-
scrbe, and no eecton may be made by any porson after he has so revoked an
eecton. The eecton sha appy In res cct of a pro erty hed by the person
makng the eecton nt any tme on or before December 31, 1952, and n respect
of a perods snce ebrunry 2 ,1913, and before anuary 1,1952, durng whch
such person hed such property or for whch ad|ustments must be made under
subsecton (b) (2). An eecton or a revocaton of an eecton by a transferor,
donor, or grantor made after the date of the. transfer, gft, or grant of property
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139 Regs. 11 , 39.112(b) (7 -I.
sha not effect the bass of such property In the hands of the transferee, donee,
or grantee. No eecton may be made under ths subsecton after December 31,
195 .
Sec. 113(d) as added by sec. 2, Pub. Law 039 ( 2d Cong.) sec. 102, Technca
Changes Act 1903
Pah. 7. Secton 39.113(d)- s amended to read as foows:
Sec. 39.113(d)-. ecton at to amount aoeed n respect of deprecaton,
etc., before 1952 (a) In genera. (1) Any person may eect to have the ad-
|ustments to the cost or other bass of property under secton 113(b)(1)(B)
determned n accordance wth cause (II) of such secton, by fng wth
the dstrct drector of Interna revenue, on or before December 31, 195 , the
wrtten statement of eecton provded u (b), beow. The statement must be
fed wth the dstrct drector of nterna revenue wth whom such person Is
requred (by sec. 53(b)) to fe hs Income ta return for the year durng whch
the eecton Is made. Any eecton made after December 31, 1952, sha be
rrevocabe when made, and sha appy wth respect to a perods snce ebru-
ary 2 ,1913, and before anuary 1, 1 52. The eecton sha appy n respect of a
propertes hed nt any tme on or before December 31,11152, by the person mnkng
the eecton. or rues wth respect to an eecton made on or before December
31, 1052, see paragraph (c) of ths secton.
(2) A copy of the wrtten statement of eecton or revocaton must be fed
wth tho frst Income ta return, amended return, or cam for credt or refund
n on or after the (ute on whch the eecton or revocaton Is made.
(3) An eecton by a partner Is not an eecton hy the partnershp of whch he
Is a member, but a scpurnte eecton must be made by the partnershp. Smary,
an eecton by the partnershp appes ony wth respect to the partnershp, and s
not appcabe to the separate property of the partners. A smar rue appes
wth respect to eectons by trusts and benefcares of such trusts. These rues
are aso appcabe wth respect to a revocaton of an eecton where such eecton
was made on or before December 31,1952.
( ) An eecton whch conforms In substance to the provsons of ths secton
sha not be deemed Invad soey because It was fed pror to the date on whch
the reguatons In ths secton were promugated.
(b) Rues appcabe to makng of eecton. The foowng rues are appcabe
to the makng of an eecton under secton 113 (d):
(1) orm of eecton. The eecton sha be In the form of a statement In
wrtng addressed to the dstrct drector of Interna revenue wth whom fed.
sha state the name and address of the ta payer makng the eecton, and sha
contan a statement that such ta payer eects to have the provsons of secton
113(b) (1) (B) (11) nppy In respect of a perods snce ebruary 2 , 1913, and
before anuary 1,1952.
(2) Sgnature. The statement sha be sfgned by the ta payer makng the
eecton, If an ndvdua, or, If the ta payer makng the eecton Is not an In-
dvdua, the statement sha be e ecuted In the same manner as Is requred In
the ense of the Income ta return of such ta payer.
(3) ng. The wrtten statement must be fed In the offce of the dstrct
drector of Interna revenue on or before December 1, 195 . An eecton sha
be consdered as tmey fed If It Is paced In the ma on or before mdnght of
December 31, 195 , ns shown by the postmark on the enveope contanng the
wrtten statement of eecton or as shown by other avaabe evdence of the
mang date.
(c) ecton made on or before December SI, 1952. An eecton made on or
before December 31, 1952, In accordance wth the provsons of secton 113(d),
may be revoked by fng on or before December 31, 195 , In the same offce Id
whch the eecton was fed, a statement of revocaton e ecuted In the same
manner ns the eecton. Such revocaton sha appy to a propertes to whch
such eecton apped. Such statement made by any person s Irrevocabe when
made wth respect to such person, nnd no new eecton may thereafter be made
by such person.
Par. . Secton 39.127(c) s amended by
(A) Strkng out December 31, 1952 n secton 127(c)(5) and
nsertng n eu thereof December 31,1953 , and
33510 os 10
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Regs. 11 , 39.112(b)(7)-. 1 0
(B) Insertng sec. 127(c) (5) as amended by sec. 103, Technca
Changes Act 1053 before the cosng bracket of the hstorca note set
forth at the end of secton 127(c) (5).
Par. 9. Secton 39.127(c)-(d) (2) s amended by strkng Decem-
ber 31,1932 n the frst sentence theren and nsertng n eu thereof
December 31,1953 .
Par. 10. Secton 39.15 s amended by
(A) Strkng out anuary 1, 195 n secton 15 and nsertng
n eu thereof s anuary 1,1955 , and
(B) Insertng amended by sec 10 , Technca Changes Act
1953 before the cosng bracket of the hstorca note set forth at tho
cud of secton 151.
Par. 11. Secton 39.15 -1 (a) s amended by strkng anuary 1.
195 n the frst sentence theren and nsertng n eu thereof
anuary 1,1955 .
Par. 12. In secton 39.201, secton 201(a) (1) and the hstorca note
at the end of the secton are amended to read as foows:
Sec. 30.201. Statutory proratons ta on fe nsurance companes.
Sec. 201. Lfe nsurance companes (a) Imposton of ta (1) In genera.
Tbere sha be eved, coected, and pad for each ta abe year upon the ad|usted
norma-a net ncome (as defned In sec. 202) and upon the ad|usted corporaton
surta net Income (as defned In sec. 203) of every fe Insurance company ta es
computed as provded n secton 13(b) and n secton 15(b). In eu of the
ta es Imposed by the precedng sentence, there sha be eved, coected, and pad
for ta abe years begnnng n 1053 upon the 1053 ad|usted norma-ta net
Income (as defned In sec. 203A) of every fe nsurance company a ta equa
to the sum of the foowng:
3 per centum of the amount thereof not n e cess of 200,000, pus
C , per centum of the amount thereof n e cess of S200.000.

Sec. 201 as amended by sec. 203, Itev. Act 1030 sec. 103(a), Rev. Act 10 2
sec. 121(g)(3), Rev. Act 1050 sec. 330 (a) and (c). Rev. Act 1051 Pub. Law
CS ( 2d Cong.) sec. 105(a), Technca Changes Act 1053. Pursuant to sec.
105(b), Technca Changes Act 1053, sec..201(a) (1), as amended by sec. 105(a),
Technca Changes Act 1053, s appcabe ony to ta abe years begnnng n
1953. Before amendment by sec. 105(a), Technca Changes Act 1053, 1053 ,
wherever t appears n sec. 201(a) (1), read 1051 and 1052 . Pursuant to sec.
105(b), Technca Changes Act 1053, the appcaton of sec. 201(f) s e tended
to ta abe years begnnng after December 31, 1052
Par. 13. Secton 39.201-1 s amended ns foows:
(A) By strkng from the frst sentence of paragraph (a) the
phrase wth respect to ta abe years begnnng n 1952 and by
nsertng n eu thereof wth respect to a ta abe year begnnng n
1952 or 1953 .
(B) By strkng from the ast sentence of paragraph (b) the fgures
1952 and by nsertng n eu thereof 1952 or 1953 .
Par. 1 . Secton 39.201-5 s amended by strkng from the thrd
sentence the phrase ta abe years begnnng n 1952 and by nsertng
n eu thereof a ta abe year begnnng n 1952 or 1953 .
Par. 15. Secton 39.201-C s amended by strkng from the frst
sentence the phrase for ta abe years begnnng n 1952 and by
nsertng n eu thereof for a ta abe year begnnng n 1952 or
1953 .
Par. 16. Secton 39.202-2(b) s amended to read as foows:
Sec. 30.202-2. Ad|ustments for certan reserves.
(b) In the case of a ta abe year begnnng In 1052 or 1053, an amount equa
to eght tmes the amount of the appcabe ad|ustment provded n paragraph
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1 1 Regs. 11 , 9.112(b) (7)- .
(a) must be added to norma-ta net Income for such year as a factor In
determnng 1052 or 1053 ad|usted norma-ta net Income.
Par. 17. Secton 39.203A s amended by
(A) Strkng out 1951 and 1952 wherever appearng n secton
203A and nsertng n eu thereof 1953 , and
(B) Insertng 7 sec. 105(a), Technca Changes Act 1953. Pur-
suant to sec. 105(b), Technca Changes Act 1953, secton 203A, as
amended by sec. 105(a), Technca Changes Act 1953, s appcabe
ony to ta abe years begnnng n 1953. Before amendment by sec.
105(a), Technca Changes Act 1953, 1953 . wherever t appears n
secton 203A, read 1951 and 1952 . before the cosng bracket of the
hstorca note set forth at the end of secton 203A.
Pah. 1 . Secton 39.203A-1 s amended to read as foows:
Sec. 39.203A-1. Ta on fe nsurance companes n the cate of a ta abe year
begnnng n 1052 or 1S53. (a) In the case of a ta abe year begnnng In 1932
or 1953, the ta Imposed on a fe Insurance company for such year sha consst
of a ta upon the ad|usted norma-ta net Income for such year equa to 3
percent of the amount of such Income not In e cess of 200,000, pus 6 percent
of the amount of such Income In e cess of 200,000. The term ad|usted norma-
ta net ncome for such year means the norma-ta net Income (consstng of
net Income computed as provded n secton 39.201-7 ess the credt for partay
ta -e empt Interest aowed under secton 20(a) and ess the credt for dvdends
receved aowed under secton 26(b)) for the ta abe year begnnng In 1932 or
1933, as the case may be, pus eght tmes the amount of the ad|ustment for
certan reserves computed as provded n secton 202(c) (see sec. 39.202-2), and
mnus the reserve nterest credt, If any, provded n secton 203A(b) (see sec.
U.203A-2). The reserve and other pocy abty credt s not aowed for the
purpose of computng the ad|usted norma-ta net Income n the case of a ta abe
year begnnng In 1952 or 1953.
(b) The ta Imposed upon 1952 ad|usted norma-ta net Income or 1933 ad-
usted norma-ta net Income, as the case may be. by the second sentence of
secton 201(a)(1) Is In eu of the ta otherwse mposed on ad|usted norma-
ta net Income and ad|usted corporaton surta net Income by the frst sentence
of secton 201(a)(1).
Par. 19. Secton 39.203A-2(a) s amended by strkng from the frst
sentence the fgures 1952 and by nsertng n eu thereof 1952 or
1953 .
R GULATIONS 130 (2 C R, PT. 0)
Par. 20. There s nserted mmedatey precedng secton 0. 33(a)-
the foowng:
S C. 103. T NSION O T MPORARY PRO ISIONS R LATING
TO LI INSURANC COMPANI S T CHNICAL CHANG S
ACT O 1953, APPRO D AUGUST 15, 1933).
(a) Ta fob 1053. Sectons 33(a)(1)(H) (reatng to e cess
profts net ncome of fe Insurance companes) are each hereby amended
by strkng out 1951 and 1952 wherever appearng theren and nsert-
ng n eu thereof 1933 .
(b) ffectve Date. The amendments made by subsecton (a) shaU
appy ony t 5 ta abe years begnnng In 1933. .
Par. 21. Secton 0. 33(a)-2(h), as amended by Treasury Decson
6992 rC. B. 1953-1, 297 , approved ebruary 17, 1953, s further
amended by strkng the phrase 1951 or 1952 , wherever appearng
theren, and by nsertng n eu thereof 1951,1952, or 1953 .
Bccauso ths Treasury Decson merey amends Reguatons 11 and
130 to conform to certan sectons of the Technca Changes Act of
1953, approved August 15,1953, reatng to the e tenson of the tme
durng whch certan provsons of the Interna ovenue Code of 1939
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Regs. 11 , 39.112(b)()-. 1 2
are appcabe, t s hereby found to be unnecessary to ssue ths Treas-
ury Decson wth notce and pubc procedure thereon under secton
(a) of the Admnstratve Procedure Act. approved une 11, 19 6,
or sub|ect to the effectve date mtaton of secton (c) of that Act.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 of the Interna Revenue Code of 1939 (53 Stat. 32,
G7 26U. S. C. 62,3791).)
O. Gordon Dek,
Actng Commssoner of Interna Revenue.
Approved October 6,195 .
M. B. osom,
. Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster October 11, 105 , : 9 a. m.)
Reguatons 11 , Secton 39.112 (b) (7)-: Corpo- Rev. Ru. 5 -51
rate qudaton n caendar month n 1952.
The retenton of ts charter does not prevent the qudaton
of a corporaton from comng under the provsons of secton
112(b) (7) of the Interna Revenue Code of 1939.
Advce s requested as to whether t s necessary that a corporaton
formay dssove n order to compy wth the provsons of secton
112(b) (7) of the Interna Revenue Code of 1939.
Secton 112(b) (7) (A) () of such Code provdes that the qu-
datng corporaton must be competey qudated and a of ts
property transferred n compete canceaton or redempton of a
of ts outstandng stock wthn some one caendar month. Secton
39.112(b) (7)-(b) of Reguatons 11 states n part that, athough t
s not necessary that the corporaton dssove n the month of quda-
ton, t s essenta that a status of qudaton e st at the tme the
frst dstrbuton s made under the pan of qudaton and that such
status contnue to the date of dssouton of tho corporaton.
There s no provson n secton 112(b) (7) of the Code, and the
reguatons promugated thereunder, whch requres tho forma or
ega dssouton of a corporaton. However, for the purpose of ths
secton, where, as n the nstant case, a corporaton ceases busness
operatons, has retaned no assets, has no ncome, and has actuay
qudated wthn tho caendar month, there s n effect a de facto ds-
souton even though the corporaton nas not been formay dssoved.
See I. T. 3 71, C. B. 19 7-2, 62 Rev. Ru. 215, C. B. 1953-2, 119
ABC Brewng Corporaton v. Commssoner, 20 T. C. 515.
Accordngy, t s hed that tho mere retenton of tho charter of tho
qudatng corporaton, for a purpose such as tho protecton of tho
corporato name, docs not prevent (no qudaton from conng under
tho provsons of secton 112(b)(7) of tho Interna Revenue Codo
of 1939.
Reguatons 11 , Secton 39.112(b) ()-: Cer-
tan dstrbutons of stock on reorganzaton.
Treatment of stock n another corporaton, a party to the reorgan-
zaton, dstrbuted pro rata to stockhoders wthout requrng the
surrender of any porton of ther stock. See Rev. Ru. 5 - 99, page
150.
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1 3 IRega. 11 , A 39.112(0-1.
Shares of stock e changed n the same corporaton pursuant to a
reorganzaton. See Rev. Ru. 6 - 2, page 1 .
Stock and bonds or property e changed soey for stock n another
corporaton pursuant to a reorganzaton. See Rev. Ru. 5 -610,
page 152.
S CTION 112(f). R COGNITION O GAIN OR LOSS:
IN OLUNTARY CON RSION
Reguatons 11 , Secton 39.112 (f)-: Invo- Rev .Ru. 5 -395
untary converson where dsposton of the
converted property occurred after December
31,1950.
In case Invovng the condton n catte known a hyperkera-
toss, any gan reazed from proceeds receved from ther sae at
savage vaue or n settement of damage cams aganst the manu-
facturer of the contamnated feed peets whch caused the condton
Is sub|ect to the reef provsons of secton 112(f) (3) of the Interna
Revenue Code of 1039 wth respect to the nvountary conversons
of property.
Advce s requested whether the gan reazed from catte whch
ded, were ked, or were marketed as the resut of hyperkeratoss,
s sub|ect to the provsons of secton 112(f)(3) of the Interna
Revenue Code of 1939.
Hyperkeratoss s a condton n catte whch s marked by e ces-
sve savaton and achrymaton, serous dscharges from the nose,
ucerous gums and ps, poor appette, and aborton and amost n-
evtaby eads to the death of tne anma. No treatment s known
whch w affect the resut. It s caused by the consumpton of
chornated naphthaene a component of certan ubrcants. In the
present case cottonseed feed peets made n machnes ubrcated by
o contanng chornated naphthaene were fed to the anmas, and t
was ths fcctng whch resuted n hyperkeratoss.
Compensaton has been receved by tho owners of the catte from
tho manufacturer of the feed peets n the amount of the far market
vaue of equvaent heathy anmas or the dfference between ths
amount and tho amount receved by tho owners upon marketng the
anmas for a savage prce, as tho caso may be. Tho bass of the
catto was ess than tho amounts receved, and gan has been reazed
by converson of tho catto nto money.
Secton 112(f)(3) of tho Code provdes that f property (as a
resut of ts destructon n whoo or n part, theft, sezure, or requs-
ton on condemnaton or threat or mmnence thereof) s nvountary
converted nto money and the dsposton of tho converted property
occurred after December 31, 1950, the gan, f any, need not be rec-
ognzed f tho ta payer (wthn a mted tme) purchases other
property smar to that converted (e cept to the e tent that the
amount reazed upon converson e ceeds the cost of such other prop-
erty). The anmas n queston were nether stoen, sezed, requs-
toned, condemned, nor under the threat or mmnence of requston
on condemnaton, and the ony ground for the appcaton of secton
112(f) (3) of the Code s that they were destroyed.
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Regs. 11 , 39.112(0-1.) 1
Destructon n the sense of secton 112(f) of the Code s the
equvaent of casuaty n the sense of secton 23(e) (3) of the Code.
See I. T. 3696, C. B. 19 ,2 1. The oss of catte by dsease or by death
of od age s not a casuaty n that sense. See Davd McMorran v.
Commssoner, B. T. A. Memorandum Opnon, dated March 20,1939
I. T. 3696, suvra Rev. Ru. 195, C. B. 1953-2,169. However, the oss
of catte as the resut of posonng s consdered to be a oss from a
casuaty, and the feedng of chornated naphthaene to the anmas n
ueston here s more accuratey descrbed as posonng than as
the contractng of a dsease. The nterventon of a human agency
n the sequence of events whch ncuded the posonng of the anmas
does not deprve the ncdent of ts character as a casuaty. Cf.
George L. Shearer v. Anderson, 16 ed. (2d) 995 Ray Durden et a.
v. Commssoner, 3 T. C. 1, acquescence C. B. 19 , I . S. Bronson
v. Commssoner, 9 B. T. A. 100 , acquescence C. B. II-1, 5 (1929).
Athough the sequence of events whch ed to the destructon of the
anmas n queston e tends from the manufacture of the ubrcatng
o whch eventuay contamnated the peets fed to the anmas unt,
some tme after the peets were fed to the anmas the nctun feedng
of the peets to the anmas was an event whch may bo estabshed
wth suffcent accuracy for purposes of provng the cause and the
measure of oss that t can be recognzed as a casuaty. Rev. Ru.
5 - 5, C. B. 195 -1, 5 .
In vew of the foregong, t s hed that the proceeds of the catte
n queston, ether from ther sae at savage vaue or from damage
cams aganst the manufacturer of the feed peets whch posoned
them, are sub|ect to the reef provsons of secton 112(f) (3) of the
Code wth respect to the nvountary converson of property.
The burden of provng that a partcuar anma was converted to
cash as the resut of posonng by feed peets contanng chornated
naphthaene rests on the ta payer. An admsson by the manufacturer
of the feed peets n queston that t s abe n damages for n|ury
to the anma w be consdered suffcent proof of the cause of
converson.
It s the understandng of the Interna Revenue Servce that sub-
stances other than feed peets are known to contan chornated
naphthaene. In the ght of ths nformaton, and n the ght of
warnngs that have been ssued by the Department of Agrcuture
concernng the danger of aowng catte access to such substances,
the queston of whether other osses to catte through chornated
naphthaene w be consdered casuates or osses as the resut of
gross neggence whch do not amount to casuates s specfcay
reserved.
Reguatons 11 , Secton 39.112(f)-: Invo- Rev. Ru. 5 -569
untary converson where dsposton of the
converted property occurred after December
31, 1950.
Where a ta payer ses a dary farm contanng resdenta prop-
erty used for renta purposes to the State uuder threat or mmnence
of condemnaton, and wthn the perod of tme specfed n secton
112(f) (3) (B) of the Interna Revenue Code of 1939 purchases another
farm contanng two rcsdenco propertes to be used for renta pur-
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.1 5 Regs. U , ( 39.112(f -.
poses, the farm purchased s deemed to he repacement property sm-
ar or reated n servce or use wthn the contempaton of secton
112(f) (3) (A) of that Code. The proposed use by the ta payer of
one o the resdences as hs home w not pre|udce hs eecton to defer
recognton of the gan nvoved.
Reguatons 11 , Secton 39.112 (f) -1: Invo- Rev. Ru. 5 -575
untary converson where dsposton of the
converted property occurred after Decem-
ber 31,1950.
A transacton whereby proceeds are receved as the resut of
grantng nn easement of ar rghts over certan and nnder threat of
(ovormncnt condemnaton and the grantng of such an easement
deprves the ta payer of prnctcay a the benefca Interest of a
rorton of the and, covered by the easement, e cept for hs retan-
ng ony the rucro ega tte thereto. Is consdered to be a sae of
that porton of the and nnd any gan reazed from such sae w
be sub|ect to the reef provsons of secton 112(f) of the Interna
Revenue Code of 1039. The consderaton receved for grantng
the easement over the porton of the and where benefca Interest
Is retaned by the ta payer may bo used to reduce the cost or other
bass of such and nnd any e cess of the payment over the cost or
other busts Is ta abe gan. Any recognzed gan Is consdered
as havng been reazed In connecton wth an Invountary conver-
son and s sub|ect to the mtatons provded by secton 117( ) of
the Code.
Advce has been requested reatve to the treatment for edera n-
come tn purposes of proceeds receved as tho resut of a ta payer s
grantng perpetua ar rghts over a porton of hs farm under the
condtons herenafter descrbed.
A ta payer who owns 300 acres of farm and ad|acent to an ar base
grants a perpetua easement of ar rghts to the Government over 0
percent of the area. He had no aternatve n seng ar rghts n
vew of tho Government s rght of condemnaton. The gde ange
pane used at the base strkes to 6 feet above the surface of the
ground makng certan portons of the acreage unsafe for farm usage
and habtaton. The vaue of the farm for resdenta, commerca
and agrcutura purposes s greaty reduced as vauabe trees w be
removed, tho natura beauty w be destroyed, frontage whch was
beng sod for busness purposes w not now be saeabe, and ma-
chnery necessary to e pot the mnera rghts and to cutvate the
and as a farm cannot bo used. However, as the ar easement e tends
away from the runway the benefca nterest w ncrease generay.
Secton 112(f) of the Interna Revenue Code of 1939 provdes, n
part, that where property s compusory or nvountary converted
after December 31,1930, and the ta payer purchases other property
smar or reated n servce or use to the property so converted, at
the eecton of the ta payer the gan reazed from the nvountary
converson sha be recognzed for ta purposes ony to the e tent that
the amount reazed upon such converson e ceeds the cost of the
repacement property.
The sae of a perpetua casement on and for raroad or hghway
urposo s treated as an outrght sae of tho and. Seo O. D. 1072,
. B. 6, 9 (1921). In II. L. Scaes v. Commssoner, 10 B. T. A. 102 .
state Ta Decson acquesced C. B. II-2, 35 (192 ), the Board
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11 , 39.112(0-1.1 1 6
-found that by the terms of an e ecuted nstrument the ta payer had
surrendered perpetua and compete contro of the and granted to the
evee mprovement dstrct and that t was useess for purposes of
cutvaton and concuded that the conveyance to the evee mprove-
ment dstrct s tantamount to a sae of the and.
I. T. 2G21, C. B. I-1,67 (1932), hod3 that where a ta payer grants
an easement across hs property for the constructon, mantenance,
operaton, and repar of one or more transmsson nes, the ta payer
reservng the rght of farmng any part not actuay occuped by the
nes or equpment, the amount receved therefor shoud be apped
aganst the cost or other bass of the and n determnng gan or oss
from subsequent sae or other dsposton of the property, and that f
the consderaton for the easement e ceeds the cost or other bass of
the and affected by the grant the e cess s consdered ta abe ncome.
The fu amount of an award s consdered as havng been gven n
consderaton of that porton of the property condemned and taken
uness the evdence ceary shows that an ascertanabe porton s
propery aocabe to the retaned porton as severance damages. See
Marsha C. Aaben et a., 35 B. T. A. 327. Remuneraton may be
consdered as havng been receved for damages ony where such
desgnaton has been stpuated by both contractng partes. The ef-
fect of G. C. M. 20322, C. B. 193 -2,107, s to hod that the amount of
an assessment s to be apped aganst and deducted from the tota
awards n determnng the amount, f any, whch the ta payer re-
ceved. An award of severance damages to property remanng after
a condemnaton, where no speca beneft assessment s eved, s ap-
ped aganst the bass of the remanng property. See Poneer Rea
state Company, 7 B. T. A. 6. G. C. M. 2369 , C. B. 19 3, 3 0,
ustrates the method of computng gan or oss upon the condemna-
ton and takng of a porton of the property.
It s hed that where proceeds are receved as the resut of grantng
an easement of ar rghts over certan and under threat of Govern-
ment condemnaton and the grantng of such an easement deprves
the ta payer of practcay a the benefca nterest of a porton of
the and, covered by the casement, e cept for hs retanng ony the
mere ega tte thereto, such transacton s consdered to be a sae of
that porton of the and and any gan reazed from such sae w bo
sub|ect to the reef provsons of secton 112(f) of the Interna Reve-
nue Code of 1939. The consderaton receved for grantng the ease-
ment over tho porton of the and where benefca nterest s retaned
by the ta payer may bo used to reduce tho cost or other bass of such
hnd and any e cess of the payment over the cost or other bass s ta a-
be gan. Any recognzed gan s consdered as havng been reazed
|n connecton wth an nvountary converson and s sub|ect to the
mtatons provded by secton 117(|) of the 1939 Code.
Reguatons 11 , Secton 39.112 (f)-: Invo-
untary converson where dsposton of the
converted property occurred after December
31,1950.
Recovery of war oss n case of certan German pre-war doar bonds
and e change for new bonds. See Rev. Ru. 5 -501, page 197.
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1 7 IUg . 11 , 39.112 Cg -1-
Reocatons 11 , Secton 39.112(f)-: Invo-
untary converson where dsposton of the
converted property occurred after Decem-
ber 30,1950.
Nonrecognton of gan wth respect to sae or e change of prop-
erty by the Aen Property Custodan. See ev. u. 5 -59 , page 10.
. S CTION 112(g). R COGNITION O GAIN OR LOSS:
D INITION O ORGANIZATION
Reguatons 11 , Secton 39.112(g)-:Purpose Rev.Ru 5 -396
and scope of e cepton of reorganzaton
e changes.
(Aso Secton 115(c), Secton 39.115(c)-.)
A transacton between two corporatons wheren one, the ma|orty
stockhoder (but ess than 0 percent) of the second, acqures a
of the assets of the second In e change for Its common stock, s
not a reorganzaton wthn the purvew of secton 112(g)(1)(C)
of the Interna Revenue odc of 1U39.
O. C. M. 21 73, C. B. 10 0-2, 223, dstngushed.
Advce s requested wth respect to the ta consequences for ed-
era ncome ta purposes of a transacton between two corporatons
whereby one acqures a of the propertes of the other under crcum-
stances herenafter descrbed. Advce s further requested reatve
to the appcabty of G. C. M. 21 73, C. B. 1910-2, 223, n cases of
ths knd.
M Corporaton owned 79 percent of the outstandng capta stock
of N Corporaton. Ths stock had been acqured by M Corporaton
by a cash consderaton n pror years. M and N Corporatons entered
nto an agreement whereby shares of common stock of M were ssued
n e change for a the propertes and assets of N, sub|ect to ts a-
btes. N Corporaton was qudated and the shares of M receved
by t n e change for ts assets were dstrbuted to ts stockhoders
pro rata. Thereafter, the busness of both corporatons was conducted
byM.
The queston presented s whether the transacton quates as a
reorganzaton under the provsons of secton 112(g) (1) (C) of the
Interna Revenue Code of 1039.
Secton 112(g) of the Code provdes n part as foows:
(1) The term reorganzaton means (A) a statutory merger or con-
sodaton, or (B) the acquston by one corporaton, n e change soey
for a or a part of Its votng stock, of at east 0 per centum of the votng
stock and at east 0 per centum of the totn nunter of shares of a other
casses of stock of another corporaton, or (C) the acquston by one cor-
poraton, In e change soey for a or a part of Its votng stock, of substan-
tay a the propertes of another corporaton, but In determnng whether
the e change s soey for votng stock the assumpton by the acqurng
corporaton of a abty of the other, or the fact that property Is sub|ect
to a abty, sha be dsregarded, or (D) a transfer by a corporaton of
a or a part of ts assets to another corporaton If Immedatey after the
transfer the transferor or Its sharehoders or both arc In contro of the
corporaton to whch the assets are transferred, or ( ) a recaptazaton,
or ( ) a mere change In dentty, form, or pace of organzaton, however
effected.
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Regs. 11 , 39.112(g)-. 1
In G. C. M. 21 73, supra, under facts substantay smar to those
heren nvoved t was hed that the transacton between the two cor-
poratons consttuted a reorganzaton. However, G. C. M. 21 73 was
ssued under the provsons of the Revenue Act of 1932.
Under the 1932 provsons a mergers and consodatons wth
approprate busness purpose and contnuty of nterest were con-
sdered reorganzatons, and the orgna counterpart of causes (B)
and (C) of the present provsons of secton 112 (g) (1) of the Interna
Revenue Code were nterpreted merey as a bera modfcaton of the
concept of merger and consodaton, e pandng such concept to n-
cude transactons whch mght not techncay quafy as mergers or
consodatons but whch had the same practca effect. Under the
defnton of reorganzaton of that act t dd not bar an acquston
of stock n another corporaton by a corporaton havng aready
acqured for cash more than 20 percent of such other corporaton s
stock.
Under the Revenue Act of 193 , the ater revenue acts, and the Inter-
na Revenue Codo of 1939, however, t was made cear that, e cept n -
cases where causo (A) or cause (D) of secton 112(g) (1), supra, s
appcabe, the queston whether an acquson of stock or assets of
another corporaton consttutes a reorganzaton must stand or fa
on ts fu compance wth cause (13) or cause (C) of secton
112(g) (1), rrespectve of the eement of merger.
The anguage of secton 112(g)(1)(C) of the Interna Revenue
Code, whch s controng n the nstant case, defnes a reorganza-
ton as the acquston by one corporaton n e change soey for a
or part of ts votng stock, of substantay a the propertes of
another corporaton. Under the crcumstances presented, the M corpo-
raton, aready the owner of 79 percent of N Corporaton stock,
acqured ony the remanng 21 percent of the assets of N through the
e change of stock. The remanng 79 percent of the assets were
acqured by M as a qudatng dvdend n e change for the stock
of N whch had been acqured by cash purchase n pror years.
Accordngy, t s hed that the transacton n the nstant case docs
not quafy as a reorganzaton wthn the purvew of secton
112(g) (1) (C) of the Interna Revenue Code. It s further hed that
the mnorty stockhoders effected a ta abe e change wthn the
meanng of secton 112(a) of the Code, and a ta abe gan or oss
resuted to M Corporaton upon the qudaton of N as provded n
secton 115(c) of the Code.
G. C. M. 21 73, C. B. 19 0-2, 223, s not appcabe to transactons
consummated wthn a ta abe year begnnng after December 31,
1933.
Reguatons 11 , Secton 39.112 (g) -1: Purpose Rev. Ru. 5 - 2
and scope of e cepton of reorganzaton e -
changes.
(Aso Secton 112(b) Secton 113(a), Secton
39.113(a) (6)- Secton 115(a), Secton
39.115(a)-3 Secton 115(f), Secton 39.115-
( f) -1 Secton 122, Secton 39.122-1.)
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1 9 (Regs. 11 , 39.112(g -_
M Corporaton, for bona fde busness reasons, proposes by
amendment to the corporate charter to change the name of the
corporaton and to rearrange ts capta structure. Bed, the
transacton w consttute a nonta abe reorganzaton, 1. e., a
recaptazaton, wthn the purvew of secton 112(g)(1)( ) of
tho Interna Revenue Code of 1939. The corporaton before and
after the recaptazaton consttuted the same ta abe entty for
edera Income ta purposes.
Advce s requested wth respect to the ta consequences, for ed-
era ncome ta purposes, of a proposed change n the capta structure
of M Corporaton.
The M Corporaton has authorzed capta stock of 200 shares of
common stock, no par vaue, of whch 150 shares were ssued and out-
standng. It has an operatng defct-of appro matey 0a doars
and a pad-n surpus of 00a: doars. The pad-n surpus was
created by the endorsement and donaton by the sharehoders of cer-
tan promssory notes hed by them n the amount of 00a: doars.
Pursuant to a pan approved by tho stockhoders and drectors of
M Corporaton certan changes w bo made. Tho ega name of the
corporaton w bo changed from M Corporaton to N Corporaton.
It proposes to wrte off tho defct to the pad-n surpus account and
then to ncrease ts captazaton to ono mon shares of common
stock, par vaue 1 per share, by State charter amendment. The cor-
poraton w then ssue certan shares of common stock pro rata to
ts sharehoders n e change for the shares of common stock presenty
hed by them, and ssue certan shares pro rata to ts sharehoders
whch w represent a stock dvdend pad from the remanng pad-
n surpus account. Tho 200 shares of orgna common stock w be
canceed. Both the sharehoders and drectors of the corporaton w
reman the same before and after the transacton.
In the nstant case, the read|ustment of the corporate structure of
M Corporaton meets the requstes of a nonta abe reorganzaton
wthn the meanng of secton 112(g) (1) ( ) of the Interna Revenue
Code of 193 ), and w resut n no gan or oss to ether corporaton.
No gan or oss w bo recognzed to the sharehoders upon the
recept by them of tho shares of new common stock n e change for
the od common stock presenty hed by them. No gan or oss w
be recognzed to the common stock sharehoders upon the dstrbuton
of the stock dvdend. The bass to tho sharehoders of tho new com-
mon stock w be the same as tho cost or other bass of the od com-
mon stock prevousy hed by them. The accumuated earnngs and
profts of the company w not bo dmnshed as a resut of tho above
transacton and w bo avaabe for dvdends wthn tho meanng of
secton 115(a) of tho Code of 1939.
The corporaton, before and after the recaptazaton, consttutes
one and tho same ta abe entty for edera ncome ta purposes. Cf.
Rev. Ru. 5 -2G9, page 11 , ths Buetn. Accordngy, n the absence
of a change of contro for the purpose of evason or avodance of ta ,
a net operatng oss sustaned pror to the reorganzaton w be ava-
abe as a net operatng oss carryback or carryover under the pro-
vsons of secton 122 of the Interna Revenue Code of 1939.
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Regs. 11 , 39.112(g)-.) 150
Reguatons 11 , Secton 39.112(g) -: Purpose Rey.Ru. 5 - 99
and scope of e cepton of reorganzaton e -
changes.
(Aso Secton 112(b), Sectons 39.112(b) (3)-5,
39.112(b)()- Secton 112(), Secton
39.112()- Secton 113(a), Sectons 39.113(a)
(7)-, 39.113(a) (23)-.)
An Amercan corporaton owned the controng Interest In the
coptn stock of a Canadan corporaton. Tbe management of both
corporatons fet that future e panson of the Canadan corporaton
woud be restrcted so ong as It was controed by tbe Amercan .
corporaton. Therefore, they organzed a new Canadan corporaton
to whch was transferred the controng nterest n the capta
stock of the od Canadan corporaton In e change for a of thet
capta stork of the new Canadan corporaton. The Amercan cor-
poraton then dstrbuted such stock to Its stockhoders wthout
requrng them to surrender any of ts capta stock. Hed, such
transfer, e change, and dstrbuton consttuted a nonta abe re-
organzaton under secton 112(g)(1)(D) of the Interna Revenue
Code of 1930, and was not In pursuance of a pan of ta avodance
wthn tbe meanng of secton 112(1) of the Code.
Advce s requested wth respect to the ta consequences of a reor-
ganzaton consummated under the foowng crcumstances.
The Corporaton, an Amercan corporaton, has been encaged
n varous actvtes n connect on wth the rcnng of crude, o and
marketng of petroeum products. It owned appro matey 00 percent
of the tota ssued and outstandng common stock of the Y Corpora-
ton, a Canadan corporaton. had controed Y from Y s ncepton.
The Corporaton propertes, for the most part, were ocated n
the Unted Mates, but t ad some property nterests n foregn coun-
tres other than Canada. It conducted no operatons n Canada.
The Y Corporaton unt recenty was dependent upon the
Corporaton not ony for pocy gudance and drecton, but aso for
management personne n connecton wth ts operaton. ach cor-
poraton was n need of fnancng n connecton wth new e poraton
and deveopment pro|ects and e panson of ts operatons the
Corporaton n the Unted States and n countres other than Canada,
and the Y Corporaton n Canada. The fnancng, operatng, and
e panson probems of each corporaton were dfferent yet, so ong as
Corporaton was a controng stockhoder of Y Corporaton, there
woud be contnued reance by the Y Corporaton on the Corpora-
ton for support and assstance. If equty fnancng was requred n
connecton wth the e panson of the Y Corporaton and the Cor-
poraton not n a poston to retan ts present proporton of the tota
equty capta of the Y Corporaton, the ncreasng dverse mnorty
stock nterests n the corporatons and the necessty for the manage-
ment of the Corporaton to concentrate on ts own operatng and
e panson probems paced an undue burden on the Corporaton to
contnue to undertake and to dscharge fuy ts responsbtes n
respect of pocy drecton and management whch necessary fe to
a controng stockhoder. rom the standpont of the Y Corporaton
even though ts reatonshp wth the parent corporaton had been
mportant and necessary n ts growth and progress thus far, ts
management beeved that ts future e panson n Canada may be
hampered and restrcted by havng, an Amercan corporaton as a
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151 Regs. 11 , 39.112(g)-.
controng stockhoder. or these reasons, the board of drectors of
the Corporaton and the management of both corporatons had con-
cuded that t was n the best nterests of both corporatons to separate,
so that each was drected, managed, and operated ndependenty.
To accompsh ths separaton, t organzed the Z Corporaton under
the aws of Canada, whch ssued a of ts capta stock, consstng
soey of common stock, to the Corporaton n e change for that
porton of the common stock of the Corporaton owned bv the
Corporaton. The e change was made on a share for share bass.
The Corporaton mmedatey dstrbuted to ts stockhoders a of
the common stock of the Z Corporaton wthout the surrender of any
of the shares of the Corporaton. The Z Corporaton thereafter
actvey drected the affars of the Y Corporaton whch operated as
ts subsdary company. The management and board or drectors
of the Z Corporaton was drawn ntay from the board of drectors
and the management of the Y Corporaton.
The ma|orty stockhoders of the Corporaton had no present
ntenton of dsposng of any of the stock of the Corporaton owned
by them, or any of the stock of the Z Corporaton receved by them
nor had they any present ntenton of termnatng the corporate
e stence by qudaton, merger or otherwse of the Corporaton,
the Y Corporaton, or the Z Corporaton and there was no pan for
tho ssuance by the Z Corporaton of any stock other than that ssued
n pursuance of tho pan of reorganzaton.
Secton 112(g)(1)(D) of the Interna Rovenue Code of 1939 de-
fnes the term reorganzaton as meanng a transfer by a corporaton
of a or part of ts assets to another corporaton f mmedatey
after tho transfer tho transferor or ts sharehoders or both are n
contro of tho corporaton to whch tho assets aro transferred.
Secton 112(1) of the Code provdes that n determnng the e tent
to whch gan sha be recognzed as the resut of a reorganzaton
where property, n pursuance of the pan of reorganzaton, s e -
changed soey for stock or securtes n another corporaton a party
to the reorganzaton, a foregn corporaton sha not be consdered
as a corporaton uness, pror to such e change, t has been estabshed
to tho satsfacton of the Commssoner that such e change s not n
pursuance of a pan havng as one of ts prncpa purposes the
avodance of edera ncome ta es.
Secton 39.112(g)- of Reguatons 11 provdes n part that under
the genera rue, upon the e change of property, gan or oss must be
accounted for f the new property dners n a matera partcuar,
ether n knd or n e tent, from the od property. The purpose of the
reorganzaton provsons s to e cept from tho genera rue certan
specfcay descrbed e changes ncdent to such read|ustments of
corporate structures as are requred by busness e gences, and whch
effect ony a read|ustment of contnung nterests n property under
modfed corporate forms. Requste to a reorganzaton are a con-
tnuty of the busness enterprse under the modfed corporate form,
and a contnuty of nterest theren on the part of those persons who
were owners of the enterprse pror to the reorganzaton.
In the nstant case the transacton presented an adequate corporate
busness purpose for the transfer, the e change, and dstrbuton of
the stock, and therefore met the defnton of a reorganzaton
wthn tho meanng of secton 112(g) (1) (D) of the Code.
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egs. 11 , 39.112(g)-. 152
Accordngy, t s hed that the transacton was not a pan entered
nto for the purpose of avodng edera ncome ta wthn the
meanng of secton 112 () of the Code. It s further hed that the
transfer by the Corporaton of ts controng nterest n the stock
of the Y Corporaton to Z Corporaton n e change for a of ts
common stock consttuted a reorganzaton under the provsons of
secton 112(g) (1) (D) of the Code. No gan or oss was recognzed
by Corporaton as a resut of the e change and the bass of the
Corporaton stock to the Z Corporaton was the same as the bass
of such sock n the hands of the Corporaton mmedatey pror
to tho e change. urther, the stockhoders of tho Corporaton
reazed no gan or oss upon recept of the stock of the Z Corporaton
and the bass of the Z Corporaton stock n the hands of tho stock-
hoders of the Corporaton was determned by aocatng the cost
or other bass of the common stock of the Corporaton between
such stock and the common stock of the Z Corporaton on the bass
of the far market vaue of the stock of each corporaton as of the
effectve date of reorganzaton.
The above rungs sha be of no force or effect n the event the
separate corporate e stence of , Y or Z s termnated, whether
by way of qudaton, merger, or otherwse.
Reguatons 11 , Secton 39.112 (g)-: Purpose Rev. Ru. 5 -610
and scope of e cepton of reorganzaton e -
changes.
(Aso Secton 112(b) Secton 113(a), Sectons
39.113(a) (6)-, 39.113(a) (7)-.)
M Corporaton for bona fde reasons transferred to a new cor-
poraton a of Its assets In e change for stock of the new corpora-
ton. The ma|orty of the sharehoders, whch hed both stock and
bonds, receved new stock of the new corporaton In e change for
ther bonds of the od corporaton. Hed, such transfer and e -
change consttuted a nonta abe reorganzaton wthn the purvew
of secton 112(g) (1) (C). secton 112(b) ( ), and secton 112(b) (3)
of the Interna Revenue Code of 1039.
Advce has been requested wth respect to the ta consequences of
a consummated reorganzaton under the crcumstances set forth
beow.
The 51 Corporaton had conducted a rea estate busness, ts prnc-
pa asset consstng of and. The corporaton had debenture bonds
outstandng on whch accrued nterest payabe e ceeded the prncpa
amount of such bonds. It aso had shares of common stock outstand-
ng whch were hed by 31 sharehoders. Most of the stockhoders
were aso bondhoders, hut the stock and bonds were not proporton-
atey hed. The baance sheet of the corporaton refected a defct.
To gve the debenture hoders fu ownershp and contro of the
corporaton n vew of ts nabty to pay off the prncpa and n-
terest of such bonds and to obtan an e tenson or refnancng of the
mortgages on the propertes, a pan of reorganzaton was effected.
Under the pan, a new corporaton was organzed to whch tho M
Corporaton transferred a of ts assets n e change for the capta
stock of the new corporaton. The atter assumed the e stng mort-
gages and a other obgatons of the M Corporaton. The stock of
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153 Regs. 11 , 39.112(g -.
the new corporaton was then dstrbuted by the M Corporaton to
the hoders of the debenture bonds n e change on the bass of one-
haf share of stock for each 100 par vaue of such bond. The deben-
ture bonds and the od stock were surrendered for canceaton, and
the M Corporaton dssoved. The stockhoders of M Corporaton
dd not partcpate n the pan as stockhoders.
In the transacton, 3 stockhoders ownng 17. percent of the stock
of M Corporaton receved no shares n the new corporaton: 2S stock-
hoders ownng 2.0 percent of tho od corporaton receved 0 .2 per-
cent of to shares n the new corporaton and tho bondhoders, hod-
ng no shares of tho od corporaton, receved 35. percent of the
shares n tho new corporaton.
Secton 112 of the Interna Revenue Code of 1939 reatng to recog-
nton of gan or oss provdes, n part:
(b) changes Soey n nd.

(3) Stock roR stock on reorganzaton. No gan or oss sha be reco|p-
nzed If stock or securtes In a corporaton a party to a reorganzaton are.
In pursuance of the pun of reorganzaton, e changed soey for stock or
securtes In cuch corporaton or In another corporaton a party to the re-
organzaton.
( ) Same. Gan or corporaton. No gan or oss sha be recognzed
If a corporaton a party to a reorganzaton e changes property. In pursuance
of the pan of reorganzaton, soey for stock or securtes n another cor-
poraton a party to the reorganzaton.
(g) Defnton of Reorganzaton. As used In ths secton .
(1) The term reorganzaton means (C) the acquston by one
corporaton, n e change soey for a or a part of Its votng stock, of sub-
stantay a the propertes of another corporaton, .
The queston presented s whether secton 112(b) (3) of such Code
was appcabe to the e change by the sharehoders of debenture bonds
for common stock of the new corporaton and whether there was suff-
cent contnuty of propretary nterest n connecton wth the re-
organzaton.
Secton 39.112(g)- of Reguatons 11 , n regard to the purpose
and scopo of reorganzaton e changes, provdes, n part, that requ-
stes of a reorganzaton under the Code are a contnuty of the bus-
ness enterprse under modfed corporate form, and a contnuty of
nterest theren on the part of those persons who were the owners of
the enterprse pror to the reorganzaton.
In Seoerng Rubber Co. v. Commssoner, 169 ed. (2d) 595, the
ta payer hed a ma|orty of the stock n an nsovent corporaton, and
was aso the prncpa credtor. Pursuant to a pan of reorganzaton
the prncpa stockhoder receved a the capta stock of a new cor-
poraton n e change for notes of the od corporaton. In that case
the court hed, among other ssues, that t makes no dfference whether
contro was retaned by the od stockhoders n ther capacty as such
stockhoders, or because of the fact that they were credtors.
In the nstant case, tho hoders of 2.0 percent of the outstandng
stock of M Corporaton receved, n e change for ther bonds of that
corporaton, 0 .2 percent of the stock of the new corporaton. In
vew of tho decson of Sebcrng Rubber Co. v. Commssoner, supra,
the requrement of contnuty of nterest has been met.
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Regs. 11 , 39.112(g)-2. 15
c Accordngy, t a hed that the acquston by the new corporaton
of a the propertes of M Corporaton consttuted a reorganzaton
wthn the meanng of secton 112(g) (1) (C) of the Interna Revenue
Code. Therefore, no gan or oss s recognzed to the M Corporaton
upon the transfer of ts property to the new corporaton n e change
soey for stock of the new corporaton and the bass of the property
receved by the new corporaton s the same as the bass of such prop-
erty n the hands of the M Corporaton mmedatey pror to the re-
organzaton. No gan or oss s recognzed to the bondhoders of
M Corporaton upon ther recept of the stock of the new corporaton
n e change for ther debenture bonds of M Corporaton: and bass of
the stock of the new corporaton n the hands of the former bond-
hoders of M Corporaton s the same as the cost, or other bass, of
the bonds e changed therefor.
Reguatons 11 , Secton 39.112(g)-2: Defn- Rev. Ru. 5 -500
ton of terms.
(Aso Secton 22(a), Secton 39.22(a)-20 Sec-
ton 115(c), Secton 39.115 (c)-.)
Stockhoders of M, a cosey hed corporaton whch operated two
busnesses (a ma|or one utzng appro matey 70 percent of the
corporate assets and a mnor- one utzng the remanng 30 per-
cent), each, pror to anuary 1,11)5 , sod appro matey 70 percent
of ther stock In M to P, a new corporaton, for cash, notes, and sub-
stantay ess than a ma|orty of P s common, preferred, and con-
vertbe preferred stock. Pursuant to the saes agreement M was
dssoved after sae, wth P recevng assets of M s ma|or busness
. . and M s od stockhoders recevng the assets of Its mnor busness.
Hed, (1) the transacton was not a reorganzaton wthn the mean-
ng of secton 112(g) of the Interna Revenue Code of 1039 (2) q-
udaton, as such, of M dd not gve rse to gan or oss to M (3) any
gan or oss reazed by stockhoders of M upon ts dssouton and
qudaton s sub|ect to the provsons of secton 117 of the Code,
and ( ) whether the transacton was a sae by M of Its assets s a
queston of fact whch cannot be determned n advance of the fng
by M of Its edera ncome ta return for the year In whch the
transacton occurred and an e amnaton of such return by a reve-
nue agent.
M Corporaton owned two separate busncses, one of whch utzed
appro matey 70 percent of the corporate assets, the other, the re-
manng 30 percent M s stock was owned by appro matey 25 stock-
hoders. Those stockhoders each, pror to anuary 1,195 , sod ap-
pro matey 70 percent of ther stock n M to P, a new corporaton.
They receved for ther stock, cash and notes n addton to a porton of
P s common, preferred, and convertbe preferred stock. They then
owned, n aggregate, appro matey 1 percent of the common (vot-
ng) stock and appro matey 33 percent of both the preferred and the
convertbe preferred stock of P. In addton, they can, some 2 years
hence, convert the convertbe preferred stock nto common (votng)-
stock aggregatng an addtona 9 percent of ths cass 6tock. Un-
der the terms of the saes agreement M was, mmedatey after the sae
of the stock to P, qudated. In dstrbutng ts assets upon quda-
ton, t dstrbuted to P, n retrement of P s stock hodngs, the assets
of ts ma|or busness. Its od stockhoders receved the assets of the
mnor busness for ther stock nterest. The od stockhoders of M
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155 Regs. 11 , 39.112Cn) I.
were n no way connected wth or reated (fnancay, busness--wse
or by knshp) to the stockhoders of P.
The od stockhoders of M nqure:
(1) Was the transacton a ta -free reorganzaton wthn the
meanng of secton 112(g) of the Interna Revenue Code of 1939
wth boot to the seers under secton 112(c) of the Code
(2) Dd the qudaton of M, as such, resut n gan or oss
to M
(3) Is any gan or oss reazed by the stockhoders of M upon
ts dssouton and qudaton sub|ect to the provsons of secton
117 of the Code and
( ) Was the transacton a sae by M to P of the assets acqured
by P from the transacton
Based on the facts and crcumstances of the nstant case, t s hed r
(1) that the transacton was not a reorganzaton wthn the meanng
of secton 112(g) of the Interna Revenue Code (2) that the quda-
ton, as such, of M dd hot gve rse to gan or oss to M (3) that any
an or oss reazed by stockhoders of M upon ts dssouton and
quduton s sub|ect to the provsons of secton 117 of the Code, and
( ) that whether the transacton was a sae by M of ts assets s a
queston of fact whch cannot be determned n advance of the fng
by M of ts edera ncome ta return for the year n whch the trans-
acton occurred and an e amnaton of such return by a revenue agent.
See Rev. Ru. 5 -172, C. B. 195 -1, 30 .
S CTION 112(). R COGNITION O GAIN OR LOSS:
CHANG S IN OL ING OR IGN CORPORATIONS
Reguatons 11 , Secton 39.112()-: Reor-
ganzaton wth, or transfer of property
to or from, a foregn corporaton.
Transfer of certan assets between foregn and domestc corpora-
tons pursuant to a pan of reorganzaton. See Rev. Ru. 5 - 99,
page 150.
S CTION 112(n). R COGNITION O GAIN OR LOSS:
GAIN ROM SAL OR CHANG O R SID NC
Reguatons 11 , Secton 39.112(n)-: Gan Rev.Ru. 5 -3 0
from sae or e change of resdence.
(Aso Secton 111, Secton 39.111-1.)
Where a ta payer s prncpa resdence (od resdence) Is sod at
a gan and a new resdence Is purchased wthn a perod of one year,
two computatons ae necessary for the purposes of secton 112(n)
of the Interna Itetrnue Code of 1030. It Is necessary frst to com-
pute the amount of gan reazed on the sae under secton 111 of the
1030 Code n order to compute, under secton 112(n) of the Code, the
nmou.t of nonrecognzcd gan, If any, and the bass of the new res-
dence.
Where notes or other obgatons are receved as a part of the con-
sderaton on the sae of the od resdence, on a deferred payment
sae not on the- Instament pan, and such obgatons are sod at a
33510 3 11
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Regs. 11 , 39.112(n)-.) 156
dscounted ra ue representng ther far market rane at the tne .
of recept for tbe purpose of computng tbe gan reazed on the Bae . ,
under secton 111 of the Code, the dfference between tbe face vaue
and tbe far market vaue of such obgatons Is refected In deter-
mnng the amount reazed from the sae therefore, no oss Is
aowabe.
Athough the commsson and seng e penses pad or Incurred on
tbe sae of tbe od resdence are not deductbe or taken Into account
In determnng, under secton 112 (n) of tbe Code, the seng prce
of the od resdence whch s to be compared wth tbe purchase prce
of the new, such e penses are aowabe offsets aganst the seng
prce of the od resdence n computng the amount of gan reazed
under secton 111 of the Code,
Advce requested as to the method of computng, for the purposes
of secton 112 (n) of the Interna Revenue Code of 1939, the non-
recognzed gan on the sae of a prncpa resdence (od resdence) on
a deferred payment sae not on the nstament pan where a new
resdence d purchased wthn a perod of 1 year from such sae.
Under the facts n ths case the ta payer sod hs prncpa resdence
(od resdence) for ,000, of whch 3,000 was receved n cash and
the baance of 5,000 was evdenced by a deferred payment mortgage
note. The ta payer s bass for the resdence sod was ,500 and the
commsson pad by hm on the sae was 00. Shorty after the sae
the ta payer sod the mortgage note havng a face vaue of 5,000
for ,600 n order to purchase a new resdence for 10,000, whch
was purchased wthn a year after the sae of the od resdence. The
far market vaue of the note n ths case was determned to be ,600,
the amount receved from the sae thereof.
Secton 112(n) of the Interna Revenue Code provdes n part as
foows:
(1) Nosn Coosmow o oat, If property (herenafter In ths subsecton
caed od resdence ) used by the ta payer as bs prncpa resdence s
sod by hm and, wthn a perod begnnng one year pror to the dnte of
such sae and endng one year after such date, property (herenafter n
ths subsecton caed new resdence ) s purchased and used by the ta -
payer as hs prncpa resdence, gan (f any) from such sae sha be
recognzed ony to the e tent that tbe ta payer s seng prce of the od
resdence e ceeds the ta payer s cost of purchasng the new resdence.
.
( ) Bass or new bestoekcb. Where the purchase of a new resdence
resuts, nnder paragraph (1), n the nonrecognton of gan upon tbe sae
of an od resdence, n determnng tbe ad|usted bass of the new resdence
as of any tme foowng tbe sae of tbe od resdence, tbe ad|ustments to
bass shtt ncude a reducton by an amount equa to the amount of the
gan not so recognzed upon the sae of tbe od resdence. .
Inasmuch as the ta payer n ths case purchased a new resdence
wthn a vear after the sae of hs od resdence and n vew of the
fact that the cost of the new resdence e ceeded the seng prce of
the od resdence, none of the gan reazed on the sae of the od
resdence woud be recognzed under the provsons of secton
112(n) (1) of the Code. However, t s necessary to compute, n ac-
cordance wth secton 111 of the Code, the gan reazed on the sae
n order to determne the ad|usted bass of the new resdence under
secton 112(n) ( ) of the Code.
In the computaton, for purposes of determnng such ad|usted
bass, of the nonrecognzed gan under secton 112(n) of the Code,
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157 Regs. 11 ,5 39.112Cn)-.
Secton 39.112 (n)-1(b) ( ) of Reguatons 11 provdes that the ta -
payer s seng prce of the od resdence ncudes the face amount of
any abtes of the purchaser whch are part of the consderaton
for the sae. However, n the computaton of the amount of Ran
reazed on the sae under secton 111 of the Code, the term seng
prce does not necessary ncude the face vaue of any abtes
of the purchaser whch are a part of the consderaton n the sae,
snce secton 111 of the Code provdes that the amount reazed from
a sae or other dsposton of property sha be the sum of any money
pus the far market vaue of the property (other than money)
receved.
Secton 30.112 (n) -1(b) ( ) of Reguatons 11 aso provdes that
commssons and other seng e penses pad or ncurred by the ta -
payer on the sae of the od resdence are not to be deducted or taken
nto account n determnng the seng prce referred to n secton
112(n) of the Code. However, n determnng n accordance wth
secton 111 the amount of gan reazed on a sae of rea property by
a ta payer other than a deaer n rea estate, commssons and other
seng e penses are offset aganst the teng prce. See 1. T. 23 0,
C.B. I-1, 3 (1027).
The foowng w ustrate the necessty for makng two com-
putatons, the effect of the recept of deferred payment notes havng
a far market vaue of an amount ess than ther face vaue, and
the treatment to be gven to any commsson and seng e penses pad
or ncurred on the sae of the od resdence for the purposes of
secton 112(n) of the Code:
Computaton urdcr secton 111 of the Code to determne the
amount of gan reazed from the tae.
Consdornt on receved:
ar market vnhe of 5,000 mortgage note . . , , ROO
Cash . .. , OOO
7,600
Less:
Commsson . . _._ __ -100
Ad|usted bass of od resdence sod ,500 ,900
Gan reazed on the sae 2,700
Computaton of gan recognzed under tceton t(n) of the code.
Senc prce of od resdence ___ ,000
Cost of new resdence 10,000
Gan recognzed . __.__..___ None
Bas of new resdence:
Cost of new resdence.____.____. 10, OOO
Lcsr:
Nonreco|mzed gan Determned from the gan reazed
as computed under secton 111 nbove __ ________ 2. TOO
Bass of new resdence.. . _........... . , .. 7,300
Thus, where a ta payer s prncpa resdence (od resdence) s sod
at a gan and a new resdence s purchased wthn a perod o 1 year,
t s necessary frst to compute the amount of gan reazed on the
sae under secton 111 of the Code n order to compute, under secton
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Regs. 11 , 39.112(n)-. 15
112(n) of the Code, the amount of nonrecognzed gan, f any, and
the bass of the new resdence.
Where notes or other obgatons are receved as a part of the con-
sderaton on the sae of the od resdence, on a deferred payment sne
not on the nstament pan, and such obgatons are sod at a ds-
counted vaue representng ther far market vaue at the tme of
recept, for the purpose of computng the gan reazed on the sae under
secton 111 of tu Code, the dfference between tho fnco vaue and tho
far market vaue of such obgatons s recctcd n docrmnng tho
amount reazed from the sae, so that no oss s aowabe as a
deducton.
Athough the commsson and seng e penses pad or ncurred
on the sae of tho od resdence arc not deductbe or taken nto account
n determnng the seng prce of the od resdence under Becton
112(n) of the ( ode, they are aowabe offsets aganst the seng prce
n computng the amount of gan reazed under secton 111 of the
Code,
kcutons 11 , Secton 39.112 (n)-: Gan Rev. Ru. 6 -5 3
from sae or e change of resdence.
A trust .vbch Is a ta payer wthn the meanng of secton 3797(a)
of the Interna Ievenue Cude of 11)3 ) cannot quafy as a person who
used property ns a prncpa resdence wthn the meanng of
secton 112 (n) of the Code.
Advce has been requested whether the sae of a resdence whch
was purchased wth trust funds and occuped by a trust benefcary
and the purchase of a new resdence by the trust fa wthn the prov-
sons of secton 112(n) of the Interna Ievenue Code of 1939.
A grantor created a trust under whch he provded that a certan
porton of hs estate be hed n trust for the beneft of hs daughter,
who woud receve durng her fetme the net ncome of the trust. In
193 a home was purchased out of the trust corpus and was occuped
by the benefcary and her famy unt 19 . rom 19 to 1952,
the resdence was rented, but agan begnnng n 1952 t was occuped
by the benefcary unt sod the foowng year. The proceeds of
the sae were used n the constructon of a new resdence.
Secton 112(n)() of the Interna Revenue Code reatng to non-
recognton of gan from sae or e change of resdence, provdes n
part that f property (theren caed od resdence ) used by the ta -
payer as hs prncpa resdence s sod by hm and, wthn a perod
begnnng one year pror to the date of such sae and endng one year
after such date, property (theren caed new resdence ) s pur-
chased and used by the ta payer as hs prncpa resdence, gan, f
any, from such sae sha be recognzed ony to the e tent that the ta -
payer s seng prce of the od resdence e ceeds the ta payer s cost
of purchasng tre new resdence.
Secton 112(n) (2) (G) of the Code provdes n part that n the caso
of a new resdence the constructon of whch was commenced by
the ta payer pror to the e praton of one year after the date of the
sae of the od resdence, the perod specfed n paragraph (1), sha
be consdered as ncudng a perod of eghteen monts begnnng wth
the date of the sae of the od resdence.
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159 Regs. 11 , 39.112(n)-.
In secton 3797(a) (1 ) of the Code the term ta payer s defned
as any person sub|ect to ta mposed by Tte 26, Unted States Code-
In subsecton (a)(1) of that secton t s stated that the term person
sha be construed to mean and ncude an ndvdua, or a trust,
estate, partnershp, company, or corporaton. Secton 161 of the Code
further ndcates that a trust s a person dstnct and separate from
the grantor or benefcary by provdng that the edera ncome ta
upon ndvduas sa appy to tho ncomo from property hed n
trust. urther, wth certan e ceptons, the ncome of the trust s
to bo computed n the same manner, and on tho same bass, as ncome
of the ndvdua.
Secton 112(n) of the Interna Revenue Code appes to gan from
sae (after December 31, 1950) of property used by the ta payer
os hs prncpa resdence. Snce tho od and new propertes were
purchased from trust funds, the ta payer who owned both peces of
property s tho trust. However, t cannot quafy as the person who
used ether pece of property as a prncpa resdence.
Accordngy, snce the trust and not the trust benefcary s the ta -
payer and the trust cannot quafy as a person who used the property
as a prncpa resdence t foows that the provsons of secton 112 (n )
of the Code are not appcabe. The gan reazed from the sae
of such resdence w be sub|ect to the edera ncome ta under
tho provsons of secton 117(a) of the Code.
Reguatons 11 , Secton 39.112(n)-: Gan Rev. Ru. 5 -611
from sae or e change of resdence.
The sae of an od resdence In the Unted States and the pur-
chase of a new resdence In a foregn country by a ctzen of the
Unted States comes wthn the purvew of secton 112(n) of the
Interna Revenue Code of 1039 provded the requrements of such
secton are otherwse met.
Advce has been requested whether the soe of an od resdence n
the Unted States ana the purchase of a new resdence n a foregn
country by a ctzen of the Unted States comes wthn the purvew
of secton 112(n) of the Interna Revenue Code of 1939.
Secton 112(n) (1) of the Code reatng to nonrecognton of gan
from sae or e change of resdence provdes n part that f property
(theren caed od resdence ) usea by the ta payer as hs prncpa
resdence s sod by hm and, wthn a perod begnnng one year
pror to the date of such sae and endng one year after such date,
property (theren caed new resdence ) s purchased and used by
the ta payer as hs prncpa resdence, gan, f any, from such sae
sha be recognzed ony to the e tent that the ta payer s seng prce
of the od resdence e ceeds the ta payer s cost of purchasng the new
resdence.
Secton 112(n) mposes no quafcaton as to the pace where ether
the od or tho new resdence of the ta payer s ocated, and no such
quafcaton can be nferred therefrom. The ocaton of ether res-
dence s deemed mmatera n determnng the appcabty of such
secton to a sae by a ta payer of hs od resdence.
Accordngy, t s hed that the sae of an od resdence n the
Unted States and the purchase of a new resdence n a foregn
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Begs. 11 , t 39.113(a)(5)-. 160
country by a ctzen of the Unted States comes wthn the purvew
of secton 112(n) of the Interna Revenue Code of 1939 provded the
requrements of such secton are otherwse met.
S CTION 113(a). AD UST D BASIS OR D T RMINING
GAIN OR LOSS: BASIS (UNAD UST D) O PROP RTY
Reguatons 11 , Secton 39.113(a) (5)-: Bass T. D. C
of property acqured by bequest, devse, or n-
hertance.
TITL 2 INT RNAL R NU . CHAPT R I, SUBCHAPT R A. PART A A.
INCOM TA : TA ABL 7 ABS B GINNING A T R D C MB R SI, 19S1
Reguatons 11 amended to conform to secton 203 of the Technca
Changes Act of 1053 C. B. 1053-2, S5 .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton A 5, L . C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On anuary 29,195 , notce of proposed ruemakng wth respect to
amendments conformng the ncome ta reguatons to secton 203 of
the Technca Changes Act of 1953 C. B. 1953-2, 5 , approved
August 15,1953, was pubshed n the edera Regster (19 . R. 51 ).
After consderaton of such reevant suggestons as were presented by
nterested persons regardng the proposas, the foowng amendments
to Reguatons 11 (26 C R, pt 39) are hereby adopted:
Paragraph 1. Secton 39.113(a) (5) s amended as foows:
(A) By nsertng mmedatey after the words revoke the trust n
the second sentence of secton 113(a) (5) the foowng:
or to make any change n the en|oyment thereof through the e ercse of a power
to ater, amend, or termnate the trust
(B) By addng at the end of the hstorca note mmedatey preced-
ng the cosng bracket the foowng:
sec. 203(a), Technca Changes Act of 1003. Under sec. 203(b), Technca
Changes Act 1053, the amendment made by sec. 203(a) sha appy (1) ony In
the case of property transferred by grantors dyng after December 31, 1001, and
(2) ony wth respect to ta abe years endng after December 31,1051.
Par. 2 Secton 3 113(a) (5)- s amended by nsertng mmedatey
at the end thereof the foowng:
(h) Property acqured bt certan transfers n trust. Property
sha, for the purposes of secton 113(a) (5) and of ths secton, be con-
sdered as property passng under an nstrument whch s treated as
though t were a w e ecuted on the day of the grantor s death f:
(1) the property was transferred In trust to pay the Income for fe to or
upon the order or drecton of the grantor, wth the rght reserved to the
grantor at a tmes pror to hs death to revoke the trust, or
(2) the property was transferred In trust by a grantor dyng after Decem-
ber 31,1051, to paythe Income for fe to or upon thA order or drecton of the
grantor, wth the rght reserved to the grantor at n tmes pror to hs death
to revoke the trust or to mnke any change In the en|oyment thereof through
the e ercse of a power to ater, amend., or termnate the trust.
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161 (Regs. 11 , 39.113(a)(23)-I.
(Ths Treasury Decson s ssued under the authorty contaned n
sectons 62 and 3791 of the Interna Revenue Code of 1939 (53 Stat
32, 67 26 U. S. C. 62,3791).)
T. Coeman Andrews,
Commssoner of Interna Revenue.
Approved October 21,195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster October 25, 105 , : 9 a. m.)
Reguatons 11 , Secton 39.113(a) (6)-: Property
acqured upon a ta -free e change.
Shares of common stock by a corporaton to ts sharehoders n e -
change for other shares pursuant to a ta -free reorganzaton. See
Rev. Ru. 5 - 2, page 1 .
Reguatons 11 , Secton 39.113(a) (6)-: Prop-
erty acqured upon a ta -free e change.
The bass of stock of a new corporaton n the hands of former
bondhoder. See Rev. Ru. 5 -610, page 152.
Reguatons 11 , Secton 39.113(a) (7)-: Prop-
erty acqured by corporaton n reorganzaton
after December 31,1917.
Bass of property transferred to a corporaton, a party to a re-
organzaton. See Rev. RuL 5 - 99, page 150.
Reguatons 11 , Secton 39.113(a) (7)-: Prop-
erty acqured by corporaton n reorganza-
ton after December 31,1917.
Bass of property transferred to a corporaton, a party to a reorgan-
zaton. See Rev. RuL 5 -010, page 152.
Reguatons 11 , Secton 39.113(a) (1 )-1: Bass
of property receved n certan corporate q-
udaton.
Reguatons 11 amended. See T. D. 6106, page 137.
Reguatons 11 , Secton 39.113(a) (23)-1: Bass
of stock on certan dstrbutons on reorgan-
zaton.
Treatment of a dstrbuton, pursuant to a pan of reorganzaton,
to a sharehoder of a corporaton. See Rev. Ru. 5 - 99, page 150. -
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Regs. 11 , 39.113(b)()-.) 162
S CTION 113(b). AD UST D BASIS OR D T RMINING
GAIN OR LOSS: AD UST D BASIS
Reguatons 11 , Secton 39.113(b) (1)-1: Ad- Rev. Ru. 5 - 21
|usted bass.
The ad|usted bass of property cannot be reduced beow zero, even
though percentage depeton aowances e ceed ta payer s ad|usted
bass for depeton.
Advce s requested whether n computng gan upon the sae of a
natura resource property a ta payer shoud use a negatve bass f
ad|ustments for percentage depeton prevousy aoted or aowabe
reduces the bass beow the cost of the property.
Secton 113(a) of the Interna Revenue Code of 1939 provdes that
the bass of property 6ha be the cost of such property, e cept as
otherwse provded n such secton. Secton 113(b) provdes that the
ad|usted bass of property for the purpose of determnng gan or oss
from the sae or other dsposton thereof s the unad|usted bass pre-
scrbed n secton 113(a) of the Code, ad|usted for the varous app-
cabe tems specfed n secton 113(b).
Secton 113(b) (1) (B) of the Code requres that the bass sha be
ad|usted to the e tent theren provded, for the amount of depeton
prevousy aowed or aowabe as a deducton e cept that
Where for any ta abe year pror to the ta abe year 1932 the
depeton aowance was based on dscovery vaue or a percentage of
Income, then the ad|ustment for depeton for such year sha be based
on the depeton whch woud have been aowabe for sucb year If com-
puted wthout reference to dscovery vaue or a percentage of Income

Percentage-of-ncome depeton aowances n years pror to the sae
of the property w n many cases e ceed the ta payer s ad|usted
bass for depeton. Therefore| to hod that a ta payer must use a
bass ess than zero n computng hs gan woud resut n a gan
greater than the seng prce. After the bass s ad|usted to zero,
there remans no bass of the property whch can be further ad|usted.
However, any percentage depeton aowances made after ts ad|usted
bass has been reduced to zero shoud be apped aganst the cost of any
subsequent capta addtons to the property n determnng the cur-
rent ad|usted bass of the property. See G. C. M. 22239, C. B. 19 0-2.
105. Any ta aton of an amount n e cess of the amount receved
upon sae of the property woud be, n effect, the ta aton n the year
of dsposton of amounts specfcay e cuded from ta aton by
secton 11 (b) of the Code.
Accordngy, t s hed that the ad|usted bass of property cannot
be reduced beow zero, even though percentage depeton aowances
e ceed ta payer s ad|usted bass for depeton.
Reguatons 11 , Secton 9.113(b) (1)-1:
Ad|usted bass.
Reguatons 11 amended. See T. D. 6106, page 137.
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163 (Regs. 11 , 39.11 -1.
S CTION 113(d) -AD UST D BASIS OR D T RMINING
GAIN OR LOSS: L CTION IN R SP CT O D PR CI-
ATION, TC., ALLOW D B OR 1952
Reguatons 11 , Secton 39.113 (d)-: ecton
as to amounts aowed n respect of depreca-
ton etc., before 1952.
Reguatons 11 amended. See T. D. 6106, page 137.
S CTION 11 .-BASIS OR D PR CIATION
AND D PL TION
Reguatons 11 , Secton 39.11 -1: Bass for Rev. Ru. 5 -3 1
aowance of deprecaton and depeton.
(Aso Secton 23 (1), Secton 39.23(1)-1 and
Sectons 29.23 (1)-1 and 29.11 -1 of Regua-
tons 111.)
In computng te amount of annua deprecaton to be aowed a
ta payer whch was formery e empt from ta for a pror perod
and subsequenty became sub|ect to ta . the bass of the ta payer s
deprecabe property shoud be reduced by the amount of the depre-
caton sustaned wth res| ect to the property for the perod hed
whe the ta payer was e empt from ta .
Advce s requested as to the bass of deprecabe property hed by
a ta payer whch was formery e empt from ta for a pror perod and
subsequenty became sub|ect to ta , for the purpose of computng the
annua deprecaton aowance for the ta payer wth respect to such
property.
In the case of a ta abe organzaton whch was formery e empt
from ta G. C. M. 27 91, C. B. 1952-2,221, hods that n computng the
amount of gan or oss from the sae or e change of property hed dur-
ng a or part of the perod that t was e empt, the bass shoud be
reduced by the amount of deprecaton sustaned wth-respect to the
property for the perod durng whch the ta payer was e empt.
Secton 11 (a) of the Interna Revenue Code of 1939 provdes that
the bass upon whch deprecaton s to be aowed n respect of any
property sha be the ad|usted bass provded n secton 113(b) for the
purpose of determnng the gan upon the sae or other dsposton
of such property. Secton 113(b)(1)(B) of such Code provdes n
effect that n determnng the bass for gan or oss, proper ad|ustment
sha be made for any perod after ebruary 2 , 1913, for depreca-
ton aowed or aowabe, whchever s greater. Snce the method of
determnng the bass for deprecaton s the same as that for deter-
mnng gan on the sae or e change of deprecabe property, the prn-
cpes set forth n G. C. M. 27 91, supra, woud aso be appcabe to the
stuaton here nvoved.
Accordngy, t s hed that n computng the amount of annua
deprecaton to be aowed a ta payer whch was formery e empt from
ta for a pror r crod and subsequenty became sub|ect to ta , the
bass of the ta payer s deprecabe property shoud be reduced by the
amount of the deprecaton sustaned wth respect to the property for
the perod hed whe the ta payer was e empt from ta .
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Regs. 11 , 9.11 -I 16
I. T. 106, C. B. 1052-2,130, provdes that the provsons of G. C. M.
27 91, supra, w be appcabe ony to saes occurrng n ta abe years
begnnng after December 31, 1950. Snce, as ndcated above, the
prncpes set forth n G. C. M. 27 91 are consdered equay appcabe
n the nstant case, pursuant to the authorty contaned n secton
3791(b) of such Code, ths rung w kewse be appcabe ony
wth respect to the determnaton of ta abtes for ta abe years
begnnng after December 31,1950.
Reguatons 11 , Secton 39.11 -1: Bass for Rev. Bu. 5 - 3
aowance of deprecaton and depeton.
(Aso Secton 23(m), Secton 39.23(m)-5.)
The term quartzte, for purposes of secton 11 (b) ( ) (A) ()
of the Interna Revenue Code of 1939 (as amended by secton 319 of
the Revenue Act of 1951) and secton 39.23(m)-5(a) of Reguatons
11 , ncudes any quartz rock of suffcent purty and 6uch physca,
characterstcs that t s used or sod for use as a refractory. It aso
ncudes any metamorphosed or sca-cemented sandstone whch has a
free scon do de content of at east 95 percent, s so frmy cemented
that t tends to break across rather than around the orgna sand
grans, has ow porosty, and s used or sod for purposes for whch
t s pecuary adapted by reason of ts chemca composton and
physca characterstcs. or e ampe, t s used for constructon and
nng of ndustra furnaces and n speca chemca ware and ap-
paratus because t s very resstant to hgh temperatures, sudden
changes n temperature, and most chemca reagents. It does not
ncude any rock whch s used or sod for use as stone, as defned
n secton 39.23(m)-5(b) of Reguatons 11 for the purpose of secton
11 (b) ( ) (A) () of the Code of 1939.
Reguatons 11 , Secton 39.11 -1: Bass for Rev. Ru. 5 -550
aowance of deprecaton and depeton.
(Aso Secton 23(m), Secton 39.23(m)-5).
or the purposes of secton 11 (b) ( ) (A) () of the Interna
Revenue Code of 1939, as amended by secton 319 of the Revenue Act
of 1951, and secton 39.23(m)-5(a) of Reguatons 11 , a cay w
be consdered a refractory and fre cay f t has a pyrometrc cone
equvaent of 15 or hgher. A cay havng a pyrometrc cone equvaent
of ess than 15 w not be consdered a refractory or fre cay uness
used or sod for recognzed refractory purposes, such as (but not
necessary restrcted to) ade nng.
Reguatons 11 , Secton 39.11 -1: Bass for Rev. Ru. 5 -600
aowance of deprecaton and depeton.
(Aso Secton 23(m), Secton 39.23(m)-.)
In settng forth the treatment to be accorded ad vaorem property
ta es mposed on mnng property where the essee pays the essor 3
Ths Revenue Rung wA b amended b| an announcement In I. R. B. 1055-1 .12, whch
substtuted tbe ast paragraph for the foc.wn ::
The ad vaorem ta es whch are pad hy the essee for the essor are addtona rent and
consttute a deductbe Item to the essee and ta abe Income to the essor, the amount of
tbe ta beng deductbe by tbe atter. See secton 39.: 3(a)-10(A) of ItcguaUons 11 .
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165 Regs. 11 , A 39.115(c)-.
share of such ta es pursuant to the mnera ease on the and, Revenue
Rung 16, C. B. 1953-1, 173, provdes, n part, that f there be suf-
fcent gross ncome from mnera producton to cover the ta , the
payment of such ta sha be treated as addtona royaty, to be
e cuded from the gross ncome of the essee and ncuded n the
depetabe gross ncome of the essor. Accordngy, the ncuson n
the essor s depetabo gross ncome of ad vaorem ta es pad n hs
behaf by the essee, means that there must be a correspondng de-
crease n the depetabe gross ncome of the essee. Such ad vaorem
ta es are regarded as addtona royates, and n accordance wth
the provsons of secton 39.23(m)-(e)-5, Reguatons 11 , such
amounts pad by the essee must be e cuded n determnng the
gross ncome from the property.
The ad vaorem ta es whch are pad by the essee for the essor, to
the- e tent that they e ceed the gross ncome from mnera produc-
ton, are addtona rent, and consttute a deductbe tem to the essee
and ta abe ncome to the essor. The amount of the ta pad by the
essee for the essor s deductbe by the essor regardess of the char-
acterzaton of the addtona ncome n hs hands as royaty or renta.
S CTION 115 (a) . DISTRIBUTIONS BY CORPORATIONS:
D INITION O DI ID ND
R GULATIONS 11 , S CTION 39.115(a)-3: ffect on
earnngs or profts of certan ta -free e changes
and ta -free dstrbuton.
The earnngs and profts of M Corporaton and N Corporaton
pursuant to a reorganzaton. See Rev. RuL 5 - 2, page 1 .
S CTION 115 (c). DISTRIBUTIONS BY CORPORATIONS:
DISTRIBUTION IN LI UIDATON
R GULATIONS 11 , S CTION 39.115 (c)- : Dstr- Rev. Ru. 5 - 03
butons n qudaton.
(Aso Secton 115(), Secton 115(g), Secton
Where a ma|orty stockhoder, an offcer and drector of a cor-
poraton ses a of bs stock to the corporaton for a f ed amount
payabe In nstaments and resgns from bs poston as offcer
and drector, but remans In tbe empoy of the corporaton for a
mted tme to tran key empoyees, tbe redempton by the corpora-
ton of such shares consttutes a dstrbuton In parta qudaton
under secton 115 (c) and (I) of tbe Interna Revenue Code of 1939
to tbe e tent that tbe dstrbuton does not e ceed the far market
vaue of tbe stock redeemed.
Advce s requested wth respect to the ta consequences of a pur-
chase by M Corporaton of a of ts stock hed by the ma|orty stock-
hoder.
M Corporaton s engaged n the e port busness, seng goods n
foregn countres both for ts own account and on a commsson bass.
The outstandng capta stock of M Corporaton conssts of 2,000
shares of common stock, no par vaue, of whch 1,001 shares were hed
by one stockhoder, an offcer and drector of the corporaton. The
corporaton has a substanta earned surpus, but for the ast 5 years
as a whoe t has had no net profts and has pad no dvdends.
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Regs. 11 , 39.115(e)-. 166
The ma|ort7 stockhoder desred to retre from the busness of the
corporaton, and t was therefore proposed that a of hs stock be
purchased by the corporaton. By the terms of the agreement of
purchase the ma|orty stockhoder w receve weeky nstaments
m cash unt a porton of the purchase prce has been pad. The
baance w be n promssory nterest bearng notes payabe annuay.
Upon any defaut n the payments by M Corporaton the entre pur-
chase prce w become due and payabe. There s no provson n the
agreement whereby the stockhoder can recapture or reacqure any of
the stock sod by hm. The saes prce was arrved at n arms-ength
negotatons between the sharehoder and M Corporaton. Tte to the
stock passed mmedatey upon e ecuton of the agreement. The
stockhoder s to reman n the empoy of the corporaton for a perod
of years n order to tran key empoyees to take over hs work and
to ntroduce them to hs persona contacts but up by hm wth manu-
facturers n ths country and wth customers abroad. Durng ths
perod he w contnue to receve hs present saary of 30ar doars
pus e penses, but he has resgned as an offcer ana drector of the
corporaton and has no nterest, drect or ndrect, n the corporaton
e cept as mentoned above. There s no reatonshp, other than
busness, between the ndvdua concerned and any other sharehoder,
and no member of hs famy s, or w be, assocated wth the
corporaton.
Secton 115 of the Interna Revenue Code of 1939 provdes, n part:
(c) Dstrbutons n Lqudaton. amounts dstrbuted In parta
qudaton of a corporaton sha be treated as n part or fa payment In e -
change for the stock.

(g) Redempton or Btock.
(1) In genera. If a corporaton cances or redeems Its stock
at such tme and In such manner as to make the dstrbuton and canceaton
or redempton In whoe or In part essentay equvaent to the dstrbuton
of a ta abe dvdend, the amount so dstrbuted , to the e tent
that t represents a dstrbuton of earnngs or profts , sha be
treated as a ta abe dvdend.

#
(I) Defnton of Parta Lqudaton. As used n ths secton the term
amounts dstrbuted n parta qudaton means a dstrbuton by a corporaton
In compete canceaton or redempton of a part of Its stock, .
Secton 39.115 (g)- of Reguatons 11 , states n part that the queston
whether a dstrbuton n connecton wth a canceaton or redempton
of stock s essentay equvaent to a ta abe dvdend depends upon
the crcumstances of each case. The queston presented s whether
secton 115(c) or secton 115(g) of the Code appes n determnng
gan or oss to the sharehoder.
Upon the bass of the crcumstances rected above t s hed that the
redempton bv M Corporaton of the shares of ts stock hed by the
ma|orty stockhoder consttutes a dstrbuton n parta qudaton
under sectons 115 (c) and () of the Code to the e tent that the
dstrbuton does not e ceed the far market vaue of the stock beng
redeemed. Gan or oss w be recognzed to the stockhoder, measured
by the dfference between the consderaton receved and the cost or
other bass of the stock sod, n accordance wth secton 111 and the
appcabe provsons of secton 117 of the Code, to the e tent that the
consderaton receved s not greater than the far market vaue of the
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167 Rep. 11 , 39.115(g)-I.
stock beng sod. No gan or oss w bo recognzed to M Corporaton
as a consequence of the redempton of the stock of ts ma|orty stock-
hoder. I
R GULATIONS 11 , S CTION 39.115(c)-: Dstr-
butons n qudaton.
ffect of transacton whereby one corporaton, a ma|orty stock-
hoder n the second, acqures a of the assets of the second corpora-
ton. See Rev. Ru. 5 -39G, page 1 7.
R GULATIONS 11 , S CTION 39.115(c)-: Dstrbutons
n qudaton.
Dstrbutons n qudaton under a proposed sae and purchase
agreement See Rev. Ru. 5 -500, page 15 .
S CTION 115(f). DISTRIBUTIONS BY CORPORATIONS:
STOC DI ID NDS
R GULATIONS 11 , S CTION 39.115(f)-:
stock dvdends.
Dstrbuton pro rata to the stockhoders of the corporaton from
pad-n surpus pursuant to reorganzaton. See Rev. Ru. 5 - 2,
page 1 .
S CTION 115(A ). DISTRIBUTIONS BY CORPORATIONS:
R D MPTION O STOC
R GULATIONS 11 , S CTION 39.115(g)-: Dstr- Rev. Ru. 5 - 5
buton n redempton or canceaton of stock
ta abe as a dvdend.
The Interna Revenue Servce w foow the decson In
un R. Zenz v. unvan, 213 ed. (2d) 01 , reatng to the sae
and redempton of stock of the soe stockhoder of a corporaton. In
cases whch present smar facts and crcumstances. A facts and
crcumstances w be taken nto account n determnng whether
payment by the corporaton for ts stock s a dvdend to the stock-
hoder recevng such payment or to other stockhoders.
Advce s requested whether the Interna Revenue Servce w con-
tnue to tgate the ssue nvoved n ern R. Zcna v. unvan, 213
ed. (2d) 91 . In that case the soe stockhoder of a corporaton,
desrng to dspose of her nterest theren, sod part of her stock to a
compettor ana shorty thereafter sod the remander of her stock to
the corporaton for an amount correspondng to ts earned surpus.
The corporaton had accumuated arge profts and the ssue presented
was whether the redempton of the corporaton s stock for an amount
correspondng to ts earned surpus was substantay equvaent to
the dstrbuton of a ta abe dvdend. The court hed that the pur-
chase of the stock by the corporaton was not a dvdend to the seng
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11 , 539.116-1. 16
stockhoder under the terms of secton S (g) of the Interna Revenue
Code of 1939 and that the redempton was ta abe under the pro-
vsons of sectons 115 (c) and () of the Interna Revenue Code of
1939 as a parta qudaton.
Secton 39.115 (g)- of Reguatons 11 provdes n part that the
queston whether a dstrbuton n connecton wth a canceaton or
redempton of stock s essentay equvaent to the dstrbuton of a
ta abe dvdend depends upon the crcumstances of each case. A
canceaton or redempton by a corporaton of a porton of ts stock
pro rata among a the sharehoders w generay be consdered as
e|ectng a dstrbuton essentay equvaent to a dvdend dstrbu-
ton to the e tent of the earnngs and profts accumuated after
ebruary 2 , 1913. On the other hand, a canceaton or redemp-
ton by a corporaton of a of the stock of a partcuar sharehoder,
so that the sharehoder ceases to be nterested n the affars of the
corporaton, does not effect a dstrbuton of a ta abe dvdend.
The Interna Revenue Servce s n accord wth the concuson
reached n the decson mentoned under the partcuar facts nvoved.
However, every case n whch a stockhoder ses part of hs stock to
new or e stng stockhoders and thereafter transfers the remander to
the corporaton for redempton w be cosey scrutnzed to determne
whether the seng stockhoder ceases to be nterested n the affars
of the corporaton mmedatey after the redempton. very such
case w aso be e amned to determne whether any payment by the
corporaton for stock has the effect of a dvdend to the stockhoders
who reman nterested n the corporaton. Cf. H. . Wa, v. Unted
States, 16 ed. (2d) 62. In consderng these questons a the
facts and crcumstances nvoved w be taken nto account.
S CTION 116. CLUSIONS ROM GROSS INCOM
R GULATIONS 11 , S CTION 39.116-1: arned Rev. Ru. 5 - 3
ncome from sources wthout the Unted
States.
Unted States ctzens, renderng servces abroad for the Unted
States Government under the terms of a contract between ther em-
poyer and the Government, are not empoyees of the Unted States.
Where such contract provdes for drect payment by the Unted States
of compensaton to any such empoyees of the contractor who are sent
to foregn countres such compensaton does not consttute amounts
pad by the Unted States or any agency thereof, wthn the meanng
of secton 116(a) of the Interna Revenue Code of 1939 rrespectve of
whether the Unted States acts as wthhodng agent makng the nec-
essary deductons for edera ncome and empoyment ta purposes
or whether the contractor makes such necessary deductons and s rem-
bursed therefor by the Unted States. Accordngy, such Unted
States ctzens are entted to the benefts accorded by secton 116(a) of
the Code and secton 39.116-1 of Reguatons 11 provded the requre-
mentsof secton 116(a) (1) or (2) are otherwse met.
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169 Regs. 11 , A 39.116-2.
Reguatons 11 , Secton 39.116-1: arned Rev. Ru. 5 -612
ncome from sources wthout the Unted
States.
(Aso Secton 251(a), Secton 39.251 (a)-1.)
Unted States Armed orces e changes, commssoned and non-
commssoned offcers messes, Armed orces moton pcture servces,
and other organzatons smary organzed and operated under
Unted States Army, Navy, or Ar orce reguatons are ntegra
parts of the Armed orces, agences, or nstrumentates of the
Unted States. Compensaton receved from such organzatons by a
Unted States ctzen, for persona servces performed abroad, whether
pad from approprated or nonapproprated funds, consttutes
amounts pad by the Unted States or any agency thereof wthn
the meanng of secton 116(a) (1) of the Interna Revenue Code of
1939. The term agency as used n that secton ncudes an nstru-
mentaty of the Unted States. See secton 39.11G-1 of Reguatons
11 . Aso, such amounts are deemed to be derved from sources
wthn the Unted States wthn the meanng of secton 251 (|) of the
Code. Accordngy, such amounts must be ncuded n gross ncome,
for edera ncome ta purposes.
Reguatons 11 , Secton 39.116-2: Income of T. D.60 6
foregn governments, nternatona organ-
zatons, and ther empoyees.
TITI.R 21 INT RNAL H N .-CHAIT R I, SU ICnAtT R A. PART 9.
INCOM TA : TA ABL Y ARS U GINN1N A T R D C MB R SI, 1931
Itoguntons 11 amended to conform to secton 2 7 of the Imm-
graton nnd Natonaty Art of 1932, reatng to te e emptons
granted to empoyees of foregn governments and Internatona
organzatons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On ebruary 19, 195 , notce of proposed ruemakng regardng
amendments to conform Reguatons 11 (20 C R, pt. 39) to the pro-
vsons of secton 217 of the Immgraton and Natonaty Act,
enacted une 27,1952, reatng to the e emptons granted to empoyees
of foregn governments and nternatona organzatons, was pubshed
n the edera Regster (19 . R. 97C). After consderaton of a
reevant matter presented by nterested persons regardng the rues
roposed. the amendments to Reguatons 11 set forth beow are
ereby adopted:
I ARAOArn 1. Secton 39.116-2 s amended as foows:
(A) By strkng A at the begnnng of subparagraph (2) of
paragraph (a) andnscrtng n eu thereof the foowng:
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11 ,5 39.116-2.1 170
- cept to the e tent that the e empton Is mted by the e ecuton and fng
of the waver provded for In secton 2 7(b) of the Immgraton and Natonaty
Act, a
(B) By addng after subparagraph (2) of paragraph (a) the
foowng new subparagraph:
(3) Secton 2 7(b) of the Immgraton and Natonaty Act provdes as
foows:
(b) The ad|ustment of statns requred by subsecton (a) of secton 2 7 of
the Immgraton and Natonaty Act sha not be appcabe In tbe case of any
aen who requests tbat he be permtted to retan hs status as an mmgrant and
who, n such form as the Attorney Genera may requre, e ecutes and fes wth
the Attorney Genera a wrtten watver of a rghts, prveges, e emptons, and
Immuntes under any aw or any e ecutve order whch woud otherwse accrue
to hm because of the acquston of an occupatona status enttng hm to a
nonmmgrant status under paragraph (15) (A), (15) ( ), or (15) (G) of secton
101(a).
An empoyee of a foregn government who e ecutes and fes wth the Attorney
Genera the waver provded for n secton 2 7(b) of the Immgraton and Na-
tonaty Act thereby waves the e empton conferred by secton 110(h) of the
Code. As a consequence, such e empton does not appy to Income receved by
such aen after the date of fng of the waver.
(C) By strkng Sub|ect to at the begnnng of subparagraph (2)
of paragraph (b) and nsertng n eu thereof the foowng:
cept to the e tent that the e empton Is mted by the e ecuton and fng
of tbe watver provded for n secton 2 7(b) of the Immgraton and Natonaty
Act, and sub|ect to
(D) By addng after subparagraph (3) of paragraph (b) (foow-
ng the te t of sec. 9 of the Internatona Organzatons Immuntes
Act) the foowng new subparagraph and paragraph:
( ) An offcer or empoyee of an nternatona organzaton who e ecutes nnd
fes wth the Attorney Genera the waver provded for n secton 2 7(b) of the
Immgraton and Natonaty Act thereby waves the e empton conferred by
secton 116(h) of tbe Code. As a consequence, such e empton does not appy
to ncome receved after the date of fng of the waver.
(c) Ta conventon , consuar conventon , and nternatona agreement .
A ta conventon or consuar conventon between the Unted States and a foregn
country, whch provdes tbat the Unted States may ncude In the ta bnse of Its
resdents aU ncome ta abe under the nterna revenue aws, and whch makes
no specfc e cepton for the ncome of tbe empoyees of that foregn government,
does not provde any e empton (wth respect to resdents of the Unted States)
beyond that whch Is provded by tbe nterna revenue aws. Accordngy, the
effect of the e ecuton and fng of a waver under secton 2 7(b) of the Im-
mgraton and Natonaty Act by an empoyee of a foregn government whch
Is a party to such a conventon s to sub|ect the empoyee to ta to the same
e tent as provded n (a) of ths secton wth respect to the waver of e empton
under secton 110(h). On the other hand, f a ta conventon, consuar con-
venton, or nternatona agreement provdes that compensaton pad by the
foregn government or nternatona organzaton to ts empoyees s e empt from
edera ncome ta , and the appcaton of ths e empton Is not dependent upon
the provsons of the nterna revenue aws, tbe e empton so conferred s not
affected by the e ecuton nnd fng of a waver under secton 2 7(b) of the
Immgraton and Natonaty Act. or e ampes of e emptons whch are not
affected by the Immgraton and Natonaty Act, see artce of the Brtsh
Ta Conventon, artce I , secton U(b) of the Artces of Agreement of the
Internatona Monetary und (60 Stat. 1 01), and artce II, secton 9(b) of
tbe Artces of Agreement of the Internatona Bank for Reconstructon and
Deveopment (60 Stat 1 0).
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171 ( egs. 11 , 39.116-2.
- (Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3701 of the Interna Revenue Code (53 Stat 32, 67
2GU.S.C.62,3791).)
O. GORDO D ,
Actng Commssoner of Interna Revenue,
Approved August 5,195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth tbe Dvson of the edera Regster August 10, 195 , :31 a. m.)
eoctatons 11 , Secton 39.116-2: Income Rev. Ru. 5 -397
of foregn governments, nternatona or-
ganzatons, and ther empoyees.
Aens empoyed by foregn governments and Internatona organ-
satons who fe the waver provded by secton 2 7(b) of the
Immgraton and Natonaty Act (Pubc Law 1 , 2d Cong., 06
Stnt. H. , enncted uno 27, UM) In order to retan ther Immgrant
tutus are, from the date of tng such waver, no onger entted
to the e empton from edera Income ta provded by secton
110(h) of the Interna Revenue Code of 1039. However, the fng
of the waver has no effect on any e empton derved e cusvey
from tn treates or other Internatona agreements.
Aens empoyed by foregn governments and nternatona organ-
satons who fe tho waver provded by secton 2 7(b) of the Imm-
graton and Natonaty Act (Pubc Law 1 , 2d Cong., 66 Stat.
163, enacted uno 27,1952) n order to retan ther mmgrant status
are, from the date of fng of such waver, no onger entted to the
e empton from edera ncome ta provded by secton 116(h) of
the Interna Revenue Code of 1939. On the other hand, the fng
of the waver has no effect on any e empton from edera ncome
ta f such e empton s derved from ta treates or other nterna-
tona agreements, T. D. 60 6, page 169, ths Buetn. The appcaton
of these rues wth respect to those foregn countres (wth whch
the Unted States has ncome ta treates) and certan nternatona
organzatons s set forth beow.
The e empton from edera ncome ta of the compensaton of
aens receved as empoyees of the foowng countres s derved
from the provsons of secton 116(h) and the fng of the waver
w termnate such e empton:
Greece Austraa Sweden
Netherands Denmark Unon of South Afrca
The e empton from edera ncome ta of the compensaton of
aens, other than ctzens of the empoyer country, receved as em-
poyees of the foowng countres s derved from the provsons of
secton 116(h), and the fng of the waver w termnate such e -
empton:
rance Begum
However, ncome ta treates wth these two countres specfcay
provde that the compensaton pad to empoyees who are ctzens of
3331 55 12
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Regs. 11 , 39.117(a)-. 172
the empoyer country s e empt from ncome ta , and the fng of the
waver w not termnate such e empton.
The e empton from edera ncome ta of the compensaton of
aens receved as empoyees of the foowng countres s specfcay
provded for n the ncome ta treates wth such countres and the
fng of the waver w not termnate such e empton:
Canada Ireand Swtzerand
nand New Zeaand Unted ngdom
Norway
Generay, the e empton from edera ncome ta of compensaton
of empoyees of nternatona organzatons s derved from the pro-
vsons of secton 116(h). However, the empoyees of the nternatona
organzatons sted beow derve e empton from ncome ta on ther
offca compensaton from the artces of agreement under whch such
organzatons were created and the fng or the waver w not term-
nate such e empton:
Internatona Bank for Reconstructon and Deveopment
Internatona Monetary und
Ths Revenue Rung sha have no appcaton to determne the
effect of a waver fed by an empoyee of a foregn government cam-
ng e empton under the terms of a consuar conventon or other con-
venton or treaty, other than the ta treates specfed heren. The
effect of a waver n cases n whch the e empton s dependent upon
the appcaton of a conventon or treaty other than the ta treates
specfed w be made the sub|ect of a separate Revenue Rung.
S CTION 117(a).-CAPITAL GAINS AND LOSS S:
D INITIONS
.Reguatons 11 , Secton 39.117(a)-: Meanng Rev. Ru. 5 -251
of terms.
(Aso Secton 22(a), Secton 39.22(a)-.)
Where a ta payer, not a deaer In securtes, purchases In the
open market a bock of 10-year past due rcstamped coupons whch
have been detached from apanese Government prewar doar bonds,
any gan reazed or oss sustaned upon the subsequent sae of such
unmatured coupons w consttute a gan or oss from the sae of a
capta asset. However, If such purchaser hods any of the coupons
unt maturty, the dfference between ther maturty vaue and the
cost aocated to each coupon In the bock so matured Is ta abe as
ordnary Income In the ta abe perod n whch such coupons mature.
Advce s requested wth respect to the treatment, for edera ncome
ta purposes, of gans rcazca or osses sustaned from the sae or re-
dempton of defauted coupons detached from certan apanese Gov-
ernment prewar doar bonds.
Servce on Impera apanese Government terna Loan of 192
Thrty Year Snkng und 6y2 percent God Bonds was suspended on
December ,19 1, and on December 11, 19 1, the Securtes and -
change Commsson advsed stock and bond e changes and securty
deaers throughout the Unted States to cease handng a transactons
n apanese bonds. The restrctons were removed By the Securtes
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173 Regs. 11 , 39.117(a)-L
and change Commsson pursuant to reease No. 51 , dated Novem-
ber 11, 1050. On December 22, 1952, the apanese Government re-
sumed servce on the bonds to hoders who accepted a proposed sette-
ment whereby the maturty date of the bonds and the payment date
on each nterest coupon bearng an orgna payment date pror to
September 26, 1952, s e tended for a perod of 10 years from the
orgna pavment date, e cept that nterest due pror to December
19 2 s payabe on December 22,1952. The New York Stock change
rued that the coupon bocks coud be detached from the bonds and
bought and sod n transactons apart from the purchase and sae of
the bonds themseves. Strps of coupons or coupon bocks orgnay
consstng of 20 coupons and dated from 19 2 to 1952 ncusve were
due semannuay so that a bock wth a face vaue of 000 actuay
covers a perod of 10 years. The coupons are traded n compete
bocks as a snge unt. (See Rev. Ru. 5 , C. B. 1953-1,20 .)
Coupons detached from bonds and negotated, after beng detached,
become non-nterest-bearng negotabe nstruments. If such coupons
are detached and sod, and resod, they ose ther character as nterest
and become capta assets. Deangs n them, by a ta payer who s not
a deaer n securtes, are to be treated as deangs n other capta
assets, and proft and oss computed accordngy. (See So. Op. 6,
CD. 3, 90 (1920).)
Capta gan, as contempated by the ncome ta aw, means capta
gan derved from a sae or e change. Payment of the face amount
at maturty of detached coupons purchased n the open market con-
sttutes merey the satsfacton of an obgaton accordng to ts f ed
terms. (See I. T. 3312, C. B. 1939-2,1G .)
Accordngy, t s hed that where a ta payer, not a deaer n
securtes, purchases n the open market a bock of 10-year past due
restamped coupons whch have been detached from apanese Govern-
ment prewar doar bonds, any gan reazed or oss sustaned upon
the subsequent sae of such unmatured coupons w consttute a gan or
oss from the sae of a capta asset. However, f such purchaser hods
uny of the coupons unt maturty, the dfference between ther matur-
ty vaue and the cost aocated to each coupon n the bock so matured
s ta abe as ordnary ncome n the ta abe perod n whch such
coupons mature.
An e ampe w ustrate the method of aocatng the dscount and
determnng the bass of each coupon. A bock of 20 semannua
coupons, each n the face amount of 30 s purchased at a dscount of
37 percent whch amounts to 222 of the tota face vaue of G00. It
s further assumed that the bock of coupons was purchased 92 days
before the date on whch the frst coupon Decame due. The computa-
ton s made as foows:
(a) Mutpy the face amount of each coupon by the number of
days the coupon has to run before maturty.
(b) Add the resuts for a coupons.
(c) The percentage of the resut for each coupon to the tota
of the resuts for a the coupons s then apped to the tota ds-
count n order to arrve at the porton of the tota dscount ao-
cabe to each coupon.
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Begs. 11 , 39.117(a)- .
17
(d) Subtract the aocabe porton of the dscount from the
face amount of the coupon. The resutng fgure s the bass of
the coupon.
-
Coumn I Cou-
pon m turty
date
Coumn
Coumn
Days from
purchaso
to matu-
rty
Coumn
Day-do-
Coumn 5
Percentage
each Item
In coumn
to tota
coumn
Coumn 6
Aocated
dscount
coumn 5
tmes co-
umn 6
tota
Coumn 7
Aocated
cost co-
umn 2
mnus
coumn 6
Coumn
Remanng
ace
ars coumn
2 tmes
coumn 3
cost of
amount
bock
Dee. IS. 1952
30
92
2,750
0.25
to. 55
20. 3
3 .5
une 13.1953
30
275
.250
0.75
1.66
2 .3
320.21
Dee. 15,1953
30
57
13,710
1.25
2.77
27.23
292.9
une 19, M
SO
6 0
19,200
1.75
3.
26.12
266.
Dee.S.10M
30
22
2 ,600
2.25
.99
25.01
2 1. 5
une 19. 1953
30
10O.
3ft 150
2.75
6.10
23.90
217.9S
Dee. 1 .1959
30
11
35.6 0
.25
7.21
22.79
1 . 16
uno 15,1U. )
0
1371
1,130
.75
.32
21.6
173.
Dec. 15,1956
30
1553
6.590
.25
9. 3
30.57
152.91
0
1736
2.0S0
.75
10.5
19. 0
133. 5
Dee. 13, 1657
0
191
57.5 0
6.25
11.06
1 .3
115.11
une 13,19W
0
2101
63,030
6.75
12.77
17.23
97.
Dee. 16,19.-.
0
22 3
6 , 90
6.25
13.
16.12
1.76
une 15, .O.....
0
2 67
7 ,010
6.75
1 .99
15.01
66.75
Dee. 15,1959
0
26 9
79, 70
7.25
16.10
13.90
62. 5
0
2 32
.960
7.75
17.21
12.79
0.06
Dec IS, 19(10
0
301
90, 20
.25
1 .32
11.6
2 .3
30
3197
95,010
.75
19. 3
10.57
17. 1
Dee. 15,19BI
0
3379
101.370
9.25
2a 5
9. 6
.35
une 15,1962
0
3562
106, 60
9.73
21.65
.35

Tota...
1,096,230
100
222.00
7 .00
Accordngy, the above e ampe ustrates the actua breakdown to
each ndvdua coupon of the cost ( 37 ) of the bock of 20 coupons
purchased on September 1 , 1952, from 29. 5 n the case of the
nterest coupon maturng on December 15,1952, to .35 for the cou-
pon n the bock whch ast matures.
Reguatons 11 , Secton 39.117 (a)-1: Meanng
of terms.
Rev. Ru. 5 - 09
A grant of ess than a of a copyrght propretor s rght may
confer a cense or consttute a transfer of property. A grant of the
e cusve rght to e pot a copyrghted work In a medum of pub-
caton throughout the fe of the copyrght transfers a property
rght a grant of ess confers a cense. If the consderaton receved
for a grant transferrng a property Interest s not measured by a
percentage of the recepts from the sae, performance, or pubcaton
of the copyrghted work. Is not measured by the number of copes
sod, performances gven, or e hbtons made of the copyrghted
work, and Is not payabe perodcay over a perod generay co- .
tcrmnous wth grantee s use of I he copyrghted work. It Is to be
treated as proceeds from a sae of property and not as rentas or
royates.
I. T. 2733, C. B. II-2,131 (1933), s modfed nsofar as It hods
that copyrghts are Incapabe of dvson Into separate propertes.
Reconsderaton has been gven to T. T. 2735, C. B. II-2, 131
(1933), n the ght of the decson n Robert . Ier cg et u . v.
Unted States, 105 ed. Supp. 3 .
I. T. 2735, supra, hods that a copyrght s not dvsbe nto
separate propertes and that a grant of ess than a the rghts con-
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175 Regs. 11 , f 39.117(A) 1.
ferred by a copyrght must be a cense (the consderaton receved
therefor s renta or royaty ncome) and cannot be a sae. However,
t was hed n the Herwg case that a copyrght propretor who granted
ony the e cusve moton pcture rghts n a copyrghted work had
made a sae of property.
In the market n Whch copyrghts are traded, the e cusve rghts
to copyrghted works n one medum of pubcaton are purchased
and sod as separabe propertes accordng to practces so we estah -
shed that they have been the sub|ect of |udca notce. Pdham (7.
Wodehouse v. Commssoner, 166 ed. (2d) 9 C, reversed on other-
grounds, 337 U. S. 369. If the market pace concept of what consttutes
a separabe and defned property were ncompatbe wth defntons
drawn from the aw reatng to the passage of tte, the rue for
urposes of ta aton coud we be argued to rest on the former.
everng v. Mary . Ia-ock et a., Trustee of the state of Henry
Uaock, 309 U. S. 100. However, n the case of copyrghts, there s
no need to seect from among ncompatbe concepts.
Athough t s we estabshed that the grantee of ess than a the
rghts conferred by a copyrght s a censee and not an assgnee
and cannot, therefore, sue for nfrngement, the rue s purey pro-
cedura. See Lews . Waterman v. ames A. Mackenze, et a., 13
U. S. 252. It s dscarded whenever t fas to serve the nterests of
ordery procedure and has nothng to do wth the queston of what
rghts n a terary work do or do not consttute a separabe property.
See Independent Wreess Co. v. Rado Corporaton, 2G9 U. S. 59.
or the purposes of the Interna Revenue Code, a trademark may be
dvded, accordng to the usage of the market n whch trademarks
move, nto separatey saabe fractons. Seatte Brewng and Matng
Company, Inc. v. Commssoner, 6 T. C. 56, affrmed 165 ed. (2 )
216 Raner Brewng Co. Inc. v. Commssoner, 7 T. C. 162. affrmed
165 ed. (2d) 217. The Copyrght Act. 61 Stat. 652 (Tte 17 U. S. C.),
tsef suggests that the same s true p copyrghts.
rst, the statutory provsons whch protect bona fde purchasers
of copyrghts aganst pror purchasers who have faed to record ther
grants have been hed to protect a grantee of moton pcture rghts.
Photo Drama Moton Pcture Co. Inc. v. Soca Upft m Corpora-
ton, 213 ed. 37 . Snce the statute s drawn n terms of purchase
and assgnment , the mpcaton s that the grant of e cusve moton
pcture rghts transfers property. See 61 Stat. 652,660 17 U. S. C. 30.
Second, the nature or transactons n adaptaton copyrghts ponts
to the same concuson. The adaptaton of a copyrghted work to a
new medum may, wth the permsson of the copyrght propretor of
the orgna work, tsef be copyrghted as f t were a new work
under the statute, and one who receves a grant of the e cusve rght
to e pot a copyrghted work n a partcuar medum may become the
copyrght propretor of the ony verson of the orgna work whch
may awfuy be pubshed n that medum. See L. C. Page Co.,
Inc., et a. v. o m Corporaton, 3 ed. (2d) 196 of Afred Be
Co. Ltd. v. Catada ne Arts Inc. et a., 191 ed. (2d) 99 61 Stat.
652,655 17 U. S. C. 7. Ths s, of course, not true of one who receves
ess than the e cusve rght to e pot a copyrghted work n a partc-
uar medum. See Louts . McCaeb . o m Corporaton, 299
ed. . If a copyrght propretor adapts the copyrghted work to a
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Begs. 11 , 39.117(a)-. 176
new medum, copyrghts the adaptaton, and ses the adaptaton copy-
rght whe smutaneousy grantng e cusve rghts to e pot the
orgna work n the medum for whch the adaptaton has been made,
there can be no doubt that he has transferred property the adaptaton
copyrght. Wth respect to hs statutory property n the orgna
creatve work, the copyrght propretor accompshes as much by
grantng the e cusve rght to e pot the orgna work n the same
medum. The preparaton of an adaptaton s not ony competey
dependent upon the creaton of the orgna work. It aso demands
taents other than the hghy persona and creatve ones requred to
produce an orgna work sub|ect to copyrght. Gven an orgna
work, vauabe adaptatons can be prepared by any one of a number
of persons whose sk s that of techncans n the medum to whch
the orgna work s to be adapted. The essentay subordnate nature
of the work of adaptaton has been mpcty recognzed by Congress
n the scheme of the Copyrght Act, supra. Sec 61 Stat. C52, 655
17 U. S. C. 7. It foows that a copyrght propretor s grant of the
e cusve rght to e pot a copyrghted work n a partcuar medum
effects a transfer of property, and that a grant of ess confers ony a
cense on the grantee.
That a copyrght propretor s grant effects a transfer of property
does not necessary mean that the consderaton receved for the grant
s n the nature of proceeds from a sae. Burnet v. Henry Harme,
2 7 U. S. 103, Ct. D. 611, C. B. I-2, 210 (1932). Therefore, t s
hed that, when the propretor of a copyrght grants the e cusve
rght to e pot the copyrghted work throughout the fe of the copy-
rght n a medum of pubcaton or e presson for a consderaton
whch s not measured by a percentage of recepts from the sae, per-
formance, e hbton, or pubcaton of the copyrghted work, s not
measured by the number of copes sod, performances gven or e h-
btons made of the copyrghted work, and s not payabe perodcay
over a perod generay cotermnous wth the grantee s use of the
copyrghted work, the consderaton s to be treated as the proceeds
of a sae of property and not as rentas or royates.
Whether a copyrght s a capta asset wthn the meanng of secton
117 of the Interna Revenue Code of 1939 and when the provsons of
secton 107(b) of the Code wth respect to copyrghts woud appy are
separate and dstnct questons. The ta abty of the ncome of a
nonresdent aen derved from a copyrghted work s aso dstnct
from the queston deat wth here. Commssoner v. Pe ham O. Wode-
house, supra. To the e tent that I. T. 2735, supra, hods copyrghts
to be ndvsbe, t s modfed. Ths modfcaton docs not affect
O. D. 9 , C. B. 5, 117 (1921) and I. T. 1231, C. B. 1-1, 206 (1922)
whch were revoked and modfed, respectvey, by I. T. 2735.
eouatton 11 , Secton 39.117(a)-: Meanng
of terms.
Status of rea property used n trade or busness. See ev. RuL
6 r-607, page 177.
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. 177 Reg.. 11 , 39.117(h)-U :
S CTION 117 (c). CAPITAL GAINS AND LOSS S:
ALT RNATI TA S
R GT LATIO S 11 , S CTION 39.117(c)-: A- Rev. Ru. 5 -2 3
ternatve ta n case net ong-term capta
gan e ceeds net short-term capta oss.
Pursuant to the authorty of secton 3791 (b) of the Interna Revenue
Code, the prncpes set forth n Revenue Rung 5 -2 , C. B. 195 -1,
123, sha oe appcabe ony wth respect to returns of corporatons
fed for the ta abe year ended December 31, 1952, and subsequent
ta abe years| consstent wth the change of nstructons, reatve to
the computaton of the aternatve ta , frst refected on Schedue D
( orm 1120) for the ta abe year ended December 31,1952.
S CTION 117(h). CAPITAL GAINS AND LOSS S:
D T RMINATION O P RIOD OR WHICH H LD
R GULATIONS 11 , S CTION 39.117(h)-: Deter- Rev.RuL 5 -607
mnaton of perod for whch capta assets
are hed.
(Aso Sectons 39.17(a)- and 39.17(|)-.)
Wth respect to rea property whch Is the sub|ect of an uncon-
dtona contract of sae, the hodng perod for purposes of secton
117 of the Interna Revenue Code of 1039 begns on the day foow-
n) that on wk-h tte passes, or on the day foowng that on whch
devery of possesson Is made and the burdens and prveges of
ownershp arc assumed by the purchaser, whchever occurs frst.
A devery of possesson under a mere opton agreement, bow-
ever, a wthout sgnfcance unt a contract of soe comes Into
beng through e ercse of the opton, so that the hodng perod
of the seer cannot end pror to that date. Rea property used In
the trade or busness of the ta payer does not fa wthn the pur-
vew of a captn asset under secton 117(a) of the Code, and where
such property s hed for ess than 6 months the gan reazed on ts
sae Is nut sub|ect to the capta gan treatment under secton
117(|) of the Code but consttutes ordnary ncome.
Advce s requested as to when the saes occurred of certan rea
property used n a trade or busness under the facts set forth beow,
and whether the gan reazed on the sae of such property by the
ta payer consttuted capta gan.
Under the provsons of a saes agreement entered nto n the at-
ter part of 1952 the vendors, n consderaton of so doars, agreed to
e ecute warranty deeds conveyng certan rea estate used n ther
busness to the ta payer. The vendors further agreed to furnsh the
ta payer an abstract of tte. The warranty deeds, abstracts, eases,
permts, notes, obgatons and b of sae were to be paced n escrow,
to bo devered to the ta payer upon fna payment of the purchase
prce. The vendors agreed to assume and pay a ta es for 1952
as n prevous years. They aso agreed to pay a norma and ord-
nary e penses of the property concerned, to and ncudng December
31, 1952, but a ta es and operatng e penses after that date were
to be pad by the ta payer. In accordance wth the agreement the
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Regs. 11 , 39.117(h)-U 17
ta payer operated the property for the vendors durng the remander
of 1052 and took possesson of the property on anuary 1,1953, and
contnued the operaton of the busness. The warranty deed con-
veyng the property to hm s dated une 3, 1953, fna payment of
the purchase prce havng been made on May ,1953.
On Apr 12, 1953, the ta payer entered nto a so-caed opton
agreement wth the M Company for the sae of rea and persona
property. In consderaton of or doars the ta payer granted to M
the opton to purchase certan property ncudng the property under
consderaton. The agreement provded that M e ercse ts opton by
May 15, 1953. However, t was provded that M take mmedate
possesson of a of the and, premses and persona property covered
by the agreement and operate such property n the manner n whch
t saw ft rom the tme of takng possesson and pendng acceptance
of tte, operatng costs were to be pad by M. The M Company
took possesson of the property on or before Apr 12, 1953. The
opton was e ercsed on May 1 , 1953 and payments were made n
accordance wth the agreement. The warranty deed conveyng the
property to M s dated uy 17,1953.
Rea property beng used n a trade or busness s e cuded from
the defnton of a capta asset under secton 117(a) of the Code of
1939, and secton 117 (|) of the Code provdng for capta gan treat-
ment of the gan reazed on the sae of such property under certan
condtons s ony appcabe where the property has been hed for
more than 6 months.
In determnng the hodng perod for capta gan and oss pur-
poses, the date the property s acqured s e cuded, and the date the
property s dsposed of s ncuded. See I. T. 32 7, C. B. 1939-1
(Part 1), 13 and I. T. 3705, C. B. 19 5, 17 .
Wth respect to rea property whch s the sub|ect of an uncond-
tona contract of sae, the hodng perod begns on the day foowng
that on whch tte passes, or on the day foowng that on whch
devery of possesson s made and the burdens and prveges of
ownershp are assumed by the purchaser, whchever occurs frst The
queston s not aways concusvey determned by the date of passage
of tte. See O. D. 751, C. B. 3,116 (1920), and I. T. 137 , C. B. 1-2,
2G (1922). A devery of possesson under a mere opton agreement,
however, s wthout sgnfcance unt a contract of sae comes nto
beng through e ercse of the opton, so that the hodng perod of the
seer cannot end pror to that date.
In appyng the above prncpes to the facts n ths case, the ta -
payer assumed the burdens and prveges of ownershp of the property
on anuary 1,1953, and hs hodng perod for such property began
on the foowng day, anuary 2, 1953. The M Company, havng
been n possesson, assumed the burdens and prveges of ownershp
by the e ercse of ts opton to purchase on May 1 , 1953, thereby
endng the hodng perod of the ta payer.
In vew of the foregong t s hed that the gan reazed by the
ta payer upon the sae of the property s not sub|ect to capta gan
treatment under secton 117(|) of the Code but consttutes ordnary
ncome.
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179 Regs. 11 , 39.122- .
Reguatons 11 , Secton 39.117 (h)-: Deter- :
mnaton of perod for whch capta assets
are hed.
Recovery of war oss n case of certan German pre-war doar bonds
and e change for new bonds. See Rev. Ru. 5 -501, page 197.
S CTION 117()). CAPITAL GAINS AND LOSS S: GAINS
AND LOSS S ROM IN OLUNTARY CON RSION AND
ROM TH SAL OR CHANG O C RTAIN PROP-
RTY US D IN TH TRAD OR BUSIN SS
Reguatons 11 , Secton 117(|)-: Gans
and osses from nvountary conversons
and from the sae or e change of certan
property used n the trade or busness.
Treatment, for edera ncome ta purposes, of property used n
trade or busness and hed for ess than G months. See Rev. Ru. 5
607, page 177.
S CTION 119(a). INCOM ROM SOURC S WITHIN
UNIT D STAT S: GROSS INCOM ROM SOURC S IN
UNIT D STAT S
Reguatons 11 , Secton 39.119(a)-: Interest,
Dstrbuton of earnngs by New York mutua savngs banks pad
to a nonresdent aen. See Rev. Ru. 5 -623, page 1 .
Reguatons 11 , Secton 39.119(a)-: Interest
Dstrbuton of earnngs by a edera savngs and oan assocaton
pad to a nonresdent aen. See Rev. Ru. 5 -62 , page 16.
. S CTION 122. N T OP RATING LOSS D DUCTION
Reguatons 11 , Secton 39.122-1: Net operat-
ng oss deductons.
Treatment of net operatng oss carryback or carryover pursuant
to a ta -free reorganzaton. See Rev. Ru. 5 - 2, page 1 .
Reguatons 11 , Secton 39.122- : Computa- T.D.6107
ton of net operatng oss carryovers and
net operatng oss carryback.
(Aso Secton 29.122- , Reguatons 111 Sec-
ton 37.1, Treasury Decson 5G 2.)
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Regs. 11 , 39.122-1.
1 0
TITL 29 INT RNAL R NU . CHAPT R L SUBCHAPT R A, PARTS 9, 29,
AND ST
Reguatons US and Reguatons 111 amended to conform to
secton 205(a) and Treasury Decson 60 2 amended to conform to
secton 205(b), respectvey, of the Technca Changes Act of 1053,
reatng to net operatng oss carryovers.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On uy 1 ,195 , a notce of proposed ruemakng was pubshed n
the edera Regster 19 . R. 327 to conform Reguatons 11
26 C R, pt 39 and Reguatons 111 20 C R pt. 29 to secton
205 (a) and Treasury Decson 5C 2 26 C R pt. 371 C. B. 19 -2,70
to secton 205(b), respectvey, of the Technca Changes Act of 1953
C. B. 1953-2, 5 , approved August 15,1953. No ob|ectons to the
rues proposed havng been receved wthn the 30 days foowng
such pubcaton, the amendments set forth beow are hereby adopted:
R GULATIONS 11 26 C R, PT. 391
Paragraph 1. Secton 39.121-122 s amended by
(A) Insertng mmedatey precedng subsecton (c) of secton 122
the foowng:
( ) Loss or ta ac years of corporatons begnnng n 197 and endng n
19S.
( ) Lost n ease of corporaton hose frst ta abe year began n 19 9 and
ended n 1050. If the frst ta abe year of a corporaton began n 10 0 and ended
n 1950, and If the corporaton had a net operatng oss for such frst ta abe
year, there sha be a net operatng oss carry-over for the fourth and ffth
succeedng ta abe years. The amount of such carry-over sha be determned In
accordance wth the frst sentence of subparagraph (B) e cept that
(I) Such carry-over for the fourth succeedng ta abe year sha not e ceed
so much of such net operatng oss as s aocabe to 1050, and
() Such carry-over for the ffth succeedng ta abe year sha not e ceed the
nmnunt by whch the carry-over for the fourth succeedng ta nbe year (as
mted by cause (I) of ths sentence) e ceeds the net Income for the fourth
succeedng ta abe year computed as provded In causes (1) and () of the
frst sentence of subparagraph (B).
or the purposes of the precedng sentence, the porton of the net operatng
oss whch s aocabe to 1050 sha be an amount whch bears the same rato
to such oss as the number of days n the ta abe year after December 31, 1010,
bears to the tota number of days n the ta abe year,
(B) Insertng sec. 205(a) (1), Technca Changes Act 1953 bo-
fore the cosng oracket of the hstorca note foowng secton 122.
Par. 2. Secton 39.122- (a) (2) L amended to read as foows:
(2) The number of ta abe years to whch a net operatng oss may e carred
back and carred over are as foows (sub|ect to the e cepton set forth beow) :
Net operatng oss for a ta abe year begnnng:
May be carred
bunk to the
foowng
precedng
May be carred
over to the
foowng
After
Before
ta abo yean
gurcpwng
ta abe yean
Deo. SI, IMS. . . . _.
an. 1, W0
3
I
S
Dec. 11,1W9........................
1
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1 1 Regs. 11 , 39.122-.
The e cepton referred to above Is that In the case of a corporaton whose frst
ta nbe year began In 19 0 and ended In 1050, a net operatng oss sustaned In
such frst ta abe year may be carred over to the fve succeedng ta abe years
In eu of the three succeedng ta abe years shown above. See paragraph (b)
of ths secton for the porton of the oss whch may be carred over to the fourth
and ffth succeedng, ta abe years.
Par. 3. Secton 39.122- (b) s amended by addng the foowng new
sentences at the end of the matera whch precedes the e ampe:
In the case of a corporaton whose frst ta abe year began In 10 9 and ended
In 1050 and whch had a net operatng oss for such frst ta abe year, the porton
of such oss, otherwse determned under the provsons of ths paragraph, whch
may be carred over to the fourth succeedng ta abe year sha not e ceed that
amount whch bears the same rato to the oss as the number of days after Decem-
ber 31, 10 9, In to ta abe year of the oss bears to the tota number of days In
such ta abe year. The porton of such oss whch may be carred over to the
ffth succeedng ta abe year sha not e ceed the amount by whch the carryover
for the fourth succeedng ta abe year, determned as provded In the precedng
sentence, e ceeds the net Income, If any (computed as provded In par. (c) of
ths secton), for such fourth succeedng ta abe year.
R GULATIONS 111 (26 C , PT. 2D)
Par. . There s nserted mmedatey precedng secton 20.122-1 the
foowng:.
S C. 205. N T OP TtATING LOSS CARRY-O RS (T CHNICAL
CHANG S ACT OP 1033, APPRO D AUGUST 15, 1953 .
(a) Amendment or Sectow 122(b)(2).
(1) Secton 122(b) (2) (reatng to net operatng oss carry-over)
Is hereby amended by addng after subparagraph (D) the foow-
ng new subparagraphs:
( ) Loss for Ta abe Tears of Corporatons Begnnng In
19 7 and ndng In 19 . If a corporaton (other than a
corporaton whch commenced busness after December 31,
19 5) has a net operatng oss for a ta abe year begnnng
In 19 7 and endng In 19 , subparagraph (C) sha appy as If
the ta abe year began after December 31, 19 7 e cept that
the net operatng oss carry-over for the thrd succeedng ta -
abe year sha not e ceed that amount wbch bears the same
rato to the net operatng oss as the number of days In the
ta abe year after December 31,10 7, bears to the tota number
of days In the ta abe year.
( ) Loss In Case of Corporatons Whose rst Ta abe Tear
Began n 19 9 and nded In 1050. If the frst ta abe year of a
corporaton began In 1019 and ended In 1050, and f the corpora-
ton had a net operatng oss for such frst tn abe year, there
sha be a net operatng oss carry-over for tho fourth and ffth
succeedng ta abe years. The amount of such carry-over sha
bo determned n accordance wth tbo frst sentence of sub-
paragraph (11) e cept thnt
(1) such carry-over for tho fourth succeedng ta abe
yenr sha not e ceed so much of such net operatng oss
as s nocaho to 1050, and
(II) such carry-over for the ffth succeedng ta abe
year sha not e ceed the amount by whch the carry-over
for the fourth succeedng ta abe year (as mted by
cause (1) of ths sentence) e ceeds the net Income for the
fourth succeedng ta abe year computed as provded In
causes (1) and () of the frst sentence of subparagraph
(H).
or the purposes of tho precedng sentence, the porton of the
net operatng oss whch s aocabe to 1050 sha be an amount
whch bears the same rato to such oss as the number of days
In the ta abe year after December 31, 19 0, bears to the tota
number of days In the ta abe year.
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Regs. 11 . 39.122- .
1 2
(2) Subparagraph (A) of secton 122(b)(2) Is hereby amended
by strkng out subparagraph (D), and Insertng In eu thereof
subparagraphs (D) and ( ),
(3) The amendment made by paragraph (2), and subparagraph
( ) of secton 122(b)(2) of the Interna Revenue Code as added
by paragraph (1), sha appy wth respect to ta abe years endng
after December 31, 10 7. Suhpnrngraph ( ) of secton 122(b)(2)
of the Interna Revenue Code as added by paragraph () sha
appy wth respect to ta abe years endng after December 31,19 9.
A
Par. 5. Secton 29.122- (a), ns amended by Treasury Decson 59C3
tC. B. 1953-1,197 , approved December 16,1952, s further amended
y changng the second paragraph thereof to read as foows:
The number of ta abe years to whch a net operatng ow may be carred
back and carred over are as foows (sub|ect to the four e ceptons set forth
beow):
Net operatng oss for a ta abe year begnnng:
May be carred
bock to tbc fo-
owng preced-
ng ta abe years
May be carred
over to the fo-
After-
Before
owng succeed
ug ta abe years
Dee. SI. 1533 .
an. 1,19 1
none
1
Doc. SI. 19 1
an. 1,19
2
2
Dec, 31 19 7
an. 1,1950 -
a

3
Dee. 31,19 9
S
(1) The frst e cepton referred to above Is that a net operatng oss may not
be carred back to any ta abe year begnnng pror to anuary 1,10 1. (2) The
second e cepton referred to above Is that In the case of a corporaton whch
commenced busness after December 31, 10 5, the net operatng oss for any
ta abe year begnnng after December 31, 10 0, and before anuary 1, 19 3,
nmy be carred over to the three succeedng ta abe years In eu of tho two
succeedng ta abe years shown above. The date the corporaton commenced
busness s.a be determned for the purpose of ths e cepton tnder the rues
provded In the reguatons promugated under secton 5, reatng to tbc com-
putaton of the average base perod net Income In tho case of new corporatons.
See secton 0. 5-1 of Reguatons 130 (20 C It, 1053 revson 0. 5-1).
(3) The thrd e cepton referred to above Is that In tho caso of a corporaton
wc commenced busness before anuary 1, 10 0, tho net operatng hss for a
ta abe year begnnng In 10 7 and endng In 1013 may bo carred over to the
three succeedng ta abe years n eu of the two succeedng ta abe years shown
above. The date the corporaton commenced busness sha be determned In tho
same manner as In the ense of the second e cepton provded In (2) of ths
paragraph. See (b) of ths secton for the porton of the oss whch may be
carred over to the thrd succeedng ta abe year. ( ) The fourth e cepton
referred to above Is that In the case of a corporaton whose frst ta abe year
began n 10 0 and ended In 1050, a net operatng oss sustaned In such frst
ta abe year may be carred over to the fve succeedng ta abe years In eu
of the three succeedng ta abe years shown above. See (b) of ths secton
for the porton of the oss whch may be carred over to the fourth and ffth
succeedng ta abe years.
Par. 6. Secton 29.122- (b), as amended by Treasury Decson
69G3, approved December 16,1952, s further amended by addng the
foowng new sentences at the end of the frst paragraph thereof:
In the case of a corporaton whch commenced busness before anuary 1, 10 6,
and whch had a net operatng oss for a ta abe year begnnng In 10 7 and
endng n 10 , tbe porton of such oss, otherwse determned under the pro-
vsons of ths paragraph, whch may be carred over to the thrd succeedng
ta abe year sha not e ceed that amount whch bears the same rato to the
oss as the number of days after December 31, 10 7, n the ta abe year of the
oss bears to the tota number of days In such ta abe year. In the case of a
corporaton whose frst ta abe year began In 19 0 and ended In 1950 and whch
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1 3 (Regs. 11 , 39.122-.
bad a net operatng oss for such frst ta abe year, the porton of ouch oss,
otherwse determned under the provsons of ths paragraph, whch may be
cnrred over to the fourth succeedng ta abe year sha not e ceed that amount
whch bears the same rato to the oss as the number of days after December 31.
10 0, In the ta abe year of the oss bears to the tota number of days In such
ta abe year. The porton of such oss whch may be carred over to the ffth
succeedng ta abe year sha not e ceed the amount by whch the carry-over
for the fourth succeedng ta abe year, determned as provded In the precedng
sentence, e ceeds tho net Income, If any (computed as provded In (c) of ths
secton), for such fourth succeedng ta abe year.
TR ASURY D CISION 56 2 (20 C H, PT. 7)
Pah. 7. There s nserted mmedatey precedng secton 37.1 the
foowng:
S C 205. N T OP RATING LOSS CARRY-O RS T CHNICAL
CHANG S ACT O 1053, APPRO D AUGUST 15, 1953 .
(b) Successor Raroad Corporatons.
(1) Subsecton (c) of the frst secton of the Act of uy 15.
19 7 (Gt Stat. 32 ), reatng to aowance to successor raroad
corporatons of benefts of certan carry-overs of predecessor cor-
poratons. Is hereby amended to read as foows:
(c) or the purposes of ths secton. If the perod, begnnng on the
frst day of the ta abe year of the predecessor corporaton n whch
the acquston occurred and endng on the ast day of the ta abe year
of the successor corporaton In whch the acquston occurred, a not
more thnn tweve months, then
(1) f such net operatng oss or unused e cess profts credt
was for a ta abe year begnnng before anuary 1,19 , the number
of succeedng ta abe years to whch such net operatng oss or
unused e cess profts credt Is a carry-over sha be three (Instead
of two, ns respectvey provded In secton 122(b) (2) (A) and sec-
ton 710(c) (3) (U) of such Code) and
(2) f such net operatng oss was for a ta abe year begnnng
after December 31, 10 7, and before anuary 1, 1050, the number of
succeedng ta nbo years to whch mob |et operatng oss s a
carry-over sha bo four (nstead of three, as provded In secton
122(b)(2)(C) of such Code)
and such reguatons sha prescrbe (as neary as possbe In the
manner respectvey prescrbed n sectons 122(b) (2) and 710(c) (3) (B)
of such Code wth respect to a net operatng oss or an unused e cess
profts credt, as the case may be, for such ta abe year) the amount to
be carred over to the ast of such succeedng ta abe years.
(2) The amendment made by paragraph (1) sha be effectve
as If ncuded n such Act of uy 15, 19 7, at the tme of Its
enactment.
Par. . Secton 37.1 s amended as foows:
(A) By strkng the headng and frst sentence of paragraph (c)
and nsertng n eu thereof the foowng:
(c) Speca rue where ta abe ycart of predecessor and successor In whch
acquston occurred begn and end n the tame perod of not more than It
months ta abe year of oss or unuseC credt begnnng before anuary 1,
10 H. Under subsecton (c) of secton 1 of the Act It Is possbe to have a
carryover for 3 ta abe years from a ta abe year whch begns before anuary
1,10 .
(B) By addng at the end thereof the foowng new paragraph:
(d) Speca rue where ta abe years of predecessor and successor n whch
acquston occurred begn and end n the same perod of not more than It
months ta abe year of oss begnnng after December 31, 19 7, and before
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egs. 11 , f 39.12 B-1. 1
anuary 1, 1050. Under subsecton (c) of secton 1 of the Act It Is possbe to
have a net operatng oss carryover for ta abe years from a ta abe year
begnnng after December 1, 19 7, and before anuary 1, 1950. The prov-
sons of subsecton (c) of secton 1 sha be apped n such case In accord wth
the prncpes provded n (c)(1) of ths secton wth respect to the carryovers
from a ta abe year begnnng before anuary 1,19 3.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. G2 and 3791 of the Interna Revenue Code of 1939 (53 Stat. 32,
G 26U.S.C.62,3791).)
O. Gordon Dek,
Actng Commssoner of Interna Revenue.
Approved October 7,195 .
M. B. osom,
Actng Secretary of the Treasury,
( ed wth the Dvson of the edera Regster October 13, 105 , : 9 a. m.)
Pecuatons 111, Secton 29.122- : Computa-
ton of net operatng oss carryovers and
net operatng oss carrybacks.
Reguatons 111 amended. See T. D. 6107, page 179.
S CTION 12 B. AMORTIZATION D DUCTION OR
GRAIN STORAG ACILITI S
Reguatons 11 , Secton 39.12 B-1: Introduc- T. D. C112
tory. A
(Aso Secton 172, Secton 39.172-1 Secton
190, Secton 39.190-1.)
TITL 20 INT RNAL R NU . CHAPT R I, SUBCHAPT R A, PART 9.
INCOM TA TA ABL ARS B GINNING A T R D C MB R SI, 1031
Reguatons 11 amended to conform to secton 206 of tbe
Technca Changes Act of 1953, reatng to amortzaton deducton
for gran storage factes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On anuary 19,195 , notce of proposed ruemakng was pubshed
n the edera Regster (19 . R. 325), n order to conform Regua-
tons 11 (26 C R, pt. 39) to secton 206 of the Technca Changes
Act of 1953 (Pubc Law 2 7, 3d Cong. C. B. 1953-2, 5 ), ap-
proved August 15| 1953, reatng to the amortzaton deducton for
gran storage factes. After consderaton of a such reevant
matter as was presented by nterested persons regardng the proposed
amendments, the amendments to Reguatons 11 set forth beow are
hereby adopted:
Paragraph 1. Secton 39.23(s)-(u) s amended by revsng sub-
secton (t) of secton 23 and the hstorca note whch foows subsec-
ton (t) to read as foows:
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1 5 Begs. 11 , 30.12 B- L
(t) Amortzaton deducton. The deducton for amortzaton pro-
Tded In sectons 12 ,12-1A, and 12 B.
(Sec 23(t) as added by sec 301, Second Iter. Act 10 0 amended by
sec. 216(b), Rev. Act 1950 sec 206(b)(1), Technca Changes Act
1053, appcabe to ta abe years endng after August 15,1053
Par. 2. There s nserted mmedatey after secton 30.12 A()-
the foowng:
Sec. 0.12 B. Statutory Provsons Amortzaton Deducton fob Gbvs
Storage actes Aowance op Deducton ecton or Amortzaton
Termnaton op Amortzaton Defnton or Gran Stobage acty Deter-
mnaton or Ad|usted Bass.
S C. 12 B. AMORTIZATION D DUCTION OR GRAIN RTOR-
AG ACILITI S. (a) Aowance or Deducton. (1) Orgna
owner. Any person who constructs, reconstructs, or erects n gran
storage facty (as defned In subsecton (d)) sha, at hs eecton,
be entted to a deducton wth respect to the amortzaton of the ad-
usted bass (for determnng pan) of such facty based on n perod of
60 months. The 60-month perod sha begn as to any such facty, nt
the eecton of the ta payer, wth the month foowng the mouth In
whch the facty was competed, or wth the succeedng ta abe year.
(2) Suns U NT owners. Any person who acqures a grau storage
facty from a ta payer who
(A) ected under subsecton (b) to take the amortzaton deduc-
ton provded by ths subsecton wth respect to such facty, and
(B) Dd not dscontnue the amortzaton deducton pursuant to
subsecton (c)
sha, at hs eecton, be entted to a deducton wth respect to the ad-
usted bass (determned under subsecton (e) (2)) of such facty
based on the perod. If any, remanng (at the tme of acquston) In
the 00-nonh perod eected under subsecton (b) by the person who
constructed, reconstructed, or erected such facty.
(3) Amount op deducton. Tho amortzaton deducton provded
In paragraphs (1) and (2) sha be an amount, wth respect to each
month of the amortzaton perod wthn the ta abe year, equa to the
ad|usted bass of the facty at the end of such month, dvded by the
uumber of months (Incudng the month for whch the deducton Is com-
puted) remanng In the perod. Such ad|usted bass at the end of the
month sha be computed wthout regard to the amortzaton deducton
for such month. The amortzaton deducton above provded wth
respect to any month sha be In eu of the deducton wth respect to
such facty for such month provded by secton 23(1) (reatng to
e hauston, wear nnd tear, and obsoescence).
(b) ecton or amortzaton. The eecton of the ta payer under
subsecton (a)(1) to take the amortzaton deducton and to begn the
60-month perod wth the month foowng the month In whch the
facty was competed sha be made ony by a statement to that effect
In the return for the ta abe year In whch the facty was competed. A
The eecton of the ta payer under subsecton (a)(1) to take the
amortzaton deducton and to begn such perod wth the ta abe year
succeedng such year sha be made ony by a statement to that effect
In the return for such succeedng ta abe year. The eecton of the
ta payer under subsecton (a)(2) to tnke the amortzaton deducton
sha be made ony by a statement to that effect In the return for the
ta abe year n whch the facty was acqured. Notwthstandng the
precedng three sentences, the eecton of the ta payer under subsecton
(a)(1) or (2) may be made, under such reguatons as the Secretary
may prescrbe, before the tme prescrbed In the appcabe sentence.
(c) Termnaton of amortzaton deducton. A ta payer whch has
eected under subsecton (b) to take the amortzaton deducton provded
In sdbseeton (a) may, nt any tme after makng such eecton, ds-
contnue the amortzaton deducton wth respect to the remander of
the amortzaton perod, such dscontnuance to begn as of the be-
gnnng of any month specfed by the ta payer In n notce In wrtng
fed wth the Secretary before the begnnug of such month. The de-
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egs. 113, A 39.121B-1. 1 6
dnctoo provded under secton 23(1) sha be aowed, begnnng wth
the frst month as to whch the amortzaton deducton Is not appcabe,
and the ta payer sha not be entted to any farther amortzaton
deducton wth respect to such facty.
(d) DmNno or gran sto age factutt. or the purposes of ths
secton, the term gran storage facty means
(1) Any corn crb, gran bn, or gran eevator, or any smar
structure sutabe prmary for the storage of gran, whch crb,
bn, eevator, or structure s ntended by the ta payer at the tme
of hs eecton to be used for the storage of gran produced by hm
(or, f the eecton s made by a partnershp, produced by the mem-
bers thereof) and
(2) Any pubc gran warehouse permanenty equpped for re-
cevng, eevatng, condtonng, and oadng out gran,
the constructon, reconstructon, or erecton of whch was competed
after December 31, 11)52, and on or before December 31, 1956. If any
structure descrbed n cause (1) or (2) of the precedng sentence s
atered or remodeed so as to ncrease ts capacty for the storage of
gran, or f any structure s converted, through ateraton or remode-
ng, nto a structure so descrbed, and f such ateraton or remodeng
was competed after December 31, 1952, and on or before December 31,
11)50, such ateraton or remodeng sbn bo treated as the constructon
of a gran storage facty. The term gran Rtor.go facty sha In-
cude ony property of a character whch Is sub|ect to the aowance for
deprecaton provded In secton 23(1). The term gran storage fa-
cty sha not Incude any facty any part of whch Is an emergency
facty wthn the meanng of secton 12-1A.
(e) Detebmnaton or Ad|usted Bass. (1) obona ow.nfrs.
or the purpose of subsecton (a) (1)
(A) In determnng the ad|usted bass of any gron storage fa-
cty, the constructon, reconstructon, or erecton of whch was
begun before anuary 1,1953, there sha be ncuded ony so much
of the amount of the ad|usted bass (computed wthout regard to
ths subsecton) as s propery attrbutabe to such constructon,
reconstructon, or erecton after December 31, 1952, and
(B) In determnng the ad|usted bass of any facty whch Is
a gran storage facty wthn the meanng of the second sentence
of subsecton (d), there sha be ncuded ony so much of the
amount otherwse Incuded In such bass as Is propery attrbutabe
to the ateraton or remodeng.
If any e stng gran storage facty as defned n the frst sentence of
subsecton (d) s atered or remodeed as provded In the second sen-
tence of subsecton (d), the e pendtures for such remodeng or atera-
ton sha not be apped n ad|ustment of the bass of such e stng
facty but a separate bass sha be computed In respect of such facty
as f the part atered or remodeed were a new and separate gran
storage facty.
(2) suhsequent owners. or the purpose of subsecton (a)(2),
, the ad|usted bass of any gran storage facty sha be whchever of
the foowng amounts s the smaer: (A) The bass (unad|usted) of
such facty for the purposes of ths secton In the bands of the trans-
feror, donor, or grantor, ad|usted as f such facty In the hands of the
ta payer had a substtute bass wthn the meanng of secton 113(b) (2)
(A), or (D) so much of the ad|usted bass (for determnng gan) of
the facty n the hands of the ta payer (as computed wthout regard
to ths subsecton) as Is propery attrbutabe to constructon, recon-
structon, or erecton after December 31, 1952.
. (f) Depbecaton Deducton. If the ad|usted bass of the gran
storage facty (computed wthout regard to subsecton (e)) e ceeds
the ad|usted bass computed under subsecton (e), the deducton pro-
vded by secton 23(1) sha, despte the provsons of subsecton (a) (3)
of ths secton, be aowed wth respect to such gran storage facty
as If the ad|usted bass for the purpose of such deducton were an
amount equa to the amount of sucb e cess.
(g) Lte Tenant and Remanderman. In the case of property, hed
. by one person for fe wth remander to another person, the amortza-
ton deducton provded In subsecton (a) sha bo computed as f the
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1 7 Regs. 11 ,130.12 B- .
fe tenant were the absoute owner of the property and sha be a-
owed to the fe tenant
Sec. 12 B as added by sec. 206(a), Technca Changes Act 1953.
Sec. 12 B s appcabe wth respect to ta abe years endng after
August 15, 1953
Sfc. 39.12-1B-1. Intbodoctobt. (a) Genera Sectons39.12 B-2 to 39.12 B-S.
ncusve, are appcabe ony wth respect to ta abe years endng after-
August 15, 1953 (the date of the enactment of the Technca Changes Act of
1953). These sectons comprse the reguatons under secton 12 B of the In-
terna Revenue Code of 1939, reatng to the amortzaton of grnn stora|re
factes. These reguatons are to be dstngushed from the reguatons under
secton 12 A of the Code (sees. 39.12 A(n) to 39.12 A(1)-1, Incusve) reatng to
amortzaton of emergency factes.
(b) Genera teope of secton 2B. Secton 12 B of the Code provdes
for the amortzaton of gran storage factes, as defned theren, over a perod
of CO months. The amortzaton deducton Is aowabe at the eecton of the
ta payer and sub|ect to the provsons of secton 12 B. The amortzaton de-
ducton Is not ony aowabe to the orgna owner of a gran storage facty ,
but may bo aowabe to any subsequent owner who acqures the facty from
another person who eected to take the amortzaton deducton and had not
dscontnued such deducton under the statute. In the case of the orgna
owner of n grnn storage facty the amortzaton perod s a crod of 00 months.
or n subsequent owner to amortzaton perod a the erod. If any, remanng
at to tme of hs acquston In the 00-month perod eected by the person who
competed constructon, reconstructon, or erecton of the gran storage facty.
(c) Cross-references. or the rght of estates and trusts to amortze gran
stornge factes, see secton 172 and secton 39.172-1. or the aowance of
the amortzaton deducton In the case of gran storage factes of partnershps,
see secton 190 and secton 39.190-1.
Sec. 39.12 B-2. Defnton op Gran Storage acttt. (a) Genera. or
the purpose of secton 12 B the term gran storage facty means
(1) Any corn crb, gran bn, or gran eevator, or any smar structure
sutabe prmary for the storage of gran, but ony If the ta payer at the
tme of hs eecton to take the amortzaton deducton aowed under sec-
ton 12 B(a) Intends such crb, bn, eevator, or structure to be used for
the storage of gran produced by hm, or In case the eecton to take the
amortzaton deducton s made by a partnershp ony f such crb, bn,
eevator, or structure Is Intended by the partnershp at the tme of Its eec-
ton to be used for the storage of gran produced by members of the partner-
shp and
(2) Any pubc gran warehouse or eevator permanenty equpped for
recevng, eevatng, condtonng, and oadng out gran,
the constructon, reconstructon, or erecton of whch was competed after De-
cember 31,1952, and on or before December 31,1950. The term gran ncudes
a products commony cassed as gran, such as wheat, corn, oats, barey, rye,
rce, soybeans, gran sorghums, fa seed and dry edbe beans.
(b) Prvate gran storage factct. In the case of any structure descrbed
n subparagraph (1) of paragraph (a) of ths secton, the constructon, recon-
structon, or erecton of whch was competed after December 31, 1952, and on
or before December 31, 1950, the ta payer at the tme of hs eecton to take the
amortzaton deducton wth respect to the structure must ntend to use the
facty for the storage of gran produced or to be produced by hm. If the
eecton Is made by a partnershp, the structure must be Intended at the tme
of the eecton to be used for the storage of gron produced by one or more
members of the partnershp. The statute does not requre that the facty be
actuay used at the tme of the eecton for the storage of gran. The Intent
requred by the statute at the tme of the ta payer s eecton to take the amort-
saton deducton Is appcabe not ony to the orgna owner who competed the
constructon, reconstructon, or erecton of the facty, but to any subsequent
owner of the facty. The e stence of the requste Intent s a queston of
fact to be ascertaned from.the crcumstances of each partcuar case. The ack
of the requred Intent wth respect to the use of the facty by a subsequent
owner does not affect the aowance of the amortzaton deducton to a pre-
cedng owner for the perod durng whch the facty was owned by hm.
33316 55 IS
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Regs. 11 . 39.12 B-1. 1
However, the absence of the requred Intent as to the use of the facty on the
part of ether the orgna owner or any Intervenng owner precudes any
subsequent owner from takng the amortzaton deducton wth respect to the
facty. A structure Is not sutabe prmary for the storage of gran f It Is
of a type customary used for other purposes, even though t may actuay bo
used for storng gran. or e ampe, no part of a resdenta dweng may
quafy as a gran storage facty. Nor Is a structure sutabe prmary for
the storage of gran uness It s so constructed as to be especay adapted to
effcent storage of gran. Thus, a genera utty type of budng does not
quafy under the statute as a gran storage facty, even though t may be
actuay used for storng gran. However, structures not sutabe prmary for
the storage of gran may through ateraton or remodeng quafy as gran
storage factes (see par. (d) of ths secton). On the other hand a sttucture
whch Is sutabe prmary for the storage of gran Is not dsquafed under
tbe statute merey because t may at tmes be used for other purposes. The
structures descrbed n subparagraph (1) of paragraph (a) of ths secton may
Incude tracksde gran storage factes.
(c) Pubc gran storage factes. The term pubc gran warehouse as used
In secton 12 0(d) Incudes ony a gran warehouse or eevator transactng
busness wth members of the genera pubc. The amortzaton deducton, how-
ever, Is not avaabe to a person who stores ony gran purchased for consump-
ton n bs busness, such as a mng company whch constructs storage fac-
tes for purchased gran hed for processng. The statute aso requres that
the gran warehouse or eevator must be equpped for recevng, eevatng,
condtonng, and oadng out gran, and that the equpment used for these pur-
poses must be permanenty Instaed. Such equpment Is consdered a part of
the gran warehouse or eevator for the purpose of secton 12 B. A gran
warehouse or eevator usng portabe equpment for recevng, eevatng, cond-
tonng or oadng out gran cannot quafy as a gran storage facty for the
purposes of secton 12111. Tbe term condtonng as used In secton 12115 (
ncudes turnng, dryng, aeratng, fumgatng, or other processng of gran.
Whe t Is not essenta for quafcaton as a gron storage facty that a
pubc gran warehouse or eevntor be permanenty equpped to render a servces
embraced wthn tbe meanng of condtonng, the gran warehouse or eevator
must be permanenty equpped for turnng, dryng, or smar processng of
gran. The fact that a pubc gran warehouse accepts for storage, n addton
to products commony cassed as gran (see par. (a)), other products whch are
ordnary stored n gran warehouses does not dsquafy the warehouse as a
gran storage facty for the purpose of secton 12 1 .
(d) Ateraton or remodeng. (1) If any structure descrbed In subpara-
graph (1) or (2) of paragraph (a) of ths secton Is atered or remodeed so
that Its capacty for the storage of gran Is Increased, and such ateraton or
remodeng was competed after December 31, 1932, and on or before Dcvero-.
bcr 31, 1000, for tho purpose of secton 2IB such ateraton or remodeng s
treated as the constructon of n gran storage facty. Such ateraton or ro-
modeng may quafy as a gran storage facty, whether or not the orgna
structure consttuted a gran storage facty as defned n secton I2(d).
If the orgna structure dd quafy as a gran storage facty for tbe purpose
of secton 12 B, the amortzaton deducton aowabe under secton 12 11(a)
may be taken wth respect to such ateraton or remodeng, whether or not
the ta payer or any precedng owner eected to take the amortzaton deduc-
ton aowabe wth respect to tbe orgna structure.
(2) Lkewse, If any structure not descrbed In subparagraph (1) or (2) of
paragraph (a) of ths secton s converted through ateraton or remodeng
Into a structure so descrbed, and such ateraton or remodeng was com-
peted after December 31, 1952, and on or before December 31, 1956, for the
purpose of secton 12 B such ateraton or remodeng a treated as the construc-
ton of a gran storage facty.
(3) or eecton to take the amortzaton deducton wth respect to ateraton
or remodeng descrbed n subparagraphs (1) and (2) of ths paragraph, see
secton 39.12 B- . or determnaton of ad|usted bass for tbe purpose of the
amortzaton deducton wth respect to a gran storage facty attrbutabe to
such ateraton or remodeng, see secton 39.12 B-C.
(e) cuded property. (1) Nondeprecabe property. The term gran stor-
age facty Incudes ony property of a character whch s sub|ect to the
aowance for deprecaton provded In secton 23(1). Thus, gran storage
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1 9 Regs. 11 ,139 2 B-1.
facty does not Incude the and on whch a structure defned In paragraph (a)
of ths secton Is erected.
(2) mergency tacHtet.-() The term gran storage facty does not
Incude any facty any part of whch Is consdered an emergency facty wthn
the meanng of secton 12 A. or the defnton of emergency facty for
the purpose of secton 12 A. see secton 39.12 A(d)-(b).
(II) If a or any part of the ad|usted bass (computed under sec. 113(b)) of
a structure descrbed n paragraph (a) of ths secton Is certfed as an emer-
gency facty under secton 12 A(e), such structure cannot quafy as a
gran storage facty for the purposes of secton 12 B. However, f pror to
the makng of any eecton to take the amortzaton deducton aowabe under
secton 12 A(a) wth respect to such structure, the certfcate made under
secton 12 A(c) Is canceed by the certfyng authorty, such structure w be
consdered a gran storage facty for the purposes of secton 12 B.
() In the case of any ateraton or remodeng descrbed In subparagraph
(1) or (2) of paragraph (d) of ths secton, f a or any part of the ad|usted
bass (computed under sec. 113(b)) of the orgna structure Is certfed as an
emergency facty under secton 12 A(e), such ateraton or remodeng
way, nevertheess, quafy as n gran storage facty for the purposes of sec-
ton 12 B, provded the foowng condtons are met:
(a) None of the e pendtures attrbutabe to such ateraton or remod-
eng represents constructon, reconstructon, erecton, Instaaton, or ac-
quston ncuded In the certfcate made under secton 12 A(e) wth re-
spect to the orgna structure, and
(6) A separate certfcate s not made under secton 12 A(e) wth re-
spect to such ateraton or remodeng rs a new and separate emergency
facty, or If a separate certfcate was made, such certfcate, pror to the
makng of any eecton to take the amortzaton deducton aowabe under
secton 12 A(o) wth respect to such ateraton or remodeng. Is canceed
by the certfyng authorty.
Sec. 30.12 R-3. Amortzato Deductos. (a) OH|fna owner. Any per-
son who constructs, reconstructs, or erects a gran storage facty as defned
n secton 12 B(d) s entted at hs eecton to a deducton wth respect to the
amortzaton of the ad|usted bass (for determnng gan) of such facty
based on a perod of GO months. As to the ad|usted bass of a gran storage
facty, see secton 39.12 B-0. The ta payer may, wth respect to a gran stor-
age facty, eect to begn the CO-month amortzaton perod wth (1) the month
foowng the month n whch such facty was competed, or (2) the ta abe
year succeedng that In whch such facty was competed (see sec. 39.12 B- ).
The date on whch, or the month wthn whch, a gran storage facty Is com-
peted Is to be determned upon the facts n the partcuar case. A statement
of the dae ascertaned by the ta payer, together wth a statement of the pert-
nent facts reed upon, shoud be fed wth the ta payer s eecton to take amor-
tzaton deductons wth respect to such facty.
(b) Bubaucnt owner. Any person who acqures a gran storage facty
from a ta payer who eected to take the amortzaton deducton provded by
secton 12 11(a) wth respect to such facty and who pror to the acquston
by such person had not dscontnued the amortzaton deducton pursuant to
secton 12 B(c) Is entted at hs eecton to a deducton wth respect to the
amortzaton of the ad|usted bass (determned under secton 12 B(e)(2))
of such facty based on the perod, f any, remanng at the tme of hs acqu-
ston n the 60-month perod eected by the orgna owner of such facty. or
the determnaton of the ad|usted bass of a gran storage facty In the hands
of a subsequent owner for the purpose of the amortzaton deducton, see
secton 39.12 B-6.
(c) Amount of deducton. (1) In genera, wth respect to each month of the
60-month perod whch fas wthn the ta abe year, the amortzaton deducton
s an amount equa to the ad|usted bass of the facty at tbe end of such month
dvded by the number of months (Incudng the partcuar month for whch
the deducton Is computed) remanng n the 00-month perod. If a gran stor-
age facty Is hed successvey by two or more persons durng a snge month,
the amortzaton deducton, If any, aowabe to each of such persons n respect
of that month sha be ony that porton of the amount to whch each such per-
son woud be entted for a fu month whch the number of days n such month
durng whch the facty was hed.by hm bears to the tota number of days
In such month. The ad|usted bass of the gran storage facty at the end of
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Regs. 11 ,130.12 B-1. 190
any month sha be computed wthout regard to the amortzaton deducton
wth respect to such facty for such month. The tota amortzaton deducton
wth respect to a gran storage facty for a partcuar ta abe year Is the sum
of the amortzaton deductons aowabe wth respect to such facty for each
month of the 60-month perod whch fas wthn such ta abe year.
(2) The amortzaton deducton wth respect to a gran storage facty for any
month Is In eu of the ( .educton for deprecaton whch woud otherwse be
aowabe under secton 23(1) wth respect to the facty for that month. If the
orgna owner of a gran storage facty eects to begn the 60-month amortza-
ton perod wth the ta abe year succeedng that n whch the facty was com-
peted, the deducton for deprecaton provded In secton 23(1) s aowabe
wth respect to the facty for the perod Intervenng between the competon of
the facty and the begnnng of the 60-month perod. However, If the orgna
owner eects to begn the 60-month amortzaton perod wth the month foowng
that n whch the facty was competed, no deducton under secton 23(1) Is
aowabe n respect of the month n whch the facty was competed. or
deprecaton aowabe wth respect to any amount not sub|ect to amortzaton
see secton 39.12 B-7.
(d) ampes. Ths secton may be ustrated by the foowng e ampes:
ampe (/). On uy 1, 1953, A, who makes bs Income ta return on
a caendar yenr bass, begns the constructon of a gran storage facty
whch Is competed on September 30, 1953, at a cost of 2 ,000, not Incudng
the cost of the and on whch the facty Is erected. A eects to tnkc the
amortzaton deducton wth respect to the facty and to begn the 00-month
amortzaton perod wth October 1053, the month foowng Its competon.
The ad|usted bass of the facty at the end of October Is 21,000. To
aowabe amortzaton deducton wth respect to such facty for the ta a-
be year 1053 Is 1,200, computed as foows:
Monthy amortzaton deductons:
October: 2 ,000 dvded by 60 A 00.
November: 23,000 ( 2 ,000 mnus 00) dvded by 60 00.
December: 23,200 ( 23,600 mnus 00) dvded by 6 00.
Tota amortzaton deducton for 1053 1,200.
. ampe (2). The Corporaton, whch makes Its Income ta return
on the caendar year bass, begns the constructon of a gran storage facty
on une 15. 1053. The facty s competed on August 2, 1053. The
Corporaton eects to take amortzaton deductons wth respect to the
facty and to begn the 60-month amortzaton perod wth September
1053, the month foowng ts competon. At the end of the frst month
of the amortzaton perod the ad|usted bass of the facty Is 30,000. In
October 1953, the facty s damaged by fre, as the resut of whch the
ad|usted bass Is propery reduced by 2,537. The aowabe amortzaton
deducton wth respect to the facty for the caendar year 1053 Is 1, 71,
computed as foows:
Monthy amortzaton deductons:
September: 30,000 dvded by 60 500.
October: 26,963 ( 30,000 mnus 500 and 2,537)
dvded by 59 57.
November: 26,506 ( 26,963 mnus 57) dvded by 6 57.
December: 26,0 9 ( 26,506 mnus 57) dvded by 57 57.
Tota amortzaton deducton for 1953 1, 71.
or ustraton In the case of a subsequent owner of a gran storage facty,
see ampe (2) In secton 39.12 B-6(f).
Sc. 39.12 B- . ecton or Amortzaton. (a) Genera rue. (1) Orgna
owner. The eecton by a ta payer who constructs, reconstructs, or erects a
gran storage facty to take amortzaton deductons wth respect to the facty
and to begn the 60-month amortzaton perod, ether wth the month foowng
the month n whch the facty was competed or wth the ta abe year suc-
ceedng the ta abe year n whch such facty was competed, sha be made by
a statement to that effect In the ta payer s return for the ta abe year n whch
fas the frst month of the 60-month amortzaton perod so eected. Such
statement sha ncude the foowng nformaton:
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191 Regs. 11 , t 30.12 1B-I.
(I) A descrpton ceary Identfyng each gran storage facty for whch
an amortzaton deducton Is camed.
(II) The date on whch the constructon, reconstructon, or erecton of
each such facty was competed.
() The tota costs and e pendtures pad or Incurred n the constructon,
reconstructon, or erecton of any such facty, e cudng the cost of any
and.
(v) If the constructon, reconstructon, or erecton of any such facty
was begun before anuary 1,1 53, the amount of the costs and e pendtures
propery attrbutabe to such constructon, reconstructon, or erecton after
December 31, 19. 2.
(v) In the case of a prvate gran storage facty descrbed In secton
39.121B-2(b), a statement that the ta payer Intends to use the facty for
the storage of gran produced or to be produced by hm. or In case the eecton
Is beng mndc by a partnershp, that the structure Is Intended to be used
for the storage of gran produced by one or more members of the partnershp.
(2) Subsequent ocncr. The eecton by a subsequent owner (that s. a
person who acqures a gran storage facty from a ta payer who eected
to tako the amortzaton deducton wth respect to the facty and who pror
to the acquston by the subsequent owner hud not dscontnued the amortza-
ton deducton under secton 12111(c)) to take amortzaton deductons wth
rcs oct to the facty sn bo muda by a statement to. that effect In the ta -
payer s return for tbo ta abo year In whch fus the month In whch the
facty was acqured. Buch statement sha Incude the foowng nformaton:
(I) The name and address of tho precedng owner.
(II) The dtto and the manner of tho acquston of the gran storage
facty from such precedng owner.
(III) A statement of the bass (unad|usted) of the facty In the bands of
the precedng owner for amortzaton purposes, ad|usted to the date of
acquston by the ta payer.
(It) A statement of tho ad|usted bass of the facty n the hands of the
ta payer for amortzaton purposes, computed as of the date of acquston
by tho ta payer.
(v) In the case of a prvate gran storage facty descrbed n secton
9.12 B-2(b), a statement that the ta payer ntends to nse the facty
for tho storage of gran produced or to be produced by hm, or n case
the eecton Is beng made by a partnershp, that the structure s Intended
to be used for the storage of gran produced by one or more members of the
partnershp,
(b) Speca ru ct for makng eecton pror to fng of return. If, pror to the
tme prescrbed n paragraph (a) of ths secton for makng the eecton to take
amortzaton deductons wth respect to a gran storage facty, such facty s
acqured by a subsequent owner, the precedng owner of the facty may make
such eecton wthn GO days after the date of acquston of such facty by the
subsequent owner. In the event that the precedng owner des or ceases to e st
pror to makng an eecton, the eecton may be made wthn such tme by the
duy authorzed representatves of the precedng owner. Uness the eecton to
take amortzaton deductons wth respect to the facty Is made by the
precedng owner or on hs behaf, the subsequent owner of the facty sha
not be entted to take the amortzaton deductons nowabe under secton
12 n (a) wth respect to such facty. A statement of eecton under ths para-
graph sha be ted wth the dstrct drector of Interna revenue (for the Interna
revenue dstrct determned under secton 53(b) as If such eecton were a
return requred to be fed by the ta payer), and sha contan the snme Informa-
ton requred wth respect to a statement of eecton under paragraph (a) of ths
secton. However, In the case of a prvate gran storage facty descrbed In
secton ).12 B-2(b), n eu of the statement regardng the ntended use of
the fncty at the tme of the eecton, the statement of eecton under ths
paragraph sha ncude a statement that the precedng owner, at the tme of
the constructon, reconstructon, erecton, or acquston of the facty by hm.
Intended to use the facty for the storage of gran produced or to be produced
by hm. If the precedng owner of the facty was the orgna owner, the
statement of eecton must specfy the begnnng of the 60-month amortzaton
perod. Uness the gran storage facty Is acqured from the orgna owner
after the begnnng of hs ta abe year succeedng the ta abe year a whch
such facty was competed, an eecton made under ths paragraph must begn
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egs. 11 , 39 2 B-1. 192
tbe 60-month amortzaton perod wth the month foowng the month In whch
the facty was competed.
(c) ecton not made at the tme or n the manner prescrbed by ths secton.
(1) The Commssoner has no authorty to e tend the tme prescrbed In secton
12 B(b) and paragraph (a) of ths secton for makng an eecton to take amor-
tzaton deductons aowabe under secton 12 B(a). However, tbe Comms-
soner In bs dscreton may, for good cause shown, grant a reasonabe e tenson
of tme for tbe makng of an eecton under paragraph (b) of ths secton. See
secton 39.6000-1 of these reguatons.
(2) cept as provded In the precedng subparagraph, If a statement of eec-
ton under paragraph (a) or (b) of ths secton does not compy wth the requre-
ments prescrbed theren, It may. In tbe dscreton of the Commssoner and for
good cause shown, be made n such manner and form as may be approved by hm.
(3) No method of makng tbe eecton to take the amortzaton deductons
wth respect to a gran storage facty other than tbose prescrbed In ths secton
sha be permtted. A ta payer who fas to eect to take amortzaton deductons
wth respect to such a facty sha not be entted to amortzaton deductons
wth respect to such facty.
(d) Ateraton or remodeng of e stng gran storage facty. If an e stng
gran storage facty, as defned n secton 12 11(d), s atered or remodeed and
such ateraton or remodeng Is treated under secton 12 B(d) as tbe construc-
ton of a gran storage facty (see sees. 39.12 11-2 (d) and 39.12 B-6(c)), the part
of tbe facty atered or remodeed s treated as a new and separate gran
storage facty. In such case uness the ta payer who competes such ateraton
or remodeng makes a separate eecton. In tbe manner and wthn the tme
provded n ths secton, to take amortzaton deductons and to begn n new 00-
aonth perod wth respect to such ateraton or remodeng, he sha not be
entted to amortzaton deductons wth respect to such ateraton or remodeng.
Such ateraton or remodeng s aso treated as a separate gran storage facty
n the hands of a subsequent owner.
Sec. 39.12 B-3. Termnaton or Amortzaton Deducton. (a) If a ta -
payer has eected to take amortzaton deductons wth respect to a gran storage
facty, be may, pror to the e praton of tbe 60-month amortzaton perod and
pror to the acquston of such facty by another person, dscontnue tbe amor-
tzaton deductons wth respect to such facty for tbe remander of tbe 60-
uontb perod. An eecton to dscontnue tbe amortzaton deductons sha be
made by notce n wrtng fed wth tbe Dstrct Drector of Interna Revenue
(for the Interna revenue dstrct determned under secton 63(b) as f such
notce were a return requred to be fed by the ta payer), specfyng the month
as of tbe begnnng of whch the ta payer eects to dscontnue such deductons.
Such notce sha be fed before tbe begnnng of tbe month specfed theren,
and shoud contan a descrpton ceary dentfyng the gran storage facty
wth respect to whch the ta payer eects to dscontnue the amortzaton deduc-
tons. If tbe ta payer eects In the manner provded heren to dscontnue the
amortzaton deductons wth respect to a gran storage facty, be sha not
be entted to any further amortzaton deductons wth respect to such facty.
(b) A ta payer who eects to dscontnue amortzaton deductons wth respect
to a gran storage facty s entted to a deducton for deprecaton under sec-
ton 23(1) wth respect to such facty. The deducton for deprecaton sha
begn wth the frst month as to whch tbe amortzaton deducton s not app-
cabe and sha be computed on the ad|usted bass of the property as of tbe begn-
nng of such month (see sec. 113(b) and tbe reguatons thereunder).
(c) Ths secton may be ustrated by the foowng e ampe:
ampe. On ebruary 1, 1953, the T Corporaton, whch makes ts
ncome ta returns on tbe caendar year bass, begns tbe constructon of a
gran storage facty. The facty Is competed on une 30,1953, at a cost
of 306,000 of whch 60,000 s aocabe to the and and 2 6,000 to the
facty. The corporaton eects to take amortzaton deductons wth respect
to tbe facty and to begn the 60-montb amortzaton perod wth uy 1953,
the month foowng Its competon. On March 25, 195 , the corporaton
fes notce wth the Dstrct Drector of ts eecton to dscontnue tbe
amortzaton deductons begnnng wth the month of Apr 195 . The ad-
usted bass of the facty on uy 31, 1953, Is 2 0,000. Tbe amortzaton
deductons for the ta abe year 1953 and tbe months of anuary, ebruary,
and March 195 , amount to 36,900, or ,100 per month for 9 months. Ac-
cordngy, the ad|usted bass of the facty as of Apr 1, 195 , s 209,100.
Begnnng as of that date the deducton for deprecaton under secton 23(1).
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193 Regs. US, 13D 21B-L
Is aowabe wth respect to the property. Such deducton sha be computed
on the ad|usted bass ( 209,100) of the property as of Apr 1, 195 .
Sec. 30.12 B-0. Ad|usted Bass or Gham Stoeaob ach|tt. (a) Oenero.
Secton 12 B(e) provdes rues whch appy In the determnaton of the ad|usted
bass of a gron storage facty for the purpose of computng the amortzaton
deductons aowabe under secton 12 11(a). Secton 12 13(e) does not purport
to provde an a-ncusre formua for the computaton of ad|usted bass for
amortzaton purposes, but ony prescrbes certan modfcatons In the amount
whch woud otherwse consttute the ad|usted bass of the facty. As a resut
of these modfcatons the ad|usted bass for the purpose of computng the
amortzaton deductons aowabe wth respect to the facty w dffer n some
cases from the ad|usted bass of the facty determned under secton 113 wth-
out regard to secton 12 B(e). The ad|usted bass for amortzaton purposes
may aso dffer from the ad|usted bass of the facty for other purposes n that
t sha be the ad|usted bass for determnng gan (see sec. 113). The ad|usted
bass for amortzaton purposes Is derved from the unad|usted bass of the
gran storage facty determned under secton 113. The speca rues pro-
vded In secton 12 B(e) are appcabe n transatng the unad|usted bass deter-
mned under secton 113 Into the unad|usted bass for amortzaton purposes
under secton 12 D. The unad|usted bass for amortzaton purposes, ess the
ad|ustments propery aocabe thereto, becomes the ad|usted bass for amortza-
ton purposes. These ad|ustments are those specfed In secton 113(b). How-
ever, ad|ustments whch Increase the ad|usted bass under secton 113(b) are
not to be taken Into account In determnng the ad|usted bass for amortzaton
purposes (see par. (d) of ths secton).
(b) Orgna owner . Secton 12 11(e) (1) provdes rues whch appy n the
determnaton of the ad|usted bass for amortzaton purposes of a gran storage
facty In the hands of an orgna owner (see sec. 39.12 B-3(a)). As the
resut of the appcaton of the rues stated In subparagraphs (1) and (2)
beow, the ad|usted bass of the facty for amortzaton purposes w be smaer
than the amount whch woud otherwse consttute the ad|usted bass of the
facty. The rues are the foowng:
(1) If the constructon, reconstructon, or erecton of the facty was
begun before anuary 1, 1953, there Is to be Incuded ony so much of the
entre unad|usted bass of the facty as Is propery attrbutabe to con-
structon, reconstructon, or erecton after December 31, 1952.
(2) If a structure whch s not an e stng gran storage facty as
defned n secton 12 B(d) s atered or remodeed and such ateraton or
remodeng s treated under secton 12111(d) as the constructon of a gran
storage facty (see sec. 39.12 B-2(d)), there s to be Incuded ony so
much of the entre unad|usted bass of such structure as s propery attrbut-
abe to such ateraton or remodeng as was competed after December 31,
1952, and on or before December 31, 1956. In the case of ateraton or
remodeng of an e stng gran storage facty, see paragraph (e) of ths
Becton.
(c) Subsequent owners. A speca rue Is provded n secton 12 B(e) (2) for
the determnaton of the ad|usted bass for amortzaton purposes of a gran
storage facty In the bands of a subsequent owner (see sec 39.12 B-3(b)).
Such ad|usted bass Is the smaer of the foowng amounts:
(1) The ad|usted bass determned by ncudng an amount n respect of
unad|usted bass equa to the ad|usted bass of the facty for amortza-
ton purposes n the hands of the precedng owner, determned as of the
date of acquston of the facty by the ta payer. or the purpose of ths
paragraph In determnng the ad|usted bass of the facty for amortzaton
purposes In the hands of the precedng owner, the ad|ustments requred
under secton 113(b) sha Incude an ad|ustment n respect of the amount
of the amortzaton deducton aowabe to the precedng owner for the
month In whch the facty was acqured by the ta payer. See secton
3 ).12 B-3(c). or the rue e cudng capta addtons from the ad|usted
bass of a gran storage facty for amortzaton purposes, see the foowng
paragraph.
(2) The ad|usted bass (computed under sec. 113 for determnng gan)
of the facty n the hands of the ta payer. If the constructon, recon-
structon, or erecton of the facty was begun before anuary 1, 1953, In
determnng such ad|usted bass there Is to be ncuded ony so much of the
entre unad|usted bass of the facty (In the hands of the ta payer) as s
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Begs. 11 ,1 39.12 B-1. 19
propery attrbutabe to constructon, reconstructon, or erecton after De-
cember 31, 1952.
(d) Capta addtons. If after the competon or acquston of a gran
storage facty further e pendtures are made for constructon, reconstructon,
or erecton, such e pendtures sha not be added to the ad|usted bass of the
facty for amortzaton purposes. If such e pendtures resut n ateraton or
remodeng whch under secton 12 B(d) Is treated as the constructon of a
gran storage facty, see the foowng paragraph.
(e) Ateraton or remodeng of e stng gran storage facty. If an e stng
gran storage facty as defned In secton 12 0(d) s atered or remodeed and
such ateraton or remodeng Is treated under secton 12 15(d) as the construc-
ton of a gran storage facty (see sec. 39.f2 B-2(d)), the e pendtures for
each ateraton or remodeng sha not be apped n ad|ustment of the bass
of the e stng facty, but a separate bass sha be computed by reference to
such e pendtures as f such ateraton or remodeng represented a new and
separate gran storage facty. A structure whch was not an e stng gran
storage facty pror to ateraton or remodeng whch s treated under secton
12 B(d) as the constructon of a gran storage facty becomes an e stng gran
storage facty for the purposes of ths subparagraph. Thus, f a structure
whch s an e stng gran storage facty by reason of such ateraton or re-
modeng s agan atered or remodeed and such ateraton or remodeng s
treated under secton 12 15(d) as the constructon of a grnn storage facty,
the provsons of ths subparagraph are aso appcabe to such ater ateraton or
remodeng.
(f) ampes. The computaton of the ad|usted bass of a gran storage
facty for amortzaton purposes may be ustrated In the foowng e ampes:
ampe (1). On ebruary 2 , 1953, A competes the constructon of a
gran storage facty as denned n secton 12 15(d) at a cost of 2,000 for
the and and 0,000 for the constructon. Ony 3,000 of the tota cost of the
facty s propery attrbutabe to constructon after December 31, 1952. A
eects to cam the amortzaton deducton and to begn the 00-month perod
on March 1,1953. Under secton 12 15(e) the ad|usted bass of the facty
for the purpose of secton 12 15(a) as of that date s ony 3,000, the amount
attrbutabe to constructon after December 31, 1952. In determnng the
ad|usted bass of the facty as of any subsequent date for the purpose of
computng the amortzaton deducton, the amortzaton deductons aow-
abe In respect of the perod pror to such date must, of course, be taken nto
account. See secton 113(b) of the Code. Thus, the ad|usted bass of the
facty for the purpose of computng the amount of the amortzaton deduc-
ton aowabe for the month of anuary 195 , s 2,500 ( 3,000 mnus 500,
the amortzaton deductons aowabe pror to anuary 1, 195 ).
ampe (2). A began on anuary 1, 1953, and competed on une 30,
1953, the constructon of a gran storage facty as defned n secton
12 B(d) at a cost of 5,000 for the and and 30,000 for the constructon.
A eects to cam the amortzaton deducton and to begn the 00-month
perod on u. 1,1953. On May 1,195 , A ses the gran storage facty to
B for a prce of 3 ,000 of whch 0,000 Is aocabe to the and. B eects to
cam the amortzaton deducton on the bass of the 50 months remanng
In the amortzaton perod. B, n determnng the ad|usted bass of the
facty n hs bands, must start wth the unad|usted bass of the facty In
thcbodsof A ( 30,000) and ad|ust such bnss under secton 113 (b) (1) (11)
In respect of amorr.nIon camed by A durng h ownershp of the fa-
cty ( 5,000). Snce ths amount ( 25,000) Is suncr than the ad|usted
bass (for determnng gan) of the facty n B s hands us of May 1, 195
( 2 ,000. that Is 3 ,000 ess 15,000 aocabe to and), the ad|usted bass of
the facty for the purpose of secton 12 11(a) In s hands as of May 1,195 ,
s 25,000. B, therefore, may Incude ony 25,000 In determnng the ad-
|usted basU of the facty In hs bauds as of May 1, 195 , tho date of the
purchase. The amortzaton deductons camed by B must, of course, be
apped In reducton of such ad|usted bass n determnng the ad|usted
bass of the facty as of any subsequent date for the purpose of hs amortza-
ton deducton under secton 12 15(a). The amount by whch the purchase
prce pad by B an aocabe to deprecabe property ( 2 ,000) e ceeds the
ad|usted bass determned under secton 12 15(c) for such property ( 25,-
000) or 3,000 1 treated as the ad|usted bnss (as of May 1,195 ) for the
purpose of the deprecaton deducton aowabe under secton 23(1). See
secton 30.12 B-7.
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195 Regs. 11 ,130.12 B-1_
Sec. 39.12 B-7. Deprecaton or Porton or Gran Storage ac|tt Not Sub-
|ect to Amortzaton. The rue set forth In secton 12 B(a) (see sec. 39.12 B
3), that the amortzaton deducton wth respect to a gran storage facty Is n
eu of any deducton for deprecaton whch woud otherwse be aowabe under
secton 23(1) wth respect to the facty, Is sub|ect to an e cepton provded n
secton 12 B(f). Under ths e cepton If the ad|usted bass of the facty as
computed under secton 113(b) for purposes other than the amortzaton deduc-
tons (see sec. 30.113(b) (1)-1) s In e cess of the ad|usted bass computed under
Becton 12 11(e) for the purpose of the amortzr.ton deductons (see sec. 39.12 13
0), any e cess shn be charged off over the usefu fe of the facty and recovered
through deprecaton deductons aowabe under secton 23(1). Thus, If the
constructon of a gran storage facty was begun before anuary 1, 19o3t no
amortzaton deductons are aowabe wth respect to the amount attrbutabe
to such constructon before such date (see sec. 39.12 B-C). However, the de-
precaton deducton provded by secton 23(1) and the reguatons thereunder
s aowabe wth respect to the amount attrbutabe to constructon before anu-
ary 1,19 3. Smary, In the case of a subsequent owner the ad|usted bass of a
gran storage facty computed under secton 113(b) for purposes other than the
amortzaton deductons (see sec. 39.113(b) (1)-1) may e ceed the ad|usted
bass of the facty computed under secton 12 B(e) for amortzaton purposes.
In such case the e cess w be sub|ect to the aowance for deprecaton provded
by secton 23(1). or ustraton of the treatment of the porton of a gran
storage facty whch Is sub|ect to the aowance for deprecaton, see ampe
(2) In secton 39.12 B-0(f).
Sec. 39.12 B- . Lfe Tenant and Remanderman. In the case of a gran
storage facty hed by one person for fe wth the remander to another person,
the amortzaton deducton sha be computed as If the fe tenant were the
absoute owner of the property and sha be aowed to the fe tenant durng
hs fe.
Par. 3. Secton 39.172 s amended as foows:
(A.) By strkng of emergency factes from secton 172 and
(B) By nsertng before the cosng bracket of the hstorca note
the foowng: amended by sec. 206(b) (2), Technca Changes Act
1953, appcabe to ta abe years endng after August 15,1953 .
As revsed secton 39.172 w read as foows:
Sec. 39.172. Statutory Provsons states and Trusts Aowance or
Amortzaton Deducton.
S C. 172. ALLOWANC O AMORTIZATION D DUCTION.
The beneft of the deducton for amortzaton aowed by secton 23(t)
sha be aowed to estates and trusts In the same manner and to the
same e tent as In the case of an Indvdua. The aowabe deducton
sha be apportoned between the Income benefcares and the fducary
under reguatons prescrbed by the Commssoner wth the approva of
the Secretary.
(Hoc. 172 as added by sec. f 3(g), Rcr. Act 10 2 amended by sec.
200(b) (2), Tocmcn Changes Act 1053, appcabe to ta abe years end-
ng after Ak UNt IS, 10. 3
Pah. . Secton 39.172-1 s revsed to read as foows:
Seo. 30.172-1. Amortzaton or mergency acmtt on Gran Storaoe a-
cty or htatks or Trusts. In the enso of an emergency facty, as defned In
secton 12 A(d), acqured or competed by an estato or trust after December 31,
19 0, such estate or trust Is entted to take amortzaton deductons wth ra-
sped thereto In the same manner nurt to tho same e tent as n the case of an
Indvdua. The same rue s appcabe In the case of a gran storage facty,
as defned n secton 12 B(d). See sectons 23(t), 12 A, and 12 B and the
reguatons thereunder. The prncpes governng the apportonment of depre-
caton n the case of property hed In trust are appcabe wth respect to
the amortzaton of an emergency facty or of a gran storage facty of an
estate or trust. See secton 39.23(1)-1.
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Begs. 11 , 139 2 B-L 196
Par. 5. Secton 39.190 s amended as foows:
(A) By nsertng or gran storage factes mmedatey after
emergency factes ana
(B) By nsertng before the cosng bracket of the hstorca note
the foowng: amended by sec. 206(b) (3), Technca Changes Act
1953, appcabe to ta abe years endng after August 15,1953 .
As revsed secton 39.190 w read as foows:
Sec. 39.190. Statutory Provsons Partnershps Aowance or Amortza-
now Deducton.
S C. 190. ALLOWANC O AMORTIZATION D DUCTION. In
the case of emergency factes or gran storage factes of a partner-
shp, the beneft of the deducton for amortzaton aowed by secton
23(t) sha not be aowed to the members of a partnershp bnt sha
be aowed to the partnershp n the same manner and to the same
e tent as n the case of an Indvdua.
Sec. 190 as added by sec. 155(h), Iter. Act 19 2 amended by sec.
206(b)(3), Technca Changes Act 1953, appcabe to ta abe years
endng after August 15,1953
Par. 6. Secton 39.190-1 s revsed to read as foows:
Sec. 39.190-1. Amortzaton or mergency acty or Gran Storage ac-
ty or Partnershp. In the case of an emergency facty, as defned n sec-
ton 12 A(d)(1), acqured or competed by a partnershp after December 31,
19 9, the partnershp s entted to take amortzaton deductons wth respect
thereto n the same manner and to the same e tent as n the case of an In-
dvdua. The same rue s appcabe n the case of a gran storage facty,
as defned n secton 12 B(d). See sectons 23(t), 12 A, and 12 B and the
reguatons thereunder. Amortzaton deductons wth respect to an emergency
facty or a gran storage facty of a partnershp are not aowed to the
members of the partnershp.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62, 12 B, and 3791 of the Interna Revenue Code of 1939 (53
Stat. 32 67 Stat 620 53.Stat 67 26 U. S. C. 62,12 B, 3791).)
T. Coeman Andrews,
Commssoner of Interna Revenue.
Approved November 15,195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 1 ,195 , : 5 a. m.)
Reguatons 11 , Secton 39.12 B-2: Defnton Rev. Ru. 5 -30
, of gran storage facty.
A corporaton proposes to construct a pubc gran warehouse
ad|acent to a pubc gran warehouse aready owned by an affated
corporaton (through stock ownershp) and connect the two ware-
houses by means of overhead and underground conveyors. The
recevng, eevatng, condtonng, and oadng out equpment n the
present warehouse owned by the affated corporaton w be used
n connecton wth the new warehouse. Hed, f the constructon or
erecton of the new warehouse s competed on or before December 31,
1956, t w consttute a gran storage facty wthn the meanng of
secton 12 B of the Interna Revenue Code. Cf. Rev. Ru. 5 -33,
C. B. 105 -1,126.
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197 Regs. 11 , 5 39.127(c)-.
S CTION 126(c). INCOM IN R SP CT O D C D NTS:
D DUCTION OR STAT TA
R GULATIONS 11 , S CTION 39.126 (c)-: Deduc- Rev. Ru. 5 -601
ton for estate ta attrbutabe to ncome
n respect of decedent.
The deducton provded by secton 12C(c) of the Interna Revenue
Code of 1939 s appcabe to payments receved by a benefcary of a
deceased partcpant under a penson or proft-sharng pan meetng
the requrements of secton Co(a) of the Code, where such payments
consttute ncome n respect of a decedent under secton 12G(a).
Payments consttutng ncome n respect of a decedent are ord-
nary amounts whch woud have been receved by the decedent had
he ved and ncude compensaton for servces rendered durng hs
fetme. See Secton 39.12C(a)-, Reguatons 11 . An annuty
whch s payabe to the survvor for fe under a |ont and survvor
annuty a not ncome n respect of a decedent and the deducton
under secton 120 (c) of the Code s not appcabe n such case.
S CTION 127(c). WAR LOSS S: R CO RI S
R GULATIONS 11 , S CTION 39.127(c)-: Recov- Rev. Ru. 5 -501
cres n respect of war osses.
(Aso Secton 112 (a), Secton 39.112 (a)-
Secton 112(f), Secton 39.112(f)-
Secton 117(h), Secton 39.117(h)-.)
Dscusson of varous questons pertanng to recoveres In respect
of war osses reatng to certan German prewar doar bonds and
the subsequent e change of such bonds for new bonds of the edera
Repubc of Germany.
Advce s requested reatve to recoveres of certan prewar German
doar bonds and e changes of such bonds for new bonds of the ed-
era Repubc of Germany.
At the end of Word War II, varous ssues of German e terna debt
were outstandng, ncudng doar bonds ssued or guaranteed by the
German Rech and bonds ssued by German states. Servce on those
bonds had been suspended on varous dates pror to the war. On De-
cember 11,19 1, foowng the decaraton 01 war by the Unted States
aganst Germany, the Securtes and change Commsson requested
securtes e changes and securtes deaers throughout the Unted
States to cease handng transactons n German bonds. Unt re-
centy those restrctons had not been removed and because of them
there has been no market for German doar bends n ths country
for more than 12 years. German doar bonds have sporadcay and
to a mted e tent been traded durng that perod n Swtzerand on
an over-the-counter bass and, after the war, n some other uropean
countres. However, German doar bonds have not been sted or
traded on any uropean securtes e change and no we estabshed
market for them has e sted n any country
In 1951 the edera Repubc of Germany (herenafter referred to
as edera Repubc) accepted ts abty for the prewar e terna
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Begs. 11 , 39.127(cHO 19
debt of the German Rech, ncudng debts of other ssuers subsequenty
to be decared abtes of the Rech, and confrmed ts desre to resume
payments thereon. Thereafter, the Governments of the Unted
States, Unted ngdom and rance estabshed the Trpartte Com-
msson on German Debts, for the purpose of preparng a pan for
the ordery overa settement of German e terna debts. An nter-
natona conference on German terna Debts was hed n London
from ebruary 2 ,1952 to August ,1952, among the edera Repub-
c, the Trpartte Commsson, and representatves of other nterested.
governments and of credtor and debtor nterests. As a resut of the
London conference, a settement pan was agreed upon, whch s em-
boded n an agreement dated ebruary 27,1953, between the varous
nterested governments, and whch s known as the London Agree-
ment on German terna Debts 1953 (herenafter caed the London
Agreement). The ratfcaton or approva of the London Agree-
ment by the edera Repubc and the Governments of the Unted
States, the Unted ngdom and rance has been competed and t s
now n effect.
The London Agreement and Anne I thereto provde that the ed-
era Repubc w undertake to pay and transfer certan specfed
amounts n respect of the prncpa of and nterest on the outstandng
German doar bonds of the foowng fve ssues (herenafter caed
Od Bonds):
(1) German terna Loan 102 , 7 percent Bonds, due October 15,10 9
(the Dawes Loan).
(2) German Government Intematoo 5 percent Loan 1030, 5 percent
Bonds, due une 1,1065 (the Young Loan).
(3) The ree State ot Prussa 6 percent Snkng ond Bonds, terna
Loan of 1020, due September 15,19 1.
( ) The ree State of Prussa 6 percent Snkng und Bonds, terna
Loan of 1027, due October 15,1052.
(5) Converson Offce for German oregn Debts, 3 percent Doar Bonds,
due anuary 1,10 0 (10 Year Bonds of 1030).
Such undertakng s to be carred out by offers of severa ssues of new.
doar bonds of the edera Repubc (herenafter caed New Bonds),
representng the amounts so specfed n the London Agreement, n e -
change for outstandng Od Bonds and, n certan cases, for accrued
unpad nterest on such Od Bonds. cept as ndcated n the Lon-
don Agreement, the terms of the orgna contracts of the Od Bonds
w be mantaned The ssuance of the New Bonds and the under-
takngs of the edera Repubc to be contaned n the proposed e -
change offers have been duy authorzed by the Law Concernng the
Agreement on German terna Debts dated ebruary 27, 1953, of
the edera Repubc, enacted August 27,1953.
Substanta amounts of the orgna ssues of the Od Bonds had been
repatrated pror to 19 5. In the confuson that e sted n Germany
durng the atter days of the war, many of those repatrated bonds
whch had not yet been canceed were ost or ooted. or that reason,
t has been necessary for the edera Repubc to estabsh a procedure
. for the vadaton of Od Bonds n order to assure that those ost or
ooted bonds cannot be crcuated or otherwse presented as vad and
outstandng obgatons. The New Bonds w be offered n e change
. ony for Od Bonds and appurtenant coupons whch are egay out-
standng at the date of e change and whch sha have been vadated
pursuant to the procedure for vadaton estabshed under the Law.
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199 Regs. 11 , 39.127(c)- .
for the adaton of German oregn Currency Bonds, of the ed-
era Repubc dated August 25, 1052, and reguatons ssued there-
under, e cept that ractona Certfcates for Converson Offce for
German oregn Debts, 3 percent Doar Bonds, due anuary 1,19 G,
w not requre vadaton. The appcaton of that procedure n the
Unted States s based on an agreement between the Government of the
Unted States and the edera Repubc, dated ebruary 27, 1953,
whch estabshed a board for the vadaton of German doar bonds.
Ths board has authorty to vadate Od Bonds and appurtenant cou-
pons whch were hed outsde of Germany on anuary 1,19 5, ts dena
of vadaton beng sub|ect to revew. A further agreement between
the Governments of the Unted States and the edera Repubc, dated
Apr 1, 1953, provdes that e terna pre-war German Doar Bonds
theren referred to, ncudng the Od Bonds and appurtenant coupons,
sha not be enforceabe uness they sha be vadated n accordance
wth the procedure referred to above. The Unted States Senate has
advsed and consented to the ratfcaton of ths agreement, and t has
entered nto force.
The proposed e change offers of New Bonds for the vadated Od
Bonds provde substantay as foows:
(a) New Bonds w be Issued In amounts equa to tbe prncpa amount of
Od Bonds surrendered for e change, e cept that In the case of tbe 10 Year Bonds
of 1930 the New Bonds w be Issued In an amount equa to the prncpa amount
of the bonds e changed pus one-thrd of the arrears of nterest thereon from
anuary 1, 19 1 to December 31, 1032.
(b) New Bonds w be ssued n amounts equa to the arrears of nterest rep-
resented by coupons due to and ncudng October 15,19 , In tbe case of the 102
Loan Bonds and December 1, 10 , n the case of the 1030 Loan Bonds.
(c) Taons w he ssued (to be attached to tbe New Bonds Issued In e change
for the 19- and 1930 Loan Bonds) representng the rght to receve, upon reun-
fcaton of Germany, bonds smar to tbe 192 and 1930 Loan Bonds for the ar-
rears of nterest due from October 15,19 , to October 15,1952, n the case of the
192 Loan Bonds and from December 2,19 , to December 1,1932, In the case of
tbe 1930 Loan Bonds. The New Bonds Issued In e change for the 102 and 1U30
Loan Bonds w bear Interest from October 15, 1952, and December 1, 1932, re-
spectvey. New Bonds Issued for the Ten Year Bonds of 1930 w bear Interest
from anuary 1,1953.
(d) New Bonds w be Issued ony In denomnatons of 1,000, 300, and 100.
Amounts of bonds of ess than 100 w be represented by Scrpt Certfcates.
(e) Coupons appurtenant to Prussa Bonds ore to be retaned by tbe hoders.
Coupons appurtenant to vadated Prussa Bonds, bearng due dates from March
15, 1933, to and Incudng October 15, 1930, w be pnd, on and after 20 years
after maturty thereof, at the rate of 50 percent of the face amount thereof. The
amount and date of payment of coupons appurtenant to vadated Prussa Bonds
bearng due dates on and after March 13, 1937 (and of Interest from September
15,1051, to October 1,1952, on the Prussa Bonds of 1920) w be sub|ect to nego-
taton after terrtores formery beongng to the ree State of Prussa and now
outsde the terrtory of tbe edera Repubc sha be oned to the edera
Bepubc.
Any coupons appurtenant to 192 Loan Bonds and 1930 Loan Bonds
matured after 19 , whch w not be accepted for e change, w be
returned to the hoder. Sub|ect to vadaton requrements, such re-
turned coupons and coupons due durng such years whch are retaned
by the hoder w represent the rght, correspondng to the rght rep-
resented by the taons descrbed above, to receve bonds smar to the
respectve New Bonds, upon reunfcaton of Germany, for so much
of the arrears of nterest, recacuated at the appcabe rate for sad
perod, as s represented by such coupons.
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Regs. 11 , 39.127(c)- . 200
In the event that any nterest sha become payabe on Prussa Bonds
of the terna Loan of 1926 n respect of the perod September 15,
1951 to October 1, 1952, after negotaton as aforesad, the coupon
appurtenant to such Bonds due September 15.1951, w be treated as
aso representng nterest payabe for such addtona perod.
The scrp certfcates to be ssued n eu of amounts of ess than
100 of certan New Bonds w be n bearer form, transferabe by
devery. They w be e changeabe, at any tme on or pror to
March 1,1960 (or at any tme pror to the e praton of 2 years after
the e change offers sha termnate, whchever sha be ater), upon
surrender n amounts aggregatng 100 or more, at the offce of the
respectve authentcatng agent, for New Bonds of the ssue caed for
thereby, carryng nterest from the orgna nterest accrua date of
such bonds, n an aggregate prncpa amount equa to the hghest
mutpe of 100 represented by the scrp certfcates so surrendered.
A new scrp certfcate of ke tenor w be ssued for any e cess.
After the e praton of the perod durng whch scrp certfcates may
be e changed for New Bonds any remanng New Bonds reserved for
e change for scrp certfcates w be sod by the respectve authent-
eatng agent and the net proceeds of such sae, together wth nterest
accumuated on such Bonds, w thereafter be pad n cash pro rata
to the hoders of the remanng scrp certfcates, upon surrender there-
of at the offce of the respectve authentcatng agent. Scrp cert-
fcates whch sha not be so surrendered n e change for cash on or
pror to March 1, 1962 (or pror to the e praton of years after
the e change offers sha termnate, whchever sha be ater), w
become vod. Scrp certfcates for 1936 Converson Bonds w not
be e changeabe for New Bonds after anuary 1, 1963, and w be
vod n any event after anuary 1,1965.
A New Bonds w be drect obgatons of the edera Repubc.
Prncpa and nterest w be payabe n New York Cty n such con
or currency of the Unted States as at the tme of payment s ega
tender for pubc and prvate debts, and w be payabe free of a
ta es mposed or to be mposed by the edera Repubc or any suc-
cessor government, or by any potca subdvson thereof.
On anuary 11, 195 , the Securtes and change Commsson
ssued an order removng the restrctons aganst tradng n Od Bonds
whch are vadated.
The Interna Revenue Servce hed that n accordance wth the
provsons of secton 127(a) (2) of the Code the cost or other bass
of a German Government bonds and a bonds ssued by muncpa-
tes. States or other potca subdvsons of Germany were deductbe
for edera ncome ta purposes as of December 11,19 1, the date the
Unted States decared war aganst Germnny.
Tho questons wth respect to whch advce s requested are set forth
beow. The answers thereto are based on the foregong facts and
crcumstances.
(A) On whch date w the hoder of an Od Bond who acqured It on or pror
to December 11,10 1, be deemed, pursuant to secton 127 of the Interna Revenue
Code, to have receved a recovery for edera Income ta purposes
Inasmuch as ony Od Bonds whch had been acqured pror to
December 11, 19 1, come under the provsons of secton 12 of the
Interna Revenue Code, ncudng the provsons of subsecton (c)
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201 Regg. us, 39.127(e)- .
thereof nvovng the recovery of property whch was deemed to have
been destroyed or sezed under subsecton (a) and nasmuch as there
coud be no queston n regard to the vadaton of such bonds, t s
hed that a Od Bonds whch had been acqured pror to December
11,19 1, and whch were hed on anuary 11,195 , the date the restrc-
tons aganst tradng n such bonds were removed, were recovered on
the atter date, wthn the meanng of subsecton (c) of the Code.
The fact that a bond s not vadated unt after anuary 11, 195 ,
s not suffcent grounds for postponng the recovery date nasmuch
as the subsequent vadaton woud smpy confrm the fact that the
bond was vad on the recovery date.
(B) Whnt Is the vauaton of the Od Bonds as of anuary 11, 105 , for the
purpose of determnng the amount of the recovery Income reazed
Inasmuch as the market quotatons on the Od Bonds for the frst
day of tradng were substantay ower than the quotatons for the
two succeedng days, t s hed that the quotatons for the frst day
of tradng dd not represent the actua far market vaue of those
bonds on anuary 11, 195 . It s beeved that the average of the
uotatons for the frst three days of tradng more neary refects such
ar market vaue. Accordngy, t s hed that the far market vaue
of the bonds set forth above, was as foows on anuary 11,195 (com-
puted to the nearest th of a pont):
German terna Loan Bonds of 102 6
German Government Internatona Loan Bonds of 1030 7:
Prussa Bonds for 1020 60
Prussa Bonds for 1027 60
Converson Oce Bonds 71
The far market vaue of German terna Loan Bonds of 192 ,
at the tme of the recovery of such bonds, shoud be reduced to refect
any coupons due on October 15,19 1 and to and ncudng October 15,
19 , whch are mssng. No reducton shoud be made for coupons
due pror to October 15,19 1, nasmuch as t appears that a coupons
due on and before Apr 15, 19 1, were pad, and therefore such
coupons were not egay outstandng at the tme of the recovery.
The reducton n the far market vaue of German terna Loan
Bonds of 192 , caused by mssng coupons, shoud be determned on the
bass of the far market vaue of German terna Loan 192 edera
Repubc of Germany undng Issue 1953, 3 per cent Bonds, due
October 15,1972, whch are ssued n e change for coupons due Octo-
ber 15,19 1 and to and ncudng October 15,19 . A pro rata part
of such far market vaue shoud t e deducted for each coupon mssng.
In the absence of nformaton n regard to the far market vaue,
f any, of the taons ssued n connecton wth the New Bonds no
ad|ustment shoud bo mado for any mssng coupons due after
October 15, 191 .
The far market vauo of German Government Internatona Loan
Bonds of 1930, at the tme of the recovery of such bonds, shoud be
reduced to refect any coupons due on December 1, 19 1, and to and
ncudng December 1,19 , whch are mssng. No reducton shoud
bo mado for coupons due pror to December 1, 19 1, nasmuch as t
appears that a coupons due on and before une 1, 19 1, were pad,
and therefore such coupons were not egay outstandng at the tme
of the recovery. ...
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Reg . 11 , A 30.127(0)- . 202
The reducton n the far market vaue of the bonds shoud be made
n the manner set forth above wth respect to the German terna
Loan Bonds of 102 .
In the absence of nformaton n regard to the far market vaue, f
any, of the taons ssued n connecton wth the New Bonds, no ad|ust-
ment shoud be made for any mssng coupons due after December 1.
19 .
Coupons appurtenant to the Prussa Bonds of 1926 and 1927 bear-
ng due dates from March 15,1933 to and ncudng October 15, 1936,
have a far market vaue equa to 50 percent of ther face amount.
No ad|ustments are requred wth respect to coupons appurtenant
to Prussa Bonds of 1926 and 1927, due on and after March 15,1937,
or due pror to March 15,1933, whch are mssng.
Coupons appurtenant to the Converson Offce Bonds bearng due
dates from uy 1,19 1 to and ncudng December 31,1952, had a far
market vaue equa to one-thrd of the far market vaue on anuary
11, 195 , of a correspondng face amount of 10-year Bonds of 1936
edera Repubc of Germany Converson and undng Issue 1953
Three Percent, Doar Bonds, due anuary 1,1963.
No ad|ustments are requred wth respect to coupons appurtenant
to Converson OHce Bonds due pror to uy 1,19 1.
The far market vaue of ractona Certfcates for Converson
Offce Bonds on anuary 11,195 , shoud be determned on the bass
of the far market vaue of the Od Bonds whch they represent
(C) W the now hodng perod for such OM Bund, for the purposes of sec-
ton 117 of the Code, begn on the recovery date
The hodng perod, wthn the meanng of secton 117 of the Code,
for Od Bonds acqured pror to December 11,19 1, whch are recover-
ed, w run from the date of the recovery ( anuary 11,195 ).
(D) Bow w tn. ta bass for such Od Bonds be determned
In cases where hoders of Od Bonds do not eect to have the prov-
sons of secton 127(c) (3) of the Code appy to the recovery of such
bonds acqured pror to December 11,19 1, the bass of the bonds re-
covered, determned under the provsons of secton 127(d) (1) of the
Code, w be an amount equa to the far market vaue of the bonds
as of the date of the recovery, reduced by the amount, f any, by whch
such far market vaue e ceeds the deducton aowabe n 19 1, and
ncreased by that porton of the amount of the recovery, whch, under
secton 127 (c) of the Code, s treated as a recognzed gam from an n-
vountary converson of property wthn the meanng of secton 112 (f)
of the Code.
In cases where bondhoders eect to have the provsons of secton
127(c) (3) of the Code appy to the recovery of Od Bonds acqured
pror to December 11,19 1, the bass of the bonds recovered, determn-
ed under the provsons of secton 127(d) (2) of the Code, w be an
amount equa to the vaue at whch the bonds are ncuded n the
amount of the recovery under the provsons of secton 127(c) (3) (A)
of the Code, or the cost or other bass of the Od Bonds, reduced by
such part, f any, of the gan recognzed under secton 127(c) (3) (C)
of the Code whch s not recognzed as provded n secton 112 (f) of
the Code.
(P) Wbat s the ta bass of an Cd Bond acqured by the present hoder
after December 11, 19 1
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203 IReg. 11 , 39.127(c -.
Hoders of Od Bonds acqured subsequent to December 11,19 1,
dd not sustan deductbe osses n 19 1 under the provsons of sec-
ton 127(a) of the Code as the resut of the decaraton of war aganst
Germany. Therefore, the provsons of secton 127(c) of the Code re-
atng to the recovery of war osses, and the provsons of secton
127(d) of the Code rentng to the bass of property recovered, are
not appcabe n cases of such bondhoders. Tho bass of Od Bonds
acqured subsequent to December 11,10 1, s the cost of the bonds or
other bnss provded by secton 113 of the Code. The hodng perod
of such bonds runs from the date the bonds were acqured.
( ) How Is the effectve date of tc e change to be determned
Inasmuch as Od Bonds whch aro not vadated may not be e -
changed for New Bonds, t s hed that n no case does the effectve
date of tho e change occur pror to the date the Od Bond s vadated.
In cases where hoders of Od Bonds surrendered ther bonds for
vadaton on or pror to anuary 11,105 , and at the same tme agreed
to tho e change of such bonds for New Bonds pendng the vadaton
of tho Od Bonds, n whch cases the Od Bonds were not returned to
tho hoders thereof, tho e changes became effectve on anuary 11,
105 , mmedatey foowng tho recovery of tho Od Bonds, or on the
date the vadaton was competed, whchever was ater. In cases
where hoders of Od Bonds surrender ther bonds for vadaton sub-
sequent to anuary 11, 195 , and at the same tmo agree to the e -
change of such bonds for New Bonds pendng the vadaton of the
Od Bonds, n whch cases the Od Bonds are not returned to the
hoders thereof, the e changes become effectve tho date the vadaton
s competed. In cases where Od Bonds are surrendered for vada-
ton subsequent to anuary 11, 105 , wth nstructons that they be
returned to the hoders thereof upon competon of the vadaton and
before they are submtted to the approprate change Agent for
e change, the e changes become effectve the date the bonds are re-
ceved by the change Agent accompaned by the approprate Letter
of Transmtta.
(0) W the hoder of such an Od Bond on the recovery date be deemed to
have receved a recovery, whether or not such bond sha be e changed pursuant
to the e change offer descrbed above
A hoder of an Od Bond acqured pror to December 11,10 1, w
be deemed to have reazed a recovery on the recovery date whether or
not such bond s e changed pursuant to the e change offer.
(H) What Is the procedure reatve to an Od Bond acqured pror to Decem-
ber 11,10 1, whch Is not vadated
In the event that an Od Bond acqured pror to December 11,19 1,
s not vadated a deductbe oss w not De sustaned by the hoder
of the bond because of the dena of vadaton. In such a case the
bondhoder w be permtted to fe a cam for refund of any ncome
ta pad by hm for 195 whch resuted from erroneousy ncudng
n hs gross ncome for that year an amount aeged to have been
reazed as recovery ncome.
(1) What Is the vauaton of the New Bonds for the purpose of determnng
the gan or oss reazed upon the e changes of the Od Bonds for New Bonds
333310 S3 1
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Begs. 11 , 39.127 (c)- . . 20
or the reasons set forth n (B) above, t s hed that the quotatons
for the frst day of tradng do not refect the correct far market vaue
of the bonds on anuary 11, 195 . It s hed that the far market vaue
of the New Bonds was as foows on anuary 11, 195 .
German terna Loan 102
edera R-pnbc of Germany
tenson Issue 1053, 5 percent
Doar r.oms, due October 15, 1000 71
German terna Loon 102
edera Repubc of Germany
undng Issue 10B3 3 percent
Bonds, due October 15, 10T2
German Government Internatona Loan 1030
edera Repubc of Germany tenson Issue 1953
9 percent onds, due une 1, 10SO . . 6
German Government Internatona Loan 1030 . ,
edera Repubc of Germany undng Issue 1953
3 percent Bonds, due December 1, 19T2
It s hed further that the edera Repubc of Germany Prussa
Converson Issue 1953 1 percent Bonds, due October 1. 1972, had a
far market vaue of 60 on anuary 11, 195 . Such vaue shoud be
used for a dates to and ncudng ebruary 2, 195 .
Ten Year Bonds of 1936 edera Repubc of Germany Con-
verson and undng Issue 1953, 3 percent Bonds, due anuary 1,
1963, had a far market vaue of 611/ on anuary 11, 195 . Such
vaue shoud be used for a dates to and ncudng Apr 1 , 195 .
The far market vaue of the above-mentoned New Bonds for dates
subsequent to those mentoned shoud be determned by usng the mean
of the hgh and ow quotatons for the day on whch a partcuar
e change takes pace, or the mean of the hgh and ow quotatons for
the date nearest to the date of e change, n the event there are no
quotatons on the date of the e change.
The far market vaue of German terna Loan 192 edera
Repubc of Germany tenson Issue 1953 5 percent Bonds,
due October 15, 1969, and German Government Internatona Loan
1930 edera Repubc of Germany tenson Issue 1953 5 per-
cent Bonds, due une 1, 19 0, on the effectve dates of the e changes,
shoud not be reduced because of any taons whch may not be attached
to the sad bonds. Ths poston s taken nasmuch as there s no
nformaton avaabe from whch to determne the far market vaue
of the taons.
The far market vaue of the scrp certfcates ssued n connecton
th the New Bonds shoud be determned on the bass of the far
narket vaue of the New Bonds wth respect to whch the scrp cer-
tfcates are ssued.
( ) What w be the ta effect of the e change of the Od Bonds for the
The e change of the Od Bonds, ncudng those acqured subsequent
to December 11, 19 1, w come under the provsons of secton 112 (a)
of the Code. Gan or oss w be reazed by hoders of Od Bonds
ttqured pror to December 11, 19 1, measured by the dfference be-
tween the bass of such bonds estabshed under the provsons of
secton 127 (d) of the Code, and the far market vaue of the assets
receved n the e change as descrbed above. Gan or oss w be
ttazed by hoders of Od Bonds acqured subsequent to December 11,
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205 Regs. 11 , 39.127Cc)-
10 1. measured by the dfference between the cost or other bass of the
Od Bonds estabshed under the provsons of secton 113 of the Code
and far market vaue of the assets receved n the e change as de-
ecrbed above.
The gan or oss reazed upon the e change of the Od Bonds,
ncudng those acqured subsequent to December 11,19 1, w repre-
sent capta gan or capta oss under the provsons of secton 117
of the Code. However, n cases where the Od Bonds were acqured
pror to December 11, 19 1, nterest ncome w be reazed to the
e tent that the far market vaue of the assets receved n the e change
s n e cess of such prncpa and the nterest accrued and unpad on
the Od Bonds snce the date of the recovery. In cases where Od
Bonds were acqured subsequent to December 11,19 1, nterest ncome
w be reazed to the e tent that the far market vaue of the assets
receved n the e change s n e cess of the prncpa of the Od Bonds
but not n e cess of such prncpa and the nterest accrued and unpad
on such bonds snce the date of ther acquston.
( ) What w be the effect for edera Income ta purposes If the hoder
of an Od Bond dws not make an eecton under secton 127 (c) (5) of the Code,
reatng to tu ad|ustments measured by pror benefts
If the hoder of an Od Bond acqured pror to December 11,19 1,
does not make an eecton under the provsons of secton 127(c) (5) of
the Code the recovery w be measured by the far market vaue of
the Od Bond on the recovery date, whch w refect the far market
vaue of the scrp certfcates whch w be ssued, the far market
vaue, f any, of the taons ssued pursuant to the pan, the far market
vaue of the rghts to nterest accrued on the New Bonds, the far
market vaue of any rghts receved to ater coect accrued and unpad
nterest on the Od Bonds, and n the cose of the Prussa Bonds, the
rght to coect 50 percent of the coupons bearng due dates from
March 15, 1933 to October 15, 1936. The recovery w be ncudbe
n the gross ncome of the bondhoder for the year of the recovery to
the e tent that t e ceeds the porton, f any, of the deducton aow-
abe n 19 1 as a war oss under the provsons of secton 127(a) (2)
of the Code whch dd not resut n a reducton of the bondhoder s
ta abty for that year. Recoveres n e cess of such amount w
be treated as ordnary ncome unt such e cess equas the amount of
the bondhoder s aowabe deducton n 19 1 whch dd resut n a
reducton of hs ta abty for that year. Recoveres, f any, n
e cess of a bondhoder s aowabe deducton n 19 1 w be treated
as gan on an nvountary converson of property as a resut of ts
destructon or sezure and w be recognzed or not recognzed as
provded by secton 112(f) of the Code. Snce n the nstant case the
Od Bonds, as a resut of ther destructon or sezure, were, n the
e change, nvountary converted nto property smar or reated
n servce or use to the property so converted, wthn the meanng of
secton 112(f) (1) of the Code, no gan s recognzed on the porton of
the recovery ncome to whch the provsons of secton 112(f) (1) of
the Code are appcabe. In cases where bondhoders acqured Od
Bonds pror to December 11.19 1, but dd not cam the deductons
aowabe n 19 1 t w be hed that the entre amount of the cost
or other bass of. such bonds represented aowabe deductons whch
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Regs. 11 , 39.127(o)- 206
dd not resut n the reducton of the bondhoders ta abty for
that year.
(L) What w be the ta effect If the hoder of an Od Bond does make an
eecton under secton 127(c) (5) of the Code
If, pursuant to a bondhoder s eecton under secton 127(c)(5)
of the Code, the provsons of secton 127(c) (3) of the Code are ap-
pcabe to the recovery, the far market vaue of the Od Bond at the
tme of the recovery w, at the opton of the bondhoder.be consd-
ered an amount equa to the cost or other bass of the Od Bond as of
December 11,19 1. In that event the amount of the recovery s not
ncudbe n gross ncome unt the bondhoder has recovered an
amount equa to hs aowabe deducton n 19 1, whether or not such
aowabe deducton resuted n a reducton of hs ta abty for that
year. Instead of ncudng such amount n gross ncome, there w
be added to, and assessed and coected as a part of the bondhoder s
ta abty for the year of the recovery, an ad|ustment on account
of any ta beneft n 19 1 resutng from the fact that the oss from
destructon or sezure of the bond was an aowabe deducton. The
amount of such ad|ustment w be the tota ncrease n the ta abty
of the bondhoder whch woud resut by decreasng the aowabe oss
for 19 1 by an amount equa to that porton of the amount of the
recovery whch s not ncuded n gross ncome for the year of the
recovery. The porton of the amount of the recovery whch s n
e cess of the aowabe deducton for 19 1 s ncudbe n gross ncome
for the year of the recovery as gan on an nvountary converson of
property as a resut of ts destructon or sezure and w be recognzed
or not recognzed as provded by secton 112(f) of the Code. Snce
n the nstant case the Od Bonds, as a resut of ther destructon or
sezure, were, n the e change, nvountary converted nto property
smar or reated n servce or use to the property so converted, wthn
the meanng of secton 112(f) (1) of the Code, no gan s recognzed
on the porton of the recovery ncome to whch the provsons of sec-
ton 112(f) (1) of the Code are appcabe.
(M) Durng what perod Is the hoder of an Od Bond entted to make an
eecton under secton 127(c) (5) of the Code
Secton 39.127(c)-(d)(2) of Income Ta Reguatons 11 states
that f a ta payer reazes a recovery durng any ta abe year endng
after October 20,1951, the date of the enactment of the Revenue Act
of 1951, uness such ta abe year ends on or before March 31,1953, the
eecton under secton 127(c) (5) of the Code must be made by the ta -
payer not ater than the e praton of 6 months from the ast day
prescrbed by aw for the fng of hs ncome ta return for the year
of the recovery.
(N) What Is the ta bass of the New Bonds
The bass of the New Bonds and the other assets receved n the e -
change w be measured by ther far market vaues as of the effectve
date of the e change.
(O) What recovery date w be recognted reatve to the e change
In a cases where Od Bonds acqured pror to December 11,19 1, -
are e changed for New Bonds t w be consdered that the recovery
was reazed pror to the e change even though, n some cases, the two
transactons may occur smutaneousy. Aso, n a cases the gan or
oss reazed upon the e change of Od Bonds w bo determned as
of the eectve date of the e change.
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207 Regs. 113, 5 30.13OA-I.
(P) What treatment wn be accorded to scrp certfcates, taons, and Interest
accrued on the Od Bonds
The rght to nterest accrued and unpad on the Od Bonds w be
consdered a part of such bonds, and the scrp certfcates whch -w
be ssued n eu of amounts of ess than 100.00 of certan New Bonds,
the taons whch w be ssued pursuant to the pan, the rghts to n-
terest accrued on the New Bonds, the rghts to ater coect accrued
and unpad nterest on the Od Bonds, and n the case of the Prussa
Bonds, the rght to coect 50 percent of the coupons bearng due dates
from March 15,1933 to October 15,1936, w be consdered parts of
the New Bonds receved.
( ) What Is the ta effect for purposes of secton 112 of tbe Code of the
retenton by tbe hoders of coupons appurtenant to tbe Prussa Bonds
In determnng the gan or oss from the e change of Od Prussa
Bonds for New Bonds no ad|ustments w be made n the bass of
such Od Bonds for coupons appurtenant thereto bearng due dates
from March 15,1933 to and ncudng October 15,1936, whch are re-
taned by the hoders of the Od Bonds, or for coupons due on or after
March 1 ,1937, appurtenant to Od Prussa Bonds whch aso w be
retaned by the hoders of the Od Bonds.
(It) Under the e change offer, w the amounts receved reatve to Interest
accrued on tbe Od Bonds consttute Interest Income
Any amounts receved pursuant to the e change offers whch repre-
sent nterest accrued on the Od Bonds subsequent to the recovery date,
or on the New Bonds subsequent to the e change date w be treated
as ordnary nterest ncome.
Reguatons 11 , Secton 39.127(c)-: Recov-
eres n respect of war osses.
Reguatons 11 amended. See T. D. 6106, page 137.
S CTION 130A. MPLOY STOC OPTIONS
Requstons 11 , Secton 39.130A-1: Meanng Rev. Ru. 5 - 67
and use of certan terms.
Where under an empoyees stock opton pan, an optonee most
agree to reman n the empoy of tbe corporaton for a certan spec-
fed perod, tbe opton may quafy as restrcted and tbe rght of
tbe corporaton to termnate tbe opton w not dsquafy It, If,
when granted, It quafes as restrcted under tbe provsons of
secton 130A(d)() of the Interna Revenue Code of 1939.
Where a corporaton reserves the rght to reacqure optoned
stock undet condtons whch do not amount to the reservaton
of substanta Incdents of ownershp, tbat aone w not serve to
postpone the date stock Is acqured by the optonee.
An eecton to purchase optoned stock on the Instament bass
w consttute the e ercse of the opton when It becomes bndng
upon both the optonee and the corporaton.
Advce s requested whether certan provsons of an empoyees
stock opton pan w dsquafy an opton agreement pursuant to the
pan from beng cassfed as restrcted under secton 130A(d)()
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Begs. 11 , 9.130A-1. 20
of the Interna Revenue Code of 1939 or make neffectve the grantng
of the opton.
The opton agreement under consderaton provdes (1) that the
optonee sha reman n the empoy of the corporaton, or one or
more of ts subsdary companes, for a stated perod from the date
of the opton (2) that the empoyment of the optonee may be term-
nated by the corporaton at any tme and that the termnaton of
empoyment wthn the perod stated n the opton sha termnate the
opton (3) that, f the opton s transferred to an e ecutor, her,
or egatee of the optonee, t becomes sub|ect to termnaton by the
corporaton upon payment of the dfference between the opton prce
and the apprased vaue of the stock ( ) that the corporaton sha
cause stock to be ssued and devered to the optonee wthn a spec-
fed perod after the optonee has e ercsed the opton, and that the
optonee sha mmedatey endorse the certfcate n bank and depost
t wth the corporaton n order to preserve the rght of the corpora-
ton, durng a restrcted perod, to reacqure any stock whch the
optonee (or hs successors n nterest) purport or attempt to transfer
wthout the corporaton s consent (transfers by w or by the aw of
descent and dstrbuton beng e cepted) and (5) that, when the
opton s e ercsed, the optonee may pay the opton prce n fu or
n nstaments. If nstament payments are eected, the optonee
must make a parta payment at the tme of the eecton, must gve the
corporaton a note for the unpad baance of the purchase prce, and
must endorse the stock certfcate n bank and dever t to the
corporaton as securty. Payments once made may not be wthdrawn.
Secton 130A of the Interna Revenue Code prescrbes the treat-
ment, for edera ncome ta purposes, of restrcted 6tock optons.
Subsecton (d) defnes certan terms as used n such secton, and sec-
ton 39.130A-1 of Reguatons 11 ampfes the meanng and use of
such terms.
Secton 39.130A- of Reguatons 11 , states, n part, as foows:
(a) Opton. (1) or the purpose of secton 130A, tbe term opton Incudes
the rght or prvege of an Indvdua to purchase stock from a corporaton by
rtue of an offer of the corporaton contnung for a stated perod of tme,
whether or not rrevocabe, to se such stock at a stated prce, such Indvdua
beng under no obgaton to purchase.
(b) Tme and date of grantng of opton. (1) or the purpose of secton
130A, tbe words the date of tbe grantng of tbe opton and tbe tme such
opton s granted , and smar phrases refer to the date or tme when the cor-
poraton competes tbe corporate acton consttutng an offer of stock for sae
to an Indvdua under the terms and condtons of a restrcted stock
opton.

(e) ercse. or the purpose of secton 130A, the term e ercse ,
means the act of acceptance by tbe optonee of tbe offer to se contaned n
the opton. In genera, the tme of e ercse s tbe tme when there Is a sae
or contract to se between tbe corporaton and the ndvdua. An agreement
or undertakng by the empoyee to make payments under a stock purchase pan
does not consttute the e ercse of an opton so ong as the payments made
reman sub|ect to wthdrawa by the empoyee.
(f) Transfer. the term transfer when used In reference to the
transfer to an Indvdua of a share of stock pursuant to hs e ercse of a
restrcted stock opton, means the transfer of ownershp of such share, or the
transfer of substantay a tbe rghts of ownershp. Such transfer must, wthn
a reasonabe tme, be evdenced on the books of the corporaton.
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209 Regs. 11 , 39. 30 A-1.
It s hed that where, under an empoyees stock opton agreement,
the optonee must agree to reman n the empoy of the corporaton
for a certan specfed perod, that agreement w not dsquafy the
opton from beng cassfed as a restrcted stock opton or make nef-
fectve the grantng of the opton, nor w the rght of the corpora-
ton to termnate the opton dsquafy t f, when granted, t quafes
as a restrcted stock opton under the provsons of secton 130A(d) (1)
of the Interna Revenue Code. The opton agreement under consdera-
ton provdes that, n certan cases, the optonor may termnate the
opton ony by payng a sum of money to the optonee. Ths rung
does not dea wth the ta abty of such a payment.
The restrcted perod durng whch the optonor corporaton may
reacqure stock ssued under the opton agreement s mted to a
ma mum of ten years from the e ecuton of the opton agreement,
and termnates earer upon the occurrence of any one of severa con-
tngences. Durng such perod the optonee may se the optoned
stock ony (1) wth the pror wrtten consent of the optonor cor-
poraton, (2) by frst offerng the stock to the optonor corporaton,
at a prce representng ts current apprased vaue, or (3) after the
optonor corporaton has re|ected such an offer or has faed to act
upon t wthn the specfed tme. The purpose of such provsons
s understood to be soey to gve the optonor corporaton the rght
durng the restrcted perod to reacqure at current far market
vaue any stock whch mght otherwse be dsposed of by the optonee
(e cept by w or the aws of descent and dstrbuton) wthout ts
consent. The rght of the optonor to repurchase stock ssued under
the agreement s not absoute before the optonor can repurchase
there must be an offer of sae from the stockhoder or a breach of the
stockhoder s agreement to gve the optonor a frst refusa. By re-
franng from ether, the hoder of stock ssued under the opton
agreement or hs hers can contnue to hod the optoned stock past
the end of the restrcted perod and then make a sae to any person
they choose. Provded that tho optonee may en|oy durng the
restrcted perod a other rghts of a stockhoder, he s consdered
to obtan substantay a the rghts of ownershp of the ssued stock
notwthstandng such mted restrctons upon hs power to dspose
of t. Therefore, t s hed that the presence of the restrcton pro-
vsons descrbed n an opton agreement quafyng under secton
130A of the Code w not serve to postpone the date of acquston
of stock ssued pursuant to the agreement
nay, under the crcumstances stated, the empoyee s eecton to
purchase stock under the opton agreement and pay for the stock n
nstaments consttutes an e ercse of the opton at the tme the
empoyee makes hs nta payment and gves the corporaton a note
for the unpad baance of the purchase prce. Ths s because, under
the terms of the agreement, such acts obgate the corporaton to
receve payment for and ssue shares under the agreement and obgate
the empoyee to pay to the corporaton the fu optonprce for the
shares of stock purchased pursuant to the agreement. Where an em-
poyee s eecton to purchase stock by payng nstaments of the pur-
chase prce does not, under tho terms of the agreement, obgate the
empoyee to pay the fu purchase prce of the shares, the acts of the
empoyee whch obgate the corporaton to receve payment for and
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Begs. 11 , 39.13100-1. 210
ssue shares of stock to hm do not consttute an e ercse of an opton
under secton 130A of the Code. However, f, n such a case, nsta-
ment payments made pursuant to the empoyee s eecton may not be
wthdrawn by hm, the e ercse of the opton wth respect to the shares
caed occurs pro rata as the nstament payments are actuay made.
The fact that an e ercse of the opton has occurred wthn the mean-
ng of secton 130A of the Code does not necessary mean that
transfer of the shares caed has occurred wthn the meanng of that
same secton.
SUPPL M NT C CR DITS AGAINST TA
S CTION 131.-TA S O OR IGN COUNTRI S
AND POSS SSIONS O UNIT D STAT S
Reguatons 11 , Secton 39.131 (b)-: Lm-
tatons on credt for foregn ta es.
Reguatons 11 amended. See T. D. 6096, page 69.
S CTION 131(a). TA S O OR IGN COUNTRI S AND
POSS SSIONS O UNIT D STAT S: ALLOWANC O
CR DIT
Reouatons 11 , Secton 39.131 (a) -1: Anayss Rev. Ru. 5 -533
of credt for ta es.
(Aso Secton 23(aa). Secton 39.23(aa)-.)
The recpent of dvdends from a Unted ngdom corporaton
who eects to Itemze hs deductons may cam credt aganst ht
Unted States Income ta , sub|ect to the condtons and mtatons
of secton 131 of the Interna Revenue Code of 1039, for the amount
of Unted ngdom standard Income ta approprate to such dv-
dends, provded such amount Is Incuded n bs gross Income. A ta -
payer who cams the optona standard deducton may not cam
such credt aganst hs Unted States ncome ta , but be Is not re-
qured to ncude such amount of Unted ngdom ta In bs gross
Income.
Advce s requested whether a ta payer, who s a resdent of the
Unted States, may cam as a credt aganst Unted States ncome ta
the amount of Unted ngdom standard ncome ta on dvdends
receved from a corporaton whch s a resdent of the Unted ngdom
when the ta payer cams the optona standard deducton, and
whether such umount s requred to be ncuded n the ta payer s gross
ncome.
Secton 23 (aa) (2) of the Interna Revenue Code of 1939 provdes n
part as foows:
The standard deducton sha be In eu of: (B) a credt
wth respect to ta es of foregn countres and possessons of the Unted States,

Artce I(2) of the ncome ta conventon between the Unted
States and the Unted ngdom, Treasury Decson 5569 C. B. 19 7-2,
100, provdes that dvdends derved from sources wthn the Unted
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211 Regs. 11 , 39.131(a)-2.
ngdom sha be e empt from Unted ngdom surta provded that
the recpent of such dvdends meets certan requrements. Athough
the surta s the ony ta mposed on dvdends n the hands of the
sharehoder, the Unted ngdom mposes a standard ta upon the
earnngs of corporatons, out of whch earnngs after ta dvdends
are utmatey pad. Athough sharehoders n Unted ngdom
corporatons are requred to report as ncome for Unted ngdom
ncome ta purposes, n addton to the amount of dvdends actuay
receved, amounts whch refect ther respectve proportons of the
standard ta pad by the corporaton on ts profts, the corporaton
s, n fact, abe for the standard ta . Therefore, the sharehoder s
not requred to ncude n hs ncomo for edera ta purposes the
amount of ta pad by the corporaton and, n the absence of treaty,
coud not cam credt aganst hs Unted States ta for the amount of
such ta . Bdde v. Commssoner 302 U. S, 573, Ct D. 1303, C. B.
193 -1, 309.
Artce III() of the ncome ta conventon provdes:
Sub|ect to secton 131 of the Unted States Interna Revenue Code as In
effect on the 1st day of anuary, 10 5, Unted ngdom ta sha be aowed
as a credt aganst Unted States ta . or ths purpose, the recpent of
a dvdend pad by a corporaton whch s a resdent of the Unted ngdom
shn be deemed to bare pad the Unted ngdom Income ta approprate
to such dvdend If such recpent eects to Incude In hs gross ncome for
the purposes of Unted States ta the amount of such Unted ngdom
Income ta .
Therefore, the sharehoder s permtted by treaty to cam credt
aganst Unted States ta for the Unted ngdom standard ta ap-
proprate to such dvdend even though he s not egay abe for
the ta .
If A. a Unted States resdent, hods stock n the M Company,
Lmted a Unted ngdom corporaton, and A s so-caed gross dv-
dends (. e., dvdends receved pus standard ta thereon) derved
from hs stock durng the year amount to 1,000, he w, presumng
that the Unted ngdom standard ta s 5 percent, actuay receve
ony 550. If A desres, sub|ect to the condtons and mtatons of
secton 131 of the Interna Revenue Code, to cam a credt for the
50 deemed to have been pad by hm, he must report n hs gross n-
come for the year the amount of 1,000 and may not cam the standard
deducton. If, on the other hand, A eects to cam the optona stand-
ard deducton he may not cam the foregn ta credt for the Unted
ngdom standard ta on dvdends but he w be requred to ncude
ony the dvdend payment actuay receved by hm ( 550 n the us-
traton above) n hs gross ncome.
Reguatons 11 , Secton 39.131 (a)-2: Conn- Rev. Ru. 5 -502
tres whch do or do not satsfy the smar
credt requrement.
Secton 131(a) (3) of the Interna Revenue Code of 1939 provdes
for the aowance or a credt for ncome ta es pad or accrued durng
the ta abe year to any foregn country by an aen resdent of the
Unted States or Puerto Rco provded the foregn country of whch
the aen resdent s a ctzen or sub|ect, n mposng such ta es, aows
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Rega. 11 , A 39.1 3-1. 212
a smar credt to ctzens of the Unted States resdng n such coun-
try. Snce Artce 106 of the Turksh Income Ta Law provdes,
sub|ect to certan condtons and mtatons, for the aowance as a
credt aganst ncome ta es accrued to Turkey of ncome ta es pad to
foregn countres by a ta payer (Turksh or resdent) Turkey satsfes
the smar credt requrement o secton 131(a) (3) or the Code.
SUPPL M NT D. R TURNS AND PAYM NT OP TA
S CTION 1 1. CONSOLIDAT D R TURNS
Reguatons 129, Secton 2 .11: Consodated Rev. Ru. 6 -36
returns for subsequent years.
The ssuance of ncome ta Reguatons 11 to supersede Regua-
tons 111 does not, of tsef, amend the consodated return regua-
tons and, therefore, the contnued fng of consodated returns has
not been made ess advantageous to affated groups as a cass. Ac-
cordngy, affated groups whch fed consodated returns n pror
years may not eect to fe separate returns when fng ther frst re-
turns due after September 26, 1953, the date Reguatons 11 were
ssued, soey because of such ssuance. Cf. Rev. Ru. 152, C. B.
953-2, 1 . or ta abe years wth respect to whch the Interna
Revenue Code of 195 , Pubc Law 591, ghty-Thrd Congress, ap-
proved August 16, 195 , w appy, see Revenue Rrng 5 -36R,
page 13, ths Buetn.
Reguatons 129, Secton 2 .11: Consodated
returns for subsequent years.
ecton wth respect to consodated returns. See Rev. Ru.
5 -365, page 13.
S CTION 1 3. WITHHOLDING TA AT SOURC
Reguatons 11 , Secton 39.1 3-1: Wthhodng Rev. Ru. 6 -5
ta at source.
. Te ta wthhed under the provsons of secton 1 3(b) of the
Interna Revenue Code of 1939 from Wages pad to a nonresdent
aen empoyee (engaged In a trade or busness In the Unted States),
whch has not yet been pad to the Dstrct Drector of Interna
Revenue as requred by secton 1 3(c) of the Code, may be refunded
drect to such nonresdent aen empoyee by bs empoyer (wth-
hodng agent) upon recept of satsfactory evdence that the em-
poyee has fed an approprate Income ta return and pad the
amount of ta , If any, dscosed as due thereon wthout camng
credt for such ta wthhed or the e cess of the ta wthhed over
the amount due on the return may be refunded If the empoyee
has not pad the amount due.
O. D. 9 5, C. B. 5,19 (1921) modfed.
Advce has been requested, n vew of O. D. 9 5, C. B. 6,19 (1921),
whether the ta wthhed under the provsons of secton 1 3(b) of the
Interna Revenue Code of 1939 from wages pad to a nonresdent aen
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213 (Regs. 11 , 39.1 3-1.
empoyee (such as an entertaner, or tranee recevng technca tran-
ng under an on-the-|ob tranng program, who s ony temporary
n the Unted States n that connecton) may be refunded drect to
such nonresdent aen empoyee f he fes an approprate ncome ta
return and pays the ta , f any, due thereon, provdng the empoyer
(wthhodng agent) has not yet pad the amount of ta wthhed to
the Dstrct Drector of Interna Revenue.
O. D. 9 5, supra, provdes that A wthhodng agent s not reeved
from obgaton to pay to the edera Government the amount of ta
correcty wthhed from the ncome of a nonresdent aen by reason
of the fact that the nonresdent aen has fed a return showng no ta
abty.
Under secton 1 3(b) of the Code, wthhodng of ta s requred
on payments of f ed or determnabe annua or perodca ncome
from sources wthn the Unted States, ncudng wages, made to non-
resdent aens. A nonresdent aen performng persona servces
wthn the Unted States s, wth certan e ceptons, deemed to be en-
paged n a trade or busness wthn the Unted States. See secton
39.211-7(e) of Reguatons 11 . very person requred to deduct
and wthhod such ta sha, on or before March 15 of each year, make
return thereof and pay the ta to the Dstrct Drector of Interna
Revenue. See secton 1 3(c) of the Code. Secton 1 3(e), however
provdes that If any ta requred under ths secton to be deducted
and wthhed s pad by the recpent of the ncome, t sha not be re-
coected from the wthhodng agent: nor n cases n whch the ta
s so pad sha any penaty be mposed upon or coected from the re-
cpent of the ncome or the wthhodng agent for faure to return
or pay the same, uness such faure was frauduent and for the pur-
pose of evadng payment.
It s hed that the provsons of secton 1 3(e) of the Code and the
reguatons ssued thereunder fuy |ustfy the refund drect to a non-
resdent aen empoyee (engaged n a trade or busness n the Unted
States) of the fu amount of the ta wthhed from hs wages under
the provsons of secton 1 3(b) of the Code and not yet pad to the
Dstrct Drector of Interna Revenue, f the nonresdent aen em-
poyee fes the approprate return and pavs the amount of ta , f any,
as dscosed to be due thereon wthout camng credt for such ta
wthhed or the reease of the e cess of ta wthhed over the amount
due on the return f the empoyee has not pad the amount due.
In order for the nonresdent aen empoyee to obtan the refund
of the ta wthhed under secton 1 3(b) of the Code drect from hs
empoyer, he must:
1. Secure hs empoyee s agreement to refund the ta wthhed drecty
to bm, nnrt obtan from hs empoyer, In addton to hs agreement to make
such refund, a sworn statement showng the amounts of wages pad and
ta wthhed.
2. e the approprate return ( orm 10-OI, Unted States Nonresdent
Aen Income Ta Return, or orm 10 0C, Unted States Departng Aen
Income Ta teturn) together wth the statement obtaned from the em-
poyer wth the approprate Dstrct Drector of Interna IteTenne
3. Secure a recept or statement from the Dstrct Drector that w
satsfactory ndcate to hs empoyer that returns were propery fed and
that:
a. The amount of the ta abty shown on the return wthout cam-
ng credt for the ta wthhed nnder secton 1 3(b) of the Code wu
pad In fu, or
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Regs. 11 , 39.1 3-2.) 21
b. Where soc abty was not pad, that credt ony In the amount
. cqm to the ta aty shown on the return was camed or
c. The return fed dscosed no ta abty and no credt camed for
the ta wthhed and that
d. A refund of wthhed ta In a stated amonnt may be made d-
recty to the empoyee.
. urush to the empoyer the recept or statement from the Dstrct
Drector.
Accordngy, O. D. 9 5, C. I . 5,19 (1921) s modfed to the e tent
t s nconsstent wth the provsons of ths Revenue Rung.
Reguatons 11 , Secton 39.1 3-1: Wthhodng
ta at source.
Reease or refund of e cess ta wthhed, and e empton from, or
reducton n rate of, wthhodng n the case of resdents of Austraa,
as affected by the ncome ta conventon between the Unted States and
Austraa. See T. D. 610 , page 61 .
Reguatons 11 , Secton 39.1 3-1: Wthhodng
ta at source
Reease or refund of e cess ta wthhed and e empton from wth-
hodng of ta at source n the case of resdents of Greece and of
Greek corporatons, as affected by the ncome ta conventon and pro-
toco between the Unted States and Greece. See T. D. 6109, page 63 .
Reguatons 11 , Secton 39.1 3-1: Wthhodng
ta at source.
Schedue of rates at whch ta s wthhed. See Rev. Ru. 5 - 75,
page 11.
Reguatons 11 , SacnoN 39.1 3-7: Return and .,
payment of ta wthhed. . :,.
Reguatons 11 amended. See T. D. 6096, page 69.
S CTION 1 3(b). WITHHOLDING O TA AT SOURC :
NONR SID NT ALI NS
Reguatons 11 , Secton 39.1 3-2: ed or Rev. Ru. 5 -570
determnabe annua or perodca ncome.
Income consstng of o and gas royates derved from sources wth-
n the Unted States by a ctzen of Puerto Rco who s aso a ctzen
of the Unted States s not sub|ect to the wthhodng of ta under
secton 1 3 (b) of the Interna Revenue Code. However, Puerto
Rcan ctzens who are not aso ctzens of the Unted States and aen
resdents of Puerto Rco are sub|ect to the wthhodng of ta under
secton 1 3 (b) wth respect to ther f ed or determnabe annua or
perodca ncome from sources wthn the Unted States.
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215 Regs. 11 , 39.1 5- 1.
S CTION 1 . PAYM NT O CORPORATION INCOM TA
AT SOURC
Reguatons 11 , Secton 39.1 -1: Wthhodng
n the case of nonresdent foregn corporatons
Reease or refund of e cess ta wthhed, and e empton from, Trth-
hodng n the case of Austraan corporatons, as affected by the
ncome ta conventon between the Unted States and Austraa. See
T. D. 610 , page 61 .
Reguatons 11 , Secton 39.1 -1. Wthhodng
n the caso of nonresdent foregn corporaton.
Reease or refund of e cess ta wthhed and e empton from wth-
hodng of ta at source n the case of resdents of Greece and of
Greece corporatons, as affected by the ncome ta conventon and
protoco between the Unted States and Greece. See T. D. 6109,
page 63 .
Reguatons 11 , Secton 39.1 -1: Wthhodng
n the case of nonresdent foregn corporatons.
Schedue of rates at whch ta s wthhed. See Rev. Ru. 5 -
75, page 11.
S CTION 1 5. P NALTI S
Reguatons 11 , Secton 39.1 5-1: Penates Ct, D. 1769
INCOM ta nterna revenue code D CISION O SUPR M COURT
1. Crmna Prosecuton fob Wfu Attempt to Defeat and
vade Income Ta Net Worth Method of Proof Crcum-
stanta vdence.
Whe affrmng convcton on suffcency of evdence In ths case,
the court emphaszed that ptfas Inherent In the net worth method
requre the e ercse of great care and restrant when the method Is
used. The court outned s dangers that must be conscousy kept
n mnd to assure adequate apprasa of the specfc facts n nd-
vdua cases.
2. Instructons to ust Net Worth Prosecuton.
Charges to ury shoud ncude a summary of the nature of the
net worth method, the assumptons on whch t rests, and the nfer-
ences both for and aganst the accused.
. Use or Net Worth Method.
Secton 1 of the Interna Revenue Code of 1039, e pressy mtng
the authorty of the Government to devate from the ta payer s
method of accountng, does not mt the use of the net worth method
to stuatons where the ta payer has no books or where hs books
are nadequate. The Government can use a ega evdence ava-
abe to It In determnng whether the story tod by the ta payer s
books accuratey refects bs fnanca hstory.
. Burden of Proof Investgaton of Leads urnshed bt Ta -
AT B.
Where a ta payer, n effort to e pan source of Increases In net
worth, furnshes eads, reasonaby susceptbe of beng checked, the
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egs. 11 , 39.1 5-1.1 216
- faure of tbe Investgatng agents to track down such eads mar be
consdered by tra udge In determnng whether case Is Insuffcent
to go to the |ury. The Government Is not requred to negate every
possbe source of nonta abe Income where reevant eads are not
forthcomng.
5. Suftcenct 07 vdence Startng Pont.
The ta payers openng net worth must be estabshed wth reason-
abe certanty. vdence of ta payers fnanca hstory over tbe
perod 1913 to 19 5 resutng from panstakng and carefu Invest-
gatons was suffcent to support |ury s Inference that cash hoard
de. not e st as aeged by ta payers. Such detaed evdence of
poor fnanca hstory was suffcent, despte faure of agents to e -
pore rea estate actvtes In the 10-0 s and aeged e change of god
n 1933.
. Suffcency of vdence Net Worth Increases Must Be At-
trbutabe to Ta abe Income.
Increases n net worth, standng aone, cannot be assumed to be
attrbutabe to currenty ta abe Income. But proof of a key
source s suffcent The ury s Inference was warranted on basts
of evdence that not a of the Income from hote busness had been
Incuded on Its books and records and that the dscosed busness was -
shown capabe of producng more Income than was reported.
7. Suffcency or vdence Wfuness Must Be Present.
Specfc Intent must be proven by ndependent evdence other than
mere understatement of ncome. However, evdence of consstent
pattern of underreportng arge amounts of ncome, and of faure
on defendants part to Incude a Income In ther books and records
was suffcent to support nference of wfuness and to sustan
ury s verdct.
. Instructons to ury Crcumstanta vdence.
No speca nstructons are necessary In crcumstanta evdence
cases. Where the |ury s propery nstructed on the standards for
reasonabe doubt, t s confusng and Incorrect to add an addtona
Instructon that where the Government s evdence Is crcumstanta
t must be such as to e cude every reasonabe hypothess other than
that of gut. A -:
9. Instructons to urt Reasonabe Doubt.
Id defnng reasonabe doubt the anguage shoud be In terms of
the knd of doubt whch woud make a person hestate to act In the
more serous and Important affars of hs own fe. The Instruc-
tons, taken as a whoe, correcty conveyed the concept of reason-
abe doubt to the ury.
10. udgment Affrmed.
udgment of the Unted States Court of Appeas for the Tenth
Crcut (209 . 2d 51G) affrmed.
Supreme Coubt or the Unted States
Maron L. Hoand and the . Hoand, pettoner), v. Unted States of Amerca
On wrt of certorar to the Unted States Court of Appeas for tbe Tenth Crcut
December 0, 193
opnon
. |
Mr. ustce Cark devered the opnon of the Court.
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217 Regs. 11 , 39.1 5-1.
Pettoners, husband and wfe, stand convcted nnder secton 1 5 of the Inter-
sa Revenue Code of an attempt to evade and defeat tber Income ta es for tbe
year 1U . Prosecuton wns bused on the net worth method of proof, aso In
Issue In three companon cases2 nnd a number of other decsons here from the
Courts of Appeas of nne crcuts. Durng the past two decades ths Court has
been asked to revew an Increasng number of crmna cases In whch proof of
ta evason rested on ths theory. We have dened certorar because tbe cases
Invoved ony questons of evdence and, n Isoaton, presented no Important
questons of aw. In 19 3 the Court dd have occason to pass upon an appca-
ton of the net worth theory where the ta payer had no records.
Unted States v. otnton, 319 U. S. 503 (Ct. D. 15 7, C. B. 19 3,993).
In recent yenrs, however, ta evason convctons obtaned under the net worth
theory have come here wth ncreasng frequency and eft mpressons beyond
those of the prevousy unreated pettons. We concuded that the method
nvoved somethng more than the ordnary.use of crcumstanta evdence n the
usua crmna case. Its bearng, therefore, on the safeguards tradtonay
provded In the admnstraton of crmna ustce cued for a consderaton of
the entre theory. At our ast Term a number of cases arsng from the Courts
of Appeas brought to our attenton the serous doubts of those courts regardng
the Impcatons of the net worth method. Accordngy, we grunted certorar
n these four cases nnd have hed others to awat ther decson.
In a typca net worth prosecuton the Government, havng concuded that
the ta payer s records are Inadequate as n bass for determnng ncome ta
abty, attempts to estabsh an openng net worth or tota net vaue of the
ta payer s assets nt the begnnng of a gven year. It then proves Increases a
the ta payer s net worth for each succeedng year durng the perod under e am-
naton and cacuates the dfference between tbe ad|usted net vaues of the
ta payer s assets at the begnnng and end of each of the years Invoved. The
ta payer s nondeductbe e pendtures, ncudng vng e penses, are added to
these Increases, and If the resutng fgure for any year s substantay greater
than the ta abe Income re orted by the ta payer for that year, the Government
cams the e cess represents unreported ta abe ncome. In addton, t asks
the ury to nfer wfuness from ths understatement, when taken In connecton
wth drect evdence of conduct, the key resut of whch woud be to msead or
concea. Spct v. Unted States, 317 U. S. 92, 99 (Ct. D. 1571. C. B. 19 3.103 ).
Before proceedng wth a dscusson of these cases, we beeve t mportant
to outne the genera probems mpct n ths type of tgaton. In ths con-
sderaton we assume, as we must In vew of ts wdespread use, that the Govern-
. mert deems tbe net worth method usefu In tbe enforcement of tbe crmna
sanctons of our ncome ta aws. Nevertheess, carefu study ndcates that It
s so fraught wth danger for the Innocent that the courts must cosey scrutnze
ts use.
One basc assumpton n estabshng gut by ths method Is that most assets
derve from a ta abe source, and that when ths Is not true the ta payer s n a
poston to e pan the dscrepancy. The appcaton of such an assumpton
rases serous ega probems In the admnstraton of the crmna aw. Unke
cv actons for the recovery of defcences, where the determnatons of the
Commssoner have prma face vadty, the prosecuton must aways prove the
crmna charge beyond a reasonabe doubt Ths bas ed many of our courts
to be dsturbed by tbe use of the net worth method, partcuary In Its scope and
the attude whch t aows prosecutors. B. g., Demctree v. Unted States, 201
. 2d 92, S9 (1953) : Unted State v. Caterta, 199 . 2d 005, 907 (1952) Unted
States v. emeek, 177 . 2d S .
But the net worth method has not grown up overnght. It was frst utzed
n such cases as Car-one v. Unted States, 51 . 2d 609 (1931) and Omk T. Cned
States, 5 . 2d C1 (1032), to corroborate drect proof of specfc unreported
26 O. S. C. secton 1 15. Penates. (b) aure to coect and pay over ta . or at-
tempt to defeat or evade ta . Any person requred under ths chapter to coect, account
for, and pay over any tu Imposed by ths chapter, who wfuy fr to coect or truth-
fuy account for an pay over such ta . and any person who wfuy attempta In any
mamer to evade or defeat any ta Impowd by thn chapter or the payment thereof, sha, a
addton to other rendton provded by aw. be guty of a feony
A Davd rcdbcra v. Untrd Satr, No. IS ntrd Statu v. dcard R. Cadcron, No. 25:
Dane Smth . unted Statt, No. 2. Because of the e tensve factna hnekemnnd
they requre, and the sgnfcant dfference In the probems they present, tbe cases an
treated In separata opnons.
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Regs. 11 ,1 39.1 5-1. 213

Income. In Unted State r. ohnson, tupra, ts Court approved of Its use to

support the Inference that the ta payer, owner of a vast and eaboratey con-
ceaed network of gambng houses upon whch he decared no Income, bad Indeed
receved nnreported Income n a substanta amount. It was a potent weapon
In estabshng ta abe Income from undscosed sources when a other efforts
faed. Snce the ohnunn case, however, Us horzons have been wdened unt
now It Is used In run-of-the-mne cases regardess of the amount of ta defcency
nvoved. In each of the four cases decded today the aegedy unrcported
ncome comes from the some dscosed sources as produced the ta payer s reported
Income and In none s the ta defcency anythng ke the defcences In ohnson,
Ctfone or Guzk. The net worth method, It seems, has evoved from the fna
voey to the frst shot In the Government s batte for revenue, and ts use In the
ordnary Income-bracket cases greaty ncreases the chances for error. Ths
eads us to pont out the dangers that must be conscousy kept n mnd n order
to assure adequate apprasa of the specfc facts In Indvdua cases.
1. Among the defenses often asserted s the ta payer s cam that the net
worth Increase shown by the Government s statement s n reaty not an Increase
at a because of the e stence of substanta cash on band at the startng pont.
Ths favorte defense asserts that the cache Is made up of many years savngs
whch for varous reasons were hdden and not e pended unt the prosecuton
perod. Obvousy, the Government has great dffcuty n refutng such a
contenton. However, ta payers too encounter many obstaces n convncng
the ury of the e stence of such hoards. Ths Is partcuary so when the
emergence of the hdden savngs aso uncovers a fraud on the ta payer
credtors.
In ths connecton the ta payer frequenty gves eads to the Government
agents Indcatng the specfc sources from whch hs cash on hand has come,
snch as pror earnngs, stock transactons, rea estate profts, Inhertances, gfts,
etc. Sometme these eads pont back to od transactons far removed from
the prosecuton perod. Were the Government requred to run down a such
eads t woud face grave Investgatve dffcutes st Us faure to do so
mght |eopardze the poston of the ta payer.
2. As we have sad, the method requres assumptons, among whch s the
equaton of nne paned Increases n net worth wth unreported ta abe ncome.
Obvousy such an assumpton has many weaknesses. It may be that gfts, n-
hertances, oans and the ke account for the newy acqured weath. There Is
great danger that the ury may assume that once the Government has estabshed
the fgures In Its net worth computatons, the crme of ta evason automatcay
foows. The possbty of ths Increases where the |ury, wthout guardng
nstructons. Is aowed to take nto the ury room the varous charts summarzng
the computatons bare fgures have a way of acqurng an e stence of ther own,
Independent of the evdence whch gave rse to them.
3. Athough It may sound far to say that the ta payer can e pan the buge
In hs net -worth, he may be entrey honest and yet unabe to recount hs fnanca
hstory. In addton, such a rue woud tend to shft to. the burden of proof.
Were the ta payer compeed to come forward wth evdence, he mght rsk
endng support to the Government s case by showng oose busness methods or
osng the ury through hs apparent evasveness. Of course, n other crmna
prosecutons |ures may dsbeeve and convct the Innocent But the courts must
mnmze ths danger:
. When there are no books and records, wfuness may be Inferred by the
ury from that fact couped wth proof of an understatement of ncome. Bat
when the Government uses the net worth method, and the books and records
of the ta payer appear correct on ther face, an Inference of wfuness from net
worth Increases aone mght be un|ustfed, especay when the crcumstances
surroundng the defcency are as consstent wth Innocent mstakes as wth wfu
voaton. On the other hand, the very faure of the books to dscose a proved
defcency mght Indcate deberate fasfcaton.
5. In many cases of ths type the prosecuton rees on the ta payer s state-
ments, made to revenue agents In the course of ther Investgaton, to estabsh
vta nks In the Government s proof. But when a revenue agent confronts the
ta payer wth an apparent defcency, the atter may be more concerned wth a
nck settement than nn honest starch for the truth. Moreover, the prosecuton
nay pck and choose from the ta payer s statement, reyng on the favorabe
porton and throwng asde that whch does not boster Its poaton. The probem
of corrnboraton. deat wth n the companon cnses of Smth v. Unted Btatc
and Unted States v. Cadcron, therefore becomes cruca.
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219 Regs. 11 . 139.1 5-1.
C. The statute defnes the offense here Invoved by Indvdua years. Whfe
the Government ma be abe to prove wth reasonabe accuracy an Increase
n net worth over a perod of years, It often has great dffcuty In reatng that
Income suffcenty to any specfc prosecuton year. Whe a steady Increasng
net worth may ustfy on Inference of addtona earnngs, uness that Increase
can be reasonaby aocated to the approprate ta year the ta payer may be
convcted on counts of whch be Is Innocent.
Whe we cannot say that these ptfas Inherent ID the net worth method
forecose Its use, they do requre the e ercse of great care and restrant. The
compe ty of the probem Is such that It cannot be met merey by the appcaton
of genera rues. Cf. Unversa Camera Corp. v. Labor Board, 3 0 U. S. 7 .
9. Tra courts shoud approach these cases In the fu reazaton that the
ta payer may be ensnarrd n a system whch, though dffcut for the prosecuton
to utze, s equay bard for the defendant to refute. Charges shoud be es-
pecay cear. Incudng, In addton to the forma Instructons, a summary of
the nature of the net worth method, the assumptons on whch t rests, and the
nferences avaabe both for acd aganst the accused. Appeate courts shoud
revew the cases bearng constanty In mnd the dffcutes that arse when cr-
cumstanta evdence as to gut Is the chef weapon of a method that Is Itsef
ony an appro maton.
Wth these consderatons as a gude we turn to the facts.
Te ndctment returned aganst the Hoands embraced three counts. The
frst two charged Maron I/. Hoand, the husband, wth attempted evason of hs
Income ta for the years 19 6 and 10 7. He was found not guty by the ury
on both of these counts. The thrd count charged Hoand and hs wfe wth
attempted evason In 10 3 of the ta on 19,730.7 not reported by them In ther
ont return. The ury found both of them guty Mrs. Hoand was fned 5,000.
whe her husband was sentenced to two years Imprsonment and fned 10.000.
The Government s openng net worth computaton shows defendants wth a
net worth of 19,152.09 at the begnnng of the ndctment perod. Shorty there-
after defendants purchased a hote, bar and restaurant and began operatng
them as the Hoand House. Wthn three years, durng whch they reported
f31.2C5.02 n ta abe Income, ther apparent net worth Increased by 113,1 5.3: .
The Government s evdence ndcated that durng 19 , the year for whch de-
fendants were convcted, ther net worth Increased by some 32,000, whe the
enouot of ta abe ncome reported by them totaed ess than one-thrd that sum.
se of Net Worth Method Where Books Are Apparenty Adequate.
As we have prevousy noted, ths s not the frst net worth case to reach ths
|ourt In Unted States 7. ohnson, supra, the Court affrmed a ta -evason
convcton on evdence showng that the ta payer s e pendtures had e ceeded
bs avaabe decared resources. Snce ohnson and bs conceaed estabsh-
ments had destroyed the few records they had, the Government was forced to
resort to the net worth method of proof. Ths Court approved on the ground
that to requre more woud be tantamount to hodng that skfu
conceament Is an nvncbe barrer to proof, supra, at 517-51 . Pettoners
ask that we restrct the ohmon case to stuatons where the ta payer has kept
no books. They cam that 1 of the Interna Revenue Code, e pressy mt-
ng the authorty of the Government to devate from the ta payer s method of
accountng, confnes the net worth method to stuatons where the ta payer has
no books or where hs books are nadequate. Despte some support for ths
vew mnng the ower courts, see Unted States v. Rganto, 121 . Supp. 15 . 161,
02 Unted States v. Wam , 20 . 2d 37, 37-13S Rcmmcr v. Unted Staes,
205 . 2d 277, 2SO, udgment vacated on other grounds. 3 7 U. S. 227, we con-
cude that ts argument must fa. The provson that the net Income sha be
computed n accordance wth the method of accountng reguary em-
poyed In keepng the books of such ta payer, refers to methods such as the
cash recepts or the accrua method, whch aocate Income and e penses between
years. Unted States v. Amercan Can Co., 2 0 C. S. 12, 10 (Ct. D. 1G , C. B.
I -1,292 (1930)). The net worth technque, as used n ths case, s not a method
Th a A corrected fgure takng Into account certan nontn nbe Income and nonde-
ductte e pense of f- mnnt .
-U U. . C. Part I Accountng Perods and Method of Accountng. Sec. 1. Gen-
era uc.
The net Income (ha bo computed upon the basn of the ta payer annua accountng
perod (duca yenr or caendar year, a the caA e may be) In accordance wth the method
of accountng reguary empoyed In keepng tte books of such ta payer .
333310 33 13
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Regs. 11 , 39.1 5-1.) 220
of accountng dfferent from the one empoyed by defendants. It a not a method
of accountng at a, e cept Insofar as It cas upon ta payers to account for ther
une paned Income. Pettoners accountng system was approprate for ther
busness purposes: and, admttedy, the Government dd not detect any specfc
fase entres theren. Nevertheess, If we beeve the Government s evdence, as
the ury dd, we must concude that the defendants books were more consstent
than truthfu, and that many tems of ncome had dsappeared before they bnd
even reached the recordng stage. Certany Congress never Intended to make
1 1 a set of bnders whch prevents the Government from ookng beyond the
sef-servng decaratons n a ta payer s books. The Unted States has reed
for the coecton of Income ta argey upon the ta payer s own dscosures.
Ths system can functon successfuy ony f those wthn and near
ta abe ncome keep and render true accounts. Spes v. Unted States, supra,
95. To protect the revenue from those who do not render true accounts, the
Government must be free to use a ega evdence avaabe to It In determnng
whether the story tod by the ta payer s books accuratey refects hs fnanca
hstory.
stabshng a Defnte Openng Net Worth.
T e agree wth pettoner that an essenta condton n cases of ths type Is
the estabshment, wth reasonabe certanty, of an openng net worth, to serve
os a startng pont from whch to cacuate future Increases n the ta payer s
assets. The Importance of accuracy n ths fgure s Immedatey apparent, as
the correctness of the resut depends entrey upon the Incuson In ths sum
of a assets on band at the outset The Government s net worth statement
ncuded as assets at the startng pont stock costng 29,050 and 2,153.00 n
cash. The Hoands cam that the Government faed to ncude n ts openng
net worth fgure an accumuaton of 113.000 n currency and hundreds and
possby thousands of shares of stock whch they owned at the begnnng of the
prosecuton perod. They asserted that the rash had been accumuated pror
to the openng date, 10 ,000 of It before 1033, and the baance between 1033
and 19 5. They bad kept the money, they camed, mosty n 100 bs and at
varous tmes n a canvas bag. a sutcase, and a meta bo . They had never
dpped nto t unt 19 6, when t became the source of the apparent ncrease n
weath whch the Government ater found n the form of a home, a ranch, a
hote and other propertes. Ths was the man Issue presented to the |ury.
The Government dd not ntroduce any drect evdence to dspute ths cam.
Rather t reed on the Inference that anyone who had had 10 ,000 n cash
woud not have undergone the hardshp and prvaton endured by the Hoands
a darng the ate 20 s and throughout the 30 s. Durng ths perod they ost
ther cafe busness accumuated 33,000 In debts whch were never pad ost
ther househod furnture because of nn unpad baance of 92.20 suffered a
defaut |udgment for 500.06 and were forced to separate for some eght years
because t was to ther economca advantage. Durng the atter part of ths
perod, Mrs. Hoand was obged to support hersef and ther son by workng
at a moton pcture house n Denver whe her husband was In Wyomng. The
evdence further ndcated that mprovements to the hote, and other assets
acqured durng the prosecuton years, were bought n nstaments and wth
bs of sma denomnatons, as f out of earnngs rather than from an ac-
cumuaton of 100 bs. The Government aso negatved the possbty of
pettoners accumuatng such a sum by checkng Mr. Hoand s ncome ta re-
turns as far back as 11)13, showng that the ncome decared n prevous years
was Insufccnt to enabe defendants to save any apprecabe amount of money.
The |ury resoved ths queston of the e stence of a cache of cash aganst the
Hoands, and we beeve the verdct was fuy supported.
As to the stock, Mr. Hoand began dabbng n the stock market n a sma
way n 1937 and 1033. Hs purchnsos appenr to hove been neggbe and on
borrowed money. Hs ony reported ncome from stocks was n hs ta returns
for 10 and 19 5 when he dscosed dvdends of 1,000 and 1, 50 respectvey.
Whe the record s uncear on ths pont, t appears that durng the perod from
19 2 to 19 5 be pedged consderabe stock as coatera for oans. There s no
evdence, however, showng what portons of ths stock Mr. Hoand actuay
owned at any one tme, snce he was tradng n shares from day to day. And
even 1C. we assume that be owned a the stock, some ,550 shares, there Is ev-
dence that Mr. Hoand s stock transactons were usuay n stock seng for
A of tb tme, pettoners abtes were sted as 112,650.50.
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221 Regs. 11 , S 39.1 5-1.
ony a few doars per snare. In ths ght, the Government s fgure of ap-
pro matey 30,000 Is not out of ne. In 19 6 Hoand reported the sae of
about 30,000 In stock, but no recept of dvdends nor were dvdends reported
In subsequent years. It Is reasonabe to assume that be sod a of hs stock
In 11) 0. In fact, Hoand stated to the revenue agents that he bad not fooed
wth the stock market snce the begnnng of 19 0 that he had not owned any
stocks for two or three years pror to 19 9 that he bad saved about SoO.OOO
from 1033 to 19 0, and that In 19 6 he had 9,000 In cash wth the baance of
s savngs n stocks. The Government s evdence, bostered by the admssons
of pettoners, provded convncng proof that they had no stock other than
the amount ncuded In the openng net worth statement. By the same token,
the pettoners argument that the Government faed to account for the proceeds
of stock sod by tbem before the startng date must aso fa. The Government s
evdence fuy ustfed the ury s concuson that there were no proceeds over
and above the amount credted to pettoners.
The Government Investgaton of Lead.
So overwhemng. Indeed, was the Government s proof on the ssue of cash on
band that the Government agents dd not bother to check pettoners story that
some of the cash represented proceeds from the saes of two cafes In the twentes
and that In 1933 an addtona porton of ths 113,000 In currency was obtaned
by e changng some 12,000 n god at a named hank. Whe sound admnstra-
ton of tbe crmna aw requres that the net worth approach a powerfu
method of provng otherwse undetectabe offenses shoud not be dened tbe
Government, Its faure to Investgate eads furnshed by the ta payer mght
resut In serous In|ustce. It Is, of course, not for us to prescrbe Invest-
gatve procedures, but It Is wthn the provnce of the courts to pass upon the
suffcency of tho evdence to convct. When the Government rests Its case
soey on the appro matons and crcumstanta Inferences of a net worth com-
putaton, the cogency of ts proof depends upon Its effectve negaton of reason-
abe e panatons by tho ta payer Inconsstent wth gut. Such refutaton
mght fa when the Government does not track down reevant eads furnshed by
the ta payer eads reasonaby susceptbe of beng checked, whch. If true,
woud estabsh the ta payer s Innocence. When the Government fas to show
an Investgaton Into the vadty of such eads, the tra udge may consder
them as true and the Government s case Insuffcent to go to tbe ury. Ths
shoud ad In forestang un|ust prosecutons, and have the practca advantage
of emnatng the demma, especay serous n ths type of case, of the ac-
cused s beng forced by the rsk of an adverse verdct to come forward to sub-
stantate eads whch he had prevousy furnshed the Government. It Is a pro-
cedure entrey consstent wth the poston ong espoused by tbe Government, that
Its duty Is not to convct but to see that ustce Is done.
In ths case the Government s detaed nvestgaton was a compete answer
to the pettoners e panatons. Admttng that In cases of hs knd It woud
be desrabe to track to ts concuson every concevabe t... of nqury, tbe
Government centered ts Inqury on the e panatons of the Hoands and entered
Upon a detaed Investgaton of ther ves coverng severa states and over a
scoro of years. The ury coud have beeved that Mr. Hoand had receved
moneys from the sae of cafes In the twentes and that ho had turned n god In
3933 and st It coud reasonaby have concuded that the Hoands acked the
camed cache of currency In 19 0, the cruca year. ven If these eads were
assumed to be true, tho Government s evdence was suffcent to convct. The
dstant Incdents reed on by pettoners were so remote In tme and n ther
connecton wth subsequent events proved by the Government that, whatever
pettoners worth In 1933, It appears by convncng evdence that on anuary 1,
19 0, they had ony such assets as the Government credted to tbem n ts
openng net worth statement
. In other words, to summarse ths whoe thne: yon hud a net worth of 1137.000
ot unuary 1 10 0, whch conssted ot 110 ,000 whch you had snce Dec. 22. 1033. and
the hntuce of fO.000 n currency, and your nvestment In securtes or tbe vaue of |our
securtes.
A. Yes. IR. 303.1
Ths Court w formuate rues of evdence and procedure to be apped In federa prose-
cutons where It appears necessary to mantan proper standards for the enforcement
ot the federa crmna aw In the federa courts. cSabo r. Unted States, 31 U. S. 332,
3 1.
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Begs. 11 , 9.1 5-1. |. . 222
Net Worth Increases Must Be Attrbutabe to Ta abe Income.
Aso requste to the use of the net worth method Is evdence supportng the
nference that the defendant s net worth Increases are attrbutabe to currenty
ta abe Income.
The Government Introduced evdence tendng to show that athough the bus-
ness of the hote apparenty Increased durng the years In queston, the reported
profts fe to appro matey one quarter of the amount decared by the prevous
management In a comparabe perod that the cash regster tapes, on whch
the books were based, were destroyed by the pettoners and that the books
dd not refect the recept of money ater wthdrawn from the hote s cash
regster for the persona vng e penses of the pettoners and for payments
made for restaurant suppes. The unrecorded Items In ths atter category
totaed over 12,500 for 19 . Thus there was ampe evdence that not a the
Income from the hote hod been Incuded In Its books and records. In fact, the
net worth ncrease camed by the Government for 19 coud have come entrey
from the unreported Income of the hote and st the hote s tota earnngs for
the year woud have been ony 73 percent of the sum reported by the prevous
owner for the comparabe perod n 19 5.
But pettoners cam the Government faed to adduce adequate proof because
t dd not negatve a the possbe nonta abe sources of the aeged net worth
Increases gfts, oans, Inhertances, etc. We.cannot agree. The Government s
proof, n our vew, carred wth It the negatons the pettoners urge. Increases
In net worth, standng aone, cannot be assumed to be attrbutabe to currenty
ta abe Income. But proof of a key source, from whch the ury coud reason-
aby fnd that the net worth Increases sprang, s suffcent In the ohnson
case, where there was no drect evdence of the source of the ta payer s Income,
ths Court s concuson that the ta payer had arge, unreported Income
was renforced by proof that for certan years hs prvate e -
pendtures e ceeded hs avaabe decared resources. Ths was
suffcent to support the fndng that he had some unreported ncome whch
was propery attrbutabe to hs earnngs. Unted States v. ohnson,
supra, at 517. There the ta payer was the owner of an undscosed busness
capabe of producng ta abe ncome here te dscosed busness of the pe-
ttoners was proven to be capabe of producng much more ncome than was
reported nud In a quantty suffcent to accouut for the net worth ncreases. Any
other rue woud burden the Government wth nvestgatng the many possbo
nonta abe sources of Income, each of whch s as unkey as t s dffcut to
dsprove. Ths Is not to say that the Government may dsregard e panatons
of the defendant reasonaby susceptbe of beng checked. But where reevant
eads are not forthcomng, the Government Is not requred to negate every pos-
sbe source of nonta abe ncome, a matter pecuary wthn Ue knowedge of
the defendant See Ross v. Unted States, 2S9 U. S. 0, 91-02.
The Burden of Proof Remans on the Oovernment.
Nor does ths rue shft the burden of proof. The Government must st
prove every eement of the offense beyond a reasonabe doubt though not to a
mathematca certanty. The setted stnndards of the crmna aw are app-
cabe to net worth cases ust ns to prosecutons for other crmes. Once the Gov-
ernment has estabshed Its case, the defendant remans quet at hs per. Cf.
Tee Uem v. Unted States, 26 U. S. 17 , 1 5. The practca dsadvantages to
the ta payer are essened by the pressures on the Government to check and negate
reevant eads.
Wfuness Must Be Present.
A fna eement necessary for convcton s wfuness. The pettoners con-
tend that wfuness nvoves a specfc Intent whch must be proven by Inde-
pendent evdence and whch cannot be Inferred from the mere understatement
of Income. Ths s a far statement of the rue. Here, however, there was
evdence of a consstent pattern of underreportng arge amounts of ncome, and
of the faure on pettoners part to ncude a of ther Income n ther books
and records. Snce, on proper submsson, the ury coud have found that these
acts supported an Inference of wfuness, ther verdct must stand. Spes v.
Unted States, supra, at 99-500
The record Indcates that the Income of the hote as reported for 19 6 was appro -
mntoY 12 - of that reported by the prevous owner In 13 5 n 19 7 the rato was . ,c
and n 19 t was 20 .
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223 Regs. 11 , ( 39.1 5-1.
The Charge to the urv. A -
Pettoners press upon ts, Anay, the contenton that the nstructons of the
tra court were so erroneous and mseadng as to consttute grounds for reversa.
We have carefuy revewed the Instructons and cannot agree. But some requre
comment. The pettoners assa the refusa of the tra |udge to nstruct h.t
where the Government s evdence s crcumstanta It must be such as to e cude
every reasonabe hypothess other than that of gut. There s some support for
ths type of Instructon In the ower court decsons, Oarst v. Unted StatcA, ISO
. 339, 313 Anderson v. Unted States, 30 . 2d S5- S7 Stutz v. Unted State .
7 . 2d 1021), 1030 Hanson v. Unted States, 20 . 2d 91 , 916, but the better
rue s that where the ury Is propery Instructed on the standards for reasonabe
doubt, such an addtona nstructon on crcumstanta evdence Is confusng and
ncorrect, Unted States v. Austn Bagey Corp., 31 . 2d 229, 23 , cert, dened.
270 U. S. SC3 Unted States v. Becker, 02 . 2d 1007,1010 1 Wgmore, vdence
(3d e.), sectons 25-20.
Crcumstanta evdence In ths respect s ntrnscay no dfferent from test-
mona evdence. Admttedy, crcumstanta evdence may In some cases pont
to a whoy ncorrect resut. Yet ths Is equay true of testmona evdence.
In both nstances, a ury s asked to wegh the chances of the evdence n cor-
recty pontng to gut nganst the possbty of Inaccuracy or ambguous nfer-
ence. In both, the ury must use Its e perence wth peope and events n wegh-
ng the probabtes. If the ury s convnced beyond a reasonabe doubt, we can
requre no more.
ven more nsstent s the pettoners attack, not made beow, on the charge
of the tra udge as to reasonabe doubt He defned t as the knd of
doubt whch you foks In the more serous and mportant affars of
your own ves ra|ht be wng to act upon. We thnk ths secton of the
charge shoud have been In terms of the knd of doubt that woud make a person
bostato to act, seo Bshop v. Unted States, 107. . 2d 207, 303, rather than the
knd on whch be woud be wng to act. But we beeve that the nstructon as
gven was not of the type that coud msead the ury nto fndng no reasonabe
doubt when In fact there was some. A defnton of a doubt as somethng the
ury woud act upon woud seem to create confuson rather than msapprehenson.
Attempts to e pan the term reasonabe doubt do not usuay resut n rankng
t any cenrer to the mnds of the ury, Mes v. Unted States, 103 U. S. 30 , 312.
and wo fee that taken ns n whoe the Instructons correcty conveyed the concept
of reasonabe doubt to the ury.
Pettoners nso assgn ns error the refusa of the tra udge to gve nstruc-
tons on the wordng of the crmna statute under whch they were ndcted,
even though the udge fuy and correcty Instructed the ury on every eement
of the crme. The Impossbty of pontng to any way n whch defendants
rghts were pre|udced by ths assumng It were error. Is enough to ndcate that
the tra udge was correct, see Unted States v. Center Yea and Beef Co., 1C2
. 2d 700, 771. There s here no queston of the ury s duty to appy the aw to
the facts. That operaton Impes the appcaton of a genera standard to the
specfc physca facts as found by the ury. The meanngs of standards such as
wfuness were propery e paned by the tra udge n no greater partcuarty
than necessary, nnd thus the ury s functon was not Invaded.
In the ght of these consderatons the udgment s
Affrmed.
Reguatons 11 , Secton 39.1 5-1: Penates. Ct. D. 1770
INCOM TA INT RNAL R NU COD D CISION O SUPR M COURT
1. Crmna Phosecutot fob Wfu Attempt To vade and
Defeat Income Ta vdence Net Wobth Method of
Pboof Suffcency of vdence.
In a ense Invovng ncome ta prosecuton under the net worth
method of proof, evdence showng defendant s modest ncome and
fnanca dffcutes over the perod durng whch he cams to have
accumuated a arge cash hoard was suffcent for the ury to con-
cude that no such hoard e sted at the begnnng of the prosecuton
perod.
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Begs. 11 , 39.1 5-1.) -, 22
2. vdence Admssbty or Testmony.
After defense counse s nsstence that the speca agent answer
whether he dd or dd not credt defendant wth any cash on hand
at the startng pont In hs computaton of defendant s net worth,
the tra court propery permtted the agent to e pan hs answer.
3. INSTRUCTION TO UBT SUPPL M NTAL INSTRUCTION.
The accused was not pre|udced by the tra court s suppementa
Instructon to the ury to compromse and ad|ust ther dffcutes,
If possbe, where remanng nstructons were far and no ob|ecton
was rased at tme of suppementa nstructon and there was specfc
dscamer of ntent to ob|ect durng moton for new tra.
. udgment Affrmed.
udgment of the Unted States Court of Appeas for the S th
Crcut (207 . 2d 777) affrmed.
Supreme Coubt or tec Unted States
Davd redberg, pettoner, v. Unted States of Amerca
On wrt of certorar to the Unted States Court of Appea for the S th Crcut
December 6,105
opnon
Mr. ustce Cark devered the opnon of the Court.
Ths Is the second In the group of four cases nvovng Income ta prosecutons
under the net worth method of proof. In ths case pettoner was ndcted for
the years 19 through 10 7, and convcted on a counts e cept the frst, cover-
ng the year 19 .
Whe the dscusson n Hoand v. Unted Statet, 3 U. S. 121, Ct D. 1769,
page 215, ths Buetn, decded ths day, Is dspostve of some of the more genera
probems rased by ths type of prosecuton, pettoner here drects hs re spe-
cfcay at the suffcency of the evdence as to hs openng net worth. To hgh-
ght hs contenton that the Government had not propery accounted for an
aeged hoard of cash and bonds on hand at the begnnng of the ndctment
perod, pettoner has stpuated vrtuay every other net worth Issue out of the
case.
Athough pettoner s testmony as to ths cash on band vacated, we con-
cude from a carefu e amnaton of the testmony that the argest amount
camed at the startng pont was far n e cess of 60,000. The Government s
evdence, as In Hoand, dd not drecty dspute ths, but t dd panstakngy
trace the redbergs fnances from 1922 through the prosecuton years. It
ponted unmstakaby to the concuson that pettoner had no such hoard of
cash at the startng pont
Tbs evdence, brefy outned, was as foows: Pettoner fed no ta return
for 1922, pad nomna ta es for 1923, 192 and 1925, and e cept for 1020, 1927,
1930 and 1937, when he fed nonta abe returns, be fed no returns from 1920
through 1937. He borrowed sma sums of money on three occasons n 1931. In
193 , when he faed to pay 30 a month on a rea estate mortgage, the mortgagee
brought a forecosure sut and pettoner was unabe to meet the modest compro-
mse terms offered hm by the court. In 1936 and 10 0, eves on a udgment for
13.76 were returned nua bona. A mortgage on hs former home was forecosed
n 1937, and a defcency udgment entered for over 3,500. The wrt of e ecuton
was returned nothng found In 1939, and pettoner then setted the udgment
by payng 100 to the mortgagee n return for reease from abty. In 1939,
pettoner stated n an appcaton for a oan that hs tota assets were 9,200,
ncudng 150 cash on hand, whe bs abtes were 500. The taorng bus-
ness n whch pettoner bad worked snce 1922 for an average pay of 50 a week
was dssoved In 19 1 because t coud not meet Its bs, and pettoner bought
ts assets for 650.
1 Both redbere and h wfe testfed that he had far In e A A A of 130,000 by 193B
at another pont Be wore he had between 50,000 and 100,000 by that tme: by 103 he
camed far n e ceu of 00,000 and fnay, he tated that he had substantay
100,000 by 10 7.
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225 (Regs. 11 , 39.1 5-1.
Tet It was durng these years, from the 1020 s unt 19 1, that pettoner camed
to have accumuated far In e cess of 60,000. We thnk the |ury coud ready
hare concuded that pettoner had saved no such reserve.
Pettoner s other ob|ectons can be dsposed of qucky. rst, he contends t
was error for the speca agent, a wtness for the Government, to gve hs per-
sona opnon that pettoner had no cash on hand at the startng pont. But
ths dstorts what actuay happened. The agent was asked on cross e amnaton
to gve a yes or no answer to whether In hs net worth statement he had
credted pettoner wth any cosh on hand for 19 1. The agent sad there was
no evdence avaabe to show there was cash. After defense counse s Insstence
that the wtness nnswer dd you or ddn t you gve credt for any cash, the cotrt
aowed the agent to e pnu hs answer. e e paned that hs Investgaton
dscosed no evdence whch woud permt hm to credt pettoner wth cash on
hand In 10 1 and on redrect e amnaton he eaborated, pontng out the fore-
cosures and the other evdence whch has been detaed above. rom ths. he
sad, he coud see no reason why he shoud ncude any cash on
hand at the startng pont.
Ths was hardy a concuson of the wtness, whch Is an utmate fact for the
determnaton by the ury, as pettoner cams. The agent, upon pettoner s
nsstence, was testfyng to a negatve fact: he had not ncuded cash because he
had found no evdence of cash. The evdence whch he then summarzed on red-
rect was ony that whch had aready been Introduced at the tra. It Is dffcut
to see how he nvaded the provnce of the ury nor do we see how pettoner s
queston coud have been answered otherwse.
nay, error Is asserted n the tra udge s fna nstructon to the ury,
whch was gven some three to four hours after t had begun ts deberatons.
Pettoner contends that the Instructon caed upon the ury to compromse the
ssues. It may be that compromse In Its tera sense, If used aone, woud
eave Improper connotatons. Though Its use here was unfortunate, we do not
thnk t msed the ury. We note that no ob|ecton was made to any of the
nstructons, nor was any of wttoner s ora argument devoted to them a week
ater on moton for a new tra. In fact, pettoner specfcay dscamed any
ntent to make the nstructon now attacked a ground for a new tra. Ths Is
persuasve evdence that he dd not orgnay consder ths secton of the charge
pre|udca and snce the remanng Instructons were far and negatved any
nference that a compromse verdct was permssbe, we are Incned to agree.
In the face of ths record, we can hardy concude that ths error s suffcent
ground for reversa.
Affrmed.
Reguatons 11 , Secton 39.1 5-1: Penates. Ct D. 1771
INCOM TA INT RNAL R NU COD D CISION O SCTR M COURT
1. Crmna Prosecuton roa Wn||ruL Attempt To Deteat and
vade Income Ta vdence Net Wobth Method of Psoor
Admssbty or tra|udca Statement by Accused.
In a crmna prosecuton for wfu attempt to defeat and evade
Income ta , the tra court propery admtted In evdence pettoner s
sgned net worth statement. The ssue of fraud or decet on the
part of the government agent In securng such statement was prop-
ery submtted to the ury.
2. vdence Cobrobobaton or Ta payeb b tra|udca Ad-
msson,
The genera rue that an accused may not be convcted on hs own
uncorroborated confesson appes to the crme of Income ta eva-
son and the corroborutve evdence must mpcate the accused.
The corroboraton requrement aso appes to an admsson n a
net worth statement furnshed to a speca agent Investgatng the
The nstructon was:
The Court w st.nd In roresa unt one-thrty. The Court nay My to the ury at ths
tmo that I wnnt you to uoke on honest nn-1 ancere effort to reach an agreement as to
the merts of ths cose. I do not want you to shrk your duty. I want you to be far to
tba Government, the Unted tates, and the defendant. Nevertheess, ths case has taken
many days to try, and I hone you w make a ancere effort to compromse and ad|ust your
dfferences and rc cu a verdct, f possbe.
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Regs. 11 , 39.1 5-I. 226
possbty of wrongdong where the admsson Is made after the fact
and the statement embraces an eement vta to the government s
case. . -
. vdence uantum op Cobbobobaton.
Corroboratve evdence does not have to prove the offense beyond
a reasonabe doubt, or even by a preponderance, as ong as there Is
substanta Independent evdence that the offense has been com-
mtted, and the evdence as a whoe proves beyond a reasonabe
doubt that defendant s guty. However, a eements of the offense
must be estabshed by Independent evdence or corroborated adms-
sons, but one avaabe mode of corroboraton s for the ndependent
evdence to boster the confesson tsef and thereby prove the offense
through the statements of the accused.
. vdence Net Wonrn Method or Pboof Stabtno Pont foe
Net Wonrn Computaton Coubodobaton or Operno Net
WOttTU.
vdence of defendant s Income ta fng record and economc ac-
tvtes pror to the prosecuton perod consttuted suffcent nde-
pendent evdence to corroborate hs e tra|udca admsson that he
dd not have suffcent assets at the startng pont to account for the1
ncreases n net worth attrbuted to hm n the prosecuton years.
0. Suffcency of Cobbouobattve vdence.
vdence that the defendant s e pendtures were far In e cess of
reported ncome durng the prosecuton perod, couped wth proof
that defendant s busness produced unrecorded amounts of ncome,
hed suffcent ndependent corroboraton of ta payer s e tra|udca
net worth statement to support a ta evason convcton based on the
. net worth method.
6. udgment Aftbmed. :
udgment of the Unted States Court of Appeas for the rst
Crcut (210 . 2d 00) affrmed.
SUPB M COUBT O TH UNIT D STAT S
Dane Smth, pettoner, v. Unted States of Amerca
On wrt of certorar to the Unted States Court ot Appeas for the rst Crcut
December 6, 105
OPINION
Mb. ustce Cark devered the opnon of the Court
Ths s the thrd of the net worth cases and the frst deang wth the Govern-
ment s use of e tra|udca statements made by the accused. Pettoner and
hs wfe were onty tred on fve counts chargng tbem wth wfu attempts to
evade and defeat ther Income ta es for the years 10 6 through 1950. A moton
for acqutta was granted as to the wfe on a fve counts, and as to pettoner on
the ffth count (for the year 1050). The ury found pettoner guty on the
frst fonr counts, and the convcton was affrmed by the Court of Appeas. We
granted certorar n order to pass on the ssues rased by the prosecuton s use
of defendant s e tra|udca statements. 7 U. S. 1010.
The Government s theory was that the Increases In the net worth of pet-
toner and bs wfe e ceeded ther reported ncome for each of the prosecuton
years, and that these ncrements represented ta abe ncome. The evdence
tended to show that pettoner and hs wfe were persons of moderate means
pror to 19 5, and that toward the end of that year pettoner acqured b racng
news servce. In the four succeedng years, the prosecuton years here In
ssue, pettoner and hs wfe acqured a arge amount of vsbe weath
n the form of bank accounts, rea estate, securtes, and other assets. The
evdence, taken as a whoe, tended to prove that pettoner nnd hs wfe had un-
derstated ther ncome for the four-year perod by over 190,000.
The ssues In ths case stem from a statement sgned by the pettoner and
devered to the Government agents aong wth a check, the atter supposedy
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227 Regs. 11 , 39.1 5-1.
representng the amount of ta he thought due and owng. The statement, a.
fve-page document, Incuded tabes on pettoner s securtes, pror ta returns,
vng e penses, and a stng of pettoner s assets for each of the years 19 3
through 19 9, showng changes In hs net worth over the prosecuton perod.
Whe each of the pages was headed by the names of pettoner and hs wfe, tbe
statement was sgned ony by the pettoner. Hs sgnature appeared after
cause descrbng the stng of assets as my true net worth for the perod cov-
ered heren.
Admssbty of the Statement.
Pettoner contends that hs net worth statement shoud not hare been ad-
mtted n evdence because t was procured pursuant to an understandng be-
tween pettoner and a Government agent that tbe case woud be cosed and the
pettoner granted Immunty. See Wan v. Unted States, 2CC U. S. 1,1 Dram r.
Unted States, 1GS U. S. 532, 5 2-5 3 11 son v. Unted States, 102 U. S. C13, 622-
023 Sparf and Ucnscn v. Unted States, 15G U. S. 51, 53. Pettoner s account-
ant, who carred on negotatons wth ths Government agent, testfed thnt the
agent had promsed to cose the case f tbe net worth statement and a check to
cover the ta defcency were forthcomng, and that he, the accountant, woud
never have submtted tbe statement had be not beeved that tbe case woud be
cosed on ths bass. The Government ageut testfed that be was aware of
no such understandng and that he bad made no promses to cose the case.
After a pretra hearng on pettoner s moton to suppress evdence, the tra
udge refused to suppress the net worth statement Durng the course of the
tra, he refused to hod a hearng outsde the presence of the ury to determne
premnary the statement s admssbty. He submtted the ssue to the ury
wth the Instructon that they were to re|ect the statement, and a evdence ob-
taned through t, f trckery, fraud or decet were practced on pettoner or
bs accountant.
The Issue of fraud or decet on the part of the Government agent was propery
submtted to the ury, and the ury, In arrvng at Its genera verdct, coud
have found from tbe confctng evdence that no frauduent Inducement bad been,
ottered pettoner or hs accountant. Pettoner cannot compan that he was
dened a vor dre, cf. Unted States v. Cargnan, 3 2 U. S. 3(5, snce the tra
udge had aready hed a hearng on ths Issue In passng on the pretra motoa
to supress evdence. Moreover, the ony evdence offered by pettoner a
seekng ths bearng durng the tra was the testmony of pettoner s account-
ant, evdence whch had been beard In tbe pretra hearng and was narrated
agan to udge and ury after the rofr dre had been dened. Under these crcum-
stances, t cannot be sad that tbe refusa to hod a premnary hearng de-
prved pettoner of any substanta rght.
Corroboraton of Pettoner s Statement.
Pettoner s second ma|or ob|ecton Is that hs net worth statement, as t
reated to hs openng net worth, was not corroborated or was nsuffcenty
corroborated by Independent evdence. Pettoner s statement sted bs
openng net worth as foows:
Hank account _._.__. _A _ __. _. 1,079.00
Resdence 12,000.00
Automobe 2,00O. 00
Tota assets 15,079. CO
Tbe Government agents credted pettoner wth a hgher openng net worth:
Cash In banks 5 ,0. S. 5S
Drug store partnershp . 5, CIS. 39
Iea estate . 1 , 600. 00
urnture 2, O ). 00
Automobe 2,000.00
Tota 3C, 276.97
In determnng these openng net worth fgures, the Government agents reed
In part on fgures furnshed by pettoner n hs net worth statement and In
other of hs e tra|udca admssons for tbe autos, the furnture, and one
Athough there had prevoua| been dacnsron of a cv (nod penaty, ths check was
apparenty meant to cover ony the ta abty proper.
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Regs. 11 , 39.1 5-1.) 22 .
parce of rea estate. An vnrnton In these fgures woud not materay affect
tho resuts. But pettoner further compans that the Government dd not
corroborate the negatve mpcatons of hs net worth statement, that he dd
not have at the end of 10-15 any substanta assets for e ampe, cash on hand
whch were not refected n hs or the Government s net worth computaton.
The queston presented, therefore, s whether there Is suffcent Independent
evdence to corroborate pettoner s e tra|udca admsson that he dd sot
have suffcent assets at the startng pont to account for the ncreases La net
worth attrbuted to hm In the prosecuton years.
The genera rue thnt an accused may not be convcted on hs own uncor-
roborated confesson has prevousy been recognzed by ths Court, Warszower
T. Unted Satct, 312 U. S. 3 2 Isaacs v. Unted States, ot) U. . 7 cf. ttc
v. Unted State . 103 U. . 301, 311-312, and has been consstenty apped u the
ower federa courts and In tho overwhemng ma|orty of state courts, 127
A. L. R. 1130 7 Wgmore, vdence sectons 2070-2072. Its purpose Is to prevent
errors n convctons based upon untrue confessons aone, Wamotcer v.
Unted States, supra, at 3 7 ts foundaton es n a ong hstory of |udca e pe-
rence wth confessons and n the reazaton that sound aw enforcement
requres poce Investgatons whch e tend beyond the words of the accused.
Confessons may be unreabe because they are coerced or nduced, and a-
though separate doctrnes e cude nvountary confessons from consderaton
by the |ury, Uram v. Unted Mates, supra Wson v. Unted States, supra,
further cauton Is warranted because the accused may be unabe to estabsh the
Invountary nature of hs statements. Moreover, though a statement may not
be Invountary wthn the meanng of ths e cusonary rue, st ts re-
abty may be suspect If t Is e tracted from one who s under the pressure of a
poce nvestgaton whose words may refect the stran and confuson attend-
ng bs predcament rather than a cear refecton of hs past. nay, the
e perence of the courts, the poce and the medca professon recount a
number of fase confessons vountary made, Note, 2 Ind. L. . 37 . These
are the consderatons whch ustfy a restrcton on the power of the ury to
convct, for ths e perence wth confessons s not shared by the average |uror.
Nevertheess, because ths rue does Infrnge on the provnce of the prmary
tnder of facts, ts appcaton shoud be scrutnzed est the restrctons t
mposes surpass the dangers whch gave rse to them.
The frst Issue s whether the requrement of corroboraton may propery be
apped to the crme of ta evason. The corroboraton rue, at ts ncepton,
served an e tremey mted functon. In order to convct of serous crmes of
voence, then capta offenses. Independent proof was requred that someone
had Indeed nfcted the voence, the so-caed corpus dect. Once the e st-
ence of the crme was estabshed, however, the gut of the accused coud be
based on hs own otherwse uncorroborated confesson. But n a crme such
as ta evason there s no tangbe In|ury whch can be Isoated as a corpus
dect. As to ths crme, t cannot be shown that the crme has been commtted
wthout dentfyng the accused. Thus we are faced wth the choce ether of
appyng the corroboraton rue to ths offense and accordng the accused even
greater protecton than the rue affords to a defendant In a homcde prosecuton,
vans v. Unted States, 122 . 2d 01 Murray v. Unted States, 2 . 100 , or
of fndng the rue whoy Inappcabe because of the nature of the offense, strp-
png the accused of ths guarantee atogether. We choose to appy the rue,
wth Its broader guarantee, to crmes In whch there Is no tangbe corpus dect,
where the corroboratve evdence must mpcate the accused n order to show
that a crme has been commtted. See, c. a.. Tabor v. Unted States, r 2 . 2d
25 Unted States v. crtcss. 130 . 2d 023 rcot v. Unted States, 131 . 2d
5 Pnes v. Unted States, 123 . 2d 23 forte v. Unted States 0 . 2d 230
Tnge v. Unted States, 3 . 2d 573 Wynkoop v. Unted States, 22 . 2d 700
Dacche v. Unted States, 250 . 5C0.
The ne t probem presented Is whether the statement here nvoved the
openng net worth must be corroborated. Athough ths statement was part
of a document whch may have ndmtted on understatement of ta abe Income,
one of the eements of the crme of ta evason, st It Is cear that the state-
ment Is not a confesson admttng to a the eements of the offense. There Is
eome uncertanty n the ower court opnons as to whether tho corroboraton
The Government nfo reed on pettoner s adohsons In estabshng: bs IIvne e -
Trnses durng the prosecuton years, nt these do not benr on openng net worth and nro
therefore not fary wthn the queston presented. Moreover, the varaton possbe In
these fgures a too sght to affect the resut Is an/ egntcnnt respect.
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229 (Regs. 113, 39.1 5-1.
requrement appes to mere admssons, see Unted State v. crtctt. tupra, at
P. . rco y. Unted State , tupra, at 50. But sec Wartzoccr v. Unted State ,
tupra, at 3 7. We bod tbe rue appcabe to such statements, at east where,
as In ths case, the admsson Is made after tbe fact to on offca churned wth
Investgatng the possbty of wrongdong, and the statement embraces an
eement vta to the Government s case. Cf. uotta v. Unted State . 113 . 2d
GS3, assmatng admssons to confessons but fang to dstngush between
admssons before and after the fact as requred by the Wartzocer case. Accord.
Duncan v. Unted State . 03 . 2d 130 ( orncr v. Unted State . 2U1 . 010.
The negatve mpcatons of pettoner s openng net worth admsson formed
the cornerstone of the Government theory of gut. Wthout proof that assets
on hnu nt to begnnng of te prosecuton perod dd not account for the
aeged net worth Increases, the Government coud not succeed. Unted Statu
v. Hoand. An admsson whch assumes ths mportunce n the presentaton
of the prosecuton s case shoud not go uncorroborated, and ths s true whether
we consder the statement an admsson of one of the forma eements of the
crme or of a fact subsdary to the proof of these eements. It s the prac-
tca reaton of the statement to the Government s case whch s cruca, not
Its theoretca reatons to the defnton of the offense.
Athough we are unabe to hod on ths record that pettoner s statement was
Inadmssbe, the evdence Is suffcent to cast doubt on the accuracy of h3
admssons. The unreabty of the statement Is ustrated by the great
varance between ts net worth cacuaton and the Government s computaton,
athough pettoner s consstent errng In hs own favor made t not unreasonabe
for the Government to hod hm to hs word where It was to the Government s
advantage. On tbe whoe, the statement Is one whch shoud be carefuy
scrutnzed n the ght of the avaabe Independent evdence.
There hns been consderabe debate concernng the quantum of corroboraton
necessary to substantate the e stence of the crme charged. It Is agreed that
the corroboratve evdence does not have to prove the offense beyond a reasonabe
doubt, or even by a preponderance, as ong as there Is substanta ndependent
evdence that the offense has been commtted, and the evdence as a whoe
proves beyond a reasonabe doubt that defendant s guty. rcgg t. Unted
States, 113 . 2d 0 7 ordan v. Unted State . 00 . 2d | orte v. Unted State .
tupro Dacche v. Unted State , tupra. But cf. Unted State T. encek. 177
. 2d 3. In addton to dfferng vews on the substantaty of specfc nde-
pendent evdence, tbo debate has centered argey about two questons: (1)
whether corroboraton Is necessary for a eements of the offense estabshed
by admssons aone, compare rco v. Unted State , tupra, and Pne v. Unted
State , tupra, wth Wynkoop r. Unted State , tupra, and Pcarman v. Unted
State . 10 . 2d 00, and (2) whether It Is suffcent If the corroboraton merey
fortfes the truth of the confesson, wthout ndependenty estabshng the
crme charged, compare Pcarman v. Unted State , tupra, and Daeche v. Unted
State , tupra, wth Pnes v. Unted States, supra, and orte v. Unted Sates,
tupra. We answer both n tbe affrmatve. A eements of the offense must be
estabshed by ndependent evdence or corroborated admssons, but one ava-
abe mode of corroboraton Is for the ndc endent evdence to boster the con-
fesson tsef and thereby prove the offense through the statements of the
accused. Cf. Parker v. Stae, 22 Ind. 1, N. . 2d 550.
Under the above stnndard the Government may provde the necessary cor-
roboraton by Introducng substanta evdence, apart from pettoner s adms-
sons, tendng to show that pettoner wfuy understated hs ta abe Income.
Ths mny e accompshed by substantatng the oenng net worth drecty,
snce thnt fgure, taken together wth the remander of the net worth computa-
ton, ampy estabshes n consstent understatement by pettoner of hs ta abe
ncome and from ths the ury coud Infer wfuness. Two sgnfcant Items
of evdence tend to show that pettoner owned no assets nt the startng pont n
e cess of those attrbuted to hm In the Government s statement. rst, a Gov-
ernment offon testfed that pettoner had fed no Income ta returns In the
years IPSO through ), nonta abe returns for 19 0 and 10 2, a nonassessabe
return for 10 3, a refundabe return for 11) , and a ta abe return for 10 1.
Second, the testmony of n Government agent, touchng u on tbe economc ac-
tvtes of the pettoner In the years Immedatey precedng the prosecuton
perod, dscosed that pror to 1011 ettoncr had been empoyed as a manager
Amnfton Rven under aptrta rrrnnatnnce . provdng pronnd for n strong nf r nea
of reabtv. may not have to bo corroborated. Cf. Mte . Unted stattt. tupra Stats |.
Basman, 2 1 Iowa 1373, N. W. 2d 2 ,
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Begs. 11 , 9.1 5-1. 230
of a racng news servce that from 10 1 to 19 5 he worked n a package store
for 0 a week and that for a short tme durng ths atter perod bs wfe
worked as a hardresser. The agent s testmony, however, was based soey on
the e tra|udca statements of the pettoner, and nnder the standard we have
adopted these admssons mnst be corroborated by substanta Independent ev-
dence. The ta returns adequatey corroborate pettoner s statements as to
bs fnanca hstory, and we hod that the two together corroborate the openng
net worth. The |ury coud fnd from ths evdence that pettoner s resources
pror to the prosecuton years were such that ho coud not have am .scd a
greater store of weath than tho nmouut credted to hm In Ia Government s
net worth statement Ths proof Is buttressed somewhat by nde endent evdence
that pettoner had bought a modest home In 19 3 for 0,000, payng ess than
one-thrd In cash and the baance In Instaments, and by the fnct that pettoner s
wfe, who hed tho buk of the famy s assets In her name, was a housewfe
through amost a of the preprosecuton years wth no sgnfcant Independent
sources of Income.
But substantatng the openng net worth Is ust one method of corroboratng
these e tra|udca statements. Pettoner s admssons may aso be corrobo-
rated by an entrey dfferent ne of proof by Independent evdence concernng
pettoner s conduct durng the prosecuton perod, whch tends to estabsh the
crme of ta evason wthout resort to the net worth computatons. The Gov-
ernment s evdence showed that concdent wth pettoner s openng of the racng
news servce. In whch he kept no records, pettoner and hs wfe opened 9 new
bank accounts, makng tber overa tota 1 accounts n 12 banks that tho
money n these accounts, whch amounted to ony S,000 at the begnnng of the
prosecuton perod, vared between 2,000 and 0,000 durng the prosecuton
years that brokerage accounts, opened by pettoner nnd hs wfe n 19 7 and
19 respectvey, were worth 9,000 In 19 7 and over 1,000 In 19 and 10 9
that pettoner and bs wfe made new Investments In reaty durng the prosecu-
ton perod, about 2,000 n 19 0, over 1 ,000 n 19 , and 35,000 n 19 0 that
other substanta e pendtures were made durng the prosecuton years, 3,750
In U. S. Savngs Bonds In 19 0, a tota Investment of ,70 In new cars n
10 7 and 19 , and a 37,000 annuty payment and 3,750 mnk coat In 10 9.
Durng these same years pettoner s decared Income e ceeded hs vng e -
penses by ess than 3,000. These substanta e pendtures, savngs and n-
vestments mght not, of themseves, suffce to support a convcton of ta evason
wthout evdence of a startng pont ndcatng a ack of funds from whch these
payments mght have come. But ths conduct does corroborate the net worth
statement by tendng to show that the pettoner was understatng hs Income
durng the prosecuton years. We cannot say that there Is so tte reaton
between e pendtures and Income that the Government s proof of e pendtures
fur n e cess of reported Income, couped wth proof of a busness producng
unrecorded amounts of Income, fas to corroborate the charge that pettoner s
earnngs durng the prosecuton years e ceeded hs decared Income.
We hod that under ether of these two nes of proof suffcent corroboraton
was shown to permt the case to go to |ury. The crcumstances eadng up to
pettoner s statement, and the faure of the facts shown theren to mesh wth
the other evdence adduced by tbe Government, Imposed on the tra |udge and
the revewng courts a duty of carefu scrutny. Nevertheess, the Independent
evdence was strong enough, we beeve, to overcome these Indca of unre-
abty, and we accordngy
Affrm.
Reguatons 11 , Secton 39.1 5-1: Penates. Ct. D. 1772
INCOM TA INT RNAL R NU COD D CISION O SUrr. MC COURT
1. Crmna Prosecuton for W ft|. Attempt to Defeat and
vade Income Ta vdence Net Worth Method or Proof
Suffcency or vdence Cokobor.vt.no Defendant s Adms-
sons.
They were nate to offcas after the offense bnd been commtted. It may he questoned,
though, whether these ndunMons were as basc to the Government s ense as the statements
concernng openng net worth, and whether they shoud therefore he e empted from the
requrement of corroboraton. But where a fact Is suffcenty Important that the Govern-
ment adduces e tra|udca statements of the accused bearng on ts e stence, and then
rees on Its e stence to sustan the defendants convcton, there Is need for corroboraton.
Cf. Unted Statc v. trtat. supra, at MO.
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231 fRegs. 11 , 39.1 5-1.
In a prosecuton based on net worth, evdence of the fnanca
hstory of the defendant and hs busness showng substanta In-
creases In the defendant s vsbe assets when he was recevng unre-
corded amounts of Income, together wth Investments n new equp-
ment and e panded busness actvtes, provdes suffcent Inde-
pendent evdence of the crme of ta evason to corroborate defend-
ant s ora and wrtten e tra|udca statements concernng the
amount of cash ou hnnd at the startng pont.
vdence, corroboratng defendant s e tra|udca admssons may
bo sought In proof adduced by both partes where defendant Intro-
duces evdence In hs own behaf after hs moton for acqutta has
been overrued. Defendant s testmony nt the tra estabshng a
substanta defcency In reported Income provdes concusve nde-
pendent evdence of the crme of tn evason to corroborate defend-
ant s e tra|udca statements concernng cash on band at the start-
ng pont.
vdence corroboratng defendant s e tra|udca admssons need
not show Income tn defcences for each of the prosecuton years
but s ufcent If It shows a substanta defcency for the overa
prosecuton perod.
2. Decson Reversed.
Decson of the Unted States Court of Appeas for the Nnth
Crcut (207 . 2d 377) settng asde the convcton Is reversed.
Supreme Court or the Cnteo States
Unted States of Amerca, pettoner, t. dtenrd B. Caderon
wrt of certorar to the Unted State Court of Appeas for the Nnth Crcut
,. December 6,105
on.NtoH
Mr. ustce Cark devered the opnon of the Court
The Issue n ths ense s smar to the queston presented In Smth v. Unted
State 3 U. S. 1 7, Ct. D. 1771, page 225, ths Buetn, decded ths day, on the
corroboraton of respondent s e tra|udca statements concernng hs openng
net worth. The admssbty of Uese statements Is not questoned.
Respondent, an operator of a egtmate con-machne busness, was tred and
convcted on four counts chargng hm wth wfu attempts to evade and defeat
hs own and hs wfe s Income ta es for the years 11) 6 through 19 9. The Gov-
ernment s case rested prmary on a net worth com utnton, whch showed net
worth ncrenses and nondeductbe e pendtures of 02,993. 7 for the prosecu-
ton perod durng these same four years respondent decared ony 10. 5.1
Income. It was stpuated that the computaton was correct e cept as to the
Items cash on hand and cash In bank. Respondent s bonk baances were
proved by Introducng the bank records, and, wth some mnor ad|ustments, the
Government s net worth computaton was ampy verfed In ths respect. As to
cash on hand, partcuary the amount credted to the ta payer as of the be-
gnnng of the prosecuton perod, respondent contends that the ony evdence
tendng to substantate the Government s fgures Is the uncorroborated adms-
sons of the accused. e argues that ackng Independent evdence of the corpm
dect, the convcton cannot stand. The Court of Appeas agreed and reversed
the udgment of convcton, observng that absent a startng Item such as cash
on band the remander of the statement proves nothng. 207 . 2d 377. We
granted the Government s petton for certorar. 3 7 U. S. 100S.
The Government credted the respondent wth 500 cash on hand at the start-
ng pont. One of the Government agents testfed that the 300 was an ap-
pro maton based on respondent s ora answer to a request that he estmate hs
year-end baances of cash on band. Accordng to the agent s notes, respondent
reped that he had appro matey 500 In cash In hs ocket He beeves that
because It Is hs habt to carry about that much money n hs pocket at a tmes.
It was admtted that the ta payer mght have had more than ths amount on
band nt certan tmes snce he had frequenty made deposts n hs bank accounts
In sums of 1,000 and 2,000. It npwars that the agent dd not Inqure Into
how much money respondent had n hs safe or hs busness, as opposed to the
funds In hs pocket, mantanng that he was ustfed In treatng the ta payer s
statement regardng the 500 as coverng hs tota cash ou band. Respon deut
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Regs. 11 , 5 39.1 5-1. - . 232
contended that ths fgure faed to embrace a substanta sum In currency In
bs safe at tbe startng date. Both the Government and the respondent ad-
duced a number of crcumstances In support of ther respectve postons, and
In Interpretng the meanng of respondent s statement tbe ury coud ready
hare found the Government s crcumstanta proof more persuasve. In our
vew, t coud have concuded from the evdence that respondent s statement as
to tbe 500 referred to bs tota cash on band at tbe startng pont.
Respondent aso sgned a wrtten statement admttng to tbe same openng
cash on band. Ths document contaned the over-a net worth computaton re-
ed on by the Government at tbe tra. The Government s evdence tended to
show tbat It bad been sgned by tbe respondent after the usua warnng and
after be and the agents had worked over the statement, tem by tem, for some
eght hours. Though admttng that both be and hs accountant bad read the
statement, the respondent sought to prove that he bad not understood the net
worth computaton as a whoe or the Indvdua tem of cash on band tbat
before sgnng tbe statement he had asked hs accountant whether t was correct,
ntendng to rey on the etter s |udgment and that tbe accountant, In gvng
defendant the go-abend, bad merey approved the method empoyed n compng
the statement wthout passng on the accuracy of tbe partcuar fgures. Agan
t was for the ury to consder a these crcumstances n determnng tbe weght
to be gven the sgned statement we cannot say that tbe document shoud bave
been re|ected as a matter of aw.
But a these factors are reevant In determnng whether the Independent
evdence provded adequate corroboraton. As n Smth v. Unted States, the
crcumstances surroundng defendant s admssons cast some doubt on tber
reabty. Tbe statements were made by a ta payer an ous to cooperate wth
tbe Government n the hope of mtng cv abty and avodng crmna
prosecuton. Tbe ora statement, wth ts n tbe pocket termnoogy, s cer-
tany not cear. And the Government s own wtness, the respondent s accountant,
testfed that be had not verfed tbe partcuar fgures In the wrtten stntcment
when t was referred to hm by res|wndent Under these crcumstances, the
tra |udge and revewng courts shoud e ercse great care In determnng
whether the statements of the accused were corroborated. The revewng courts,
however, can seek corroboratve evdence n the proof of both partes where,
os In ths case, the defendant Introduces evdence n bs own behaf after hs
moton for acqutta has been overrued. Cf. ogk v. attcrt, 1 9 O. S. 17.
Unke Smth, there Is not suffcent evdence here of the tn paper s fnanca
hstory to substantate drecty the openng net worth. Proof that the ta payer
was mpovershed by the depresson, that he was workng for hs meas and
a week In 1935, s too remote absent proof of the ta payer s fnanca crcum-
stances In the ntervenng years. Tbe respondent entered the con-machne
busness In a modest way n 1935 he dscontnued bs ow-payng |ob In 1U39
and e cept for a short perod durng the war he devoted hs entre efforts to hs
con-machne busness unt 19 5, when he began to operate a cafe as we. The
ony evdence of defendant s fortunes between 1935 and 19 6, the frst prosecuton
year, conssts of hs ta returns for 19 and 19 5 and some meager evdence
wth regard to hs tn returns for 19 1, 19 2 and 19 3. The atter apparenty
was obtaned from the respondent, and, standng uncorroborated, cannot serve
to corroborate respondent s other admssons. The 19 and 19 5 returns show
net ta abe ncome of ,162 and 7,32 respectvey, wth gross recepts from
the con machnes of 9,206 and 10,302. Ths sketchy background can hardy
pve rse to an nference that defendant had no more cash at the startng date
than the Government gave hm credt for.
Accordngy, we must search for Independent evdence whch w tend to
estabsh the crme drecty, wthout resort to tbe net worth method. There are
severa evdentary strands whch mert Inspecton, the frst of whch Is very
smar to one empoyed n Bmth. We hed there tbat an nference of tn evason
coud be based on the fact that the ta payer s vsbe assets greaty ncreased at
a tme when he was recevng unrecorded amounts of ta abe ncome. In Smth
1 Br Introdncn|r evdence the defendant wave hA ob|ecton to the dena of hd noton
to acqut. Lt v. Unted State 1U P. 2d 109 Leebu v. Unted Statet, 192 . 2d 331
Oavnt v. Unted State 1 . 2d 2 Motea v. Unted State 17 . 2d Ha v.
Unted State , 10 . 2d 101. HI proof mny ay tc foundaton for otherwse InndmR be
evdence In the Government Inta presentaton, Adrey t. Unted Staten, 1S5 . 2d 17,
or provde corroboraton for essenta eement of the Government caA e. Unted Statet v.
aodtten, 1CS . 2.1 CCG fcrro t. Unted State 131 . 2d 33 .
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233 (Regs. 11 , 39.1 5-1.
r. Unted Btatet the ta payer kept no records. Here the records were shown
to be Incompete. Recepts from the con machnes were tabuated from a number
of recept books coverng varous ocatons. The recept books were not num-
bered the ta payer was unsure of how many machnes he had In operaton:
and there was consderabe concern about recept books beng ost or mspaced.
The oss of one recept book woud make a dfference of from 1,000 to 1,500 In
ncome. vontuay, on the advce of hs accountant, respondent began to number
the books. But even after ths safeguard was empoyed, unnumbered books
contnued to appear and then dsappear two were ost, and subsequenty
recovered. In a perod of three or four months. A system of recordng recepts
whch rests on so unfrm a foundaton hardy paces the respondent n a very
dfferent cass for ths purpose than the ta payer who keeps no books at aL
Both are recevng unrecorded amounts of ncome.
The Increase n respondent s vsbe assets Is consderaby ess than the In-
crease presented In the Smth case. There the Increment over a four-year perod
amounted to more than 190,000 the ta payer s decared Income was ess than
17,000 and hs average persona vng e penses were 3,500 a year. In ths
case, aso over a four-year span, the fgures are: ncrease In vsbe assets (e -
cudng the cash Item), 7,51) decared Income, 10,775 vng e penses. 3,000
yeary (pus some 1,900 In other nondeductbe e pendtures). The Increase,
though ess than n Smth, Is far from nsubstanta. Whe reportng ncome
ony ,775 In e cess of hs vng e penses, the ta payer ncreased hs bank
baances by over 10,000 added 1,000 to hs hodngs of Unted States Savngs
Bonds Increased hs Investments n and and budngs by over 0,000 and
poured some 22,000 net addtona capta Into hs busness. These ncrements,
when consdered In the sht of respondent s recept of unrecorded amounts
of ta abe Income, are suffcenty nt varance wth hs reported Income to sup-
port an nference of ta evason. The Inference Is buttressed n ths case by the
pecuar reaton between the reported gans from respondent s con-machne
busness and hs Investments In new equpment. In three of the four prosecuton
years the respondent reported a net oss on hs con-machne operaton, nn
n the fourth a net gan of ony 1,330. Durng the same perod he made gross
Investments In new equpment totang 37,5. 5. The ury coud ready fnd
defendant s Investment pocy Inconsstent wth hs camed osses. urther-
more, athough respondent contends that the war years marked the peak of hs
busness actvty and that hs apparent postwar ncreases came from proHts
accumuated durng that perod, It was not unt 19 7, the mdde of the prosecu-
ton perod, that hs busness became suffcenty arge to requre the fu tme
of hs accountant. We hod that the fnanca hstory of respondent and hs
busness durng the prosecuton years provdes suffcent Independent evdence
of the crme of ta evason to corroborate hs statements concernng cash on
hand.
ven more concusve corroboraton, however, s respondent s testmony at
the tra that he had 10,000 or 17,000 cash on hand at the startng pont. Ths
confcted wth the statements beng corroborated ( 500) and respondents test-
mony at a pror tra ( 2,000 to 9,000), but for the purpose of ndependenty
estabshng the crme charged the ury coud accept ths testmony. Respondent
further testfed that he had 3,000 or ,000 n cash at the end of the prosecu-
ton perod. Taken together wth the remander of the net worth statement,
whch was stpuated or Independenty estabshed, ths testmony estabshes
a defcency In reported ncome of more than 30,000. There coud hardy be
more concusve Independent evdence of the crme.
But one probem remans. The 17,000 hoard of cash coud have absorbed
the computed Income defcency for one or more of the prosecuton years, and
respondent was convcted on a four counts. It mght be argued that ndependent
evdence showng a 30,000 defcency Is not enough that there must be ev-
dence that ths sum resuted In a defcency for each of the years here In ssue.
There Is no mert n ths contenton. In the frst pace, ths evdence Is merey
corroboratng respondent s cash-on-hand admssons and need not compy wth
the ncetes of the annua accountng concept. Whe the evdence as a whoe
It A not cear from the record whether thn numberng began durng or after the
prosecuton perod. Compare R. 130-131 wth . 177-17 .
The Covcrnmcnta net worth computaton, based on 300 cash on hand at the outset
and 1,071.50 on hnnd at the concuson of the prn A eutnn perod, yeds a four-year net
worth Increase (wth e pendtures) of CI.W3 0,319 n c ceA s of decared Income
mnatng the c.sh Items from the net worth statement, the defcency Is reduced by
1. 71 to ,7 7. If the defendant s testmony a accepted, of 17.noo cash on h.nd at
tho hctnnne and 3,000 at the end, the defcency must be reduced by another 1 ,000.
eavng 30,7 7.
The computed defcency for 10 7 was 7,3 3, and for 10 , 3,2 1,
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egs. 11 , 39.1 6-1. 23
must show a defcency for each of the prosecuton yean, the corroboratve ev-
dence suffces If It shows a substanta defcency for the over-a prosecnton
perod. Independent evdence that respondent understated bs Income by 30,000
In the same four-year perod for whch respondent s e tra|udca admssons
tended to show a ( 0,000 defcency s adequate corroboraton. It provdes sub-
stanta evdence tbat the crme or crmes of ta evason have been commtted
the corroboraton rue requres no more. Second, there Is evdence n ths case
whch tends to negate the possbty thnt the aeged 17,000 hoard coud have
absorbed the defcency for any of the prosecuton years. Ths money supposedy
went toward the purchase of equpment In 10 0 and eary 10 7. Amost 10,000
In equpment was purchased In 10 C ths accounts for neary a of the cash
hoard and st eaves a defcency In 10 6 of over 5,000 n unreported ncome.
The funds whch reman are nsuffcent to absorb the ncome defcences of
any subsequent prosecuton years.
As we sad, the crcumstances surroundng respondent s admssons create
consderabe doubt as to ther reabty. We have therefore e amned the
ndependent evdence wth gTeat care to Insure that the accused w not be
convcted on the bass of a fase admsson aone. Athough the evdence wns
nsuffcent to corroborate the openng net worth drecty, we fnd the ndepend-
ent proof of ta evason entrey adequate. Accordngy, the decson of the
Court of Appeas settng asde the convcton a
Reversed.
Us. ustce Dougas dssents.
S CTION 1 6.-CLOSING BY COMMISSION R
O TA ABL Y AR
Reguatons 11 , Secton 39.1 6-1: Termnaton Rev. Ru. 5 -551
of the ta abe perod by Commssoner.
Ambassadors and pubc mnsters and other hoders of dpo-
matc passports, together wth members of ther househods, may
depart from the Unted States wthout obtanng certfcates of
compance requred by secton 1 0(e) of the Interna Hevenuo
Code of 1939. However, empoyees of foregn governments who
do not bear dpomatc passports and are not members of dpo-
matc househods must procure from the Dstrct Drector of In-
terna Revenue certfcates that tbey have comped wth a the
obgatons mposed upon them by the ncome, war profts and
e cess-profts ta aws.
Advce has been requested whether secton 1 6(e) of the Interna
Revenue Code of 1939. or any other appcabe aw or reguaton re-
qurng e t permts tor aens wshng to eave the Unted States,
appes to dpomatc and other empoyees of foregn governments
and ther dependents, and whether, f any such e t permt s re-
qured, t coud be waved n return for an agreement by the Gov-
ernment to ssue mutpe entry and e t vsas to nondpomatc as
we as dpomatc personne and the dependents of both.
The e press terms of secton 1 0(e) are appcabe to a aens,
ncudng dpomatc and other empoyees of foregn governments.
However, ambassadors and mnsters accredted to the Unted States
en|oy prveges and mmuntes whch prevent the Government from
detanng them at the port of embarkaton, or otherwse, for the pur-
pose of compance wth ncome ta obgatons. It s the practce of
the Revenue Servce to permt ambassadors and pubc mnsters and
other hoders of dpomatc passports, together wth members of ther
househods, to depart from the Unted States wthout obtanng cer-
tfcates of compance. See O. D. 271, C. B. 1, 252. If a foregn
The computed (efcrrry for 1 Mf wdt 21.0-19.
Sec nutca 3 and . Tc computed defcency (or 10 9 m 1 ,323.
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.235 Regs. 11 , 39.1 7-1.
government does not ssue dpomatc passports but merey ndcates
on passports ssued to the members of ts dpomatc and consuar
servces the rank of the bearer n the servce n queston, such pass-
forta are consdered dpomatc passports for the purpose of the
edera ncome ta . Servants n dpomatc househods not accom-
paned by a bearer of a dpomatc passport are permtted to depart
from the country wthout e amnaton for ncome ta purposes pro-
vded a etter s obtaned from the chef of the msson concerned cert-
fyng that no ta s due from such servants and that ther names ap-
pear on the Whte Lst. In ths connecton, t s to be noted that the
compensaton of househod empoyees of dpomatc offcers of a for-
egn government may propery be certfed as e empt from Unted
States ncome ta under the provsons of secton 116(h) of the In-
terna Revenue Code of 1939 ony where such empoyees, n addton
to meetng the other requrements of that secton, are specfcay pro-
vded for and pad by the foregn government, or pad from funds
or aowances granted by the foregn government for the specfc pur-
pose of hrng househod empoyees.
The provsons of secton 1 6(e) of the Interna Revenue Code of
1939 are e press, and wthout egsatve change thereof there ap-
pears to bo no bass for wavng those provsons wth respect to
empoyees of foregn governments who do not bear dpomatc pass-
ports and are not members of dpomatc househods. Accordngv,
ambassadors and pubc mnsters and other hoders of dpomatc
assports, together wth members of ther househods, may depart
rom the Unted States wthout obtanng certfcates of compance
requred by secton 1 6(e) of the Interna Revenue Code of 1939.
However, empoyees of foregn governments who do not bear dpo-
matc passports and are not members of dpomatc househods must
procure from the Dstrct Drector of Interna Revenue certfcates
that they have comped wth a the obgatons mposed upon them
by the ncome, war profts and e cess-profts ta aws.
S CTION 1 7. IN ORMATION AT SOURC
Reguatons 11 , Secton 39.1 7-1: Return of Rev. Ru. 5 -571
nformaton as to payments of G00 or more.
(Aso Secton 39.1 7-3.)
Commssons retaned by a rea estate agent from rentas coected
and pad to property owners, as we as other deductons made from
such rentas, are consdered as havng been pad by the agent to the
owner and, n turn, pad back to the agent for the purpose of ds-
chargng the owner s obgatons or uphodng hs nterest wth respect
to the property. It s therefore hed that a rea estate agent must
report on Informaton Return, orm 1099, the gross amount of rents,
coected on behaf of the property owner pror to the deducton of
commssons, fees or e penses, f such amount pad to any one property
owner totas 000 or more durng the ta abe year..
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Regs. 11 , 39.15 -1. 236
S CTION 1 (a). IN ORMATION BY CORPORATIONS:
DI ID ND PAYM NTS
Reguatons 11 , Secton 39.1 f a)-: Return of T. D. 6113
nformaton as to payments of dvdends.
TITL 2ft INT RNAL R NU . CHAPT R I, SUBCHAPT R A, PART 39.
INCOM TA : TA ABL T A S B GINNING A T R D C MB R 31, 1031
Reguatons 11 amended wth respect to the requrement for
fng nformaton returns reportng dvdends pad by natona farm
oan assocatons and producton credt assocatons for caendar
years after 1953.
Treasury Department,
OrrC of Commssoner op Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On August 21,195 , a proposed revson of secton 39.1 (a)-1(b)
of Reguatons 11 (26 C R, pt. 39) appeared n tentatve form as
the append attached to a notce of proposed rue makng pubshed
n the edera Regster (19 . R. 53 1). No suggestons havng been
receved from nterested persons regardng the proposa, the amend-
ment, as proposed, s hereby adopted.
Secton 39.1 (a)-(b) of Reguatons 11 (2C C R, pt 39), s
amended by nsertng n the thrd sentence thereof after the words
descrbed n secton 101 (10), (11), (12), or (13), the foowng:
or, for caendar years after 1053, In the case of a natona farm oan assocaton
or a producton credt assocaton .
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62,1 , and 3791 of the Interna Revenue Code of 1939 (53 Stat.
32,65, 67 26 U. S. C. 62,1 ,3791).)
O. Gordon Dek,
Actng Commssoner of Interna Revenue.
Approved November 2 ,195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster November 29,195 , : 9 a. m.)
S CTION 15 . INCOM TA S O M MB RS O
ARM D ORC S UPON D ATH
Reguatons 11 , Secton 39.15 -1: Abatement of
ncome ta es of certan members of the armed .
forces of the Unted States upon death.
Reguatons 11 amended. See T. D. 6106, page 137.
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237 (Regs. 11 , 39.162-1.
SUPPL M NT . STAT S AND TBUST3
S CTION 162. N T INCOM
Reguatons 11 , Secton 39.162-1: Income Rev.RuI. 5 -503
of estates and trusts.
Where property formng the corpus of a trust s sod preparatory
to termnaton of the trust and dstrbuton of the trust s assets to
the benefcares and n accordance wth the trust nstrument the
proceeds are currenty dstrbutabe, the entre amount of gan rea-
zed upon the sae s ta abe to the benefcares for the year n
whch the sae occurs and consttutes a proper deducton n com-
putng the trust s net ncome for such year.
Advce s requested reatve to the treatment for edera ncome
ta purposes of the gan reazed from the sae of property formng
the corpus of a trust under the crcumstances set forth beow.
Under a w e ecuted n 1005, a grantor n the State of New York
created a trust for the beneft of hs two daughters, such trust to con-
tnue unt the death of the survvor of sad daughters. At the death
of the survvor of the daughters the trustees were requred ether to
se the trust property and dstrbute the proceeds, after payment of
e penses, to desgnated benefcares, or to dstrbute the trust property
n nd to the same benefcares.
The survvor of the two daughters, whose fe measured the e stence
of the trust, ded n the trust s ta abe year 1951. Durng such ta abe
year, the trustees sod the entre property of the trust, thereby reaz-
ng a substanta ong-term capta gan. A parta dstrbuton of
the proceeds from the sae was made n 1951 and the dstrbuton was
competed n 1952, more than 65 days after the cose of the trust s
ta abe year 1951.
Under New York State aw the proceeds of the sae of the corpus
of the trust, ncudng any gan reazed thereon, become part of the
trust corpus. Bank of Rchmondve et a., ecutors, state of
Wam . Lews v. Mark Graves, 1 N. Y. S. (2d) 133, affrmed 30
N. . (2d) 720, Chares Smon et a., ecutors v. ane M. Hoey,
ecutr , ed. Supp. 75 , affrmed per curam 1 0 ed. (2d) 35 .
Athough capta gan s to be consdered a part of the corpus under
the aw of New York, nevertheess t s ncome for edera ncome ta
purposes under secton 22(a) of the Interna Revenue Code of 1939.
Secton 162(b) of the Code, reatng to the computaton of the net
ncome of an estate or trust, does not dstngush between ordnary
ncome and ncome from tho sae of capta assets for the purpose of
tho deductons aowed an estate or trust. Secton 102 o the Code
provdes, n part, as foows:
The net Income of the estate or trust sha be computed n the same manner
and on the same bass as n the cose of an Indvdua, e cept that

(b) There sha be aowed as an addtona deducton n computng the net
Income of the estate or trust the amount of the ncome of the estate or trust
for Its ta abe year whch Is to be dstrbuted currenty by the fducary to the
egatees, hers, or benefcares, but the amount so aowed as a deducton shaU
be ncuded n computng tbe net ncome of the egatees, hers, or benefcares
whether dstrbuted to them or not. As used In ths subsecton, ncome whch
s to be dstrbuted currenty ncudes ncome for the ta abe year of the estate
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Hcg. 113, 539.102-1.) 23
or trust whch, wthn the ta abe year, becomes payabe to the egatee, her, or
benefcary. Any 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
my succeedng ta abe year
G. C. M. 2 702, C. B. 19 5, 2 1, hods 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 1C2(6) of the Code
as amended by the Bevenue Act of 19 2. Ths s true regardess of the
fact that under State aw such ncome s consdered prncpa to the
egatee, e cept where the dstrbuton s made n satsfacton or pay-
ment of a pecunary egacy. However, ths rung appes ony to
dstrbutons of ncome durng the ta abe year n whch the resdue
becomes payabe. G. C. M. 17233, C. B. -2, 111, hods that gans
derved from the sao of a part of the corpus of a partcuar trust
whch are dstrbuted to the benefcares n accordance wth the terms
of the trust nstrument gvng the trustee dscretonary power to
dstrbute ncome or prncpa or both consttute ncome propery
pad or credted wthn the meanng of secton C2(c) of the Code
and are ta abe to the benefcares of the trust. See aso G. C. M.
2203 , C.B. 19 0-1,90.
In Margaretha Weber (Schaub st.) v. Commssoner 111 ed.
(2d) 766, the testatr had devsed a farm to her three chdren, wth
a power of sae conferred on her e ecutors. In 1933 the e ecutors sod
the farm, reazng a proft whch was pad over to the chdren. It
was hed that the proft was propery pad to the chdren and that the
estate coud propery deduct such payment n computng net ncome,
snce the chdren had the rght to an mmedate dstrbuton. In
commentng on ths case, the court n Henry H. Rogers state et a. v.
Commssoner, 1 3 ed. (2d) 695,sad:
In Weber T. Commttoner the terms of the w were such that the
gans upon the makng of the ene became at ouce a proft of the egatees ob-
ronsy t therefore mmedatey became ncome so far as they were con-
cerned
The trust ndenture n queston specfcay provdes that upon sao
of the reaty whch comprsed the corpus of the trust, the proceeds,
ncudng any gan reazed upon such sae, were to be dstrbuted and
pad over. Thus, the proceeds, ncudng gan, were currenty dstrb-
utabe to the benefcares and the gan s ta abe to them for ncome
ta purposes and deductbe by the trust n determnng ts gross n-
come under secton 162(b) of tnc Code whether actuay dstrbuted or
not Athough there was no fna dstrbuton of assets n 1951, the
year of sae, the gan became mmedatey dstrbutabe to the benef-
cares under the terms of the trust.
Accordngy, t s hed that where property formng the corpus of a
rust s sod preparatory to termnaton of the trust and dstrbuton
of the trust s assets to the benefcares and n accordance wth the trust
nstrument the proceeds are currenty dstrbutabe, the entre amount
of gan reazed upon the sae s ta abe to the benefcares for the year
m whch the sae occurs and consttutes a proper deducton n com-
putng the trust s net ncome for such year.
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239 Regs. 11 , 9.165- .
S CTION 165. MPLOY S TRUSTS
Reguatons 11 , Secton 39.165-1: mpoyees Rev. RuL 5 -39
trusts
A trust formng a pnrt of a stock bonus, penson, or proft-sharng
pan of an empoyer for the e cusve beneft of bs empoyees or
ther benefcares w quafy under secton 103(a) of the Interna
. Revenue Code of 1939 even though the empoyees do not have the
unrestrcted rght to desgnate ther benefcares, where, under the
pan, they are restrcted to a specfed person or group of persons
who are the natura ob|ects of an empoyee s bounty, hs depend-
ents, or s estate.
. Revenue Rung 33, C. B. 1953-1, 2C7, modfed, and P. S. 19
revoked.
urther consderaton hns been gven to the requrement, set forth
n Part 2(c) of Revenue Rung 33, C. B. 1953-1, 267, that a trust,
whch forms a pnrt of a stock bonus, penson, or proft-sharng pan of
an empoyer, must grant empoyee partcpants the rght to desgnate
ther own benefcares, n order to quafv as e empt under secton
165 (a) of the Interna Revenue Code of 1939.
Secton 165(a) of the Code requres that an empoyer s pan must
be for the e cusve beneft of hs empoyees or ther benefcares.
Secton 39.165-1 (a) (5) of Reguatons 11 provdes, n part, that
the term benefcares of an empoyee ncudes the estate of the em-
poyee, dependents of the empoyee, persons who are the natura
ob|ects of the empoyee s bounty, and any person desgnated by the
empoyee to share n the benefts of the pan after the death of the
empoyee.
The above defnton of the term benefcares s not to be con-
strued to mean that absoute freedom of desgnaton to the empoyees s
ntended n every case otherwse t woud have been unnecessary to
enumerate the cnsses of benefcares n the reguatons, snce the
phrase as used theren, any persons desgnated by the empoyee,
woud have been suffcent n tsef to accompsh that purpose.
Therefore, athough rfce empoyees are not granted the unrestrcted
rght to desgnate ther own benefcares, a pan may quafy under
secton 165(a) of the Code t a provson s made namng as bene-
fcares the estate of th6 empoyee, dependents of the empoyee, or
persons who are the natura ob|ects of the empoyee s bounty.
Accordngy, Revcnuo Rung 33, C. B. 1953-1, 267, Part 2(c), s
modfed to the e tent nconsstent herewth, and P. S. 19 dated
August 29,1911, s revoked.
Reouatons 11 , Secton 39.165-6: Ta abty Rev. Ru. W-265
of benefcary under a trust whch meets the
requrements of secton 165(a).
An empoyee s Interest In the trust fund formng pnrt of an em-
poyees proft-sharng pan, whch meets the requrements of secton
105(a) of the Interna Revenue Code, Is hed to have been made
avnne to hm wthn the meanng of that term as used u sec-
ton 10. (b) of. the Code, at the enrest date upon whch he coud
have receved a ump sum dstrbuton from the trust.
Advce s requested as to whether, under the foowng crcum-
stances, an empoyee s tota beneft payabe under an empoyee s proft
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Reg 11 , 9.167-L| 2 0
sharng pan s deemed to hare been made avaabe to hm wthn
the meanng of that term as used n secton 165(b) of the Interna
Revenue Code on the earest date upon whch he coud have receved
a ump sum dstrbuton of such beneft by appcaton wth the
trustee at the tmes provded for n the pan.
An empoyer put nto operaton an empoyee s proft-sharng pan
whch meets the requrements of secton G5(a) of the Interna Reve-
nue Code. Under the provsons of the trust agreement, whch forms
a part of the proft-sharng pan, each empoyee has a severabe and
persona trust whch w contnue n effect unt termnaton of the
empoyee s servces, at whch tme dstrbuton of hs credts w be
made n nstaments computed on the bass of hs fe e pectancy
uness the empoyee makes an eecton, any tme after he has competed
1 years and 6 months of partcpaton n the1 pan, to termnate the
trust at the end of 15 years of partcpaton or any tme thereafter,
and to receve the amount of hs credt n a ump sum. The eecton
to termnate the empoyee s trust must be e ercsed at east 30 days
pror to the date on whch termnaton s to be effectve, whch may
ony be at the cose of a semannua accountng perod of the pan.
It s provded n secton 165(b) of the Interna Revenue Code that
the amount actuay dstrbuted or made avaabe to any dstrbutee
of a trust formng part of a bonus, penson, or proft-sharng pan
quafed under secton 165(a) sha be ta abe to hm n the year so
dstrbuted or made avaabe as f t were an annuty to the e tent
provded n secton 22(b) (2), wth an e cepton, not appcabe here,
n the case of a dstrbuton on account of the empoyee s separaton
from the servce.
The amount paced to the empoyee s credt n the trust fund be-
comes avaabe to the empoyee at the tme when he frst acqures an
unrestrcted rght to wthdraw such amount. In the present case
the tme when he frst acqures such rght to wthdraw s at the end
of the frst accountng perod of the trust after hs competon of 15
years of partcpaton n the proft-sharng pan foowng the es-
tabshment of the trust. The ony bar to the actua recept of the
credt s the faure on the part of the empoyee to make a wrtten
request to the trustee for payment of the entre amount thereof as
prescrbed n the pan, but such condton s hed to have no rea
substance.
Accordngy, t s hed that the empoyee s entre nterest n the
trust w be made avaabe to hm, wthn the meanng of that
term as used n secton 165(b) of the Codet on the earest date upon
whch he coud receve a cash ump sum dstrbuton from the trust
f he had requested the trustco therefor n accordance wth the pan.
S CTION 167.-INCOM OR B N IT O GRANTOR
Reguatons 11 , Secton 39.167-1: Trusts n Rev. Ru. 5 -306
the ncome of whch the grantor retans an
nterest.
Income accumuated for future dstrbuton to the grantor of a
trust durng the tme thnt a so-caed war cause In the trust
agreement s In effort w be ta abe to the grantor under secton
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2 1 (Begs. 11 . 39.167-1.
167(a) (1) of tbe Interna Revenue Code and w not be ta abe
to the trustees.
Advce s requested reatve to the ta abty for edera ncome
ta purposes of the ncome accumuated for future dstrbuton to the
grantor of a trust durng the tme that a so-caed war cause n the
trust agreement s n effect
In the nstant case a foregn corporaton (heren caed the grantor)
estabshed a trust n the Unted States, the corpus of whch conssts
of securtes, cash, recevabes from a whoy owned Amercan sub-
sdary, and royates payabe under certan cense agreements and
patents. The grantor has no offce and does not do busness n the
Unted States. Under the trust agreement, the trustees have the
power to hod the trust estate, to coect ncome and accruas, and have
a mted power to nvest. They are prohbted from seng any of
the stock of the whoy owned Amercan subsdary and certan other
securtes and patents and patent rghts.
The trust agreement provdes that the trustees sha coect and
receve whatever accrues from the trust estate whether n the nature
of ncome or otherwse, and after payng or deductng a compensa-
ton, e penses, and other charges propery chargeabe aganst the trust
estate, pay over to the grantor the baance of such accruas then re-
manng. The trust sha termnate 21 years after the date of the
death of the ast survvor of certan named persons who are now
vng, uness the grantor e ercses ts mted rght of revocaton at
an earer date.
In addton to the foregong, a so-caed war cause n the trust
agreement provdes that n case the country n whch the grantor
s dong busness s attacked by the armed forces of an enemy or war
s decared aganst such country or f such country or the busness
comes under the contro of a hoste potca order, the trust may be
termnated f n the opnon of a the trustees the nterests of the
sharehoders of the grantor w be best served thereby. Such cause
further provdes that f such termnaton occurs, 10 percent of the net
ncome of the trust for the ast caendar year precedng that n whch
termnaton occurs, when fnay determned, sha be dstrbuted to
a desgnated chartabe organzaton as a benefcary under the trust.
In the event the trust s not termnated durng the tme the war
cause s n effect, the ncome w be accumuated durng such perod
nnd pad over to the grantor when the war cause ceases to operate.
The grantor may not revoke the trust durng the tme n whch the
war cause s n effect
Secton 107(a)() of the Interna Revenue Code provdes that
where any part of the ncome of a trust s, or n the dscreton of
the grantor or of any prrson not havng a substanta adverse nterest
n tno dsposton of such part of the ncome may be, hed or accumu-
ated for future dstrbuton to the grantor, then such part of the
ncome of the trust sha be ncuded n computng the net ncome of
the grantor.
The ratonae n the case of A. Atwater ent v. Rotkenses, 120 ed.
(2d) 76) certorar dened 31 U. S. 659, s consdered to be contro-
ng n the nstant case. In that case t was hed that secton 167 of
the Revenue Acts of 1932 and 193 provdng that trust ncome whch
s hed or accumuated for future dstrbuton to the grantor s ta -
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Hegs. 11 , 39.1 7-1.) 2 2
abe to the grantor doe s not requre that ncome be uncondtonay
hed or accumuated for future dstrbuton to the grantor or that
accumuatons be actuay dstrbuted to the grantor. In the trusts
nvoved, one-haf of the ncome was to be hed and accumuated by
the trustees for 2 years. At the e praton of the fu 2 years, the
trustees were to dstrbute the accumuaton to the grantor, f vng:
otherwse, to the benefcares named n the nstruments. The Unted
States Court of Appeas for the Thrd Crcut n reversng the |udg-
ment of the Unted States Dstrct Court for the astern Dstrct of
Pennsyvana, 35 ed. Supp. 291, whch was n favor of the pantff,
stated as foows:
Nowhere In secton 107 Is there any suggeston that the occnmnatons
of trnst Income must actuay be dstrbuted to the grantor n order to make
the secton appcabe. Indeed, even If the rght of the grantor to the ac-
cumuatons were absoutey vested e woud not actuay receve them If he
ded pror to the dnte of dstrbuton. Nor Is there any suggeston n the
secton that the trust Income must be hed or accumuated e cusvey for the
grantor. The pantff Is not ony one of n number of persons to whom ds-
trbuton may eventuay be mnde but In fact s the presumptve taker of the
trust accumuatons. As a practca matter, so ong as the pantff s ave
the accumuatons of the trust Income are for hm. And snce the Itevenue
Acts ore concerned soey wth the practca aspects of Income ta aton and
not wth the queston whether the rght of the ta payer to the Income Is cond-
tona or uncondtona, contngent or vested sub|ect to H ng dvested by
death, we thnk the pantff s sub|ect to the ta under the anguage of secton
107 as wrtten.
The provsons of secton 167(a) (1) of the Revenue Acts of 1932
and 193 are the same as the provsons contaned n secton 107(a) (1)
of the Interna Revenue Code.
In vew of the foregong, t s hed that ncome accumuated for
future dstrbuton to the grantor of the trust durng the tme n
whch the above-descrbed war cause n the trust agreement s n
effect w be ta abe to the grantor under secton 167(a) (1) of the
Interna Revenue Code and w not be ta abe to the trustees.
S CTION 172 ALLOWANC O AMORTIZATION
D DUCTION
Reguatons 11 , Secton 39.172-1: Amortza-
ton of emergency facty or gran storage
facty of estate or trusts.
Reguatons 11 amended. See T. D. G112, page 1 .
S CTION 1 7.-PARTN RSHIP R TURNS
Reguatons 11 , Secton 39.1 7-1: Partner- Rev. RuL 5 -
shp returns.
(Aso Secton 3797, Secton 39.3797-5. Sec-
ton 1 26, Secton 0 .205, Reguatons
12 Secton 1007, Secton 03.205, Regu-
atons 107.)
Revenue Rung 1 , C. B. 1953-2,212t and Revenue Rung 5 -31,
C. B. 195 -1, 212, are appcabe to a mted partnershp as we as a
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2 3 Regs. 11 , 39.202-2.
genera partnershp whether or not the partnershp agreement s sent
respectng contnuaton upon changes n membershp and, n the case
of an ordnary partnershp, whether or not there s a wrtten partner-
shp agreement. A chance n membershp of the genera partners of a
mted partnershp resutng from the death, wthdrawa, substtu-
ton, of a genera partner or a shft of nterests of the genera partners,
w not n tsef effect a termnaton of a mted partnershp for
edera ncome and empoyment ta purposes. Where contnuaton
of a mted partnershp s contngent upon the consent of a the
contnung partners t does not foow from Revenue Rungs 1 and
5 -31, supra, that such partnershp has the contnuty of fe that s
characterstc of and s ta abe as a corporaton for edera ncome
and empoyment ta purposes. Contnuty of fe n the corporate
sense, a requste of an assocaton ta abe as a corporaton, s not
practcay attaned by provsons n a partnershp agreement makng
t possbe for the contnung members to contnue the partnershp f
they choose. See secton 39.3797-5 of Reguatons 11 .
As n the cases of Revenue Rungs 1 and 5 -31, the Interna
Revenue Servce w not requre ths Revenue Rung to be apped
wth respect to those changes n partnershp nterests whch occurred
pror to anuary 1, 105 . See Rev. Ru. 5 -2G, C. B. 195 -1, 153,
and Rev. Ru. 5 -31, C. B. 195 -1,212.
S CTION 190. ALLOWANC O AMORTIZATION
D DUCTION
Reguatons 11 , Secton 39.190-1 Amortza-
ton of emergency facty or gran storage
facty of partnershp.
Reguatons 11 amended- See T. D. 6112, page 1 .
SUPPL M NT G INSURANC COMPANI S
S CTION 201. LI INSURANC COMPANI S
Reguatons 11 , Secton 39501-1: Ta on fe
nsurance companes.
_ Reguatons 11 amended. See T. D. 6106, page 137.
S CTION 202.-AD UST D NORMAL-TA N T INCOM
Reguatons 11 , Secton 39.202-2: Ad|ustment
for certan reserves.
Reguatons 11 amended. See T. D. 6106, page 137.
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Regs. 11 , 39.211-2.) 2
S CTION 203A. 1953 AD UST D NORMAL-TA
N T INCOM
Reguatons 11 , Secton 39.203A-: Ta on fe
nsurance companes n the case of a ta abe
year begnnng n 1952 or 1953.
Reguatons 11 amended. See T. D. 6106, page 137.
SUPPL M NT H. NONR SID NT ALI N INDI IDUALS
S CTION 211. TA ON NONR SID NT ALI N
INDI IDUALS
Reguatons 11 , Secton 39.211-2: Defn- Rev. Ru. 5 - 5
ton.
Under the Interna Revenue Code of 1939 a foregn student study-
ng for a degree n the Unted States, who remans n ths country
ony durng the schoo year and returns to hs home or goes esewhere
durng hs summer vacatons w be cassfed, for edera ncome
ta purposes, as a nonresdent aen.
Iter. Bu. 5 - 7, C. B. 195 -1,155, dstngushed.
Advce s requested reatve to the status for edera ncome ta
purposes of a foregn student studyng n the Unted States who re-
mans n ths country ony durng the 9 months of the schoo year
and returns to hs home or goes esewhere durng hs summer vacatons.
A student, a ctzen and resdent of a foregn country, entered the
Unted States on a student s vsa for the soe purpose of studyng at
an Amercan unversty to obtan the degree of Bacheor of Arts. A
student seekng the degree of Bacheor of Arts at the unversty n-
voved s requred to occupy a room n one of the coege houses uness
for reasons of heath or other speca crcumstances an e cepton s
made. Such student s not permtted to occupy these premses between
terms, that s, durng the summer vacaton. The student n queston
remans n the Unted States from September to une each year, but
returns to hs home for the summer months. He entered the un-
versty n September 1950, and e pects to compete hs course not ater
than une 1955. Nether the student nor hs parents have at any
tme had any home n the Unted States. He has no ntenton of
abandonng hs home abroad and has no ntenton of remanng n
the Unted States after the competon of hs course of study. Upon
recept of hs degree he w eave the Unted States permanenty.
Secton 39.211-2 of Reguatons US provdes n part that an aen
actuay present n the Unted Stntes who s not a mero transent or
so|ourner s a resdent of the Unted States for the purposes of the
ncome ta . Whether he s a transent s determned by hs ntentons
wth regard to the ength and nature of hs stay.
On the bass of the foregong, t s hed that under the 1939 Code
ths student under the crcumstances cted w be cassfed as a non-
resdent aen from the tme he entered the Unted States n. 1950 to
date, and f such crcumstances reman unchanged hs status w
be that of a nonresdent aen for the years he remans as a student.
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2 5 Rega. 11 , ( 39.251(A -1.
In Revenue Rung 5 - 7, C. B. 105 -1,155, t s hed that a foregn
6tudcnt studyng n the Unted States for a degree whch requres
temporary resdence n the Unted States for a mnmum of 2 years
w be cassfed for edera ncome ta purposes as a resdent aen.
That Revenue Rung was ntended to estabsh a presumpton of
resdence n such cases. Such presumpton, however, s rebuttabe,
and f n any case the student presents other facts for the purpose of
estabshng that he s not a resdent aen, due consderaton w be
gven to such facts. See O. D. 197, C. B. No. 1 (1910), 16 , for the
presumpton as to aens n genera. In the nstant case t s ceary
shown that the student s a nonresdent.
S CTION 27. R TURNS
Reguatons 11 , Secton 39.217-1: Tme and
pace for fng returns of nonresdent aen
ndvduas.
Reguatons 11 amended. See T. D. 6096, page 69.
SUPPL M NT L OR IGN CORPORATIONS
S CTION 231. TA ON OR IGN CORPORATIONS
Reguatons 11 , Secton 30.231-1: Ta aton
of foregn corporatons.
Trade or busness status of an agency under the ncome ta con-
venton between the Unted States and the Unted ngdom. See
Rev. Ru. 5 -5 , page 657.
SUPPL M NT POSS SSIONS OP TH UNIT D STAT S
S CTION 251(a). INCOM ROM SOURC S WITHIN
POSS SSIONS O UNIT D STAT S: G N RAL RUL
Reguatons 11 , Secton 39.251(a)-: Ct-
zens of the Unted States and domestc
corporatons dervng ncome from sources
wthn a possesson of the Unted States.
Compensaton for persona servces, receved from Unted States
Armed orces e changes, commssoned and noncommssoned offcers
messes, Armed orces moton pcture servces, and smar organza-
tons operated under Unted States Army, Navy or Ar orce regua-
tons. See Rev. Ru. 5 -612, page 169.
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Regs. 11 , 39.322-1. . 2 6
SUPPL M NT A . O RPAYM NTS
S CTION 322. R UNDS AND CR DITS
Reguatons 11 , Secton 39.322-1: Refunds Rev. Ru.- S -37
and credts. ,
Announcement of a pocy wth respect to parta aowances of re-
- funds or credts concernng overassessments of Income and e cess-
profts ta es. , .
Secton 1. Purpose.
The purpose of ths Revenue Rung s to authorze the acceera-
ton of parta aowances of refunds and credts n certan ncome
and e cess profts ta cases where such acton s deemed desrabe from
the standpont of the Government
Sec. 2. Background.
It s the estabshed pocy of the Interna Revenue Servce that, n
cases n whch the ta payer does not ndcate a wngness to agree to
a ad|ustments nvovng a proposed defcency, the ta payer shoud
be nvted to submt a P orm 70, Waver of Restrctons on Assess-
ments and Coecton of Defcency n Ta , wavng the restrctons on
assessment and coecton of the uncontested porton of the ta , there-
by mnmzng the accumuaton of nterest on the defcency.
The pocy announced heren of makng parta aowances of re-
funds and credts n certan types of cases w provde the Govern-
ment wth an opportunty for savng accumuated nterest n over-
assessment cases and, at the same tme, w provde the ta payer wth
the earer use of the funds nvoved.
urthermore, the pocy of makng parta aowances of refunds or
credts n certan types of cases as descrbed heren s wthn the
ambt of the broad ob|ectve of achevng n a arger number of cases
a greater degree of fnaty at the earest possbe admnstratve stage.
Sec. 3. Scope.
t
The pocy stated n ths Revenue Rung contempates the aow-
ance of parta overassessments ony n those cases where there has
been an agreement nsofar as the ssue or ssues resutng n the
parta overassessment are concerned. It s not concerned wth so-
caed nterm or tentatve refunds whch are the sub|ect of e press
provsons of aw, reguaton or mmeograph and whch are sub|ect
to a fna determnaton of ta abty. The types of cases wth
respect to whch the provsons of ths Revenue Rung contempate
the aowance of parta overassessments w generay fa nto the
foowng three categores:
(a) Cases for a specfc yenr nvovng two or more ta -reducng
ssues
(b) Cases for a specfc year nvovng severa sucs, both ta -
reducng and ta -ncreasng and where the over-a resut, after
gvng effect to the ta -ncreasng ssues, s a net overassessment
and
(c) Cases nvovng more than 1 year where the net resut s an
overassessmont.
Or uo| amed A U-Mnteograp No. 111, dated une 23, 103 .
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2 7 . (Regs. 11 , 39.322-1.
ampes ustratng the foregong categores foow:
The aowance of an agreed ta -reducng ssue resuts n an over-
assessment of 15,000 for the ta abe year 1953. A contested
ta -reducng ssue for the same year, f fnay determned to be
aowabe, woud resut n an addtona overassessment of
10,000. Under the provsons of ths Revenue Rung a parta
aowance refectng an overassessment not e ceedng 15,000
coud be schedued.
A case for a specfc year nvoves two ta -reducng ssues, one
of whch s contested, and two ta -ncreasng ssues whch may
or may not be contested. The aowance of one of the ta -reduc-
ng ssues, beng agreed to, resuts n a net overassessment of
50,000, after gvng effect to the offsettng ad|ustments for the
two ta -ncreasng ssues. Pendng fna consderaton of the
contested ssue or ssues a net overassessment not e ceedng 50,-
000 coud be schedued.
There s an unagreed proposed defcency of 0,000 for the year
1052 but a compete agreement wth respect to an overassessment
of 70,000 for the year 1953. Under the provsons of ths Rev-
enue Rung a parta overassessment not e ceedng 30,000
( 70.000- 0,000) for the year 1953 coud be schedued.
The foowng types of cases are e pressy e cuded from the pro-
vsons of ths Revenue Rung:
Cases nvovng ssues whch, f resoved n the ta payer s favor,
woud produce overassessments and/or overpayments n e cess
of 200,000 ( 100,000 under the Interna Revenue Code of 195 )
whch are sub|ect to revew by the Offce of the Chef Counse
of the Servce or by the ont Commttee on Interna Revenue
Ta aton
Cases for a specfc year nvovng severa ssues, where there
s no dspute wth respect to a ta -reducng ssue or ssues but
where, due to ta -ncreasng ssues, a net over-a defcency s
apparent
Cases nvovng more than 1 year where, for the severa years,
a net over-a defcency s apparent even though the agreed re-
sut of 1 or more years woud be an overassessment
Cases nvovng the appcaton of the provsons of secton 721
and secton 722 of the Interna Revenue Code and
Cases docketed n The Ta Court of the Unted States.
In regard to the desrabty of the aowance of parta refunds
or credts fang nto categores (a), (b) and (c) t s to be noted
that (1) a parta aowance may be made n a partcuar case wth
respect to agreed tems and the case kept open unt the remanng
ssues are dsposed of or setted and (2) n a case nvovng severa
ssues where an over-a net ovenssessncnt s ndcated, a parta
overafscNsmcnt may be aowed whch s mted to the amount of such
over-a net overassessment.
The pocy announced heren does not contempate the aowance
of parta overassessments as a matter of routne n every contested
case but ony n those cases where the facts and crcumstances are
such thnt a departure from the e stng practce or pocy of not
makng an overassessment unt thero has been a fna determnaton
of the entre ta abty s warranted. Consequenty, the decson
as to whether a parta overassessment shoud be aowed n any
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Regs. 11 , 33.322-3. 2
gven case must necessary be a matter of sound |udgment and ds-
creton and such acton must receve the approva of the Chef of the
Drector s Audt Dvson or the approprate offca of the Regona
Appeate Dvson, as the cose may De.
Sec. . AcTHORrrr.
Snce the parta aowances of overpayments of ncome and e cess
profts ta es n queston w be predcated on a determnaton on
behaf of the Commssoner that n an over-a consderaton of the
ta abty of the ta payer there has been an overpayment of at east
the partay aowed amount, t s consdered that the Commssoner
s authorzed under secton 322(a) (1) of the 1939 Code to make such
aowances provded, of course, the nterests of the Government are
fuy protected.
Accordngy, any overpayment resutng from a parta aowance
under the provsons set forth heren woua have to be credted aganst
any ncome or e cess profts ta assessed and then due from the ta -
payer, and the baance, f any, then refunded to the ta payer.
urthermore, n consderng the desrabty of makng parta
aowances, care shoud aso bo e ercsed to ascertan the e stence
of any pendng or proposed defcency n ncome or e cess profts
ta concernng tto ta payer for any other year.
Sec. . ffectve Date.
Ths Revenue Rung s effectve une 23,195 .
Reguatons 11 , Secton 39.322-3: Cams for Rov. Ru. - 0
refund by ta payers.
A cam for refund of edera ncome ta erroneousy or egay
coected bearng the sgnature of ony one coe ecutor s acceptabe as
a vad cam f such cam s otherwse propery fed wthn the pro-
vsons of secton 322 of the Interna Revenue Code of 1939.
Reguatons 11 , Secton 39.322-3: Cams for
refunds by ta payers.
Propery e ecuted return fed as a cam for refund by a dependent.
See Rev. RuL 5 -667, page 10 .
Reguatons 11 , Secton 39.322-3: Cams for Rev. Ru. 5 - 69
refund by ta payers.
Where an ndvdua, upon a propery e ecuted edera Income
ta return, cams an overpayment of bs current year s edera
Income ta and propery eects upon that return to have the credt
apped aganst hs succeedng year s estmated ta abty but the
camed overpayment s not both actuay credted aganst the
ta payer s ta abty for the succeedng ta abe year and the
ta payer notfed that the amount has been credted, then the over-
payment dscosed upon the current year s return consttutes an
overpayment of ta for that year wth respect to whch an adequate
cam was fed at the tme of the fng of the return.
Advce s requested whether a vad cam for credt or refund of
an overpayment of ta was fed wthn the statutory perod prescrbed
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2 9 Ret . 11 . 39.322-3.
by secton 322(b) of the Interna Revenue Code of 1039 under the cr-
cumstances descrbed beow.
or the year 19 7 the ta payer fed a tmey return on orm 10 0
whch refected an overpayment of ta . He eected n such return to
cam credt for the overpayment aganst estmated ta for the year
19 but faed to take credt for the amount so camed on hs return
tmey ed for tho year 19 . The credt was aowed but the ta -
payer was not notfed of ts aowance.
Secton 322 of the Interna Revenue Code, n provdng for credts
and refunds of overpayments of edera ta es pad, reads n part as
foows:
(b) T|mtatons o.t Aowance.
(1) Perod or mtaton. Uness a cam for credt or refund a fed
by te ta payer wthn three yenrs from the tme the return was fed by the
ta payer or wthn two years from the tme the ta was pad, no credt
or refund sha be aowed or made after the e praton of whchever of
such erods e pres the ater.
Secton 39.322-3 of Reguatons 11 provdes that a propery e -
ecuted return on orm 10 0 sha, at tho eecton of the ta payer, con-
sttute a cam for refund or credt wthn tho meanng of secton 322
for tho amount of the overpayment dscosed by such return. or
t purpose of secton 322, such cam sha bo consdered as fed on
tho dtto on whch such return s consdered as fed. An eecton to
treat tho return as a cam for refund or credt sha bo evdenced
by a statement on the return settng forth the amount determned as an
overpayment and advsng whether such amount sha bo refunded
or sha bo apped as a credt aganst the ta payer s estmated ta
for the ta abe year mmedatey succeedng tho ta abe year for whch
such return s fed.
It s the poston of the Interna Revenue Servce that uness t
can be shown that the overpayment n the pror year ta camed as a
credt has been both aowed as a credt aganst the ta for the year
mmedatey succeedng and the ta payer notfed of such aowance
so that hs remedy, f any, es n the recovery of a refund for that
year, tho overpayment referred to st consttutes an overpayment of
ta for the pror ta abo year, wth respect to whch an adequate
cam was fed wthn the meanng of the reguatons at the tme
the competed return was fed for that year.
In the present case the ta payer faed to take credt for the over-
payment n hs return for 19 . Snce the ta payer was not notfed
that tho amount camed as a credt was aowed, the overpayment
w be aowabe on the bass of the cam contaned n hs return
made for the year 19 7.
Accordngy, t s hed that where an ndvdua, upon a propery
e ecuted edera ncome ta return, cams an overpayment of hs
current year s edera ncome ta and propery eects upon that
return to have the credt apped aganst hs succeedng years est-
mated ta abty but the camed overpayment s not both actuay
credted aganst the ta payer s ta abty for the succeedng ta abe
year and the ta payer notfed that the amount has been credted,
then the overpayment dscosed upon the current year s return con-
sttutes an overpayment of ta for that year wth respect to whch an
adequate cam was fed at the tme of the fng of the return.
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Regs. 130, 0. 33(a)-. 250
SUPPL M NT P OR IGN P RSONAL HOLDING COMPANI S
. S CTION 332 OR IGN P RSONAL HOLDING
COMPANY INCOM
Reguatons 11 , Secton 39.332-1: oregn
persona hodng company ncome.
Compensaton receved from the dstrbuton and e hbton of
moton pcture fms. See Rev. Ru. 6 -2 , page 275.
SUPPL M NT U/ ta aton of busness ncome of certan secton h
ORGANIZATIONS
S CTION 21. IMPOSITION O TA
Reguatons 11 , Secton 39. 21-1: Imposton
of ta .
Rents and royates sub|ect to Suppement T ta as unreated bus-
ness net ncome. See Rev. Ru. 5 - 20, page 12 .
S CTION 22. UNR LAT D BUSIN SS N T INCOM
Reguatons 11 , Secton 39. 22-1: Defnton
of unreated busness net ncome.
cusons from unreated busness net ncome. See Rev. Ru.
5 - 20, page 12 .
SUBCHAPT R D. C SS PRO ITS TA
PART Is-RAT AND COMPUTATION O TA , / .
S CTION 33.- C SS PRO ITS N T INCOM
Reguatons 130, Secton 0. 33(a)-: cess Rev. Ru. 5 -53
profts net ncome for the ta abe year.
(Aso Secton 35, Secton 0. 35-1 Secton
5, Secton 0. 5-1.)
In determnng the e cess profts net Income of a domestc cor-
poraton whch commenced busness after the frst day of Its base
perod and whch determnes ts average base perod net ncome
tnder the provsons of secton 5 of the Interna Revenue Code
of 1039 and Its e cess profts credt under secton 35 of the Code,
the norma ta net ncome must be ad|usted for nterest on bor-
rowed capta to the e tent provded In secton 33(a) (1) (O) of .
the Code.
Advce s requested whether a domestc corporaton whch com-
menced busness after the frst day of ts base perod and determned
ts average base perod net ncome under the provsons of secton
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251 Regs. 130, S 0. 33(a -I-
5 of the Interna Revenue Code of 1939 s requred to make an ad-
|ustment to norma ta net ncome under the provsons of secton
33(a) (1) (O) of the Code for nterest on borrowed capta, n the
computaton of ts e cess profts net ncome.
Secton 5 of the Codo provdes an aternatve method for com-
mutng the avcrago baso perod net ncome of a new corporaton
.whch s not negbe under the provsons of subsecton (g) thereof.
A new corporaton, as the term s used n secton 5 of the Code, s
a corporaton whch commenced busness after the frst day of ts
base perod.
Secton 33(a)(1) of the Code provdes that certan ad|ustments
sha be made to norma ta net ncome n the determnaton of e cess
profts net ncome. Subsecton O thereof s as foows:
(O) Interest Credt Based Upon Income. If the e cess profts credt
for the ta abe year Is computed under secton 35, the deducton for
Interest sha be reduced by an amount whch bears the same rato to
the Interest on the Indebtedness Incuded In the day amounts of bor-
rowed capta (determned under secton 39(b) as the e cess of the
amount determned under secton 35(g)(3)(C) over the aggregate,
dvded by the number of days n the ta abe year, of the amount de-
termned under secton 35(g) ( ) ( ) for each day of the ta abe year,
bears to the average borrowed capta for the ta abe year (as defned
n secton 39(a)).
Secton 5 of the Code does not tsef provde any e cess profts
credt and can become effectve for the purposes of the e cess profts
ta mposed by Subchapter D of Chapter 1 of the Code ony by brng-
ng nto pay other provsons of that Subchapter for the determna-
ton of the e cess profts credt. Secton 3 (a) provdes that the e -
cess profts credt for a domestc corporaton sha be computed under
secton 35 or secton 3G, whchever resuts n the esser ta . Secton
35, reatve to the e cess profts credt based on ncome, provdes n
pertnent part as foows:
(a) Amount or cess Profts Credt. The e cess profts credt for any ta -
abe year, computed under ths secton, sha be
(1) Domestc corporatons. In the case of a domestc corporaton the
sum of
(A) per centum of the average base perod net Income,
. .
(c) Avfrnge n. sr Terod Net Income. Determnaton. or the purposes
of ths secton the average base perod net ncome of the ta payer sha be the
amount determned under subsecton (d), sub|ect to the e cepton that If the
ta payer Is entted to the benefts of Subsecton (e) of ths secton, or sectons
2, 3, , 5 or 0 or any subsecton of secton 59, then the average
base erm net Income sha be the amount determned under subsecton (d)
or (e) or under such secton or subsecton, Tvbchever resuts n the esser ta
under ths subchapter for the ta abe year for whch the ta under ths sub-
chapter s beng computed.
In other words, the functon of secton 5 of the Code s merey
to provde an aternatve method for the computaton of average base
perod net ncome for the purposes of an e cess profts credt com-
puted under the provsons of secton 35 of the Code. cept as
otherwse e pressy provded, the provsons generay appcabe to
the computaton 01 an e cess profts credt under secton 35, ncudng
the provsons of secton 33(a) (1) (0), are appcabe even thouph
the average base perod net ncome o the ta payer s determned
33310 53 17
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Regs. 130, 5 0. 33(b)-3.I 252
under secton 5 rather than under secton 35(d) or another of the
reef provsons of subchapter D.
It s the prncpa functon of secton 33(a) (1) (O) of the Code to
requre the emnaton of the nterest deducton to the e tent attrbut-
abe to nterest on borrowed capta whch s ncuded n the ta payer s
net capta addton, determned under secton 35(g)(3)(C),
n order to emnate a dupcaton of benefts from borrowea capta,
snce secton 35(a) (1) (C) aows a 12 percent return on the net cap-
ta addton n the computaton of the e cess profts credt under the
ncome method. Secton 33(a) (1) (0) serves the same or a smar
furpose where secton 5 s used for the determnaton of average
ase perod net ncome snce the same return on the net capta addton
s aowed under secton 35(a) (1) (C) n such cases e cept for ta abe
years governed by secton 5(b) (1), and for ta abe years sub|ect to
secton 5(b) (1) the ta payer s aowed the averago base perod rate
of return, for the ta payer s ndustry cassfcaton, on an amount
whch ncudes 100 percent of the borrowed capta ncuded n the net
capta addton, under secton 5(b) (1) (A) and 5(c) (2). The
provsons of secton 5(c) (1), denyng any net capta addton or
reducton n the computaton of the e cess profts credt for ta abe
years sub|ect to secton 5(b) (1), merey emnate a further poss-
bty of dupcaton of benefts n the e cess profts credt for such
years. See Reguatons 130, secton 0. 5-2 (c).
Accordngy, t s hed that n the determnaton of the e cess profts
net ncome of a domestc corporaton whch commenced busness after
the frst day of ts base perod and whch determnes ts average base
perod net ncome under the provsons of secton 5 of the Interna
Revenue Code and ts e cess profts credt under secton 35 of the
Code, the norma ta net ncome must be ad|usted for nterest on bor-
rowed capta to the e tent provded n secton 33(a) (1) (O) of the
Code.
S CTION 33(a). C SS PRO ITS N T INCOM :
TA ABL Y ARS NDING A T R UN 30,1950
Reguatons 130, Secton 0. 33 (a)-2: Compu-
taton of e cess profts net ncome for the
ta abe year.
Reguatons 130 amended. See T. D. 6106, page 137.
S CTION 33(b).- C SS PRO ITS N T INCOM :
TA ABL Y ARS IN BAS P RIOD
Reguatons 130, Secton 0. 33(b)-3: Abnor- Rev. Ru. 5 -5S3
ma deductons n base perod.
The word substanta as used In secton 33(b) (10) (C) (1) of
the Interna Revenue Code of 11)3 .), whch refers to a comparson of
the amount of an Increase In gross Income or the amount of a de-
crease In other e penses wth the amonnt of Increase In an abnorma
deducton for the purpose of computng average base perod net In-
come for e cess profts ta purposes, means proportonatey arge.
The word substanta, as used n that secton, has no effect on the
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253 Regs. 130, 0. 33(b) -3
appcabty of the decsons-In Iron reman Manufacturng Com
pany v. Commssoner, 0 T. C. 52, acquescence C. B. 10 5, , and
Denman Tro and Rubber Company v. Commssoner, 1 T. C 706, ac-
quescence C. B. 1950-2, 2, In cases arsng under secton
33(b) (10) (C) (1) of the Code.
Advce has been requested as to the meanng of the word substan-
ta as used n secton 33(b) (10) (C)() of the Interna Revenue
Code of 1939, appcabe to the ta abe years ended after une 30,1950,
and begnnng pror to anuary 1,195 , and ts effect, f any, on the
appcabty of the decsons n Iron reman Manufacturng Com-
pany v. Commssoner, 5 T. C. 52, acquescence C. B. 19 5, , and
Denman Tre and Rubber Company v. Commssoner, 1 T. C. 706, ac-
quescence C. B. 1950-2, 2, whch were based upon secton
711(b) (1) ( )() of the Code of 1939, appcabe to ta abe years be-
gnnng after December 31,1939, and pror to December 31,19 5.
Secton 711(b) provded for ad|ustments n computng the average
base perod net ncome for e cess profts ta purposes. Subpara-
graphs (II), (I), and ( ) of secton 711(b) (1) provded for the ds-
aowance of certan abnorma deductons n computng the average
base perod net ncome, and secton 711(b) (1) ( ) () provded that
for the purposes of subparagraphs (H), (I), and ( )
(II) Deductons sha not be dsaowed under such subpara-
graphs uness the ta payer estabshes that the abnormaty or
e cess Is not a consequence of an ncrease In the gross ncome of
the ta payer In Us base perod or a decrease In the amount of some
other deducton In ts base perod, and Is not a consequence of a
change at any tme In the type, manner of operaton, sze, or con-
dton of the busness engaged n by the ta payer.
Secton 33(b) (10) of the Code, appcabe to the ta abe years
ended after une 30, 1950, and begnnng pror to anuary 1, 195 ,
whch prescrbed the rues wth respect to the dsaowance of certan
casses of abnorma deductons descrbed n paragraph (9) of that
secton, provded n part, as foows:
(C) Deductons of any cass sha not be dsaowed under such para-
graph uness the ta payer estabshes that the ncrease In such de-
ductons
() Is not a cause or a consequence of an ncrease n the gross
Income of the ta payer In ts base perod or a decrease In the
amount of some other deducton In ts base perod, whch ncrease or
decrease s substanta In reaton to the amount of the Increase In
the deductons of such cass, . Itacs supped.
In Iron reman Manufacturng Company, supra, where the ta -
payer contended that ts base perod net ncome shoud be ncreased by
the dsaowance of aeged abnorma deductons, n 1937 and 1933
for repacement e penses, occasoned n part by defects n anthracte
and coa fow stokers, the court hed that snce the e pendtures
vared from year to year n a reasonaby constant proporton to saes,
wth hgh ponts beng reached n years when new modes were beng
tred out, and tho ta payer was unabe to show that none of the e -
cess or aeged abnorma e pendtures was a consequence of an n-
crease n gross ncome, t was not entted to reef under secton
711(b) ()( )() of the Code.
In Denman Tre and Rubber Company, supra, where t was found
that the busness of the ta payer had been very consderaby m-
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Regs. 1 0, f 0. 33(b)- . 26
proved and e panded, the court hed that the ta payer had not shown
that certan amounts e pended for advertsng, professona servces,
factorng commssons and repars were not due n part, at east, to
some of the mtng factors enumerated n secton 711(b) (1) ( ) ()
of the Code. The ta payer s contentons were, therefore, dened.
The words substanta and very consderaby as used by the
courts n the above cases refer to a arge porton of the ncrease
n gross ncome and a arge mprovement and e panson. Whe
ths s apparent n vew of the facts, t s aso apparent on the bass
of the fundamenta prncpe that words are to be accorded ther nor-
may accepted meanng n the absence of a showng of contrary ntent
However, the word substanta, as used n secton 33(b)(10)-
(C) () of the Code, s modfed by the phrase n reaton to the
amount of the ncrease n the deductons of such cass therefore, t
means proportonatey arge. Consequenty, t has no effect on the
appcabty of the decsons n Iron reman Manufacturng Com-
pany supra, and Denman Tre and ubber Company, supra. The
decsons n these cases are appcabe n any case arsng under sec-
ton 33(b) (10) (C) () of the Code, n whch t has not been shown
that the ncrease n e pendtures s not attrbutabe to a proportonatey
nrge or substanta ncrease n gross ncome.
Reguatons 130, Secton 0. 33(b)- : Base T. D. 6076
perod osses from branch operatons.
(Aso Secton 57, Sectons 0. 57-1, 0. 57-2
Secton 59(f), Secton 0. 59(f)-.)
TITL 2C-INT HNAL R NU . CnAPT R I, UBCIIAI T R A, PART 0.
C SS PRO ITS TA TA ABL T ARS NDING A T R UN 30, 10GO
Rfguntnna 1.10 amended to conform to tcrtom 1, 2, S, and
of Pubc U w r.(U, ghty-second Congress C. 11. 1052-2, 309 ,
approved uy 21, 1032.
Trf-asurt Department,
Ornc of Commssoner of Interna Revenue,
Washngton 25, D. O.
To Offcers and mpoyees of the Interna Revenue Servce and
Others Concerned:
On anuary 21, 195 , a notce of proposed ruemakng was pub-
shed n the edera Regster 19 P. R. 3 3 to conform Reguatons
130 26 C R, pt. 0 to sectons 1, 2, 3, and of Pubc Law 59 ,
ghty-second Congress C. B. 1952-2,365 , appproved uy 21,1952.
Ater consderaton of such reevant suggestons as were presented
regardng the proposas, the amendments set forth beow are hereby
adopted:
Paragraph 1. There s nserted mmedatey precedng secton
0. 33(b)- the foowng:
PUBLIC LAW 50 , IGHTY-S COND CONGR SS,
APPRO D OLT 21, 1052

Seo. . ffectve wth respect to ta abe years endng after. une
0, 1050, secton 33(b) of tbe Interna Revenue Code (reatng to the
computaton of average base perod net Income) a bereby amended by
Insertng at the end thereof two new paragraphs readng as foows:
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255 Ross. 130, 0. 33(b)-
(1 ) Ad|ustment fob babe pebod osses feom bbakch opera-
tons. In the case of a ta payer whch darng two or more each
ta abe years operated a branch at a oss, the e cess profts net
Income for each such ta abe year (determned wthout regard to
ths paragraph) sha be Increased by the amount of the e cess
of such oss above the oss, f any. Incurred by such branch dar-
ng the ta abe year for whch the ta under ths subchapter s
beng computed. As used n ths paragraph, the term branch
means a unt or subdvson of the ta payer s busness whch was
operated n a separate pace from Its other busness and dffered
substantay from ts other busness wth respect to character of
products or servces. A unt or subdvson of the ta payer s bus-
ness sha not be consdered to dfTer substantay from the ta -
payer s other busness uness t s of a typo cassfabe by the
Standard Industra Cassfcaton Manua In a dfferent ma|or In-
dustry group or n a dfferent subgroup of the ta payer s ma|or
Industry group than that n whch ts other busness Is so cass-
fabe: Provded, hoccver. That ths paragraph sha not appy un-
ess the sum of the net osses of such branch durng the base perod
e ceeded 13 per centum of the aggregate e cess profts net Income
of the ta payer durng the base perod. or the purposes of ths
paragraph, the aggregate e cess profts net ncome of the ta payer
durng the base perod sha be the sum of Its e cess profts net
ncome for a years n the bnse perod, ncreased by the sum of the
net osses of such branch durng the base perod.
(ID) u.es fob appcaton or rABAGBAPu (1 ). or the pur-
poses of paragraph (1 )
(A) A branch sha be deemed to have been operated at a
oss durng a ta abe year f the porton of the deductons nnder
secton 23 for such year whch s determned, under regua-
tons prescrbed by tbo Secretary, to bo the porton thereof
propery aocabe to the operaton of such branch e ceeds the
porton of the gross ncome durng the ta abe year whch s
determned under such reguatons to be the porton thereof
propery aocabe to the operaton of such branch and the
amount of the oss sha be an amount equa to sucb e cess.
(II) If the porton of the gross Income determned to bo
propery aocabe to tbo operaton of the branch s a mnus
quantty, the amount of such e cess sha bo the sum of the
deductons under secton I determned to Ik) propery aocabe
to the operaton of tbo branch pus an amount equa to sucb
mnus quantty.

Par. 2. There s nserted mmedatey after secton 0. 33(b)-3 the
foowng new secton:
Sec. 0. 33(b)- . Base Pebod Losses rom Bbanc Opebatoss. (a) /A
genera. In the case of a ta payer whch durng two or more ta abe years a
the base perod operated a branch at a oss, secton 33(b) (1 ) provdes an ad-
|ustment n computng the e cess profts net ncome of the ta payer for each
ta abe year n the base perod durng whch such branch was operated at a oss.
The e cess profts net ncome of the ta payer for any such ta abe year n the
base perod (determned wthout regard to secton 33(b) (1 )) sha be Increased
by the amount of the e cess. If any, of (1) the oss Incurred by the branch durng
the ta abe year n the base perod, over (2) the oss, f any, ncurred by sucb
branch durng the ta abe year for whch the e cess profts ta Is beng computed.
The ad|ustment under secton 33(b) (1 ) sha not be made, however, uness the
sum of the net osses of sucb branch durng the base perod, as determned under
(c) (3) of ths secton, e ceeded 15 percent of the aggregate e cess profts net n-
come of the ta payer durng the base perod. or the purposes of secton
33(b) (IS) and ths secton, the aggregate e cess profts net ncome of the ta -
payer durng the base perod sha be the sum of ts e cess profts net ncome for
a ta abe years In the bnse perod, ncreased by the sum of the net osses of
such branch durng the bnse perod.
(b) Defnton of branch . (1) In genera. The terra branch , as used
In secton 33(b) (1 ) and ths secton, means a unt nr subdvson of the ta -
payer s busness whch (I) was operated In a separate pace or paces from Its
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Regs. 130, 0. 33(b)- .) 256
other busness and (II) dffered substantay from Its other busness wth respect
to the character of products or servces.
(2) Separate ocaton. A unt or subdvson of the ta payer s busness sha
be consdered as havng been operated In a separate pace or paces from Its
other busness ony If there was a dstnct and compete physca separaton
between the unt or subdvson and the ta payer s other busness.
(3) Dfferent product or crccct. A unt or subdvson of the ta payer s
busness sha not bo consdered to dffer substantay from tho ta payer s other
busness wth respect to tho cbarncter of products or servces uness the unt or
subdvson Is of a type propery cassfabe by the Stnndnrd Industra Cassf-
caton Manua prepared by the Dvson of Statstca Standards of the Bureau
of the udcet In a dfferent ma|or ndustry group or n a dfferent subgroup of
the ta payer s ma|or Industry group than that u whch Its other busness Is so
cassfabe. A dfference In cassfcaton by the Manua sha not necessary
consttute a substanta dfference wth respect to the character of products or
servces. Whether a unt or subdvson dffers substantay from the ta payer s
other busness wth respect to the character of products or servces s to be deter-
mned upon the partcuar facts In each ense.
(c) Computaton of ot and turn of the net otca. (1) Aocaton of grott
ncome and deducton . Items of gross Income and deductons sha be aocated
to the branch and to the ta payer s other busness In sueh manner as w ceary
refect the gross ncome and deductons propery attrbutabe to such branch and
to such other busness.
(2) Computaton of ott. The amount of the oss sustaned by the branch
durng any ta abe year sha be the e cess. If any, of
(I) the porton of the deductons under secton 23 (not Incudng the net
operatng oss deducton provded n secton 23(s)) for such yenr whch Is
aocabe to tbe branch under (1) of ths paragraph, takng nto account any
appcabe ad|ustments under secton 33 (a) or (b), over
() the porton of the gross Income for such year whch s aocabe to the
branch under (1) of ths paragraph, takng nto account any appcabe ad-
|ustments under secton 33 (a) or (b).
If the amount under () above s a mnus quantty, the amount of the oss sha
be tbe sum of the amount under (1) above pus an amount equa to such mnus
quantty. If the amount under (1) above does not e ceed the amount under
(II) above, then the amount by whch the amount under () e ceeds the amount
under (I) sha be consdered the profts reazed by the branch durng the ta abe
year.
(3) Computaton of turn of the net ossct. The sum of the net osses of the
branch durng tbe entre base perod sha be an amount equa to (I) the aggre-
gate osses sustaned by tbe branch durng the base perod mnus (II) tbe ag-
gregate profts reazed by the branch durng tbe base perod, computed as
provded In (1) and (2) of ths paragraph.
(d) Statement requred. A ta payer camng the benefts of secton 33(b)
(IS) sha attach to ts Income ta return or cam for refund a statement settng
forth fuy a pertnent Informaton necessary for the estabshment of Its
egbty and for the computaton of tbe ad|ustment under such secton.
Par. 3. There s nserted mmedatey precedng secton 0. 57-1
the foowng:
PUBLIC LAW 50 . IGHTY-S COND CONGR SS,
APPRO D ULY 21, 1052
Secton 1. effectve wth respect to ta abe years endng
after une 30, 1050, secton 57 of the Interna Revenue Code, as added
by secton 101 of the cess Profts Ta Act of 1050, Is hereby amended
by changng ts headng to read corporatons competng contracts
OR MA ING D POSITS UND R M RCBANT MARIN ACT and by addng to Sad
secton 57 the foowng new subsecton:
(c) Base Perod arnngs Credt for Deposts Under Merchant
Marne Act, 1036. The e cess profts net ncome computed under sec-
ton 33 (b) for any base perod year sha be Increased by the amount.
If any, by whch (1) the ta payer s ta -deferred deposts of earnngs,
made n or accrued to reserve funds under secton 007 of tho Merchant
Marne Act, 1030, n respect of such base perod year, e ceeds (2) the
amount of such deposts of earnngs for the ta abe year. Tbe Secre-
tary sha provde, by reguaton, for proper ad|ustment of the deposts
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257 Regs. 130, 0. 33Cb)-A.
made n or accrued to the reserve funds for any ta abe year so at to
e cude therefrom any amount payabe for such year as rembursement
of operatng-dfferenta subsdy.

Pah. . Secton 0. 57-1 s amended by strkng 57 n the frst
sentence of (a) and of (c) and n the frst and second sentences of (d)
and of (e) and by nsertng n each case n eu thereof 57(a) and
.(b) .
Par. 5. There s nserted mmedatey after secton 0. 57-1 the
foowng new secton:
Src. 0. 57-2. CoRTonATona Makho Deposts Usdes, Merchant Madse Act
or 11)30. (a) In genera. Secton 57(c) Is appcabe to a ta payer whch has
entered Into a contract wth the edera Martme Board or ts predecessor, the
Unted States Mnrtmo Commsson, pursuant to the Merchant Marne Act, H ,
as amended (herenafter referred to as the Act), whch makes provson for the
payment of an operatng-dfferenta subsdy to the ta payer. Secton 57(c)
provdes that the e cess profts net Income of the ta payer for any ta abe year
n the base perod, computed under secton 33(b), sha be Increased by the
e cess. If any, of (1) the ta payer s tn -deferred deposts of earnngs (as defned,
n (b) of ths secton) made In or accrued to the reserve funds under secton
G07 of the Act In respect of such ta abe year In the base perod, over (2) the
ta payer s tn -deferred deposts of earnngs (as defned In (b) of ths secton)
made n or accrued to the reserve funds under such secton C07 In respect of
the ta abe year for whch the e cess-profts ta Is beng computed.
(b) Ta -deferred depost). The term ta -deferred deposts of earnngs ,
for the purposes of secton 57(c) and ths secton, means the e cess, f any.
of (1) the amounts of ordnary Income for any ta abe year deposted by the
ta payer In ether the capta reserve fund or the speca reserve fund under
secton 007 of the Act, to the e tent that such amounts are treated as -ta -
deferred In a cosng agreement entered Into under secton 37CO between the ta -
payer and the Commssoner, over (2) the amount payabe for such year by the
ta payer as rembursement of operatng-dfferenta subsdy, as computed under
(c) of ths secton. Ordnary Income deposted n such reserve funds conssts
of the foowng Items: (1) mandatory deposts of the earnngs from the opera-
tons of subsdzed vesses and servces ncdent thereto, Incudng the e cess of
(a) the amounts whch the Unted States Martme Commsson or the Martme
Admnstraton requres the ta payer to depost for deprecaton over (6) the
amounts aowabe as deprecaton under secton 23(1), computed on the ad|usted
bass provded n secton 113(b) () vountary deposts of earnngs and (H)
nterest earned on ta -deferred amounts n the capta reserve and speca re-
serve funds. cessve profts whch the ta payer Is e cused from depostng,
to the e tent bucI profts are wthhed from the payment of operatng-dfferenta
subsdy by the Unted States Martme Commsson or the Martme Admns-
traton (as provded by Pubc Law SG2, 0th Cong., 02 Stat 1196, or any corre-
spondng provsons of aw subsequenty enacted), sha be treated as f they
were deposted n the speca reserve fund. The depost of amounts receved
from the Unted States Martme Commsson or the Mnrtmo Admnstraton
whch had prevousy been wthhed from payment of operatng-dfferenta
subsdy under the provsons of Pubc Law 02, ghteth Congress, 02 Stat
11UC, or under any correspondng provsons of aw subsequenty enacted, sha
be consdered a depost of earnngs wth respect to the ta abe year In whch
actuay deposted n the reserve fund. Ta -deferred deposts of earnngs do
not Incude amounts whch woud consttute capta gans under secton 117, or
woud be trented as capta gans under secton 117( ), If currenty ta abe, even
though such amounts are deposted In the reserve funds.
(c) Ad|ustment for amounts payabe as rembursement of operatng-dfferen-
ta subsdy. (1) or the purpose of the ad|ustment of ta -deferred deposts
referred to In (b) (2) of ths secton, the amount payabe for any ta abe year
as rembursement of operatng-dfferenta subsdy sha be the amount of e -
cessve profts accrung for such year to the Unted States Martme Commsson
or the Martme Admnstraton under sectons COO and 007 of the Act The
amount of e cessve profts so accrung for any ta abe year sha be deter-
mned by reference to the recapturabe profts account ns propery recorded on
the corporate books of account, takng Into account the e cess, f any, of (1)
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Regs. 130, 0. 33(b)- . 25
the baance of such account as of the cose of sneb year, over (II) the baance of
tuch account as of the cose of the precedng ta abe year.
(2) In computng the e cess under (1) above, the respectve baances of the
recapturabe profts account sha be determned as of the cose of the ta abe
year wthout regard to any events whch happen after the cose of such year
and sha be further ad|usted to emnate any part of such baances attrbutabe
to toy recapture perod pror to the recapture perod In whch the ta abe year
fas.
(3) The recnpturabe profts account referred to In (c) (1) and (2) of ths
secton a the Becapturobe Profts Martme Admnstraton account pre-
scrbed by the Martme Admnstrator n the Unform System of Accounts for
Martme Carrers (Genera Order No. 22, revsed October 1 , 1050) and, for
the perod pror to anuary 1, 1051, the Recapture Profts U. S. Martme
Commsson account prescrbed by the Unted States Martme Commsson In
the Unform System of Accounts for Operatng-Dfferenta Subsdy Contrac-
tors (Genera Order No. 22, adopted ebruary ,103S).
( ) The term recapture perod , as used n (2) above, meana the perod
referred to n secton 606(5) of the Act
(d) Statement requred. A ta payer camng the benefts of secton 57 (c)
sha attach to Its ncome ta return or cam for refund a statement showng a
compete computaton of the amount of the ad|ustment under such secton,
Incudng an temzed st of a deposts Into the capta reserve fuud and Into
the speca reserve fund and a compete computaton showng the amount pay-
abe as rembursement of operatng-dfferenta subsdy.
PAB. 6. There s nserted mmedatey after secton 0. 59 (e)- the
foowng:
PUBLIC LAW 60 , IGHTY-S COND CONGR SS,
APPRO D ULY 21, 1952

S C. 2. Secton 59 of the Interna Revenue Code (msceaneous .
provsons reatng to the computaton of average base perod net In-
come) Is hereby amended by addng at the end thereof the foowng new
subsecton:
(f) COMPANI S PR S R ING D NS CAPACITY AND INCR ASING
CAPACITY O MANUTACTUBINO P AC TIM PRODUCTS ROM C RTAIN
STRAT GIC AND CRITICAL M TALS.
(1) LIGIBILITY R UIR M NT. In the case of a ta payer whch
commenced busness on or pror to anuary 1, 1030, and snce such
date has been prmary engaged In manufacturng. If
(A) The percentage of the ta payer s purchases of raw
materas whch were strategc and crtca metas (as denned
n paragraph (3)) was 0 per centum or more for each of the
ta abe years begnnng wth or wthn the ta payer s base
perod
(B) The ta payer s average monthy e cess profts net In-
come (computed In the manner provded n secton 3(eA
for the perod comprsng a ta abe years endng wth or wthn
the frst twenty-four months of ts base perod was 250 per
centum or more of the average monthy e cess profts net Income
(so computed) of the ta payer for the perod comprsng a
ta abe years endng wth or wthn the ast twenty-four months
of Its base perod
(C) The ad|usted bass of the ta payer s tota factes (as
defned n secton (d)) as of the begnnng of ts base pe-
rod (when added to the tota factes at such tme of a
corporatons wth whch the ta payer hts the prvege under
secton 1 1 of fng a consodated return for Its frst ta abe
year under ths snbchapter) dd not e ceed 10,000.000 and
(D) The ad|usted bass of the ta payer s tota factes
(as defned n secton (d)) on the ast day of Its base perod
was ISO per centum or more of the ad|usted bass of Its tota
factes on the frst day of Its baso perod.
thn ta payer s nvcrngo baso crod net Income determned under
ths subsecton sm bo the amount computed under paragraph (2).
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259 Regs. 130, I 0. 33(b)- .
(2) Computaton. The average base perod net ncome deter-
mned under ths subsecton for a ta payer entted to the benefts
of ths subsecton sha be the amount computed under secton -
35(e)(2)( ) and ( ) e cept that there sha be substtuted for
the aggregate of the e cess profts net Income for each of the s
months In the perod begnnng uy 1, 19 9, and endng December
1, 19 9, an amount computed by mutpyng the aggregate of ttto
e cess profts net Income for each of the s months In the perod
begnnng uy 1, 19 0 and endng December 31, 19 0, by the per
centum determned by dvdng the ad|usted bass of ta payer s
tota factes (ns defned In secton (d)) on December 31,19 S.
by the ad|usted bass of ts tota factes on the frst day of Its
base perod. The average base perod net ncome computed under
the precedng sentence sha not e ceed 0 per centum of the e cess
profts ta net Income for the ta payer s frst ta abe year under
ths subchapter.
(3) Dkf.mton or Strategc and Crtca Metas. As used In
ths subsecton, the term strategc and crtca metas means
copper nud znc whch on anuary 1, 19 5, had been determned by
pro er authorty to be strategc and crtca under the provsons
of the Strategc and Crtca Stock Png Act and sha ncude
scrap contanng such metas.
Sec. 3. The amendment made by secton 2 sha be appcabe wth
respect to a ta abe years endng after une 30,1950.

Sec. 0. 59 (f)-. Companes Tresebvwo Defense Capacty and Increasng
Capacty fob Manufacturng Peacetme Products from Certan Strategc and
Crtca Metas. (n) In genera. A corporaton whch commenced busness
on or before anuary 1, 11130, whch has been prmary engaged n manufac-
turng snce anuary 1, 1930, and whch satsfes a the requrements provded
n subparagraphs (A) through (D) of secton 59(f) (1) mny compute Its average
base perod net Income, for the purpose of computng Its e cess profts tn for
nny ta abe year endng after une 30, 1950, under the provsons of secton
59(f) (2) and of (b) of ths secton Instead of under nny other appcabe pro-
vson of the Code and reguatons. The average base perod net ncome
computed under secton 59(f) (2), In the case of a to payer whch meets the
egbty requrements provded In secton 59(f)(1), sha be nsed In com-
putng the ta payer s e cess profts ta for any e cess profts tn ta abe year
f the use of such average base erod net ncome computed under secton .591 f)
resuts In a esser e cess profts ta for such ta abe year than woud resut
from any other aowabe computaton of such ta . If the ta payer computes
ts average base perod net Income under secton 59(f), the base perod capta
addton provded In secton 35(f) sha not be aowed In computng ts e cess
profts credt. Thus, for e ampe, If the use of the amount computed under
secton 35(d) ns the average base perod net ncome together wth the base
perod capta addton woud resut In a esser e cess profts ta for a ta abe
year than woud resut from the use of the amount computed under secton
59(f) as the average base perod net ncome but wthout the base perod capta
addton, then n determnng the e cess profts ta for such ta abe year the
average base perod net Income sha be the amount computed under secton
35(d) nnd not the nmount computed under secton 59(f), wthout regard to
whch of such amounts Is the greater.
(b) Computaton of average base perod net ncome under ecton 59(f).
If n ta payer may compute Its average base perod net Income under secton
59(f), Its average base perod net Income as computed under secton 59(f) (2)
sha be the nmount computed under secton 35(c)(2) ( ) and ( ) and under
secton 0. :5-5(a) (5) and (0) nnd secton 0. 35-5(b), e cept that there sha
be substtuted for the ogcrcgate of the e cess profts net Income for each of
the s months In the ernd begnnng uy 1, 10 9, nnd endng December 31,
39 9, nn nmount computed by mutpyng the nggregnto of the e cess protts net
ncome for ench of the s months In the perod begnnng uy 1, 19 6, and
endng December 31, 19 (1, by the percent determned by dvdng the ad|usted
bass of the ta payer s tota factes (ns defned In secton 1 (d)) on Decem-
ber 31, 31 IS, by (be nd|usted bass of Its tota factes on the frst day of Its
base perod. In no event, however, sha tho average base crod net Incoms
computed under secton 59(f)(2) e ceed 0 percent of the ta payer s e cess
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Regs. 130, 0. 57-2. 260
profts net Income for It frst e cess profts ta ta abe year (that Is, for Its frst
ta abe year endng after une 30, 1930).
(c) Defnton of strategc and crtca mctat. Tto term strategc and crtca
metas , for tbe purposes of secton r U(f) and of ths secton, means copper
and sne whch on anuary 1, 10 5, bad been determned by proper authorty
to be strategc and crtca under the provsons of the Strategc and Crtca
Stock Png Act and sha aso Incude scrap contanng such metas, If such
metas consttute a substanta porton of sucb scrap.
(d) Date the ta payer commenced busness. The dnte the ta payer com-
menced busness sha be determned, for the purposes of secton 50(f) and of
ths secton, under tbe rues provded In tbe reguatons promugated under
secton 5, reatng to the computaton of average base perod net Income In
the case of new corporatons. See secton 0. 5-1 (a) (2).
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 62 of the Interna Revenue Code (53 Stat 32 26 U. S. C. 62) and
n sees. 33(b) (19) and 57(c) of the Interna Revenue Code as added
by sees. and 1, respectvey, of Pubc Law 59 , 2d Cong., approved
uy 21,1952.)
T. Coeman Andrews,
Commssoner of Interna Revenue.
Approved une 2 , 195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 1,105 , : 52 a. m.)
S CTION 35. C SS PRO ITS CR DIT-BAS D
ON INCOM
Reguatons 130, Secton 0. 35-1: cess profts
credt based on ncome Determnaton of
average base perod net ncome.
Determnaton of e cess profts credt n the case of a corporaton
commencng busness after the frst day of ts base perod. See Rev.
Ru. 5 -53 , page 250.
S CTION 5. A RAG BAS P RIOD N T
INCOM N W CORPORATION
Reguatons 130, Secton 0. 5-1: New corpo-
ratons.
Computaton of average base perod net ncome of a corporaton
commencng busness after the frst day of ts base perod. See Rev.
Ru. 5 -53 , page 250.
S CTION 57.-CORPORATTONS COMPL TING CON-
TRACTS OR MA ING D POSITS UND R M RCHANT
MARIN ACT
Reguatons 130, Secton 0. 57-2: Corpo-
ratons makng deposts under Merchant
Marne Act of 1936.
Reguatons 130 amended. See T. D. 6076, page 25 .
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261 Regs. 11 , 39. 31-1.
S CTION 59(f). MISC LLAN OUS PRO ISIONS: COM-
PANI S PR S R ING D NS CAPACITY AND IN-
CR ASING CAPACITY OR MANU ACTURING P AC -
TIM PRODUCTS ROM C RTAIN STRAT GIC AND
CRITICAL M TALS
R GULATIONS 130, S CTION 0. 59(f)-: Com- 5
pancs preservng defense capacty and n-
creasng capacty for manufacturng
peacetme products from certan strategc
and crtca metas.
Reguatons 130 amended. See T. D. 607C, page 25 .
PART It C SS PRO ITS CR DIT BAS D ON INCOM IN CONN CTION WITH
C RTAIN CHANG S
S CTION 62. A RAG BAS P RIOD N T .
INCOM D T RMINATION
R GULATIONS 130, S CTION 0. 62-1: Genera Rev. RuL 5 -520
rues for determnng average base perod
net ncome of an acqurng corporaton
Sectons 61- 65 of the Interna Revenue Code of 1939 reate to
the prveges accorded acqurng corporatons, as defned n secton
61 of the Code, to use the base perod e perence of ther component
corporatons f such use woud resut n a greater e cess-profts credt
than otherwse. The unused e cess-profts credt of a component
corporaton s not a factor n the determnaton of an acqurng corpo-
raton s average base perod net ncome computed wth reference to sec-
ton G2(b) of the Code reatng to the method of recomputaton of an
acqurng corporaton s e cess-profts net ncome. Nor s t a factor
n determnng the ad|usted e cess-profts net ncome of the acqur-
ng corporaton, determned under the provsons of secton 31 of
the Code.
SUBCHAPT R R-TA ON S L - MPLOYM NT INCOM
S CTION 1. D INITIONS
R GULATIONS 11 , S CTION 39. 1-1: Net Rev. Ru. 5 -309
earngs from sef-empoyment,
(Aso Secton 1 2G, Secton 0 .20 ,
Reguatons 12 .)
A fe Insurance saesman, who, under the nsaa common-aw rues
appcabe a determnng the empoyer-empoyee reatonshp, does
not bare the status of an empoyee and whose prncpa busness
actvtes are devoted to affars other than the soctaton of, fe
Insurance or annuty contracts or the soctaton of such contracts
and accdent and heath Insurance contracts prmary for one fe
Insurance company, Is not an empoyee wthn the meanng of that
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Begs. 11 , 9. 1-1.1 62
term as defned n the edera Insurance Contrbutons Att, aa
amended by the Soca Securty Act Amendments of 1DS0. There-
fore, commssons receved by snch saesman, ncudng deferred or
renewa commssons, consttute earnngs from cof-empoyment for
the purposes of the ta mposed by the Sef- mpoyment Contrbu-
tons Act. ,
Advce s requested concernng the crcumstances under whch a
fe nsurance saesman fas to quafy as an empoyee -wthn the
meanng of that term as defned n the edera Insurance Contrbu-
tons Act (subchapter A, chapter 9, Interna Revenue Code), as
amended by the Soca Securty Act Amendments of 1950. Advce
aso s requested whether the commssons, ncudng deferred or re-
newa commssons, pad to a fe nsurance saesman who s not an
empoyee, consttute sef-empoyment ncome wthn the meanng
of secton 1(b) of the Sef- mpoyment Contrbutons Act (sub-
chapter , chapter 1, Interna evenue Code).
The M Lfe Insurance Company engaged B as a fe nsurance saes-
man to soct appcatons for fe nsurance, annutes, and accdent
and heath nsurance. B performs hs servces pursuant to the terms
of a wrtten agreement desgnated Agents Contract. The contract
provdes, among other thngs, that B sha, on a part-tme bass and
wthn a specfed terrtory, soct appcatons for contracts of nsur-
ance for the M Lfe Insurance Company e cusvey, under such pocy
forms as the company may drect that B sha be free to e ercse hs
own |udgment as to the persons from whom he w soct appcatons
for nsurance as we as the tme and pace of soctaton and that B
sha coect he nta premum for each sae of nsurance consum-
mated by hm. The contract further provdes that the company may
from tme to tme prescrbe rues and reguatons respectng the con-
duct of the busness covered by the contract, whch rues and regua-
tons sha be observed bv B. These rues and reguatons may not,
however nterfere wth B s freedom of acton n hs soctaton of
appcatons for nsurance.
As compensaton for the servces here under consderaton, the
contract provdes that B sha receve certan commssons for each
sae of nsurance consummated by hm that a porton of the tota
commssons attrbutabe to each sae of nsurance by B for the com-
pany sha be pad to hm at the tme the sae s consummated and the
remander sha be pad as and when the pocy hoder pays hs
perodc premums that both the nta commssons and the deferred
or renewa commssons are to be pad n accordance wth schedues
set forth n the contract: and that the deferred or renewa comms-
sons specfed theren w be payabe to B on contracts of nsurance
sod by hm for a perod of years, provded the pocyhoders con-
tnue to pay the perodc premums. The contract further provdes
that, f the contract between the partes s termnated, the company
w contnue to pay the deferred or renewa commssons n accordance
wth the provsons of the contract.
The arrangements between the M Lfe Insurance Company and B
contempated (1) that B woud defray a e penses ncurred by hm
n the performance of hs dutes and functons under the- contract
(2) that substantay the servces to whch the contract reates woud
be performed personay by B (3) .that B woud not be requred to
mak-o a substanta nvestment n factes for use n connecton wth
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263 Regs. 11 , I 39. 1-1.
the performance of hs servces (other than n, factes for transpor-
taton) ( ) that B s servces woud be part of a contnung rea-
tonshp and not n the nature of a snge transacton (5) that the
soctaton of appcatons for nsurance pursuant to the terms of hs
contract woud not be B s prncpa busness actvty and (6) that
13 woud be a part-tme fe nsurance saesman.
Secton 1 26(d) of the edera Insurance Contrbutons Act, n
effect pror to anuary 1, 1951, provdes that the term empoyee
ncudes an offcer of a corporaton, but such term does not ncude (1)
any ndvdua who, under the usua common-aw rues appcabe
n determnng the empoyer-empoyee reatonshp, has the status
of an ndependent contractor, or (2) any ndvdua (e cept an offcer
of a corporaton) who s not an empoyee under such common-aw
rues.
ffectve wth respect to servces performed after 1050, secton
1 20(d) of the edera Insurance Contrbutons Act s amended by
the Soca Securty Act Amendments of 1950 to read, n part, as
foows:
MPLOY . The term empoyee means
(1) any offcer of a corporaton or
(2) any Indvdua who, under the usua common-aw rues appcabe
1n determnng tu empoyer-empoyee reatonshp, has the status of an
empoyee or
(3) any ndvdua (other than an Indvdua who Is an empoyee under
paragraph (1) or (2) of ths subsecton) who performs servces for
remuneraton for any person
A
(B) as a fu-tme fe Insurance saeman

If the contract of servce contempates that snbstantay a of such serv-
ces are to be performed personay by such Indvduas e cept that an
Indvdua sha not be Incuded In the term empoyee under the provsons
of ths paragraph If such Indvdua has a substanta nvestment In fac-
tes used n connecton wth the performance of such servces (other than
n factes for transportaton), or f the servces are In the nature of a
snge transacton not part of a contnung reatonshp wth the person
for whom the servces are performed. ( or descrpton of fu-tme fe
nsurance saesmen see Rev. Itu. 5 -312, p. 327, ths Buetn.)
The nta queston to be decded s whether B has such ndepend-
ence n hs operatons that, under the usua common-aw rues app-
cabe n determnng the empoyer-empoyee reatonshp, he shoud
be cassed as an ndependent contractor rather than an empoyee
aso, whether B quafes as a fu-tme fe nsurance saesman wthn
the meanng of secton 1 2G(d)(3)(B) of the edera Insurance
Contrbutons Act, as added by the Soca Securty Act Amendments
of 1950.
It s evdent that the II Lfe Insurance Company docs not e ercse,
or have the rght to e ercse, the degree of drecton and contro over
the servces performed by B that s prescrbed by the appcabe aws
and reguatons as necessary to estabsh the reatonshp of empoyer
and empoyee under the usua common-aw rues. urthermore, B
as not been engaged by the M Lfe Insurance Company to soct
appcatons for nsurance on a fu tme bass. Under these crcum-
stances, t s concuded that B s not an empoyee of the M Lfe
Insurance Company wthn the meanng of that term as defned n
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Regs. 11 , 39. 1-1 . 26
secton 1 26(d) (3) (B) of the edera Insurance Contrbutons Act,
as added by the Soca Securty Act Amendments of 1950. Accord-
ngy, B s compensaton for the sae of nsurance s not wages and,
therefore, s not sub|ect to the ta es mposed by the edera empoy-
ment ta statutes, ncudng the ncome ta wthhodng under sec-
ton 1622 of the Interna Revenue Code.
Secton 0 of the Sef- mpoyment Contrbutons Act (Sub-
chapter , chapter 1, Interna Revenue Code) mposes a ta on the
sef-empoyment ncome of every ndvdua. Wth certan e cep-
tons not here matera, sef-empoyment ncome means the net earn-
ngs from sef-empoyment derved by such ndvdua durng any
ta abe year begnnng after December 31,1950. Net earnngs from
sef-empoyment generay ncude the gross ncome derved from a
trade or busness carred on by the ndvdua, ess deductons aow-
abe under chapter 1 of the Code (the ncome ta chapter), whch are
attrbutabe to such trade or busness.
In the nstant case, B s regarded as carryng on a trade or busness
and, accordngy, the commssons (ncudng deferred or renewa
commssons) pad to hm consttute earnngs from sef-empoyment
for purposes of the sef-empoyment ta .
Reguatons 11 , Secton 39. 1-1: Net Rev. Ru. 5 -310
earnngs from sef-empoyment.
(Aso Secton 1 2C, Secton 0 .20 ,
Reguatons 12 .)
An Indvdua purchases day-od chcks from a hatchery, rases
such chcks In confnement to maturty on bs premses, usng for
ths purpose ony the and on whch the poutry budngs stand.
He aso operates a devery route seng the eggs and chckens
drect to consumers. The servces performed by the Indvdua
In the operaton of bs poutry rasng enterprse woud. If per-
formed e cusvey by empoyees enaced by hm, consttute agr-
cutura abor as denned In secton 1 20(h) of the Interna Revenue
Code. Accordngy, the ncome derved by the Indvdua from bs
enterprse s not to be ncuded n determnng whether be has net
earnngs from sef-empoyment for sef-empoyment ta purposes.
Advce s requested reatve to the status for sef-empoyment ta
purposes of an ndvdua who purchases day-od chcks, rases them
to maturty on hs premses, ana operates a devery route to se eggs
and chckens drect to consumers.
The ndvdua under consderaton purchases day-od chcks from a
commerca hatchery. He feeds and cares for the chcks and rases
them to maturty on hs own premses, usng for ths purpose ony
the and on whch the budngs necessary for hs poutry operatons
stand. He operates a reguar devery route, seng the eggs and
chckens drect to consumers. He does not hande any poutry or
eggs produced by others and he does not empoy any hepers.
Under the Sef- mpoyment Contrbutons Act, the term net
earnngs from sef-empoyment means the gross ncome derved
by an ndvdua from any trade or busness carred on by such
ndvdua, ess aowabe deductons attrbutabe to such trade or
busness, e cept that n computng such gross ncome and deductons,
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265 (Regs. 11 . 39. 1-1.
there sha be certan e cusons. Among the e cusons s ncome,
together wth a deductons attrbutabe to such ncome, derved from
any trade or busness n whch, f the trade or busness were carred
on e cusvey by empoyees, the ma|or porton of the servces woud
consttute agrcutura abor, as defned n secton 1 26(h) of the
Interna Revenue Code. Thus, n determnng the ndvdua s a-
bty for the sef-empoyment ta , t becomes necessary to ascertan
the e tent to whch a servces performed n connecton wth hs
busness operatons are of the type whch, f performed by empoyees,
woud consttute agrcutura abor as defned n secton 1 26(h) of
the Code.
Servces performed on a farm n the empoy of any person n con-
necton wth cutvatng the so or n connecton wth rasng or
harvestng any agrcutura commodty, ncudng the rasng, feedng,
carng for, and management of poutry, the ceanng of poutry houses,
and the gatherng of eggs, consttute agrcuturaabor, wthn the
meanng of secton 1 20 (n) (1) of the Code. urthermore, servces
performed n the empoy of the owner or tenant or other operator
of a farm n connecton wth the operaton, management, conserva-
ton, mprovement, or mantenance of such farm and ts toos and
equpment, ncudng cerca and saes servces, aso consttute agr-
cutura abor, as defned n secton 1 2C(h) (2) of the Code, provded
such servces are performed n ma|or part on a farm. Servces per-
formed n kng and dressng poutry, n ceanng, gradng, sortng,
candng, cratng or packng eggs, and n deverng ve or dressed
poutry and eggs to tno whoesae market or to customers on a reta
devery route consttute argcutura abor, wthn the contempa-
ton of secton 1 26(h) ( ) (A) of the Code, ony f performed n the
empoy of a person who s n possesson and engaged n the operaton
of the farm or farms on whch more than one-haf of the chckens and
eggs handed n a pay perod s produced.
Any pot of ground or other area used prmary for the rasng of
poutry (that s, an estabshment where poutry s hed, fed, and
cared for over a suffcenty e tended perod of tme to make an ap-
precabe weght ncreaso or to meet standard market specfcatons)
s consdered a poutry farm wthn the meanng of secton 1 20(h)
of the Code, rrespectve of ts sze or ocaton or wthout reference
to tho e tent to whch the so actuay s used n connecton wth the
poutry operatons. Tho fact that an operator purchases day-od
or started chcks from a commerca hatchery ratner than hatchng
the chcks on hs own premses s mmatera n determnng whether a
farm e sts. Accordngy, t s concuded that the premses on
whch the ndvdua n queston rases chcks to market szo and
mantans a ayng fock consttute a farm wthn the meanng of
Bccton 1 2C(h| of the Code.
In vew of tne foregong, t s concuded that the ma|or porton of
the servces rendered n connecton wth the poutry rasng enterprse
here nvoved woud, f performed e cusvey by empoyees, const-
tute agrcutura abor, as defned n secton 1 26(h) of the Code.
Accordngy, the ncome derved by the ndvdua from hs enterprse
s not to be ncuded n determnng whether he has net earnngs
from sef-empoyment for sef-empoyment ta purposes.
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Regs. 11 , 1 39. 1-1.) 266
Reguatons 11 , Skctton 39. 1-1: Net Rev. Ru. 5 -311
earnngs from sef-empoyment.
(Aso Secton 1 26, Secton 0 .20 ,
Reguatons 12 .)
An ndvdua resdes on a farm where he mantans catte. In
addton, he operates a hatchery whch s not stuated on hs farm but
s ocated on nonf arm property. He operates the hatchery durng the
entre year, spends a hs workng tme n connecton wth ts opera-
ton, and derves 95 percent of hs ncome from hs hatchery operatons.
The actvtes conducted at the hatchery do not ncude the producton
of eggs or the rasng of chcks but are mted to the hatchng and
seng of baby chcks. Hed, the servces performed n connecton
wth the hatchng and sae of the chcks do not consttute agrcutura
abor wthn the meanng of secton 1 26(h) of the Interna Revenue
Code. Accordngy, the ncome derved from such actvty shoud
be consdered n computng net earnngs from 6cf-cmpoyment for
purposes of the ta mposed by the Sef- mpoyment Contrbutons
Act.
In Rev. Ru. 5 -310, page 26 , ths Buetn, t s hed that the ncome
derved by an ndvdua from hs poutry rasng enterprse s not
to be ncuded n determnng whether he has net earnngs from sef-
empoyment In that case, the ndvdua rases poutry on a farm
that s, he hods, feeds, ana cares for the poutry on hs premses over
a suffcenty e tended perod of tme to make an apprecabe weght
ncrease or to meet market specfcatons and he aso mantans a ay-
ng fock. In the nstant case, the servces from whch the ncome s
derved are performed on nonfarm property and are mted to the
hatchng ana seng of baby chcks.
Reguatons 11 , Secton 39. 1-1: Net Rev. Ru. 5 -535
earnngs from sef-empoyment.
Servces performed pror to 1055 In the empoy of custom oper-
ators on tbe farms of ther customers In spreadng agrcutura me
or In grndng feed products to be used for feedng purposes on such
farms are to be treated as agrcutura abor for Sef-Cmpoymont
Contrbutons Act purposes. Servces performed In the empoy of
such custom operators In transportng me and equpment, repar-
ng and mantntutng equpment, as we as cerca and bookkeepng
servces reatng to such operatons, do not consttute agrcutura
abor.
Where servces performed In the conduct of a trade or busness
are both agrcutura and nonngrcutura, tbe tme devoted to the
performance of each type of servce determnes whether the Income
derved therefrom for the year shoud be consdered In computng
net earnngs from sef-empoyment under secton 1(a) of the Act.
A rung s requested as to the status, for sef-empoyment ta pur-
poses for years pror to 1955, of custom operators who are engaged n
haung and spreadng agrcutura me and n grndng feed prod-
ucts on the farms of ther customers.
The custom operator engaged n spreadng agrcutura me owns
a truck and me spreadng equpment armers n the area make
appcaton for me through a branch of the Department of Agrcu-
ture and orders are gven to the operator who then goes to the me
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267 Iteg 11 , 39. S1-1.
1
quarres, oads the me on hs truck and haus t to the farmers feds
on whch t s spread. The custom operator engaged n portabe
mng owns feed grndng equpment whch s mounted on a truck.
He traves from farm to farm and grnds feeds thereon for vestock
whch s beng rased by hs customers on ther farms.
The Sef - mpoyment Contrbutons Act (subchapter , chapter
1, Interna Revenue Code of 1939) provdes that n computng net earn-
ngs from sef-empoyment there sha be e cuded ncome, and a
deductons attrbutabe to such ncome, derved from any trade or
busness n whch, f the trade or busness were carred on e cusvey
by empoyees, the ma|or porton of the servces woud consttute agr-
cutura Inbor as defned n secton 1 26 (h) of the Interna Revenue
Code of 1.939. Thus, n determnng the ndvdua s abty for the
sef-empoyment ta for years pror to 1955, t becomes necessary to
determne the e tent to whch a servces performed n connecton
wth hs custom busness operatons woud consttute agrcutura
abor f performed by empoyees.
Secton 1 20 (h) of the Code provdes n part:
The term agrcutura Inner Incudes a servce performer-
CD On a farm, n the empoy of any person, In connecton wth cutvat-
ng the so, or n connecton wth rasng or harvestng any agrcutura
or hortcutura commodty, ncudng tho rasng, shrnrrg, feedng, carng
fur, tranng, and management of vestock, bees, poutry, and fur-bearng
anmas and wdfe.
(2) In the empoy of te owner or tenant or other operator of a farm.
In connecton wth the operaton, management, conservaton, mprovement.
or mantenance of such farm and ts toos and equpment, .
Servces performed n the appcaton of fertzer to farm and
are consdered as beng performed n connecton wth cutvatng the
so or n connecton wth rasng an agrcutura or hortcutura
commodty, and servces performed n grndng gran or other prod--
nets to be used for feedng purposes on the farm where ground are
consdered as beng performed n connecton wth the feedng of ve-
stock or poutry, wthn the meanng of secton 1 26(h)() of the
Code, Thus, they woud consttute agrcutura abor. Accordngy,
servces performed n the empoy of a custom operator on the farm
of hs customers n spreadng me or n grndng gran or other prod-
ucts to bo used for feedng purposes on such farms consttute agrcu-
tura abor wthn the meanng of such secton. However, servces
performed n the empoy of such custom operator n drvng to the
quarres, oadng and deverng me to the unoadng pont, regard-
ess of whether such pont s ocated on a farm, or n the repar,
mantenance, movng, etc., of trucks and spreadng or grndng equp-
ment, or admnstratve servces reated thereto, whether performed
on a farm or at the operator s pace of busness, do not consttute
agrcutura abor.
After t s determned whch of the servces consttute agrcutura
abor and whch do not, the ne t step s to determne the porton of
tme devoted to each of these categores. or purposes 01 the Sef-
mpoyment Contrbutons Act, servces whch, f performed by em-
poyees, woud consttute agrcutura abor w be treated as
agrcutura abor when performed by the prncpa. Aso, f the
servces n connecton wth the enterprse (the partcuar trade or
busness nvoved) are n part agrcutura and n partnonagrcutura,
3331 - S - 1
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Regs. 11 , 30. 1-1 26
the tme devoted to the performance of each type of servce n that
enterprse durng the year s the test to be used to determne whether
the ma|or porton of the servces woud consttute agrcutura abor.
If more than haf of the tota tme spent n performng a of the serv-
ces of the enterprse durng the year s spent n performng servces
whch woud consttute agrcutura abor under secton 1 20(h),
a of the ncome from the enterprse durng the year, and the deduc-
tons attrbutabe to that ncome, sha be e cuded from sef-empoy-
ment earnngs. If ony haf, or ess, of the tme spent n performng
a of the servces s spent n performng servces whch woud con-
sttute agrcutura abor under secton 1 20(h), a ncome from the
enterprse durng the year, and the deductons attrbutabe thereto,
sha do ncuded n computng earnngs from sef-empoyment In
arrvng at a determnaton of the tota amount of tme spent n agr-
cutura abor and n nonagrcutura abor, tho tmo spent n tho
enterprse durng tho ta abe year shoud ncudo tho tmo spent by
every ndvdua, ncudng tho ndvdua carryng on such cnernrso
and every member of hs famy, oven though tho servces of the
members of.hs famy may not consttute empoyment for tho purposes
of to ta es under tho edera Insurance Contrbutons Act (sub-
chapter A, chapter 0, Interna Rovonuo Codo of I M).
eopatons 11 , Secton 39. 1-1: Net Rev. Ru. 5 -C02
earnngs from sef-empoyment.
An Indvdua, who formery owned and operated a genera con-
tractng busness, entered Into an agreement wth a cty, actng
through Its cty commsson, to perform servces as a materas and
equpment Inspector. Under the terms of the agreement, he per-
forms servces under the supervson and drecton of the cty s
resdent engneer and Is remunerated on a monthy bass. Hed, he
s an empoyee of the cty and the ncome receved by hm for such
servces does not consttute sef-empoyment Income.
The Interna Revenue Servce has been requested to determne
whether an ndvdua performng servces for a cty as a materas and
equpment nspector s an empoyee of the cty or s sef-empoyed and
sub|ect to the ta mposed under the Sef- mpoyment Contrbutons
Act (subchapter , chapter 1, Interna Revenue Code of 1939).
A cty, engaged n the e panson of one of ts uttes, entered nto
an agreement wth an ndvdua who has knowedge and e perence
n the engneerng fed and was formery the owner and operator of
a genera contractng busness. Under the agreement, the ndvdua
s to perform servces as an nspector of materas and equpment gong
nto the e panson pro|ects. He agreed to work under the supervson
of the cty s resdent engneer and to work cooperatvey wth hm and
the cty s uttes engneer aso to make assgned nspectons n the
fed for the purpose of determnng whether the materas and equp-
ment gong nto the e panson pro|ects meet the requrements of the
cty as to quaty and quantty to assst n the handng, storng and
safekeepng of such materas and equpment and to keep such records
and prompty make such reports as the resdent engneer mght requre
n connecton wth hs dutes. The cty agreed to pay hm a doars
a month, n reguar monthy nstaments, for the servces.
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269 Regs. 11 , 39. S1-1.
Secton 0 of the Sef- mpoyment Contrbutons Act mposes a
ta on the sef-empoyment ncome of every ndvdua for each ta -
abo year begnnng after December 31,1950. Sef-empoyment ncome
s based upon net earnngs from sef-empoyment.
Secton 1 of the Act provdes, n part, as foows:
(a) Net arnngs rom Sef- mpoyment. The term net earnngs from
sef-empoyment means the gross Income derved by an Indvdua from any
trade or busness carred on by such ndvdua, ess the deductons aowed by
ths chapter chapter 1 whch are attrbutabe to such trade or busness,

(c) Trade or Busness. The term trade or busness, when used wth
reference to sef-empoyment ncome or net earnngs from sef-empoyment,
sha have the same meanng as when used In secton 23, e cept that such term
sha not ncude

(2) the performance of servce by an Indvdua as an empoyee
o con meda responsbty of the ndvdua n the nstant rase
e tends ony to tho performance of persona Borvces. Such servces
arc performed under tho supervson of and cooperatvey wth certan
of the cty s empoyees desgnated by t. Athough tho technca
knowedge gunea by tho ndvdua from hs e perence n tho eng-
neerng Hed does not, n ts usua appcaton, end tsef to tho super-
vson ordnary e ercsed by tho cty over ts reguar empoyees, t
s hed n ths nstance that the cty, through ts duy consttuted
offcers, retans tho rght to contro the ndvdua n the performance
of hs servces. Accordngy, the ndvdua s an empoyee of the
cty and hs servces are e cuded from the term trade or busness
by secton 1(c) (2) of the Act. Therefore, hs ncome from the cty
for such servces does not consttute net earnngs from sef-empoy-
ment under the Act.
Rev. u. 5 -613
Reguatons 11 , Secton 39. 1-1: Net
earnngs from sef-empoyment.
(Aso Secton 3797, Secton 39.3797- .)
Where an ndvdua des Intestate possessed of a gong busness,
whch under State aw pusses to bs wdow and chdren who con-
tnue to operate such busness for ther ont proft, such operaton
resuts n the creaton of a partnershp for edera Income and sef-
empoyment ta purposes wth the co-owners as members thereof-
ach partner s dstrbutve share of the ordnary net Income or
ordnary net oss from the partnershp shoud be ncuded n de-
termnng net earnngs from sef-empoyment for purposes of the
Sef- mpoyment Contrbutons Act, rrespectve of the fact that
one or more of the members s an nnctve partner. ,
An nqury has been receved reatve to the treatment for purposes
of the Sef- mpoyment Contrbutons Act (subchapter , chapter I,
Interna Revenue Code of 1939) of ncome receved under the crcum-
stances descrbed beow.
A ded ntestate possessed of a reta |ewery and watch repar
busness. Survvng hm were hs wdow, a mnor son, and a mnor
daughter. Immedatey foowng A s death, hs wdow began to
operate the busness and has contnued to conduct and manage such
busness free from drecton or contro by any other person, bhe has
receved and dsbursed the ncome as she has seen ft for busness pur-
poses and for the mantenance and educaton of her chdren. Subse-
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Regs. 11 , 30. 1-1. 270
qucnty, under a compensaton agreement wth hs mother, the mnor
son entered tho busness as a watch reparman and appraser of
merchandse. A toos and equpment used by hm were furnshed
by the busness.
Under the aw of the State n whch A was a resdent, hs property,
both rea and persona, passed to hs wdow and mnor chdren sub-
|ect to the contro of the court havng |ursdcton and to tho posses-
son of any admnstrator apponted to admnster the estate. 1 te to
such property vested n these persons mmedatey upon A s death and
each of them acqured an undvded one-thrd nterest n the whoe
at that tme. Athough the wdow as survvng spouse may have had
a prmary rght to admnster the estate of her deceased husband, no
admnstrator was apponted and no admnstraton of the estate was
made.
Under the provsons of secton 3797 of the Interna Revenue Code
of 1939, the term partnershp ncudes a syndcate, group, poo, |ont
venture, or other unncorporated organzaton, through or by means of
whch any busness, fnanca operaton, or venture s carred on, and
whch s not, wthn the meanng of the Code, a trust or estate or a
corporaton. Secton 39.3797-1 of Reguatons 11 provdes that the
term partnershp wthn the meanng of the Code s not mted to
the common aw meanng of partnershp, but s broader n ts scope
and ncudes groups not commony caed partnershps.
In the nstant case, the co-owners of ncome producng property are
operatng that property through one of ther number for ther |ont
proft and such operaton resuts n the creaton of a partnershp for
purposes of the edera ncome ta and the ta on sef-empoyment
ncome wth the co-owners as members thereof. See Rev. Ru. 5 -170,
C. B. 195 -1,213. Aso, compare S. S. T. 129, C. B. 1937-1, 37C.
The queston now arses whether the ncome whch A s wdow and
chdren derve from the operaton of the partnershp consttute net
earnngs from sef-empoyment for purposes of the Sef- mpoyment
Contrbutons Act.
Secton 1 of the Act provdes, n part, as foows:
(a) Net abkwos rom Sef- mpoyment. The term net earnngs from
sef-empoyment means the gross Income derved by an Indvdua from any
trade or busness cnrred on by such ndvdua, ess the deductons aowed by
ths chapter chapter 1 whch are attrbutabe to such trade or busness, pus
hs dstrbutve share (whether or not dstrbuted) of the ordnary net ncome
or oss, as computed under secton 1 3, from any trade or busness carred on
by a partnershp of whch he Is a member e cept (The e ceptons
are not here matera.)

(c) TBAne or Bcssess. The term trade or busness, when used wth
reference to sef-empoyment ncome or net earnngs from sef-empoyment, sha
have the same meanng as when used n secton 23, e cept that such term sha
not Incude
(2) the performance of servce by an ndvdua as an em-
poyee .
As partners, the wdow of the deceased and her chdren are em-
poyers of any ndvduas empoyed to perform servces n connecton
wth the partnershp s busness and, therefore, none of.them can
quafy as an empoyee of the frm. See S. S. T. 23, C. B. -2,
05 (1930).
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271 Rett. 11 , 9. S1-1.
. Secton 39. 1-1 of Reguatons 11 provdes, among other thngs,
that the net earnngs from sef-empoyment of a partner ncude hs
dstrbutve share of the ordnary net ncome or ordnary net oss of
the partnershp of whch he s a member, rrespectve of the nature
of hs membershp. Thus, n determnng hs net earnngs from sef-
empoyment, a mted or nactve partner ncudes hs dstrbutve
sharo of the ordnary net ncome or ordnary net oss of the
partnershp.
It s hed, therefore, n the nstant case that each partner s ds-
trbutve share of the ordnary net ncome or ordnary net oss from
the partnershp as computed under secton 1 3 shoud be ncuded n
determnng net earnngs from sef-empoyment for purposes of
the Sef- mpoyment Contrbutons Act rrespectve of the fact that
one or more of the members s an nactve partner.
Reguatons 11 , Secton 39. 1-1: Net Rev. Ru. 5 -61
earnngs from sef-empoyment
(Aso Secton 3797, Secton 39.3797- .)
Amounts receved by actve and Inactve rver pots from a rver
pots assocaton, pursuant to an agreement whereby the fees for
the servces of actve rver pot members are pooed and the com-
bned net earnngs, after payment of ezpenses,.are dstrbuted among
the pot members on a stated bass, consttute net earnngs from
sef-empoyment as thnt term s defned In secton 1(a) of the
Sef- mpoyment Contrbutons Act
An unncorporated rver pots assocaton, formed to coect
potage fees, pay e penses, and dsburse the net earnngs from pot-
age fees to ts members, a a partnershp for edera ta purposes.
Advce s requested whether the amounts receved by actve and
nactve rver pots from a pots assocaton, under the crcum-
stances set forth beow, consttute net earnngs from sef-empoy-
ment as that term s defned n secton 1(a) of the Sef- mpoy-
ment Contrbutons Act (subchapter , chapter 1, Interna Revenue
Code of 1939)._
The assocaton under consderaton has a mnmum of foatng
property whch s owned by ts members, each member hodng a
certfcate evdencng hs nterest theren. Actve members of the
assocaton must be censed pots. The nterest of a members and
the bass upon whch they partcpate n earnngs are f ed by the
byaws of the assocaton. Bs for pot servces rendered bv ts
members are turned over to the assocaton. The assocaton coects
for such servces and, after payment of e penses, dstrbutes the net
earnngs among ts pot members n accordance wth the byaws.
A retred pot retans hs membershp n the assocaton, owns a
esser nterest n the foatng property, and contnues to share n the
dstrbuton of the pooed earnngs o actve pots, though to a esser
e tent. A retred pot has no cense, performs no servces as a pot,
and shares n the pooed earnngs for any month ony to the e tent o
one-fourth the net earnngs of a frst-cass pot for that month, but
not to e ceed 3a doars or to be ess than 2 doars. There s no con-
trbuton by actve pots to a fund or other provson to nsure a spec-
fed payment to any member n the event current monthy earnngs
are nsuffcent to pay a member pots.
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Rep. 11 , 39. 1-1.) 272
The actvtes and affars of the assocaton are managed and d-
rected by a Board of Drectors. The Board of Drectors does not have
the authorty to purchase addtona vesse property or dspose of that
now hed by the assocaton wthout the consent of the members
Members of the assocaton may not wthdraw, se, or assgn ther
nterest n the property hed by the assocaton wthout the wrtten
consent of four-ffths of ts members.
Secton 1 of the Sef- mpoyment Contrbutons Act, defnng
certan terms reatng to the ta on sef-empoyment ncome, provdes
n part as foows:
(a) N T ARNINGS ROM S T. - MPLOYM NT. The term net earnngs from
ecf-empoyment means the gross Income derved by an Indvdua from any trade
or busness carred on by such Indvdua, ess the deductons aowed by ths
chapter chapter 1 of the Code whch are attrbutabe to such trade or busness,
pus hs dstrbutve share (whether or not dstrbuted) of the ordnary net
ncome or oss from any trade or busness carred on by a partnershp
of whch he Is a member .
(b) S L - MPLOYM NT INCOM . The term sef-empoyment Income means
the net earnngs from sef-empoyment derved by an Indvdua dur-
ng any ta abe year begnnng after December 31,1 SO .
Secton 1 (c) of that Act provdes n part that the term trade or
busness, when used wth reference to net earnngs from sef-empoy-
ment, sha have the same meanng as when used n secton 23 of the
1939 Code, e cept that such term sha not ncude the performance of
servce by an ndvdua as an empoyee.
An assocaton organzed and operated n the manner set forth above
s a partnershp, for edera ta purposes, whch, under the provsons
of secton 3797 (a) (2) of the Code, ncudes a syndcate, group, poo,
|ont venture, or other unncorporated organzaton, through or by
means of whch any busness, fnanca operaton, or venture s carred
on, and whch s not, for edera ta purposes, a trust or estate or a cor-
poraton. In Mobe Bar Pots Assocaton v. Commssoner, 97 ed
(2d) 695, Ct D. 1 17, C. B. 1939-2, 2 , the court had before t the
queston of whether the Assocaton, organzed and operated smary
to the one nvoved here, was an assocaton ta abe as a corporaton.
The court, n hodng that the Assocaton was not ta abe as a corpo-
raton, stated n part as foows:
Potage Is persona servce by an Indvdua for whch he has a martme
en on the vesse. (The ueen, 200 P., 1 3.) A pot Is the servant of the
owner of the vesse who Is responsbe to thrd persons for hs neggence or want
of sk. (Sherock v. Ang, 93 U. S., 99.) But an assocaton of whch the
pot Is a member, smar to pettoner, s not responsbe for bs acts. (Guy
T. Donad, 203 U. S., 3 9.)
It woud be mpossbe for pettoner to engage In the busness of potng as
an ndependent contractor. Pettoner does no busness e cept as an agent of 1U
ndvdua members. . A
It has been hed that a pot, a member of an organzaton smar
to the one nvoved here, engaged by a steamshp company to pot
ts vesse n and out of a port s not an empoyee of that company for
the purposes of the edera unempoyment ta . See m. T. 20,
C.B. 19 1-2,221. . . .
rom the foregong, t s apparent that actve pot members of
the assocaton are not empoyees, but as partners n a partnershp
are ndependent contractors engaged n a trade or busness, wthn
the purvew of secton 1 (a) of the Sef- mpoyment Contrbutons
Act, supra. Accordngy, an actve pot s dstrbutve share of the
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273 Regs. 11 , f 39. 31-2.
potage fees coected by the assocaton, ess deductbe e penses,
consttutes net earnngs from sef-empoyment as that term s
defned n secton 1(a) of that Act, supra. Snce the amounts
receved by nactve pots are from the same source as amounts re-
ceved by actve pots, they must be smary cassfed. or the
purposes of the ta on sef-empoyment ncome, t s not necessary
that a ta payer be sef-empoyed durng the ta abe year n whch the
sef-empoyment ncome s receved. It s ony necessary that such
ncome be derved durng a ta abe year begnnng after December 31,
1050. See secton 1 (b) of that Act, supra, and I. T. 071, C. B.
1952-1,1 9.
In some nstances, rver pots have formed a corporaton to hod
tte to ther foatng property, coect ther potage fees, pay e -
penses therefrom and dstrbute the remander of such fees to them-
seves (the pots) on a stated bass. Snce the potage fees are earned
by the pots as ndependent contractors, the corporaton acts merey
as ther agent. In such cases, t appears that the varous pots as
a group have dvded the ownershp of foatng property, and other
property used n ther trade or busness nto equa parts represented
by ndvdua shares of capta stock. As such corporaton s not
authorzed or quafed to engage n the busness of potng, such trade
or busness must be regarded as beng carred on by the ndvdua
pots assocated together for that purpose. A busness thus con-
ducted by assocated ndvduas s a partnershp wthn the meanng
of secton 3797(a) (2) of the Code. Under such crcumstances, snce
the corporaton s merey the agent of the partners (pots), the e -
stence of such corporaton w not affect the status of the dstrbu-
tve shares of partnershp earnngs for purposes of sef-empoyment
ncome, Cf. Mobe Bar Pots Assocaton v. Commssoner, supra.
Reguatons 11 , Secton 39. 1-1: Net
earnngs from sef-empoyment.
Servces of owner-drver of a aundry truck. See Rev. RuL 5 -555,
page 339.
Reguatons 11 , Secton 39. 1-1: Net
earnngs from sef-empoyment
Servces as bean staton manager for a cannng company. See
Rev. Ru. 5 -573, page 3 2.
Reguatons 11 , Secton 39. 1-1: Net earnngs
from sef-empoyment
Servces to the genera pubc as a trade consutant See Rev. RuL
5 -5 6, page 3 5.
1 t
Reguatons 11 , Secton 39. 1-2: Sef-
empoyment ncome.
Deferred or renewa commssons attrbutabe to contracts of n-
surance sod by a fu-tme fe nsurance saesman pror to anuary
1,1951. See Rev. Ru. 5 -312, page 327.
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Regs. 11 , 39. 1-3. 27
Reguatons 11 , Secton 39. 1-2: Sef ..
empoyment ncome.
Servces performed as a traveng saesman. See Bey. RuL 5 - 12,
page 335.
Reguatons 11 , Secton 39. 1-2: Sef-
empoyment ncome.
Partnershp ncome. See Rev. Ru. 5 -603, page 323.
Reguatons 11 , Secton 39. 1-3: Trade or Rev. Ru. 5 -615
busness.
The performance of servce In budng bouses and other struc-
tures by a genera contractor, who Is aso a duy quafed and
practcng professona engneer. Is not e cuded from the term
trade or busness by the provsons of secton 1(c)(5) of the
Sef- mpoyment Contrbutons Act.
Advce has been requested whether the actua constructon of houses
shoud be consdered a norma e tenson of an ndvdua s profes-
sona engneerng practce and thus e cuded from the term trade or
busness by the provsons of secton 1(c) (5) of the Sef- mpoy-
ment Contrbutons Act (subchapter , chapter 1, Interna Revenue
Code of 1939).
In the nstant case the ndvdua, a duy quafed and practcng
professona engneer, s aso engaged n the genera contractng bus-
ness. As a genera contractor, the ndvdua buds houses and other
structures and contracts to nsta machnery and equpment. Hs
genera contractng busness s obtaned because he s the owest bdder
and s n no way dependent upon hs engneerng quafcatons.
Secton 1(c) (5) of the Sef- mpoyment Contrbutons Act e -
cudes from the term trade or busness, when used wth reference
to sef-empoyment ncome or net earnngs from sef-empoyment, the
performance of servce by an ndvdua or partnershp n the e ercse
of certan professons, among whch s that of professona engneer.
It s not uncommon to fnd persons practcng one of the e cuded
professons engaged, n addton, n sdene actvtes not n them-
seves so e cuded. There s no precse ne of demarcaton between
actvtes whch are a norma e tenson of the e cuded professon and
actvtes whch actuay consttute a separate trade or busness. The
answer n each case must be ascertaned from an anayss of a the sur-
roundng facts and crcumstances, ncudng a revew of the customs
nnd practces of the partcuar professon under consderaton. See
Rev. Ru. 276, C. B. 1953-2, .
In the nstant case, the ndvdua conducts a contractng busness
separate nnd apart from the e ercse of hs professona engneerng
servces. That an ndvdua be a professona engneer s not gener-
ay a prerequste to one engagng n busness as a constructon or
genera contractor. Such busness may be, and frequenty s, carred
on by non-professona persons.
In vew of the foregong, t s concuded that the ndvdua s
genera contractng busness s not a norma e tenson of the e ercse
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275 Regs. 11 , 5 39.503-1.
of hs professon as a professona engneer. It necessary foows
that the ndvdua s actvtes as a genera contractor consttute a
trade or busness wthn the meanng of secton 1 (c) of the Sef-
mpoyment Contrbutons Act Accordngy, that porton of hs
tota ncome, to the e tent provded by secton 1 (b) of the Act,
whch s attrbutabe to hs genera contractng busness consttutes
net earnngs from sef-empoyment sub|ect to the ta mposed by
the Sef- mpoyment Contrbutons Act.
Reguatons 11 , Secton 30. 1-3: Trade or
busness.
Bnd operators of vendng stands n pubc budngs. See Rev.
Ru. 5 -255, pago 326.
Reguatons 11 , Secton 39. 1-3: Trade or
busness.
ountary arbtrators n abor dsputes under a State department of
abor. See Rev. Ru. 6 - 11, page 332.
CHAPT R 2. ADDITIONAL INCOM TA S
SUBCHAPT R A-P RSONAL HOLDING COMPANI S
S CTION 502. P RSONAL HOLDING COMPANY INCOM
Reguatons 11 , Secton 39.502-1: Persona Rev. Ru. 5 -2
hodng company ncome.
(Aso Secton 332, Secton 39.332-1.)
The ta payer, a corporaton, acqured a rght, tte, and nterest n
certan moton pctures for the purpose of e hbton n the Unted
States and other parts of the word through estabshed dstrbutors
and e hbtors. The ta payer retaned a rghts other than the ds-
trbuton and e hbton rghts. The gross ncome derved from the
e hbton of the fms s based on a stated percentage of the gross
recepts. It appears that there s no use of, or rght to use, corpora-
ton property by a sharehoder wthn the meanng of sectons 502(f)
and 332(f) of the Interna Revenue Code. Idd, the compensaton
receved by the ta payer from the dstrbuton and e hbton of ts
moton pctures consttutes rent wthn the meanng of sectons 502(g)
and 332(g) of the Code and, therefore, does not quafy as persona
hodng company ncome or foregn persona hodng company ncome
so ong as such rents represent 50 percent or more of the tota gross
ncome of the corporaton.
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Regs. 11 , 5 39.506-2. 276
S CTION 505. SUBCHAPT R A N T INCOM
Reguatons 11 , Secton 39.505-1: Subchapter T. D. 6079
A net ncome.
(Aso Secton 29.505-1, Reguatons 111.)
TITL 20 INT RNAL R NU . CHAPT R I, SUBCHAPT R A, PART 30
INCOM TA TA ABL T ARS B GINNING A T R D C MB R SI, 1991
Reguatons 11 amended wth respect to deducton of edera
ta es by a cash bass ta payer In computng subchapter A net
Income.
Treasury Department,
Oftce or Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On December 19,1953, a notce of proposed ruemakng regardng
amendments to Reguatons 111 and 11 (26 C R, pts. 29 and 39),
wth respect to the deducton of edera ta es by a cash bass ta payer
n computng subchapter A net ncome, was pubshed n the edera
Regster (1 . R. 5 3). After consderaton of a such reevant
matter as was presented by nterested persons regardng the proposas,
the amendments set forth beow are hereby adopted:
Paragraph 1. Secton 39.505-1 of Reguatons 11 s hereby amended
by addng at the end thereof the foowng:
(f) Wth respect to the addtona deducton aowed In secton 505(a)(1),
reatng to edera Income, war-profts, and e cess-profts ta es pad or accrued
durng the ta abe year, a cash bass ta payer may deduct ether the ta es pad
or the ta es accrued durng the ta abe year. However, a ta payer whch a
any ta abe year deducts the ta es accrued durng such year sha In each sub-
sequent ta abe year deduct the ta es accrued durng such subsequent year.
Par. 2. The amendment to Reguatons 11 (coverng ta abe years
begnnng after December 31, 1951) made by paragraph 1 ot ths
Treasury Decson s hereby made appcabe to ta abe years begn-
nng after December 31,19 1, and before anuary 1,1952 (such years
beng covered by Reguatons 111).
(Ths Treasury Decson s ssued under the authorty contaned
n sees. 62 and 3791 of the Interna Revenue Code (53 Stat. 32, 67
26U.S.C.62.3791).)
T. Coeman Andrews,
Commssoner of Interna Revenue.
Approved uy ,195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 13,105 , : 7 a. m.)
S CTION 506. D ICI NCY DI ID NDS CR DITS AND
R UNDS
Reguatons 11 , Secton 39.506-2: Date when Rev. Ru. 5 -536
decson by Ta Court or court becomes fna
and date of cosng agreement.
or the purpose of securng the benefts of secton 506 of the Inter-
na Revenue Code of 1939, reatng to credts and refunds of persona
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277 (Regs. 11 , 39.506-3.
hodng companes wth respect to defcency dvdends, the entry of
the Ta Court s order pursuant to the usua form of stpuaton con-
sttutes a fna order and the date of such entry may be consdered the
date upon whch the decson becomes fna, wthn the meanng of
secton 506 (a) (1) of the Code, n the absence of fraud, mafeasance,
msrepresentaton of a matera fact or a determnaton that the de-
nquency penaty s appcabe.
R GULATIONS 11 , S CTION 39.506-3: Credt T. D.6103
aganst unpad defcency.
(Aso Sectons 39.506-5, 39.506-7.)
TITLB 20 INT RNAL R NU . CHAPT R t, SUBCHAPT R A. PART S9.
INCOM TA : TA ABL Y ARS B GI.NNINO A T R D C MB R SI. 1951
Reguatons 11 amended to provde that orms 975 and 076 sha
be fed wth Dstrct Drectors of Interna Revenue.
TB ASURT D PARTM NT,
O IC O COMMISSION R O INT RNAL R NU ,
Washngton 25, D. C.
To Offcers and mpoyed of the Interna Revenue Servce and Ohert
Concerned:
In order to provde n Reguatons 11 (20 C R, pL 39) that orm
975, reatng to notce of ntenton to cam a defcency dvdend credt
under secton 506 of the Interna Revenue Code, and orm 976,
reatng to cam for defcency dvdends credt, or credt for refund
under such secton, sha be fed wth the approprate Dstrct D-
rector of Interna Revenue, such reguatons are hereby amended as
foows:
PARAGRAPH 1. Secton 39.506-3(d) s amended to read as foows:
S C. 30.500-3. CR DIT AGAINST UNPAID D ICI NCY
(d) Tme and pace of fng notfcaton. Wthn 30 days after the date of
the cosng agreement, or the date upon whch the decson of the Tas Court or
|udgment becomes fna, as the case may be, the notfcaton requred by secton
GOC(c)() and ts secton sha be fed wth the Commssoner of Interna
Revenue, Washngton 25, D. C., e cept that on and after November 1,195 , such
notfcaton sha be fed wth the Dstrct Drector of Interna Revenue for the
dstrct n whch the corporaton s Income ta return Is fed.

PAR. 2. Secton 39.506-5(d) s amended to read as foows:
S C. 9.505-6. CLAIM OB D ICI NCY DI ID NDS CB DIT OB CR DIT om
UND
(d) Tme and pace of fng cam. Wthn 60 days after the date of the
cosng agreement, or the date upon whch the decson of the Ta Court or
|udgment becomes fna, as the case may be, the cam requred by secton
500(d) and ths secton sha be fed wth the Commssoner of Interna Revenue,
Washngton 25, D. C., e cept that on and after November 1, 105 , such cam
sha be ded wth the Dstrct Drector of Interna Revenue for the dstrct In
whch the corporaton s Income ta return Is fed.
PAR. 3. Secton 39.506-7(b) s amended as foows:
(A) By nsertng mmedatey after the word Commssoner n
the second sentence or the Dstrct Drector of Interna Revenue (see
sec. 39.506-3(d)) .
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Regs. 11 , 39.506-3. 27
(B) By strkng from the thrd sentence the words by the Com-
mssoner .
(C) By nsertng mmedatey after the word Commssoner n
the ffth sentence or, after August 26,1953, the Dstrct Drector of
Interna Revenue . As amended, secton 39.506-7 (b) w read as
foows:
Sec. 39.500-7. Suspenson or Statute or Lmtatons and Stat or Coec-
ton
(b) Stay of coecton. The Interna Revenue Code provdes that, e cept In
case of |eopardy, the coecton of the estabshed defcency and a Interest,
addtona amounts, and addtons to the ta provded by aw, Is stayed for a
perod of 30 days subsequent to the fna determnaton of the amount thereof.
If wthn such 30-day perod the corporaton fes wth the Commssoner or the
Dstrct Drector of Interna Revenue (see sec. 39.506-3(d)) the prescrbed
notfcaton of ntenton to seek the beneft of secton 606, the coecton of the
estabshed defcency, to the e tent of the amount of the credt specfed by the
corporaton n such notfcaton f not In e cess of the amount aowabe under
secton 506(a), Is, e cept In cases of eopardy, stayed for a perod of 60 days
subsequent to the fna determnaton of the amount thereof. The fng of a
cam for a defcency dvdends credt under secton 500(d) effects a further
stay of coecton of that porton of the estabshed defcency covered by the
cam s not In e cess of the amount aowabe under secton 500(a), unt the
date the cam Is dsaowed (In whoe or n part). The Code further provdes
that where coecton has been stayed as above Indcated no dstrant or pro-
ceedng n court sha be begun for the coecton of the amount stayed durng
the perod for whch t s stayed. The Commssoner or, after August 20, 1953,
the Dstrct Drector of Interna Revenue, notwthstandng the provsons of
secton 272(b), may refra u from ossessng the subchapter A defcency (pus
nterest, addtona amounts, and addtons to the ta ) unt the cam for the
defcency dvdends credt Is dsposed of. After such cam s aowed or re-
|ected, ether n whoe or a part, the entre amount of the defcency (pus In-
tcrest, addtona amounts, and addtons to the ta ) w be assessed, f not
aready assessed. The amonnt of the cam for the defcency dvdends credt
to the e tent aowed w be credted aganst the amount so assessed, and the
remander of the amount assessed w be coected In the usua manner.
Because ths Treasury Decson merey changes the desgnaton of
the ofca wth whom certan documents must be fed t s found that
t s unnecessary to ssue such Treasury Decson wth notce and pub-
c procedure thereon under secton (a) of the Admnstratve Pro-
cedure Act, approved une 11, 19 6, or sub|ect to the effectve date
mtaton of secton (c) of that act.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 62 and 3791 of the Interna Revenue Code (53 Stat 32, 67 26
U. S.C.62,3791).)
O. Gordon Df.k,
Actng Commssoner of Interna Revenue.
Approved September 1 ,195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 17,193 , :52 a. ro.)
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279 Reg,. 105. 1.13.
CHAPT R 3v- STAT TA
SUBCHAPT R ABASIC STAT TA
PART IL STAT S OP CITIZ NS OR R SID NTS OP TH UNIT D STAT S
SUBPART I. COMPUTATION OP TA
S CTION 11. GROSS STAT
Reguatons 0 (1037), Artce 17: Transfers
condtoned upon survvorshp.
(Aso Artce 15.)
Reguatons 0 amended. See T. D. 6073, page 2 0.
S CTION 11(a). GROSS STAT : D C D NT S
INT R ST
Reguatons 105, Secton 1.13: Property of Rev. Ru. 5 -3 2
decedent at tme of death.
(Aso Secton 12 (b), Secton 1.37.)
The e ecutor of the decedent s estate and the decedent s wdow fed
a |ont ncome ta return for the year n whch the decedent ded.
The ncome of the decedent accrued to the date of hs death and the
ncome of the wdow for the fu year was ncuded n the return.
Hed, (1) the amount of the ncome ta attrbutabe to the decedent s
ncome s that porton of the tota ncome ta shown on the |ont
return that the amount of the decedent s net ncome, ess hs e emp-
tons, bears to the tota net ncome, ess the tota e emptons aowed
and (2) the amount of ta pad by the decedent on account of hs
estmated ncome ta for that year n e cess of hs pro rata share of
the ta shown on the |ont ncome ta return s ncudbe n hs gross
estate for edera estate ta purposes as property owned by hm at
tho date of hs death under secton 11(a) of the Interna Revenue
Code. In a stuaton where any porton of the decedent s pro rata
share of the ncome ta shown on the |ont return remans unpad at
the tme of hs death, any part thereof actuay attrbutabe to hs
ncome woud be aowabe as a deducton from the decedent s gross
estate pursuant to secton 12 (b) of the Code.
Reguatons 105, Secton 1.13: Property of Rev. Ru. 5 -399
decedent at tme of death.
Dvdends decared on shares of Bock pror to the death of the
decedent but payabe to stockhoders of record on a date after hs
death are not ncudbe n hs gross estate for edera estate ta
purposes. However, n a case where the stock s beng traded on an
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Regs. 105, 1.10.1 2 0
e change and s seng e -dvdend on the date of the decedent s
death, the amount of the dvdend shoud not be ncuded n the gross
estate as a separate tem but shoud be added to the e -dvdend quota-
ton n determnng the far market vaue of the stock as of the date
of the decedent s death. See state of. George McNaught Locke v.
Commssoner, 21 T. C. 6 , acquescence, C. B. 195 -1, 5.
S CTION 11(c).-GROSS STAT : TRANS RS IN CON-
T MPLATION O , OR TA ING CT AT, D ATH
Reguatons 105, Secton 1.16: Transfers n T. D. 6073
contempaton of death (aw).
(Aso Sectons 1.17, 1.1 . 1.19 Secton
11(d), Secton 1.20 Secton 11 (g), Sec-
tons 1.25, 1.27 Artces 15,17, Reguatons
0 (1937 edton).)
TITL 20 INT RNAL R NU . CHAPT R I, SUBCHAPT R B. TART 0 AND
I ART 1
Reguatons 0 (1037 edton) and Reguatons 105 amended to
conform to sectons 100, 207, 20 , and 209 of the Technca Changes
Act of 1053.
Tbeasurt Department,
OrrC of Commssoner or Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On ebruary 1 ,1953, there was pubshed n the edera Regster
(19 . R. 9 3) a notce of proposed ruemakng to conform Regua-
tons 0 (1937 edton) 26 C R, pt. 01 and Reguatons 105 26
C , pt 11 reatng to estate ta to sectons 106, 207, 20 , and 209
of the Technca Changes Act of 1953. No ob|ectons to the rues
proposed havng been receved, the amendments set forth beow are
hereby adopted:
R GULATIONS 0 (1037 DITION)
Paragraph 1. There s nserted mmedatey before Artce 15 the
foowng:
S C. 207. CLUSION O C RTAIN TRANS RS TA ING
CT AT D ATH T CHNICAL CHANG S ACT O 1053,
APPRO D AUGUST 15, 1053 .

(b) DwrPHTS Dtko Retob ebruary 11,1039. or the purposes of
secton 302(c) of the Revenue Act of 1926, as amended, an Interest of
a decedent sbn not be Incuded In hs gross estate as Intended to take
effect In possesson or en|oyment at or after bs death uness t woud
hare been Incudbe as such a transfer under secton 11(c) (2) of the
Interna Revenue Code, as amended by secton 7 of Pubc Law 37 ,
ghty-frst Congress, approved October 25, 19 9 (63 Stat 91), had
such m-rton 11(c)(2), as so amended, apped to the estate of such
decedent. No refund or credt of any overpayment resutng from the
appcaton of ths subsecton sha be aowed or made If prevented by
the operaton of the statute of mtatons or by any other aw or rue
of aw e cept that If the determnaton of the edera estate ta
abty In respect of the estate of any decedent dyng before ebruary
11, 1WA, was pendng on anuary 17, 19 9, In the Ta Court of the
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2 1 (Regs. 105, 1.1 .
Unted States or In any other eoart of competent ursdcton, or If a
decson of the Ta Court of the Unted States or such other court de-
termnng such estate ta abty dd not become fna unt on or after
anuary 17, 19 9, then refund or credt of an overpayment resutng
from the appcaton of ths subsecton may, nevertheess, be made or
aowed f cam therefor s fed wthn one year from the date of the
enactment of ths Act, notwthstandng secton 319(a) of the Revenue
Act of 1926 or any other aw or rue of aw whch woud otherwse pre-
vent the aowance of such refund or credt.
(c) Intebest. No nterest sha be aowed or pad on sny overpay-
ment resutng from the appcaton of ths secton wth respect to any
payment made before the date of the enactment of ths Act.
(d) ffectve Date. Subsecton (b) sha nppy ony wth
respect to estates of decedents dyng before ebruary 11, 11)39.
Par. 2. Artce 17, as amended by Treasury Decson 5003 C. B.
19 0-2, 2 C , approved September 19, 19 0, s further amended by
addng at the end thereof the foowng:
Under the provsons of secton 207(b) of the Technca Changes Act of 10. 3,
approved August 15, 1953. an Interest n property transferred by the decedent
sha not be ncuded In hs gross estate for the purpose of secton 302(c) of the
Revenue Act of 1920 as ntended to take effect In possesson or en|oyment at or
after hs death uness t woud have been ncudbe as such a transfer under
secton 11 (c) (2) of the Interna Revenue Code, as added by secton 7 of Pubc
Law 37 ( 1st Cong.), approved October 23, 19 9, had such secton S(c)(2)
apped to the estate of such decedent. See secton 1.17(c) of Reguatons 105.
Where refund or credt of any overpayment resutng from the appcaton of
the precedng paragraph s prevented by the operaton of the statute of mta-
tons, or by any other aw or rue of aw, refund or credt may, nevertheess be
made If
(1) the determnaton of the decedent s estate ta abty was pendng
on nnunry 17,19 9, n The Ta Court of the Unted States or In any other
court of competent ursdcton, or f the decson of any of such courts deter-
mnng such abty had not become fna unt on or after such date, and
(2) a cam refund or credt therefor s fed on or before August 15,195 .
However, no Interest sha be aowed or pad wth respect to any such overpay-
ment made before August 15, 1953.
R GULATIONS 103
Par. 3. There s nserted mmedatey before secton 1.2 the
foowng:
S C. 100. T NSION O P RIOD OR MPTION ROM
ADDITIONAL STAT TA O M MB RS O ARM D ORC S
UPON D ATH T CHNICAL CHANG S ACT O U 53, AP-
PI O D AUGUST 15, 1053 .
Secton 039(b) (reatng to the ta treatment of estates of certan
members of the Armed orces) Is hereby amended by strkng out
anuary 1, 195 and nsertng In eu thereof anuary 1, 1955 , and
by strkng out anuary 1,195 and nsertng In eu thereof anuary
1,1955 .
Par. . Secton 1.2, as amended by Treasury Decson 603 C. B.
1953-2,27 , approved uy 29.1953, s further amended by nsertng
n the second paragraph of (b) thereof after 1951 the words and
amended by secton IOC of the Technca Changes Act of 1953 and
by substtutng theren 1955 n eu of 195 .
Par. 5. There s nserted mmedatey after secton C09 of the
Revenue Act of 1951, and precedng secton 302(c) of the Revenue
Act of 192G (as orgnay enacted), whch precede secton 1.15, the
foowng:
S C. 207. CLUSION O C RTAIN TRANS RS TA ING -
CT AT D ATH (T CHNICAL CHANG S ACT O 1953, AP-
PRO D AUGUST 13, 1953 .
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Regs. 105, 1.10. 2 2
(n) Drcrotrrrs Dtno A|teb ebbuaut 10, 1939. P|rnsrart (1) of
secton 11(C) (reatng to the Incuson of certan .nterests n tbe
decedent s cross estate) s hereby amended by nsertng after subpara-
graph (C) tbe foowng:
Subparagraph (B) sha not appy to a transfer made before Mnrrh
, 1031 nor sha subparagraph (II) appy to a transfer made nfter
March 3, 1931, and before uno T, 11)32, uness the property trans,
fcrrcd woud bare been Incudbe In the decedent s gross estate by
reason of the amendatory anguage of the ont resouton of March
.1U31 ( 0 Stat. 1510).

(c) Interest. No nterest sha be aowed or pad on any overpay-
ment resutng from the appcaton of ths secton wth respect to any
payment made before tbe date of the enactment of ths Act.
(d) ffectve Date. The amendment made by subsecton (a) sha
appy ony wth respect to estates of decedents dyng after ebruary
10, 1039.
S C. 20 . AILUR TO R LIN UISH A TOW R IN C RTAIN
DISABILITY CAS S (T CHNICAL CHANC S ACT O 1053,
AITRO D AUGUST 15, 1953 .
(a) Amendment of Secton 11(d). Secton 11(d) (reatng to
revocabe transfers) Is hereby amended by Insertng after paragraph
(3) thereof the foowng new paragraph:
( ) CT O DISADILITT IN C RTAIN CAS S. or the purposes of
ths subsecton, In tbe case of a decedent who was (for a contnuous
perod begnnng not ess than three months before December 31,
19 7, and endng wth hs death) under a menta dsabty to re-
nqush a pow|r, tbe term power sha not Incude a power the
renqushment of whch on or after anuary 1, 19 0, urd on or
before December 31, 19 7, woud, by reason of secton 1000(e), be
deemed not to be a transfer of property for the purposes of chap-
ter .
(b) ffectve Date. The amendment made by subsecton (a) sha
appy ony wth respect to estates of decedents dyng after December
31,1950.
Par. C. Secton 1.10, as amended by Treasury Decson 590 C. 13.
1952-1,16 , approved May 27,1952, s further amended by deetng
descrbed n secton 1.1 (b)(1) or 1.19(b)(1) whch appears n
the ast sentence of paragraph (d) and substtutng n eu thereof
ncudbe n hs gross estate under the provsons of secton 1.1
or secton 1.19 .
rt. 7. Secton 1.1 as amended by Treasury Decson 5936 C. B.
1952-2,22 , approved October 6,1952, s further amended as foows:
(A) By deetng from the headng thereof (a) Genera rue.
and nsertng a perod n eu thereofT
(B) By deetng the ast sentence of the frst paragraph thereof.
(C) By deetng paragraph (b) thereof.
(D) By nsertng mmedatey after the frst paragraph thereof
the foowng new paragraph:
I roperty sha not be Incuded n te gross estate under ths secton uness
transferred
(1) after March 3, 1931, nnd before une 7, 1932, and the retenton or
reservaton by the decedent was (A) for hs fe or (B) for such a perod
ns to evdence hs Intenton that t shoud e tend at east for the duraton
of hts fe, nnd bs death occurs before the e praton of such perod or
(2) on or after une 7, 1932.
Tar. . Secton 1.19, as amended by Treasury Decson 5936, s
further amended as foows:
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2 3 Regs. 1C5, 1.1 .
(A) By deetng from the headng thereof (a) Genera rue,
and nsertng a perod n eu thereof.
(B) By deetng the Inst sentence of the frst paragraph thereof.
fC) By deetng paragraph (b) thereof. .
(D) By nsertng mmedatey after the frst paragraph thereof the
foowng new paragraph:
Property Ra not bo Incuded a tbe cross estate tnder Us secton uness
transferred
(1) nfter Mnrch 3, 1031, nnd before uno 7, 1032, nnd the retenton or
reservaton by tbe decedent wns (A) for bs fe or (H) for such a perod ns to
evdence bs Intenton Hnt It shoud e tend at enst for the duraton of hs
fe, nnd bs death occurs before tbe e praton of such perod or
(2) on or after une 7, 11)32.
Par. 9. Secton 1.20, as amended by Treasury Decson 5906 C. B.
1952-1,155 , approved May 27.1952, s further amended by nsertng
mmedatey at the end of (u) thereof the foowng:
In the case of a decedent dyng after December 31, 11)30, tbe provsons of ths
secton do not appy to a transfer If
II) the renqushment on or after anuary 1, 10 0, nnd on or efore
December 31, 10 7, of tho power woud, by reason of secton 1000(e), he
deemed not n transfer of propery for tbe purpose of the gft ta under
chapter (see secton 0.3(b) of Reguatons 10 ), and
(2) the decedent was, for a contnuous perod begnnng on or before
Scptcm -r 30, 10 7. and endng wth hs denth, under a menta dsabty to
renqush n power.
or the purpose of the foregong provson, tbe term menta dsabty means
menta Incom etenee, In fact, to reease the power whether or not there was an
ad|udcaton of Incompetence. Such provson sha appy e en though a guardan
coud have reeased the power for tbe decedent.
Pah. 10. There s nserted mmedatey precedng secton 1.25
the foowng:
C. 200. R RSIONARY INT R STS IN CAS O LI IN-
SURANC T CHNICAL CHANG S ACT O 1053, APPRO D
AUGUST 13. 1053 .
(a) D .crn .NTs Dyno Amu anuary 10, 10 1, ako Hktore Ocronrn
22, 10 2. ffectve wth respect to estates of decedents dyng after
anuary 10, 10 1, and before October 22, 10 2, tbe proceeds of fe
nsurance recevabe by enefcares other than the e ecutor sha not
be Incuded n the gross estate of a decedent under secton (g) of the
Interna Revenue Code uness such proceeds woud have been Incudbe
under secton 0 (c) of the Revenue Act of 10 2 (as amended by Sec-
ton 003(a) of the Revenue Act of 1030) bad such secton 01(c), as so
amended, apped to such estate.
(b) M usr. No Interest sha be aowed or pad on any over-
payment resutng from the appcaton of subsecton (n) wth respect
to any payment made before the date of the enactment f ths Act.
Par. 11. Secton 1.27, as amended by Trensury Decson 5901, s
further amended by nsertng mmedatey foowng the thrd para-
graph of (c) thereof the foowng new paragraph:
In the case of a decedent dyng nfter anunry 10, 10 1 (and on or before
October LI, 1012), the condtons prescrbed n paragraph (a sha oppy a
determnng whether n reversonary Interest consttutes an Incdent of owner-
shp. No nterest sha he aowed or pad on any overpayment resutng from
the appcaton of the precedng sentence wth respect to any payment made
before August 15, 1033.
(Ths Treasury Decson s ssued under the authorty contaned
n sec. 1101 of the Revenue Act of 192C ( Stat. 70 23 U. S. C. 11)
S3331C 53 19
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Regs. 105, 1.1 .) 2
and sec. 3791 of the Interna Revenue Code (53 Stat 67: 26 U. S. C.
3791).)
O. GORDON D L ,
Actng Commssoner of Interna Revenue.
Approved une 11, 195 .
M. B. OLSOM,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster ane 17, 195 , :91 a. m.)
R GULATIONS 105, S CTION 1.17: Transfers n-
tended to take effect at or after the de-
cedent s death.
Reguatons 105 amended. See T. D. 607 , page 2 6.
R GULATIONS 105, S CTION 1.1 : Transfers Rev. Ru. 5 -552
wth possesson or en|oyment retaned.
Where a decedent purchased a snge premum fe nsurance
pocy n combnaton wth a fe annuty contract and mmedatey
assgned the nsurance pocy to the benefcares thereof, as bene-
fcary of the annuty contract he retaned the possesson and en|oy-
ment of the nsurance pocy durng hs fe wthn the meanng of
secton 11 (c) (1) (B) of the Interna Revenue Code of 1039. Ac-
cordngy, the proceeds of the pocy are ncudbe n hs gross estate
for edera estate ta purposes.
Advce has been requested whether the decson n Carter ZZ. Har-
rson v. dwn . Bohnen, 199 ed. (2d) 92, affrmed 3 5 U. S. 9 6
n a per curam decson by an eveny dvded court, w be foowed
by the Interna Revenue Servce as a precedent n the dsposton of
smar cases nvovng the status, for edera estate ta purposes, of
the proceeds of a snge premum fe nsurance pocy taken out by
a decedent n combnaton wth a fe annuty contract.
The Court of Appeas for the Seventh Crcut n Harrson v.
Bohnen, supra, had hed that where an edery decedent purchased a
snge premum fe nsurance pocy and a fe annuty contract from
the same company at the same tme, and mmedatey assgned the
nsurance pocy to her chdren, the proceeds of the nsurance pocy
were not ncudbe n her gross estate for edera estate ta purposes.
An affrmance of a decson by the Supreme Court of the Unted
States upon equa dvson of opnon s not authorty for the deter-
mnaton of other cases, ether n that court or n a ower court.
Hertz . Woodman, 21 U. S. 205: Unted States v. Pnk, 315 U. S. 203.
Secton 11 (c) of the Interna Revenue Code of 1939, reatng to
transfers n contempaton of, or takng effect at, death, provdes,
n part, or ncuson n the gross estate of a decedent of certan
transfers:
(1) G N BAI. IU-T. . To the e tent of any Interest theren of whch the
decedent has at any tme made a transfer (e cept n case of a bona fde
sae for an adequate and fu consderaton n money or money s worth), by
trust or otherwse
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2 5 Regs. 105, 1.1 .
(B) under whch he has retaned for hs fe or for any perod not
ascertanabe wthout reference to hs death or for any perod whch
does not n fnct end before hs death (1) the possesson or en|oyment
of, or the rght to Income from, the property .
The estate ta treatment to be accorded the proceeds of a snge
premum fe nsurance pocy taken out n combnaton wth a fe
annuty contract and mmedatey assgned to the benefcares of
the nsurance pocy has been before the courts severa tmes n recent
years on factua stuatons substantay smar to those nvoved
n Harrson v. Bohnen, supra. See state of Water C. Burr v. Com-
mssoner of Interna Revenue, 150 ed. (2d) 71, certorar dened
329 U. S. 7 5 state of ustace ft. Conway v. Genn, 193 ed. (2d)
9G5.
In Burr v. Commssoner, supra, the decedent, when 75 years of age,
been ssued by the nsurance company wthout the annuty contract.
Thereafter the decedent assgned the nsurance contracts to hs three
sons but retaned the annuty. The court concuded that the trans-
acton, as a matter of aw, consttuted a transfer by the decedent of
money to the nsurance company wth retenton by the decedent of
the ncome therefrom for fe and hed that the proceeds of the n-
surance contracts were ncudbe n the gross estate of the decedent
under the provsons of secton 11(c) of the Code. In reachng
ths concuson the court stated, n part, as foows:
en the decedent n ths ense transferred 107,.r 00 to the nsurance company,
he obtaned from t two promses: one to pay hm a sma rate of return n the
form of monthy annuty payments, the other to transfer 100,000 to the named
benefcares on hs death. Hs annuty payments represented a f ed percentage
of the tota consderaton and the compauy s Investment rsk was so cacuated
ns never to e ceed the e pected ncome from the premums on the nsurance and
the annutes . No matter who hed the pocy and the annuty, the
two contracts, reatng to the fe of the one to whom they were orgnay
Issued, st counteracted each other . In assgnng the poces, he wn.A ,
In effect, transferrng a remander whe retanng a fe nterest or n the
terms of the statute retanng the en|oyment or the rght to the Income from
the property .
In Conway v. Genn, supra, smar facts were nvoved and the
Unted States Court of Appeas for the S th Crcut foowed the
decson n the Burr case.
The courts n both the Burr and Conwav cases, supra, reed on
the case of Ievernq v. dyth Le Gerse, 31 2 U. S. 531, Ct. D. 1 91,
C. B. 19 1-1, 30. There, on facts smar to those heren consdered,
the court noted that athough the two contracts were n a forma
respects treated as dstnct transactons, the nsurance pocy woud
not have been ssued wthout the annuty contract, and the two must
bo consdered together. So consdered, they whoy faed to spe
out any eement of nsurance rsk. It was hed that the contracts dd
not consttute nsurance but an nvestment program and that the
amounts thus receved by the benefcary of the pocy were ta abe
as a transfer to take eTect n possesson or en|oyment at or after death
under secton 11 (c) of the Code.
In the Bohnen case the court dstngushed the Le Gerse case
on the grounds that n the atter the fe nsurance contracts were
not assgned but were retaned by the decedent and that whe there
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Regs. 105, 1.2 S 6
was a snge nvestment program made up of two contracts, the
contracts were dvsbe so that after the assgnment of the fe con-
tract the decedent had retaned no nterest theren.
Inasmuch as the Bohnen decson s not authorty for the determna-
ton of other cases the decsons n the Burr and Conway cases w be
foowed by the Interna Revenue Servce n the dsposton of cases
nvovng smar stuatons.
S CTION 11(f). GROSS STAT : POW RS O
APPOINTM NT
Reguatons 105, Secton 1.2 : Property sub- T.D.C07
|ect to power of appontment by decedent.
(Aso Secton 11(c), Secton 1.17 Secton
12(d), Secton 1. 7a.)
TITL 2 INT RNAL R NU . CHAPT R I. SUBCHAPT R B. PART 1.
STAT TA UND R CHAPT R O TH INT RNAL R NU COD , AS
AM ND D
Reguatons 105 amended to conform to the Powers of Appont-
ment Act of 1051.
Treasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On August 5,1953, notce of proposed ruemakng wth respect to
amendments to conform the estate ta reguatons to sectons 1 and
2 of the Powers of Appontment Act of 1951, approved une 2 ,1951,
was pubshed n the edera Regster (1 . R. 599). After con-
sderaton of such reevant suggestons as were presented by nter-
ested persona regardng the proposa, the foowng amendments to
Reguatons 105 2G C R, pt. 1 , are hereby adopted:
Paragraph 1. The statutory provsons mmedatey foowng sec-
ton 02 of the Interna Revenue Code and precedng secton 302(f)
of the Revenue Act of 192G (as orgnay enacted) whch precede
secton 1.2 are deeted.
Par. 2. There s nserted mmedatey after secton 02 of the In-
terna Revenue Code and precedng secton 302(f) of the Revenue
Act of 1920 (as orgnay enacted), as set forth precedng secton
1.2 the foowng:
S C. 03. POW RS O APPOINTM NT R NU ACT O 10 2.
APPRO D OCTOB R 21, 10 2 .
(d) Powers Wth Respect to Wmcn Amendment Not Appcabe.

(2) The amendments made by ths secton sha not become ap-
pcabe wth respect to a power to appont created on or before
the date of enactment of ths Act, whch Is e ercsabe In favor of
the decedent, hs estate, hs credtors, or the credtors of hs estate.
If at such date the donee of such power Is under a ega dsabty
to reease such power, unt s months after the termnaton of
such ega dsabty. or the purposes of the precedng sentence,
an Indvdua n the mtary or nava forces of the Unted States
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2 7 Regs. 103, 1.2 .
sha, unt the termnaton of the present war, be consdered nndcr
b ega dsabty to reease a power to appont.

TUBLIC LAW 5 ( 2d CONG.) C. B. 1951-2, 313 ,
APPRO D UN 2 ,1051
Be t enacted by the Senate and House of Representatve of the
Unted States of Amerca n Congress assembed. That ths Act may be
cted as the Powers of Appont mert Act of 1931 .
S C 2. STAT TA POW RS O APPOINTM NT.
(n) Secton 11(f) of the Interna Revenue Code (reatng to powers
of appontment) Is hereby amended to read as foows:
(f) Powers or Appontment.
(1) PROP nTT WITU R SP CT TO WUICII D C D NT RCIS S A
O N .RAI. POW B Or APPOINTM NT CH AT D ON OB B OR OCTOB B 1,
1012. To the e tent of any property wth respect to whch a genera
power of appontment created on or before October 21, 10 2. Is
e ercsed by the decedent (1) by w or (2) by n dsposton whch
s of such nature that f It were a transfer of property owned by the
decedent, such property woud be Incudbe n the decedent s gross
estate under subsecton (c) or (d) but the faure to e ercse such
a power or the compete reease of such a power sha not be deemed
an e ercse thereof.
If before November 1, 1951, orwthn the tme mted by para-
graph (2) of secton 0. (d) of the Revenue Act of 10 2, as amended,
n cases to whch such paragraph s appcabe, a genera power
of appontment created on or before October 21, 10 2, sha have
been partay reeased so that t s no onger a genera power of
appontment, the subsequent e ercse of such power sha not be
deemed to be the e ercse of a genera power of appontment.
(2) Powers cheated after octoer 1, A 2. To the e tent of
any property wth respect to whch the decedent has nt the tme of
hs death a genera power of appontment created nfter October 21,
1 H2, or wth respect to whch the decedent has nt any tme e er-
csed or reeased such n power of appontment by a dsposton whch
Is of such nature that If It were a transfer of property owned by the
decedent, such property woud be Incudbe In the decedent s gross
estate under subsecton (c) or (d). A dscamer or renuncaton
of such a power of appontment sha not be deemed a reease of
ue power.
for the purposes of ths pnrngraph (2) the power of appontment
sha be consdered to e st on the date of the decedent s death even
though the e ercse of the power Is sub|ect to a precedent gvng
of notce or even though the e ercse of the powor takes effect ony
on the e praton of a stated perod after Its e ercse, whether or
not on or before the date of the decedent s death notce has been
gven or the power has been e ercsed.
(3) Defnton of genera power of appontment. or the
purposes of ths subsecton the term genera power of appontment
means a power whch Is e ercsabe In favor of the decedent, hs
estate, hs credtors, or the credtors of bs estate e cept that
(A) A power to consume, Invade, or approprate property
for the benet of the decedent whch Is mted by an ascertan-
abe standard reatng to the heath, educaton, support, or
mantenance of the decedent sha not be deemed a genera
power of appontment.
(It) A power of appontment created on or before October
21, 10 2, whch s e ercsabe by the decedent ony n con|unc-
ton wth another person sha not be deemed a genera power
of appontment.
(C) In the case of a power of appontment created after
October 21, 10 2, whch Is e ercsabe by the decedent ony In
con|uncton wth another peson
(I) If the power Is not e ercsabe by the decedent e cept
In con|uncton wth the creator of the power such power
. sha not be deemed a genera power of appontment.
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Regs. 105, 1M. 2
(11) If the power Is not e ercsabe by the decedent e -
cept In con|uncton wth a person havng a substanta
Interest In the property, sub|ect to the power, whch a
adverse to e ercse of the power In favor of the decedent
such power sha not be deemed a genera power of appont-
ment. or the purposes of ths cause a person who, after
the denth of the decedent, may be possessed of a power of
appontment (wth respect to the property sub|ect to the
decedent s power) whch he may e ercse n hs own favor
sha be deemed as havng an Interest n the property and
such Interest sha be deemed adverse to such e ercse of
the decedent s power.
(H) f (after the appcaton of causes (I) and (II))
the power s a genera power of appontment and s e er-
csabe In favor of such other person such power sha be
deemed a genera power of appontment ony In res ect
of a fractona part of the property sub|ect to such power,
such port to e determned by dvdng tho vnuo of sue
property by the number of such persons (ncudng the de-
cedent) n favor of whom such power Is e ercsabe.
or the purposes of causes (II) and (HI) a power sha be
deemed to be e ercsabe n favor of a person f t s e er-
csabe n favor of such person, hs estate, hs credtors, or the
credtors of hs estate.
( ) Creaton or another poweb n certan cases. To the e -
tent of any property wth respect to whch the decedent (1) by
w or (2) by a dsposton whch s of such nature that If t were
a transfer of property owned by the decedent, soch property woud
be Incudbe In the decedent s gross estate under subsecton (c),
e ercses a power of appontment created after October 21, 11) 2,
by creatng another power of appontment whch under the ap-
pcabe oca aw can be vady e ercsed so as to postpone the
vestng of any estate or nterest n such property, or suspend the
absoute ownershp or power of aenaton of such property, for a
perod ascertanabe wthout regard to the date of the creaton of
the frst power.
(5) Lapse of power. The npse of a power of appontment
created after October 21, 10 2, durng the fe of the Indvdua
possessng the power sha be consdered a reease of such power.
The rue of the precedng sentence sha appy wth respect to the
apse of powers durng any caendar year ony to the e tent that
the property whch coud have been apponted by e ercse of such
apsed powers e ceeded n vaue, at the tme of such apse, the
greater of the foowng amounts:
(A) .r ,000, or
(B) S pcrcentum of the aggregate vaue, at the tme of
such apse, of the assets out of whch, or the proceeds of
whch, the e ercse of the apsed powers coud have been
satsfed.
(b) Date op Creaton op Power. or the purposes of ths secton
a power of appontment created by a w e ecuted on or before October
21, 19 2, sha be consdered a power created on or before such date f
the person e ecutng such w des before uy 1, 19 0, wthout havng
repubshed such w, by codc or otherwse, after October 21, 10 2.
(c) ffectve Date. The amendments made by ths secton sha be
effectve as f made by secton 03 of the Revenue Act of 19 2 on the
date of ts enactment (appcabe wth respect to estates of decedents
dyng after October 21,19 2).
Par. 3. Secton 1.2 , as amended by Treasury Decson 5 10,
C. B. 1950-2, 73 , approved October 5,1950, s further amended to
read as foows:
Sec. 1.2 . Property Sub|ect to Power of Appontment bt Decedent. (a)
Genera. (1) Introducton. Sub|ect to the rues prescrbed herenafter, the
provsons of secton 11(f) of the Interna Revenue Code requre the Incuson
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2 9 (Regs. 105, 1.2 .
In decedent s estate of the vaue of property In respect of whch the decedent
possessed, e ercsed, or reeased certan powers ot appontment. Ths para-
graph contans roes of genera appcaton paragraph (b)(1) contans rnes
specfcay appcabe to genera powers of appontment created on or before
October 21, 11) 2, In respect to estates ot decedents dyng after that date para-
graph (b)(2) sets forth specfc rues appcabe to powers of appontment
created after Octuber 21,10 2 and paragraph (c) contans the rues n respect
of estates of decedents dyng on or before October 21.10 2.
(2) I occr of appontment. The term power of appontment Incudes a
powers whch re n substance nnd effect powers of appontment regardess of
the nomencature used In crentng the power and regardess of oca property
aw connotatons. or e ampe, If a transfer In trust provdes that the betu-
cary may approprate or consume the prncpa of the trust, such power to
consume or approprate Is a power of appontment. Smary, a power gven
to a donee to ater, amend, revoke, or termnate n trust s a power of appont-
ment. If the communty property aws of a stntc confer upon the wfe a power
of testamentary dsposton over property In whch she does not have a vested
Interest she Is consdered as havng n power of npontmcnt. A power In the
decedent to remove or dscharge n trustee and appont hmsef may be a power
ot appontment. or e ampe, f under the terms of a trust, the trustee or bs
successor hns tho power to appont the prncpa of the trust for the beneft of
Indvduas ncudng hmsef, and the decedent hns the unrestrcted power to
remove or dscharge the trustee at any tme nnd appont hmsef, the decedent
w be consdered as possessng a power of appontment. On the other hand,
the mere power of management, Investment, custody of assets, or the power to
aocate recepts and dsbursement as between ncome nnd prncpa, e ercsabe
In a ducary capacty whereby the hoder has no power to enarge or shft any
of the benefca nterests theren s not a power of appontment. urther, the
rght In a enetcnry of a trust to assent to a perodc accountng thereby reev-
ng the trustee from further accountabty s not a power of appontment If
such rght of assent does not consst of any power or rght to enarge or shft
the benefca Interests of nuy benefcary theren.
or the purpose of ths secton, the term power of appontment does not
Incude powers reserved by the decedent to hmsef wthn the concept of secton
fe (c) or (d). (See sectons 1.15 through 1.21.) No provson of secton
S(f) or of ts secton Is to he construed as In any way mtng the appca-
ton of any oer secton of the Interna evenue Code or of these reguatons.
or e ampe, If n trust created by S provdes for payment of the Income to A
for fe wth power In A to appont the remander by w aud. In defaut of such
appontment for payment of the Income to A s wdow, , for her fe nnd for
payment of the remander to A s estate, there Is Incudbe In A s gross estate un-
der secton 11 (a) the vaue of hs Interest In the remnnder whether or not
the power Is e ercsed nnd whether or not the power was created before, on, or
after October 21, 111 2.
Where u power of appontment e sts ony as to part of an entre group of
nsscts or ony n respect of n mted Interest In property, ths secton sha
appy ony to such part or Interest.
(3) (atera poccr of appontment. or purposes of ths secton, the term
genera power of appontment , e cept as mted In paragraph (6), means any
power of appontment e ercsabe n favor of the decedent, hs estate, hs cred-
tors, or the credtors of hs estate. A power of appontment e ercsabe to meet
the estate ta , and any other ta es, debts, and charges whch are enforceabe
aganst the estate. Is Incuded wthn the meanng of a power of appontment
e ercsabe In favor of the decedent s estate or the credtors of hs estate. A
power of appontment e ercsabe for the purpose of dschargng a ega obga-
ton of the decedent or for bs pecunary beneft Is consdered a power of appont-
ment e ercsabe n favor of the decedent or hs credtors. However, for the
purposes of ts secton, n power of appontment not otherwse consdered to be
n genera power of appontment Is not treated as n genera power of appontment
merey by reason of the fact that an appontee may. In fact, be a credtor of the
decedent or hs estnte.
A power to consume, Invade, or approprate property for the beneft of the
decedent whch s mted by an ascertanabe standard reatng to the heath,
educaton, support, or mantenance of the decedent, sha not be deemed a genera
power of appontment. Whether a power s mted by an ascertanabe stand-
ard w be determned by appyng the prncpes foowed In ascertanng the
e tent to whch, If any, a bequest to a trust for both prvate and chartabe par-.
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Regs. 105, 1.2 .) 290
poses Is aowabe as a deducton under secton 12(d). A power to consume,
Invade, or approprate property for comfort, peasure, desre, or happness. Is
not a power mted by an ascertanabe standard.
( ) Instruments to be fed wth return. Dupcate copes of tc Instrument
grantng the power and. If the power was dscamed, renounced, e ercsed or
reeased by an nstrument, such Instrument, one of each to be certfed or verfed,
must be fed wth orm 700 n a cases, uness the decedent was a nonresdent,
n whch case ony one copy of each Instrument, certfed or verfed. Is requred.
The copes must be fed even though t Is contended that the power was not a
genera power of appontment and the property s not returned for ta .
(b) states of decedents dyng after October SI, 19 2. (1) Genera powers
of appontment created on or before October SI, /9.|2. In the case of a genera
power of appontment created on or before October 21, 19 2, secton 11(f) (1)
requres the Incuson In the gross estate of the decedent of the vaue of property
wth respect to whch such a power s e ercsed by the decedent (1) by w, or
(II) by a dsposton whch Is of such nature that f It were a transfer of property
owned by the decedent, such property woud be Incudbe In the decedent s gross
estate under secton 11(c) (reatng to transfers In contempaton of, or takng
effect at, death, or n whch possesson or en|oyment s retaned unt death)
or secton 11(d) (reatng to transfers wth power reserved to ater, amend,
revoke, or termnate).
Secton 11(f)(3)(B) provdes that a power created on or before October
21, 19 2, whch s not e ercsabe by the decedent e cept n con|uncton wth
another person, sha not be deemed a genera power of appontment. See
paragraph (a) (3) for defnton of a genera power of appontment
The rues of secton 11 (c) or (d) whch are to be apped are those n effect
on the date of decedent s death whch are appcabe to transfers made on the
dote when the e ercse of the power occurred. Such rues are to be apped
n determnng the e tent to whch and the condtons under whch a dsposton
s consdered a transfer of property. Thus. If a decedent, who e ercses a gen-
era power of appontment by deed, des after September 23, 1950, the date of
enactment of the Revenue Act of 1950, such e ercse may not I e consdered ns
n contempaton of death uness made wthn three years pror to the decedent s
death. See secton 11(1) and secton 1.16. Smary, f the decedent, before
October , 19 9, e ercses a genera power of appontment by makng a dspos-
ton n trust takng effect at death under whch he retans a reversonary Interest
worth ess than 5 percent of the vone of the transferred property, the e ercse
of the power does not cause the property to be ncudbe n the gross estate of
the decedent snce, f t had been a transfer of property owned by the decedent,
t woud not have been ncudbe under secton 11(c)(1)(C). See secton
1.17(c). On the other hand. If the decedent, on or after October , 19 9, e er-
cses a genera power of appontment by a dsposton under whch possesson or
en|oyment of property sub|ect to the e ercse can be obtaned ony by survvng
the decedent, the property w be ncudbe In the decedent s gross estate to the
same e tent as If the dsposton had consttuted a transfer by the decedent of
property of whch he was the owner.
In the case of estates of decedents dyng after October 21, 19 2, a power of
appontment Is e ercsed where the property sub|ect thereto Is apponted to the
taker In defaut of appontment regardess of whether or not the apponted
nterest and the Interest n defaut of appontment are dentca, and regardess
of whether or not the appontee renounces any rght to take under the
appontment.
A faure to e ercse a genera power of appontment created on or before
October 21, 19 2, or a compete reease of such a power s not consdered to bo
an e ercse of a genera power of appontment
If. at the tme he renqushes a genera power of appontment (or at any
earer date), the decedent e ercses a power n such a manner or to such an
e tent that the renqushment resuts In the reducton, enargement, or shft
n the benefca Interests In property, such renqushment w be consdered
to be nn e ercse and not n reease of a power. or e ampe, assume that
A created a trust n 19 0 provdng for payment of the ncome to B for fe
wth the power In B to ater or amend the trust, and for payment of the
remander to such persons ns B sha appont or, upon defaut of appontment
to C. If B amended the trust In 19 by provdng fnt upon hs death the
remander was to be pad to C, and further amended the trust n 1050 by
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291 Regs. 105, 1.21.
deetng s power to ater or amend the trust, the renqushment w be
consdered on e ercse and not a reease of a genera power of appontment.
On the other hand, f B In 11)1 merey amended the trust by changng the pure
mnstera powers of the trustee, hs renqushment of the power n 1930 w
be consdered as a reease of a power of appontment. If a genera power of
cpHtmcnt Is partay reeased so that t s not thereafter a genera power of
appontment, a subsequent e ercse of such partay reeased power sha not
bo deemed the e ercse of a genera power of appontment f such parta
reease occurs pror to whchever s the ater of the foowng dates:
(I) November 1, 1051
(II) If the decedent was under a ega dsabty to reease such power
on October -1, 11) 2, the day after the e praton of 6 mouths foowng the
termnaton of such ega dsabty. See secton 03(d) (2) of the Itevenue
Act of 10 2. ns amended.
Iowever. If the genera power Is partay reeased on or after November 1,
1031 (e cept where such parta reease Is effected wthn the perod of 0
months foowng the termnaton of the ega dsabty referred to In the
precedng sentence), and Is thereafter e ercsed, such e ercse w consttute
the e ercse of n genera power of appontment.
The ega dsabty referred to Is determned under oca aw and may ncude
the dsabty of un Insane person, a mnor, or an unborn chd. The fact that
the type of genera power of appontment possessed by the decedent actuay
was not generay reensabe under the oca aw does not pace the decedent
under a ega dsabty wthn the meanng of subdvson () above.
In genera, It Is assumed that a genera powers of appontment are reeasabe.
uness the oca aw on the sub|ect Is to the contrary, and t Is presumed that
the method empoyed to reease the power Is effectve, uness It Is not In accord-
ance wth the oca aw reatng specfcay to reeases or, n the.absence of such
oca aw, Is not In accordance wth the oca aw reatng to smar transactons.
A power to nppont created by a w e ecuted on or before Octoer 21, 1012,
sha e consdered n power created on or before such date If the person e ecut-
ng such w ded before uy 1, 10 0, wthout havng repubshed such w,
by codc or otherwse, after October 21,10 2.
(2) (atera power created after October t, 10 2. (1) In pcncra. Secton
S(f) (2) requres the Incuson In the gross estate of a decedent of the vaue of
a property wth respect to whch the decedent has at the tme of hs death a
genera power of appontment created after October 21. 10 2. or defnton
of n genera power of appontment, see paragraph (a)(3) and for rues app-
cabe to ont powers sec subdvson (II) heren. The vaue of such property
s ncudbe In the gross estate whether or not such power Is e ercsed. or
purposes of secton 11(f) (2), a power of appontment Is consdered to e st on
the date of the decedent s death where the tme for the e ercse of the power
s determne by the date of hs death. It Is aso consdered to e st on the
date of the decedent s death even though the e ercse of the pwer s sub|ect
to the precedent gvng of notce, or even though the e ercse of the power takes
effect ony on the e praton of a stated perod after Its e ercse, whether or
not on or before the decedent s death notce has been gven or the power has
been e ercsed.
The statute aso requres, e cet In case of a bona fde sae for nn adequate
and fu consderaton In money or money s worth, the Incuson n the gross
estate of property wth respect to whch the decedent has e ercsed or reeased
n genera power of appontment by a dsposton whch Is of such a nature that,
f It were a transfer of property owned by the decedent, such property woud
he Incudbe In the decedent s gross estate under secton 11 (c) or (d). The
prncpes set forth In subdvson (1) of ths pnragrnph for determnng the
appcaton of the pertnent provsons of secton S (c) or (d) to n partcuar
e ercse of a power of appontment are appcabe for purposes of determnng
whether nn e ercse or reease of a power of appontment created after October
21, 1 2, causes the property to be Incuded In the decedent s estate under secton
11(f)(2).
() ont porert created after Ortoher St, 10.2. The foowng rues sha
appy wth respect to a power of appontment created after October 21, 10 2,
whch Is e ercsabe ony n con|uncton wth another person:
(A) Such a power sha not be consdered ns a genera power of appont-
ment f t s not e ercsabe by the decedent e cept wth the consent or
|onder of the creator of the power.
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Regs. 105, 5 1.2 . 292
(II) Such a power sba not be consdered as a genera power of appont-
ment If t s not e ercsabe by tbe decedent e cept wth tbe consent or
|onder of a person havng a substanta Interest n the property sub|ect
to the power whch Is adverse to the e ercse of the power In favor of the
decedent, hs estate, bs credtors, or the credtors of hs estate. A taker
n defaut of appontment has an nterest whch s adverse to such an e er-
cse. A cohoder of the power has no adverse nterest merey because of
hs. ont possesson of the power nor merey because be Is a permssbe
appontee under a power. However, a cohoder of a power Is consdered ns
havng an adverse Interest where he may possess the power after the
decedent s death and may e ercse t at that tme n favor of hmsef, bs
estate, bs credtors, or tbe credtors of hs estate. Thus, for e ampe, If ,
Y, and Z bod a power onty to appont among a group of persons whch
ncudes themseves and on the death of the power w pass to Y and
Z onty, then Y and Z are consdered to have nterests adverse to the
e ercse of the power In favor of .
(C) A power whch Is e ercsabe ony n con|uncton wth another person
and whch after appcaton of the rues set forth In (A) and ( .) of ths
subdvson, consttutes a genera power of appontment w be treated
as though the hoders of the power who are permssbe appontees of the
property were ont owners of property sub|ect to the power. The decedent,
under ths rue, w be treated as possessed of a genera power of appont-
ment over an aquot share of the property to be determned wth reference
to the number of ont hoders, Incudng the decedent, who (or whose estates
or credtors) are permssbe appontees. Thus, for e ampe, If , Y, and Z
hod an unmted power onty to nppont among a group of persons,
ncudng themseves, but on the death of the power does not pass to
Y and Z onty, then Y nnd Z are not consdered to have Interests adverse
to (he e ercse of the power In favor of . In ths case, Is consdered
to possess a genera power of appontment as to one-thrd of the property
sub|ect to the power.
(HI) Hccatcs an apsct of genera poteen of appontment. A reease of a
power of appontment need not be forma or e press In character. The faure
to e ercse a power of appontment created after October 21, 1012, wthn a
stecfed tme, so that the |owcr apses, consttutes a reease of the power. How-
ever, secton 11(f)(5) provdes that such a.apse of a power of nppontmcnt
durng any caendar year sha be treated as a roense for purposes of ncuson
of property n the gross estate under secton 11(f) (2) ony to the e tent that
the property whch coud have been apponted by e ercse of such apsed power
e ceeds the greater of (A) 5,000 or (B) 5 percent of the aggregate vaue, at
the tme of such aps. , of the assets out of whch, or the proceeds of whch, tbe
e ercse of the apsed powers coud have been satsfed. Thus, for e ampe. If
an Indvdua has a noncumuatve rght to wthdraw 10,000 a yenr from the
prncpa of 200,000 trust fund (whch nether Increases nor decreases In vaue
pror to death), the faure to e ercse ths rght of wthdrawa w not resut
In estate ta wth respect to the power to wthdraw 10,000 whch apses each
year pror to tbe year of death. At death there w be Incuded In the gross
estate of the hoder of the power the 10,000 whch he was entted to wthdraw
for the year In whch hs death occurs ess any amount whch ho mny have
taken durng such year. However, If In the above e ampe the hoder of the
power had had the rght to wthdraw 15,000 annuay, the faure to e ercse
ths power In any year w be consdered a reease of the power to the e tent
of the e cess of the nmonnt sub|ect to wthdrawa over 5 percent of the trust
fund (In ths e ampe, 5,000, f the trust fund In worth 200,000 at the tmo
of the apse).
The purpose of secton 11(f) (5) Is to provde a determnaton, ns of the dnto
of the apse of tbe power, of the proporton of the property- over whch the power
npsed whch It an e empt dsposton for estate ta purposes nnd the proporton
thereof whch, If the other requrements of secton 11 are satsfed, w bo
consdered ns a ta abe dsposton. Once the ta abe proporton of any dspos-
ton nt the date of apse has been determned, the vauaton of that proporton
as of the date of the decedent s death (or. If the e ecutor has eected the vaua-
ton provded by secton 11 ( ), the vaue as of the date theren provded), Is to
be ascertaned In accordance wth the prncpes whch are appcabe to the
vauaton of transfers of property by the decedent under the correspondng
provsons of secton 11 (c) and (d). Where the faure to e ercse the power,
such as the rght of wthdrawu, occurs n more than a snge year, the proporton
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293 Regs. 103, 1.2 .
of the property over whch the power apsed whch Is treated as a ta abe
dsposton w be determned separatey for each such year. The aggregate of
the ta abe proportons for a such years, vaued In accordance wth the above
prncpes, w be Incudbe n the gross estate by reason of the apse. The
Incudbe amount, however, sha not e ceed the aggregate vaue of the assets
out of whch, or the proceeds of whch, the e ercse of the power coud have been
satsfed, vaued as of the date of the decedent s death (or. If the e ecutor has
eected the vauaton provded by secton S( ), the vaue as of the date theren
provded).
A dscamer or renuncaton of a genera power of appontment Is not con-
sdered to be a reease of the power. The dscamer or renuncaton must be
unequvoca and effectve uuder oca aw. A dscamer s a compete and
unquafed refusa to accept the rghts to whch one s entted. Such rghts
refer to the Incdents of the power and not to other Interests of the decedent n
the property. If effectve under oca aw, the power may be dscamed or re-
nounced wthout dscamng or renouncng such other Interests. There can fce
no dscamer or renuncaton of a power after ts acceptance. In the absence of
facts to the contrary, the faure to renounce or dscam wthn a reasonabe
tme after earnng of Its e stence w be presumed to consttute an acceptance
of the power.
(v) S/cccAAre poccr . Secton 11(f)( ) provdes that there sha be n-
cuded n the gross estate of a decedent the vaue of any property wth respect to
whch the decedent (A) by w, or (II) by a dsposton whch s of such nature
that f It were n transfer of property owned by the decedent, such property
woud be Incudbe In the decedent s gross estate under secton S(c), e ercses
a power of appontment (whether or not a genera power of apponment) created
after October 21, 10 2, by creatng nnother power of appontment whch under
te appcabe oca aw can be vady e ercsed so ns to postpone the vestng
of any estate or Interest In such property, or suspend the absoute ownershp
or power of aenaton of such property, for a perod ascertanabe wthout regard
to the date of the creaton of the frst power.
or purposes of the appcaton of secton 11 (f) ( ), the vaue of the property
sub|ect to the second power of appontment sha be consdered to be such vaue
unreduced by any precedent or subsequent Interest whch s not sub|ect to such
second power. Tms, If a decedent has n power to appont by w 100, 00 to
tt group of persons consstng of hs chdren nnd grandchdren and e ercses
such power by makng an outrght appontment of 7. .000 nnd by gvng one
appontee a power to appont 2.1,000, no more than 2. ,000 w be ncudbe
n the decedent s gross estate under secton 11 (f) ( ). If, however, the decedent
apponts the Income from the entre fund to a benefcary for fe wth power In
the benefcary to appont the remander by w, the entre 100,000 w be
ncudbe In the decedent s gross estate under secton 11(f) ( ) If the e ercse
of the second power can vady postpone the vestng of any estate or nterest
n such property or can suspend the absoute ownershp or power of aenaton of
such property for a perod ascertanabe wthout regard to the date of the creaton
of the frst power.
(c) Hatatc of dcccdcnt Ang before October 21, Df2. The reguatons
prescrbed under ths paragraph are appcabe ony wth respect to estates of
decedents who ded on or before October 21, 1012, the date of the enactment
of the Itevenuc Act of 1IM2. 1 opcrty passng under a genera power of appont
nput must be Incuded In the gross estnto of the person e ercsng the power
(known as He donee, or appontor), f the power Is e ercsed by w. It shoud
aso e so Incuded If the power Is e ercsed by deed or other Instrument ether
(1) In contempaton of death, (2) W the Intent that the transfer sha tnko
effect In possesson or en|oyment nt or after the death of the donee of the power,
(It) wth the retenton or reservaton by the decedent of the use, possesson, rght
to the Income, or oer en|oyment of the transferred pro|erty, or ( ) wth tho
retenton or rescrvaon by the decedent of tho rght to desgnate the person or
persons who sha possess or en|oy the transferred property or the Income thereof.
( or descrpton of such transfers and the ta abty thereof wth reference to
when made nnd when the death occurred, sec sectons 1.10 to 1.10, ncusve.)
Pas. . Secton 1. 7n (d) s amended as foows:
(A) By changng 11(f)(3) appearng at the end of the s th
paragraph thereof to read 11(f) (:.) and
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Regs. 105, | 1.2 . 29
(B) By changng the parenthetca e presson mmedatey at the
end of the s th paragraph thereof to read as foows: (See secton
61.2 (6) (2).) .
PAH. 5. Secton 1.17, as amended by Treasury Decson 5936 C. B.
1952-2,22 , approved October 6,1952, s further amended as foows:
(A) By amendng the ast sentence of the frst paragraph of (I)
to read as foows:
Notwthstandng the foregong rues, an Interest In property transferred by tho
decedent s not ncudbe In the gross estate under ths paragraph If possesson
or en|oymet of the property was obtanabe by any benefcary durng the
decedent s fe through the e ercse of a genera power of appontment, as defned,
n secton 11(f)(3), whch was n fact e ercsabe mmedatey pror to the
decedent s death.
(B) By amendng the second sentence of the second paragraph of
( ) to read as foows:
or the purpose of rue (2), the e presson some other event ncudes the
e praton of a terra of years or te happenng or faure to happen of a certan
or nncertan event (ncudng the possbe e ercse of a power whch s not a
ta abe genera power of appontment as defned In secton 11 (f) (3)).
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 3791 of the Interna Revenue Code (53 Stat 67 26 U. S. C.
3791).)
T. COL MAN ANDR WS,
Commssoner of Interna Revenue.
Approved uy 7,195 .
M. B. OLSOM,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 13, 105 , : 7 a. ra.)
R GULATIONS 105, S CTION 1.2 : Property Rev. Ru. 5 -271
sub|ect to power of appontment by dece-
dent.
A, who ded before October 21,19 2, bequeathed and devsed prop-
erty to B to use and dspose of as much of the ncome and prncpa
thereof as he may desre durng hs fe, wth remander, f any, on
hs death to two named ndvduas, n equa shares, absoutey and
n fee smpe. B and the two contngent remandermen, beng a the
partes n nterest, conveyed the property n trust, B retanng the
power, e ercsabe by hm aone, to use and dspose of the entre prn-
cpa durng hs fe, wth remander, f any, on hs death to the two
named remandermen. B, by |onng wth the contngent remander-
men n the creaton of a trust of the property, dd not ncrease or
decrease hs own nterest or ncrease or decrease or ater n any way the
nterests of the contngent remandermen n the property. The soe
purpose of the trust was to mantan the dentty of the property be-
queathed and devsed to B. Hed, B s acton n |onng wth the
remandermen n the creaton of a trust of the property dd not
consttute an e ercse of a genera power of appontment wthn the
meanng of secton 11 (f) (1) of the Interna Revenue Code.
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295 Regs. 105, ( 1.2 (a)(3).
Reguatons 105, Secton 1.2 (a)(3): Gen- T.D.60S2
era power of appontment,
(Aso Secton 12(e), Sectons 1. 7a, 1. 7b
Secton 1000, Secton 0.2(b)(3), Regua-
tons 10 .)
TITL 20 INT RNAL R NU . CHAPT R I, SUBCHAPT R B, TART 1 AND
PART SO
Reguatons 103 and Reguatons 10 amended to conform to
secton mo of the Technca Changes Act of 1053.
Treasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Ofpccrg and mpoyees of the Interna Revenue Servce and
Others Concerned:
On December 29,1053, there was pubshed n the edera Regster
(1 . R. S09) a notce of proposed ruemakng to conform Regua-
tons 105 (2G CR , pt. 1) and Reguatons 10 (20 C R, pt. 6) to
secton 210 of the Technca Changes Act of 1953, reatng to the
marta deducton n certan cases where decedent ded before Apr 3,
19 S. No ob|ectons to the rues proposed havng been receved, the
amendments set forth beow are hereby adopted:
R GULATIONS 105
Paragraph 1. Secton 1.2 (a) (3), as amended by Treasury Dec-
son 007 p. 2 0, ths Buetn , approved uy 7, 195 , s further
umended by addng at the end thereof the foowng:
Notwthstandng any other provson of aw or of ths secton, property sub|ect
to n power descrbed In secton s.-Tn(h) sha te consdered as property wth
rcs MH-t to whch the decedent hns n genera power of appontment created nfter
October 21, 11112, e ercsabe by deed or w, to the esteut It was treated as an
nterest passng to the decedent as a survvng spouse and not pnssng to any
oer person for purposes of secton 12(c) under the rues prescrbed u secton
b. 7u(h) and secton 210 of the Technca Changes Act of 1033.
An Interest In property w not he so consdered uness an eecton by the
decedent ns a survvng spouse was fed In the manner prescrbed In secton
1. 7a(h). Upon the fng of such an eecton, the perods of mtaton provded
In chapter 3 of the Interna Revenue Code on the makng of an assessment and
begnnng of dstrant or proceedng In court for coecton sha, wth respect
to any defcency and Interest thereon resutng from such eecton. Incude one
yenr Immedatey foowng the dnte such eecton Is fed, and such assessment
and coecton may he made notwthstandng any provson of aw or rue of
aw whch woud otherwse prevent such assessment and coecton.
Par. 2. There s nserted mmedatey before secton 1. 7a the
foowng:
S C. 210. MARITAL D DUCTION IN C RTAIN CAS S WH R
D C D NT DI D B OR APRIL 3, 15 B T CHNICAL
CHANG S ACT O 1933 .
(a) I N .tA.. In the case of nn Interest In property passng by
w from the decedent, If the survvng spouse Is entted for fe to a
the Income from such property, payabe annuay or nt more frequent
Intervas, wth power In the survvng spouse to use nn consume such
porton of the property ns the survvng spouse may need c desre for
her (or hs) comfortabe support and mantenance, ond wth no power
In nny person other than the survvng spous,e to appont ny part of
such property, then
(1) the nterest so passng sha, for the purposes of subpara-
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Regs. 105, 1.2 (a)(3). 296
graph (A) of secton 12(e) (1) of the Interna Revenue Code, be
consdered as passng to the survvng spouse and
(2) no part of the Interest so passng sha, for the purposes of
subparagraph (B) (1) of secton 12(e) (1) of the Interna Revenue
Code, be consdered as passng to any person other than the sur-
vvng spouse.
Nothng In ths subsecton sha be construed to permt the same Items
to be twce deducted.
(b) ecton. The provsons of subsecton (a) sha appy ony f
the survvng spouse fes an eecton under ths secton wt the Secre-
tary wthn one year after the date of the enactment of ths Act under
such reguatons as the Secretary sha prescrbe. If such eecton Is
so fed, the property sub|ect to such power sha, notwthstandng any
other provson of aw, be consdered for purposes of chapters 3 and
of the Interna Revenue Code as property as to whch the survvng
spouse had a genera power of appontment e ercsabe by deed or
w. If the survvng spouse has made an eecton pursuant to ths
secton, the perods of mtaton provded n chapters 3 and of the
Interna Revenue Code on the makng of an assessment and the begn-
nng of dstrant or a proceedng n court for coecton shn, wh respect
to any defcency and nterest thereon resutng from such eecton, In-
cude one year Immedatey foowng the date such eecton Is fed, and
such assessment and coecton may be made notwthstandng any pr -
vson of aw or any rue of aw whch otherwse woud prevent such
assessment and coecton.
(c) Interest. No nterest sha be aowed or pad on any overpay-
ment resutng from the appcaton of ths secton.
(d) ffectve Date. Ths secton sha appy ony wth respect to
estates of decedents dyng after December 31, 10 7, and on or before
the date of the enactment of the Revenue Act of 19 . If refund or
credt of any overpayment resutng from the appcaton of subsectons
(a) and b) Is prevented on the date of the enactment of ths Act, or
wthn one year from such date, by the operaton of any aw or rue of
ow (other than secton 37C0 of the Interna Revenue Co e, reatng to
cosng agreements, and other than secton 3701 of such code, reatng
to compromses), refund or credt of such overpayment any, never-
theess, be made or aowed f cam therefor s fed wthn one year
from the date of the enactment of ths Act
Par. 3. Secton 1. 7a, as amended by Treasury Decson C07 , s
further amended as foows:
(A) By strkng (g) n tem (2) of the second paragraph of (a)
and substtutng (h): n eu thereof.
(B) By substtutng a comma n eu of the word and n the
second sentence of paragraph (b) (2) and by strkng the perod at
the end of such sentence and addng thereto the foowng: , and n
the case of certan nterests passng by w whether or not n trust)
from decedents dyng after December 31,19 7, and on or before Apr
2,19 .
(C) By substtutng for the words and (d) n the thrd sentence
of paragraph (b)(2) the foowng: , (d),and (h).
(D) By substtutng for the words and (d) n the frst sentence
of the second paragraph of (b) (2) the foowng: , (d), and (h).
( ) By nsertng at the end thereof the foowng:
(h) Certan nterests pattng by w from decedent) dyng after December SI,
97, and on or before Apr 2, 9. S (1) In genera. Under the provsons of
secton 210 of the Technca Changes Act of 1053, property Interests (whether
or not In trust) whch passed by w from decedents dyng after December 31,
10 7, and on or before Apr 2, 10 , sha. If the foowng condtons are met,
be consdered for the purposes of secton 12(e) (1) (A) as havng passed from
the decedent to the survvng spouse and w not be consdered for the purposes
of secton 12(e) (1) (IA) as havng passed from the decedent to any person other
than the survvng spouse:
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297 Regg. 105, 5 1.2 (a) (3).
(I) the survvng spouse must be entted for fe to a the Income from
the property:
(II) such Income mast be parabe annnny or at more frequent Intervas
(III) the survvng spouse must hare the power to use and consume such
porton of the property as she (or be) may need or desre for her (or hs)
comfort, support, and mantenance (or a broader power to use and consume)
(v) the property must not be sub|ect to n power In any other person to
appont any part thereof to any person other than the survvng spouse and
(v) the survvng spouse must fe an rrevocabe eecton n the manner
prescrbed In subparagraph (2).
The nterest consdered as passng to the survvng spouse under ths paragraph
sha bo the vaue of the entre property to whch the above condtons appy.
However, amounts deducted under ths paragraph may not be twce deducted
from the decedent s gross estate. See secton 1. 71)(g).
The rues prescrbed In secton 1. 7n(c) (In the case of a trust wth a power
of appontment In the survvng spouse) for determnng whether the survvng
spouse Is entted for fe to a the Income from such property, payabe nnnuay
or at more frequent Intervas, sha be npprubc n determnng whether Inter-
ests HH-c d In ths paragraph meet condtons (I) and () enumerated above.
(2) ecton (1) In genera. The provsons of subparagraph (1) sha appy
ony If the survvng spouse fes nn eecton In accordance wth the foowng
requrements: The eecton sha he In the form of a wrtten statement, n
dupcate, addressed to the dstrct drector n whose ofce the decedent s estate
ta return was ted, and sgned by the survvng spouse. It sha state the
name of the decedent, the name and address of the survvng spouse, nnd sha
contan a statement that such spouse eects to have the provsons of secton 210
of the Technca Changes Act of 1933 appy. The statement sha specfy an.
descrbe the property or Interests Incuded n the decedent s estate ta return
to whch the provsons of ths paragraph are appcabe. Such eecton must
be paced In the ma at such a tme that It woud normay be receved by the
dstrct drector on or before August 13,19.1 .
() ffect of eecton. The e ercse of the eecton referred to heren sha
cause the property sub|ect thereto to be treated as property as to whch the
survvng spouse had n genera power of appontment e ercsabe by deed or w
created on the date of death of the decedent. It may aso oAerate to e tend the
perods of mtaton for makng an assessment nnd coectng any defcency nnd
Interest resutng from the eecton. See secton 1.2 (a) (3) of Reguatons 103
nnd secton 0.2(b) (:S) of Itegntons 10 .
(3) Retroactve operaton. Where refund or credt of any overpayment re-
sutng from the appcaton of secton 210 Is prevented on August 13, 1933. or
wthn one year from such date, by the operaton of any aw or rue of aw
(Incudng a udca determnaton but not Incudng secton 3760, reatng to
cosng agreements, and not Incudng secton 3701, reatng to compromses)
refund or credt of such overpayment may, nevertheess, be made or aowed If
cam therefor Is fed on or before August 13,193 . No Interest sha be aowed
or pad on nny overpayment resutng from the appcaton of secton 210.
Par. . Secton 1. 7b s amended as foows:
(A) By substtutng (g) for (f) n both the thrd and fourth
sentences of paragraph (a).
(B) By nsertng n paragraph (d) mmedatey at the end of the
parenthetca sentence n e ampe () (before the cosng parenthess)
tho foowng:
As to cases In whch n deductbe Interest may e st where a fe Interest Is
couped wh a power In the case of Interests passng by w from decedents
dyng after December 31,19 7, nud on or before Apr 2, 19 , see paragraph (h)
of secton S1. 7a.
(C) By nsertng at the end thereof the foowng:
(g) Doube deductons dsaoccd n certan cases where decedent ded on or
efore. Apr 2, 19 S. No nterest n property shn be aowed as a deducton
under secton 1. 7a(h) to the e tent It was aowed as a deducton under nny
other secton of the Interna Revenue Code.
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Regs. 105. f 1.26 and 1.27. 29
R GULATIONS 10
Pah. 5. Secton 6.2(b) (3), as amended by Treasury Decson 6077
p. 30 , ths Buetn , approved uy 7,195-1, s further amended by
addng at the end thereof the foowng:
Notwthstandng any other provson of aw or of ths secton, property sub-
|ect to a power descrbed In secton 1. 7a (h) of Reguatons 105, reatng to
estate ta sha be consdered as property wth respect to whch the donor has a
genera power of appontment created after October 21, 11)12, e ercsabe by
deed or w, to the e tent It was treated as an Interest passng to the donor
us a survvng spouse and not passng to any other person for purposes of secton
12(e) under the rues prescrbed n secton 1. 7a(h) of Reguatons 100 and
secton 210 of the Technca Changes Act of 1033.
An Interest n property w not be so treated uness an eecton by the donor
as a survvng spouse was fed In the manner prescrbed In secton 1. 7a (h) of
Reguatons 105. Upon the fng of such an eecton, the perods of mtaton
provded n chapter of the Interna Revenue Code on the makng of nn assess-
ment and begnnng of dstrant or a proceedng n court for coecton sha,
wth respect to any defcency and Interest thereon resutng from such eecton,
Incude, one year Immedatey foowng the date such eecton Is fed, nnd such
assessment and coecton may be made notwthstandng any provsou of aw or
rae of aw whch woud otherwse prevent such assessment and coecton.
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 210 of the Technca Changes Act of 1953 (67 Stat. 62 ) and sees.
1029 and 3791 of the Interna Revenue Code (53 Stat 157, 67 2G
U.S.C. 1029,3791).)
O. Gordon Df k,
Actng Commssoner of Interna Revenue.
Approved August 2,195 .
M. B. oLsosr,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster August , 105 , : 51 a. m.)
S CTION 11(g). GROSS STAT : PROC DS
O LI INSURANC
Reguatons 105, Skcton 1.26 and 1.27: In- Rev. Ru. 5 -272
surance n favor of the estate and nsurance
receved by other benefcares.
(Aso Secton 12(e), Secton 1. 7a Secton
12(b), Secton 1.36, Reguatons 105.)
The rues stated n paragraph ( ) of Rer. Ru. 232, C. B.
1933-2, 2G , reatng to the treatment of fe Insurance poces and
the proceeds therefrom for edera estate to purposes under the
communty property aws of the State of Lousana, appy equay
to smhr poces and the proceeds therefrom, taken out by an
nsured domced In the State of Te as.
Advce s requested whether the rues stated n paragraph ( ) of
Rev. Ru. 232, C. B. 1953-2,20 , reatng to edera estate ta treat-
ment of certan fe nsurance poces and the proceeds therefrom,
under the communty property aws of the State of Lousana, are
appcabe n cases where the decedent ded domced n the State of
Te as.
Paragraph ( ) of Rev. Ru. 232, supra, provdes as foows:
( ) The Insured takes out n pocy of fe nsurance before the e stence of
the communty, one premum Is pad out of the Insured s separate funds before
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299 (Regs. 105, 5 1.26 and 1.27.
marrage and the baance of the premums are pad out of communty funds.
and the benefcary Is (1) anyone other than the Insured s estate or survvng
spouse, (2) the survvng spouse, or (3) the Insured s estate.
Snce the character of the pocy Is determned at the tme It Is taken ont by
tho payment of premums from separate funds. It Is beeved the pocy here
consttutes the separate property of the nsured. Ths rue ceary appes In
stuaton (.1), and s appcabe to stuatons (1) and (2) snce the Insured re-
taned the soe power to name the pocy benefcary. Therefore, n each stua-
ton a |ocy proceeds are Incudbe In the Insured s gross estate n accord wth
sectons M (g)(1) nnd 11(g)(2)(b) of the Code. The marta deducton as
provded u secton 12(e) nny be aowed In stuaton (2) wth respect to these
proceed . Inasmuch as communty property Is not hero Invoved, secton S12-
(e)(2)(H) Is not appcabe In computng a mtaton on the e tent of the
marta deducton. A cam by the communty for rembursement for premums
pad wth communty funds aganst the Insured s gross estate under secton
12(h) (.1) may be aowed In stuatons (1) nnd (3) If such cam Is presented
nnd actuay pad by the Insured s estate representatves. Where n stuaton
:) the survvng spouse s the soe egatee of the Insured s scmrntc estate.
the marta deducton may he aowed wth respect to n separate property to
the e tent such property posses from the decedent to hs survvng spouse, wthn
the meanng of secton 12(e) of the Code. In the event of the nonnsured s
pror decease, such spouse s separate estate may propery Incude as an asset
thereof, the cam aganst the communty for one-haf the premums pad from
communty funds n ench stuaton presented.
Artce 013, ernon s Revsed Cv Statutes, Te as, provdes,
n part, as foows:
A property of the husband, both rea and persona, owned or camed by hm
before marrage, and that acqured afterward by gft, devse, or descent, as
aso tho Increase of a ands thus acqured, sha be hs separate property.
In Womaek v. Womaek, 172 S. W. (2d) 307, the Supremo Court
of Te as hed Mnt an nsurance pocy s property and that on dvorce
a wfe s entted to receve one-haf of the cash surrender vaue of
poces on the fe of the husband where the premums were pad wth
communty funds.
Tho Te as cases unformy hod that property acqured by a hus-
band before marrage s hs separate property, but f any part of the
purchase money s pad after marrage wth communty funds, the
communty estate s entted to rembursement therefor. The courts
pay that where tte to property s acqured by ether spouse before
marrage, ts status as separate property s f ed at the tme of ts
acquston and cannot be atered thereafter by the fact that the
purchase prce s pad wth communty funds. Icn v. Wams
(Te .), GO S. W. 997 enkns v. Robnson (Te .), 169 S. W. (2d)
250, and Coden v. Ae ander (Te .), 171 S. W. (2d) 32 MacRoe v.
SacRae (Te .), 1 S. W. (2d) 320 and arrow v. arrow (Te .),
23 S. W. (2d) 255.
In Icrgdo v. Bcrr|do, 1 5 S. W. (2d) 227, there s anguage
ndcatng that a pocy taken out by a husband before marrage
may he part separate and part communty property. The case n-
voved a dvson of communty property on dvorce. The husband
acqured two poces on hs fe before hs marrage and fourteen
of tho nneteen annua premums were pad after marrage wth
communty funds. Tho court hed that the wfo was entted to
one-haf of 1 /19ths of the cash surrender vauo of the poces.
However, n vew of tho provsons of Artce 613 of ernon s Re-
vsed Cv Statutes, supra, defnng the husband s separate property,
and the decsons hodng that an nsurance pocy s property, the
33310 03 20
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Regs.105. 1.. 300
decson n the Bergdo case must be construed as merey hodng
that as to such poces, the wfe s entted to rembursement for one-
haf of the cash surrender vaue whch was but up wth communty
funds. The pocy tsef, havng been acqured by the husband before
marrage, s hs separate property but upon dvorce hs wfe s
entted to rembursement for premums pad wth communty funds.
In vew of the foregong, t s hed that the rues stated n para-
graph ( ) of Rev. Ru. 232, supra, appy equay to smar poces
of nsurance and the proceeds therefrom under the communty prop-
erty aws of the State of Te as.
S CTION 11(|).-GROSS STAT : OPTIONAL
ALUATION
Reguatons 105, Secton 1.11: Optona Rev. Ru. 5 -
vauaton date.
The dnte upon whch the nssets of a corporaton are devered In
qudaton of Its stock sha be consdered as the optona vaua-
ton dnte for edera estate tas purposes shoud the e ecutor of
an estate hodng the stock of such corporaton among the assets of
the estate eect to use the optona vauaton method authorzed
by secton S( ) of the Interna Revenue Code of 1031) In a tmey
fed edera estate ta return.
Advce s requested concernng the optona vauaton date to be
used n respect of certan assets receved n the qudaton of corporate
stock hed among the assets of an estate where the e ecutor of the
estate has eected to use the optona vauaton method authorzed by
secton 11 (|) of the Interna Revenue Code of 1939 under the foow-
ng crcumstances.
The M Corporaton s a persona hodng company, the stock of
whch was whoy owned by the decedent. The e ecutor ntends to
qudate the corporaton pror to the e praton of 1 year from the
date of decedent s death. The assets of the corporaton w then be
devered to the e ecutor. The specfc queston presented s whether
the qudaton of the company and devery of ts assets to the e ecutor
woud be regarded as consttutng a sae, e change, or other dsposa
of the stock wthn 1 year after the date of decedent s death wthn the
meanng of secton 11 (|) of the Code.
Secton 11(|) of the Interna Revenue Code provdes n part as
foows:
If the e ecutor so eects upon hs return (If fed wthn the tme prescrbed
by aw or prescrbed by the Commssoner In pursuance of aw), the vaue of
the gross estate sha be determned by vaung a the property Incuded theren
on the date of the decedent s death as of the date one year after the decedent s
death, e cept that (1) property ncuded In the gross estate on the date of
death and, wthn one year after the decedent s death, dstrbuted by the
e ecutor or sod, e changed, or otherwse dsposed of, sha be Incuded
at Its vaue, as of the tme of such dstrbuton, sae, e change, or other
dsposton, whchever frst occurs .
Secton 1.11 of state Ta Reguatons 105 provdes that property,
n the case of a sae, e change, or other dsposton wthn the 1-year
perod, s to be vaued as of the date when t ceases to form a part of
the gross estate, that s, the date when the tte passes as a resut of a
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301 Rega. 105, 136.
sae, e change, or other dsposton. The terms, dstrbuted, sod,
e changed, and otherwse dsposed of comprehend a possbe
ways by whch property may be separated or passed from the gross
estate.
A dstrbuton of the assets of the M Corporaton to the e ecutor n
qudaton of ts stock wthn the year after the decedent s death w
consttute, wthn the meanng of secton 11 (|), a dsposton of stock
of the company ncuded n the gross estate on the date of the decedent s
death.
In vew of the foregong, t s hed that the date, wthn 1 year after
the decedent s death, upon whch the assets of a corporaton a e
devered to the e ecutor n qudaton of ts stock sha be consdered
ns the optona vauaton date for edera estate ta purposes shoud
the e ecutor eect to uso tho optona vauaton authorzed by secton
11 (|) of tho Interna Revenue Codo n a tmey fed edera estate
ta return.
raoLAToNf 105, Secton 1.11: Optona Rev. Ru. 5-1 115
vauaton date.
(Aso Secton 21 Secton 1.63.)
A edera estate ta return fed n accordance wth date of death
vaues may, f the e ecutor or admnstrator so desres, be superseded
by an amended return showng the vaues as of 1 year after death or
as of the ntermedate dates prescrbed by secton 11 (|) of the Inter-
na Revenue Code of 1939, f such amended return s fed wthn 15
months after the date of death or wthn an e tenson perod duy
granted, provded that under the crcumstances of the case the e ecutor
or admnstrator s not estopped from changng hs prevousy nd-
cated eecton. See . T. 1 , C. B. 19 0-1, 221. stoppe does not
arse merey because the ta shown on the orgna return has been
assessed or pad n part or because the orgna return has been n-
vestgated and other premnary steps have been taken n the ta
determnaton. However, dependng upon the facts and crcum-
stances n a partcuar case, an estoppe may arse where the repre-
sentatve of the estate has been dscharged from persona abty
pursuant to hs request for a prompt determnaton of the ta under
the provsons of secton 25(a) of the Code. urthermore, the
return cannot be amended where the representatve of the estate has
entered nto a cosng agreement under secton 3760 of the Code.
S CTION 12(b). N T STAT : P NS S, LOSS S,
IND BT DN SS, AND TA S
Reguatons 105, Secton 1.36: Cams
aganst the estate.
Treatment of fe nsurance poces under communty property
aws of Te as n stuatons nvovng marta deductons. See Rev.
Ru. 5 -272, page 29 .
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Regs. 105, 1. . 302
Rzot|atons 105, Secton 1.37: Ta es.
Labty for edera ncome ta es on |ont edera ncome ta re-
turn. See Rev. Ru. 5 -3 2, page 279.
S CTION 12(d). N T STAT : TRANS RS OR PUBLIC,
CHARITABL , AND R LIGIOUS US S
Requstons 105, Secton 1. : Transfers for Rev. Ru. 5 -2 5
pubc, chartabe, regous, etc., uses.
A chartabe deducton under secton 12(d) of the Interna
Revenue Code may be aowed on account of bequests or gfts of
remander Interests to charty n cases where the w or nstrument
authorzes nvason of corpus for the comfortabe mantenance and
support of fe beuetcares If (1) there s an ascertanabe standard
coverng comfort and support whch may be ether e press or Im-
ped, and (2) the probabty of Invason s remote or the e tent of
the Invason s cacuabe In accordance wth some ascertanabe
standard.
Advce s requested whether the vaue of the remander nterest
|n a trust created by the decedent whch passes to charty at the death
of the decedent s wfe, consttutes a deducton from the decedent s
gross estate under secton 12(d) of the Interna Revenue Code where
the trust agreement provdes that the trustee s authorzed and em-
powered to pay from the prncpa of the trust estate to or for the
beneft of the settor s wfe, f she shoud survve hm, such amounts,
f any, as the trustee n ts soe dscreton may from tme to tme deem
necessary for her comfort, support, hospta or medca e penses.
At the date of decedent s death hs wdow, age 79, had substanta
means and an ndependent ncome whch was more than adequate to
take care of her moderate needs.
The queston nvoved s whether the present vaue of the remander
whch charty w receve s ascertanabe wth suffcent accuracy to
permt the deducton under secton 12(d) of the Code and secton
1. of Reguatons 105.
Where the power of nvason s mted by such words as comfort
and support wth no e press standard or mtaton n the w or
nstrument, such words shoud b3 nterpreted as meanng the comfort
and support accordng to the standard of vng en|oyed by the benef-
cary pror to the decedent s death, f such nterpretaton s consstent
wth appcabe oca aw, and other termnoogy n the w or nstru-
ment docs not requre some dfferent nterpretaton. (The ncuson
of the words hospta or medca e penses does not enarge the
power of nvason as hospta and medca care are ncuded wthn the
broad meanng of comfort and support.) If t s consdered that a
standard s f ed by the w or nstrument, there remans for deter-
mnaton the probabty of nvason of corpus for the stated purposes.
If there s very tte or no probabty of nvason, the deducton
shoud be aowed. If the facts ndcate the probabty of nvason
to a mted e tent whch s cacuabe n accordance wth an ascertan-
abe standard, the deducton shoud be dened ony to such e tent.
The trust nstrument n the nstant case mpedy f es a defnte
standard, as the trustee s not authorzed to use prncpa e cept for
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303 pUga. 105, f 1. 7a.
the proper comfort and support of the wdow. As of the date of de-
cedent s death the kehood of any nvason of the prncpa for the
proper comfort and support of the wdow was so remote as to be
neggbe.
In vew of the foregong t s hed that a chartabe deducton under
secton 12(d) of the Interna Revenue Code may be aowed oa
account of bequests or gfts of remander nterests to charty n cases
where the w or nstrument authorzes nvason of corpus for the
comfortabe mantenance and support of fe benefcares f (1) there
s an ascertanabe standard coverng comfort and support whch may
bo ether e press or mped, and (2) the probabty of nvason s
remote or the e tent of the nvason s cacuabe n accordance wth
some ascertanabe standard.
S CTION 12(e). N T STAT : B U STS, TC,
TO SUR I ING SPOUS
Regutons 105, Secton 1. 7a: Bequests, Rev. Ru. 51 16
etc., to survvng spouse.
Decedent and hs wfe were partes to an antenupta agreement
whereunder she renounced and renqushed any marta rghts she
mght acqure n hs property or estate by reason of ther marrage,
and he, n turn, agreed to eave her certan property by w at nU
death. In hs w decedent bequeathed hs wfe property dfferent
from but of a much greater vaue than that to whch she was entted
under the antenupta agreement, specfcay provdng that such
bequests were n eu of any rghts she mght have n and to property of
hs estate under such agreement. Secton 12(b) of the Interna
Revenue Code of 1939 provdes that a renqushment or promsed
renqushment of dower or of statutory estate created n eu of
dower or other marta rghts s not to any e tent a consderaton n
money or money s worth. Accordngy, any cam asserted aganst
the estate by reason of such antenupta agreement w not be aow-
abe as a deducton under secton 12(b) of the Interna Revenue Code.
However, the fu vaue of the nterest gven n satsfacton or n en
of the wfe s rghts under the antenupta agreement s consdered as
havng passed from the decedent to hs survvng spouse. and f such
nterest otherwse satsfes a statutory requrements, the estate ta
marta deducton authorzed by secton 12(e) of the Code w be
aowed.
Reguatons 105, Secton 1. 7a: Bequests, Rev. Ru. 5 -553
etc., to survvng spouse.
Where the proceeds of Insurance on the decedent s fe are tp be
retaned y the Insurer In a snge fund wth Interest thereon pay-
abe to hs wdow durng her fe, the power conferred upon the
wdow under the terms of the nsurance pocy to at any tme wth-
draw a specfed porton of such proceeds dd not of tsef operate to
create a snge or separate fund of the porton of the proceeds over
whch the wdow has a power of appontment so as to quafy the
entre proceeds, or any porton thereof, for the marta deducton
under secton 12(e) (1) (G) of the Interna Revenue Code of 1039.
Advce has been requested whether the marta deducton s aow-
abe wth respect to the proceeds of a contract of nsurance on the
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Regs. 105, 1. 7a.) 30
decedent s fe whch provdes that (1) the proceeds are to be retaned
by the nsurance company n a snge fund and monthy nterest
thereon pad to the survvng spouse durng her fe, wth the power
n the spouse to make one wthdrawa at any tme of an amount not
to e ceed one-haf of the amount retaned by the company, and (2)
upon the death of the wdow the prncpa sum then hed by the n-
surance company s to be pad over n the proportons and n tha
manner specfed to the decedent s chdren.
Secton 12(e) (1) (G) of the Interna Revenue Code of 1939, pro-
vdes for a marta deducton n the case of fe nsurance proceeds
whch are sub|ect to a power of appontment n the decedent s survv-
ng spouse f certan condtons are met Under the provsons of ths
secton, where a property nterest has passed from the decedent n the
form of proceeds hed by the nsurer under a fe nsurance, endow-
ment, or annuty contract, and, under the terms of the contract, the
survvng spouse s entted to nstament or nterest payments and s
aso the donee of a power to appont the proceeds, then not ony the
payments to be made to such spouse but aso the proceeds sub|ect to her
f)ower to appont are consdered to have passed from the decedent to
s survvng spouse for purposes of the marta deducton f the
foowng fve condtons are satsfed: (a) the proceeds must be hed by
the nsurer sub|ect to an agreement ether to pay the proceeds n n-
staments, or to pay nterest thereon, wth a such amounts payabe
durng the fe of the survvng spouse payabe ony to her (u) such
nstaments or nterest must be payabe annuay, or moro frequenty,
commencng not ater than 13 months after the decedent s death (c)
the survvng spouse must have the power, e ercsabe n favor of
hersef or her estate, to appont a amounts hed by the nsurer under
such contract (d) such power n the survvng spouse must be
e ercsabe by such spouse aone and (whether e ercsabe by w or
durng fe) must be e ercsabe n a events and (e) the amounts
payabe under such contract must not be sub|ect to a power n any
other person to appont any part thereof to any person other than the
survvng spouse.
The queston rased n the nstant case s whether the provson n
the nsurance contract nvoved, gvng the survvng spouse the rght
to make one wthdrawa of an amount not to e ceed one-haf of the
amount retaned by the company, satsfes the condton of secton
12(e)(1)(G) of the Code requrng that the survvng spouse be
gven the rght to appont or tace down a the proceeds ed by the
nsurer at nterest.
Secton 1. 7a(d) of Reguatons 105 provdes that f the nterest
of the survvng spouse s n proceeds hed by the nsurer whch do not
represent the entre amount payabe under the contract, the provsons
of secton 12(e) (1)(G) of the Code nevertheess appy to such pro-
ceeds so hed to whch a fve of the condtons set forth n ths secton
appy. As ndcatve of the ntent n ths respect, however, t s
ponted out, by way of e ampe, that the nsurance contract on the
decedent s fe may provde for payment of the proceeds nto two
funds to be hed by the nsurer, and that f a fve of the condtons
referred to are satsfed wth respect to one such fund, then the speca
rue of secton 12(e) (1) (G) s appcabe.
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305 Regs. 105, f 1. 7mA .
The requrements of secton 12(e) (1) (G) of the Code reatng to
the survvng spouse s power of appontment over the proceeds of fe
nsurance whch are retaned by the nsurer, do not dffer from those
of secton 12(e) (1) ( ) of the.Code reatng to the spouse s power
to appont n the case of dspostons n trust. Senate Suppementary
Report No. 1013, Part 2, 0th Congress, 2d sesson, C. B. 19 -1, 331,
at page 3 . or ths reason, the Bame prncpes are appcabe n
determnng whether the spouse s power n the case of dspostons
comng wthn the purvew of ether of these subparagraphs neets
the statutory requrements. In each nstance, the aw and the regua-
tons deang therewth make t cear that the power n the spouse
must e tend to the entre corpus of a snge trust, or, n the case of
fe nsurance proceeds, to the entre amount (whether the whoe or
a specfed porton thereof) hed by the nsurer n a snge fund.
Under the terms of the contract here nvoved, there was no segre-
gaton of the porton or nterest n the proceeds sub|ect to the wdow s
power to appont such as woud consttute a separate or snge fund
n respect of such porton or nterest. The nterest n the nsurance
proceeds whch passed to the decedent s wdow amounted to no more
than a fe estate n the entre amount retaned by the nsurer, to-
gether wth a power of appontment over ony a porton of the prop-
erty so hed, whch s somethng ess than the vrtua ownershp con-
tempated by secton 12(e) (1) (G) of the Code and secton 1. A a(d)
of tno reguatons. The statute requres that the survvng spouse be
gven a the nterest payabe on and the rght to appont the entre
amount of the proceeds hed by the nsurer n one sum for her beneft.
Ths condton s not satsfed by the terms of the contract n ths
case.
In vew of the foregong, t s hed that where, under the terms of
a contract of nsurance, t s provded that the proceeds are to be
retaned by the nsurance company n a snge fund and monthy n-
terest thereon pad to the survvng spouse and n addton the wdow
has tho rght, at any tme, to make one wthdrawa of an amount not
to e ceed one-haf of tho amount retaned by the company, no amount
of tho proceeds quafy for tho marta deducton under secton
12(c) (1) (G) of the Interna Revenue Code,
Reguatons 105, Secton 1. 7a: Bequests,
etc., to survvng spouse.
Reguatons 105 amended. See T. D. 607 , page 2 6.
Reguatons 105, Secton 1. 7a: Bequests,
etc., to survvng spouse.
Reguatons 105 amended. See T. D. 60 2, page 295.
Reguatons 105, Secton 1. 7a (a): Aowance
of marta deducton.
Treatment of fe nsurance poces under communty property
aws of Te as n stuatons nvovng marta deductons. See Rev.
Ru. 5 -272, page 29 .
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Regs. 105, 5 1.9.) .., 306
Reguatons 105, Secton 1. 7b: Nondeduct-
be nterests.
Reguatons 105 amended. See T. D. 60 2, page 295.
S CTION 13(c). CR DITS AGAINST TA : PAID TO
OR IGN COUNTRI S
Reguatons 105, Secton 1.9: Credt for T. D. C0 5
death ta es.
TITL 20 INT RNAL R NU .- CHAPT R I. SUBCHAPT R B, TART 2.
TA ATION PURSUANT TO TR ATI S. SUBPART UNIT D INGDOM
orms used In connecton wth the death duty conventon between
the Unted Stntes and the Unted ngdom procamed by the Pres-
dent of the Unted Sates ou uy 30, 11MG.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. O.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
Secton 2.107(a) of Treasury Decson 55C5 C. B. 19 7-1, 125 ,
approved May 27,19 7 (26 C R, pt. 2, subpart Unted ngdom),
contanng reguatons pursuant to the death duty conventon between
the Unted States and the Unted ngdom s amended as foows:
(A) By nsertng mmedatey at the end of the eghth undesgnated
paragraph thereof (26 C R 2.107(a) ( )) the foowng:
In eu of settng forth the computaton on ths form, the computaton may be
made ou the approprate schedue provded for In such return.
(B) By nsertng mmedatey at the end of the frst sentence of
the tenth undesgnated paragraph thereof (26 C R 2.107(a) (10))
the foowng:
In eu of such form, there may be used for the above purpose, orm 70CC ,
Certfcaton of nymeut of oregn Death Duty.
Because ths Treasury Decson merey amends Treasury Decson
5565 to permt the use of aternate forms n eu of those aready
authorzed, t s found unnecessary to ssue ths Treasury Decson
wth notce and pubc procedure thereon under secton (a) of (he
Admnstratve Procedure Act, approved une 11, 19 6, or sub|ect
to the effectve date mtaton of secton (c) of that act.
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 3791 of the Interna Revenue Code (53 Stat 67 26 U. S. C.
3791) and pursuant to the provsons of the conventon and chapter 3
of the Interna Revenue Code (53 Stat. 119 26 U. S. C. 00 et seq.).)
O. Gordon Dek,
Actng Commssoner of Interna Revenue.
Approved August 5,195 .
M. B. osom,
Actng Secretary of the Tresaury.
( ed wth the Dvson of the edera Regster August 10, 195 , :51 a. m.)
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307 (Regs. 105, S 1.71.
SUBPART II. R TURNS AND PAYM NT O TA
S CTION 21. R TURNS
Reguatons 105, Secton 1.63: When return
requred date of fng.
ecton to use optona vauaton n an amended edera estate ta
return. See Rev. Bu. 5 - 55, page 3 .
S CTION 25. DISCHARG O CUTOR ROM
P RSONAL LIABILITY
Reguatons 105, Secton 1.71: amnaton of T. D. 6101
return and determnaton of ta by the Com-
mssoner.
TITL 20 INT RNAL R NU . CnArT R I, RUncnAIT R B, PABT SL
R GULATIONS R LATING TO HTAT TA
Reguatons 103 amended to provde that requests for dscharge of
e ecutor from persona abty sha be ted wth Dstrct Drectors
of Interna Revenue.
Treasury Department.
Oftce or Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
In order to provde n Reguatons 105 (26 C R, pt 1)-that re-
quests for a determnaton of the estate ta and dscharge from per-
sona abty sha be fed wth the approprate dstrct drector of
nterna revenue, secton 1.71 s amended to read as foows:
Sec. 1.71. amnaton of Return and Determnaton of Tat. (a) As soon
as practcabe after returns are fed, they v be e amned and the amount of
the ta determned under such procedure as may be prescrbed from tme to tme.
(b) The e ecutor may make wrtten appcaton to the dstrct drector of
ntcrnn revenue for the dstrct In whch the return s fed for a determnaton
of the ta and dscharge from persona abty therefor. Wthn one year after
recept of such appcaton, or f the appcaton Is made before the return Is
fed then wthn one year after the return Is fed, the e ecutor w be notfed
of the amount of the ta , and upon payment thereof he w be dscharged from
persona abty for any defcency n the ta thereafter found to be due.
Because the purpose of ths Treasury Decson s merey to chanpe
the pace of fng certan documents, t s found that t s unnecessary
to ssue ths Treasury Decson wth notce and. pubc procedure
thereon under secton (a) of the Admnstratve Procedure Act,
approved uno 11, 19 6, or sub|ect to the effectve date mtaton of
secton (c) of sad act.
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Regs. 10 , .1. 30
(Ths Treasury Decson s ssued under the authorty contaned n
secton 3791 of the Interna Revenue Code of 1939 (63 Stat 67
26U.S.C.3791).)
T. Coeman Andrews,
Commssoner of Interna Revenue,
Approved September 13,195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 10,195 , : 9 a. m.)
PART n. STAT S O NONR SID NTS NOT CITIZ NS O TH UNIT D STAT S
S CTION 62. PROP RTY WITHIN TH UNIT D STAT S ,
Reguatons 105, Secton 1.50: Stus of prop-
erty.
Shares of stock n Canadan corporaton havng ts stock transfer
offces ocated n the Unted States. See Rev. Ru. 5 - 07, page 657.
S CTION 63. PROP RTY WITHOUT TH UNIT D
STAT S
Reguatons 105, Secton 1.50: Stus of
property. .
Dstrbuton of earnngs by New York mutua savngs banks pad
to a nonresdent aen. See Rev. Ru. 5 -323, page 1 .
Reguatons 105, Secton 1.50: Stus of
property.
Dstrbuton of earnngs by a edera savngs and oan assocaton
pad to a nonresdent aen. See Rev. Ru. 5 - 52 , page 16.
CHAPT R GI T TA
S CTION 1000.-IMPOSITION O TA
Reguatons 10 , Secton 0.1: Imposton T. D. 6077
of ta .
(Aso Sectons 6.2, 6.3.)
TITL 26 INT RNAL R NU . CHAPT R I, SUBCHAPT R B, PART 0. GI T
TA UND R CHAPT R O TH INT RNAL R NU COD , AS AM ND D
Reguaton 10S amended to conform to the rowers of Appont-
roent Act of 1951.
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309 (Begs. 10 , 0.1.
Treasury Department,
Oma op Commssoner of Interna Revenue,
Washngton 25y D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On August 5,1953, notce of proposed ruemakng -wth respect to
amendments to conform the gft ta reguatons to sectons 1 and 3
of the Powers of Appontment Act of 1951, approved une 2 ,1951,
was pubshed n the edera Regster (1 . R. 602). After con-
sderaton of such reevant suggestons as were presented by nterested
persons regardng the proposas, the foowng amendments to Regu-
atons 10 20 C R, pt. 6 are hereby adopted:
Paragraph 1. Secton 52 of the Revenue Act of 19 2 and a statu
tory nrovsons amendng such secton whch precede secton G.1 are
hereby deeted.
Par. 2. There s nserted mmedatey precedng secton 6.1 tb
foowng:
S C. 52. POW RS OP APPOINTM NT R NU ACT O 19 2.
APPRO D OCTOB R 21, 10 2 .

(b) Powers Wth Respect to Whch Amendments Not Am-
CABL .

(2) The amendments made by ths secton sba not become
appcabe wth respect to a power to appont created on or before
the date of enactment of ths Act, whch Is e ercsabe n favor of
the donee of the power, hs estate, hs credtors, or the credtors of
hs estate, f at such date the donee of such power s under a ega
dsabty to reease such power, unt s months after the termna-
ton of such ega dsabty. or the purposes of the precedng
sentence, an ndvdua n the mtary or nava forces of the Unted
States sha, unt the termnaton of the present war, be consdered
under a ega dsabty to reease a power to appont

PUBLIC LAW 53 (S2d CONG.) a B. 1051-2, 3 3 ,
APPRO D UN 2 ,1051
Be t enacted by the Senate and House of Representatve of the Unted
States of Amerca n Congress assembed. That ths Act may be cted as
the Powers of Appontment Act of 1051.

S C. 3. GI T TA POW RS O APPOINTM NT.
(a) Secton 1000(c) of the Interna Revenue Code (reatng to powers
of appontment) s hereby amended to read as foows:
(c) Powras or Appontment.
(1) ercse or genera poweb or appontment cheated on ob
before October 21,10 2. An e ercse of a genera power of appont-
ment created on or before October 21,1012, sha be deemed a trans-
fer of property by to ndvdua possessng such power but the
faure to e ercse such n power or the compete reease of such
a | )wer sn not be deemed A n e ercse thereof.
If before November 1, 1051, or wthn the tme mted by para-
graph (2) of secton 52(b) of the Revenue Act of 10 2, as amended.
In cases to whch such paragraph s appcabe, a genera power of
appontment created on or before October 21,10 2, sha have been
partay reensed so that t Is no onger a genera power of appont-
ment, the subsequent e ercse of such power sha not be deemed to
be the e ercse of a genera power of appontment.
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Regs. 10 , 3.1.1 310
(2) Powers cheated after October , 10 . The e ercse of
a genera power of appontment created after October 21, 19 2, or
the reease after May 31,1051, of such a power, sha be deemed a
transfer of property by the ndvdua possessng such power. A
dscamer or renuncaton of such a power of appontment sha not
be deemed a reease of such power.
(3) Dewmto or genera power or appontment. or the
purposes of ths subsecton the term gener . power of appontment
means a power whch Is e ercsabe n fav.r of the Indvdua pos-
sessng the power (hereafter In tbs paragraph referred to as the
possessor ), bs estate, hs credtors, or the credtors of hs estate
e cept that
(A) A power to consume, Invade, or approprate property
for the beneft of the possessor whch Is mted by an ascer-
tanabe standard reatng to the heath, educaton, support, or
mantenance of the possessor sha not bo deemed a genera
power of appontment.
(B) A power of appontment created on or before October
21, 19 2, whch Is e ercsabe by the possessor ony In con|unc-
ton wth another person sha not be deemed a genera power of
appontment.
(C) In the case of a power of appontment created after
October 21, 19 2, whch Is e ercsabe by the possessor ony n
con|uncton wth another person
(1) If the power s not e ercsabe by the possessor e -
cept n con|uncton wth the creator of the power such
power sha not be deemed a genera power of appontment
(II) f the power ts not e ercsabe by the possessor e -
cept n con|uncton wth a person havng a substanta
nterest, n the property sub|ect to the power, whch Is ad-
verse to e ercse of the power n favor of the possessor-
such power sha not be deemed a genera power of appont-
ment. or the purposes of ths cause a person who, after
the death of the possessor, may be possessed of a power of
appontment (wth respect to the property sub|ect to the
possessor s power) whch he may e ercse In hs own favor
sha be deemed as havng an Interest In the property and
such Interest sha be deemed adverse to such e ercse of
the possessor s power
(111) f (after the appcaton of causes (1) and (II))
the power s a genera power of appontment and Is e er-
csabe In favor of such other person such power shn be
deemed a genera power of np ontment ony In respect of
a fractona part of the property sub|ect to such power, such
part to be determned by dvdng the vaue of such prop-
erty by the number of such persons (ncudng the posses-
sor) In favor of whom such power Is e ercsabe.
or the purposes of causes (II) and (111) a power sha he
deemed to be e ercsabe In favor of a person f It Is e ercsabe
In favor of such person, hs estate, hs credtors, or the credtors
of hs estate.
( ) Creaton or another power n certan cases. If a power
of appontment created after October 21,19 2, Is e ercsed by creat-
ng another power of appontment whch under the appcabe oca
aw can be vady e ercsed so ns to postpone the vestng of any
estate or nterest In the property whch was sub|ect to the frst
power, or suspend the absoute ownershp or power of aenaton of
such property, for a perod ascertanabe wthout regard to the date
of the creaton of the frst power, such e ercse of the frst power
sha, to the e tent of the property sub|ect to the second power, be
deemed a transfer of property by the ndvdua possessng such
power.
(5) Lapse or power. The apse of a power of appontment cre-
ated after October 21, 19 2, durng the fe of the Indvdua pos-
sessng the power sha be consdered a reease of such power. The
rue of the precedng sentence sha appy wth respect to the apse
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311 Regs. 10 . A 6.1.
of powers darng any caendar year ony to tbe e tent that the prop-
erty whch coud hare been apponted by e ercse of such apevd
powers e ceeds In vaue the greater of the foowng amounts:
(A) 3,000, or
(B) 0 per centum of the aggregate vaue of the assets out
of whch, or the proceeds of whch, the e ercse of the apsed
powers coud be satsfed.
(b) Patk or Crkaton op Power. or the purposes of Os secton a
power of appontment created by a w e ecuted on or before October
21, 11) 2, sha be consdered a power creRted on or before such dnte If
the person e ecutng such w des before uy 1, 10 0. wthout havng
repubshed such w, by codc or otherwse, after October 21, UM
(c) rr cnv Date. The amendments made by ths secton sn be
effectve ns If nne by secton . A 2(n) of the Revenue Act of 111 2 on the
dnte of Its enactment (nppcnbe wth respect to gfts made n tbe ca-
endar year 10 3 and succeedng caendar years).
Par. 3. Secton C.1, as amended by Treasury Decson 5 33 C. B.
1951-1, 3 , approved March , 1951, s further amended as foows:
(A) By strkng the word The at the begnnng of the second
sentence and nsertng n eu thereof In genera, the and
(B) Iy strkng from such second sentence the porton begnnng
reenses before uy 1,1951 , and endng Revenue Act of 19 2 and
nsertng n eu thereof the foowng: reeases before une 1. 1951,
of powers to appont created after October 21,19 2, and reeases before
November 1,1951, of powers to appont created on or before October
21,1912.
Par. . Secton 6.2(6), as amended by Treasury Decson 5 11
C. B. 1950-2, 76 , approved October 5,1950, s further amended to
read as foows:
( ) Transfers under potcer of appontment. (1) In genera. Sub|ect to the
rues prescrbed herenafter, secton 1000(c) of the Interna Revenue Code
treats as a ta abe gft the e ercse after December 31.10 2, of a genera power
of appontment created on or before October 21, 10 2. Those provsons aso
treat as ta abe gfts the e ercse after December 31, 10 2, of a genera power
of appontment, or the compete reease after May 31, 1051, of a genera power
of appontment created after October 21, 10 2, and the e ercse of a power of
appontment created after October 21,10 2, by the creaton of another power of
appontment. Specfc rues appcabe to certn powers created on or before
Oetobcr 21, 10 2, are contaned In subparagraph ( ) of ths paragraph and
subparagraph ( ) contans the rues appcabe to powers created after Octo-
ber 21, 1 2. ccc rues reatng to the e ercse of powers created after
October 21,10 2, by the creaton of another power are contaned n subparagraph
(C) of ths paragraph. Subparagraph (7) contans rues In respect of the e er-
cse of a power after une 0, 1032, and before anuary 1, 10 3.
(2) Poccr of appontment. The term power of appontment Incudes a
powers whch are n substance and effect powers of appontment regardess of
the nomencature used In creatng the | owcr and regardess of oca pro|erty aw
connotatons. or e ampe. If a transfer In trust provdes that a benefcary
may approprate or consume the prncpa of the trust, such power to consume
or approprate Is a power of appontment. Smary, a power gven to a donee
to ater, amend, revoke or termnate a trust Is a power of ap ontncnt. If the
communty pro erty aws of a state confer upon the wfe a power of testamen-
tary dsposton over procrty n whch she docs not have n vested nterest she s
consdered ns havng a |ower of appontment. A power In the possessor to re-
move or dscharge n trustee and appont hmsef may be a power of appontment.
or e ampe. If under the terms of a trust, tbe trustee or hs successor has the
power to appont the prncpa of the trust for the beneft of ndvduas Incudng
hmsef, and nnother person has the unrestrcted power to remove or dscharge
tbe trustee at any tme and appont hmsef, such other person w be consdered
as possessng a power of appontment. On the other hand, the mere power of
management. Investment, or custody of assets, or the power to aocate recepts
and dsbursements as between Income and prncpa, e ercsabe In a fducary
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Regs. 10 , 6.1.1 312
capacty whereby the boder of the power has no power to enarge or shft any
of the benefca Interests theren Is not a power of appontment. arther, the
rght In a benefcary of a trust to assent to a perodc accountng thereby
reevng the trustee from farther accountabty s not a power of appontment
f such rght of assent does not consst of any power or rght to enarge the
benefca nterests of any benefcary theren.
or the purposes of ths secton, the term power of appontment does not
appy to a power reserved drecty or ndrecty, by a donor upon a transfer,
as dstngushed from a donated power of appontment receved from another
person. See secton 6.3 wth respect to the ta abty of reserved powers.
No provson of secton 1000(c) or of ths secton s to be construed as n
any way mtng the appcaton of any other secton of the Interna Revenue
Code or of these reguatons. or e ampe, f under the terms of a trust A s
gven the ncome for fe and the power to appont the entre trust property
by deed durng her fetme to a cass consstng of her chdren nud the further
power to appont the entre trust property by w to anyone ncudng her estate
and A e ercses the Inter vvos power In favor of her chdren, she s consdered
to effectunte a transfer of her Income Interest whch consttutes a ta nbe gft
under secton 1000(a). Ths transfer aso resuts In a renqushment of her
genera power to appont the property by w. In case the power was created
nfter October 21, 11) 2, such a transfer. If occurrng after Iuy 31, 1031, const-
tutes a tn be gft under secton 1000(c).
Where a power of appontment e sts as to ony part of an entre group of
assets or ony n respect of a mted Interest n property, ths secton sha
appy ony to such pnrt or Interest.
A power of appontment s e ercsed where the property sub|ect thereto Is
apponted to the tnker In dcfnut of appontment, regardess of whether or not
the apponted Interest nnd the Interest n defaut are enten, and regardess
of whether or not the appontco renounces any rght to tko under the appont-
ment.
(3) Genera power of appontment. or the purposes of ths secton the
term genera power of appontment, e cept ns mted herenafter, means any
power of appontment e ercsabe n favor oc the person possessng the power
(referred to as the possessor ), bs estate, hs credtors, or the credtors of hs
estate. A power of appontment e ercsabe to meet the estate ta , and any
other ta es, debts and charges whch nre enforceabe aganst the possessor or hs
estate s Incudbe wthn the meanng of a power of appontment e ercsabe
n favor of the possessor, hs credtors, hs estate or the credtors of bs estate.
A power of appontment e ercsabe for the purpose of dschargng a ega
obgaton of the possessor or for hs pecunary beneft Is consdered a power of
appontment e ercsabe n favor of the possessor or hs credtors. However, for
the purposes of ths secton, a power of appontment not otherwse consdered to
be a genera power of appontment s not treated as a genera power of appont-
ment merey by reason of the fact that an appontee may, n fact, be a credtor
of the possessor or hs estate.
A power to consume, nvade, or approprate property for the beneft of the
possessor whch s mted by an ascertanabe standard reatng to heath,
educaton, support, or mantenance, sha not be deemed a power of appontment.
Whether a power Is mted by an ascertanabe standard w be determned by
appyng the prncpes foowed n ascertanng the e tent to whch, f any, a
transfer to a trust for both prvate and chartabe purposes s aowabe as a
deducton under secton 100 (a) (2). A power to consume, nvade, or approprate
property for cpmfort, peasure, desre, or happness, s not a power mted by an
ascertanabe standard.
( ) Genera poeert of appontment created on or orfore Octoocr t, 10)2.
In the case of a genera power of appontment created on or before October 21,
M2, secton 1000(c) appes ony f the power s e ercsed. Secton
1000(c)(3)(B) provdes that a power created on or before October 21, 19 2,
whch s e ercsabe by the possessor ony In con|uncton wth another person,
sbn not be deemed a genera power of appontment. See subparagraph (3) for
defnton of a genera power of appontment. The faure to e ercse such a
power or the compete reease at any tme of such a power Is not deemed to be
an e ercse thereof.
If. at the tme he renqushes a genera power of appontment (or at any
enrer date), the possessor e ercses a power In such a manner or to such an
e tent thnt the renqushment resuts n the reducton, enargement, or shft n
the benefca Interests In property, such renqushment w be consdered to
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313 Regs. 10 , 6 .
be an e ercse and not a reease of a power. or e ampe, assume fat A
created a trust In 10 0 provdng for payment of the ncome to B far fe wts
the power In B to ater or amend thetrust, and for payment of the remander
to such persons as B sha appont or, upon defaut of appontment, to C If B
amended the trust n 10 by provdng that upon bs death the remander ws
to be pad to C, and further amended the trust n 1030 by deetng hs power to
ater or amend the trust, the renqushment w be consdered an e ercse and
not a reease of a genera power of appontment On the other hand, f B a
10 merey amended the trust by changng the pure mnstera powers of tA
trustee, hs renqushment of the power n 1950 w be consdered as a reease
of a power of appontment
If a genera power of appontment Is partay reeased so that t s not there-
after a genera power of appontment a subsequent e ercse of such parta :r
reeased power sha not be deemed the e ercse of a genera power of appont:oeat
f such parta reease occurs pror to whchever Is the ater of the foown
dates:
(I) November 1,1051
(II) If the decedent was under a ega dsabty to reease such power on
October 21, 10 2, the day after the e praton of 0 months foowng the
termnaton of such dsabty.
However, If the genera power Is partay reeased on or after November 1. 1951
(e cept where such parta reease Is effected wthn the perod of 6 months fo-
owng the termnaton of the ega dsabty referred to In the precedng sen-
tence), and Is thereafter e ercsed, such e ercse w consttute the e ercse of
a genera power of appontment.
The ega dsabty referred to Is determned under oca aw and may ncude
tho d ty of an Insano person, a mnor, or an unborn chd. The fuct that
tho typo of genera power of appontment possessed by the hoder of the power
actuay wn.s not generay recasuhe under the oca aw does not pace the
possessor under a ega dsabty wthn the meanng of ths subdvson.
In genera. It Is assumed that a genera powers of appontment are reeasabe
uness the oca aw on the sub|ect Is to the contrary, and It Is presumed that
the method empoyed to reease the power s effectve, uness It s not n accord-
ance wth oca aw reatng specfcay to reease or, n the absence of snch oca
aw. Is not In accordance wth oca aw governng smar transactons.
or purposes of secton 1000(c), a power to appont created by a w e ecuted
on or before October 21, 10 2, sha be consdered a power created on or before
such date f the person e ecutng such w ded before uy 1, 10 0, wthout
havng repubshed such w, by codc or otherwse, after October 21.19 2.
(3) Genera potcer of appontment created after October II, I9 2. (I) In
genera. Under secton 1000(c) (2), the e ercse of a genera power of appont-
ment created after October 21, 10 2, or the reease of such a power after May
SI, 1951, If such e ercse or reease Is made wthout adequate and fu consdera-
ton In money or money s worth, consttutes a gft by the possessor of the power.
or defnton of a genera power of appontment, see subparagraph (3). or
treatment of ont powers, see (11) beow.
(II) ont powcr created after October SI, 19 2. The foowng rues sha
appy wth respect to a power of appontment created after October 21, 19- 2,
whch Is e ercsabe ony In con|uncton wth another person.
(A) Such a power sha not be consdered as a genera power of appont-
ment If t s not e ercsabe by the possessor e cept wth the consent or
onder of the creator of the power.
(B) Such a power sha not be consdered as a genera power of appont-
ment If It Is not e ercsabe by the possessor e cept wth the consent or
onder of a person havng a substanta Interest In the property sub|ect to
the power whch Is adverse to the e ercse of the power n favor of the
possessor, hs estate, hs credtors, or the credtors of hs estate. A taker
n defaut of appontment has an nterest whch s adverse to such an e er-
cse. A cohoder of the power has no adverse Interest merey because of hs
ont possesson of the power nor merey because be Is a permssbe appontee
under a power. However, a cohoder of a power s consdered as havng an
adverse Interest where he may possess the power after the possessor s death
and may e ercse It at that tme In favor of hmsef, hs estate, hs credtors,
or the credtors of hs estate. Thus, for e ampe. If , T, and Z hod a
power onty to appont among a group of persons whch ncudes them-
seves and on the death of the power w pass to Y and Z onty, then
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Regs. 10 . 6.1. 31
Y and Z are consdered to. hare Interests advent to the A ercse of the
power In fnvor of .
(C) A power whch a e ercsabe ony In con|uncton wth another per-
son and whch after appcaton of the rues set forth n (A) and (II) of
ths subparagraph, consttutes a gcncrn power of appontment w be
treated as though the hoders of the power who are permssbe appontees
of the property were ont owners of property sub|ect to the power. The
possessor, under ths rue, w be treated as possessed of a genera power
of appontment over an aquot share of the property to be determned wth
reference to the number of ont hoders, ncudng the possessor, who (or
whose estates or credtors) are permssbe appontees. Thus, for e ampe,
If , T, nnd Z hod an unmted power onty to appont among a group
of persons. Incudng themseves, but on the death of the power does not
pass to Y nnd Z onty, then Y and Z are not consdered to have Interests
adverse to the e ercse of the power n favor of . In ths ense, s con-
sdered to possess a genera power of appontment as to one-thrd of the
property sub|ect to the power.
(H) Rccatct and apses of genera poteen of appontment. The genera
prncpes set forth In secton 6.3(a) for determnng whether a donor of prop-
erty has dvested hmsef of the property to the e tent necessary to effect a
competed gft are appcabe In determnng whether a parta reease of a power
of appontment consttutes a ta abe gft. Thus, f a genera power of appont-
ment s partay reeased so that thereafter the donor may st appont among
a mted cass of persons not Incudng hmsef such parta reease does not
effect a competed gft, snce the possessor of the power has retaned the rght
to desgnate the utmate benefcares of the property over whch he hods the
power nnd snce It s ony the termnaton of such contro whch competes a
gft. If a genera power of appontment created after October 21, 10 2, s par-
tay reeased pror to une 1, 1951, so that thereafter t Is no onger a genera
power of appontment, the subsequent e ercse or reease thereof w not con-
sttute the e ercse or reease of a genera power of appontment for purposes
of gft ta . If a genera power created after October 21, 19 2, Is partay re
eased nfter May 31, 1951, the subsequent e ercse or reease thereof w con-
sttute the e ercse or reease of a genera power of appontment for purposes
of gft ta .
In genera, a reease of a power of appontment, need not be forma or e -
press In cbnracter. or e ampe, the faure to e ercse a power of appont-
ment created after October 21, 19 2, wthn a specfed tme, so that the power
apses, consttutes a reease of the power. However, secton 1000(c)(5) pro-
vdes that such a apse sha be consdered as a reease so as to be sub|ect to
ft ta ony to the e tent that the property whch coud have been apponted
by e ercse of the power e ceeds the greater of (A) 5,000, or (B) C percent
of the aggregate vaue at the tme of the apse of the assets out of whch, or
the proceeds of whch, the e ercse of the npsed powers coud be satsfed.
Thus, for e ampe, t an Indvdua has a noncumuatve rght to wthdraw
10,000 a year from the prncpa of a trust fund, the faure to e ercse ths
rght of wthdrawa n a partcuar year w not consttute a gft If the fund
ot the end of such year equas or e ceeds 200,000. However, If at the end of
the pnrtcunr year the fund shoud be worth ony 100,000, the faure to e er-
cse the power w be consdered a gft to the e tent of 5,000, the e cess of
10,000 over 5 percent of a fund of 100,000. Where the faure to e ercse
the power, such as the rght of wthdrawa, occurs n more than a snge year,
the vaue of the ta abe transfer w be determned separatey for each year.
A dscamer or renuncaton of a genera power of appontment Is not con-
sdered to be a reease of the power. The dscamer or renuncaton must be
unequvoca and effectve under oca aw. A dscamer s a compete nnd
unquafed refusa to accept the rghts to whch one Is entted. Such rghts
refer to the Incdents of the power and not to other Interests of the possessor
of the power n the property. If effectve under oca aw, the power may e
dscamed or renounced wthout dscamng or renouncng such other Interests.
There can be no dscamer or renuncaton of a power after ts acceptance.
In the absence of facts to the contrary, the faure to renounce or dscnm
wthn a reasonabe tme after earnng of Its e stence w be presumed to
consttute an acceptance of the power.
(O) .Successve pocc . Secton 1000(c)( ) provdes for the Imposton of
gft tn on the vaue of property wth respect to whch a power of appontment
(whether or not a genera power) created after October 21, 19 2, Is e ercsed
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315 Regs. 10 6.3.
by creatng another power of appontment whch under the appcabe oca aw
can be vady e ercsed so as to postpone the Testng of any estate or Interest
n the property whch was sub|ect to the frst power, or suspend tho ab uut
ownershp or power of aenaton of such property, for a perod ascertanabe
wthout regard to tho date of the creaton of the trst power. or purposes of
secton 1 h (c) ( ), the vaue of the property sub|ect to the second power sha
be consdered to be such vaue unreduced by any precedent or subsequent Interest
whch Is not sub|ect to such second power. Thus f a donor has a power to
appont 100,000 among a group consstng of hs chdren or grandchdren
and durng hs fetme e ercses such power by makng an outrght appontment
of 75,000 nnd by gvng one appontee a power to appont 5,000, no more
thnn 23,000 w bo consdered n gft under secton 1000(c) ( ). If, however,
the donor apponts the Income from the entre fund to a benefcary for fe
wth power In the benefcary to appont the remnnder, the entre 100,000 w
be consdered a gft under secton 1000(c) ( ) If the e ercse of the second power
can vady postpone the vestng of any estate or nterest n such property or
can suspend the absoute ownershp or power of aenaton of such property for
a perod ascertanabe wthout regard to the date of the creaton of the frst
power.
(7) crce of certan pooert after une 6, 19S2, and ocfore anuary 1,
1S 3. The e ercse of a power of appontment after une 6, 1932, and before
anuary 1, 10 3, consttutes a gft by the ndvdua possessng the power If the
power Is e ercsabe In favor of any person or persons In the dscreton of such
ndvdua, or, however mted as to the persons or ob|ects n whose favor the
appontment may be made, f t Is e ercsabe n favor of the ndvdua possessng
the power, hs estate, bs credtors, or the credtors of hs estate.
Par. 5. Secton 6.3a (a) s amended by nsertng n (3) of the
second paragraph thereof mmedatey precedng power of appont-
ment the wora genera.
(Ths Treasury Decson s ssued under the authorty contaned
n sees. 1029 and 3791 of the Interna Bevenue Code (53 Stat 157,
67 26 U. S. C. 1029,3791).) .
T. Coeman Andrews,
Commssoner of Interna Revenue,
Approved uy 7,195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster, uy 13,195 , : 7 a. m.)
Reguatons 10 , Secton 6.2: Transfers
reached.
eguatons 10 amended. See T. D. 6077, page 30 .
muatons 10 , Secton 6.2: Transfers
reached.
eguatons 10 amended. See T. D, 60 2, page 295.
Reguatons 10 , Secton 6.3: Cessaton ev. Bo 5 -3 2
of donor s domnon and contro.
An rrevocabe trust agreement provded that the trustees sha pay
the net ncome to the grantor for her fe and upon her death they
33SU SB 21
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Begs. 10 , 6.3. 316
sha pay the then prncpa of the trust to or for the beneft of certan
desgnated persons and to regous, chartabe, scentfc, terary, or
educatona corporatons, trust funds or foundatons n such amounts
as the grantor may by her ast w appont Durng the fetme of
the grantor the trustees are authorzed to pay her so much or a of
the prncpa as they may n ther soe and absoute dscreton deter-
mne. Hed, snce the grantor retaned fu rght to a the ncome
and the further rght to drect by her ast w and testament the
dsposton of the prncpa, the transfer effected under the terms of
the trust n queston dd not resut n a competed gft sub|ect to
ncuson for edera gft ta purposes wthn the purvew of secton
1000 of the Interna Revenue Code. See state of Chares Henry
Sanford v. Commssoner, 30 U. S. 39, Ct D. 1 26, C. B. 1930-2,3 0.
Reguatons 10 , Secton 6.3: Cessaton of Rev. Ru. 6 -537
donors domnon and contro.
Under the terms of a transfer n trust the rght to revoke s sub|ect
to a condton whch can be accompshed through the e ercse of an
act wthn the contro of the grantor. Hed, the transfer consttutes
an ncompete gft wthn the purvew of secton 6.3 of Gft Ta
Reguatons 10 nasmuch as the grantor possesses the power to revest
the benefca tte to the property n hmsef.
Reguatons 10 , Secton 6.3: Cessaton Rev. Ru. 5 -53
of donor s domnon and contro.
A gft In trust s not rendered whoy Incompete merey because
the trustee s authorzed to use ncome and corpus, f necessary,
for the donor s support n a case where a donor conveys a of hs
ncome-producng property n trust drectng the trustee to pay to
the donor such porton of the ncome and corpus as the trustee n
ts soe dscreton sha deem necessary for the support of the
donor durng hs fe and upon the donor s death to dstrbute the
corpus and accumuated Income to hs chdren, per strpes. The
amount requred annuay for the donor s support accordng to bs
accustomed mode of vng may be ascertaned and vaued as an
annuty. The vaue of the gft s the vaue of the transferred prop-
erty ess the vaue of the donor s retaned support rghts.
Advce s requested reatve to the e tent to whch the Interna
Revenue Servce w foow the decson n Chrstanna . Gramm v.
Commssoner, 17 T. C. 1003, acquescence C. B. 1952-1, 2, n a stua-
ton where a donor conveys a of hs ncome-producng property n
trust drectng that the trustee s to pay to the donor such porton of
the ncome and corpus as the trustee n ts soo dscreton sna deem
necessary for the support of the donor durng hs fe and upon the
donor s death to dstrbute the corpus and accumuated ncomo to h3
chdren, per strpes.
In the case of Chrstanna . Gramm v. Commssoner, supra, the
donor created a trust of a of her property havng a vaue of S3,000,
reservng the ncome to hersef for fe. The corporate trusteo was
authorzed to nvade the corpus for the comfort, educaton, mante-
nance or support of the donor. In hodng that no competed gft was
made, the Ta Court sad, n part:
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317 Regs. 10 , 6 .
Sums whch decedent mght hare requred for her comfort, for e ampe,
were Incapabe of determnaton or cacuaton at the tme of the creaton of the
trust. The corpus was In medum amount (about S3,000) so that It was possbe
the corporate trustee woud hare to Invade the corpus for her beneft. Numerous
stuatons can be magned where such woud be done for decedent s comfort.
such as the purchase of a house In whch she mght re, the necessty of move
to a dfferent cmate because of her heath, or Iness entang arge e penses
for doctors, nurses, hosptas.
It s the poston of the Interna Revenue Servce that the decson
of the Ta Court hodng the entre gft ncompete was based on the
assumpton that n vew of the sma amount of corpus and the resut-
ng sma annua ncome, substanta nvason of the corpus was very
probabe and, accordngy, the decson s not contrary to the decsons
n Uurburt W. Smth v. Shaughnessy, 31 U. S. 176, Ct D. 1575, C. B.
19 3,11 , and Afeta Bdde Robnette. et a. v. Heverng, 31 U. S.
1 , Ct D. 157 , C. B. 19 3,11 1. The aw of those cases s that where
a donor transfers property retanng a reversonary nterest whch s
capabe of vauaton by recognzed actuara methods, the vaue of the
retaned nterest shoud be e cuded from the gft, but where the vaue
of the reversonary nterest s not susceptbe of vauaton by recog-
nzed actuara methods, the entre gft s compete. In the Gramm
case the court sad that such sums whch the donor mght have re-
quested for her comfort were ncapabe of determnaton or cacua-
ton at the tme of the creaton of the trust.
There s no ndcaton that the court ntended that ts decson n the
case of Chrstanna . Gramm v. Commssoner, supra, shoud be
consdered to be n confct wth the decded cases. The decson,
though seemngy contrary to decded cases, shoud be vewed n the
ght of the unusua and partcuar facts n the case, The acquescence
s mted to the aw as apped to the facts found by the Ta Court.
In vew of the foregong, t s hed that a gft n trust s not rendered
whoy ncompete merey because the trustee s authorzed to use
ncome and corpus, f necessary, for the donor s support n a
case where a donor conveys a of hs ncome-producng property n
trust drectng the trustee to pay the donor such porton of the ncome
and corpus as the trustee n ts soe dscreton sha deem necessary
for the support of the donor durng hs fe and upon the donor s death
to dstrbute the corpus and accumuated ncome to hs chdren, per
strpes. The amount requred annuay for the donor s support ac-
cordng to hs accustomed mode of vng may be ascertaned and
vaued as an annuty. See Ithaca Trust Co. v. Unted States, 279 U. S.
151. Ct D. 59, C. B. III-1,313 and Bhdgett et a v. Deaney, 201
ed. (2d) 5 9. The vaue of tho gft s the vaue of the transferred
property ess the vaue of the donor s retaned support rghts.
Reguatons 10 , Secton 6.3: Cessaton Rev. RuL 5 -55
of donor s domnon and contro.
(Aso Secton 1005, Secton G.19.)
Where tho donor endorses a certfcate of stock n favor of a donee
and physcay devers the certfcate to the donee or the donee s
agent, tho gft s competed for gft ta purposes on the date of
devery, even though the donee does not present the stock certfcate
to the corporaton for transfer on ts books unt a ater date, Ac-
G
e
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egs. 10 , 6. . 31
cordngy, the vaue of such stock for gft ta purposes s the far
market vaue thereof, determned under the provsons of secton
6.19 (c) of Reguatons 10 , as of the date of devery to the donee or
hs agent See Rev. RuL 5 r-135, C. B. 195 -1,129, reatve to the gft
ta consequences of devery of an endorsed certfcate of stock by the
donor to hs bank or broker wth the ntent to effect a transfer of the
stock to the donee.
R GULATIONS 10 , S CTION C.3: Cessaton
of donor s domnon and contro.
Reguatons 10 amended. See T. D. G077, page 30 .
S CTION 1002. TRANS R OR L SS THAN AD UAT
AND ULL CONSID RATION
R GULATIONS 10 , S CTION 6. : Transfers Rev. Ru. 5 r-3 3
for a consderaton n money or money s
worth.
Medca and hospta bs pad by n ta payer for hs adut son
and vng e penses advanced to the son s famy, Incudng monthy .
payments to cover the mortgage on the son s resdence and automo-
be, for no consderaton other than the ta payer s ove and nffcc-
. ton, consttute gfts wthn the meanng of secton 1002 of the
Interna Revenue Code.
Advce s requested whether medca and hospta bs pad by a
ta payer for hs adut son and vng e penses advanced to the son s
famy, ncudng monthy payments to coyer the mortgage on tho
son s resdence and automobe, for no consderaton other than ove
and affecton, consttute gfts for the purpose of the edera gft ta .
In the nstant case, the father has no responsbty for the support of
hs adut son.
Secton 1002 of the Interna Revenue Code reads as foows:
Where property Is transferred for ess than an adequate and fu consderaton
In 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 Imposed
by ths chapter chapter of the Code , be deemed a gft, and sha be Incuded
In computng the amount of gfts made durng the caendar year.
Secton 6. of Reguatons 103 provdes n pertnent part that the
transfers reached by the statute are not confned to those ony whch,
beng wthout a vauabe consderaton, accord wth the common aw
concept of gfts, but embrace as we saes, e changes, and other ds-
postons of property for a consderaton n money or money s worth
to the e tent that the vaue of the property transferred bv the donor
e ceeds the vaue of the consderaton gven therefor, however, a
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.
Accordngy, t s hed that medca and hospta bs pad by a
ta payer for hs adut son and vng e penses advanced to the son s
, famy, ncudng monthy payments to cover the mortgage on the
son s resdence and automobe, for no consderaton other than the
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319 (Regs. 10 . 6.11.
ta payer s ove and affecton, consttute gfts wthn the meanng of
secton 1002 of the Interna Revenue Code. . . .
S CTION 1003. N T GI TS
P CULATIONS 10 , S CTION 6.11: uture nter- Rev. RnT. M 311
ests n property.
A gft of the present rght to en|oy the Income from a trust for
perod of yeara or for fe w not be hed to be a future Interest
soey because of the Incuson In the trust Instrument of a provson
or cause whch prohbts the Income benefcary from aenatng,
assgnng or otherwse antcpatng such Income.
Advce s requested whether the ncuson n a trust nstrument of
s spendthrft cause prohbtng the ncome benefcary from aenat-
ng, assgnng, or otherwse antcpatng the ncome, w resut n the
gft of the present rght to the ncome from the corpus of the trust
beng consdered as a future nterest wthn the meanng of secton
6.11 of the Gft Ta Reguatons.
Secton 6.11 of Reguatons 10 provdes n part that no part of
the vaue of a gft of a future nterest may be e cuded n determnng
the tota amount of A fts made durng the caendar year. uture
nterests , as defned n such secton of the reguatons, ncudes rever-
sons, 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.
A gft of the present rght to en|oy the ncome from a trust corpus
for a perod of years or for fe w not bo hed to bo one of a future
nterest n property soey because of the ncuson of a provson or
cause whch prohbts the ncome benefcary from aenatng, assgn-
ng or otherwse antcpatng such ncome. See Mary . Chares v.
Iassett, 3 ed. Supp. 32 . zabeth H. sher v. Commssoner, 5
13. T. A. 05 , acquescence, C. B. 19 2-1, 6, affrmed 132 ed. (2d) 3 3.
Where a donor transfers property n trust to pay the ncome there-
from to a named benefcary for a term of years or for fe, and there
e sts no dscreton n the trustees nor any other factor whch make
uncertan or postpones the mmedate en|oyment of the ncome, there
s a gft of a present nterest n the property to such benefcary to
the e tent of tne vaue, computed actuanay, of the rght to receve
such ncome for the fu term or for the fe of the benefcary aganst
whch the 3,000 gft ta e cuson authorzed by secton 1003 (b) (3)
of the Interna Revenue Code may be apped. See . . Sensen-
. (2d) 3.
S CTION 1003(b). N T GI TS: CLUSIONS
ROM GI TS
R GULATIONS 10 , S CTION 6.11: uture nter- Rev. Ru. 5 - 00
estg n property.
A gft of property does not consttute a gft of a future Interest
merey because the donee a a mnor.
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Regs. 10 , .16a. 320.
Advce s requested -whether a gft of shares of stock to a mnor s
a gft of a present or a future nterest where the shares are ssued n
the name of a mnor (1) before the appontment of a ega guardan,
(2) after the appontment of a ega guardan, or (3) no ega
guardan s apponted.
Secton 6.11 of Reguatons 10 provdes that no part of the vaue
of a gft of a future nterest may be e cuded n determnng the tota
amount of gfts made durng the caendar year. uture nterests
s a ega term, and ncudes reversons, remanders, and other nter-
ests or estates, whether vested or contngent, and whether or not sup-
ported by a partcuar nterest or estate, whch are mted to com-
mence n use, possesson, or en|oyment at some future date or tme.
An unquafed and unrestrcted gft to a mnor, wth or wthout the
appontment of a ega guardan , s a gft of a present nterest and
dsabtes paced upon mnors by State statutes shoud not be con-
sdered decsve n determnng whether such donees have the mmed-
ate en|oyment of the property or the ncome therefrom wthn the
purport of the edera gft ta aw. See ohn . Danes v. Comms
soner, Ta Court Memorandum Opnon entered ebruary 13,1951.
In the case of an outrght and unrestrcted gft to a mnor, the mere
e stence or none stence of a ega guardanshp does not of tsef
rase the queston whether the gft s of a future nterest Cf. Rev.
Ru. 5 -91, C. B. 195 -1, 207, nvovng a gft n trust for the bene-
ft of a mnor. It s ony where devery of the property to the guard-
an of a mnor s accompaned by mtatons upon the present use
and en|oyment of the property by the donee, by way of a trust or
otherwse, that the queston of a future nterest arses. See atherne
Schuhmacker, T. C. 53.
In vew of the foregong, t s hed that a gft of the type nvoved
heren to a mnor s a gft of a present nterest uness the use and
en|oyment of the property s n some manner mted or restrcted by
the terms of the donor s conveyance. The e cuson authorzed by
secton 1003(b) of the Interna Revenue Code of 1939 may be apped
aganst such gft.
Reguatons 10 , Secton 6.11: uture nter- Rev. Ru. 5 - 01
ests n property.
A acqured a vested remander nterest under the w of hs father,
sub|ect ony to a fe estate of hs mother. A conveys hs remander
nterest to hs son absoutey and n fee smpe. Hed, the gft of the
remander nterest to the son s a gft of a future nterest wthn the
meanng of secton 1003(b) of the Interna Revenue Code of 1939.
The e cuson authorzed by ths secton of the Code may not be ap-
ped aganst such gft.
S CTION 100 . D DUCTIONS
Reguatons 10 , Secton 6.16a: Gfts to spouse Rev. Ru. 5 - 70
after Apr 2,19 .
A gft of a vested ndefeasbe remander nterest such as woud
be Incudbe In the gross estate of the donee spouse at death under
secton 11 (a) of the Interna Revenue Code of 1939 quafes for the
gft ta marta deducton.
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321 Regs. 10 , SO.ICb.
Advce s requested whether a gft of a remander nterest n a trust
to the donor s wfe quafes, n whoe or n part, for the marta de-
ducton under secton 100 (a) (3) (A) of the Interna evenue Code
of 1939.
Under the terms of a transfer n trust the trustee s to pay one-
thrd of the net ncome to the donor s son and accumuate the re-
mander of the net ncome for the perod of the trust. The trust s to
contnue for a perod of 12 years from the date of ts creaton. At the
e praton of the trust perod the accumuated trust ncome and the
corpus s to be pad outrght to the donor s wfe. In the event of the
death of the donor s son pror to the termnaton of the trust, the agree-
ment provdes for the dsposton of the one-thrd of the net n-
come whch he woud have receved, f vng, durng the remander
of the trust term. The agreement, however, contans no provson
reatng to the dsposton of the corpus and accumuated ncome n the
event of the wfe s death durng the perod of trust
Secton 100 (a) (3) (A) of the Interna Revenue Code authorzes a
marta deducton, sub|ect to certan condtons and mtatons, n an
amount equa to one-haf the vaue of any nterest n property trans-
ferred by gft to a donee who at the tme of the gft s the donor s
spouse.
Secton 6.16a(c) of Gft Ta Reguatons 10 , reatng to the a-
owance of the marta deducton n respect of gfts of remander
nterests, provdes n part as foows:
Where the Income from property Is made payabe to the donor or another
Indvdua for fe, or for a term of years, wth remander absoutey to the
donor s spouse or her estate, the marta deducton Is equa to one-haf the
present vaue of the remander. It shoud be noted, however, that where nch
remander Is dstrbutabe to the estate of the donor s spouse (or to her e ecutors
or admnstrators) n the event of her death pror to the termnaton of a trust
or of a precedent Interest, the marta deducton s aowabe ony If under such
crcumstances the remander Interest woud be ncudbe n her gross estate
under secton 11 (a).
Assumng that, under the oca aw, the wfe took a vested nde-
feasbe nterest n the trust corpus and ncome accumuatons such as
w, n the event she des at any tme durng the 12-year perod of the
trust, survve as an asset of her estate, such nterest woud ceary be
ncudbe n her gross estate at death under secton 11 (a) of the
Code.
Under such crcumstances, t s hed that the fu vaue of the n-
terests thus gven (two-thrds of the vaue of the property pus the
yaue of a one-thrd remander nterest theren) woud quafy for
the marta deducton under secton 100 (a) (3) (A) of the Code
snce, to that e tent, no nterest n the trust property s consdered
as havng been transferred to any person other than the donor s spouse.
Accordngy, one-haf of ts vaue woud be aowabe as a marta de-
ducton for edera gft ta purposes.
R GULATIONS 10 , S CTION 6.16b: Gft of fe Rev. Ru. 5 - 10
estate or other termnabe nterest.
Gfta of Unted States Savngs Bonds Seres and G, regstered
In the name of a donee spouse and payabe on her death to the donor,
are termnabe Interests wthn the meanng of secton 100 (a) (3)
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Regs. 10 , 5 0.20. 322
of the Interna Revenue Code of 1039. Accordngy, no porton of
the vaue of such bonds quafes for the gft ta marta deducton.
Advce s requested whether gfts of Unted States Savngs Bonds
Seres and G, regstered n the name of a donee spouse and payabe
on her death to the donor, quafy for the gft ta marta deducton
under secton 100 (a) (3) of the Interna Revenue Code of 1939.
Secton 100 (a) (3) (B) of the Interna Revenue Code provdes that
the marta deducton s not aowabe wth respect to a gft of a
termnabe nterest n property f the donor retans n hmsef or
transfers to any person other than the donee spouse an nterest n
the property gven, and f by reason of such retenton or transfer
the donor or such person may possess or en|oy any part of the property
after the termnaton or faure of the nterest theren transferred
to the donee spouse.
The e presson termnabe nterest refers to a fe estate, an
estate for years, or any other property nterest whch, upon the apse
of tme, upon the occurrence of an event or contngency, or upon the
faure of an event or contngency to occur, w termnate or fa.
The donor, n ths crtse, retaned an nterest n the property trans-
ferred such as w enabe hm to possess or en|oy such property upon
the termnaton or faure of the nterest theren of the wfe by reason
of her death durng hs fetme and pror to such tme as she may
have surrendered the savngs bonds for redempton. Under such
crcumstances, the nterest transferred to the wfe was ceary a
termnabe one wthn thp meanng of secton 100 (a) (3) of the Code.
In vew of the foregong, no porton of the vaue of Unted States
Savngs Bonds Seres and G, regstered n the name of a donee
spouse and payabe on her death to the donor, quates for the gft
ta marta deducton.
S CTION 1005. GI TS MAD IN PROP RTY
Reguatons 10 , Secton 6.19: auaton
of property.
aue of stock transferred from donor to donee. See Rev. RuL
5 -65 , page 317.
S CTION 1000.-R TURNS
Reguatons 10 , Secton 6.20: Persons Rev. Ru. 5 -252
requred to fe return.
Where husband and wfe have consentod-pursuant to the provsons
of secton 1000(f) of the Interna Revenue Code, to treat gfts made by
one spouse to thrd-party donees as havng been made one-haf by
each of them, the spouse of the donor s not requred to fe a edera
gft ta return f he or she made no gfts durng the caendar year
and the vaue of gfts made by the donor spouse to each such thrd-
party donee durng the year does not e ceed 6,000. The consent of
the husband and wfe s to be sgnfed by each of them on the donor s
return. (Sec secton C.3a(b) of Reguatons 10 .)
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323 Reg,. 12 . 0 . 01.
CHAPT R 9 MPLOYM NT TA S
SUBCHAPT R L- MPLOYM NT BT OTH RS THAN CARRI RS
ART III. C NTRAL PRO ISIONS
S CTION 1 21. O RPAYM NTS AND
UND RPAYM NTS
R GULATIONS 12 , S CTION 0 . 01: Refund or Rev. Ru. 5 -C03
credt of overpayments whch are not ad-
|ustabe abatement of overassessments.
(Aso Secton 1, Secton 39. 1-2, Regua-
tons 11 .)
A, who was a member of a partnershp unt November 1, 1953.
reported the sum of 3.000 as sef-empoyment Income therefrom n
hs ndvdua ncome ta return for the fsca year ended October
1, 1053, and pad the sef-empoyment ta due thereon. The part-
nershp became a corporaton on November 1, 1953, and A, as an
empoyee, receved wages n 1053 amountng to 1.700 for empoyee .
servces performed for the corporaton durng November and De-
cember, from whch empoyee ta wag deducted. Hed, that A Is not
entted to a refund or credt of the edera Insurance Contrbutons
Act empoyee ta pad wth respect to wages receved from the
corporaton durng the year 1953.
A queston has been presented reatve to the refundng or credtng
of empoyee ta pad under the edera Insurance Contrbutons Act
(subchapter A, cnapter 9, Interna Revenue Code of 1939) under the
crcumstances descrbed beow.
A, who was a partner n Y busness unt November 1,1953, re-
ported sef-empoyment ncome of 3.600 n hs ndvdua ncome ta
return for the fsca year ended October 31, 195. , .nd pad the sef-
empoyment ta due thereon. The partnershp became a corporaton
on November 1, 1953, and A receved wages n 1953 amountng to
1,700 for empoyee servces performed for the corporaton durng
November and December of that year, from whch the empoyee ta
was deducted and pad.
The Sef- mpoyment Contrbutons Act (subchapter , chapter 1,
of the Interna Revenue Code of 1939) provdes n part that the term
sef-empoyment ncome sha not ncude that part of the net earn-
ngs derved by an ndvdua from sef-empoyment whch s n e cess
of 3,600, mnus the amount of the wages pad to such ndvdua
durng the ta abe year. Snce A receved no wages durng hs
ta abe year ended October 31,1953, the entre 3,600 of sef-empoy-
ment ncome s sub|ect to the ta mposed by the Sef- mpoyment
Contrbutons Act. Hence, there was no overpayment 01 the ta
whch may be refunded or credted.
Secton 1 00 of the edera Insurance Contrbutons Act provdes
n part as foows:
In addton to other ta es, there sha be eved, coected, and pad upon the
Income of every Indvdua a ta wth respect to empoyment .
Secton 1 01 (a) of the Act requres that the ta mposed by secton
1 00 sha be coected by the empoyer of the ta payer, by deductng
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egs. 12 , 0 .20 . 32
the amount of the ta from the wages as and when pad. Under
secton 1 26(a) of the Act the term wages does not ncude that
part of the remuneraton pad wthn any caendar year begnnng
after December 31, 1950, by an empoyer to an empoyee whch e -
ceeds the frst 3,600 of remuneraton (wth certan e ceptons not
here matera) pad wthn such caendar year by such empoyer to
such empoyee for empoyment performed for hm at any tme after
December 31,1936. In accordance wth the foregong provsons of
aw the corporaton was requred to deduct empoyee ta from the
1,700 n wages pad to A n 1953. Snce he receved ess than the
ma mum of wages sub|ect to the empoyee ta ( 3,600), there was
no overpayment of ths ta and no part thereof s refundabe.
Secton 1 01(d) (3) of the Act permts a speca refund of the
amount of empoyee ta deducted wth respect to wages n e cess of
3,600.00 receved from two or more empoyers durng a caendar year.
An empoyee who s entted to a speca refund of empoyee ta wth
respect to wages receved durng the caendar year and s requred to
fe an ncome ta return for such caendar year (or for hs ta abe
year begnnng n such caendar | ear), may cam credt for the refund
aganst hs ncome ta abty for that year. See Rev. Ru. 5 -221,
C. B. 195 -1, 73. These provsons are not appcabe n the nstant
case snce, durng the caendar year n queston, A dd not receve
wages n e cess of 3,600 and the corporaton was hs ony empoyer.
S CTION 1 26. D INITIONS
R GULATIONS 12 , S CTION 0 .20 : Who are Rev. Ru. 5 -253
empoyees.
(Aso Sectons 0 .21 Secton 1622, Sec-
ton 06. 00, Reguatons 120.) ....
suay handcapped ndvduas empoyed by the Arzona In-
dustres for the Bnd, a whoy-owned Instrumentaty of the
State, to perform servces In connecton wth a program of Industres
for the bnd durng specIHed hours under the drect supervson of ,
a workshop supervsor are empoyees of that State Instrumentaty
for edera empoyment ta purposes.
Advce s requested reatve to the status, for edera empoyment
ta purposes, of vsuay handcapped ndvduas who perform serv-
ces n connecton wth actvtes conducted by the Arzona Industres
for the Bnd.
Secton 1, chapter 100 of the State of Arzona Laws of 1953, authA
orzes the State Department of Pubc Wefare to estabsh and man-
tan a program of ndustres for the bnd to be known as the Arzona
Industres for the Bnd. Under the State statutes, the Department
s empowered to equp and operate tranng centers and workshops,
estabsh busness enterprse and home ndustres programs for tran-
ng and empoyng sutabe bnd ndvduas and for devsng ways
and means for the sae, dstrbuton and marketng of the fnshed
products.
The Arzona Industres for the Bnd was estabshed wth State
ftpproprated funds and contnued operaton s mantaned by the use
of State funds and the proceeds from the saes of fnshed artces.
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325
Regs. 12 , 03.20 .
In the event of ts dssouton, a of the assets of the Arzona Industres
for the Bnd woud revert to the Genera und of the State of
Arzona.
The vsuay handcapped ndvduas are empoyed on premses
eased by the Department of Pubc Wefare and are engaged n the
producton of rugs, rubber mats and brooms and n the antenance
of the workshops and equpment used n such producton.
The ndvduas are empoyed wthout wrtten agreements n the
same manner that sghted empoyees are generay hred by manu-
facturng pants. They perform ther servces under the drecton
of a supervsor empoyed by the Arzona Industres for the Bnd and
they are sub|ect to rues, reguatons and restrctons estabshed by
the Busness nterprse Program of the Arzona State Department
of Pubc Wefare. The ndvduas are requred to perform servces
durng specfed hours on Monday through rday of each week. If
ther servces are unsatsfactory, the ndvduas are sub|ect to ds-
charge. Wage and saary scaes are estabshed by the Arzona De-
partment of Pubc Wefare and the wages of the ndvduas are
pad from a speca fund estabshed and known as the non-revertng,
revovng account for ndustres for the bnd.
Secton 1 26(d) (2) of the Interna Revenue Code provdes that
the term empoyee means any ndvdua who under the usua com-
mon aw rues appcabe n determnng the empoyer-empoyee
reatonshp has the status of an empoyee. Whether the reaton-
shp of empoyer and empoyee e sts under the usua common aw
rues s argey a queston of fact to be determned upon the partcuar
facts of each case. Generay, such reatonshp e sts when the
person from whom servces are performed has the rght to contro and
drect the ndvdua who performs the servces, not ony as to the
resut to be accompshed by the work but aso as to the detas and
means by whch that resut s accompshed.
In the nstant case, t s concuded that the Arzona Industres for
the Bnd has the rght to e ercse, and does e ercse, the contro over
the vsuay handcapped ndvduas n the performance of ther
servces whch s necessary to estabsh the reatonshp of empoyer
and empoyee for edera empoyment ta purposes.
Snce the Arzona Industres for the Bnd s a whoy owned nstru-
mentaty of the State, the servces performed by ts empoyees are
e cepted from empoyment by reason of secton 1 26(b)( ) of the
edera Insurance Contrbutons Act, as amended, and secton 1G07
(c)(7) of the edera Unempoyment Ta Act It foows that the
nstrumentaty s not requred to report and pay the ta es mposed
under the above-mentoned Acts wth respect to the remuneraton pad
for such servces. However, the Arzona Industres for the Bnd, as
empoyer, s requred to wthhod ncome ta under secton 1622 of
the Interna Revenue Code from the wages of ts empoyees.
Athough the servces here nvoved are e cepted from empoyment
for edera empoyment ta purposes, secton 21 of the Soca Se-
curty Act, as amended, e tends coverage to State empoyees pursuant
to agreement between the State and the Department or Heath, duca-
ton and Wefare. uestons reated to such matters shoud be
addressed to that Department.
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egs. 12 , 0 .20 . 326
muatons 12 , Secton 0 .20 : Who . Rev. Ru. 6 -25
are empoyees.
A State Board of ducaton of. the Bnd engages vsuay hand-
capped ndvduas to manage vendng stands n pubc budngs.
The managers are drecty controed by a vendng stand supervsor
and are sub|ect to rues and reguatons prescrbed by the Board from
to be sod. A day report of the actvty and saes of the stand s
requred by the Board and a recepts of the stand, ess a fund used
for change purposes, are deposted day at a bank desgnated by the
Board. The managers are pad a specfed weeky wage and do not
partcpate n any resdua profts of the stands. The managers are
sub|ect to dschargo n the event ther servces prove to bo unsatsfac-
tory. Hed, that, for edera empoyment ta purposes, the managers
are empoyees of the State Board of ducaton of the Bnd, a whoy
owned nstrumentaty of the StatoN The servces performed by the
managers are e cepted from empoyment under secton 1 20(b) ( )
of the edera Insurance Contrbutons Act, as amended, and secton
1007(c)(7) of the edera Unempoyment Ta Act. However, tho
wages pad to tho managers are sub|ect to the wthhodng of ncome
ta under secton 1022 of the Interna Revenue Code.
In Rev. Ru. 5 -255, beow, t s hed that bnd ndvduas who
operate and manage vendng stands n pubc budngs under a cense
granted by a State commsson for the bnd are not empoyees of the
commsson. In that case, the supervson e ercsed by the comms-
son s of a protectve nature and s not the contro of an empoyer
over an empoyee. urther, fho earnngs of such manngers consst
of the net ncome reazed from saes and hence are dependent on ther
effcency n operatng the stands. In the nstant case, the managers
are drecty controed n the performance of ther servces by a vend-
ng stand supervsor and are.pad a specfed weeky wage.
Reguatons 12 , Secton 0 .20 : Who are Rev. Ru. 5 -255
empoyees.
(Aso Secton 1, Secton 39. 1-3, Regua-
tons 11 .)
A State commsson for tbe bnd whch trans vsuay hand-
capped Indvduas and paces them n postons as operators and
managers of vendng stands n pubc budngs s not the empoyer
of such ndvduas, where tbe supervson e ercsed by the comms-
son s of a protectve nature and Is not the contro of an empoyer
over an empoyee.
Advce s requested reatve to the status, for edera empoyment
ta purposes, of bnd ndvduas who, under a cense granted by a
State commsson for the bnd, operate and manage vendng stands
n pubc budngs.
Under the terras of the agreement, pursuant to whch a manager s
granted a cense for the operaton of a vendng stand, the comms-
son suppes sutabe equpment, an nta stock of merchandse and
an nta petty cash fund for the operaton of the stand, acts as a cen-
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327 Begs. 12 , 03.20 .
tra buyng agency from whch a manager purchases hs artces for
sae, determnes the prces to be charged by the managers n the reta-
ng of the merchandse, and provdes for the servces of a sghted
supervsor to assst the manager through perodc vsts to the stand.
The manager agrees to devote hs fu tme to the stand, to perform
fathfuy and to the best of hs abtes the necessary dutes n con-
necton wth ts operaton n accordance wth the standards prescrbed
n the agreement, to be on duty durng the estabshed hours of bus-
ness, e cept when sckness or other crcumstances render such at-
tendance mpossbe, and to notfy the commsson mmedatey of
any unavodabe absence n order that arrangements mny be made
to keep the stand open. The manager may not empoy a permanent
assstant wthout the wrtten approva of the commsson. The man-
ager s earnngs consst of the net ncome reazed from the saes made
at hs stand and hence are dependent on the manner n whch he
operates the busness.
The agreement further provdes that n the event any of the terms
or condtons thereof are breached by the manager, the commsson s
authorzed to dsmss hm and take fu possesson of the stand.
The terms and condtons of the agreement are e tensve and n
some respects appear to bo dctatora to an e tent suggestve of
contro. However, consderng a the facts n the ght of the par-
tcuar crcumstances, t s apparent that the supervson e ercsed
by the commsson s of a protectve nature and s not the contro of an
empoyer over an empoyee. The agreement entered nto s more n
the nature of a censng arrangement than a contract of empoyment
The prmary ob|ectve of the commsson s to ad the varous vendng
stand managers n earnng a vehood, rather than the promoton or
advancement of any busness or commerca enterprse of ts own.
Accordngy, t s concuded that, for edera empoyment ta pur-
poses, the managers of the vendng stands are ndependent contractors
and not empoyees of the commsson. The managers are engaged n
a trade or busness as defned n the Sef- mpoyment Contrbu-
tons Act and ther net earnngs from the operaton of the stands
consttute sef-empoyment ncome.
R GULATIONS 12 , S CTION 0 .20 : Who are Rev. Ru. 5 -312
empoyees.
(Aso Secton 0 .226 Secton 1, Secton
39. 1-2, Reguatons 11 .)
A fe Insurance saesman whose entre or prncpa busness
actvty Is devoted to the soctaton of fe Insurance or annuty
contracts or the soctaton of such contracts and accdent and heath
Insurance contracts prmary for one fe nsurance company Is a
fu-tme fe Insurance saesman and Is, therefore, an empoyee
wthn the meanng of that term as defned In the edera Insurance
Contrbutons Act, as amended by the Soca Securty Act Amend-
ments of 1950.
In genera, commssons receved by a fe Insurance saesman.
Incudng deferred or renewa commssons, for the sae of fe Insur-
ance, annutes, or accdent and heath Insurance are deemed to be
remuneraton for servces performed at the tme the saes were con-
summated. Thus, commssons, Incudng deferred or renewa com-
mssons, attrbutabe to contracts of Insurance sod by a fu-tme
fe Insurance saesman after December 31, 1950, are wages
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Regs. 12 , 0 .20 . 32
sub|ect to the ta es Imposed under the edera Insurance Contrbu-
tons Act when pad. However, renewa commssons receved by a
saesman before or after December 31,1050, whch are attrbutabe
to poces sod by hm pror to anuary 1, 1931, when he was not
an empoyee, statutory or otherwse, consttute net earnngs from
sef-empoyment.
Advce s requested concernng the crcumstances under whch a
fe nsurance saesman quafes as a fu-tme fe nsurance saes-
man and, therefore, becomes an empoyee wthn the meanng of
that term as defned n secton 1 26(d) of the edera Insurance
Contrbutons Act (subchapter A, chapter 9, Interna Revenue Code),
as amended by the Soca Securty Act Amendments of 1950. (Ths
appes ony to servces performed on or after anuary 1. 1951,)
Advce aso s requested reatve to a proper determnaton of wages
pad fo a fu-tme fe nsurance saesman for purposes of computng
the ta es mposed by the edera Insurance Contrbutons Act.
The N Lfo Insurance Company engaged the servces of A, a fo n-
surance sacsman,A to soct appcatons for fo nsurance, annutes,
and accdent and heath nsurance, A performs hs servces pursuant
to the terms of a wrtten agreement desgnated Agents Contract.
The contract provdes, among other thngs, that A sha, on a fu-
tme bass and wthn a specfed terrtory, soct appcatons for
contracts of nsurance for the N Lfe Insurance Company e cusvey,
under such pocy forms as the company may drect that A sha
be free to e ercse hs own |udgment as to the persons from whom
he w soct appcatons for nsurance as we as the tme and pace
of soctaton and that A sha coect the nta premum for each
sae of nsurance consummated by hm. The contract further provdes
that the company may from tme to tme prescrbe rues and regua-
tons respectng the conduct of the busness covered by the contract,
whch rues and reguatons sha be observed by A. These rues and
reguatons may not, however, nterfere wth A s freedom of acton n
hs soctaton of appcatons for nsurance.
As compensaton for the servces here under consderaton the con-
tract provdes that A 6ha receve certan commssons for each sae
of nsurance consummated by hm that a porton of the tota com-
msson attrbutabe to each saes of nsurance by A for the company
sha be pad to hm at the tme the sae s consummated and the
remander sha be pad as and when the pocyhoder pays hs perodc
premums that both the nta commssons and the deferred or
renewa commssons are to be pad n accordance wth schedues set
forth n the contract and that the deferred or renewa commssons
specfed theren sha be payabe to A on contracts of nsurance sod
by hm for a perod of years, provded the pocyhoders contnue
to pay the perodc premum. The contract further provdes that, f
the contract between the partes s termnated the company w con-
tnue to pay the deferred or renewa commssons n accordance wth
the provsons of the contract.
Tne arrangements between the N Lfe Insurance Company and A
contempated (1) that A woud defray a e penses ncurred by hm n
the performance of hs dutes and functons under the contract (2)
that a or substantay a the servces to whch the contract reates
woud be performed personay by A (3) that A woud not be re-
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329 (Regs. 12 , 0 .20 .
qured to make a substanta nvestment n factes for use n con-
necton wth the performance of hs servces (other than n factes
for transportaton) ( ) that A s servces woud be part of a contnung
reatonshp and not n the nature of a snge transacton (5) that the
soctaton of appcatons for nsurance pursuant to the terms of hs
contract woud be A s entre or prncpa busness actvty and (6)
that A woud be a fu-tme fe nsurance saesman.
ffectve wth respect to servces performed after 1950, secton
1 26(d) of the edera Insurance Contrbutons Act s amended by the
Soca Securty Act Amendments of 1950 to read, n part, as foows:
upotec. The term empoyee means
(1) any offcer of a corporaton or
(2) any Indvdua who, under the usua common-aw rues appcabe In
determnng the empoyer-empoyee reatonshp, has the status of an em-
poyee or
(3) any Indvdua (other than an Indvdua who Is an empoyee under
parngrnph (1) or (2) of ths subsecton) who performs servces for remu-
neraton for any person
A
(B) as a fu-tme fe Insurance saesman

If the contract of servce contempates that substantay a of such servces
are to be performed personay by such Indvdua e cept that an Indvdua
sha not be Incuded In the term empoyee under the provsons of ths
paragraph If such Indvdua has a substanta Investment In factes used a
connecton wth the performance of such servces (other than In factes for
transportaton), or If the servces are In the nature of a snge transacton
not part of a contnung reatonshp wth the person for whom the servces
are performed.
The nta queston to be decded s whether A has such ndependence
n hs operatons that, under the usua common aw rues appcabe s
determnng the empoyer-empoyee reatonshp, he shoud be cassed
as an ndependent contractor rather than an empoyee. Under the
above crcumstances, t s evdent that the N Lfe Insurance Company
does not e ercse, or have the rght to e ercse, the degree of drecton
and contro over the servces performed by A that s prescrbed by the
appcabe aws and reguatons as necessary to estabsh the reaton-
shp of empoyer and empoyee under such common aw rues.
A fu-tme fe nsurance saesman for the purposes of the edera
Insurance Contrbutons Act, as amended by the Soca Securty Act
Amendments of 1950, s an ndvdua (other than an empoyee under
the usua common aw rues) whose entre or prncpa busness actv-
ty s devoted to the soctaton of fe nsurance or annuty contracts
(or the soctaton of such contracts and accdent and heath con-
tracts) prmary for one fe nsurance company.
The entre or prncpa busness actvty or a fe nsurance saesman
s deemed to be devoted to the soctaton of fe nsurance or annuty
contracts prmary for one fe nsurance company when, pursuant
to the terms and condtons of hs arrangement wth the fe nsurance
company or ts genera agent, t s mutuay agreed or ceary con-
tempated by the partes that the saesman s entre or prncpa bus-
ness actvty s the soctaton of appcatons for fe nsurance or
annuty contracts, or the soctaton ot appcatons for such contracts
and accdent and heath contracts for the fe nsurance company n
accordance wth the provsons of the saesman s contract of servce.
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Regs. 12 , 0 .20 . 330
A, fu-tme fe nsurance saesman -s an empoyee of a fe n-
surance company or ts genera agent wthn the meanng of secton
1 26(d) of the edera Insurance Contrbutons Act, as amended by
the Soca Securty Act Amendments of 1950, f (a) hs contract of
servce contempates that substantay a of hs servces after De-
cember 31,1950, are to be performed personay by hm (b) he has
no substanta nvestment n the factes used n connecton wth the
performance of hs servces (other than nvestment n factes for
transportaton) and (c) hs servces are part of a contnung reaton-
shp and not n the nature of a snge transacton.
rom the facts presented, t s apparent that A has been engaged
by the N Lfe Insurance Company to soct appcatons for nsur-
ance on a fu-tme bass and under crcumstances whch warrant a
concuson that he s an empoyee of the N Lfe Insurance Com-
pany wthn the meanng of that term as defned n secton
1 26(d) (3) (B) of the edera Insurance Contrbutons Act
Wth respect to the queston concernng the proper determnaton
of the wages pad by an empoyer to a fu-tme te nsurance saes-
man n hs empoy, t may be stated as a genera rue that nta
commssons pad by or on behaf of the empoyer of a fu-tme
fe nsurance saesman as compensaton, or part compensaton, for
the consummaton after December 31,1950, of saes of fe nsurance
contracts, annuty contracts, or accdent and heath nsurance con-
tracts are wages as and when pad. Generay, deferred or renewa
commssons are deemed to be compensaton for the servces performed
at the tme of the consummaton of the saes of the contracts of n-
surance to whch they are attrbutabe. Thus, renewa or deferred
commssons attrbutabe to the sae of fe nsurance, annutes, or
accdent and heath nsurance by a fu-tme fe nsurance saesman
after December 31, 1950, are wages sub|ect to the ta es mposed
under the edera Insurance Contrbutons Act when pad. However,
renewa commssons receved by a saesman after December 31,1950,
whch are attrbutabe to poces sod by hm pror to anuary 1,
1951, when he was not an empoyee, statutory or otherwse, do not
consttute wages sub|ect to the ta es mposed by the edera Insurance
Contrbutons Act, but are to be ncuded n determnng net earnngs
from sef-empoyment wthn the meanng of secton 1(a) of the
Sef- mpoyment Contrbutons Act (subchapter , chapter 1, In-
terna Revenue Code). (Cf. I. T. 071, C. B. 1952-1, 1 .)
Reguatons 12 , Sectto 0 .20 : Who are Rev. Ru. 5 -36
empoyees.
An Indvdua engaged In dggng graves, under an arrangement
whereby the operator of a funera estabshment does not gve n-
structons, other than those receved from the famy of the deceased,
does not supervse, other than to see that such nstructons are car-
red out, does not furnsh the equpment used, or pay the ndvdua
e cept as an accommodaton, and does not derve any beneft other
than enhancng goodw from makng the servce avaabe. Is not
an empoyee of the operator for edera empoyment ta purposes.
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331. Regs. 12 , 0 .20 .
Advce s requested whether an ndvdua who s engaged n
dggng graves under an ora arrangement wth the operator of a
funera estabshment s an empoyee of the operator for edera
empoyment ta purposes.
The operator of the funera estabshment offers to the pubc, for
a ump sum, a compete funera servce whch ncudes embamng
servces, a casket, use of the chape, and other professona and per-
sona servces. The servce of openng and cosng a grave s ncuded
ony n a funera for a stborn baby, n whch case the operator per-
forms such servce personay. However, the operator w, at the
request of the famy of the deceased, make arrangements-for such
servce and for that purpose has engaged the ndvdua whose status
s n queston.
The nstructons gven to the gravedgger regardng the work are
those receved by the operator from the famy of the deceased. Such
nstructons concern the ocaton and sze of the grave and the tme
when the grave s to be ready for use, The operator supervses the
work ony to the e tent of seeng that the nstructons of the famy
have been carred out. The gravedgger furnshes the truck and other
equpment used n performng the servce. The fee charged for the
servces s determned by the gravedgger, wth the approva of the
operator.
The operator does not derve any beneft other than enhancng good-
w from furnshng the servces of the gravedgger. The famy
of the deceased may pay the gravedggcr drect or advance the op-
erator the money to pay hm. There are tmes, however, when the
operator may pay hm, as an accommodaton to the famy, n whch
case the fee for the servces s shown as a separate tem on the b
rendered for the funera servces.
Secton 0 .20 (c) of Reguatons 12 provdes that generay the
ega reatonshp of empoyer and empoyee e sts when the person
for whom servces are performed has the rght to contro and drect
the ndvdua who performs the servces, not ony as to the resut to
be accompshed by the work but aso as to the detas and means by
whch that resut s accompshed. It s not necessary that the em-
poyer actuay drect or contro the manner n whch the servces
are performed, t s suffcent f he has the rght to do so. An nd-
vdua who s sub|ect to the contro or drecton of another merey as
to the resut to be accompshed by the work and not as to the means
and method for accompshng the resut, s an ndependent contractor.
An ndvdua performng servces as an ndependent contractor s
not as to such servces an empoyee under the usua common aw
rues.
Whether an ndvdua s an ndependent contractor or an empoyee
s argey a queston of fact to be determned upon consderaton of
the partcuar facts of each case. In the nstant case t s determned,
upon the facts set forth, that the operator of the funera estabshment
does not e ercse or have the rght to e ercse such contro over the
gravedgger n the performance of hs servces as s necessary under
the usua common aw rues to estabsh an empoyer-empoyee rea-
tonshp for edera empoyment ta purposes.
33516 63 22
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Regs. 12 , I 0 .20 .) 332
Reguatons 12 , Secton 0 .20 : Who are Rev. Ru. 5 - 11
empoyees.
(Aso Secton 1, Secton 39. 1-3, Regua-
tons 11 .)
Indvduas servng as vountary arbtrators In abor dsputes
on tbe North Carona Arbtraton Pane conducted tnder the
auspces of tbe State department of abor, wbo are guded by rues
of procedure estabshed by tbe State, seected from a st of qua-
fed Indvduas mantaned by tbe State for each arbtraton pro-
ceedng by tbe partes thereto, and who are normay pad by such
partes are not empoyees of the State for edera empoyment ta
purposes.
The arbtrators are engaged In a trade of busness for purposes
of the Sef- mpoyment Contrbutons Act and ther remuneraton
shoud be consdered n computng net earnngs from sef-empoy-
ment.
Advce s requested reatve to the status, for edera empoyment
ta purposes, of ndvduas servng as vountary arbtrators n abor
dsputes on the North Carona Arbtraton Pane.
Secton 95-36.1, artce A, of the North Carona Genera Statutes
decares t to be the pubc pocy of the State that the best nterests
of the peope thereof are served by the prompt settement of abor
dsputes, and that where efforts at amcabe settement have been un-
successfu, the vountary arbtraton of such dsputes w tend to pro-
mote permanent ndustra peace and the heath, wefare, comfort and
safety of the peope of the State.
Secton 95-36.2 states that the provsons of such artce sha appy
eny to vountary agreements to arbtrate abor dsputes ncudng,
but not restrcted to, a controverses between empoyers, empoyees,
and ther respectve barganng representatves, or any of them, reat-
ng to wages, hours, and other condtons of empoyment.
Secton 95-36.3 provdes that the admnstraton of artce A sha
be under the genera supervson of the commssoner of abor of
North Carona that there s estabshed n the Department of Labor
an arbtraton servce that the commssoner may appont such em-
poyees as may be requred for the consummaton of the work under
such artce, prescrbe ther dutes and f ther compensaton, sub-
|ect to e stng aws appcabe to the appontment and compensaton
of empoyees of the State of North Carona that any member of or
empoyee n the arbtraton servce may be removed from offce by the
commssoner of abor, actng n hs dscreton that the commssoner,
wth the wrtten approva of the attorney genera as to egaty, sha
have power to adopt, ater, amend, or repea approprate rues of pro-
cedure for the seecton of the arbtrator or pane and for conduct of
the arbtraton proceedngs n accordance wth ths artce and that,
however, such rues sha be nappcabe to the e tent that they are
nconsstent wth the arbtraton agreement of the partes.
Secton 95-36. provdes that t sha be the duty of the comms-
soner of abor to mantan a st of quafed and pubc-sprted ct-
zens who w serve as arbtrators and that appontments of a snge
arbtrator or member of an arbtraton pane by the commssoner
sha be made from the st of quafed arbtrators mantaned by
hm.
Secton 95-36.5 provdes that a the costs of any arbtraton pro-
ceedng under ths artce, ncudng the fees and e penses of the arbA
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333 Regs. 12 , 0 .20 .
trator or arbtraton pane, sha be pad by the partes to the pro-
ceedng n accordance wth any agreement between them that, n the
absence of such an agreement, the award n the proceedng sha nor-
may requre the payment of such fees, e penses and other proper
costs by one or more of the partes that, however, f the comms-
soner of abor deems that the pubc nterest so requres, he may pro-
vde for the payment to any arbtrator apponted by hm of per dem
compensaton at the rate estabshed by the commssoner, and actua
trave and other necessary e penses ncurred whe performng dutes
arsng under ths artce and that n cases where an arbtrator has
been apponted by the commssoner, the department of abor may
furnsh necessary stenographc, cerca, and technca assstance to
the arbtrator or arbtraton pane.
Secton 95-36.6 provdes that the partes may by agreement deter-
mne the method 01 apontment of the arbtrator or arbtraton pane
that, f the partes have agreed upon arbtraton under ths artce and
have not otherwse agreed upon the number of arbtrators or the
method for ther appontment, the controversy sha bo heard and de-
cded by a snge arbtrator desgnated n such manner as the com-
mssoner of abor sha determne that any person or agency seected
by agreement or otherwse to appont an arbtrator or arbtrators sha
send by regstered ma to each of the partes to the proposed proceed-
ng notce of the demand for arbtraton and that the arbtrator or
arbtraton pane, as the case may be, sha have such powers and du-
tes as are conferred by the vountary agreement of the partes, and,
f there s no agreement to the contrary, sha have powers to decde
the arbtrabty as we as the merts of the dspute.
The Rues of Procedure for Arbtratons Conducted under the
Auspces of the North Carona Department of Labor provde that
requests for the appontment of an arbtrator sha be made n wrtng
to the commssoner of abor, accompaned by a copy of any coectve
barganng agreement or a copy of ts provsons reatng to arbtra-
ton a copy of any speca agreement to arbtrate, and a statement of
the ssues n dspute that the commssoner w thereupon submt to
each of the partes the st of avaabe arbtrators servng on the
twenty-man North Carona Arbtraton Pane that the partes may
agree upon an arbtrator from the st submtted, or each may strke
no more than (number to be ndcated) names from such st that the
commssoner w appont the arbtrator agreed upon by the partes
from the st submtted, and, n the event that he s unabe to accept
the appontment, the st of avaabe arbtrators w be resubmtted
to the partes, and the commssoner w appont an arbtrator from
the undeeted names that, f one of the partes fas to return hs copy
of the st to the commssoner wthn a certan tme, the commssoner
w so nform the other party, and, on demand by the atter, the com-
mssoner w then appont an arbtrator from the undeeted names on
the returned st that after communcatng wth the partes, the arb-
trator sha determne the tme and pace for the arbtraton hearng
and that, upon notfcaton by the arbtrator of the date set for the
arbtraton hearng, the commssoner w provde hm wth copes of
the aforementoned agreements submtted by the partes n accordance
wth these rues.
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Regs. 12 , 0 .20 .1 33
Such rues further provde Chat the arbtrator apponted by the
commssoner sha presde at the hearngs that t sha be the respon-
sbty of the arbtrator to see that the arbtraton award s rendered
prompty n wrtng that copes of the award sha be forwarded to
each of the partes and to the commssoner of abor, together wth
the arbtrator s b for fees and e penses that the e penses w
consst of a actua necessary e pendtures ncurred n connecton wth
the arbtraton case that the arbtrator sha not pubsh or pubcy
comment on the proceedngs or the award e cept wth the consent of
both partes ana that the partes sha make prompt payment of the
arbtrator s b drecty to the arbtrator.
Secton 0 .20 (c) of Reguatons 12 provdes that generay the
ega reatonshp of empoyer and empoyee e sts when the person for
whom the servces are performed has the rght to contro and drect
the ndvdua who performs the servces, not ony as to the resut to
be accompshed by the work but aso as to the detas and means by
whch that resut s accompshed. It s not necessary that he actuay
drect or contro the manner n whch the servces are performed, t s
suffcent f he has the rght to do so. An ndvdua who s sub|ect
to the contro or drecton of another merey as to the resut to be
accompshed by the work and not as to the means and method for
accompshng the resut, s an ndependent contractor. An ndvd-
ua performng servces as an ndependent contractor s not as to such
servces an empoyee under the usua common aw rues.
Whether an ndvdua s an ndependent contractor or an empoyee
s argey a queston of fact to be determned upon consderaton of the
partcuar facts n each case. In the nstant case, the arbtrators are
not offered empoyment wth the State. The names of quafed nd-
vduas who have ndcated ther wngness to serve as arbtrators
n abor dsputes are paced on a st mantaned by the State depart-
ment of abor. The arbtrators for each arbtraton proceedng are
seected from ths st by the partes n nterest who pay the fees,
e penses, etc. ncurred n connecton wth the proceedng. The nd-
vduas so seected are free to accept or re|ect any appontment. The
authorty to appont or dsmss arbtrators s vested n the comms-
soner of abor ony as a necessary ncdent to the admnstraton of
the statute. He has no authorty to ntercede once the arbtraton
proceedng begns and cannot remove an arbtrator durng the pro-
ceedng. He does not have the rght of contro over the detas and
methods of performng the work. The arbtrator, f he accepts an
appontment) arranges the tme for the hearng by consutng the
partes concerned, conducts the hearng, makes hs decson, and wrtes
up hs award and decson.
In vew of the foregong, t s hed that, for edera empoyment
ta purposes, the ndvduas servng as vountary arbtrators n abor
dsputes on the North Carona Arbtraton Pane conducted under the
auspces of the State department of abor are not empoyees of the
State. It s further hed that wth respect to such servces such
arbtrators are engaged n a trade or busness for purposes of the
Sef- mpoyment Contrbutons Act (subchapter , chapter 1, In-
terna Revenue Code of 1939) and that ther remuneraton shoud be
consdered n computng net earnngs from sef-empoyment.
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335 Regs. 12 , S 0S.2O .
Reguatons 12 , Secton 0 .20 : Who are Rev. Ru. 5 - 12
empoyees.
(Aso Secton 1, Secton 39. 1, Regua-
tons 11 .)
An Indvdua, who Is engaged by a manufacturng company to
soct orders for ts products, performs such servces wthout super-
vson and contro and Is pad on a commsson bass, s not an
empoyee of the company under the usua common aw rues for
edera empoyment ta purposes. urther, snce such ndvdua
socts orders e cusvey from manufacturers be Is not an empoyee
wthn the meanng of secton 1 20(d) (3) (D) of the edera In-
surance Contrbutons Act.
The Indvdua s engaged n a none cuded trade or busness
and the Income he derves therefrom shoud be consdered n com-
putng net earnngs from sef-empoyment for purposes of the Sef-
mpoyment Contrbutons Act.
Advce s requested as to the status, for purposes of the edera
Insurance Contrbutons Act (subchapter A, chapter 9, Interna Rev-
enue Code of 1939) and the Sef- mpoyment Contrbutons Act
(subchapter , chapter 1, Interna Revenue Code of 1939), of an
ndvdua who, under an ora agreement wth a manufacturng com-
pany, socts orders from manufacturers of meta products.
The ndvdua n the nstant case s engaged on a commsson bass
by a company whch manufactures accessores for machne toos to
ca on the manufacturng trade and soct orders for ts products.
The customers from whom he socts orders are engaged n manufac-
turng meta products whch arc produced on machnes, such as turret
athes and automatc mng machnes. One hundred percent of hs
tota saes are made to ths type of customer. The company has frst
ca on hs servces but t permts hm to work entrey at hs dscreton,
e s not requred to work f ed hours or at certan tmes, or to foow-
day, weeky, etc., routnes. He s not sub|ect to supervson n any
manner by the company n the performance of hs servces.
It s hed n the nstant case that the company nether e ercses
nor has the rght to e ercse such contro over the ndvdua n the
performance of hs servces as s necessary under the usua common
aw rues to estabsh the reatonshp of empoyer and empoyee for
edera empoyment ta purposes.
Wth respect to servces performed after 1950, a traveng or cty
saesman wo s not an empoyee under the usua common aw rues s
consdered an empoyee of hs prncpa (for purposes of the edera
Insurance Contrbutons Act ony) f he meets the statutory test pro-
vded by secton 1 20(d) (3) (D) of the edera Insurance Contrbu-
tons Act, as amended. See Mm. C5 3, C. B. 1951-1, 97.
The ndvdua nvoved n the nstant case socts orders e cusvey
from manufacturers and not from the types of customers desgnated n
secton 1 20(d) (3) (D), supra. Therefore, t s hed that he s not an
empoyee wthn the meanng of that secton.
As a genera rue, a person who s engaged n an occupaton or
professon for proft and who s not regarded as an empoyee for
purposes of the edera Insurance Contrbutons Act ta es, s encaged
n a trade or busness. Such ndvdua w be regarded as hemg
sef-empoyed under the Sef- mpoyment Contrbutons Act f the
trade or busness n whch he s engaged does not come wthn the
e cusons stated n secton 1 (c) of such act
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Regs. 12 , ( 0 .20 . 336
The performance of servce by the ndvdua under the crcum-
stances stated n not e cuded from the term trade or busness as
defned n secton 1 (c) of the act Accordngy, the ncome derved
by the ndvdua from such enterprse shoud be consdered n com-
putng net earnngs from sef-empoyment for purposes of the Sef-
mpoyment Contrbutons Act.
R GULATIONS 12 , S CTIO 0 .20 : Who are Rev. u. 5 - 32
empoyees.
Indvduas who are engaged In addressng enveopes In ther own
homes for a corporaton and who are not sub|ect to ts drecton and
contro as to the means and method of operaton are not empoyees of
the corporaton under the usua common aw rues for edera
empoyment ta purposes. urther, snce the performance of such
servces a not sub|ect to censng requrements under the aws of
the State n whch the servces are performed, the homeworkcrs --
are not empoyees wthn the meanng of secton 1 20(d) (3) (C) of
the edera Insurance Contrbutons Act (subch. A, ch. 9, Interna
Revenue Code of 1939).
Advce s requested as to the status, for edera empoyment ta
purposes, of ndvduas who address enveopes n ther own homes
for a corporaton.
In the nstant case the ndvduas obtan enveopes and sts of
addresses from the corporaton. They address the enveopes person-
ay n ther own homes use ther own typewrters and perform such
servces free from contro or rght of contro by the corporaton.
When the ndvduas return the addressed enveopes to the corpora-
ton, they are compensated for such servces on a pecework bass.
Nether the corporaton nor the ndvduas are requred by the State
to secure a cense n connecton wth the servces performed.
Secton 1 26(d) (2) of the edera Insurance Contrbutons Act
provdes that the term empoyee means any ndvdua who, under
the usua common aw rues appcabe n determnng the empoyer-
. empoyee reatonshp, has the status of an empoyee.
Under the crcumstances e stng n the present case the corporaton
does not e ercse, or have the rgt to e ercse, over the ndvduas
n the performance of ther servces the degree of drecton and contro
necessary to estabsh the reatonshp of empoyer and empoyee
under the usua common aw rues. See Mm. 57G3, C. B. 19 , 556.
If t s determned, under the usua common aw rues appcabe n,
determnng the empoyer-empoyee reatonshp, that ndvduas who
are homeworkers are not empoyees, then the statutory test provded
n secton 1 26(d) (3) (C) of the edera Insurance Contrbutons Act
s appcabe n determnng whether such homeworkers are empoyees
for purposes of that act. See Mm. 65 6, C. B. 1951-1,99.
Snce the performance of the servces here nvoved s not sub|ect
to censng requrements under the aws of the State n whch the
servces are performed, the homeworkers are not empoyees wthn the
meanng of secton 1 26 (d) (3) (C) of the edera Insurance Contrbu-
tons Act. See tem (b) of paragraph 7 of Mm. 65 6, supra.
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337 Regs. 12 , 0 .20 .
R GULATIONS 12 , S CTION 0 .20 : Who are Rev. RuL M- 33
empoyees.
(Aso Secton 1607, Secton 03.20 , Regu-
atons 10T Secton 1C21, Secton 06.203,
Reguatons 120.)
An ndvdua performs fu-tme saes servces for a corporaton
whch s prmary engaged n recappng truck tres and seng new
tres and tubes to owners of feets of trucks. The saesman socts
orders for tres e cusvey from genera constructon contractors and
transmts such orders to the corporaton. The tres are purchased by
the contractors for use n ther busness operatons and have a usefu
fe of 1 year or ess. The saesman performs a hs saes servces
personay, does not have a substanta nvestment n factes (other
than transportaton factes) used n the performance of hs servces,
s not requred to conform to f ed workng hours or to foow a pre-
scrbed routne, s not rembursed for trave or other e penses, s com-
pensated soey on a commsson bass and may termnate hs servces
at any tme, fed, (1) the genera constructon contractors are con-
tractors wthn the meanng of secton 1 26(d) (3) (D) of the edera
Insurance Contrbutons Act (subchapter A, chapter 9, Interna Rev-
enue Code of 1939) (2) the tres, havng a usefu fe of 1 year or ess,
are suppes for use n the busness operatons of the customers wthn
tu contempaton of secton 1 2G(d) (3) (D) of the Act and (3) the
saesman n the nstant case s not an empoyee under the usua common
aw rues appcabe n determnng the empoyer-empoyee reaton-
shp, but has the status of an empoyee under the statutory test provded
n secton 1 2G(d) (3) (D) of the Act See Mm. 65 3, C. B. 1951-1,97.
Accordngy, the saesman s an empoyee of the corporaton for pur-
poses of the ta es mposed under the edera Insurance Contrbutons
Act, but does not have the status of an empoyee for purposes of the
ta mposed by the edera Unempoyment Ta Act (subch. C, ch. 9.
Interna Revenue Code of 1939) or for purposes of wthhodng of
ncome ta at the source on wages.
R GULATIONS 12 , S CTION 0 .20 : Who are Rev. Ru. 5 - 50
empoyees.
Indvduas who dstrbute teephone drectores as spare-tme
work for a devery-servce corporaton pursuant to certan Instrnc-
tous whch reate to the resut to be acheved rather than the
manner and means by whch such resut Is accompshed, are not em-
poyees of the corporaton for edera empoyment ta purposes.
Advce s requested whether ndvduas performng servces durng
3 or days n a caendar year n the dstrbuton of teephone drec-
tores for a devery-servce corporaton are empoyees of the cor-
poraton for purposes of the edera Insurance Contrbutons Act
,(subchapter A, chapter 9. Interna Revenue Code of 1939).
In the nstant case tho devery-servce corporaton enters nto
contracts wth varous teephone companes for the dstrbuton of
new teephone drectores to ther subscrbers. Generay, the drec-
tores are dstrbuted ony once each year and dstrbuton s competed
wthn 3 or days. The names and addresses of tho subscrbers are
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Beg:. 12 , 0 .20 . 33
furnshed by the teephone companes on ndvdua devery tckets.
The number of drectores furnshed corresponds to the number of
devery tckets. The corporaton separates the tckets by areas and.
vrhere possbe, by streets. It aso separates the entre group of
tckets nto quanttes whch can convenenty be handed by an n-
dvdua usng an automobe or sma truck. The corporaton sends
a representatve to a gven area to rent space to be used as an operatng
center, to receve the new drectores from the prnters, and to engage
ndvduas to dstrbute the drectores. The dstrbutors are usuay
obtaned through advertsements n the oca newspapers.
The dstrbutors agree to dever the new drectores to subscrbers
at the ocatons shown on the devery record, attempt to pck up an
od drectory for each new drectory devered, return a devery
records and undevered new drectores, notfy the corporaton at
once f devery of the drectores cannot be competed wthn the
tme specfed, and te od drectores n bundes and return them to
the devery offce or operatng center. ach dstrbutor furnshes hs
own motor vehce and pays a e penses n connecton therewth. The
dstrbutors determne the means, manner and method of makng
the deveres and may hre and supervse assstants. The assstants
are pad by the dstrbutors.
The corporaton furnshes form etters to the dstrbutors suggest-
ng means for performng the work effcenty. As a rue, the corpo-
raton has no contact wth the dstrbutors from the tme they eave
the operatng center to begn devery unt the |ob s competed.
When the deveres are competed, the corporaton makes a spot
check by teephone for the purpose of determnng whether the de-
veres reported have actuay been made. A check or draft n pay-
ment for the servce s maed to each dstrbutor after the spot check
has been competed. The remuneraton for the servces s on a pece-
work bass, . e., a certan amount for each new drectory devered and
each od drectory returned.
The dstrbutors perform no other servces for the corporaton.
Secton 0 .20 (c) of Reguatons 12 reatng to the defnton of
the term empoyee for edera Insurance Contrbutons Act pur-
poses provdes that generay the reatonshp of empoyer and em-
poyee e sts when the person for whom servces are performed has
the rght to contro and drect the ndvdua who performs the serv-
ces, not ony as to the resut to be accompshed by the work but aso
as to the detas and means by whch that resut s accompshed.
Whether a person s an ndependent contractor or an empoyee s
argev a queston of fact to be determned upon the partcuar facts
o_f each case. In the nstant case t s ceary shown that the corpora-
ton nether e ercses nor has the rght to e ercse such contro over
the dstrbutors n the performance of ther devery servces as s
necessary under the usua common aw rues to estabsh an empoyer-
empoyee reatonshp for edera empoyment ta purposes. In fact,
the corporaton s nterested ony n the resut to be accompshed by
the work of the dstrbutors and not n the means by whch that resut
s accompshed. Accordngy, t s hed that the dstrbutors are not
empoyees of the corporaton for edera empoyment ta purposes.
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339 Regs. 12 , 0 2OL
Reguatons 12 , Secton 0 .20 : Who are Rev. RuL 5 -553
empoyees. . .
(Aso Secton 1, Secton 30. 1-1, Regu-
atons 11 ).
The owner-drver of a truck, who but up hs own pck-up and
devery aundry and dry ceanng servce route through door-to-
door soctaton, entered nto an ora agreement wth a aundry
pursuant to whch be takes bs customers artces to the aundry
for processng. In addton to the customers obtaned by hm, the
owner-drver occasonay serves customers referred to hm by
the aundry. He Is not sub|ect to supervson by the aundry n the
performance of hs servces. The owner-drver Is not an em-
poyee of the aundry under ether the usua common-aw rues ap-
pcabe In determnng the empoyer-empoyee reatonshp or the
statutory test provded In secton 1 20(d)(3)(A) of the ed-
era Insurance Contrbutons Act.
The Income derved by the owner-drver from hs pck-up and
devery servce route shoud be consdered In computng net earn-
ngs from sef-empoyment for purposes of the Sef- mpoyment
Contrbutons Act.
Advce has been requested reatve to the status, for purposes or the
edera Insurance Contrbutons Act (subchapter A, chapter 9, In-
terna Revenue Code of 1939) and the Sef- mpoyment Contrbu-
tons Act (subchapter , chapter 1, Interna Revenue Code of 1939)
of an owner-drver of a truck wth respect to servces performed by
hm n soctng and dstrbutng aundry and dry ceanng.
In the nstant caso the drver owns hs truck and but up hs own
pck-up and devery aundry and dry ceanng servce route through
door-to-door soctaton. ITo has socted aundry for a number of
rears and pror to enterng nto an ora agreement wth the present
auudry he took hs customers artces to other aundres for proc-
essng. Ho s not restrcted to any terrtory and a argo percentage of
hs customers ca hs homo for pck-up servce. e does not fur-
nsh the aundry wth a st of hs customers and he may se or trans-
fer hs route wthout obtanng the aundry s consent. The name of
the aundry does not appear on hs truck. The aundry refers most
requests for servce receved at ts pant to saared drvers consd-
ered to be ts empo -ees. The saared drvers perform the same
type of servces as the owner-drver, but they use trucks owned by
tho aundry, and are sub|ect to the drecton and contro of the
aundry. Occasonay, when a ca for servce s receved from a
terrtory known to bo covered by the owner-drver, such ca s re-
ferred to hm rather than send a speca devery truck for the aundry.
The owner-drver retans a percentage of the reta prce charged hs
customers, the baance s turned over to the aundry for ts servce to
hm. He handes hs own accounts, makes hs own coectons, and
bears a e penses ncurred n connecton wth the operaton and man-
tenance of hs truck. He s not sub|ect to supervson n any manner
by the aundry n the performance of hs servces and has no substan-
ta nvestment n factes (other than transportaton factes) used
n connecton wth such servces.
Secton 0 .20 (c) of Reguatons 12 provdes that generay the
ega reatonshp of empoyer and empoyee e sts when the person
for whom the servces are performed has the rght to contro and
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Regs. 12 , I 0 .20 . 3 0
drect the ndvdua who performs the servces, not ony as to the
resut to be accompshed by the work but aso as to the detas and
means by whch that resut s accompshed. It s not necessary that
he actuay drect or contro the manner n whch the servces are per-
formed, t s suffcent f he has the rght to do 60. An ndvdua
who s sub|ect to the contro or drecton of another merey as to the
resut to be accompshed by the work and not as to the means and
method for accompshng the resut, s an ndependent contractor.
An ndvdua performng servces as an ndependent contractor s
not as to such servces an empoyee under the usua common aw
rues.
Whether an ndvdua s an ndependent contractor or an empoyee
s argey a queston of fact to be determned upon consderaton of
the partcuar facts n each case. Under the crcumstances stated, t
s hed that the aundry nether e ercses nor has the rght to e ercse
such contro over the owner-drver n the performance of hs servces
as s necessary under the usua common aw rues to estabsh the re-
atonshp of empoyer and empoyee for edera empoyment ta
purposes.
Wth respect to servces performed after 1950, an agent-drver or
commsson-drver who s not an empoyee under the usua common
aw rues s consdered an empoyee of hs prncpa (for purposes of
the edera Insurance Contrbutons Act ony) f he meets the statu-
tory test provded by secton 1 26(d) (3) (A) of the edera Insur-
ance Contrbutons Act. See Mm. 6601, C. B. 1951-1,103. Secton.
0 .20 (d), Reguatons 12 , n defnng the term agent-drver or
commsson-drver for purposes of the Act, states, among other
thngs, that such term ncudes an ndvdua who serves customers
desgnated by the person for whom he performs servces as we as
those socted on hs own.
It s concuded that the owner-drver s not an empoyee under the
statutory test provded bv secton 1 26(d)(3)(A) of the edera
Insurance Contrbutons Act, snce there s no contract of servce
and no prncpa as those terms are used n that secton of the Act.
Aso, the fact that the aundry occasonay refers requests for servce
to the owner-drver s not consdered a desgnaton of customers
wthn the meanng of secton 0 .20 (d) of Reguatons 12 . #
As a genera rue, a person who s engaged n an occupaton or
professon forproft and who s not regarded as an empoyee for pur-
poses of the edera Insurance Contrbutons Act s engaged n a
trade or busness. Such ndvdua w be regarded as Demg sef-
empoyed under the Sef- mpoyment Contrbutons Act f the trade
or busness n whch he s engaged does not come wthn the e cu-
sons stated n secton 1 (c) of such Act.
The performance of servces by the owner-drver under the cr-
cumstances stated s not e cuded from the term trade or busness
as defned n secton 1 (c) of the Act. Accordngy, the ncome de-
rved by such ndvdua from hs pck-up and devery servce route
shoud be consdered n computng net earnngs from sef-empoy-
ment for purposes of the Sef- mpoyment Contrbutons Act.
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3 1 Regs. 12 , 0 .20 .
Reguatons 12 , Secton 0 .20 : Who are Rev. Bu 5 -572
empoyees.
(Aso Sectons 0 .226, 0 .227.)
A bona fde empoyer-empoyee reatonshp, rather than a furay
dependency arrangement, e sts where a brother engages hs sster,
who Is Independent of hs fnanca support, to act as housekeeper
and companon and to perform mnor nursng servces In hs home
durng reguar hours and accordng to hts nstructons.
Advce has been requested as to the status, under the edera In-
surance Contrbutons Act (subchapter A, chapter 9, Interna Revenue
Code of 1030), of an ndvdua who performs servces n the home of
her brother.
The ndvdua s engaged by her brother to assst n the nursng
and care of hs wfe. Pror to the engagement he had empoyed
severa regstered or traned practca nurses but, due to the dffcuty
of retanng adequate nursng and care for hs wfe, he persuaded
hs sster, who ved n another cty, to retre from her poston as a
teacher and to work n hs home. He agreed to pay her a saary equa
to the average saary pad to a professona nurse unt the tme she
woud normay have retred from her teachng poston.
The prncpa dutes nvoved are those of a housekeeper and com-
panon. She prepares breakfast, unch, and occasonay dnner, or-
ders suppes, and keeps the house n order. Her attendance upon her
brother s wfo s mosty of a persona nature, such as takng her for
rdes or for vsts durng the day, admnsterng medcne, etc. She s
guded by her brother s nstructons and her hours of duty are deter-
mned by hm. There are reguar, defnte perods durng whch no
servces are performed.
Appyng the pertnent tests set forth n Rev. Ru. 135, C. B. 1953-2,
306, t s hed that a famy dependency arrangement does not e st
between the brother and sster n the nstant case. The sster s not
dependent upon her brother for support she dd not, pror to the
perod nvoved, ve n hs home as a member of hs famy or receve
fnanca support from hm and, n vew of hs need, she termnated
her empoyment esewhere to come to hs home and perform the
requred servces on a saary bass.
Snce t s hed that a famy dependency arrangement does not e st
between the brother and sster, t s necessary to determne whether
an empoyer-empoyee reatonshp e sts or whether the sster s an
ndependent contractor and, as such, sef-empoyed wth respect to
the servces whch she performs.
Secton 1 2G(d) of the act provdes that the term empoyee
means, among other thngs not here matera, any ndvdua who,
under the usua common aw rues appcabe n determnng the em-
poyer-empoyee reatonshp, has the status of an empoyee.
The terms wages and empoyment are defned under sectons
1 2G (a) and (b) of the act, respectvey. Paragraph (7) (A) of
secton 1 20(a) e cepts from the term wages remuneraton pad n
any medum other than cash to an empoyee for domestc servce n
prvate home of the empoyer, and paragraph (7) (B) e cepts from
such term cash remuneraton pad by an empoyer to an empoyee for
domestc servce n a prvate home n any caendar quarter f the
amount thereof s ess than 50.00 or the empoyee s not reguary
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Regs. 12 , 5 0 .20 .) 3 2
empoyed by the empoyer n such quarter of payment These defn-
tons are appcabe wth respect to wages for servces performed after
December 31,1950.
A practca nurse engaged n the performance of servces for a
prvate patent, whch prmary nvove the nursng care of and
attendance upon the patent, usuay s not sub|ect to the drecton
and contro necessary to consttute her an empoyee. The status of
such a nurse s not affected by the fact that n some nstances she may
perform certan servces of a househod nature ncdenta to the nurs-
ng care of the patent. However, where a practca nurse s engaged
prmary to perform servces of a househod nature, as dstngushed
from servces nvovng the care of a prvate patent, she s an
empoyee. See paragraph 6 of Mra. 6C5 , C. B. 1951-2, 163.
In the nstant case the servces performed are prmary those of a
housekeeper and companon wth ony mnor nursng care and are
performed n the prvate home of the empoyer and under hs drecton
and contro. It s hed further, therefore, that the reatonshp of
empoyer and empoyee e sts between the brother and sster wth
respect to the servces whch she performs. Snce the servces are
peformed n the prvate home of the empoyer, they consttute
domestc servce and, effectve anuary 1, 1951, the provsons of
secton 1 26(a) (7) (B) of the edera Insurance Contrbutons Act
are appcabe n determnng whether the remuneraton for the
servces consttutes wages sub|ect to the ta es mposed under the act.
B OULATIONS 12 , S CTION 0 .20 : Who are Rev. Ru. 5 -573
empoyees.
(Aso Secton 0 .20 Secton 1, Secton
39. 1-1, Reguatons 11 .)
A entered nto an agreement wth the M Cannng Company to
perform servces as a bean staton manager, whereby he Is requred
to arrange wth growers for the producton and devery of beans
dstrbute seeds to growers and receve, wegh and tag beans de-
vered to the bean staton ocated on hs premses. He may soct
and negotate contracts wth farmers of hs own choce may engage
n other occupatons durng the term of the contract s not requred
to perform the servces personay, and s not requred to vst the .
farms of growers. He s pad for each type of servce on ether m
acreage or poundage bass accordng to the voume of producton.
Bed, that A s not an empoyee of the company for purposes of the
edera Insurance Contrbutons Act The ncome derved by A
from operaton of the bean staton shoud be consdered n com-
putng net earnngs from sef-empoyment for purposes of the
Sef- mpoyment Contrbutons Act.
A queston has been presented reatve to the status for purposes of
the edera Insurance Contrbutons Act (subchapter A, chapter 9,
Interna Revenue Code of 1939) and the Sef- mpoyment Con-
trbutons Act (subchapter , chapter 1, Interna Revenue Code of
1939) of an ndvdua engaged n the management of a bean staton
for a cannng company.
In order to factate wrtng bean contracts, dstrbutng seed to
growers, and to hod to a mnmum the dstance a grower must trave
to dever hs beans, the M Cannng Company estabshed a number of
bean statons wthn a certan farmng area. It engages feed m
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3 3 Regs. 12 , 0 .20 .
operators, grocery store operators, tavern keepers, farmers, etc, to
operate and manage bean statons as ts agents. A, the operator of a
farm, beng convenenty ocated and havng the premses and the
tme to serve as a bean staton manager, was engaged by the company
under a wrtten contract whereby the company agreed to furnsh bean
seeds and the necessary equpment and materas for the recevng and
weghng of beans at the staton. A agreed to act for the company n
arrangng wth oca growers for the producton and devery of beans
durng the season, n dstrbutng seed to the growers, and n recevng,
weghng, and taggng beans devered to the staton. He further
agreed to provde sufcent hep for the prompt performance of the
dutes, ncudng assstance n oadng the beans on company trucks.
Tho company specfed the types and varetes of beans nnd the
acreage to be contracted for, as we as the prces to be quoted. A may
negotate contracts wth growers of hs own choce wthn a specfed
terrtory, but the contracts are sub|ect to approva by the company.
He s not requred to foow any f ed schedue, but the nature of the
work requres that t be competed wthn a specfed tme. The con-
tract growers usuay ca for ther seeds at A s home. He does not
fnd t necessary to, n fact, he does not, vst ther farms durng the
pantng, growng, or harvestng seasons for purposes of hs operatons
for the company. He contracts for acreage n the wnter, dstrbutes
seeds n May, weghs tho beans n the fa, and s pad for each type
of servce on an acreage or poundage bass at the end of the season m
whch the servce was performed. He may engage n any other occu-
paton he desres, provded he performs the servces specfed n hs
contract wth the company, and the contract may be canceed by ether
party upon wrtten notce. The company makes payment drect to the
farmers for the beans whch thev produce for t.
Secton 1 20(d) of the edera Insurance Contrbutons Act, as
amended, provdes, among other thngs, that the term empoyee
means any ndvdua who, under the usua common aw rues app-
cabe n determnng the empoyer-empoyee reatonshp, has the
status of an empoyee. In defnng the term empoyee, secton
0 .20 (c) of eguatons 12 provdes that generay the ega rea-
tonshp of empoyer and empoyee e sts when the person for whom
servces are performed has the rght to contro and drect the nd-
vdua who performs the servces, not ony as to the resut to be accom-
pshed by the work but aso as to the detas and means by whch that
resut s accompshed. It s not necessary that the empoyer actuay
drect or contro the manner n whch the servces are performed
t s suffcent f he has a rght to do so. An ndvdua who s sub|ect
to the contro or drecton of another merey as to the resut to be ac-
compshed by the work and not as to the means and methods for
actuay accompshng the resut, s an ndependent contractor. An
ndvdua performng servces as an ndependent contractor s not, as
to such servces, an empoyee under the usua common aw rues.
Whether an ndvdua s an ndependent contractor or an empoyee
s argey a queston to be determned upon consderaton of the par-
tcuar facts n each case. In ths case, the arrangement between the
partes merey cns for the accompshment of certan operatons wth-
out ropard to tho manner or method n whch thev are conducted.
Accordngy, t s determned that the M Cannng Company nether
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Regs. 12 , 0 .20 . 3
e ercses nor has the rght to e ercse such contro over A n the per-
formance of hs servces as s necessary under the usua common aw
rues to estabsh the reatonshp of empoyer and empoyee for pur-
poses of the edera Insurance Contrbutons Act.
Under the terms of the contracts negotated by A wth the bean
growers on behaf of the M Cannng Company, the growers do not sur-
render, nor s there vested n the company or A, a rght to possesson
of the and covered by the contracts. The company s rght of pos-
sesson e tends ony to possesson of the specfc crop grown on the and
and payments made to the growers are for crops produced. Under
such crcumstances, nether the company nor A s n possesson and
engaged n the operaton of any one of the farms where the bean crop
s produced, nor s ether one of them the producer of such crop.
Accordngy, the servces performed after 1950 n handng and ds-
trbutng the seed and n handng, weghng, taggng and oadng the
beans, do not consttute agrcutura abor wthn the meanng of
secton 1 26(h)( ) (A) of the act, as amended. See Rev. Ru. 17 ,
C. B. 1953-2, ,299. Lkewse, the nonhandng servces reated
thereto, such as cerca and admnstratve servces, repar and up-
keep of the bean staton and ts toos and equpment, and the negota-
ton of bean growng contracts, do not consttute agrcutura abor
wthn the meanng of secton 1 26(h) of the act, as amended.
The queston now arses whether the ncome whch A derves from
hs servces as a bean staton manager consttucs net earnngs from
sef-empoyment.
Secton 1 of the Sef- mpoyment Contrbutons Act provdes
n part:
(a) Nt ar wngs rom St r- MPLOY NT. The term net earnngs from
sef-empoyment means the gross Income derved by an ndvdua from any
trade or busness carred on by such Indvdua, ess the deductons aowed by
ths chapter chapter 1 whch are attrbutabe to such trade or busness
e cept A

(2) There sha be e cuded Income derved from any trade or busness
In whch. If the trade or busness were carred on e cusvey by empoyees,
the ma|or porton of the servces woud consttute agrcutura abor as
defned n secton 1 20(h)

(c) Trade or Busness. The term trade or busness, when used wth
reference to sef-empoyment Income or net earnngs from sef-empoyment,
sha have the same meanng as when used n secton 23, e cept that such term
sha not Incude

(2) The performance of servce by an Indvdua as an empoyee .
As a genera rue, a person who s engaged n an occupaton or
professon for proft and who s not regarded as an empoyee for pur-
poses of the edera Insurance Contrbutons Act ta es, s engaged n
a trade or busness for sef-empoyment ta purposes.
In the nstant case, t s concuded that the enterprse conducted
by A n the operaton of a bean staton for the M Cannng Company
consttutes a trade or busness. Snce A, as a bean staton manager,
s not an empoyee and the servces performed n connecton wth
the bean staton are not of the type whch, f performed by empoyees,
woud consttute agrcutura abor wthn the meanng of secton
1 26(h) of the edera Insurance Contrbutons Act, the ncome
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3 5 Regs. 12 , 0 .2W-
derved by hm from the trade or busness s not to be e cuded, but
Bhoud be consdered n computng hs net earnngs from sef-empoy-
ment for purposes of the Sef- mpoyment Contrbutons Act.
muatons 12 , Secton 0 .20 : Who are Rev. RuL 5 -5 6
empoyees.
(Aso Secton 1, Secton 39. 1-1, Regu-
atons 11 .)
A trade consutant wbo hods bs servces avaabe to the genera
pubc who Is remunerated on a fee or retaner bass, and Is not
sub|ect to the drecton and contro of bs cents as to the means
and methods of operaton, a not an empoyee of such cents
for edera empoyment ta purposes.
Income derved from such actvtes shoud be consdered In com-
putng net earnngs from sef-empoyment for purposes of the Scf-
mpoymcut Contrbutons Act.
An nqury has been receved reatve to the status, for purposes of
the edera Insurance Contrbutons Act (subchapter A, chapter 9,
Interna Revenue Code of 1939) and the Sef- mpoyment Contrbu-
tons Act (subchapter , chapter 1, Interna Revenue Code of 1939)
of a trade consutant performng servces under the crcumstances
descrbed beow.
The consutant has been engaged by varous frms or cents to whom
he suppes genera nformaton regardng condtons n other parts
of tho country, such as the scope of actvtes of certan other frms,
the type of product manufactured and so forth. In renderng hs
servces ho may bo requred to ntate and conduct negotatons be-
tween hs cents and other frms, or he may be nstructed to concude
an agreement wth a frm for tho sae of ts products to a cent.
Agan, ho may bo requested merey to e pore certan possbtes or
to securo nformaton whch may bo benefca n a cent s busness.
Busness assgnments are secured ether by persona contact or by ma.
or servces rendered, the consutant s pad by fee or on a retaner
bass. Hs servces are avaabe to anyone who desres the type of
nformaton ho may bo n a poston to secure and he s sub|ect to the
drecton and contro of hs cents ony wth respect to the resuts
desred by such cents.
Secton 1 20(d) of the edera Insurance Contrbutons Act, as
amended, provdes, among other thngs, that the term empovee
means any ndvdua who under the usua common aw rues appca-
be n determnng the empoyer-empoyee reatonshp, has the status
of an empoyee. In defnng the term empoyee, secton 0S.2O (c)
of Reguatons 12 provdes that generay the ega reatonshp of
empoyer and empoyee e sts when the person for whom servces are
performed has tho rght to contro and drect the ndvdua who per-
forms tho servces, not ony as to the resut to be accompshed by the
work but aso as to the detas and means by whch that resut s accom-
pshed. It s not necessary that the empoyer actuay drect or con-
tro the manner n whch the servces are performed, t s suffcent f
he has a rght to do so. An ndvdua who s sub|ect to the contro or
drecton of another merey as to the resut to be accompshed by the
work and not as to the means and methods for actuay accompshng
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Begs. 12 , 0 .20 . . 3 6
the resut,- s an- ndependent contractor. An ndvdua performng
servces as an ndependent contractor s not, as to such servces, an
empoyee under the usua common aw rues.
Whether an ndvdua s an ndependent contractor or an empoyee
s argey a queston to be determned upon consderaton of the partc-
uar facts n each case. In the nstant case, t s determned that the
cents for whom the trade consutant performs servces nether e ercse
nor have the rght to e ercse such contro over the consutant n the
performance of hs servces as s necessary under the usua common
aw rues to estabsh the reatonshp of empoyer and empoyee for
purposes of the edera Insurance Contrbutons Act.
Secton 1 of the Sef- mpoyment Contrbutons Act provdes n
part:
(n) Nkt Amman oh Srt.r- MrMYM WT. To term net earnngs from sef-
empoyment menu to gron Income derved y nn Imtvdun from my trade or
busness curred on by sue Indvdua, ess the deductons aowed by ts chapter
chapter 1 whch ore attrbutabe to such trade or busness,
A
(e) Tbadc oa Busness. Tho term trado or busness. when usort wth refer-
ence to sef-empoyment Income or net earnngs from scf-cupoymunt, sha have
the same meanng as when used In secton 23, .
As a genera rue, a person who s engaged n an occupaton or pro-
fesson for proft and who s not an empoyee for purposes of the ed-
era Insurance Contrbutons Act ta es, s engaged n a trade or bus-
ness.
The actvtes conducted by the trade consutant n the nstant case
consttute a trade or busness wthn the meanng of the abov
quoted secton of the Act and the ncome derved therefrom shoud be
consdered n computng net earnngs from sef-empoyment for pur-
poses of the Sef- mpoyment Contrbutons Act.
Reguatons 12 , Secton 0 .20 : Who are Rev. Ru. 5 -616
empoyees.
The M scort Servce, organzed to provde escort servces for
varous funera parors, whch engages cty poce (traffc) offcers
to perform such servces, drects them to whch funera paror to
go to perform ther servces, pays them for such servces and may
termnate the servces at any tme, possesses the rght of contro
and drecton prescrbed by the reguatons as beng necessary to
estabsh the empoyer-empoyee reatonshp for edera empoy-
ment ta purposes.
Advce s requested reatve to the status for edera empoyment
ta purposes of cty poce (traffc) offcers who are engaged by a fun-
era escort servce to perform escort servces for varous funera par-
ors durng ther off-duty hours.
_ The cty n whch the M scort Servce s ocated has no respons-
bty to funera parors for safe conduct of funera processons as
such. The cty s poce offcers cannot be spared durng reguar duty
hours and the cty cannot pay them for work whch s construed as
the gvng of servce to prvate nstead of pubc organzatons. The
funera parors formery engaged off-duty poce offcers for escort
servce but due to severa funeras beng hed on the same day, con-
fusng stuatons arose as to avaabe men, charges for the work, pay-
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3 7 (Regs. 13 , f 0 .20 .
ment.of the charges, etc Accordngy, the M scort Servce was
organzed to provde escort servces for the varous funera parors.
It engages cty poce (traffc) offcers who are off duty and drects
them to whch funera paror to go to perform the servces. These
ndvduas rde cty-owned motor-cyces, use cty gasone and o,
wear cty poce unforms and cty badges wth the sancton and
approva of the cty counc. Whe on escort duty they are em-
powered to and do enforce traffc safety aws and ssue traffc voaton
ctatons whch are honored n traffc court. They are not assgned
to such duty by the poce department or by the cty. The funera
parors ssue nstructons such as when to start, whether the processon
s to stop en route, the destnaton of the processon, etc. It the serv-
ces of an ndvdua am not satsfactory to the drector of a funera,
ho nmy dmnns the ndvdua from the partcuar assgnment. The
Servco s Inter requested not to assgn the specfc offcer to escort
. rdes orgnatng at that paror- Any ndvdua may refuse to ac-
cept an assgnment. The ndvduas are pad by the Servce monthy
n accordance wth a schedue of rates tor each assgnment agreed
upon between tho ndvduas and the Servce.
In defnng tho term empoyee under the usua common aw
rues, secton 0 .20 (c) of eguatons 12 provdes that generay
the ega reatonshp of empoyer and empoyee e sts when the
person for whom servces are performed has the rght to contro and
drect the ndvdua who performs the servces, not ony as to the
resut to be accompshed by the work but aso as to the detas and
means by whch that resut s accompshed. It s not necessary that
the empoyer actuay drect or contro the manner n whch the serv-
ces are performed, t s suffcent f he has the rght to do so. The
rght to dscharge s aso an mportant factor ndcatng that the
person possessng that rght s an empoyer. .
Duo to the arrangement and condtons under whch the ndvduas
nvoved perform the servces, the queston as to whose empoyees
they are may be determned ony after carefu consderaton of the
queston as to who has the rght of contro and drecton prescrbed
by the reguatons as be ng necessary to estabsh the empoyer-
empoyee reatonshp. -
The traffc offcers durng ther off-duty hours are not performng the
escort servces under the drecton and contro of the cty counc.
The facts that they are aowed certan prveges by the cty counc
. and enforce traffc safety aws whe on funera escort servce are
mmatera.
Athough the funera parors ssue certan nstructons wth respect
to the processon, such nstructons are ssued wth the e press or
mped consent of the Servce and do not consttute the rght of drec-
ton and contro contempated by secton 0 .20 (c), svpra. Whe
the funera parors have the rght to refuse the servces of a partcuar
ndvdua, ths rght cannot be construed to be the rght to dscharge.
The Servce engages the ndvduas under a contnung arrangement
as evdenced by the fact that, f a partcuar ndvdua s re|ected by
one funera paror, t has the rght to assgn the ndvdua to another.
The Servce nas the fna rght to determne whether the servces of an
ndvdua are generay unsatsfactory and, f so, to termnate hs
servces at any tme. Accordngy, t s hed that the ndvduas n
33310 53 23
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Regs. 12 , 0 .205. 3
the nstant case are empoyees of the M scort Servce for edera
empoyment ta purposes. .
Reguatons 12 , Secton 0 .20 : Who are
empoyees.
Part-tme fe nsurance saesman. See Rev. Bu. 5 -309, page 2G1.
Reguatons 12 , Secton 0 .20 : Who are
empoyees.
Appcabty of determnaton of status as an empoyee to edera
ncome ta cases. See Rev. Ru. 5 -6 7, page 57.
Reguatons 12 , Secton 0 .205: Who are Rev. Ru. 5 - 71
empoyers.
(Aso Sectons 0 .20 , 0 .21 Secton
1607, Sectons 03.20 , 03.205, 03.21 ,
Reguatons 107 Secton 1621, Sectons
06.203, 06.205, Reguatons 120.)
A ctrus commsson, whch Is a whoy-owned Instrumentaty
Of a State, socted the assstance of an advertsng agency n ar-
rangng for demonstratons of products under the commsson s
|ursdcton. The commsson Instructed each demonstrator as to
the nature of the servces and the manner of performance. The ag-
ency acted as a payng agent for the commsson. Hed, the common
aw reatona of empoyer and empoyee e sted between the
commsson and the demonstrators and ther servces are e cepted
from empoyment under secton 1 20(b)( ) of the edera In-
surance Contrbutons Act and secton 1607(c)(7) of the edera
. Unempoyment Ta Act
The remuneraton for the servces performed by the demonstrators
consttute wages wthn the meanng of secton 1621(a) of the
. Interna Revenue Code of 1939 and s sub|ect to Income ta wth- ,
hodng. The advertsng agency, whch has contro of the payment
. of the wages, s responsbe for the wthhodng of edera In-
come ta from such wages.
Advce s requested reatve to the status, for purposes of the edera
Insurance Contrbutons Act, edera Unempoyment Ta Act and
Coecton of Income Ta at Source on Wages (subchapters A, C, and
D, respectvey, chapter 9, Interna Revenue Code of 1939) of nd-
vduas pad by an advertsng agency on behaf of a State ctrus
commsson to demonstrate products under the commsson s |urs-
dcton at the markets.
In the nstant case a dvson manager of a State ctrus commsson
n charge of arrangng for demonstratons of certan ctrus products
socted the assstance of an advertsng agency n smpfyng hs
deangs wth ndvduas engaged, for a 2-day perod, to demonstrate
the products n varous markets. At the end of the perod the man-
ager notfed the agency that the demonstratons had been competed
and authorzed the agency to pay each demonstrator for the servces
performed. The agency, n accordance wth ts agreement wth the
manager, then bed the man offce of the commsson for the tota
amount dsbursed, pus a commsson on each demonstrator, and re-
ceved payment from the commsson.
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3 9 (Regs. 1 , 0 .205.
The manager In some nstances, and the agency n others, seected
and engaged the demonstrators. However, n a nstances the man-
ager f ed the amount and authorzed payment of the demonstrator s
wages. The agency acted as payng agent for the commsson. The
manager made a necessary arrangements for the demonstratons, as-
sgned a ocaton to each demonstrator, nstructed each demonstrator
as to the nature of the servces to be rendered and the manner of
performance, and e ercsed such contro as he consdered necessary
over the demonstrators to nsure proper performance of ther servces.
or edera Insurance Contrbutons Act and edera Unempoy-
ment Ta Act purposes, every ndvdua s an empoyee f under the
usua common aw rues the reatonshp between hm and the person
for whom he performs servces s the ega reatonshp of empoyer
and empoyee. Generay, such reatonshp e sts when the person
for whom servces are performed has the rght to contro and drect
the ndvdua who performs the servces, not ony as to the resut to
be accompshed by the work but aso as to the detas and means by
whch that resut s accompshed. Whether the reatonshp of em-
poyer and empoyee e sts under the common aw rues s determned
upon the partcuar facts e stng n each case.
In the nstant case, t s hed that the State ctrus commsson e er-
csed such contro over the demonstrators n the performance of ther
servces as s necessary to estabsh the reatonshp of empoyer and
empoyee for edera Insurance Contrbutons Act and edera Un-
empoyment Ta Act purposes. The fact that n some nstances the
agency seected and engaged the demonstrators on behaf of the com-
msson does not negatve the e stence of an empoyer-empoyee re-
atonshp between the commsson and the demonstrators.
The State ctrus commsson, created by statute as a body corporate,
acts as a genera supervsory authorty over the admnstraton and
enforcement of the State ctrus code. Its powers are deegated by
statute, ncudng the e press power to empoy and, at ts peasure, to
dscharge such empoyees as t deems necessary n the performance
of ts dutes and the e ercse of ts powers. The 12 members of the
commsson are apponted by the Governor of the State and receve
no compensaton for ther servces. The commsson s fnanced by
certan e cse ta es, nspecton fees, and cense fees mposed by the
State ctrus code whch are pad nto the State treasury and are
approprated and made avaabe for defrayng the e penses ncurred
by the commsson. The commsson s requred to make an annua
report of ts work to the Governor of the State and aso such speca
reports upon any phase of ts work as may be caed for by the Gover-
nor, the egsature, or ether house thereof.
Secton 1 26(b) of the edera Insurance Contrbutons Act, as
amended, contans the foowng e cepton from the term empoy-
ment, as that term s defned n the Act:
( ) Servce A performed In the empoy of a State, or any potca sub-
dvson thereof, or any Instrumentaty of any one or more of the foregong
whch Is whoy owned by one or more States or potca subdvsons .
Paragraph (7) of secton 1607(c) of the edera Unempoyment Ta
Act contans smar provsons.
It s hed that athough a common aw reatonshp of empoyer
and empoyee e sted between the State ctrus commsson and
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Regs. 123, 0 .20 . 350
the demonstrators, for edera Insurance Contrbutons Act and
edera Unempoyment Ta Act purposes, the demonstraton servces
performed for the commsson, au nstrumentaty whoy owned by
the State, arc e cepted from empoyment by reason of the above-
mentoned sectons of the Acts, and abty for the ta es mposed
by the Acts s not ncurred by the commsson. Provson s made
under secton 21 of the Soca Securty Act, as added by the Soca
Securty Act Amendments of 1950, for the coverage of certan State
and oca empoyees for purposes of benefts under tte II of such
Act pursuant to vountary agreements between the States and the
Secretary of Heath, ducaton, and Wefare. uestons reatng to
such matters shoud be addressed to that Department.
Secton 1621 (a) of the Interna Revenue Code defnes the term
wages for purposes of ncome ta wthhodng as a remuneraton
for servces performed by an empoyee for hs empoyer wth certan
e ceptons not here matera.
It s further hed that the remuneraton of the demonstrators for
servces performed n demonstratng the products of the commsson,
consttute wages for purposes of the ncome ta wthhodng.
Paragraph (1), secton 1621(d) of the Interna Revenue Code, n
defnng the term empoyer for ncome ta wthhodng purposes
provdes:
(1) It the person for whom the Indvdua performs or performed the
servces does cot have contro of the payment of the wages for such servces,
the term empoyer means the person havng contro of the
payment of such wages .
Under the arrangements cted, the agency had contro of the pay-
ment of the wages for such servces to the e tent contempated by
paragraph (1), supra. Accordngy, as the empoyer of the demon-
strators for ncome ta wthhodng purposes, the agency s respons-
be for the wthhodng of edera ncome ta from the wages of
each demonstrator.
R GULATIONS 12 , S CTION 0 .205: Who are
empoyers. ,
Changes n membershp of mted partnershp. See Rev. RuL
5 - , page 2 2.
R GULATIONS 12 , S CTION 0 .20 : Agrcu- Rev. Ru. 5 -3 3
tura abor.
arm management servces performed In ma|or part on a farm,
wthout regard to the ownershp of the farm area, n the empoy
of the owner or tenant or other operator of the farm to whch the -
servces reate consttute agrcutura abor wthn the meanng
ot secton 1 26(h) (2) of the edera Insurance Contrbutons Act.
Advce s requested whether farm management servces performed
n the empoy of the owner of a farm consttute agrcutura abor
wthn the meanng of secton 1-12G(h) (2) of the edera Insurance
Contrbutons Act (subchapter A, chapter 9, Interna Revenue Code
of 1939) f such servces are performed n ma|or part on a farm other
than that to whch they reate.
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L 351 pfegs. 15 , 5 0 -20 .
In the nstant case A, an ndvdua who owns and ves on a farm,
receves a monthy saary for farm management servces performed
on a part-tme bass for B, the owner of nn ad|onng farm. A s man-
agement servces ncude seectng tenants rentng and on a crop
snarng bass purchasng seed, fertzer, and suppes advsng
tenants wth respect to the rotaton of crops and the tme to pant
and harvest the crops and appy nsectcdes and pannng for the
repar and mantenance of the tennnt houses and other farm budngs.
Hs servces, however, do not e tend to the actua contro of the tenant
farmers or farm empoyees. The ma|or porton of A s management
servces are rendered on hs own farm rather than on B s farm. A s
sub|ect to the drecton and contro of B n the performance of the
management servces to a degree suffcent to estabsh the reatonshp
of empoyer and empoyee for edera empoyment ta purposes.
Secton 1 20(h) of the Act provdes n part:
The term agrcutura abor ncudes a servces performed

(2) In the empoy of the owner or tenant or other operator of a farm,
tn connecton wth the operaton, management, conservaton. Improvement, or
mantenance of such farm and Its toos and equpment, If the ma|or
part of such servce Is performed on a farm.
It s concuded that the farm management servces rendered by A
are of the type contempated by paragraph (2) of secton 1 26(h)
of the Act. Accordngy, such servces w consttute agrcutura
abor f the other requrements of paragraph (2) are met, namey,
that the servces be performed (1) n the empoy of the owner or
tenant or other operator of a farm n connecton wth the management,
etc., of such farm (the word such denotng the farm to vhch the
servces reate), and (2) n ma|or part on a farm (the word a denotng
any farm, rrespectve of the ownershp of the farm area).
In the nstant case t s recognzed that requrement (1) above has
been met, . e.. A performs servces n the empoy of B, the owner of the
farm to whch the servces reate. Wth respect to requrement (2),
whe under the foregong provsons of aw the management servces
are requred to be performed n ma|or part on a farm, t s to be noted
that the aw does not requre that the servces be performed n ma|or
or any part on the farm to whch the servces reate. Accordngy t
s hed that the farm management servces performed by A n ma|or
part on a farm, rrespectve of the ownershp of the farm area where
such servces are actuay performed, consttute agrcutura abor
wthn the meanng of paragraph (2) of secton 1 26(h) of the Act
muatons 12 , Secton 0 .20 : Agrcu- Rev. Ru. 5 - 7
tura abor.
(Aso Sectons 0 .226, 0 .227(g).)
panaton of the term quafyng quarter for purposes of sec-
ton 1 20(b) (1) (A) of the edera Insurance Contrbutons Act as
It appes to 11)5 and pror years and condtons under whch on
empoyee s remuneraton for agrcutura abor consttutes
wages sub|ect to tbe ta es Imposed under the Act.
Advce s requested reatve to the requrements for estabshng a
. quafyng quarter for purposes of secton 1 26(b) (1) (A) of thA
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Regs. 12 , 0 .20 . 352
edera Insurance Contrbutons Act (subchapter A, chapter 0. In-
terna Revenue Code of 1930) and the condtons under whch an
empoyee s remuneraton for agrcutura abor consttutes wages
sub|ect to the ta es mposed under the act.
In the atter part of 1950 A, the owner of a farm, engaged B, a
farm worker, to operate hs farm begnnng anuary 1, 1051. B
actuay began workng n ebruary 1951. Athough under the org-
na agreement B s compensaton was to consst of one-thrd of the
crops and vestock rased on the farm, cash advances aganst the
shares were gven to B and n uy 1951 the agreement was modfed
to provde that B woud be pad reguar cash wages nstead of a share
of the farm products. By reason of the aforesad cash advances, B s
remuneraton for servces rendered durng the year 1951 amounted to
50 or more durng each of the caendar quarters of the year. Ho
actuay performed servces on 60 or more days durng ony tho second
caendar quarter of the year. A e ercsed drecton and contro oyer
B n the performance of hs servces to a degree suffcent to estabsh
an empoyer-empoyee reatonshp under the usua common aw rues,
and such servces consttuted agrcutura abor wthn the meanng
of secton 1 26(h) of the act.
Under secton 1 20(b)(1)(A) of the act the term empoyment
does not ncude agrcutura abor performed n any caendar
quarter after 1950 by an empoyee for hs empoyer uness the cash
remuneraton for such abor (wth certan specfed e ceptons not
here matera) s 50 or more and such abor s performed for an
empoyer by an ndvdua who s reguary empoyed by such em-
foyer to perform such agrcutura abor. An ndvdua s deemed
o be reguary empoyed durng a caendar quarter ony f () he
performs agrcutura abor for hs empoyer on a fu tme bass on
60 days durng such quarter and () the quarter was mmedatey
preceded by a quafyng quarter.
uafyng quarter, as used n secton 1 26(b) (1) (A) () of the
act, as amended, means a caendar quarter durng a of whch an
ndvdua s contnuousy empoyed by the same empoyer. The
ndvdua s consdered contnuousy empoyed f there s an
empoyer-empoyee reatonshp between hm and hs empoyer from
the frst to the ast day of the caendar quarter. or the purpose of
estabshng a quafyng quarter t s mmatera whether the nd-
vdua actuay performs any servces durng the quarter or whether
any servces performed consttute agrcutura abor. _ It s necessary
ony that durng the entre caendar quarter there s a contnuous
reatonshp of empoyer and empoyee. Whether a contnuous re-
atonshp of empoyer and empoyee e sts between a farm operator
and a farm worker durng a of a caendar quarter s a queston of
fact determnabe ony on the bass of the provsons of the agreement
between tho partes and the reatonshp contempated by them as
estabshed by such agreement.
Once a quafyng quarter has been estabshed wth respect to
an empoyee, that empoyee w be regarded as reguary empoyed
n each succeedng quarter n whch he works 60 or more days, whether
consecutve or not, on a fu-tme bass n agrcutura abor for the
same empoyer. urthermore, he w be deemed to be reguary
empoyee n the quarter foowng one n whch he performs agr-
cutura abor for the same empoyer on a fu-tme bass on 60 or
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353 Regs. 12 , 0 .20 .
more days even though n such foowng quarter he does not meet
the 60-day test. When such test s not met, ordnary t mght be
presumed that the chan of empoyment has been broken, n whch
event t woud be necessary that a new quafyng quarter be estab-
shed. However, a quarter n whch the CO-day test s not met
nevertheess may consttute a quafyng quarter, for purposes of
the foowng quarter, f durng such uarter a contnuous reaton-
shp of empoyer and empoyee actuay e sted between the partes
by reason of the provsons of the empoyment agreement.
Under secton 1 26(a)( ) of the act remuneraton pad for agr-
cutura abor n any medum other than cash (such as a share of
the farm produce, furnshng of vng quarters, meas, etc.) does
not consttute ta abe wages. However, where cash advances are
made to an empoyee engaged under a crop-sharng agreement wth
the specfc understandng that such advances are chargeabe aganst
the empoyee s share of the produce and w be taken nto account
at the tme of fna settement, the amounts so advanced are to be
treated as payments of cash wages. urthermore, where an ndvdua
s engaged under a crop-sharng agreement, remuneraton s con-
sdered to be payabe to hm for each workday of the perod durng
whch the agreement s n effect and each workday of each caendar
quarter n that perod s to be counted as 1 day to determne whether
the ndvdua has met the 60-day test.
It s hed n the nstant case that B was contnuousy empoyed by
A from anuary 1, 1951, the date when the empoyment agreement
became effectve, unt the date of termnaton and that the frst
quarter of 1951 consttuted the nta quafyng quarter. It s
aso hed that B s to be regarded as havng performed agrcutura
abor for A on each workday of the perod durng whch the crop-
sharng agreement was n effect, and that the cash pad to hm as
advances aganst hs share of the produce shoud be treated as pay-
ments of cash wages earned durng the caendar year of 195 . Wth
the e cepton of the amount determned to have been earned n the
frst, or quafyng quarter, such wages were ta abe n the quarter
when the earned wages actuay were pad n cash n the amount of
50 or more.
R GULATIONS 12 , S CTION 0 .20 : Agrcu- Rev. Ru. 5 - 60
tura abor.
In the case of cottonseed produced as the resut of a gnnng proc-
ess servces performed for a commerca cotton gn operator In con-
necton wth tc further dentng of cottonseed to be sod for
pantng do not consttute agrcutura abor for edera empoy
munt ta purposes.
Advce s requested whether servces performed n connecton wth
the dentng of cottonseed for the purpose of producng cottonseed
to be sod for pantng consttute agrcutura abor wthn the
meanng of secton 1 2G(h)(3) of the edera Insurance Contrbu-
tons Act (subchapter A, chapter 9, Interna Revenue Code of 1939).
In the nstant case, a gn company was organzed for the purpose
. of gnnng cotton, buyng and seng cotton and cottonseed and con-
ductng any other necessary and aed operatons. Severa years
ater dentng machnery and other equpment necessary to prepare
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Regs. 12 , I 0 .20 .) 35
cottonseed for pantng were nstaed and a dcntng program was
nsttuted. Ths program dd not ater the nuture of the- cotton
gnnng estabshment but merey resuted n creatng a dfferent mar-
ket for one of the products of the gnnng operaton. The dentug
process s smar to the gnnng process n that ts purpose s to remove
more nt from the seed.
The queston at ssue s whether the term the gnnng of cotton as
used n secton 1 26(h) (3) of the act refers to a busness operaton
or to a physca process. Secton 1 26(h)(3) as n force pror to
1955 provdes:
Ackcc.tt a Labor. The term agrcutura abor Incudes a servce per-
formed
(3) In connecton wth the vnntng of cotton . Itacs
supped.)
A smar provson s contaned n secton 1607(1) (3) of the edera
Unempoyment Ta Act (subchapter C, chapter 9, Interna Revenue
Code of 1939) and ths provson contnues n effect as a part of sec-
ton 3306(k) (3) of the Code of 195 .
The Interna Revenue Servce has concuded that the above quoted
provson refers to a partcuar operaton, as dstngushed from the
busness venture of operatng a cotton gnnng estabshment, and that
the servces contempated thereby must reate to that partcuar opera-
ton rather than to a genera busness venture of whch that operaton
s a part Ths concuson s based upon the fact that n defnng what
servces and operatons are to consttute agrcutura abor the
statute uses a specfc term, gnnng, to state what processng may bo
apped to the partcuar commodty, cotton. The word cotton,
as used n the phrase s sef-e panatory and the word gnnng, as
t refers to the gnnng of cotton, s commony accepted to mean a
mechanca-physca operaton conducted to cear, or separate, the nt
from the seed. When that resut s acheved, that s, when the two
separate commodtes, nt and seed, have been obtaned, the gnnng
operaton s competed and any subsequent processng of ether the
nt or the seed cannot be sad to be performed n the gnnng of
cotton.
Pursuant to the foregong prncpes t s further concuded that
servces performed n the actua gnnng operaton come wthn the
meanng of the term agrcutura abor as quoted above. Moreover,
by the use of the phrase n connecton wth the statute brngs wthn
the e cepton certan servces not performed n the physcagnnng
of cotton but nevertheess essenta thereto, such ns supervsory, cer-
ca, admnstratve, mantenance, and repar cervces , and such servces
have aso been hed to consttute ngrcut nru abor. See Mn. 60M1,
C. II. 19 6-2,11 . However, snco tho gnnng of cotton s a upecfo
operaton, tho phrase may not bo e tended to ncudo any and a bus-
ness actvtes n whch tho operator of a gnnng estabshment mght
fnd t desrabe or proftabe to engage as, for e ampe, tho sae of
. fertzer, farm seeds, farm equpment and suppes, or other e traneous
ventures. Accordngy, t s hed that after tho gnnng process has
been competed, that s, when the two separate commodtes, nt and
seed, have been obtaned, the servces performed n connecton wth
further dentng operatons conducted by a commerca cotton gn
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355 Regs. 12 , 0-rc-s.
operator for the purposes of producng the seed to be sod for pant-
ng do not consttuto agrcutura abor for edera empoyment
ta purposes.
muatons 12 , Secton 0 .20 : Agr- Rev. BuL 5 - S6
cutura abor. . ,
A corporaton owns a farm whch s used for rasng and seng
hogs. Sma pgs are purchased and fed on ktchen waste obtaned
from hotes and prvate homes. Specay equpped trucks are used
. by empoyees of the corporaton n coectng the waste whch s haued
to the farm day and there s processed and fed to the hogs. Hed,
that servces performod by certan empoyees on the farm n connecton
wth the feedng and carng for the hogs, ncudng those servces
performed n unoadng the ktchen waste from the trucks and process-
ng t for use as feed on the farm consttute agrcutura abor, as
. denned n secton 1 20(h) of the edera Insurance Contrbutons
Act (subch. A, ch. 0, Interna Revenue Code of 1939). However,
servces performed by other empoyees n connecton wth the co-
ecton and haung of such matera to the farm do not consttute
agrcutura abor, as defned n that secton. See armng, /nc,
v. Mannng, 121 ed. Supp. 252.
Reguatons 12 , Secton 0 .20 : Agrcu- Rev. RuL 5 -521
tura abor.
(Aso Secton 0 .20 .)
An Indvdua who performs domestc servces In her brothers
prvate home ocated on a farm and who Is sub|ect to ther drec-
ton and contro In the performance of her servces, may be ds-
charged by them for faure to perform her dutes, and s pad for
such servces by check on a quartery bass, s an empoyee of her
brothers for purposes of the edera Insurance Contrbutons Act.
The ndvdua s domestc servces performed on the farm whch
Is operated for proft by her brothers consttute agrcutura abor
wthn the meanng of secton 1 26(h) (5) of the edera Insurance
Contrbutons Act and the provsons of secton 1 20(b) (1) (A) of
that Act shoud be apped In determnng the e tent of abty
ncurred under such Act.
Advce s requested whether for purposes of the edera Insurance
Contrbutons Act (subchapter A, chapter 9, Interna Revenue Code
of 1939) a bona fde empoyer-empoyee reatonshp e sts between an
ndvdua and her brothers wth respect to domestc servce whch she
perforns n her brothers prvate homo ocnted on a farm.
In the nstant cku two brothers who owned a farm formed a partner-
shp for the, purpose of operatng tho furm for proft. At the tme of
th formaton of the partnershp a sster was engaged under an ora
agreement by tho brothers to perform domestc servces n ther home
ocated on tho farm. Her servces are those normay rendered by
a housekeeper and no other ndvduas are engaged to assst her or
to perform smar servces. Sho ves n tho farm home wth her
brothers and her servces are performed on a fu-tme bass. Sho s
sub|ect to the drecton and contro of her brothers n tho performance
of her servces | sho may bo dscharged by them for faure to perform
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12S, t 0 .20 .) .356
, .
her dutes and she may termnate her servces upon 2 weeks notce
Nether brother has camed her as a dependent or ncome ta pur-
poses. She s pad for her servces by check on a quartery bass and
has fed ncome ta returns reportng such payments.
The brother and sster reatonshp between the partes n nterest
does not of tsef precude the e stence of an empoyer-empoyee re-
atonshp. It s concuded n the nstant case that the brothers |onty
and severay e ercse over ther sster n the performance of her do-
mestc servces the drecton and contro necessary to estabsh the
common aw reatonshp of empoyer and empoyee. Accordngy,
t s hed that| for purposes of the edera Insurance Contrbutons
Act, the sster s an empoyee of the brothers. See Rev. RuL 135, C. B
1953-2, 306.
Under the provsons of secton 1 26 (h) (5) of the Act the domestc
servce n the prvate home of the brothers ocated on a farm operated
for proft consttutes agrcutura abor. The provsons of secton
1 26 (b) (1) (A) of the Act shoud be apped n determnng the e tent
of abty ncurred under such Act. See Rev. Bu. 159, C. B.
1953-2,297. _
MULATIONS 12 , S CTION 0 .20 : Agrcu- ev. Ru. 5 -522
tura abor.
Domestc servce performed by Indvduas In the prvate home
of the empoyer whch Is ocated wthn the boundares of a farm
operated for proft consttutes agrcutura abor wthn the mean-
ng of paragraph (5), secton 1 26(h) of the edera Insurance
Contrbutons Act, regardess of the fact that the operaton or man-
tenance of the prvate home Is not reated In an manner to the
actua farm operatons.
Advce s requested whether domestc servce performed by nd-A
vduas n the prvate home of the empoyer whch s ocated wthn
the boundares of a farm operated for proft consttutes agrcutura
abor wthn the meanng of paragraph (5), secton 1 26 (h) of tho
edera Insurance Contrbutons Act (subcnapter A, chapter 9, In-
terna Revenue Code of 1939) regardess of the fact that the operaton
or mantenance of tho prvate home s not reated n any manner to
tho actua farm operatons.
In the nstant case, tho empoyer owns a farm composed of severa
hundred acres whch she operates for proft. Tho empoyer s res-
dence s ocated on a secton of about fve acres known as the Homo
Grounds, entrey contaned wthn the farm boundares. The em-
poyer resdes on the Home Grounds for certan perods durng
tho year and spends the remander of the year n a cty resdence
mantaned by her. She empoys ndvduas to perform fu-tme
domestc servce n both homes. The ndvduas who perform domes-
tc servces on the Homo Grounds do not perform servces of any
knd on or n connecton wth the operaton of the farm area. A
fnanca transactons reatng to the farm operatons are handed by
means of a arm Account and e penses attrbutabe to the Home
Grounds are pad from the empoyer s persona account. The sec-
ton known as Home Grounds s mantaned and operated e cu-
svey as a prvate resdence of the empoyer.
Snce the Home Grounds area s mantaned and operated for
prvate resdenta purposes ony, wthout regard to the farmng oper-
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357 Reg 12 , f 0 .201
atons conducted on the remander of the property, and because of the
compete separaton of fnanca matters reatng to the Home
Grounds from those of the farm, the queston has arsen whether
the provsons of paragraph (5), secton 1 26(h) of the edera In-
surance Contrbutons Act, reatng to domestc servce on a farm, are
appcabe.
It s contended that no dstncton shoud be made between the em-
poyees n the cty resdence and the Home Grounds empoyees who
perform the same type of servce, and that the provsons appcabe
to the househod empoyees n the cty resdence under paragraph
(7) (B), secton 1 20(a) of the edera Insurance Contrbutons Act
aso shoud be appcabe to the Home Grounds empoyees.
Secton 1 26(a) of the Act provdes:
The term wages means a remuneraton for empoyment. Incudng the cub
vaue of a remuneraton pad n any medum other than cash e cept that
such term sha not Incude

(7) (B) Cash remuneraton pad by an empoyer In any caendar quarter
to .an empoyee for domestc servce n a prvate home of the empoyer, f
the cash remuneraton pad In the quarter for such servce s ess than 5 )
or the empoyee Is not reguary empoyed by the empoyer In such quarter
of payment. As used n ths subparagraph, the term domestc servce
n a prvate home of the empoyer does not ncude servce descrbed n
subsecton (h) (5)
Secton 1 26(h) of the Act provdes:
The term agrcutura abor ncudes aU servce performed
a
(5) On a farm operated for proft If such servce Is domestc
servce n a prvate home of the empoyer.
It s the opnon of the Interna Revenue Servce that the domestc
servce performed n the Home Grounds area does not come wthn
the meanng of paragraph (7) (B), secton 1 26(a), supra. Thscon-
cuson s based on the restrcton to ts appcaton mposed by the
ast sentence thereof whch states that, As used n ths subparagraph,
the term domestc servce n a prvate home of the empoyer does not
ncude servce descrbed n subsecton (h) (5).
By comparson of the above two provsons of aw, namey, para-
graph (7) (B),secton 1 26(a) of tho edera Insurance Contrbutons
Act and paragraph (0), secton 1 20(h) of the Act, t w be noted
that wo dentca servces are specfed, that s, domestc servce n
a prvate home of the empoyer, cognzance must be taken of the oca-
ton of the prvate home of the empoyer. When the home s ocated
on a farm operated for proft the statute requres that the servce be
treated as agrcutura abor. If the home s not ocated on a farm
operated for proft, the servces cannot be brought wthn the agrcu-
tura abor defnton. Tho statute does not requre that the opera-
ton or mantenance of the prvate home of the empoyer be reated n
any way to the actua farm operatons.
Accordngy, t s hed that tho domestc servce performed by em-
poyees n and about tho prvate home of the empoyer whch s ocated
wthn the boundares o a farm operated for proft consttutes agr-
cutura abor wthn the meanng of paragraph (5), secton 1 26(h)
of the edera Insurance Contrbutons Act, regardess of the fact
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Regs. 12 , 5 0 .20 . 35S
that the operaton or mantenance of the prvate home s not reated
n any manner to the actua farm operatons.
The provsons of secton 1 26(b) (1) (A) of the edera Insurance
Contrbutons Act are appcabe m determnng whether agrcutura
abor performed by an empoyee after 1950 s e cepted from empoy-
ment under that Act See Rev. Ru. 159, C. B. 1953-2,297.
Reguatons 12 , Secton 0 .20 : Agrcu- Rev. Ru. 5 -57
tura abor.
(Aso Secton 0 .207.)
Servces performed on a farm by an empoyee of a frm engaged
In aera crop dustng and sprayng consttute agrcutura abor
as defned In secton 1 26 (b) of the edera Insurance Contrbu-
tons Act, as amended. Servces performed on nonfarm property
n connecton wth m ng and oadng sprayng and dustng mate-
ras and n deverng such materas to the m ng or oadng pont,
rrespectve of whether such pont s ocated on a farm, do not con-
sttute agrcutura abor.
Advce has been requested whether servces performed by an em-
poyee of a frm engaged n aera crop dustng and sprayng consttute
agrcutura abor wthn the meanng of secton 1 20(h) of the
edera Insurance Contrbutons Act (subchapter A, chapter 9,
Interna Revenue Code of 1939).
In the nstant case, an ndvdua s engaged by the frm to perform
the servces, when weather permts, 7 days a week. The servces con-
sst of drvng the frm s truck contanng chemcas to a sutabe ar-
pane andng pont near the fed to be dusted m ng and oadng
the chemcas on the arpane measurng the wdth of each swath
actng as a foreman n drectng farmers and ther empoyees servng
as fagmen and, under the frnvs supervson, performng other serv-
ces necessary to the dustng and sprayng actvtes The ndvdua
performs the servces personay, does not furnsh any equpment,
and does not perform servces for others on the days he works for the
frm. He s pad a weeky wage.
It s concuded that the frm e ercses such contro over the nd-
vdua n the performance of hs servces as s necessary to estabsh
the reatonshp of empoyer and empoyee for edera empoyment
ta purposes.
The Interna Revenue Servce hods that the aera seedng, fert-
zng, sprayng, dustng, etc.. of crops may propery be sad to be
performed n connecton wth the cutvaton of tho so and the
rasng of crops Therefore, servces performed on a farm n con-
necton wth such operatons consttute agrcutura abor wthn
the meanng of secton 1 26(h) (1) of the Act. Accordngy, servces
performed on a farm n the nstant case n the aera sprayng and
dustng of crops, ncudng servces reatng to the m ng of sprayng
or dustng materas and the oadng of such materas nto arpanes,
as we as servces reatng to the measurng of swaths and the markng
and faggng of feds, consttute agrcutura abor. However,
servces not performed on a farm, for e ampe, servces on nonfarm
property such as a commerca arport, n connecton wth the m ng
and oadng of sprayng and dustng materast as we as servces
performed n deverng such materas to the m ng or oadng pont,
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359 Regs. 12 0 20S.
rrespectve of whether such pont s ocated on a farm, do not
consttute agrcutura abor. -
The provsons of secton 1 26(b) 1) (A) of the Act, as amended,
are to be apped n determnng whether the agrcutura abor
performed by the ndvdua n the nstant case s e cepted from em-
poyment See Rev. Ru. 159, C, B. 1953-2, 297. If the ndvdua
does not meet the tests of such secton, t w be necessary to aocate
the tme spent n each pay perod, as set forth n secton 1 26 (c) of
the Act, n performng ncuded and e cuded servces, that s, f
durng a pay perod (or not more than 31 consecutve days) one-haf
or moro of the empoyee s tme n the empoy of the partcuar frm s
spent n performng servces whch consttute empoyment, then
a hs servces for the frm n that pay perod sha be deemed to be
empoyment. If ess than one-haf of the empoyee s tme n the
empoy of the frm n a pay perod s spent n performng servces
whch consttute empoyment, then none of hs servces for the frm
n that pay perod sha be deemed to be empoyment.
Reguatons 12 , Secton 0 .20 : Agrcu- Rev. RuL 5 -5 7
tura abor.
Gudes to be used n determnng whether servces performed pror
to 1055 In the empoy of commerca greenhouse operators consttute
agrcutura abor wthn the meanng of secton 1 20(b) of the
edera Insurance Contrbutons Act.

In determnng whether servces performed pror to 1955 n the

empoy of commerca greenhouse operators consttute agrcutura
abor wthn the meanng of secton 1 26(h) of the edera Insurance
Contrbutons Act (subchapter A, chapter 9, Interna Revenue Code
of 1939), the foowng gudes shoud be observed:
(1) Pursuant to paragraph (1) of secton 1 26(h) of the Act,
servces performed on a farm n the empoy of any person n con-
necton wth growng, propagatng and harvestng pants, fowers
and other agrcutura or hortcutura commodtes consttute agr-
cutura abor.
(2) Under paragraph (2) of secton 1 26(h) of the Act, servces
performed n connecton wth the operaton, management, conserva-
ton, mprovement, or mantenance of a farm and ts toos and equp-
ment, ncudng cerca and saes servces, are cassfed as agrcu-
tura abor f performed (a) n the empoy of the owner or tenant
or other operator of the farm to whch the servces reate and (b) n
ma|or part on a farm.
(3) Pursuant to paragraph ( ) of secton 1 26(h) of the Act,
servces performed after 1950 n the handng, packng and deverng
to market, or to a carrer for transportaton to market, of any agrcu-
tura or hortcutura commodty m ts unmanufactured state const-
tute agrcutura abor, f such servces are performed (a) n the em-
poy of a person who s n possesson and engaged n the operaton of
a farm or farms on whch more than one-haf of the partcuar com-
modty handed n a pay perod s produced or (b) n the empoy of a
group of operators of farms (other than a cooperatve organzaton)
provded such operators produced a of the commodty wth respect
to whch such servces are performed.
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Regs. 12 , 0 .20 . 360
( ) Secton 1 26 (h) of the Act defnes the term farm as ncudng
among other thngs, greenhouses or other smar structures used
prmary for the rasng of agrcutura or hortcutura commod-
tes. Therefore, the prncpa factor necessary for a fndng that a
greenhouse or other smar structure consttutes a farm s that t be
used prmary for the ratng of agrcutura or hortcutura com-
modtes. Thus, the prmary use of a greenhouse as a dspay or saes-
room or for the fabrcaton of wreaths, corsages, or bouquets and wth
ony ncdenta use for the rasng of agrcutura or hortcutura com-
modtes woud precude cassfcaton of such estabshment as a
farm.
(5) In determnng whether handng servces, performed after
1950 n a greenhouse, as contempated by paragraph ( ) of secton
1 26(h) of the Act, consttute agrcutura abor, no dstncton
s made between preparaton for, and devery to, the whoesae or
reta markets. urther, t s mmatera whether the packng or
handng estabshment s ocated on a farm. Accordngy, the fabrca-
ton of wreaths, corsages, and bouquets and the devery of such tems
to whoesae or reta purchasers are consdered to be servces of the
type contempated by paragraph ( ) of secton 1 26 (h) and are hed to
consttute agrcutura abor, provded such servces are performed
under the crcumstances and condtons necessary to meet the requre-
ments of that paragraph. (See tem (3) above.)
(6) If the packng estabshment s ocated on a farm and the
handng servces consttute agrcutura abor, then nonhandng
servces, such as servces reatng to the mantenance and repar of such
estabshment and ts toos and equpment, as we as cerca servces
reatng to the packng operaton, may consttute agrcutura abor
f the requremetns of paragraph (2) of secton 1 26(h) are met. (See
tem (2) above.)
(7) The provsons of secton 1 26(b) (1) (A) of the Act shoud be
apped n determnng whether agrcutura abor performed by an
empoyee after 1950 and pror to anuary 1, 1955, s e cepted from
empoyment under the edera Insurance Contrbutons Act. See
Rev. Iu. 159, C. B. 1953-2,297.
In the event an cmpoyco fas to meet a of the tests contaned n
secton 1126(b) (1) (A) of the Act, tho rue reatng to ncuded and
e cuded servce contaned n secton 1 26(c) of the Act shoud be
apped n determnng whether abty for the ta es mposed by that
Act s ncurred by the empoyer wth respect to the remuneraton of
such empoyee for servces performed durng a pay perod that s, f
one-haf or more of an empoyee s tme n the empoy of the greenhouse
n a partcuar pay perod s spent n performng servces whch con-
sttute empoyment under secton 1 26(b) of the Act, then a of the
servces of that empoyee for the greenhouse n that pay perod sha be
deemed to be empoyment however, f ess than one-haf of the em-
poyee s tme s spent n performng servces whch consttute empoy-
ment, then none of hs servces sha be deemed to be empoyment.
or ths purpose, a pay perod s construed as a perod (of not more
than 31 consecutve days) for whch a payment of remuneraton s
ordnary made to the empoyee by the empoyer.
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361 (Rep. 12 , 0 .20S
muatons 12 , Secton 0 .20 : Agrcu-
tura abor.,
Poutry rasng enterprse on farm. See Rev. RuL 5 -310, page
20 .
Reguatons 12 , Secton 0 .20 : Agrcu-
tura abor.
Operaton of a hatchery. See Rev. Ru. 5 -311, page 266.
Reguatons 12 , Secton 0 .20 a: Servce - T.D.6093
erformed by certan agrcutura workers
rom the Repubc of Me co.
(Aso Sectons 0 .203, 0 .206, 0 .20 .)
TITL 20 INT RNAL R NU . CHAPT R I. SUBCHAPT R D. PART CS.
MPLOY TA AND MPLOY R TA UND R TH D RAL INSURANC
CONTRIBUTIONS ACT
Reguatons 12 amended to conform to certan provsons of
Pubc Law 7 , ghty-second Congress, approved u| 12,193L and
to Pubc Law 237, gbty-thrd Congress, approved August ,1933,
reatng to servce performed by certan agrcutura workers from
the epubc of Me co.
Treasury Department,
Offce or Commssoned of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On uy 7, 195 , there was pubshed n the edera Regster (19
. R. 110) a notce of proposed ruemakng wth respect to amend-
ments to conform Reguatons 12 (26 C R, pt 0 ), reatng to the
empoyee ta and the empoyer ta under the edera Insurance Con-
trbutons Act (subch. A, en. 9, Interna Revenue Code of 1939), to
certan provsons of tte Y of the Agrcutura Act of 19 9, as added
by Pubc Law 7 , ghty-second Congress, approved uy 12, 1931
C. B. 1951-2,3 9 , and as nmended by Pubc Law 237, ghty-thrd
Congress, approved August ,1953. No ob|ecton to the rues proposed
havng been receved, the amendments set forth beow are hereby
adopted:
Paragraph 1. Immedatey precedng the capton Secton 3797
(a) and (b) of the Interna Revenue Code as set forth precedng
secton 0 .201, the foowng s nserted:
S CTION 505 (b) O TH AGRICULTURAL ACT O 10 0, A3 ADD D
BY PUBLIC LAW 7 , IGHTY-S COND CONGR SS, APPRO D
ULY 12, 1031
Secton 1 20(b)(1) of the Interna Revenue Code, as amended. Is
amended by addng at the end thereof a new subparagraph as foows:
(C) Servce performed by foregn agrcutura workers
under contracts entered Into n accordance wth tte of the
Agrcutura Act of 1010, as amended.
Par. 2. Secton 0 .203(a), reatng to empoyment after December
31,1950, s amended as foows:
(A) By revsng the frst two sentences thereof to read as foows:
Whether servces performed on or after anuary 1, 1051, consttute empoyment
Is determned under secton 1 20(b) of the act, that Is, secton 1 20(b), as
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Regs. 12 , 0 0 . 362
emended, effectve anuary 1,1051, b| secton 20 (a) of tbe Soca Securty Act
Amendments of 1030, and as further amended, effectve uy 12,1031, by secton
603(b) of the Agrcutura Act of 10 0, as added by Pubc Law 7 , ghty-second
Congress, reatng to servces performed by certan agrcutura workers from
the Repubc of Me co. Ths secton of tbe reguatons n ths part, and sec-
tons 0 .20 and 0 .205 (reatng to who are empoyees and empoyers), secton
0 .200 (reatng to e cepted servces In genera), secton 0 .207 (reatng to
Incuded and e cuded servces), and secton 0 .20 and sectons 0 .209 to
0 .225, Incusve (reatng to certan casses of e cepted servces), appy wth
respect ony to servces performed on or after anuary 1, 1051.
(B) By nsertng mmedatey after the second sentence thereof the
foowng:
Secton 0 .20 a, reatng to e cepted servces performed by certan agrcutura
workers from the Repubc of Me co, appes wth respect ony to servces per-
formed on or after uy 12,1 51.
P.A .r. 3. Secton 0 .206, reatng to e cepted servces n genera, s
amended as foows:
(A) By revsng the frst sentence thereof to read as foows:
Servces performed on or after anuary 1,1051, by an empoyee for an empoyer
do not consttute empoyment for purposes of the ta If they are specfcay
e cepted from empoyment under any of the numbered paragraphs of secton
1 20(b) of the act, that Is, secton 1 26(b), ns amended, effectve anuary 1,
1051, by secton 20 (a) of the Soca Securty Act Amendments of 1050, and as
further amended, effectve uy 12, 1051, by secton 505(b) of the Agrcutura
Act of 10 0, as added by Pubc Law 7 , ghty-second Congress, reatng to
servces performed by certan agrcutura workers from the Repubc of Me co.
(B) By deetng the frst sentence of the ast paragraph and nsert-
ng n eu thereof the foowng:
Ths secton, secton 0 .207 (reatng to Incuded and e cuded servces), and
secton 0 .20 and sectons 0 .209 to 0 .225. ncusve (reatng to certan
casses of e cepted servces), appy wth respect ony to servces performed on
or after anuary 1, 1051. Secton 0 .20 a, reatng to e cepted servces per-
formed by certan agrcutura workers from the Repubc of Me co, appes
wth respect ony to servces performed on or after uy 12, 1051.
Pah. . The capton Secton 1 26(b) (1) of the Act as set forth
mmedatey foowng secton 0 .207 s changed to read Secton
1 26(b) (1) (A) and (B) or the Act .
Par. 5. Secton 0 .20 (a), reatng to agrcutura abor, s
amended by addng at the end thereof the foowng:
or provsons reatng to servces whch are e cepted from empoyment by
secton 1 20(b)(1)(C) of the act, reatng to servces performed by foregn
agrcutura workers under contracts entered Into n accordance wth tte of
the Agrcutura Act of 10 0, as amended, see secton 0 .20 a.
Par. 6. There s nserted mmedatey after secton 0 .20 the
foowng:
S CTION 1 20(B) (1) (C) O TH ACT
The term empoyment means any servce, of whatever
nature, e cept that AUch term sha not ncude
(C) Servce performed by foregn agrcutura workers under
contracts entered nto n accordance wth tte of the Agr-
cutura Act of 10 9, as amended. (Sec. 1 26(b)(1)(C),
I. R. C, as added, effectve uy 12,1951, by sec. 605(b) of tbe
Agrcutura Act of 19 0.)
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363 Regs. 12 , 5 0 .20 .
. . TITL O TH AGRICULTURAL ACT OP 10 9. AS ADD D BY
PUBLIC LAW 7 , IGHTY-S COND CONGR SS, APPRO D
ULY 12.1931
S C. 501. or the purpose of assstng In such producton of agrcu-
tura commodtes and products as the Secretary of Agrcuture deems
necessary, by suppyng agrcutura workers from the Repubc of .
Me co (pursuant to arrangements between the Unted States and the
Repubc of Me co), the Secretary of Labor s authorzed
(1) to recrut such workers (ncudng any such workers who
have resded In the Unted States for the precedng fve years, or
who are temporary In the Unted States under ega entry)

(5) to assst such workers and empoyers n negotatng con-
tracts for agrcutura empoyment (such workers beng free to
accept or decne agrcutura empoyment wth any egbe em-
poyer and to choose the type of agrcutura empoyment they
desre, and egbe empoyers beng free to offer agrcutura em-
poyment to any workers of ther choce not under contract to other
empoyers)

S C. 507. or the purposes of ths tte
(1) The terra agrcutura empoyment Incudes serrces or
actvtes Incuded wthn the provsons of secton 3(f) of the ar
Labor Standards Act of 193 , as amended, or secton 1 26(h) of -
the Interna Revenue Code, as amended, hortcutura empoyment,
cotton gnnng, compressng and storng, crushng of o seeds, and
the packng, cannng, freezng, dryng, or other processng of
pershabe or seasonabe agrcutura products.

S C. 509. No workers w be made avaabe under ths tte for em-
poyment after December 31, 1053. (65 Stat. 119, 7 U. S. C. 1 6L)
PUBLIC LAW 237, IGHTY-THIRD CONGR SS, APPRO D
AUGUST , 1953
. secton 509 of tte of the Agrcutura Act of 19 9, as
amended, s amended by strkng out December 31,1003 and nsertng
n eu thereof December 31,1955 . (67 Stat 500.)
S CTION 3( ) O TH AIR LABOR STANDARDS ACT O 193 ,
AS AM ND D
Agrcuture ncudes farmng n a Its branches and among other
thngs ncudes the cutvaton and tage of the so, daryng, the
producton, cutvaton, growng, and harvestng of any agrcutura
or hortcutura commodtes (Incudng commodtes defned as agrcu-
tura commodtes n secton 15(g) of the Agrcutura Marketng Act,
as amended), the rasng of vestock, bees, fur-bearng anmas, or
poutry, and any practces (Incudng any forestry or umberng opera-
ton ) performed by a farmer or on a farm as an Incdent to or n con-
|uncton wth such farmng operatons, Incudng preparaton for market,
devery to storage or to market or to carrers for transportaton to
market. (Sec. 3(f), Act of une 25, 103 , 52 Stat 1000, 29 U. S. C
20 (f).)
S C. 0 .20Sa. Servce performed y certan agrcutura tcorkcrt from the Re-
pubc of Me co. Servces performed on or after uy 12, 1051, by agrcutura
workers from the Repubc of Me co, under contracts entered nto n accord-
ance wth tte of the Agrcutura Act of 19 0, as amended, are e cepted from
empoyment. Contracts entered nto pursuant to the provsons of such tte
may provde for the performance ony of servces whch consttute agrcutura
empoyment . or purposes of tte of the Agrcutura Act of 19 9, as
amended, the term agrcutura empoyment Incudes servces or actvtes In-
cuded wthn the provsons of secton (f) of the ar Labor Standards Act
of 193 , as amended, or secton 1 26(h) of the edera Insurance Contrbutons
13331 S3 21
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Begs. 12 ,1 0 .216.1 36
Act (see secton 0S.20S(d)), hortcutura empoyment, cotton gnnng, com
pressng and storng, crushng of o seeds, and the packng, cannng, freezng,
dryng, or other processng of pershabe or seasonabe agrcutura products.
Thus, the term agrcutura empoyment Incudes certan servces whch do not
consttute agrcutura abor as that term Is defned n secton 1 20(b) of the
act. Inasmuch as servces performed by agrcutura workers from the Re-
pubc of Me co under contracts entered nto n accordance wth tte of the
Agrcutura Act of 19 0, as amended, are categorcay e cepted from empoy
ment under secton 1 20(b) (1) (C) of the act, the condtons prescrbed n sec-
ton 1 20(b)(1)(A) of the act for determnng whether agrcutura abor per-
formed by an empoyee for an empoyer In a caendar quarter Is e cepted from
empoyment bare no appcaton to any servces whch consttute agrcutura
abor and whch are e cepted from empoyment under ths secton. or pro
vsons reatng to agrcutura abor whch Is e cepted from empoyment under
secton 1 20(b) (1) (A) and (B) of the act, see secton 0 .20 .
(Ths Treasury Decson s ssued under the authorty contaned n
sec 1 29 of the Interna Revenue Code of 1939 (53 Stat 17 26
U. S. C. 1 29) and sec. 505(b) of the Agrcutura Act of 19 9, as
added by Pubc Law 7 , 2d Cong., approved uy 12,1951.)
O. Gordon Dek,
Actng Commssoner of Interna Revenue.
Approved September 13,195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 16,105 , : (50 a. m.)
muatons 12 , Secton 0 .213: Unted ...
States and nstrumentates thereof.
Servces performed for nonapproprated fund actvtes. See Rev .
Ru. 5 -550, page 309.
Reguatons 12 , Secton 0 .21G: Regous, char- Rev. Ru. 5 -300
tnbe, educatona or other organzatons e empt
from ncome ta under Secton 101(6) of the
Interna Revenue Code.
(Aso Secton 1607, Secton 03.215, Reguatons
107 Secton 3797, Secton 39.3797- , Reguatons
11 .)
An organzaton e empt from edera Income ta es under secton
101(0) of the Interna Revenue Code of 1030 s the coowner of In-
come-producng rea estate operated for the ont proft of the
owners. Such operaton resuts In the creaton of a partnershp
wthn the meanng of secton 3707(a) (2) of such Code. Snce the
partnershp s not an organzaton e empt from edera Income
ta es under secton 101(0) of the Code, servces performed by Its
empoyees are not e cepted from empoyment by reason of the pro-
vsons of secton 1 20(b) (0) of the edera Insurance Contrbu- .
tons Act and 1607(c) ( ) of the edera Unempoyment Ta Act.
Advce s requested whether an organzaton e empt from edera
Income ta es under secton 101(6) of the Interna Revenue Code of
1939 s by reason thereof aso e empt from the payment of ta es m-
posed under the edera Insurance Contrbutons Act (subchapter A,
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365 Regg. 12 , 0 .215.
chapter .0, Interna Revenue Code of 1030) and the edera Unem-
poyment Ta Act (subchapter C, chapter 0, Interna Revenue Code
of 1030), wth respect to tho wages t pays for servces performed for
a none empt partnershp of whch t s a member.
In the nstant case, an offce budng |onty owned by an organ-
zaton e empt from edera ncome ta es under secton 101(6) of the
Code and an organzaton not so e empt s managed for the owners
by a rea cstato ngent under an ora agreement. Recepts and ds-
bursements wth respect to the budng are credted and charged to a
bank account carred n tho agent s name as Rentng Agent. The
agent hres, supervses, and dscharges the ndvduas performng
servces n connecton wth the budng pays workmen s compen-
saton nsurance for such ndvduas from the ncome from the bud-
ng and e ecutes edera ncome ta returns as renta agent on be-
haf of the budng.
It s concuded from the facts presented that the rea estate agent,
actng as agent for the owners of the budng, operates snch bud-
ng from the |ont proft of the owners and that the empoyees are
therefore performng servces for such owners. See S. S. T. 02, C. B.
1937-1, 3 .
Secton 3707(a) (2) of the 1030 Code provdes that the term part-
nershp ncudes a syndcate, group, poo, |ont venture, or other
unncorporated organzaton, through or by means of whch any bus-
ness, fnanca operaton, or venture s carred on, and whch s not,
wthn the meanng of the Code, a trust or estate or a corporaton.
Where, as n tho nstant cnset co-owners of ncome-producng rea
estate operate tnt rea estate (ether through an agent or ono ot ther
own number) for ther |onts proft, such operaton resuts n the cre-
aton of a partnershp, wthn the moanng of secton 3707(a) (2) of
tho Code, wth tho co-owners as members thereof. See Rev. RuL
6 -170, C. B. 105 -1, 213. Manfesty then, tho e empt organza-
ton and the none empt organzaton arc co-cmpovcrs of the partner-
shp empoyees. It docs not foow, however, that because a part-
ner s n co-owner of tho frm s property and to co-empoyer of ts
empoyees, a porton of the servces performed by such empoyees s
aocabe to hm ndvduay. On the contrary, such a concuson
s n confct wth the desgn of the edera empoyment ta statutes
whch recognze the partnershp, . e., the aggregate of a the mem-
bers thereof, and not each partner ndvduay, as the empoyer of
those hred to perform servces for the frm. See sectons 1 26(f)
of the edera Insurance Contrbutons Act and 1607(k) of the ed-
era Unempoyment Ta Act. Accordngy, the nstant partnershp,
rather than each of ts member organzatons, s regarded as the em-
oyer of those ndvduas empoyed to perform servces for the
rm.
Inasmuch as the partnershp s not an organzaton e empt from
edera ncome ta es under secton 101(6) of the Code, servces per-
formed by ts empoyees are not wthn the e cepton provded bv
sectons 1 26(b) (0) of the edera Insurance Contrbutons Act and
1007(c)( ) of the edera Unempoyment Ta Act and payments
made for such servces arc not e empt from the ta es mposed under
such Acts.
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Regs. 107, A 03.205.1 366
muatons 12 , Secton 0 .227(h) fCaah :: Rev. Ru. 5 -
payments for domestc servce. - .. . :-.. .-m ._ -
An empoyer agrees to pay an empoyee a specfed amount of cash
wages for domestc servces performed by her n bs prvate home.
The empoyee occupes a room outsde the empoyer s home and on
premses not owned by hm. The empoyer makes payment of the
rent each month drect to the renta agent to satsfy the fnanca ob-
gaton ncurred by the empoyee. The queston presented s whether
that payment consttutes wages to the empoyee for edera empoy-,
mert ta purposes.
Secton 1 26(a)(7)(A) of the edera Insurance Contrbutons
Act (subchapter A, chapter 9, Interna Revenue Code), e cepts from
wages remuneraton pad n any medum other than cash to an em-
poyee for domestc servce n a prvate home of the empoyer. Sec-
ton 1 26(a) (7) (B) of the act e cepts from the term wages cash
remuneraton pad by an empoyer n any caendar quarter to an em-,
poyee for domestc servce n a prvate home of the empoyer, f the
cash remuneraton pad n the quarter for such servce s ess than 50.
The amount pad for the rent of the room n the nstant case con-
sttutes a payment of cash remuneraton as contempated by secton
1 26 (a) (7) (A) and (B) of the act, and, therefore, shoud be ncuded
n determnng the amount of wages pad for purposes of the ta es
mposed under the act
SUBCHAPT R G-TA ON MPLOY RS O IGHT OR MOR
S CTION 1607. D INITIONS
Reguatons 107, Secton 03.20 : Who are
empoyees.
Status of saesman. See Rev. Ru. 5 - 33, page 337.
Reguatons 107, Secton 03.20 : Who are . . ,:
empoyees. . ,
Appcabty of determnaton of status as an empoyee to edera
ncome ta cases. See Rev. Ru. 5 -5 7, page 57.
Reguatons 107, Secton 03.205: Who are , /.. .
empoyers. :
(Aso Sectons 03.20 and 03.21 .) .....
Common aw status of demonstrators. See Rev. RuL 5 - 71,
page 3 .
.
I ./ r
Reguatons 107, Secton 03.205: Who are
empoyers. . /
Changes-n membershp of mted partnershp. See Rev. RuL
6 - , page 2 2.
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367 Regs. 107, 03.213.
Reguatons 107, Secton- 03.213: Unted States T. D. 6100
and nstrumentates thereof.
(Aso Sectons 03.203, 03.205.)
TITL 2 INT RNAL R NU . CHAPT R I. SUBCHAPT R D. PAST 0S.-
CIS TA ON MPLOY RS UND R TH D RAL UN MPLOYM NT TA
ACT
Reguatons 107 amended to conform to Pubc Law 19C, ghty-
thrd On cress, approved August 6, 1053, reatng to servces of
seamen empoyed on certan vesses operated by genera agents of
the Secretary of Commerce.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton So, D. C.
To Offcer and mpoyees of the Interna Revenue Servce and Others
Concerned:
On uy 1 ,195 , a notce of proposed ruemakng wth respect to
amendments to conform Reguatons 107 26 C R, pt 03 , reatng
to the e cse ta on empoyers under the edera Unempoyment Ta
Act (subch. C, ch. 9, Interna Revenue Code of 1939), to secton
C07(o) of the Interna Revenue Code of 1939, added by Pubc Law
196, ghty-thrd Congress, approved August 5,1953 C. B. 1953-2,
7 , was pubshed n the edera Regster (19 . R. 329). No ob|ec-
ton to the rues proposed havng been receved, the amendments set
forth beow are hereby adopted:
Paragraph 1. Immedatey precedng the capton Secton 3797(a)
and (b) of the Interna Revenue Code as set forth precedng sec-
ton 03.201, the foowng s nserted:
S CTION 2 O PUBLIC LAW 106, IGHTY-THIRD CONGR SS,
APPRO D AUGUST 5, 1053
Secton 1007 of the Interna Revenue Code a hereby amended by
addng at the end thereof the foowng new subsecton:
(o) Notwthstandng the provsons of subsecton (c)(6) of ths
secton, servce performed on or after uy 1, 1053, by offcers and
members of the crew of a vesse whch woud otherwse be Incuded
as empoyment under subsecton (c) of ths secton sha not be e cuded
by reason of the fnct that It Is performed on or In connecton wth an
Amercan vesse (1) owned by or bareboat chartered to the Unted
States and (2) whose busness Is conducted by a genera agent of the
Secretary of Commerce. or the purposes of ths subchapter, each
such genera agent sha be consdered n ega entty n hs capacty as
such genera agent, separate and dstnct from hs Identty as a person
empoyng Indvduas on hs own account, and the offcers and mem-
bers of the crew of such on Amercan vesse whose busness Is conducted
by a genera agent of the Secretary of Commerce sha be deemed to be
performng servces for such genera agent rather than the Unted
States. ach such genera agent who In bs capacty as such Is an
empoyer wthn the meanng of subsecton (a) of ths secton sha be
sub|ect to a the requrements mposed upon an empoyer under ths
subchapter wth respect to servce whch consttutes empoyment by
reason of ths subsecton.
Par. 2. There s nserted mmedatey precedng secton 03.203
the foowng:
S CTION 1607(o) O TH ACT
Notwthstandng the provsons of subsecton (c) (6) of ths secton,
servce performed on or after uy 1, 1053, by offcers and members of
the crew of a vesse whch woud otherwse be Incuded as empoyment
under subsecton (c) of ths secton sha not be e cuded by reason of
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Regs. 107, I 03.213. 36
the fact that It Is performed on or n connecton wth an Amercan vesse
(1) owned by or bareboat chartered to the Unted States and (2) whose
busness s conducted by a genera agent of the Secretary of Commerce.
or the purposes of ths subchapter, each such genera agent sha be
consdered a ega entty n bs capacty as such genera agent, separate
and dstnct from hs dentty as a person empoyng Indvduas on hs
own account, and the offcers and members of the crew of such an Amer-
can vesse whose busness s conducted by a genera agent of the Secre-
tary of Commerce sha be deemed to be performng servces for such
genera agent rather than the Unted States. ach such genera agent
who In hs capacty as such s an empoyer wthn the meanng of sub-
secton (a) of ths secton sha be sub|ect to a the requrements m-
posed upon an empoyer under ths subchapter wth respect to servce
whch consttutes empoyment by reason of ths subsecton. (Sec 2,
Pubc Law 196, 3d Cong., approved August S, 1053, 67 Stat 3 6.)
Par. 3. Secton 03.203, as amended by Treasury Decson 5905
C. B. 1952-1,173 , approved May 27,1952, s further amended by
addng at the end thereof the foowng new paragraph:
(e) Servce performed on an Amercan vose whose busness s conducted bg
a genera agent of the Secretary of Commerce. Secton 1607(o) of the act and
ths paragraph appy wth respect ony to servces performed on or after uy 1,
1053, by an offcer or member of the crew of nn Amercan vesse (1) whch s
owned by or bareboat chartered to the Unted States and (2) whoso busness s
conducted by a genera agent of the Secretary of Commerce. Whether servces
performed on or after uy 1,1053, by such an offcer or member of a crew under
the above condtons consttute empoyment Is determned under secton 1607 (c)
and (o) of the act, but wthout regard to secton 1607(c) (6) of the act (see
sec. 03.213, reatng to servces performed n the empoy of the Unted States
nnd Instrumentates thereof). If, wthout regard to secton 1007(c) (6), such
servces consttute empoyment wthn the meanng of the act, they are not
e cepted from empoyment by reason of the fact that they are performed on or
n connecton wth an Amercan vesse whch Is owned by or bareboat chartered
to the Unted States and whose busness s conducted by a genera agent of the
Secretary of Commerce, that Is, such servces are not e cepted from empoyment
by secton 1607(c)(6). ( or provsons reatng to servces performed wthn
the Unted States and servces performed outsde the Unted States whch const-
tute empoyment, see pars, (b) and (c) of ths secton.)
The e presson offcer or member of the crew ncudes the master or offcer
n charge of the vesse, however desgnated, and every ndvdua, sub|ect to
hs authorty, servng on board and contrbutng n any way to tbe operaton
and wefare of the vesse. Thus, the e presson ncudes, for e ampe, the
master, mates, pots, pursers, surgeons, stewards, engneers, fremen, cooks,
cerks, carpenters, and deck hands.
An empoyee of the Unted States who performs servces as an offcer or mem-
ber of the crew of an Amercan vesse whch s owned by or bareboat chartered
to the Unted States and whose busness Is conducted by a genera agent of the
Secretary of Commerce sha be deemed, under secton 1607(o) of the act, to be
performng servces for such genera agent rather than for the Unted States.
Any such genera agent of the Secretary of Commerce Is consdered a ega en-
tty n hs capacty as such genera agent, separate and dstnct from hs Identty
ns a person empoyng Indvduas on hs own account. ach such genera agent
who, n hs capacty as a ega entty separate and dstnct from hs dentty as
a person empoyng Indvduas on hs own account, quafes as an empoyer
under secton 1007(a) of the act (see sec. 03.205) wth respect to a partcuar
caendar year s wth respect to such year sub|ect to the ta and to a of the
requrements Imposed upon an empoyer under the act nnd these reguatons
wth respect to servces whch consttute empoyment by reason of secton C07(o)
of the act and ths paragraph.
Par. . Secton 03.205, reatng to who are empoyers, s amended
by addng at the end of the frst paragraph thereof the foowng:
( or provsons reatng to tho crcumstances nnder whch an empoyee who
performs servces as an offcer or member of the crow of an Amercan vesse (1)
whch Is owned by or bareboat chartered to the Unted States and (2) whose
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369 Regs. 107. 03.213.
busness t conducted by a genera agent of the Secretary of Commerce sha be
deemed to be performng servces for such genera agent rather than for the
Unted States, see sec. 1007(o) of the act, set forth precedng sec. 03.203 and
see. 03,203(6).)
PAR. 6. Secton 03.213, as amended by Treasury Decson 5566
C. B. 19 7-2, 1 , approved une 23,19 7, s further amended by
revsng the frst sentence thereof to read as foows:
Servces performed In the empoy of the Unted States Government, e cept as
provded n secton 1607 (m) and (o) of the act (see sec. 03203 (d) and (e).),
are e cepted.
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 1609 of the Interna Revenue Code of 1939 (53 Stat. 1 26
U. S. C. 1609) and Pubc Law 196, 3d Cong., approved August 5,
1953 (67 Stat 3 6).)
T. COL MAN A DR WS,
Commssoner of Interna Revenue,
Approved September 13,195 .
M. B. OLSO ,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster September 1 ,105 , : SO a. m.)
R UWTIONS 107, S CTION 03.213: Unted Rev. Ru. 5 -556
States and nstrumentates thereof.
. (Aso Secton 1 26, Secton 0 .213, Regu- .
atons 12 .)
The Consodated Nonapproprated Wefare und, estabshed and
operated pursuant to Army and Ar orce Reguatons, Is consdered
a whoy-owned nstrumentaty of the Unted States for edera
. empoyment ta purposes and the provsons of the Act of une
10, 19. 2, CG Stat 13 , do not operate to ncude wthn the defn-
ton of empoyment, as defned n the edera Unempoyment Ta
Act, servces performed by cvan empoyees of the und. How-
ever, such servce performed after 1050 consttutes empoyment
under the edera Insurance Contrbutons Act and the remunera-
ton therefor Is sub|ect to ta es mposed by such Act by reason of
secton 1 20(b)(7)(B)(v) thereof.
Advce has been requested as to whether the Consodated onap-
proprated Wefare und, estabshed and operated pursuant to
Unted States Army and Ar orce Reguatons, s consdered a whoy
owned nstrumentaty of the Unted States for edera empoyment
ta purposes, and whether servces performed by cvan empoyees
of such und are ncuded wthn the defnton of empoyment 1
under the edera Unempoyment Ta Act (subchapter C2 chapter 9,
Interna Revenue Code of 1939) by reason of the provsons of the
Act of une 19,1952, 66 Stat. 13 .
Under secton 1 26(b) (7) (B) (v) of the edera Insurance Con-
trbutons Act (subchapter A chapter 9, Interna Revenue Code of
1939), as amended by tno Soca Securty Act Amendments of 1950,
the term empoyment ncudes servce performed by a cvan em-
poyee, not compensated from funds approprated by the Congress,
n Uo Army and Ar orce change Servce or other actvtes con-
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Regs. 107, A 03.213. 370
ducted by an nstrumentaty of the Unted States sub|ect to the |urs-
dcton of the Secretary of Defense, at nstaatons of the Department
of Defense, for the comfort, peasure, contentment, and menta and
physca mprovement of personne of such Department Secton
1607(c) (6) of the edera Unempoyment Ta Act e cepts from the
term empoyment servce performed n the empoy of the Unted
States Government or of an nstrumentaty of the Unted States whch
s whoy-owned by t or e empt from the ta mposed by secton
1600 by vrtue of any other provson of aw.
The Act of une 19,1952, supra, provdes, n part, that cvan em-
poyees, compensated from nonapproprated funds, of the Army and
Ar orce change Servce, Army and Ar orce Moton Pcture
Servce, Navy Shfrs Stores Ashore, Navy e changes, Marne Corps
e changes, Coast Guard e changes, and other nstrumentates of
the Unted States under the |ursdcton of the Armed orces con-
ducted for the comfort, peasure, contentment, and menta and phys-
ca mprovement of personne of the Armed orces, sha not be hed
and consdered as empoyees of the Unted States for the purpose
of any aws admnstered by the Cv Servce Commsson or the pro-
vsons of the edera mpoyees Compensaton Act, provded that
the status of these nonapproprated fund actvtes as edera n-
strumentates sha not be affected.
Nonapproprated fund actvtes estabshed and operated pursuant
to Ar orce Reguatons 176-1 Army Reguatons 210-50 dated No-
vember .1953, are consdered whoy-owned nstrumentates of the
Unted States for edera empoyment ta purposes. Such regua-
tons provde that a nonapproprated fund actvty prescrbed there-
under s an entty estabshed by authorty of the Secretary of the
Army or the Secretary of the Ar orce for the purpose of admns-
terng moneys not approprated by the Congress for the beneft of
mtary personne or cvan empoyees of the Army and the Ar
orce, and not ncorporated under the aws of any State or the Ds-
trct of Coumba, The reguatons aso provde that such nonappro-
prated fund actvtes are nstrumentates of the Unted Stntes and
as such are entted to a the mmuntes and prveges whch are
avaabe under the edera Consttuton and statutes to the depart-
ments and agences of the edera Government. The Consodated
Nonapproprated Wefare und s ncuded n the wefare actvtes
and funds authorzed by such reguatons. Therefore, servces per-
formed after December 31, 1950, Dy cvan empoyees of the und
consttute empoyment as that term s defned n the edera In-
surance Contrbutons Act, and the remuneraton therefor s sub|ect
to the ta es mposed by such Act by reason of secton 1 26(b) (7) (B)-
(v) of the Act, as amended by the Soca Securty Act Amendments
of 1950. However, such servces are e cepted from empoyment,
as that term s denned n the edera Unempoyment Ta Act, by
reason of secton 1607(c)(6) of that Act, whch secton was not
amended by the Soca Securty Act Amendments of 1950.
The Act of une 19,1952, reates to the status, for purposes of any
aws admnstered by the Cv Servce Commsson or the provsons
of the edera mpoyees Compensaton Act, of cvan empoyees
of the organzatons mentoned n such former Act. It e pressy pro-
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371 Regs. 107, 03 2 a(a)(2).
ydes that the status of the nonapproprated fund actvtes as edera
nstrumentates sha not be affected. It s hed that the Act does
not affect the status, for purposes of the ta mposed by the edera
Unempoyment Ta Act, of the actvtes mentoned n the Act or ther
empoyees. The provsons of the Act do not operate to ncude -wthn
the defnton of empoyment, as denned n such Act, servce per-
formed by cvan empoyees of nonapproprated fund actvtes
whch are whoy owned nstrumentates wtnn the meanng of sec-
ton 1607 (c) (6) of the Act.
R GULATIONS 107, S CTION 03.215: Regous, char-
tabe, scentfc, terary, and educatona or-
ganzatons and communty chests.
Organzaton e empt under secton 101(6) of the 1939 Code ns
coempoyer of partnershp s empoyees. See Rev. Ru. 5 -3G9,
page 36 .
R GULATIONS 107, S CTION 03.22 a (a) (2): Wages Rev. Ru. 5 -313
pad by predecessor attrbuted to successor.
Durng a caendar year, Partnershp A, an empoyer of eght or
more ndvduas, was succeeded by Partnershp B, whch acqured a
the assets of Partnershp A and mmedatey after the acquston em-
poyed a the ndvduas who were prevousy empoyed by the prede-
cessor. Corporaton M succeeded Partnershp B, acqurng n the
assets of that partnershp, and mmedatey after empoyed a the
former empoyees of such partnershp for the baance of the year,
whch ncuded a perod 01 more than 20 weeks. The tota perod
durng whch the A and B Partnershps operated the busness durng
the caendar year covered more than 20 weeks however, nether part-
nershp operated the busness separatey for a perod of 20 weeks so
as to quafy as an empoyer wthn the meanng of secton G07(a)
of the edera Unempoyment Ta Act. Aso, the acquston by
Partnershp B was made under crcumstances whch do not come
wthn the ambt of Revenue Rung 5 -31, C. B. 195 -1, 212. Sec-
ton 03.22 a(a) (2) of Reguatons 107, as amended, provdes n part
that wages pad by a predecessor sha not be consdered as havng been
pad by a successor uness both the predecessor and the successor are
empoyers as defned n secton 1607(a of the act for the caendar
year n whch the acquston occurs. See T. D. 5905, C. B. 1952-1,
173,1 5. Hed, for purposes of the appcaton of the 3,000 mta-
ton on wages provded by secton 1607(o) (1) of the act, as amended,
remuneraton pad by Partnershp A may not be consdered as havng
been pad by Partnershp B. Lkewse, remuneraton pad by Part-
nershp B may not be consdered as havng been pad by Corpora-
ton M. Corporaton M s an empoyer and s abe for the ta
mposed under the act wth respect to the frst 3,000 of wages whch
t pad to each of ts empoyees durng the year. Cf. S. S. T. 97,
C.B. 1937-1, 57.
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Regs. 1, I 320.60. . 372
SUBCHAPT R D-COLL CTION OP INCOM TA AT
SOURC ON WAG S
S CTION 1621. D INITIONS
R GULATIONS 120, S CTION 06.203: mpoyees.
Status of saesman. See Rev. u. 5 - 33, page 337.., .
R GULATIONS 120, S CTION 06.205: mpoyer. .
(Aso Secton 06.203.)
Advertsng agency as empoyer. See Rev. u. 5 - 71, page 3 .
S CTION 1632. INCOM TA COLL CT D
AT SOURC
R GULATIONS 120, S CTION 06. 00: Statutory . . ..
provsons abty for ta .
suay handcapped ndvduas empoyed by Arzona Industres
for the Bnd. See Rev. Ru. 5 -253, page 32 .
CHAPT R 9A. WAR TA S AND WAR TA RAT S
S CTION 1651. R TAIL RS CIS TA ON
LUGGAG , TC.
R GULATIONS 51, S CTION 320.60: Scope of ta . Rev. Ru. 5 -353
(Aso Secton 2 00, Secton 320.33.)
The ta Imposed by secton 1051 of the Interna Revenue Code
appes to the sae of artces of uggage Incudng fttngs or ac-
cessores sod on or n connecton therewth. The term fttng
or accessores Incudes empty bo es, bottes, nrs, or tnbes for
hodng otons, creams, powders, or other cosmetcs, but does not
Incude artces such as combs, har brushes, mrrors, or mancure
mpements.
Advce s requested concernng the appcaton of the ta mposed
by secton 1651 of the Interna Revenue Code to fttngs or accessores
for artces of uggage sod on or n connecton wth the sae of the
uggage.
Secton 1651 (a) of the Code, as amended by the cse Ta Reduc-
ton Act of 195 , mposes a ta of 10 percent upon the reta saes
-.of artces of uggage on, or after Apr 1 I d , ncudng n each
case fttngs or accessores sod n connecton wth the sae of the
uggage.
It s hed that the term fttngs or accessores ncudes empty
bo es, bottes, |ars, or tubes for hodng otons, creams, powders, or
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373 Regs. 51, 320.61
other eosmetce. However, ths term does not ncude artces such
as combs, har brushes, mrrors, and mancure mpements.
Where an artce of uggage, ftted wth bo es, bottes, |ars, or
tubes s sod contanng artces, such as, a comb, har brush, mrror,
or mancure mpements whch are not made of, ornamented, mounted
or ftted wth precous metas or mtatons thereof, the ta attaches
to that porton of the reta saes prce charged for the unt whch
s shown by the retaer s records as beng attrbutabe to the artce
of uggage, ncudng the bo es, bottes, |ars, or tubes whch const-
tute ts fttngs. The ta does not appy to the contents, such as a
comb, har brush, mrror, or mancure mpements.
The ta abe porton of the unt may be determned by appyng
to the reta saes prce of such unt the rato whch the separate
reta saes prces ot the ta abe artces bears to the sum of the rets
saes prces of both the ta abe and nonta abe artces when so
separatey at reta. Whoro one or more of the artces are not sod
separatey at reta, and do not have estabshed reta saes prces,
the tn bo porton may bo determned from a comparson of the
cost of the artce of uggage, ncudng ts fttngs or accessores,
to the sum of the cost of the ta abe and nonta abe artces. or
e ampe, f the cost of the artce of uggage ncudng ts fttngs
or accessores represents three-fourths of the sum of the cost of the
compete unt, the ta s appcabe to three-fourths of the reta saes
prce of such unt.
In the event the contents of an artce of uggage, such as a comb,
brush, mrror, or mancure mpements are made of, ornamented,
mounted or ftted wth precous metas or mtatons thereof, such
contents come wthn the scope of the ta on |ewery, etc., mposed
by secton 2 00 of the Code, and the ta of 10 percent appes to the
tota reta saes prce of the unt.
Reguatons 51, Secton 320.60: Scope of ta . Rev. RuL 5 -60
(Aso Secton 2 00, Secton 320.20.)
Zpper notebooks mode of eather or a matera smuatng eather
whch are capabe of beng cosed on a four sdes are bref coses
wthn the meanng of secton 1651 of the Interna Revenue Code of
103 ) and aro sub|ect to the retaers e cse ta mposed by that sec-
ton. There Is no provson of aw whereby saes of artces sub|ect
to retaers e cse ta are e empt from such ta by reason of the
fact that they are sod to students for educatona purposes. How-
ever, pursuant to the provsons of secton 2 00 of such Code saes of
artces to a board of educaton or other Instrumentaty of a State
or potca subdvson thereof for Its e cusve use are not sub|ect
to ta .
Advco has been requested whether the retaers e cse ta on ug-
gage, etc., mposed by secton 1651 of the Interna Revenue Code of
1939 appes to the sae of zpper notebooks and f so whether the
sae of such artces to students for educatona purposes s sub|ect
to ta .
The ta mposed by secton 1651 of the Code s specfcay app-
cabe, among other thngs, to the saes at reta of bref cases made of
eather or mtaton eather. In accordance wth the provsons of
secton 320.60 of Reguatons 51, the term bref cases made of eather
or mtaton eather ncude so-caed rng bnders, portfoos, enre-
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Begs. 3,1101.9 37
opes, etc, whch are made of eather or mtaton eather, and whch
are capabe of beng cosed on a four sdes by means of a zpper,
ock, snap fastener, or some other such devce.
It s hed that zpper notebooks made of eather or a matera smu-
atng eather whch are capabe of beng cosed on a four sdes are
bref cases wthn the meanng of secton 1651 of the Code and are
sub|ect to the retaers e cse ta mposed by that secton.
There s no provson of aw whereby saes of zpper notebooks sub-
|ect to retaers e cse ta are e empt from such ta by reason of the
fact that they are sod to students for educatona purposes. How-
ever, pursuant to the provsons of secton 2 06 of the Code whch
e empts from ta saes of artces for the e cusve use of a State or
potca subdvson thereof, saes of artces to a board of educaton
or other nstrumentaty of a State or potca subdvson thereof
for ts e cusve use are not sub|ect to ta , provded the retaer ob-
tans from an authorzed offca a propery e ecuted e empton certf-
cate n the form prescrbed by secton 320.20 of Reguatons 51.
CHAPT R 10, ADMISSIONS AND DU S
SUBCHAPT R A-ADMISSIONS
S CTION 1700. TA
Reguatons 3, Secton 101.2: Meanng of Rev. RuL 5 -557
admsson .
Regstraton fees are coected by an organzaton from persons
who attend a conventon hed by the organzaton and entte such
A ersons to admsson to a events of the conventon ncudng both
usness and soca affars, some of whch come wthn the category
of affars to whch charges for admsson are ordnary sub|ect to the
ta mposed by secton 1700(a) of the Interna Revenue Code of 1939.
Generay speakng, a regstraton fee represents an assessment made
by an organzaton aganst those members who attended a conventon
to take care of e penses ncurred n connecton wth the conventon
and ordnary there s no aocated charge for admssons to any con-
venton affar. urthermore, the entre amount of the fee s requred
by each person attendng the conventon regardess of whether he
attends any or a of the affars. Such fees are pad nto the organ-
zaton s treasury and a e penses are pad for ndscrmnatey out
of the treasury. Hed, under such crcumstances, no part of the regs-
traton fee consttutes a charge for admsson wthn the meanng of
secton 1700(a) of the Code and, therefore, the ta mposed by that
secton s not appcabe.
muatons 3, Secton 101.0: Scope and Rev. Ru. 6 - 02
bass of ta es.
Where an organzaton engaged n the busness of buyng and se-
ng tckets for proft procures and devers to ts customers tckets to
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375 Regs. 3, I 101.9.
theatres, operas, or other paces of amusement and a charge s made
n e cess of the cost to t of the tckets (the sum of the estabshed
prce and the admssons ta thereon), the transacton consttutes a
sae of tckets outsde the bo offce wthn the meanng of secton
1700(c) of the Interna cvenue Code of 1939, and the e cess charge
made by the organzaton s sub|ect to the ta mposed by that secton.
The ta appes whether the charge s desgnated as a contrbuton,
servce charge, or the ke, and whether seng or dsposng of such
tckets s the prncpa busness of the organzaton. Cf. Rev. u.
5 - 03, beow.
R GULATIONS 3, S CTION 101.9: Scope and Rev. Ru. 5 - 03
bass of ta es.
The ta on sae outsde the bo offce Imposed by Moton 1700(c)
of the Interna Revenue Code of 1930 does not appy to a servce
charge made by a bonn fde membershp cub whch, actng In the ca-
pacty of an agent ony, procures tckets of admsson for ts mem-
bers. . T. 2, C. B. I -2, 30 (1035), revoked.
Advce s requested whether, under the foowng crcumstances,
the ta on saes outsde the bo offce, mposed by secton 1700 (c)
of the Interna Revenue Code of 1039 appes to charges made by a
bona fdo membershp cub to ts members for procurng tckets of
admsson.
A bona fde membershp cub of the type whch provdes meas and
resdenta accommodatons for ts members conducts a tcket servce
soey for the convenence of ts members. It s organzed under State
aws whch do not permt t to engage n nny actvty for pecunary
proft. A member paces orders for tckets wth the cub, specfyng
whether the tckets are to be maed to hm, devered to the cub, or
pcked up at the bo offce. The cub then orders the tckets n the
member s nnme through a broker, the broker bs the cub each month
. for tckets procured, and the cub charges the member s house ac-
count for the cost of the tckets pus a fee of 50 cents for each tcket
so procured. In no case does the cub sustan a oss. Where tckets
are re|ected by members, or orders for tckets are canceed, the broker,
as a rue, credts the account of the cub. However, f the broker does
not credt the account of the cub, the member must pay to the cub
the charges made by the broker.
Secton 1700(a) of the Code mposes a ta on amounts pad for
admsson to any pace. Secton 1700(c) mposes upon tckets or
cards of admsson to theatres, operas, and other paces of amusement.
sod at news stands, hotes, and paces other than the tcket offces 01
uch theatres, operas, or other paces of amusement, at a prce n e -
cess of the estabshed prce therefor at such tcket offces pus the
amount of any ta mposed under secton 1700(a), a ta equvaent
to 10 percent of the amount of such e cess.
To determne whether a charge made by a cub for obtanng such
tckets may bo sub|ect to the ta on saes outsde the bo offce t s
necessary to estabsh the reatonshp between the partes nvoved n
the transacton. Where the reatonshp s that of agent and prn-
cpa the charge for obtanng tckets s consdered to be a charge for
servce and not an e cess charge wthn the meanng of secton
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Begs. 3, 101.13. 376 .
1700 (c) of the Code, and s not sub|ect to the ta mposed by that
secton.
In the case of Coumba Unversty dub v. Hffffns, 23 ed. Supp.
572, the facts and crcumstances were substantay the same as those
n the nstant case. The court found that the member controed the
purchase of the tckets wth respect to tme, ocaton, and prce. The
tckets were ordered by the cub n the name of the member and fna
say regardng acceptance of such tckets was vested n the member.
The cub dd not keep a suppy of tckets on hand other than those
specfcay ordered. The court stated that the fact that the theatre
or broker ooked to the cub for payment was not controng, that
there was a consent by the cub to act for another, and that t acted
wthn the scope of authorty granted by the other person.
The court hed n the case of the Coumba Unversty Cub that
the reatonshp whch e sted between the cub and ts members was
that of agent and prncpa and the transacton between the cub and
ts members wth respect to the procurement of tckets dd not const-
tute a sae of tckets by the cub.
It s hed, n the nstant case, that a reatonshp of agent and prn-
cpa e sts between the cub and ts members n the transactons re-
atng to the procurement of the tckets and such transactons do not
consttute saes of tckets outsde the bo offce. Accordngy, the fee
charged by the cub for procurng the tckets for ts members s not
sub|ect to the ta mposed by secton 1700(c) of the Code. Cf. Rev.
Rut 5 - 02, page 37 .
In S. T. 22, C. B. I -2, 39 (1935), a contrary concuson was
reached on substantay the same facts as are nvoved n the nstant
case. There, t was concuded that the reatonshp between the cub
and ts members was that of seer and purchaser, and on that bass
the servce charge of the cub was hed to be sub|ect to the ta on
e cess charges. In vew of the concuson reached n the nstant case
S. T. 22, supra, s hereby revoked. ..
R GULATIONS 3, S CTION 101.13: Bass, rate, Rev. RuL 5 - 7
and computaton of ta .
Payments for food, refreshment, servce, or merchandse made
pror to the begnnng of the entertanment In a cabaret, roof garden
or other smar pace are sub|ect to the cabaret ta Imposed by sec-
ton 1700(e) of the Interna Revenue Code of 1939, where the patrons
or guests by or for whom such amounts are pad reman for any por-
ton of the entertanment afforded.
Advce s requested concernng the appcaton of the cabaret ta
mposed by secton 1700(e) of the Interna Revenue Code of 1939 to
amounts pad for food and refreshment served n a cabaret under the
foowng crcumstances.
In the nstant case, a cabaret serves fu course dnners between the
hours of 5 p. m. and 9 p. m. After that tme a food and refreshments
are served on an a a carte bass. ntertanment n the cabaret begns
at 9:30 p. m. Some of the customers ca for and pay ther checks
before the entertanment begns, but reman to fnsh ther meas and
are abe to wtness a or part of the entertanment.
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377 Res . 3. OU
Secton 1700(e) of the Code mposes a ta equvaent to 20 perce
of a amounts pad for admsson, refreshment, servce, or merchan-
dse at any roof garden, cabaret, or other smar pace furnshng
pubc performance for proft, by or for any patron or guest who s en-
tted to be present durng any porton of such performance. The
term roof garden, cabaret, or other smar pace ncudes any rocc
n any hote, restaurant, ha or other pubc pace where musc and
dancng prveges or any other entertanment, e cept nstrumenta
or mechanca musc aone, are afforded the patrons n connecto
wth the servng or seng of food, refreshment, or merchandse.
The cabaret ta appes to a amounts pad for food, refreshmer,
servce, or merchandse by patrons or guests who are present durng
any part of the entertanment, even though such patrons or guests
make payment for the food, refreshment, servce, or merchandse
pror to the tme the entertanment starts. or the ta to appy, t
s not necessary that such patrons or guests be abe to wtness the en-
tertanment, and partake of food or refreshments at the same tme.
It s hed thnt payments for food, refreshment, servce, or merchan-
dse made pror to the begnnng of tho entertanment n a cabaret,
roof garden or other smar pace are sub|ect to the cabaret ta m-
posed by secton 1700(e) of tho Code, where the patrons or guests b|
or for whom such amounts are pad reman for any porton of the
entertanment afforded. However, the ta does not appy to pay-
ments made by or for patrons or guests who eave the estabshment
pror to the begnnng of the entertanment, or who enter and ean
durng an ntermsson perod, or who enter after the entertanment
has ceased.
eguatons 3, Secton 101.1 : Scope of ta . Bev. Bu. 5 -307
empton from edera e cse ta es accorded foregn dpomatc
offcers under the provsons of Rev. Ru. 296, C. B. 1953-2, 325.
e tends to the cabaret ta mposed by secton 1700(e) of the Interna
Revenue Code.
Advce s requested whether e empton from the cabaret ta m-
posed by secton 1700(e) of the Interna Revenue Code may be ac-
corded foregn dpomatc offcers, n vew of the fact that e empton
from smar e cse ta es s accorded foregn dpomatc personne
under the provsons of Rev. Ru. 296, C. B. 1053-2,325.
It s hed that, whe the cabaret ta mposed by secton 1700(e)
of the Code s not specfcay referred to n Rev. Ru. 296, svpra, the
e empton accorded duy accredted dpomatc offcers under such
rung appes to the ta mposed by that secton. Accordngy, where
charges otherwse sub|ect to the cabaret ta are coected from am-
bassadors, mnsters, and other duy accredted dpomatc representa-
tves of foregn governments, members of ther fames vng wth
them, and those members of ther househod descrbed n Rev. Ru.
296, supra, the transactons w not be ta ed f the proper credentas
are presented at the tme the charges are pad. Ths prvege does not
e tend to consuar offcers of foregn governments or other offcers
(other than dpomatc representatves), agences, or commssons of
foregn governments.
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Regs. 3, 101.15. A 37
Snce the ega ncdence of the cabaret ta fas on the person
coectng the charges, such person must retan n hs fes suffcent
e panaton of the transactons to show ceary ther e empt character
and |ustfy the nonpayment of the ta to the Government.
: (Aso Secton 3 69: Ta on transportaton of Rev. u. 5 -32
.. persons, etc) ,
- Credts or refunds of admssons and transportaton ta es under
. . the cse Tn Seducton Act of 195 .
Reducton n admssons and transportaton ta rates, and credts
or refunds of e cess admssons and transportaton ta es coected
pror to Apr 1,195 , are provded for by the cse Ta Reducton
Act of 195 (C.B. 195 -1, 3 3 .
Cams for refund may be fed on orm 3 and cams for credt
may be fed on orm 720 pursuant to the provsons of secton 506 of
the cse Ta Reducton Act.
Refunds or credts of e cess transportaton and admssons ta es
coected pror to Apr 1, 195 , at the rate then n effect for trans-
portaton or admssons occurrng on or after such date are mted to
the persons who coected the ta from the customer and pad t over to
the Unted States. Interest s not aowabe wth respect to any
amount refunded.
A cam for refund or credt of admssons or transportaton ta es
must be supported by evdence suffcent to satsfy the Dstrct Drector
of Interna evenue that the ta was pad over to the Unted States
and was rembursed to the customer pror to the tme the transporta-
ton began or the event took pace. However, n eu of remburse-
ment, a consent of the person from whom the ta was coected to the
aowance of the refund may be accepted f such consent s obtaned
pror to the tme the transportaton began or the event took pace.
The -year statute of mtaton contaned n secton 3313 of the
Interna Revenue Code s appcabe wth respect to such cams.
S CTION 1701. MPTIONS ROM TA
Reguatons 3, Secton 101.15: emptons Rev. Ru. 5 -31
from ta .
ower shows hed for the promoton and advancement of hort-
cuture quafy as agrcutura fars for the purpose of the e emp-
ton provded by secton 1701(b) of the Interna Revenue Code, and
amounts charged for admsson to such shows are not sub|ect to ta
under secton 1700(a) of the Code, where the proceeds therefrom are
used e cusvey for the mprovement, mantenance, and operaton of
such shows and where no part of the net earnngs thereof nures to
the beneft of any stockhoder or member of the organzaton conduct-
ng the show. See secton 101.15(d) (1), Reguaton 3
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379 Regs. 3. 5 101.15.
R GULATIONS 3, S CTION 101.15: emptons Rev. Bu. 5 -370
from ta .
Crcumstances under whch an amount pad for taent n connec-
ton wth an affar conducted by an organzaton of the character
contempated by secton 1701 of the Interna Revenue Code of 1939
may be consdered a reasonabe e pense and thereby entte the
organzaton to e empton from ta on admssons.
Advce s requested as to the crcumstances under whch e penses
pad for taent on a percentage bass n connecton wth an affar
conducted by an organzaton of the character contempated by secton
1701 of the Interna Revenue Code of 1939 may be consdered a
reasonabe e pense and thereby entte the organzaton to e empton
from coecton of ta on admssons.
In the nstant case an organzaton of the character contempated
by secton 1701 of the Code, contracted wth a band of natona fame
to pay for a dance conducted by the organzaton. Under the contract,
the terms of whch are standard, the band s guaranteed a mnmum
payment of 1,000 or the aternatve of 60 percent of the proceeds
derved by the organzaton from the dance.
Secton 1701 of the Code provdes for e empton from ta on ad-
mssons where a the proceeds from admssons nure e cusvey to
the beneft of certan regous, educatona, or chartabe organza-
tons.
Secton 101.1. of Reguatons 3 provdes n part that the prmary
condton for e empton from admssons ta s that a the proceeds
of the admssons nure to the beneft of the e empt organzaton.
The term a the proceeds means a the net proceeds of the reguar
admsson charges or e cess charges, as the case may be, after payment
of actua and reasonabe e penses ncurred n presentng the event
Whether certan e penses are reasonabe s to be determned on the
bass of a the facts n the matter. If the e penses are n e cess of
what s reasonabe and necessary under the crcumstances, a the
proceeds woud not be deemed to nure e cusvey to the beneft of
the e empt organzaton. In any case where the amount to be receved
by a none empt organzaton for taent, servces, or otherwse, s based
on a percentage of the net or gross proceeds, the organzaton camng
e empton sha, before e empton may be aowed, estabsh that the
ma mum amount to be receved on the percentage bass s a reasonabe
sum and not more than woud ordnary be receved on a fat-rate
bass for the same or smar taent or servces, and that the contract
actuay operates to the beneft of the e empt organzaton. In the
case of a band, orchestra, or smar organzaton, ts reputaton, te
number of members, the servces t s requred to render, and the enpth
of the engagement shoud be consdered n determnng whether the
payment t receves s a reasonabe one, aso whether the terms are
usua or standard for the partcuar organzaton. A sound rue to
foow woud be to determne whether the contract s one the partes
woud enter nto upon arm s ength negotatons, f there were no
e emptons.
3331
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Regs. 3, f 101.15. 3 0
muatons 3, Secton 101.15: Rev. Bu. 5 - 3
emptons from ta .
The e empton from the ta on admssons provded for educa-
tona nsttutons by secton 1701(a)(1)(A) (U) of the Interna
Revenue Code of 1039 does not appy to admssons to affars con-
ducted by a parent-teacher assocaton, the proceeds of whch nnre
to the beneft of the assocaton.
Advce has been requested whether the e empton from ta on ad-
mssons provded by secton 1701(a) (1) (A) () of the Interna Rev-
enue Code of 1939 appes to admssons to affars conducted by a
parent-teacher assocaton, the proceeds of whch nure to the beneft
of such assocaton.
In the nstant case, a parent-teacher assocaton conducts dances,
carnvas, schoo dnners, bake saes, and other affars to rase funds
wth whch to provde necessary equpment for the schoo and enter-
tanment for the schoo chdren. The assocaton s a oca unt of
the Natona Congress of Parents and Teachers and s governed by
the poces of the natona organzaton. Parent-teacher assocatons
have been hed e empt from edera ncome ta under secton 101(6)
of such Code as organzatons operated e cusvey for educatona
purposes.
Secton 1701 of the Code provdes n part as foows:
S C. 1701. MPTIONS ROM TA .
No ta sha be eved In respect of
(a) Certan Regous, ducatona, or Chartabe ntertanments, etc.
(1) In genera. any admssons a the proceeds of whch
Inure
(A) e cusvey to the beneft of

(II) an edncatona Insttuton whch Is e empt under secton
101(6) or whch Is an educatona nsttuton of a government or
potca subdvson thereof, If such organzaton normay man-
tans a reguar facuty and currcuum and normay has a regu-
ary organzed body of pups or students n attendance at the
pace where Its educatona actvtes are reguary carred on

Secton 101.15(b) (3) of Reguatons 3 provdes that admssons,
or e cess charges, a the proceeds of whch nure e cusvey to the
beneft of an educatona nsttuton are e empt from the ta provded
() the educatona nsttuton s e empt from edera ncome ta
under secton 101(6) of the Code, or s an educatona nsttuton of
a government or potca subdvson thereof, () the nsttuton nor-
may mantans a reguar facuty and currcuum and normay has
a reguary organzed body of pups or students n attendance at the
pace where ts educatona actvtes are reguary carred on, and
() no part of the net earnngs thereof nures to the beneft of any
prvate stockhoder or ndvdua. Generay, ths e empton appes
n the case of nsttutons engaged n the presentaton of forma n-
structon, 6uch as eementary and hgh schoos, coeges and unvers-
tes, through the medum ot a reguar facuty and currcuum wth a
reguary organzed body of pups or students n attendance.
The fact that an organzaton may be e empt from edera ncome
ta under secton 101(6) of the Code does not, n tsef, quafy the
organzaton for e empton from the admssons ta . A parent-
teacher assocaton s not tsef an educatona nsttuton of the knd
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3 1 egs. 3, 101.15
contempated by secton 1701(a) (1) (A) () of the Code, snce t
does not meet the statutory requrements regardng a reguar facuty
and currcuum and a reguary organzed body of pups or students.
Accordngy, t s hed that the ta on admssons mposed by sec-
ton 1700(a) of the Code appes to charges for admssons to affars
conducted by a parent-teacher assocaton, the proceeds of whch nure
to the beneft of such assocaton.
However, an e empton from ta on admssons may be aowed
wth respect to admssons to affars conducted by a parent-teacher
assocaton e cept as otherwse provded by secton 1701(a)(2) of
the Code, f (1) the assocaton hy pror acton of ts membershp
or e ecutve commttee e pressy desgnates a schoo or educatona
nsttuton meetng the requrements for e empton under secton
1701(a) (1) (A) () of the Code as the benefcary of the net proceeds
of the admssons, and (2) such proceeds are approprated to the m-
medate use of, or mmedatey turned over to, the schoo or other
educatona nsttuton.
Reguatons 3, Secton 101.15: emptons Rev. RuL 5 - 72
from ta .
A program In a prograde or nursery schoo whch Incudes routne
nstructon n organzed pay, rudmentary sks, and soca vng
consttutes a currcuum as contempated by secton 1701(a)(1)
(A) (11) of the Interna Revenue Code of 1039. A nursery schoo
whch mantans a reguar facuty and currcuum, has an organzed
body of pups and Is e empt from edera Income ta under secton
101(G) of the Code quates as an educatona Insttuton of the
type contempated by secton 1701(a)(1)(A) (II) of the Code, and
Is entted to the e empton from admssons ta provded by that
secton wth respect to admssons the proceeds of whch Inure to Its
beneft.
Advce s requested whether a nursery schoo for chdren of pre-
schoo age organzed and operated n the manner descrbed quates
as an educatona nsttuton of the type contempated by secton
1701(a) (1)(A) () of the InternaRevenue Code of 1939 and s en-
tted to the e empton from admssons ta provded by that secton.
A communty tranng center and nursery schoo was organzed by
a nonproft assocaton for the gudance and deveopment of chdren
of preschoo age. The byaws of the assocaton provde that a board
of trustees sha have fu contro and drecton of the actvtes of
the nursery schoo. The board s responsbe for the hrng of a drec-
tor, teachers, and other schoo empoyees, and for the mantenance
of the standards set forth by the State department of educaton, the
State department of soca wefare and other reputabe centers of
nursery schoo educaton. The assocaton s e empt from edera
ncome ta under secton 101(6) of the Code as an organzaton op-
erated e cusvey for educatona purposes.
Secton 1701 of the Code provdes n part as foows:
S C. 1701. MPTIONS ROM TA .
No ta sha be eved In respect of
(a) Certan Regous, ducatona, or Cbabttab ntertanments, etc
(1) In genera. any admssons a the proceeds of whch
nure
(A) e cusvey to the beneft of
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Regs. 3, 101.15. 3 2
(t) an educatona Insttuton whch Is e empt tnder secton
101(6) or wbch s an educatona Insttuton of a government or
potca subdvson thereof, If such organzaton normay man-
tans a reguar facuty and currcuum and normay has a reguary
organzed body of pups or students In attendance at the pace
where Its educatona actvtes are reguary carred on
..:/:.
If no part of the net earnngs thereof Inures to -the beneft of any prvate
stockhoder or Indvdua
A
. (2) NOW MPT ADMISSIONS. The e empton provded under paragraph
(1) sha not appy In the case of admssons to (A) any athetc game
or e hbton uness the proceeds Inure e cusvey to the beneft of an
eementary or secondary schoo or uness n the case of an athetc game
between teams composed of students fom eementary or secondary
schoos, the entre cross proceeds from such game nure to the beneft of a
hospta for crpped chdren, (B) wrestng matches, prze fghts, or bo ng,
sparrng, or other pugstc matches or e hbtons, (C) carnvas, rodeos,
or crcuses n whch any professona performer or operator partcpates
for compensaton, or (D) any moton pcture e hbton. Causes (A) and
(B) sha not appy In the case of any athetc event between educatona
Insttutons hed durng the reguar atMetc season for such event, If the
proceeds therefrom nure e cusvey to the beneft of such Insttutons.
It s hed that a program n a pregrade or nursery schoo whch
ncudes routne nstructon n organzed pay, rudmentary sks, and
soca vng consttutes a currcuum as contempated by secton
1701(a) (1) (A) () of the Code. Snce the nursery schoo n the
nstant case aso mantans a reguar facuty, has an organzed body
of pups and s e empt from ncome ta under secton 101(6) of the
Code, t quafes as an educatona nsttuton of the type contem-
pated by secton 1701 (a) (1) (A) () of the Code. Accordngy,
charges for admsson to affars, e cept as otherwse provded by sec-
ton 1701 (a) (2) of the Code, are e empt from the ta on admssons f
the proceeds thereof nure to the beneft of the nursery schoo.
R GULATIONS 3, S CTION 101.15: emptons Rev. Ru. 5 - 73
from ta .
Th e empton provded by secton 1701 (b) of the Interna Rev-
enue Code of 1039 does not appy to a separate charge for admsson
to a grandstand at an agrcutura far to vew events conducted
by an organzaton other than a far assocaton, even though the
events may be vewed wthout ganng admsson to the grandstand.
Rev. u. 1G1 (C. B. 1053-2, 33 ) ampfed.
Advce s requested -whether the e empton provded by secton
1701 (b) of the Interna Revenue Code of 1939 appes to a separate
charge for admsson to a grandstand at an agrcutura far under
the foowng crcumstances.
An agrcutura far assocaton eases ts grandstand factes to a
proft-makng organzaton for the purpose of conductng stock car
racng and smar events at the tme the agrcutura far s n prog-
ress. The proceeds from admsson to the grandstand nure to the
beneft of the proft-makng organzaton. The races and other events,
however, can be vewed wthout ganng admsson to the grandstand.
Secton 1701 (b) of the Code provdes n part as foows:
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3 3 Ret. 3, 101.22.
See. 1701. MPTIONS ROM TA
No tA sha be eved Is respect of
(b) AoncuTUAL ass. Any admssons to agrcutura fars If no part of
the net earnngs thereof Inures to the beneft of any stockhoders or members of
the assocaton conductng the same If the proceeds therefrom are used e d
svey for the Improvement, mcntenance, and operaton of such agrcutura
fars
Secton 101.15(d) of Reguatons 3 provdes that the e empton
afforded wth respect to agrcutura fars s mted to the genera
admsson charge to the far grounds or to any addtona payment
for seatng accommodatons offered n connecton wth any free event
hed n connecton wth the far. The e empton does not e tend to
admssons to any e hbt, entertanment, or other event for whch
a separate addtona admsson charge s made.
Rev. Ru. 161. C. B. 1953-2, 33 , hods that the e empton provded
by secton 1701(b) of the Code appes to a separate charge, made n
addton to the genera admsson charge, for admsson to grand-
stand events whch quafy n ther own rght as agrcutura fars.
It hods further that f a persons who have pad the genera adms-
son charge may vew grandstand events whch do not quafy n ther
own rght as agrcutura fars, wthout payment of an addtona
charge, any addtona payments for seatng accommodatons (e. g.
grandstand seats) provded n connecton wth the free events s
consdered an e tenson of the genera admsson charge to the far,
and s e empt from ta under secton 1701(b) of the Code. The
prncpe stated n Rev. Ru. 1G1 appes ony to events conducted by
an agrcutura far assocaton.
It s hed that the e empton provded by secton 1701(b) of the
Code does noc appy to charges for admsson to grandstand events
conducted by a proft-makng organzaton regardess of whether the
events may be vewed wthout ganng entrance to the grandstand.
Snce, n such a case, the proceeds from the admsson charges to the
grandstand nure to the beneft of the proft-makng organzaton,
they woud not be regarded as e tensons of the genera admsson
charge to enter the far grounds. Accordngy, amounts pad n the
nstant case for admsson to the grandstand are sub|ect to the adms-
sons ta mposed by secton 1700(a) of the Code. Rev. Ru. 161,
C. B. 1953-2, 33 , ampfed.
SUBCHAPT R B.-DU S
S CTION 1710. TA
Reguatons 3, Secton 101.22: Meanng of Rev. Ru. 5 -50
dues or membershp fees.
An assessment made by a soca, athetc, or sportnc cub aganst ts
members to pay for capta mprovements on the cub grounds or to
cover current operatng defcts comes wthn the meanng of the term
dues or membershp fees as defned n secton 1712 of the Interna
Revenue Codo of 1939. Amounts pad as the resut of such an assess-
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Regs. 71, 113.50. 3
ment are sub|ect to the ta on dues or membershp fees mposed by
secton 1710 of the Code, f the tota dues or membershp fees, ncud-
ng a assessments and a charges for soca, athetc, or sportng
prveges or factes of an actvo resdent annua member aro n
e cess of 10 a year.
CHAPT R 11, DOCUM NTS, OTH R INSTRUM NTS,
AND PLAYING CARDS
SUBCHAPT R A RAT AND PAYM NT OP TA
S CTION 1 01. CORPORAT S CURITI S
Reguatons 71, Secton 113.50: Scope of ta . Rev. Ru. 5 -505
Appcabty of the ta Imposed by sectons 1 00 and 1 01 of the
Interna Ievenue Code of 1030 on the ssuance of corporate secur-
tes to the Issuance of mortgage notes.
Advce s requested whether the ta mposed by sectons 1 00 and
1 01 of the Interna Revenue Code of 1939 on the ssuance of corpo-
rate securtes appes to the ssuance of mortgage notes, as descrbed
beow.
The fnancng n whch a mortgage note s used occurs generay n
tho foowng types of transactons:
(1) A corporate owner of rea property borrows money for the
purpose of constructng ndvdua houses. Tho constructon
oan s for a short term, runnng from 6 months to a year, and s
advanced by tho ender n stpuated percentages as the budng
pro|ect progresses. Snce ths typo of operaton reates to the
constructon of ndvdua houses, the fnancng s effected n
respect to each ndvdua house and ot, the oanheng evdenced
by ndvdua notes and mortgages on each ndvdua house and
ot nvoved n the budng pro|ect. Upon sae of the competed
ndvdua houses, tho purchaser assumes the mortgage obgaton,
e tends the maturty date and otherwse modfes the terms of tho
mortgage as agreed upon by such ndvdua purchaser and the
mortgagee. Some pro|ects, because of ther sze, nvove more
than one endng nsttuton. Where ths occurs, the oans made
by the respectve enders cover specfc parts of the whoe pro|ect
and are evdenced by ndvdua notes and mortgages coverng
tho ndvdua houses and ots ncuded n such parts.
(2) A corporaton purchases a parce of rea estato and pays a
part of tho purchase prce by gvng a purchase money note
secured by a mortgage on the property. Here, aso, the practce
s to gve one note secured by a snge mortgage.
(3) A corporate owner of rea property procures a oan, ether
to erect a budng thereon, further mprove budngs aready
erected on the and, for refnancng of the reaty owned, or for
other corporate purposes.
ach of the notes ssued n the transactons descrbed above s
secured by a mortgage and evdences a promse to pay a sum certan
n money at a specfed date, wth nterest. In case of defaut, a note
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3 5 (Regs. 71, 113.32.
becomes mmedatey due at the opton of the hoder. Some of the
notes are negotabe whe others are nonnegotabe, beng payabe to
the mortagec or assgns.
Sectons 1 00 and 1 01 of the Code Impose a ta on a bonds deben-
tures, or certfcates of ndebtedness ssued by any corporaton, and a
nstruments, however termed, ssued by any corporaton, wth nterest
coupons or n regstered form, known generay as corporate securtes.
There s no provson of edera ta aw under whch an ordnary
promssory note s sub|ect to the documentary stamp ta . The stamp
ta on promssory notes was repeaed n the Revenue Act of 192 and
has not oeen recnacted.
The condtons to whch the notes ssued n the above transactons
are sub|ect are consdered to be common to condtons assocated wth
promssory notes generay. or ths reason, and takng nto consd-
eraton the crcumstances under whch the notes are used and the fact
that the notes are not ssued n scres but n each nstance cover ony
n snge ndebtedness secured by a mortgage appyng ony to that
ndebtedness, t s hed that such notes do not come wthn the casses
of nstruments ncuded n secton 1 01 of the Code, Accordngy,
the ssuance of such mortgage notes s not sub|ect to ta under sectons
1 00 and 1 01 of the Code.
R GULATIONS 71, S CTION 113.55: Issues sub- Rev. u. 5 -335
|ect to ta .
The assumpton by a corporaton of an ndvdua s bond, couped
wth ts renewa smutaneousy effected, s sub|ect to the orgna ssue
ta as mposed by sectons 1 00 and 1 01 of the Interna Revenue
Code. Assumpton by a corporaton of bonds ssued by a dfferent
corporaton couped wth ther renewa s aso sub|ect to the orgna
ssue ta under the above-mentoned sectons of the Code.
R GULATIONS 71, S CTION 113.56: Issues not Rev. Ru. 5 -3 5
sub|ect to ta .
Modfcatons made n debentures by a suppementa ndenture whch
merey effect changes n the amount of workng capta to be man-
taned by a corporaton, n the securty provsons of the debentures,
and n the provsons reatng to deposts to the snkng fund, do
not effect such matera changes n the terms of the debentures as to
consttute a new ssuance sub|ect to orgna ssue ta under sectons
1 00 and 1 01 of the Interna Revenue Code. Cf. Rev. Ru. 5 -60,
C. B. 195 -1, 2 1.
S CTION 1 02. CAPITAL STOC (AND
SIMILAR INT R STS)
R GULATIONS 71, S CTION 113.32: Rates and Rev. Ru. 5 -315
computaton of ta .
O. D. , C. B., Saes Ta Rungs, 73 ( anuary- une 1921), hed
that the transfer n ths country of ngsh stock s ta abe under
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Regs. 71, ( 113.33.) 3 6
secton 1100, Schedue A, of the Revenue Act of 191 upon the bass
of ts par or face vaue n doars as determned by the rate of e -
change at the tme and pace of the transfer. The prncpe of that
rung s e tended to hod that the transfer n ths country of stock
of any foregn corporaton s ta abe under secton 1602(b) of the
Interna Revenue Code upon the bass of ts par or face vaue n
Amercan doars as determned by the rate of e change at the tme
and pace of transfer.
O. D. , supra, ampfed.
Reguatons 71. Secton 113.33: Saes and Rev. Ru. 5 -3 6
transfers sub|ect to ta .
A benefcary under a testamentary trust, whch termnated upon
hs becomng of age, created a new trust after reachng hs ma|orty,
to whch was transferred the corpus of the testamentary trust. The
trust assets were composed entrey of shares of stock. Hed, snce
the rght to receve the corpus of the testamentary trust vested n
the benefcary when he became of age, two transfer ta es were n-
curred under secton 1 02(b) of the Interna Revenue Code wth
respect to the transfer of such trust assets. The frst ta s on the
drect transfer from the trustee of the testamentary trust to the trustee
under the new trust. The second ta s on the transfer by the bene-
fcary to the new trust of hs rght to receve the stock from the
orgna trust, whch rght vested when he reached hs ma|orty. See
Raybestos-Manhattan|nc, v. U. S., 56 S. Ct. 63, Ct. D. 1039, C. B.
T -2, 00 and Cf. Rev. Ru. 5 -3 7, beow, ths Buetn.
Reguatons 71, Secton 113.33: Saes and Rev. Ru. 5 -3 7
transfers sub|ect to ta .
The transfer of stock, as part of a trust corpus, from a testa-
mentary trust to a succeedng trust created by the benefcary of .
the testamentary trust Incurs a transfer ta under secton 1 02(b)
of the Interna Revenue Code.
Advce s requested regardng the mposton of the stock transfer
ta mposed.by secton 1 02(b) of the Interna Revenue Code when
shares are transferred under the foowng crcumstances.
In the nstant case a testator created a trust under the terms of hs
w for the beneft of hs nece, the corpus of whch was to be dstrb-
uted to her ony f and when she reached the age of 35 years. Pror
to reachng such age the benefcary made a vad assgnment of her
rght, tte and nterest n the trust to her father as trustee of an
rrevocabe trust for her beneft. The benefcary havng reached the
age of 35 years, the frst, or testamentary trust was termnated and the
corpus thereof has been transferred to the new trust created by the
benefcary, Part of the corpus of the trust conssted of shares of
corporate stock.-
Secton 1 02(b) of the Code mposes a stamp ta on a saes and
transfers of ega tte to any shares or certfcates of corporate stock,
ncudng transfers of rghts to receve such stock.
It s hed that the transfer of stock, as a part of the trust corpus,
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3 7 Regs. 71, 113.33.
from the frst, or testamentary trust to the succeedng trust created by
the benefcary ncurs one transfer ta under secton 1 02(b) of the
Code. However, snce under the testamentary trust the nece was
not entted to receve the corpus of the trust uness and unt she
reached the age of 35 years, her rght to receve such corpus pror
to attanng the age of 35 years was a mere e pectancy and the trans-
fer by her pror to the termnaton of the trust dd not nvove a
ta abe transfer of the rght to receve the stock. Smary, the
transfer of the stock to the new trust after she reaches the age of 35
dd not nvove a transfer of a rght to receve the shares because at
that tme she had no nterest n the testamentary trust or ts corpus,
euch nterest havng been prevousy assgned to the new trust.
Recusatons 71, Secton 113.33: Saes and Rev. Ru. 5 - 13
transfers sub|ect to ta .
Where the trnnsfer of stock from the votng trustees to votng
trust certfcate hoders pursuant to a pan of reorganzaton under
secton 77 of the Bankruptcy Act was not essenta to make effectve
the pnu of reorganzaton, the e empton provded by secton
1 US(c) of the Code does not appy and such transfer Is snh|ect to
ta under secton 1 02(b) of the Interna e-venue Code of 1U30.
Advce s requested wth respect to the appcaton of the docu-
mentary stamp ta mposed by secton 1 02 (b) of the Interna Revenue
Code of 19:39 and wth respect to e empton from such ta as provded
under secton 1 0 (e) of such Code when stock regstered n the name
of votng trustees n pursuance of a pan of reorganzaton under
secton 77 of the Bankruptcy Act, 7 Stat. 1 7 , as amended, s trans-
ferred to the names of the hoders of the votng trust certfcates.
In the nstant case under the pan of reorganzaton under secton
77 of the Bankruptcy Act a new corporaton was not formed, the od
company becomng the reorganzed company. The pan of reorgan-
zaton provded for the creaton of a votng trust n whch a stock
ssued n the reorganzaton was paced. Ths stock was rcsgtercd
n the name of the votng trustees and devered to them n consum-
maton of the pan and for the purposes of the agreement The court
approved the pan and entered ts fna decree. The votng trust was
n effect for 5 years and after termnaton of the trust the stock was
transferred to the names of the hoders of the votng trust certfcates.
Pursuant to the provsons of secton 1 02(b) of the Interna Reve-
nue Code a stamp ta s mposed on a saes or transfers of ega tte
to any of the shares or certfcates of each orgna ssue, whether on
organzaton or reorganzaton.
Secton 1 0 (e) of the Code e empts from the stamp ta the ssue,
transfer, or e change of securtes whch are essenta to make effectve
any pan of reorganzaton or ad|ustment confrmed under the Bank-
ruptcy Act f the ssue, transfer, or e change occurs wthn 5 years
from the date of such confrmaton or appova.
The pan of reorganzaton provded for recaptazaton and for
the creaton of a votng trust and a ssues, transfers, or e changes
of securtes necessary to accompsh the recaptazaton and the crea-
ton of the votng trust were propery e empt under secton 1 0 (e)
of the Code. However, once the ob|ectve of the pan of reorganzaton
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Regs. 60, 305. . 3
becomes an accompshed fact, the provsons of secton 1 0 (e) have
no appcaton. Whe the votng trust was provded for and created
by the approved reorganzaton pan, the effectveness or competon
of such pan was n no way dependent or contngent upon the termna-
ton of the votng trust.
It s hed that snce the transfer of the stock from the votng trustees
to the votng trust certfcate hoders was not essenta to make effectve
the pan of reorganzaton, the e empton provded by secton 1 0 (e)
of the Code does not appy and the transfer of the stock from the
votng trustees to the votng trust certfcate hoders, regardess of
when made, s sub|ect to ta under secton 1 02(b) of the Code.
R GULATIONS 71, S CTION 113.35: Specfc e - ev. u. 5 -359
emptons provded n secton 1 02 (b).
The e empton from the transfer ta afforded by secton 1 02 (b)
of the Interna Revenue Code wth respect to the transfer of stock
from a corporaton to a regstered nomnee of _such corporaton s
avaabe to foregn corporatons and ther foregn nomnees f the
provsons of the reguatons are comped wth. See secton 113.35 g)
of Reguatons 71. However, where ndvduas purchase n a foregn
country stock of a Unted States corporaton and then have the
stock paced n the name of a corporaton formed by them n the
foregn country, the aforementoned e empton does not appy for
the reason that the transfer woud not be from a corporaton to ts
regstered nomnee but from ndvdua persons, who purchased stock
of the Unted States corporaton, to a nomnee corporaton. Accord-
ngy, such transfer of the stock from the ndvdua-purchasers-
owners to the corporaton apponted to act as ther nomnee s sub-
|ect to stock transfer ta .

S CTION 1 07. PLAYING CARDS

R GULATIONS 66, S CTION 305. : Ta on payng
cards.
Appcaton of ta on payng cards to a sma set of cards contaned
n a charm desgned to be attached to a braceet. See Rev. RuL
5 - 61, page 39
CHAPT R 15 TOBACCO, SNU , CIGARS, AND
CIGAR TT S
SUBCHAPT R U RAT AND PAYM NT O TA
Revenue Rung 5 -371,1. R. B. 195 -36,1 , nadvertenty referred
to M. T. 7, C. B. 19 3,1151, whch was revoked by Revenue Rung
296, C. B. 1953-2,325, and s corrected to read as foows:
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3 9 Regs. , Art. 72-
S CTTON 2001.- TOBACCO TA TA PAY R
Reguatons , Artce 3: Rates of ta on Rev. Ru. 5 -3T
tobacco and snuff Date effectve When
ta accrues.
(Aso Artce 72.)
Tobacco product of domestc manufacture may not be wthdrawn
from the pace of manufacture, wthout payment of ta , for sae or
devery to dpomatc offcers of foregn countres or to personne
of foregn embasses for consumpton In the Unted States.
Advce s requested whether dpomatc offcers of foregn countres,
or personne of foregn embasses n the Unted States, are entted to
purchase or receve nonta pad tobacco products of domestc manu-
facture for consumpton n the Unted States.
Secton 2001 of the Interna Revenue Code of 1939 provdes, n part,
that the ta on tobacco products, at the rates mposed by secton 20OO
of the Code, sha be pad by the manufacturer or mporter. Artce
3, reatve to the ta on tobacco and snuff, and artce 72, reatve
to the ta on cgars and cgarettes, of Reguatons , provde that the
ta accrues on such manufactures upon remova from the factory or
pace where they are made, or upon sae pror to such remova, and.
s to be pad by the manufacturer thereof.
Revenue Rung 296, C. B. 1953-2, 325, provdes, n part, that am-
bassadors, mnsters, and other duy accredted dpomatc representa-
tves of foregn governments (1) are not requred to pay edera e -
cse ta es, the ega ncdence of whch woud otherwse fa upon
them, and (2) f any such person purchases from the manufacturer
thereof an artce otherwse sub|ect to a edera e cse ta on saes
by manufacturers, or purchases from a retaer an artce otherwse
sub|ect to a edera e cse ta on saes by retaers, the transacton w
not be ta ed. Consuar offcers of foregn governments, and other
offcers (other than dpomatc representatves), as we as agences
and commssons, of foregn governments are not requred to pay-
edera e cse ta es, the ega ncdence of whch woud otherwse
fa upon them, n respect of transactons arsng n the performance
of ther offca functons for whch payment s made by the foregn
government.
The edera ta on tobacco, snuff, cgars and cgarettes, whch s
here nvoved, does not fa wthn the coverage of Revenue Rung
296, supra. The ega ncdence of the ta s not on the consumer or
on the sae to hm, but upon ts manufacture. See Lggett Myers
Tobacco Co. v. Unted States, Ct D. 1192, C. B. 1937-1, 332. Accord-
ngy, tobacco products of domestc manufacture may not be wth-
drawn from the pace of manufacture wthout payment of ta for
sae or devery to foregn dpomatc offcers or to personne of foregn
embasses n the Unted States.
Reguatons , Artce 72: Rates of ta on
cgars and cgarettes Date effectve
When ta accrues.
Tobacco products of domestc manufacture wthdrawn for sae or
devery to dpomatc offcers of foregn countres or to personne of
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Regs. , Art. 109.) 390
foregn embasses for consumpton n the Unted States. See Rev.
u. 5 -371, page 3 9.
SUBCHAPT R G PAC ING, STAMPING, AND S LLING
R UIR M NTS
PART I. TOBACCO AND SNU
S CTION 2100. PAC AG S

Reguatons , Artce 109: Packages to be Rev. Ru. 5 -27
approved by Commssoner.
(Aso Secton 2111.)
The ceophane outer wrapper on certan types of contaners for
tobacco products, whch are not compete uness wrapped, a en
Integra part of the package, The nterna revenue ta stamp may
be aff ed to such ceophane wrapper and t may bear the requred
Interna revenue marks and notces.
. Advce s requested whether the nterna revenue stamp and the re-
qured nterna revenue markngs may be paced on the ceophane
wrapper of certan types of contaners for tobacco products.
Artce 109 of Reguatons requres manufacturers to submt a
sampe of each package or contaner whch they desre to use for
packagng tobacco, snuff, cgars, and cgarettes, e cept wooden pack-
ages used for packagng Cavendsh, pug, eaf or twst tobacco, and
wooden bo es used for packagng cgars, whch packages or bo es
compy wth the requrements of the reguatons as to cauton notces,
factory brands or marks, and mode of aff ng and canceng 6tamps.
Meta, paper, or other materas may be used ether separatey or n
combnaton, or n combnaton wth wood, n the constructon of such
packages.
The Interna Revenue Servce has consstenty hed that the outer
ceophane wrapper, used n connecton wth bo es made of cardboard
wth seaed or nterockng bottoms and tuck-n tops, packed wth
cgars and then entrey overwrapped wth the ceophane, s not an
ntegra part of the statutory package. In such cases, tobacco prod-
ucts manufacturers are not authorzed to prnt the requred nterna
revenue marks or notces, or to aff the nterna revenue ta stamp,
to the outer ceophane wrapper on the grounds that once the outer
ceophane wrapper s removed and thrown away, the bo and ts
contents woud not be propery marked, branded and protected by
the necessary stamp, thus sub|ectng the bo and cgars to sezure and
forfeture under secton 2152 of the Interna Revenue Code. A sm-
ar poston s taken wth respect to the so-caed cup type of package
wdey used n packng cgarettes and other types of contaners for
tobacco products whch are compete n themseves, e cusve of the
outer ceophane wrap.
In vew of the present wde usage of ceophane by many ndustres,
ncudng tobacco products manufacturers, n the packagng of many
commodtes, t s hed that on certan types of contaners, such as
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391 Regs. 73, Art. 6.
the tray type contaner e tensvey used n packng fve cgars, whch
are not compete uness wrapped, the ceophane outer wrapper s an
ntegra part of the package and the nterna revenue ta stamp may
be aff ed to such ceophane wrapper and t may bear the requred
nterna revenue marks and notces. Ths rung w appy to pack-
ages made entrey of ceophane and to ceophane pouches or oags,
the open end of whch s seaed wth a ghtweght pasteboard or
heavy paper sadde. A sampe of any such package to be used n
puttng up tobacco products for sae or consumpton domestcay
must be submtted to the Assstant Regona Commssoner, Acoho
and Tobacco Ta , for the nterna revenue regon n whch the factory
where the contaner w be used s ocated, n accordance wth artce
109 of Reguatons .
PART H CIGARS AND CIGAR TT S
S CTION 2110.-CLASSI ICATION
R GULATION , ARTICL 72: Rates of ta on Rev. RuL 51-316
cgars and cgarettes Date effectve
A .-n ta accrues.
Secton 2110(a) of the Interna Revenue Code defnes cgars as a
ros of tobacco, or any substtute therefor, wrapped wth tobacco.
Secton 2110(b) of the Code defnes cgarettes as a ros of tobacco,
or any substtute therefor, wrapped n paper or any substance other
than tobacco. Hed: Where cgars or cgarettes are manufactured
wth fters or mouthpeces as an ntegra part of the fnshed product,
they must be ncuded n the weght of the cgars or cgarettes n
determnng the weght of the product per thousand for ta purposes.
SUBCHAPT R D, IMPORTATION AND PORTATION
PART II PORTATION
S CTION 2135. MPTION ROM TA
R GULATIONS 73, ARTICL 6: Appcaton for Rev. Ru. 51-275
wthdrawa and entry for e portaton
.( orm 550, Revsed).
Manufacturers, wthdrawng tobacco products from ther fac-
tores for consgnment to offcers of the Armed orces of the
Unted States for subsequent e portaton to Armed orces be-
yond the |ursdcton of the Interna revenue aws, may reproduce
a suppy of orm 550, Appcaton for Wthdrawa and ntry for
portaton, appropratey modfed for use In such cases pro-
vded the proposed reproducton a approved by the Natona Offce.
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Begs. 70, Art. 1 . 392
Advce s requested whether orms 650, Appcaton for Wth-
drawa and ntry for portaton, may be reproduced by tobacco
manufacturers n a modfed form for use n the case of wthdrawas
of tobacco products for devery to offcers of the Armed orces for
subsequent e portaton, n eu of havng the orgna orms 550
overprnted.
arous entres on orms 550 reoured n the case of usua wth-
drawas for e portaton are not appcabe n the case of wthdrawas
for consgnment to offcers of the Armed orces for subsequent e -
portaton to Armed orces beyond the |ursdcton of the nternn
revenue aws. Therefore, manufacturers wthdrawng tobacco prod-
ucts for such purposes may reproduce a suppy of orm 650, appro-
rntcy modfed. Thoproposcd reproducton must frst bo approved
y the Natona Offce, Interna Revenue Servce, Washngton, D. C.
Reguatons 76, Artce 0: Devery of shp- Rev. Ru. 5 -317
ment Bs of adng Dsposton of copes
of orm 550-A by manufacturer.
(Aso Artce 16.)
The certfcate of recept on orms 550-A and 650-B for nonta -
pad tobacco products aden aboard vesses operatng In tbe Mtary
Sea Transportaton Servce for nse as sea stores must be sgned,
n the case of a vesse carryng passengers, by the Navy offcer as-
sgned to such vesse or, n the case of a vesse not carryng pas-
sengers, by the shp s master.
Advce s requested whether cvan offcers may recept orms
650-A and 550-B for nonta pad tobacco products aden aboard ves-.
ses operatng n the Mtary Sea Transportaton Servce, under the
|ursdcton of the Unted States Navy.
Where a shpment of nonta pad tobacco products s removed from
a factory or a bonded nterna revenue tobacco sea stores warehouse
for use as sea stores and s consgned to a vesse operatng n the M-
tary Sea Transportaton Servce, under the |ursdcton of tho Unted
States Navy, but wth cvan offcers and crew members, the certf-
cate of recept on the orm 550-A or orm 550-B coverng the shp-
ment must be e ecuted by the offcer who has supervson over the
e change on such vesse and s responsbe for the securty of the
nonta pad tobacco products receved thereon. The Servce has been
advsed that f such vesse carres passengers, there s a Nava offcer
aboard to whom ths functon s assgned but that, f the vesse does
not carry passengers ths functon s performed by the shp s master,
a cvan offcer of the vesse.
Reguatons 76, Artce 16: Wthdrawas.
Persons authorzed to sgn the certfcate of recept on orms 550-A
and 550-B coverng tobacco products for use as sea stores on vesses
operatng n the Mtary Sea Transportaton Servce, See Rev.
Ru. 5 -317, above.
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393 Regs. 76. Art. L
SUBCHAPT R MISC LLAN OUS PRO ISIONS
S CTION 2197 T RRITORIAL T NT O LAW
Reguatons 76, Artce 1: Shpment or de- Rev. Ru. 5 -276
very restrcted.
Nonta pad tobacco products may bo wthdrawn from sea stores
warehouses for devery to fstB vesses whch have been ssued
permts by tho Unted States customs authortes to touch and
trndv for use as sea stores beyond the ursdcton of the Interna
revenue aws.
Advce s requested whether fshng boats whch go outsde the
contnenta Unted States, but do not enter or cear, are entted to
receve sea stores cgarettes.
Secton 2197 of the Interna Revenue Code provdes that the nter-
na revenue aws mposng ta es on tobacco, snuff, cgars, or cgarettes
sha be hed to e tend to such artces produced anywhere wthn the
e teror boundares of the Unted States, whether the same be wthn
a coecton dstrct or not. Ths secton further provdes that the
shpment or devery of manufactured tobacco, snuff, cgars cgarettes,
or cgarette papers or tubes, for consumpton beyond the |ursdcton
of the nterna revenue aws of the Unted States, as above defned,
sha be deemed e portaton wthn the meanng of the nterna rev-
enue aws appcabe to the e portaton of such artces wthout
payment of nterna revenue ta .
Artce 1 of Reguatons 76 provdes that the shpment or devery
of tobacco products as sea stores may be made for consumpton of
such artces on tho hgh seas beyond the 3-me mt on varous ves-
ses, ncudng vesses cearng through customs en route to paces
beyond tho |ursdcton of the nterna revenue aws. .
Upon proper appcaton, the Coectors of Customs at the varous
ports ssue nermts authorzng vesses to touch and trade. Such
permts authorze tho vesses to put n at foregn ports to take on
suppes. However, n accordance wth customs reguatons, f a ves-
se whch has been granted a permt to touch and trade returns to
port n the Unted States, whether or not t has touched at a foregn
port or pace, such permt s surrendered to the Coector of Customs.
Deveres of nonta pad tobacco products to such vesses for con-
sumpton beyond the |ursdcton of the nterna revenue aws of the
Unted States, pursuant to secton 2197 of the Interna Revenue Code,
are accompshed under the supervson of customs offcers at the ports
of adng who furnsh certfcates or other evdence of adng of the
merchandse on such vesses and dates of sang of the vesses.
In vew of the above procedure the Interna Revenue Servce has
approved of deveres of nonta pad tobacco products of domestc
manufacture to fshng vesses, operatng under touch and trade
permts ssued by Unted States customs offcers, for consumpton be-
yond the |ursdcton of the nterna revenue aws.
Where permts have been ssued to fshng vesses to touch and
trade, propretors of sea stores warehouses may wthdraw nonta pad
tobacco products for devery to such fshng vesses. Before credt
aganst the sea stores warehouse bond can be aowed for such dev-
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Uogs. 51, ( 320.37. 30
cres, the Assstant Regona Commssoner, Acoho and Tobacco
Ta , must receve copes of orms 650-B on whch the certfcates of
nspecton, recept, and cearance have been propery e ecuted.
CHAPT R 19.P-R TAIL RS CIS TA S
S CTION 2 00. TA ON W LRY, TC.
R GULATIONS 61, S CTION 320.31: ewery. Rev. Ru. 5 - 61
(Aso Secton 1 07, Reguatons C6,
Secton 305. .)
A charm s desgned wth nks permttng t to bo attached to a
braceet. The charm contans a compete set of 52 cards ncuded on
four perforated strps, each strp consstng of 13 cards of one of the
four suts spades, hearts, damonds, and cubs. The cards measure
by A f an nch. Hed, the above descrbed charm whch s de-
sgned to be attached to a braceet s an artce commony or commer-
cay known as |ewery wthn the meanng of secton 2 00 of the
Interna Revenue Code of 1939 and s sub|ect to the ta mposed by
that secton when sod at reta. Whe, generay, mnature payng
cards are sub|ect to the ta mposed by secton 1 07 of the Code, n
vew of the e tremey sma sze of the cards nvoved heren they are
not consdered adaptabe for use n payng games of cards and accord-
ngy are not sub|ect to such ta .
R GULATIONS 51, S CTION 320.33: Artces made
of, or ornamented, mounted or ftted wth,
precous metas or mtatons thereof.
Appcaton of ta to artces made of, ornamented, mounted or ftted
wth precous metas or mtatons thereof when sod n connecton wth
the sae of uggage. See Rev. Ru. 5 -35 , page 372.
R GULATIONS 51, S CTION 320.37: empton. Rev. Ru. 5 -5 6
Artces fang wthn the cassfcaton of |ewery and havng re-
gous sgnfcance, such as Cross and Crown pns, buttons, and med-
as, when sod to churches or other regous organzatons for use as
awards n connecton wth regous programs of such nsttutons,
are consdered to be sod for regous purposes wthn the meanng or
secton 2 00 of the Interna Revenue Code of 1939. The retaer s
entted to the e empton from ta wth respect to saes of such art-
ces provded he obtans a statement from the cergy_ or other eaders
of the varous regous denomnatons or organzatons to the effect
that the artces are to be used as awards n connecton wth ther
regous programs. Saes of these artces to ndvduas are sub|ect
to ta .
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395 (Rcg. . 319.12.
S CTION 2 02. TA ON TOIL T PR PARATIONS
R GULATIONS 51, S CTION 320.52: Saes to Rev. uL 5 - SS
beauty parors, etc.
The e empton from retaers e cse ta provded by secton 2 02(b)
of the Interna Revenue Code of 1939 wth respect to the sae of toet
preparatons to any person operatng a barber shop, beauty paror,
or smar estabsunent for use n the operaton thereof, s appcabe
to toet preparatons sod to any person operatng a schoo for nstruc-
ton of students n beauty cuture. Ths e empton does not appy
to the sae of such preparatons to students of a beauty schoo for use
by them n practce work or on patrons of the schoo or for any other
purpose, for the reason that such students do not quafy as persons
operatng barber shops, beauty parors, or smar estabshments.
Lkewse, the e empton s not appcabe to the sae of toet prepara-
tons to a moton pcture studo for use on the studo stars.
S CTION 2 06. TA - R SAL S
R GULATIONS 51, S CTION 320.20: Saes to
States or potca subdvsons thereof
and to the Unted States.
Appcaton of retaers e cse ta to artces sod to a board of
educaton or other nstrumentaty of a State or potca subdvson
thereof for ts e cusve use. See Rev. Ru. 5 -60 , page 373.
CHAPT R 25. IR ARMS
SUBCHAPT R R MACHIN GUNS AND SHORT BARR LL D
IR ARMS
S CTION 2733(a). D INITIONS: IR ARM
R GULATIONS , S CTION 319.12 : rearm. Rev. Ru. 5 -372
Secton 2733(a) of the Interna Revenue Code of 1939 defnes a
frearm as a shotgun or rfe havng a barre of ess than 1 nches n
ength, or any other weapon, e cept a psto or revover from whch
a snot s dscharged by an e posve f such weapon s capabe of
beng conceaed on the person, or a machne gun, and ncudes a muffer
or sencer for anv frearm whether or not such frearm s ncuded
wthn the foregong defnton, but does not ncude any rfe whch
s wthn the foregong provsons soey by reason of the ength of ts
barre f the caber of such rfe s .22 or smaer and f ts barre s
1C nches or more n ength.
A . 10 gauge gun conceaed n a cane s a frearm snce t s any
other weapon capabe of beng conceaed on the person.
33310 5 20
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3110.
396
A psto grp hand gun wth an -nch barre chambered for a . 10
gauge shotgun she does not come wthn the cassfcaton of ether
a psto or revover or of a shotgun n the accepted defnton of such
terms. Such weapon s hed to be any other weapon capabe of
beng conceaed on the person and therefore s cassfed as a frearm
wthn the meanng of secton 2733 (a of the 1939 Code, and s sub|ect
to the regstraton and transfer provsons of the Code and of Regu-
atons .
A fare psto s not a frearm provded such psto s capabe of frng
ony the pyrotechnc shes or cartrdges desgned for use wth such
pstos.
CHAPT R 26 LI UOR
SUBCHAPT R (-INDUSTRIAL ALCOHOL
PART II. INDUSTRIAL ALCOHOL
S CTION 3116. OR ITUR S AND S IZUR S
(Aso Secton 32 5, Secton 325.21 Secton Rev. Ru. 5 - 0
3290, Secton 325. 2, Reguatons 132.)
The opnon In the case of Unted Btate v. 3935 Cate of Ds.
ted Bprtt, 65 ed. Supp. , whch was quoted In Rev. Ru. 20 ,
C. B. 1953-2, 379, was amended by an unpubshed order of the
court whch, athough adherng to such opnon, modfed some of
the anguage contaned theren (referred to by the court as dctum).
Rev. Ru. 20 , supra, modfed.
The opnon n the case of Unted States v. 3935 Cases of Dsted
Sprts, 55 ed. Supp. , whch was quoted n Rev. Ru. 26 . C. B.
1953-2, 379, was, on November 10, 19 , amended by an unpubshed
order of the court whch, athough adherng to such opnon, modfed
some of the anguage contaned theren (referred to by the court as
dctum). or ths reason, Rev. Ru. 26 , supra, s modfed by de-
etng the thrd paragraph and substtutng therefor the foowng:
Athough secton 3110 of the Code of 1939 appears In the subchapter of the Code
reatng to Industra acoho. Its authorzaton for forfetures and sezures of
quor or property ntended for use n voaton of Interna revenue aws s not
mted ony to voatons of nterna revenue aws governng Industra acoho.
Ths prncpe s e pressed In the case of Unted States v. S0S5 Cases of Dsted
Sprts, 55 ed. Supp. , as amended by unpubshed order of the court dated
November 10, 19 , whch nvoved property that was sezed under secton 3110
of the Code for voaton of the whoesae quor ta aw. The camant con-
tended that secton 3110 was not Intended to Incude a voatons of the n-
terna revenue aws but was mted to voatons nvovng ndustra acoho.
Ths contenton was re|ected by the court and, In a detaed anayss of the
egsatve hstory of secton 3110, the court concuded that a pan and tera
Interpretaton of the secton does not mt ts appcaton to ndustra acoho
statutes, as camant argues.
or a decson whch s n accord wth the prncpe set forth n the
above case, n addton to the cases cted n Rev. Ru. 26 , see Unted
States v. oyd D on, 3 7 U. S. 3 1, Ct D. 1765, C. B. 195 -1, 320.
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397 Regs. , I 319.35.
CHAPT R 27-OCCUPATIONAL TA S
SUBCHAPT R Av-SP CIAL PRO ISIONS
PAST III. IB ARMS
S CTION 3260. TA . -
Reguatons , Secton 319.35: Geographca Rev. Ru. 5 -3S9
scope of ta .
(Aso edera rearms Act, Sectons 2(a) and
3(a) Secton 315. 0, Reguatons 131.)
The remova of frearms from a foregn trade tone for any purpose
other than for reshpment to a pace not wthn the ursdcton of
the Unted States consttutes Importaton of such frearms as of the
tme they were orgnay brought wthn the mts of the Unted
States.
Advce s requested whether frearms may be transferred from
a foregn trade zone to customs bond for subsequent e portaton
wthout ncurrng abty to the transfer ta on such frearms.
Advce s aso requested whether the transfer of frearms from a for-
egn trade zone, through customs, to a saes offce wthn the Unted
States, as sampes for demonstraton purposes to prospectve foregn
purchasers, woud consttute mportaton wthn the ntent of the
appcabe pro vsons of the Interna Revenue Code and of the edera
rearms Act.
A frearms company mantans stocks of automatc weapons wthn
a foregn trade zone. It s desred to remove such frearms from the
foregn trade zone to customs bond for subsequent sae to purchasers
outsde the mts of the Unted States. The company aso desres to
remove certan compete ndvdua specmens of such weapons to ts
6aes ofce n the Unted States as sampes for demonstraton purposes
to prospectve foregn purchasers. Is ether the weapons n customs
bond nor those wthdrawn as sampes woud be offered for sae
domestcay.
rearms n storage n a foregn trade zone are not consdered to
have been mported, notwthstandng the fact that they were brought
wthn the mts of the Unted States from a pace outsde thereof,
wth ntent to unade. However, f such frearms are removed from
the foregn trade zone, e cept for reshpment to a pace not wthn
the |ursdcton of the Unted States, such transacton consttutes an
mportaton as of the tme such frearms were orgnay brought
wthn the mts of the Unted States. The fact that frearms woud
reman n customs bond unt a foregn market s deveoped and then
e ported has no bearng on the case. The statutory provsons gov-
ernng the operatons of foregn trade zones do not appy to any area
other than a foregn trade zone desgnated as such.
rearms may be removed from a foregn trade zone for purposes
other than reshpment to a pace not wthn the |ursdcton of the
Unted States ony pursuant to the appcabe provsons of the
Interna Revenue Code wth respect to the mportaton of frearms
and of the edera rearms Act. Any person removng frearms
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Regs. 69, 323.21. 39
from a foregn trade zone for any purpose other than such reshpment
must quafy as an mporter and must pay the speca (occupatona)
ta and cense fee as a manufacturer or mporter of frearms.
PABT I COIN-OP RAT D AMUS M NT AND GAMING D IC S
S CTION 3267. TA ON COIN-OP RAT D AMUS M NT
AND GAMING D IC S
Reguatons 59, Secton 323.21: Persons abe Rev. Ru. 5 -31
for ta .
A con-operated vendng machne whch. In addton to deverng
chewng gum bas, has Incorporated theren an amusement feature,
such as a psto and a target. Is a con-operated amusement devce
wthn the meanng of secton 3207 of the Interna Revenue Code.
Advce s requested whether a con-operated vendng machne whch
has ncorporated theren a psto and a target s a con-operated amuse-
ment devce wthn the meanng of secton 32G7 of the Interna Revenue
Code. The nserton of a penny n the machne enttes the person to
a chewng gum ba and one shot at the target. No prze or anythng
. of vaue s offered or gven to the payer as the resut of the shot
regardess of the scored ht.
Pursuant to the provsons of secton 3267 of the Code, every person
who mantans for use or permts the use of, on any pace or premses
occuped by hm, a con-qperated amusement devce sha pay a speca
ta of 10 per year. An operator of such pace or premses s consd-
ered engaged n a trade or Dusness n respect of each devce as of the
day the devce s paced on hs premses for use.
Secton 3267(b) of the Code defnes a con-operated amusement
devce as any devce or musc machne operated by means of the nser-
ton of a con, token: or smar ob|ect.
It s hed that a con-operated vendng machne whch, n addton to
deverng chewng gum bas, has ncorporated theren an amusement
feature, s a con-operated amusement devce wthn the meanng of
secton 3267 of the Code. Accordngy, a person who mantans for
use the herenbefore descrbed type of con-operated chewng gum
vendng machne, whch has an amusement feature ncorporated there-
n, namey, a psto and a target, s abe for the speca ta of 10 per
year mposed by secton 3267 of the Code. Cf. M. T. 1, C. B. 19 2-1,
279.
Reguatons 59, Secton 323.21: Persons abe Rev. Ru. 5 -319
for ta .
Labty or speca ta Imposed by secton 3267 of the Interna
Revenue Code Is Incurred by the person who mantans for use or
permts the use of con-operated amusement or gamng devces on the
pace or premses occuped by hm and speca ta stamps must be
recorded In bs name. The owner of such devces who paces them
on the premses occuped by other persons Is not abe for the speca
ta and the speca ta stamps may not be recorded In hs name.
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399 Regs. 59, 323.21.
Advce s requested concernng abty for the speca ta mposed
by secton 3267 of the Interna Revenue Code wth respect to the man-
tenance for use of con-operated amusement and gamng devces. In
the nstant case, the owner of the devces paces them for a partcuar
perod on premses occuped by another person, after whch the owner
of the machnes removes them and paces them on premses occuped by
other persons. In each case the person occupyng the premses on
whch the machnes are paced s pad a certan percentage of the prof-
ts derved therefrom. The owner of the machnes desres to have the
speca ta stamps recorded n hs own name and, subsequenty, have
them transferred to other ocatons aong wth the machnes.
Secton 32C7 (a) of the Code provdes that every person who man-
tans for use or permts the use of, on any pace or premses occuped by
hm, a con-operated amusement or gamng devco, sha pay a speca
ta of 10 per year wth respect to each amusement devce and 2o0 per
year wth respect to each gamng devce.
Under the provsons of secton 3207(c) of the Code, an operator of
a pace or premses who mantans for use or permts the use of a con-
operated devce s consdered, for the purpose of the ta , to be engaged
n a trade or busness n respect to each such devce.
In vew of the foregong, abty for the speca ta s ncurred
by the person who mantans for use or permts the use of the con-
operated devces on hs pace or premses and speca ta stamps must
be recorded n the name of such person. The owner of the devces who
paces them on the premses of other persons s not abe for the
speca ta and speca ta stamps may not be recorded n hs name.
The bass upon whch payment s made to a person who mantans de-
vces on hs premses s mmatera n the determnaton of abty
for the ta .
In determnng the amount of ta nvoved, secton 323.22 of Regu-
atons 59 provdes that the amount of ta abty s computed on
the bass or the number of devces of each partcuar type mantaned
for use, or permtted to be used on hs premses, by the ta payer.
or each addtona devce subsequenty durng the same perod
brought on to the premses for use, addtona ta abty s ncurred.
Ta abty appes wth respect to a devce nstaed on the ta -
payer s premses even though prevousy used on the premses of
another person, and even though speca ta for the same year or
perod or part thereof was pad by such other person wth respect
thereto.
Secton 323.22 aso provdes that f a ta payer repaces a devce
wth respect to whch he has pad speca ta wth a ke devce, no
addtona ta s payabe. or e ampe,/ cgar store propretor who
mantans on the premses two pn-ba machnes wth respect to
whch he has pad speca ta , has these two machnes removed and
repaces them wth two pn-ba machnes of a more modern desgn,
no addtona speca ta s payabe. However, f the repacng artce
s paced n operaton before operaton of the repaced artce s ds-
contnued, addtona ta abty s ncurred. If pn-ba machnes
are repaced by con-operated gamng devces, or gamng devces are
repaced by pn-ba machnes, abty for speca ta at the rate
appcabe to the repacng machnes or devces s ncurred, and no
credt s aowabe for the speca ta pad wth respect to the repaced
machnes or devces.
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Regs. 59, 32S.31 00
Reguatons 59, Secton 323.21: Persons
abe for ta .
Appcaton of ta to a non-con-operated sot machne whch has
ncorporated gamng features n the form of combnatons of nsgna
on rees or drums. See Rev. Ru. 5 - 05, page 01.
PAST L BOWLING ALL TS. AND BILLIARD AND POOL TABL S
S CTION 326 . TA ON BOWLING ALL YS, AND
BILLIARD AND POOL TABL S
Reguatons 59, Secton 323.31: Persons abe Rev. Ru. 5 -617
for ta .
A communty center whch operates bowng aeys, and bard
and poo tabes as part of Its youth program Is sub|ect to the speca
ta Imposed by secton 326 of the Interna Revenue Code of 1939
even though no charge s made for ther use.
Advce s requested concernng the appcaton of the speca ta
mposed by secton 326 of the Interna Revenue Code of 1939 to the
operaton of bowng aeys, and bard and poo tabes by a com-
munty center where no charge s made for the use thereof.
Secton 326 (a) of the Code provdes that every person who oper-
ates a bowng aey, bard room, or poo room sha pay a speca
ta of 20.00 per year for each bowng aey, bard tabe, or poo
tabe. very budng or pace where bows are thrown or where
games of bards or poo are payed, e cept n prvate homes, sha
be regarded as a bowne aey, bard room, or poo room, respec-
tvey. No ta s mposed wth respect to a bard tabe or poo tabe
n a hospta f no charge s made for the use of such tabe. urther,
no ta s mposed wth respect to any bowng aey, bard tabe, or
poo tabe mantaned e cusvey for the use of members of the Armed
orces on any property owned, reserved, or used by, or otherwse ac-
qured for the use of, the Unted States f no charge s made for ther
use.
The e emptons mentoned above are the ony e emptons whch the
aw provdes.
Communty centers, cvc, regous, or educatona nsttutons,
rooms n fraterna or chartabe organzatons, dormtores, or cub-
rooms are not consdered to be prvate homes wthn the meanng
of secton 326 (a) of the Code. Whether a proft s reazed from
the operaton of bowng aeys, and bard and poo tabes n such
ocatons s mmatera n determnng the abty for speca ta .
Accordngy, a communty center whch operates bowng aeys, and
bard and poo tabes as part of ts youth program s sub|ect to the
speca ta mposed by secton 326 of the Code even though no charge
s made for ther use.
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01 Regs. 132. 325.21.
CHAPT R 27AWAG RING TA S
SUBCHAPT R A-TA ON WAG S
S CTION 32 5. TA
R GULATIONS 132, S CTION 325.21: Scope of ta . Rev. Ru. 5 -256
Wagerng poos, or punchbnans or smar typos of otteres
operated by nerrhnnts as trade stmuators, a whch wagers are
paced, are consdered to be conducted for proft wthn the meanng
of secton 2ST of the Interm Revenue Code. The operaton of
such devces, therefore. Is sub|ect to the provsons of secton 32S3
and secton 32)0 of the Code.
Advce s requested concernng the appcaton of the wagerng
ta es mposed by sectons 32 5 and 3290 of the Interna Revenue Code,
to the operaton by merchants of wagerng poos, ns we as punch-
boards and smar types of otteres for the purpose of stmuatng
trade. The merchants derve no drect proft from the sae of the
tckets or chances, the entre proceeds therefrom beng gven to persons
purchasng the wnnng tckets or chances.
Secton 32 5 of the Code, whch mposes on wagers an e cse ta
equa to 10 percent of the amount thereof, defnes the term wager
as ncudng any wager paced n a wagerng poo or ottery conducted
for proft.
Secton 3290 of the Code provdes that a speca ta of 50 per year
sha be pad by each person abe for the 10 percent e cse ta and by
every person who s engaged n recevng wagers for or n behaf of
any person abe for the e cse ta .
The e pectancy of a proft n the form of ncreased saes of mer-
chandse resutng from addtona customer traffc must be assumed
n the operaton by a merchant of a wagerng poo, or a punchboard or
smar type of ottery on hs premses, even though he derves no
proft drecty from the sae of tckets or chances theren.
Accordngy, t s hed that the operaton of such a wagerng poo,
or a punchboard or smar type of ottery, n whch a wager s paced
enttng the partcpant to a chance to wn or ose, s a wagerng poo
or ottery conducted for proft. The operator of such a poo or ottery
s abe for the wagerng e cse ta mposed by secton 32 5 of the
Code, computed at 10 percent of the gross amount reazed from the
sae of the tckets or chances, and for the 50 speca ta mposed by
secton 3290 of the Code. Labty for the 50 speca ta s ncurred
aso by each cerk or other person who receves wagers n the poo or
ottery for or on behaf of the operator.
R GULATIONS 132, S CTION 325.21: Scope of ta . Rev. Ru. 5 - 05
(Aso Secton 3207, Reguatons 59. Secton
323.21.)
A non-con-operated machne whch has Incorporated comng
features In the form of combnatons of Insgna ou rees or drams
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Regs. 132, 325.21. 02
s not ta abe as a gamng devce under secton 3267 of the Interna
Revenue Code of 1939. However, the operaton of ths type of
machne consttutes the operaton of a ottery conducted for proft
and s sub|ect to the wagerng ta es Imposed by sectons 2 5 and
3290 of the Code.
Advce s requested concernng the appcaton of the ta on con-
operated gamng devces mposed by secton 3267 of the Interna
Revenue Code of939 and the wagerng ta es mposed by sectons 32 5
and 3290 of the Code, to the operaton of the foowng descrbed
machne.
The nstant devce s a non-con-operated machne whch has n-
corporated gamng features n the form of combnatons of nsgna
on rees or drums. The machne s paced n operaton by an attend-
ant upon payment to hm of an amount necessary to cover the number
of pays desred. The attendant contros the number of pays through
the use of a contro mechansm. The payer s success n the operaton
of the machne s determned by the eement of chance.
Secton 3267 of the Code mposes a ta of 250 per year on any
person who mantans for use or permts the use of, on any paco or
premses occuped by hm, a con-operated gamng devce. Such a
devce s defned n that secton of tne Code as a so-caed sot ma-
chne whch operates by means of the nserton of a con, token, or
smar ob|ect and whch, by the appcaton of the eement of chance
may dever or entte the person payng or operatng the machne to
receve cash, premums, merchandse,, or tokens.
Secton 32 5 of the Code mposes an e cse ta of 10 percent on any
wager paced n a ottery conducted for proft, and secton 3290 of the
Code provdes that every person who s abe for ths e cse ta , as
we as every person engaged n recevng wagers for or on behaf of
any person so abe, sha pay an occupatona ta of 50 per year.
Secton 32 5(e)(2) of the Code e cudes from wagerng ta any
wager paced n a con-operated devce wth respect to whch an occu-
patona ta s mposed by secton 3267 of the Code.
Whe wagers paced n con-operated sot machnes are specfcay
e cuded from tne scope of the wagerng ta es ths e cuson does
not appy wth respect to wagers paced n connecton wth the opera-
ton of non-con-operated machnes. Thus, t s necessary to determne
whether the pacng of a wager wth an operator who mechancay
reeases tho machne for pay consttutes the pacng of a wager n a
ottery conducted for proft wthn the meanng of secton 32 5 of
the Code.
Secton 325.21(f) of Reguatons 132 provdes that, n genera, a
ottery conducted for proft ncudes any scheme or method for the
dstrbuton of przes among persons who have pad, or promsed a
consderaton for a chance to wn such przes, usuay as determned by
the number or symbos on tckets as drawn from a ottery whee or
other receptace, by the outcome of an event, provded such ottery s
conducted for proft.
The report of the Senate Commttee on nance, Senate Beport, 2d
Congress, 1st sesson, C. B. 1951-2, 5 , at 5 0, ndcates that the term
ottery as used n secton 32 5 of the Code s to be broady construed.
In vew of the provsons of aw and reguatons and the e presson
of ntent as found n the commttee report, t s concuded that the
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03 (I 310.
term ottery ncudes machnes n connecton wth the operaton of
whch a wager s paced.
It s hed that the type of machne herenbefore descrbed s not ta -
abe under secton 3267 of the Code by reason of the fact that t s not
operated by the nserton of a con, token, or smar ob|ect However,
the operaton of ths type of machne consttutes the operaton of a
ottery conducted for proft wthn the meanng of the wagerng ta
aw and the operator of the ottery s abe for the 10 percent e cse
ta and the occupatona ta of 50 per year mposed by sectons 32S5
and 3290 of the Code. Lkewse, each person who accepts wagers for
or on behaf of the operator of the ottery s abe for the 50 occu-
patona ta .
Reguatons 132, Secton 325.21: Scope of ta .
Modfcaton of Rev. Bu. 26 , C. B. 1953-2, 379. reatng to sezure
of automobes used n voaton of wagerng ta aw. See Rev. RuL
6 - 0 , page 390.
SUBCHAPT R R OCCUPATIONAL TA
S CTION 3290. TA
Reguatons 132, Secton 325. 2: Rate and
computaton of ta .
Modfcaton of Rev. Ru. 26 , C. B. 1953-2, 379, reatng to sezure
of automobes used n voaton of wagerng ta aws. See Rev. RuL
5 - 0 , page 396.
CHAPT R 2 PRO ISIONS COMMON TO
MISC LLAN OUS TA S
SUBCHAPT R A G N RAL PRO ISIONS
PART IL ASS SSM NT, COLL CTION, AND R UND
S CTION 3310. R TURNS AND PAYM NT O TA
Rev. Ru. 5 53
Contnuaton of pocy etntcd n Revenue Rung 23 , C B. 1053-2,
51, reatng to orm 720, uartery edera cse Ta Return.
Revenue Rung 25 , C. B. 1953-2, 51, e presses the pocy of the
Interna Revenue Servce to accept e cse ta returns on orm 720,
uartery edera cse Ta Return, even though a of the data re-
qured by the return have not been furnshed. The return w be ac-
ceptabe f the ta payer competes the nformaton caed for n tems
1 through 5 and shows the amount of ta n coumn 6 of the appropr-
ate schedue on the form. If the ta payer omts other data, a state-
ment s requred to e pan such omsson.
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Regs. , 1 0.213. 0
A
Revenue Rung 5 -23 , C. B. 195 -1. 255,1 , announced that the
pocy to accept such returns s contnued unt further notce, ndcat-
ng that no change n pocy s contempated for any quarter n 195 .
urther consderaton of changes n that pocy and n orm 720
has been deferred whe the Servce concentrates on the deveopment
of new forms and reguatons requred by the Interna Revenue Code
of 195 . Accordngy, the pocy to accept returns wth ony the
above-noted data s e tended to cover a quarters of 1955 uness ter-
mnated sooner. An approprate announcement w be made pror
to any such termnaton or any change n the e cse ta return form.
PAST 1 MISC LLAN OUS PRO ISIONS
S CTION 3331. MPTION ROM TA O DOM STIC
GOODS PURCHAS D OR TH UNIT D STAT S
Reguatons , Secton 1 0.212: Shpments Rev. Ru. 5 -3
restrcted.
Tobacco products may be shpped ta -free to U. S. eterans Ad-
mnstraton representatves at hosptas and Insttutons operated
by the Governments of the severa States, Terrtores, and the Ds-
trct of Coumba upon authorzaton by the U. . eterans Admns-
traton for gratutous dstrbuton to present and former members
of the armed forces of the Unted States who are patents In such
hosptas and nsttutons.
Advce s requested whether nonta pad cgarettes and other to-
bacco products may be shpped to hosptas and nsttutons operated
by the severa States, Terrtores, and the Dstrct of Coumba, for
gratutous dstrbuton to present and former members of the armed
forces who are patents n such hosptas.
Secton 3331 of the Interna Revenue Code provdes that artces
of domestc producton whch are sub|ect to ta under the Code may
be wthdrawn free of ta for the use of the Unted States. Secton
1 0.212 of Reguatons , as added by Treasury Decson 6052, Or -
1953-2,3 6, provdes as foows:
Manufacturers of tobacco, snuff, cgars, cgarettes, and cgarette papers and
tubes, may shp such artces ta -free from ther factores. In accordance wth
ths subpart, to edera agences and Insttutons for gratutous dstrbuton.
Shpments of such artces for sae by edera agences or Insttutons are not
wthn the meanng of the aw authorzng the purchase of artces ta -free for
use of the Unted States. Insttutons owned or controed by the Governments
of the severa States, Terrtores, or the Dstrct of Coumba, are not entted
to receve such artces ta -free. ,
It s hed that, under the above provsons of aw and reguatons,
manufacturers of tobacco, snuff, cgars, cgarettes, and cgarette papers
and tubes, may shp such artces, ta -free for the use of the Unted
States, to representatves of the U. S. eterans Admnstraton n
hosptas and nsttutons operated by the Governments of the severa
States, Terrtores, and the Dstrct of Coumba. However, such
shpments may be made ony when authorzed and approved by the
U. S. eterans Admnstraton and soey for gratutous dstrbuton
to present and former members of the armed forces of the Unted
States who are patents n such hosptas and nsttutons. Aso, the
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05 Regs. 6, 31 . .
procurement, storage, and dstrbuton of the ta -free tobacco products
must be accompshed under the supervson of the eterans
Admnstraton.
CHAPT R 29 MANU ACTUR RS CIS AND
IMPORT TA S
SUBCHAPT R Av-MANU ACTUR RS CIS TA S
S CTION 3 00. TA ON TIR S AND INN R TUB S
R GULATIONS 6, S CTION 316.30: Scope of ta . Rev. Ru. 5 - 7
Tbe sae or nse by the mnmfncturer of press and gauge whee
tres not desgned and constructed for use on vehce whees Is not
sub|ect to to ta Imposed by secton 00 of the Interna Revenue
Code of 10GU.
Advce s requested whether the ta on tres mposed by secton
00 of the Interna Revenue Code of 1939 appes to the sae of sem-
pncurmtc press and gauge whee tres for use on farm mpements
and tage toos.
The tres are of a type constructed wthout fabrc or meta ren-
forcement whch are unsutabe for use n supportng a vehce or any
substanta oad. They are desgned soey for use on press and gunge
whees on farm mpements. These whees and tres do not support
the mpement whch s supported and transported by means of other
whees. The ony functon of the press tres s to press and form the
so over and around the seed n a furrow. The ony functon of the
gauge whee tres s to contro the workng depths of tage took,
such as pows and cutvators.
The ta under secton 3 00 of the Code appes to the sae or use
by the manufacturer, producer, or mporter of tres made whoy or
n part of rubber, ncudng synthetc and substtute rubber. Secton
316.30 of Reguatons 6 provdes that the term tres ncudes rubber
casngs, rubber hoops, and rubber strps or bands, of a knds, de-
sgned or shaped or but to form the thread of or to tt a vehce
whee. Tres of ether the pneumatc or sod type whch ft or form
the tread for the whees of any artce whch s capabe of use as a
means of transportng a person or burden, are ta abe as tres.
It s hed that the above descrbed press and gauge whee tres are
not desgned and constructed for use on vehce whees, and the sae
or use of such tres by the manufacturer s not sub|ect to the ta
mposed by secton 3 00 of the Code.
S CTION 3 03. TA ON AUTOMOBIL S, TC.
R GULATIONS 6, S CTION 316. : Who s a Rev. Ru. 5 -329
manufacturer.
(Aso Secton 316.55.)
Crcumstances nnder whch a person may be regarded as a manu-
facturer or producer, wthn the meanng of secton 3 03(c) of the
Intera Revenue Code, and accordngy abe for ta under that
Ths Revenue Bng wot ampfed 07 Ber. Ru. 55-0 ,1. R. B. 1033- , 20.
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Regs. 6, ) 310. .) 06
secton In connecton wth the sae or the osA of rebut automobe
parts and accessores. Persons engaged In busness of recondton-
nc and reparng dstngushed.
S. T. 927, C. B. 10 2-2, 225, and S. T. 932, a B. 19 5, 31, super-
seded S. T. 937, C. B. 1951-1,151, revoked.
Advce s requested whether persons engaged n rebudng, recon-
dtonng, or reparng automobe parts and accessores are consdered
to be the manufacturers or producers of such artces wthn the
meanng of secton 3 03(c) of the Interna Revenue Code and sub|ect
to the ta mposed by that secton.
Secton 3 03(c) of the Code mposes a ta of percent of the prce
for whch parts or accessores (other than tres, nner tubes, and rado
or teevson recevng sets) for any of the artces enumerated n sub-
secton (a) or (b) o secton 3 03 are sod by the manufacturer, pro-
ducer, or mporter. The terms manufacturer nd producer are
not defned n the Code. However Reguatons 6, contanng the
admnstratve reguatons adopted n carfcaton of the Code, pro-
vde n secton 316. that the term manufacturer ncudes a person
who produces a ta abe artce from scrap, savage, or |unk matera
as we as from new or raw matera, (1) by processng, manpuatng,
or changng the form of an artce, or (2) by combnng or assembng
two or more artces.
or the purpose of the rung made heren, a manufacturer s
further denned as a person engaged n the producton of rebut auto
parts or accessores for sae or for uso n further manufacture of other
artces for sae. The term parts, as used heren, means automo-
be parts or accessores. The terms recondtonng, rebudng,
and reparng, as used heren, are not used synonymousy. ach
refers to a separate and dstnct operaton. Whe each operaton may
be performed by a dfferent person, t s kewse true that one person
may perform a threo operatons and the characterzaton of such
person as a recondtoncr, rebuder, or reparer depends upon
the character of the operaton he s then engaged n performng. The
concusons of the Interna Revenue Servce as to what s comprsed
wthn each operaton and the ta abe consequences thereof are as
foows:
(1) Recondtonng. The mere dsassembng, ceanng, and
reassembng (wth any necessary repacements of worn parts
wth a pad parts) of used automobe fue pumps, water pumps,
carburetors, dstrbutors, shock absorbers, wndshea-wper
motors, brake shoes, cutch dsks, votage reguators, etc., are re-
garded as recondtonng operatons dstnct from the manufac-
ture or producton of rebut artces. Tho sae or use of such
recondtoned parts s not ta abe, regardess of who performs
the recondtonng operatons. However, any new ta abe parts
produced or purchased ta free for use n further manufacture,
but used as repacements n recondtonng such unts, are sub|ect
to the ta when used by the recondtoner.
(2) Rebudng. Reborng or other machnng, rewndng,
and comparabe ma|or operatons performed on used parts beng
processed for sae or for use as components of other artces for
sae are defned as rebudng operatons consttutng manufacture
for purposes of the ta . The person ownng parts beng rebut
for such dsposton s the rebuder (manufacturer) and s abe
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07 Ucga. 0. I 316. .
for the ta on hs saes of the rebut parts or on ther use as com-
ponents of other artces manufactured by hm for sae. The ta
appes whether the machnng, etc., operatons are performed by
the rcbuder hmsef or by some other person n hs behaf.
The manufacturers e cse ta appes to the rebuder s sae of
(a) rebut batteres, (b) rebabbtted or machned connectng
rods, (c) resurfaced cutch pates, (d) rewound armatures, (e)
reground or remetazed crankshafts, (f) engnes n whch bocks
arc machned (e. g., cynders rebored, new seeves nserted, wth
or wthout cynders beng rebored) or new bocks nstaed, and
(g) smar parts on whch machnng, rewndng, or comparabe
operatons are performed.
The ta due upon the sae of a rebut part s based upon the
prce for whch such part s sod, e cudng the vaue of a ke part
accepted n e change. The ta due on the use of a rebut part as
a component of another artce manufactured by the rebuder for
sae s based upon the prce for whch such or smar rebut parts
are sod n the ordnary course of trade, e cudng the vaue of a
ke part accepted n e change. Where a ta pacf part s used us
a component n the manufacture of the rebut part, approprate
reef through refund or credt may be obtaned pursuant to the
provsons of secton 3 3(a) (1) of the Code.
The concuson of the Servce that rebudng consttutes manu-
facturng and that the sae of rebut parts s sub|ect to manufac-
turers e cse ta has been sustaned by the courts. See Cawson
and Bas, Inc., v. Unted States, 1 2 ed. (2d) 02, certorar
dened, 3 0 U. S. 3 Armature change, Inc., v. Unted States,
116 ed. (2d) 909, certorar dened, 313 U. S. 673.
(3) Reparng. The restoraton of an owner s part to usabe
condton (but not for purposes of sae or for use as a compo-
nent of other artces for sae) consttutes a repar operaton
whether performed by the owner hmsef or by others actng n
hs behaf. As manufacturng has been defned as the producton
of rebut artces for sae, a rebudng operaton w under no
crcumstances be consdered a repar, snce the purpose of rebud-
ng as construed above s the restoraton of the artce for sae.
The use by an owner of a repared part does not gve rse to a ta
under secton 3 of the Code, snce such use by a person who
s not construed to be a manufacturer or producer s not con-
sdered the knd of use contempated by that secton. Conversev,
however, the use by a rebuder of a rebut part w be ta abe
under such secton.
Where a part has been repared, the reparer must retan n hs
possesson such evdence or documents from whch the nonta abe
nature of the operaton can be ready ascertaned. However, f
ta pad parts are used or sod n the course of a repar operaton,
no ad|ustment of the (a thereon w be aowabe.
. S. T. 927, C. B. 19 2-2,225, and S. T. 932, C. B. 19 5, 31. superseded.
S. T. 937, C. B. 1951-1,151, hods that rebuders of used automobe
engnes may, n eu of usng actua vaues of ndvdua engne bocks
accepted n part payment of rebut engnes sod on an e change bass,
ascrbe to bocks of a makes, types, and modes so accepted a unform
aue of 35 percent of the e change prce n the computaton of the
ta payabe under secton 3 03(c) of the Interna Revenue Code.
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Regs. 6, 316.50. 0
Secton 1 (d) of the Revenue Act of 1951, effectve November 1,
1951, added the foowng sentence to secton 3 03(c) of the Code:
In determnng the sae prce of a rebut automobe part or accessory there
ha be e cuded from the prce the vaue of a ke part or accessory
accepted In e change.
In vew of the fact that S. T. 937 supra, was superseded by the add-
ton of the above-quoted sentence, t s hereby revoked.
R GULATIONS 6, S CTION 316.50: Scope of ta . Rev. Ru. 5 -506
(Aso Secton 316.5 .)
Appcaton of manufacturers e cse ta Imposed by secton
03(a) of the Interna Revenue Code of 1030 to varous types of
traers and semtraers, varous types of ( oes Incudng con-
verter does, and farm wagons.
Advce s requested concernng the appcaton of the ta mposed
by secton 3 03(a) of the Interna Revenue Code of 1939 to the sae
by the manufacturers of varous types of traers and semtraers,
varous types of does ncudng converter does and farm wagons.
Advce s aso requested whether credt may be taken wth respect to
ta pad tres and tubes mounted and sod on such vehces.
The nstant traers and semtraers, whch are prmary desgned
and constructed to transport property over the hghway, are com-
mony and commercay known as poe traers, poe and genera
purpose poe traers, combnaton poe and cabe ree traers, trans-
former and machnery traers, tt-top mpement traers, ree does,
poe does and hghway odgng does.
Certan does, commony and commercay known as converter
does are used as connecters to convert semtraers to fu traers.
The farm wagons n queston, whch are of the type that are towed
by other vehces, are prmary desgned and constructed for rugged
duty on the farm, athough they may be ncdentay used on the
hghways.
Secton 3 03 (a) of the Code mposes a ta on the sae by the manu-
facturer of automobe truck chasss, automobe truck bodes, auto-
mobe bus chasss, automobe bus bodes, truck and bus traer and
semtraer chasss, truck and bus traer and semtraer bodes, and
tractors of the knd chefy used for hghway transportaton n com-
bnaton wth a traer or semtraer.
Secton 3 03 (c) of the Code mposes a ta on the sae by the manu-
facturer of parts or accessores (other than tres and tubes and other
thnn rado and teevson recevng sets) for any of the artces enu-
merated n secton 3 03 (a).
Secton 3 03 (e) of the Code provdes credt for ta on the sae by
the manufacturer of tres and tubes sod on or n connecton wth, or
wth the sae of artces ta abe under secton 3 03(a) of the Code.
It s hed that snce the traers and semtraers enumerated above
are prmary desgned and constructed for transportng property over
the hghway they are consdered to be automobe truck traers and
semtraers wthn the meanng of secton 3 03(a) of the Code and
saes thereof by the manufacturer are sub|ect to ta under that secton.
Where the manufacturer ses ta pad tres and tubes on, or n con-
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09 tegs. , 316.55.
necton wth, or wth the sae of the traers or semtraers, he may,
under secton 3 03(e) of the Code, take credt aganst the ta due on
hs sae n an amount determned by appyng to the purchase prce
of the tres and tubes, the percentage rate of ta appcabe to the
traers or semtraers. See secton 316.5 , Reguatons 0.
It s further hed that the converter does are parts and accessores
wthn the meanng of secton 3 03 (c) of the Code. A manufacturer
of such does may not take credt under secton 3 03(e) of the Code
for ta pad on tres and tubes whch are sod on or n connecton wth
converter does nasmuch as the provson of that secton s not ap-
pcabe to parts and accessores ta abe under secton 3 03(c) of the
Code but s mted to tres and tubes sod on or n connecton wth, or
wth the sae of artces ta abe under secton 3 03 (a) or (b) of the
Code. However, whero a manufacturer attaches a ta abe converter
doy to a ta abe traer of hs own manufacture, the ta attaches to
hs sae of the compete unt, and he s entted to credt under secton
3 03(e) wth respect to the tres and tubes sod on the doy as we as
on the traer.
It s aso hed that farm wagons, whch are prmary desgned and
constructed for use on farms, athough they may be ncdentay used
on the hghway, are not traers wthn the meanng of secton 3 03(a)
of the Code, and are therefore, not sub|ect to ta when sod by the
manufacturer.
Reguatons 6, Secton 316.50: Scope of ta .
Appcaton of ta to automobe truck bodes manufactured and
used by a person n the operaton of hs busness. See Rev. Ru. 5 -
00, page 16.
Reguatons 6, Secton 316.5 : Credt for
ta es on tres, nner tubes, automobe
rado or teevson recevng sets.
Credt aowabe under secton 3 03(e) of the Interna Revenue
Code on ta pad tres and nner tubes sod on or n connecton wth,
or wth the sao of automobe traers and semtraers. See ev.
Ru. 5 -500, page 0 .
Reguatons 6, Secton 316.55: Defnton Rev. Ru. 5 -330
of parts or accessores.
Cnrfcnton of S. T. 0 , O. B. 1052-2, 2M, wth respect to the
appcaton of te ta Imposed by secton 3 03(c) of the Interna
Revenue Code to the sae by a manufacturer of custom-mnde
automobe seat covers, where the manufacturer makes out an Invoce
or sae sp to s customer for the matera and another nvoce
or saes sp for the abor Invoved In producng the covers.
Carfcaton of S. T. 0 , C. B. 1052-2,255, s requested wth respect
to the appcaton of the ta mposed by secton 3 03(c) of the In-
terna Revenue Code, to the sae by a manufacturer of custom-made
automobe seat covers where the manufacturer makes out an nvoce
or saes sp to hs customer for the matera and another nvoce or
saes sp for the abor nvoved n producng the covers.
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Regs. , 316.73. 10
S. T. 9 , supra, hods that where a manufacturer furnshes the ma-
tera and produces seat covers for the consumer thereof, accordng
to ndvdua desgn and measurements, the sae by the manufacturer
of such seat covers s ta abe under secton 3 03(c) of the Code, re-
gardess of whether they are nstaed by the manufacturer or by other
persons.
It s hed that where a manufacturer, n connecton wth the produc-
ton of seat covers for a customer, makes out an nvoce or soes sp
to hs customer for matera and another nvoce or saes sp for the
abor nvoved n producng the covers, the entre transacton s con-
sdered a sae of scat covers by the manufacturer and sub|ect to the
ta mposed by secton 3 03(c) of the Code on the bass of the tota
of the charges made for the matera and abor, even though separatey
nvoced or bed.
Revenue Rung 2, C. B. 1953-1, 63, sets forth the method of com-
putng the ta n cases where manufacturers make saes of seat covers
ony at reta.
Reguatons 6, Secton 316.55: Defnton of
parts or accessores.
Persons engaged n rebudng, recondtonng, and reparng auto-
mobe parts or accessores dstngushed for the purpose of fo ta
mposed by secton 3 03(c) of the Interna Revenue Code. See Rev.
Ru. 5 -329, page 05.
S CTION 3 0 . TA ON RADIO R C I ING S TS, T L -
ISION R C I ING S TS, PHONOGRAPHS, PHONO-
GRAPH R CORDS, AND MUSICAL INSTRUM NTS
Reguatons 0, Secton 316.61: Rado, tee-
vson, phonograph components.
Ta abty of tubes used n the manufacture of eectronc anaog
computers. See Rev, Ru. 5 - 35, page 1 .
Reguatons 6, Secton 316.63: Musca Rev. Ru. 5 -331
nstruments.
Maracas, bongos, castanets, and caves are consdered musca nstru-
ments wthn the meanng of secton 3 0 (d) of the Interna Revenue
Code and saes thereof by the manufacturer, producer, or mporter
are sub|ect to the ta mposed by that secton.
S CTION 3 05. TA ON M CHANICAL R RIG RATORS,
UIC - R Z UNITS AND S L -CONTAIN D AIR-
CONDITIONING UNITS
Reguatons 6, Secton 316.73: Ar-cond- Rev. Ru. 5 - 62
toners and components.
Types of sef-contaned ar-condtonng unts sub|ect to ta under
secton 3105(c) of the Interna Revenue Code .of 1939. S. T. 93 ,
C. B. 19 -2,1 0 superseded.
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11 Begs. 6, 316.90.
Advce s requested concernng the types of sef-contaned ar-con-
dtonng unts whch are sub|ect to ta under secton 3 05 (c) of the
Interna Revenue Code of 1939.
Secton 3 05 (c) of the Code mposes a ta of 10 per centum on saes
by the manufacturer, producer, or mporter of sef-contaned ar-
condtonng unts.
It s hed that the type of sef-contaned ar-condtonng unt sub-
|ect to ta under secton 3 05(c) of the Code ncudes a unt, whether
a factory-made encased assemby or one sod for assemby on nsta-
aton, prmary desgned for free devery of ar and for nstaaton
n or n front o a wndow or other openng whch (1) contans means
for movng outsde ar through ts condenser. (2) ncorporates means
for coong, dehumdfyng, and crcuatng the ar of a room or other
encosure, and (3) has a tota motor horsepower of ess than 1 horse-
power for motor-drven compressor types, or, n the case of absorpton
types, a tota coong capacty of ess than 10,000 B. T. U. per hour at
standard Amercan Socety of Refrgeratng ngneers test condtons
as set forth n ASR Crcuar No. 16, dated une 19 0.
S. T. 93 , C. B. 19 -2,1 0 s hereby superseded.
S CTION 3 0 5.- CIS TA S IMPOS D BY
TH R NU ACT O 19 1
Reguatons 0, Secton 310.90: Scope of Rev. Ru. 5 -320
ta .
(Aso Secton 10. .)
To tar on sportng goods Imposed by secton 3100(a) (1) of the
Interna Itevonue Code npptes to the sae by the manufacturer
of any tabe whch Is advertsed, or sod by hm prmary for use
as a tabc tenns tabe, even though such tabe may be unpanted and
unstrpcd and sod n a knockdown condton.
Advce s requested whether the ta on sportng goods mposed by
secton 3 0G(a) (1) of the Interna Revenue Code appes to the sae
by the manufacturer of a tabe for use as a tabe tenns tabe, even
though n a knockdown or unpanted condton.
Secton 3 06(a) (1) of the Code mposes a ta on the sae by a manu-
facturer, producer, or mporter of the artces enumerated theren,
ncudng tabe tenns tabes, bas, nets, and paddes. Under the
provsons of secton 316. of Reguatons 6, a manufacturer who
ses a ta abe artce n a knockdown condton, but compete as to
a component parts, s abe for the ta on such sae.
It s hed that the ta mposed by secton 3 06 (a) (1) of the Code
appes to the sae by the manufacturer of any tabe whch s adver-
tsed, or sod by hm prmary for use as a tabe tenns tabe, even
though such tabe may be unpanted and unstrped and sod n a knock-
down condton. If, however, unpanted and unstrped tabes are
sod by the manufacturer essentay and prmary for use as utty
tabes, the ta s not appcabe to such saes, regardess of the fact
that n the manufacturers advertsng an ncdenta reference may be
made to the use of such tabes for tabe tenns aong wth other spec-
ed uses.
33510 53 27
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Regs. 0, S16.90.) 12
Reguatons 6, Secton 16.90: Scope of ReT. Ru. 5 - 3
ta .
(Aso Secton 1, Secton 16.15.)
Method of computng ta Imposed by secton 00(a)(1) of to
Internn Revenue Code of 1031) on saes of sportng goods by a
manufacturer who sos certan artces at whoesae and reta
and other artces at reta ony.
Advce s requested concernng the method of computng tho tn
mposed by secton 3 06(a (1) of the Interna Revenue Code of 1039
on stes of sportng goods by a manufacturer who ses certan artces
at whoesae and reta and other artces at reta ony.
In the nstant case, the artces whch are sod by tho manufacturer
ony at reta consst of bard cues, other than |onted cues, compos-
ton bard bas, vory bard bas, cast phenoc bard bas,
bard tabes, ten pns and cande and duck pns. onted bard
cues are sod by the manufacturer both at whoesae and reta.
Under the provsons of secton 06(a) (1) of the Code, as amended
by the cse Ta Reducton Act of 195 , ta at the rate of 10 percent
s mposed on saes by the manufacturer of artces of sportng good3
on or after Apr 1,195 .
Under the authorty of secton 3 1(b) (1) of the Code, the ta on
the sae of artces of sportng goods whch are sod by a manufac-
turer ony at reta, s to be computed on the prce for whch such
artces are sod by manufacturers or producers n the ordnary courso
of trade as determned by the Commssoner. Such determnaton
bas been made wth respect to each of the foowng artces and has
been found to represent an amount equa to the ndcated percentage
of the estabshed reta st prce sub|ect to the ad|ustments provded
by secton 3 1(a) of the Code.
Bard cues, other than |onted 60 percent of estabshed
cues reta st prce
Composton bard bas 53 percent of estabshed
reta st prce
Ivory bard bas 6 percent of estabshed
reta st prce
Cast phenoc bard bas 50 percent of estabshed
reta st prce
Bard tabes 70 percent or estabshed
reta st prce
Ten. pns 66 percent of estabshed
reta st prce
Cande and duck pns 70 percent of estabshed
reta st prce
The ad|ustments provded by secton 1(a) of the Code are to
be made as foows: To the amount arrved at n each case by the
appcaton of the ndcated percentage shoud be (A) added any
separate charge made by tho manufacturer for transportaton or
devery of the artces to the purchaser, and (B) deducted tho
amounts of (1) the transportaton or devery e pense actuay n-
curred by the manufacturer n effectng devery to the purchaser,
and (2) any e pense for nsurng the shpment to the purchaser.
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13 Regs. 0, 316.90.
Ths computaton refects the far market prce n the case where
the amount of ta s to be passed on as a separate tem on the nvoce
to the purchaser. In such case, the ta w be computed at the
statutory rate of 10 percent of such far market prce. However,
where the amount of the ta s not passed on as a separate tem but
s ncuded n the nvoce prce, the foregong computaton refects
not ony the far market prce but the ta thereon as we. In that
case, and n accordance wth the rue sot forth n secton 316.11 of
oguatons 0, the ta may be determned by takng one-eeventh
(10/110) of such amount, so as to emnate the ta from the ta
base ns requred by aw.
Wth respect to the sae of |onted bard cues at whoesae, the
ta shoud )o based on the whoesae prce sub|ect to the ad|ustments
provded by secton 3 1 fa) of the Code
Under the authorty of secton 3 1(b) (1) of the Code, the ta on
reta saes of artces by a manufacturer who aso ses ke artces
at whoesae, s to be based upon hs hghest estabshed whoesae
prce to ndependent deaers, sub|ect aso to the ad|ustments provded
by secton 3 1(a) of the Code.
Advce s aso requested regardng the determnaton of ta credts
aowabe under secton 3 3(a) (2) of the Code wth respect to cash
dscounts aowed by a manufacturer. In the nstant case, cash ds-
counts of 2 percent are aowed by a manufacturer on the safes of both
ta abe ana nonta abe artces. The manufacturer fnds t prac-
tcay mpossbe to ascertan the e act amount of cash dscounts
aowed on the sae of ta abe artces as dstngushed from those
aowed on the sae of nonta abe artces. The manufacturer pro-
poses to determne the ta credts reatng to dscounts aowed on
saes of ta abe artces n the current month on the bass of the rato
that the saes of ta abe artces n the precedng month bears to the
tota saes of artces n that month. The term current month refers
to the month for whch the manufacturer s reportng the tota
ta and takng credt wth respect to cash dscounts whch have
actuay been aowed to customers at the tme the net ta due for the
month s computed.
Where t s mpractca to determne the e act amount of cash ds-
counts aowed on the sae of ta abe artces durng the current month,
the manufacturer may determne the ta credts reatng to dscounts
aowed on saes of ta abe artces on the bass of the rato that the
precedng month s saes of ta abe artces bears to the tota saes
of artces n such precedng month, provded that the same procedure
s foowed each month.
or e ampe, where cash dscounts of 100 are aowed durng the
current month wth respect to saes of ta abe and nonta abe artces
and the saes of bard tabes durng the precedng month were n an
amount equa to 25 percent of the tota saes of both ta abe and non-
ta abe artces durng such precedng month, the porton of the
current month s dscounts appcabe to such ta abe tabes may be
determned by appyng ths percentage to the tota dscounts aowed
for tho current month. Tho resutng amount of 25 represents the
dscounts aowed durng tho current month based on 2 percent of the
estabshed reta st prce of tho tabes. Snce the ta on the sae
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Urg, 6. 5 316.1 0. - 1
of such tabes was not computed on the estabshed reta st prce
but rather on 70 percent of such prce, the amount of dscounts of 25
appcabe to the tabes shoud be reduced to 17.50 bv the appca-
ton of such percentage. The appcaton of the ta of 10 percent to
the dscounts of 17.50 on whch ta was computed resuts n an
aowabe ta credt of 1.75.
Reguatons 6, Secton 316.110: Scope of Rev. Ru. 5 -3 G
ta .
The ta mposed by secton 06(a)(3) of the Interna Revenue
Code of 1939 on eectrc water heaters s mted n appcaton to
heaters of the househod type. An eectrc water heater wth heatng
eements aggregatng wattages not e ceedng 7500 (7 W) s a
beater of the househod type and the sae of such a heater by the manu-
facturer s sub|ect to ta mposed by that secton of the Code uness
the heater by reason of other features of desgn ard constructon s
prmary adapted for purposes other than househod use.
Reguatons 6, Secton 316.1 0: Scope of Rev. Ru. 5 - 06
ta .
The ta on the sae by a manufacturer of dupcatng machnes, m-
posed by secton 3 06(a) (6) of the Interna Revenue Code of 1939,
s not appcabe to the sae of artces n the nature of suppes, such
as dupcatng fud, hand ceaner, correcton penc, correcton shed,
and whte copy paper even though sod by the manufacturer n con-
necton wth the sae of the machnes, provded such suppes are bed
separatey on the nvoce or the manufacturer s records are suffcent
to estabsh the seng prce of the ta abe machnes.
Reguatons 6, Secton 316.1 0: Scope of Rev. Ru. 5 - 35
ta .
(Aso Secton 3 0 , Reguatons 6, Secton
316.61.)
An eectronc anaog computer, whch bascay s a devce used by
engneers n sovng aerodynamc probems nvovng factors such as
stress, stran, vbraton, hydraucs and teemeterng s not consdered
a busness machne wthn the meanng of secton 3 06(a) (6) of the
Interna Revenue Code of 1939 and saes of such devces by the manu-
facturer are not sub|ect to the ta mposed by that secton. However,
pursuant to secton 3 0 (b) of the Code, any tubes ncorporated n
the manufacture of such nonta abe devce, whch are sutabe for
use on or n connecton wth rado or teevson recevng sets or
phonographs, whether or not prmary adapted for such use, are sub-
|ect to the ta mposed by that secton.
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15 Regs. , f 316 2 .
S CTION 3 16. LOOR STOC S R UND ON R RIG R-
ATORS, UIC - R Z UNITS, AND L CTRIC, GAS,
AND OIL HOUS HOLD APPLIANC S
Reguatons 6, Secton 316.20 a: Credts or Rev. Ru. 5 -3G0
refunds of ta on foor stocks of eectrc
ght bubs, refrgerators, and appances.
Any person who hed on Apr 1,105 , foor stocks of ta abe app-
ances to be furnshed n e change for coupons or stamps ssued n con-
|uncton wth the sae of other products, quafes as a deaer hodng
such artces for sae wthn the meanng of secton 3 16 of the Interna
Revenue Code, as added by secton 305 of the cse Ta Reducton
Act of 195 (Pubc Law 32 , 3d Cong., approved March 31, 195 ),
C. B. 195 -1, 3 3. Appances hed by persons for such purposes are
sub|ect to foor stocks refund or credt under the terms and condtons
provded n the aw and reguatons. However, any person who hed
on Apr 1,195 , foor stocks of appances to be furnshed as przes
n connecton wth a ottery or contest does not quafy as a deaer
under the aw and reguatons and appances so ned are not sub|ect
to foor stocks refund or credt, uness there s a showng that the person
otherwse quafes as a deaer hodng such artces for sae.
SUBCHAPT R C.-G N RAL ADMINISTRATI PRO ISIONS
S CTION 3 1. SAL PRIC
Reguatons 6, Secton 316. : Bass of ta Rev. uL 5 - 1
on saes generay.
or the purpose of computng the varous manufacturers e cse
ta es mposed by the Interna Revenue Code of 1939 e penses ncurred
by a manufacturer for toos and des are consdered merey eements
of the cost of manufactured artces and any separate charges made
by the manufacturer for such e penses wth respect to the sae of the
artces must bo ncuded n the ta base. However, the cost to a
manufacturer of toos and des may be e cuded from the manufac-
turer s seng prce for the purpose of computng the ta where there
s a wrtten contract or other wrtten evdence of an agreement between
the manufacturer and the customer showng that the toos and des
become the property of the customer ether by payment therefor by
the customer n a ump sum or by amortzaton. If the charge for
the toos and des s not stated separatey on the nvoce, the contract
or agreement must show the amount of the charge attrbutabe to the
toos and des.
S CTION 3 2. TA - R SAL S
Reguatons 6, Secton 316.2 : Saes to States Rev. Ru. 5 - 9
or potca subdvsons thereof and to the
Unted States.
Secton 3 2 of the Interna Revenue Code of 1939 provdes an
e empton from manufacturers e cse ta es under chapter 29 of such
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Regs. 6, 5 316.7. 16
Code n respect of artces sod for the e cusve use of a State. The
use of an automobe or other artce normay sub|ect to manufac-
turers e cse ta under that chapter of the Code by a county e tenson
agent n conductng the actvtes of - H Cubs whch are a part of
the natona e tenson work program n agrcuture and home eco-
nomcs carred on by the Department of Agrcuture and the varous
States s consdered to be a use of such vehce or artce by the State.
In such cases, the e empton provded by secton 3 2 of the Code s
appcabe where an automobe or such other artce s purchased by
the county or State wth pubc funds and used e cusvey for offca
purposes by a county e tenson agent who s apponted by the edera
Government on the recommendaton of the State. In order to obtan
such e empton the manufacturer of the ta abe artce must be fur-
nshed wth an e empton certfcate of the type outned n secton
316.2 of Reguatons 0, e ecuted by an authorzed offca of the
county e tenson offce or the State e tenson offce, as the case may be.
S CTION 3 . US BY MANU ACTUR R, PRODUC R,
OR IMPORT R
R GULATIONS 6, S CTION 316.7: Tar on use by Rev. Ru. 5 - 90
manufacturer, producer, or mporter.
(Aso Secton 3 03, Secton 316.50.)
A person who manufactures automobe truck bodes for use In
the operaton of bs dary busness and not for sae Is abe for tbe
ta Imposed by sectons 3 03(a) and 3 of the Interna Revenue
Code of 1039 on hs use of the bodes.
Advce s requested whether a person who manufactures automobe
truck bodes for use n the operaton of hs dary busness and not for
sae s abe for the ta mposed by sectons 3 03(a) and 3 of the
Interna Revenue Code of 1939. The chasss upon whch the bodes
are mounted are purchased ta pad.
Secton 3 03(a) of the Code mposes a ta on the sae by the manu-
facturer of automobe truck bodes. Sub|ect to certan e ceptons
not here matera, secton 3 of the Code provdes that any person
who manufactures, produces, or mports an artce and uses t sha be
abe for the manufacturers e cse ta n the same manner as f such
artce had been sod by hm, and the ta (f based on saes prce) sha
be computed on the prce at whch such or smar artces are sod,
n the ordnary course of trade, by manufacturers, producers, or m-
porters thereof, as determned by the Commssoner.
It s hed that a person who manufactures automobe truck bodes
and uses them n the operaton of hs busness, as n the nstant case,
s abe for the ta mposed by sectons 3 03(a) and 3 of the Code
at the tme the bodes are used by hm. The ta on such use s to be
computed under secton 3 of the Code on the far market prce of
the ta abe artce as determned by the Commssoner. Ordnary
the far market prce s represented by the whoesae prce of the ta -
abe artce n the case where the manufacturer produces the ta abe
artce n voume and reguary ses t at whoesae. Where, as n
the nstant case, the artces are custom-made and the manufacturer
does not make saes at whoesae, the far market prce of automobe
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17 Regs. 2, 130.3 .
truck bodes has been found to represent the manufacturer s actua
cost of producng the bodes pus 10 percent of such cost However,
where a manufacturer beeves that the facts and crcumstances n hs
partcuar case are so dfferent as to |ustfy usng a ower ta base,
upon recept of a statement as to the facts and crcumstances nvoved,
the Interna Revenue Servce w ssue a specfc rung n the matter.
CHAPT R 30. TRANSPORTATION AND COMMUNICATION
SUBCHAPT R B. T L GRAPa T L PHON . RADIO,
AND CABL ACILITI S
S CTION 3 05. IMPOSITION AND RAT O TA
Reguatons 2, Secton 130.3 : ranked ds- Rev. RuL 5 -322
patches, messages, and conversatons.
The ta mposed on teephone servces and factes under secton
3 05(a) of the Interna Revenue Code appes to the amount pad for
such servces. Where a teephone company furnshes teephone serv-
ce to certan empoyees free of charge, no ta attaches. Where tee-
phone servce s furnshed to empoyees at a reduced rate the ta
appes to the amount actuay pad for such servce.
Reguatons 2. Secton 130.3 : Rate and Rev. Ru. 5 -523
appcaton of ta .
The ta Imposed by secton 3 05(a) (2) (A) of the Interna Bev-
enue Code of 1030 on eased wre, teetypewrter, or takng crcut
speca servce does not appy to amounts pad by subscrbers to
a company for the ease and servcng of teescrber termna equp-
ment where the company from wom the equpment Is eased does not
mantan or ease wres or channes to the subscrbers.
Advce s requested whether the ta mposed by secton 3 G5 (a) (2)
(A) of the Interna Revenuo Code of 1939 on eased wre, teetype-
wrter, or takng crcut speca servce appes to amounts pad t y
subscrbers to a company for the ease and servcng of teescrber
termna equpment where the company from whom the equpment s
eased does not mantan or ease wres or channes to the subscrbers.
The equpment s connected wth nes or channes owned by the sub-
scrbers or eased by them from communcatons carrers and s used.
to transmt facsme graphc characters, mosty n the form of hand-
wrtng, over the wres or channes wth whch t s connected.
Secton 3 05(a) (2) (A) of the Code mposes a ta on the amount
Sad for eased wre, teetypewrter, or takng crcut speca servce,
ecton 130.3 (a) of Reguatons 2 provdes that, n genera, eased
wre, teetypewrter, or takng crcut speca servce reates to prvate
ne servce where channes, equpment, and other factes are fur-
nshed.
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Regs. 2, 130.7 . 1
It s hed that snce the company furnshng the teescrber termna
equpment does not mantan or ease wres or channes to ts sub-
scrber , t does not provde a communcatons servce of the knd
contempated by secton 65(a)(2)(A) of the Code, and amounts
pad to the company by subscrbers for the ease and servcng of the
equpment are not sub|ect to the ta .
S CTION 3 67. R TURNS AND PAYM NTS
Reguatons 2, Secton 130.73: tenson of Rev. Ru. 5 -361
tme.
(Aso Secton 69, Secton 130.73, and Secton
3 75, Reguatons 113, Secton 1 3.53.)
tenson of tmo for fng returns and makng payment of com-
muncatons and transportaton ta es.
Secton 1. Purpose.
The purpose of ths Revenue Rung s to mpement Commsson-
er s Reorganzaton Order No. 25, dated September 29, 1953, C. B.
1953-2, 50 , under whch Dstrct Drectors of Interna Revenue have
been deegated authorty to grant e tensons of tme for fng returns
and makng payment of the communcatons and transportaton ta es,
and for makng monthy deposts of such ta es.
Sec. 2. Requests foh tensons op Tme.
.01 Coectng agences may request Dstrct Drectors to grant e -
tensons of tme for performng the acts specfed n secton 1 ether
on a permanent bass (appyng to successve ta -return perods or on
an emergency bass (appyng to a partcuar ta -return perod). Re-
quests for permanent e tensons w be entertaned where the coect-
ng agency has demonstrabe dffcuty n assembng necessary data
from agents, branches, or other sources wthn the tme prescrbed for
performng the specfed acts. Requests for emergency e tensons w
be entertaned where some unforeseen contngency arses n the affars
of the coectng agency such as the sckness or absence of persons who
normay prepare the returns, destructon of records by fre, etc.
.02 A parent company may request an e tenson of tme on behaf
of one or more subsdary companes ocated wthn the same nterna
revenue dstrct. If e tensons are desred for subsdares ocated n
dfferent dstrcts, separate requests shoud be addressed to the appro-
prate Dstrct Drectors.
Sec. 3. Pocy.
.01 A bera pocy w be foowed wth respect to requests for
permanent or emergency e tensons of tme where a reasonabe and
vad need for the e tenson s shown. Lack of funds w not be
consdered a suffcent bass snce coected communcatons and trans-
portaton ta es consttute mones hed n trust for the Government,
and arc not a part of the assets of the coectng agency.
.02 Permanent or emergency e tensons w be mted to 30 or 60
days, as may n the |udgment of the Dstrct Drector appear neces-
sary. tensons of 90 days w be granted n unusua crcumstances
and then ony on an emergency bass. tensons beyond 90 days are
not to be granted under any crcumstances.
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19 (Regs. 2. 130.61.
.03 tensons of tme wth respect to communcatons and trans-
portaton ta es w not operate as e tensons of tme wth respect to
other ta es reportabe on the uartery edera cse Ta Return,
orm 720. Where a coectng agency s abe for any of such other
ta es, separate returns and payments of such ta es shoud be made
wthn the prescrbed tme.
.0 A coectng agency whch has been granted an e tenson shoud
ndcnto at tho top of each return fed n accordance therewth the
perod of the e tenson and the date of the e tenson etter as, for
e ampe, 30 ay e tenson-etter dated May 10,195 ,
Sec. . ffect of Pnon tensons.
tensons prevousy granted by the Natona Offce w contnue
n effect sub|ect, however, to tho authorty deegated to Dstrct D-
rectors by Commssoners Reorganzaton Order No. 25. In cases
where tho tmo for payng tho ta es has been e tended on a permanent
bass, an equvaent e tenson of tmo for makng monthy deposts for
perods nfter une 30,1953, w be consdered as havng been granted
wthout further wrtten appcaton,
Sec. 5. ffectve Date.
The provsons of ths Revenue Rung are effectve as of une 11,
195 .
SUBCHAPT R C TRANSPORTATION O P RSONS
S CTION 3 69.-TA ON TRANSPORTATION
O P RSONS, TC.
ReooT|Atons 2, Secton 130.61: TransportaA Rev. Ru. 5 -5 0
ton and factes furnshed to the Unted
States, to States, or potca subdvsons
thereof.
The ta on the transportaton of persons Imposed by secton 3 C9
of te Interna Itcvcnue Code of 11)39 appes to amounts pad by
Members of the Congress of the Unted States for trave on a me-
age aowance bass at the begnnng or at the end of a sesson of
Congress. Such ta aso appes to amounts pad by Members of
Congress for trave on offca busness durng a sesson of Congress,
uness such transportaton Is furnshed on Unted States Govern-
ment transportaton requests.
Advce s requested whether Members of Congress of the Unted
States are entted to e empton from the ta on the transportaton of
persons mposed by secton 3 69 of the Interna Revenue Code of
1939 on amounts pad for ther transportaton, (1) when comng to
Washngton at the begnnng of a sesson and returnng home at the
end of a sesson for whch they receve a meage aowance, and (2)
when traveng on offca busness durng a sesson.
Pursuant to the amendment of secton 3 69(f)(1) of tho Code by
secton 307 of the Revenue Act of 19 3, C. 1 . 19 , 756, at page 7S ,
amounts pad on or after une 1,19 , for the transportaton of per-
Bons or for seatng or seepng accommodatons n connecton there-
wth are no onger e empt by reason of the fact that such transporta-
ton s furnshed to tho Unted States, or pad for by a person who s
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Regs. 113, I 1 3.1.) 20
entted to receve rembursement from the Unted States. Hpwover.
pursuant to the provsons of secton 307(c) of the Revenue Act of
19 3, as amended by secton 303 of the Revenue Act of 19 5, C. B.
19 5,5 6, at page 503, the Secretary of the Treasury has contnued the
e empton as to any payment for the transportaton of persons fur-
nshed to the Unted States upon a Unted States Government trans-
portaton request. (See authorzaton of the Secretary of the Treas-
ury, dated une 20, 19 7, C. B. 19 7-2, 211 and Mm. 619 , C. B.
19 7-2, 210.)
In vew of the foregong, the ta appes to amounts pad by Mem-
bers of Congress for transportaton on a meage aowance bass at
the begnnng or at the end of a sesson of Congress. The ta aso
appes to amounts pad by Members of Congress for trave on offca
busness durng a sesson of Congress, uness such transportaton s
furnshed on Unted States Government transportaton requests.
Reguatons 2, Secton 130.73: tenson of
tme.
tenson of tme for fng returns and makng payment of ta on
transportaton of persons. See Rev. Ru. 5 -361, page 1 .
Credts and refunds of transportaton ta es under the cse Ta
Reducton Act of 195 . See Rev. Ru. 5 -32 , page 37 .
SUBCHAPT R IU-TRANSPORTATION O PROP RTY
S CTION 3 75. TRANSPORTATION O PROP RTY
Reguatons 113, Secton 1 3.1: Meanng of Rev. Ru. 5 -333
terms.
Amounts pad for the transportaton of hgh-carbon coke made
from coa and other carbonaceous matera are sub|ect to the ta
on transportaton of property Imposed by secton 3 75 of the Interna
Revenue Code at the rate of 3 percent of the amount so pad.
Advce s requested concernng the appcaton of the ta on trans-
portaton of property mposed by secton 3 75 of the Interna Revenue
Code to the transportaton of hgh-carbon coke consstng of 35 per-
cent coa and 65 percent other carbonaceous matera.
Secton 3 75 of the Code mposes a ta of 3 percent on the amount
ad for the transportaton of property from one pont n the Unted
tates to another, e cept that, n the case of coa, the rate of ta
sha be cents per short ton. That secton further provdes that
the ta on the transportaton of coa sha not appy to the transpor-
taton of coa wth respect to whch there has been a prevous ta abe
transportaton. Secton 1 3.1(f) of Reguatons 113 defnes the term
coa to ncude anthracte, btumnous, sembtumnous, subbtumnous
and gnte coa, coa dust, and coke and brquettes made from coa.
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21 (Regs. 113, 1 3.1W
It s hed that the term coke made from coa, as used n
the reguatons, ncudes ony coke made entrey from coa and does
not ncude hgh-carbon coke consstng of coa and other carbo-
naceous matera, and the provsons of the statute pertanng to the
transportaton of coa are not appcabe to the movement of hgh-
carbon coke. Accordngy, amounts pad for the transportaton of
hgh-carbon coke made from coa and other carbonaceous matera are
sub|ect to the 3 percent ta on transportaton of property.
R GULATIONS 113, S CTION 1 3.1: Meanng of Rev. Ru. 5 - 76
terms.
The ta on the transportaton of property Imposed by secton
3 73 of the Interna Revenue Code of 1039, appes to a charge made
by a carrer for the oadng of freght on paets, desgnated as
paetzng, when such servce Is furnshed by the carrer In con-
necton wth a ta abe transportaton movement.
Advce s requested concernng the appcaton of the ta on the
transportaton of property mposed by secton 3 75 of the Interna
Revenue Code of 1939, to a charge made by a carrer for the oadng
of freght on paets, desgnated as paetzng, when such servce
s furnshed by the carrer n connecton wth a ta abe transportaton
movement
Secton 3 75 (a) of the Code mposes a ta wth certan e ceptons
not here appcabe, upon amounts pad wthn or wthout the Unted
States to a person engaged n the busness of the transportaton, for
hre, of property by ra, motor vehce, water or ar from one pont
n the Unted States to another.
The term transportaton s defned n secton 1 3.1 (d) of Regu-
atons 113 to ncude, n genera, accessora servces furnshed n
connecton wth a transportaton movement, such as oadng, unoad-
ng, bockng and stakng, handng, and smar servces.
It s hed that the oadng of freght on paets, desgnated as
paetzng, s accessora to the subsequent transportaton move-
ment, and charges made by a carrer for such servce when furnshed
n connecton wth ta abe transportaton are sub|ect to the ta on
the transportaton of property mposed by secton 3 75 of the Code.
R GULATIONS 113, S CTION 1 3.1 (d): Meanng Rev. Ru. 5 -52
of terms.
Where a carrer utzes speca equpment, such as wnch trucks,
to oad or unoad property, the charges made therefor are consd-
ered to be charges for accessora servces and sub|ect to ta Im-
posed by secton 3 75 of the Interna Revenue Code of 1939 when
furnshed In connecton wth ta abe transportaton performed by
the rnrrer. However, where oadng and unoadng servces are
performed drecty for a shpper or consgnee by a person who does
not perform ta abe transportaton of the property whch be oads
or unoads, the charges made for the servces by such person to the
shpper or consgnee are not sub|ect to ta .
Advce s requested whether the ta on the transportaton of prop-
erty mposed by secton 3 75 of the Interna Revenue Code of 1939
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Regs. 113,11 .13. 22
appes to an amount charged by a truckng company for unoadng
ppe from a raroad car under the foowng crcumstances.
In the nstant case, a truckng company s hred by an o company
to unoad ppe from a raroad car. The truckng company uses a
wnch truck (or manpower for sma ppe) to take the ppe out of the
car and pace t on an o fed truck, Doth trucks beongng to the
truckng company. The ppe s then moved and paced on racks
whch are mmedatey ad|acent to the raroad car, sometmes ess
than 50 feet away, where the ppe, s stored.
Secton 3 75 of the Code mposes a ta , wth certan e ceptons not
here appcabe, upon amounts pad for the transportaton ot property
by ra, motor vence, water, or ar from one pont n the Unted
States to another. The ta appes ony to amounts pad to a person
engaged n the busness of transportng property for hre.
Secton 1 3.1 (d), Reguatons 113, defnes the term transportaton
to mean the movement of property by a person engaged n the busness
of transportng property for nre, ncudng nterstate, ntrastate, and -
ntracty or other oca movements, as we as towng, ferryng,
swtchng, etc In genera, t ncudes accessora servces furnshed
n connecton wth a transportaton movement, such as oadng, unoad-
ng, and smar servces and factes.
Where a carrer utzes speca equpment, such as wnch trucks, to
oad or unoad property, the charges made therefor are consdered to
be charges for accessora servces and sub|ect to ta when furnshed
n connecton wth ta abe transportaton performed by the carrer.
However, where oadng and unoadng servces are performed drecty
for a shpper or consgnee by a person who does not perform ta abe
transportaton of the property whch he oads or unoads, the charges
made for the servces Dy such person to the shpper or consgnee are
not sub|ect to ta .
It s hed that the above-descrbed servce performed by the truckng
company s prmary an unoadng servce rather than transportaton
of property wthn the meanng of secton 3 75 of the Code. Snce
the truckng company whch performs the unoadng servce does
not, n the nstant case, perform any ta abe transportaton of the
property whch t unoads, the charges made by t to the o company
for the unoadng servce are not sub|ect to ta .
Reguatons 113, Secton 1 3.13: Appcaton Rev. Ru. 5 -321
of ta .
A corporaton owns and operates a shpyard. In the course of,
and ncdenta to, the constructon of vesses but at the shpyard,
t s necessary to aunch the uncompeted vesses from the budng
ways and maneuver them by towboats to the outfttng basn n the
shpyard. Occasonay, n the course of, and ncdenta to further
constructon, the uncompeted vesses must be shfted by towboats
to other ocatons n the outfttng basn. Hed, towboat servces whch
are rendered n aunchng and n shftng uncompeted vesses from
one ocaton to another n the buder s shpyard, and whch are
essenta to and an ntegra part of the constructon of the vesses,
do not consttute transportaton of property wthn the meanng of
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23 (Regs. 113, 5 1 3.13.
secton 3 75 of the Interna Revenue T ode. The amounts pad for
the towboat servces are not sub|ect to the ta mposed by that secton.
Cf. M. T. 35, C. B. 19 9-1,250.
R GULATIONS 113, S CTION 1 3.13: Appcaton Rev.Ru. 51-373
of ta .
A company engaged to dredge mud and st from shp berths and
shp channes hres towboats to tow barges oaded wth such waste
matera from the pace of dredgng to other deep water areas for
dumpng. The company dsposes 01 the waste matera as t sees ft
wthn genera areas desgnated by Army engneers under whose |urs-
dcton the operaton s beng conducted. Hed, amounts pad under
the crcumstances for the towng of barges oaded wth waste matera
to other deep water areas for dumpng are consdered amounts pad
for a dsposa servce rather than amounts pad for the transportaton
of property wthn the meanng of secton 3175 of the Interna Rev-
enue Code of 1939. Accordngy, amounts pad for such towng are
not sub|ect to the ta on the transportaton of property. (See M. T.
5, C.B. 1952-2,269.) -
R GULATIONS 113, S CTION 1 3.13: Appcaton Rev. Ru. 5 -3S7
of ta .
(Aso Secton 1 3.1.)
The Inbound movement of unmarketabe coa to a storage pant
and the subsequent movement of sucb coa to a preparaton pant
for fna processng consttute part of the entre transportaton move-
ment of coa from tbe mno to the preparaton pant, and are not
sub|ect to the ta on the transportaton of coa mposed by secton
3 73 of the Interna Revenue Code of 1030. Tbe ta attaches to the
frst subsequent transportaton for hre of the marketabe coa from
the preparaton pant.
Advce has been requested concernng the appcaton of the tn
on the transportaton of coa mposed by secton 3 75 of the Interna .
Revenue. Code of 19. )9 to the transportaton of unmarketabe coa
pror to fna processng at the preparaton pant n tho foowng
descrbed stuatons:
(1) At certan tmes a company produces raw coa, whch
ncudes drt and waste matter, and, wthout runnng t through
the preparaton pant, oads t nto raroad cars. The raroad
then swtches the cars to the storage pant, where the raw coa s
unoaded and paced n storage. At a ater date the raw coa s
removed from storage and processed through the preparaton
pant, where t becomes so m ed wth other coa that t s not
specfcay dentfabe.
(2) At certan tmes a company s unabe to market certan
szes of coa. The raw coa s run through the preparaton pant
where the currenty marketabe and unmarketabe szes are sepa-
rated. The, marketabe szes arc oaded nto raroad cars and
sod mmedatey. The unmarketabe szes are oaded nto ra-
road cars and the raroad swtches them to the storage dump,
where the coa s unoaded and stored. Later, ths coa s pcked
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Regs. 113, 1 3.13.) 2
up from storage and reprocessed through the preparaton pant to
remove drt and degradaton, and n the preparaton pant t
becomes so m ed wth other coa that t s not specfcay dent-
fabe.
Secton 1 3.13 (b) of Reguatons 113 provdes that an amount pad
wth respect to the frst transportaton for hre of coa s sub|ect to ta ,
e cept that an amount pad for the transportaton of coa from the
mne to a preparaton pant as defned n secton 1 3.1 (g) s not ta -
abe, but the ta attaches to the frst subsequent transportaton for
hre of the coa.
Secton 1 3.1 (g) of Reguatons 113 defnes the term preparaton
pant to mean a pant operated n connecton wth mnng operatons
at whch coa s sub|ected to one or more processes, such as washng,
crushng or szng, ntended to remove mpurtes or foregn matter or
otherwse render the coa better suted for consumpton, but not n-
cudng a preparaton pant operated as a part of or n con|uncton
wth anv other estabshment or pace (such as a stee pant, coke oven,
etc.) where coa s consumed as fue or n the producton of coke,
brquettes, or other artces or materas.
It s hed that, under the crcumstances descrbed n the two stua-
tons above, the nbound movement to the storage pant of the un-
marketabe coa and the subsequent movement of such coa to the
preparaton pant for fna processng consttute part of the entre
transportaton movement of the coa from the mne to the preparaton
pant wthn the meanng of secton 1 3.13 (b) of Reguatons 113, and
are not sub|ect to the ta on the transportaton of coa. The ta w
attach to the frst subsequent transportaton for hre of the marketabe
coa from the preparaton pant
Where a coa company devers to a carrer a quantty of unmarket-
abe coa for transportaton to a storage pant from whch the coa
w subsequenty be transported to the preparaton pant, a statement
to the effect that the coa s n the course of shpment to the prepara-
ton pant for fna processng shoud be endorsed on the b of adng
or other shppng papers. The endorsement w consttute authorty
to the earner not to coect ta wth respect to the transportaton
charges due on such shpment.
R GULATIONS 113, S CTION 1 3.13: Appcaton Rev.Ru. 6 - 63
of ta .
Appcaton of the tar on the transportaton of property Imposed
by secton 3 75 of the Interna Revenue Code of 1039 to pck-up
and devery servces performed by truckers under agreements wth
produce companes.
Advce s requested concernng the appcaton of the ta on the
transportaton of property mposed by secton 3 75 of the Interna
Revenue Code of 1939 wth respect to servces furnshed by truckers
n the foowng stuatons.
(1) A trucker s engaged, not as an empoyee, by a company whch
operates a produce house to pck up produce from farmers for de-
very to the company s pace of busness. Generay, the purchase
of the produce to be pcked up has been contracted for by the company.
In some nstances, however, persons havng produce for sae are ocated
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25 . RA gs. 113, 1 3.13.
by the trucker who makes purchases of the produce at prces stpuated
by the company. Payment for the produce s made by the trucker
on the company s checks at the tme the produce s pcked up. The
company pays the trucker varabe predetermned rates for hs hau-
ng servces based on the nature of the produce and the dstance t s
haued. The trucker bears no responsbty for oss occasoned by
market fuctuatons and reazes no addtona proft from purchases
he makes for the company on hs own ntatve. He s the owner-
drver of the vehce used and furnshes property, pubc abty and
cargo nsurance, censes, permts, and gas and o for the mantenance
of the vehce.
(2) A trucker pursuant to an agreement wth a produce company
devers to the company produce whch he purchases from farmers on
checks of the produce company. Pror to each trp the company
stpuates the devered prce t w pay for the produce. The trucker
ocates the farmers who have produce for sae and makes the purchases
nt prces he agrees upon wth the farmers. The compensaton to the
trucker for hs servce s based soey on the proft he can reaze by
purchasng the produce at a prce ess than the devered prce
stpuatcduy the produce company.
The ta mposed by secton 3 75 of the Code appes to amounts
pad to a person engaged n the busness of transportng property for
tre. It s payabe by the person makng the ta abe transportaton
payment and s coectbe by the person recevng such payment.
It s hed that snce under the crcumstances ndcated n stuaton
(1) above, the trucker receves payment from the produce company
for hs servces on the bass of predetermned rates f ed by the nature
of the produce haued and the dstance t s haued, he s engaged
n the busness of transportng property for hre wthn the mean-
ng of secton 3 75 of the Code, and the amounts pad to hm by the
produce company for hs servces are sub|ect to the ta mposed by that
secton.
It s further hed that snce under the crcumstances ndcated n
stuaton (2) above, the compensaton to the trucker for hs servces
s based soey on the proft he can reaze by purchasng the produce
at a prce ess than the devered prce stpuated by the produce
company, he s engaged n the busness of buyng and seng produce
for proft rather than n the busness of transportng produce for
hre. Accordngy, amounts receved by the trucker for the servces
descrbed n stuaton (2) are not sub|ect to ta on the transportaton
of property.
R GULATIONS 113, S CTION 1 3.13: Appcaton Rev. RuL 5 - 91
of ta .
The tar Imposed by secton 3 75 of the Interna Revenne Cods
of 103 appes to charges for vacaton pay of a carrer s truck
drvers nnd hepers made hy a carrer to a shpper In connecton wth
the renta of trucks wth the servces of drvers and hepers to trans-
port the shpper s property. The ta Imposed by that secton aso
appes to charges mad by a carrer for oadng a shpper s property
on the carrer s trucks Ue nght before the property Is transported
by the carrer.
Advce s requested concernng the appcaton of the ta on the
transportaton of property mposed by secton 3 75 of the Interna
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Regs. 113, 1 3.13. 26
Revenue Code of 1939 to charges made by a carrer to a shpper for
vacaton pay of ts truck drvers and hepers and for manpower to
oad a shpper s property on the carrer s trucks the nght before
devery.
In the nstant case the carrer furnshes the shpper trucks wth
drvers and hepers to transport property for the shpper. The carrer
charges an houry rate for the use of the trucks and the servces of the
drvers and hepers. In addton, the carrer makes a separate charge
to the shpper for vacaton pay of the truck drvers and hepers. The
carrer aso makes a separate charge for manpower to oad the shp-
per s property on the trucks the nght before the property s devered.
The ta mposed by secton 3 75 of the Code appes to amounts pad
for the transportaton of property by ra, motor vehce, water, or
ar from one pont n the Unted States to another and for accessora
servces furnshed n connecton therewth, such as oadng, unoadng,
handng, and smar servces. See secton 1 3.1 (d) of Regua-
tons 113.
An amount pad for the use of a truck and the servces of a drver
for transportng property s ta abe as an amount pad for the
transportaton of property under secton 3 75 of the Code. (See
M. T. 9, C. B. 19 3,1159.)
Charges made by a carrer to a shpper for vacaton pay of the
carrer s truck drvers and hepers represent e penses of the nature
generay ncurred by motor carrers and ordnary refected n ther
estabshed transportaton rates. The charges made for vacaton pay
consttute part of the amounts pad for the use of a truck and the serv-
ces of a drver. Accordngy, t s hed that where for any reason such
e pense tems are not ncuded n a snge transportaton charge but
are stated separatey, the amount so stated separatey must be ncuded
n (or added to) the transportaton charge for the purpose of the ta
mposed by secton 75 of the Code.
It s further hed that the oadng by the carrer of a shpper s prop-
erty on the carrer s trucks the nght before the property s transported
by the carrer s an accessora servce furnshed by the carrer n
connecton wth the transportaton movement. Accordngy, the ta
appes to the charge made by the carrer for ths oadng servce
wnether or not such charge s ncuded n, or s bed separatey from,
the charge for the transportaton movement proper.
Reguatons 113, Secton 1 3.13: Appcaton Re . Ru. 5 -5 1
of ta .
Amounts pad by a parent corporaton to ts subsdary, a carrer,
for the transportaton of petroeum products of the parent corpora-
ton are sub|ect to ta on the transportaton of property Imposed
by secton 3 75 of the Interna Revenue Code of 1030.
Advce s requested concernng the appcaton of the ta on
the transportaton of property mposed by secton 3 75 of the Interna
Revenue Code of 1039, to amounts pad by a parent corporaton to ts
subsdary for transportaton servces performed for the parent cor-
poraton.
In the nstant case, a corporaton engaged n the busness of trans-
portng petroeum products for varous o companes, aso transports
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27 Reg . 113, 1 3-20.
petroeum products for ts parent corporaton, for whch a charge s
made.
Secton 3 75 of the Code mposes a ta , wth certan e ceptons not
here appcabe, upon amounts pad for the transportaton of property
by ra, motor vehce, water or ar from one pont n the Unted states
to another, to a person engaged n the busness of transportng prop-
erty for hre.
Secton 1 3.1 of Reguatons 113 defnes the term person engaged n
the busness of transportng property for hre as ncudng a common
carrer, contract carrer, oca movng or drayage concern, freght for-
warder, e press company, or other person transportng property for
hre whoy or n part by ra, motor vehce, water, or ar.
Secton 1 3.13 of Reguatons 113 provdes, n part, that the ta
appes to any payment, not specfcay e empted, for the transporta-
ton of property, made to a person engaged n the busness of trans-
portng property for hre.
It s hed that snce a parent corporaton and ts subsdary are sepa-
rate ega enttes the transportaton by the subsdary o property
of ts parent corporaton does not consttute transportaton by the
subsdary of ts own property. or ths reason, and snce amounts
pad by a parent corporaton to ts subsdary for the transportaton
of property are not specfcay e empted from the ta , amounts pad
n the nstant case by the parent company to ts subsdary for the
transportaton of petroeum products of the parent corporaton are
sub|ect to the ta mposed by secton 3 75 of the 1939 Code.
Reguatons 113, Secton 1 3.1 : Accessora Rev. Ru. 5 -29
and other msceaneous charges.
The servce of coectng c o. d. charges s not consdered to be
accessora to a transportaton movement and fees pad for such
servce, f shown separatey from the transportaton charges on the
b rendered by the carrer, are not sub|ect to the ta on the trans-
portaton of property mposed by secton 3 75 of the Interna Revenue
Code.
Reguatons 113, Secton 1 3.20: Unted States Rev. RuL 5 -362
Government: Genera provsons.
The ta on the transportaton of property mposed by secton 3 75
of the Interna Revenue Code appes to charges for demurrage and
other accessora servces, ony f such servces are furnshed n con-
necton wth a ta abe transportaton movement. Pursuant to sec-
ton 307(c) of the Revenue Act of 19 3 the Secretary of the Treasury
authorzed e empton from ta of charges pad wth respect to the
transportaton o property to or from the Government of the Unted
States shpped on Unted States Government bs of adng. (See
authorzaton of the Secretary of the Treasury, C. B. 19 7-2, 211.)
Accordngy, demurrago or other accessora charges ncurred n con-
necton wth shpments of property to or from the Government of the
Unted States on Unted States Government bs of adng are not
SS3510 A 6 2
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Regs. 09, 312. 00. 2
I
sub|ect to ta on the transportaton of property. See aso Revenue.
Rung 5 -1 3, C. B. 195 -1,27
Reguatons 113, Secton 1 3.53: tenson of
tme.
tenson of tme for fng returns and makng payments of ta on
transportaton of property. See Rev. Ru. 5 -361, page 1 .
CHAPT R 31DOCUM NTS AND OTH R
INSTRUM NTS
S CTION 3 2. CON YANC S
Reguatons 71, Secton 113. 3: Conveyances Rev. Ru. 5 -363
sub|ect to ta .
A mortgage debt, representng a en on the property of a dssovng
corporaton, whch s assumed by the stockhoders n the dssouton,
consttutes a part of the consderaton for the purpose of the deed
ta under secton 3 2 of the Interna Revenue Code. However,
snce the mortgage assumed by the stockhoders consttutes a contnu-
ng en whch s not removed by the conveyance, the amount thereof
may be e cuded, as specfcay provded n secton 3 2, supra, n de-
termnng the net ta abe consderaton for conveyance ta purposes.
Whether the mortgage debt s or s not the persona obgaton of the
dssovng corporaton s not a matera factor.
CHAPT R 32. SUGAR
SUBCHAPT R AMANU ACTUR
S CTION 3 9 . US AS LI STOC D OR OR DIS-
TILLATION O ALCOHOL
Reguatons 99, Secton 312. 00: ng of Rev. Ru. 5 - 15
cams.
The provsons of secton 3 9 of the Interna Revenue Code of
1939 reatng to refund of ta pad wth respect to manufactured
sugar used as vestock feed, or In the producton of vestock feed,
are appcabe ony to ta pad under secton 3 90 of the Code, wth
respect to manufactured sugar manufactured In the Unted States.
No refund s aowabe under secton 3 9 of tbo Code of ta pad
under secton 3500 of the Code wth respect to sugar Imported for
use In the producton of vestock feed.
Advce s requested whether refund s aowabe under secton 3 9
of the Interna Revenue Code of 1939 of ta pad under secton 500
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29 3692.
of the Code on sugar mported for use n the producton of vestock
feed.
Secton 3 90(a) of the Code provdes that there sha be eved,
coected and pad a ta . to be pad by the manufacturer, upon manu-
factured sugar manufactured n the Unted States.
Secton 3 9 (a) of the Code provdes that upon the use of any
manufactured sugar, or artce manufactured therefrom, as vestock
feed, or n the producton of vestock feed, there sha be pad by the
Commssoner to the person so usng such manufactured sugar, or art-
ce manufactured therefrom, the amount of any ta pad under secton
3 90 of the Code wth respect thereto.
Secton 3500 of the Code provdes that n addton to any other ta
or duty mposed by aw, there sha be mposed a ta upon manu-
factured sugar, or artces composed n chef vaue of manufactured
sugar, mported or brought nto the Unted States.
The provsons of secton 3 9 of the Interna Revenue Code, reat-
ng to the refund of ta pad wth respect to manufactured sugar used
as vestock feed, or n the producton of vestock feed, are appcabe
ony to ta pad under secton 3 90 of the Code, wth respect to manu-
factured sugar manufactured n the Unted States. Accordngy, no
refund s aowabe under secton 3 9 of the Code of ta pad under
secton 3500 of the Code wth respect to sugar mported for use n the
producton of vestock feed.
When sugar, whether raw or refned, s mported nto the Unted
States, a decaraton must be made as to whether t s beng mported
for the purpose of beng further refned, or for some other purpose.
If t s beng mported for any purpose other than to be further
refned as, for e ampe, for use n the producton of vestock feed,
t s sub|ect to the ta mposed by secton 3500 of the Code, whch
ta s coected by the Bureau of Customs.
CHAPT R 36. COLL CTIONS
SUBCHAPT R (DISTRAINT
S CTION 3692. L Y
Rev. Ru. 5 -257
Ad automobe or other persona property dsposed of by a deta-
qnent ta payer after notce of a edera ta en baa been propery
Ded may bo sezed from a tbrd party and sod under a warrant for
dstrant, provded such property can be Identfed as property cov-
ered by the en.
Advce s requested whether an automobe or other persona prop-
erty dsposed of by a denquent ta payer after notce of a edera ta
en has been propery fed may be sezed from a thrd party and sod
under a warrant for dstrant n satsfacton of the denquent s ta
abty.
Secton 3670 of the Interna Revenue Code provdes that f any
person abe to pay any ta negects or refuses to pay the same after
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I 3692. 30
demand, the amount sha be a en n favor of the Unted States upon
a property and rghts to property, whether rea or persona, beong-
ng to such person. Secton 3672 of the Code, as amended, contem-
pates that the fng of a notce of nterna revenue ta en wth the
proper authortes makes the en vad aganst any subsequent mort-
gagee, pedgee, purchaser, or |udgment credtor. Thus the notce of
ta en, when propery fed, becomes a matter of pubc record, and
the en s a charge on the property of the ta payer.
Secton 3C90 of the Interna Revenue Code grants the Coector (now
Dstrct Drector) or hs deputy authorty to coect denquent ta es
by dstrant and sae of the denquent ta payer s property wth the
e cepton of certan property specfcay enumerated n secton 3091
of the Code. Secton 3692 of the Code provdes as foows:
In case of negect or refusa under secton 3090, the coector may ery, or by
warrant may authorze a deputy coector to evy, upon a property and rghts to
property, e cept such as are e empt by the precedng secton, beongng to such
person, or on whch the en provded n ecton SG7U c st, for the payment of
the sum due, wth Interest and penaty for nonpayment, and aso of such further
sum as sha be suffcent for the fees, costs, and e penses of such evy. Itacs
supped.
In Osterherg v. Unon Trust Co., 93 U. S. 2 , at 2 , n connecton
wth the forecosure of mortgages on raroad property to secure the
payment of bonds (where the purchaser was doned the rght to have a
porton of hs bd apped n payment of State ta es whch were a sub-
sstng en on the property at the date of the decree of forecosure, for
the reason that he took the property sub|ect to the en for ta es on the
caveat emptor prncpe), the Court sad that a en for ta es attaches
to the res wthout regard to ndvdua ownershp, and when t s en-
forced by sae pursuant to the statute prescrbng the mode of assessng
and coectng ta es, the purchaser takes a vad and unmpeachabe
tte, (Rea property, franchses, etc., were nvoved n makng ts
statement, the Court dd not draw or ndcate a dstncton between rea
and persona property.)
The foowng facts were nvoved n Raston v. Hener, 21 ed. (2d)
9 . A notce of en for ta es had been fed aganst the owner of
certan dstery property. Thereafter, pantff bought the property
at a sherff s sae on e ecuton of a |udgment. The coector then
attempted to seze the property under a warrant for dstrant, and the
pantff sought to restran hm on the theory that the sherff s sae d-
vested the property of the ta en. In dsmssng the b of compant,
the court sad:
True, no ta was assessed aganst the pantff bnt he acqnred property sub|ect
to a ta en. The dstery, the operaton of whch gave rse to the ta In ques-
ton, came nto bs hands. So far as that property Is concerned be takes the pace
of the ta payer
On pantff s appea, the Unted States Crcut Court of Appeas for
the Thrd Crcut affrmed, 2 ed. (2d) 16, the |udgment of the
dstrct court dsmssng the b of compant, sayng: The fact that
the present pantff s the successor n tte to the ta payer does not
put hm on any hgher pane than the ta payer, or confer any rghts
the atter dd not have. Pantff s appcaton for a wrt of certor-
ar was dened, 277 U. S. 60 , by the Unted States Supreme Court,
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31 Regs. 11 , 39.37SO-1.
The same reasonng woud appear to appy to a sae of persona
property, such as an automobe, after a en for ta es has attached,
rrespectve of whether the sae was by the owner or a sherff. The
buyer coud and shoud have searched the oca records for possbe
ens aganst persona property, and not havng done so, he cannot
compan. If ths were not so and f the ta en were dvested by a
sae, an easy method woud be provded by whch ta payers coud
dspose of tncr persona property and avod payment of ta es. In
other words, f the en dd not foow the property, no advantage
woud be ganed by fng notce of t.
The edera en statute makes no dstncton between rea and
persona property n provdng that a ta en sha not be vad as
aganst a mortgagee, pedgee, purchaser, or |udgment credtor unt
notce thereof has been fed for record wth the snge e cepton of
provdng that even though notce has been fed, the en sha not
bo vad aganst securtes, as defned n the statute, f they are acqured
by such persons for vaue and wthout notce or knowedge of the
e stence of the ta en. See secton 3672 of the Interna Revenue
Code, as amended. After notce s propery fed, the en s vad
as to other persona property as aganst subsequent mortgagees,
pedgees, purchasers, or |udgment credtors, and t foows the prop-
erty nto ther hands. In other words, they take the property sub|ect
to the en.
The courts have not hed that the summary process of dstrant
and sae of persona property to effect the coecton of ta es s
unavaabe where the property comes nto the hands of a person
other than the ta payer. In fact, as set forth heren, secton 3C92
of the Interna Revenue Code specfcay authorzes a evy on prop-
erty on whch the ta en e sts. urthermore, secton 3G93 of the
Code provdes that an account of the property sezed sha be eft
wth the owner or possessor of the property, together wth a notce
of the tme and pace of sae, whch tme s ted up wth the date of
notfcaton to the owner or possessor of the property.
In vew of the foregong, t s hed that an automobe or other
persona property dsposed of by a denquent ta payer after notce
of a edera ta en has been propery fed may be sezed from a
thrd party and sod under a warrant for dstrant, provded such
property can be dentfed as property covered by the en.
CHAPT R 37. ABAT M NTS, CR DITS, AND R UNDS
S CTION 37 0. T NTATI CARRYBAC
AD USTM NTS
Reguatons 11 , Secton 39.37 0-1: Tentatve
carryback ad|ustments.
Amended appcatons for tentatve carryback ad|ustments after
the enactment of the Interna Revenue Code of 195 . See Rev. RuL
6 -3GG, page 30.
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Regs. 11 , 39.3 01 (a) ()-. 32
CHAPT R 3 -MISC LLAN OUS PRO ISIONS
S CTION 3797.-D INITIONS
R GULATIONS 11 , S CTION 39.3797- : Partnershps.
Partnershp composed of an organzaton e empt from ncome ta
under secton 101(6) of the Interna Revenue Code of 1939 and an
organzaton not so e empt. See Rev. Ru. 51-309, page 30 .
R GULATIONS 11 , S CTION 39.3797- : Partner-
shps.
Treatment for sef-empoyment ta purposes of ncome derved
from a gong busness acqured by a wdow and her mnor chdren
upon the death of the husband. See Rev. Ru. 5 -613, page 269.
R GULATIONS 11 , S CTION 39.3797- : Partner-
shps.
An assocaton of rver pots under an agreement whereby potage
fees are pooed and the net earnngs are dstrbuted among pot mem-
bers of stated bass. See Rev. Ru. 5 -61 , page 271.
R GULATIONS 11 , S CTION 39.3797-5: Lmted
partnershps.
Change n membershp of genera partners n a mted partnershp.
See Rev. Ru. 5 - , page 2 2.
S CTION 3 01. MITIGATION O CT O LIMITA-
TION AND OTH R PRO ISIONS IN INCOM TA
CAS S
R GULATIONS 11 , S CTION 39.3 01 (a) (1) -1: Pur- T. D. 60 3
pose and scope of secton 3 01.
(Aso Sectons 39.3 01 (a) (3)-, 39.3 01(b)-3
39.3 01(b)-7, 39.3 01(b)- , 39.3 01(b)-9,
39.3 01 (b)-10, 39.3 01 (c)-.)
TITL 2 INT RNAL R NU . CHAPT R I. SCBCHAPT B A, PART 9.
INCOM TA TA ABL S ARS B GINNING A T B D C MB R 1. 1931
Reguatons 11 amended to conform to secton 211 of the Techn-
ca Changes Act of 1053.
TR ASURY D PARTM NT,
O IC O COMMISSION R or INT RNAL R NU ,
Washngton A 5, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On ebruary 1 , 195 , a notce of proposed ruemakng wth re-
spect to amendment of Reguatons 11 (26 C R, pt 39), to conform
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33 Regs. 11 . 39.3 01(a) (1 -I.
to secton 211 of the Technca Changes Act of 1053 C B 1953-2,
5 , was pubshed n the edera Regster (19 . R. 9 1). Snce
no comments wth respect to the rues proposed have been receved,
the amendments to Reguatons 11 set forth beow are hereby
adopted:
Paragraph 1. Secton 39.3 01(a) (1)-1 s amended to read as
foows:
Sko. 30.3 01(a) (1)-1. Porpohb and Score or Secton: 3 01. Secton SSO
provdes for correcton of te effect of certan ty cs of errors specfed In secton
3 01(b), when one or more provsons of the Interna revenue aws, such as the
stntute of mtatons, woud otherwse prevent such correcton. Correctons
are authorzed under sectons 01(b)(1) to 3S01(b)(5), Incusve, ony when
the Commssoner, If the correcton woud resut In an aowance of a refund
or credt for the year wth respect to whch the error was made, or the ta -
payer. If the correcton woud resut In an addtona assessment for such year,
has mantaned a poston Inconsstent wth the error. Correctons are au-
thorsed under sectons SS01 (b) (0) and 3S01 (b) (7) wthout regard to the nante-
nnnre of an Inconsstent oston. No correcton Is permssbe under sectons
3 01 (b)(1) to 3 01(b) (5), Incusve, uness the nconsstent poston Is adopted
by a determnaton made on or after August 27, 193 , or under sectons
3 01 (b) (0) and 3S01(b) (7) uness the determnaton became fna after May 31,
19u2. The provsons of secton 3 01 nnd of the reguatons promugated under
such secton sha not appy to any ta Imposed by chapter 9, reatng to
empoyment ta es.
Par. 2. Secton 39.3 01 (a) (3)- s amended by revsng the second
sentence to read as foows:
The concept of reated ta payer has appcaton ony to secton 3501(b)(1),
(2), (3), ( ), (0), or (7), and docs not appy to secton 3S01 (b)(5).
ar. 3. Secton 39.3 01 (b) s amended as foows:
(A) By strkng transacton from secton 3 01(b) (5) and n-
sertng n eu thereof transacton or
(I) By nsertng after secton 3 01 (b) (5) the new paragraphs
6) and (7) as added by secton 211 (a) of the Technca Changes
ct of 1953
(C) By strkng Such from the second sentence of secton 3 01 (b)
and nsertng n eu thereof cept n cases descrbed n para-
graphs (6) and (7), such and
(D) By nsertng at the end of the secton a hstorca note read-
ng Sec. 3S01(b), as amended by sec 211 (a) and (b), Technca
Changes Act 1953 . As amended, secton 39.3 01(b) w read as
foows:
Sec. 9.3 01(b). Statutobt Provsons Mtoaton or ffect of
Lmtaton and Other Provsons h Income Ta Cases Crcum-
stances or Ad|ustment.
S C. 3 01. MITIGATION O CT O LIMITATION AND
OTH R PRO ISIONS IN INCOM TA CAS S.
(b) Crcumstances or Ad|ustment. When a determnaton under
the Income ta aws
(1) Requres the ncuson In cross Income of an tem whch
was erroneousy Incuded In the gross ncome of the ta payer for
another ta abe year or In the gross ncome of a reated ta payer
or
(2) Aows a deducton or credt whch was erroneousy aowed
to the ta payer for another tn nbo year or to a reated ta payer or
(3) Requres the e cuson from gross Income of an Item wth
respect to whch ta was pad and whch was erroneousy e cuded
or omtted from the gross Income of the ta payer for another ta -
abe year or from the gross ncome of a reated ta payer or
(
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Regs. 11 , 39.3 01(a)()-. 3
( ) Aows or dsaows any of the addtona deductons aow-
abe In computng the net Income of estates or trusts, or requres
or denes any of the Incusons In the computaton of net Income of
benefcares, hers, or egatees, specfed n secton 102 (b) and
(c) of chapter 1, and correspondng sectons of pror revenue Acts,
and the correatve ncuson or deducton, as the case may be, has
been erroneousy e cuded, omtted, or ncuded, or dsaowed,
omtted, or aowed, as the case may be, n respect of the reated
ta payer or
(5) Determnes the bass of property for depeton, e hauston,
wear and tear, or obsoescence, or for gan or oss on a sae or
e change, and n respect of any transacton upon whch such bass
depends there was an erroneous Incuson n or omsson from the
gross ncome of, or an erroneous recognton or nonrecognton of
gan or oss to, the ta payer or any person who acqured tte to
such property n such transacton and from whom medatey or
mmedatey the ta payer derved tte subsequent to such trans-
acton or
(0) Dsaows a deducton or credt whch shoud have been
aowed to, but was not aowed to, the ta payer for another ta abe
year, or to a reated ta payer but ths paragraph sha appy ony
f (A) the determnaton became fna on or after une 1, 10.72,
and (B) credt or refund of the overpayment attrbutabe to the
deducton or credt whch shoud hnve been aowed to the ta payer
or reated ta payer was not bnrred, by any aw or rue of aw, at
the tme the ta payer frst mantaned before the Secretary or the
Ta Court of the Unted States, n wrtng, that he was entted
to such deducton or credt n the ta abe year for whch t s so
dsaowed or
(7) Requres the e cuson from gross Income of an tem whch
s ncudbe In the gross Income of the ta payer for another ta -
abe year or n the gross Income of a reated ta payer but ths
paragraph sha appy ony f (A) the determnaton became fna
on or after une 1, 1052, and (B) assessment of defcency under
secton 272(a) by the Secretary for such other ta abe year or
rmnr.st such reated ta payer was not barred, by any aw or rue
of aw, at the tme the Secretary frst mantaned n a notce of
defcency sent pursuant to secton 272(a) or before the Ta Court
of the Unted States, that such tem shoud be Incuded In the gross
Income of the ta payer for the ta abe year to whch the determna-
ton reates and, on the date the determnaton becomes fna,
correcton of the effect of the error Is prevented by the operaton
(whether before, on, or after May 2 , 19:S) of any provson of the
nterna-revenue aws other than ths secton and other than secton
3701 (reatng to compromses), then the effect of the error sha
be corrected by an ad|ustment made under ths secton. cept
n cases descrbed n paragraphs (6) and (7), such ad|ustment
sha be made ony f there s adopted n the determnaton a poston
mantaned by the Commssoner (n case the amount of the ad-
|ustment woud be refunded or credted In the same manner as an
overpayment under subsecton (c)) or by the ta payer wth respect
to whom the determnaton s made (n case the amount of the
ad|ustment woud be assessed and coected n the same manner
as a defcency under subsecton (c)), whch poston s ncon-
sstent wth the erroneous ncuson, e cuson, omsson, aowance,
dsaowance, recognton, or nonrecognton, as the case may be.
In case the amount of the ad|ustment woud be assessed and co-
ected n the same manner as a defcency, the ad|ustment sha not
be made wth respect to a reated ta payer uness he stands In such
reatonshp to the ta payer at the tme the atter frst mantans
the Inconsstent poston n a return, cam for refund, or petton
(or amended petton) to the Board of Ta Appeas for the ta abe
year wth respect to whch tbe determnaton s made, or f such
poston s not so mantaned, then at the tme of the determnaton.
Sec. : S01 (b), as amended by sea 211 (a) and (b), Technca Change
Act 1U53
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35 (Regs. 11 , 39.3 01 (a)()-.
Pah. . Secton 39.3 01(b)-3 (b) s amended as foows:
(A) By nsertng n the s th sentence of ampe (1) mmed-
atey after the word authorzed the foowng: under secton
3 01(b)(3)
(B) By nsertng at the end of ampe (1) the foowng new
sentence:
In ths connecton, however, see secton 3 01(b)(7) and secton 30.3 01 (b)-10
as to crcumstances under whch an ad|ustment Is authorzed even though no
ta has been pad wth respect to the tem tor the ta abe year to whch the
determnaton-reates (19 9 In ths e ampe).
As amended, ampe (1) of secton 39.3 01(b) -3(b) w read as
foows:
Sec. 30.3 01 (b)-3. rroneovb ct.usob| or Item or Gross Income Wth
Respect to Whch Ta Was Pao.
(b) The appcaton of secton 3 01(b) (3) ma be Iustrated by the foowng
e ampes:
ampe (1). A ta payer receved payments In 10 9 under a contract for
the performance of servces and ncuded the payments In hs return for that
year. A cosng agreement was thereafter made wth respect to the tn abty
of the ta payer for WIS. The ta payer subsequenty ted a cam for refund
for the year 10 0, assertng that e kept hs books on the accrua bass and that,
os the payments had accrued In It) 1 , they were propery ta abe In that year.
The cam for refund Is aowed In 1052. An ad|ustment Is authorzed wth
respect to the year 19 . If the ta payer bad not Incuded the payments In any
return and the Commssoner hnd asserted a defcency for 10 0 wth respect to
the payments, and the defcency was not sustaned by The Ta Court of the
Unted States In ts fna decson n 1053, no ad|ustment Is authorzed under
secton 3 01(b)(3) wth respect to the year 10 . Athough the determnaton
requres the e cuson of the tem from gross ncome, no ta had been pad
wth respect thereto. If the ta payer, however, had pad the defcency and
thereafter successfuy sued for refund n court, an ad|ustment Is authorzed.
In ths connecton, however, see secton 3S01(b)(7) and secton 30.3M)(b)-10
as to crcumstances under whch on ad|ustment s authorzed even thongh no
ta hns been pad wth respect to the Item for the ta abe year to whch the
determnaton reates (10 0 n ths e ampe).

Pah. 5. Secton 39.3 01 (b) -7 s amended as foows:
(A) By strkng the headng and so much of paragraph (a) (1) as
precedes () and nsertng n eu thereof the foowng:
Sec. 39.3S01(b)-7. Mantenance or Inconsstent Poston n CestaM
Cases. (n) Ad|ustments resutng n addtona assessments. (1) An ad|ust-
ment under sectons 3S01(b)(1) to 3 01(b)(5), ncusve, whch woud resut
n an addtona assessment s authorzed ony f
(B) By amendng the frst sentence of paragraph (a)(2) to read
as foows:
An ad|ustment under sectons 3 01 (b) (1) to 3 01(b) (5), ncusve, whch woud
resut In an addtona assessment Is not authorzed f the Commssoner and not
the ta payer, has mantaned such Inconsstent poston.
(C) By strkng so much of paragraph (b) (1) as precedes B()
and nsertng n eu thereof the foowng:
(b) Ad|ustment resutng In refund or credt. (1) An ad|ustment under
sectons 3 01(b) (1) to 3 01(b) (6), Incusve, whch woud resut n the aow-
ance of a refund or credt Is authorzed ony f
(D) By amendng the frst sentence of paragraph (b) (2) to read
as foows:
An n|usnent under sectons R01 (b) (1) to 3 01(b) (5), ncusve, whch wrnd
resut n the aowance of a refund or credt Is not authorzed If the ta payer
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Regs. 11 , A 39.3 01(A)(1)-1. 36
w:h respect to whom the determnaton Is made, and not the Commssoner, has
mantaned such Inconsstent poston.
As amended, secton 39.3 01(b)-7 (e cusve of the e ampes) w
read as foows:
Sec. 39.3 01 (b)-7. Mantenance or Inconsstent Poston n Certan
Cases. (a) Ad|ustments resutng n addtona assessments. (1) An ad|ust-
ment nnder sectons 01(b)(1) to 01(b)(0), ncusve, whch woud resut
In an addtona assessment Is authorzed ony If (1) the ta payer, wth respect
to whom the determnaton Is made, has, In connecton therewth, mantaned a
poston whch Is Inconsstent wth the erroneous Incuson, e cuson, omsson,
aowance, dsaowance, recognton, or nonrecognton, as the case may be, and
(11) such Inconsstent poston Is adopted In the determnaton.

(2) An ad|ustment under sectons 3 01 (b) (1) to 3 01(b) (S), Incusve, whch
woud resut In an addtona assessment Is not authorzed f the Commssoner
and not the ta payer, has mantaned such Inconsstent poston.

(b) Ad|ustments resutng n refund or credt. (1) An ad|ustment under
sectons 3 01(b)(1) to 3 01(b(S), ncusve, whch woud resut In the aow-
ance of a refund or credt Is authorzed ony If (1) the Commssoner, In con-
necton wth a determnaton, has mantaned a poston whch Is Inconsstent
wth the erroneous Incuson, e cuson, omsson, aowance, dsaowance, recog-
nton, or nonrecognton, as the case may be, and (11) such Inconsstent poston
s adopted In the determnaton.
A
(2) An ad|ustment under sectons 3 01 (b) (1) to 3 01 (b) (6), Incusve, whch
woud resut In the aowance of a refund or credt Is not authorzed If the
ta payer wth respect to whom the determnaton Is made, and not the Com-
mssoner, has mantaned such Inconsstent poston.

Pah. 6. Secton 39.3 01 (b)- (a) s amended to read as foows:
Sec. 39.3 01(b)- . stence or Status or Reated Ta payer at Tme or
the rst Mantenance or an Inconsstent Poston. (a) No ad|ustment by
way of a defcency assessment sha be made under sectons 3 01(b)(1) to
3S01 (b)( ), Incusve, wth respect to a reated ta payer uness the reaton-
shp e sted both In the ta abe year wth respect to whch the error was
sade and at the tme the ta payer wth respect to whom the determnaton
Is made frst mantaned, In the manner descrbed n ths secton, the Incon-
sstent poston wth respect to the ta abe year to whch the determnaton
reates.

Pah. 7. There are nserted mmedatey after secton 39.3 01(b)-
the foowng new sectons:
Sec. 39.3S01(b)-9. Dsaowed Deductons on Credts. (a) Secton
01(b) (0) appes f the determnaton dsaows a deducton or credt whch
shoud have been, ut was not, aowed to the same ta payer for another
ta abe year or to a reated ta payer for the some or another ta abe year.
An ad|ustment Is permtted under secton 3 01(b) (6) ony f such determnaton
became fna after May 31, 1952, and If a credt or refund attrbutabe to such
deducton or credt was not barred by any aw or rue of aw when the ta -
payer frst mantaned In wrtng before the Commssoner or the Ta Court
that he was entted to such deducton or credt for the ta abe year for whch
It Is dsaowed. The ta payer w be consdered to hare frst mantaned
In wrtng before the Commssoner or the Ta Court that he was entted
to such deducton or credt when be frst formay asserts hs rght to such
deducton or credt as, for e ampe, In a return, n a cam for refund, or In
a petton (or amended petton) before the Ta Court
(b) The appcaton of secton 3 01(b) (C) may be Iustrated by the foow-
ng e ampes:
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37 (Regs. 11 , ( 39.3 01 (a) (1)-I.
ampe ( ). The ta payer. A, who computes hs Income by use of the accrua
method of accountng, deducted In hs return for the ta abe year 19 9 an Item
of e pense whch he pad n such year. At the tme A fed hs return for
19 9, the statute of mtatons for 19 3 had not e pred. Subsequent . , the
Commssoner asserted a defcency for 19 9 based on the poston that the
abty for such e pense shoud have been accrued for the ta abe year 19 S.
In 1953, after the perod of mtatons on refunds for 19 S bad e pred, there
was a determnaton by the Ta Court dsaowng such deducton for the
to nbe yenr 19 9. A Is entted to an ad|ustment for the ta abe year I9 S.
However, If such abty shoud have been accrued for the ta abe year 10 .
Instead of 19 , A woud not be entted to an ad|ustment If a credt or refund
wth respect to 19 was aready barred when be deducted such abty for
the ta abe year 19 9.
ampe (S). The ta payer, B, In hs return for 19 camed a deducton
for a chartabe contrbuton. The Commssoner asserted a defcency for such
year contendng that 50 percent of the deducton shoud be dsaowed, snce the
contrbuton was made from communty Income 50 percent of whch was
attrbutabe to H s spouse. The deccney was sustaned by the Ta Court In
1053, subsequent to the perod of mtatons wthn whch B s spouse coud
cam n refund wth respect to 19 S. An ad|ustment Is permtted to B s spouse,
a reated ta payer, snce a refund attrbutabe to a deducton by her of such
contrbuton whs not barred when R camed the deducton.
Sue. 3 ).3S01(b)-10. Requred cuson. (a) Secton 3S01 (b)(7) appes
f the determnaton requres the e cuson from gross Income of an Item whch
Is Incudbe In the gross Income of the same ta payer for another ta abe year
or In the gross ncome of a reated ta payer for the same or another ta abe year.
An ad|ustment under secton 3 01(b)(7) Is permtted ony f such determna-
ton became fna after May 1, 1952. and f assessment of defcency under
secton 272(a) by the Commssoner for such other ta abe yenr or aganst such
reated ta payer was not barred, by any aw or rue of aw, at the tme the
Commssoner frst mantaned n a notce of defcency sent pursuant to secton
272(a) or before the Tn Court, that such Item shoud be Incuded In the gross
ncome of the ta payer for the ta abe year to whch the determnaton reates.
(b) The appcaton of secton 3 01(b) (7) may be ustrated by the foowng
e ampes:
ampe (/). The ta payer, A, who computes hs Income by use of the
accrua method of accountng, performed In 19 servces for whch he receved
payments In 19 and 19 9. He dd not Incude In hs return for ether 19 S or
1019 the payments whch be receved n 19 9. In 1950, the Commssoner sent a
notce of decnecy to A wth respect to the year 19 , contendng that A shoud
have Incuded a of such payments In bs return for that year. A contested
the defcency on the bass that In 19 be had no accrunbe rght to the payments
whch he receved n 19 9. In 195 (after the e praton of the perod of m-
tatons for assessng defcences wth respect to 19 9), the Tn Court sustaned
A s poston. The Commssoner may assess a defcency for 19 9 snce a de-
fcency assessment for that year was not barred when be sent the notce of
defcency wth respect to 19 .
ampe (2). B and C were partners n 19 , each beng entted to one-haf
of the profts of the partnershp busness. Durng 19 , B receved on tem of
ncome whch he treated as partnershp ncome so that hs return for that year
refected ony 50 percent of such Item. C, however. Incuded no part of such
tem In hs return for 19 . In 1950, the Commssoner sent to C a notce of
defcency wth respect to 19 , contendng that hs return shoud have refected
50 percent of such Item for 19 . C contested the defcency on the bass that
such Item was not partnershp ncome. In 1953, after the e praton of the
perod of mtatons for assessng defcences wth respect to 19 , the Ta
Court sustaned C s poston. The Commssoner may assess a defcency aganst
B wth respect to 19 S requrng hm to ncude the entre amount of such Item
In hs Income snce assessment of the defcency was not barred when the
Commssoner sent the notce of defcency wth respect to such tem to C
Par. . Secton 39.3 01 (c) s amended by addng at the end thereof
the foowng:
Sec 211. Mtgaton or ffect of Statute or Lmtatons.
Technca Changes Act of 1953, Approved Auqust 15,1953 .
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Regs. 131, 315.27. 3
(c) mwtvs Date, In any case In whch the determna-
ton referred to In paragraph (0) or (7) of secton 3S01 (b), as amended
by subsecton (a) of ths secton, became fna before the date of the
enactment of ths Act, the one-year perod descrbed In secton 3S01 (c)
sha be e tended to Incude the one-year perod begnnng wth the date
of the enactment of ths Act.
Par. 9. Paragraph (b) of secton 39.3 01 (c)- s amended by n-
sertng at the end of such paragraph the foowng now sentence:
In respect of a determnaton referred to In secton 3 01(b) (0) or 3 01 (b)(7)
whch became fnn before August 15, 1053, the phrase tc date of the determ-
naton , when used In ths secton, sha mean August 15, 1053.
(Ths Treasury Decson s ssued under the authorty contaned n
sec 3791 of the Interna Revenue Code (53 Stat C7 26 U. S. C.
3791).)
O. Gordon Dek,
Actng Commssoner of Interna Revenue.
Approved August ,195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster August 9,195 , : 9 a. m.)
S CTION 3 1 . D NIAL O MPTION UND R S CTION
101(6) IN TH CAS O C RTAIN ORGANIZATIONS AC-
CUMULATING INCOM
Reguatons 11 , Secton 39.3 1 -1: Dena
of e empton under secton 101(6) n the
case of certan organzatons accumuatng
ncome.
Income used to purchase assets of unreated busness. See Rev.
Ru. 5 - 20, page 12 .
D RAL IR ARMS ACT
S CTION 1
Reguatons 131, Secton 315.27: rearm. Rev. Ru. 5 -519
A pastc psto s not consdered a frearm wthn the Intent
of the edera rearms Act even though desgned to e pe a pro-
|ecte by the acton of an e posve snce It Is not consdered a
weapon accordng to the commony accepted defnton of that
term.
Advce s requested whether an ne pensve pastc toy gun desgned
to resembe the German Luger automatc psto s a frearm as denned
by the edera rearms Act.
Secton 1 of the edera rearms Act, 52 Stat 1250, 15 U. S. C.
901, and secton 315.27 of Reguatons 131 defne a frearm as any
weapon, by whatever name known, whch s desgned to e pe a pro-
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39 Regs. 131. I 315.50
|ecte or pro|ectes by the acton of an e posve and a frearm
muffer or frearm sencer, or any part or parts of such weapon.
The psto n queston s an ne pensve pastc toy gun desgned
to resembe the German Luger automatc psto. It operates on the
muzze oadng ba and cap prncpe usng a No. 6 shot as a pro-
|ecte, smar to a BB gun.
Athough ths psto operates on the prncpe of e peng a pro-
|ecte by the e posve acton of an ordnary powder cap, t s not
consdered to bo a weapon accordng to the commony accepted
defnton of that term as an nstrument of offensve or defensve
combat and therefore s not a nrearm under the edera rearms
Act.
S CTION 2
Reguatons 131, Secton 315. 0: Genera. Rev. Ru. 5 -299
Secton 2 of the edera rearms Act, 52 Stat. 1251,15 T . S. C.
002, makes t unawfu for any deaer, e cept a censed deaer, to
transport or shp any frearm n foregn commerce. The shpment of
frearms n foregn commerce woud ncude e portaton and there-
fore a deaer engaged e cusvey n the e portaton of frearms must
be a censed deaer.
S CTIONS 2(a) AND 3(a)
Reguatons 131, Secton 315. 0: Genera.
Remova of frearms from a foregn trade zone for purposes other
than reshpment to a pace not wthn the |ursdcton of the Unted
States. See Rev. Ru. 5 -3 9, page 397.
S CTION
Reguatons 131, Secton 315. 0: Genera Rev. Ru. 5 -300
Secton of the edera rearms Act, 52 Stat 1251, 15 U. S. C.
90 , makes certan e ceptons to the reguatory requrements of the
act for tho procurement of a cense. The secton ncudes a provson
that the act does not appy to the transportaton, shpment, or recept
of any antque or unservceabe frearms, or ammunton, possessed and
hed as curos or museum peces. These e ceptons do not ncude
ersons engaged n the busness of mportng antque or unservceabe
rearms for commerca sae. Accordngy, a person engaged n the
busness of mportng antque or unservceabe frearms for purposes
of commerca sae, as dstngushed from a person mportng and
hodng such frearms soey n hs possesson as curos or museum
eccs, s requred to quafy and obtan a cense as an mporter of
rearms and to mantan approprate records showng acquston and
dsposton of such frearms pursuant to the provsons of the edera
rearms Act and Reguatons 131.
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Begs. 5 (Narcotcs). 0
. S CTION 5
R GULATIONS 131, S CTION 315.6: Penates. . .
Reguatons 131 amended. See T. D. 6093, page 3 .
R GULATIONS 131, S CTION 315.11: orfetures.
Reguatons 131 amended. See T. D. 6093, page 3 .
R GULATIONS 131, S CTION 315.91: Appcaton
for e empton.
Reguatons 131 amended. See T. D. 6093, page 3 .
NARCOTICS
R GULATIONS 5 (NARCOTICS) (NARCOTICS) T. D.
ARTICL S 90, TC.
TITL 2 INT RNAL R NU . CHAPT R I, SUBCHAPT R C. PART 131.
R GULATIONS UND TH HARRISON NARCOTIC LAW. AS AM ND D
Narcotc Reguatons 5 amended to refect a new procedure for the
certfcaton of e empt offcas and te procurement of narcotcs by
such offcas.
TR ASURY D PARTM NT,
O IC or TH COMMISSION R O INT RNAL R NU ,
O IC or TH COMMISSION R or NARCOTICS,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
Narcotc Reguatons 5 (26 C R, Pt, 151), reatng to narcotcs sub-
|ect to the Harrson Narcotc Law, but ony as prescrbed and made
appcabe to the Interna Revenue Code of 1939 by Treasury Decson
C. B. 1939-1 (Part 1), 395 , approved ebruary 11, 1939 (26
C R, Cum. Supp., p. 5 75), are amended as foows:
PARAGRAPH 1. Artce 90 (26 C R 151.90) s amended as foows:
(A) By strkng subparagraph ( ) (26 C R 151.90 (d)), and
(B) By redesgnatng subparagraph (5) (26 C R 151.90 (e)) as
subparagraph ( ) (26 C R 151.90(d)).
PAR. 2. Artce 92 (26 C R 151.92) s amended to read as foows
ART. 92. MILTTART AND NA AL O IC RS. ach offca of the Army, Navy, Ar
orce, Pubc Heath Servce, or Natona Guard, vo Is authorzed to procure
or purchase narcotc drugs or preparatons for offca use sha fe wth the
Dstrct Drector of Interna Revenue for the area n whch such person s off-
cay ocated a certfcate on orm 190 from a superor offca showng the name,
offca address and offca status of the person camng e empton. ach such
certfcate sha be renewed on or before uy 1 of each year. Wth respect to the
procurement of narcotc drugs and preparatons by offcas of the character Ind-
cated, see Artce 9 , entted Procurement of narcotcs. No e empton certf-
cate sha be requred under ths artce for offcas wo ony prescrbe, dspense,
or admnster uarcutc drugs n the course of ther offca dutes.
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1 Regs. 3 (Narcotcs).
Par. 3. Artce 93, as amended by Treasury Decson C. B.
1951-1,1 5 approved November 2 ,1950 (26 C R 151.93), s further
amended to read as foows:
Art. 03. Cv Offcers. ach cv offcer of the Unted States, or the Dstrct
of Coumba, or of any State, Terrtory, or Insuar possesson of the Unted
States, or any county, muncpaty, or other potca subdvson, who Is engaged
In any actvty mentoned In the Act and who cams e empton from regstraton
and ta under the Act, sha fe wth the Dstrct Drector of Interna Revonue
for the dstrct In whch he Is ocated a certfcate on orm 196 from a superor
offca showng the offca status and offca address of the person camng e -
empton and (1) whether he Is to purchase the narcotcs or obtan them from
offca stocks and (2) whether or not the offcer Is to admnster or dspense
narcotcs. ach such certfcate sha be renewed on or before uy 1 of each year
and, e cept In the case of offcas of the Unted States, sha be accompaned by
an Inventory on the reverse sde of orm 19C of the narcotc drugs and prepa-
ratons on hand at the tme the certfcate Is fed.
Pah. . Artce 9 (26 C R 151.9 ) s amended to read as foows:
Art. 9 . Procurement or Narcotcs. (a) When propery notfed, as pro-
vded n Artce 02 reatng to mtary and nava offcers, of the rght of an
offca to e empton wth authorty to purchase narcotcs or, as provded n
Artce 03, of the rght of a cv offcer to e empt status, the Dstrct Drector
of Interna Itevcnuo w assgn to such offca an e empton Identfcaton
number. The same number sha be retaned throughout a the consecutve
perods for whch the offca s entted to e empton. To each such offca
who s certfed to the Dstrct Drector as an authorzed purchaser of narcotcs
(e cept an offca of a cv defense organzaton) w be Issued wthout charge
and wthout addtona request, a book of offca narcotc order banks at the
tme of hs orgna certfcaton. ach order for the purchase of ta abe nar-
cotc drugs by such offca sha be prepared on one of these order banks whch
w be smar to, and w be prepared, fed, fed and otherwse handed In
the same manner as offca opum order forms supped to persons regstered
under the aw. (Sec Chapter , Artces 62 to 00 and the Instructons n the
order book.) Orders for e empt narcotc preparatons (see Artces 2 and 90)
sha not be prepared on such banks but sha be on offca statonery of the
Insttuton or agency for whch they are beng purchased, bearng the e empton
dentfcaton number assgned to the purchasng offca by the Dstrct Drector.
ach order, whether on a bank supped by the Dstrct Drector for ta abe
narcotcs or on the statonery of the agency for e empt narcotc preparatons,
must be sgned by the offca named In the certfcate fed wth the Dstrct
Drector and to whom the e empton Identfcaton number has been assgned.
When an e empt offca Is repaced by another or for any reason s no onger
authorzed to make purchases of narcotcs for the nsttuton or agency for whch
prevousy certfed to the Dstrct Drector, the unused offca order banks
remanng n hs possesson or custody sha not be used by hs successor but
sha be returned to the Dstrct Drector for canceaton, and new forms w
be Issued to the successor. After usng the forms n the frst book Issued to hm,
an offca can procure addtona banks wthout charge by makng appcatoa
on orm 070, a copy of whch Is paced n each book of forms Issued.
(b) The e empt status of an offca of a cv defense organzaton w be
recognzed ony durng a state of cv defense emergency procamed by the
Presdent or by concurrent resouton of the Congress as provded by aw. Such
offcas w not procure narcotcs through the use of offca nterna revenue
order forms but sha use an order form approved by the edera Cv Defense
Admnstraton. The order form sha bear the sgnature, tte, offca address,
and e empton dentfcaton number of the person e ecutng the form, and w
otherwse be handed In the manner prescrbed for offca Interna revenue order
forms.
(c) If an offca s engnged In a prvate busness or prvatey practces a
professon In whch narcotcs are manufactured, produced, compounded, sod,
deat In, dspensed, prescrbed, admnstered, or gven away, such offca sha
regster and pay the speca ta for such prvate actvty, and the narcotc drugs
for such prvate purposes sha be secured upon reguar order forms purchased
under such regstraton.
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Regs. 5 (Narcotcs).) 2
PAR. 5. Artce 95 (26 C R 151.95) s amended to read as foows:
A T. 5. PR SCRIPTIONS. (a) Prescrptons for narcotc drags and prepara-
tons Issued by e empt offcas as such, In the coarse of offca medca treat-
ment of persons entted to such offca medca treatment, sha be prepared on
offca banks If such banks are provded, or otherwse on offca statonery, and
fu- bear the sgnature, tte, offca address and e empton Identfcaton num-
ber of the person by whom e ecuted. In the case of persons e empt under
Artce 02 to whom no e empton Identfcaton number has been ssued, the
prescrpton sha bear, n eu of the e empton dentfcaton number, the corps
and |acket or sera number of the ssung offcer. Such prescrptons Issued n
the course of offca professona practce ony and otherwse meetng the re-
qurements of the reguatons In ths part may be fed by a duy regstered
druggst athough they do not bear a regstry number of the Issung practtoner.
(b) Ths procedure sha not appy In the cose of prescrptons wrtten by
nn e empt offca In the treatment of a prvate patent, I. e., a pntent not entted
to receve medca treatment from the physcan n the course of the atter s
of u dutes. In prescrbng and dspensng narcotc drugs to such prvate
persons, the offcer Is sub|ect to a the requrements of the edera narcotc
Inw, Incudng regstraton and payment of ta , as are mposed upon other
physcans conductng prvate medca practce.
PAR. 6. Artce 96 (26 C 151.96) s amended by nsertng the
foowng new sentence after the frst sentence thereof:
In tme of a cv defense emergency, the edera Cv Defense Admnstra-
ton order form may, n addton, be fed by oca estabshments, such as reta
stores, and from edera sources.
Because the purpose of ths Treasury Decson s merey to change
the procedure to be foowed by Government and State offcas n
appyng for e empton and n procurng narcotcs, t s found unneces-
sary to ssue ths Treasury Decson wth notce and pubc procedure
thereon under secton (a) of the Admnstratve Procedure Act,
approved une 11, 19 6, or sub|ect to the effectve date mtaton or
secton -1 (c) of sad Act.
Ths Treasury Decson sha be effectve on the frst day of the frst
month whch commences more than 60 days after pubcaton n the-
edera Regster.
(Ths Treasury Decson s ssued under the authorty contaned
n sec. 2551, 2559, 2606, and 3222 of the Interna Itcvcnuo Codo of
1039 (53 Stat 270,277,2 3, 3 20 U. S. C. 2551, 2559,2600, 3222).)
O. GORDON D L ,
Actng Commssoner of Interna Revenue.
H. . ANSLINC R,
Commssoner of Narcotcs.
Approved November 2 ,195 .
M. B. oLsosr,
Actng Secretary of the Treasury.
(Pubshed In the edera Regster November SO, 105 )
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:::-: r
PART n
ALCOHOL TA RULINGS AND D CISIONS
SUBPART A RULINGS AND D CISIONS UND R TH
INT RNAL R NU COD O 195
Rungs and decsons pubshed n Part III, Subpart A, of the In-
terna Revenue Buetn are based on the appcaton of provsons
of the Interna Revenue Code of 195 and, uness otherwse noted
theren, are pubshed wthout consderaton as to any appcaton
of the provsons of the Interna Revenue Code of 1939, the edera
Acoho Admnstraton Act, or reated pubc aws.
S CTION 5022. TA ON CORDIALS AND LI U URS
CONTAINING WIN
Rev. Ru. 5 -605
New formuae for cordas, queurs, and smar compounds con-
tanng wne (Incudng vermouth) of an acohoc content In e cess
of 1 percent by voume must be submtted for approva to refect the
correct ta rate for such products appcabe on and after anuary 1,
1955, under the Interna Revenue Code of 193 .
Advce has been requested whether the requrements of secton
190.050 of Reguatons 15, wth respect to the ta payment of cordas
and queurs nndo n part wth ta pad vermouth, w be appcabe
after anuary 1, 1955, when tho Interna Revenue Codo of 195 be-
comes generay on ctvo wth respect to acoho ta es.
Secton 190.605 of Reguatons 15 provdes n part that where ta -
pad vermouth s m ed wth dsted sprts or other quors n
the manufacture of a corda, queur, or smar compound, such
corda, queur, or smar compound w be sub|ect to the rectfca-
ton ta of 30 cents per proof gaon, but w not be ta abe at the
wne ta rate uness t contans fortfed wne n addton to that used
n tho manufacture of tho ta pad vermouth.
Secton 5022 of tho Interna Rovenuo Codo of 195 provdes as
foows:
On a queurs, cordas, or smar compounds produced In the Unted
States and not sod as wne, whch contan more than 2 percent by voume of
wne of an acohoc content In e cess of 1 percent by voume (other than
botted cocktas), there sha be pad, In eu of the ta Imposed by secton 0021,
a ta at the rate of 1.92 per wne gaon and a proportonate ta at a ke rate on
a fractona ports of such wne gaon unt Apr 1, 1935, and on or after
Apr 1, 1955, at the rate of 1.00 per wne gaon and a proportonate ta at a
ke rate on a fractona parts of such wne gaon. A other provsons of aw
appcabe to rectfcaton sha appy to the products sub|ect to ta tnder ths
secton.
3351 53 29 ( 3)
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Regs. 1 , 192. 1.
ffectve anuary 1, 1955, the rate of ta appcabe to cordas,
queurs, and smar compounds, other than those cassfed and sod
as wne or botted cocktas, whch contan more than 2y2 percent of
any type of wne of an acohoc content n e cess of 1 percent by
voume w be sub|ect to ta at the rate of 1.92 per wne gaon.
Products sub|ect to the corda rate w not be sub|ect to the rectf-
caton ta of 30 cents per proof gaon.
The provsons of secton 190.505 of Reguatons 15 w be revoked
by the reguatons to be ssued under the Interna Revenue Code of
195 .
New formuae for cordas, queurs,,and smar compounds con-
tanng wnes (ncudng vermouth) of an acohoc content n e cess
of 1 percent by voume must be submtted for approva to the appro-
prate Assstant Regona Commssoner, Acoho and Tobacco Ta ,
before anuary 1, 1955, snce e stng formuae w not refect the
correct ta rate for such products on and after anuary 1,1955.
S CTION 52 3(c). BOTTLING O DISTILL D SPIRITS
IN BOND: TRAD MAR S ON BUTTL S
Reguatons 10, Secton 1 5.93 : Trade marks Rev. Ru. 5 -5 3
and dster s name.
(Aso Part III-B, Secton 2903(g).)
Secton 52 3(c) of the Interna Revenue Code of 195 (secton
2903(g) of the 1939 Code) and secton 1 5.93 of Reguatons 10
provde that no trade mark sha be put upon any botte of dsted
sprts botted n bond uness the rea name of the actua bona fde
dster, or the name of the ndvdua, frm partnershp, corpora-
ton, or assocaton, n whose name the sprts were produced and
warehoused, sha aso be paced conspcuousy on such botte. Hed,
where sprts to be botted n bond are produced and warehoused under
a trade name, both the dster s rea name and the trade name, n
equa promnence may appear on the abe, e. g., Dsted by __-. Co., d. b. a _
S CTION 5 11. US O BR W RY
Reguatons 1 , Secton 192.31: Use of brew- T. D. 6092
ery premses.
(Aso Secton 192.32.)
TITL 2 INT RNAL R NU . CHAPT R I, bCBCHA T R C, PART 102.
RM NT D MALT LI UORS
Authorty for use of brewery premses for producton and bottng
of soft drnks.
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5 Regs. 1 , 192.31.
. . - Treasury Department,
Omcz of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
Secton 5 11 of the Interna Revenue Code of 195 (Pubc Law 591,
3d Cong., 2d sess.), provdes as foows:
S C. 5 11. US O BR W RY.
The brewery sha be used under reguatons to be prescrbed by the
Secretary or hs deegate ony for the purpose of producng beer, cerea
beverages contanng ess than one-haf of 1 percent of acoho by Toume.
vtamns, Ice, mat, mat srup, and other by-products of bottng beer
and cerea beverages of dryng spent gran from the brewery of recover-
ng carbon do de and yeast of producng and bottng soft drnks
and for such other purposes as the Secretary or hs deegate by regua-
ton may fnd w not |eopardze the revenue. The bottng of beer and
cerea beverages sha be conducted ony In the brewery botte house
whch sha consst of a separate porton of the brewery desgnated for
that purpose.
Secton 7 51(a) (5) of the Interna Revenue Codo of 195 provdes
n part that the provson n secton 5 11 permttng the use of a
brewery under reguatons prescrbed by the Secretary or hs deegate
for the purpose of producng and bottng soft drnks, sha take effect
on the tny after the dnto ot enactment of the Interna Revenue Tte.
Pursuant to the above provsons of aw. Reguatons 1 (26 C R
pt. 192), as made appcabe to the Interna Revenue Code of 195 by
Treasury Decson G091, approved August 16, 195 , are amended as
foows:
Paragraph 1. Secton 192.31 s amended to read as foows:
Sec. 102.31. Use of Brewert Premses. The brewery premses sha consst of
the and and budngs descrbed In the brewer s notce on orm 27-G and sha
be used e cusvey for the purposes of manufacturng and packagng or bottng
beer, ngcr beer, ae, porter, and smar fermented quors, cerea beverage con-
tanng ess thnn one-haf of 1 percent of acoho by voume, soft drnks, vtamns.
Ice, mat, mat srup, and other by-products of dryng spent gran from the
brewery of recoverng carbon do de and yeast and of storng bottes, packages,
and suppes necessary or Incdenta to a such manufacture: Provded, That a
bottng of beer, cerea beverage, and soft drnks, a storage of botted beer before
ta pnyment, and a storage of botted ceren beverage and soft drnks, sha be
done In a separate department on the brewery premses desgnated brewery
bottng house : And provded further. That where any brewery premses were
on une 20,1030, beng used by a brewer for purposes other than those descrbed
n ths subpart, the use of such premses for such other purposes may be contnued
by such brewer.
Par. 2. Secton 192.32 s amended to read as foows:
Sec. 102.32. Use of Bueweht Bottng House. Brewery bottng houses sha
be used e cusvey for the purpose of bottng beer, ager beer, ae, porter, and
smar fermented quor, and cerea beverage contanng ess than one-haf of
1 percent of acoho by voume, produced n the brewery In connecton wth whch
the bottng house Is operated, for the producton and bottng of soft drnks, and
for the storage of bottes, toos, and suppes necessary or ncdenta to the
manufacture or bottng of such products: Provded, That where any brewery
bottng house was, on une 20,1030, beng used by the brewer for purposes other
than those descrbed In ths subpart, the use of such bottng house for such
purposes may be contnued by such brewer: And provded further. That the
brewery bottng house of any brewery sha not be used for bottng the products
of any other brewery.
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Regs. 1 , 192.31.) 6
Ths Treasury Decson sha be effectve as of the day on whch
secton 5 11 of the Interna Revenue Code of 105 becomes effectve.
Because ths Treasury Decson s necessary n order to gve effect
to secton 5 11 of the Interna Revenue Code of 195 , whch provdes,
n part, for the use of the brewery under reguatons to bo prescrbed
by the Secretary or hs deegate for the purpose of producng and
bottng soft drnks, and whch takes effect on the day after the date
of enactment of the Interna Revenue Tte, t s found that t s un-
necessary to ssue ths Treasury Decson wth notce and pubc proce-
dure thereon under secton (a) of the Admnstratve Procedure Act.
approved une 11,19 6, or sub|ect to the effectve date mtatons o
secton (c) of sad Act.
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 7 05 of the Interna Revenue Code of 195 .)
O. Gordon Dkk,
Actng Commssoner of Interna Revenue.
Approved August 16,195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth the Dvson of tbe edera Regster August 10, 105 , 1:10 p. m.)
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7
(52SOO.
SUBPART B RULINGS AND D CISIONS UND R TH
INT RNAL R NU COD O 1939
Rungs and decsons pubshed n Part III, Subpart B, of the
Interna Revenue Buetn are based on the appcaton of provsons
of the Interna Revenue Code of 1939 and, uness otherwse noted
theren, are pubshed wthout consderaton as to any appcaton of
the provsons of the Interna Revenue Code of 1951.
CHAPT R 26. LI UOR
S CTION 2 00. LI UOR
R UISITIONS 3, ,5,7,10,11,15,16,1 , and 23. T. D. 6075
TITL 2 INT RNAL R NU . CHAPT R I. UBCHAPT B C, PARTS ITS, 1(1.
1 2,1 3, 13 ,1 3, 1ST, 1 9, 1 0, AND 192
Decentrazaton of assessment and cams (unctons pertanng to
quors. ,
TH ASUHT D PArnr Nt,
O IC or COMMISSION R or INT RNAL R NU ,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Othert
Concerned:
The purpose of ths Treasury Decson s to amend reguatons to
conform to the deegaton to Assstant Regona Commssoners,
Acoho and Tobacco Ta , of fna authorty wth respect to (a)
determnaton and assessment of ta abtes, and (b) aowance or
dsaowance of cams for remsson, abatement, and refund of ta es
and penates, and cams for redempton of stamps, pertanng to
quors, effected by IR-Mmeograph No. 232, dated uy 6,1953. and
Amendment 1 thereto dated October 5,1953. Accordngy, the foow-
ng amendments to reguatons are hereby adopted.
PARAGRAPH 1. Wherever the term supervsor, dstrct super-
vsor, or Assstant Dstrct Commssoner appears n the sectons
of the reguatons revsed by_ ths Treasury Decson, such term s
hereby amended to read Assstant Regona Commssoner. Sm-
ary, the term coector or drector s hereby amended to read
Dstrct Drector of Interna Revenue. Assstant Regona Com-
mssoner means the Assstant Regona Commssoner, Acoho and
Tobacco Ta , who s responsbe to, and functons under the drecton
and supervson of. the Regona Commssoner.
PAR. 2. Reguatons 7 2g C R, pt. 17 are amended as foows:
(A) Secton 17 .3C s amended as foows:
(1) By strkng the phrase Under the aw the Commssoner n
the frst sentence and nsertng n eu thereof the foowng: The
Assstant Regona Commssoner .
(B) Secton 17 .37 s amended by strkng the phrase and w
advse the Commssoner of ther fndngs and recommendatons
reatve to aowance or dsaowance of the oss .
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12 00.)
(C) Secton 17 .376s amended as foows:
(1) By changng the headnote to read as foows: Sec. 17 .376.
Acton on Cam bt Assstant Regona Commssoner.
(2) By strkng the desgnatons (1) and (2) n the frst
sentence and nsertng n eu thereof (a) and (b) , respectvey.
(3 By strkng the thrd sentence, whch begns, Upon compe-
ton and nsertng n eu thereof the foowng: Upon competon
of hs e amnaton of the cam, the Assstant Regona Commssoner
w aow or dsaow the cam n accordance wth e stng aw and
reguatons.
(D) Secton 17 .377, as amended by Treasury Decson 5575 C. B.
19 7-2,221 , s further amended as foows:
(1) By strkng the phrase advse the Commssoner of hs fndngs
and recommendaton and nsert n eu thereof the foowng: aow
or dsaow the oss n accordance wth e stng aw and reguatons.
( ) Secton 17 .37 , as amended by Treasury Decson 5575, s
further amended as foows:
(1) By strkng from the frst sentence the phrase by the
Commssoner .
(2) By strkng from the second sentence, whch begns, Losses
n transt , the phrase by the Commssoner .
( ) Secton 17 .399 s amended by strkng from the ffth sentence,
whch begns, Losses of wnes , the phrase by the Commssoner .
(G) Secton 17 . 11 s amended by strkng from the thrd sentence,
whch begns, Where the stamps , the term Commssoner and
nsertng n eu thereof the foowng: Assstant Regona
Commssoner .
(H) Secton 17 . 3b, as added by Treasury Decson 579 C. B.
1950-2,1 2 , s amended by strkng from the second sentence, whch
begns, Such cams , the phrase, n dupcate, and nsertng n
eu thereof the foowng: (orgna ony) .
(I) Secton 17 . , as amended by Treasury Decson 579 , s
further amended as foows:
(1) By strkng from the second sentence, whch begns, Where
osses , the phrase n quadrupcate and nsertng n eu thereof
the foowng: n trpcate .
(2) By strkng from the thrd sentence, whch begns, The offcer
w prepare , the phrase n trpcate and nsertng n eu thereof
the foowng: n dupcate .
(3) By strkng from the ffth sentence, whch begns, The offcer
w forward , the phrase The offcer w forward two copes of
orm 1520 and two copes of the etter and nsertng n eu thereof
the foowng: The offcer w forward the orgnas of orm 1520
and of the etter .
( ) Secton 17 . 6, as amended by Treasury Decson 579 , s
further amended as foows:
(1) By changng the headnote to read as foows: Sec. 17 . 6.
Acton on Cam bt Assstant Regona Commssoner.
(2) By strkng from the frst sentence the phrase forward the
cam to the Commssoner, together wth a statement settng out hs
recommendaton and hs reasons therefor, as e pedtousy as possbe.
and nsertng n eu thereof the foowng: then aow or dsaow
the cam n accordance wth e stng aw and reguatons.
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9 -H2 00.
(3) By strkng the second sentence, whch begns The dstrct
supervsor w .
( ) Secton 17 . 7 as amended by Treasury Decson 579 , s
further amended by strkng the phrase by the Commssoner n the
thrd sentence.
(L) Secton 17 . 9 s amended as foows:
(1) By strkng the phrase Where t appears that n the frst
sentence and nsertng n eu thereof the foowng: Where the As-
sstant Regona Commssoner fnds that .
(2) By strkng the phrase the dstrct supervsor w transmt a
pertnent papers wth approprate recommendatons to the Comms-
soner. n the frst sentence and nsertng n eu thereof the foow-
ng : an assessment w be made aganst the wnemaker n accordance
wth the prescrbed procedure.
(3) By strkng the second sentence, whch begns If ta s found .
PAR. 3. Reguatons 23 26 C R, pt 1 1 are hereby amended as
foows:
(A) Secton 1 1.69 s amended by strkng the word quadrup-
cate n the frst sentence and nsertng n eu thereof the foowng:
trpcate .
(B) Secton 1 1.70 s amended as foows:
(1) By strkng the word deputy wherever t appears and nsert-
ng n eu thereof the foowng: coecton offcer .
(2) By strkng the word three n the thrd sentence and nsertng
n eu thereof the foowng: two .
(C) Secton 1 1.7 s amended by strkng from the second sentence,
whch begns, He w , the phrase remanng two copes and n-
sertng n eu thereof the foowng: orgna .
(D) Secton 1 1.75 s amended to read as foows:
The Dstrct Drector of Interna Revenue w Immedatey e amne the cam
for drawback on orm 1010, receved from the coector of customs (sec. 1 1.7 ).
and f satsfed that the cam Is a vad one, be w endorse hs approva thereon
and forward It, wth the ta -pad stamps attached, to the Assstant Regona
Commssoner, Acoho and Tobacco Ta , for the regon In whch the camant
a ocated.
( ) Secton 1 1.76 s amended as foows:
(1) By changng the headnote to read as foows: S C. 1 1.76.
ACTION BT ASSISTANT R OIONAL COMMISSION R.
(2) By strkng the word Commssoner n the frst and second
sentences and nsertng n eu thereof the foowng: Assstant Re-
gona Commssoner .
(3) By strkng from the frst sentence the phrase and schedue t
for payment. .
PAR. . Reguatons 3 26 C R, pt. 1 21 are amended as foows:
(A) Secton 1 2. 13 s amended as foows:
(1) By changng the headnote to read as foows: S C. 1 2. 13.
D T RMINATION or TA LIABILITY.
(2) By strkng the phrase Under the aw t s the duty of the
Commssoner n the frst sentence and nsertng n eu thereof the
foowng: It s the duty of the Assstant Regona Commssoner .
(3) By strkng the phrase If the Commssoner n the second
sentence and nsertng n eu thereof the foowng: If the Assstant
Regona Commssoner .
( ) By strkng the phrase and make an assessment n the second
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f 2 00. 50
sentence and nsertng n eu thereof the foowng: , whereupon an
assessment w be made .
(B) Secton 1 2. 20 s amended as foows:
(1) By strkng the phrase he w report the same to the Com-
mssoner, n the second sentence and nsertng n eu thereof the
foowng: an assessment w be made, .
(2) By strkng the ast sentence, whch begns If the dstrct
supervsor fnds .
(C) Secton 1 2. 22 s amended as foows:
(1) By strkng the phrase the dstrct supervsor w report to
the Commssoner, n accordance wth the prescrbed assessment pro-
cedure, the amount found due for assessment and nsertng n eu
thereof the foowng: an assessment w be made for the amount
found due, n accordance wth prescrbed procedure.
(D) Secton 1 2.57 m, as added by Treasury Decson 5919 C. B.
1952-2,306 , s amended as foows:
(1) By strkng from the thrd sentence, whch begns, Where the
stamps , the word Commssoner and nsertng n eu thereof the
foowng: Assstant Regona Commssoner .
( ) Secton 1 2.C12 s amended as foows:
(1) By strkng the word Commssoner and nsertng n eu
thereof the foowng: Assstant Regona Commssoner .
( ) Secton 1 2.C17 s amended as foows:
(1) By strkng the word Commssoner and nsertng n eu
thereof the foowng: Assstant Regona Commssoner .
(G) Secton 1 2.61 s amended as foows:
(1) By changng the headnote to read as foows: Sec. 1 2.61 .
Ta To Be Assessed.
(2) By strkng the phrase the dstrct supervsor w report the
ta for assessment and nsertng n eu thereof the foowng: an
assessment w be made .
(H) Secton 1 2.631 s amended as foows:
(1) By strkng the phrase Under the aw the ta on acoho and
nsertng n eu thereof the foowng: The ta on acoho .
(2) By strkng the word Commssoner and nsertng n eu
thereof the foowng: Assstant Regona Commssoner .
(I) Secton 1 2.639 s amended as foows:
(1) By strkng the phrase and w advse the Commssoner of
hs fndngs and recommendatons reatve to remsson of the ta on
the acoho .
( ) Secton 1 2.6 0 s amended as foows:
(1) By changng the headnote to read as foows: Sec. 1 2.6 0.
Acton on Cam by Assstant Regona Commssoner.
(2) By strkng from the second sentence, whch begns, Upon
competon , the phrase w forward one compete copy of the cam
and accompanyng papers, together wth any pertnent reports and
documentary evdence, to the Commssoner wth hs recommendaton
n respect to the aowance or dsaowance of the cam. and nsertng
n eu thereof the foowng: w aow or dsaow the cam n
accordance wth e stng aw and reguatons.
( ) Secton 1 2.771 s amended as foows:
(1) By strkng the phrase Under the aw the ta on acoho and
nsertng n eu thereof the foowng: The ta on acoho .
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51 2SOO
(2) By strkng the word Commssoner and nsertng n eu
thereof the foowng: Assstant Regona Commssoner .
Par. 5. Reguatons 2C C R, pt 1 3 are amended as foows:
(A) Secton 1 3. 5 s amended by strkng the phrase made by
the Commssoner upon e amnaton and nsertng n eu thereof
the foowng: made as the resut of e amnaton .
(B) Secton 1 3.55 f, as added by Treasury Decson 5919, s
amended by strkng from the thrd sentence, whch begns, Where
the stamps , the word Commssoner and nsertng n eu thereof-
the foowng: Assstant Regona Commssoner .
(C) Secton 1 3.595 s amended by strkng from the frst sentence
the word Commssoner and nsertng n eu thereof the foowng:
Assstant Regona Commssoner .
(D) Secton 1 3.599 s amended by strkng the second sentence,
whch begns, Whenever so requred .
( ) Secton 1 3.C00 s amended as foows:
(1) By strkng the word dstrct n the frst sentence and nsert-
ng n eu thereof the foowng: regon .
(2 By strkng from the second sentence, whch begns, Where a
requred , tho phrase the dstrct supervsor w report the matter
to the Commssoner. and nsertng n eu thereof the foowng:
an assessment w bo made n accordance wth prescrbed procedure.
( ) Secton 1 3.C01 s amended by strkng the phrase . n dup-
cate, n tho frst sentence and nsertng n eu thereof the foowng:
(orgna ony) .
(G) Secton 1 3.603 s amended as foows:
(1) By changng the headnote to read as foows: Sec. 1 3.603.
Acton on Cam Br Assstant Regona Commssoner.
(2) By strkng from the second sentence, whch begns, Upon
competon , the pnrase forward the cam and accompanyng papers,
together wth any pertnent reports and documentary evdence, to
the Commssoner wth hs recommendaton n respect to the aowance
or dsaowance of the cam. and nsertng n eu thereof the fo-
owng : aow or dsaow the cam n accordance wth e stng aw
and reguatons.
(H) Secton 1 3.610 s amended as foows:
(1) By changng the headnote to read as foows: Sec. 1 3.610.
Determnaton of Ta Labtt.
(2) By strkng the phrase Under the aw t s the duty n the
frst sentence and nsertng n eu thereof the foowng: It s the
duty .
(3) By strkng the word Commssoner n the frst and second
sentences and nsertng n eu thereof the foowng: Assstant
Regona Commssoner .
( ) By strkng from the second sentence, whch begns, If the ,
the phrase and make an assessment for the dfference between the
quantty reported and the quantty shown to have been actuay pro-
duced, at the rate mposed by aw. and nsertng n eu thereof the
foowng: , whereupon an assessment w be made, at the rate m-
posed by aw, for the dfference between the quantty reported and the
quantty shown to have been actuay produced. .
(I) Secton 1 3.617 s amended as foows:
(1) By strkng from the second sentence, whch begns, If, after
consderaton , the phrase he w report the same to the Comms-
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12 00. 52
soner n accordance wth the prescrbed assessment procedure. and
nsertng n eu thereof the foowng: An assessment w be made
n accordance wth prescrbed procedure. .
(2) By strkng the thrd sentence, whch begns, If the dstrct
supervsor fnds .
( ) Secton 1 3.619 s amended as foows:
(1) By strkng the phrase the dstrct supervsor w report to
the Commssoner, n accordance wth the prescrbed assessment pro-
cedure, the amount found due for assessment and nsertng n eu
thereof the foowng: an assessment w be made for the amount
found due, n accordance wth prescrbed procedure. .
PAR. 6. Reguatons 5 26 C R. pt 1 are amended as foows:
(A) Secton 1 . 99 s amended by strkng the phrase made by
the Commssoner, upon e amnaton and nsertng n eu thereof
the foowng: made as the resut of e amnaton .
(B) Secton 1 .550 s amended as foows:
(1) By strkng from the second sentence, whch begns, Where
the dster , the phrase the ta w bo reported by the dstrct
supervsor to the Commssoner for assessment, and nsertng n eu
thereof the foowng: an assessment w be made for the ta found
due, n accordance wth the prescrbed procedure, .
(C) Secton 1 .59 f, as added by Treasury Decson 5919, s
amended as foows:
. (1) By strkng from the thrd sentence, whch begns, Where the
stamps , the word Commssoner and nsertng n eu thereof the
foowng: Assstant Regona Commssoner .
(D) Secton 1 .650 s amended by strkng the word Comms-
soner n the frst sentence and nsertng n eu thereof the foowng:
Assstant Regona Commssoner .
( ) Secton 1 .65 s amended by strkng the second sentence,
whch begns Whenever so requred .
( ) Secton 1 .655 s amended as foows:
(1) By strkng the word dstrct n the frst sentence and n-
sertng n eu thereof the foowng: regon .
(2 By strkng from the second sentence, whch begns, Where rt
requred , the phrase the dstrct supervsor w report the matter to
the Commssoner. and nsertng n eu thereof the foowng: an
assessment w be made n accordance wth prescrbed procedure. .
(G) Secton 1 .650 s amended by strkng from the frst sentence
the phrase , n dupcate, and nsertng n eu thereof the foowng:
(orgna ony) .
,(H) Secton 1 .65 s amended as foows :
(1) By changng the headnote to read as foows: S C. 1 .653.
ACTION o CLAIM BY ASSISTANT R GIONAL COMMISSION R. .
(2) By strkng from the second sentence, whch begns, Upon
competon , the phrase forward the cam and accompanyng papers,
together wth any pertnent reports and documentary evdence, to the
Commssoner wth hs recommendaton n respect to the aowance
or dsaowance of the cam. and nsertng n eu thereof the
foowng: aow or dsaow the cam n accordance wth e stng
aw and reguatons. .
(I) Secton 1 .670 s amended as foows:
() By changng the headnote to read as foows: Szo. 1 .670.
D T RMINATION or TA LIABILITY. .
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53 moo.
(2) By strkng the phrase Under the aw t s the duty n the
frst sentence and nsertng n eu thereof the foowng: It s the
duty .
(3) By strkng the word Commssoner n the frst and second
sentences and nsertng n eu thereof the foowng: Assstant
Regona Commssoner .
( ) By strkng from the second sentence, whch begns, If the ,
the phrase make an assessment for the dfference between the quantty
reported and the quantty shown to have been actuay produced, at
the rate mposed by aw. and nsertng n eu thereof the foowng:
, whereupon an assessment w be made, at the rate mposed by aw,
for the dfference between the quantty reported and the quantty
6hown to have been actuay produced. .
( ) Secton 1 .677 s amended as foows:
(1) By strkng from the second sentence, whch begns, If, after
consderaton , the phrase he w report the same to the Comms-
soner n accordance wth the prescrbed assessment procedure. and
nsertng n eu thereof the foowng: an assessment w be made,
n accordance wth prescrbed procedure. .
(2) By strkng the thrd sentence, whch begns If the dstrct
supervsor fnds .
( ) Secton 1 .679 s amended to read as foows:
If the dster fas to respond to the notce of proposed assessment wthn
the tme specfed, an assessment w be made n the amount found due. In
accordance wth prescrbed procedure.
Par. 7. Reguatons 10 20 C R, pt. 1 5 are amended as foows:
(A) Secton 1 5. 0 s amended ns foows:
(1) By strkng the phrase The aw provdes that no ta n the
frst sentence and nsertng n eu thereof the foowng: No ta .
(2) By strkng the word Commssoner n paragraph (a) and
nsertng n eu thereof the foowng: Assstant Regona Comms-
soner .
(B) Secton 1 5. S2 s amended by strkng the word Comms-
soner n the frst sentence and nsertng n eu thereof the foow-
ng: Assstant Regona Commssoner .
(C) Secton 1 5. s amended by strkng the phrase dstrct
supervsor w forward a copy of the nspecton gauge and copes of
a reports and correspondence wth hs recommendaton to the Com-
mssoner. n the thrd sentence and the words The Commssoner
at the begnnng of the fourth sentence and nsertng n eu thereof
the foowng: Assstant Regona Commssoner .
(D) Secton 1 5. 7 s amended by strkng the phrase notfcaton
to the Commssoner of the facts n the case w be wthhed for a
perod not e ceedng 15 days under (e) n the second sentence and
nsertng n eu thereof the foowng: acton w be wthhed for a
perod not e ceedng 30 days .
( ) Secton 1 5. 9 s amended by strkng the phrase , n dup-
cate, n the frst sentence and nsertng n eu thereof the foowng:
(orgna ony) .
( Secton 1 5. 91 s revoked.
(G) Secton 1 5. 92 s amended as foows:
(1) By changng the headnote to read as foows: Seo. 1 5. 92.
Acton on Cam b Assstant Regona Commssoner.
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f 2 00. 5
(2) By nsertng mmedatey foowng the secton headnote the
foowng new sentence: When a cam for remsson of ta s receved
by the Assstant Regona Commssoner, he w carefuy e amne
the same to see that a requred nformaton has been furnshed and
w cause such nvestgaton to be made or requre such addtona
evdence o be submtted as he may deem necessary.
(3) By strkng the phrase If the Commssoner n the present
frst sentence and nsertng n eu thereof the foowng: If the
Assstant Regona Commssoner .
( ) By strkng the phrase nstruct the dstrct supervsor to
n the present frst sentence.
(5) By strkng the phrase the dstrct supervsor w furnsh the
coector of nterna revenue wth four copes of orm 1520 coverng
gauge of the dsted sprts, or orm 1519 f dsted sprts n cases
are nvoved, showng the ta due, wth a etter of transmtta request-
ng that the ta be assessed aganst the warehouseman. n the thrd
sentence and nsertng n eu thereof the foowng: an assessment
w be made n accordance wth prescrbed procedure. At the tme of
referrng the assessment to the Dstrct Drector, the Assstant Re-
gona Commssoner w furnsh hm four copes of orm 1520 (or
orm 1510, as the case may be) coverng puge of the sprts.
(H) Secton 1 5. 93 s amended by strkng the phrase the dstrct
supervsor w report the matter to the Commssoner. and nsertng
n eu thereof the foowng: an assessment w be made n accord-
ance wth prescrbed procedure.
(I) Secton 1 5. 9 s amended by strkng the frst sentence and
nsertng n eu thereof the foowng new sentence: If the entre
contents of a contaner are ost and a cam for remsson of the ta s
aowed, the Assstant Regona Commssoner w take credt therefor
n accordance wth prescrbed procedure.
( ) Secton 1 5.61 , as amended by Treasury Decson 5019, s fur-
ther amended as foows:
(I) By strkng the word Commssoner n the thrd sentence
and nsertng n eu thereof the foowng: Assstant Regona Com-
mssoner .
( ) Secton 1 5.796 s amended bv strkng the ast sentence, whch
begns The dstrct supervsor w .
(L) Secton 1 5. 51 s amended by strkng the thrd sentence,
whch begns If orm 5 5 and nsertng n eu thereof the foowng:
If orm 6 5 shows a oss of sprts n transt, a cam for remsson
of the ta may bo requred n accordance wth the provsons of secton
1 5. 2.
(AI) Secton 1 5.072 s amended by strkng the word Comms-
soner n the provso n the frst sentence and nsertng n eu thereof
the foowng: Assstant Regona Commssoner .
PAR. . Reguatons 16 26 C R, pt. 1 7 are amended as foows:
(A) Secton 1 7.291 s amended by strkng the phrase , n dup-
cate, n the second sentence and nsertng n eu thereof the foow-
ng: (orgna ony) .
(B) Secton 1 7.293 5s amended by strkng the word dstrct
n the frst sentence and nsertng n eu thereof the foowng:
.. reeon .
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55 - II zsoo.
(C) Secton 1 7.295 s amended by strkng the phrase and
advse the Commssoner of hs fndngs and recommendaton reatve
to the aowance or dsaowance of the oss .
(D) Secton 1 7.290 s amended by strkng the second sentence,
whch begns Upon competon and nsertng n eu thereof the
foowng : Upon competon of the nvestgaton, f any, the Assstant
ReponarCommssoner w aow or dsaow the cam n accordance
wth e stng aw and reguatons.
( ) Secton 1 7.29 s amended by strkng the phrase the dstrct
supervsor w report the ta to the Commssoner for assessment, n
accordance wth prescrbed assessment procedure. and nsertng n
eu thereof the foowng : an assessment w be made n accordance
wth prescrbed procedure.
PAR. 9. Reguatons 11 26 C R, pt 1 9 are amended as foows :
(A) Secton 1 9.2 1 s amended as foows :
(1) By strkng the word Commssoner n the frst sentence and
nsertng n eu thereof the foowng: Assstant Regona Com-
mssoner .
PAR. 10. Reguatons 15 26 C R, pt. 190 are amended as foows:
SA) Secton 190. 9 s amended as foows :
1) By strkng the phrase the dstrct supervsor w report the
ta abe e cess to the Commssoner for assessment aganst the dster
or warehouseman who ta -pad the sprts n the frst sentence and
nsertng n eu thereof the foowng: ta on the e cess quantty
w be assessed aganst the dster or warehouseman who ta pad
the sprts .
(2) By strkng the phrase determnng and reportng the ta
abty for assessment n the second sentence and nsertng n eu
thereof the foowng : ta abty s determned and assessed.
(B) Secton 190.720 s amended as foows:
(1) By strkng the word Commssoner n the thrd sentence and
nsertng n eu thereof the foowng: Assstant Regona Comms-
soner
(C) Secton 190.765 s amended as foows:
() By strkng the word Commssoner n the frst sentence and
nsertng n eu thereof the foowng: Assstant Regona Comms-
soner .
PAR. 11. Reguatons 1 26 C R, pt. 192 are amended as foows:
(A) Secton 192.367 s amended as foows:
(1) By strkng the phrase sha report prompty for assessment
the amount of the ta due on the shortage. from the frst sentence and
nsertng n eu thereof the foowng: ta due on the shortage w
be coected n accordance wth prescrbed procedure.
(2) By strkng the second sentence, whch begns, If shortages .
(B) Secton 192.369 s amended by strkng the word Comms-
soner n the frst sentence and nsertng n eu thereof the foowng:
Assstant Regona Commssoner .
(C) Secton 192.37 s amended by strkng the phrase Comms-
soner, through the supervsor for the dstrct and nsertng n eu
thereof the foowng: Assstant Regona Commssoner for the
regon .
(D) Secton 192.37 s amended by strkng the word Comms-
soner and nsertng n eu thereof the foowng: Assstant Re-
gona Commssoner .
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Regs. , 1 3.1 3. 56
Because the amendments made by ths Treasury Decson are of a
technca and admnstratve character, and merey conform the regu-
atons to the deegaton of authorty effected by IR-Mmeograph No.
232, dated uy 6,1953, t s unnecessary to ssue ths Treasury Dec-
son wth notce and pubc procedure thereon under secton (a) of the
Admnstratve Procedure Act, approved une 11,19 6, or sub|ect to
the effectve date mtatons of secton (c) of sad act.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 3176 and 3791 of the Interna Revenue Code (53 Stat 375, 67
26 U.S.C. 3176,3791).)
T. COL MAN ANDR WS,
Commssoner of Interna Revenue.
Approved une 2 ,195 .
M. B. OLSOM,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster uy 1,105 , :52 a. m.)
SUBCHAPT R A. DISTILL D SPIRITS
PART L PRO ISIONS R LATING TO TA
S CTION 2 00(c). TA : TIM O ATTACHM NT
R GULATIONS 10, S CTION 1 5.550: Attachment Rev. Ru. 5 -55
of ta .
oregn consuar offcers or dpomatc offcas may not procure ds-
ted sprts from tho domestc manufacturer frco of nterna revenue
ta or wth beneft of drawback. The tu on dsted sprts attaches
at the tme of manufacture. Accordngy, the ega ncdence of the
ta s not on the consumer or on the sae to hm.
or a smar rung wth respect to fermented mat quor of domes-
tc manufacture, see Rev. Ru. 5 -2 , C. B. 195 -1,32 .
S CTION 2 00 (e). TA LI N
R GULATIONS , S CTION 1 3.1 3: Bond, orm 3-A. Rev. Ru. 5 - 9
(Aso Secton 1 3.1 7.)
Property sub|ect to Hen nnder secton 2 00 (e) (1) of the Interna
Revenue Code of 103U Incudes any budng ocated on the dstery
premses whether or not such budng Is used for dstng purposes
and (be apprased vaue of a such budngs must be Incuded n tbe
pena sum of the bond.
Advce s requested whether the vaue of an nterna revenue bonded
warehouse budng and equpment theren whch are ocated on the
dstery premses must be ncuded n the pena sum of an ndemnty
bond, orm 3-A.
Secton 2 00(e) (1) of the Interna Revenue Code of 1939 provdes
that a en attaches to the dstery, tho sts, vesses, f tures, and
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57 Regs. 15, 190.360.
toos theren, the ot or tract of and whereon the sad dstery s
stuated, and on any budng thereon. .
The term any budng as used n secton 2 00(e) (1) of the Code
ncudes an nterna revenue bonded warehouse or any other budng
ocated on the dstery premses, whether or not such budng s used
for dstng purposes. The vaue of a such budngs shoud be
ncuded n the pena sum of the bond fed on orm 3-A, Leasehod-
er s Bond for Dsters, n accordance wth secton 1 3.1 3 of Regu-
atons , or on orm 3, Bond of Indemnty n avor of the Unted
States, n accordance wth secton 1 3.1 7 of Reguatons
Reguatons , Secton 1 3.1 7: Bond, orm 3.
Apprased vaue of budngs to be ncuded n the pena sum of
bond, orm 3. See Rev. Ru. 5 - 99, page 150.
S CTION 2 01. R CTI I D SPIRITS
Reguatons 7, Secton 17 .20 : .Lmtatons. Rev. Ru. 5 - 5
A product known as Cufe has been approved for use by wne-
makers to remove trace metas from wne, provded there does not
reman n the fnshed wne any nsoube resdue n e cess of one part
per mon, and provded further, that no soube resdues reman n
the fnshed wne and the basc character of the wne s not changed by
such treatment
Revenue Rung 25, C. B. 1953-1, 31, s modfed to ncude the
above.
Smar products may bo authorzed for use by wncmakers to re-
movo trnco metas from wno provded they frst are approved for
such use by the Natona Offce.
Prescrbed methods and procedures for testng for resdues when
wne s treated wth Cufe , or smar approved products may be
obtaned from the offces of the Assstant Regona Commssoners,
Acoho and Tobacco Ta .
Reguatons 15, Secton 190.360: orm 27-B Rev. Ru. 5 -37
Suppementa.
(Aso edera Acoho Admnstraton Act,
Secton 5(e) A A Reguatons No. 5, Sec-
ton 3 .)
Athough no standard of dentty has been prescrbed, pursuant to
the provsons of the edera Acoho Admnstraton Act, for eggnog,
Buch product s generay understood to have a dsted sprt base,
usuay brandy and/or rum and/or whsky. If a rectfer desres to
manufacture eggnog, the formua, orm 27-B Suppementa, or-
mua and Process for Rectfed Products, must show that more than
50 percent of the acoho contaned n the product s derved from
sprts of not ess than 0 proof. ggnogs havng a wne base are re-
qured to be desgnated Wne ggnog. ermouth s not consdered
to bo a proper ngredent for ggnog or Wne ggnog.
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Regs. 15, 100. 70. 5
Reguatons 15, Secton 190. 79: empton Rev. Ru. 5 -350
from ta .
(Aso Secton 190. 9: A A Act, Secton 5 (e)
AA Reguatons No. 5, Secton 22.)
No coorng, favorng, or bendng matera may be added to
bends of straght whskes not sub|ect to the rectfcaton ta .
Harmess coorng, bendng, and favorng matera, wthn the 2
percent mtaton, may be added to bends of straght whskes sub-
|ect to tho rectfcaton ta . Neutra sprts or acoho, as such,
may not bo Incuded In the 1 /| percent favorng or bendng matera.
However, neutra sprts or acoho used as a vehce for recognzed
favorng or bendng materas Is consdered an ntegra part of such
materas and not neutra sprts or acoho as such. Therefore,
favorng or bendng materas contanng neutra sprts or acoho
may be added to bends of straght whskes sub|ect to the rectf-
caton ta .
Advce s requested reatve to the use of coorng, favorng, and
bendng materas n bends of straght whskes.
Secton 22 of Reguatons No. 5 provdes that there may be added
to any cass or type of dsted sprts wthout changng the cass or
type thereof, coorng, favorng, or bendng materas as are an
essenta component part of the partcuar dsted sprts to whch
added, and harmess coorng, favorng, or bendng materas such as
carame, straght mat or straght rye mat whskes, frut |uces, sugar
or wne whch are not an essenta component part of the partcuar
dsted sprts to whch added but whch are customary empoyed
theren n accordance wth estabshed trade usage, f such coorng,
favorng, or bendng materas do not tota more than 2y2 percent by
voume of the fnshed product. That secton further provdes that
harmess coorng, favorng, and bendng materas sha not n-
cude any matera whatsoever n the case of straght
whsky or n the case of neutra sprts,
Secton 190. 79 of Reguatons 15 provdes that the rectfcaton ta
of 30 cents per proof gaon does not attach to bends made e cusvey
of two or more pure straght whskes aged n wood for a perod of
not ess than years and wthout the addton of coorng and favorng
matera or any other substance than pure water, and f not reduced
beow 0 proof. Secton 190. 9 of Reguatons 15 provdes that any
bendng, e cept as permtted under secton 190. 79, of two or more
heterogeneous sprts by a rectfer consttutes ta ubo rectfcaton.
Tho provson that no coorng, favorng, or bendng matera what-
soever may bo added to straght whsky s hed to appy ony to bends
of straght whskes not sub|ect to tno rectfcaton ta . Harmess
coorng, bendng, or favorng matera, wthn the 2 A percent m-
taton, may be added to bends of straght whskes sub|ect to the
rectfcaton ta . However, no part of such 2A percent may-be-
neutra sprts or acoho as such. Neutra sprts or acoho as a
vehce for recognzed favorng or bendng materas s consdered
on ntegra part of such materas and not neutra sprts or acoho
as such. Therefore, favorng or bendng materas contanng neu-
tra sprts or acoho may be added, wthn the 21/A percent mtaton,
to bends of straght whskes sub|ect to the rectfcaton ta . Neutra
sprts or acoho, as such, may not be so added.
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59 Regs. M 190. 79.
Reguatons 15, Secton 190. 0: Bendng ...
consttutes rectfcaton.
Addton of coorng, favorng, or bendng matera to bends of
straght whskes. See Rev. u. 5 -350, page 5 .
Reguatons 15, Secton 100.000b: Trado name Rev. Ru. 5 - 77
bottng.
Secton 100.900b of Reguatons 15 provdes that f the trade name
or stye s specfed on an approved orm 27B Notce by Rectfer,
and on the- rectfer s edera Acoho Admnstraton Act permt, a
rectfer mny botte sprts under an approved trade name or stye other
than the name n whch tho rectfyng pant s quafed and operated,
or other than the name under whch the sprts were rectfed, upon
approva of orm 230, Descrpton and Gaugng of Sprts or Wnes
for Bottng wthout Rectfcaton, or orm 237, Report of Rectfed
Sprts ana Wnes, showng the trade name under whch the sprts
are to be botted. The sprts may be botted and abeed under the
trade name or stye shown on the orm 230 or 237, as the case may be,
wthout fng an amended notce and wthout changng the name
under whch the rectfyng pant s then quafed and operated.
Sprts may be botted from one or more bottng tanks or two or
more bottng nes, under dfferent trade names. The rectfer must
show on the orm 230 or orm 237, as the case may be, the dfferent
trade names to be used n bottng the partcuar ot of sprts. In
such case, orm 230 or orm 237 w be submtted for each bottng
tank regardess of the number of bottng nes or trade names to be
used n bottng the partcuar ot of sprts. The sera numbers of
the cases botted under each trade name and other detas requred by
the form sha be reported on the back of the form so that a fu record
w be had of the trade name under whch each case of sprts s
botted. The cans and osses n bottng w not be cacuated as to
each ndvdua trade name, but w be shown as one tem on the form
upon competon of the bottng of the entre ot.
Ony such trade names as are actuay used n respect to each ot
of sprts, as we as the namo of the rectfer, may appear on the
orm 230 or orm 237, as tho case may bo.
S CTION 2 01 (c) . R CTI I D SPIRITS:
MPTION ROM TA
Reguatons 15, Secton 190. 79: empton Rev. Ru. 5 -559
from ta .
Lees brandy s dsted from the ees, or resdue, of wne and not
soey from the |uce or mash of whoe, sound rpe frut or from
standard wne as requred for frut brandy, and does not come wthn
the cassfcaton of pure frut brandy. Accordngy, when ees brandy
s bended wth other brandes, the bended brandes are sub|ect to
the rectfcaton ta .
33510 5 30
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Regs. 15, 190. . 60
R GULATIONS 15, S CTION 190. 79: empton Rev. Bu. 5 -595
from ta .
Pare frut brandes may be bended under an approved formua
and process wthout payment of the rectfcaton ta even though
such brandes were produced at dfferent dsteres.
Advce s requested whether brandes otherwse egbe for rect-
fcaton wthout payment of the rectfcaton ta woud be sub|ect to
such ta by reason of ther beng produced at dfferent dsteres.
Advce s aso requested whether such bendng must be done under an
approved formua.
Secton 2 01 (c) (1) of the Interna Revenue Code of 1939 provdes
n part that the rectfcaton ta sha not attach to bends made
e cusvey of two or more pure frut brandes dsted from the
same knd of frut, aged n wood for a perod not ess than 2 years
and wthout the addton of coorng or favorng matter or any other
substance than pure water and f not reduced beow 0 proof. A
smar provson s contaned n secton 190. 79 of Reguatons 15.
Nether the aw nor the reguatons whch mpement the aw re-
qures that the brandes be produced by the same dstery as a
crteron for e empton of bends of pure frut brandes from the
rectfcaton ta . Accordngy, t s hed that brandes whch were
produced by dfferent dsteres may be bended under secton 190. 79
of Reguatons 15 wthout ncurrng the rectfcaton ta . However,
such bendng must be accompshed under an approved formua and
process n accordance wth the provsons of subpart S of Reguatons
15.
S CTION 2 01 (d). R CTI I D SPIRITS: R GULATIONS
R GULATIONS 15, S CTION 190.79 : Cases of Rev. Ru. 5 -5 9
dsted sprts.
The ndcaton of the nterna revenue regon (or dstrct n the case
of permts ssued pror to the estabshment of regons) may be
omtted from the number of the basc permt ssued pursuant to the
edera Acoho Admnstraton Act as marked on tne Government
sde of cases of dsted sprts n nstances where the ocaton of the
rectfyng pant s shown on the case as part of the marks requred
by secton 190.79 of Reguatons 15.
S CTION 2 01 (e). R CTI I D SPIRITS:
R CTI YING
R GULATIONS 15, S CTION 190. : Use of Rev. Ru. 5 -560
premses.
Secton 2 01 (e) of the Interna Revenue Code of 1939 and secton
190. of Reguatons 15 provde that the premses of a rectfyng
pant sha be used e cusvey for the busness of rectfcaton and
the bottng of quor whether rectfed or not. Such provson s not
construed as prohbtng the estabshment of unchrooms and cafe-
teras on rectfyng pant premses for the purpose of provdng meas
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61 Regs. , 1 2.72 .
for the empoyees of the rectfyng pant and from whch the pubc
s e cuded.
Reguatons 15, Secton 190.360: orm 27-B Rev. Ru. 5 -25
Suppementa.
(Aso federa Acoho Admnstraton Act,
Secton 5 (e) AA Reguatons No. 5, Sec-
ton 3 .)
The Interna Revenue Servce requres that Martn Cocktas so
abeed contun not ess than 25 percent vermouth. However, rect-
fers may produce a Dry Martn Cockta wth ess than 25 percent
of vermouth provded the mnmum amount empoyed s not ess than
one part (1 percent) to s parts of gn. In order to dstngush
these cocktas from reguar Martn Cocktas, the abes must bear
approprate wordng such as Dry, tra Dry, or tra Speca
Dry.
Reguatons 15, Secton 100.3G0: orm 27-B Rev. Ru. 5 -619
Suppementa.
The use of demnerazed water treated wth a sma quantty of
ctrc acd or hydrochorc acd (appro matey pound of acd per
1,000 gaons of water) In the reducton In proof of sprts const-
tutes ta abe rectfcaton.
Advce has been requested whether a sma quantty of ctrc acd
or hydrochorc acd may be used n treatng demnerazed water for
use n reducton of dsted sprts.
The reducton of dsted sprts wth demnerazed water treated
wth a sma quantty of ether ctrc acd or hydrochorc acd, n a
rato of appro matey y2 pound of such acd to 1,000 gaons of water,
woud resut n ta abe rectfcaton. Accordngy, demnerazed
water so treated wth ctrc acd or hydrochorc acd may be used n
products sub|ect to the rectfcaton ta . ormuae on orm 27-B
Suppementa, ormua and Process for Rectfed Products, must
be fed for each product, showng the quantty of ctrc acd or hydro-
chorc acd, as the case may be, added to each 100 gaons of demn-
erazed water to be used for reducng purposes.
The use of demnerazed water so treated s not authorzed for
reducton of sprts to be botted wthout rectfcaton.
S CTION 2 0 . INSTRUM NTS TO PR NT AND
D T CT RAUD
Reguatons 3, Secton 1 2.72 : Raroad Rev. RuL 5 -525
tank cars or tank trucks.
Denatured acoho removed from a denaturng pant In tank cars
or tank trucks may be accuratey gauged ether by weght or by
voume.
Permsson s requested by a denaturng pant propretor to gauge
by voume specay denatured acoho whch s to be wthdrawn for
shpment n tank cars or tank trucks.
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Regs. 5, 1 .370. 62
Secton 1 2.90 of Reguatons 3, reatng to weghng tanks, pro-
vdes n part that where denatured acoho s to be removed n tank
cars, or n tank trucks (as authorzed by secton 1 2.72 ) or by ppe-
ne, the propretor of the denaturng pant must provde for use n
weghng such denatured acoho one or more sutabe weghng tanks.
cept as provded n ths secton, the reguatons are not specfc
n respect of the method of gaugng denatured acoho removed from
the denaturng pant n tank cars or tank trucks pursuant to the pro-
vsons of secton 1 2.72 Whe the requrements of ths secton
appy n the case of ppene transfers as we as transfers by tank
car or tank truck, t w be noted that secton 1 2.730, authorzng
the wthdrawa of denatured acoho by ppene, provdes n part
that such acoho may be weghed or measured by voume n a tank
equpped wth sutabe scaes or a measurng devce on the denaturng
pant premses. In vew thereof and snce the method of gaugng
denatured acoho by voume has been found to be generay sats-
factory, t s hed, that, notwthstandng the mpcaton n secton
1 2.90 of Reguatons 3, denatured acoho removed from a denatur-
ng pant n tank cars or tank trucks may be gauged ether by weght
or Dy voume
PAST II DISTILLING AND R CTI YING
S CTION 2 25 MPTION O DISTILL RS O RUIT
BRANDY ROM C RTAIN R UIR M NTS
Reguatons 5, Secton 1 .370: nds of Rev. Ru. 5 -351
materas.
(Aso Secton 30 5 Reguatons 7, Secton
17 .133 AA Act, Secton 5(e) AA
Reguatons No. 5, Secton 21.)
Portons of frut, such as cores and pees, may be used n the pro-
ducton of frut wne f such matera s n sound condton and the
|uce and wne therefrom possess the same genera characterstcs as
the |uce and wne obtaned from whoe frut. If the matera s
not n sound condton or the resutng |uce and wne are not of the
same genera composton as the |uce and wne from whoe frut
the wne may not be fortfed and may not be abeed as standard
wne.
Smary, where the parts of the frut contan the essenta com-
ponents that are present n the whoe frut and are not merey the
resdue of frut from whch the |uce and other components have
been e tracted, such parts of frut, such as cores and pees, may be
used for the producton of brandy or neutra brandy pursuant to the
provsons of Reguatons 5. The resutng dstate may be desg-
nated and abeed as brandy or neutra brandy n accordance wth the
requrements of AA Reguatons No. 5.
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63 Regs. 20, 13 .219.
S CTION 2 29. INSTALLATION O M T RS, TAN S,
AND OTH R APPARATUS
Reguatons 3, Secton 1 2.95: Denaturng Rev. RuL 51- 36
matera storage tanks.
(Aso Secton 1 2.103.)
Underground tanks may be authorzed for the storage of hghy
Infammabe sovents, such as ether, on denaturng pant premses
for use as a denaturng matera.
Advce s requested whether denaturng matera storage tanks may
bo paced underground n order to compy wth nsurance reguatons
regardng storage of nfammabe sovents, and to reduce osses due to
evaporaton.
Secton 1 2.95 of Reguatons 3 provdes that denaturng matera
storage tanks must be ocated n the denaturng matera storeroom
uness permanenty f ed meta tanks of such sze that they cannot be
ready removed and so constructed that they can be securey ocked
wth a Government ock are nstaed on the denaturng pant premses,
but not necessary wthn a room or budng, for the storage of the
denaturng materas.
Athough the reguatons do not provde for the nstaaton of
underground denaturng matera storage tanks, secton 1 2.103 thereof
authorzes the Commssoner to approve detas of constructon and
equpment n eu of those specfed n the reguatons where t s
shown that t s mpractcabe to conform to the prescrbed specf-
catons and the proposed constructon and equpment w afford as
much securty and protecton as tho constructon and equpment
prescrbed.
Snce denaturng materas, such as ether, aro hghy nfammabe
and voate, tho constructon of underground denaturng matera
storage tanks may be authorzed.
Reguatons 3, Secton 1 2.103: Genera.
Underground denaturng materas storage tanks. See Rev. RuL
6 - 30, above.
S CTION 2 57.-BOO S O R CTI I RS AND WHOL -
SAL D AL RS
Reguatons 20, Secton 19 .219: orm of Rev. Ru. 5 - 7
separate records.
Whoesae quor deaers who mantan separate commerca records
n the form of nvoces, pursuant to sectons 19 .217 and 19 .21 of
Reguatons 20, n eu of makng certan entres on record 52, Whoe-
sae Lquor Deaer s Record, may be permtted to mantan such
separate commerca records on mcrofms of the nvoces. However,
such permsson w be granted ony n those cases where the whoe-
saer estabshes to the satsfacton of the Assstant Regona Comms-
soner, Acoho and Tobacco Ta , a rea necessty for such method of
mantanng commerca records and provdes a vewng bo or other
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Regs. 21, W1.02. 6
smar devce sutabe for the ready study of the mcrofms by
Government offcers.
S CTION 2 66. AC M NT O STAMPS AND BRANDS
ON MPTI D PAC AG S
R GULATIONS 15, S CTION 100. 0: Destructon Rev. Ru. 6 -507
of stamps, marks, and brands on sprts
packages.
(Aso Reguatons 21, Secton 191.62.)
Ony the marks and brands paced on package of Imported ds-
ted sprts as a resut of nspecton by a Unted States custom-
gauger are requred by aw. Accordngy, these are the ony marks
and brands requred to be competey effaced and obterated when
the packages of Imported dsted sprts are empted at a rectfyng
pant
Advce s requested as to the marks and brands requred to be
obterated upon the emptyng of packages of mported sprts at a
rectfyng pant.
Secton 2 66 of the Interna Revenue Code of 1939 and secton
190. 0 of Reguatons 15 provde that a stamps, marks, and brands
requred by aw to be paced on casks or packages of dsted sprts
sha be efaced and obterated therefrom upon the emptyng of such
casks or packages.
Secton 191.62 of Reguatons 21, reatve to the mportaton of
dsted sprts, provdes that mported contaners of dsted sprts
n e cess of 1 gaon are requred to be marked and stamped under
customs reguatons. Secton 11.6 of the customs reguatons provdes
that a dsted sprts, wnes, and mat quors mported n ppes,
hogsheads, terces, barres, casks, or other smar packages sha be
stamped n accordance wth 19 U. S. C. 67. Secton 67 of chapter 19,
Unted States Code, requres n part that a dsted sprts, wnes,
and mat quors mported n ppes hogsheads, terces, barres, casks,
or other smar packages, must be nspected, marked and branded by
a Unted States custom-gauger, and a stamp must be aff ed to each
such package ndcatng the date and partcuars of nspecton.
In vew of the requrements of the reguatons as ndcated above,
ony the marks and brands paced on packages as a resut of nspecton
by a Unted States custom-gauger are requred by aw on packages of
mported dsted sprts. Snce ony such marks and brands as are
requred by aw must be competey effaced and obterated when the
package of mported dsted sprts s empted at a rectfyng pant,
any marks ana brands paced on the package by the shpper abroad
need not be effaced or obterated when the package s empted.
R GULATIONS 21, S CTION 191.62: Contaners
n e cess of 1 gaon.
Marks and brands to be effaced and obterated from packages of
mported dsted sprts upon the emptyng of such packages. See
Rev. Ru. 5 -507, above.
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65 Regs. 1 , 175.10 .
S CTION 2 71. TRA IC IN CONTAIN RS O
DISTILL D SPIRITS
Reguatons 13, Secton 175.61: Use and Rev. Ru. 5 37
resae of contaners.
Unusabe ndca bottes may be dsposed of by a botter of dsted
sprts to a cass manufacturer as cuet pursuant to orm 9 , App-
caton for Permt under Reguatons 13, fed by the botter to cover
destructon. Such destructon must be wtnessed by an empoyee of
the botter and a statement, n dupcate, coverng the destructon
shoud bo submtted wth tno orms 0 to the Assstant Regona
Commssoner, Acoho and Tobacco Ta .
Reguatons 13, Secton 175.00: Lquor bot- Rev. Ru. 5 -2S3
tcs e ported.
mpty Indca quor bottes mny be e ported under permt for
the purpose of packagng dsted sprts for Importaton Into tbe
Unted States for sae at reta and authorzaton may be granted
for the e portaton of empty Indca quor bottes for rebottng
sprts prevousy e ported In Indca bottes.
Advce s requested whether empty ndca bottes may be e ported
to Me co.
Secton 2 71 of the Interna Revenue Code authorzes the Secretary
by reguatons prescrbed by hm to reguate the sze, brandng, mark-
ng, sae, resae, possesson, use, and reuse of contaners (of a capacty
of ess than 5 wne gaons) desgned or ntended for use for the sae
at reta of dsted sprts.
Secton 175.96 of Reguatons 13 ssued thereunder provdes n
part that the e portaton of empty ndca bottes to foregn countres
for packagng dsted sprts for sae at reta n the Unted States
may be authorzed under permt. The Interna Revenue Servce does
not permt the e portaton of empty bottes bearng ndca for use
abroad. Hence, t s hed that bottes to be e ported for use abroad
may not bear the ndca prescrbed for domestc purposes snce t s
possbe that ndca bottes so e ported may fnd ther way nto ct
channes for mproper entry nto ths country. However, permsson
may be granted for the e portaton of emptv quor bottes for rebot-
tng sprts prevousy e ported n ndca bottes (such e portaton
beng for the e pct purpose of repacng smar bottes whch
were to be destroyed).
Reguatons 13, Secton 175.10 : Dsapprova. T. D. 611
TITL 20 (11)30) INT RNAL R NU . CHAPT R I, SUBCHAPT R C. PART 17 .
TRA IC IN CONTAIN RS O DISTILL D SPIRITS
Amendment to reguatons to modfy procedura requrements n
connecton wth the dena, suspenson and revocaton of permts
under secton 2S71, Interna Revenue Code of 1039.
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Regs. 13, 175.10 .) 66
./... Treasury Department,
Offce of the Secretakt,
Washngton 25, D. 0.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
The purpose of these amendments s to make the provsons of Reg-
uatons 123 Rues of Practce n Permt Proceedngs (26 C R,
pt 200), whch are ssued concurrenty wth these amendments, ap-
pcabe to proceedngs on permts ssued under secton 2 711. R. C.
(26 U. S. C. 2 71). Accordngy, the foowng amendments to reg-
uatons are hereby adopted.
Paragraph 1. Reguatons 13 (26 C R, pt 175) are amended as
foows:
(A) Sectons 175.109, 175.110, 175.111 and 175.11 are revoked.
(B) Secton 175.10 , ncudng the headnote thereof, s amended as
foows:
Sec. 175.10 . Contempated Dsapprova. If, upon e amnaton of an ap-
pcaton for a permt tbe Assstant Regona Commssoner has reason to beeve
that the appcant Is not entted to a permt, be sha Insttute proceedngs for
the dena of such appcaton n accordance wth the procedure set forth In
Part 200 of ths tte, whch part Is made appcabe to such proceedngs.
(C) Secton 175.113 s amended as foows:
If the Assstant Regona Commssoner has reason to beeve that tbe per-
mttee has voated, or Is voatng, any of the provsons of the act, the regua-
tons thereunder, or any of tbe terms or condtons of the permt, be sha Inst-
tute proceedngs for the revocaton or suspenson of such permt In accordance
wth the procedure set forth n part 200 of ths tte, whch part Is made app-
cabe to sucb proceedngs.
The purpose of these amendments s to deete certan practce and
procedure requrements whch w be contaned n the Rues of Prac-
tce n Permt Proceedngs (26 C R (1939), pt. 200) and whch w
be ssued effectve on the effectve date of ths Treasury Decson.
These amendments do not adversey affect substantve nterests.
Therefore, n order to conform wth sad Rues of Practce n Permt
Proceedngs (26 C R (1939), pt 200), and for such good cause found,
ths Treasury Decson sha be effectve on the 15th day foowng
the date of pubcaton n the edera Regster.
(Ths Treasury Decson s ssued under authorty contaned n
sec. 2 71 of the Interna Revenue Code of 1939 (53 Stat 331 26
U.S.C.2 71).)
M. B. osom,
Actng Secretary of the Treasury.
(Pubshed In the edera Regster December 1 ,195 )
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67 (Regs. 10. I IS5.53 .
PART 111 INT RNAL R NU BOND D WAR HOUS S
S CTION 2 72.- STABLISHM NT AND CONTROL
Reguatons 10, Secton 1 5.53 : Lmtaton Rev. Ru. 5 -2 0
on number, sze, and use of sampes of
dsted sprts other than brandy or frut
sprts.
The Assstant Regona Commssoner, Acoho and Tobacco Ta ,
may authorze the takng of sampes of dsted sprts from the
mngng tank In the bottng In bond department of an Interna
revenue bonded wnrehouse or In the tazpad bottng house from
the bottng ne of such premses from tank cars receved n bond
at a warehouse and from buk gaugng tanks.
Advce s requested reatve to the takng of sampes of dsted
sprts n the bottng n bond department of a warehouse, n a ta pad
bottng house, and n tank cars receved n bond at a warehouse.
In the case here nvoved the warehouseman requested permsson
to take an -ounco sampe of dsted sprts from the mngng tank
n the bottng n bond department after reducton n proof and
pror to bottng an -ounco sampe from the mngng tank n the
ta pad bottng house after reducton n proof and pror to bottng
a 2 -ounco sampe from the bottng ne of the bottng n bond
department after reducton n proof and fterng and a 16-ounce
sampe from a tank car receved n bond at the warehouse.
Secton 1 5.53 of Reguatons 10 provdes for the takng of a
1-pnt sampe of dsted sprts for aboratory anayss and the
takng of a one-haf pnt sampe for organoeptc e amnaton from
a storage tank at an nterna rcvenuo bonded warehouse. Where a
1-pnt sampe s found to be an nsuffcent quantty for aboratory
anayss, the Assstant Regona Commssoner, Acoho and Tobacco
Ta , upon recept of a statement showng the necessty for an ad-
dtona quantty, may authorze the wthdrawa of an addtona
sarne, not to e ceed 1 pnt.
Whe no specfc provson s made for the takng of sampes from
tanks other than storage tanks, t s wthn the ntent of the reguatons
that sampes may be wthdrawn from warehouse tanks other than
storage tanks where need therefor s estabshed.
The takng of an -ounce sampe from the mngng tank and a 2 -
ounce sampe from the bottng ne n the bottng n bond department
s anaogous to the wthdrawa of the ma mum of 2 pnts from a
storage tank as provded n secton 1 5.53 of Reguatons 10. The
Assstant Regona Commssoner may authorze the wthdrawa of
such sampes upon proper request therefor. There s no ob|ecton to
the wthwdrawa o smar sampes at the ta pad bottng house.
Smary, t s hed that the takng of a sampe from a tank car upon
recept n bond at an nterna revenue bonded warehouse s equvaent
to the takng of a sampe from a storage tank n the warehouse and
therefore wthn the ntent of secton 1 5.53 of Reguaton 10. The
wthdrawa of sampes from tank cars receved n Dond may be au-
thorzed by tho Assstant Regona Commssoner wthn tho mta-
tons specfed n that secton of the Reguatons.
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Regs. 5, 1 .575. 6
The Assstant Regona Commssoner may aso authorze the takng
of sampes of dsted sprts, wthn the prescrbed mtatons as
to number, sze, and use from buk gaugng tanks n an nterna
revenue bonded warehouse after the sprtshave been buk gauged and
ta pad.
S CTION 2 7 . DRAWING, GAUGING, AND MAR ING
O DISTILL D SPIRITS
Reguatons , Secton 1 3.527: Whsky. Rev. Ru. 6 -561
(Aso edera Acoho Act, Secton 5(e) AA
Reguatons No. 5, Secton 21, Cass 6.)
A product conformng to the requrements of secton 1 3.527(b)
of Reguatons for whsky dsted from rye mash e cept that
t s packaged n paraffn ned cooperage n eu of reused cooperage
6ha be desgnated ony as whsky. Such products woud be egbe
for use by a rectfer n the manufacture of rock and rye snce t s
whsky dsted from a rye mash as specfed n secton 21, Cass 6(f)
of Reguatons No. 5. orm 1520, Report of Sprts Gauged, pre-
pared at the tme the sprts are ta pad, may ncude a statement to
the effect that the product s egbe for use as rye mash whsky n the
manufacture of Rock and Rye.
Reguatons 5, Secton 1 .575: Sprts rut. Rev. Ru. 5 -590
(Aso edera Acoho Admnstraton Act, Sec-
ton 5(e) AA Reguatons No. 5, Secton
21, Cass )
A product made from the resdue of frut and dsted at more
than 170 degrees of proof and ess than 100 degrees of proof, In
order to be abeed as brandy, must be desgnated as Neutra Res-
due Brandy. However, If It Is not desred to brand the buk con-
taner of the product as resdue brandy, It may be desgnated as
Sprts- rut
Advce has been requested whether a dster may brand a product
as neutra orange brandy f t s made from the |uce e tracted from
the pees of the oranges and s otherwse egbe to bo so desgnated.
Secton 21, Cass (a) of Reguatons No. 5 precudes the brandng
of a product made from the resdue of frut, dsted at more than
170 degrees of proof and ess than 190 degrees of proof, as Neutra
Brandy. Secton 21, Cass (ee) of Reguatons No. 5 requres
brandy made from resdue materas to be desgnated as resdue
brandy, quafed by the name of the frut from whch derved.
Brandy dsted at more than 170 degrees of proof and ess than
190 degrees of proof from the resdue of oranges must be desgnated
Neutra Orange Resdue Brandy. However, where t s not desred
to brand the buk contaner of the product as resdue brandy, t may,
f dsted at ess than 190 degrees of proof, be desgnated as Sprts
rut, n accordance wth the provsons of secton 1 1.575 of Regu-
atons 5.
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69 IRcgs. . 1S3.531.
S CTION 2 79(b). D POSITS O SPIRITS IN WA -
HOUS S: TIM OR PAYM NT O TH TA
Beguatons 10, Secton 1 5. 16: When ta s Rev. Bu. 5 -290
due and payabe.
(Aso Secton 2001 Secton 1 5.510.)
Dsted sprts on storage In bond at an Interna revenue bonded
warehouse may be destroyed free of ta .by the warehouseman, under
the supervson of a storekeeper-gauger, where the requred appca-
ton for destructon s ted pror to the e praton of the -year
storage perod and the subsequent anayss shows the sprts to be
unft for beverage purposes, even though such determnaton Is not
made unt after the -year storage perod hns e pred.
Advce s requested whether the ta shoud be coected on dsted
sprts destroyed after the e praton of the -year storage perod
where the appcaton for destructon was fed by the warehouseman
pror to such e praton date.
Secton 2 79(b) of the Interna Revenue Code provdes, n part,
that the ta on dsted sprts sha be due and payabe before and
at the tme they are wthdrawn from the bonded warehouse and wthn
years from the date of the orgna entry for depost theren. Ths
secton s nterpreted as requrng the payment of the ta upon the
e praton of the -year perod of storage uness appcaton for other
dsposton has been fed wthn such -year perod of storage.
In the nstant case, appcaton for destructon of the sprts was
made by the propretor pror to the e praton of the -year storage
perod. The packages were regauged on the -year e praton date
as requred by the reguatons, but the gauge report was hed pendng
a decson as to whether the sprts coud be destroyed wthout payment
of the ta or whether the ta shoud be assessed thereon. An anayss
of a sampe of the dsted sprts n queston, made subsequent to the
e praton date, showed that the sprts were unsutabe for con-
sumpton.
Pursuant to the above nterpretaton of secton 2 79(b) of the
Code, where appcaton for other dsposton has been tmey fed,
the sprts may contnue to reman n the warehouse pendng acton
on tho appcaton. Where an appcaton for other dsposton of the
sprts s not tmey fed, assessment and coecton of the ta s manda-
tory. Snce tho appcaton n tho nstant case for destructon of
the sprts was tmey fed and tho sprts were found upon anayss
to be unft for beverage use, they may bo destroyed, free of ta , under
the mmedate supervson of a storekeeper-gauger, pursuant to the
provsons of secton 1 5.510 to secton 1 5.51 of Reguatons 10.
S CTION 2 3. TRANS R O SPIBITS AT
R GIST R D DISTILL RI S
Smuatons , Secton 1 3.531: Neutra Bev. Bu. 5 -3
sprts.
(Aso edera Acoho Admnstraton
Act, Secton 5(e) AA Beguatons
No. 5, Secton 21.)
A product desgnated as neutra sprts and produced In a reg-
stered dstery may not be referred to on the abes as acoho,
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Regs. , 5 1 3. 36. 70
snce acoho may be produced ony In an Industra acoho pant.
There woud be no ob|ecton, however, to a statement such a
Gran Neutra Sprts Is the same as Gran Acoho.
Advce s requested whether gran neutra sprts may be abeed
as gran acoho.
Under the nterna revenue aws reatng to quors, and reguatons
ssued pursuant thereto, two types of pants are authorzed, . e., n-
dustra acoho pants and dsteres. Both may produce sprts of
hgh proof. However, n order to determne the orgn of such sprts
and to avod confuson between the products of the two types of pants,
the product of an ndustra acoho pant (used prmary for ndus-
tra purposes) s desgnated as Acoho. However, sprts of 190
degrees or more of proof produced at a dstery (used prmary for
beverage purposes) are requred, under secton 1 3.531 of Reguatons
, to be abeed as Neutra Sprts. Therefore, athough thero s
no chemca dfference between Neutra Sprts and Acoho, the
dfference beng merey one of orgn, neutra sprts may not be abeed
as Acoho. However, there s no ob|ecton to the ncuson on the
abes of neutra sprts of a statement such as Gran Neutra Sprts
s the same as Gram Acoho.
S CTION 2 3(e). TRANS R O SPIRITS AT R GIS-
T R D DISTILL RI S: R DISTILLATION O SPIRITS
Reguatons . Secton 1 3. 36: Speca Rev. Ru. 6 - 10
appcaton for permsson to receve
sprts for redstaton.
(Aso edera Acoho Admnstraton
Act, Secton 6(e) AA Reguatons
No. 5, Secton 21, Secton 35.)
A Sour Mash Bourbon Whsky produced outsde of the State of
entucky may not be transferred to a dstery In entucky, for reds-
taton wthout substanta change, for the purpose of abeng such
product as a entucky Bourbon Whsky wth no Indcaton of the
State of orgna dstaton, and wth ony the name and address of the
redster stated as the dster.
Advce s requested whether Sour Mash Bourbon Whsky ds-
ted n Inos accordng to purchaser s specfcatons may be sod to
a entucky dster for redstaton wthout substanta change, and.
after storage and bottng, abeed as entucky Bourbon Whsky
wthout ndcaton of Inos orgn and wth the redster s name
and address stated on the abe as the name and address of the ds-
ter.
A dster n the State of entucky desres to purchase for redst-
aton Sour Mash Bourbon Whsky produced by a dster n I-
nos accordng to hs (the purchaser s specfcatons. Upon recept
of the whsky by the entucky dster, t woud be redsted to
conform to the specfcatons of hs own whsky after whch the
whsky woud be stored and subsequenty botted as a entucky sour
mash bourbon whsky dsted by the purchaser. The abes to be
paced on the botted whsky woud contan no reference to ts I-
nos orgn.
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71 Begs. , 1 3. 3 .
Secton 2 3(e) of the Interna Revenue Code of 1939 provdes n
part that dsted sprts may be transferred from a dstery or an
nterna revenue bonded warehouse to any dstery for redstaton
upon the showng of the need therefor.
Secton 1 3. 36 of Reguatons requres that a speca appcaton
must be submtted to the Assstant Regona Commssoner, Acoho
and Tobacco Ta , for permsson to receve sprts for redstaton.
Such appcaton must contan a statement of condton and necessty
for redstaton of the sprts. Secton 1 3. 37 of Reguatons pro-
vdes that the Assstant cgona Commssoner may authorze the re-
mova of the sprts f, n hs opnon, the redstaton of the sprts
s |ustfed. Ths requrement that sprts may be removed for re-
dstaton ony upon approva of an appcaton statng the condton
and necessty for redstaton stems from the provsons of secton
2SS3(c) of tho Code. It s tho ntent of ths secton that wthdrawa
for redstaton shoud bo authorzed ony n the comparatvey few
nstances where tho dster coud show a egtmate necessty for
such wthdrawa.
It s hed that secton 1 3. 37 of Reguatons authorzes the dena
of a request for redstaton where the redstaton s desred for
abeng purposes to concea the true orgn of the product and that t
s not the ntent of the aw and reguatons that dsted sprts be re-
moved for redstaton for such purpose.
Secton 21, cass (c) of Reguatons No. 5, provdes as foows:
Geographca names that ore not names for dstnctve types of dsted
sprts, and tat have not become generc, sha not be apped to dsted sprts
produced In any other pace than the partcuar pace or regon ndcated n
the name. Tho foowng are e ampes of geographca names for dsted
sprts that are not generc and are not names of dstnctve types of dsted
sprts: Cognac, Armagnnc, Greek Brandy, 1 sco Brandy, amaca Rum, en-
tucky Straght Bourbon Whskey, Maryand Straght Bye Whskey.
Secton 35(e) of Reguatons No. 5 provdes that abes of whsky
and straght whsky sha dscose tho State of dstaton of such
whsky, f such whsky s not dsted n the State gven n the
address on tho abe. Ths secton further provdes that the brand
abe sha show the State of dstaton n a cases where the
Assstant Regona Commssoner fnds that wthout such statement
the abe s mseadng as to the State of actua dstaton.
Secton 21, cass , of Reguatons No. 5 prohbts dsted sprts
produced outsde of the State of entucky from beng abeed as
entucky Straght Bourbon Whsky. Aso, secton 35(e) of Regu-
atons No. 5 requres the appearance on the abe of the statement
Dsted n Inos, wth the name and address of the entucky
purchaser stated as the botter of the product. In the nstant case,
the product for a practca purposes was produced n Inos and
the Inos dster (rather than entucky dster) s the dster
nsofar as these reguatons are concerned.
Under the provsons of the sad Reguatons and Reguatons
No. 5, Sour Mash Bourbon Whsky may not be produced by a ds-
ter n Inos and transferred to a dster n entucky for reds-
taton wthout substanta change and, after storage and bottng,
be abeed as entucky Bourbon Whsky wthout ndcaton of
Inos orgn and wth the redsters name and address stated on
the abe as the name and address of the dster.
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Regs.10, f 1 5. 15A. 72
S CTION 2 . GAUGING. STAMPING, AND BRAND,
ING SPIRITS R MO D ROM WAR HOUS
Reguatons 10, Secton 1 5.C02: Gaugng and Rev. Ru. 5 - 03
ta payment n packages.
(Aso edera Acoho Admnstraton Act,
Secton 5(e) AA Reguatons No. 5, Sec-
ton 21.)
odka produced from gran at 190 degrees of proof and otherwse
egbe for cassfcaton as Neutra Sprts Gran may be so re-
cassfed pror to ta payment and wthdrawa from an nterna reve-
nue bonded warehouse.
S CTION 2 5. PORTATION O SPIRITS WITH-
DRAWN ROM WAR HOUS S
Reguatons 3, Secton 1 2.630b as amended by Rev. Ru. 6 -576
Treasury Decson 60 , page 517, ths Bu-
etn : Recprocatng foregn countres.
(Aso 3037, 3153, 3179 Secton 1 5. 15a, Regua-
tons 10 Secton 17 .29 , Reguatons 7 Sec-
ton 192.390a, Reguatons 1 and Secton
176.11a, Reguatons 2 .)
Under the provsons of secton 309 of the Tarff Act of 1930, as
amended ( 6 Stat 690, as amended 19 U. S. C. 1309) and appcabe
reguatons of the Interna Revenue Servce, acoho, dsted sprts
and wne may be wthdrawn free of ta or wth beneft of drawback
and fermented mat quor may be wthdrawn free of ta for use as
suppes on arcraft regstered n the foowng foregn countres and
actuay engaged n foregn trade or trade between the Unted States
and ts possessons, where trade by foregn arcraft s permtted:
Austraa
Denmark
The Netherands
Bahama Isands
cuador
Norway
Begum
rance
Peru
Bermuda
Israe
Sweden
Braz
Itay
Swtzerand
Canada
apan
Unted ngdom
Reguatons 10, Secton 1 5. 15a, as added by
Treasury Decson 60 , page 517, ths Bu-
etn : Recprocatng foregn countres.
Lstng of foregn countres for whch dsted sprts may be
wthdrawn free of ta or wth beneft of drawback for use as suppes
on arcraft engaged n foregn trade or trade between the Unted
States and ts possessons. See Rev. Ru. 5 -576, above.
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73 Regs. 10, f 1 5.9 1.
S CTION 2 6. TRANSPORTATION BOND ON WITH-
DRAWAL O SPIRITS OR PORT
Reguatons 10, Secton 1 5.750: Contnung Rev. Ru. 5 -291
bond, drect e port, orm 657.
One e port bond. orm 657, port Pond for Dsted Sprts,
may be e ecuted by a propretor coverng e ports from more than
one Interna revenue bonded warehouse operated by that propretor
wthn the same nterna revenue regon. If a consent of surety Is
fed on the bond specfyng the warehouses from whch wthdrawas
w be made.
Advce s requested whether one e port bond may be e ecuted cov-
erng more than one nterna revenue bonded warehouse n eu of a
separate e port bond for each such nterna revenue bonded ware-
house.
Secton 1 5.750 of Reguatons 10 provdes n part that a contn-
ung bond, orm 657, sha be fed by a propretor f dsted sprts
are to bo wthdrawn for drect e portaton from tme to tme. The
pena sum of such bond sha be suffcent to cover the ta at the ds-
ted sprts rate on the ma mum quantty of dsted sprts that
may reman unaccounted for at any one tme, but n no case ess than
1,000.
There s no provson of the reguatons whch woud prohbt the
fng of one bond by a propretor to cover the wthdrawa for e porta-
ton of dsted sprts from more than one nterna revenue bonded
warehouse operated by hm. Accordngy, one bond, orm 657, may
be e ecuted by a propretor coverng e portatons from more than
one nterna revenue bonded warehouse operated by hm wthn an
nterna revenue regon. A consent of surety must be fed on the
bond specfyng the warehouses from whch wthdrawas w be
made.
PART I , MISC LLAN OUS PRO ISIONS R LATING TO DISTILL D SPIRITS
S CTION 2901. LOSS ALLOWANC S
Reguatons 10, Secton 1 5.510: Genera.
Destructon of dsted sprts subsequent to the e praton of the
-year storage perod where appcaton was fed pror to such date.
See Rev. Ru. 5 -290, page 69.
S CTION 2903. BOTTLING O DISTILL D SPIRITS
IN BOND
Reguatons 10, Secton 1 5.9 1: Sera numbers. Rev. Ru. 5 -322
The sera numbers on cases of botted-In-bond sprts may be
preceded by the etters A and U for the purpose of dstngush-
ng arge and sma bottes, respectvey.
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12903(g). 7
Advce s requested whether the etter A may precede the sera
number on cases of dsted sprts contanng quarts or ffths and the
etter B may precede the sera number on cases contanng pnts
or haf-pnts.
Secton 1 5.9 1 of Reguatons 10 provdes n part that each case
of dsted sprts fed n the bottng-n-bond department of an
nterna revenue bonded warehouse must be numbered seray begn-
nng wth No. 1 for the frst case fed.
The use of etters A and B precedng sera numbers on cases
of botted-n-bond sprts to ndcate separate case seres, such as those
from ndvdua bottng nes producng dfferent sze bottes or cases,
s consdered practcabe and wthn the ntendment of the regua-
tons respectng the use of sera numbers and may, therefore, be
authorzed.
S CTION 2903(b). BOTTLING O DISTILL D SPIRITS
IN BOND: STAMPS OR BOTTL S
Regt|atons 10, Secton 1 5.977: Manner of Rev. Ru. 5 -266
aff ng stamps.
The strp stamp for decanter-type contaners for Dotted-n-bond
sprts, whch have arge cosures, may be paced so that t crosses
over the entre top of the cosure nnd reaches down one sde of the
cosure and the contaner. It must be securey aff ed In such
manner that the stamp w be broken when the contaner Is opened.
Advce s requested as to the method of aff ng the strp stamp to
certan decanter-type contaners havng unusuay arge stoppers or
cosures.
Secton 2903(b) of the Interna Revenue Code provdes as foows:
very botte when fed sha have aff ed thereto and passng over the mouth
of the same a stamp denotng the quantty of dsted sprts contaned theren
and evdencng the bottng In bond of such sprts under the provsons of ths
secton and sectons 21)0 and 2009, ncusve, and of the reguatons prescrbed
hereunder.
By reason of the arge cosures on decanter-type contaners for
botted-n-bond sprts, t s not aways possbe to aff the strp stamp
6o that portons of the stamp w e tend an equa dstance on two
sdes of the botte and st w reman attached unt the botte s
empty. Therefore, t s hed that t w be satsfactory and n sub-
stanta compance wth the reguatons n these nstances to pace
the stamp so that t crosses over the entre top of the cosure and
reaches down one sde of the cosure and the contaner, and s securey
aff ed n such manner that the stamp w be broken when the con-
taner s opened.
S CTION 2903(g). BOTTLING O DISTILL D SPIRITS
IN BOND: TRAD MAR S
Labeng of botted-n-bond dsted sprts produced and ware-
housed under a trade name. See Rev. RuL 5 -5 3, page .
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75 Regs. 21, 191. 2.
S CTION 290 R GULATIONS GO RNING BOTTLING
IN BOND
Reguatons 10, Secton 1 5.909: Use of Rev. Ru. 5 -352
fter ads.
Actvated carbon may be added to whsky to be botted-n-bond,
as a fterng medum, at the rate of 7 ounces of actvated carbon
to 00 gaons of whsky.
Advce s requested whether actvated carhon may be added to
whsky to be botted-n-b/md as a fterng medum.
Secton 1 5.909 of Reguatons 10 provdes that fter ads may be
used, pror to the bottng of dsted sprts n bond, ony when they
do not change the orgna character or composton of the sprts,
ether by the abstracton of any essenta consttuent or the addton
of any substance.
The use of actvated carbon as a fterng medum at the rate of
7 ounces to 00 gaons of whsky s permssbe n the carfcaton
of whsky to be DOtted-n-bond, provded the orgna character or
composton of the whsky s not changed thereby. Sampes of the
whsky, before and after ftraton wth actvated carbon, shoud be
taken at nfrequent ntervas for anayss to determne whether the
use of the actvated carbon has caused any change n the orgna
character or composton of the whsky.
or the addton of actvated carbon to certan rectfed sprts .
e empt from the rectfcaton ta , see Rev. Ru. 5 -1 5, C. B.
195 -1, 30 .
SUBCHAPT R B.-WIN S
S CTION 3030. TA
Reguatons 21, Secton 191. 2: St wnes. Rev. Ru. 5 - 17
The nterna revenue ta pad on Imported vermouth receved In
the Unted States and subsequenty returned to the foregn country
from whch shpped s not refundabe.
Advce s requested reatve to the refundng of nterna revenue
ta pad on mported vermouth whch was subsequenty returned to
the snpper abroad.
A quantty of vermouth, havng been found by e amnaton by the
mporter after wthdrawa from customs custody to be unft for sae,
was returned to the shpper abroad. The vermouth was not processed
n any manner after recept n ths country and pror to ts return to
the foregn country.
Secton 3030(a) of the Interna Revenue Code of 1939 mposes
ta es at the rates specfed theren on wnes produced n or mported
nto the Unted States. Secton 3030(b) provdes that such ta es
sha be pad by stamp on remova of the wnes from the customhouse,
wnery, or other bonded pace of storage for consumpton or sae.
The vermouth, brought nto the Unted States from a foregn coun-
try, was sub|ect to the nterna revenue ta at the tme of ts wth-
TbIs Revenue Rung va modfed by Rev. Ru. 53-217, I. R. B. 1033-16, 23.
33331 33 31
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Regs. 7, f 17 . 2.) 76
drawa from customs bond. There s no authorty of aw whereby
the nterna revenue ta actuay due and pad on the vermouth when
wthdrawn from customs may be returned even though the product
was subsequenty returned to the shpper n the foregn country.
S CTION 3031. TA ON BRANDY OR SPIRITS US D IN
ORTI ICATION
R GULATIONS 7, S CTION 17 .223: Tank trucks
and tank cars.
Shpment n bond of brandy for the fortfcaton of wne n one
or more compartments of a tank car wth the remander of the com-
partments fed wth wne. See Rev. Ru. 5 - 9 , beow.
R GULATIONS 10, S CTION 1 5. 69: Tank car Rev. Ru. 5 - 9
requrements.
(Aso Reguatons 7, Secton 17 .223.)
Hgh proof brandy and wne may be transferred In bond In sepa-
rate compartments of a tank car.
Advce s requested whether hgh proof brandy for the fortfcaton
of wne and wne may be transferred n bond n separate compart-
ments of the same tank car.
In the nstant case, the quantty of hgh proof brandy to be shpped
s not suffcent to f a tank car. However, the freght b s charged
on the bass of tank car capacty.
Hgh proof brandy and wne may be transferred n bond n separate
compartments of a tank car provded the transfer s effected n ac-
cordance wth sectons 1 5. 6 through 1 5. 72 of Reguatons 10
and sectons 17 .21 , 17 .219, 17 .223, 17 .227 and 17 . 6 through
17 . 67 of Reguatons 7. ach compartment of the tank car con-
tanng brandy must be dentfed by a etter of the aphabet, such as
A, B, etc., and a separate route board must be used for each
compartment contanng brandy. The orm 1520, Report of Sprts
Gauged, must specfcay dentfy each compartment, and the com-
partments must DO so constructed that wne and brandy cannot be
ntermnged.
S CTION 3032.- ORTI ICATION O WIN S
R GULATIONS 7, S CTION 17 . 2: Wnes egbe Rev. Ru. 5 - 22
for fortfcaton.
A wnemaker may refortfy a specfed ot of sherry matera to-
requrements for bendng purposes, provded the wne s otherwse
egbe for fortfcaton. The operaton shoud be carred out at such
tme as w not nterfere wth the work of the reguary assgned
storekeeper-gauger.
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77 Regs. 7, 5 17 .29 .
S CTION 3036. WIN SPIRITS AND PUR
. SW T WIN
Reguatons 7, Secton 17 .17 : Spansh type Rev. RuL 5 -353
bendng sherry.
Spansh type bendng sherry may be used In brandy and wne
bends whch are sub|ect to rectfcaton ta .
Advce s requested whether a rectfer may use Spansh type bend-
ng sherry, produced under the provsons of secton 17 .17 of Regu-
atons 7, n brandy and wne bends.
Secton 17 .17 (c) of Reguatons 7 provdes n part that Spansh
type bendng sherry may be sod ony to rectfers for use n whsky
bendng. The reference to the use by rectfers of Spansh type
bendng sherry n whsky bendng, s consdered to be ustratve
ony and does not precude the use by rectfers of ths matera n
other rectfed products, such as brandy and wne bends, sub|ect to
the rectfcaton ta . Accordngy, t s hed that rectfers may use
Spansh type bendng sherry n brandy and wne bends whch are
sub|ect to the rectfcatnn ta .
Reguatons 7, Secton 17 .1 2: Manufacture. Rev. Ru. 5 -526
(Aso edera Acoho Admnstraton Act,
Secton 5 (e) AA Reguatons No. , Sec-
ton 3 .)
The mtatons and requrements of Reguatons No. and Regua-
tons 7 wth respect to the sods content of wne are not appcabe to
vermouth or apertf wnes.
S CTION 3037. R MO AL O DOM STIC WIN S
R O TA
Reguatons 7, Secton 17 .296: Wthdrawa free Rev. Ru. 5 -591
of ta .
Wne, removed from the wnery premses pursuant to approved
appcaton, orm 711-B. Wne for Use on esses and Arcraft,
but not accepted by the vesse to whch It was consgned because of
a strke of dock workers, may be returned to the bonded wnery.
Advce has been requested whether champagne whch was removed
free of ta and consgned to a coector of customs for devery to a
steamshp company may be returned to the bonded wnery snce the
steamshp company refused to accept t as a resut of a strke of dock
workers.
The wnemaker may be authorzed by the Assstant Regona Com-
mssoner, Acoho and Tobacco Ta , to return such wne to the bonded
wnery where a steamshp company has refused acceptance thereof be-
cause of a strke of dock workers. Upon recept of the wne at the
wnery, the quantty returned shoud be taken nto account n the
monthy report by means of a speca debt entry, foowed by an
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Regs. 7, 17 .1 7
e panatory notaton of the transacton and ctaton of the etter
from the Assstant Regona Commssoner authorzng such return.
A copes of the e port appcaton, orm 711-B, shoud be marked
Canceed Returned to the Wnery, foowed by the date of the
etter authorzng the return. Credt for the ta on the wne returned
shoud be entered n the wnemaker s e port bond account, as provded
n secton 17 .303 of Reguatons 7.
Reguatons 7, Secton 17 .293, as amended by
Treasury Decson 60 , page 517, ths Bu-
etn: Recprocatng foregn countres.
Lstng of foregn countres for whch wne may be wthdrawn free
of ta or wth beneft of drawback for use as suppes on arcraft
engaged n foregn trade or trade between the Unted States and ts
possessons. See Rev. Ru. 51-576, page 72.
S CTION 30 . D INITIONS
Reguatons 7, Secton 17 .1 : Natura wne. Rev. Ru. 5 -33
(Aso Secton 17 .1 5.)
The quantty of sngar to be used In sweetenng natnra wne and
frut or berry wne, nnder the provsons of sectons 17 .1 (b) and
17 .1 5(c) of Reguatons 7, shoud be cacuated on the weght of
the wne whch Is to be sweetened but the sweetened wne may not
hare a tota sods content of more than 22 grams per 100 cubc
centmeters.
Advce s requested whether the quantty of sugar to be added to
wne for sweetenng under sectons 17 .1 (b) and 17 .1 5(c) of Regu-
atons 7 s to be cacuated on the weght of the wne to be sweetened
or the weght of the wne after sweetenng.
Sectons 17 .1 (b) and 17 .1 5(c) of Reguatons 7 provde n
part that natura wne and frut and berry wnes may be sweetened
after compete fermentaton wth dry cane sugar or dry beet sugar
for the purpose of perfectng sweet wne accordng to commerca
standards, provded tho cane or beet sugar so used for sweetenng
sha not bo n e cess of 11 percent of the weght of tho wne and the
wne does not have a tota sods content of more than 22 grams per
100 cubc centmeters.
The quantty of sugar to be used n sweetenng the wne shoud be
cacuated on the weght of the wne whch s to be sweetened but the
sweetened wne may not have a tota sods content of more than 22
grams per 100 cubc centmeters.
Reguatons 7, Secton 17 .1 5: rut and
berry wnes.
The amount of sugar to be used n sweetenng frut and berry wne.
See Rev. Ru. 5 -33 , above.
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79 Regs. 3, I 1 2.731.
S CTION 30 5. APPLICATION O NATURAL WIN PRO-
ISIONS TO CITRUS- RUIT .WIN S AND OTH R LI
WIN S - -
R GULATIONS 7, S CTION 17 .133: Materas.
Use of portons of frut n eu of the whoe frut n the producton
of wne. See Rev. Ru. 5 -351, page 62.
SUBCHAPT R C. INDUSTRIAL ALCOHOL
PART ID NATURATION
S CTION 3070. WITHDRAWAL ROM BOND TA R
R GULATIONS 3, S CTION 1 2.725: Approved con- Rev. Ru. 5 - 3
taners.
Poyethyene drums overpacked n stee drums as descrbed heren
are authorzed as approved contaners for shppng specay de-
natured acohoL
The poyethyene drum, ncudng fanges, s moded n one pece so
that t s a smooth, contnuous, seamess unt. It has two fanges wth
thread openngs to accommodate both 2-nch and -nch drum pugs
whch are aso made of poyethyene. The outer surfaces of the
fanges are equpped wth botte cap threads whch accommodate regu-
ar meta screw caps. The drum s packed n ICC 6- open head stee
drum wth bungs and ock bot equpped wth tamper-proof ead wre
seas.
R GULATIONS 3, S CTION 1 2.731: Tank trucks. Rev. Ru. 5 -292
(Aso Secton 1 2. 7.)
Secton 1 2.731 of Reguatons 3 provdes for the use of tank trucks
for the transportaton of specay denatured acoho. There sha be
but one consgnor per tank truck oad of specay denatured acoho,
transferred n bond, and not ess than the entre contents of any one
compartment sha be devered to any one consgnee. The one con-
sgnor per tank truck oad must be a denaturng pant propretor or a
bonded deaer and the consgnee (one or severa) must be another de-
naturng pant propretor or a bonded deaer n or user of specay
denatured acoho. Specay denatured acoho receved n bond by
tank truck may not be devered from the traer nto drums. It must
be mmedatey deposted n storage tanks constructed n accordance
wth the provsons of Reguatons 3.
A tank truck used to shp propretary sovents n accordance wth
secton 1 2. 7 of Reguatons 3 may not smutaneousy contan shp-
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Regs. 3, 1 2. 01b. 0
merts n bond of specay denatured acoho. Propretary sovents
shpped n tank trucks must be run drecty from the tank truck nto a
statonary tank on the consgnee s premses. They may not be drawn
nto portabe unmarked contaners.
Reguatons 3, Secton 1 2. 5: Genera. Rev. Ru. 5 -5 2
A quafed agent who stores and dstrbutes propretary sovents
manufactured wth specay denatured acoho for the producer
thereof may not purchase and transfer buk quanttes of such sovents
from the prncpa to hs own account for packagng and resae to hs
customers.
S CTION 3070(a). WITHDRAWAL ROM BOND
TA - R : OR INDUSTRIAL US
R odatons 3, Secton 1 2. 01b: Transportaton. Rev. Ru. 5 - 79
The owners of sem-traers, otherwse quafed under Reguatons
3 to transport acoho, may transport such acoho In sem-traers
whch are oaded on fatcars for haung between certan ponts on
the raroad.
Advce s requested whether acoho shpped n bond or ta -free
may be transported n sem-traers whch are carred by a raroad,
such sem-trr.ers beng devered therefrom to the consgnee at the
pont of destnaton by the trucker.
Secton 1 2. 01b(c) of Reguatons 3, as amended by Treasury
Decson 607 , page 1, ths Buetn, provdes that acoho shpped n
bond or ta -free must be transported oy the propretor of the ndus-
tra acoho pant, the consgnee, or the authorzed carrer personay,
or by some person reguary and e cusvey n ther empoy, and the
rght to possesson of any vehce used for such transportaton must
bo vested n the vendor, vendee, or carrer.
Sem-traers, owned by a transportaton company, arc used for the
transportaton of acoho. Such sem-traers are devered by the
transportaton company to a raroad company where they are oaded
on fatcars and agan devered to the transportaton company at the
destnaton ra termna for devery to the premses of the authorzed
consgnees.
Whe the rght of possesson of the sem-traers contanng the
acoho s vested n the orgnatng and deverng carrer (the trans-
portaton company) the sem-traers, when beng haued by tho ra-
road on fatcars, are beng transported by an authorzed carrer (tho
rnroad company) whch has to rght to possesson of (ho fatcar
pursuant to secton S:2. 01)(c) of Reguatons 3, Therefore, tho
owner of tho sem-traers, f otherwse- quafed under Reguatons
3 to do so, may transport acoho n sem-traers even though tho
sem-traers are, n turn, oaded on fatcars for haung between
certan ponts on the raroad.
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1 Regs. 3, IS2.5S. etc.
PAST 11,-INDUSTRIAL ALCOHOL PLANTS
S CTION 3100. ALCOHOL
Rktoatons 3, Secton 1 2.5 , etc T. D. 607
TITL 29 INT RNAL R NU CHAPT R I. SUBCHAPT R C. PART 1 2.
. INDUSTRIAL ALCOHOL
Msceaneous amendments
Treasury Department,
Omc or Commssoner op Interna Revenue,
Washngton 25, D. C
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
In order to emnate certan restrctons, carfy the ntent of the
reguatons, prescrbe admnstratve procedure, and smpfy and/or
beraze varous requrements, Reguatons 3 26 C R pt 1 2 are
hereby amended as foows:
Paragraph 1. Wherever the term supervsor or dstrct super-
vsor appears n the sectons of the reguatons revsed by ths
Treasury Decson, such term s hereby amended to read Assstant
Regona Commssoner, and wherever the term dstrct or super-
vsory dstrct s used, such term s hereby amended to read regon.
Assstant Regona Commssoner means the assstant Regona
Commssoner, Acoho and Tobacco Ta , who s responsbe to, and
functons under the drecton and supervson of the Regona
Commssoner.
Par. 2. Sectons 1 2.212, as amended by Treasury Decson 5711
C. B. 19 9-2, 1 0 and 1 2.511a, as added by Treasury Decson
67 C. B. 19 9-2, 157 , and amended by Treasury Decson 5S01
LC. B. 1950-2,15 , arc revoked.
Par. 3. Secton 1 2.5 s amended as foows:
(A) By strkng from the second sentence the words , or storage
tank, .
(B) By addng at the end of the secton a new sentence to read
If more than one such storage tank s provded, each sha be gven a
sera number whch sha appear on the sgn.
Par. . Secton 1 2.G0 s amended as foows:
(A) By strkng from the second sentence the words , or storage
tank,
(B) By addng at tho end of the secton a now sentence to read If
more than one such Htorngo tank s provded, each sha bo gven a
Born number whch uu appear on tho ngn.,
Pah. 5. Secton 1 2.7 , as ust amended by Treasury Decson 6 01,
s further amended by nsertng, mmedatey after the s th sentence,
whch begns Assstant Regona Commssoners mav requre such
waks or andngs, a new sentence to read as foows: Upon approva
of appcaton therefor by tho Assstant Regona Commssoner,
tanks may be equpped wth securey constructed vents, fame arresters,
foam devces, etc., provded tho constructon s such as to effectvey
prevent abstracton of sprts.
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Hegs. 3, 1 2.5 , etc. 2
(
PAH. 6. Secton 1 2. 0, as amended by Treasury Decson 5711, s
further amended by nsertng, mmedatey after the thrd sentence
whch begns ach recevng tank must be equpped -wth , the fo-
owng new sentences: The recevng tanks must not be connected
wth each other, e cept that a connectng ppene w be permtted
between them n order to prevent oss of acoho by overfow. Such
connectng ppene must be ocated as cose to the top of each tank as
the constructon thereof w permt, and t must be cosed and a con-
nectons theren brazed or weded to prevent abstracton of acoho
wthout showng evdence of tamperng/
PAR. 7. Secton 1 2. 5, ns ast amended by Treasury Decson 5 01,
s further amended to read as foows:
Where acoho Is to be removed by ppene to tank cars for shpment, or to a
denaturng pant on the same premses, or to a rectfyng pant or ta -pad
bottng house on contguous premses, or to a tank truck for transfer In bond to
another bonded warehouse (as authorzed by secton 1 2.550) or to a denaturng
pant (as authorzed by sectons 1 2.5CO and S2.5COn) or where acoho Is to be
receved n tank cnrs, or receved n tank trucks from an ndustra acoho pant
(as authorzed by sectons 1 2. 00) or from another bonded warehouse (ns
authorzed by secton 1 2.550), the propretor of the warehouse must provde
for use n weghng such acoho one or more sutabe weghng tanks, constructed
and secured In accordance wth the provsons of secton 1 2.6 ,
1 PAR. . Secton 1 2.9 , as amended by Treasury Decson 55C
C. B. 19 7-2, 227 , s further amended by nsertng a perod after
the words to contguous premses n the frst sentence, and by strk-
ng therefrom the baance of the sentence, whch reads operated by
the denaturer.
PAR. 9. Secton 1 2.9 , as amended by Treasury Decson 5 ,
C. B. 1952-1, 239 , s further amended by strkng therefrom the
second sentence whch begns Ppenes for the conveyance of
specay denatured acoho and nsertng n eu thereof the foow-
ng sentence: Ppenes for the conveyance of specay denatured
acoho to contguous premses and ppenes for the transfer of com-
petey denatured acoho to contguous premses operated by tho
propretor of tho denaturng pant, sha bo securey constructed and
connected, and so arranged as to bo e posed to vew throughout ther
entre engths: Provded, That such ppenes sha bo equpped wth
a vave wthn the denaturng pant n order that the same may be
ocked wth a Government- ock when denatured acoho s not beng
removed.
PAR. 10. Secton 1 2.99, as ast amended by Treasury Decson 6711,
|s further amended by strkng the words operated by hm from the
frst sentence thereof.
PAR. 11. Secton 1 2.102, as ast amended by Treasury Decson 5 ,
s further amended by strkng the words operated by hm from the
frst sentence thereof.
PAR. 12. Secton 1 2.136 s amended by strkng therefrom the word
trpcate n the frst sentence and by nsertng n eu thereof tho
word quadrupcate .
PAR. 13. Secton 1 2.16 , as amended by Treasury Decson 5159
C. B. 19 2-2,295 , s further amended by strkng the second sentence
of subparagraph (a) whch begns Such acoho, when wthdrawn by
States and by nsertng n eu thereof the foowng sentence: Such
acoho, when wthdrawn by States and Terrtores, or any muncpa
subdvson thereof, or the Dstrct of Coumba, must be used soey.
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3 Begs. 3, 1 2.5 . etc
for mechanca and scentfc purposes, and, e cept upon approva by
the Commssoner, such use, or the use of any resutng product, must
be confned to premses under the contro of the State or Terrtory,
or muncpa subdvson thereof, or the Dstrct of Coumba: Pro-
vded, That ta -free acoho wthdrawn for use at hosptas, sanator-
ums, cncs, coeges, and aboratores operated by States and Terr-
tores or any muncpa subdvson thereof, or by the Dstrct of
Coumba, may be used as provded n paragraph ( ),and may, upon
approva by the Commssoner, be used at premses other than these
under the contro of the State, Terrtory, or any muncpa subdvson
thereof, or the Dstrct of Coumba.
Par. 1 . Secton 1 2.17 s amended by strkng from the frst sen-
tence the words to hs permt premses from the premses of a carrer
hodng permt to transport. and by nsertng n eu thereof the
foowng: to hs permt premses from the premses of the consgnor
or of a carrer hodng permt to transport
Pah. 15. Secton 1 2.1 6 s amended by strkng therefrom the words
Commssoner of Accounts, Secton of Surety Bonds, mmedatey
foowng the words orm 356, and by strkng therefrom the word
semannuay mmedatey foowng the words whch s ssued
and by nsertng n eu thereof the word annuay .
Par. 16. Secton 1 2.202 s amended by nsertng mmedatey after
the words a descrpton of tho premses, n the second sentence of
subparagraph (6) of paragraph (b), the foowng: or n eu thereof
reference to the successor s orm 1 31 descrbng such premses, .
Par. 17. Secton 1S2.263 s amended as foows:
(A) By addng, n the second sentence, the words e cept as pro-
vded n secton 1 2.2G3a and the word death so that the sentence
w read Lkewse, e cept as provded n secton 1 2.2C3a, the-death,
bankruptcy or ad|udcated nsovency of one or more of the copartners
resuts n a dssouton of tho partnershp and, consequenty, a change
n propretorshp.
(B) Ly strkng from tho ast sentence 1 2.202(b) (5) and nsert-
ng n eu thereof 1 2.202(b) (0) .
Par. 1 . A new secton, secton 1 2.263a s added, mmedatey after
secton 1 2.2G3, to read as foows:
Sec. 1 2.203a. cepton, Chancer A Partnershp. Where, under the aws
of tn- partcuar Snc, tho partnershp a not termnated on the death or Inso-
vency of a partner, but contnues unt the wndng up of the partnershp affars
Is competed, and the survvng partner has the e cusve rght to the contro and
possesson of tho partnershp assets for the purpose of qudaton and settement,
such survvng partner may contnue to operate the ndustra acoho pant or
bonded warehouse for such purpose under the pror quncaton of the partner-
shp, and the bond aready on fc w be consdered suffcent, provded a consent
of surety, wheren the surety and the survvng pnrtner agree to reman abe
on the bond, Is fed. If such survvng partner acqures the busness upon com-
peton of the settement of the partnershp, be must quafy n hs own name from
the date of acquston and gve a new bond on orm 1 32-A. The same rue sha
appy where there Is more than one survvng pnrtner. (S3 Stat. 353, 36 , 370
20 U. S. C. 3103,312 ,3170.)
Par. 19. Secton 1 2.293, as amended by Treasury Decson 5 01, s
further amended by nsertng, mmedatey after the frst sentence
thereof, a new sentence as foows: The remanng copy of the state-
ment o process w be forwarded to the storekeeper-gauger n charge
for ready reference.
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Regs. , 1 2.5 , etc.)
Par. 20. Secton 1 2. 01b, as added by Treasury Decson 57
C. B. 1950-1,151 , s amended as foows:
(A ) By strkng the provso from paragraph (b) and nsertng n
eu thereof the foowng: Provdea, That the consgnee may trans-
port the acoho from the premses of the consgnor or from the
premses of the deverng carrer at the pace or destnaton, to hs
own premses, or, n the case of e port, or use on vesses or arcraft,
to the pont of adng.
(B) By strkng a of paragraph (c) and nsertng n eu thereof
the foowng:
Acoho shpped In bond or ta -free In accordance wth paragraphs (a) and
(6) of ts secton must be transported by the propretor of the Industra
acoho pant, the consgnee, or the authorzed carrer personay, or by some
person reguary and e cusvey In ther empoy, and the rght to the possesson
of any vehce used for such transportaton must be vested In the vendor, vendee,
or carrer.
(C) By nsertng mmedatey after the words and transported-
by nm from the premses of the n the second sentence of paragraph
(d), the words consgnor or of the , so that the sentence w read
The consgnee w kewse be responsbe for the proper devery
to hs permt premses of acoho shpped to hm n bond or ta -free
and transported by hm from the premses of the consgnor or of the
authorzed carrer.
Pad. 21. Secton 1 2. 05, as ast amended by Treasury Decson
6005 C. B. 1953-1, 5 , s further amended as foows:
(A) By. strkng from the frst sentence the phrase A acoho
and nsertng n eu thereof the foowng: cept as provded
heren, a acoho.
(B) By strkng the word bottes from the ffth sentence thereof.
(C) By addng at the end thereof a new sentence as foows: The
Assstant Regona Commssoner may, n hs dscreton and upon
appcaton therefor by the propretor, authorze the fng of tank
shps or barges wthout transferrng the acoho to weghng tanks
f the recevng tank has been accuratey cabrated so that the actua
gaonage of acoho deposted nto the tank shp or barge may be
determned.
Par. 22. Secton 7 2. 96, as amended by Treasury Decson 57 , s
further amended as foows:
(A) By strkng therefrom the second sentence, whch begns If
the ndustra acoho pant and by nsertng n eu thereof the
foowng: If the ndustra acoho pant or Donded warehouse s
stuated n another regon, the Assstant Regona Commssoner
authorzng the return w forward two copes of hs etter of author-
ty to the Assstant Regona Commssoner of such other regon.
(B) By strkng therefrom the words , as provded n secton
1 2.6 6. appearng at the end of the thrd sentence, and nsertng a
perod n eu thereof.
Par. 23. Secton 1 2.512 s amended by strkng the word Comms-
soner n the frst sentence and by nsertng n eu thereof the words
Assstant Regona Commssoner .
Par. 2 . Secton 1 2.51 as ast amended by Treasury Decson 57 ,
s further amended to read as foows:
Tank tracks may be tsed for transportng tndenatured ethy acoho. In bond
or ta pad, sub|ect to the provsons of ths part. Undenatured ethy acoho may
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5 megs. 3, 1 2.5 . etc
be transported n bond by tank trucks ony where sutabe storage tanks are
provded on the recevng bonded warehouse premses. very tank truck used
to transport undenatured ethy acoho must conform to the foowng requre-
ments: The tank sha be securey nnd permanenty attached to the frame or
chasss of the track or traer and sha be securey constructed. Interor buk-
heads or stffcners must have proper dranage cut-outs. Outets of eacb com-
partment must be so arranged that devery of any compartment w not afford
access to the contents of any other compartment. Manhoe covers, outet vaves,
and a oter openngs sha be equpped for seang so as to prevent unauthorzed
access to the contents of the tank. Tanks sha be so constructed that they w
competey dran the contents of each compartment, even when the ground s no:
perfecty eve. Sutabe adders and catwnks, permanenty attached, must be
provded In order to permt ready e amnaton of manhoes and other openngs.
ur tank truck sha te equpped wth a route board, at east 10 by 12 nches.
constructed of substanta matera and permanenty attached thereto by round-
headed or carrage bots, nutted and rveted, battered or weded. Provson
w aso be made for protecton, aganst the weather, of the permt and abe
by the use of ceuod or equay substanta matera. In the case of unde-
natured ethy acoho transported In bond, a copy of the basc permt ( orm 1 5)
under whch transportaton Is authorzed (as requred by secton 1S2.230) and
the prescrbed abe (as requred by secton 1 2.521a) w be aff ed to such rocte
board. In the case of ta -pad acoho, the ta -pad stamp or certfcate w be
attached to such route board. Provson sha be made for the proper groundng
of tank trucks when fng or emptyng. Seray numbered cap seas for use ca
such tank trucks sha be furnshed by the Government and aff ed by the store-
keeper-gauger. Immedatey after fng, such tank trucks sha be seaed n
such a manner as w secure a openngs affordng access to the contents of
the tank. Parta devery, by meter or otherwse, w not be permtted. There
sha be but one consgnor per oad and not ess than the entre contents of any
one compartment sha bo devered to any one consgnee. Cabrated charts,
prepared or certfed by competent and recognzed authortes or engneers,
showng the capacty of each compartment In wne gaons for each nch of depth
sha be carred n each truck.
Par. 25. Secton 1 2.527, as ast amended by Treasury Decson
6711, s further amended by strkng paragraph (6) and nsertng n
eu thereof the foowng:
Ta -pad and e port stamps, after beng aff ed, w be Immedatey can-
ceed by the propretor by stencng or stampng thereon at east fve fne
parae waved nes, ong enough to e tend beyond the top and bottom of the
stamp. Such stenc or stamp sha be provded by the propretor.
Par. 26. Secton 1 2.5 , as amended by Treasury Decson 57 , s
further amended as foows:
(A) By strkng the provso from paragraph (b) and nsertng n
eu thereof the foowng: Provded, That the consgnee may trans-
port the acoho from the premses of the consgnor or from the
premses of the deverng carrer at the pace of destnaton to hs
own premses, or, n the case of e port or use on vesses and arcraft,
to the pont of adng.
(B) By strkng paragraph (c) and nsertng n eu thereof the
foowng:
Acoho shpped In bond or ta -free In accordance wth paragraphs (a) and
(o) of ths secton must be transported by the propretor of the bonded ware-
house, the consgnee, or the authorzed carrer personay, or by some person
reguary and e cusvey In ther empoy, and the rght to the possesson of any
vehce used for such transportaton must be vested n the vendor, Tendee, or
carrer.
(C) By nsertng mmedatey after the words and transported
by hm from the premses of the - n the second sentence of paragraph
(d), the words consgnor or from the premses of the , so that the
sentence w read The consgnee w kewse be responsbe for the
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Regs. 3, 1 2.5 , etc. 6
proper devery to hs permt premses of acoho shpped to hm n
bond or ta -free and transported by hm from the premses of the
consgnor or from the premses of the authorzed carrer.
PAR. 27. Secton 1 2.57 a, as amended by Treasury Decson 5 01,
s further amended by nsertng, mmedatey after the words cer-
tfcate of ta payment. orm 1595, n the ffth sentence, the words
or the canceed dsted sprts e cse ta stamps, .
PAR. 2 . Secton 1 2.57 d, as amended by Treasury Decson 57 ,
s further amended by nsertng a perod after the words attached to
a package n the second sentence, and by strkng therefrom the
baance of the sentence, whch reads and covered wth a coatng of
transparent varnsh, sheac, or acquer to prevent any ateraton
thereof.
PAR. 29. Secton 1 2.653 s amended by strkng paragraph (c) and
headnote and nsertng n eu thereof the foowng:
Permttees quafyng cthn a caendar month. Where a new permttee
quafes wthn a caendar month, the wthdrawa permt, orm 1 50, w be
modfed to snow tbe proportonate quantty of acoho to whch the permttee
may be entted for the baance of the month In whch he quafes, In addton
to the quantty whch may be procured durng any one caendar month.
PAR. 30. Secton 1 2.C60, as amended by Treasury Decson 5159, .
s further amended as foows:
(A) By nsertng the words e cept upon approva of the Com-
mssoner, mmedatey foowng the words and scentfc purposes,
and, .
(B) By changng the perod at the end thereof to a comma and by
addng the foowng: 1 2.662 or 1 2.663, as the case may be, and may,
wth the approva of the Commssoner, be used at premses other
than those under the contro of the State, Terrtory, or muncpa
subdvson thereof, or the Dstrct of Coumba.
PAH. 31. Secton 1 2.66 , as amended by Treasury Decson 57 , s
further amended to read as foows:
Where ta -free acoho, awfuy In the possesson of a ta -free permttee, Is
found to be unsutabe for use, or where such permttee dscontnues the use
thereof, or where for any other egtmate reason such permttee desres so
to do, such acoho may be returned to the Industra acoho pant or bonded
warehonse from whch receved, for awfu dsposton: Provded, That (1)
consent of surety Is fed on the bond (f any) of the ta -free permttee e tend-
ng the terms thereof to cover the transportaton of the acoho to the pant or
bonded warehouse, (2) the propretor of such pant or bonded warehouse
assents to such return, and (3) permsson for such return Is In each nstance
frst obtaned from tbe Assstant Regona Commssoner of the regon n whch
the ta -free permttee s ocated. If the ndustra acoho pant or bonded
warehouse s stuated n another regon, the Assstant Regona Commssoner
authorzng the return w forward two copes of hs etter of authorty to the
Assstant Regona Commssoner of the regon n whch the ndustra acoho
pant or bonded warehouse s ocated, who w forward both copes to the
storekeeper-gauger In charge of the pant or warehouse. Upon arrva of the
acoho, the storekeeper-gauger In charge w Indcate the recept thereof on both
copes of the etter, and return one copy to each Assstant Regona Comms-
soner concerned. Shoud the acoho not be reported receved by the propretor
of the pant or warehouse n due tme, the Assstant Regona Commssoner of,
the regon In whch the permttee s ocated w make approprate Investgaton
In respect thereto. Report of the return of the acoho to the pant or bonded
warehouse w be made by the ta -free permttee on hs monthy report. orm
1 51, by the propretor of the Industra acoho pant on hs pant report. orm
1-M-, and by the warehouseman on hs warehouse report, orm 1 -13-B.
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7 (Regs. 3, 1S2.5S, et
Par. 32. Secton 1 2.677 s amended as foows:
(A) By strkng the provso from paragraph (a) and nsertng
n eu thereof the foowng: Provded, That consgnees.may trans-
port competey denatured acoho from the premses of the consgnor
or from the premses of the deverng carrer at the pace of
destnaton to ther own premses.
(B) By strkng the provso from paragraph (b) and nsertng
n eu thereof the foowng: Provded, That specay denatured
acoho permttees may transport specay denatured acoho from
the premses of the consgnor or from the premses of the deverng
carrer at the pace of destnaton to ther own premses, or, n the
case of e port, to the pont of adng.
(C) By nsertng the word , vendee, after the word vendor ,
wherever t appears n paragraph (c).
(D) By nsertng, mmedatey after the words transported by
hm from the premses of the n the second sentence of paragraph
( A ), the words consgnor or from the premses of the , so that tne
sentence w read: The consgnee w kewse be responsbe for
the proper devery to hs premses of competey or specay de-
natured acoho transported by hm from the premses of the consgnor
or from the premses of the authorzed carrer.
Par. 33. Secton 1 2.719 as amended by Treasury Decson 5S01,
s further amended by strkng therefrom paragraph (a) and nsertng
n eu thereof the foowng:
(a) denaturng In packages w be permtted to the e tent of preparng
speca formuas that are occasonay produced at the pant If such producton
docs not, uness speca permsson Is frst obtaned from the Assstant Regona
Commssoner, e ceed 10 packages (not e ceedng 600 gaons In the aggregate)
of any one formua on the same day: Provded, That specay denatured aco-
ho formuas 1 , 2 , 25 and 25 aternatve, may, upon notce to the Assstant
Regona Commssoner, be m ed n any quantty .
Par. 3 . Secton 1 2.729 s amended as foows:
(A) By strkng the word Commssoner mmedatey foowng
the words speca authorzaton granted by the , n the frst sentence,
and by nsertng n eu thereof the words Assstant Regona Com-
mssoner .
(B) Bv addng a new sentence at the end thereof, to read as fo-
ows: The Assstant Regona Commssoner may authorze the
remova of denatured acoho n tank shps or barges by voumetrc
determnaton wthout weghng such denatured acoho.
Par. 35. Secton 1 2.730, as amended by Treasury Decson 5SS ,
s further amended as foows:
(A) By strkng therefrom the frst sentence of paragraph (a)
and by nsertng n eu thereof the foowng: Ppenes constructed
n conformty wth the provsons of secton 1 2.9 w be consdered
as approved contaners ony for the purpose of transferrng specay
denatured acoho from the denaturng pant to contguous Dondea
deaer premses or manufacturng premses covered by Dasc permt,
orm 1 76 or orm 1 1, as the case may be.
Par. 3G. Secton 1 2.7 9, as ast amended by Treasury Decson
5 01, s further amended by strkng from the frst sentence the words
and tank cars , mmedatey precedng the words the propretor
w prepare two copes of orm 1 67.
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Regs. 3, 1 2.5 , etc.
PAR. 37. Secton I 2.7 9a, as added by Treasury Decson 57 , s
amended as foows:
(A) By strkng therefrom the words or n a tank car m-
medatey foowng the words coverng shpments n packages , n
the frst sentence.
(B) By strkng the ffth sentence, whch begns Where packages
bear evdence and by nsertng n eu thereof the foowng: Where
packages bear evdence of havng sustaned osses n transt, the oss
w be determned.
(C) By nsertng, mmedatey after the s th sentence, whch
begns The storekeeper-gauger w make a report the foowng new
sentence: The denatured acoho w be deposted n accordance wth
secton 1 2.752.
PAR. 3 . Secton 1 2.750, as ast amended by Treasury Decson
57 , s further amended as foows:
(A) By strkng therefrom the words and tank cars mmed-
atey precedng the words , the propretor w prepare three copes
of I orm 1 67 n the frst sentence.
(B) By strkng therefrom the thrd sentence and by nsertng n
eu thereof the foowng: The propretor w gve a copes to
the storekeeper-gauger n charge wno sha, at the tme of shpment,
orward one copy each of orms 1 67 and 1 73 to the consgnor
Assstant Regona Commssoner, one copy each of orms 1 67 and
1 73 to the consgnee Assstant Regona Commssoner, one copy of
orm 1 67 and two copes of orm 1 73 to the storekeeper-gauger
n charge of the recevng denaturng pant, and return the remanng
copy of orm 1 73 to the propretor for fng n accordance wth
secton 1 2.7 .
PAR. 39. Secton 1 2.751, as amended by Treasury Decson 57 ,
p further amended as foows:
(A) By strkng from the frst sentence the words or n a tank car
mmedatey foowng the words coverng shpments n packages .
(B) By strkng therefrom the ffth sentence, whch begns Where
packages bear evdence and by nsertng n eu thereof the foow-
ng: Where packages bear evdence 01 havng sustaned osses n
transt, the oss w be determned.
(C) By strkng therefrom the eeventh sentence, whch begns
The supervsor-consgnee w e ecute and by nsertng n eu
thereof the foowng: The consgnee Assstant Regona Comms-
soner w e ecute hs certfcate of report of recept n Part I of
both copes of orm 1 73 and forward to the consgnor Assstant
Regona Commssoner the copy of orm 1 73 sent to hm at the tme
of shpment
(D) By strkng from the thrteenth sentence the words supervsor-
consgnor and by nsertng n eu thereof the words consgnor
Assstant Regona Commssoner .
PAR. 0. Secton 1 2.752a, as added by Treasury Decson 57 , s
amended as foows:
(A) By nsertng the words tank cars or n the frst sentence, m-
medatey foowng the words When denatured acoho s shpped n .
(B) By strkng therefrom the thrd sentence and nsertng n eu
thereof the foowng: The propretor w dever a copes of orm
1 73 to the storekeeper-gauger n charge who sha, at the tme of shp-
ment, send one copy to the Assstant Regona Commssoner of the
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9 Regs. 3, 5 1 2.5 , etc.
regon ma two copes to the storekeeper-gauger n charge of the
recevng denaturng pant n the case of tank car transfers, or n
the case of tank truck transfers, ma one copy to the storekeeper-
gauger n charge of the recevng denaturng pant, encose one copy
n a seaed enveope addressed to such storekeeper-gauger and gve the
same to the drver of the tank truck for devery to the storekeeper-
gauger n charge and return the remanng copy to the propretor for
fng n accordance wth secton 1 2.7 .
Par. 1. Secton 1 2.752b, as added by Treasury Decson 57 , s
amended as foows:
(A) By strkng the frst two sentences and nsertng n eu thereof
the foowng sentences: orms 1 73. coverng shpment n a tank
car or tank truck, receved by the storekeeper-gauger n charge of the
recevng denaturng pant w be devered to the propretor. When
the copy, or copes, sent by ma are receved pror to the recept of
the acoho, the storekeeper-gauger w make approprate memoran-
dum entry of the shpment before deverng such forms to tho
propretor.
(B) By nsertng the words raroad tank car or n the ffth sen-
tence mmedatey after the words Where the .
(C) By nsertng, mmedatey after the seventh sentence, whch
begns The storekeeper-gauger w make a report , a new sentence
to read as foows: The denatured acoho w be deposted n accord-
ance wth secton 1 2.752.
Par. 2. Secton 1 2.752c, as added by Treasury Decson 57 , s
amended as foows:
(A) By strkng the frst sentence and nsertng n eu thereof
the foowng: When denatured acoho s shpped n tank cars or
tank trucks to another denaturng pant n a dfferent regon, the pro-
pretor w prepare fve copes of orm 1 73 reportng the shpment.
(B) By strkng the thrd sentence, whch begns The propretor
w dever and nsertng n eu thereof the foowng: The pro-
pretor w dever a copes of orm 1 73 to the storekeeper-gauger
n charge who sha, at the tme of shpment, forward one copy to
the consgnor Assstant Regona Commssoner one copy to the con-
sgnee Assstant Regona Commssoner ma two copes to the store-
keeper-gauger n charge of the recevng denaturng pant n the case
of tank car transfers, or n the case of tank truck transfers, ma one
copy to tho storekeeper-gauger n charge of the recevng denaturng
pant, encose one copy n a seaed enveope addressed to such store-
keeper-gauger and gve the same to the drver of the tank truck for
devery to the storekeeper-gauger n charge and return the reman-
ng copy to the propretor for fng n accordance wth secton
1 2.7 .
Par. 3. Secton 1 2.752d, as added by Treasury Decson 57S , s
amended as foows:
(A) By strkng the frst two sentences and nsertng n eu
thereof the foowng: orms 1 73, coverng shpment n a tank car
or tank truck, receved by the storekeeper-gauger n charge of the
recevng denaturng pant w be devered to the propretor. Where
the copy, or copes, sent by ma are receved pror to the recept of
the acoho, the storekeeper-gauger w make an approprate memo-
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Regs. 3, 1 2.5 , etc 90
randum entry of the shpment before deverng such forms to the
propretor.
(B) By nsertng the words raroad tank car or mmedatey
after the words Where the n the ffth sentence.
(C) By strkng the eeventh sentence, whch begns The super-
vsor-consgnee w e ecute and by nsertng n eu thereof the
foowng. The consgnee Assstant Regona Commssoner w e e-
cute hs certfcate of report of recept n Part I of both copes of
orm 1 73 and forward to the consgnor Assstant Regona Com-
mssoner the copy of orm 1 73 sent to hm at the tme ot shpment.
(D) By strkng the thrteenth sentence, whch begns The super-
vsor-consgnor w check orm 1 73 and by nsertng n eu thereof
the foowng: The consgnor Assstant Regona Commssoner w
cheek orm 1 73 sent to hm at the tme of shpment wth the con-
sgnor s monthy report and f found to agree therewth ho w nta
Part II of the form/
Par. . Secton 1 2.753, as amended by Treasury Decson 57 ,
s further amended to read as foows:
Deaers and users may purchase competey denatured acoho for resno
or for ther own use. Transfers of competey denutured acoho In buk to
a fng agency of the dennturcr on premHog contguous to or In the Immedate
vcnty of hs denaturng pant nnd the packagng and dsposon of such
competey denatured acoho sha be governed by sectons 1 2.725, 1 2.727,
1 2.72 , 1 2.730, 1 2.731, 1 2,732, 1 2.733, 1 2.73 , 1 2.735. 1 2.730, 1 2.73 ,
3S2.7 1 and 1 2.7 2. Competey denatured acoho removed from denaturng
pants (other than by ppene) must be transported In accordance wth sec-
ton 1 2.C77. orm 1 07 w be prepared In dupcate to cover the transfer by
ppene of competey denatured acoho from the denaturng pant to a tng
ngency of the dennturcr on premses contguous to hs denaturng pant. One
copy w bo scut to the Assstant Itcgonu Commssoner nnd the remanng
copy w be fed by the propretor of the denaturng pant In accordance wth
secton 1S2.7S . orm 1 73 w be prepared coverng removas of competey
denatured acoho from the denaturng pant n tank trucks. In such case,
orm 1 73 w be modfed to show shpment of competey denatured acoho
nnd w be prepared and dsposed of In accordance wth secton 1 2.75 b or
1 2.75 c, as the case may be.
Pah. 5. Secton 1 2.75 , as ast amended by Treasury Decson
6 , s further amended by strkng therefrom the fourth sentence,
whch begns Specay denatured ucoho may aso bo removed , and
by nsertng n eu thereof the foowng: Specay denatured aco-
ho may aso be removed by ppene to contguous bonded deaer
premses or manufacturng premses covered by basc permt, orm
1 76 or orm 1 1, n accordance wth the provsons of secton
1 2.730 (a), f the recevng premses are equpped wth sutabe
storage tanks.
Pab. 6. Secton 1 2.7 , as amended by Treasury Decson 57 , s
further amended by strkng from the thrd sentence the words and
tank cars so that the sentence w read as foows: In the case of
transfer n packages of denatured acoho between denaturng pants
orms 1 67 wth orm 1 73 attached w be fed n chronoogca
order by months and n bound form as a permanent record.
Pah. 7. Secton 1 2. 06 s amended by strkng paragraph (c) and
the headnote of paragraph (c) and by nsertng m eu thereof the
foowng:
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91 Regs. 3, 1 2.5 , etc
Bonded deaer quafyng tthfn a caendar month. Where a new bonded
deaer quafes wthn a caendar month the wthdrawa permt. orm 1 77.
w be modfed to show the proportonate quantty of specay denatured aco-
ho to whch the bonded dener may be entted for the baance of the month
n whch he quafes, n addton to the quantty whch may be procured darng
any one caendar month.
Par. . Secton 1 2. 12, as amended by Treasury Decson 556 , s
further amended by strkng therefrom the frst sentence and by nsert-
ng n eu thereof the foowng: Bonded deaers who receve spe-
cay denatured acoho n tank cars, tank trucks, or by ppene and
transfer the same to storage tanks n ther storerooms, as provded n
secton 1 2. 11, may f packages of such specay denatured acoho.
Par. 9. Secton 1 2. 29 s amended by strkng paragraph (c) and
the headnote of paragraph (c) and by nsertng n eu thereof the
foowng:
rcrmttcc quafyng uttn a caendar month. Where new permttees quafy
wthn a caendar month tho wthdrawa permt. orm 1 S5, w be modfed to
show the proportonate quantty of specay denatured acoho to whch the
permttee may be entted for tho baance of the month In whch he quates. In
addton to the quantty whch may bo procured durng any one cnendnr month.
Par. 60. Secton 1 2.90 , as ast amended by Treasury Decson 57 3,
s further amended by strkng therefrom paragrnph (a) and the head-
note of paragraph (a) and by nsertng n eu thereof the foowng:
Tank trvcct. Shpment of acoho or denatured acoho In tank trucks may be
made ony when the premses of the consgnee are equpped wth a suffcent num-
ber of acoho storage tanks for the storage of such acoho and the consgnee Is
otherwse authorzed to receve such shpment.
Par. 51. Secton 1 2.93 s amended by strkng therefrom the word
tmo mmedatey after the words sna stamp on each report or
form the and by nsertng n eu thereof the word date .
Par. 52. Secton 1 2.9G3 s amended by strkng therefrom the frst
sentence and by nsertng n eu thereof the foowng: Assstant
Regona Commssoners sha stamp on each report or form the date
of recept of the reports or forms by them from Government offcers
and permttees n accordance wth the provsons of ths part.
13ccnuso tho amendments made by ths Treasury Decson are of a
berazng character, t s unnecessary to ssue ths Treasury Decson
wth notce and pubc procedure thereon under secton (a) of the
Admnstratve Procedure Act, approved une 11,19 6, or sub|ect to
the effectve date mtatons of secton (c) of sa,d Act.
Ths Treasury Decson sha be effectve upon ts pubcaton n the
edera Regster.
(Ths Trensury Decson s ssued under the authorty contaned n
sees. 3105, 312 and 3176 of the Interna Revenue Code (53 Stat. 3 5,
36 ,375 26 U. S. C. 3105,312 ,3176).)
T. Coeman Andrews,
Commssoner of Interna Revenue.
Approved une 2 ,195 .
M. B. osom,
Actng Secretary of the Treasury.
(Pubshed n the edera Regster uy 2,1051)
asssu 3 32
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Regs. 3, 1 2.15a.) 92
S CTION 3101. STABLISHM NT O INDUSTRIAL
ALCOHOL WAR HOUS S
Reguatons 3, Secton 1 2.511: Raroad tank Rev. Ru. 5 -503
cars.
A raroad tank ear used for the transfer of acoho In bond need
not be equpped wth a route board.
Advce s requested whether tank cars used e cusvey for the trans-
fer of acoho n bond must have route boards attached thereto.
Secton 1 2.511(b) of Reguatons 3 provdes n part that raroad
tank cars used for the transportaton of acoho, whether n bond,
ta -free, or ta -pad, must be equpped wth a route board to whch
the prescrbed stamp or certfcate can be attached.
Reguatons 3, pror to amendment by Treasury Decson 553 ,
C. B. 19 6-2, 20 , requred that an ndustra acoho transfer stamp
be attached to each contaner of acoho transferred n bond from
one bonded warehouse to another such warehouse, or to a denaturng
pant not on the same premses wth the bonded warehouse. How-
ever, snce pursuant to such Treasury Decson transfer stamps are no
onger requred n connecton wth transfers of acoho n bond, there
s now no need for havng route boards on raroad tank cars used for
the transfer of acoho n bond. Accordngy, a raroad tank car
used e cusvey for the transportaton of acoho n bond need not be
equpped wth a route board. However, n the event any such ra-
road tank car s dverted to use for transportng ta -pad or ta -free
acoho, e cusvey or aternatey, t must frst be equpped wth a
route board as provded n secton 1 2.511(b) of Reguatons 3.
S CTION 3105. R GULATIONS OR STABLISHING,
BONDING, AND OP RATION O PLANTS AND WAR -
HOUS S
Reguatons 3, Secton 1 2.15a: qupment not n T. D. 6090
budngs.
(Aso Sectons 312 ,3176 Secton 1 2.26, etc.)
TITL 20 INT RNAL R NU . CHAPT R I. SUBCHAPT R C, PART 1 2.
INDUSTRIAL ALCOHOL
Msceaneous amendments
Treasury Department,
Oppce op Commssoner op Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On uy 2 , 195 , notce of proposed ruemakng wth respect to
amendments of Reguatons 3 (26 C R pt 1 2) was pubshed n the
edera Regster (19 . R. 633). The purposes of the amendments
were stated as (1) to provde for the recept and use of materas and
the dstaton ofacono wthout supervson by a storekeeper-gauger
under certan condtons, (2) to permt the propretor of a denatur-
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93 Regs. 3, 1S2.15 .
ng pant to receve, package and remove denatured acoho durng
reguar busness hours, and at other hours on approprate notce, wth-
out supervson of a storekeeper-gauger, (3) to provde for checkng
of the carrer s permt, e amnng of conveyances, seang of openngs,
and dstrbutng of forms by the propretor on remova of denatured
acoho, ( ) to conform wth the provsons of Treasury Decsons
5005 and 5075 reatve to the reuse, markng and numberng of stee
drums, (5) to provde that copes of orms 1 0 and 92 be forwarded
to the storekeeper-gauger at a rectfyng pant or ta pad bottng
house, (G) to dscontnue the use of orm 1 73 coverng shpments of
competey denatured acoho, (7) to deete admnstratve nstruc-
tons whch are to be ncorporated n nterna management documents,
and ( ) to requre a cosed dstng system to commence at the
pont where access to the contents of any vesse, ppe, or other con-
taner n the system woud consttute a |eopardy to the revenue.
Snco no comments regardng tho proposas were receved from
nterested persons durng tho 15-day perod, tho foowng amend-
ments to Reguatons 3 (26 C R pt 1 2) are hereby adopted:
Paragraph 1. Whenever the term supervsor or dstrct super-
vsor appears n the sectons of the reguatons revsed by ths Treas-
ury Decson, such term s hereby amended to read Assstant Re-
gona Commssoner, and wherever the term dstrct or superv-
sory dstrct s used, such term s hereby amended to read regon.
Assstant Regona Commssoner sha mean the Assstant Re-
gona Commssoner, Acoho and Tobacco Ta who s responsbe to,
and functons under the drecton and supervson of, the Regona
Commssoner.
Par. 2. Sectons 1 2.33 ,1 2.330,1 2.3 2,1 2.3 ,1 2.3 9,1 2.351,
1 2.361, 1 2.396, 1 2. 1 , 1 2. 5 , 1 2.7 1, 1 2.761, 1 2. 0 , 1 2.933
and 1S2.93 are revoked.
Par. 3. Secton 1 2.15a, as amended by Treasury Decson 5S01
C. B. 1950-2,15 , approved August 11,1950, s further amended by
strkng from the second sentence the foowng: Hgh wne tanks,
recevng tanks, and substtutng n eu thereof the foowng: Re-
cevng tanks.
Par. . Secton 1 2.26 s amended as foows:
(A) By strkng the word must between tho words propretor
and provde n the frst sentence and substtutng n Geu thereof
the word may.
(B) By strkng the perod at the end of the second sentence whch
begns 1 ho wno room and substtutng a comma and tho foowng:
e cept that Government ocks w not be requred on the doors or
on wndows openng onto fre escapes.
(C) By strkng the fourth sentence whch begns A doors of.
Par. 5. Secton 1 2.27 s amended to read as foows:
Sec. 1S2.27. Mea Rook. If mea Is to be stored on the ndustra acoho pant
premses, the propretor must provde for the purpose a sutabe room, e cept
that where substantay constructed bns of suffcent capacty are nstaed for
the storage of mea a separate mea room need not be provded. The mea room
must be we-ghted, and a sgn bearng the words Mea Boom must be paced
over the entrance door.
Par. 6. Secton 1 2.2 s amended as foows:
(A) By strkng the ast four words wth a Government ock n
tho frst sentence.
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Regs. 3, 1 2.15s. 9
(B) By strkng the words wth Government ocks n the thrd
sentence.
Par. 7. Secton 1 2. , as amended by Treasury Decson 5711 C. B.
19 9-2,1 0 , approved uy 1,19 9, s further amended by strkng
the frst sentence and nsertng n eu thereof the foowng sentence:
Denaturng pants must be constructed In accordance wth the appcabe prov-
sons of sectons 1 2.15 to 1 2.25, Incusve, and secton 1 2. 1, e cept that the
propretor w provde ocks to secure the doors of the denaturng pant budng
and wndows openng onto Are escapes and furnsh the Assstant Regona Com-
mssoner wth keys as requred by secton 1 2.35 .
Par. . Secton 1 2.52 s amended by strkng the ast four word3
wth a Government ock from the thrd sentence whch begns The
entrance door .
Par. 9. Secton 1 2.6 s amended by strkng the ast three words
wth Government ocks from the second sentence whch begns The
nets, .
Par. 10. Secton 1 2.69 s amended by strkng the words wth
Government ocks from the secton.
Par. 11. Secton 1 2.72, as amended by Treasury Decson 5 01,
s further amended by strkng the words wth a Government ock
from the fourth sentence whch begns The outet vave .
Par. 12. Secton 1 2.73, as amended by Treasury Decson 5711,
s further amended by addng at the end thereof the foowng
sentence:
The dscharge ne of every pot or kette st must be secured to the sewer In
such a manner as to precude the recovery of acoho from the dscharge ne,
e cept that where t s not practcabe to secure such dscharge nes to sewers,
the Assstant Regona Commssoner may approve other constructon, If be
fnds that such other constructon w afford adequate protecton.
Par. 13. Secton 1 2.7 , as amended by Treasury Decson 607 ,
page 1, ths Buetn, approved une 2 , 195 , s further amended
as foows:
(A) By strkng the words wth a Government ock n the eeventh
sentence whch begns Such ppenes must .
(B) By strkng the twefth sentence whch begns Ppenes used
for and substtutng therefor the foowng two sentences:
Tanks used as receptaces for ow wnes, hgh wnes, and heads and tas may
be permanenty connected wth ppenes for the conveyance thereto of ar,
chemcas, and water but the ppenes for the conveyance of chemcas and water
must be aff ed to the top of the tank In such a way as to effectvey prevent
the abstracton of the contents of the tank and may not e tend Into the tank.
Ppenes used for the conveyance of ar must be equpped wth a check vave
ocated near the pont of entry to the tank n order to effectvey prevent the
abstracton of the contents of the tank.
Par. 1 . Secton 1 2.75 s amended by strkng the ast four words
secured wth Government ocks from the ast sentence whch begns
Ppenes connected wth and substtutng n eu thereof the word
ocked .
Par. 15. Secton 1 2.7 s amended to read as foows:
Sec. 1 2.7 . Hoh Wnes, I w Wres ob Unfnshed Acoho Tanks. Where
ow wnes, hgh wnes, and unfnshed acoho are produced, sutabe tanks for the
recepton of such acoho, ow wnes, and hgh wnes must be provded. The
tanks sha be constructed and secured n conformty wth the provsons of
secton 1 2.7 , e cept that Government ocks w not be requred on the net or
outet vaves. ach such tank sha have pany and egby ponted thereon
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. 95 Regs. 3, 1 2.15a.
the words Low Wne Tank, Hgh Wne Tank, or Unfnshed Acoho Tank,
as the case may be, foowed by ts sera number and capacty In wne gaons.
These tanks sha be connected by means of f ed meta ppenes wth the sts
or the charge or feed tanks thereof, In whch the acoho Is to be redsted.
The ppenes connected wth such tanks sha be provded wth TaTes to con-
tro the fow of acoho Into and out of the tanks and such vaves sha be so
constructed that they may be cosed and ocked. Where the propretor znat
add chemcas to the contents of the tanks durng the absence of the storekeeper-
ganger, the Assstant Regona Commssoner may approve, for the ntrodce-
ton of the chemcns, devces that effectvey prevent the abstracton of the
contents of the tanks. Where the propretor desres to charge pot or kette
sts In the absence of the storekeeper-gnuger, he must provde such measurng
devces as may be necessary to determne the quantty of acoho wthdrawn
from the tanks. If the propretor desres to wthdraw sampes from the tank,
t w be necessary that be nsta a sampng devce as provded for a secton
1 2.392.
Par. 16. Secton 1 2. 1 s amended to rend as foows:
Sec. 1S2.S1. Stopcocks or Recevho Tanks. The stopcocks whch contro
the fow of acoho Into the recevng tanks must be so arranged that the acoho
may be run Into any of the tanks.
Par. 17. Secton 1 2. 2, as amended by Treasury Decson 5 01, s
further amended as foows:
(A) By strkng the frst sentence and substtutng n eu thereof
the foowng sentence:
The dstng system must be cosed, commencng wth the frst st where
entry nto the system woud consttute a eopardy to the revenue, and con-
tnung wth securey cosed vesses and ppes to the recevng tanks n whch
the fnshed product s deposted.
(B) By strkng the thrd sentence and substtutng n eu thereof
the foowng sentence:
A vaves, anons, fanges and other detachabe connectons n the ppenes
of the dstng system between the pont where the cosed system begns and the
recevng tanks must be so secured by brazng, wedng, fastenng and seang,
or ockng wth Government ocks as to effectuay prevent dsconnecton and
access to the acoho.
Par. 1 . Secton 1 2.9 , as amended by Treasury Decson 556S
C. B. 10 7-2, 227 , approved uy 3, 19 7, s further amended by
deetng the second sentence and substtutng n eu thereof the
foowng sentence:
Where denatured acoho storage tanks are provded, they sha be constructed
and secured n conformty wth the provsons of secton 1S2.7 , e cept that
the propretor sha furnsh the ocks necessary to ock the openngs to the tanks,
and must be equpped wth a sutabe measurng devce whereby the actua con-
tents w be correcty ndcated: Provded, That wooden storage tanks may
be used for formuas for whch meta storage tanks are unsutabe.
Par. 19. Secton 1 2.9 , as amended by Treasury Decson 5S
C. B. 1952-1, 239 , approved ebruary 21,1952, s further amended .
to read as foows:
Sec. 1 2.0 . Ppenes. Ppenes for the conveyance of acoho to and from
acoho storage tanks, from such tanks to weghng or m ng tanks, and
ppenes for the conveyance of qud denaturants, sha be of a f ed and
permanent character, constructed, secured, and e posed to vew throughout ther
entre ength, n conformty wth the provsons of secton 1 2. 2. Ppenes
for the conveyance of denatured acoho from m ng tanks to packagng or
oadng factes or to denatured acoho storage tanks, If provded, and to con-
tguous premses sha be securey constructed and connected, and so arranged
as to be e posed to vew throughout ther entre ength. Ppenes for the
conveyance of denatured acoho to contguous premses sha be equpped wth
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R gB. ,. 1 2.15a. 96
a vave wthn the denaturng pant In order that the same may be ocked when
denatured acoho Is not beng removed.
ar. 20. Secton 1 2.32 s amended as foows:
(A) Paragraph (b) s amended to read as foows:
(b) Bonded u-archousc or denaturng pant. A operatons at a bonded ware
house and the recept or remova of denaturants or acoho and the denatura-
ton of a acoho at a denaturng pant sha be conducted darng reguar
busness hours, e cept when otherwse approved by the Assstant Regona Com-
mssoner. Denatured acoho may be receved at or removed from the de-
naturng pant at other hours upon wrtten notce devered by the propretor
to the atorekecper-gauger n charge.
(B) Paragraph (c) s amended to read as foows:
(c) Uter and deaers n pecay denatured acoho. Whenever a person
quafed to use or to dea n specay denatured acoho, or recover denatured
acoho or artces n the form of denatured acoho, proposes to operate at
hours other than between 7: 00 a. m. and 6: 00 p. n., or on Sundays and ega
hodays, a notce so to do sha be frst submtted to the Assstant Regona
Commssoner.
Par. 21. Secton 1 2.335, as amended by Treasury Decson 57
C. B. 1950-1, 151 , approved May ID, 1950, s further amended to
rend as foows:
Sec. 1 2.335. Wetohno Materas Receved. cept as provded In secton
1 2.65, the propretor w wegh or, n the case of quds, wegh or measure a
materas receved on the Industra acoho pant premses Intended for use
n the producton of acoho. He w mantan approprate commerca records
of a such materas receved, showng the date of recept, the name of the con-
cern or person from whom the materas were purchased, and the knd and
quantty of each matera, and w report on orm 1 2 the tota quantty of
each knd of matera receved durng the month, provded, however, that the
Assstant Regona Commssoner may, n hs dscreton, requre that recepts
of materas be reported day on orm 1 2.
Par. 22. Secton 1 2.3 1, as amended by Treasury Decson 57 ,
s further amended to read as foows:
Sec. 1 2.3 1. T se or Materas Other thaw for the Productoh or
Acoho- Where materas are used prmary for the producton of substances
other than ethy acoho, such as buty acoho, Isopropy acoho, acetone, etc.,
and such materas produce a sma amount of ethy acoho as a by-product,
a separate record w be kept on orm 1 2 for each process or fermentaton,
showng the materas used and the resutng producton of ethy acoho and
chemcas therefrom. The storekeeper-gauger w keep a separate record on
orm 1CSC of the resutng producton of etby acoho.
Par. 23. Secton 1 2.3 3 s amended by strkng the frst sentence
and substtutng n eu thereof the foowng:
ach propretor w have prnted, n unform sze, sps whch show the date,
name, number, and ocaton of the Industra acoho pant, the knd and quan-
tty of materas used, and the sera numbers of the fermenters fed, together
wth such other nformaton as may be requred.
Par. 2 . Secton 1 2.3 5, as amended by Treasury Decson 57 ,
s further amended as foows:
(A) By strkng the second sentence of paragraph (a) and sub-
sttutng n eu thereof the foowng sentence:
The remova of such materas w be entered by the propretor on orm 1 2.
(B) By strkng the thrd sentence of paragraph (b) and nsertng
n eu thereof the foowng sentence:
Tho destructon of to matera w bo entered by tbo propretor on orm
1 2.
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97 Regs. 3, 1 2.15a.
(C) By strkng the second sentence of paragraph (c) and sub-
sttutng n eu thereof the foowng sentence:
If destructon Is authorzed, It w be entered by the propretor oa orm 1 2.
Par. 25. Secton 1 2.3 0, as amended by Treasury Decson 57SS,
s further amended to read as foows:
Sec. 1 2.3 0. Materas fob Teast Mash. Materas capabe of producng
acoho whch are used In preparng yeast mash w be weghed or measured
by the propretor, who w mnke proper record on orm 1 2. If the materas
used In a yeast mush have been Incuded In the materas weghed or meas-
ured by the propretor for use In the producton of the man mash, no entry
w be made on orm 1 2.
Par. 20. Secton 1 2.3 7 s amended to read as foows:
Sec 1 2.3 7. Materas for Yeast Cuture. The propretor w not be
requred to report on orm 1 2 the materas used In preparng pure yeast cu-
tures or |ug yeast whch Is added to t -.e yeast mash. The pure yeast cutures
or ug yeast may be prepared and hed for use as needed.
Par. 27. Secton 1 2.3.r 2, as amended by Treasury Decson 57SS,
s further amended to read as foows:
Src. 2.3.-.2. Test or Heer and op. Immedatey before dstaton, the
propretor w thoroughy agtate the contents of each fermentcr and take a
anc of beer or other dstng matera from each fermenter to determne the
acohoc content of the beer or other dstng matera. He w aso take
day severa representatve sampes of sop or spent beer after the same has
come from the st and determne the acohoc content of each sampe. He w
test the beer or other dstng matera and sop and compute the cacuated
yed.
Par. 2 . Secton 1 2.353. s amended by deetng the frst sentence
and substtutng n eu thereof the foowng sentence:
The process of dstaton empoyed must be such that the acoho w pass
through contnuous cosed sts, ppes, and vesses from the frst st where entry
nto the system woud consttute a eopardy to tho revenuo unt the fnshed
acoho Is deposted n the recevng room In ocked recevng tanks provded for
that purpose.
Par. 29. Secton 1 2.35 , as amended by Treasury Decson 57 , s
further amended to read as foows:
Sec. 1 2.35 . Gaug o or Unfnshed Acoho. At the cose of the month
the storekeeper-gauger w make an accurate gauge of a unfnshed acoho,
hgh wnes, and ow wnes on band and report the tota quantty on orm 16 C.
Par. 30. Secton 1 2.391, as amended by Treasury Decson 57 , s
further amended to read as foows:
Sec. 1 2.391. Procedure. Carbon do de may be recovered from fermenters
and removed from the pant premses provded t s frst thoroughy washed or
scrubbed and purfed to remove the acoho therefrom. Where carbon do de
s recovered, the wash water may be coected In a recevng tank and transferred
by ppene to a fermenter or to a beer we. Where the wash water Is trans-
ferred to a fermenter, the transfer must be made before the testng of the beer
by the propretor at the tme of dstaton. Where the wash water Is trans-
ferred to a beer we after the cacuated yed has been determned, the acohoc
content, the number of gnons, and the cacuated yed thereof w be deter-
mned by the propretor, and Interned n nrt I of orm 1 2. The acohoc
content of the wash water w be determned In accordance wth an approved
method. If the wnsh water s not utzed n the manufacture of acoho. It
w be run nto the sewer or otherwse destroyed on the premses. ntry of such
dsposton w not be made on orm 1 2.
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Regs. 3, 1 2.15a.) 9
PAH. 31. Secton 1 2.392, as amended by Treasury Decson 573
C. B. 19 2-2,175 , approved August 25,19 9, s further amended to
read as foows:
S O. 1 2.392. UN INISH D ALCOHOL. On approva by the storekeeper-ganger
In charge at the pant of a wrtten appcaton fed In accordance wth the pro-
vsons of secton 1 2.39 (a), the propretor may take sampes of unfnshed a-
coho In the course of dstaton before Its depost n the recevng room. The
sze of such sampes sha not e ceed one quart, and the number of sampes
taken must be restrcted to the mnmum necessary. In any case where a quart
sampe Is consdered Insuffcent for the purpose for whch t Is ntended, the
Assstant Regona Commssoner, upon recept of a wrtten appcaton fed In
tccordnnce wth secton 1 2.39 (b), may authorze the wthdrawa of sampes
of a sze greater than one quart. Sampes of unfnshed acoho may be taken
by means of mechanca sampng devces whch w ether (a) record the tota
quantty of unfnshed acoho wthdrawn, wthout recordng the number or
sze of Indvdua sampes, or (b) record the number of sampes wthdrawn,
whch sampes woud, by the constructon of the devce, be restrcted as to sze
(e. g., one-haf pnt, pnt, etc.).
PAR. 32. Secton 1 2.397, as amended by Treasury Decson 573 , s
further amended by deetng the ast two sentences and substtutng
n eu thereof the foowng sentence:
The propretor sha aff the abe to the sampe contaner and dever the
copy to the storekeeper-gauger for fng In accordance wth secton 1 2.39 .
PAR. 33. Secton 1 2. 3, as amended by Treasury Decson 67 ,
s further amended by strkng the frst sentence and substtutng n
eu thereof the foowng two sentences:
The outgong propretor w compete ha record, orm 1 2, as to the re-
mova of basc materas from the premses, or the transfer of basc materas
and mash and beer or other dstng matera In process to the successor, as
the case may be, and as to a acoho produced -by hm. The storekeeper-
ganger w compete bs record, orm 10SO, as to a acoho produced by the
outgong propretor.
PAR. 3 . Secton 1 2. , as amended by Treasury Decson 57 , s
further amended as foows:
(A) By strkng the second sentence whch begns The materas
w .
(B) By strkng the ast four words and the storekeeper-gauger
of the thrd sentence.
PAR. 35. Secton 1 2. 50, as amended by Treasury Decson 57 , s
further amended by strkng the s th sentence whch begns The
storekeeper-gauger w and nsertng n eu thereof the foowng
sentence:
The storekeeper-gauger w make smar entres, reatve to the unfnshed
acoho, on orm 16 6.
PAR. 36. Secton 1 2. 56, as amended by Treasury Decson 6032
C. B. 1953-2, 362 . approved uy 23, 1953, s further amended by
strkng the eeventh sentence whch begns The storekeeper-gauger
w e amne and nsertng n eu thereof the foowng sentence:
The storekeeper-gauger w e amne the report, date and nta both copes of
the form, return the copy to the propretor, and forward the orgna to the Assst-
ant Regona Commssoner for audt and retenton.
PAR. 37. Secton 1 2. 6 s amended to read as foows:
S C. 1 2. 0 . R MO AL or Ar.conot IN O IC R S ABS NC . Acoho may not be
removed from an Industra acoho pant n the absence of tre storckeepcr-
eauger.
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99 Regs. 3, 1 2.15a.
Par. 3 . Secton 1 2.571, as amended by Treasury Decson 5919
C. B. 1952-2, 30C , approved uy 16, 1952, s amended to read as
foows:
ec. 1 2.571. Reease or Task Car ob Tank Trcck. When the certfcate of
ta payment ( orm 1503) or whoesae quor deaer s stamp tns been aff ed to
the route board and canceed, and the conveyance ocked or scaed by the pro-
pretor (who sha furnsh the necessary ocks or seas), the storckecper-tanger
w return the b of adng, f any, to the propretor and reease the tank car
or tank truck for shpment. The storekeeper-gauger w, e cept In the case of
shpmcns to rectfyng pants or ta pad bottng houses, forward one copy of
orm 1 0 to the Assstant Regona Commssoner and dever two copes to the
propretor who w forward one copy to the vendee and retan the remanng copy
as a permanent record In accordance wth secton S2.G 3h. In the case of shp-
ments to rectfyng pants or ta pad bottng houses, the storekeeper-ganger w
forward one copy of orm 1 0 to the Assstant Regona Commssoner, one copy
to the storekeeper-gauger In charge of the rectfyng pant or ta pad bottng
house for devery to the vendee and dever the remanng copy to the propretor,
who w retan t as a Termanent record In accordance wth secton s2.6 3h.
Where dsted sprts stamps have been used to tn pay the acoho, the copy of
orm 1 0 to whch canceed stamps are attached w be forwarded to the
Assstant Regona Commssoner.
Par. 30. Secton 1 2.57 e, as amended by Treasury Decson 5919, s
further amended to read as foows:
Sec. S2.57 e. Transfer or Aconor. When a certfcate of ta payment has
been af ed to the weghng tank and canceed, or when the orm 1 0 to whch
the canceed dsted sprts stamps are attached has been attached to the wegh-
ng tank, the storekeeper-gauger w unock the outet vave and permt the
propretor to transfer the p.coho by ppene to the rectfyng pant or ta pad
bottng house. The acoho sha be transferred ony under the Immedate super-
vson of the storekeeper-gauger n the Industra acoho pant or bonded ware-
house. After the acoho has been transferred, the storekeeper-ganger w for-
ward one copy of orm 1 0, wth the canceed orm o93, or the canceed dsted
sprts stamps, as the case may be, to the Assstant Regona Commssoner, de-
ver one copy of orm 1 0 to the propretor, and forward one copy of such form
to the storckccper-gnugcr at the rectfyng pant or ta pad bottng house for
devery to the rectfer or botter.
Pah. 0. Secton 1 2.57 q, as amended by Treasury Decson 5919, s
further amended to read as foows:
Sec. 1 2.57 q. Dsposton or orm 02. When the whoesae quor deaer s
stamp has been ssued and the sera number thereof recorded on orm 02. the
storekeeper-gauger sha return one copy of orm 02 to the propretor wth the
stamp, forward one copy of the form to the Assstant Regona Commssoner,
forward one copy to the storekeeper-gauger at the rectfyng pant or ta pad bot-
tng house for devery to the vendee and retan one copy. The storekeeper-
gauger sha pace hs retaned copy of orm 92 In a permanent fe as authorty
for Issuance of the stamp. Where the vendee a ocated In a dfferent regon, the
storekeeper-ganger w send the remanng copy of orm 02 to the Assstant
Regona Commssoner of the regon In whch the vendee s ocated.
Par. 1. Secton 1S2.C 3 s amended to read as foows:
Sec. 1 2.C 3. Genera. ach denaturng pant sha te used soey for the pur-
pose set forth In ths part and sha be under the contro of the Assstant Regona
Commssoner of the regon. The budngs sha be kept cosed and the doors
securey ocked e cept when work Incdenta to the operatons of the pant Is
beng carred on. The propretor may, In connecton wth the storekeeper-gauger,
e cept as provded In secton 3121(c), I. It. C, refuse admttance to any person
not an Interna revenue ocer.
Par. 2. Secton 1 2.727 s amended to read as foows:
Sec 1 2.727. Packages of Competey Denatcreo ALConoL. Packages con-
tanng more than fve wne gaons of competey denatured acoho sha be of
meta ony. The openngs n a such packages must be scaed wth an approprate
devce.
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egs. 3, 1 2.15a. 500
(a) Symbo and number. ach package of competey denatured acoho
havng a capacty of more than fve wne gaons most hare embossed, cat,
sandbasted or otherwse permanenty Indented on the head or sde on whch
the marks and brands are paced a symbo whch w ceary ndcate the de-
nature:-, by or for whom the package Is fed, together wth a number whch
sha be treated as a sera number of the package when fed. Such numbers
sha begn wth No. 1 and contnue n sequence. The provsons of secton
1 2.73 (a) reatve to contnung the current seres and commencement of new
seres sha appy to packages of competey denatured acoho. Before pacng
new symbos and numbers on new packages for competey denatured acoho,
the denaturer sha Inform the Commssoner of the symbo and tbe Comms-
soner w advse hm and the Assstant Regona Commssoner whether the
.symbo Is ob|ectonabe because of dupcaton or for any other reason.
(b) Two or more pant) or products. Where the propretor operates more
than one estabshment (denaturng pant, fng agency, specay or competey
denatured acoho user s premses) at whch seray numbered packages are
fed, and/or fs seray numbered packages of more than one product (com-
petey denatured acoho, propretary antfreeze soutons made wth competey
denatured acoho, propretary sovents, acquer thnners), he may use one
seres of numbers for a such estabshments or products, or both, provded
he sets asde an approprate bock of numbers for each pant or product, or both,
end keeps an accurate record thereof avaabe for reference by Government
offcers or the propretor may In such cases use a separate seres of numbers
for each pant or each product, or both, provded there Is embossed, cut, sand-
basted, or otherwse permanenty ndented on each package an Identfyng
number to ndcate the pant at whch the package s fed or etters to denote
the contents, or both, as the case may he. Where the propretor uses a separate
seres for each estabshment, the dentfyng pant number sha be paced
Immedatey foowng or beow the sera number. Where a separate scres
Is used for each product, the etters CD sha be used for competey denatured
acoho, A for propretary antfreeze souton made wth competey de-
natured acoho, PS for propretary sovents, and LT for acquer thnners.
(c) Records of symbos and sera numbers. Denaturers sha mantan at
ther pants records showng the symbos and sera numbers of a packages
furnshed ther agents to be fed by the atter wth competey denatured acoho
as heren provded, and sha aso keep at ther pants such records of packages
fed and dsposed of by them or for ther account at paces other than the
denaturng pant or fng agency, Incudng the symbos and seras numbers
of the packages, as w enabe Government offcers to trnce recepts and ds-
posas. Denaturers agents must aso keep records of the recept and dsposton
of the competey denatured acoho, ncudng the symbo and sera numbers
of packages, as w permt tbe tracng of the recept and dsposa by the Assst-
ant Regona Commssoner. Such records must at a tmes durng reguar
busness hours be open to Inspecton by Government offcers and must bo kept
compete and up-to-date for a perod of 3 years. No speca form of record
Is prescrbed but the records used must ceary show a the Informaton requred.
(d) ng packages. In fng packages of competey denatured acoho,
the packages must be so used that nsofar as possbe the sera numbers w
run n consecutve order begnnng wth the owest number. The date sha bo
stenced on the drum at the tme of fng.
(e) Reuse of contaners. Propretors of denaturng pants and ther bona fde
ncenta mny rcuso stee drums bearng the dentfyng symbo of the denaturer
for packagng competey denatured acoho If such Identfyng symbo and
sera numbers are dstnct and egbe when the reused drums are fed and
shpped. Drums bearng the Identfyng symbos of oue denaturer may not be
reused by another denaturer or hs agents.
Par. 3. Secton 1 2.730, as amended by Treasury Decson C07 ,
s further amended by strkng the ast two sentences of paragraph (a).
Par. . Secton 1 2.731, as amended by Treasury Decson 607 ,
s further amended as foows:
(A) By strkng the ast two words, these reguatons of the frst
sentence and substtutng n eu thereof the words ths part .
(B) The ffteenth sentence whch begns Pror to fng , s
amended to read as foows:
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501 (Regs. 3, 1 2.15a.
Before fng, the propretor sha determne whether the tank truck Is authorzed
to be used by comparng the sera number and the capacty of the tank as
marked thereon wth the copy of the basc permt and Inspect a openngs to the
tank truck to determne whether they may be effectvey seaed.
(C) The seventeenth sentence, whch begns After fng , s
amended to read as foows:
After fng, the propretor sha sea the tank truck In such a manner as wn
secure a openngs affordng access to the contents of the tank.
Pah. 5. Secton 1 2.73 (b) s amended to rend as foows:
(b) Competey denatured acoho. The sera number paced on a package of
competey denatured acoho havng a capacty of more than 5 wne gaons
sha be treated as the sera number of the package when fed, as provded a
secton 1 2.727(a).
Par. 6. By amendng the undesgnated center head mmedatey
precedng secton 1 2.7 9 to read as foows:
TRANS R O SP CIALLY D NATUR D ALCOHOL B TW N D NATURING
TLA TS
Par. 7. Secton 1 2.7 9, as amended by Treasury Decson 607 , s
further amended to read as foows:
Src. 1 2.7 1). HTB.ur.otos Transfers. When specay denatured acoho Is
shpped to another denaturng pant In the same regon In packages, the pro-
pretor w prepare four copes of orm 1 73 reportng the shpment, forward
one copy to the Assstant Regona Commssoner of the regon, two copes to
the propretor of the recevng denaturng pant, and retan the remanng cory
for fng In accordance wth secton 1 2.7 . After recept of the specay
denatured acoho at the denaturng pant, forms w be dsposed of In accord-
ance wth secton S2.7 0a.
Par. . Secton 1 2.7 9a, as amended by Treasury Decson 607 , s
further amended to read as foows:
Sec. S2.7 0n. Imtrareoton Deposts. When the specay denatured acoho
Is receved at the denaturng pant, the propretor w e amne the shpment.
He w determne accuratey the quantty receved. Where packages bear
evdence of havng sustaned osses In transt, the oss w be determned. The
propretor w recept for the shpment on both copes of orm 1 73. notng any
oss or defcency. The specay denntnred acoho w be deposted n accord-
ance wth secton 1 2.752. The propretor w make a report of such osses and
of te e amnaton of the shpment to the Assstant Regona Commssoner.
Tho propretor w fe one copy of orm 1 73 In accordance wth secton 1S2.7S
and w forward the remanng copy of orm 1 73 to the Assstant Regona
Commssoner.
Par. 9. Secton 1 2.750, as amended by Treasury Decson 607 , s
further amended to read as foows:
Br.c. 1 2.750. Intkrreoon Transfers. When specay denatured acoho Is
shpped to another denaturng pant In a dfferent regon In packages, the pro-
pretor w prepnre fve copes of orm 1 73 reportng tho shpment The pro-
pretor w, at tho tme of tho shpment, forward ono copy to the Assstant
Regona Commssoner of tho regon In whch the consgnor Is ocated, one copy
to the Assstant Regona Commssoner of tho regon In whch the consgnee
Is ocated, two copes to the propretor of the recevng denaturng pant, and
retan tho retnnnng copy for fng In accordance wth secton 1 2.7 . Upon
recept of the specay denatured acoho at the denaturng pant, the forms w
be dsposed of In accordance wth secton 1 2.751.
Par. 50. Secton 1 2.751, as amended by Treasury Decson 607 ,
s further amended to read as foows:
Sec. 1 2.751. Interbeoton Deposts. When the specay denatured acoho Is
receved at the denaturng pant, the propretor w e amne the shpment. The
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Regs. 3, 1 2.15a. 502
propretor w determne accuratey the quantty receved. Where packages
bear evdence of havng sustaned osses In transt, the oss w he determned.
The propretor w recept for the shpment on the two copes of orm 1 73
notng any oss or deOcency. The propretor w make a report of such oss
and the e amnaton of the shpment to the Assstant Regona Commssoner.
The specay denatured acoho w be deposted n accordance wth secton
1 2.752. The propretor w fe one copy of orm 1 73 In accordance wth
secton 1 2.7 and forward one copy to the Assstant Regona Commssoner
of the regon In whch the consgnee s ocated.
Par. 51. Secton 1 2.752(b), as amended by Treasury Decson
556 , s further amended to read as foows:
(b) Specay denatured acoho receved n tank cart, tank truckt, tank MpA,
or barget. Specay denatured acoho receved In tank cars, tank trucks, tank
shps, or barges sha be weghed or measured and transferred Immedatey to
storage tanks. If It s desred to receve specay denatured acoho In ra-
road tank cars, proper raroad sdng factes must be provded at the de-
naturng pant. If t s desred to receve specay denatured acoho In tank
shps or barges, proper dock factes must be provded at the denaturng pant.
Par. 52. By deetng the undesgnated center head mmedatey
precedng secton 1 2.752a.
Par. 53. Secton 1 2.752a, as amended by Treasury Decson 607 ,
s further amended to read as foows:
Sec. 1 2.752a. Ihtraregon Transfers. When specay denatured acoho
Is shpped n tank cars or tank trucks to another denaturng pant n the same
regon, the propretor w prepare four copes of orm 1 73 reportng the shp-
ment The propretor w, at the tme of the shpment, send one copy to the
Assstant Regona Commssoner of the regon, ma two copes to the pro-
pretor of the recevng denaturng pant n the case of tank car transfers,
or n the case of tank truck transfers, ma one copy to the propretor of the
recevng denaturng pant, encose one copy In a seaed enveope addressed
to such propretor and gve the same to the drver of the tank truck for de-
very to the propretor, and fe the remanng copy n accordance wth sec-
ton 1 2.7 . After recept of the specay denatured acoho at the recevng
denaturng pant. orm 1 73 w be dsposed of n accordance wth secton
1 2.752b.
Par. 5 . Secton 1 2.752b, as amended by Treasury Decson 607 ,
s further amended to read as foows:
Sec. 1 2. 52b. Ihtrareooh Deposts. When the specay denatured acoho
Is receved at the denaturng pant, the propretor w e amne the shpment
and determne accuratey the quantty receved. Where the raroad tank car
or tank truck bears evdence of havng sustaned a oss, the oss w be de-
termned. The propretor w recept for the shpment on both copes of orm
1 73, notng any oss or defcency. The propretor w make a report of such
osses and the e amnaton of the shpment to the Assstant Regona Com-
mssoner. The denatured acoho w be deposted In accordance wth secton
1 2.752. The propretor w fe one copy of orm 1 73 In accordance wth
secton 1 2.7 and w forward the remanng copy to the Assstant Regona
Commssoner.
Par. 55. Secton 1 2.752c, as amended by Treasury Decson 607 ,
s further amended to read as foows:
Sec. 1 2.752c. I terreoo Transfers. When specay denatured acoho Is
shpped n raroad tank cars or tank trucks to another denaturng pant In a
dfferent regon, the propretor w prepare fve copes of orm 1 73 reportng
the shpment, forward one copy to the Assstant Regona Commssoner of
the regon In whch the consgnor s ocated, one copy to the Assstant Regona
Commssoner of the regon n whch the consgnee s ocated, ma two copes
to the propretor of the recevng denaturng pant In the ense of tank car
transfers, or n the case of tank truck transfers, ma one copy to the propr-
etor of the recevng denaturng pant, encose one copy n a scaed enveope
addressed to such propretor and gve the same to the drver of the tank truck
for devery to the propretor, and retan the remanng copy for fng In ac .
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503 egs. 3, A 1S2. 5a.
cordance wth secton 1 2.7 . Upon recept of the specay denatured acoho
at the denaturng pant. orm 1 73 w be dsposed of In accordance wth
secton 1 2.752d.
PA . 56. Secton 1 2.752d, as amended by Treasury Decson 607 ,
s further amended to read as foows:
S C. 1 2.752d. I T IIR OIO D POSITS. When the specay denatured acoho
a receved In a raroad tank car or tank truck nt the denaturng pant, the
propretor w e amne the shpment He w determne accuratey the quan-
tty receved. Where the raroad tank car or the tank tmck bears evdence
of havng sustaned a oss, the oss w be determned. The propretor wt
recept for the shpment on both copes of orm 1 73, notng any oss or def-
cency thereon.
The propretor w make a report of snch osses and of the e amnaton of
the shpment to the Assstant Regona Commssoner. The specay denatured
acoho w be deposted In accordance wth secton 1S2.7S2. The propretor
w te one copy of orm 1 73 In accordance wth secton 1 2.7 and forward
the remanng copy to the Assstant Regona Commssoner of the regon In
whch the consgnee Is ocated.
PAR. 57. Secton 1 2.753, as nmended by Treasury Decson 607 ,
s further amended to read as foows:
S O. 1 2.753. G N RAL. Deaers and nscrs mny purchase competey dena-
tured acoho for resae or for ther own use. Transfers of competey denatured
acoho In buk to a tng agency of the denaturer on premses contguous to hs
denaturng pant and the packagng and dsposton of such competey denatured
acoho sha be governed by sectons 1 2.725. 1 2.727, 1 2.72S, 1S2.730, 1S2.731
1 2.732, 1 2.733, 1 2.73 , 1 2.733, 1 2.7. 0, 1 2.73 , and 1 2.7 2. Competey de-
natured acoho removed from denaturng pants (other than by ppene) must
be transported In accordance wth secton 1 2.677.
PAR. 5 . Secton 1 2.75 , as amended by Treasury Decson 607 , s
further amended as foows:
(A) By strkng the words the reguatons n n the ffth sentence
whch begns The e act contents .
(B) By strkng the seventh sentence whch begns The denatarer
sha .
. PAR. 50. Secton 1 2.75 b, as added by Treasury Decson 57SS, s
amended as foows:
(A) By strkng the s th sentence whch begns At the tme of
shpment the propretor .
(B) By strkng the seventh sentence and substtutng n eu
thereof the foowng:
Upon shpment of the specay denatured acoho the propretor w send one
copy of orm 1 73 to the Assstant Regona Commssoner and two copes to
the consgnee, e cept n case of wthdrawas In tank trucks.
(C) By strkng the nnth sentence whch begns He w gve
and substtutng n eu thereof the foowng:
He w fe the remanng copy of orm 1 73 In accordance wth secton 1S2.7SS.
PAR. 60. Secton 1 2.75 c, as added by Treasury Decson 57 , s
amended as foows:
(A) By strkng the s th sentence whch begns At the tme of
shpment .
(B) By strkng the seventh sentence begnnng Upon shpment of
the and substtutng n eu thereof the foowng:
Upon shpment of the specay denatured acoho the propretor wn send one
copy of orm 1 73 to the consgnor Assstant Regona Commssoner, one copy
to the consgnee Assstant Regona Commssoner, and two copes to the
consgnee, e cept In the case of wthdrawas In tonc trucks.
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Regs. 3, 1 2.15a. 50
(C) By strkng the nnth sentence begnnng He w gve and
substtutng n eu thereof the foowng sentence:
e w fe the remanng copy of orm 1 73 In accordance wth secton 1 2.7 .
Par. 61. Secton 1 2.762 s amended as foows:
(A) By strkng the second sentence begnnng He sha procure
and substtutng n eu thereof the foowng sentence:
Be sha procure three copes of the b of adng, coverng such transportaton,
and attach a copy to each copy of the orm 15 5.
(B) By strkng the fourth sentence begnnng A copy of .
Par. 62. Secton 1 2.76 s amended to read as foows:
Sec. 1 2.76 . Dsposton of obms. When the packages of denatured acoho
have been wthdrawn, the denaturer w forward mmedatey a compete set
of the orm 15 5 and b of adng to the Assstant Regona Commssoner and
a compete set to the coector of customs at the port of e portaton and retan
the remanng set
Par. 63. Secton 1 2.7 1, as amended by Treasury Decson 6032,
s further amended as foows:
(A) By strkng the frst sentence and substtutng n eu thereof
the foowng sentence:
The propretor of every denaturng pant sha prepare the day reports and sha
keep the monthy records prescrbed by ths part
(B) By strkng the words the reguatons n n the second
sentence.
(C) By strkng the thrd sentence begnnng The requrements
of and substtutng n eu thereof the foowng sentence:
The requrements of secton 1 2. 55 concernng the tme of makng entres, and of
secton 1 2. 61 concernng the fng of forms by the propretors of Industra
acoho pants, are hereby made appcabe to reports rendered by propretors
of denaturng pants.
Par. 6 . Secton 1 2.7 3 s amended to read as foows:
Seo. 1 2.7 3. orm 1 67. When packages are fed wth denatured acoho,
the propretor w prepare on orgna of orm 1 67. Separate sheets w be
used for each formua. The propretor w fe the forms as a permanent
record In bonnd form avaabe for nspecton by Government offcers at any
reasonabe tme. The forms sha be fed In chronoogca order, accordng
to date and sera number of the packages.
Par. 65. Secton 1 2.7 s amended to read as foows:
Seo. 1 2.7 . Dsposton or orms 1 66. The storekeeper-ganger sha e am-
ne the orms 1 66 devered to hm by the propretor, and, If he fnds the forms
to be compete and correct In every respect he sha Inta each form and for-
ward one copy to the Assstant Regona Commssoner, and return the other
copy to the propretor, who sha fe It n bound form, n chronoogca order, as
a permanent record avaabe for Inspecton by Government offcers at any
reasonabe tme.
Par. 66. Secton 1 2.7 5, as amended by Treasury Decson 5 01,
s further amended to read as foows:
Sec. 1 2.7 5. orm 1 53-A. When specay denatured acoho Is shpped to the
Unted States or a Governmenta agency thereof, the propretor of the dena-
turng pant w prepare orm 1 53-A n quadrupcate. Where shpment Is
made In a tank truck the date requred by secton 1 2.75 b or secton 1 2.75 c,
as the case may be, to be entered on orm 1 73 w be entered on orm 1 53-A
for such transacton. The propretor w ma two copes of orm 1 53-A to
the consgnee, e cept n the case of tank trnck shpments, when be w encose
one copy n a scaed enveope addressed to the Government offcer to whom the
specay denatured acoho Is consgned and gve the same to the drver of the
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505 Regs. 3, 1 2.15a.
tank track for devery to such offcer. He w forward a copy of orm 1 53-A
to the Assstant Regona Commssoner of the regon In whch the consgnor s
premses are ocated. Be w retan the remanng copy for fng n accordance
wth secton 1 2.7 . Upon recept of the specay denatured acoho. the
recevng Government offcer w e ecute the certfcate of recept on orms
1 53-A, after notng thereon any oss or defcency In the shpment, and w
forward one copy to the Assstant Regona Commssoner specfed at the bot-
tom of the form and retan the other copy for hs records.
Par. 07. Secton 1 2.7 7(e), as amended by Treasury Decson 6032,
s further amended to read as foows:
(e) Dttpoton of formt. The propretor w dever both copes of orm
120 and 1 GS-A, B, C, D, , and to the storekeeper-gauger on or before the
Sth day of the month succeedng that for whch the forms are rendered. The
storekeeper-gnuger w e amne the forms to ascertan that the quanttes
of dennturnnts receved and shpped out, the quanttes of recovered acoho
restored and the osses n restoraton, and the quanttes on hand on the ast of
the month are a correcty reported. He w date and nta both copes of
the Inst page of each report, return the copy of each form to the propretor, and
forward the orgna of each form to the Assstant Regona Commssoner for
audt and retenton.
Par. 6 . Secton 1 2.7 , as amended by Treasury Decson 607 , s
further amended to read as foows:
Sec. 1 2.7 . ro or orms. The propretor sha fe orms 1 0 and orms
1520 coverng acoho and dstates, respectvey, receved at the denaturng
pant In separate fes n chronoogca order by months and In bound form ns a
permnnent record. He sha fe orms 1 53-A and orms 1 73 coverng wth-
drawas In separate fes In chronoogca order by months and In bound form as
a permanent record. In the case of transfer of specay denatured acoho be-
tween denaturng pants orms 1 73 w be fed In chronoogca order by months
and In bound form ns a permanent record. Such records sha be avaabe for
Inspecton by Government offcers at any reasonabe tme.
Par. 69. Secton 1 2. 00 s amended to read as foows:
Seo. 1 2. 00. Co.ntanebs I cess or 5 Gaoss. Contaners of propretary
antfreeze soutons made wth competey denatured acoho contanng more
than fve wne gaons sha be of meta ony, and sha have paced thereon an
Identfyng symbo of the manufacturer and a sera number, n the same manner
as requred In secton 1S2.727 for packages of competey denatured acoho. The
provsons of secton 1S2.727 reatve to the reuse of permanenty Identfed pack-
ages for competey denatured acoho sha aso appy to permanenty dentfed
packages for propretary nntfreeze soutons made wth competey denatured
acoho. Such contaners sha aso be marked by stencng or otherwse wth
the trade name under whch the product Is sod, the name and address of the man-
ufacturer or the name and address of the dstrbutor and the date that the
contaners are fed.
Par. 70. Secton 1 2. 20 s amended by strkng the frst sentence and
substtutng n eu thereof the foowng sentence:
Bonded deaers In specay denatured acoho when shppng specay dena-
tured acoho to the Unted States or a Governmenta agency thereof w forward
the orgna and one copy of orm 1 53-A, to the Government offcer to whom the
specay denatured acoho Is consgned.
Par. 71. Secton 1 2. 7(a), as amended by Treasury Decson 5767,
approved December 23, 19 9, s further amended to read as foows:
(a) Identfyng tymoot. A packages contanng more than S wne gaons
sha have paced thereon the sera number and permt number or symbo of the
producer by or for whom the packages are fed, such as are prescrbed In secton
1 2.727 wth respect to competey denatured acoho. The provsons of secton
1 2.727 reatve to the reuse of permanenty dentfed packages for competey
denatured acoho sha aso appy to permanenty dentfed packages for pro-
pretary sovents and acquer thnners. Upon wrtten authorzaton of the As-
sstant Regona Commssoner, shpments of propretary sovents and acquer
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Begs. 3, 1 2.15a. 506
thnners may be made by producers In raroad tank cars, or n tank trucks oper-
ated by motor carrers as defned by ths part, or In tank trucks operated or con-
troed by producers, or ther bona fde agents, to themseves at other ocatons,
and to ther bona fde agents, where tte remans vested n the producer and
producers and ther bona fde agents may make shpments of such sovents and
acquer thnners by such means to (1) other producers, and (2) actua users for
sovent or manufacturng purposes and not for resae: Provded, That In the case
of raroad tank car shpments, the vendee has raroad sdng factes at bs
premses for recevng such tank car shpments, and n the case of tank truck
shpments, the producer sha be responsbe under hs bonds for the devery of
the propretary sovents and acquer thnners to the actua user for sovent or
manufacturng purposes. When propretary sovents and acquer thnners are
so shpped by tank car, or tank truck, tbey must be run drecty from the tank
car or tank truck to a statonary tank on the consgnee s premses they may not
be drawn nto portabe, unmarked contaners.
Pab. 72. Secton 1 2.916 s amended to read as foows:
Sec. 1 2.916. Genera. cept os otherwse provded In ths port, the Com-
mssoner w furnsh at the e pense of the Unted States a Government ocks
nnd scns requred to be used at Industra acoho pants, bonded warehouses,
nd denaturng pants. Assstant Regona Commssoners w seo that tho
Industra acoho pants, bonded warehouses, and denaturng pants n ther
respectve regons are fuy equpped wth ocks In good condton, nnd that the
necessary seas are provded for sea ocks. Assstant Regona Commssoners
w bear In mnd that Government ocks are requred In the case of ndustra
acoho pants upon a necessary openngs In the dstng apparatus from the
frst pont where access to the contents of any vesse, ppe, or other contaner
n the system woud consttute a eopardy to the revenue unt the fnshed
acoho Is deposted In the recevng tanks upon a doors In the recevng room
and upon the contro vaves In ppenes whch convey steam or fue to the sts
or whch convey acoho to warehouse storage tanks or to tanks In the denaturng
pant on the same premses. Government ocks are aso requred on a doors
of bonded warehouses and upon contro vaves, ppenes, and openngs to tanks
ocated theren. Government ocks are aso requred on the contro vaves of
denaturng matera storage tanks, acoho storage tanks, and m ng tanks at
denaturng pants.
Par. 73. Secton 1 2.91 s amended to read as foows:
Sec. 1 2.91 . Sea Locks. Sea ocks w be used on the entrance door of the
recevng room and the entrance door of the temporary storage room theren
(f any) of ndustra acoho pants on the door of the Government cabnet
the entrance door of bonded warehouses, and on such other paces where the
use of sea ocks Is requred by ths part or deemed necessary by the Assstant
Regona Commssoner.
Par. 7 . Secton 1 2.927 s amended to read as foows:
Sec 1 2.027. Removng of Cap Seas and Locks. Cap seas or ocks aff ed
by a duy authorzed offcer of the Interna Revenue Servce must not be removed
wthout authorzaton from the storekeeper-gauger or Assstant Regona Com-
mssoner : Provded, That where the acoho or other property Is n mmnent
danger of oss by fre, food or other casuaty or where the safety of the pro-
pretor or hs empoyees s endangered, and t Is mpractcabe to frst obtan
authorzaton from the storekeeper-gauger n charge or the Assstant Regona
Commssoner, cty or state fre or poce offcas or the propretor may remove
such seas or ocks for the purpose of preventng oss of property or of avodng
danger to the safety of personne. When cap seas or ocks are removed wthout
authorzaton from the storekeeper-gauger n charge or the Assstant Regona
Commssoner, the propretor sha notfy the storekeeper-gauger as soon as
possbe. In addton, he sha prepare a report, e ecuted under the penates
of per|ury, for devery to the Assstant Regona Commssoner through the
storekeeper-gauger n charge not ater than the cose of busness on the foowng
day, descrbng In deta the acton taken and the condtons whch Impeed
such acton. Where the propretor desres to make changes In the equpment
nvovng the removng of seas, he w foow the procedure prescrbed In
secton 1 2.27L
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507 Regs. 3, 1 2.630a.
Ths Treasury Decson sha be effectve upon ts pubcaton n the
edera Regster.
(Ths Treasury Decson s ssued under the authorty contaned
n sectons 3105,312 and 3176 of the Interna Revenue Co de (53 Stat.
35 ,36 ,375 26 U.S.C. 3105,312 ,3176).)
T. Coeman Andrews,
Commssoner of Interna Revenue.
Approved August 13,195 .
M. B. osom,
Actng Secretary of the Treasury.
(Pubshed In the edera Regster August 1 , 195 )
Reguatons 3, Secton 1 2.630a: Genera.
(Aso Secton 1 2.630b, etc.)
Reguatons 3 amended. See T. D. 60 , page 517.
Reguatons3 (Append ). T.D.6102
TITL 2 INT RNAL R NU . CHAPT R I. SUBCHAPT R C. PAST 132.
INDUSTRIAL ALCOHOL
Competey denatured acoho formuae Nos. 10, 17, 1 , and 19.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D.C
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
The purposes of these amendments are as foows:
(1) To revoke ormuae Nos. 16 and 17 for competey denatured
acoho because of the dscontnuance of manufacture of the denaturant
ST-115 but to contnue authorzaton for the preparaton of dena-
tured acoho under those, as we as certan other, revoked formuae so
far as s necessary to e haust the e stng suppy of specfed
denaturants
(2)To amend ormua No. 1 for competey denatured acoho by
decreasng the quanttes of requred denaturants so that the dsagree-
abe resdua odor of the product w be aevated
(3) To prescrbe new ormua No. 19 for competey denatured aco-
ho usng ony denaturants whch are aso used for other commerca
purposes
( ) To re vse the 1 st, Denaturants Authorzed for Competey and
Specay Denatured Acoho .
Accordngy, the Append to Reguatons 3, Industra Acoho
(26 C R, t. 1 2, 7 . R. 1 5 ), as amended, s hereby amended as
foows:
Parachap 1. Competey Denatured Acoho ormuae Nos. 16 and 17 are
herchy revoked: Provded, That propretors of denaturng pants may, after ap-
prova of the denaturants by authorzed chemsts, and wthout wrtten appca-
ton for the Commssoner s authorzaton, contnue the use of e stng suppes of
CS-501, Debydro-0, or ST-115 In the preparaton of Competey Denatured Aco-
33310 53 33
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Regs. 3, 1 2.630a. 50
bo ormuae Nog. 12, 1 , and IS (revoked by T. D. 6917), and ormuae Not, 10
and 17, unt such suppes of these dscontnued denaturants are e hausted.
PAH. 2. Competey Denatured Acoho ormua No. 1 s hereby
amended to read as foows:
To every 100 gaons of ethy acoho of not ess than 160 proof add :
2.5 gaons of methy Isobuty ketone
0.125 gaon of Pyronnte or a compound smar thereto
0.5 gaon of acetado (hydrozy-butyradcbyde)
1.0 fc non of kerosene
PAR. 3. The foowng formua s authorzed for the manufacture
of competey denatured acoho :
O MULA NO. 19
To every 100 gaons of ethy acoho of not ess than 160 proof add :
.0 gaons of methy Isobuty ketone
1.0 gaon of kerosene
PAB. . The st, Denaturants Authorzed for Competey ard
Specay Denatured Acoho, s amended (1) by deetng therefrom
the foowng:
Acetado ---------------------------------- ........ --- C. D. 1C 1
erosene ______________________________________ C. D. 1C : 17 : 1
Methy Isobuty ketone -------------- C. D. 17 1 S. D. 23-G : 23-H
Pyronate _____________________________________________ C. D. 10 1
ST-115 _______________________________________________ C. D. 10 17
and (2) by nsertng theren the foowng:
Acetado ________________________________________________ C. D. 1
erosene __________________ .... -------------------- ........ C. D. 1 n
Methy Isomty kotone.. ___ .. ______ ........ 0. D. IS 10 S. D. 23- 2.1-H
................... ------- .. --- . --- ...... -------- ... U. I). IS
Ths Treasury Decson sha be effectve upon ts pubcaton n the-
edera Regster.
Ths Treasury Decson w factate the preparaton of competey
denatured acoho for use n the manufacture of antfreeze for motor
vehces durng the forthcomng wnter season. Because t w merey
(1) correct the obsoescence n formuae caused by the dscontnuance
of the manufacture of the denaturant ST-115, (2) permt the use,
after approva by authorzed chemsts, of e stng stocks of the do-
nnturants Deytro-O, CS-501, and ST-115, and (3) effect mprove-
ments by emnatng or reducng the quantty of a denaturant affectng
the commerca acceptance of a product for antfreeze purposes, t s
hereby found that t s unnecessary to ssue ths Treasury Decson
wth notce and pubc procedure thereon under secton (a) of the
Admnstratve Procedure Act, approved une 11, 10 0, or sub|ect to
the effectve date mtaton of secton (c) of sad act
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 3105 and 3176 of the Interna Revenue Code (53 Stat. 35 , 375
26 U.S.C. 3105 and 3170).)
T. COL .MA ANDR WS,
Commssoner of Interna Revenue.
Approved September 1 , 195 .
M. B. OLSOM,
Actng Secretary of the Treasury.
(Pubshed In the edera Regster September 1 , 105 )
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509 Regs. 3. t 1 2.661.
S CTION 310 . WITHDRAWAL O ALCOHOL TA - R
Reguatons 3, Secton 1 2.653: Appcaton Rev. RuL 5 - 50
and wthdrawa permt, orm 1 50.
Ta -free acoho may be recovered, by redstaton, for use n ac-
cordance wth the terms of the ta -free acoho permt pursuant to
appcaton and amendment of the basc permt, orm 1 7, Appca-
ton and Basc Permt to Use Acoho ree of Ta by States, Munc-
pates, Hosptas, Coeges, Scentfc Insttutons, tc. However,
the provsons of Reguatons 23. wth respect to sts to be used for
the recovery of the acoho, must be comped wth.
The recovered ta -free acoho must be accounted for on the monthy
report, orm 1 51, Record of Ta - ree Acoho Receved and Used,
by a separate summary showng the quantty of recovered acoho on
hand the frst of the month, the quantty recovered durng the month,
the quantty used durng the month, and the quantty on hand the ast
day of the month. Such summary shoud be attached to, and made a
part of, the summary coverng the new acoho.
Reguatons 3, Secton 1 2.C61: Hosptas, Rev. Ru. 5 -2 7
santarums, or cncs.
Secton 310 (c) of the Interna Revenue Code provdes n part that
acoho may be wthdrawn from an ndustra acoho pant or bonded
warehouse, free of ta , for the use of any hospta or santarum, or
for tho use of any cnc operated for charty and not for proft.
It s hed that an estabshment whose functons are mted to
renderng frst ad and emergency care to pant empoyees s not a
hospta or a cnc operated for charty and not for proft wthn
the meanng of secton 310 (c) of the Code.
Reguatons 3, Secton 1 2.601: Hosptas, Rev. Ru. 5 - 6
santarums, or cncs.
(Aso Secton 3250 Reguatons 20, Secton
197.25.)
Secton 1 2.001 of Reguatons provdes, n part, that bona fde
medcnes compounded wth acoho, wthdrawn ta -freet by cncs
operated for charty and not for proft may be used outsde of such
cncs for treatment of tho patents thereof, but such medcne may
not bo sod.
It s hed that a cnc may not se medcnes compounded wth
acoho, wthdrawn ta -free, for use of ts patents off the premses,
regardess of whether any payment represents the cost of the medcne,
s more or ess than cost, or s n the nature of a fee or contrbuton,
nomna or otherwse.
The uso of a rubbng acoho compound made wth ta -free acoho
by a hospta permttee shoud be confned strcty to mnsterng to
hospta patents, and no separate charge made therefor. Where t s
desred to furnsh rubbng acoho compound to outpatents, such
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Regs. 3. 1 2.105. 510
rubbng acoho compound shoud be procured from authorzed
sources.
If n hospta desres to se medcna preparatons, ta -pad acoho
shoud be used n the manufacture of such medcna preparatons n
whch case the hospta woud be entted to fe cam for drawback of
a part of the ta f t frst becomes egbe to cam drawback, as pro-
vded by secton 3250(1) of the Interna Revenue Code of 1939 and
secton 197.25 of Reguatons 29, by obtanng a speca ta stamp as a
nonbeverage manufacturer.
R OUT,ATIONS 3, S CTION 1 2.602: Scentfc Rev. Ru. 5 -277
unverstes and coeges of earnng.
Secton 310 (c) of the Interm Revenue Code provdes n part that
ta -free acoho may bo wthdrawn from ndustra acoho pants
and bonded warehouses for the use of any scentfc unversty, coege
of earnng, or aboratory for use e cusvey n scentfc research.
Trade or vocatona schoos whch do not have a recognzed currcu-
um, or do not confer degrees after specfed perods or attendance at
casses or research, or whose aboratory s not used e cusvey n
scentfc research, are not entted to the prvege of usng ta -free
acoho n the work of tranng students under the provsons of sec-
ton 310 (c) of the Interna Revenue Code and secton 1 2.CG2 of
Reguatons 3 ssued, pursuant thereto.
S CTION 11 . ALCOHOL P RMITS
R GULATIONS 3, S CTION 1 2.165: Appcaton Rev. Ru. 5 -302
for permt, orm 1 7.
A state or muncpa subdvson thereof may be ssued a snge
permt. orm 1 7, Appcaton and Basc Permt to Use Acoho
ree of Ta by States, Muncpates, Hosptas, Coeges, Scen-
tfc Insttutons, tc., authorzng the use of ta -free acoho
n any number of Insttutons under Its contro, provded the method
of storng, dstrbutng, and accountng for the acoho wthdrawn
under the permt Is satsfactory to the Assstant Regona Com-
mssoner, Acoho and Tobacco Ta , and conforms to the requre-
ments of Reguatons 3.
Advce s requested whether a snge permt, orm 1 7, may be
ssued, to a state or muncpa subdvsons thereof, coverng the
use of ta -free acoho at more than one ocaton.
A cty has severa hgh schoos under the |ursdcton of ts Board
of ducaton. A separate permt on orm 1 7, Appcaton and
Basc Permt to Use Acoho ree of Ta by States, Muncpates,
Hosptas, Coeges, Scentfc Insttutons, tc., was ssued for each
such hgh schoo. Snce the permts are ssued on an annua bass,
ths necesstated the renewa of severa separate permts each year.
Aso, the ta -free acoho receved under each permt had to be stored
at the hgh schoo to whch that permt reated.
The Board of ducaton of the cty here concerned asks permsson
to fe an amended appcaton on orm 1 7 for a snge permt to
use ta -free acoho n the varous hgh schoos under ts |ursdcton,
and for permsson to store the acoho n a ocked storeroom n a
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511 (Regs. 3, 5 1 2-220.
centra warehouse and to make dstrbuton therefrom, pursuant to
forma requston by the hgh schoos usng ta -free acoho, of sma
quanttes of the acoho requred by them or mmedate use.
Secton 1 2.105(a) of Reguatons 3 provdes n part that app-
catons by muncpa subdvsons of a State or Terrtory sha be
made to the Assstant Regona Commssoner, Acoho and Tobacco
Ta , by the offcer duy authorzed to procure such acoho and that
evdence of such authorty sha bo submtted wth tho appcaton.
It s hod that a banket permt may be ssued, pursuant to secton
1 2.105(a) of Reguatons 3. authorzng the use of ta -free acoho
by a State or muncpa subdvson thereof n any number of n-
sttutons under ts contro, provded the method of storng, dstrb-
Utng| and accountng for the acoho wthdrawn under such permt
s satsfactory to tho Assstant Regona Commssoner, Acoho and
Tobacco Ta , and conforms to tho appcabe requrements of Reg-
uatons 3.
Requstons 3, Secton 1 2.220: Notce of T.D. 6115
contempated dsapprova of appcaton.
(Aso Secton 1 2.220a, etc. Secton 171.1b,
etc., Msceaneous Reguatons Reatng to
Lquor.)
TITL 2 INT RNAL B NU . CHAPT R I. SUBCHAPT R C. PART ISt
INDUSTRIAL ALCOHOL
Amendment of reguatons to modfy procedura requrements
In connecton wth te dena, suspenson, revocaton and annu-
ment of basc permts under the edera Acoho Admnstraton
Act and dena and revocaton of basc permts under secton 11 ,
Interna Revenue Codo of 11)39.
Treascrt Department,
Offce of the Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and
Others Concerned:
The purpose of these amendments s to make the provsons of
Reguatons 123 Rues of Practce n Permt Proceedngs (26 C R,
pt 200), whch are ssued concurrenty wth these amendments, app-
cabe to permt proceedngs nstead of the procedures now set forth
n the Msceaneous Reguatons Reatng to Lquor (26 C R, pt.
171, subpart A) and Reguatons 3 (26 C R, pt. 1 2).
Paragraph 1. Msceaneous Reguatons Reatng to Lquor (20
C R, pt 171) are amended as foows:
(A) Secton 171.1(b) s revoked.
(B) Subpart A of part 171 s revoked.
Par. 2. Reguatons 3 (26 C R, pt. 1 2) are amended as foows:
(A) Sectons 1 2.220a, S2.220b, 1 2.221 through 1 2525,
1 2.22 (a), 1 2.230(b), 1 2.237, 1 2.239, 1 2.2 0a, 1 2.2 0b, 1 2.2 1
through 1 2.2 , 1 2.2 6 through 1 2.25 , 1 2.203, 1 2.26 , S2. 55a,
1 2. 75(f), and 1 2. 59 are revoked.
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Regs. 3, 5 1 2.220. 512
(B) Secton 1 2.220 as amended by Treasury Decson 5551 C. B.
19 7-1, 1 6 , effectve March 10, 19 7, and the headnote thereto, s
further amended to read as foows:
Sec 1 2.220. Contempated Dsapprova or Appcaton. If, upon e amna-
ton of an appcaton for a basc permt, the Assstant Regona Commssoner
has reason to beeve that the appcant s not entted to such permt, he sha
ssue a ctaton for the contempated dsapprova of the appcaton In accordance
wth the procedure set forth In Part 200 of ths tte, whch part s made appcabe
to such proceedngs.
(C) The frst paragraph of secton 1 2.226, as amended by Treasury
Decson 57 C. B. 1950-1, 151 , effectve uy 1, 1950, and the
headnote thereof, s further amended to read as foows:
Sec. 1 2.220. Appcaton for, and Revocaton op. Permts. A basc permts
coverng operatons ncuded In ths part are sub|ect to the provson of ths
part and, wth respect to admnstratve proceedngs for dsapprova of appca-
ton for, and for revocaton of, basc permts, to the provsons of Part 200 of
ths tte. The basc permts covered by ths part are as foows:
(D) Secton 1 2.23 , as amended by Treasury Decson 5551, effec-
tve March 10,19 7, and the headnote thereto, s further amended to
read as foows:
Sec. 1 2.23 . Authortt to Revoke. The authorty and power of revokng
basc permts Issued pursuant to the provsons of ths part s conferred upon the
Commssoner and upon the hearng e amners as set forth In Part 200 of ths
tte.
( ) Secton 1 2.2 0 s amended to read as foows:
Sec 1 2.2 0. Grounds for Ctaton. If at any tme there sha be fed wth
the Assstant Regona Commssoner a compant under oath settng forth facts
showng, or f the Assstant Regona Commssoner has reason to beeve, that
any person who has an acoho permt Is not n good fath conformng to the pro-
vsons of aw appcabe to such permt or has voated the terms of such permt,
or has made any fase statement n the appcaton therefor, or has wfuy
faed to dscose any Informaton requred by reguaton to be furnshed, or has
voated any aw of the Unted States, or any State or any Terrtory or possesson
of the Unted States or of the Dstrct of Coumba reatng to Into catng quor,
he sha Issue a ctaton for the revocaton of such permt
( ) Secton 1 2.265 and the headnote thereof, s amended to read
as foows:
Sec 1S2.2G5. Changes n Contro and Management. Where a permttee
dscontnues the servces of a manager or empoys a new or addtona manager,
such change sha be reported to the Assstant Regona Commssoner wthn 10
days thereafter. In the event of the Assstant Regona Commssoner s d
approva of the new or addtona manager, the permttee sha, wthn 10 days
after notce of such dsapprova, dscontnue the servces of such new or add-
tona manager.
(G) Secton 1 2.266 s amended to read as foows:
Sec 1S2.2C6. Changes n Offcers and Drectors. Where there s a change
In the offcers or drectors of a corporaton, the permttee sha, wthn 10 day
thereafter, notfy the Assstant Regona Commssoner of such change and fur-
nsh e tracts, n trpcate, of the mnutes of the meetng showng such change.
, (H) Sectons 1 2.55 , 1 2.656, 1 2.690, 1 2.7 7, and 1 2. 32 are
amended by deetng from each of sad sectons the ast sentence
thereof readng: aure on the part of permttees to observe the
foregong requrements concernng wthdrawas w be regarded as
suffcent grounds for ctaton for revocaton of ther basc permts.
(I) Secton 1 2.2 2a as added by Treasury Decson 5S01 C. B.
1950-2,15 , effectve September 1,1950, s amended by strkng from
the frst sentence the phrase as provded n sectons 1 2.220 to _1 2.22
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513 Regs. 3, 1 2.220.
and nsertng, n eu thereof, the phrase as provded n Part 200 of
ths Tte .
( ) Secton 1 2.202 as ast amended by Treasury Decson 5S01,
effectve September 1,1950, s further amended by strkng from the
frst sentence the phrase as provded n sectons 1 2.220 to 1 2 22
and nsertng, n eu thereof, the phrase as provded n Part 200 of
ths Tte .
( ) There s added, mmedatey foowng secton 1 2.227, a new
secton as foows:
Sec. 1 2.227a. Pubc Informaton as to Appcaton Proceedngs. The
Assstant Regona Commssoner sha cause to be mantaned currenty In bs
offce for pubc Inspecton, unt the e praton of one year foowng fna acton
on the appcaton, the foowng nformaton wth respect to each appcaton
for basc permt fed:
(a) The name, Incudng trade name or names, If any, and the address
of the appcant the knd of permt apped for and the ocaton of the
busness whether the appcant Is an Indvdua, a partnershp or a cor-
poraton If a partnershp, the name and address of each partner f a cor-
poraton, the name and address of each of the prncpa offcers and of each
stockhoder ownng 10 percent or more of the corporaton stock.
(b) The tme and pace set for any hearngs on the appcaton.
(c) The fna acton taken on the appcaton. In the event a hearng Is
hed upon an appcaton for a basc permt, the Assstant Regona Com-
mssoner sha make avaabe for Inspecton at hs offce, upon request
therefor: The transcrpt of the hearng, a copy of the e amner s recom-
mended decson, a copy of the Assstant Regona Commssoner s decson
and. In the event of an appea to the Drector, Acoho and Tobacco Ta
Dvson, the decson on appea wth the reasons gven In support thereof.
(L) Secton 1 2.262 as ast amended by Treasury Decson 607 ,
page 1, ths Buetn, effectve uy 2,195 , s further amended by
redesgnatng subsectons (a) and fM thereof as subsectons (b) and
(c), and addng a new subsecton (a) readng as foows:
(a) Defned. A change n propretorshp sha be deemed to occur In
the case of:
(1) The sae or transfer of the busness or any part thereof: or
(2) The transfer or passage of the property of the permttee to a
successor ega representatve, recever, trustee or other fducary, by
operaton of aw, whether through death, Insovency, bankruptcy, or
court order or
(3) The wthdrawa of one or more members of a partnershp or the
takng n of a new partner, whether actve or sent, or, e cept as pro-
vded In secton 2C3a, the death, bankruptcy or ad|udcated nsovency
of one or more of the copartners or
( ) The sae, transfer, pedge, or other dsposton of any capta
stock of a corporaton or assocaton whch resuts n a transfer of the
contro and management of such corporaton or
(5) The reorganzaton of a corporaton where a new charter or cer-
tfcate of Incorporaton Is obtaned.
(M) There s added, mmedatey foowng secton 1 2.23 , a new
secton as foows:
Sec 1 2.23 a. Authorty To Dsapprove Renewa Appcatons. The author-
ty and power of dsapprovng appcatons for the renewa of basc permts
pursuant to the provson of ths part s conferred upon the Commssoner and
upon the hearng e amners, as set forth n Part 200 of ths tte.
The purpose of these amendments s to deete certan practce and
procedure requrements whch w be contaned n the Rues of Prac-
tce n Permt Proceedngs (26 C It (1939), pt. 200) and whch w
be ssued effectve on the effectve date of ths Treasury Decson.
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Regs. 3,1 1 2.165. 51
These amendments do not adversey affect substantve nterests, and
reeve restrcton. Therefore, n order to conform wth sad Rues
of Practce n Permt Proceedngs (26 C R (1939), pt. 200), and for
such good cause found, ths Treasury Decson sha be effectve on
the 15th day foowng the date of pubcaton n the edera Regster.
(Ths Treasury Decson s ssued under the authorty contaned
n sees. 3105, 312 , 317G, and 3791 of the Interna Revenue Code of
1939 (53 Stat. 35 , 36 , 375, 07 26 U. S. C. 3105, 312 ,3176, 3791).)
T. Coeman Andrews,
Commssoner of Interna Revenue.
Approved December ,195 .
M. B. osom,
Actng Secretary of the Treasury.
(Pubshed In the edera Regster December 1 ,195 )
S CTION 311 (a). ALCOHOL P RMITS: R UIR M NTS
Reguatons 3, Secton 1 2.1 0: Appcaton, Rev. Ru. 5 -335
orm 1 79.
(Aso Sectons 1 2.157,1 2.165.)
When a specay denatured acoho or ta -free acoho permttee
moves from one ocaton to another wthn the same nterna revenue
regon, another permt marked Amended may be ssued for the new
ocaton. The permt number hed at the former ocaton may be
assgned to the amended permt. Consent of surety must be fed on
the bond of the deaer or user e tendng the terms thereof to cover
the new ocaton, e cept n the case of users where the quantty of
specay denatured acoho or ta -free acoho specfed n the permt
does not e ceed 5 wne gaons.
ormuae prevousy approved on orm 1 79-A ( ormua for
Preparaton made wth Specay Denatured Acoho) may be adopted
by a specay denatured acoho user for use at the new ocaton.
Reguatons 3, Secton 1 2.157: Appcaton
for permt, orm 1 7.
Procedure wth respect to specay denatured acoho deaers and
nsers and ta -free acoho users where there s a change n ocaton.
See Rev. Ru. 5 -335, above.
Reguatons 3, Secton 1 2.165: Appcaton
for permt, orm 1 7.
Procedure wth respect to specay denatured acoho deaers and
users and ta -free acoho users where there s a change n ocaton.
See Rev. Ru. 5 -335, above.
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515 Regs. 1 , S 192.390.
S CTION 312 . D INITIONS
Reguatons , Secton 1 2.15a: qupment not
n budngs.
(Aso Sectons 1 2.26, etc.)
Reguatons 3 amended. See T. D. 6090, page 92.
Reguatons 3, Secton 1 2.630a: Genera.
(Aso Secton 1 2.630b, etc.)
Reguatons 3 amended. See T. D. C0S , page 517.
SUBCHAPT R D RM NT D LI UORS
S CTION 3153.-R MO ALS R O TA
Reguatons 1 , Secton 192.350: Appcaton Rev. Ru. 5 -323
orm 16 9.
A brewer may aff h sgnature to copes of orm 1CS9, er-
mented Mat Lquor for port, by means of facsme rubber
stamp. The orgna of tbe form, whch Is forwarded to the As-
sstant Regona Commssoner, Acoho and Tobacco Ta , by tbe
Coector of Customs, ns provded In secton 1U2.3C3 of Regua-
tons 1 , must be sgned by the brewer or the offca authorzed to
sgn on behaf of the brewer.
Advce s requested whether orms 16S9, ermented Mat Lqnor
for port, may be sgned by the use of facsme sgnatures.
A brewer has an actve e port busness and prepares a substanta
number of orms 16 9 each month. Snce the orm s submtted
n trpcate and each copy must be sgned n the severa parts pro-
vded theren, such o eraton requres consderabe tme on the part of
the brewer or person authorzed to sgn the forms on behaf of the
brewer.
Secton 192.350 of Reguatons 1 provdes that brewers sha fe
appcaton on orm 16S9, n trpcate, for each ntended wthdrawa
of fermented mat quor for e portaton free of ta .
The Interna Revenue Servce w nterpose no ob|ecton to the aff -
ng of the sgnature of the brewer to copes of the orm 16S9 by
means of a facsme rubber stamp. However, the orgna of the
form n each case, whch s forwarded to the Assstant Regona Com-
mssoner, Acoho and Tobacco Ta , by the Coector of Customs as
provded n secton 192.365 of Reguatons 1 , must be sgned by the
brewer or by the offca authorzed to sgn on behaf of the brewer.
Reguatons 1 , Secton 192.390: Genera. Rev. Ru. 5 - 51
The soctaton of orders for beer for shp s suppes by a person
other than tbe brewer, the transportaton of such beer to the dock
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Regs. 1 , 192.390a. 516
for devery to the shp, and the transfer of tte to the beer to such
other person, are permssbe, under certan condtons.
Advce s requested whether a company other than a brewer may
soct orders for beer as shp s suppes and, upon recept of such
orders, make devery of the beer.
Secton 192.390 of Reguatons 1 provdes that fermented mat
quor may be removed from breweres and brewery bottng houses
free of ta for use as suppes on certan vesses and arcraft specfed
theren. Secton 192.392 of Reguatons 1 requres that appcaton
be made on orm 1G 9, ermented Mat Lquor for port, for
the remova of fermented mat quor from a brewery or from the
bottng house of a brewery for use as suppes on vesses and arcraft.
A company other than a brewer socts orders for beer from shps
that ca at a port. Upon recept of an order, such company, a3 a
whoesaer, purchases from a brewer the amount of beer requred
to f the order, and requests the brewer to e ecute orm 10 9
coverng the ta -free wthdrawa of the shpment. The company
pcks up the beer n ts own trucks and transports t to a dock where
t s devered to the shp and aden under customs supervson. At
the tme devery s made, tte to the beer s vested n the company
whch purchased the beer from the brewer.
The soctaton of orders for beer for use as shp s suppes, the
transportaton of such beer to the dock for devery to the shp by
a company other than the brewer and the transfer of tte to the
beer to the company are permssbe. Beer for ths purpose may be
removed from the brewery ony pursuant to approved orm 16 9
fed by the brewer and the beer must be transported drect to the
dock for customs nspecton and supervson of adng as requred
by Reguatons 1 .
Whe the transacton s consdered that of the brewer and the
requrements of Reguatons 1 pertanng to the remova of beer
free of ta for use as shp s suppes must be comped wth by the
brewer, the company soctng orders for beer and makng devery
thereof must possess a whoesaer s basc permt and must pay speca
ta as a reta or whoesae mat quor deaer as may be requred
snce t takes tte to and ses the beer.
S CTION 3153(b). R MO ALS R O TA : ROM
BR W RY OR WAR HOUS OR PORT
Reguatons 1 , Secton 192.390a, as added by
Treasury Decson C0 , page 517, ths Bu-
etn : Recprocatng foregn countres.
Lstng of foregn countres for whch fermented mat quor may
be wthdrawn free of ta for use as suppes on arcraft engaged n
foregn trade or trade between the Unted States and ts possessons.
See Rev. Ru. 51-570, page 72.
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517 Regs. 3, 5 1S2.630A-
SUBCHAPT R R-MISC LLAN OUS G N RAL PRO ISIONS
S CTION 3176.-RUL S AND R GULATIONS
Reguatons 3, Secton 1 2.15a: qupment not
n budngs.
(Aso Sectons 1 2.26, etc.)
Reguatons 3 amended. See T. D. 6000, page 02.
Reguatons 3, Secton 1 2.630a: Genera. T. D. 60
(Aso Secton 1 2.630b, etc. Secton 3105,
312 , 3701: Secton 17 .296, etc, Regua-
tons 7 Secton 1 5. 15, etc, Regua-
tons 10 Secton 102.300, etc., Regua-
tons 1 .)
TITL 26 INT RNAL R NU . CHAPT R I. SUBCHAPT R C. PABT ITS, 1S2.
1 9, AND 192
Amendment of provsons for wthdrawa of quors for use on
certan vesses and arcraft.
Treasury Department,
Omc or Commssoner of Interna Revenue,
Washngton 25, U C.
To Offcers and mpoyees of the Interna Revenue Servce and Other
Concerned:
Subsectons (a) and (b) of secton 309 of the Tarff Act of 1930
were amended by Pubc Law 2 3, ghty-thrd Congress LC. B.
1953-2, 1 , to read as foows:
Sec. 309. Suppes foe Certan esses and Arcraft.
(a) empton from Dutes and Ta es. Artces of foregn or domestc
orgn may be wthdrawn, under such reguatons as the Secretary of the Treasury
may prescrbe, from any customs bonded warehouse, from contnuous customs
custody esewhere than In a bonded warehouse, or from a foregn-trade zone
free of duty and nterna-revenue ta , or from any Interna-revenue bonded
warehouse, from any brewery, or from any wnery premses or bonded premses
for the storage of wne, free of Interna-revenue ta
(1) or suppes (not Incudng equpment) of (A) vesses or arcraft
opernted by tho Unted States, (B) vesses of the Unted States empoyed n
the fsheres or n the whang busness, or actuay engaged n foregn trade
or trade between the Atantc and Pacfc ports of the Unted States or
between the Unted States and any of ts possessons, or (C) arcraft
regstered In the Unted States and actuay engaged In foregn trade or trade
between tho Unted States nnd any of ts possessons or
(2) or suppes (Incudng equpment) or repar of (A) vesses of war
of any foregn naton, or (11) foregn vesses empoyed In the fsheres or
In tho whang busness, or actuay engaged In foregn trade or trade
between the Unted States nnd any of Its possessons, where such trade by
foregn vesses Is permtted or
(3) or suppes (Incudng equpment), ground equpment, mantenance,
or repar of arcraft regstered n any foregn country and actuay engaged
In foregn trnde or trade between the Unted States and any of ts posses-
sons, where trnde by foregn arcraft s permtted. Wth respect to artces
for ground equpment, the e empton hereunder sha appy ony to dutes
and to ta es Imposed upon or by reason of mportaton.
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Regs. 3, 1 2.630a.) 61
(b) Drawback. Artces wthdrawn from bonded warehouses, bonded manu-
facturng warehouses, contnuous customs custody esewhere than In a bonded
warehouse, or from a foregn-trade cone, and artces of domestc manufacture
or producton, aden as suppes upon any such vesse or arcraft of the Unted
States or aden as suppes (Incudng equpment) upon, or used n the man-
tenance of repar of, any such foregn vesse or arcraft, sha be consdered to be
e ported wthn the meanng of the drawback provsons of ths act.

To conform to the foregong provsons of aw and (f) to carfy
the provsons for credtng the accounts kept wth bonds when quors
are used on vesses and arcraft, and (b) to modfy the provsons of
reguatons wavng the affdavt of use (of the master or other off-
cer) of dsted sprts and wnes on vesses and arcraft, by ncreasng
the amount of ta abe abty governng such waver, for any one
shpment, from 25 to 100, Reguatons 3 20 C R, pt 1 2 , Regua-
tons 7 26 C R, pt. 17 , Reguatons 10 2G C R, pt 1 5 and Regu-
atons 1 2G C , pt 102 are amended as foows:
Paragraph 1. Whenever the term dstrct supervsor appears n
the sectons of the reguatons revsed by ths Treasury Decson, such
term s hereby amended to read Assstant Regona Commssoner .
Assstant Regona Commssoner means the Assstant Regona
Commssoner, Acoho and Tobacco Ta who s responsbe to, and
functons under the drecton and supervson of, the Regona Com-
mssoner.
Par. 2. Reguatons 3 26 C R, pt. 1 2 are amended as foows:
(A) Secton 1 2.630a s amended to read:
Skc. 1 2.630a. Genera. Acoho may be wthdrawn under proper permt and
bond In approved contaners from ndustra acoho bonded warehouses free of
ta for use as suppes on vesses and arcraft as foows:
(a) esses or arcraft operated by the Unted States
(b) esses of the Unted Stages empoyed In the fsheres or In the
whang busness, or actuay engnged n foregn trade or trade between
the Atantc and Pacfc ports of the Unted States or between the Unted
States and any of ts possessons
(c) Arcraft regstered n the Unted States and actuay engaged n for-
egn trade or trade between the Unted States and any of ts possessons
(d) esses of war of any foregn naton
(e) oregn vesses empoyed In the fsheres or In the whang busness,
or actuay engaged In foregn trade or trade between the Unted States
and any of Its possessons, where such trade by foregn vesses s per-
mtted or
, (f) Arcraft regstered In any foregn country and actuay engaged In
foregn trade or trade between the Unted States and any of ts possessons,
where trade by foregn arcraft Is permtted, and where the Secretary of
the Treasury sha have been advsed by the Secretary of Commerce that
he has found such foregn country aows, or w aow, substanta recp-
roca prveges n respect to nrcraft regstered n the Unted States.
( 6 Stat. 690 as amended, G3 Stat SCO 10 U. S. C. 1300, 26 U. S. C. 311 .)
(B) Secton 1 2.630b s amended to read:
Sec. 1 2.630b. Rectprocattnq oregn Countres. The Commssoner w
advse Assstant Regona Commssoners concernng those foregn countres
whch w aow, to arcraft regstered In the Unted States and engaged n
foregn trade, prveges substantay recproca to the prveges aowed heren
to arcraft of a foregn country. Assstant Regona Commssoners may approve
appcatons to wthdraw acoho for nse on arcraft of such countres. Where
appcaton Is made to wthdraw acoho free of ta for use on arcraft of other
foregn countres, whch It Is camed recprocate smar prveges to arcraft of
the Unted States, the appcant must frst estabsh the rght of such wthdrawa.
In approprate cases, the appcant shoud request the Secretary of Commerce
to fnd and advse the Secretary of the Treasury that such foregn country or
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519 Regs. 3, 1 2.630a.
countres aow, or w aow, substantay recproca prveges to arcraft A
toe Unted States. ( 0 Stat 000 as amended 10 U. S. C. 1300.)
(C) Secton 1 2.630 s amended to read:
Sec. 1 2.630 L vdence or Use o esses and Abchut. The prncpa en
the bond sha aso submt to the Assstant Regona Commssoner, wthn 6
months (or such addtona tme as may be granted by the Assstant Regona
Commssoner) an affdavt of the master or other offcer of the vesse or arcraft
on whch the acoho was aden, havng knowedge of the facts, showng that tM
acoho has been used on board the vesse or arcraft, and that no porton thereof
has been unaden In the Unted States or any of Its possessons: Provded. That
such affdavt w not he requred. In the case of any shpment, when the acoho
Is aden on vesses of war, or where the amount of ta on the acoho docs not
e ceed 100. ( 0 Stat. COO as amended 19 U. S. C. 1300.)
(D) Secton S2.C30m s amended to read:
Sec. S2.C30tn. Account Wth Contnuno Bonds, osm 1C00. The Assstant
Regona Commssoner w keep an account wth each contnung bond. orm
1000, smar to that kept for acoho e ported free of ta (see sec. 1S2.C11).
Upon recept of satsfactory evdence of use (If requred) of the acoho on
board the vesse or arcraft, the bond w be credted wth the quantty so
reported. In the case of acoho aden on vesses of war, or In the ense where
the amount of tn on the acoho docs not e ceed 100, credt w he gven at the
tme of recept of the certfcate of recept requred by secton S2.G30k. ( 6
Stat COO as amended, 53 Stat 330. 337 If U. S. C 1300, 26 U. S. C. 2SS0. 2SS0.1
Pah. 3. Reguatons 7 26 C R, r t. 17 are amended as foows:
(A) Secton 17 .296 s amended to read:
Sec. 17 .206. Wthdrawa bee or Ta . Wne may be wthdrawn n accord-
ance wth the provsons of ths secton and sectons 17 .20 through 173.310
from bonded wneres and bonded storerooms free of ta for use as suppes on.
vesses and arcraft as foows:
(a) esses or arcraft operated by the Unted States
(b) esses of the Unted States empoyed In the fsheres or n the wha-
ng busness or actuay engaged n foregn trade or trade between the
Atantc and Pacfc ports of the Unted States or between the Unted States
and any of ts possessons
(c) Arcraft regstered In the Unted States and actuay engaged In
foregn trade or trade between the Unted States and any of Its possessons
(d) esses of war of any foregn naton
(e) oregn vesses empoyed n the fsheres or In the whang busness,
or actuay engaged n foregn trade or trade between the Unted States
and any of Its possessons, where such trade by foregn vesses Is permtted
or
(f) Arcraft regstered In any foregn country and actuay engaged In
foregn trade or trade between the Unted Staes and any of ts possessons,
where trade by foregn arcraft s permtted, and where the Secretary of
the Treasury sha have been advsed by the Secretary of Commerce that
he has found such foregn country aows, or w aow, substanta recpro-
ca prveges In respect to arcraft regstered In the Unted States.
( 6 Stat. COO as amended 10 U. S. C. 1300.)
(B) Secton 17 .297 s revoked.
(C) Secton 17 .29 s amended to read:
Sec. 17 .20S. R CtrnocATNo oreon Countres. The Commssoner w ad-
vse Assstant Regona Commssoners concernng those foregn countres whch
w aow, to acrnft regstered n the Unted States and engaged In foregn
trade, prveges substantay recproca to the prveges aowed heren to
arcraft of a foregn country. Assstant Regona Commssoners may approve
appcatons to wthdraw wne for use on arcraft of such countres. Where
appcaton s made to wthdraw wne free of ta for use on arcraft of other
foregn countres, whch t s camed recprocate smar prveges to arcraft
of the Unted States, the appcant must frst estabsh the rght of such wth-
drawa. In approprate cases, the appcant shoud request the Secretary of
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Regs. 3, 1 2.630a. 520
Commerce to fnd and advse the Secretary of the Treasury that such foregn
country or countres aow, or Tr aow, substantay recproca prveges
to arcraft of the Unted States. ( 0 Stat 090 as amended 10 U. . G. 1300.),
(D) Secton 17 .309 s amended to read:
Sec. 17 .309. vdence of T be on esses and Arcraft. The prncpa on
the bond sha aso submt to the Assstant Regona Commssoner, wthn 0
months (or such addtona tme as may be granted by the Assstant Regona
Commssoner) an affdavt of the master or other offcer of the vesse or ar-
craft on whch the wne was aden, havng knowedge of the facts, showng that
the wne has been used on board the vesse or arcraft, and that no porton
thereof has been unaden In the Unted States or any of Its possessons: Pro-
tded, That suck affdavt w not be requred, In the case of any shpment,
when the wne s aden on vesses of war, or where the amount of ta on the
wne does not e ceed 100. ( C Stat. GOO as amended 19 U. S. C. 1309.)
( ) Secton 17 .310 s amended to read:
Sec. 17 .310. Credtng Accounts. After recevng the copy of the entry,
bearng the certfcate of adng of the Coector of Customs, requred by sec-
ton 17 .307, and the certfcate of recept requred by secton 17 .30 , and of
satsfactory evdence of use (If requred) of the wne on board the vesse or
arcraft, as provded by secton 17 .309, the Assstant Regona Commssoner
w make proper credt entres In hs wne accounts, orm 733, 733-A, or 733
modfed (vermouth or other apertf wne), ns the case may be, and credt the
account kept wth the bond, orm ISO, In accordance wth secton 17 .303. In
the case of wne aden on vesses of war, or n the case where the amount of
tn on the wne does not e ceed 100, credt w be gven at the tme of recept
of the certfcate of recept requred by secton 17 .30 .
Par. . Reguatons 10 26 C R, pt. 1 5 are amended as foows:
(A) Secton 1 5. 15 s amended to read:
Sec. 1 5. 15. Genera. Dsted sprts In packages and In cases whch have
been botted n bond for e portaton may be wthdrawn from Interna revenue
bonded warehouses free of ta for use as suppes on vesses and arcraft as
foows:
(a) esses or arcraft operated by the Unted States
(b) esses of the Unted States empoyed n the fsheres or In the
whang busness, or actuay engaged In foregn trade or trade between
the Atantc and Pacfc ports of the Unted States or between the Unted
States and any of Its possessons
(c) Arcraft regstered In the Unted States and actuay engaged n
foregn trade or trade between the Unted States and any of Its possessons
States and any of Its possessons
(e) oregn vesses empoyed n the fsheres or In the whang busness,
or actuay engaged In foregn trade or trnde between the Unted States
and any of Its possessons, where such trade by foregn vesses Is permtted
or
(f) Arcraft regstered In any foregn country and nctuay engaged In
foregn trade or trade between the Unted States and any of Its possessons,
where trade by foregn arcraft Is permtted, and where the Secretary of tho
Treasury sha have been advsed by the Secretary of Commerce that he has
found such foregn country aows, or w aow, substanta recproca
Prveges In respect to arcraft regstered In the Unted Stntes.
( 0 Stat. CC0 os amended 19 U. S. C. 1309.)
(B) There s nserted mmedatey foowng secton 1 5. 15 tho
foowng new secton:
Sec. 1 5. 15a. Recprocatng oregn Countres. The Commssoner w
advse Assstant Regona Commssoners concernng those foregn countres
whch w aow, to arcraft regstered In the Unted States and engaged n
foregn trade, prveges substantay recproca to the prveges aowed heren
to arcraft of a foregn country. Assstant Regona Commssoners may approve
appcatons to wthdraw dsted sprts for use on arcraft of such countres.
Where appcaton s made to wthdraw dsted sprts free of ta for use on
arcraft of other foregn countres, whch It Is camed rccprocate smar prv-
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521 Regs. 3, S 1 2.630a.
eges to arcraft of the Unted States, the appcant must frst estabsh the rght
of such wthdrawa. In approprate cases, the appcant shoud request the
Secretary of Commerce to fnd and advse the Secretary of the Treasury that such
foregn country or countres aow, or w aow, substantay recproca prv-
eges to arcraft of the Unted States. ( 6 Stat 600 as amended 19 U. S. C
1300.)
(C) Secton 1 5. 19 s amended bv:
(1) Strkng the words or the Commssoner wthn the paren-
thess n the frst sentence.
(2) Strkng the provso at the end of the frst sentence and a of
the second sentence and nsertng n eu thereof, Provded, That such
affdavt w not be requred, n the case of any shpment, when the
dsted sprts are aden on vesses of war, or where the amount of
ta on the dsted sprts does not e ceed 100.
(3) Changng the ctaton to read, ( 6 Stat. 690 as amended: 19
U.S.C.1309) .
(D) Secton 1 5. 20 s amended by:
(1) Strkng the ast sentence and nsertng n eu thereof the fo-
owng, Upon recept of satsfactory evdence of use (f requred) of
the sprts, the bond w be credted wth the quantty so reported.
In the case of sprts aden on vesses of war, or n the case where the
amount of ta on the sprts does not e ceed 100, credt w be gven
at the tme of recept of evdence of adng from the Coector of
Customs as provded m secton 1 5.7 .
(2) Changng the ctaton to read, ( 6 Stat 690 as amended 19
U.S.C.1309) .
Par. 5. Reguatons 1 26 C R, pt 192 are amended as foows:
(A) Secton 192.390 s amended to read:
Sec. 102.390. Genera. ermented mat quor may be removed from breweres
and brewery bottng bouses free of ta for use as suppes on vesses and arcraft
as foows:
(a) esses or arcraft operated by the Unted States
(b) esses of the Unted States empoyed In the fsheres or In the wha-
ng busness, or actuay engaged In foregn trade or trade between the
Atantc and Pacfc ports of the Unted States or between the Unted States
and any of Its possessons
(c) Arcraft regstered In the Unted States and actuay engaged In for-
egn trade or trade between the Unted States and any of Its possessons
(d) esses of war of any foregn naton
(e) oregn vesses empoyed In the fsheres or In the whang busness,
or actuay engaged In foregn trade or trade between the Unted States and
any of Its possessons, where such trade by foregn vesses Is permtted or
(f) Arcraft regstered In any foregn country and actuay engaged a
foregn trade or trade between the Unted States and any of Its possessons,
where trndo by foregn arcraft Is permtted, and where the Secretary of
the Treasury sha have been advsed by the Secretary of Commerce that he
has found Ruch foregn country aows, or w aow, substanta recproca
prveges In respect to arcraft regstered In the Unted States.
( 6 Stat CU0 as amended 53 Stat 367 as amended 19 U. S. C. 1309, 26 U. S. C,
153.)
(B) There s nserted mmedatey foowng secton 192.390 the
foowng new secton:
Sec. 192.300a. R CPROCATro oregn Countres. The Commssoner w
advse Assstant Regona Commssoners concernng those foregn countres
whch w aow, to arcraft regstered n the Unted States and engnged In
foregn trade, prveges substantay recproca to the prveges aowed heren
to arcraft of a foregn country. Assstant Regona Commssoners may approve
Appcatons to wthdraw fermented mat quor for use on arcraft of such
countres. .Where appcaton Is made to wthdraw fermented mat quor free
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Regs 7, 5 17 .193. 522
of ta for use on arcraft of other foregn countres, whch It 1 camed recp-
rocate smar prveges to arcraft of the Unted States, the appcant must
ttrst estabsh the rght of snch wthdrawa. In approprate cases, the appcant
shoud request the Secretary of Commerce to fnd and advse the Secretary of
the Treasury that such foregn country or countres aow, or w aow,
substantay recproca prveges to arcraft of the Unted States. ( 6 Stat.
600 as omended 19 U. S. C. 1309.)
(C) Secton 192.39 s amended by:
(1) Strkng the words or the Commssoner wthn the paren-
thess n the frst sentence.
(2) Strkng the provso at the end of the frst sentence and nsertng
n eu thereof, Provded, That such affdavt w not be requred, n
the case of any shpment, when the fermented quor has been aden on
vesses of war, or where the amount of ta on the fermented quor
does not e ceed 100.
(3) Strkng the ast sentence and nsertng n eu thereof the
foowng new sentences, Upon recept of satsfactory evdence of use-
(f requred) of the fermented quor on board the vesse or arcraft,
the bond w be credted wth the quantty so reported. In the case
of fermented qur aden on vesses of war, or n the case where the
amount of ta on the fermented quor does not e ceed 100 credt
w be gven at the tme of recept of the certfcate of nspecton and
adng from the Coector of Customs, as provded n secton 192.36 .
It s found that compance wth the notce, pubc procedure thereon
and effectve date requrements of the Admnstratve Procedure Act,
approved une 11,19 6, s unnecessary for the ssuance of these amend-
ments, for the reason that such amendments merey conform the regu-
atons to the provsons of subsectons (a) and (b) of secton 309 of
the Tarff Act of 1930, as amended by Pubc Law 2 3 ( 3d Cong.),
or are of an admnstratve or berazng character.
Ths Treasury Decson sha be effectve upon the date of pubca-
ton n the edera Regster.
(Ths Treasury Decson s ssued under the authorty contaned n
sees. 3105,312 ,3176, and 3791 of the Interna Revenue Code (53 Stat.
35 ,36 ,375, 67 26 U. S. C 3105,312 ,3176,3791).)
T. Coeman Andrews,
Commssoner.
Approved August 5,195 .
M. B. osom,
Actng Secretary of the Treasury.
(Pubshed In the edera Regster August 11,195 )
Reguatons 7, Secton 17 .193: Process. Rev. Ru. 5 - 95
(Aso edera Acoho Admnstraton Act,
Secton 5 (e) Reguatons No. , Sec-
ton 21.)
A formua and process for the manufacture of Champagne, sub-
mted on orm C9 Suppementa, ormua and Process for or-
mua Wnes, provdng that after secondary fermentaton n the
bottes s competed the contents of the bottes w bo dumped and
entered nto a buk tank under ntrogen pressure where the fnshng
dosage w bo added, w be approved, provded that n fact no fer-
mentaton takes pace after dumpng.
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523 Regs. 15, 190.9S.
Reguatons 15, Secton 190.9 : Wne bottng T. D. 6007
room.
(Aso Secton 190.11 , etc)
(Aso Secton 1 3.552, etc., Reguatons Sec-
1 .593, etc., Reguatons 5 Secton 1 5.272,
etc., Reguatons 10 Secton 1 9. 5, etc., Reg-
uatons 11.)
TITL 20 INT RNAL R NU . CHAPT R I. SUBCHAPT R C. PARTS 1 3. 1 .
1 3, 1 1), AND 100
Amendment of requrements for supervson of actvtes, re-
sponsbty for operatons and preparaton of varous records at
rectfyng pants and ta -pad bottng bouses.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On uy 2 , 195 , notce of proposed ruemakng wth respect to
amendments to Reguatons (20 C R, pt 1 3), Reguatons 5 (26
C R. pt. 1 1), Reguatons 10 (20 C R, pt 1 5), Reguatons 11
(20 C I, pt. 1 9), and Reguatons 15 (20 C R, pt. 190), (a) to
emnate from the reguatons the requrements for Government
ocks and seas on varous tanks and ppe nes, (b) to permt pro-
pretors to gve notce of ther ntenton to dump sprts for rectf-
caton or for bottng, n eu of fng an appcaton for such au-
thorty, (c) to modfy the requrements to permt the dumpng of
sprts, certan acts of rectfcaton, bottng, packagng, stampng,
abeng and markng contaners n the absence of Government off-
cers, (d) to transfer to propretors the custody of and accountabty
for red strp stamps, (e) to permt the buk gaugng of dsted
sprts dumped for rectfcaton, (f) to revse the requrements for
mantenance and dsposton of reports coverng transfers of sprts,
(g) to modfy the requrement for the verfcaton of abeng and
proof of fnshed products, (h) to provde for the aternate use of
tanks n rectfyng pants ether as dumpng and reducng tanks or
as processng tanks, () to beraze the requrements governng rec-
tfcaton under trade names, (|) to wave the requrement for Govern-
ment ocks on outsde doors of ta -pad bottng houses n nstances
where such bottng houses are n budngs whch are separate and
apart from any other budng used n connecton wth the nterna
revenue bonded warehouse, and (k) to correct an nconsstency be-
tween sectons 190.575 and 190.5 9 on one sde and sectons 190.091
and 190.093 on the other and to conform a four sectons to the re-
organzaton procedures, was pubshed n the edera Regster (19
. R. 039). No comments havng been receved durng the 15-day
perod prescrbed n such notce, the foowng amendments are hereby
adopted:
2 ARAGRAr 1. Wherever the term supervsor , dstrct superv-
sor or Assstant Dstrct Commssoner upwnrs n the sectons
of tho reguatons revsed by ths Treasury Decson, such term s
hereby amended to read Assstant Regona Commssoner . Sm-
ary, the term coector or drector s hereby amended to read
133 1 S3 3
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Begs. 15.1 100.9 . 52
Dstrct Drector of Interna Revenue . Assstant Regona Com-
mssoner means the Assstant Regona Commssoner, Acoho and
Tobacco Ta , who s responsbe to, and functons under the drecton
and supervson of. the Regona Commssoner.
PAR. 2. Reguatons (26 C R, pt. 1 3) are amended as foows:
(A) Secton 1 3.552. as amended by Treasury Decson 5919 C. B.
1952-2, 306 , approved uy 16,1952, s further amended by strkng
out the words propretor of n the ast sentence and nsertng n
eu thereof the words storekeeper-gauger n .
(B) Secton 1 3.553, as amended by Treasury Decson 5919, s
further amended by strkng out the word vendee n the ast sen-
tence and nsertng n eu thereof the words storekeeper-gauger
at the vendee premses .
(C) Secton 1 3.55 k, as added by Treasury Decson 5919, s
amended as foows:
(1) By strkng out the word vendee n the thrd sentence,
|rhcn begns The dster , and nsertng n eu thereof the
words storekeeper-gauger at the vendee premses .
(2) By strkng out the words supervsory dstrct n the
ast sentence and nsertng n eu thereof the word regon .
(3) By strkng out the word dstrct n the ast sentence and
nsertng n eu thereof the word regon .
PAR. 3. Reguatons 5 (26 C R, pt. 1 ) are amended as foows:
(A) Secton 1 .593, as amended by Treasury Decson 5919, s
further amended by strkng out the words propretor of n the ast
sentence and nsertng n eu thereof the words storekeeper-gauger
at .
(B) Secton 1 .59 , as amended by Treasury Decson 5919, s
further amended bv strkng out the word vendee n the eghth
sentence, whch begns The dster , and nsertng n eu thereof
the words storekeeper-gauger at the vendee premses .
(C) Secton 1 .59 k, as added by Treasury Decson 5919, a
amended as foows:
(1) By strkng out the word vendee n the thrd sentence,
whch begns The dster, and nsertng n eu thereof the
words storekeeper-ganger at the vendee premses .
(2) By strkng out the words supervsory dstrct n the ast
sentence and nsertng n eu thereof the word regon .
(3) By strkng out the word dstrct n the ast sentence and
nsertng n eu thereof the word regon .
PAR. . Reguatons 10 (26 C R. pt. 1 5) are amended as foows:
(A) Secton 1 5.272, as amended by Treasury Decson 6050 C. B.
1953-2, 373 , approved November 6,1953, s amended as foows:
(1) By strkng out the fna perod of paragraph (c) and addng
Provded. That such requrement may be waved n nstances
where the bottng house s ocated n a budng whch s separate
and apart from any other budng used n connecton wth the n-
terna revenue bonded warehouse .
(2) By strkng out the words supervsory dstrct n the ast
sentence and nsertng n eu thereof the word regon .
(3) By strkng out the word dstrct n the ast sentence and
nsertng n eu thereof the word regon .
(.B) Secton 1 5.626 as amended by Treasury Decson 6919, a
further amended by strkng out the word vendee n the fourth sen-
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525 (Regs. 15, 190.9 .
tence, whch begns If the sprts , and nsertng n eu thereof the
.words storekeeper-gauger at the vendee premses .
C) Secton 1 5.035 s amended by strkng out the perod at the
of the ast sentence and addng : Provded, That where quors are
to bo consgned to ta -pad bottng houses or rectfyng pants the
warehouseman w forward one copy of orm 92 to the storekeeper-
gauger at the vendee premses who w dever such copy to the
vendee .
(D) Secton 1 5.657, as amended by Treasury Decson 5919, s
further amended as foows:
(1) By strkng out the word vendee n the second sentence,
whch begns The storekeeper-gauger , and nsertng n eu
thereof the words storekeeper-gauger at the vendee premses .
(2) By strkng out the words supervsory dstrct n the ast
sentence and nsertng n eu thereof the word regon .
(3) By strkng out the word dstrct n the ast sentence
and nsertng n eu thereof the word regon .
Par. 5. Ueguatons 11 (26 C R, pt. 1 9) are amended as foows:
(A) Secton 1 9. 5 s amended by strkng out the words and
stamps n the second sentence, whch begns There sha aso .
(B) Secton 1 9.5 s amended by strkng out the ffth and s th
sentences, wh ch begn Stopcocks must be and Manheads, nets,
and , respectvey, and nsertng n eu thereof the foowng
sentences:
Stopcocks must be provded and no arranged ns to contro competey the fow of
sprts Into the tnnk: Provded, That where sprts are receved by ppene from
contguous premses and the ppene Is equpped wth a vaue In the contguous
premses, whch may be ocked wth a Government ock, the Inet vave In the
recevng ta -pad bottng bouse Is not requred to be ocked. Manheads and
Inets of the storage tank must be provded wth factes for ockng wth
Government ocks. However, storage tanks to be used e cusvey for the .
storage of wne and abeed Wne Storage Tank need not be secured as pro-
vded by ths secton. A cosed manfod system, not equpped for ockng wth
Government ucks, may be Instaed whch w permt the transfer of sprts
between storage tanks.
(C) Secton 1 9.G0 s amended by strkng out the words cosed
and secured by a Government ock or sea n the fourth sentence,
whch begns ach bottng tank , and nsertng n eu thereof the
words provded wth factes for cosng whch may be secured by a
Government ock or otherwse fastened and scaed .
(D) Secton 1 9.61 s amended by strkng from the ast sentence
the words and such outet s equpped for ockng wth a Government
ock when not n use .
( ) Secton 1S9.02 s amended as foows:
(1) By strkng out the second sentence, whch begns Such
tank must .
(2) By strkng from the thrd sentence, whch begns The
capacty of , the phrase , and the manheads, f any, sha be
equpped for ockng wth a Government ock .
( ) Secton 1 9.03 s amended by strkng out the ast sentence.
(G) Secton 1 9.05 s amended by strkng out the thrd sentence,
whcv begns Where dsted water .
(II) Secton 1 9.00 s amended as foows:
(1) By strkng out the perod at the end of the ffth sentence,
whch begns Such ppenes , and addng : Provded, That
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Regs. 15, 190.9 . 526
where the ppene eadng from the contguous premses s
equpped wth a vave on such contguous premses whch may
be ocked wth a Government ock, so as to contro the fow of
sprts, such vave n the recevng ta -pad bottng house s not
requred .
(2) By strkng out the s th sentence, whch begns If de-
tachabe hose .
(3 By amendng the seventh sentence, whch begns ters
may be , to read:
ters may be nstaed n such ppenes connected wth bottng
tanks.
(I) Secton 1 9.155 s amended to read as foows:
Sec. 1 9.155. Rrstrcton . No operatons pertanng to transferrng of
sprts by ppe ne from ad|onng premses or from tank cars or tank trucks
to storage or bottng tanks or other operatons requred by ths part to be
conducted under the supervson of a Government offcer sha be carred on at
a ta -pad bottng house durng other than reguar busness hours, uness
speca permsson (Incudng provson for supervson) Is frst obtaned therefor
from the Assstant Regona Commssoner. Operatons whch may be conducted
In the absence of the Government offcer may not however be carred on at a
ta -pad bottng house durng other than reguar busness hours uness notce of
such operatons s frst gven, n wrtng, to the storekeeper-gauger.
( ) Secton 1 9.156 s amended as foows:
(1) By nsertng n the frst sentence after the words restrct
operatons the foowng words: requrng the supervson of a
Government offcer .
(2) By strkng out the ast sentence and nsertng n eu there-
of the foowng sentences: Where bona fde emergences e st, As-
sstant Regona Commssoners w assgn offcers to duty outsde
of reguar hours ony after thorough nvestgaton of the facts
n each case and ony n the event the necessary personne can be
assgned wthout undue nterference wth other actvtes. Where
the propretor needs to dump, fter or botte sprts or perform
such other operatons whch may be conducted n the absence of a
Government offcer, after reguar hours, he sha frst gve notce
thereof, n wrtng, to the storekeeper-gauger. The storekeeper-
gauger sha forward a copy of the notce to the Assstant Re-
gona Commssoner.
( ) Secton 1 9.1G6 s amended as foows:
(1) By strkng out the second sentence, whch begns, When
sprts are receved n a raroad tank car , and nsertng n eu
thereof the foowng sentence: When sprts are receved n a
raroad tank car, n a tank truck, or by ppene, they must be
transferred or conveyed nto storage tanks or nto botte tanks:
Provded, That such transfers of dsted sprts must be under
the supervson of a Government offcer n order that he may deter-
mne that ony awfu ta -pad sprts are receved.-
(2) By strkng from the thrd sentence, whch begns When
sprts are transferred , the words or out of .
(3) By strkng out the fourth sentence, whch begns The
Government offcer , and nsertng n eu thereof the foowng
sentence: Upon competon of the transfer of the sprts to storage
or bottng tanks, the report of gauge, orms 92,1 0 or 1520, as
the case may be, devered to the storekeeper-gauger from the
consgnor premses, sha be devered by hm to the propretor.
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527 Regs. 15, S 190.9 .
(L) Secton 1 9.170 s amended by strkng out the frst sentence
and nsertng n eu thereof the foowng sentence:
When sprts receved In a raroad tank car. In a tank track, or by a ppene
are run nto a storage tank, the report of gauge, orm 1520, In the case of ds-
ted sprts other than acoho, and orm 1 -10 In the case of acoho, devered
to the propretor of the ta -pad bottng house by the storekeeper-gaugcr, or
orm 703-A n the case of wne, devered by the shpper, sha be attached to
such storage tank.
(M) Secton 1S9.1S5 s amended as foows:
(1) By amendng the headng thereof to read Notce. orm
ZSOP
(2) By strkng from the frst sentence the words e ecute
appcaton and nsertng n eu thereof the words gve notce .
(3) By nsertng after the frst sentence the foowng new
sentence:
A copy of the nbe whch s to be aff ed to the bottes of such
sprts sha be attached to each copy of orm 230.
( ) By strkng out the seventh sentence, whch begns The
proof n .
(S) Secton 1 9.191 s revoked.
(0) Secton 1 9.192 and headng are amended to read as foows:
Sec. 1 9.192. Submsson o Offces. After preparaton of the notce the
propretor w pace the orgna of orm 230 on the storekeeper-ganger s desk
and thereupon w proceed wth the bottng. Where packages of sprts are to
be dumped fur bottng, or where sprts are receved by ppene from contguous
premses (other than rectfyng pants) and are conveyed drecty Into bottng
tanks, the wthdrawa gauge. orms 703-A, 1 0, or 1520, w be submtted wth
the orgna of orm 230. Where sprts nre receved by ppene from contguous
rectfyng pants, the sera number of the copy of orm 230, or orm 237. re-
ceved from the recer w be noted by the propretor on orm 230 prepared
by hm. The storekeeper-gaugcr w return the orm 230 to the propretor
after notng the operaton covered thereby.
(P) Secton 1S9.193 s revoked.
( ) Secton 1 9.19 s amended by strkng out the words ap-
prova of I orm 230 by the storekeeper-gauger, as provded n secton
1 9.192 and nsertng n eu thereof the words pacng the orgna
of orm 230 on the storekeeper-ganger s desk .
(R) Secton 1S9.195 s amended by strkng out the phrase . and
beforo they are reeased by the Government offcer for bottng, .
(S) Secton 1 9.200 s amended by strkng out the ast sentence and
nsertng n eu thereof the foowng sentence:
Upon competon of the bottng the botter w remove orm 230 from the
bottng tank and compete the e ecuton of hs certtcate on a copes.
(T) Secton 1 9.213 s amended by strkng out the seventh sen-
tence, whch begns Such rebottng , and nsertng n eu thereof
the sentence Such rebottng, reabeng, and restampng operatons
may bo performed n the absence of the Government offcer .
(U) Secton 1 9.229 s amended by strkng out the ast four sen-
tences and nsertng n eu thereof the foowng sentences:
The Dstrct Drector of Interna Icvenue w enter the sera numbers of the
stamps Issued and stamp the date of sae on a copes of orm 23, and w
retan one copy and send the orgna to the Assstant Regona Commssoner
and one copy to the propretor. The Dstrct Drector of Interna Revenue w
forward the stamps to the propretor. The propretor w dever the stamps
and corresondng orm 2 to the Government offcer for verfcaton of re-
cept. Upon such verfcaton the propretor w enter recept of the stamps on
orm 1 2.
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Regs. 15. 190.9 . 52
( ) Secton 1 9.230 s amended as foows:
(1) By strkng from the frst sentence the words Govern
ment offcer and nsertng n eu thereof the word propretor ,
(2) By strkng from the ast sentence the words for mme-
date devery to the Government offcer n accordance wth
secton 1 9.229 .
(W) Sectons 1 9.231 and 1 9.232 are revoked.
( ) Secton 1 9.233 s amended to read as foows:
S C. 1S9.233. R UISITIONS To B IL D. Propretors w retan copes of
orm 2 returned by the Dstrct Drector of Interna Revenue at the pant as
a record avaabe for Inspecton by Government offcers and w fc them In
chronoogca order.
(Y) Secton 1 9.23 and headng are amended to read as foows:
S C. 1 9.23 . PBOPBI TOB S R SPONSIBILITY. Propretors w be hed strcty
responsbe for the proper contro and accountng of a stamps receved, used,
and on hand. Tbey sha be hed responsbe for the proper aff ng of the
stamps to bottes of ta -pad sprts and for makng a proper accountng for a
stamps reported mutated.
(Z) Secton 1 9.235 s revoked.
(AA) Secton 1 9.2 0 s amended by strkng out the ast sentence
and nsertng n eu thereof the foowng sentences:
Uness egbe and Intended for e change or refund as provded In secton
1 0.2 1, red strp stamps that have been mutated shoud bo destroyed by the
propretor under the supervson of the Government offcer. The propretor
w then enter aptroprato credt on orm Itf for the number of each denom-
naton of stamps so destroyed.
(BB) Sectons 1 9.2 2 and 1 9.2 3 are revoked.
(CC) There s nserted mmedatey foowng secton 1 9.256 tho
foowng new secton:
Sco. S9.2. Ga. SAMPL S. Government offcers assgned to ta -pad bottng
houses w secure sampes of fnshed abeed products from the bottng no at
Irreguar Intervas for submsson to the Government chemst.
(DD) Sectons 1 9.257 and 1 9.25 are revoked.
( ) Secton 1 9.259 s amended as foows:
(1) By strkng out the frst sentence and nsertng n eu
thereof the foowng sentence: Government offcers assgned to
ta -pad bottng houses w, at rreguar ntervas durng the
process of bottng, test and e amne the botted sprts to deter-
mne whether the abe attached s dentca wth the abe aff ed
to orm 230 attached to the bottng tank and wth the certfcate
of abe approva .or abe e empton whether the botted sprts
agree n proof wth the data on the abe and whether the quantty
agrees wth the data on the abe, stamp or botte, sub|ect to the
Imtaton prescrbed by secton 1 9.209.
(2) By strkng from the ffth sentence, whch begns If the
contents , the words wthhod the reease of the botted sprts
and .
( ) Secton 1 9.261 s amended to read as foows:
S C. 1 0.2U1. PBOPRI TO S R SPOwsreUTT. u responsbty rests upon the
propretor to see that the abeng of a sprts botted at bs pant Is In con-
formty wth requrements of Reguatons and 5 (27 C R pts. and 5) Issued
pursuant to the edera Acoho Admnstraton Act, and Reguatons 13 (20
C pt 175).
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529 Regs. 15, 190.9S.
(Sec 5, 9 Stat 1, as amended, 63 Stat. 331 27 D. S. C. 205 26
T . S. C. 2 71)
(UG) The headnote to Subpart s amended to read as foows:
SUBTART . SA GUARDING O GO RNM NT PROP RTT
(HH) Secton 1 9.290 s amended to read as foows:
Sec. 1 0.200. Storaoe nr Government Room, aut o Cabnet. The seas.
and the records and other Government property when not In use, sha be kept
In a securey constructed Government room, vaut or cabnet, whch sha be
ocked wth a Government sea ock, the key to whch sha reman at a tmes
In the possesson of the storekeeper-gauger.
(II) There s nserted mmedatey foowng secton 1 9.302 the
foowng new sectons:
Sec. 1 9.302n. ecord, Part 1, orm 1 2. very propretor who has In hs
possesson red strp stamps w keep a record ot such stamps receved and nsed
on part 1 of orm 1 2. ntres w be made on orm 1 2 day, as Indcated
by the headngs of the varous coumns and nes on the form, and In accordance
wth the Instructons prnted thereon or ssued In respect thereto, and as re-
qured by ths part. The record w be kept In bound form, avaabe for In-
specton y Government offcers.
Skc. ISU.SOL b. Monthy It roRT, Part 2, orm 1S2. The propretor sha pre-
pare a monthy summary report on part 2 of orm 1 2, In dupcate. Be sha
dever pnrt 2 of orm 1S2 to the Government offcer for verfcaton of the
monthy Inventores of stnnps on hand. After such verfcaton the Govern-
ment oeer w return both copes to the propretor who w, on or before the
f.t day of the month kucccc IIAk tho month In whch the transactons occurred,
forward tho or nt to tho A uHtnt Regona Omumoter and retan the
remanng copy, avaabe for Inspecton by Government offcers.
( ) Secton 1 0.305 s amended by nsertng n the frst sentence
after tho phraso (and ecord 52 and orm 52- f requred) the
words and orm 1 2.
( ) Subpart Z s revoked.
(LL) Secton 13 .335 s amended as foows:
(1) By strkng from the second sentence, whch begns Where
tho propretor , the words hs appcaton to dump and botte, .
(2) By strkng from the ast sentence the words Upon ap-
frova of the form n the usua manner, he may and nsertng n
eu thereof the words He may .
(MM) Secton 1 9.33G s amended by strkng from the ast sen-
tence the phrase , submt them to the storekeeper-gauger for verf-
caton, .
. (NN) Secton 1 9.337 s amended as foows:
(1) By nsertng after the words on orm 52-D n the two
paces n whch they appear n the frst sentence the words and
orm 1 2
(2) By strkng out the ast sentence.
(OO) Secton 1 9.3 6 s amended by strkng from the thrd sen-
tence, whch begns Upon competon , the phrase , submt them to
the storekeeper ganger for verfcaton, .
(PP) Secton 1 D.3 7 s amended as foows:
(1) By strkng from the ast sentence the words n the custody
of the storekeeper-gauger .
(2) By addng at the end thereof the foowngnew sentence:
The propretor w submt a monthy report on Part 2 of orm
1 2 of such stamps.
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Regs. 15, 190.9 . 530
( ) Secton 1 9.357 s amended to read as foows:
Sec. 1S0. 57. Dsposton or Strp Stamps. A unused rod strp stamps, If
any, beongng to the propretor at the tme of permanent dscontnuance of
busness w be Inventored by denomnaton, sera number, and quantty, and
the nventory w be verfed by the storekeeper-gauger or otber offcer desgnated
by the Assstant Regona Commssoner to perform such duty. The vaue of
the stamps, f In quanttes of the vaue of 5 or more, may be refunded, pro-
Tded that a cam for such refund on orm 3, estabshng the awfu Issuance.
and ownershp of the stamps, s fed by the propretor wth the Dstrct D-
rector of Internn Revenue who Issued the stamps wthn 2 years after the dute
on whch such stamps were awfuy Issued. Such unused stamps may be de-
stroyed In the presence of the Government offcer and the propretor thereby
reeved from further accountabty for tho stamps. If tho stumps arc not
surrendered to the Dstrct Drector of Interna Revenue for refund of ther
vaue or are not destroyed, the propretor must account for the stamps each
month by renderng Part 2 of orm 1 2 to the Assstant Regona Commssoner.
(RR) Secton 1 9.366 s amended to read as foows:
Sec. 1 9.300. Where Locks Abe Requred. Government ocks are requred
upon the door of the Government room, vaut or cabnet provded n accordance
wth secton 1 9.290, and the entrance door of the e port storage room, f any
upon the manheads and nets of storage tanks upon the vaves n ppenes
whch convey sprts Into the ta -pad bottng house from contguous premses
If such ppenes are not ocked In the contguous premses and upon such other
vaves, stopcocks, and openngs n equpment and apparatus as are requred by
ths part or deemed necessary by the Assstant Regona Commssoner to be
secured wth Government ocks.
(SS) Subpart GG s revoked.
Par. 6. Reguatons 15 (26 C R, pt. 190) are amended as foows:
(A) Secton 190.9 s amended by strkng out the word ocked
n the frst sentence.
(B) Secton 190.11 s amended to read as foows:
Sec. 190.11 . Stobace Tanks. If sprts are receved n tank cars, or by ppe-
ne, or f wnes are receved n tank trucks, sutabe storage tanks most be
provded wthn whch to store such sprts, e cept that such storage tanks w
not be requred In the case of sprts whch are transferred drecty to processng
and bottng tanks In accordance wth sectons 190. 07 to 190. 0 . ach storage
tank sha be constructed of meta or other sutabe matera and sha be
equpped wth a sutabe devce, or mounted on accurate scaes, whereby the
contents can be accuratey determned. There sha be panted on each tank
the words, Storage Tank , foowed by ts sera number and capacty In gaons.
A sutabe board sha be provded on each storage tank for the attachment of
orms 703-A, 1520, or 1 0, as provded In ths part. Manbeads and nets of
the tanks must be provded wth factes for ockng wth Government ocks.
Stopcocks must be provded and so arranged as to contro competey the fow
of sprts nto the tank: Provded, That where sprts are receved by ppene
from contguous premses and the ppene Is equpped wth a vave on the con-
tguous premses, whch may be ocked wth a Government ock, the net vave
n the recevng rectfyng pant Is not requred to be ocked. The constructon
of the vaves must be such that they can be secured wth Government ocks.
However, storage tanks to be used e cusvey for the storage of wne nnd
abeed Wne Storage Tank need not be secured as provded by ths secton.
A cosed manfod system, not equpped for ockng wth Government ocks, may
be nstaed whch w permt the transfer of sprts between storage tanks.
Storage t.-nks may be permanenty connected wth ppenes for the conveyance
thereto of ar and dsted water, but the dsted water ppene must he
aff ed to the top of the tank. Other ppenes, e cept those used for the con-
veyance of sprts, may not be permanenty connected wth such tanks. (53
Stat. 31 ,335, as amended 26 U. S. C. 2S29, 2S 3)
strkng out the perod at the-
end of the ast sentence and addng r : Provded, That where a tank
s to be used aternatey as a dumpng and reducng tank or as a
(C) Secton 190.119 s amended by
d of the ast sentence and addng :
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531 (Begs. 15, 190.9 .
processng tank the tank shn have pany and egby panted thereon
the words, Dumpng and Reducng Tank or Processng Tank, fo-
owed by ts sera number and capacty n gaons, and a sutabe
board sha be provded for the attachment of orm 122 .
(D) Secton 190.120 s amended by strkng out the perod at the
end of the thrd sentence, whch begns ach such tank , and addng
: Provded, That where a tank s to bo used aternatey as a processng
tank or as a dumpng and reducng tank the tank sha have pany
and egby panted thereon tho words, Processng Tank or Dumpng
and Reducng Tank, foowed by ts sera number and capacty n
gaons. A sutabe board sha bo provded for the attachment of
orm 122 .
( ) Secton 100.121 s amended by nsertng mmedatey foowng
the second sentence, whch begns Such receptaces , the foowng
sentence: Provson sha be made on each processng receptace for
the attachment of orm 122.
( ) Secton 190.122, as ast amended by Treasury Decson 5996
C. B. 1953-1, 0, approved ebruary 2G, 1953, s further amended by
strkng out the fourth sentence, whch begns Manheads, nets, and
nsertng n eu thereof Manheads and nets of such tanks must be
provded wth factes for ockng wth Government ocks .
(G) Secton 190.12 s amended by strkng out the word w
n the fourth sentence, whch begns ach bottng tank , and n-
sertng n eu thereof the word may .
(H) Secton 190.126 s amended by strkng from the ast sentence
the words and such outet s equpped for ockng wth a Government
ock when not n use .
(I) Secton 190.127 s amended by strkng out the second and
fourth sentences, whch begn Such tank must and The manhead,
respectvey.
( ) Secton 190.12 s amended by strkng out the word system
n the fourth sentence, whch begns The return of , and nsertng
n eu thereof the phrase , f such sprts are beng botted pursuant
to a orm 237, .
( ) Secton 190.131 s amended by strkng out the thrd sentence,
whch begns Where dsted water .
(L) Secton 190.132 s amended to read as foows:
Sec. 100.132. Ppenes Connectno Bottmno Tanks aAb Bottuno Ma-
chne. The bottng tanks may be connected wth the bottng machne ether
by a f ed ppe ne or by a detachabe hose e posed to vew throughout Its
entre ength. (53 Stat. 31 26 U. S. a 2 29.)
(M) Secton 190.133 s amended by strkng out from the s th sen-
tence, whch begns Where the tank , the words f the end of the
ppene s equpped wth a vave whch may be ocked wth a Govern-
ment ock .
( ) Secton 190.13 s amended as foows:
(1) By strkng out the perod at the end of the thrd sentence, .
whch begns When the storage, and addng : Provded, That
where the ppene eadng from the contguous premses s
equpped wth a vave on such contguous premses whch may be
ockea wth a Government ock, so as to contro the fow of sprts,
such vave n the recevng rectfyng pant s not requred to be
ocked .
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egs. 15, 190.9 . 532
(2) By strkng from the s th sentence, whch begns ters
may be , the phrase , f net and outet nes to be attached to
fters are equpped wth vaves whch may be ocked wth Govern-
ment ocks .
(O) Secton 190.137 s amended by nsertng after the words con-
nectons n ppenes the phrase , requred to be seaed by ths part, .
(P) Secton 190.15 s amended by nsertng after the frst sentence
the foowng sentence: Tanks used ether as dumpng and reducng
tanks or as processng tanks sha be so descrbed on orm 27-B.
( ) Secton 190.3 5 s amended to read as foows:
Seo. 190.3 5. Restrctons. No operatons pertanng to transferrng sprts
by ppene from ad|onng premses or from tank cars or tank tracks to storage
tanks or other operatons requred by ths part to be conducted under the
supervson of a Government offcer sha be carred on at a rectfyng pant
durng other than reguar busness bours, uness speca permsson Is frst
obtaned therefor from the Assstant Regona Commssoner. Operatons whch
may be conducted In the absence of the Government offcer may not however be
carred on at a rectfyng pant durng other than reguar busness hours uness
notce of such operatons Is frst gven, n wrtng, to the storckeepcr-gauger.
However, these provsons sha not appy to rectfyng processes that are auto-
matc and contnuous, and do not requre any persona handng or other
manpuaton durng bucI restrcted hours. The remova of any package of
sprts contanng more than 10 gaons h prohbted between sundown and
sunrse. (53 Stat. 331 20 U. S. C. 2 70.)
(II) Secton 190.3 6 s amended to read as foows:
Sec. 190.3 0. Operatons After Reguar Hours. Where the rectfer needs
to dump, fter, or botte sprts or perform such other operatons whch may be
conducted n the absence of a Government offcer, after reguar busness hours,
be sha frst gve notce thereof, n wrtng, to the storekeeper-gauger. The
storekeeper-gauger sha forward a copy of the notce to the Assstant Regona
Commssoner.
(S) Secton 190. 06 s amended by strkng out the ast sentence
and nsertng n eu thereof the foowng sentence:
The sprts must reman In the recevng room (or storage tank ocated n
the rectfyng room) unt notce Is gven on orm 122 that the same wU be
removed to the rectfyng room for dumpng and rectfcaton, or on orm 230
that the same w be removed to the bottng room, or to the rectfyng room
where no separate bottng room s provded, for dumpng and bottng wthout
rectfcaton, e cept that unrectfed buk sprts may be shpped or removed
from the recevng room wthout gvng notce.
(T) Secton 190. 07 and headng are amended to read as foows:
Sec. 190. 07. Recetpt bt Tank Car, Tank Truck, or Tank. Where dsted
sprts are receved n tank cars or tank tracks or wnes are receved n tank
cars, tanks, or tank trucks, they must be transferred drecty from such con-
taners Into storage, processng or bottng tanks: Provded, That such transfer
of dsted sprts must be under the supervson of a Government offcer. When
such sprts are transferred drecty Into processng or bottng tanks, the rectfer
must gve notce on orm 122 or orm 230, as the case may be. Immedatey after
the tank cars, tanks, or tank trucks are empted. Dsted sprts may be re-
ceved n raroad tank cars ony If the premses of the rectfer are equpped
wth sutabe raroad sdng factes. Before permttng sprts to be trans-
ferred from a tank car or tank truck nto storage, processng, or bottng tanks,
the Government offcer w see that the seas ore ntact on the tank car or
tank truck and that the tank car or tank truck bears evdence of proper ta -
payment When sprts are transferred Into storage tanks, the Government
offcer sha open and cose the Government ocks, but t sha be the duty of the
propretor to manpuate the stopcocks or vaves controng the fow of the
sprts. Upon competon of the transfer of the sprts to Btorage, processng,
or bottng tanks the report of gauge, orms 92,1 0 or 1520, as the cast ma be,
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533 Regs. 15, 190.9S.
devered to the storekeeper-ganger from tbe consgnor premses sha be de-
vered by hm to the rectfer. (63 Stat 335, as amended 26 U. S. C. 2S 3-)
(U) Secton 190. 0 s amended as foows:
(1) By strkng out the frst sentence and nsertng n eu
thereof the foowng sentence:
Where sprts receved at a rectfyng pant by ppene from a conte|nons
dstery, nterna revenue bonded warehouse. Industra acoho pant or
warehouse, or a bonded wnery, they sha be conveyed drecty nto one
or more storage tanks, uness the quantty of sprts so transferred s to
be conveyed drecty Into one or more bottng tanks for bottng wthout
rectfcaton, or Into one or more processng tanks If the Inets to such tack
or tanks are equpped for ockng wth Government ocks: Provded, That
where the ppene s equpped wth a vave In the contguous premses,
whch mny be ocked wth a Government ock, the nets to such tank
or tanks n tbe recevng rectfyng pant need cot be equpped for ockng.
(2) By strkng from the ast sentence the words or out of.
( ) Secton 190. 11 s amended as foows:
(11 By addng the words, or tank truck to the headng and
(2) By strkng out the frst sentence and nsertng n eu
thereof the foowng sentence:
When dsted sprts receved In a raroad tank car or tank truck are
run Into a storage tank, tbe report of gauge. orm 1520 n tbe case of
sprts other than acoho, and orm 11 0 In the case of acoho, devered
to the recter by the storekecper-gauger, sha be attached to such storage
tank.
(W) Secton 190. 12 s amended by strkng out the frst sentence
ana nsertng n eu thereof the foowng sentence:
When sprts receved by ppene nr| run Into a storage tank, the report of
gauge, orm 1520 or orm 1 0, devered to the rectfer by the storekeeper-
ganger, or orm 703-A devered by the vendor, sha be attached to the storage
tank.
( ) The headnote to Subpart s amended to read as foows:
SUBPART GAUGING AND DUMPING SPIRITS AND R CORD O
R CTI ICATION
(Y) Secton 190. 25 and headng are amended to read as foows:
Seo. 190. 25. Notce or Dumpng, orm 122. When the rectfer desres to
dump sprts for rectfcaton and tbe sprts are not to be used Immedatey a
ther entrety n preparng a batch of rectfed sprts or wnes, be w prepare
orm 122, n trpcate, gvng a appcabe nformaton n accordance wth the
headngs of the varous coumns and nes on the form, and the nstructons
prnted thereon or ssued n respect thereto and as equred by ths part. Tbe
rectfer w carefuy gauge each package of sprts and where the sprts are
of tbe same composton and have been produced by the same dster at the
same dstery and were fed on the same date and wthdrawn on the same
date, be w make a consodated entry on orm 122 for a such packages.
Severa ots may be reported on one orm 122. Where practcabe. In eu of
makng an Indvdua gauge of each package of a ot of ke sprts, as descrbed
heren, the sprts may be dumped Into a tank mounted on scaes or otherwse
equpped wth a sutnhe devce whereby the actua contents can be nccnratey
determned and gauged and the detas thereof entered on orm 122. Where
packages are transferred to the rectfyng pant drecty upon ta payment from a
contguous dstery or Interna revenue bonded warehouse or a dstery or
Interna revenue bonded wnrebouse ocnted In the Immedate vcnty of tbe
rectfyng pnnt and owned by the propretor of the rectfyng pnnt or a sub-
sdary and dumped for rectfcaton wthn 30 days after recept, the wth-
drawa gauge w be consdered as satsfyng the requrement that the sprts
sha be gauged when dumped for rectfcnt|n and the rectfer w make a
consodated entry for each ot of such ke sprts. The Assstant Regona
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Regs. IS, 190.0 .) A 3
Commssoner w determne from a crcumstances In each case whether the
dstery or warehouse and the rectfyng pant are In the Immedate vcnty.
Where the sprts are so damped on the wthdrawa gauge, It the rectfyng
pant s equpped wth processng tanks mounted on scaes, the sprts may be
dumped and gauged by weght In such processng tanks. In such case, the
proof caous determned by such gauge sha aso be reported on orm 122.
The dfference n proof gaons between the wthdrawa (Inspayment regauge)
and such tank gauge sha aso be reported on orm 122. If the sprts are to
te drawn from the storage tank, the rectfer w kewse e ecute orm 122
gvng n the nformaton appcabe. When sprts are receved by ppene or
wthdrawn from storage tanks and run nto one or more processng tanks, or
when sprts ore receved by tank car and run Into one or more processng tanks,
the rectfer w e ecute orm 122 gvng a appcabe nformaton. ach orm
122 w be gven a sera number begnnng wth 1 for the frst day of anu-
arv of each year and runnng consecutvey thereafter to December 31, Incusve.
(53 Stat 310, 329, 335, as amended 20 U. S. C. 2 13, 2 01, 2 3.)
(Z) There s nserted after secton 190. 25 the foowng new sec-
tons :
Sec. 190. 25a. Batch Record, orm 122. When the rectfer desres to com-
pound a batch of rectfed sprts, he w prepare orm 122 as a batch record, n
trpcate, gvng a descrpton of the sprts n accordance wth the headngs of
the varous coumns and nes on the form, and the Instructons prnted thereon
or ssued n respect thereof and as requred by ths part orm 122 w be so
used (a) to report the dumpng of sprts whch are to be used mmedatey nnd
In ther entrety n preparng a batch of a rectfed product, (b) to report the use
of sprts dumped pursuant to earer orms 122 and retaned n processng
tanks or receptaces, In preparng a batch of a rectfed product, and (c) to report
any combnaton of (a) and (b) used n preparng a batch of a rectfed product
ach package of sprts, wthdrawa from storage tank, or recept by ppene
whch s to be used mmedatey n Its entrety In preparng a batch of a rectfed
product sha he gauged In accordance wth the provsons of secton 100. 25.
Sec 190. 25b. Records or Coorng, avorng, and Bendng Mateuat.s.
The propretor w record, on orm 122 (batch record) the use of acohoc
favors or favorng e tracts manufactured on premses other than n rectfyng
pant. Commerca records w he mantaned by tho propretor for recordng
the use of non-acohoc bendng, coorng or favorng nuterns used In a rect-
fed product.
Sec. 190. 25c. New or Changed CoMrosmoN or Products. Whenever the rec-
tfer desres to manufacture a new product, or to change the composton of
a product to be manufactured under a prevousy used formua, he sha notfy
the Government offcer In wrtng pror to begnnng the process of rectfcaton.
(AA Secton 190. 33 s revoked.
(BB) Secton 190. 3 and headng are amended to read as foows:
Sec. 190. 3 . Submsson to Offcer. The rectfer, after preparaton of part
1 of orm 122, and after competon of bs certfcate In part 2, w pace the
orgna and one copy of orm 122 on the storekeeper-gauger s desk and there-
upon proceed wth the operaton covered by such notce: Provded, That where
straght whskes and pure frut brandes are to be bended e empt from ta a
copes of orm 122 must be presented to the Government offcer for verfcaton
pror to the dumpng of such sprts In the manner provded n sectons 190. 79-
190. . The storekeeper-ganger, after endorsng the copes, w return them to
the rectfer.
(CC) Secton 190. 35 s revoked.
(DD) Secton 190. 36 s amended to rend as foows:
Sec. 190. 30. Mabkno Processng Tanks. In every case the rectfer w
attach the copy of orm 122 not submtted to the storekeeper-gauger to the
processng tank or receptace n whch the sprts covered by such form were
deposted. Where the entre quantty of sprts covered by one orm 122 a
deposted In more than one processng tank or receptace the rectfer w attach
such orm 122 to one of the tanks or receptabes and show on orm 122 the
sera numbers of the other tanks or receptaces In whch the sprts were de-
posted. Such other tanks or receptaces w be marked by the rectfer to show
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635 Regs. 15, 190.9S.
the sera number of the orm 122 pursuant to whch the contents thereof were
dumped or rectfed.
( ) Secton 100. 37 and headng are amended to read as foows:
Sec, 190. 37. Dsposton or orm 122. The rectfer, upon return of the two
copes of orm 122 from the storekeeper-pauper, w enter the baance of the
Informaton n part 1, on a copes of orm 122 and w forward the orgna
Immedatey to the Assstant Regona Commssoner. In those nstances where
the orm 122 covers the dumpng of sprts the sp bearng the cut-out porton
of the stamps, or affdavts. In eu thereof, sha be attached to the orgna.
When the form Is used as a notce of dumpng ony, the rectfer w enter, n
part of the copes retaned by hm, the quantty dumped for rectfcaton, as
reported In port 1, as the quantty to be accounted for and such quantty w
be subsequenty baanced by the entry of totas from one or more ater orms
122, prepared as rectfcaton batch records, ad|usted as necessary by gan or
oss. When the form s used as a rectfcaton batch record the rectfer w enter
n part of the copes retaned by htm, the batch tota, as reported In part 1. as
the quantty to be accounted for and such quantty w be subsequenty baanced
by the entry of totas from one or more orms 122 or 237, ad|usted as necessary
by gan or oss. After competon of part the rectfer w fe the copy of orm
122, endorsed by the storekecper-gauger, at the rectfyng pant avaabe for
nspecton by Government offcers. The thrd copy of each orm 122, whch Is
attached to the processng tank or receptace In whch the sprts covered thereby
were deposted, w be destroyed upon the emptyng of the tank.
( ) Secton 190. 3 s amended by strkng out the thrd sentence,
whch begns The frst processng tank , and nsertng n eu thereof
the foowng sentence:
The rectfer sha attach to the frst processng tank or receptace. Into whch
the fu package was dumped, a copy of the orm 122 pursuant to whch such
sprts were dumped.
(GG) Secton 190. 5 s amended by strkng out the word ap-
proved and nsertng n eu thereof the words notce on .
(MI) Sectons 190. 7 through 190. 9 arc revoked.
(II) Secton 100. 0 s amended by strkng out n the ast sentence
tho word dupcate and nsertng n eu thereof the word
trpcate .
( ) Secton 190. 2 s amended to read as foows:
Sf.c. 100. 2. Approva by Offcer. The Government offcer w make the
e amnaton prescrbed In secton 190. 3, and. If satsfed that the whskes or
brandes may be bended free of ta , be w verfy orm 122. and return a
copes to the rectfer. (53 Stat. 300 as amended 20 U. S. C. 2S01)
( ) Secton 190. s amended by strkng out the ast sentence
and nsertng n eu thereof the foowng sentence:
The Government offcer w then dever both copes of the appcaton to
the rectfer, who w attach a copy to the orgna of the orm 122 coverng
the gauge of the sprts whch w be forwarded Immedatey to the Assstant
Regona Commssoner nnd the other copy to the orm 122 whch he w retaa
for hs fes at the rectfyng pant.
(LL) Secton 190.50 s amended to read as foows:
Sec. 190.50 . Dumpng op Shu. Wre. When the rectfer desres to dump
st wne for bottng for champagne manufacture or for the manufacture of a
sparkng wne of the champagne type by fermentaton In buk, he w grt
notce on orm 122, and the same procedure w be foowed as n the case
of the dumpng of wnes for rectfcaton by other processes.
(MM) Secton 190.506 s amended by strkng out the ast sentence
and nsertng n eu thereof the foowng sentence:
The Government offcer sha verfy the proof by use of a standard hydrometer
In each Instance where the rectfed product contans not more than 0.6 gram
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Begs. 15, 190.9 . 536
of sods per 100 mters (as reported by the rectfer). - Where an obscura-
ton correcton (actor has been determned by the rectfer, as provded n sec-
ton 190.570, such factor w be added to the apparent proof as determned by
use of a standard hydrometer. The proof of rectfed products contanng mora
than 0.0 pram of sods per 100 mters w be verfed by the Government
chemst through the submsson from tme to tme of sampes to hm by the
storekeeper-gauger as provded by secton 190.7 1a.
(NN) Secton 190.567 s amended as foows:
(1) By strkng out the fourth sentence, whch begns The
storekeeper-gauger .
(2) By addng at the end thereof the foowng now sentence:
The Government ofcer w secure sampes from representatve
packages from tme to tme for submsson to the Government
chemst for anayss.
(OO) Secton 190.56 s amended by strkng out the ast two sen-
tences and nsertng n eu thereof the foowng sentence: Such
statement sha be sgned by the rectfer and forwarded to the pur
chaser of the sprts for devery to the botter or to the propretor of
the premses where the sprts are to be botted.
(PP) Secton 190.573 s amended as foows:
(1) By nsertng n the thrd sentence, whch begns When
rectfed sprts , ater the words acohoc content the foowng
phrase , as provded n secton 190.566, .
(2)_ By strkngout the ast sentence.
.( ) Secton 190.575 s amended by strkng out the word Com-
mssoner and nsertng n eu thereof the words Assstant Regona
Commssoner .
(BR) Secton 190.579 s amended by nsertng after the second
sentence the foowng new sentence:
Where rectfed sprts are to be botted on the premses of the ta payer a copy
of the abe whch Is to be aff ed to the bottes of snch sprts sha be attached
to each copy of orm 237.
(SS) Secton 190.5 0 s amended by strkng out the second sen-
tence, whch begns If, after nspecton , and nsertng n eu thereof
the foowng sentence:
After Inspecton of the rectfed sprts and ascertanng from the approved
formua the rate of ta appcabe, the offcer w note bs approva on each
copy of the form and the ta rate and the amount of ta to whch the sprts
are sub|ect based on the detas as set forth by the rectfer n part 2.
(TT) Secton 190.5 2 s amended as foows:
(1) By nsertng mmedatey before the thrd sentence, whch
begns The rectfer w , the foowng new sentence:
The rectfer w submt the stamps to the Government offcer who w
verfy that such (.tamps were ssued In the proper amount.
(2) By strkng out the fourth sentence, whch begns The
Government offcer .
(3) By strkng out n the ffth sentence, whch begns When
the packages , the foowng words: ana submt them to the
Government offcer, who w, after proper verfcaton, sgn and
date the verfcaton n the space provded therefor and return
both copes to the rectfer .
(LU) Secton 190.5 6 s amended to read as foows:
Sea 10O.5S . Dsposton or orm 237 ard Stamps. Upon the competon
of the bottng, the rectfer w e ecute the certfcate of cases fed on a
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537 Regs. 15, 190.9 .
copes of orm 237, sgn enrb copy and n the case of rectfed products ta abe
under secton 3030(a) (2), I. R. C. and of products botted anter tbe proTsons
of secton 190.57 submt each copy to tbe Government offcer, who w, after
proper verfcaton, sgn and date tbe vertfcaton In tbe space provded there-
for. In sucb nstances tbe Government offcer w Immedatey return both
copes of orm 237 to the rectfer. In a Instances tbe bottng tank or wne
bottng room copy of the form w be retaned In the rectfyng pnnt avaabe
for nspecton by Government offcers. Tbe rectfer w mmedatey forward
tbe competed orgna and stamps to tbo Assstant Regona Commssoner.
( ) Secton 100.5 3 s amended by strkng out the second sen-
tence, whch begns After e ecuton .
(WW) Secton 190.5S9 s amended by strkng out the word Com-
mssoner n the frst sentence and nsertng n feu thereof the words
Assstant Regona Commssoner .
( ) Secton 190.593 s amended by strkng out n the frst sen-
tence the word approved .
(YY) Secton 190.653 s amended by strkng out n the frst sen-
tence the words and to supervse the transfer of the sprts .
(ZZ) Secton 190.65 s amended by strkng out n the frst sen-
tence the words under hs supervson .
(AAA Secton 190.6 5 s amended as foows:
(1) By strkng out the word Appcaton n the headng
and nsertng n eu thereof the word Notce .
(2) By strkng out the words e ecute appcaton n the
frst sentence and nsertng n eu thereof the words gve notce .
(3) By nsertng mmedatey after the frst sentence the fo-
owng new sentence:
Where the sprts are to be botted on the premses a copy of
the abe whch s to be aff ed to the bottes of such sprts sha
be attached to each copy of orm 230.
(BBB) Secton 190.6 7 s amended by strkng out n the frst sen-
tence the fgure 190. 33 and nsertng n eu thereof the fgure
190. 32 .
(CCC) Secton 190.6 and headng are amended to read as
foows:
Seo. 100.6S . Submsson to Offcer. After preparaton of the notce tbe
rectfer w pace the orgna of orm 230 on the storekeeper-gauger s desk
and thereupon w proceed wth the bottng. Where packages of sprts are
to be dumped for bottng, or where sprts are receved by ppe ne from con-
tguous premses (other than rectfyng pants) and are conveyed drecty Into
bottng tanks, the wthdrawa gauge. orms 703-A, 1 0 or 1520, w be sub-
mtted wth the orgna of orm 230. When sprts are receved by ppe ne
from contguous rectfyng pants, the sera number of the copy of orm 230,
or orm 237, receved from the rectfer w be noted by the propretor on
orm 230 prepared by hm. The storekeeper-gnuger w return the orm 230
to the propretor after notng the operaton covered thereby. (03 Stat- 333, as
amended 20 U. S. C. 2 3.)
(DDD) Secton 190.6 9 s amended by strkng out the words
Upon approva of orm 230 by the storekeeper-gauger, as provded
n A 190.6S , and nsertng n eu thereof the foowng words: Upon
pacng the orgna of orm 230 on the storekeeper-gaugers desk, .
( ) Secton 190.690 s amended as foows:
(1) By strkng from the frst sentence the phrase , and before
they are reeased by the Government offcer for bottng .
(2) By strkng out the ffth sentence, whch begns TLe
proof .
( ) Secton 190.692 s revoked.
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Regs. 15, 5 190.9 . 53S
(GOG) Secton 100.693 s amended to rend as foows:
Sec. 190.G93. Transfer or Products to Ww Bottwo Boom. Where the
rectfer desres to botte from the orgna package wnes, cordas, or queurs
authorzed by the Assstant Regona Commssoner to be so botted, such pack-
ages w be paced In the wne bottng room and orm 230 w be prepared and
the orgna thereof paced on the storekeeper-ganger s desk. When wnes, cor-
das, or queurs are to be botted n the wne bottng room, the rectfer w
attach one copy of the orm 230 to the door of such room.
(HHH) Secton 190.69 s amended as foows:
(1) By strkng out the second sentence, whch begns After
e ecuton of .
(2) By strkng out the frst two words The rectfer of the
ast sentence and nsertng n eu thereof the words After e e-
cuton of such statement, the rectfer .
(I) Secton 190.695 s amended by strkng out the ast two sen-
tences and nsertng n eu thereof the foowng sentence:
fuc statement sha be sgned by the rectfer and devered to the purchaser of
the sprts for devery to the botter or to the propretor of the premses where
the sprts are to be botted.
( ) Secton 190.701 s amended by strkng out the ast sentence
and nsertng n eu thereof the foowng sentence:
Upon competon of the bottng the rectfer w remove orm 230 from the
bottng tank and compete the e ecuton of bs certfcate on a copes.
( ) Secton 190.703 s amended by strkng out n the frst
sentence the words and statement .
(LLL) Secton 190.706 s amended by strkng out the s th sen-
tence, whch begns Such rebottng, reabeng , and nsertng n eu
thereof the foowng sentence: Such rebottng, reabeng, and re-
stnmpng operatons may be performed n the absence of the Gov-
ernment occr.
(MMM) Secton 190.73 s amended by strkng out n the frst
sentence the words under the supervson of the Government offcer .
(NNN) Secton 190.739 s amended by strkng out the ast two
sentences and nsertng n eu thereof the foowng sentences: Such
statement sha be sgned by the rectfer and forwarded to the pur-
chaser of the sprts for devery to the botter or to the propretor of
the premses where the sprts are to be botted.
(OOO) Secton 190.7 6 s amended by strkng out n the frst sen-
tence the words under the supervson of the Government offcer .
(PPP) Secton 190.753 s amended by strkng out the ast four
sentences and nsertng n eu thereof the foowng sentences:
The Dstrct Drector of Interna Revenue w enter the sera numbers of the
stamps Issued and stamp the date of sae on a copes of orm 2 , and w
retan one copy and send the orgna to the Assstant Regona Commssoner
nnd one copy to the rectfer. The Dstrct Drector of Interna Revenue w
forward the stamps to the rectfer. The rectfer w dever the stamps and
correspondng orm 2 to the Government offcer for verfcaton of recept.
Upon such verfcaton the rectfer w enter recept of the stamps on orm 1 2.
( ) Secton 190.75 s amended as foows:
(1) By strkng from the frst sentence the words Govern-
ment offcer and nsertng n eu thereof the word rectfer .
(2) By strkng from the ast sentence the words for m-
medate devery to the Government offcer n accordance wth
secton 190.753 .
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539 Regs. 15. 190.9 .
(RRR) Sectons 190.755 and 190.750 are revoked.
(SSS) Secton 190.757 s amended to read as foows:
. Sec 190.757. R qusmonsTO be ed. Rectfers w retan copes of orm
2 returned by the Dstrct Drector of Interna Revenue at the pant as a
record avaabe for nspecton by Government offcers and w fe them a
chronoogca order.
(TTT) Secton 190.75 and headng are amended to read as fo-
ows:
Sec. 190.753. H crrr R s R SPOHSBLrrr. Rectfers who have custody of red
strp stamps w be hed strcty responsbe for the proper contro and account-
ng of a stamps receved, used, and on hand. They sha be hed responsbe
for the proper aff ng of the stamps to bottes of ta -pad sprts and for makng
a proper accountng for a stamps reported mutated.
fT T T ) Secton 190.759 s revoked.
fW ) Secton 190.76 s amended by strkng out the ast sentence
and nsertng n eu thereof the foowng sentences:
Uness egbe and Intended for e change or refund, as provded In secton
190.7G5, red strp stamps tbat have been mutated shoud be destroyed by the
rectfer under the supervson of the Government offcer. The rectfer w then
enter approprate credt on orm 1 2 for the number of each denomnaton so
destroyed.
WWW) Sectons 190.766 and 190.767 are revoked.
( ) There s nserted mmedatey foowng secton 190.7 1
the foowng new secton:
Sec. 190.7 1a. Sampes. Offcers assgned to rectfyng pants wn secure
sampes of fnshed abeed products from the bottng ne at Irreguar Intervas
for submsson to the Government chemst.
(YYY) Sectons 190.7 2 and 190.7 3 are revoked.
(ZZZ) Secton 190.7 s amended as foows:
(1) By strkng out the frst sentence and nsertng n eu thereof
tho foowng sentence:
Offcers osstgned to rectfyng pants w, at Irreguar Intervas durng the
process of bottug, tent and e amne tbe botted sprts to determne whether
the abe attached Is Identca wth the abe aff ed to orm 230 or 237, as the
case may be, attached to the bottng tank and wth the certfcate of abe
approva or abe e empton whether tbe botted sprts agree In proof wth the
data on the abe and whether the quantty agrees wth the data on the abe,
stamp or botte, sub|ect to the mtaton prescrbed by secton 100.02 .
(2) By strkng from the ffth sentence, whch begns If the con-
tents , the word3 wthhod reease of the botted sprts and .
(AAAA) Secton 190.7 5 s amended to read as foows:
Sec. 190.7 3. R CTmrn s R SPOssmmT. u responsbty rests upon the
rectfer to see that the abeng of a dsted sprts and wnes botted or
packaged at hs pant Is n conformty wth the requrements of Reguatons
and 5 (27 C R Parts and 5) Issued pursuant to the edera Acoho Admn-
straton Act, and Reguatons 13 (20 C R Pt. 175).
(BBBB) There s nserted mmedatey after secton 190. 37 the
foowng new undesgnated center headng and sectons:
rOHT Or R D STRIP TAMPS
Seo. 100. 37a. Record, Part 1, orm 1 2. very rectfer who has In h pos-
sesson red strp stamps w keep a record of such stamps receved and used on
part 1 of orm 1 2, ntres w be mnde on orm 1N2 day, as Indcated by
tho headngs of tho varous coumns and Hues on tho form, and n accordance
(33310 SO A
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Regs. 15, 100.9 . 5 0
wtb the Instructons prnted thereon or Issued In respect thereto, and as requred
by ths part. The record w be kept In bound form, avaabe for nspecton by
Government offcers.
Sec. 190. 37b. Monthy Report, Paet 2, orm 1 2. The rectfer sha prepare
a monthy summary report on part 2 of orm 1 2, In dupcate. He sha dever
part 2 of orm 1 2 to the Government offcer for verfcaton of the monthy
Inventores of stamps on hand. After such verfcaton the Government offcer
w return both copes to the rectfer who w, on or before the 5th day of the
month succeedng the month In whch the transactons occurred, forward the
orgna to the Assstant Regona Commssoner and retan the remanng copy,
avaabe for nspecton by Government offcers.
(CCCC) Secton 190. 3 s amended by nsertng after the fgure
5 n the two paces t appears a comma and the fgure 1 2 .
(DDDD) Secton 190. 33 s amended by strkng out the word orm
5 and nsertng n eu thereof the words orms 5 and 1 2 .
( ) Secton 190. 2 s amended by nsertng n the frst sen-
tence after the phrase (and Record 52 and orn. 52- , f requred)
the words and orm 1S2 .
( ) Subpart LL s revoked.
(GGGG) The head note to Subpart MM s amended by. strkng
out the words R D STRIP .
(HHHH) Secton 190. 95 s amended as foows:
(1) By strkng from the frst sentence the phrase The rect-
fer s suppy of red strp stamps, and nsertng n eu thereof
the phrase The suppy of whoesae quor deaer s stamps, .
(2) By strkng out the ast two sentences.
(IIII) Secton 190.900a, as added by Treasury Decson 5995 C. B.
1953-1, 1, effectve March 3, 1953, s amended to read as foows: -
Sec. 190.000a. Trade Name Rectfcaton. Where the rectfer desres to
rectfy partcuar sprts under a trade name or stye other than the name n
whch the rectfyng pant Is quafed and operated, and such trade name or
stye has been specfed on an approved orm 27-B and on the rectfer s edera
Acoho Admnstraton Act permt, be may rectfy such sprts under such
approved trade name wthout fng an amended notce on orm 27-B or changng
the name under whch the rectfyng pant s then quafed and operated. The
rectfer sha Indcate In part 2 of orm 122, coverng the batch record of such
partcuar sprts, the trade name or stye under whch tey were rectfed.
When the rectfed sprts are transferred to packages or to a bottng tank for
bottng the-rectfer sha state on part 1 of orm 237 the trade name or stye
under whch the sprts were rectfed. The sprts so rectfed may be abeed
bended by, made by, prepared by, Manufactured by, or produced
by (whchever may be approprate to the act of rectfcaton Invoved), foowed
by the trade name or stye under whch the sprts were rectfed, and the
address (or addresses) of the rectfer. In accordance wth Reguatons 5 (27
C R pt. 5) Issued under the edera Acoho Admnstraton Act.
( ) Secton 190.900b, as added by Treasury Decson 5995, s
amended as foows:
(1) By strkng out n the frst sentence the words pursuant
to orm 122-Suppementa, .
(2) By strkng out n the ast sentence the words Upon ap-
prova of the form n the usua manner, he may and nsertng
n eu thereof He may .
( ) Secton 190.902 s amended by strkng out n the thrd
sentence, whch begns Upon competon of , the phrase, after sub-
mttng them to the Government offcer for verfcaton, .
(LI.LL) Secton 190.90 , as amended by Treasury Decson 5995, s
further amended as foows:
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.5 1 (Regs. 15, 190.93.
(1) By nsertng n the second sentence, whch begns The
rectfer , after the words on orm 5 the foowng words and
orm 1 2 .
(2) By strkng out the thrd sentence, whch begns The store-
keeper-gauger .
(MMMM) Secton 190.920 s amended by strkng out the phrase
, after approva by the Government offcer, .
(N NN) Secton 190.921 s amended as foows:
(1) By strkng out n the frst sentence the words and submt .
(2) y strkng out n the second sentence, whch begns The
form w , the words and submtted .
(OOOO) Secton 190.922 s amended by strkng out the words
and submt .
(PPPP) Secton 190.925 s amended as foows:
(1) By strkng from the ast sentence the words n the custody
of the storekeeper-gauger. .
(2) By addng at the end thereof the foowng new sentence:
The rectfer w submt a monthy report on part 2 of orm
1S2 of such stamps.
( ) Secton 190.927 s amended by strkng out the ast sen-
tence.
(RRRR) Secton 190.92 s amended by strkng out n the ast sen-
tence the word storekeeper-gaugcr and nsertng n eu thereof the
word fducarv .
(SSSS) Secton 190.9 2 s amended to read as foows:
Sec. 190.9 2 Dsposton op Red Strp Stamps. A unused red strp stamps.
If any, beongng to the propretor nt the tme of permanent dscontnuance of
busness w be Inventored by denomnaton, sera number, and quantty and
the Inventory w be verfed by the storekeeper-ganger or other offcer desg-
nated by the Assstant Regona Commssoner to perform such duty. The
vaue of the stamps, f In quanttes of the vaue of 5 or more, may be refunded,
provded that a cam for such refund on orm S 3, estabshng the awfu
Issuance and ownershp of the stamps, s fed by the rectfer wth the Dstrct
Drector of Interna Revenue who ssued the stamps wthn two years after the
date on whch such stamps were awfuy Issued. Such unused stamps may be
destroyed In the presence of the Government offcer and the propretor thereby
reeved from further accountabty for the stamps. If the stamps are not
surrendered to the Dstrct Drector of Interna Revenue for refund of ther
vaue or are not destroyed, the propretor must account for the stamps each
month by renderng part 2 of orm 1 2 to the Assstant Regona Commssoner.
(03 Stat. 303, as amended 20 U. S. a 2S03)
(TTTT) Secton 190.9C6 s amended to read as foows:
Sec. 190.9C0 Where Locks are Requred. Government ocks are requred
upon the door of the Government room, vaut or cabnet, provded n accordance
wth secton IDO.SH| upon the entrance door of the wne bottng and e port
storugo rooms, f any upon the manheads and nets of storage tanks and re-
cevng tanks upon the manheads. Inets, and outets of bottng tanks (e cept
where the bottng Is pursuant to orm 230) upon the vaves n ppenes whch
convey sprts from rectfyng sts to recevng tanks where the ppenes are
equpped for refu ng the sprts to the sts or for by-passng the berry basket
In the case of gn sts upon vaves In ppenes whch convey sprts nto the
rectfyng pant from contguous premses If such ppenes are not ocked a
the contguous premses and upon such other vaves, stopcocks, and openngs
In equpment and apparatus as are requred by ths part or deemed necessary
by the Assstant Regona Commssoner to be secured wth Government ocks.
Ths Treasury Decson sha be effectve upon the date of pubca-
ton n the edera Regster.
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Regs. 2 , 170. .
(Ths Treasury Decson s ssued under the authorty contaned n
secton 161 of the Revsed Statutes and secton 3176 of the Interna
Revenue Code (Sec. 161 R. S. 5 U. S. C. 22 53 Stat 375 26 U. S. C.
3176)).
. T. COL MAN ANDR WS,
. Commssoner of Interna Revenue.
Approved August 2 ,195 . . .
GB RT P. TUTTL ,
Actng Secretary of the Treasury.
(Pubshed In the edera Regster September 1,105 )
R GULATIONS 2 , S CTION 17 : Ta pad T. D. 60
(Aso Secton 176.9, etc. Secton 3791 : . ..
Secton 191.165, Reguatons 21 Secton
1 0.93, etc., Reguatons 2 Secton
199. , etc., Reguatons 31.) .
TITL 26 INT RNAL R NU . CHAPT R 1. SUBCHAPT R C, PARTS 179, 1 0,
191, AND 100
Decentrazaton of assessment and cams functons pertanng
to quors.
TR ASURY D PARTM NT,
.... O IC O COMMISSION R O INT RNAL R NU ,
: . Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
The purposes of ths Treasury Decson are (a) to amend regua-
tons to conform to the deegaton to Assstant Regona Comms-
soners, Acoho and Tobacco Ta , of fna authorty wth respect to
(1) determnaton and assessment of ta abtes, and (2) aow-
ance or dsaowance of cams for remsson, abatement, and refund
of ta es and penates, cams for drawback of ta es and cams for
redempton 01 stamps, pertanng to quors, effected by IR-Mmeo-
A raph No. 232, dated uy 6, 1953, and Amendment 1 thereto dated
ctober 5, 1953, and (b) to dscontnue the requrements for the
preparaton and submsson by propretors of the Commssoners
copy of varous supportng forms formery requred for use by the
Natona Offce n consderng cams for drawback of ta es. Accord-
ngy, the foowng amendments to reguatons are hereby adopted.
PARAGRAPH 1. Wherever the term supervsor, Dstrct Super-
vsor or Assstant Dstrct Commssoner appears n the sectons
of the reguatons revsed by ths Treasury Decson, such term s
hereby amended to read Assstant Regona Commssoner. Sm-
ary, the term coector, coector of nterna revenue, or drec-
tor s hereby amended to read Dstrct Drector of Interna
Revenue. Assstant Regona Commssoner means the Assstant
Regona Commssoner, Acoho and Tobacco Ta , who s responsbe
to, and functons under the drecton and supervson of, the Regona
Commssoner.
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5 3 Reg - 2 . 176.S.
Par. 2. Reguatons 2 26 C R, pt 176 are amended as foows:
(A) Secton 176. s amended as foows:
(1) Bv strkng the frst sentence of paragraph (a) and nsertng
n eu thereof the foowng new sentences: Upon recept of such
appcaton the Assstant Regona Commssoner sha compare the
data submtted wth the records of hs offce, orm 1 0, ted by the
Sropretor of the bonded warehouse from whch the acoho was wth-
rawn ta pad, and f the data are found to be correct, he sha pre-
pare and e ecute orm 0 6. If the pace of manufacture at whch
the acoho was used s n hs regon, he w prepare orm 6 6 n
dupcate, assgn a sera number thereto, forward the orgna to the
approprate Coector of Customs, and retan the copy for hs fes.
It the pace of manufacture at whch the acoho was used s n another
regon, he w prepare orm 6 6 n trpcate, transmt the orgna
and one copy to the Assstant Regona Commssoner for the regon
n whch the pace of manufacture s ocated, and retan the reman-
ng copy for hs fes. The Assstant Regona Commssoner for the
regon n whch the pace of manufacture s ocated w ndcate hs
approva n a bank space on both copes of the orm 6 6, assgn a
sera number thereto, forward the orgna to the approprate Co-
ector of Customs, and retan the remanng copy for hs fes. Sera
numbers for orm 0 6 sha begn wth 1 and sha be preceded by an
abbrevaton of the name of the cty n whch s ocated the head-
quarters of the Assstant Regona Commssoner assgnng the
number.
(2) By revokng paragraph (c).
(B) By revokng secton 176.9, and the undesgnated center head
Issuance of Certfcate of Ta -Payment mmedatey precedng sec-
ton 170.9.
(C) By nsertng mmedatey precedng secton 176.10 the foow-
ng new secton:
Sec. 170.9a. Submsson of Cam. Request for the aowance of drawback
sha be addressed to the Assstant Regona Commssoner, Acoho and Tobacco
Ta , for the regon In whch the product covered by the drawback cam was
manufactured, and w be submtted to the coector of customs, who w forward
It, together wth the customs orm 530, to the Assstant Regona Commssoner.
If orm 539 covers acoho used under more than one certfcate on orm 6 6,
the orm 539 sha specfy the quantty chargeabe aganst each certfcate,
orm 6 0, and the sera number of each such certfcate. ( 6 Stat 690 as
amended, 693 as amended, 53 Stat 377 as amended 19 U. S. C. 1309, 1313,
20U.S.C.3179).
(D) The undesgnated center head Approva of Cam and Pay-
ment of Drawback, mmedatey precedng secton 176.10 s revoked.
( ) Secton 170.10, as amended by Treasury Decson 5539 C. B.
19 6-2, 253 , s further amended by changng the headnote and the
secton to read as foows:
Sec. 170.10. Acton bt Assstant Reoona Commssoner. Upon recept of
the request for payment of drawback and the customs orm 539. the Assstant
Regona Commssoner w e amne the request and supportng documents, and
aow or dsaow the cam In accordance wth e stng aw and reguatons.
( ) Secton 170.10, as amended by Treasury Decson 5691 C. B.
19 9-1,2 0 , s further amended as foows:
(1) By strkng from the frst sentence of paragraph (a) the tte
of orm 230 and the phrase n trpcate and nsertng n eu thereof
the foowng: n dupcate .
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Regs. 2 , 170. .) 5
(2) By strkng from the second sentence of paragraph (c), whch
begns Upon competon , the phrase forward the remanng two
copes (one the orgna wth the ta pad stamps or other evdence of
ta payment attached) and nsertng n eu thereof the foowng:
forward the orgna, wth the ta pad stamps or other evdence of
ta payment attached, .
(3) By revokng paragraph (e).
( ) By strkng from the fourth sentence of paragraph (f), whch
begns, orm 1656 w be , the words supervsory dstrct and n-
sertng n eu thereof the foowng: regon .
(5) By strkng from the ffth sentence of paragraph (f) whch
begns, A copes , the phrase , or desgnated offcer, .
(6) By nsertng after the ffth sentence of paragraph (f) the fo-
owng new sentence: Where mported sprts or wnes were used n
the manufacture of the sprts and wnes botted especay for e port,
the Assstant Regona Commssoner w not approve the appcaton
pror to the recept of orm 15 3.
(7) By strkng from the eghth sentence of paragraph (f), whch
begns, If the sprts , the word dstrct n two paces and nsertng
n eu thereof the foowng: regon .
(G) Secton 176.17, as amended by Treasury Decson 5691, s fur-
ther amended as foows:
(1) By strkng from the frst sentence of paragraph (a the phrase
orm 230, Descrpton and Gauge of Sprts or Wnes for Bottng
Wthout Rectfcaton , n trpcate. and nsertng n eu thereof the
foowng: orm 230, n dupcate, .
(2) By strkng from the thrd sentence of paragraph (c), whch
begns, Upon competon , the phrase forward the remanng two
copes (one the orgna) and nsertng n eu thereof the foowng:
forward the orgna .
(3) By revokng paragraph (e).
(H) Secton 176.17a, as added by Treasury Decson 5599 (0. B.
19 -1,170 , s amended by strkng from the frst sentence of para-
graph (a) the phrase n trpcate, and nsertng n eu thereof the
foowng: n dupcate, .
(I) Secton 176.17n, as added by Treasury Decson 5599, s amended
by strkng the phrase forward two copes of the orm 16 (one,
the orgna wth the ta pad stamps or other evdence of ta payment
attached) and nsertng n eu thereof the foowng: forward the
orgna of orm 16 , wth the ta pad stamps or other evdence of
ta payment attached, .
( ) Secton 176.17o s revoked.
( ) Secton 176.17p, as amended by Treasury Decson 5631 C. B.
19 -2,301 , s amended as foows:
(1) By strkng from the frst sentence the phrase the regua-
tons n .
(2) By strkng from the ffth sentence, whch begns, A copes ,
the phrase , or desgnated offcer, .
(3) By nsertng after the ffth sentence the foowng new sentence:
Where mported sprts or wnes were used n the manufacture of
the sprts and wnes packaged especay for e port, the Assstant
Regona Commssoner w not approve the appcaton pror to the
recept of orm 15 3.
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6 5 Regs. 2 , 179 .
( ) By strkng from the eghth sentence, whch begns, If the
sprts , the word dstrct n two paces and nsertng n eu thereof
the foowng: regon .
(L) Secton 17C.1 , as amended by Treasury Decson 5599, s fur-
ther amended by strkng from the frst sentence the phrase orm
122, Rectfer s Appcaton to Dump Sprts, Wnes or Other Lquors,
and eturn of Gauge , n trpcate, and nsertng n eu thereof the
foowng: orm 122, n dupcate, .
(M) Secton 176.19, as amended by Treasury Decson 5599, s fur-
ther amended by strkng from the thrd sentencewhch begns, Im-
medatey after , the phrase two copes of the orm 122 (one, the
orgna, wth the cut-out portons of the ta pad stamps, or other
prescrbed evdence of ta payment, attached) and nsertng n eu
thereof the foowng: the orgna of orm 122, wth the cut-out
portons of the ta pad stamps, or other prescrbed evdence of ta -
payment, attached, .
(N) Secton 176.21, as amended by Treasury Decson 5S0 C. B.
1950-2,193 , s further amended as foows:
(1) By changng the comma foowng the phrase Reguatons 15
(20 C R, pt. 190) n the frst sentence of paragraph (a to a perod
and strkng the phrase and an addtona copy of such form sha
be prepared n each case.
(2) Bv strkng from the ffth sentence of paragraph (a), whch
begns, Te rectfcaton ta , the reference (26 C R, pt 190) .
(3) Bv strkng the s th sentence of paragraph (a), whch begns,
The addtona copy of orm 237 .
() By revokng paragraph (b).
(5) By strkng from the second sentence of paragraph (c), whch
begns, Such e port , the reference (26 C R, pt 190) .
(0) Secton 170.22, as amended by Treasury Decson 5691, s fur-
ther amended as foows:
(1) By strkng the s th sentence, whch begns, The dstrct
supervsor sha forward .
(2) By strkng from the seventh sentence, whch begns, If the
sprts , the phrase two copes and nsertng n eu thereof the
foowng: the orgna .
(P) Secton 176.23, as amended by Treasury Decson 5631, s fur-
ther amended as foows:
(1) By strkng from the thrd sentence of paragraph (a), whch
begns, The botter , the word trpcate and nsertng n eu
thereof the foowng: dupcate .
(2) By revokng paragraph (e).
( ) Secton 176.35, as amended by Treasury Decson 5 0 , s fur-
ther amended by changng the headnote and the secton to read as
foows:
Sec. 170.35. Cam and ntbt. (a) Dsted sprts and trne e ported,
deposted n foregn-trade zones, or used at tuppet on vesses. Cam for a-
owance of drawback of Interna revenue ta es on dsted sprts or wn
manufactured or produced n the Unted States and botted or packaged espe-
cay for e port, and entry for the e portaton, depost n foregn-trade rone,
or used as suppes on vesses (as provded In secton 170.11), of such sprts or
wnes wth beneft of drawback, sha be prepared by the e porter on orm
15 2. n trpcate, for dsted sprts, and orm 15S2-A, In trpcate, for wnes.
If the sprts or wnes on whch drawback Is camed are for nse as suppes
on yesses, notaton to that effect w be made by the camant n Tart 2
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Regs. 2 , 176. . 6 6
of orm 15 2 or of 15 2-A and the e porter affdavt In orm 15 2 or orm
15 2-A w aso be modfed by strkng oat the words e ported to the port
and substtutng therefor the words aden for use as shp s suppes on the
vesse .
(b) Dtted tprtt and wnet met at tuppUet on arcraft. Cam for aow
ance of drawback of Interna revenue ta es on dsted sprts or wnes manu-
factured or produced In tbe Unted States and botted or packaged especay for
e port, and entry for use as suppes on arcraft (as provded n secton 170.11)
of such sprts or wnes wth beneft of drawback, sha be prepared by the
e porter on orm 15S2, In quadrupcate, for dsted sprts, and orm 15 2-A,
n quadrupcate, for wnes. In part 2 of orm 15 2 or orm 15 2-A the e -
porter w note that the sprts or wnes covered thereby are for use as sup-
pes on arcraft, and under the statement Schedue of Merchandse w show,
n addton to the Informaton requred by tbe form, the number and sze of tbe
bottes contaned In the shpment. The e porter s affdavt In orm 15 2 or
orm 15 2-A w aso be modfed by strkng out the words e ported to tbe
port and substtutng therefor the words aden for use as suppes on tbe
arcraft. One copy of orm 15 2 or orm 15 2-A sha be marked consgnee s
copy.
(c) ecuton and fng. A copes of orm 15 2 or orm 15 2-A wth
part 1 and part 2 e ecuted, sha be fed by tbe e porter wth tbe Assstant
Regona Commssoner of tbe regon wheren s ocated the e port storage room
In whch the sprts or wnes are stored at the tme of e portaton. A of
the Informaton Indcated n the headngs and varous nes of the form, and the
nstructons prnted thereon or ssued In respect thereto, and as requred by ths
part, sha be furnshed. orms 15S2 and 15 2-A must be verfed nnder oath
by the e porter or hs authorzed agent: Provded, That f the forms offcay pre-
scrbed for such use contan theren provson for verfcaton by a wrtten
decaraton that such cams are made under the penates of per|ury such cams
sha be verfed by the e ecuton of such decaraton and such decaraton so
e ecuted sha be In eu of the oath requred heren for verfcaton. Where
orm 15 2 or 15 2-A Is sgned by an agent, proper power of attorney author-
zng the agent to e ecute the cam for the e porter must be fed wth the
Assstant Regona Commssoner.
( ) Secton 176.37, as amended by Treasury Decson 5599, s fur-
ther amended as foows:
(1) By strkng the phrase Supervsory Dstrct No. n
the ustraton and nsertng n eu thereof the foowng:
Cty , State
(S) Secton 170.3 s amended as foows:
(1) By strkng from the thrd sentence, whch begns. The other ,
the phrase, other three and nsertng n eu thereof the foowng:
remanng .
(2) By strkng from the thrd sentence the phrase , who sha
mmedatey forward or dever the three copes to the Coector of
Customs at the port of e port and nsertng n eu thereof the
foowng: Tho e porter or hs agent sha mmedatey forward or
dever a copes to the Coector of Customs at the port of e port,
e cept that where the orm 15 2 or 15 2-A covers dsted sprts
or wnes for use as suppes on arcraft, the copy prepared and marked
for the consgnee n accordance wth secton 170.35(b) w bo sent to
the arne orderng the dsted sprts or wnes at tho arport where
the dsted sprts or wnes are to be devered.
(T) Secton 170.39, as amended by Treasury Decson 5599, s
further amended as foows:
(1) By strkng from the frst sentence the word trpcate and
nsertng n eu thereof the foowng: dupcate .
(2) By strkng from the second sentence te phrase Two copes
and nsertng n eu thereof the foowng: The orgna .
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C 7 RA gs. 2 , 176. .
(3) By strkng from the second sentence the phrase Acoho Ta
Unt dstrct and nsertng n eu thereof the foowng: regon .
(U) Secton 176. 1, as amended by Treasury Decson 5599, s fur-
ther amended by changng the headnote and the secton to read as
foows:
Sec. 17 . 1. Certtftcate Requred Betobe Approva or Cam or Tn sm
Appcaton, orm 1650. Tbe Assstant Regona Commssoner w not approve
a cam for drawback, or an appcaton on orm 1G30, when tbe sprts or wnes
covered thereby ore manufactured from mported sprts or wnes, unt tbe
orm 10S3 bas been receved.
( ) Secton 176. 5 s amended as foows:
(1) By strkng from the thrd sentence, whch begns, The cam ,
the phrase approved by the dstrct supervsor and nsertng n eu
thereof the foowng: aowed .
(2) By strkng the fourth sentence, whch bengs Where such
evdence .
(W) Secton 176. , as amended by Treasury Decson 5599, s
further amended as foows:
(1) By nsertng before the frst sentence the foowng new sen-
tences : A dsted sprts and wnes wthdrawn from e port storage
rooms for use as suppes on arcraft w be consgned to the arne
at the arport from whch the arcraft w depart n nternatona
trave, n care of the Coector of Customs. Upon recept of the
dsted sprts or wnes they w be stored at the arport under cus-
toms custody unt aden as suppes on arcraft.
(2) By strkng from the frst sentence the phrase very case or
package of and nsertng n eu thereof the foowng: A other .
( ) Secton 176. 9, as amended by Treasury Decson 5599, s
further amended as foows:
(1) By strkng from paragraph (b) the phrases or arcraft and
or by an authorzed offcer of the arcraft or ar ne company, n
the case of suppes for arcraft, .
(2) By addng after the frst sentence the foowng new sentence:
If the sprts or wnes on whch drawback s camed are for use as
suppes on arcraft, recept therefor n eu of e port b of adng
w be obtaned as provded n secton 176.52b.
(Y) Secton 176.52, as amended by Treasury Decson 5599, s
further amended as foows:
(1) By nsertng a headnote to paragraph (a) to read as foows:
(a) Genera .
(2) By strkng from the ffth sentence, whch begns After hav-
ng the word arcraft, .
(3) By nsertng mmedatey foowng the ffth sentence the
foowng new sentence: If the sprts or wnes are for use as shp s
suppes, tho customs nspector w aso note that fact on Part 6 of
orm 15 2 or 15 2-A.
( ) By strkng from the s th sentence, whch begns, If the
customs the phruse dstrct supervsor of the Acoho Ta Unt
dstrct and nsertng n eu thereof the foowng: Assstant Re-
gona Commssoner, Acoho and Tobacco Ta , for the regon .
(5) By changng the headnote (1) Buk contaners to be gauged
to read as foows: (b) Buk contaners to be gauged .
(6) By revokng paragraph (b).
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Regs. 2 , 176.
5
(Z) There are nserted, mmedatey foowng secton 176.52, the
foowng new sectons:
S C. 176.S2a. DISTILL D SPIRITS on WIN S OR Use AS SUPPLI S ow AIRCRA T.
When an arne desres to wthdraw dsted sprts or wnea from Its stock
beng hed at the arport under customs custody, as suppes for a partcuar
arcraft, a requston In trpcate w bo prepared for presentaton to the
customs offcer. The requston sha show the fght number, the regstry
cumber of the arcraft on whch the dsted sprts or wnes are to be aden,
the date of departure of the arcraft, and the brand, knd, and quantty of ds-
ted sprts or wnes. Where the dsted sprts or wnes are contaned In
kts whch have been prevousy prepared whe the dsted sprts or wnes are
under customs custody, the kt number w aso be shown on the requston.
Where the kts are not prepared and the dsted sprts or wnes are wthdrawn
for drect adng on arcraft, the requstons sha be seray numbered In eu
of the Inserton of the kt number. When the dsted sprts or wnes are
wthdrawn and aden aboard the arcraft, the adng w be verfed by the
customs offcer by nn approprate stamp or notaton on the requston. One
copy of the requston w be retaned by the customs offcer who certfes to
the adng for attachment to the outgong manfest. The other two copes w
be devered to the arne whch w retan both copes unt the return of
the fght. In case any dsted sprts or wnes are removed from the arcraft
upon Its return, approprate notaton w be nnde on both copes of the requs-
ton retaned by the arne and one copy w be devered to the customs offcer
for attachment to the Incomng manfest. The remanng copy w be retaned
by the arne.
S C. 17C.5-b. C RTI ICAT or st OR DISTILL D SPIRITS on WIR S US D AS
SUPPLI S ON AIRCRA T. When a of the dsted sprts or wnes represented
by any orm 15 2 or 1BS2-A have been wthdrawn from customs custody, and
aden and used as suppes on arcraft, the arne w prepare a certfcate of
use on whch are temzed a requstons for such dsted sprts or wnes.
The certfcate sha show the name of the e porter, the entry number, tho
brand and knd of sprts or wnes, and the number of bottes to ho accounted
for and, as to each requston, the requston (or kt) number, the date
aden, the regstry number o . the arcraft, the country for whch the arcraft
was ceared, and the number of bottes used. The certfcate sha be n sub-
stantay the foowng form:
Name of porter ................... ntry No. ......
Brand and knd of sprts No. of bottes to
No. of requston (or kt number)
Datcaon
Regstry No.
of arcraft
Cenrcd for
(Country)
No. ofbottM
um
The number of bottes shown In ths coumn w represent the dfference between the number wthdraws
for suppes and the number returned unused a shown by the requston.
C RTI ICAT O USB
I hereby certfy that the above descrbed ta pad quors were wthdrawn
from stock In customs custody and were aden for use as suppes on arcraft
as set forth and that the records of the arcraft show such quors were used
outsde the contnenta mts of the Unted States as suppes on arcraft
operated by ths company n Internatona trave.
by
(Arne Company)
(Capacty)
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Regs. 2 .117 . .
vnT the form ba been competed n to a dsted sprts or wnes aden and
used a suppes, the certfcate of use w be e ecuted by the authorzed reprc-
pcntatvcs of the arne. The form w be presented to the easterns offcer at
the arport who, upon verfcaton wth the requstons prevousy verfed, w
certfy the form by approprate notaton and e ecute Part 6 of orm 15S2 or
. S -A, notng thereon e ceptons, f any, such as shortages, breakage, etc. The
customs offcer w forward both copes of orm 13S2 or 15S2-A, wth tte
certfcate of use attached to the orgna, to the Coector of Customs.
(A A) Secton 176.5 s amended as foows:
(1) Bv nsertng n the frst sentence, mmedatey foowng the
phase through b of adng, the foowng: where requred, .
(2) By strkng from the second sentence, whch begns, The co-
ector , the phrase other two copes (one of them the orgna), and
nsertng n eu thereof the foowng: orgna, .
(3) By strkng from the second sentence the phrase of the ds-
trct and nsertng n eu thereof the foowng: of the regon .
(1) By nsertng, after the ast sentence, the foowng new sentence:
here the sprts or wnes were used as suppes on arcraft, the
certfcate of use prescrbed by secton 176.52b w accompany tha
orgna of orm 1.1 2 or 15 2-A, as the case may be.
(BB) Secton 170.55, as amended by Treasury Decson 50 C. B.
19 1-2,:MC , s revoked.
(CC) Secton 17C.57, as amended by Treasury Decson 5G91, s
further amended by changng the headnote and the secton to read
as foows:
Sr.c. 170.57. ACTION or ASSISTANT R GIONAL COMMISSION . The Assstant
Regona Commssoner w, upon recept of the cam, orm 15 2 or orm 15S2-A,
accompaned by the certfcate of use In the case of suppes for nse on arcraft,
from the Coector of Customs, e amne the cam and the records of bs offce
pertnent to the sprts or wnes covered by the cam. The Assstant Regona
Commssoner w determne whether the sprts or wnes covered by the cam
hnvc boon fuy ta pnd, whether the camant has comped In every respect wth
aw and reguatons and whether there s on fe a good and suffcent drawback
bond, e w aow or re|ect the cam on the bass of hs fndngs. Where a
cam has been (ed wthout the fng of drawback bond, as provded n secton
170. 5, and evdence of andng or coatera evdence n eu thereof, or proof
of oss on and or sea after shpment, or evdence of use as suppes on vesses or
arcraft. Is not fed wthn the prescrbed tme, the cam w be dsaowed. If
the cam Is dsaowed, the Assstant Regona Commssoner w so notfy the
camant and state the reasons therefor.
(DD) Secton 176.5 , as amended by Treasury Decson 5599, s
further amended by strkng the words or Commssoner n two
paces n the frst sentence.
( ) Secton 170.59, as amended by Treasury Decson COS
p. 553,ths Buetn , s further amended as foows:
(1) By nsertng mmedatey after the headnote the foowng:
(a) On vesses. .
(2) By strkng from the frst sentence the phrase or arcraft n
three paces.
(3) By strkng from the frst sentence the phrase or suppes for
arcraft .
( ) By addng the foowng new paragraph: (b) On arcraft
The use of dsted sprts or wnes as suppes on arcraft w be
evdenced by a certfcate of use as provded n secton 176.52b.
( ) Secton 17G.65 s amended by strkng the phrase or arcraft
n two paces.
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Regs. 2 , 170. . A 50
(GG) Secton 176.66 s amended by strkng the phrase or arcraft
n two paces.
(HH) Secton 176.70, as amended by Treasury Decson 5 0 , 13
further amended by strkng from the frst sentence the word
trpcate and nsertng n eu thereof the foowng: dupcate .
(II) Secton 176.71, as amended by Treasury Decson 5 0 , s
further amended by strkng from the frst sentence the word
trpcate and nsertng n eu thereof the foowng: dupcate .
( ) Secton 176.76 s amended as foows:
(1) -
By strkng from the frst and second sentences the phrase
th ese reguatons and nsertng n eu thereof the foowng: ths
part .
(2) By strkng from the second sentence the phrase Commssoner
of Interna Revenue and nsertng n eu thereof the foowng:
Assstant Regona Commssoner .
( ) Secton 176.77 s amended by strkng from the frst sentence
the word trpcate and nsertng n eu thereof the foowng:
dupcate .
(LL) Secton 176. 1 s amended as foows:
(1) By strkng from the second sentence whch begns, The
orgna nvoce , the words and trpcate .
(2) By strkng from the second sentence the phrase Commssoner .
of Interna Revenue and nsertng n eu thereof the foowng:
Assstant Regona Commssoner .
(MAI) Secton 176. 2 s amended by strkng from the fourth
sentence, whch begns, The orgna , the phrase Commssoner of
Interna Revenue and nsertng n eu thereof the foowng:
Assstant Regona Commssoner .
(NN) Secton 176. s amended by strkng from the second sen-
tence, whch begns The Coector of Customs , the phrase Com-
mssoner of Interna Revenue the orgna and trpcate of orm
1629, Cam for Interna Revenue Drawback on Dsted Sprts z-
pprted n Dsters Orgna Packages and ntry for portaton
Thereof, and nsertng n eu thereof the foowng: Assstant
Regona Commssoner the orgna of orm 1629, .
(00) Secton 176. 5, as amended by Treasury Decson 5539, s
further amended as foows:
(1) By changng the hcadnote to read as foows:
S C. 170. 5. ACTION BT ASSISTANT R GIONAL COMMISSION R.
(2) By strkng from the frst sentence the phrase Commssoner
of Interna Revenue and nsertng n eu thereof the foowng:
Assstant Regona Commssoner .
(3) By snkng, from the second and thrd sentences the word
Commssoner and nsertng n eu thereof the foowng:
Assstant Regona Commssoner .
( ) By strkng from the second sentence the phrase and schedue
t for payment .
(5) By strkng the fourth sentence, whch begns The dupcate
and nsertng n eu thereof the foowng new sentence: After acton
on the cam s competed, the dupcate of the drawback bond w be
forwarded to the Commssoner.
PAR. 3. Reguatons 2 26 C , pt. 1 0 are amended as foows:
(A) Secton 1 0.93 s amended as foows:
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551 Regs. 2 . 175.S.
(1) By strkng from the frst and second sentences the phrase
deputy coector of nterna revenue and nsertng n eu thereof
the foowng: coecton offcer .
(2) By strkng from the second sentence, whch begns, If the
ta payer , the phrase forward to the Commssoner a copy and
nsertng n eu thereof the foowng: forward to the Assstant
Regona Commssoner of the regon n whch the port of arrva
s ocated a copy .
(B) Secton 1 0.1 6 s amended by strkng from the frst sen-
tence the word Commssoner and nsertng n eu thereof the fo-
owng: Assstant Regona Commssoner .
(C) Secton 1 0.2 6 s amended by strkng from the frst sentence
the word Commssoner and nsertng n eu thereof the foowng:
Assstant Regona Commssoner .
Par. . Reguatons 21 26 C R, pL 191 are amended as foows:
(A) Secton 191.165 s amended by strkng from the frst sentence
the word Commssoner and nsertng n eu thereof the foowng:
Assstant Regona Commssoner .
Par. 5. Reguatons 31 26 C R, pt. 199 are amended as foows:
A) Secton 199. s amended as foows:
1) By strkng from the frst sentence the word and .
2) By strkng from the second sentence, whch begns, Such
cam the phrase , n dupcate, and nsertng n eu thereof the
foowng: (orgna ony) .
(3) By strkng from the fourth sentence, whch begns, The
Assstant , the phrase or the Commssoner .
(B) Secton 199. 9 s amended as foows:
(1) By strkng from the thrd sentence, whch begns, Upon
competon , the phrase forward one copy of the cam and reated
papers to the Commssoner wth hs recommendaton as to the merts
of the cam. and nsertng n eu thereof the foowng: aow or
dsaow the cam n accordance wth e stng aw and reguatons.
(2) By addng mmedatey foowng the thrd sentence the foow-
ng new sentence: If the Assstant Regona Commssoner fnds that
there has been a dverson of acoho to any ega use by the e porter
or carrer or other person havng ega custody or contro thereof, or
wth connvance, couson, fraud, or neggence on the part of the
e porter or carrer or such other person or the empoyees of any of
them, the ta on the acoho dverted w be assessed, or abty
asserted aganst the bond coverng the shpment, as the case may be,
and the remander, f any, of the acoho w be sub|ect to sezure and
forfeture.
(3) By strkng from the fourth sentence, whch begns, In the
event , the phrase the Assstant Dstrct Commssoner w report
the ta for assessment n accordance wth the prescrbed procedure.
and nsertng n eu thereof the foowng: the ta w De assessed
n accordance wth prescrbed procedure. .
(C) Secton 199.50 s revoked.
(D) Secton 199.62 s amended as foows:
(1) By strkng from the second sentence, whch begns, The n-
vestgaton , the phrase acton by the Commssoner, .
(2) By strkng from the second sentence the fgures 199.51, and
nsertng n eu thereof the foowng: 199. 9 and 199.51 .
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Regs. 2 , 176. . 652
( ) Secton 190.72 s amended as foows:
(1) By strkng from the second sentence whch begns, The n-
vestgaton , the phrase acton by the Commssoner, .
(2) By strkng from the second sentence the fgures 199.51, and
nsertng n eu thereof the foowng: 199. 9 and 199.51, .
( ) Secton 199.11 s amended by strkng from paragraph (a)
the word Commssoner and nsertng n eu thereof the foowng:
Assstant Regona Commssoner .
(G) Secton 199.117 s amended by strkng from the second sen-
tence, whch begns, Such cams , the phrase , n dupcate, and
nsertng n eu thereof the foowng: (orgna ony) .
(H) Secton 199.11 s amended as foows:
(1) By strkng from the thrd sentence, whch begns, Upon
competon , the phrase forward one copy of the cam and reated
papers to the Commssoner wth hs recommendaton as to the merts
of the cam. and nsertng n eu thereof the foowng: aow or
dsaow the cam n accordance wth e stng aw and reguatons.
(2) By addng mmedatey foowng the thrd sentence the fo-
owng new sentence: If the Assstant Regona Commssoner fnds
that a oss of dsted sprts from a contaner resuted (a) from un-
authorzed vountary destructon, or (b) from theft and the propre-
tor or other person responsbe for the ta fas to estabsh that the
theft dd not occur as a resut of connvance, couson, fraud, or
neggence on the part of the dster, warehouseman, owner, con-
sgnor, consgnee, baee, or carrer, or the empoyees of any of them,
the ta w be assessed.
(3) By strkng from the fourth sentence, whch begns, In the
event , the phrase the Assstant Dstrct. Commssoner w report
the ta for assessment n accordance wth the prescrbed procedure.
and nsertng n eu thereof the foowng: the ta w De assessed
n accordance wth prescrbed procedure. .
(I) Secton 199.119 s revoked.
( ) Secton 199.203 s amended as foows:
(1) By strkng from the frst sentence the word quadrupcate
and nsertng n eu thereof the foowng: trpcate .
(2) By strkng from the frst sentence the word dstrct and
nsertng n eu thereof the foowng: regon .
(3) By strkng from the ffth sentence, whch begns, Where
orm 15 2 . the word trpcate and nsertng n eu thereof the
foowng: dupcate .
( ) By strkng from the ffth sentence the word dstrct and
nsertng n eu thereof the foowng: regon .
( ) Secton 199.205 s amended by strkng from the fourth sen-
tence, whch begns, After the sprts , tho phrase two copes and
nsertng n eu thereof tho foowng: one copy .
(L) Secton 199.206 s amended by strkng fror- the ffth sentence,
whch begns The Coector of Customs , the phrase and one copy .
CM) Secton 199.207 s amended as foows:
(1) By strkng from the frst sentence the phrase and the Com-
mssoner of Interna Revenue .
(2) By strkng from the second sentence, whch begns, If the
cam the word, Commssoner and nsertng n eu thereof the
foowng: Assstant Regona Commssoner .
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553 Regs. 2 . 176.11.
(N) Secton 199.209 s amended as foows:
(1) By strkng from the frst sentence the word trpcate and
nsertng n eu thereof the foowng: dupcate .
(2) By strkng from the seventh sentence, whch begns, Where
orm 1C29 , the word trpcate and nsertng n eu thereof the
foowng: dupcate .
(3) By strkng from the seventh sentence the phrase Comms-
soner of Interna Revenue and nsertng n eu thereof the foow-
ng : Assstant Regona Commssoner .
(0) Secton 199.211 s amended as foows:
(1) By strkng from the frst sentence the phrase Commssoner
of Interna Revenue and nsertng n eu thereof the foowng:
Assstant Regona Commssoner .
(2) By strkng from the second sentence, whch begns, If the
cam the word Commssoner and nsertng n eu thereof the
foowng: Assstant Regona Commssoner .
Because the amendments made by ths Treasury Decson are of a
berazng and admnstratve character, t s unnecessary to ssue
ths Treasury Decson wth notce and pubc procedure thereon under
secton (a) of the Admnstratve Procedure Act, approved une 11,
19 0, or sub|ect to the effectve date mtatons of secton (c) of
sad Act.
Ths Treasury Decson sha be effectve on the date of ts pubca-
ton n the edera Regster.
(Ths Treasury Decson s ssued under the authorty contaned
n sees. 3176 and 3791 of the Interna Revenue Code (53 Stat. 375, 67
26 U. S. C. 3176,3791), and Stat. 999 as amended 19 U. S. C. Sc).
O. Gordon Dek,
Actng Commssoner of Interna Revenue.
Raph ey,
Commssoner of Customs.
Approved une 30,195 .
M. B. osom,
Actng Secretary of the Treasury.
(Pubshed In the edera Regster August 11,1 5 |
Reguatons 31, Secton 199.3: Artces aden
as suppes on vesses and arcraft
Reguatons 31 amended. See T. D. 60 7, beow.
S CTION 3179. MPTION AND DRAWBAC IN
CAS O PORTATION
Reguatons 2 , Secton 176.11: Drawback T. D. 60 7
authorzed.
(Aso Sectons 176.11a, 176. 7, 176.59
Sectons 3176, 3791, Secton 199.3, Regu-
atons 31.)
TITL 20 INT RNAL R NU . CHAPT R I, SUBCHAPT R C. PART 179 AND
TART 199
Amendment of provsons for wthdrawa of quors for use on
certan vesses and arcraft.
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Regs. 2 , 176.11.) 55
Treasury Department,
Ornc op Commssoner or Interna Revenue,
Washngton 26, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
Subsectons (a) and (b) of secton 309 of the Tarff Act of 1930
were amended by Pubc Law 2 3, ghty-thrd Congress C. .
1953-2, 1 , to rend as foows:
Sec. 300. Suppes toe Certan essets and Abchaft.
(a) empton bom Dutes and Ta es. Artces of foregn or domestc
orgn may be wthdrawn, under such reguatons as the Secretary of the Treas-
ury may prescrbe, from any customs bonded warehouse, from contnuous cus-
toms custody esewhere than n a bonded warehouse, or from a foregn-trade
zone free of duty and Interna-revenue ta , or from any Interna-revenue bonded
warehouse, from any brewery, or from any wnery premses or bonded premses
for the storage of wne, free of Interna-revenue ta
(1) or suppes (not Incudng equpment) of (A) vesses or arcraft
operated by the Unted States, (11) vesses of the Unted States empoyed
n the fsheres or In the whang busness, or actuay engaged In foregn
trade or trade between the Atantc and Pacc ports of the Unted States
or between the Unted States and any of Its possessons, or (C) arcraft
regstered In the Unted States and actuay engaged n foregn trade or
trade between the Unted Sates and any of Its possessons or
(2) or suppes (Incudng equpment) or repar of (A) vesses of war
of any foregn naton, or (B) foref.n vesses empoyed n the shcrcs or In
the whang busness, or actuay engaged In foregn trade or trade between
the Unted States and any of Us possessons, where such trade by foregn
vesses Is permtted or
(S) or suppes (ncudng equpment), ground equpment, mantenance,
or repar of arcraft regstered n any foregn country and actuay engaged
n foregn trade or trade between the Unted States and any of Its posses-
sons, where trade by foregn arcraft Is permtted. Wth espect to artces
for ground equpment, the e empton hereunder sha appy ony to dutes
and to ta es Imposed upon or by reason of mportaton.
(b) Dbawback. Artces wthdrawn from bonded warehouses, bonded man-
ufacturng warehouses, contnuous customs custody esewhere than n a bonded
warehouse, or from a foregn-trade cone, and artces of domestc manufacture
or producton, aden as suppes upon any such vesse or arcraft of the Unted
States or aden as suppes (Incudng equpment) upon, or used n the mante-
nance or repar of, any such foregn vesse or a-rcraft, sha be consdered to be
e ported wthn the meanng of the drawback provsons of ths act

To conform to the foregong provsons of aw and (a) to carfy
the provsons for credtng (he accounts kept wth bonds when quors
are used on vesses and arcraft, and (b) to modfy the provsons of
reguatons wavng the affdavt of use (of the master or other offcer)
odsted sprts and wnes on vesses and arcrnft, by ncreasng the
amount of ta abe abty governng such waver, for any one shp-
ment, from 25 to 100, Reguatons 23 26 C R, pt 17C and Regua-
tons 31 26 C R. pt. 199 are amended as foows:
Paragraph 1. Whenever the term dstrct supervsor appears n
the sectons of the reguatons revsed by ths Treasury Decson, such
Icrm s hereby amended to read Assstant Regona Commssoner .
Assstant Regona Commssoner means the Assstant Regona
Commssoner, Acoho and Tobacco Ta , who s responsbe to, and
functons under the drecton and supervson of, the Regona Com-
mssoner.
Par. 2. Reguatons 2 26 C R, pt. 176 are amended as foows:
(A) Secton 176 11 s amended by:
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555 Regs. 2 , 176.11.
(1) Changng paragraph (b) to read:
(b) Atocance cftrn aden at uppet upon certan vese or arcraft.
Dsted sprts or wnes, botted or packaged especay for e port wth beneft
of drawback In accordance wth ths part, sha be consdered to be e ported for
the purpose of drawback of ta es, when aden as suppes on vesses and arcraft
as foows:
(1) esses or arcraft operated by the Unted States:
(2) esses of the Unted States empoyed In the fsheres or In tbe wbt
Ing busness, or actuay engaged In foregn trade or trade between tbe At-
antc and 1 acfo ports of tbe Unted States or between the Unted States
and any of ts possessons
(3) Arcraft regstered n the Unted States and actuay engaged h
foregn trade or trade between the Unted States and any of Its possessons
( ) esses of war of any foregn naton
(. ) oregn vesses empoyed In the fsheres or In the whang busness,
or actuay engaged In foregn trade or trade between the Unted States
and any of ts possessons, where such trade by foregn vesses s permtted
or
(6) Arcraft regstered In any foregn country and actuay enga.eed a
foregn trade or trade between the Unted States and any of Its possessons,
where trade by foregn arcraft Is permtted, and where the Secretary of the
Treasury sha have been advsed by the Secretary of Commerce that he has
found such foregn country aows, or w aow, substanta recproca
prveges In respect to arcraft regstered In the Unted States.
(2) Changng the ctaton at the end of paragraph (c) to read.
( 0 Stnt. Gt 0 as amended, 53 Stat. 377 as amended 19 U. 5. C. 1309,
26U.S.C.3179) .
(13) There s nserted mmedatey foowng secton 176.11 the
foowng new secton:
Sfc. 170.11a. n ntocATno oaeaf Cov tbes. The Commssoner w
advse Assstant Regona Commssoners concernng those foregn countres
whch w aow, to arcraft regstered n the Unted States and engaged In
foregn trade, prveges substantay recproca to the prveges aowed
heren to arcraft of a foregn country. Assstant Regona Commssoners may
approve appcatons to wthdraw sprts or wnes for use on arcraft of such
countres. Where appcaton Is made to wthdraw sprts or wnes wth beneft
of drawback for use on arcraft of other foregn countres, whch It Is camed
recprocate smar prveges to arcraft of the Unted States, the appcant must
Crst estabsh tbe rght of such wthdrawa. In approprate cases, the appcant
shoud request the Secretary of Commerce to fnd and advse the Secretary of
the Treasury that such foregn country or countres aow, or w aow, sub-
stantay recproca prveges to arcraft of the Unted States. ( 6 Stat. 690
as amended 10 U. S. C. 1300).
(C) Secton 176. 7 s amended by:
(1) Changng the perod at the end of the ast sentence to a coon
and addng the foowng provso: Provded, That n the case of
dsted sprts or wnes aden on vesses of war, or n the case of any
shpment where the amount of ta on the sprts or wnes aden as
suppes on other vesses and arcraft docs not e ceed 100, credt w
be gven at the tme of recept of the cearance certfcate from the
Coector of Customs as provded n secton 170.5 .
(2) Changng the ctnton to rend, ( 0 Stat. 690 as amended, 53
Stat. 377 as amended 19 U. S. C. 1309,26 U. S. C. 3179) .
(D) Secton 176.59 s amended by:
(1) Strkng the words or the Commssoner wthn the paren-
thess n the frst sentence.
3331 3
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Regs. 2 , 170.11a.) 556
(2) Insertng the words or wnes foowng the words havng
knowedge of the facts, showng that the sprts n the frst sentence.
(3) Strkng the provso at the end of the frst sentence and a
of the second sentence and nsertng n eu thereof, Provded, That
such affdavt w not be requred, n the case of any shpment, when
the dsted sprts or wnes are aden on vesses of war or where
the amount of ta on the dsted sprts or wnes does not e ceed
100.
( ) Changng the ctaton to read, ( 6 Stat. 690 as amended, 53
Stnt. 377 as amended 19 U. S. C. 1309,26 U. S. C. 3179) .
Par. 3. Reguatons 31 26 C R, pt. 199 are amended by nsert-
ng mmedatey foowng secton 199.2 the foowng new secton:
Sec. 109.3. Artces Lades as Suppes of esses and Arcraft. or the
purpose of secton 300 of the Tarff Act of 1030, as amended by secton 11 of the
Customs Smpfcaton Act of 1053 ( ubc Law 213, 3d Cong.), artces re-
moved to foregn-trade zones under the provsons of ths part ma be removed,
pursuant to the provsons of secton 30.16 of the Code of edera Reguatons,
tte 10, chapter I, for use as suppes on vesses and arcraft.
It s found that compance wth the notce, pubc procedure
thereon, and effectve date requrements of the Admnstratve Pro-
cedure Act, approved une 11, 19 6, s unnecessary for the ssuance
of these amendments, for the reason that such amendments merey
conform the reguatons to the provsons of subsectons (a) and (b)
of secton 309 of the Tarff Act of 1930, as amended by Pubc Law
2 3 ( 3d Cong.), or are of an admnstratve or berazng character.
Ths Treasury Decson sha be effectve upon the date of pubca-
ton n the edera Regster.
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 3 of the act of une 1 ,193 , as amended, and sees. 3176 and 3791
of the Interna Revenue Code ( Stat. 999, as amended, 63 Stat.
375. 67 19 U. S. C. 1c, 26 U. S. C. 3176,3791).)
T. Coeman Andrews,
Commssoner of Interna Revenue.
Rath ey,
Commssoner of Customs.
Approved August 5,195 .
M. B. osom,
Actng Secretary of the Treasury.
(Pubshed In the edera Regster August 11,105 )
Reguatons 2 , Secton 176.11a, as added by
Treasury Decson 60 7, page 553, ths Bu-
etn : Recprocatng foregn countres.
Lstng of foregn countres for whch acoho, dsted sprts,
and wne may be wthdrawn free of ta or wth beneft of drawback
or fermented mat quor may be wthdrawn free of ta for use as
suppes on arcraft engaged n foregn trade or trade between the
Unted States and ts possessons. See Rev. Ru. 5 -676, page 72.
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557 fT. D. 5 6 , f 1713
S CTION 31 3. NATIONAL M RG NCY TRANS RS O
DISTILL D SPD3ITS
Trkascht Decson 5 6 , Secton 171.195: Rev. RuL 5 -336
Authorzed removas.
Acoho may be transferred from an Industra acoho pant or In-
dustra acoho bonded warehouse to an Interna revenue bonded
warehouse for storage In bond pendng ta payment and remova Cur
beverage use.
Advce s requested whether ocoho may be transferred under the
provsons of secton 171.105 of Treasury Decson 5 6 , C. B. 1951-2,
2 , from an ndustra acoho pant or bonded warehouse to an
nterna revenue bonded warehouse for storage theren n bond pend-
ng ta nayment and remova for beverage use such as the producton
of odka.
Secton 171.195 of Treasury Decson 5 6 , supra, provdes n part
that acoho may bo transferred from an ndustra acoho pant or
ndustra acoho bonded warehouse to an nterna revenue bonded
warehouse for storage theren and ater wthdrawn therefrom f the
sprts are of a proof of ICO degrees or more, for any ta -free purpose
authorzed by secton 3100 to secton 3126 of the Interna Revenue
Code, or for any purpose authorzed n the case of ke sprts pro-
duced at a dstery.
Accordngy, acoho may be transferred from an ndustra acoho
pant or ndustra acoho bonded warehouse to an nterna revenue
bonded warehouse for storage n bond pendng ta payment and
remova for beverage use.
Treasury Decson 5 6 , Secton 171.231: Rev. Ru. 5 -35
Authorzed transfers.
The recept of sprts at a regstered dstery from an Industra
acoho bonded warehouse under the provsons of secton 171.231
of Trensury Decson 5 0 . C B. 1051-2, 2 , for the purpose of reduc-
ton In proof and percoaton through oak chps Is not authorzed.
Advce s requested whether acoho may be receved at a regstered
dstery from an ndustra acoho bonded warehouse under the
provsons of Treasury Decson 5 6 , subsequenty reduced n proof
and percoated or treated wth oak chps.
Secton 171.231 of Treasury Decson 5 6 provdes that dsted
sprts of any proof may be transferred n bond to any dstery
from any other dstery, or from an nterna revenue bonded ware-
house, ndustra acoho pant, or ndustra acoho bonded ware-
house, for redstaton ony, e cept (a) for gaugng n a weghng
tank pror to depost n a warehouse tank where a weghng tank s
not avaabe n the warehouse, or (b) for temporary storage n ocked
tanks pendng transfer to warehouse tanks or, f 160 degrees or more
of proof, for remova for any ta -free purpose authorzed by part II
of subchapter C of the Interna Revenue Code or for any purpose
authorzed n the case of ke sprts produced at a dstery.
The recept of sprts at a regstered dstery from an ndustra
ncoho bonded warehouse under the provsons of secton 171.231 of
Treasury Decson 5 0 for the purpose of reducton n proof and
percoaton through oak chps s not authorzed. Sprts so trans-
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Regs. 20, 5 19 .12 . 5
ferred to a regstered dstery must be redsted uness receved
under e ceptons (a) and (b) of secton 171.231. Therefore, sprts
may not be receved at a regstered dstery for any other purpose
nor may sprts be redsted and wthdrawn at ess than 160 degrees
of proof. urthermore, sprts so redsted and wthdrawn at a
regstered dstery may not be treated wth oak chps snce such
treatment s not a part of the approved, recognzed process of the
producton of the hgh proof sprts.
CHAPT R 27. OCCUPATIONAL TA S
SUBCHAPT R L-SP CIAL PRO ISIONS
PART II. LI UOR
f f ,
S CTION 3250. TA
R GULATIONS 29, S CTION 197.25: Payment and
rates of speca ta .
Cam for drawback of ta on acoho used by a hospta n the
manufacture of medcna preparatons. See ev. uL 5 - 6 ,
page 509.
S CTION 3250(b). TA : R TAIL D AL RS IN LI UORS
R GULATIONS 20, S CTION 19 .12 : Genera.. Rev. Ru. 5 - 0
Speca ta abty as a reta deaer In quors a not Incurred
by reason of quor beng served free, sod, or offered for sae to
passengers on arpanes outsde the terrtora boundares of the
severa states and terrtores comprsng the Unted States or f the
quor Is served free to passengers wthn, or In fght over, such
areas. Labty to ta Is Incurred If quors are sod or offered
for sae to passengers wthn, or n fght over, Unted States
terrtora boundares.
Advce s requested whether an arne whch serves quor aoft to
passengers n connecton wth compmentary meas woud ncur a-
bty to speca ta as a deaer n quors. No charge s made for
ether the meas or the quors and the arne s tarffs, as fed wth
the Cv Aeronautcs Board, do not ncude the prce of the meas or
quor but reman the same regardess of whether the passenger ac-
cepts them and regardess of whether they are offered such meas or
quors are ony offered to passengers at mea tme.
Secton 3250(b) of the Interna Revenue Code mposes a ta of 50
on reta deaers n quors. Secton 325 (c of the Interna Revenue
Code provdes, n part, thnt every person who ses, or offers for sae,
foregn or domestc dsted sprts, wnes, or mat quors n ess
nanttes than fve wne gaons to the same person at the same tme,
ha be regarded as a reta deaer n quors.
Secton 19 .12 of Reguatons 20 provdes that speca ta stamps
nay be ssued to persons carryng on the busness of reta deaers n
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659 IRegs. 7, 17 .129
quor or reta deaers n mat quors upon passenger raroad trans
or upon steamboats or other vesses engaged n the busness of carryng
passengers.
Labty to speca ta s ncurred upon encagng n, or carryng on,
the busness or occupaton of seng or offerng for sae acohoc
quors ft for use as a beverage. Any such course of seng, wthn
the terrtora mts of the Unted States, though to a restrcted cass
of persons or wthout a vew to proft, s wthn the meanng of secton
3250(b) of the Interna Revenue Code..
Speca ta abty as a reta quor deaer s not ncurred through
the sae of quors on passenger-carryng arpanes n fght outsde the
severa states of the Unted States, the Dstrct of Coumba, Aaska,
and the Terrtory of Hawa.
An arne seng or offerng for sae acohoc quors wthn the
terrtora boundares of the severa states and terrtores comprsng
the Unted States, or whe n fght over such areas, s abe to speca
ta for such saes. However, under the partcuar facts here pre-
sented, no abty to speca ta as a deaer n quors woud be
ncurred.
S CTION 3250(g).-TA : WIN MA RS
Reguatons 7, Secton 17 .129: empton of Rev. Ru. 5 -375
wnemaker.
(Aso edera Acoho Admnstraton Act,
Secton 3, AA Reguatons No. 1, Sec-
ton 1.)
Where members of a partnershp dspose of ther Interest In a
wnery to the remanng partners, the remanng partners w not
Incur Mobty for the speca ta as a quor deaer by reason of the
sae of wne produced by the former partnershp.
Where a corporaton succeeds a partnershp In the operaton of a
wnery, even though the stockhoders were the former partners,
such corporaton Is not entted to e empton from speca ta as a
quor deaer under secton 3. 0(c) of the Interna Revenue Code
of 1039 If wne produced by the former partnershp Is sod by the
corporaton. However, snce the succeedng corporaton Is not en-
gaged In the busness of purchasng wne for resae by reason of the
sae of the wne produced by the former partnershp. It Is not re-
qured to obtan a whoesaer s basc permt under the edera A-
coho Admnstraton Act to dspose of such wne.
Advce s requested whether speca ta abty woud be ncurred
by the successors to a partnershp operatng a wnery by reason of the
6ae of wne produced by the former partnershp where (a) members
of a partnershp dspose of the nterests to the remanng partners
and (b) where a corporaton s organzed to succeed a partnershp and
the stockhoders of the new corporaton were the members of the
former partnershp. Advce s aso requested whether a whoesaer s
basc permt woud bo requred to cover the sae of wne produced by
the former partnershp.
Secton 3250(g) of the Interna Revenue Code of 1939 provdes n
part that wncmakers who have quafed as such under the nterna
revenue aws and reguatons, and who se wnes of ther own produc-
ton where the snme are made or at the genera busness offce of such
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Regs. 7. 17 .129. 560
wnemaker, are e empt from the speca ta as a whoesae or reta
deaer n quors.
It s hea that n the case of the operaton of a wnery by the re-
manng partners as a partnershp upon the wthdrawa of a member
or members of the former partnershp, the remanng partners may
se wne produced under the former partnershp wthout ncurrng
abty to speca ta as a whoesae or reta deaer n quors by rea-
son of such saes. However, n the case of a wnery operated under a
partnershp whch s succeeded by a corporaton, even though the
stockhoders of the newy organzed corporaton were former part-
ners, the change n ega entty from a partnershp to a corporaton
must be recognzed. Therefore, t s hed that the corporaton woud
ncur abty to speca ta as a whoesae and/or reta quor
deaer by reason of the sae by the corporaton of wne produced by
the former partnershp.
Snce the corporaton woud not be engaged n the busness of pur-
chasng wne for resae at whoesae, t woud not be requred to obtan
a Whoesaer s Basc Permt, orm 1633, to dspose of the wne.
Reguatons 7, Secton 17 .129: empton of Rev. Ru. 5 -51
wnemaker.
(Aso Reguatons 20, Secton 19 .195.)
The term genera busness offce of a wnemaker as used In sec-
ton 3250(g) of the Interna Revenue Code of 1939 ncudes a branch
offce of the wnemaker where the genera busness of the company a
carred on.
Advce s requested whether a wnemaker, havng pad speca ta
as a quor deaer at a genera busness offce ocated at the same address
as the wnery at whch pace purchased wnes and wnes of hs own
producton are sod, may cam e empton from speca ta at a branch
offce at another ocaton where wnes of hs own producton ony are
sod.
A wnemaker operates a bonded wnery and at the same address
operates as a quor deaer seng both purchased wne and wne of
hs own producton. Speca ta as a whoesae and reta quor
deaer has been pad to cover saes at ths address. The wnemaker
aso ses wne of hs own producton at a branch offce ocated n an-
other cty for whch he cams e empton from speca ta under the
provsons of secton 3250(g) of the Interna Revenue Code of 1939.
Secton 3250(g) of the Interna Revenue Code of 1939 e empts from
speca ta wnemakers who have quafed as such under the nterna
revenue aws and reguatons and who se wnes of ther own produc-
ton where the same are made, or at the genera busness offce of such
wnemaker, provded that no wnemaker sha have more than one
pace of busness for the sae of such wne that sha be e empt from
the speca ta .
The term genera busness offce has been hed to appy to an offce
of the wnemaker where the genera busness of the company s car-
red on and such offce woud e wthn the statutory e empton pro-
vded that wnes of hs own producton ony are sod at such premses
and the wnemaker has no more than one pace of busness e empt
from speca ta for the sae of such wnes.
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561. (Regs. 20. f 19 S-
Reguatons 20, Secton 19 .195: Saes by
quafed wnemakers.
empton from speca ta as a reta or whoesae deaer n quors
bv a wnemakcr at an offce not ocated on the bonded wnery premses.
See Rev. u. 5 -51 , page 5G0.
S CTION 325 (b). D INITIONS: WHOL SAL D AL R
IN LI UORS
Reguatons 20, Secton 19 .27 Lawfu saes Rev. RuL 5 -509
by reta deaers n quors.
(Aso edera Acoho Admnstraton Act,
Secton (d).)
A transacton between two reta quor deaers may be consdered
a true oan or e change and, therefore, free of whoesae occupa-
tona ta abty ony If the merchandse returned Is dentca
e cept for mnor dfferences such as sze of contaners to that
borrowed the cass, type, and brand name must be the same.
Under secton 0(d) of the edera Acoho Admnstraton Act,-
a whoesae quor deaer may accept from a retaer the return
of a quantty of dsted sprts or wne upon the retaer accept-
ng In return, on a case for case bass, dsted sprts or wne of the
same cass, types, and brand. An e change may be made of equa
quanttes of dentca dsted sprts dfferng ony In the sze
contaners n whch botted.
Advce s requested whether a retaer may return to the whoe-
saer from whom t was purchased a quantty of sherry wne n e -
change for a ko quantty of port wne of the same brand.
Secton 325 (b) of the Interna Revenue Code of 1939 provdes n
part that every person, e cept as otherwse provded, who ses or
offers for sae dsted sprts or wnas n quanttes of 5 wne gaons
or more to tho snmo person at the same tme sha be regarded as a
whoesae dener n quors.
It s hed that the returnng of quors n quanttes of 5 wne ga-
ons or more by a retaer to the whoesaer from whom the quors
were purchased does not consttute engagng n the busness of a
whoesae quor deaer snce such transactons are consdered as n-
cdenta to the operatons of a reta busness.
In tho caso of a so-caed oan or e change n quanttes of 5
wne gaons or more between two reta quor deaers, the mer-
chandse returned must bo dentca wth that supped e cept for
mnor dfferences such as sze of contaner, n order for the trans-
acton to be consdered a true oan or e change and, therefore, free of
whoesae occupatona ta abty.
Secton 5(d) of the edera Acoho Admnstraton Act provdes
n part that t sha be unawfu wthn |ursdctona mts set forth
for any producer, whoesaer, or mporter to se, offer for sae, or
contract to se to any trade buyer, or for any such trade buyer to
purchase, offer to purchase, or contract to purchase, any quors wth
the prvege of return or where the transacton nvoves, drecty or
ndrecty, the acquston by such person, or agreement to acqure,
from the trade buyer other quors. Ths secton provdes further,
however, that t sha not appy to transactons nvovng soey the
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Regs. 15, 190.69 . . 562
bona fde return of merchandse for ordnary and usua commerca
reasons arsng after the merchandse has been sod.
It s hed that a whoesaer may accept the return of a quantty of
dsted sprts or wne from a retaer, condtoned upon the retaer
acceptng n return, on a case for case bass, dsted sprts or wne
of the same type and brand. Under ths nterpretaton of secton 5 (d)
of the Act, an e change may be made of a partcuar sze of one
brand and type of dsted sprts or wne for an equa quantty n
contaners of another sze of the same type and brand. However, the
e change of one type of wne, such as sherry wne, for an equa quantty
of another type of wne, such as port wne, woud be consdered
sub|ect to the restrctons of the statute.
S CTION 325 (g). D INITIONS: R CTI I R
R GULATION 10, S CTION 1 5.621: Mngng n Rev. Ru. 5 -510
gaugng tank of sprts for ta payment.
(Aso Reguatons 15, Secton 190. 13, Secton
190.69 .)
Gns dsted at the same proof, by the same dster and at the
same dstery pursuant to the same formua, whch are otherwse
homogeneous, and whch have been stored n meta drums or paraffn
ned packages (n whch atter case the gn does not come n contact
wth the wood surface) may be commnged for convenence n ta -
payment or bottng under the authorty of secton 190. 13 of Regu-
atons 15 and secton 1 5.621 of Reguatons 10. Such gn so
commnged s not sub|ect to the rectfcaton ta . Homogeneous
gns may be commnged regardess of the perod of storage thereof n
the meta drums or paraffn ned packages. However, wnere there s
any doubt as to the homogenety of the gns to be commnged, a
determnaton thereof shoud be made by the aboratory of the offce
of the Assstant Regona Commssoner, Acoho and Tobacco Ta ,
for the regon n whch the warehouse or rectfyng pant s ocated,
n the manner prescrbed by secton 190.69 of Reguatons 15.
R GULATIONS 15 S CTION 190. 13: M ng of
dfferent sprts prohbted.
Commngng of gn stored n meta packages and n paraffn ned
packages. See Rev. Ru. 5 -510, above.
R GULATIONS 15, S CTION 190.69 : Testng of
sprts dumped together for bottng.
Testng of gns stored n meta packages and n paraffn ned pack-
ages to determne whether they are homogeneous for the purpose of
commngng. See Rev. Ru. 5 -510, above.
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563 | egs. , -A 1 2.507.
,. SUBCHAPT R B-G N RAL PRO ISIONS
S CTION 32S0. LIABILITY IN CAS O D ATH OR
CHANG O LOCATION
Reguatons 20, Secton 10 .16 : Change of Rev. Ru. 5 - S1
contro rght of successon.
(Aso Reguatons 29, Secton 197. .)
Where speca ta requred by secton 3250 of the Interna Revenue
Code of 1031) Is pad and a speca ta stamp Is Issued to a trustee,
or other fducary In hs capacty as such, and he Is removed for any
reason pror to the end of the fsca year for whch the speca ta
was pad, bs successor apponted by the court may succeed to such
speca ta stamp.
Advce s requested whether a trustee has the rght of successon to
a speca ta stamp as a manufacturer of nonbeverage products whch
was ssued to another trustee.
Secton 32 0 of the Interna Revenue Code of 1939 provdes reef
from the ta for certan persons n cases of change n contro of a
busness. Snce an e ecutor, admnstrator, or trustee acts n a fdu-
cary capacty for those who contnue to hod the benefca nterest
n the busness, t s hed that the change n contro provded by secton
32 0 of the Code whereby an e ecutor, admnstrator, or other ega
representatve may carry on for the remander of the term upon the
death of the ta payer wthout the payment of addtona speca ta ,
s appcabe n the case of a trustee who repaces another trustee n
whose name the speca ta stamp was ssued and who has for anv
reason been removed. However, the trustee as successor must fe wth
the dstrct drector of nterna revenue from whom the speca ta
stamp was purchased, a return on orm 11, Speca Ta Return, 7
showng the bass of the successon, n accordance wth secton 19 .16
of Reguatons 20 and secton 197. of Reguatons 29.
Reguatons 29, Secton 197. : Genera.
Rght of successon of a trustee to a speca ta stamp as manu-
facturer of nonbeverage products whch was ssued to another trustee.
See Rev. Ru. 5 - 1, above.
CHAPT R 2 . PRO ISIONS COMMON TO
MISC LLAN OUS TA S
SUBCHAPT R A G N RAL PRO ISIONS
ART I. STAMPS, MAR S, AND BRANDS
S CTION 3300. STABLISHM NT AND ALT RATION
Reguatons 3, Secton 1 2.507: Tn, gass, Rev. Ru. 5 -562
or smar contaners.
(Aso Secton 1 2.539.)
Gass contaners of acoho encased n nonremovabe cases to
whch the ta -pad stamp s aff ed are not requred to bear a botte
stamp.
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Regs. 1 , 102.252. 56
Advce s requested wth respect to crcumstances under whch botte
stamps need not be attached to contaners of acoho.
The reguatons contempate that each package of acoho sha bear
a stamp of one of the prescrbed casseS| e cept when wthdrawn for
ta -free purposes other than e portaton. See secton 1 2.532 of
Reguatons 3. Secton 1 2.539 of Reguatons 3 provdes that the
propretor must aff over the mouth of each botte of acoho fed
n hs warehouse, e cept when acoho s botted for e port, an engraved
botte stamp, wth the sera number prnted thereon. Ths secton
appes to bottes of acoho paced n cases from whch the bottes
may be removed.
Secton 1 2.507 of Reguatons 3 provdes n part that acoho may
be packaged n contaners of tn, gass, or smar substance, but such
contaners, n order to better nsure safe transportaton, must be com-
petey encased n wood, fberboard, or other approved matera. The
case must be so constructed as to nsure that the porton of the case
contanng the marks and stamps w reman securey attached to
the nner contaner unt a of the acoho has been removed there-
from. The nner contaner s not requred to bear a botte stamp.
In the atter case, the nner and outer contaners are securey aff ed
to each other and are consdered as one contaner, as dstngushed
from oose bottes paced n cases from whch they may be ready re-
moved and whch are requred to bear botte stamps to evdence ther
ega status when removed from the case to whch the ta -pad stamp
s aff ed. The stampng of bottes paced n non-removabe cases,
n addton to the stampng of the outer contaner, woud serve no
usefu purpose and woud resut n dupcate stampng.
It s hed that contaners packaged n nonremovabe cases, n ac-
cordance wth secton 1 2.507, are not requred to bear botte stamps.
Bottes paced n cases from whch they may be ready removed must
bear botte stamps.
Reguatons 3, Secton 1 2.539: Botte stamps.
Method of stampng acoho packaged n gass contaners encased
n nonremovabe cases. See Rev. Ru. 5 -562, page 563.
S CTION 330 . R D MPTION O STAMPS
Reguatons 1 , Secton 192.252: Method of Rev. Ru. 5 -293
ta -payment.
A cam for redempton or refund for the vaue of beer stamps
cannot be aowed uness the stamps are surrendered or there Is
evdence satsfactory estabshng that the stamps were destroyed.
The Issuance of a bond to Insure revenue stamps aganst oss, destruc-
ton, spoage, etc., woud be a commerca transacton between the
surety and the prncpa on the bond whch woud not affect the
decson by the Interna Revenue Servce upon the merts of any
cam fed under the authorty of secton 3301 of the Interna Rev-
enue Code.
Advce s requested whether the ssuance of a bond nsurng revenue
stamps aganst theft, oss, or destructon woud be acceptabe to the
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565 RegA . 6, 316.15.
Interna Revenue Servce and whether beer stamps woud be repaced
under such a bond.
Secton 330 of the Interna Revenue Code provdes n part that
the Commssoner may, upon satsfactory evdence of the facts, make
aowance for or redeem stamps ssued under authorty of aw, to
denote the payment of any nterna revenue ta , as may have been
spoed, destroyed, or rendered useess or unft for the purpose n-
tended. It aso provdes that no aowance sha be made n any case
unt the stamps sha have been returned to the Commssoner, or
unt satsfactory proof has been made showng the reason why the
Stamps cannot be returned.
It s hed that a cam for redempton or refund for the vaue of
beer stamps cannot Le aowed uness the stamps are surrendered or
there s evdence satsfactory estabshng that the stamps were de-
stroyed. ach cam fed for redempton or refund of the vaue of
beer stamps w be consdered on ts merts after t has been fed
pursuant to prescrbed procedure.
The ssuance of a bond to nsure revenue stamps aganst oss, destruc-
ton, spoage, etc., woud be a commerca transacton between the
surety and the prncpa on the bond whch woud not affect the dec-
son of the Interna Revenue Servce upon the merts of any cam
fed under the authorty of secton 330 of the Code.
Reguatons 20, Secton 19 .200: Cams. Rev. Ru. 5 -301
Cams for refund of the vaue of unused speca ta stamps ssued
pursuant to secton 3250 of the Interna Revenue Code whch have
been ost or destroyed may be fed durng the fsca year covered by
the stamp or at any tme wthn years after ssuance of the stamp.
Cams for refund n such cases must be accompaned by an affdavt
settng forth the facts coverng the oss or destructon of the stamp,
or f the ta payer has receved a certfcate n eu of ost or de-
stroyed stamp, such certfcate shoud be submtted wth the cam.
CHAPT R 29. MANU ACTUR RS CIS AND
IMPORT TA S
SUBCHAPT R C.-G N RAL ADMINISTRATI PRO ISIONS
S CTION 3 1. SAL PRIC
Reguatons 6, Secton 316.15: ar market
prce n case of reta saes, consgnments,
etc., generay.
Computaton of ta on reta saes of sportng goods by manufac-
turer. See Rev. Ru. 5 - , page 12.
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Regs. 31, 190.3. A 66
CHAPT R 3 -MISC LLAN OUS PRO ISIONS
S CTION 3791. RUI. S AND R GULATIONS
Reguatons 3, Secton 1 2.C30a: Genera.
(Aso Secton 1 2.630b, etc. Secton
17 .29 , etc., Reguatons 7 Secton
1 5. 15, etc., Reguatons 10 Secton
192,930, etc., Reguatons 1 .)
Reguatons 3,7,10,1 amended. See T. D. 60 , page 517.
Reguatons 21, Secton 191.165: change an
redempton of stamps.
(Aso Secton 1 0.93, etc, Reguatons 2
Secton 199. , etc., Reguatons 31.)
Reguatons 21,2 ,31 amended. See T. D. 60 , page 5 2.
Reguatons 31, Secton 199.3: Artces aden
as suppes on vesses and arcraft.
Reguatons 31, amended. See T. D. 60 7, page 553.
..: . .
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567 , AAA.
AA Regs. 1, L
SUBPART C-RULINGS AND D CISIONS UND R TH
D RAL ALCOHOL ADMINISTRATION ACT OR R -
LAT D LAWS
Rungs and decsons pubshed n Part III, Subpart C, of the
Interna Revenue Buetn are based on the appcaton of provsons
of the edera Acoho Admnstraton Act and, uness otherwse
noted theren, are pubshed wthout consderaton as to any appca-
ton of the provsons of the Interna Revenue Code of 105 or the
Interna Revenue Code of 1939.
D RAL ALCOHOL ADMINISTRATION ACT
S CTION 3.-UNLAW UL BUSIN SS S WITHOUT P RMIT
AA Reguatons No. 1, Secton 1: When re- Rev. Ru. 5 -27
qured.
An Importer of acohoc beverages who mantans no pnce of
bnsness other thnn that covered by hs basc permt and who makes
a saes at the pace of busness covered by hs permt Is not re-
qured to obtan basc permts nt the varous ports through whch
acohoc beverages are entered In hs nnme by customs brokers and
transferred In customs bond to the vendees.
Advce s requested whether an mporter s requred to obtan basc
permts at ports of entry where (a) the merchandse s devered by
the customs broker drect to the vendees and (b) the saes are made
at the busness address of the mporter covered by the permt.
Secton 3(a) of the edera Acoho Admnstraton Act provdes
that t sha be unawfu to engage n the busness of mportng nto
the Unted States dsted sprts, wnes or mat beverages, or for any
person so engaged to se or shp such products, so mported, n nter-
state or foregn commerce, drecty or ndrecty or through an affate,
wthout frst obtanng a basc permt.
Ths mporter mantans but one pace of busness. Such pace of
busness s covered by an mporter s basc permt. Orders for m-
ported acohoc beverages are receved from dstrbutors throughout
the Unted States and accepted by the mporter at that pace of bus-
ness. Customs brokers at the varous ports of entry make customs
entres of merchandse and mmedatey thereafter transfer t, n bond,
to the vendees. Such transfers are made under the nstructon of the
mporter and n hs name. Customs dutes and nterna revenue ta es
are advanced by the vendees as transferees n bond.
It s hed that an mporter of acohoc beverages who mantans
no pace of busness other than that covered by hs permt and who
makes a saes at the pace of busness covered by hs permt woud not
be requred to obtan mporter s basc permts at the ports of entry
through whch acohoc beverages are entered nto the Unted States
even though devery s made drect to the vendees.
AA Reguatons No. 1, Secton 1: When requred.
Requrements as to whoesaer s basc permt by reason of the sae
of wne by a corporaton whch was produced at the wnery under a
former partnershp. See Rev. Ru. 5 -375, page 559.
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5 3, AAA. 56
AA Regs. 1. Art. II. 2.
AA Reocatons No. 1, Artce II, Secton 1: Rev. Iu. 5 -5
When requred. . ....
An mporter of acohoc beverages must obtan a separate Import-
er s Basc Permt coverng each ocaton at whch he ses dsted
sprts, wne, or mat beverages mported by hm, even though he docs
not mport such products at these ocatons. However, an mporter
hodng an Importer s Basc Permt coverng one address may se at
that address dsted sprts, wne, or mat beverages whch he m-
ported under an Importer s Basc Permt coverng another address
wthout obtanng a Whoesaer s Basc Permt
ev. Ru. 5 -370
A corporaton, hodng a whoesaer basc permt, may carry on
busness as a whoesaer under the name of a dvson of the corpora-
ton foowed by the corporate name even though the nnmo of tho
dvson Is not Incuded as a trade name on Its basc permt. If ony
tho name of a dvson of the corporaton Is used, such name must
be shown on the basc permt as a trade name.
Advce s requested whether a corporaton, hodng a whoesaer s
basc permt, may use tho name of a dvson of the corporaton n
con|uncton wth the corporato name wthout showng such dvson
name as a trade name on ts basc permt.
A corporaton hods a Whoesaer s Basc Permt, orm 1033. and
ses acohoc beverages under ts corporate name. It aso does bus-
ness under the name of one of ts dvsons n con|uncton wth ts
corporate name.
If a secondary name s used wthout the corporate name, such sec-
ondary name becomes a trade name and must be ncuded on the basc
permt As an ustraton, suppose the ohn Doe Dsteres Cor-
poraton has a dvson known as Robert Roe Company. If
busness were carred on under the name Robert Roe Company,
Dvson of the ohn Doe Dsteres Corporaton, the name Robert
Roe Company woud not be a trade name and woud not need to be
shown on the basc permt. However, f busness were carred on
under the name Robert Roe Company ony, such name woud have
to be shown on the basc permt as a trade name under whch opera-
tons of the permttee were carred on.
S CTION . P RMITS
AA Reguatons No. 1, Artce II, Secton 2: Rev. Ru. 5 - 52
Appcatons for permts.
An appcant for a basc permt under the edera Acoho Ad-
mnstraton Act who has hed nnny State censes may furnsh
a statement such as Hed State whoesaer s cense at ths oca-
ton for the years to , ncusve. Numbers unknown,
In eu of stng a of the sera numbers of such censes. An
npprnnt (or In the case of a corporate appcant, an offcer or
offcers of such corporatons) who has been an offcer, empoyee,
or reprccntnve of a corporaton or corporatons hodng many
permts mny merey Indcate hs connecton wth such corporaton or
corporatons together wth the perod he acted In such capacty.
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569 3, AAA.
AA Regs. 1, Art. II, 5 3.
Advce s requested whether an appcant for a whoesaer s basc
permt who has hed many State censes must st the sera numbers
of a such censes, and whether an appcant who has been an offcer,
empoyee, or representatve of a corporaton or corporatons must
show |n deta hs connecton therewth.
Artce. II, secton 2 of Reguatons No. 1 requres the fng of an
appcaton for, and securng, a whoesaer s basc permt n order to
carry on the busness of a whoesaer of dsted sprts, wne, or mat
bevcrnges. orm 1C32, Appcaton for Whoesaer s Basc Permt
under the edera Acoho Admnstraton Act, prescrbed pursuant
thereto, contans the foowng requrement (Item 2-A thereof) :
Stnte whether Appcant, any partner, or any offcer, drector, or hoder of 10
percent or more of the capta stock, and any benefca owner of such stock,
or Dr uvcr oC the appcant ever apped for, hed, or was connected wth a
rede n or Sntc permt or cense to manufacture, dstrbute, se, or use acoho
or products cotuu acoho, whether or not for beverage u e. or wns em-
poyed by, or In-t any nnrn Interest In any busness covered by any such
penut or cense If ho, furnsh tho number and cas tcaton of such permt,
the perod of operaton thereunder, and state whether such permt was ever
suspended, revoked, annued, or otherwse termnated, gvng detas.
A smar requrement appears n the appcaton forms prescrbed
for oer types of basc permts under ths act.
In nstances where an appcant for a basc pormt has hed many
State censes and t s dfcut or mpossbe for hm to st a of the
sera numbers of such censes, a statement such as Hed State whoe-
saer s cense at ths ocaton for the years to , ncusve.
Numbers unknown, w be consdered n compance wth Item 2-A
of the appcaton form. Aso, where an appcant (or n the case
of a corporate appcant, an offcer or offcers of such corporaton) has
been an offcer, empoyee, or representatve of a corporaton hodng
many permts, there woud be suffcent compance wth Item 2-A
of tho appcaton form f the appcant merey ndcates hs connec-
ton wth such corporaton and the partcuar busness n whch such
corporaton was engaged, together wth the perod he acted n such
capacty.
Ths rung s aso appcabe to appcants for other types of basc
permts under the edera Acoho Admnstraton Act.
AA Reguatons No. 1, Artce II, Secton 3: Rev. Ru, 51-2:
Issuance of basc permts.
An appcant who has been convcted of a voaton of the Sherman
Ant-Trust Act, 26 Stat. 200, a msdemeanor, s not barred by Sec-
ton (a)(2)(A) of the edera Acoho Admnstraton Act whch
prevents the ssuance of a permt to appcants convcted of a feony
wthn 5 years or of a edera msdemeanor reatng to quor wthn
3 years. Such a convcton may, of course, be consdered wth other
pertnent matera n determnng whether the appcant s, by reason
of hs busness e perence, fnanca standng ana trade connectons,
key to mantan operatons n conformty wth edera aw under
Secton (a) (2) (B) of the Act.
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5 , A A A. 570
AA Reg . 1, Art II, I 0.
. , . Rot. Ru. 5 - 2
orm 10 3, Appcaton for Amended Basc rermt Under tho
edera Acoho Aduotstrntton Act, a to be used to report changes
of ocaton of hoders of permts under the edera Acoho Admn-
straton Act. Where there Is a change In ocaton of the premses
of any cass of permttee and the new ocaton Is stuated In a dffer-
ent nterna revenue regon than that of the former ocaton, the
Assstant Regona Commssoner, Acoho and Tobacco Ta , of the
nterna revenue regon In whch the new premses are to be ocated
w Issue the amended permt.
Advce s requested whether a permttee makng a change of ocaton
from one State to another wthn the same nterna revenue regon
may appy for an amended permt on orm 16 3 and aso whether a
permttee makng a change of ocaton from one State n one nterna
revenue regon to a State n another nterna revenue regon may fe
an appcaton for an amended basc permt on orm 16 3.
orm 16 3, Appcaton for Amended Basc Permt Under the
edera Acoho Admnstraton Act, shoud be used to report changes
of ocaton of hoders of permts under the edera Acoho Admn-
straton Act. Where there s a change n ocaton of the premses of
any cass of permttee and the premses are to be re-ocated n another
nterna revenue regon, the Assstant Regona Commssoner, Acoho
and Tobacco Ta , of the nterna revenue regon n whch the premses
are to be ocated w ssue the amended permt. Before ssung such
permt, that Assstant Regona Commssoner w communcate wth
the Assstant Regona Commssoner of the nterna revenue regon
n whch the permttee was prevousy ocated and determne whether
proceedngs are pendng aganst the orgna basc permt and request
a nformaton whch woud have a bearng on the ssuance of the
amended permt. ,
Permttees makng nterstate changes of ocaton wthn the same
nterna revenue regon w aso fe an appcaton for an amended
basc permt on orm 16 3.
S CTION (g) .-P RMITS . . .
AA Reguatons No. 1, Artce II, Secton 6: Rot. Ru. 5 -527
Changes n ownershp, management, or contro
of busness.
The transfer of a controng stock Interest In a corporaton hod-
ng a basc permt under the edera Acoho Admnstraton Act
from an Indvdua to a corporaton, In whch that Indvdua hods
a ma|orty of the outstandng stock, may resut In the automatc
termnaton of such permt 30 days after such transfer. Aso, If a
ma|orty stockhoder of a corporaton oses hs ma|orty stock
Interest and a of the mnorty stockhoders thereby acqure ega
contro, the basc permt of the corporaton may automatcay
termnate at the e praton of 30 days thereafter.
Secton 0 of Reguatons No. 1 Is appcabe ony when the accu-
muatons of sma stock transfers resut In some new person hod-
ng 10 percent or more of the votng stock of the corporaton. ., A
Advce s requested whether a basc permt hed by a corporaton
woud automatcay be termnated 30 days after a change n owner-
shp of the controng shares from an ndvdua to a corporaton
even though the ndvdua hods a ma|orty of the outstandng stock
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571 (I 5, AAA.
( AA Regs. , 63.
, - r. .,.
n such corporaton. Advco Is aso requested whether the provsons
of Reguatons No. 1 wth respect to changes occurrng n persons
ownng or controng more than 10 percent of the votng stock of a
corporaton are appcabe to sma stock transfers, as from tme to tme
they tota 10 percent, or |ust to ndvdua transactons nvovng 10
percent or more of the votng stock.
Secton (g) of the edera Acoho Admnstraton Act provdes
as foows:
- A baste permt sha contnue In effect unt suspended, revoked, or annued
as provded heren, or vountary surrendered e cept that (1) If eased, sod
or otherwse vountary transferred, the permt sha be automatcay term-
nated thereupon, and (2) If transferred by operaton of av or f actua or ega
contro of the permttee Is acqured, drecty or Indrecty, whether by stock-
ownershp or n any other manner, by any person, then such permt sha be
automatcay termnated at the e praton of thrty days thereafter: Provded,
-That If wthn such thrty-day perod appcaton for a new basc permt Is made
by the transferee or permttee, resectvey, then the outstandng basc permt
sha contnue In effect unt such appcaton Is fnay acted on by the Admn-
strator (now Secretary of the Treasury). (Parenthetca data added.)
Artce II, Secton 6, of Reguatons No. 1 provdes n part that
f there s any change n the offcers, drectors, or persons ownng or
controng more than 10 percent of the votng stock of a corporaton,
notfcaton of such change must be made mmedatey.
The transfer of a controng stock nterest n a corporaton hodng
a basc permt under the edera Acoho Admnstraton Act from
an ndvdua to a corporaton, n whch the ndvdua hods a ma-
|orty of the outstandng stock, woud consttute a cbnge of ega
contro, wthn the meanng of secton (g) of the edera Acoho
Admnstraton Act resutng n the automatc termnaton of the
permt. Smary, f the ma|orty stockhoder of a corporaton oses
hs ma|orty stock nterest and a of the mnorty stockhoders thereby
acqura ega contro, the basc permt of the corporaton may auto-
matcay termnate.
Artce II, secton C of Reguatons No. 1 woud be appcabe when
accumuatons of sma stock transfers resut n some new person
hodng 10 percent or more of the votng stock of the corporaton, at
whch tme a report shoud be made.
S CTION 5. UN AIR COMP TITION AND UNLAW UL
PRACTIC S
AA Reguatons No. , Secton 62: Mandatory Rev. Ru. 5 -29
statements.
A promotona pan for the advertsng of wne nvovng the seec-
ton of a queen or a Mss Z through baotng by consumers, from
whch retaers and empoyees of retaers and whoesaers of acohoc
beverages are barred, s not prohbted by the edera Acoho Admn-
straton Act, provded the promotona advertsng matera contans
the mandatory nformaton requred by secton 62 of Reguatons No.
, stated n a conspcuous and ready egbe manner.
33310
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I 5(b), AAA.1 572
AA Regs. B, 6.23.
Rev.Ru. 5 -260
The sae to reta deaers n quors of a booket contanng a bank
teephone drectory and recpes, wth advertsements of dsters on
the back cover woud be unkey to resut n any voaton of the
edera Acoho Admnstraton Act, provded the company ds-
Sensng the booket does not act as an agent or representatve for any
ster whose advertsement appears on the back cover and retaers
are not pad or credted for any advertsng, dspay, or dstrbuton
wrvce. The dsters advertsements must compy wth the adver-
tsng provsons of Reguatons No. 5 ssued pursuant to the edera
Acoho Admnstraton Act.
S CTION 5(b). UN AIR COMP TITION AND UNLAW UL
PRACTIC S: TI D HOUS
AA Reguatons No. 6, Secton 6.23: Sgns. Rev. Ru. 5 -295
Whether a bboard or spectacuar sgn, advertsng acohoc
beverages, paced on the wa or roof of a budng occuped by a
reta quor deaer woud resut n Inducement and e cuson
prohbted by secton 6(b) of the edera Acoho Admnstraton
Act must be determned upon the facts In each partcuar case.
However, It s not key that such sgns woud resut n voatons
f the sgns are prmary vauabe to the advertser, If the sgns are
so ocated as not to drect attenton to the retaer s pace of bus-
ness If the sgns contan no prvege panes dentfyng such
retaer and f the retaer ocated n such budng receves no
compensaton or merchandse n connecton wth the pacement of
the sgn, ether drecty, or Indrecty through the sgn company,
from the advertser.
Advce s requested whether a voaton of secton 5(b) of the
edera Acoho Admnstraton Act coud resut by reason of the
pacng of a bboard or spectacuar sgn advertsng acohoc
beverages on the wa or roof of a budng occuped by a reta quor
deaer.
Secton 5(b) of the edera Acoho Admnstraton Act makes t
unawfu for any ndustry member to nduce| by furnshng, gvng,
rentng, endng, or seng any equpment, f tures, sgns, suppes,
money, servces, or other thng of vaue, any retaer to purchase any
products from such ndustry member to the e cuson n whoe or n
part of smar products sod or offered for sae by other ndustry
members n nterstate or foregn comerce, f such nducement s made
n the course of nterstate or foregn commerce, or f such ndustry
member engages n the practce of usng such means to such an e -
tent as substantay to restran or prevent transactons n nterstate
or foregn commerce n any such products, or f the drect effect of
such nducement s to prevent, deter, hnder, or restrct other ndustry
members from seng or offerng for sae any such products to such
retaers n nterstate or foregn commerce.
Secton 6.23 of Reguatons No. 6 provdes certan e ceptons n the
case of sgns, posters, pacards, etc., bearng advertsng matter for
use nsde a reta estabshment. No e ceptons are made n regard
to the furnshng of e teror sgns.
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573 A 5(b), AA A.
AA Regs. 6, 6.26.
. It cannot be determned n advance whether a bboard or spec-
tacuar sgn, advertsng acohoc beverages, on the wa or roof of
a budng occuped by a reta quor deaer w resut n the nduce-
ment and e cuson prohbted by secton 5(b) of the edera Acoho
Admnstraton Act However, t s unkey that such sgns woud
resut n a voaton where (1) the sgns are prmary vauabe to the
advertser, (2) the sgns are so ocated as not to drect attenton to
tho retaer s pace of busness, (3) the sgns contan no prvcgen
panes dentfyng such retaer und ( ) the retaer ocated n such
budng receves no compensaton or merchandse credt n connecton
wth tho pacement of the sgn, ether drecty, or ndrecty through
the sgn company, from the advertser.
AA Reguatons No. 6, Secton 6.23: Sgns. Rev. Ru. 5 -337
The e ceptons to secton 5(b) (3) of the edera Acoho Admn-
straton Act contaned n Reguatons No. 6 do not Incude outsde
sgns. Sgns panted on wndows of reta quor deaer estabsh-
ments are hed o be outdoor sgns. Accordngy, the furnshng
of such sgns U. retaers by producers, whoesaers, or mporters
of wne or dsted sprts woud consttute a voaton of the Act f
the requred eements of Inducement and e cuson are present
Advce s requested whether t s permssbe to furnsh outsde
sgns to reta quor deaers.
Secton 5(b) (.3) of the edera Acoho Admnstraton Act,
among other thngs, makes t unawfu for a producer, whoesaer,
or mporter of wne or dsted sprts, drecty or ndrecty, to nduce
a retaer to purchase hs products to the e cuson n whoe or n part
of wne or dsted sprts sod or offered for sae by other persons
n nterstate commerce, under the condtons outned theren, by fur-
nshng, gvng, rentng, endng, or seng sgns to such retaers,
sub|ect to such e ceptons as may by reguatons be prescrbed. A-
though secton 6.23 of Reguatons o. G prescrbes certan e ceptons
wth respect to nsde sgns, no e ceptons are provded to cover the
furnshng of outsde sgns to retaers.
It s hed that the furnshng of outsde sgns to reta quor dea-
ers, ncudng sgns panted on wndows of reta quor deaer estab-
shments, by a producer, whoesaer, or mporter of wne or dsted
sprts, woud consttute a voaton of secton 5(b) (3) of the Act f
the requred eements of nducement and e cuson are present
AA Reguatons No. 6, Secton 6.26: Adver- Rev. Ru. 5 -261
tsng servce.
Secton 5(b) (3) of tho edera Acoho Admnstraton Act, among
other thngs, makes t unawfu for a producer, mporter, or whoesaer
of dsted sprts or wne, drecty or ndrecty or through an affate,
to nduce a retaer to purchase hs products to the e cuson n whoe
or n part of smar products sod or offered for sae by other persons
n nterstate commerce, under the condtons set forth n that secton,
by furnshng to tho retaer servces or other thng of vaue, sub|ect to
such e ceptons as may by reguaton bo prescrbed. Secton 6.26 of
Reguatons No. 6 e cepts the stng, by an ndustry member n hs
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5(b), AA A.) 57
AA Regs. 6, 6.32.)
Bdvertsement, of the names and addresses of retaers seng hs prod-
ucts, f such stng s the ony reference to the retaer and s reatvey
nconspcuous n reaton to the advertsement as a whoe. Hed,
advertsements contanng audatory or conspcuous references to re-
ta estabshments or contanng ustratons of reta estabshments,
do not fa wthn the e ceptons to secton 5(b) (3) of the edera
Acoho Admnstraton Act, as set forth n Reguatons No. 6.
AA Reguatons No. 6, Secton 6.32: Insde T. D. 6005
sgns: wne and mat beverages.
(Aso Sectons 6.23a, 6.29.)
TITL 27 INT RNAL R NU . CHAPT R I, PART A . INDUC M NTS
URNISH D TO R TAIL RS
Amendments to the e ceptons wth respect to sgns and sampes.
Treasury Department,
Offce of Commssoner of Interna Revent|e,
Washngton A 5, D. 0.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned.
Notce of pubc hearng to be hed n Washngton, ). C., on October
1 ,1953, wtn respect to certan proposas to amend Reguatons No. 6,
Reatng to Inducements urnshed to Retaers, was pubshed n the
edera Regster on October 3,1953 (1 . R. 633 ). Upon the con-
cuson of the sad hearng and after consderaton of a reevant
matera submtted by nterested persons n connecton therewth re-
gardng the proposas, the foowng amendments to Reguatons No. 6
(27 C R pt 6) are hereby adopted:
Paragraph 1. Secton 6.23 s amended to read as foows:
Sec. 6.23. Insde Sons: Wne and Ma.t Beverages. Sgns, posters,
pacards, desgns, devces, decoratons or graphc dspays, bearng advertsng
matter and for use n the wndows or esewhere In the Interor of a reta estab-
shment, may be gven, rented, oaned, or sod to a retaer by an ndustry
member engaged n busness as a rectfer, bender, producer, botter, Importer
or whoesaer, of wne, or as a brewer, Importer or whoesaer, of mat beverages,
f they have no vaue to the retaer e cept as advertsements and If the tota
vaue of a such materas furnshed by any Industry member and In use at
any one tme In any reta estabshment does not e ceed 10, Incudng a
e penses Incurred drecty or ndrecty by any ndustry member In connecton
wth the purchase, manufacture, transportaton, assemby, and Instaaton of
such materas and of accessores thereto: Provded, That the Industry member
sha not drecty or Indrecty pay or credt the retaer for dspayng such
materas or for any e pense ncdenta to ther operaton.
Par. 2. By nsertng mmedatey foowng secton 6.23 the foow-
ng new secton:
Sec 6.23a. Insde Sgns: Dsted Sprts. Sgns, posters, pacards, de-
sgns, devces, decoratons or graphc dspays, bearng advertsng matter and
for nse n the wndows or esewhere n the Interor of a reta estabshment,
may be gven, rented, oaned, or sod to a retaer by an ndustry member
engaged In busness as a dster, rectfer, bender, producer. Importer, whoe-
saer, botter, or warehouseman and botter, of dsted sprts, (a) If they have
no vaue to the retaer e cept as advertsements, (b) If the tota vaue of a
such materas furnshed by any ndustry member and n use In any one reta
estabshment at any one tme does not e ceed 15 In the case of materas used
n wndow dspays, or does not e ceed 30 In the case of materas used esewhere
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575 5(b). AA L
than In the wndows, and (e) If the cost of Instaaton of snch materas does
not e ceed that whch Is usua and customary In that ocaty: Provded, That
the Industry member sha not drecty or ndrecty pay or credt the retaer
for dspayng such materas or for any e pense Incdenta to ther operaton.
Par. 3. Secton 6.29 s amended to read as foows:
Sec. C.29. Sam-bs. Not more than 2 gaons of any brand of mat beTerages,
not more than 1 pnt of any brand of dsted sprts, and not more than 1
gaon of any brand of wne, may be furnshed or gven as a sampe to a re-
taer who has not prevousy purchased that partcuar product: Provded, That
2 quarts of any brand of dsted sprts may be furnshed or gven as a sampe
to any agency of a State or potca subdvson thereof whch has not purchased
that partcuar product.
These amendments beraze the e ceptons presenty contaned n
the reguatons and sha become effectve on the date of pubcaton
n the edera Regster.
(Ths Treasury Decson s ssued pursuant to and under the author-
ty contaned n secton 5 of the edera Acoho Admnstraton Act
( 0 Stat 0 1), as amended (27 U. S. C. 205), and Secton 3170 of the
Interna Revenue Code (53 Stat 373)).
T. Coeman Andrews,
Commssoner of Interna Revenue.
Approved August 10,195 .
M. B. osom,
Actng Secretary of the Treasury.
(Pubshed In the edera Regster August 25,195 )
Rev. Ru. 5 -262
The furnshng or seng of musc bo movements, as premums, n
combnaton wth the sae of dsted sprts or wne to reta quor
deaers woud be sub|ect to secton 0(b) (3) of the edera Acoho
Admnstraton Act and woud not be ncuded wthn any of the
e ceptons to the Statute set forth In Reguatons No. 0.
Advce s requested whether wne may be mported n decanters
made especay to nsert a musca movement n the bottom of the
botte.
The sae to retaers of mported wne n decanters, the bottoms of
whch are desgned to hod musca movements, whch woud ether be
attached abroad or shpped separatey, mght resut n a voaton of
secton 5(b)(3) of the edera Acoho Admnstraton Act whch,
among other thngs, n effect makes t unawfu for an mporter of wne
to nduce purchases by retaers, to the e cuson n whoe or n part of
wne sod or offered for sae by others n nterstate or foregn com-
merce, under the condtons specfed theren, by furnshng, gvng or
seng to the retaer anythng of vaue, sub|ect to e ceptons pre-
scrbed by the reguatons. These e cfeptons are set forth n Regua-
tons o. 6 Inducements urnshed to Retaers (27 CRP pt. 6) but
do not cover decanters ftted for musca movements.
The musca movement serves no purpose n packagng the wne but
s apparenty desgned prmary to attract purchasers and to stmuate
saes. Therefore, f the furnshng of these musc bo decanters n-
duced retaers to purchase wne from ths mporter under the cond-
tons set forth n the statute to the e cuson n whoe or n part of wne
sod or offered for sae by others, a voaton of the Act woud ensue.
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5 5(b), AAA. 576
(Aso Secton (c).) Rev. Bu. 6 -2 6
Secton 5(b) (3) of the edera Acoho Admnstraton Act, among
other thngs, makes t unawfu for a producer, mporter, or whoe-
saer of dsted sprts or wne, drecty or ndrecty, or through
an affate, to nduce a retaer to purchase dsted sprts or wne
to the e cuson or parta e cuson of dsted sprts or wne
sod or offered for sae by other persons n nterstate commerce, under
the condtons specfed n that secton, by gvng such retaer money
or other thngs of vaue. Secton 5 (c) (2) of the Act makes unawfu
the smar nducement of a trade buyer (whoesaer or retaer) by
offerng or gvng any bonus, premum, or compensaton to any offcer,
or empoyee, or representatve of such trade buyer.
It s hed that the furnshng of gfts by a producer, mporter, or
whoesaer of dsted sprts or wnes to a retaer or to an empoyee
of a whoesaer or retaer n order to reward hm for dong a good
merchandsng |ob n hs communty woud fa wthn the coverage
of secton 5(b) (3) or 5(c) (2) of the edera Acoho Admnstraton
Act, as the case may be.
Rev. Ru. 5 -303
The rae of a speca ne of quors by a rectfer, through whoe-
saers, to retaers seected and franchsed by a credt cearng
bouse, whch guarantees the payment of consumer accounts, woud
resut In a voaton of secton 5(b)(3) of the edera Acoho
Admnstraton Act If the requred eements of Inducement and
e cuson are present
Advce s requested whether a partcuar ne of quors may be
sod to retaers n connecton wth a credt system whereby credt
cards are ssued to the retaer s customers by a credt cearng house
whch guarantees the payment of ther accounts.
A credt cearng house proposes that a ne of quors be deveoped
under a speca abe whch woud be sod through whoesaers n the
varous parts of the Unted States to retaers seected by the credt
cearng house. Retaers woud be franchsed by the organzaton
whch woud ssue credt cards to consumers permttng them to pur-
chase from these retaers on credt and guaranteeng payment of ther
accounts. The customers woud be bed by the organzaton, who
n turn woud pay the retaers after the deducton of a servce fee.
Under the proposed pan, customers woud have the prvege of pur-
chasng from the retaer any other brands of quor n addton to the
speca brand of the organzaton. The credt cearng house woud
aso receve a percentage of the gross proft that the producer or rec-
tfer woud make on the speca brand n addton to the servce charge.
Secton 5(b) (3) of the edera Acoho Admnstraton Act, among
other thngs, makes t unawfu for a produce mporter, or whoe-
saer of dsted sprts or wne, drecty or ndrecty or through an
affate, to nduce a retaer to purchase hs products to the e cuson
n whoe or n part of smar products offered for sae by other persons
n nterstate commerce, under the condtons set forth theren, by
furnshng to the retaer servces or other thngs of vaue, sub|ect
to such e ceptons as may by reguatons be prescrbed.
Reguatons No. 6 ssued pursuant to ths secton of the edera
Acoho Admnstraton Act does not contan any e cepton whch
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577 5(b), AAA.
woud cover the type of servce heren descrbed. Accordngy, f the
requred eements of nducement and e cuson are present, the
furnshng of the servce woud consttute a voaton of the edera
Acoho Admnstraton Act.
Rev. Ru. 5 -355
The payment of dues by whoesaers to an assocaton composed
of both whoesaers and retaers for the purpose of mertng and
mantanng favorabe pubc support for the ndustry woud be
unkey to resut n the nducement and e cuson prohbted by
secton 5(b) of the edera Acoho Admnstraton Act f dues n
nn appro matey equa amount are contrbuted by the reta mem-
bers, as a group, as are contrbuted by the whoesae members, as
a group. In other words, t s not key that a voaton woud resut
from such an assocaton f appro matey 50 percent of the ncome
receved n the form of dues s contrbuted by retaers. However,
t cannot be concusvey determned n advance whether voatons
of the act woud ensue as the resut of payment of dues by whoe-
saers to a whoesaer-retaer assocaton snce t cannot be known
what resuts w fow from the payments by whoesaers.
Rev. Ru. 5 -377
A promotona pan whereby a producer, whoesaer, or Importer
of dsted sprts or wnes offers a retaer a reasonabe dscount, as
for e ampe, 1.00 a case, whch w n turn be passed on to the
consumer under a pan In whch 3 bottes In each case w bear some
speca markng and the purchaser of each of the marked bottes
w be gven a dscount of one-thrd of the tota dscount on the case
( .50 In the e atnpe cted), woud not consttute a voaton of any
provsons of the edera Acoho Admnstraton Act
A promotona pan whereby a producer, whoesaer, or Importer
of dsted sprts or wnes dstrbutes coupons to consumers, such
coupons, upon surrender by the consumer-purchaser, beng worth a
certan amount towards the purchase prce of a partcuar brand of
dsted sprts or wne, and the producer, Importer or whoesaer
In turn remburses the retaer for the vaue of the conpon pns an
addtona twenty percent of the vaue thereof, woud be wthn the
coverage of secton 5(b) (3) and secton 5(b) ( ) of the Act.
Advce s requested whether certan proposed promotona programs
sponsored by a producer, whoesaer, or mporter of dsted sprts
or wnes, e paned n deta heren, woud come wthn the coverage
of the edera Acoho Admnstraton Act.
Secton 5(b)(3)and secton 5(b)( ) of the edera Acoho Ad-
mnstraton Act make t unawfu for a producer, whoesaer, or m-
porter of dsted sprts or wne, drecty or ndrecty or through
en affate, to nduce a retaer to purchase hs goods to the e cuson
n whoe or n part of smar products sod or offered for sae by
other persons n nterstate commerce, under the condtons outned
n the Act, by furnshng a servce or thng of vaue to the retaer or
by payng or credtng the retaer for a dstrbuton servce.
A whoesaer desres to offer to reta customers an opportunty to
buy a certan bund of whsky at a dscount of 1.50 per case, such
dscount to be gven at the tme of purchase and not after the mer-
chandse s sod. ach case of such whsky woud contan 3 bottes
bearng speca markngs. These 3 bottes woud be sod to the con-
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I 6(b), AAA.) 57
Burner at a reducton n prce of ffty cents each. In order that a
retaers woud be sod on the same bass, the whoesaer woud grant
the 1.50 dscount on a saes of the brand of whsky nvoved, . e.,
to bars as we as to package stores.
A promotona program of ths type merey nvoves a dscount or
reducton n prce whch s not wthn the coverage of the edera
Acoho Admnstraton Act. Accordngy, no voatons of the Act
woud ensue as a resut of such promotona program by a producer,
whoesaer, or mporter. ( or further rung on prce dscounts, see
Rev. Ru. 5 -161, C. B. 195 -1,33 .)
The whoesaer asc desres to conduct a promotona pan whereby
coupons woud be prepared and dstrbuted by the whoesaer s pubc
reatons or deta man, or by hs saesmen, drect to consumers ony,
who, n turn, may use them as part of the purchase prce of a partcu-
ar brand of dsted sprts when makng such purchase from a re-
taer. The whoesaer woud, n turn, remburse the retaer for the
coupon pus an addtona amount for hs troube, for e ampe, the
coupon woud represent 25 cents, and the retaer woud be aowed 30
cents. If the retaer so desred, he coud appy ths amount on hs
nest purchase from the whoesaer, or he coud be rembursed by the
whoesaer n cash.
It s hed that ths proposed promotona pan woud nvove the
furnshng of a servce or a thng of vaue to the retaer, and
payng or credtng the retaer for a dstrbuton servce, wthn the
meanng of sectons 5(b)(3) and 5(b) ( ) of the Act
Rev. Ru. 5 -390
In te case of transactons In mat beverages between a retaer
or trade bayer n a State and a brewer. Importer, or whoesaer In
the same State, the Interna Revenue Servce w pace no greater
restrctons on such transactons than woud be paced on them under
the provsons of secton 5(b) of the edera Acoho Admnstraton
Act n the case of smar transactons between n retaer or trade
buyer In a Stae and a brewer, Importer, or whoesaer of mot bever-
ages outsde such State.
Advce s requested whether, n the case of ntrastate transactons
n mat beverages, the Interna Revenue Servce consders that secton
6(b) of the edera Acoho Admnstraton Act has been voated
where a brewer or whoesaer furnshes so-caed pour neon sgn
dspays to varous reta outets, contrbutes towards the cost of
advertsng on behaf of a retaer, or contrbutes a payment of dues to
a retaer domnated assocaton.
Under the provsons of secton 5(b) of the edera Acoho Ad-
mnstraton Act, t s unawfu for any person engaged n busness
as a brewer, mporter, or whoesaer of mat beverages to nduce any
retaer engngod n the sae of mat beverages to purchase any such,
product from such person to the e cuson n whoo or n part of mat
beverages sod or offered for sae by other persons n nterstate or for-
egn commerce, among other thngs, by furnshng, gvng, rentng,
endng, or seng to the retaer any equpment, f tures, sgns, sup-
pes, money, servce, or other thng of vuue, or by payng or credtng
the retaer for any advertsng, dspay, or dstrbuton servce.
The Interna Revenue Servce has consstenty hed that contrbu-
tons of the nature here nvoved by brewers or whoesaers to retaers,
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579 fCb). AAA.
to retaer domnated assocatons, or otherwse for the beneft of re-
taers,, woud propery fa wthn the provsons of secton 5(b) of
the edera Acoho Admnstraton Act However, n the case of
mat beverages, secton 5 of the act provdes that subsecton (b) ap-
pes to transactons between a retaer or trade buyer n any State
and a brewer, mporter, or whoesaer of mat beverages outsde such
State ony to the e tent that the aw of such State mposes smar
requrements wth respect to smar transactons between a retaer
or trade buyer n such State and a brewer, mporter, or whoesaer of
mat beverages n such State. Whe ths provson has not been con-
strued as mtng the |ursdcton of the Revenue Servce wth respect
to ntrastate transactons, as a matter of pocy, no greater restrcton
w be paced by tho Revenue Servce on ntrastate transactons than
are enforceabe wth respect to nterstate transactons.
If the aws of a State do not contan provsons wth respect to
transactons n mat beverages between a retaer or trade buyer n the
State and a brewer, mporter, or whoesaer n the same State smar
to the requrements of secton 5(b) of the edera Acoho Admn-
straton Act, the Interna Revenue Servce woud not therefore nter-
vene n the case of ntrastate transactons n mat beverages where
a brewer or whoesaer furnshes thngs of vaue to retaers.
(Aso Secton 5(c).) Rev. Rn. 5 -391
Sectons 0(b)(3) and 0(b)( ) of the edera Acoho Admn-
straton Act appy to Inducements resutng from payments made
by producers. Importers, or whoesaers of acohoc beverages to
groups or assocatons of retaers for advertsng servces, or for
servces or other thngs of vaue furnshed to groups or assoca-
tons, whch fow to the Indvdua reta members thereof. Sm-
ary, secton 0(c)(2) of the act s appcabe to Inducements
resutng from payments or gratutes tendered to groups or asso-
catons of trade-buyer empoyees, such as bartenders unons, etc.
Accordngy, f the ndvdua retaers are Induced to purchase prod-
ucts of the producers, mporters, or whoesaers, drecty or Ind-
recty, to the e cuson of smar products sod or offered for sae
by others In nterstate or foregn commerce, voatons of the act
w ensue.
Advce s requested whether voatons of the edera Acoho Ad-
mnstraton Act woud ensue as a resut of contrbutons made by
producers, mporters, or whoesaers for advertsements n pubca-
tons controed or sponsored by groups or assocatons of retaers,
or as a resut of payments or gratutes tendered to groups or asso-
catons of trade-buyer empoyees.
Secton 5(b) ( ) of the act makes t unawfu, under (he |ursdc-
tona mtatons set forth, for any producer, mporter, or whoesaer
of acohoc beverages, drecty or ndrecty, to nduce any retaer to
purchase hs products wth a resutng compete or parta e cuson
of products sod by others, by payng or credtng a retaer for any
advertsng, dspay or dstrbuton servce. Secton 5(b) (3) paces
smar restrctons upon the gvng or furnshng of servces or other
thngs of vaue to the retaer.
It w be noted that the act appes not ony to the furnshng of
such nducements drecty to the ndvdua retaer, but aso to any
ndrect furnshng thereof. Therefore, n vew of the fact that the
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I (b), AAA. 5 0
benefts resutng from the payment to groups or assocatons of re-
taers fow to the ndvdua members thereof, t s hed that these
provsons of the aw appy equay to transactons nvovng ndvd-
ua retaers and to these practces when engaged n wth groups or
assocatons of retaers when the advertsng payments made or the
gratutes gven resut n nducng the ndvdua members of the
group or assocaton to make purchases whch resut n the e cuson
of competng products.
Whe the Interna Revenue Servce s not n a poston to state
that these resuts w fow from such payments or gfts n a nstances,
t shoud be ponted out that one of the necessary eements of a aw
voaton, the actua makng of the payment or gvng of the thng
of vaue, s present n a stch cases. If the prohbted resuts foow
these acts, voatons of the aw w obvousy occur f they do not,
no voatons w be nvoved.
The same prncpes are appcabe, under secton 5(c)(2) of the
act, to smar payments or gratutes tendered to groups or assoca-
tons of trade-buyer empoyees, such as bartenders unons, etc. Sec-
ton 5(c) (2) of the act makes t unawfu, under the same condtons,
for any producer, mporter, or whoesaer of acohoc beverages to n-
duce any trade buyer to purchase hs products to the compete or
parta e cuson of other compettve products by offerng or gvng
any bonus, premum, or compensaton to any offcer, empoyee or repre-
sentatve of the trade buyer. Ths provson of the aw appes to such
payments, whether gven to ndvdua empoyees of trade buyers or
to groups or assocatons of such empoyees, f the prohbted resuts
foow these acts.
Rev. Ru. 5 -620
Inducement and e cuson are not key to resut from the ds-
trbuton to prospectve consumer purchasers of a booket adverts-
ng acohoc beverages and contanng space wheren the consumer
. Is requested to Insert the name and address of the package store
from whch he wshes to purchase the advertsed product.
Advce has been requested whether He dstrbuton by a dster
to prospectve consumer purchasers of a booket advertsng aco-
hoc beverages and contanng space for the nserton of a reta
deaer chosen by the consumer woud resut n a voaton of the
edera Acoho Admnstraton Act.
Secton 5(b) of the edera Acoho Admnstraton Act provdes
n part that t sha be unawfu for a producer, mporter, or whoe-
saer, drecty or ndrecty, to nduce a retaer to purchase hs prod-
ucts to the e cuson n whoe or n part of smar products sod or
offered for sae by other persons n nterstate commerce, by f urnsng
to the retaer any servce or other thng of vaue.
A dster wshes to dstrbute to the pubc an advertsng booket
contanng a bank space to be competed and returned to the com-
pany f the recpent desres to purchase the product advertsed. The
prospectve purchaser s requested to f n the name and address of
the retaer from whom he desres to purchase such product. The
dster w then pass the nformaton on to the retaer specfed.
The dstrbuton to prospectve consumer purchasers of such a book-
et woud consttute the furnshng of a servce or other thng of vaue
to the retaer, wthn the meanng of secton 5(b) (3) of the edera
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6 1 H 5(b), AAA.
Acoho Admnstraton Act However, t s hed that nducement
and e cuson are not key to resut therefrom nasmuch as the
retaer to whom the servce or other thng of Youe s furnshed w
be seected by the prospectve customer.
Rev. u 5 -621
A promoton pan whereby a retaer socts varous dsters and
other suppers of dsted sprts or wne to share the cost of, or to pay
for advertsements n, a brochure whch he ntends to dstrbute to
potenta customers woud nvove the furnshng of a servce or other
thng of vaue to the retaer, wthn the meanng of Secton 5(b) (3)
of the edera Acoho Admnstraton Act Accordngy, f the pay-
ments made by the dsters or other suppers of dsted sprts or
wne, toward the cost of the brochure, nduce the retaer to purchase
merchandse from such ndustry members to the e cuson n whoe or
n part of smar merchandse sod or offered for sae by other persons
n nterstate commerce voatons of the Act woud ensue. Compare
ths Revenue Rung wth Revenue Rung 5 -260, page 572, ths Bu-
etn, dstngushed on the bass of dfferent facts.
Rev. Ru. 5 -622
A contract between a whoesaer and a credt corporaton, whch Invove
. . merey a royaty arrangement for the use of a brand name of the credt
corporaton by the whoesaer woud not resut n a voaton of secton
0(b) of the edera Acoho Admnstraton Act provded the whoesaer
has no other connecton wth the credt corporaton.
Advce s requested whether an arrangement between a credt cor-
poraton and a whoesaer under the crcumstances stated beow woud
resut n a voaton of the edera Acoho Admnstraton Act
A whoesaer (hereafter referred to as Company A) has entered
nto a contract wth a credt corporaton (hereafter referred to as
Company B) whch ssues to consumers credt cards honored by ts
franchsed retaers, assumng responsbty for the e tenson of
credt to the card hoders. The foowng terms were agreed upon
under the contract:
Company B grants to Company A the e cusve cense n the
Unted States to use ts brand name on acohoc beverages and
Company A pays to Company B a royaty for the use of sad name
Company B has no contro of management, or responsbty of
any knd or nature n connecton wth the operaton of the busness
of Company A, Company A has no contro over nor nterest n
the credt servce of Company B.
Company A as the compete rght to seect the acohoc bever-
ages to be sod under the prand name, to estabsh the prce for
same, and to seect the customers to whom t w se
Company A w attempt to make avaabe to retaers fran-
chsed by Company B the oeyerages bearng the brand name, but
such retaers are not requred to hande acohoc beverages
bearng the sad brand name.
The contract entered nto by the two companes merey grants the
whoesaer (Company A) the e cusve cense n the Untea States to
the uso of Company B s brand name on abes for acohoc beverages,
n return for whch Company A w pay Company B a royaty.
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|5(e). AAA. . 5 2
AA Rcga. . A 21. C. 7. : :
On the bass of the above arrangements and condtons, t s hed
that ths contract nvoves merey a royaty arrangement for the use
of a brand name and therefore woud not resut n a voaton of
secton 6(b) of the edera Acoho Admnstraton Act. Compare
ths Revenue Rung wth Revenue Rung 5 -303, page 576, ths Bue-
tn, dstngushed on the bass of dfferent facts.
S CTION 5 (c). UN AIR COMP TITION AND UNLAW UL
PRACTIC S: COMM RCIAL BRIB RY
urnshng of gfts to a retaer or to an empoyee of a whoesaer
or retaer. See Rev. Ru. 5 -2 6, page 576.
Appcaton of secton 5 (c) (2) of the edera Acoho Admnstra-
ton Act n the case of groups or assocatons of retaers. See Rev.
Ru. 5 -391, page 579.
S CTION 5 (d). UN AIR COMP TITION AND UNLAW UL
PRACTIC S: CONSIGNM NT SAL S
Rev. RuL 5 -279
A monopoy State whch dscontnues the sae of a partcuar brand
of whsky may return the e stng nventores of such merchandse to
the company from whch purchased for cash or credt aganst an e st-
ng ndebtedness. Such transacton woud not nvove a voaton of
secton 5 (d) of the edera Acoho Admnstraton Act f n no man-
ner condtoned upon future purchases from such company and f no
drect or mped prvege of return was reserved when the goods were
orgnay sod.
Return or e change of dsted sprts or wne by a retaer to the
whoesaer from whch purchased. See Rev. Ru. 5 -509, page 561.
S CTION 5(e). UN AIR COMP TITION AND UNLAW UL
PRACTIC S: LAB LING
AA R GULATIONS No. , S CTION 21: The standards
of dentty.
Manufacture of champagne by dumpng contents of bottes nto a
buk tank under ntrogen pressure where the fnshng dosage w
be added. See Rev. Ru. 5 - 95, page 522.
AA R GULATIONS No. , S CTION 21, CLASS 7: Rev. Ru. 5 - 1
The standards of dentty: Apertf wne.
Secton 21, cass 7, of Reguatons No. defnes apertf wne as
wne havng an acohoc content of not ess than 15 percent by vo-
ume, compounded from grape wne contanng added brandy or acor
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,6 3 5(e). AAA.
( AA Regs. , 23.
hoL favored wth herbs and other natura aromatc favorng mate-
ras, . Hed: dred cherres and crushed peach pts do not
come wthn the cassfcaton of herbs or other natura aromatc
favorng materas and may not be used n the manufacture of apertf
wne,
|
AA Reguatons No. , Secton 23: Grape Rev. Ro. 5 -33
typo desgnatons.
Secton 23 of Reguatons No. provdes n part that a name ndca-
. tve of a varety o grape may be empoyed as the type desgnaton of
a grape wne f the wne derves ts predomnant taste, aroma, and
characterstcs, and at east 51 percent of ts voume, from that varety
of grape. Ths secton further provdes that f such type desgnaton
s not known to the consumer, there sha appear n drect con|uncton
therewth an e panatory statement as to the sgnfcance thereof.
In vew of ths provson, t s hed that a grape wne whch derves
ts predomnant taste, aroma, and characterstcs, and at east 51 per-
cent of ts voume from the ndcated grape varety, may be descrbed
on the abe by the use of a phrase such as Made from (varety desg-
natons as for e ampe, Grenache ) Grapes or Made from seected
(varety desgnaton) Grapes regardess of whether the wne bears
the vareta name as ts type desgnaton.
AA Reguatons No. , Secton 23: Grape Rev. Ru. 5 - 2
type desgnaton.
(Aso Secton 3 .)
A wtoe bend consstng of wne made from Back Muscat Grapes,
Port, and Whte Port, but dervng SI percent of ts voume from the
Bnck Muscat grapes, and red n coor, may be abeed as Red Mus-
cate wne.
Advce s requested whether a bended wne dervng more than
51 percent of ts voume from Back Muscat Grape Wne, and the
baance from equa parts of Port and Whte Port Wne, may be abeed
as Red Muscate wne.
Secton 23 of Reguatons No. requres that n order for a grape
wne to bear a vareta desgnaton t must derve ts predomnant
taste, aroma, and characterstcs, and at east 51 percent of ts vo-
ume, from thnt vnrety of grape.
In vew of the fact that tfe desgnaton Muscate ndcates a
Muscat grape source, n order that wne may be abeed os Muscate
t must derve at east 51 percent of ts voume from Muscat grapes.
Snce, ether there s no varety of grapes known as Red Muscat,
or f such varety does e st| t s not grown n such a quantty as to
be used to any great e tent n the producton of wne, so ong as the
bendng of the Back Muscat wth Port and Whte Port produces a
red-coored wne, 51 percent or more of the voume of whch s de-
rved from the Muscat varety grape, such wne may propery be
abeed as Red Muscate.
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I (e), AAA.) 5
AA Regs. , .
AA Reguatons No. , Secton 23: Grape type Rev. Ru. 5 -511
desgnatons.
(Aso Secton 2 .)
The desgnaton Tokay quafed by an approprate appeaton
of orgn may be propery used on the foowng types of wne pro-
duced n the Unted States:
On a dessert wne whch possesses the taste, aroma, and other
characterstcs generay attrbuted to ths product.
. On a wne dervng ts predomnant taste, aroma, and charac-
terstcs, and at east 51 percent of ts voume, from Tokay grapes.
On a ght wne possessng the taste, aroma, and other charac-
terstcs generay attrbuted to Tokay wne made n Hungary.
AA Reguatons No. , Secton 23: Grape type Rev. Ru. 5 -52
desgnaton.
(Aso Secton 3 .)
The scuppcrnone grape s a whte varety of the muscadne and,
therefore, wne maao from such grapes may be desgnated as Scup-
fcrnong Wne, Muscadne Wne, or Whte Muscadne Wne.
Iowever, snce a muscadne grapes, whch ncude both red and
whte varetes, are not cassfed as scuppernongs, a wne made from
muscadne grapes may not be desgnated as Red Scuppernong Wne.
AA Reguatons No. , Secton 2 : Generc,
semgenerc, and nongenerc desgnatons
of geographc sgnfcance.
Types of wne whch may be desgnated as Tokay. See Rev. RuL
6 -511, above.
AA Reguatons No. , Secton 3 : Cass
and type.
Labeng of a wne bend consstng of Back Muscat Wne, Port,
and Whte Port. See Rev. Ru. 5 - 2 , page 5 3.
AA Reguatons No. , Secton 3 : Cass and
type.
Sods content of vermouth and apertf wnes. See Rev. RuL 5 -
526, page 77.
AA Reguatons No. , Secton 3 : Cass and
type.
Labeng of wne made from Scuppernong grapes. See Rev. Ru.
5 -52 , above.
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6 5 (I 5(e). AAA.
1 : AARega.5. 21.
AA Reguatons No. , Secton 35: Name and Rev. BuL 5 -263
address.
A hoder of a Wne Bender s Basc Permt, orm 1636, who bends
vermouth not of hs own producton on hs bonded storeroom premses
may abe such vermouth Prepared and Botted By or Bended and
Botted By under the provsons of secton 35 (a) (2) of Reguatons
No. .
AA Reguatons No. , Secton 50: Rev. Ru. 5 -392
Certfcates of abe approva.
(Aso AA Reguatons No. 5, Secton
50 AA Reguatons No. 7, Secton
1.)
Botters of dsted sprts wnes, and mat beverages are au-
thorzed to use strp abes, not covered by certfcates of abe
approva, Identfyng tbe whoesae or reta dstrbutor of such
products botted by them.
Advce s requested whether a wne botter may pace on packaged
or botted wne a abe dentfyng the whoesae or reta dstrbutor,
even though such abeng s not covered by the botter s Certfcate
of Labe Approva, orm 16 9.
In order to obvate the necessty of resubmttng appcatons on
orm 16 7, Appcaton for Certfcate of Labe Approva under
the edera Acoho Admnstraton Act, to ncude strp abes
dentfyng a whoesae or reta dstrbutor n those cases wnere the
botter has been requested to attach such abes, the Interna Revenue
Servce authorzes botters to use strp abes, athough not covered
by certfcates of abe approva, merey dentfyng the whoesae or
reta dstrbutor of the dsted sprts, wnes, or mat beverages,
as the case may be, botted by them and contanng no reference to
the characterstcs of the product. Such procedure w emnate the
deay n shpment resutng from the necessty of securng a new
certfcate of abe approva for each name used.
AA Reguatons No. 5, Secton 21: The Rev. Ru. 5 -30
standards of dentty.
(Aso secton 35.)
Hgh proof mported cordas, whch after mportaton are reduced
n proof, rectfed wth the addton of suffcent sugar to compensate
for ther duton, and botted, may be desgnated as mported cor-
das. In addton to showng that the cordas are mported, abes
and advertsng used n connecton wth such products must ceary
show that they were prepared and botted n ths country.
AA Reguatons No. 5, Secton 21: The Rev. Ru. 5 - 19
standards of dentty.
Aso Secton 35.)
The amount of wne used n Rye Lqueur and Bourbon Lqueur,
the standards of dentty for whch are prescrbed n secton 21, cass
Ths Revenue Bang was superseded b|- Rev. Ru. 53-103. I. R. B. 1055-12. 23.
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1 5(e). AAA. 5 6
AA Regs. 5, 21, CI. 1.)
6(e), of Reguatons No. 5, and n Rock and Rye, the standard
o dentty for whch s prescrbed n secton 21, cass 6(f), of Regua-
tons No. 5, must be wthn the 2 per cent mtaton provded n sec-
ton 22 or such reguatons for harmess coorng, bendng, and
favorng ngredents.
AA Reguatons No. 5, Secton 21: The stand- Rev. Ru. 5 - 39
ards of dentty.
Neutra frut resdue brandy may be used n the producton of frut
favored brandes. Such neutra resdue brandy s hed to be n the
same category as other neutra brandes nsofar as ts use n the
manufacture of favored brandes s concerned. The abes coverng
favored brandes so made need not ndcate that neutra frut resdue
brandy has been used f no reference s made on the abes, other than
n the desgnaton, to the dsted sprts used. The fnshed products
shoud be desgnated merey as Brandy preceded by the knd of
frut favor empoyed (. e., Cherry avored Brandy, Backberry
avored Brandy, etc).
AA Reguatons No. 6, Secton 21: The stand-
ards of dentty.
Use of portons of frut n eu of the whoe frut n the producton
of brandy. See Rev. Ru. 5 -351, page 62.
AA Reguatons No. 5, Secton 21:
The standards of dentty.
Labeng of gran neutra sprts. See Rev. Ru 5 -3 , page 69.
AA Reguatons No. 5, Secton 21: The stand-
ards of dentty.
Labeng of dsted sprts produced outsde of the State of en-
tucky but redsted theren. See Rev. Ru. 5 - 16, page 70.
AA Reguatons No. 5, Secton 21: The stand-
ards of dentty.
Recassfcaton of vodka as Neutra Sprts Gran pror to ta -
payment and wthdrawa from an nterna revenue bonded ware-
house. See Rev. RuL 5 - 93, page 72.
AA Reguatons No. 5, Secton 21, Cass 1: Rev. Ru. 5 -32
The standards of dentty: Neutra sprts
or acoho.
(Aso Secton 22.) .
A product cassed as favored vodka n accordance wth the stand-
ards of dentty contaned n secton 21, Cass 1(a) of Reguatons No.
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6 7 If S(e . AAA.
AA Regs. 5. 22.
5, may not contan sugar n e cess of 2 percent. If the sugar con-
tent s n e cess of the 2 2 percent mtaton, the product must be
desgnated as a queur. In such case, there woud be no ob|ecton to
the use of a subordnate statement on the abe ndcatng that the ds-
ted sprts used n the queur are vodka.
AA muatons No. 5, Secton 21, Rev. RuL 5 -523
Cass 3: Gns.
(Aso Secton 22.)
avored gn bascay must be composed of compound or dsted
gn, n accordance wth the standards of dentty for gn as provded
n secton 21, cass 3 of Reguatons No. 5. Wne may be used ony
wthn the two and one-haf percent mtaton aowed n secton 22
of Reguatons No. 5 for harmess coorng, favorng, and bendng
materas.
AA Reguatons No. 5, Secton 21, Cam :
The standards of dentty: Brandes.
Desgnaton of a product made from the resdue of frut as resdue
brandy, or Sprts rut See Rev. RuL 5 -590, page 6 .
AA Reguatons No. 5, Secton 21, Cass 6:
The standards of dentty: Cordas and
queurs. | -
Use of whsky dsted from a rye mash and packaged n paraffn
ned cooperage n the manufacture of Rock and Rye. See Rev. RuL
5 -561, page 6 .
AA Reguatons No. 5, Secton 22: Ateraton
of cass and type: Harmess coorng, favor-
ng, and bendng materas.
Labeng of products made wth vodka and sweetened n e cess of
the 2y2 per cent mtaton. See Rev. Ru. 5 -32 , page 5 6.
AA Reguatons No. 5, Secton 22: Ateraton
of cass and type: harmess coorng, favor-
ng, and bendng materas.
Addton of coorng, favorng, or bendng matera to bends of
straght whskes. See Rev. Ru. 5 -350, page 5 .
AA Reguatons No. 5, Secton 22: Ateraton
of cass and type Harmess coorng, favor-
ng, and bendng materas.
Use of wne n Rye Lqueur, Bourbon Lqueur, and Rock and
Rye. See Rev. RuL 5 - 19, page 5 5.
333e# 53 3S
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I (e), AAA.1 5
AA Regs. 5, 5
AA Reguatons No. 5, Secton 22: Ateraton
of cass and type: Harmess coorng, fa- .
vorng, and bendng materas. :
Use of wne n the manufacture of gn. See Rev. Ru. 5 -529,
page 5 7.
AA Reguatons No. 5, Secton 30: Genera. Rev. Ru. 5 -2 1
Ta pad dsted sprts, n bottes wth back abes attached, may,
under the foowng condtons, be shpped to a whoesae quor
deaer who w pace brand abes of hs own seecton on the bottes:
1. The back abes must bear a of the mandatory nformaton
requred by Reguatons No. 5, ncudng the statement of net con-
tents uness such statement s bown n both the front and back of
the bottes. The back abes must ncude a Government abe
prepared n accordance wth Append C of Reguatons No. 5.
2. The botter must obtan certfcates of abe approva cover-
ng the back abes and any assocated neck, spot, or strp abes to
be aff ed by hm to the package.
. The brand abe aff ed by the whoesaer, ether aone or n
combnaton wth other front abes aff ed to the botte, must bear
a of the mandatory nformaton requred by the reguatons to
appear on the front of the contaner.
. The whoesaer must obtan certfcates of abe approva
coverng the compete sets of abes, ncudng the brand abe,
back abe, and any other spot, neck, or strp abes whch w be
used on the fnshed package.
5. Before each reabeng, the whoesaer must obtan perms-
son therefor from the approprate Assstant Regona Comms-
soner, Acoho and Tobacco Ta .
AA Reguatons No. 5, Secton 3 : Cass and
type.
Manufacture of Dry Martn Cocktas. See Rev. Ru. 5 -25 ,
page 61.
AA Reguatons No. 5, Secton 3 : Cass and
type.
Desgnaton as ggnog and Wne ggnog. See Rev. RuL
5 -37 , page 57.
AA Reguatons No. 5, Secton 35: Name and Rev. Ru. 6 -592
address.
Ta pad dsted sprts may be reabeed by a botter (wthout re-
bottng) n order to repace abes bearng one trade name wth new
abes bearng another name whch s an authorzed trade name of the
botter. The address requred to appear foowng the name of the
botter s the address of the pace where botted (or addresses of the
paces where botted f the same brand of merchadse s botted by the
same company at more than one address) and not the address of the
pace where the merchandse s reabeed.
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6 9 r f 5(e), A A A.
AA Regs. 7. A .
AA Reguatons No. 5, Secton 35: Name
and address.
Informaton on abe of mported cordas reduced n proof after
recept n the Unted States. See Rev. RuL 6 -30 , page 5 5.
AA Reguatons No. 5, Secton 35: Name and
address.
Labeng of dsted sprts produced outsde of the State of en-
tucky but redsted theren. See Rev. Ru. 5 - 16, page 70.
AA Reguatons No. 5, Secton 1: Prohbted Rev. Ru. 5 -3 0
practces.
The Interna Revenue Servce faas approved a stamp bearng tbe
sogan rght Communsm and a sketch of the Statue ot Lberty to
be a cd to bottes of dsted sprts by reta quor deaers.
Advce s requested whether reta quor deaers may aff to bottes
of dsted sprts sod by them coored stamps bearng the sogan
ght Communsm and pctures of the Statue of Lberty and of the
Amercan fag wth ts staff transf ng a beedng serpent.
Secton 1(b) of Reguatons No. 5 provdes n part that no abe
sha be of such desgn as to resembe or smuate a Government stamp.
Secton 1 (e) thereof provdes n part that abes sha not contan any
desgn or pctora representaton reatve to the Amercan fag, or
any embem, sea, nsgna or decoraton assocated wth such fag.
In vew of these provsons of the reguatons, t s hed that the
pcture of the Amercan fag must be deeted from the stamp f t s
to be aff ed to contaners of dsted sprts. Upon deeton thereof,
the use of the stamp s approved.
AA Reguatons No. 5, Secton 50:
Certfcates of abe approva.
Use of abes by botters dentfyng whoesae or reta dstrbutors,
not covered by abes approvas certfcates. See Rev. Ru. 5 -392,
page 5 5.
AA Reguatons No. 7, Secton 29: Prohbted
practces.
References to starch content on beer and ae abes. See Rev. RuL
5 -513, page 593.
AA Reguatons No. 7, Secton 1:
Certfcates of abe approva.
Use of abes by botters dentfvng whoesae or reta dstrbu-
tors, not covered by abe approva certfcates. See Rev. RuL 5 -
392, page 5 5.
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5 0,. AAA. (590
AA Regs. 6, A 3.
MI.:/ : ,. ST.. r. . ., . ... AA u-
Certfcate of approva coverng abes for acohoc beverages, 1m-
M : r. ported In bottes, are Issued ony to Importers In ths country. Such
certfcates, or photostatc copes thereof, may be transferred be- , :
tween Importers n ths country. Proposed abes may, however, be
submtted by anyone for Informa comment.
Advce s requested as to whom certfcates of approva coverng
abes for mported acohoc beverages may be ssued, and whether
such certfcates are vad ony when used by the mporter to whom
ssued. If such certfcates of abe approva may be ssued to m-
porters n ths countr| ony, further advce s requested whether pro-
vsona approva or nforma comment may be had n order that any
nterested mporter mght obtan fna approva wth the east possbe
amount of formates. . .
Certfcates of approva coverng abes for acohoc beverages, m-
ported n bottes, are ssued ony to mporters n ths country. Such
certfcateS| or photostatc copes thereof, may be transferred between
mporters n ths country wthout the necessty of obtanng new ap-
prova certfcates.
Any person, n ths country or abroad, may submt proposed
abes for nforma comment. In such case, a etter shoud be ad-
dressed to the Drector, Acoho and Tobacco Ta Dvson, Interna
evenue Servce, Washngton 25, D. C., and shoud be accompaned
by dupcate copes of the proposed abes. Pursuant thereto, such
persons w be advsed whether the abes conform to the appcabe
abeng reguatons and, f not, what changes w be necessary n
order to brng them nto conformty wth such reguatons.
S CTION 5(f). UN AIR COMP TITION AND UNLAW UL
PRACTIC S: AD RTISING
AA R GULATIONS No. 5, S CTION 62: Mandatory Rev. Ru. 5 -325
statement
Advertsements whch refer to a genera ne of dsted sprts or
a of the products of one company are requred to contan ony the
name and address of the responsbe advertser but where ony one
type of dsted sprts Is marketed under a specfc brand name, a
the mandatory Informaton requred by secton 62 of Reguatons No.
6 must be shown. Where ustratons, symbos, trademarks,
sogans, etc., whch are assocated wth a gven product, are used to
advertse that product, such use consttutes advertsng of that
product and a the mandatory Informaton must be shown for such
product and must appear In the advertsng In such manner as to
be both conspcuous and ready egbe from the norma readng
T dstance.
Advce s requested as to the mandatory nformaton requred to be
ncuded n advertsements reatng to dsted sprts where the ad-
vertsement refers to a genera ne of sprts where ony one type of
dsted sprts s marketed under the specfc brand name advertsed
and where ustratons, symbos, etc., whch are assocated wth a
gven product, are used as a part of the advertsement of that product
Secton G2 of Reguatons No. 5 requres n part that advertsements
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591 B (0. AAA.
AA Regs. 5, (
of dsted sprts ncude the name and address of the responsbe
advertser, the cass and type of the sprts and the acohoc content, As
we as the percentage of neutra sprts, and name of commodty from
.whch dsted, ana other nformaton for certan types of sprts.
It s hed that where advertsements merey refer to a genera ne of
dsted sprts or a of the products of one company, whether re-
ferred to by company name or by the brand name common to a the
dsted sprts n the ne, the ony mandatory nformaton necessar|
s the name and address of the responsbe advertser. However, n
cases where ony one type of dsted sprts s marketed under the
specfc brand name advertsed, a the mandatory nformaton re-
qured by secton 62 of Reguatons No. 5 must be shown.
Where ustratons, symbos, trademarks, sogans, etc., whch are
commony asocated wth a gven product are used to advertse that
product by a permttee, such use consttutes advertsng of thst
product wthn the ntent of Reguatons No. 5 accordngy, a of the
mandatory nformaton requred by secton 62 must be shown for such
roduct and must appear n the advertsement n such a manner as to
e both conspcuous and ready egbe from the norma readng
dstance.
AA Recuutons No. 5, Secton 6 : Prohbted Rev. Rn. 5 -326
statements.
Secton 5(f) of the edera Acoho Admnstraton Act authorzes
the ssuance of reguatons, among other thngs, to prevent consumer
decepton and to prohbt, rrespectve of fasty, such statements per-
tanng to age, manufacturng processes, anayses, guarantees, and
scentfc or rreevant matters as are key to msead, as we as state-
ments that are fase or mseadng.
Secton 6 (a) of Reguatons No. 5 prohbts the appearance n
dsted sprts advertsng of any statement that s fase or mseadng
n any matera partcuar. Secton 6 (d) prohbts any representa-
ton as to curntve or therapeutc effect that s fase or tends to create a
mseadng mpresson. Iustratons n advertsng portrayng
athetc actvtes n connecton wth the advertsed product, such as an
ustraton of a handba payer drnkng or preparng to drnk the
advertsed product, are mseadng n that they convey the erroneous
mpresson that the use of the product s conducve to the deveopment
of athetc sk or physca prowess and the advertsement, therefore,
voates the reguatons.
Secton 6 (c) provdes n part that f an advertsement of dsted
sprts contnns any statement or representaton concernng age or
maturty t sha ncude a parts of the statement, f any, concernng
nge and percentages requred to be made on the abe of the advertsed
product.
In vew of ths provson, t s hed that a bended whsky advertse-
ment whch contans the statement Compare the Age must be revsed
ether by emnatng ths reference or by addng to t the age state-
meat requred to appear on the abe of the product.
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5(0. AAA. 592
AA Regs. 7, 5 .
AA Reguatons No. 7, Secton 52: Mandatory Rev. Bu. 51-577
statements.
Where the aws of a State do not contan provsons smar to those
contaned n the edera Acoho Admnstraton Act wth respect to
the advertsng of mat beverages, no greater restrctons w be
paced on oca brewers advertsng on outdoor sgns wthn such a
State than woud be paced on smar advertsng n such a State by
brewers ocated outsde thereof.
AA Reguatons No. 7, Secton 5 : Prohbted Rev. Ru. 5 -3 1
statements.
Secton 5 (a) ( ) of Reguatons No. 7 prohbts, wthn the |urs-
dctona mts of Secton 5 of the edera Acoho Admnstraton
Act as apped to mat beverages, the use of any statement, desgn,
devce, or representaton of or reatng to anayses, standards, or tests,
rrespectve of fasty, whch are key to msead the consumer, n the
advertsng of mat beverages.
Advertsements of mat beverages referrng to the resuts of com-
paratve taste tests are key to msead the consumer snce taste
s a matter of ndvdua preference and the resuts of the tests
are necessary based. Therefore, references to or ustratons of
comparatve taste tests are prohbted by secton 5 (a) ( ) of
Reguatons No. 7.
AA Reguatons No. 7, Secton 5 : Prohbted Rev. Ru. 5 -512
statements.
Any reference to vtamn content In the advertsng of mat bever-
ages Is precuded by secton 5(f) of the edera Acoho Admnstra-
ton Act and secton 5 of Reguatons No. 7.
Advce s requested whether beer advertsements may ncude
references to vtamn content.
Secton 5 of Reguatons No. 7 provdes n part that mat bever-
age advertsements sha not contan any statement that s fase or
mseadng n any matera partcuar and sha not contan any state-
ment, desgn, or devce representng that the uso of any mat beverage
has curatve or therapeutc effects f such statement s untrue n any
partcuar or tends to create a mseadng mpresson.
There has been a tendency n recent years, n the abeng and ad-
vertsng of food products, to stress the vtamn content In connec-
ton wth the abeng and advertsng of vtamns as such, and of food
and medcna preparatons contanng vtamns, emphass s ad
upon the heath-gvng, curatve or therapeutc propertes of the
product due to ts vtamn content. Therefore, t s beeved that
any reference to vtamn content n the advertsng of mat beverages
woud msead a substanta number of persons to beeve that the con-
sumpton of the product woud produce curatve or therapeutc effects.
Accordngy, t s hed that a references to vtamn content n the
advertsng of mat beverages are precuded.
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593 5(0, AAA.
AA Regs. 7. A 5 .
AA Reguatons No. 7, Secton 5 : Prohbted Rev. Ru. 5 -513
statements.
(Aso Secton 5(e), Secton 29.)
Sectons 29 and 5 of Reguatons No. 7 reatng to abeng and
advertsng of mat beverages ssued pursuant to subsectons (e) and
(f) of secton 5 of the edera Acoho Admnstraton Act prohbt,
wthn the |ursdctona mts prescrbed n the statute, the appear-
ance of certan types of statements and ustratons n the abeng
and advertsng of mat beverages. The Interna Revenue Servce
has rued that the foowng cases, among others, are covered by these
provsons.
References to ow starch content of a partcuar beer are hed to be
precuded by these reguatons n vew of the fact that starch s not
present n beer.
References to the ustratons of promnent athetes consumng or
preparng to consume the advertsed mat beverage are consdered
key to msead the pubc and therefore are sub|ect to the above
provsons of reguatons.
References key to be consdered as ndcatve of acohoc content
such as the phraso Is t stronger are precuded by secton 29(f)
e cept on abes where requred to appear by State aw and secton
5 (c) of these reguatons whch, n enect, prohbt a references to
acohoc content.
The use of references whch are key to create the mpresson that
the consumpton of a mat beverage woud be conducve to heath or
to physca we-beng, such as the words bracng, nvgoratng,
and pckup, or the phrases cears your throat, rea es you,
are hed to be precuded by sectons 29(a), 29(e), 5 (a) and 5 (e)
from appearng on abes or n advertsements, respectvey.
It w be noted that the ne t to the ast paragraph of secton 5 of
the edera Acoho Admnstraton Act provdes, n effect, that wth
respect to mat beverages, the abeng and advertsng provsons sha
appy to the abeng or advertsng of mat beverages for ntroducton
nto a State ony to the e tent that the State aw mposes smar re-
qurements wth respect to the abeng or advertsng of mat bever-
ages not so ntroduced
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. I .11
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PART I
L GISLATION AND TR ATI S
SUBPART A- L GISLATION
PUBLIC LAW 52, IGHTY-THIRD CONGR SS
CHAPT R 2 , S COND S SSION
II. . 7700
AD Act To contnue unt the C O C of une 30,1055, the suspenson
of certan Import ta es on copper.
Be t enacted by the Senate, and House of Representatves of ht
Unted Statet of Amercan n Conyrest assembed, That the Act en-
tted An Act to suspend certan mport ta es On copper , approved
May 22, 1051 (Pubc Law 3 , 2d Cong.) C. B. 1051-1, 1 A
amended, s hereby further amended by strkng out une 30, -
and nsertng n eu thereof une 30,1955 .
Approved une 30, 105 .
PUBLIC LAW 617, IGHTY-THIRD CONGR SS
CHAPT R 55 , S COND S SSION
S. 337
An Act To revse the Organc Act of the rgn Isands of the
Unted States.
Be t enacted by the Senate and House of Representatves of th
Unted Sates of Amerca n Congress assembed. That ths Act ma|
be cted as the Revsed Organc Act of the rgn Isands.
S C. 2. (a) The provsons of ths Act, and the name rpn
Isands as used n ths Act, sha appy to and ncude the terrtora
doman, sands, cays, and waters acqured by the Unted States
through cesson of the Dansh West Indan Isands by the conventon
between the Unted States of Amerca and Hs Ma|esty the ng of
Denmark entered nto August , 101C, and ratfed by the Senate on
September 7, 1016 (39 Stat. 170G). The rgn Isands as above
descrbed are hereby decared an unncorporated terrtory of the
Unted States of Amerca.

S C. 2 . (a) The proceeds of customs dutes, the proceeds of the
Unted States ncome ta , the proceeds of any tares eved by the
Congress on the nhabtants of the rgn Isands, and the proceeds
of n quarantne, passport, mmgraton, and naturazaton fees
(505)
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596
coected n the rgn Isands, ess the cost of coectng a of sad
dutes, ta es, and fees, sha be covered nto the treasury of the
rgn Isands, and sha be avaabe for e pendture as the Legs-
ature of the rgn Isands may provde: Provded, That the term
nhabtants of the rgn Isands as used n ths secton sha n-
cude a persons whose permanent resdence s n the rgn Isands,
and such persons sha satsfy ther ncome ta obgatons under ap-
pcabe ta ng statutes of the Unted States by payng ther ta
on ncome derved from a sources both wthn and outsde the rgn
Isands nto the treasury of the rgn Isands: Provded further,
That nothng n ths Act sha be construed to appy to any ta spec-
fed n secton 3 11 of the Interna Revenue Code.
(b) Subchapter B of chapter 2 of the Interna Revenue Code
s amended by addng to secton 3350 thereof the foowng subsecton:
(c) Dsposton of Istebna-Revenue Coectons. Begnnng wth the fsca
year endng une 30,105 , and annuay thereafter, the Secretary of the Treas-
ury sha determne the amount of a ta es Imposed by, and coected durng
the fsca year under, the Interna revenue aws of the Unted States on artces
produced n the rgn Isands and transported to the Unted States. The
amount so determned ess 1 per centum and ess the estmated amount of re-
funds or credts sha be sub|ect to dsposton as foows:
(I) There sha be transferred and pad over to the government of the
rgn Isands from the amounts so determned a sum equa to the tota
amount of the revenue coected by the government of the rgn Isands
durng the fsca year, as certfed by the Government Comptroer of the
rgn Isands. The moneys so transferred and pad over sha consttute
a separate fund n the treasury of the rgn Isands and mny be e pended
as the egsature mny determne: Provded, That the approva of the
Presdent or bs desgnated representatve sha be obtaned before such
moneys may be obgated or e pended.
(II) There shn aso be transferred and pad over to the government of the
rgn Isands durng each of the fsca years endng une 30, 1055, and
une 30, 1050, the sum of 1,000,000, or the baance of the Interna revenue
coectons avaabe under ths subsecton (c) after payments are made
under the precedng paragraph (), whchever amount s greater. The
moneys so transferred and pad over sha be deposted n the separate
fund estabshed by the precedng paragraph (1), but sha be obgated
or e pended for emergency purposes and essenta pubc pro|ects ony,
wth the pror approva of the Presdent or hs desgnated representatve.
(HI) Aqy amounts remanng sha be deposted n the Treasury of the
Unted States as msceaneous recepts.
If at the end of any fsca year the tota of the edera contrbuton made
tnder (I) above at the begnnng of that fsca year has not been obgated or
e pended for an approved purpose, the baance sha contnue avaabe for
e pendture durng any succeedng fsca year, but ony for approved emer-
gency reef purposes and essenta pubc pro|ects as provded n (11) above.
The aggregate amount of moneys avaabe for e pendture for emergency reef
purposes and essenta pubc pro|ects ony, ncudng payments under (II)
above, sha not e ceed the sum of 5,000,000 nt the end of any fsca year. Any
unobgated or une pended baance of the edera contrbuton remanng at
the end of a fsca year whch woud cause the moneys avaabe for emergency
reef purposes and essenta pubc pro|ects ony to e ceed the sum of 5,000,000
sha thereupon be transferred and pad over to the Treasury of the Unted
States as msceaneous recepts.

(d) There sha be eved, coected, and pad upon a artces com-
ng nto the Unted States or ts possessons from the rgn Isands
the rates of duty whch are requred to be eved, coected, and pad
upon ke artces mported from foregn countres, and the nterna
revenue ta es mposed by secton 3350 of tte 26, Unted States Code
secton 3350 of the Interna Revenue Code : Provded, That a artA
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,597
ces, the growth or product of, or manufactured n, such sands, from
mnterns grown or produced n such sands or n the Unted States,
or both, or whch do not contan foregn materas to the vaue of
more than CO per centum of ther tota vaue, upon whch no draw-
back of customs dutes hns been aowed theren, comng nto the
Unted States from such sands sha be admtted free of duty. In
determnng whether such a rgn Isands artce contans foregn
matera to the vaue of more than 60 per centum, no matera sha be
consdered foregn whch, at the tme the rgn Isands artce s
entered, or wthdrawn from warehouse, for consumpton, may be
mported nto the contnenta Unted States free of duty generay.

Approved uy 22,195 .
PUBLIC LAW 53 , IGHTY-THIRD CONGR SS
CHAPT R 5 3, S COND S SSION
H. R. 1067
An Act To authorze tbe Supreme Court of the Unted States
to nnke and pubsh rues tor procedure on revew ot decsons of
The Ta Court ot tbe Unted States.
Be t enacted by the Senate and House of Representatves of the
Unted States of Amerca n Congress assembed, That chapter 131
of tte 2 of the Unted States Code be amended by addng at the
end thereof a new secton, as foows:
6 207 . Rues for revew of decsons of The Ta Court of the Unted States.
The Supreme Court sha have the power to prescrbe, nod from tme to
tme amend, unform rues for tbe fng of pettons or notces of appea, the
preparaton of records, and tbe practce, forms, and procedure In the severa
Unted States Courts of Appeas In proceedngs for revew of decsons ot The
Ta Court of the Unted States.
Such rues sha nether abrdge, enarge, nor modfy the substantve rghts
of any tgant.
Such rues shn not take effect unt they sha hnve been reported to Con-
ress by tbe Chef ustce at or after the begnnng of a reguar sesson thereof
but not ater than the frst day of May, and unt tbe e praton of nnety days
after they have been thus reported.
Sec. 2. The chapter anayss of chapter 131 of tte 2 of the Unted
States Code mmedatey precedng secton 2071 s amended by addng
at the end thereof the foowng:
207 . Rues for revew of decsons of The Ta Court of tbe Unted States.
Approved uy 27,195 .
PUBLIC LAW 559, IGHTY-THIRD CONGR SS
CHAPT R 6 , S COND S SSION
S. 252
An Act To permt a cv actons aganst the Unted States for
recovery of ta es erroneousy or egay assessed or coected to
be brought In the dstrct courts wth rght of tra by ury.
Be t enacted by the Senate and House of Representatves of the
Unted States of Amerca n Congress assembed, That paragraph (1)
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.59
of secton 13 6(a) of tte 2 of the Unted States Code s amended
. to read as foows: . .- In-.. :, r -|.A n-.-
(1) Any cv acton aganst the Unted States for the recovery of any
.: Interna-revenue ta aeged to have been erroneousy or. Iegay assessed
or coected, or any penaty camed to have been coected wthout authorty
, or any sum aeged to have been e cessve or In any manner wrongfuy
. coected under the Interna-revenue aws
, , Sec. 2. (a) Secton 2 02 of tte 2 of the Unted States Code 3
amended to read as foows: :-r
9 2 02. ury tra n actons aganst Unted States.
Any acton aganst the Unted States under secton 13 9 sha be tred by
the court wthout a ury, e cept that any acton aganst the Unted States
under secton 13 6(a)(1) sha, at the request of ether party to such acton,
be tred by the court wth a ury. . -
(b) The second tem n the anayss of chapter 161 of tte 2 of
the Unted States Code s amended to read as foows:
2 02. ury tra In actons aganst Unted States. ,
Approved uy 30,195 .
PUBLIC LAW 567, IGHTY-THIRD CONGR SS
CHAPT R 657, S COND S SSION
H. R. 5173
A
An Act To provde that the e cess of coectons from the edera
unempoyment ta over empoyment securty admnstratve e -
penses sha be used to estabsh and mantan a 200,000,000 reserve .
. , n the edera unempoyment account whch w be avaabe for
advances to the States, to provde that the remander of such e cess
- sha be returned to the States, and for other purposes.
Be t enacted by the Senate and Home of Representatves of ke
Unted States of Amerca n Congress assembed, That ths Act may
be cted as the mpoyment Securty Admnstratve nancng Act
of 195 .
.
Sec. . Secton 1601 (o) of the Interna Revenue Code ( edera Unempoyment
Ta Act) s hereby amended to read as foows:
(c) Lmt on Tota Cbedts.
(1) The tota credts aowed to a ta payer under ths secton sha
not e ceed 90 per centum of the ta aganst whch such credts are aowabe.
(2) If an advance or advances have been made to the unempoyment ac-
count of a State under tte II of the Soca Securty Act, and f any
baance of such advance or advances has not been returned to the edera
unempoyment account as provded n that tte before December 1 of the
ta abe year, then the tota credts (after other reductons under ths
secton) otherwse aowabe under ths secton for such ta abe year n
the case of a ta payer sub|ect to the unempoyment compensaton aw of
such State sha be reduced
(A) n the case of a ta abe year begnnng wth the fourth consecu-
tve anuary 1 on whch such a baance of unrcturncd advances e sted,
by S per centum of the ta Imposed by secton 100O wth respect to
the wages pad by such ta payer durng such ta abe year whch are
attrbutabe to such State and
(B) In the case of any succeedng ta abe year begnnng wth a
consecutve anuary 1 on whch such a baance of unreturned advances
e sted, by an addtona S per centum, for each such succeedng ta abe
year, of the ta Imposed by secton 1000 wth respect to the wages pad
. _ by such ta payer durng such ta abe year whch are attrbutabe to
such State.
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599
or the purposes of ths rornprnph, WA RA sha be attrbutabe to a par-
tcuar State If they are sub|ect to the unempoyment compensaton aw of
the State, or (If not sub|ect to the unempoyment compensaton taw of any
State) If they are determned (under rues or reguatons prescrbed by the
Secretary) to be attrbutabe to such State.

Sec. 5.(a)(2) Secton 1003(a)( ) of the Interna Revenue Code Is hereby
amended by strkng out the semcoon and nsertng n eu thereof a coon and
the foowng: Provded further. That the amounts specfed by secton 903(c)
(2) of the Soca Securty Act may, sub|ect to the condtons prescrbed In such
secton, be used for e penses ncurred by the State for admnstraton of ts
unempoyment compensaton aw and pubc empoyment offces .
(3) Secton 1007(f) of the Interna Revenue Code s hereby amended by
Strkng out the perod at the end thereof and Insertng n eu thereof a coon
and the foowng: Provded further. That the amounts specfed by secton
903 (c) (2) of the Soca Securty Act may, sub|ect to the condtons prescrbed
In such secton, be used for e penses Incurred by the State for admnstraton of
Its unempoyment compensaton aw and pubc empoyment offces. .

Approved August 5,105 .
PUBLIC LAW 67 , IGHTY-THIRD CONGR SS
CHA f R 1016, S COND S SSION
H. R. 155
An Act To contnue unt the cose of une 30,1055, the suspenson
of dutes and Import ta es on meta scrap, and for other purposes.
Be t enacted by the Senate and House of Representatve of the
Unted States of Amerca n Congress assembed, That the frst sen-
tence of secton 2 of the Act of September 30,1950 (Pubc Law 69,
ghty-frst Congress) C. B. 1950-2, 253 , s hereby amended by
strkng out une 30, 195 and nsertng n eu thereof une 30,
1955 : Provded, That ths Act sha not appy to ead scrap or znc
scrap (other than znc scrap purchased under a wrtten contract en-
tered nto before uy 1,195 ).
Sec. 2. The amendment made by the frst secton of ths Act sha
not be construed to affect n any way the appcaton of Pubc Law 3 ,
ghty-second Congress C. B. 1951-1 1 , to copper scrap.
Approved August 27,195 .
PUBLIC LAW 729, IGHTY-THIRD CONGR SS
CHA r R 11 7, S COND S SSION .
S. 3 7
An Act To amend the Interna Revenue Code to permt the fng
of ora prescrptons for certan drugs, and for other purposes.
Be t enacted by the Senate and House of Representatves of the
Unted States of Amerca n Congress assembed, That secton 255
(1) of the Interna Revenue Codo of 1939 s amended to read as
ows:
(1) Use or Dares m moncssowAr. practce. To the dspensng or dstr-
buton of narcotc drugs to a patent by a physcan, dentst, veternary
surccon, or other practtoner, regstered under secton 3221, n the course
of hs professona practce ony: Provded, That such physcan, dentst,
veternary surgeon, or oer practtoner, sha keep a record of a such drugs
a
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600
. dspensed or dstrbuted,- showng the amount dspensed or dstrbuted, the
date, and the name and address of the patent to whom such drugs are
dspensed or dstrbuted, e cept such as may be dspensed or dstrbuted
to a patent upon whom such physcan, dentst, veternary surgeon, or other
practtoner, sha personay attend and such record sha be kept for a
perod of two years from the date of dspensng or dstrbutng such drugs,
sub|ect to nspecton, as provded In secton 2550.
Sec. 2. Secton 255 (c)(2) of the Interna Revenue Code of 1939
s amended to read as foows:
(2) Pbescbpton. To the sae, dspensng, or dstrbuton of narotc
drugs by a deaer to a consumer under and In pursuance of a wrtten pre-
scrpton ssued by a physcan, dentst, veternary surgeon, or other prac-
ttoner, regstered under secton 3221: Provded, hotccver. That (1) such
prescrpton sha be dated as of the day on whch sgned and sha be sgned
by the physcan, dentst, veternary surgeon, or other practtoner, who sha
have Issued the same (2) that such deaer shn preserve such prescrpton
for a perod of two years from the day on whch such prescrpton Is fed
n such a way as to be ready accessbe to Inspecton by the offcers, agents,
empoyees, and offcas mentoned In secton 2550.
In eu of a wrtten prescrpton for such narcotc drugs or compounds
of a narcotc drug whch the Secretary, n hs dscreton (after consderng
any vews e pressed on the sub|ect by the Surgeon Genera, Unted States
Pubc Heath Servce the Commssoner, Unted States ood and Drug
Admnstraton, the respectve heads of State narcotc aw enforcement
agences, and the respectve secretares of natona assocatons representng
(a) narcotc drug manufacturers, (b) physcans, and (c) pharmacsts),
sha fnd and by reguaton desgnate to possess reatvey tte or no addc-
ton abty, the sae, dspensng, or dstrbuton may be made by a deaer
to a consumer upon ora prescrpton of a duy regstered physcan, dentst,
veternary surgeon, or other practtoner, whch ora prescrpton Is reduced
prompty to wrtng, and the wrtng fed and preserved by the deaer for
a perod of two years from the date on whch such prescrpton Is fed In
such a way as to be ready accessbe to Inspecton by the offcers, agents,
empoyees, and offcas mentoned In secton 2550. In ssung an ora pre-
scrpton, the prescrber sha furnsh the deaer wth the same Informaton
as s requred by aw or reguaton In case of a wrtten prescrpton for
narcotc drugs or compounds of a narcotc drug e cept for the wrtten sgna-
ture of the prescrber, and the deaer who fs such prescrpton sha be
- requred to Inscrbe such Informaton on the wrtten record of the prescrp-
ton made, fed and preserved by hm, and sha Inscrbe on the abe of the
contaner of the narcotc drug or compound of a narcotc drug the same
Informaton as Is requred n fng a wrtten prescrpton. An ora pre-
scrpton sha not be refed.
If the Secretary sha subsequenty determne that a narcotc drug or
a compound of a narcotc drug, to whch the ora prescrpton procedure
descrbed n the precedng paragraph has been made appcabe, possesses
a degree of drug addcton abty that, n hs opnon, resuts n abusve
use of such procedure, he sha by reguaton pubsh the determnaton
n the edera Regster. The determnaton sha be fna, and after the
e praton of a perod of s months from the date of Its pubcaton, the
ora prescrpton procedure descrbed In the precedng paragraph sha cease
to appy to the partcuar narcotc drug or to the partcuar compound of a
narcotc drug whch Is the sub|ect of the determnaton.
Sec. 3. Secton 2553(b) (1) of the Interna Revenue Code of 1939 s
amended to read as foows:
(1) Prescrptons. To any person havng n hs or her possesson any
narcotc drugs or compounds of narcotc drug whch have been obtaned
from a regstered deaer In pursuance of a wrtten, or ora prescrpton
referred to In secton 255 (c)(2), Issued for egtmate medca uses by a
physcan, dentst, veternary surgeon, or other practtoner regstered under
secton 3221 and where the botte or other contaner In whch such nar-
cotc drug or compound of a narcotc drug may be put up by the deaer
upon sad prescrpton bears the name and regstry number of the druggst,
and name and address of the patent, sera number of prescrpton, and

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601
same, address, and regstry number of the person Issung sad prescrpton
or.
Sec. . Secton 2556(a) of the Interna Revenue Code of 1939 s
amended by pacng a comma after the word prescrptons n the
frst sentence thereof and nterpoatng mmedatey foowng sad
comma, the phrase ncudng the wrtten record of ora prescrp-
tons, .
Sec. 5. Secton 322 (b) (5) of the Interna Revenue Code of 1939
s amended to read as foows:
(5) to any person carryng any narcotc drug or compound of a narcotc
drug whch has been obtaned by the person from a regstered deaer In
pursuance of a wrtten or oru prescrpton referred to In secton 2o3 (c) (2),
Issued for egtmate medca uses by a physcan, dentst, veternary surgeon,
or other practtoner, regstered under secton 3221, If the botte or other
contaner In whch such drug or compound of a narcotc drug Is carred
bears the name and regstry number of the druggst, sera number of
prescrpton, name and address of the patent, and name, address, and
regstry number of the person Issung such prescrpton.
Sec. 6. Secton 705(cW) of the Interna Revenue Code of 193
s amended to read as foows:
(1) Use or nncos |t fbofessona practce. To the dspensng or ds-
trbuton of narcotc drugs to a patent by a physcan, dentst, veternary
surgeon, or other practtoner regstered under secton 722, In the course
cf hs professona practce ony: Provded. That such physcan, dentst,
veternary surgeon, or other practtoner sha keep a record of a such
drugs dspensed or dstrbuted, showng the amount dspensed or dstrbuted,
the date, and the nnme and address of the patent to whom such drugs are
dspensed or dstrbuted, e cept such as may be dspensed or dstrbuted
to a pntent upon whom such physcan, dentst, veternary surgeon, or other
prnrttoner sha personay attend and such record sha be kept for a
perod of two years from the date of dspensng or dstrbutng such drugs,
sub|ect to Inspecton, as provded n secton 773.
Sec. 7. Secton 705 (c) (2) of the Interna Revenue Code of 195 s
amended to read as foows.
(2) Pnr.scsrmoss. (A) To the sae, dspensng, or dstrbuton of nar-
cotc drugs by a deaer to a consumer nnder and n pursuance of a wrtten
prescrpton Issued by a physcan, dentst, veternary surgeon, or other
practtoner regstered under secton 722: Provded, ho ecver. That (1) such
prescrpton sha be dated as of the day on whch sgned and sha be
sgned by the physcan, dentst, veternary surgeon, or other practtoner
who shn have ssued the same (11) that such deaer sha preserve such
prescrpton for a perod of two years from the day on whch such prescrp-
ton s ted In such a way as to be ready accessbe to nspecton by the
offcers, agents, empoyees, and offcas mentoned n secton 773.
(B) In eu of a wrtten prescrpton for such narcotc drugs or com-
pounds of a narcotc drug whch the Secretary or hs deegate. In bs ds-
creton (after consderng any vews e pressed on the sub|ect by the Sur-
geon Genera, Unted States Pubc Heath Servce the Commssoner,
Unted States ood and Drug Admnstraton the respectve heads of State
narcotc aw enforcement agences and the respectve secretares of natona
assocatons representng (1) narcotc drug manufacturers, (11) physcans,
and () pharmacsts), sha fnd and by reguaton desgnate to possess
reatvey tte or no addcton abty, the sae, dspensng, or dstrbuton
may be made by a deaer to a consumer upon ora prescrpton of a duy
regstered physcan, dentst, veternary surgeon, or other practtoner, whch
ora prescrpton Is reduced prompty to wrtng, and the wrtng fed and
preserved by the deaer for a perod of two years from the date on whch
such prescrpton s fed In such a way as to be ready accessbe to n-
specton by the offcers, agents, empoyees, and offcas mentoned n secton
773. In Issung an ora prescrpton, the prescrber sha furnsh the deaer
wth the same Informaton as s requred by aw or reguaton In case of a
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: wrtten prescrpton for narcotc drags or compounds of a narcotc drug
e cept for the wrtten sgnature of the prescrbe -, and the deaer who fs
such prescrpton sha be requred to Inscrbe such Informaton on the
wrtten record of the prescrpton made, fed and preserved by hm, and
sha Inscrbe on the abe of the contaner of the narcotc drug or compound
, of a narcotc drug the same Informaton as Is requred n fng a wrtten
prescrpton. An ora prescrpton sha not be refed.
(C) If the Secretary or hs deegate sha subsequenty determne that a
narcotc drug or a compound of a narcotc drug, to whch the ora pre-
. scrpton procedure descrbed n the precedng subparagraph has been made
appcabe, possesses a degree of drug addcton abty that. In hs opnon,
resuts In abusve use of such procedure, he sha by reguaton pubsh the
determnaton In the edera Itegster. The determnaton sha be fna,
and after tbe e praton of a perod of s months from the date of Its
pubcaton, the ora prescrpton procedure descrbed In the precedng sub-
paragraph sha ccaso to appy to the partcuar narcotc drug or to tho
partcuar compound of a narcotc drug whch Is tbe sub|ect of tho
determnaton.
Sec. , Secton 70 (bH) of the Interna Revenue Code of 195
s amended to read as foows:
(1) Pnscsn-Tots. To any person havng In hs or her possesson any
narcotc drugs or compounds of narcotc drug whch have been obtaned from
a regstered deaer In pursuance of a wrtten or ora prescrpton referred to
In secton 705(c)(2), Issued for egtmate medca uses by a physcan,
dentst, veternary surgeon, or other practtoner regstered ander secton
722 and where the botte or other contaner n whch such narcotc drug or
: compound of a narcotc drug may be put up by the deaer upon sad prescrp-
ton bears the name and regstry number of tbe druggst, and name and
address of the patent, sera number of prescrpton, and name, address,
and regstry number of the person Issung sad prescrpton or
Sec. 9. Secton 773 of the Interna Revenue Code of 195 s
amended by strkng out prescrptons requred and nsertng n eu
thereof prescrptons, ncudng the wrtten record of ora prescrp-
tons, requred .
Sec. 10. Secton 72 (b) (5) of the Interna Revenue Code of 195
s amended to read as foows:
(5) to any person carryng any narcotc drug or compound of a narcotc
drug whch has been obtaned by the person from a regstered deaer In pur-
suance of a wrtten or ora prescrpton referred to n secton 705(c) (2),
Issued for egtmate medca uses by a physcan, dentst, veternary surgeon,
or other practtoner regstered under secton 722, f the botte or other
contaner n whch such drug or compound of a narcotc drug Is carred bears
the name and regstry number of the druggst, sera number of prescrpton,
name and address of the patent, and name, address, and regstry number of
the person ssung such prescrpton
Approved August 31, 195 . ,
PUBLIC LAW 7 6, IGHTY-THIRD CONGR SS
CHAPT R 116 , S COND S SSION
H R. 7 0
An Act To amend the Raroad Retrement Act, the Raroad
Retrement Ta Act, and the Raroad Unempoyment Insurance
Act
Be t enacted by the Senate and House of Representatves of the
Unted States of Amerca n Congress assembed,
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PABT II AU ItDMtDTS TO TBI RAILROAD RcTIB BT TA Ad
Sco. 201. Secton 1500 of the Raroad Retrement Ta Act Is hereby amended
by nsertng after the word month the foowng: before uy 1, 105 , and as
a not In e cess of 350 for any caendar month after une 30,105 .
Sco. 202. Secton 1501 of the Raroad Retrement Ta Act s hereby amended
by Insertng after the fgure 300 where It frst appears the foowng: for any
month before uy 1,105 , or In e cess of 350 for any month after une SO, 195
and by nsertng, after the fgure 300 where t appears the second tme, the
foowng: f such month s before uy 1, 195 , or a ess than 350 f such
month s after une 30,195 ,
Sec. 203. Secton 1510 of the Raroad Retrement Ta Act s hereby amended
by nsertng after the word month the foowng: before uy 1, 195 , and
as Is not n e cess of 350 for any caendar month after une 30, 105 .
Sc. 20 . Secton .v. of the Raroad Retrement Ta Act s hereby amended
by nsertng after the word month where It frst appears the phrase: before
uy 1, 105 by Insertng nfter the fgure 300 whero t frst appears the
foowng: , and for any caendar month after une 30, 105 , not In e cess of
350 by Insertng nfter the phrase sha appy where t frst appears the
phrase: ,, wth respect to any caendar month before uy 1, 195 by nsert-
ng after the fgure 300 where t appears the second tme, the phrase: , and
wth respect to any caendar month after une 30.105 , to not more than 350.
and by nsertng after the fgure 300 where t appears the thrd tme the
phrase: f the month s before uy 1,105 , or s ess than 350 f the month
s after une 30,105 .
Sco. 205. Subsecton (e) of secton 1532 of the Raroad Retrement Ta Act
Is hereby amended by Insertng at the end thereof the foowng sentence:
Compensaton for servce as a deegate to a natona or Internatona conventon
of a raway abor organzaton defned as an empoyer n subsecton (a) of ths
secton sha be dsregarded for purposes of determnng the amount of ta es
duo pursuant to ths subchapter f the ndvdua renderng such servce has
not prevousy rendered servce, other than as such a deegate, whch may be
ncuded In hs years of servce for purposes of the Raroad Retrement Act. .
Sec. 200. (a) Secton 3201, secton 3202(a), secton 3211, and secton 3221
of the Interna Revenue Code of 105 are hereby amended by strkng out
300 each pace t appears n each such secton and Insertng In eu thereof
350 .
(b) Secton 3231(e)(1) of the Interna Revenue Code of 195 s hereby
amended by nsertng at the end thereof the foowng sentence: Compensaton
for servce as a deegate to a natona or Internatona conventon of a raway
abor organzaton defned as an empoyer n subsecton (a) of ths secton
sha be dsregarded for purposes of determnng the amount of ta es due pur-
suant to ths chapter If the Indvdua renderng such servce has not prevousy
rendered servce, other than as such a deegate, whch may be Incuded In hs
years of servce for purposes of the Raroad Retrement Act

Pabt I mrnv Dates
Sec. 01. The amendments made by ths Act sha be effectve uy 1, 105 ,
e cept as otherwse provded.
Sec. 02. The provsons of sectons 1, 205, and 301 of ths Act sha be effectve
wth respect to compensaton pad on and after Apr 1,195 .

Sco. 07. The amendments to the Interna Revenue Code of 105 made by
secton 206 sha become effectve as f enacted as a part of the Interna Revenue
Code of 195 .
Approved August 31,195 .
PUBLIC LAW 761, IGHTY-THIRD CONGR SS
CHAPT R 1206, S COND S SSION
H.R.93C6
An Act to amend the Soca Securty Act and the Interna Revenue
Code ao as to e tend coverage under the od-age and survvors nsur-
63 51
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60
anee program. Increase the benefts payabe thereunder, preserve the
,, . Insurance rghts of dsabed ndvduas, and Increase the amount of ,
). earnngs permtted wthout oss of benefts, and for other purposes.
Be t enacted by the Senate and House of Representatves of the
Unted States of Amerca n Congress assembed, That ths Act may
be cted as the Soca Securty Amendments of 195 .
TITL II. AM NDM NTS TO INT RNAL R NU COD S
O 1939 AND 195
Amendments to Defntons or Sef- mpoyment Income and Reated
Defntons
Sec. 201. (a)(1) Paragraph (1) of secton 1 02(a) of the Interna Revenue
Code of 105 s amended to read as foows:
(1) there sha be e cuded rentas from rea estate and from persona
property eased wth the rea estate (ncudng such rentas pad n crop
shares) together wth the deductons attrbutabe thereto, uness such rentas
are receved n the course of a trade or busness as a rea estate deaer .
(2) Subsecton (a) of secton 1 02 of the Interna Revenue Code of 105 Is
amended by strkng out paragraph (2) and redesgnatng paragraphs (3), ( ),
(5), (0), (7), an ( ), and any references thereto contaned n such code, as
paragraphs (2), (3), ( ), (5), (6), and (7), respectvey, and by addng at the
end of such subsecton the foowng new sentence: In the case of any trade or
busness whch Is carred on by an ndvdua who reports bs Income on a cash
recepts and dsbursements bass, and In whch, If t were carred on e cusvey
by empoyees, the ma|or porton of the servces woud consttute agrcutura
abor us defned In secton 3121(g), (1) f the gross ncome derved from such
trade or busness by such Indvdua Is not more than 1, 00, the net earnngs
from sef-empoyment derved by hm therefrom may, at hs opton, be deemed to
be 50 percent of such gross Income In eu of bs net earnngs from sef-empoy,
ment from such trade or busness computed as provded under the precedng
provsons of ths subsecton, or (II) f the gross Income derved from such
trade or busness by such ndvdua s more than 1, 00 and the net earnngs
from sef-empoyment derved by hm therefrom, as computed under the preced-
ng provsons of ths subsecton, are ess than 000, such net earnngs may n-
stead, at the opton of such ndvdua, be deemed to be 900. or the purpose of
the precedng sentence, gross ncome derved from such trade or busness sha
mean the gross recepts from such trade or busness reduced by the cost or other
bass of property whch was purchased and sod n carryng on such trade or
busness, ad|usted (after such reducton) n accordance wth the precedng
provsons of ths subsecton.
(b)(1) Paragraph (1) of secton 1 02(b) of the Interna Revenue Code of
195 s amended to read as foows:
(1) that part of the net earnngs from sef-empoyment whch Is In
e cess of
(A) for any tn abe year endng pror to 1955, (1) 3,600, mnus
(II) the amount of the wages pad to such Indvdua durng the ta abe
year and
(B) for any ta abe year endng after 195 , (1) ,200, mnus ()
the amount of the wages pad to such ndvdua durng the ta abe
year or .
(2) Secton 1 02(b) of the Interna Revenue Code of 105 Is amended by
Insertng after empoyees the foowng: , or under an agreement entered
Into pursuant to the provsons of secton 3121(1) (reatng to coverage of
ctzens of the Unted States who are empoyees of foregn subsdares of do-
mestc corporatons), .
(c) (1) Secton 1 02(c) (2) of the Interna Revenue Code of 105 Is amended
by nsertng after 1 the foowng: and other than servce descrbed In
paragraph ( ) of ths subsecton .
(2) Secton 1 02(c) of the Interna Revenue Code of 105 a amended by
addng at the end thereof the foowng new sentences: The provsons of para-
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605
graph ( ) sha not appy to servce (other than servce performed by a member
of a regous order who has taken a tow of poverty as a member of such order)
performed by an Indvdua durng the perod for whch a certfcate fed by
auch Indvdua under subsecton (e) Is In effect. The provsons of paragraph
(S) sha not appy to servce performed by an Indvdua In the e ercse of hs
professon as a Chrstan Scence practtoner durng the perod for whch a
certfcate fed by hm under subsecton (e) s In effect
(3) Secton 1 02 of the Interna Revenue Code of 195 s amended by addng
at the end thereof the foowng new subsecton:
(e) M.nstf.bs, Mem|ers or Re oous Obdebs, akd Chrstan Scekc P ac-
TmoW Rs.
(1) Waver C RTncAT . Any Indvdua who Is (A) a duy ordaned,
commssoned, or censed mnster of a church or a member of a regous
order (other than a member of a regous order who has taken a tow of
poverty as a member of such order) or (B) a Chrstan Scence practtoner
may fe a certfcate (In such form and manner, and wth such offca, as
may be prescrbed by reguatons made under ths chapter) certfyng that
he eects to have the Insurance system estabshed by the tte II of the
Soca Securty Act e tended to servce descrbed n subsecton (c)( ), or
servce descrbed In subsecton (c) (5) nsofar as t reates to the perform-
ance of servce by an ndvdua In the e ercse of hs professon as a Chrst-
an Scence practtoner, as the case may be, performed by hm.
(2) Tme fob fmno certfcate. Any ndvdua who desres to fe a
certfcate pursuant to paragraph (1) must fe such certfcate on or before
the due date of the return (ncudng any e tenson thereof) for bs second
ta abe year endng after 195 for whch he has net earnngs from sef-
empoyment (computed, n the case of an ndvdua referred to n paragraph
(1)(A), wthout regard to subsecton (c)( ), and, n the case of an n-
dvdua referred to n paragraph (1)(B), wthout regard to subsecton
(c) (S) Insofar as t reates to the performance of servce by an Indvdua
n the e ercse of hs professon as a Chrstan Scence practtoner) of
00 or more, any part of whch was derved from the performance of servce
descrbed n subsecton (c) ( ), or from the performance of servce descrbed
n subsecton (c) (5) nsofar as t reates to the performance of servce by
an Indvdua n the e ercse of hs professon as a Chrstan Scence prac-
ttoner, as the case may be.
(3) ffectve date of certfcate. A certfcate fed pursuant to ths
subsecton sha be effectve for the frst ta abe year wth respect to whch
t s fed (but n no case sha the certfcate be effectve for a ta abe year
wth respect to whch the perod for fng a return has e pred, or for a
ta abe year endng pror to 1955) and a succeedng ta abe years. An
eecton made pursuant to ths subsecton sha be rrevocabe.
( ) Secton 1 02(a) of the Interna Revenue Code of 195 s amended--
(A) by strkng out the perod at the end of paragraph (7) (as renum-
bered by subsecton (a) (2) of ths secton) and nsertng In eu thereof a
semcoon, and
(B) by nsertng after such paragraph (7) thereof a new paragraph as
foows:
( ) an ndvdua who Is
(A) a duy ordaned, commssoned, or censed mnster of a church
or a member of a regous order and
(B) a ctzen of the Unted States performng servce descrbed n
subsecton (c) ( ) as an empoyee of an Amercan empoyer (as defned
n secton 3121(h))
sha compute bs net earnngs from sef-empoyment derved from the per-
formance of servce descrbed In subsecton (c) ( ) wthout regard to secton
911 (reatng to earned Income from sources wthout the Unted States)
and secton 931 (reatng to Income from sources wthn possessons of the
Unted States).
(5) Secton 1 02(c) (5) of the Interna Revenue Code of 195 s amended to
read as foows:
(5) the performance of servce by an ndvdua n the e ercse of bs
professon as a physcan, awyer, dentst, osteopath, veternaran, chro-
practor, naturopath, optometrst, or Chrstan Scence practtoner | or the
performance of sucb servce by a partnershp.
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606
(d) The amendments mode by subsecton (a), (b), and (c) of ths secton
ha be appcabe ony wth respect to ta abe years endng after 105 .
. R UND or C RTAIN TA S D DUCT D ROM WAG S . .
S C. 202. (a)() The frst sentence of secton 6 13(c)() of the Interna
Revenue Code of 105 Is amended to read s foows: If b reason of an empoyee
recevng wages from more than one empoyer darng a caendar year after the
caendar year 1050 and pror to the caendar year 1055. the wages receved by
hm durng such year e ceed 3,GOO, tho empoyee sha be entted (snb|ect to
the provsons of secton 31 (b)) to a credt or refund of any amount of ta , wth
respect to such wages, Imposed by secton 1 00 of the Interna Revenue Code of
1039 and deducted from the empoyee s wages (whether or not pad to the Sec-
retary or hs deegate), whch e ceeds the ta wth respect to the frst 3,COO of
such wages receved or If by reason of an empoyee recevng wages from more
than one empoyer durng any caendar year after the caendar year 105 , the
wages receved by hm durng such year e ceed ,200, the empoyee sha be
entted (sub|ect to the provsons of secton 31(b)) to a credt or refund of any
amount of ta , wth respect to such wages, Imposed by secton 3101 and deducted
from the empoyee s wages (whether or not pad to the Secretary or hs deegate),
whch e ceeds the ta wth respect to the frst ,200 of such wages receved.
(2) Secton HO() (3) of the Interna Revenue Code of 1939 Is amended by
strkng out the perod at the end of the second sentence and Insertng n eu
thereof or, In the case of any agreement (or modfcaton thereof) pursuant to
secton 21 of the Soca Securty Act whch Is effectve as of a date more than
two years pror to the date such agreement (or modfcaton) was agreed to,
wthn two years after the caendar year n whch such agreement (or modfca-
ton) was agreed to by the State and the Secretary of Heath, ducaton, and
Wefare.
(b)() The headng of secton 6 13(c)(2) of the Interna Revenue Code of
105 s amended to read as foows: Arrr.cAtt.nf IN CAS or D RAL AND
STAT MPLOY S AND MPLOY S Or C RTAIN rOB ION CORPORATIONS.
(2) Secton 6 13(c) (2) (A) of the Interna Revenue Code of 105 Is amended
by strkng out 3,000, and Insertng In eu thereof . ,000 for the caendar
year 1951, 1052, 1053, or 105 , or ,200 for any caendar year after 105 , .
(3) Secton 6 13(c)(2) of tho Interna Revenue Code of 105 Is amended
by addng at the end thereof the foowng new subparagraph:
(C) mpoyees of Certan oregn Corporatons. or purposes
of paragraph (1) of ths subsecton, the term wages Incudes such re-
muneraton for servces covered by an agreement made pursuant to
secton 3121(1) as woud be wages f such servces consttuted empoy-
ment the term empoyer Incudes any domestc corporaton whch
has entered Into on agreement pursuant to secton 3121(1) the term
ta or ta Imposed by secton 3101, Incudes, In the case of servces
covered by an agreement entered Into pursuant to secton 3121(1), an
,. amount equvaent to the ta whch woud be Imposed by secton 3101,
f such servces consttuted empoyment as defned In secton 3121 and
. . the provsons of paragraph (1) of ths subsecton sha appy whether or
not any amount deducted from the empoyee s remuneraton as a resut
of the agreement entered nto pursuant to secton 3121(1) has been
pad to the Secretary or hs deegate.
(c) The second sentence of secton 3122 of the Interna Revenue Code of 105
a amended by strkng out 3,000 and nsertng In eu thereof ,200 .
(d) The amendments made by subsectons (a)(), (b), and (c) sha be ap-
pcabe ony wth respect to remuneraton pad after 195 . The amendment
n-nde by subsecton (a) (2) sha be effectve as If It had been enacted as a part
of secton 203(c) of the Soca Securty Act Amendments of 1950 whch added
secton 1 01 (d) (3) to the Interna Revenue Code of 1039.
COLL CTION AND PAYM NT O TA S WITH R SP CT TO COAST GUARD CHANG S
S C. 203. (a) Secton 3122 of the Interna Revenue Code of 195 Is amended
by addng at the end thereof the foowng new sentence:
The provsons of ths subsecton sha be appcabe aso In the case of servce
performed by a cvan empoyee, not compensated from funds approprated by
tho Congress, In the Coast Guard changes or other actvtes, conducted by
an Instrumentaty of the Unted States sub|ect to the |ursdcton of the Secre-
tary, nt Instaatons of the Coast Guard for the comfort, peasure, contentment,
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607
and menta and physca Improvement of personne of the Coast Guard and
for purposea of ths subsecton the Secretary sha be deemed to be the head
of such Instrumentaty.
(b) The amendment made by subsecton (a) sha become effectve
anuary 1,1053.
Amendments to Defnton or Wages
eo. 20 . (a) Parnprnph (1) of secton 3121(a) of the Interna Revenue
Code of 195 Is amended by strkng out 3,000 wherever It appears theren
and Insertng In eu thereof ,200 .
(b) (1) Subparagraph (B) of secton 121(a)(7) of the Interna Revenue
Code of 105 Is amended to read as foows:
(B) cash remuneraton pad by an empoyer In any caendar quarter
to an empoyee for domestc servce In a prvate home of the empoyer.
If the cash remuneraton pad In such quarter by the empoyer to the
empoyee for such servce Is ess than 50. As used In ths subparagraph,
the term domestc servce In a prvate home of the empoyer does not
Incude servce descrbed In subsecton (g) (5) .
(2) Secton 3121(a)(7) of the Interna Revenue Code of 105 Is amended
by addng at the end thereof the foowng new subparagraph:
(C) cash remuneraton pad by an empoyer In any caendar quarter
to an empoyee for servce not In the course of the empoyer s trade or
busness. If the cash remuneraton pad n such quarter by the empoyer
to the empoyee for such servce s ess than 50. As used n ths sub-
paragraph, the term servce not In the course of the empoyer s trade or
busness does not ncude domestc servce In a prvate home of the em-
poyer and does not ncude servce descrbed n subsecton (g) (5) .
(3) Secton 3121(a) ( ) of the Interna Revenue Code of 105 s amended by
Insertng (A) after ( ) and by addng at the end thereof the foowng
new subparagraph:
(B) cash remuneraton pad by an empoyer n any caendar year to an
empoyee for agrcutura abor, f the cash remuneraton pad In such year
by the empoyer to the empoyee for such abor Is ess than 100 .
(c) The amendments made by subsectons (a) and (b) sha be appcabe
ony wth respect to remuneraton pad after 105 .
Amendments to Defnton or mpoyment
Bra 205. (a) Secton 121(b)(1) of the Interna Revenue Code of 105 U
amended to read as foows:
(1) (A) servce performed n connecton wth the producton or har-
vestng of any commodty defned as an agrcutura commodty n secton
15(g) of the Agrcutura Marketng Act, as amended ( 0 Stat. 1550 secton
12U. S. C.11 1 )
(B) servce |wrformed by foregn agrcutura workers (I) nnder con-
tracts entered Into In accordance wth the tte of the Agrcutura Act
of 10 9, as amended (65 Stat 119 7 U. S. C. 1 61-1 0 ), or (11) awfuy
admtted to the Unted States from the Bahamas, amaca, and the other
Brtsh West Indes on a temporary bass to perform agrcutura abor .
(b) Secton 3121(b) of the Interna Revenue Code of 105 s amended by
strkng out paragraph (3) and redesgnatng paragraphs ( ), (5), (6), (7), ( ),
(0), (10), (11), (12), (13), and (1 ), and any references thereto contaned
n such code, as paragraphs (3), ( ), (5), (6), (7). ( ), (9), (10), (11), (12),
and (13), respectvey.
(c) The paragraph of secton 3121(b) of the Interna Revenue Code of 195
heren redesgnated as paragraph ( ) Is amended by strkng ont If the In-
dvdua s empoyed on and n connecton wth such vesse or arcraft when
outsde the Unted States and nsertng n on thereof: If (A) the Indvdua
s empoyed on and In connecton wth such vesse or arcraft, when outsde the
Unted States and (B)(1) such ndvdua Is not a ctzen of the Unted States
or (II) the empoyer Is not an Amercan empoyer .
(d)(1) Subparagraph (B) of the paragraph of secton 3121(b) of the Interna
Revenue Codo of 105 heren redesgnated as paragraph (0) s amended
(A) by nsertng by an ndvdua after servce performed, and by
Insertng and If such servce Is covered by a retrement system estabshed
by such Instrumentaty after December 31, 1050,
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60
. (B) by Btrkto| out or at the end of cause (), by addng or at the
- end of cause (It), and by addng at the end of the subparagraph the fo-
owng new canse:
(v) servce performed by a cvan empoyee, not compensated from
funds approprated by the Congress, In the Coast nard changes or
other actvtes, conducted by an Instrumentaty of the Unted States
sub|ect to the |ursdcton of the Secretary of the Treasury, at Instaa-
tons of the Coast Guard for the comfort, peasure, contentment, and
menta and physca Improvement of personne of the Coast Guard .
(S) Subparagraph (C) of such paragraph s amended to read as foows:
(C) servce performed In the empoy of the Unted States or n the empoy
of any nstrumentaty of the Unted States, f such servce s performed
(1) as the Presdent or ce Presdent of the Unted States or as a
Member, Deegate, or Resdent Commssoner of or to the Congress
(H) n the egsatve branch
(111) In a pcnu nsttuton of the Unted States by an nmate thereof
(v) by any Indvdua as an empoyee ncuded under secton 2 of
the Act of August , ID 17 (reatng to certan Interns, student nurses, and
other student empoyees of hosptug of the deru Government 5
U. S. C., sec. 1032)
(v) by any Indvdua as an empoyee servng on a temporary bass
In case of fre, storm, earthquake, food, or other smar emergency or
(v) by any Indvdua to whom the Cv Servce Retrement Act of
1030 does not appy because such Indvdua Is sub|ect to another retre-
ment system .
(e) Secton 3121(b) of the Interna Revenue Code of 105 Is further amended
by strkng out paragraph (15) and redesgnatng paragraphs (1C) and (17), and
any references thereto contaned n such code, as paragraphs (1 ) and (15) re-
spectvey.
(f) The amendments made by subsectons (c), (d),and (e) sha be appcabe
ony wth respect to servces performed after 105 . The amendments mnde by
subsectons (a) and (b) sha be appcabe ony wth respect to servces (whether
performed after 105 or pror to 1055) for whch the remuneraton s pad after
105 .
Amendment Reatno to Coecton of mpoyee Ta
Sec. 205A. Secton 102(a) of the Interna Revenue Code of 105 Is amended
by addng at the end thereof the foowng new sentence: An empoyer who
n any caendar qunrter pays to an empoyee cash remuneraton to whch para-
graph (7) (B) or (C) or (10) of secton 3121(a) Is appcabe may deduct
an amount equvaent to such ta from any such payment of remuneraton,
even though at the tme of payment the tota amount of such remuneraton
pad to the empoyee by the empoyer In the caendar quarter s ess than 50
and an empoyer who In any caendar yenr pays to an empoyee cash remunera-
ton to whch paragrr-ph ( ) (IS) of secton 3121(a) Is appcabe may deduct
an amount equvaent to such ta from any such payment of remuneraton,
even though at the tme of payment the tota amount of such remuneraton pad
to the empoyee by the empoyer n the caendar year Is ess than 100.
Amendment to Defnton or mpoyee
Sec. 20 . (a) Subparagraph (C) of secton 3121(d) (3) of the Interna Revenue
Code of 105 s amended by strkng out , f the performance of such servces
s sub|ect to censng requrements under the aws of the State n whch such
servces are performed .
(b) The amendment made by subsecton (a) sha be appcabe ony wth
respect to servces performed after 105 .
ng or Suppementa Lsts or mpoyees bt Cebtas Nonproft
Obc|anzatons
Sea 207. (a) Paragraph (1) of secton 121 (k) of the Interna Revenue
Code of 105 Is amended by strkng out the thrd sentence thereof and nsertng
n eu thereof the foowng: Such st may be amended at any tme pror to
te e praton of the twenty-fourth month foowng the frst caenar quarter
for whch the certfcate Is In effect, by fng wth the prescrbed offca a sup-
pementa st or sts contanng the sgnature, address, and soca securty
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609
account number (If any) of each addtona empoyee who concurs In the fng
of the certfcate.
(b) Paragraph (1) of such secton 3121 (k) Is further amended by strkng
out the perod at the end of the ffth sentence thereof and Insertng In Iea
thereof the foowng: , e cept that. In the case of servce performed by an
Indvdua whose name appears on a suppementa st fed after the frst month
foowng the frst caendar quarter for whch the certfcate Is In effect, the
certfcate sha be In effect, for purposes of such subsecton (b) ( ) and for
purposes of secton 219(a)( ) of the Soca Securty Act, ony wth respect to
servce performed by such ndvdua after the caendar quarter n w- h such
suppementa st Is fed.
Charges n Ta Schedues
Seo. 20 . (a) Secton 1 01 of the Interna Revenue Code of 105 Is amended
by strkng out paragraph ( ) and Insertng In eu thereof the foowng:
( ) In the rase of any ta abe year begnnng after December 31, 1069,
and before anuary 1, 10TB, tho ta sha be equa to 5 percent of the
amount of the sef-empoyment Income for such ta abe year
(0) In Mm caso of any ta abe year begnnng after December 31, 107 ,
the ta sha be equa to 0 percent of the amount of the sef-empoyment
Income for such ta abe year.
(b) Secton 3101 of the Interna Revenue Code of 105 Is amended by strkng
out paragraph ( ) and Insertng In eu thereof the foowng:
( ) wth respect to wages receved durng the caendar years 1070 to
107 , both Incusve, the rate sha be 3 percent
(. .) wth respect to wages receved after December 31, 107 , the rate
sha be percent.
(c) Secton 3111 of the Interna Revenue Code of 105 Is amended by strkng
out paragraph ( ) and nsertng In eu thereof the foowng:
( ) wth respect to wages pad durng the caendar years 1070 to 107 ,
both ncusve, the rate sha be 3 percent
(5) wth respect to wages pad after December 31, 197 , the rate sha
be percent.
OR ION SUBSIDIABI S Or DOM STIC CoRTOBATION
Sec. 200. Secton 3121 of the Interna Revenue Code of 105 Is amended by
addng at the end thereof the foowng new subsecton:
(1) Agreements ntered Into by Domestc Cobpobatons Wth Respect to
oregn Subsdares.
(1) Agreement wth respect to certan empoyees or foregn sub-
sdares. The Secretary or bs deegate sha, at the request of any do-
mestc corporaton, enter Into an agreement (In such form and manner as
may be prescrbed by the Secretary or bs deegate) wth any such corpora-
ton whch desres to have the nsurance system estabshed by tte II
of the Soca Securty Act e tended to servce performed outsde the Unted
States n the empoy of any one or more of Its foregn subsdares (as
defned In paragraph ( )) by a empoyees who are ctzens of the Unted
States, e cept that the agreement sha not be appcabe to any servce
performed by, or remuneraton pad to, an empoyee If such servce or re-
muneraton woud be e cuded from the term empoyment or wages , ss
defned In ths secton, had the servce been performed In the Unted States.
Such agreement may be amended at any tme so as to be made appcabe,
n the same manner and under the same condtons, wth respect to any
other foregn subsdary of such domestc corporaton. Such agreement sha
be appcabe wth respect to ctzens of the Unted States who, on or after
the effectve date of the agreement, are empoyees of and perform servces
outsde the Unted States for any foregn subsdary specfed In the agree-
ment. Such agreement sha provde
(A) that the domestc corporaton sha pay to the Secretary or hs
deegate, at such tme or tmes as the Secretary or hs deegate may by
reguatons prescrbe, amounts equvaent to the sum of the ta es
whch woud be Imposed by sectons 3101 and 3111 (Incudng amounts
equvaent to the Interest, addtons to the ta es, addtona amounts,
and penates whch woud be appcabe) wth respect to the remunera-
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610
1 Hon whch woud be wages If the servces covered by the agreement con-
sttuted empoyment as defned In ths secton and
(B) that the domestc corporaton w compy wth mch reguatons
reatng to payments and reports as the Secretary or hs deegate may
prescrbe to carry ont the purposes of ths subsecton.
(2) ffectve perod of agreement. An agreement entered Into pur-
suant to paragraph (1) sha be In effect for the perod begnnng wth the
frst day of the caendar quarter In whch such agreement s entered Into
or the frst day of the succeedng caendar quarter, as may be specfed In the
agreement, but In no case pror to anuary 1,1955 e cept that In case such
agreement s amended to Incude the servces performed for any other
subsdary and such amendment s e ecuted after the frst month foowng
the frst caendar quarter for whch the agreement s n effect, the agreement
sha be In effect wth respect to servce performed for such other subsdary
ony after the caendar quarter n whch such amendment s e ecuted.
(3) Termnaton of perod by a domestc corporaton. The perod for
whch an agreement entered nto pursuant to paragraph (1) of ths sub-
secton s effectve may be termnated wth respect to any one or more of
Its foregn subsdares by the domestc corporaton, effectve at the end of a
caendar quarter, upon gvng two years advance notce In wrtng, but
ony f, at the tme of the recept of such notce, the agreement has been In
effect for a perod of not ess than eght years. The notce of termnaton
mny be revoked by the domestc corporaton by gvng, pror to the cose of
the caendar quarter specfed In the notce of termnaton, a wrtten notce
of such revocaton. Notce of termnaton or revocaton thereof sha be
fed In such form and manner as may be prescrbed by reguatons. Not-
wthstandng any other provson of ths subsecton, the perod for whch
any such agreement s effectve wth respect to any foregn corporaton sha
termnate at the end of any caendar quarter n whch the foregn corpora-
ton, at any tme n such quarter, ceases to be a foregn subsdary as defned
In paragraph ( ).
( ) Termnaton of perod bt secbetart. If the Secretary or hs dee-
gate fnds that any domestc corporaton whch entered nto an agreement
pursuant to ths subsecton has faed to compy substantay wth the terms
of such agreement, the Secretary or hs deegate shn gve such domestc
corporaton not ess than s ty days advance notce In wrtng that the
perod covered by such agreement w termnate at the end of the caendar
quarter specfed n such notce. Such notce of termnaton may be revoked
by the Secretary or hs deegate by gvng, pror to the cose of the cnendar
quarter specfed In the notce of termnaton, wrtten notce of such revoca-
ton to the domestc corporaton. No notce of termnaton or of revocaton
thereof sha be gven under ths paragraph to a domestc corporaton wth-
out the pror concurrence of the Secretary of Heath, ducaton, and
Wefare.
(5) No benewa of AOR M NT. If any agreement entered Into pursuant
to paragraph (1) of ths subsecton s termnated n ts entrety (A) by a
notce of termnaton fed by the domestc corporaton pursuant to para-
graph (3), or (B) by a notce of termnaton gven by the Secretary or hs
deegate pursuant to paragraph ( ), the domestc corporaton may not
agan enter nto an agreement pursuant to paragraph (1). If any such
agreement s termnated wth respect to any foregn subsdary, such agree-
ment may not thereafter be amended so as agan to make t appcabe wth
respect to such subsdary.
(6) Deposts n trust fund. or purposes of secton 201 of the Soca
Securty Act, reatng to appropratons to the edera Od-Age and Survv-
ors Insurance Trust und, such remuneraton
(A) pad for servces covered by an agreement entered nto pursuant
to paragraph (1) as woud be wages f the servces consttuted empoy-
ment, and
(B) as Is reported to the Secretary or bs deegate pursuant to
the provsons of such a|rreement or of the reguatons ssued under
ths subsecton,
sha be consdered wages sub|ect to the ta es Imposed by ths chapter.
(7) Overpayments and underpayments.
(A) If more or ess than the correct amount due under an agree-
ment entered nto pursuant to ths subsecton s rad wth respect to
any payment of remuneraton, proper ad|ustments 1th respect to the
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611
. amounts due under such agreement sha be made, wthout Interest, In
- sach maner and at nch tmes as may be requred by reguaton pre.
scrbed by the Secretary or hs deegate.
: . (B) If an overpayment cannot be ad|usted nnder subparagraph
. . (A), the amount thereof sha be pad by the Secretary or hs deegate,
-- through the sca Servce of the Treasury Department, but ony f a
- cam for such overpayment s fed wth the Secretary or hs deegate
wthn two years from the tme such overpayment was made.
( ) Defnton or foreon subsdary. or purposes of ths subsecton
and secton 210(a) of the Soca Securty Act, a foregn subsdary of a
domestc corporaton Is
(A) a foregn corporaton more than SO percent of the votng stock
of whch Is owned by such domestc corporaton or
(B) a foregn corporaton more than 50 percent of the votng stock
of whch s owned by the foregn corporaton descrbed n subparagraph
(A).
(9) Domestc corporaton as separate eh m. ach domestc corpora-
ton whch enters nto an agreement pursuant to paragraph (1) of ths sub-
secton sha, for purposes of ths subsecton and secton 6 13(c)(2)(C),
reatng to speca refunds In the case of empoyees of certan foregn cor-
poratons, be consdered an empoyer n ts capacty as a party to such
agreement separate and dstnct from Its Identty as a person empoyn
Indvduas on Its own account
(10) Reguatons. Reguatons of the Secretary or hs deegate to
carry out the purposes of ths subsecton sha be desgned to make the
requrements Imposed on domestc corporatons wth respect to servces
covered by an agreement entered nto pursuant to ths subsecton the same,
so far as practcabe, as those Imposed upon empoyers pursuant to ths tte
wth respect to the ta es Imposed by ths chapter.
Deductons rom Gboss Income for Payment Wth Respect to mpoyees
or Certan obeon Cobpobatons
Sr.c. 210. (a) The Interna Revenue Code of 105 Is amended by Insertng
after secton 173 thereof tho foowng new secton:
S C 176. PAYM NTS WITH R SP CT TO MPLOY S O C RTAIN
OR IGN CORPORATIONS.
In the case of a domestc corporaton, there sha be aowed as a deducton
amounts (to the e tent not compensated for) pad or Incurred pursuant to an
agreement entered Into under secton 3121(1) wth respect to servces performed
by Unted States ctzens empoyed by foregn subsdary corporatons. Any
rembursement of any amount prevousy aowed as a deducton under ths
secton sha be Incuded In gross Income for the ta abe year In whch receved.
(b) The tabe of sectons to part I of subchapter B of chapter 1 of subtte
A of the Interna Revenue Code of 195 Is amended by addng at the end thereof
the foowng:
Sc. 17 . Payments wth rerpect to empoyees of certan foregn corpora-
tons.

Servce pob Certan Ta - empt Organzatons Pror to nactment or
Ths Act
Sec, 03. (a) In any case n whch
(1) an Indvdua has been empoyed, at any tme subsequent to 1950 and
pror to the enactment of ths Act, by an organzaton whch s e empt from
ncome ta under secton 101(6) of the Interna Revenue Code of 1939 bat
whch has fued to fe pror to the enactment of ths Act a waver cer-
tfcate under secton 1 26(1) (1) of the Interna Revenue Code of 1939
(2) the servce performed by such Indvdua as an empoyee of such
organzaton durng the perod subsequent to 1950 and pror to 1955 woud
have consttuted empoyment (as defned In secton 210 of the Soca Securty
Act and secton 1 0(b) of the Interna Revenue Code of 1939) If suca
organzaton had ted pror to the performance of such servce such a cer-
tfcate accompaned by a st of the sgnatures of empoyees who concurred b
the fng of such certfcate and such Indvdua s sgnature had appeared
on such st
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612
1 (S) the ta es Imposed by sectons 1 00 and 1 10 of the Interna Revenue
Code of 10 0 bare been pad wth respect to any part of the remuneraton
pad to such Indvdua by such organzaton for such servce
( ) part of such ta es have been pad pror to the enactment of ths Act:
(6) so much of such ta es as have been pad pror to the enactment of ths
Act have been pad by such organzaton In good fath and upon the as-
sumpton that a waver certfcate had been fed by It under secton
U M) (1) of the Interna Revenue Code of 10:10 and
(0) no refund of such ta es has boon obtaned,
the amount of such remuneraton wth roH ect to whch snch ta es have been
pad A mII, upon the request of such Indvdua (fed In such form and manner,
and wth such ofca, as may bo proscrbed by reguatons made under sub-
chapter A of chapter 0 of the Interna Itevenue Code of 1030), be deemed to con-
sttute remuneraton for empoyment as defned n secton 210 of the Soca
Securty Act and secton 1 20(b) of the Interna Revenue Code of 1030.
(b) In any case In whch
(1) an Indvdua has been empoyed, at any tme subsequent to 10 0
and pror to the enactment of ths Act, by an organzaton whch has fed
a waver certfcate under secton 1 20(1) (1) of the nterna Revenue Code
of 1030:
(2) the servce performed by such Indvdua durng the tme he was so
empoyed woud have consttuted empoyment (as defned n secton 210
of the Soca Securty Act and secton 1 26(b) of the Interna Revenue Coda
of 1030) If such ndvdua s sgnature had appeared on the st of sgnatures
of empoyees who concurred In the fng of such certfcate
(3) the ta es Imposed by sectons 1 00 and 1 10 of the Interna Revenue
Code of 1030 have been pad pror to the enactment of ths Act wth respect
to any part of the remuneraton pad to such Indvdua by such organzaton
for such servce and
( ) no refund of such ta es has been obtaned,
the amount of such remuneraton wth respect to whch such ta es have been
|nd sha, upon the request of such ndvdun (fed on or before anuary 1,
1957, and n such form and manner, and wth such offca, as may be prescrbed
by reguatons made under subchapter A of chapter 0 of the Interna Revenue
Code of 1039), be deemed to consttute remuneraton for empoyment as defned
In secton 210 of the Soca Securty Act and secton 1 20(b) of the Interna
Itevenue Code of 1030, and such ndvdua sha be deemed to have concurred In
the fng of the waver certfcate fed by such organzaton under secton
1 20(1) (1) of the Interna Revenue Code of 1939.

Approved September 1,195 .
PUBLIC LAW 767, IGHTY-THIRD CONGR SS
CHAPT R 1212, S COND S SSION
H. R. 9709
An Act To e tend and Improve the unempoyment compensaton
program.
Be t enacted by the Senate and House of Representatves of the
Z nted States of Amerca n Congress assembed, That, effectve wth
respect to servces performed after December 31,1955, secton 3306(a)
of the Interna Revenue Code of 195 s hereby amended by strkng
out eght or more and nsertng n eu thereof or more .
Sec 2. ffectve wth respect to rates of contrbutons for perods
after December 31, 195 , secton 3303( a) of the Interna Revenue
Code of 195 s hereby amended by addng after paragraph (3) the
foowng:
A or any person (or group of persons) who has (or have) not been
sub|ect to the State aw for a perod of tme suffcent to compute the
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613
reduced rates permtted by paragraphs (1), (2), and (3) of ths sub-
secton on a 3-year bass, the perod of tme requred may be reduced
to the amount of tme the person (or group of persons) has (or hare)
had e perence under or has (or have) been sub|ect to the State aw,
whchever s approprate, but n no case ess than 1 year mmedatey
precedng the computaton date.
S C. 3. ffectve wth respect to the ta abe year 1055 and succeed-
ng ta abe years, secton C152(a) (3) of the Interna e venue CodA
of 195 s hereby repeaed.
S C. . (a) 1no Soca Securty Act, as amended, s further amend-
ed by addng after tte I thereof the foowng new tte:
TITL UN MPLOYM NT COMP NSATION OB D RAL
MPLOY S

(b) Secton G06(e) and secton 1607(m) of the Interna Revenue
Code of 1939 are each hereby amended by nsertng after December
31, 195 , the foowng: and before anuary 1, 1955, .
(c) ffectve wth respect to servces performed after December
31,195 , secton 3305 fe) and secton 3306(1) of the Interna Revenuo
Code of 195 are hereby repeaed.
Approved September 1,195 .
Not reproduced heren.
I : . . .
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61
SUBPART B -T A CON NTIONS
UNIT D STAT S-AUSTRALIA INCOM TA
CON NTION
(Aso Part L Sectons 1 1,1 2.) , T. D. 610
(Aso Part II, Sectons 1 3,1 Reguatons
11 , Sectons 39.1 3-1,39.1 -1.)
TITL 2 INT RNAL R NU . CHAPT R I, SUBCHAPT R 0, PART 501.
INCOM TA WITHHOLDING AUSTRALIA
Reease or refund of e cess ta wthhed, and e empton from,
or reducton In rate of, wthhodng of ta at source n the case of
Austraan resdents, as affected by the Income ta conventon be-
tween the Unted States and Austraa procamed by the Presdent
of the Unted States on December 22,1003.
Treasury Department,
Ornc or Commssoner or Interna Revenue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
Tabe or Contents
Secton
601.1. Introductory.
501.2. Dvdends.
501.3. Interest
501. . Natura resource royates and rea property rentas.
501.5. Copyrght royates.
501.6. Pensons and annutes.
501.7. Reease of e cess ta wthhed at source.
501. . Addressee not actua owner.
501.9. Informaton to be furnshed In ordnary course.
501.10. Benefcares of a domestc estate or trust.
501.11. Refund of e cess ta wthhed durng 1053.
Secton 501.1. Introductory. (a) The ncome ta conventon be-
tween the Unted States and Austraa, sgned on May 1 , 1953, and
procamed by the Presdent of the Unted States on December 22,
1953, herenafter referred to as the conventon, provdes n part as
foows, effectve anuary 1,1953:
Abtce I
(1) The ta es whch are the sub|ect of ths conventon are-
fa) In Austraa: The Commonweath Income ta and soca servces
contrbuton, ncudng the ta at the further rates of ta payabe n respect
of Income from property and the addtona ta assessed In respect of the
undstrbuted amount of the dstrbutabe ncome of a prvate company
(herenafter referred to as Austraan ta )
(b) In the Unted States: The edera Income ta es, ncudng surta es
and e cess profts ta es (herenafter referred to as Unted States ta ).
(2) Ths conventon sha aso appy to any other ta of a substantay smar
character Imposed by ether contractng State after the date of sgnature of ths
conventon.
Abtce II
(1) In ths conventon, uness the conte t otherwse requres
(a) the terms one of the contractng States and the other contractng
State mean the Unted States or Austraa, as the conte t requres
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615
(b) the term Austraa means the Commonweath of Austraa and In-
cudes the Terrtores of Papua, New Gunea and Norfok Isand
(c) The term Unted States means the Unted States of Amerca and
when used In a geographca sense Incudes ony the States thereof, the Ter-
rtores of Aaska and Hawa, and the Dstrct of Coumba
(d) the term ta means Austraan ta or Unted States ta , as the
conte t requres
(e) the terms resdent of one of the contractng States and resdent
of the other contractng State mean a Unted States resdent or an
Austraan resdent, as the conte t requres
(f) the term Austraan resdent means any person (other than a ct-
zen of the Unted States or a Unted States corporaton) who s a resdent of
Austraa and not resdent In the Unted States for the purposes of Unted
States ta , but a corporaton (other, than a Unted States corporaton)
whch s a resdent of Austraa sha not be deemed to be resdent In the
Unted States even though that corporaton s engaged n trade or busness
wthn the Unted States
(g) the term Unted States resdent means any Indvdua who Is res-
dent n the Unted States for the purposes of Unted States ta and not a
resdent of Austraa, and any Unted States corporaton and any partner-
shp created or organzed n or under the aws of the Unted States, beng a
corporaton or partnershp whch s not a resdent of Austraa
(h) the term resdent of Austraa has the meanng whch It baa under
the aws of Austraa reatng to Austraan ta
(1) the terms enterprse of one of the contractng States and enter-
prse of the other contractng State means a Unted States enterprse or
an Austraan enterprse, as the conte t requres
( ) the term Austraan enterprse means an Industra or commerca
enterprse or undertakng carred on by an Austraan resdent
(k) the term Unted States enterprse means an Industra or com-
merca enterprse or undertakng carred on by a Unted States resdent
(1) the term company has the meanng whch It has under Austraan
aw reatng to Austraan ta
(m) the term Unted States corporaton means a corporaton, assoca-
ton or other ke entty created or organzed In or under the aws of the
Unted States
(n) the term Industra or commerca profts ncudes the profts of an
Industra or commerca enterprse or undertakng but does not Incude In-
come n the form of dvdends, nterest, rent, royates, management charges,
remuneraton for persona servces, or Income from the operaton of shps
or arcraft
(o) the term permanent estabshment means a branch, agency, man-
agement or f ed pace of busness and ncudes a factory, workshop, mne,
owe, offce or agrcutura or pastora property, or the use or Instaaton
of substanta equpment or machnery by, for, or under contract wth, an
enterprse of one of the contractng States. Where an enterprse or a res-
dent of one of the contractng States
(I) carres on busness deangs In the other contractng State through
a bona fde commsson agent or broker actng In the ordnary course
of hs busness as such and recevng remuneraton In respect of those
deangs at the rate customary n the cass of busness n queston or
(II) mantans In that other State a f ed pace of busness e cusvey
for the purchase of goods or merchandse or
() has a subsdary corporaton whch s engaged n trade or bus-
ness n that other State, whether through a permanent estabshment or
otherwse or
(v) has an agent n that other State (other than an agent who has,
and habtuay e ercses, a genera authorty to negotate and concude
contracts on behaf of that enterprse, or reguary fs orders on Its
behaf from a stock of goods or merchandse ocated n that other State),
that enterprse or resdent sha not, merey by reason thereof, be deemed to
have a permanent estabshment n that other State
(p) the term ta aton authorty means. In the ease of the Unted States,
the Commssoner of Interna Revenue as authorzed by the Secretary of the
Treasury and, n the case of Austraa, the Commssoner of Ta aton or hs
Authorzed representatve.
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616
(2) In the appcaton of the provsons of ths conventon by one of the con-
tractng States an term not otherwse e fned sha, uness the conte t otherwse
requres, have the meanng whch It has under the aws of that State reatng
to the ta es whch are the sub|ect of ths conventon.
..A
Artce I
(1) A dvdend pad to a Unted States resdent by a Unted States corporaton
whch Is not a resdent of Austraa sha be e empt from Austraan ta .
(2) A dvdend pad to an Austraan resdent by a company whch Is a res-
dent of Austraa (other than a Unted States corporaton) sha be e empt from
Unted States ta .
Arncuc T
(1) The amount of Austraan ta on dvdends pad by a company whch s a
resdent of Austraa to a Unted States resdent who Is abe for Unted States
ta thereon and Is not engaged In trade or busness n Austraa through a perma-
nent estabshment n Austraa sha not e ceed 15 per centum of the dvdend.
(2) The rate of Unted States ta on dvdends derved from sources wthn
the Unted States by an Austraan resdent who Is abe for Austraan ta
thereon and s not engaged n trade or busness In the Unted States through a
permanent estabshment n the Unted States sha not e ceed IS per centum.
Artce
Royates (not beng royates n reaton to moton pcture fms or tbe
reproducton by any means of Images or sound produced drecty or Indrecty
from those fms) for the use, producton or reproducton of, or for the prvege
of usng, producng or reproducng, a terary, dramatc, musca or artstc work
In whch copyrght subssts, beng royates derved from sources wthn one of
the contractng States by a resdent of the other contractng State not engaged
In trade or busness In the former State through a permanent estabshment
In that State, sha be e empt from ta by the former State.
Aktce I
A resdent of one of the contractng States, dervng from sources wthn the
other contractng State
(a) royates In respect of the e potaton of mnes, quarres or other
natura resources or
(b) rentas from rea property,
may eect for any ta abe year to be sub|ect to the ta of the other State on
a net bass as If that resdent were engaged n trade or busness wthn the other
State through a permanent estabshment In that State.
Artce II
(1) A penson (ncudng a Government penson) and an annuty, derved
from sources wthn one of the contractng States by a resdent of the other
contractng State, sha be e empt from ta by tbe former State.
(2) The term annuty means a stated sum payabe perodcay at stated
tmes, durng fe or durng a specfed or ascertanabe perod of tme, under an
obgaton to make the payments n consderaton of money pad.
Abtcc I
ach contractng State sha, so far as t Is practcabe to do so, coect, and
pay to the other contractng State, amounts equvaent to amounts due to the
other contractng State by way of ta es whch are the sub|ect of ths conventon,
beng amounts the coecton of whch Is necessary n order to ensure that the
beneft of e emptons from ta , or of reductons n rates of ta , provded for by
ths conventon Is not receved by person not entted to thut beneft

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617
. . ABT U III . -
(1) Tho ta aton authortes of the contractng States aha e change such
Informaton (beng nformaton avaabe under the respectve ta aton aws of
the contractng Btate) aa Is necessary for carryng out the provsons of ths
conventon or for the preventon of fraud or for tho admnstraton of statutory
provsons aganst avodance of the ta es whch are the sub|ect of ths conventon.
(2) Any Informaton so e changed sha be treated as secret and sha not be
dscosed to any penons other than those (Incudng a Court or a revewng
authorty) concerned wth tho assessment or coecton of the ta es, whch are
the sub|ect of ths conventon, or the determnaton of appeas In reaton
thereto.
(3) No Informaton sha be e changed whch woud dscose any trade secret
or trade process,
Artce I
The ta aton authorty of each contractng State may communcate drecty
wth the ta aton authorty of the other contractng State for the purpose of
gvng effect to the provsons of ths conventon.
Abtce
The provsons of ths conventon sha not
(a) be construed as restrctng n any manner any e empton, deducton,
credt or other aowance now or hereafter accorded by the aws of one of the
contractng States In the determnaton of the ta payabe to that State or

Abtcu I
(1) Ths conventon sha be ratfed and the nstruments of ratfcaton sha
be e changed at Canberra as soon as possbe,
(2) Ths conventon sha become effectve
(a) n the case of Unted States ta , on the frst day of anuary In the
year In whch the e change of Instruments of ratfcaton takes pace and
(b) In the case of Austraan ta , for the year of Income commencng on
the frst day of uy ne t succeedng the date upon whch ths conventon
becomes effectve n the case of Unted States ta .
(3) Ths conventon sha contnue n effect ndefntey but ether contractng
State may, on or before the thrteth day of une n any year after 1955, gve to
the other contractng State notce of termnaton and, n that event, ths
conventon sha cease to be effectve
(a) n the case of Unted States ta , on and after the frst day of
anuary ne t foowng the gvng of that notce of termnaton and
(b) n the case of Austraan ta , for the year of Income commencng on
the frst day of uy ne t succeedng the date on whch ths conventon
ceases to be effectve n the case of Unted States ta , and for a subsequent
years,

(b) As used n ths Treasury Decson, any term defned n the
conventon sha have the meanng so assgned to t: any term not so
defned sha, uness the contest otherwse requres, have the meanng
whch such term has under tho nterna revenue aws. As ndcated n
Artco 11(1) (h) of tho conventon, tho term resdent of Austraa
sha have the meanng whch t has under tho aws of Austraa
reatng to Austraan ta .
Sec. 601.2. Dvdends. (a) Genera. (1) Dvdends pad on or
after anuary 1,1953, to a nonresdent aen (ncudng a nonresdent
aen ndvdua, fducary, and partnershp) or to a foregn corpora-
ton by a company (other than a Unted States corporaton) whch s
a resdent of Austraa are e empt from Unted States ta under the
provsons of Artce I of the conventon, f such aen or foregn
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61
corporaton s a resdent of Austraa. As to what consttutes a com-
pany for such purpose, see Artce 11(1) (1) of the conventon.
(2) The rate of Unted States ta mposed by the Interna Revenue
Code upon dvdends (other than dvdends fang -wthn the scope
of subpar. (1)) derved from sources wthn the Unted States on or
after anuary 1,1953, by a nonresdent aen (ncudng a nonresdent
aen ndvdua, fducary, and partnershp) or by a foregn corpora-
ton sha not e ceed 15 percent under the provsons of Artce II
of the conventon, f such aen or foregn corporaton () s a resdent
of Austraa, () s abe for Austraan ta on such dvdends, and
( at no tme durng the ta abe year n whch such dvdends are
derved has engaged n trade or busness wthn the Unted States
through a permanent estabshment stuated theren. As to what con-
sttutes a permanent estabshment, see Artce 11(1) (o) of the
conventon.
(3) Thus, f a nonresdent aen ndvdua who s a resdent of
Austraa performs persona servces wthn the Unted States durng
the ta abe year, has at no tme durng such year engaged n trade or
busness wthn the Unted States through a permanent estabshment
stuated theren, and s abe for Austraan ta on a dvdend de-
scrbed n subparagraph (2) whch was derved n that year from
Unted States sources, he s entted to the reduced rate of ta wth
respect to such dvdend, as provded n Artce II of the conventon,
even though under the provsons of secton 71(c) of the Interna
Revenue Code of 195 he has engaged n trade or busness wthn the
Unted States durng such year by reason of hs havng rendered
persona servces theren.
( ) The fact that the payee of a dvdend descrbed n subparagraph
(2) s not requred to pay Austraan ta on such dvdend because
of the appcaton of reefs or e emptons under Austraan ta aws
does not prevent the appcaton of the reducton n rate of Unted
States ta wth respect to such dvdend. If the payee woud have
been requred to pay Austraan ta on such dvdend had he derved
an ncome arge enough to requre payment of such ta then abty
for Austraan ta e sts for the purpose of the reducton n rate of
Unted States ta .
(b) ffect of address n Austraa on wthhodng n case of dv-
dends. (1) or the purpose of paragraph (c)(1) every nonresdent
aen (ncudng a nonresdent aen ndvdua, fducary, and partner-
shp) and every foregn corporaton havng an address n Austraa,
sha bo deemed by Unted States wthhodng agents to be a non-
resdent aen or a foregn corporaton, respectvey, quafyng as a
ta payer who s a resdent of Austraa.
(2) or the purpose of paragraph (c) (2) every nonresdent aen
(ncudng a nonresdent aen ndvdua, fducary, and partner-
shp) and every foregn corporaton, havng an address n Austraa,
sha be deemed by Unted States wthhodng agents to be a nonres-
dent aen or a foregn corporaton, respectvey, quafyng as a ta -
payer who s () a resdent of Austraa, () abe for Austraan ta
on the dvdends concerned, and () not engaged n trade or busness
wthn the Unted States through a permanent estabshment stuated
theren.
(c) Wthhodng of Unted States ta . (1) No wthhodng of
Unted States ta s requred n the case of dvdends pad by a com-
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619
pany (other than a Unted States corporaton) whch s a resdent of
Austraa to a nonresdent aen (ncudng a nonresdent aen n-
dvdua, fducary, and partnershp) or to a foregn corporaton hav-
ng an address n Austraa, n any case e cept that n whch, pror to
the date of payment of such dvdends, the Commssoner of Interna
Revenue has notfed the wthhodng agent that the e empton from
wthhodng sha not appy.
(2) Wthhodng at source, as requred under the nterna revenue
aws, n the case of dvdends (other than dvdends fang wthn
the scope of subpar. (1)) derved from sources wthn the Unted
States by nonresdent aens (ncudng a nonresdent aen ndvdua,
fducary, and partnershp) and by foregn corporatons, havng ad-
dresses n Austraa, sha be at the rate of 15 percent n every case
e cept that n whch, pror to the date of payment of such dvdends,
the Commssoner of Interna Revenue has notfed the wthhodng
agent that the reduced rate of wthhodng sha not appy.
(3) The provsons of subparagraphs ) and (2) are based upon
the assumpton that the payee of the dvdend s the actua owner of
the capta stock from whch the dvdend s derved. As to acton by
the recpent who s not the owner of the dvdend, see secton 501A
( ) The rate at whch the Unted States ta has been wthhed from
any dvdend pad at any tme after the e praton of the thrteth day
after the date on whch ths Treasury Decson s pubshed n the ed-
era Regster to any person whose address s n Austraa at the tme
the dvdend s pad sha be shown ether n wrtng or by approprate
stamp on the check, draft, or other evdence of payment, or on an
accompanyng statement.
Sec. 601.3 Interest. The conventon does not change the rate of
Unted States ta mposed pursuant to sectons 71, 1, and 2 of the
Interna Revenue Code of 195 upon nterest The wthhodng of
Unted States ta wth respect to such ncome derved from sources
wthn the Unted States by a nonresdent aen who s a resdent of
Austraa, or by a foregn corporaton whch s a resdent of Austraa,
s not changed by the conventon.
Sec. 601. . Natura Resource Royates and Rea Propertt
Rentas. The conventon does not change the rate of Unted States
ta mposed pursuant to sectons 71, 1, and 2 of the Interna Rev-
enue Code of 195 upon natura resource royates and rea property
rentas. The wthhodng of Unted States ta wth respect to such
tems derved from sources wthn the Unted States by a nonresdent
aen who s a resdent of Austraa, or by a foregn corporaton whch
s a resdent of Austraa, s not changed hy the conventon.
Sec. 501.5. Copyrght Royates. (a) Genera. (1) Royates
for the use, producton, or reproducton of, or for the prvege of
usng, producng, or reproducng, any terary, dramatc, musca, or
artstc work n whch copyrght subssts, whch are derved from
sources wthn the Unted States on or after anuary 1,1953, bv a non-
resdent aen (ncudng a non-resdent aen ndvdua, fducary,
and partnershp) or by a foregn corporaton are e empt from Unted
States ta under the provsons of Artce of the conventon, f such
aen or foregn corporaton () s a resdent of Austraa and () at
no tme durng the ta abe year n whch such royates are derved has
engaged n trade or busness wthn the Unted States through a per-
3351 C3 0
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620
manent estabshment stuated theren. Such royates are, therefore,
not sub|ect to the wthhodng of Unted States ta at source. As to
what consttutes a permanent estabshment, see Artce 11(1) (o) of
the conventon.
(2) The provsons of ths secton sha have no appcaton to roy-
ates n respect of moton pcture fms or n respect of the reproduc-
ton by any means of mages or sound produced drecty or ndrecty
from those fms.
(b) Appcaton of e empton from wthhodng. (1) To avod
wthhodng of Unted States ta at source n the case of the royates
to whch paragraph (a) s appcabe, the nonresdent aen or the
foregn corporaton sha notfy the wthhodng agent by etter n
dupcate that such royates are e empt from Unted States ta under
the provsons of Artce of the conventon. The etter of notf-
caton sha be sgned by the owner of the royates, trustee, or agent
and sha show the name and address of the obgor and the name and
address of the owner of the royates. It sha contan a statement ()
that the owner s nether a ctzen nor a resdent of the Unted States
but s a resdent of Austraa under the aws of Austraa reatng to
Austraan ta , or, n the case of a corporaton, () that the owner s a
corporaton (other than a Unted States corporaton) whch s a res-
dent of Austraa under the aws of Austraa reatng to Austraan
ta and, n addton, a statement that the owner has at no tme durng
the current ta abe year engaged n trade or busness wthn the Unted
States through a permanent estabshment stuated theren.
(2) Ths etter of notfcaton, whch sha consttute authorzaton
for the payment of such royates wthout wthhodng of Unted
States ta at source, sha be fed wth the wthhodng agent for each
successve 3-caendar-year perod durng whch such ncome s pad.
or ths purpose, the frst such perod sha commence wth the be-
gnnng of the caendar year n whch such ncome s frst pad on or
after anuary 1, 195 . ach such etter fed wth any wthhodng
agent sha be fed not ater than 20 days precedng the date of the
frst payment wthn each successve perod, or, f that s not possbe
because of speca crcumstances, as soon as possbe after such frst
payment.
(3) If such etter s aso to be used as authorzaton for the reease,
pursuant to secton 501.7(a), of e cess ta wthhed from royates,
t sha aso contan a statement that, at the tme when the royates
were derved from whch the e cess ta was wthhed, () the owner
was nether a ctzen nor a resdent of the Unted States but was a
resdent of Austraa under the aws of Austraa reatng to Aus-
traan ta , or, n the cose of a corporaton, () the owner was a
corporaton (other than a Unted States corporaton) whch was a
resdent of Austraa under the aws of Austraa reatng to Aus-
traan ta and, n addton, a statement that the owner at no
tme durng the ta abe year n whch such royates were derved
was engaged n trade or busness n the Unted States through a per-
manent estabshment stuated theren.
( ) Once a etter has been fed n respect to any 3-caendar-year
perod, no addtona etter need be fed n respect thereto uness the
Commssoner of Interna Revenue notfes the wthhodng agent that
an addtona etter sha be fed by the ta payer. If, after fng
a etter of notfcaton, the ta payer ceases to be egbe for the
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621
e empton from Unted States ta granted by the conventon n re-
spect to such royates, such ta payer sha prompty notfy the wth-
hodng agent by etter n dupcate. When any change occurs n
the ownershp 01 the royates as recorded on the books of the payer,
the e empton from wthhodng of Unted States ta sha no onger
appy uness the new owner of record s entted to and does propery
fe a etter of notfcaton wth the wthhodng agent
(5) ach etter of notfcaton, or the dupcate thereof, sha be
mmedatey forwarded by the wthhodng agent to the Dstrct
Drector of Interna Revenue, Audt Dvson, Aen Returns Secton,
Batmore 2, Maryand.
Sec. 601.6. Pensons anh Annutes. (a) Genera. Prvate and
government pensons, and annutes as defned n Artce II(2) of
the conventon, derved from sources wthn the Unted States on or
after anuary 1, 1953, by an Austraan resdent are e empt from
Unted States ta under the provsons of Artce II(1) of the con-
venton. Such tems of ncome are therefore, not sub|ect to the
wthhodng of Unted States ta at source. As to what consttutes
an Austraan resdent for such purpose, see Artce H() (f) of the
conventon.
(6) Appcaton of e empton from wthhodng. (1) To avod
wthhodng of Unted States ta at source n the case of the tems
of ncome to whch paragraph (a) s appcabe, the Austraan
resdent sha notfy the wthhodng agent by etter n dupcate that
such ncome s e empt from Unted States ta under the provsons of
Artce II (1) of the conventon. The etter of notfcaton sha
be sgned by the owner of the ncome, sha show the name and ad-
dress of both the payer and the owner of the ncome, and sha con-
tan a statement that the owner s an Austraan resdent wthn the
meanng of Artce 11(1) (f) of the conventon.
(2) If such etter s aso to be used as authorzaton for the re-
ease, pursuant to secton 501.7(a), of e cess ta wthhed from such
tems of ncome, t sha aso contan a statement that, at the
tme when the ncome was derved from whch the e cess ta was
wthhed, the owner was an Austraan resdent wthn the meanng
of Artce 11(1) (f) of the conventon.
(3) Ths etter sha consttute authorzaton for the payment of such
tems of ncome wthout wthhodng of Unted States ta at source
uness the Commssoner of Interna Revenue subsequenty notfes the
wthhodng agent that the ta sha be wthhed wth respect to pav-
ments of such tems of ncome made after recept of such notce, ff,
after fng a etter of notfcaton, the owner of the ncome ceases to be
egbe for the e empton from Unted States ta granted by the con-
venton n respect to such ncome, such owner sha prompty notfy
the wthhodng agent by etter n dupcate. When any change occurs
n the ownershp of such ncome as recorded on the books of the payer,
the e empton from wthhodng of Unted States ta sha no onger
appy uness the new owner of record s entted to and does propery
fe a etter of notfcaton wth the wthhodng agent.
( ) ach etter of notfcaton, or the dupcate thereof, sha be m-
medatey forwarded by the/wthhodng agent to the Dstrct Drector
of Interna Revenue, Audt Dvson, Aen Returns Secton, Bat-
more 2, Maryand.
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A 22
- S C. 501.7. R L AS or C SS TA WITHH LD AT SOURC . (a)
Genera. (I) In order to gve the conventon effectve appcaton at
the earest practcabe date, the e emptons from, and reducton n the
rate of, wthhodng of Unted State ta at source granted by ths
Treasury Decson are hereby made effectve begnnng anuary 1.
195 , contngent upon compance wth the appcabe provsons or
sectons 501.2 through 501.6.
(2) In the case of dvdends to whch secton 601.2(a) (1) s app-
cabe, whch are derved from sources wthn the Untea _Stntcs and
pad to a nonresdent aen (ncudng a nonresdent aen ndvdua,
fducary, and partnershp) or to a foregn corporaton, whoso address
at the tme of payment was n Austraa, f Unted States ta at the
statutory rate (30 percent as of the date of approva of ths Treasury
Decson) has been wthhed from such dvdends on or after anuary
1,195 , there sha be reeased by the wthhodng agent and pad over
to the person from whom t was wthhed an amount equa to the ta
so wthhed.
(3) In the case of dvdends to whch secton 501.2(a)(2) s ap-
pcabe, whch ore derved from sources wthn the Untea States and
pad to a nonresdent aen (ncudng a nonresdent aen ndvdua,
fducary, and partnershp) or to a foregn corporaton, whose address
at the tme of payment was n Austraa, f Unted States ta at the
statutory rate (30 percent as of the date of pprova of ths Treasury
Decson) has been wthhed from such dvdends on or after anuary
1,195 , there sha be reeased by the wthhodng agent and pad over
to the person from whom t was wthhed the dfference between the
ta so wthhed and the ta requred to be wthhed pursuant to secton
501.2(c)(2).
( ) In the case of every ta payer whose address at the tme of pay-
ment was n Austraa and who furnshes to the wthhodng agent the
etter of notfcaton prescrbed n sectons 501.5(6) and 501.0(6) as
authorzaton for the reease of e cess ta wthhed, f Unted States
ta at the statutory rate (30 percent as of the date of approva of ths
Treasury Decson) has been wthhed on or after anuary 1, 195 ,
from royates to whch secton 501.5 s appcabe, government pen-
sons, prvate pensons, and annutes ns denned n Artce II (2) of
the conventon, there sha be reeased by the wthhodng agent and
pad over to the person from whom t was wthhed an amount equa to
the ta so wthhed from such tems.
(5) The provsons of ths secton (other than par. (6)) sha have
no appcaton to e cess ta wthhed at source whch has been pad by
the wthhodng agent to the Dstrct Drector of Interna Revenue.
(b) Amounts wthhed durng 1053. or provsons respectng the
refund of e cess ta wthhed durng the caendar year 1953, see sec-
ton 501.11.
S C. 501. . ADDR SS Nor ACTUAL OWN R. (a) Genera. (1) If
the recpent n Austraa of any dvdend, wth respect to whch no
Unted States ta has been wthhed at source pursuant to secton
501.2 (c) (1), s a nomnee or representatve through whom such dv-
dend fows to a person other than one descrbed n secton 501.2 (a) (1)
as beng entted to the e empton from Unted States ta , such recp-
ent n Austraa sha wthhod upon such dvdend (to the e tent
consttutng gross ncome from sources wthn the Unted States).
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623
Unted States ta at the statutory rate (30 percent as of the date of
approva of ths Treasury Decson).
2) If the recpent n Austraa of any dvdend, wth respect to
whch Unted States ta at the reduced rate of 15 percent has been
wthhed at source pursuant to secton 501.2(e)(2), s a nomnee or
representatve through whom such dvdend fows to a person other
than one descrbed n secton 501.2(a)(2) as beng entted to such
reduced rate, such recpent n Austraa sna wthhod an addtona
amount of Unted States ta equvaent to the Unted States ta whch
woud have been wthhed f the conventon had not been n effect (30
percent as of tho date of approva of ths Treasury Decson) mnus
the 15 percent whch has been wthhed at the source.
(3) In any case n whch a fducary or partnershp wth an address
n Austraa receves, otherwse than as a nomnee or representatve,
a dvdend wth respect to whch no Unted States ta has been wth-
hed at source pursuant to secton 501.2(c)(1), or wth respect to
whch Unted States ta at tho reduced rate of 15 percent has been
wthhed at source pursuant to secton 501.2(c) (2), f a benefcary of
such fducary or partner n such partnershp s not entted to the
e empton from, or reducton n rate of, Unted States ta granted by
Artce I or II of the conventon, as the case may be, the fducary
or partnershp sha wthhod the requred or addtona Unted States
ta wth respect to the porton of such dvdend ncuded n such bene-
fcary s share, or n such partner s share, of the ncome of such fdu-
cary or partnershp whch s ncudbe n the gross ncome of such
benefcary or partner. The amount of the ta to be wthhed s to
be cacuated n the same manner as under subparagraph (1) or sub-
paragraph (2), whchever s appcabe.
( ) If any amount of Unted States ta s reeased pursuant to
secton 501.7 by the wthhodng agent n the Unted States wth re-
spect to a dvdend pad to such a person (nomnee, representatve,
fducary, or partnershp) wth an address n Austraa, the atter
sha aso wthhod from such reeased amount any Unted States ta ,
otherwse requred to bo wthhed by the precedng provsons of ths
secton n respect of such dvdend, n tho same manner as f at the
tme of payment of such dvdend no Unted States ta , or Unted
States ta at the rate of ony 15 percent, Tvhchever, s approprate,
had been wthhed at source therefrom.
(b) Returns fed by Austraan wthhodng agents. The amounts
wthhed pursuant to paragraph (a) by any wthhodng agent n
Austraa sha be deposted, wthout convertng such amounts nto
Unted States doars, wth the Austraan Commssoner of Ta aton
on or before the 15th day after the cose of the quarter of the caendar
year n whch such wthhodng n Austraa occurs. The wthhod-
ng agent makng such depost sha render therewth such approprate
Austraan form as may be prescrbed by the Commssoner of Ta a-
ton. Tho amounts so deposted shoud be remtted by tho Com-
mssoner of Ta aton by draft n Unted States doars to the Dstrct
Drector of Interna Revenue, Batmore 2, Maryand, U. S. A., on or
before tho end of the caendar month n whch the depost s made,
and shoud be accompaned by such Austraan form as may be re-
qured to be rendered by the wthhodng agent n Austraa n con-
necton wth such depost.
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62
S C. 501.9. IN ORMATION To B URNISH D pr ORDINARY COURS .
(a) Genera. In compance wth the provsons of Artce III,
of the conventon the Commssoner of Interna Revenue w transmt
to the Austraan Commssoner of Ta aton, as soon as practcabe
after the cose of the caendar year 195 and of each subsequent caen-
dar year durng whch the conventon s n effect, the dupcate copy
of each avaabe orm 10 2 Suppement fed for the precedng caen-
dar year pursuant to paragraph (b).
(b) Informaton return. (1) To factate compance wth Artce
III of the conventon, every Unted States wthhodng agent
sha make and fe n dupcate wth the Dstrct Drector of Interna
Revenue for the dstrct n whch the wthhodng agent s ocated
an nformaton return on orm 10 2 Suppement, wth respect to Aus-
traan addresses, whch sha be fed for the caendar year 195 and
subsequent caendar years. Ths return sha be fed smutaneousy
wth orm 10 2.
(2) There sha be reported on such orm 10 2 Suppement a
tems of f ed or determnabe annua or perodca ncome (and, for
1955 and subsequent years, amounts descrbed n sec. 02(a) (2), sec.
C31 (b) and (c). and sec. 1235 of the Interna Revenue Code of 195 .
whch are consdered to be ga|ns from the sae or e change of capta
assets) derved from sources wthn the Unted States and pad to
nonresdent aens (ncudng nonresdent aen ndvduas, fdu-
cares, and partnershps) and to nonresdent foregn corporatons,
whose addresses at the tme of payment were n Austraa, ncudng
such tems of ncome upon whch, n accordance wth ths Treasury
Decson, no wthhodng of Unted States ta s requred.
S C. 501.10. B N ICIARI S O A DOM STIC STAT OR TRUST. A
nonresdent aen who s a resdent of Austraa and who s a bene-
fcary of a domestc estate or trust sha be entted to the e empton
from, or reducton n rate of, Unted States ta granted by Artces
I, II, and of the conventon wth respect to dvdends and copy-
rght royates to the e tent such tem or tems are ncuded n that por-
ton of the ncome of such estate or trust whch s (or woud, but for
such e empton, be) ncudbe n the gross ncome of the benefcary,
provded that he otherwse satsfes the requrements of these respectve
artces. In order to be entted n such nstance to the e empton
from, or reducton n rate of, wthhodng of Unted States ta such
benefcary must otherwse satsfy suc requrements and sha, where
appcabe, e ecute and submt to the fducary of such estate or trust
n the Unted States the approprate etter of notfcaton prescrbed n
secton 501.5 (b).
S C. 501.11. R UND O C SS TA WITHH LD DURING 1953. (a)
If Unted States ta wthhed at the source durng the year 1953 from
dvdends, copyrght royates, pensons, or annutes s n e cess of the
ncome ta mposed under the nterna revenue aws, as modfed by
the conventon, a cam by the ta payer for the refund of any overpay-
ment resutng therefrom sha be made under subchapter B of chapter
66 of the Interna Revenue Code of 195 by fng orm 3 together
wth orm 10 0NB, orm 10 0NB-a, orm 10 0B, orm 1120, or
orm 1120NB, whchever s appcabe, or wth an amended return.
(b) The ta payer s tota gross ncome from sources wthn the
Unted States, ncudng every tem of capta gan sub|ect to ta
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625
under the provsons of secton 211(a)(1)(B) or 211(c) of the In-
terna Revenue Code of 1939. sha be dscosed on the return. In the
event that securtes are hed n the name of a person other than the
actua or benefca owner, the name and address of such person sha
be furnshed wth the cam. There sha aso be ncuded n such
cam for refund:
(1) A statement that, at the tme when the tem or tems of
ncome were derved from whch the e cess ta was wthhed, ()
the ta payer was nether a ctzen nor a resdent of the Unted
States but was a resdent of Austraa under the aws of Austraa
reatng to Austraan ta , or, n the case of a corporaton, () the
ta payer was a corporaton (other than a Unted States corpora-
ton) whch was a resdent of Austraa under the aws of Aus-
traa reatng to Austraan ta
(2) A statement that the ta payer at no tme durng the ta -
abe year n whch the ncome was derved was engaged n trade
or busness wthn the Unted States through a permanent estab-
shment stuated theren
(3) In the case of a cam nvovng an overpayment of ta
upon dvdends to whch secton 501.2(a)(1) s appcabe, a
statement that such dvdends were pad by a company (other
than a Unted States corporaton) whch was a resdent of Aus-
traa at the tme of payment and
( ) In the case of a cam nvovng an overpayment of ta
upon dvdends to whch secton 501.2(aW2) s appcabe, a
statement that the ta payer was abe for Austraan ta on such
dvdends.
(c) If, however, the ta payer derved durng the ta abe year from
sources wthn the Unted States ncome whch conssts e cusvey
of dvdends to whch secton 501.2(a) (1) s appcabe, and/or pen-
sons or annutes to whch secton 501.C s appcabe, the statement
specfed nparagraph (b) (2) sha not be requred.
Because t s necessary to brng nto effect at the earest pract-
cabe date tho rues of ths Treasury decson respectng reease or
refund of e cess ta wthhed, and e empton from, or reducton n
rate of, wthhodng of ta , t s hereby found that t s mpractcabe
to ssue ths Treasury Decson wth notce and pubc procedure
thereon under secton (a) of the Admnstratve Procedure Act, ap-
proved une 11, 19 6, or sub|ect to the effectve date mtaton of
secton (c) of that act.
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 7 05 of the Interna Revenue Code of 195 (Pubc Law 591, 3d
Cong., approved August 16,195 26 U. S. C. 7 05).)
O. Gordon Dek,
Actng Commssoner of Interna Revenue.
Approved October 13,195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth Ue Dvson of the. edera Regster October 1 , 105 , : 9 a. m.)
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626
UNIT D STAT S-B LGIAN TA CON NTION
A conventon between the Unted States and Begum for the avod
ance of doube ta aton and the preventon of fsca evason wth re-.
6pect to ncome ta es was sgned at Washngton, D. C, on October
2 ,19 , and was modfed and suppemented on September 9,1952.
That conventon as so modfed and suppemented s reproduced
beow.
It was approved for ratfcaton by the Unted States Senate on
uy 9,1953 was ratfed by the Presdent on uy 23,1953, and by
Begum on uy 27,1953. The ratfcatons were e changed at Brus-
ses on September 9, 1953. The conventon was procamed by the
Presdent on September 23,1953 and s effectve wth respect to n-
come derved n ta abe years begnnng on and after anuary 1,1953.
The conventon, as modfed and amended, reads as foows:
Abtc I
(1) The ta es whch are the sub|ect of the present conventon are:
(a) In the case of the Unted States: The edera Income ta es.
(b) In the case of Begum: The Income ta es, the natona crss ta ,
and the persona compementary ta , Incudng a addtons to these ta es.
(2) The present conventon sha appy aso to any other ta es of a substan-
tay smar character Imposed by ether contractng State subsequenty to the
date of sgnature of the present conventon or by the government of any terr-
tory to whch the present conventon Is e tended under Artce II.
(3) In the event of apprecabe changes In the fsca aws of cther of the
contractng States the competent authortes of the contractng States w con-
sut together.
Abtcuc II
(1) In the present conventon, uness the conte t otherwse requres:
(a) The term Unted States means the Unted States of Amerca, and
when used In n geographca senso means tbo States, tho Terrtores of
Aaska and of Hawa, and the Dstrct of Coumba.
(b) The term Begum when used In a geographca sense means tho
ngdom of Begum In urope,
(c) Tho term Unted States enterprse means an Industra or com-
merca enterprse or undertakng carred on n the Unted States by a
ctzen or resdent of tho Unted States, by a corporaton or other |udca
person created or organzed In the Unted States or under the aws of tho
Unted States or of any State or Terrtory of the Unted States.
(d) The term Began enterprse means an Industra or commerca
enterprse or undertakng carred on n Begum by a ctzen or resdent of
Begum or by a corporaton or other urdca person created or organzed
In Begum or under the aws of Begum.
(e) The terms enterprse of ono of the contractng States and enter-
prse of the other contractng State mean a Unted States enterprse or a
Began enterprse, as the conte t requres.
(f) The term permanent estabshment when used wth respect to an
enterprse of one of the contractng States, means a branch, factory, mne,
o we, pantaton, workshop, warehouse, nstaaton, or other f ed pace
of busness, but does not Incude an agency uness the agent has, and
habtuay e ercses, a genera authorty to negotate and concude con-
tracts on behaf of such enterprse or has contro over a stock of mer-
chandse from whch he reguary fs orders on behaf of such an enter-
prse. An enterprse of one of the contractng States sha not be deemed
to hove a permanent estabshment n the other contractng State merey
because It carres on busness deangs n such other contractng State
through a bona fde commsson agent or broker actng In the ordnary
course of hs busness as such. When a corporaton of one contractng
State has a subsdary corporaton whch Is a corporaton created or organ-
zed In the other contractng State or whch s engaged n trade or busness
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627
In mch other contractng State, such subsdary corporaton sha not,
merey because of that fact, be deemed to be a permanent estabshment
of Its parent corporaton.
(g) The term Industra and commerca profts sha not ncude the
foowng:
(I) Income from rea property -
(II) Income from mortgages, from pubc Irnds, securtes (Incudng
mortgage bonds), oans, deposts, and current accounts
(III) Dvdends and other Income from shares In a corporaton
(It) Rentas or royates arsng from easng persona property
or from any Interest In such property, ncudng rentas or royates
. for the use of, or for the prvege of usng, patents, copyrghts,
secret processes and formuae, goodw, trade-marks, trade brands,
franchses, and other ke property
(v) Troft and oss from the sae or e change of capta assets
(v) Compensaton for abor or persona servces.
Sub|ect to the provsons of the present conventon, the Income referred
to n subparagraphs (1) to (v) sha be ta ed separatey or together wth
ndustra and commerca profts n accordance wth the aws of the
contractng States.
(h) The term competent authorty or competent authortes means.
n the case of the Unted States, the Commssoner of Interna Revenue
or hs duy authorzed representatve and In the case of Begum, the
DIrectour Genera de Admnstraton des Contrbutons Drectes or hs
duy authorzed representatve and. In the case of any terrtory to whch
the present conventon Is e tended under Artce II, the competent
authorty for the admnstraton n such terrtory of the ta es to whch
the present conventon appes.
(2) In the appcaton of the provson of the present conventon by ether
of the contractng States, any term whch a not otherwse defned sha, uness
the conte t otherwse requres, have the meanng whch that term has under
the aws of such contractng State reatng to the ta es whch are the sub|ect
of tbo present conventon.
Abtcuc III
(1) An enterprse of one of the contractng States Is not sub|ect to ta aton
by the other contractng Stnte In respect of Its ndustra and commerca
profts e cept In respect of such profts aocabe to ts permanent estabsh-
ment n such other State.
(2) However, an enterprse of one of the contractng States a not sub|ect
to ta aton by the other contractng State If t mantans . the atter State
ony an estabshment whch confnes tsef to the purchasng of merchandse
for the purpose of suppyng estabshments whch such enterprse mantans
n tbo former State.
Artc I
(1) If an enterprse of one of the contractng States has a permanent estab-
shment n the other contractng State, there sha be attrbuted to such per-
manent estabshment the net ndustra and commerca proft whch t mght
be e pected to derve If It were an Independent enterprse engaged In the same
or smar actvtes under the same or smar condtons. Such net proft w,
n prncpe, be determned on the bass of the separate accounts pertanng to
such estabshment.
(2) The competent authorty of the ta ng State may, when necessary. In
e ecuton of paragraph (1) of ths Artce, rectfy the accounts produced, notaby
to correct errors and omssons or to reestabsh the costs, prces or remuneraton
entered In the books at the vaue whch woud preva between ndependent
persons. If
(a) an estabshment does not produce an accountng showng Us own
operatons, or
(b) the accountng produced does not correspond to the norma usages
of the trade In the country where the estabshment a stuated, or
(c) the rectfcatons provded for In ths paragraph cannot be effected,
the competent authorty of the ta ng State may determne the net ndustra
and commerca proft by appyng to the operatons of the estabshment such
methods or formuae ns may be far and reasonabe.
(3) To factate the determnaton of ndustra and commerca profts whch
are aocabe to the permanent estabshment, the competent authortes of the
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62
contractng States may consut together wth a vew to the adopton of unform
rues of aocaton wth respect to such profts.
( ) In the determnaton of the net Industra and commerca profts aocabe
to the permanent estabshment there sha be aowed as deductons a e penses,
wherever Incurred, Insofar as they are reasonaby aocabe to the permanent
estabshment, Incudng e ecutve and genera admnstratve e penses so
aocabe.
Abtce
When an enterprse of one of the contractng States, by reason of Its partc-
paton In the management or fnanca structure of an enterprse of the other
contractng State, makes wth or Imposes on the atter enterprse. In ther
fnanca or commerca reatons, condtons dfferent from those whch woud
e nne wth an Independent enterprse, any profts whch, but for those cond-
tons, woud have accrued to one of to enterprses may be Incuded In the ta abe
profts of that enterprse, sub|ect to appcabe measures of appea.
Abtcs I
Income of whatever nature derved from rea property sha be ta abe ony
In the contractng State In whch the rea property Is stuated. Ths Artce
does not appy to ncome derved from mortgages or bonds secured by rea
property.
Artce II
(1) Income whch an enterprse of one of the contractng States derves from
the operaton of shps or arcraft regstered n that State sha be e empt from
ta aton n the other contractng State.
(2) The present conventon sha not be deemed to affect the provsons of
the e change of notes between the Unted States and Begum, dated anuary
2 , 1936, provdng for reef from doube Income ta aton on shppng profts.
Abtce III
(1) The rate of Unted States ta on dvdends derved from sources wthn
the Unted States by a resdent or corporaton or other entty of Begum not
havng a permanent estabshment wthn the Unted States sha not e ceed 15
percent
(2) Begum sha not Impose on dvdends derved from sources wthn
Begum by a resdent or corporaton or other entty of the Unted States not
havng a permanent estabshment wthn Begum any ta n the nature of
a persona compementary ta or surta thereon, or any ta smar to that
wthhed at the source on dvdends under Unted States aw n the case of
nonresdent aens and foregn corporatons.
Abtce IIIA
The rate of ta Imposed by each of the contractng States upon Interest (on
bonds, notes, debentures, or any other form of ndebtedness) derved from
sources wthn such State by a resdent or corporaton or other entty of the
other State not havng a permanent estabshment wthn the former State sha
not e ceed 15 percent
1 The suppementa conventon sgned September 9, 1932, added the above par. to
Artce I .
ecutve Abetment ere 7: 9 Stat 71.
Pror to amendment by the suppementa conventon sgned September 0, 1932, Artce
T read nA foows:
Artcc III. (1) The rate of Unted States ta on dvdends derved from a Unted
States corporaton by a corporaton created or organzed In Begum or under tbe aws .
of Begum whch a not engaged In trade or busness In the Unted States through a per-
manent estabshment theren sha not e ceed Ave percent If the atter corporaton contros,
drecty or Indrecty, at east nnety-fve percent of the entre votng power In tbe cor-
poraton payng the dvdend, and not more than twenty-fve percent of tbe gross Income of
such payng corporaton a derved from Interest and dvdends, other than Interest and
dvdends receved from Its own subsdary corporatons. Such reducton of the rate to
fre percent sha not appy If the reatonshp of the two corporatons haa been arranged
or s mantaned prmary wth ther ntentons of securng such reduced rate.
(2) Notwthstandng tbe provsons of Artce III of ths conventon the provsons
of ths Artce may be termnated by tbe Unted States provded pror notce s gven to
Begum, such termnaton to become effectve on the frst day of the fourth caendar month
foowng the caender month n whch such notce a gven.
The suppementa conventon sgned September 9, 1932, added the above Artce IIIA.
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629
,. I-.A. : -.v.- : .-: r artcus I . .r 7 ....,,..,-.
(1) Rentas or royates from rea property or In respect of the operaton
of mnes, quarres, or other natura resources sha be ta abe ony In the con-
tractng State In whch such property, mnes, qnnrres. or other natura re-
sources are stuated. A resdent of Begum, or a corporaton or other urdca
person created or organzed In Begum dervng such rentas or royates from
sources wthn the Unted States may eect for any ta abe year to be sub|ect
to Unted States ta as If such resdent, corporaton, or entty were engaged
In trade or busness wthn the Unted States through a permanent estabsh-
ment theren In such ta abe year.
(2) Royates derved from wthn one of the contractng States by a res-
dent or by a corporaton or other entty of the other contractng State as con-
sderaton for the rght to use copyrghts, patents, secret processes and formuae,
trnde-mnrks, and other antogous rghts sha be e empt from ta aton In the
former State, provded sueh resdent, corporaton, or other entty docs not
havo a permanent estabshment there. The term royates as used In ths
paragraph sha be deemed to ncude rentas In respect of motoo pctures
fms.
Artce
(1) Wages, saares and smar compensatons, and pensons and annutes,
pad by one of the contractng States or by the potca subdvsons or terr-
tores thereof to ctzens of that State resdng In the other State (whether or
not aso ctzens of such other State) sha be e empt from ta aton In tbe atter
State.
(2) Prvate pensons and annutes derved from wt bn one of the contractng
States and pad to Indvduas resdng In the other contractng State sha be
e empt from ta aton In the former State.
(3) The term pensons as used In ths Artce means perodc payments
made In consderaton for servces rendered or by way of compensaton for In-
|ures receved.
( ) The term annutes as used In ths Artce means a stated sum payabe
perodcay at stated tmes, under an obgaton to make the payments n con-
sderaton of money pad.
Artce I
(1) A resdent of the Unted States sha be e empt from Began ta upon
compensaton for abor or persona servces performed wthn Begum f he
fas wthn ether of tbe foowng cassfcatons:
(a) Ho Is temporary present wthn Begum for a perod or perods
not e ceedng a tota of 1)0 days durng the caendar year and the compensa-
ton receved for sueh abor or persona servces does not e ceed 3, 00 a
the aggregate, or Its correspondng amount, e cept that the provsons
of ths subparagraph sha not appy to remuneraton of ndmnstrnteur.
coramssares, or qudateurs of, or of other ndvduas e ercsng
smar functons In corporatons created or organzed In Begum
(b) He s temporary present wtn Begum for a perod or perods not
e ceedng a tota of 1 3 days durng the caendar year and hs compensa-
ton Is receved for abor or persona servces performed as a worker or
empoyee of, or under contract wth, a resdent of, or a corporaton or other
urdca person created or organzed In, the Unted States whch carres
the actua burden of remuneraton. In such cases the Unted States re-
serves the rght to ta such ncome.
(2) A resdent of Begum sha be e empt from Unted States ta upon com-
pensaton for abor or pergona servces performed wthn the Unted States
f he fas wthn ether of the foowng cassfcatons:
(a) He s temporary present wthn the Unted States for a perod or
perods not e ceedng a tota of 00 days durng the ta abe year and the
compensaton receved for such abor or persona servces does not e ceed
3,000 In the aggregate, or Its correspondng amount, e cept that tbe pro-
vsons of ths subparagraph sha not appy to remuneraton of offcers
and drectors of corporatons created or organzed In the Unted States
(b) He Is temporary present wthn the Unted States for a perod or
perods not e ceedng a tota of 1 3 days durng the ta abe year and h
compensaton Is receved for abor or persona servces performed as a
worker or empoyee of, or under contract wth, a resdent of, or a corpora-
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(630
ton or other urdca person created or organzed a, Begum whch carres
the actua burden of the remuneraton. In such cases Begum reserves the
- rght to ta such ncome.
(3) The provsons of ths Artce sha have no appcaton to the Income
to whch Artce reates.
Abtce II
(1) Notwthstandng any provsons of the present conventon (other than
par. (1) of Artce ) each of the two contractng States, In determnng the
Income ta es, Incudng a surta es, of Its ctzens or resdents or corporatons
or other |urdca persons, may Incude In the bass upon whch such ta es are
Imposed a Items of ncome ta abe under ts own revenue aws as though ths
conventon bad not come Into effect.
(2) In accordance wth the provsons of secton 131 of the Unted States
Interna Revenue Code as n effect on the day of the entry Into force of the
present conventon, the Unted States agrees to aow as a deducton from the
Income ta es Imposed by the Unted States the approprate amount of ta es pad
to Begum, whether pad drecty by the ta payer or by wthhodng.
(3) In order to take Into account the edera Income ta es coected n the
Unted States, Begum agrees. In conformty wth the provsons of Began
aw reatng to Income ta es and the natona crss ta , as n effect on the day
of the entry Into force of the present conventon, to reduce
(a) to one-ffth. the professona ta and the natona crss ta whch
affect that part of the ta abe Income whch s derved from sources wthn
and ta ed by tbe Unted States.
(b) to a ma mum of 12 percent, the ta on ncome from persona and
rea property whch has ts source n the Unted States, and
(c) n derogaton of the provsons of Began aw, to one-fourth the per-
sona compementary ta due by ctzens or resdents of the Unted States
who are aso resdents of Begum, n respect of Income from sources wthn
and ta ed by the Unted States.
Artce III
Professors or teachers, ctzens of one of tbe contractng States, who, wthn
tbe framework of agreements between the contractng States or between teachng
estabshments In the contractng States for tbe sendng of professors and teach-
ers, vst: wthn the terrtory of tbe other contractng State to teach, for a
ma mum perod of 2 years, n a unversty, coege, schoo, or other teachng
estabshment In the terrtory of such other contractng State, sha not be ta ed
by such other State wth respect to the remuneraton whch they receve for
such teachng.
Abtce I
Students or apprentces, ctzens of one of the contractng States, resdng a
the other contractng State e cusvey for purposes of study or for acqurng e -
perence, sha not be ta abe by the atter State In respect of remttances receved
by them from abroad for the purposes of ther mantenance or studes.
Abtce
(1) The competent authortes of tbe contractng States sha e change such
Informaton (beng Informaton avaabe under the respectve ta aton aws of
the contractng States) as Is necessary for carryng out the provsons of the
present conventon or for the preventon of fraud or the admnstraton of
statutory provsons and reguatons aganst ega avodance n reaton to the
ta es whch are the sub|ect of the present conventon.
(2) Documents and Informaton contaned theren, transmtted under the
provsons of the present conventon by one of tbe contractng States to the
other contractng State sha not be pubshed, reveaed or dscosed to any per-
son e cept to the e tent permtted under the aws of the atter State wth
respect to smar documents or nformaton.
Abtoe I
The competent authorty of each of the contractng States sha furnsh, upon
request by the competent authorty of the other contractng State, partcuars
Pror to amendment by the nppemenrn conventon gned September 9, 1032, Artce
ZII(3) (a) read one-fourth Instead of one-ffth.
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631
reatve to the appcaton In concrete case of the ta es of the requestng State
to whch the present conventon reates.
Artce II
ach of the contractng States sha coect ta es, whch are the sub|ect of ths
conventon. Imposed by the other contractng State (as though such ta were
ta Imposed by the former State) as w ensure that the e empton, or reduced
rate of ta , as the case may be, granted nnder the present conventon by such
other State sha not be en|oyed by persons not entted to such benefts.
Artce III
In no cose sha the provsons of Artces , I, and II be construed
0 aa to Impose upon ether of the contractng States the obgaton
(a) to carry out admnstratve measures at varance wth the regua-
tons and practce of ether contractng State, or
(b) to suppy Informaton or partcuars whch are not procurabe under
Its own egsaton or that of the State makng the appcaton.
(2) The State to whch appcaton Is made for nformaton or assstance
sha compy as soon as possbe wth the request addressed to t. Nevertheess,
such State may refuse to compy wth the request for reasons of pubc pocy
or If compance woud Invove voaton of a busness, Industra, or trade
secret. In such case t sha nform, as soon as possbe, the State makng the
appcaton.
Artce I
Where a ta payer shows proof that the acton of the ta admnstratons of
the contractng States has resuted or w resut In doube ta aton In hs case
n respect of any of the ta es to whch the present conventon reates, he sha
be entted (wthn a perod of 2 years from the date of the notfcaton of the
ta whch has been ast asserted or proposed, or of the payment of the ta If
nch payment has been made pror to notfcaton) to odge a cam wth the
State of whch be s a ctzen, or. If he Is not a ctzen of ether of the contractng
States, wth the State of whch he s a resdent, or, If the ta payer s a corpora-
ton or other |urdca person, wth the State n whch It s created or organzed.
Shoud the cnm be uphed, the competent authortes of the two contractng
States sha come to an agreement wth a vew to equtabe avodance of the
doube ta aton n queston.
Artce
(1) The provsons of the present conventon sha not be construed to re-
strct In any manner any e empton, deducton, credt, or other aowance ac-
corded by the aws of one of the contractng States In the determnaton of
tbe ta mposed by that State.
(2) Shoud any dffcuty or doubt arse as to the Interpretaton or appca-
ton of the present conventon, the competent authortes of the contractng
States sha sette the queston by mutua agreement.
(3) ctzens or corporatons or other |urdca persons of one of the con-
tractng 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 |urdca per-
sons of such other contractng State.
Pror to amendment by the suppementa conventon sgned September . 1052, Artce
II read as foows :
Artce II. (1) Tbe contractor Statet undertake to ead assstance and support
to ench other n coecton of ra es to whch the present conventon reate , together mta
addtons. Interest, costs, and fnes not beng of a pena character.
(2) In the ease of an appcaton for enforcement of ta es, revenue cams of each
of the contractng States whch have been fnay determned may be accepted for enforce-
ment by the other contractng State and coected In that State m accordance wth the
aws appcabe to the coecton of Its own ta es. The State to whch appcaton Is mat
sha not be requred to enforce e ecutory measures for wbcb there s no provson n the
aw of tbe State makng the appcaton.
(3) An appcaton for coecton 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 Anay determned.
( ) The assstance provded for In ths Artce sha not be accorded wth respect to
the ctzens, corporatons, or other enttes of the State to whch appcaton Is made, e cept
as s necessary to Inst.re that the e empton or reduced rate of ta granted under tbe
conver|on to such ctzens, corporatons, or other enttes sha not be en|oyed by persons
not entted to such benefts.
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::. . : .: . . A|mcLt I : :. . .-, . ,
The competent authortes of the two contractng States may (In the case of
the Unted States, wth the approva of the Secretary of the Treasury, and In
the case of Begum, wth the approva of the Mnster of nance) prescrbe
reguatons necessary to carry out the provsons of the present conventon.
Wth respect to the provsons of the present conventon reatng to e change
of Informaton and mutua assstance In the coecton of ta es, such authortes
may, by common agreement, prescrbe rues concernng matters of procedure,
forms of appcaton and repes thereto, converson of currency, dsposton
of amounts coected, mnmum amounts sub|ect to coecton, and reated
matters.
Abtce II
(1) ther of the contractng States may, at the tme of e change of nstru-
ments of ratfcaton or thereafter whe the present conventon contnues n force,
by a wrtten notfcaton of e tenson gven to the other contractng State through
dpomatc channes, decare ts desre that the operaton of the present conven-
ton, ether n whoe or as to such provsons thereof as may be deemed to have
speca appcaton, sha e tend to any of ts coones or overseas terrtores
whch mposes ta es substantay smar n character to those whch are the
sub|ect of the present conventon.
(2) In the event that a notfcaton s gven by one of the contractng States
n accordance wth paragraph (1) of ths Artce, the present conventon, or
such provsons thereof as may be specfed In the notfcaton, sha appy to
any terrtory named n such notfcaton on and after the 1st day of anuary
foowng the date of a wrtten communcaton through dpomatc channes
addressed to such contractng State by the other contractng State, after such
acton by the atter State as may be necessary n accordance wth Its own pro-
cedures, statng that such notfcaton s accepted In respect of such terrtory.
In the absence of such acceptance, none of the provsons of the present conven-
ton sha appy to such terrtory.
(3) At any tme after the e praton of 1 year from the effectve date of
an e tenson made by vrtue of paragraphs (1) and (2) of ths Artce, ether
of the contractng States may, by a wrtten notce of termnaton gven to
the other contractng State through dpomatc channes, termnate the app-
caton of the present conventon to any terrtory to whch the conventon, or any
of Its provsons, has been e tended. In that case, the present conventon, or
the provsons thereof specfed n the notce of termnaton, sha cease to be
appcabe to any of the terrtores named In such notce of termnaton on
and after the 1st day of anuary foowng the e praton of a perod of 0
months after the date of such notce provded, however, that ths sha not
affect the contnued appcaton of the conventon, or any of the provsons
thereof, to the Unted States, to Begum, or to any terrtory (not named In
the notce of termnaton) to whch the conventon, or such provson thereof
appes.
() or the appcaton of the present conventon to any terrtory to whch
It Is e tended by the Unted States or by Begum, references to the Unted
States or to Begum or to one or the other contractng State, as the case
may be, sha be construed to refer to such terrtory.
(5) or the purposes of the present conventon, the Began Congo sha be
consdered to be a Began terrtory to whch the provsons of ths Artce
sha appy.
Aktce III
(1) The present conventon sha be ratfed and the Instruments of ratfca-
ton sha be e changed at Brusses as soon as possbe.
(2) The present conventon sha become effectve wth respect to Income
derved n ta abe years begnnng on or after the 1st day of anuary of the
caendar year n whch the e change of nstruments of ratfcaton takes pace,
e cept that f such e change takes pace after the 30th day of September of
such caendar year, Artces III and IIIA and Artce I (2) sha become
effectve ony wth respect to payments made after the 31st day of December
of such caendar year. It sha contnue effectve for a perod of 5 years
begnnng wth the 1st day of anuary of the caendar year n whch such
Pror to amendment by the suppementa conventon sgned September 9, 1052, Artce
I() read Washngton Instead of Brusses .
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633
e change takes pace and Indefntey after that perod, bnt may be termnated
by ether of the contractng States at the end of the 5-year perod or at any
tme thereafter, provded that at east 0 months pror notce of termnaton has
been gven, the termnaton to become effectve on the 1st day of anuary foow-
ng the e praton of the 0-month perod.
or the Government of the Unted States of Amerca:
Robebt A. Lovett (Orgna Conventon)
Dean Acheso (Suppementa Convecton)
or the Government of Begum:
SL CRura
UNIT D STAT S-CANADA STAT TA CON NTION
The conventon1 between the Unted States and Canada for the
avodance of doube ta aton and the preventon of fsca evason wth
respect to estate ta es and successon dutes, whch was sgned at
Ottawa on une ,19 , was modfed and suppemented on une 12,
1950. The conventon as so modfed and suppemented s reproduced
beow.
The suppementary conventon was ratfed by Canada on August 1,
1950, was approved for ratfcaton by the Unted States Senate on
September 17,1951, and was ratfed by the Presdent on October 13,
1951. The ratfcatons were e changed at Washngton on November
21,1951. The suppementary conventon was procamed by the Pres-
dent on November 29,1951, and s appcabe to estates or successons
n the case of persons who de on or after November 21,1951, e cept
as otherwse- provded n Artce I.
The provsons of Artces II to I, ncusve, of the conventon of
une ,19 , were abrogated wth respect to estates of decedents dyng
on or after the day of the entry nto force of the suppementary
conventon, and were repaced by the provsons of Artces II to I,
ncusve, of the suppementary conventon.
The conventon, as so modfed and amended, reads as foows:
Artce I
1. The ta es referred to In ts conventon are:
(a) for the Unted States of Amerca the edera estate ta es
(b) for Canada the ta es Imposed under the Domnon Successon Duty
Act
2. In the event of apprecabe changes In the fsca aws of ether contractng
State, the competent authortes of the contractng States w consut together.
Artce II
Where a person des a ctzen of the Unted States of Amerca or domced
In the Unted States of Amerca or Canada, the stus of any rghts or Interests,
ega or equtabe. In or over any of the foowng casses of property, whch
for the purposes of ta form or ore deemed to form part of the estate of such
person or pass or are deemed to pass on hs death, sha, for the purposes of the
Imposton of ta and for the purposes of the credt to be aowed under Artce
Pror to amendment by the euppemcnta conventon gned September 0. 1032, Artce
III(2) read aA foow.:
ARTct. III (21 The present conventon eba become effectve on the frat day of
anuary of the Tear In whch the echange of Instruments of ratfcaton takea pnce. It
aa contnue effectve for a perod of fve years begnnng wth that date and Indefntey
after that perod, hut may be termnated by ether of the contractng State at the end of
the fve-year perod or at any tme thereafter, prov ded that at enat az months pror notce
of termnaton haa been gven, the termnaton to become effectve on the frst day of
anuary foowng the e praton of the s -month perod.
C. B. 19 5, 1,
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63
, be determned e cusvey In accordance wth the foowng raes, bat In cases
not wthn such rues the stus of such rghts or nterests sha be determned
for these purposes n accordance wth the aws n force In the other contractng
State: .
(a) Immovabe property (otherwse than by way of securty) sha be
deemed to be stuated at.the pace where such property Is ocated
(b) Tangbe movabe property (otherwse than by way of securty and
other than such property for whch specfc provson s herenafter made),
bank or currency notes and other forms of currency recognzed as ega tender
In the pace of ssue, sha be deemed to be stuated at the pace where
ocated at the tme of death, or, f n transtu, at the pace of destnaton
(c) Debts (ncudng bs of e change and promssory notes, whether nego-
tabe or not), secured or unsecured and whether under sea or not, e cudng
the forms of ndebtedness for whch specfc provson Is herenbefore or heren-
after made, sha be deemed to be stuated at the pace where the debtor was
resdent at the tme of death, or, f the debtor Is a company, at the pace where
the company Is Incorporated
(d) Bank accounts sha bo deemed to be stuated at the pnco wbero the
bank or branch thereof, at whch to account was kept, Is ocated
(e) Securtes Issued by any government, muncpaty or pubc authorty
sha be deemed, If In bearer form, to be stuated at tho pace where ocated at
the tme of death and, f nscrbed or regstered, to be stuated at the pnco
where Inscrbed or regstered, as provded by the Issung authorty
(f) Shares, stock, bonds, debentures or debenture stock In a company (In-
cudng any such property hed by a nomnee, whether the benefca ownershp
Is evdenced by scrp certfcates or otherwse) sha be deemed to be stuated
at the pace where the company Is Incorporated
(g) Moneys, payabe under a pocy of assurance or Insurance, or under an
annuty contract, whether under sea or not, sha bo deemed to bo stuated
where the pocy or annuty contract provdes that the moneys sha be payabe,
or, In the absence of any such provson, at the pace of resdence of the ssuer,
or, If a company, at the pace where the company s Incorporated
(h) Shares n a partnershp sha be deemed to be stuated at the pace
where ts busness s prncpay carred on
() Shps and arcraft and shares thereof sha be deemed to be stuated at
the pace of regstraton of the shp or arcraft
( ) Goodw as a trade, busness or professona asset sha be deemed to be
stuated at the pace where the trade, busness or professon to whch t pertans
Is carred on
(k) Patents, trade-marks and desgns sha be deemed to be stuated at the
pace where they are regstered
(1) Copyrght, franchses, and rghts or censes to use any copyrghted ma-
tera, patent, trade-mark or desgn sha be deemed to be stuated at the pace
where the rghts arsng therefrom are e ercsabe
(m) Rghts or causes of acton e decto survvng for the beneft of an estate
of a deceased person sha be deemed to be stuated at the pace where such
rghts or causes of acton arose
(n) udgment debts sha be deemed to be stuated at the pace where the
|udgment s recorded
provded that ths Artce sha not be construed as Increasng the abty of
the estate of any person under the estate ta aws of the Unted States of
Amerca.
Artce III
1. Aowance for debts sha be determned In accordance wth the aws of the
contractng State mposng the ta .
2. Domce sha be determned n accordance wth the aws In the contractng
State mposng the ta on the bass of domce.
Pror to amendment by tbt suppementary conventon sgned an 12, 1630, Artce II
read as foow :
Artce II. 1. Beat property stuated n Canada sha h e empt from the appca-
ton of the ta e Imposed by the Unted States of Amerca.
2. Rea property stuated In the Unted States of Amerca sha be e empt from the
appcaton of the ta es Imposed by Canada.
3. The queston whether rghts reatng to or secured by rea property are to be con-
sdered as rea property for the purposes of ths conventon sha be determned a ac-
cordance wth the aws of the contractng State Imposng the ta .
Pror to amendment by the suppementary conventon sgned une 12, 1 30, Artce III
read as foows:
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635
Artce I .
Where one of the contractng States mposea ta es by reason of the property s
beng stuated theren such State sha. If the decedent was domced In the
other contractng State:
(a) for the purpose of determnng the tar rate or rates, take Into account
ony property stuated In such State, and
(b) aow as an e empton an amount not ess than an amount whch bears
the same rao to the specfc e empton that woud be aowed If such State
were Imposng the tn by reason of the decedent s beng domced theren, as the
vuue of the property stuated In such State bears to the entre vaue of the
property wherever stuated.
A TICI
1. Where ether contractng State moses ta es by reason of a decedent s
beng domced theren or beng a ctzen thereof, that contractng State sha
aow ngnnst so much of ts ta es (ns otherwse computed) as Is attrbutabe to
pro M rty ttntcd In the other contractng State a credt (not e ceedng: the
amount of the ta es so attrbutabe) equa to so much of the ta es Imposed by
to oer contractng Hte as Is atrnabo to such property.
_ . Where each contractng Stato Imposes ta es on any property stuated oat-
sde both contractng States, each contractng State sha aow aganst so much
of Its ta es (as otherwso computed) as Is attrbutabe to such property a credt
whch bears the sumo proporton to the amount of Its ta es so attrbutabe or
to the amount of the other contractng State s ta es attrbutabe to the same
property, whchever Is the ess, as the former amount bears to-the Sum of both
amounts.
3. or the purposes of ths Artce, the amount of the ta es of a contractng
State attrbtttnbu to any property sha be ascertaned after takng Into account
any credt, aowance or reef, or any remsson or reducton of ta es, other
than the credt authorzed by ths Artce.
Artce III. 1. Shorn In s corporaton orraned In or under the aws of the Unted
Stato of Amerca, of any of the States or Terrtores of the Unted Statea of Amerca, or
of the dstrct of Coumba, sha be deemed to be property stuated wthn the Unted
States of Amerca.
2. Shares In a corporaton organzed In or under the aws of Canada, or of an of te
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 In Canada or of any ctzen of the Unted States of Amerca, under the estate
ta aws of the Unted States of Amerca.
Pror to amendment by the suppementary convecton sgned une 12, 1950. Artce IT
read as foows:
Artce I . 1. The stus of property sta be determned a accordance wth the aws
of the contractng State Imposng the ta , e cept as otherwse provded h ths conventon.
2. Aowance for debts sha be determned In accordance wth the aws of the coa-
tradng state Imposng the ta .
3. Domce sha be determned In accordance wth the aws of the contractng State
Imposng the ta .
Pror to amendment by the suppementary conventon sgned une 12, 1950, Artce T
read as foows:
Artce . 1. In the case of a decedent who at the tme of hs death was a ctzen of.
or domced In, the Unted States of Amerca, the Unted States of Amerca may Incude
In the grots estate any property (other than rea property) stuated n Canada as thou a
ths conventon had not come Into effect.
2. In the case of a decedent (other than a ctzen of the Unted States of Amerca) who
at the tme of hs death was domced In Canada, the Unted States of Amerca sha, n
Imposng the ta es to whch ths conventon reates :
(o take Into account ony property stuated n the Unted States of Amerca: and
(b) aow as an e empton an amount whch bears the same rato to the pergona
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 Amerca as the vaue of the property of such
decedent stuated n the Unted States of Amerca bears to the vaue of the property
Incuded In the entre gross estate of the decedent.
3. In the. cane of a decedent who at the tme of bs death was domced n Canada,
Canada mar Incudo In the gross estate any property (other than rea property) stuated
In the Unted States of Amerca as though ths conventon had not come nto effect.
d. In the cane of a decedent wbo at the tme of hs death was domced In the Unted
States of Amerca, Canada sha. In Imposng the ta es to whch ths conventon reates:
(a) take Into account ony property stuated In Canada and
(b) aow as an e emptos en amount whch bears tbe same rato to the perscs
e empton aowed n tbe case of a decedent wbo was at the tme of ha death dom-
ced n Canada as the vaue of the property of such decedent stuated n Canada bear)
to the entre vaue of the property, wherever stuated.
33510 53 11
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ARTICL I
1. Any cam (or a credt or for a refund of ta es founded on tho provsons
of the Conventon sgned on ane , 10 , or of the present suppementary Con-
venton, sha bo made wthn s years from the date of death of the decedent
n respect of whose estate the cam Is made, or, In the caso of a reversonary
Interest where payment of ta es s deferred unt the date on whch the Interest
fas Into possesson, wthn s years from that date.
2. Any such refund sha be made wthout payment of Interest on the amount
so refunded.
ABTICLB II
1. Wth a vew to the preventon of fsca evason each of the contractng
States undertakes to furnsh to tho other contracttn State as provded In the
succeedng artces of ths conventon, the nformaton whch Its competent
authortes have at ther dsposa or are In a poston to obtan under Its revenue
aws In so far as such Informaton may be of use to the authortes of the other
contractng State In the assessment of the ta es to whch ths conventon reates.
2. The nformaton to be furnshed under ths artce, whether n the ordnary
Pror to amendment by the suppementary conventon sgned une 12, 1050, Artce I
read as foows:
ATn. I. 1. In the cute of a decedent who at the tme of hs death was a ctzen
of or domced In the Unted Sta s of Amerca, te Unted State of Amerca sha Impose
the estate ta es to whch ths conventon reates upon the foowng condtons:
(a) In respect of property stmted In Canada whch, for the purpose of estate
tn cs, s Incuded In tne gross estate, ess such property as Is specfcay deducted
therefrom (etber because of transfer for pubc, chartabe, educatona, reRous or
smar uses or because the property has been prevousy ta ed under provsons of aw
reatng to property prevousy ta ed), there shn be Aowed aganst the e tate ta es
a credt for Canadan successon ta es In respect of the property stuated In Canada,
the stus of such property beng determned In accordance wth the awA of Canada,
sub|ect to the provsons of ths conventon.
(ID The porton of the Cnnndnn 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 ns the vaue of the property stuated In Canada and wth
respect to whch estate ta es are Imposed by the Unted States of Amerca bears to
the t tn vaue of the property wth respect to whch successon ta es are Imposed
by Canada.
A ) The credt In any such case sn not e ceed an amount whch bears the same
rato to snch estate ta es, computed wthout the credt provded for heren, as the
vaue of the property stuated In Canada and nor e cuded or deducted from the gross
estate as provded In (a) bears to the vaue of the entre gross estate.
(d) The vaues referred to In (c) are the vaues determned by the Unted States
of Amerca 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 ov the Revenue Act of 19 2.
2. In the case of a decedent who at the tme of na death was domced In Canada,
Canada sha Impose the successon ta es to whch ths conventon reates upon the
foowng condtons :
(a) In respect of property stuated In the Unted States of Amerca whch, for
the purpose of successon ta es. Is Incuded In the grofs estate, ess such property at
Is 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 State estate ta es In respect of the property stuated In the Unted States
of Amerca, the stus of such property beng determned In accordance wth the aw
of the Unted States of Amerca, sub|ect to the provsons of ths conventon.
(b) The porton 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 In the Unted States
of Amerca and wth respect to whch successon ta es are Imposed by Canada bears
to the tota vuue of the property wth respect to whch estate ta es are Imposed by
the Unted States of Amerca.
(c) The credt In any such case sha not e ceed nn 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 In the Unted States of Amerca and not e cuded
or deducted from the gross estate as provded n (a) bear to the entre vaue of the
property, wherever stuated.
(d) The vaues referred to In (c) are the vaues determned by Canada for the
purpose of successon ta es.
. (a) The credt referred to In ths artce may be aowed by the Unted States of
Amerca If cam therefor Is fed wthn toe perods provded In sec. b 3(b) of the
Interna Revenue Code, as amended.
(b) The credt referred to In ths artce may be aowed by Canada f cam
therefor Is Ded wthn the perod provded by subsecton of ecton 33 of the Do-
mnon Successon Duty Act reatng to refund of overpayment.
(c) A refund based on the credt may be made If a cam therefor Is fed wthn
the respectve perods above provded.
(d) Any refund based on the provsons of ths artce or any otter provsons of
ths conventon sha be made wthout Interest.
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637
coarse or on request, may be e changed drecty between the competent au-
thortes of Use two contractng States.
Artc III
1. The Commssoner sha notfy the Mnster a soon as practcabe when
the Commssoner ascertans that In the case of:
(a) a decedent, any part of whose estate a sub|ect to the edera estate
ta aws, there Is property of such decedent stuated In Canada
(b) a decedent domced In Canada, any part of whose estate Is sub|ect
to the Domnon Successon Duty Act, there Is property of such decedent
stuated In the Cnted States of Amerca.
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 Is sub|ect to the Domnon
Successon Duty Act, there Is property of such decedent stuated n the
Unted States of Amerca:
(b) a decedent domced In the Unted States of Amercs, any part of
whose estate Is sub|ect to the edera estate ta aws, there Is property of
such decedent stuated In Canada.
Abtce I
1. If the Mnster deems t necessary to obtan the cooperaton of the Com-
mssoner In determnaton of the successon ta abty of any person, the
Commssoner may, npon request, furnsh the Mnster such Informaton bear-
ng upon the matter as the Commssoner Is entted to obtan under the reTenae
aws of the .Unted States of Amerca.
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 Is entted to obtan under the revenue aws of
Canada.
Abtc
The competent authortes of the contractng States may:
(a) prescrbe reguatons to carry Into effect hs conventon wthn the
respectve States and rues wth respect to the e change of nformaton
(b) 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.
Abtc I
If any fducary or benefcary can show that doube ta aton has resuted or
may resut In 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
ctzenshp or domce of such fducary or benefcary, or. If a corporaton or
other entty, wth the State In 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 t may be avoded In accordance wth the terms of ths conventon.
Abtcb II
The provsons of ths conventon sha not be construed to restrct In any
manner any e empton, deducton, credt or other aowance accorded by the
aws of one of the contractng States In the determnaton of the ta Imposed
by such State.
Aetc-e III
1. As used In ths conventon :
(a) The term Mnster means the Mnster of Natona Revenue of
Canada or hs duy authorzed representatve.
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63
(b) The -term Commssoner means the Commssoner of Interna
Revenue of the Unted States of Amerca, or hs duy authorzed repre-
sentatve.
(c) The term competent authorty or competent authortes means
the Commssoner and the Mnster and ther duy authorzed representa-
tves.
2. When used In a geographca sense:
(a) The term Unted States of Amerca Incudes ony the States, the
Terrtory of Aaska, the Terrtory of Hawa, and the Dstrct of Coumba.
(b) The term Canada means the Provnces, the Terrtores and Sabe
Isand.
Artce I
1. Ths conventon sha be ratfed and the Instruments of ratfcaton sha be
e changed at Washngton as soon as possbe.
2. Ths conventon sha be deemed to have come nto effect on the 1 th day
of une, 10 1. It sha contnue In effect for a perod of fve years from that date
and Indefntey after that perod, but may be termnated by ether of the con-
tractng States at the end of the 5-year perod or at any tme thereafter provded
that at east 6-months pror notce of termnaton has been gven.
Artce II of the suppementary conventon reads as foows:
Amc t II
1. The present suppementary conventon sha be ratfed and the nstru-
ments of ratfcaton sha be e changed at Washngton as soon as possbe. A
2. The present suppementary conventon sha enter nto force on the day
of the e change of the Instruments of ratfcaton and sha be appcabe to
estates or successons In the case of persons who de on or after that date,
e cept as otherwse provded n Artce I. It sha contnue effectve In-
defntey as though t were nn ntegra part of the Conventon of une , 19 ,
sub|ect to the provsons of Artce I of that conventon wth respect to
termnaton.
Done n dupcate, at Ottawa, ths th day of une, 19 (Orgna Conventon).
Done n dupcate, at Ottawa ths 12th day of une 1950 (Suppementary
Conventon).
or the Government of the Unted States of Amerca:
Rat Athebton (Orgna Conventon)
uan . Harrngton (Suppementary Conventon)
or the Government of Canada:
W. L. Mackenze no (Orgna Conventon)
Comn Gbson
D. C. Abbott (Suppementary Conventon)
UNIT D STAT S-GR C INCOM TA CON NTION
(Aso Part I, Sectons 1 1,1 2.) T. D. 6109
(Aso Part II, Sectons 1 3, 1 Reguatons
11 , Sectons 39.1 3-1,39.1 -1.)
TITL 2A INT RNAL R NU . CHAPT R I. SUBCHAPT R 0, PART 02.
INCOM TA WITHHOLDING GR C
Reease or refund of e cess ta wthhed and e empton from wth-
hodng of ta at source n the case of resdents of Greece and of
Greek corporatons, as affected by the ncome ta conventon and
protoco between the Unted States and Greece procamed by the
Presdent of the Unted States on anuary 15, 195 .
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639
1 ) , . TB A TBT Department,
,- Opfce op Commssoner op Interna e venue,
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Ohm
Concerned:
Tabe or Conte ts
Secton
B02.1. Introductory.
602.2. Dvdends.
602.3. Interest.
02. . Natura resource royates and rea property rentas.
602.5. Patent and copyrght royates.
502.0. Prvate pensons and fe annutes.
602.7. Reease of e cess ta wthhed at source.
502. . Informaton to be furnshed In ordnary course.
502.9. Bcncfcares of a domestc estate or trust.
502.10. Refund of e cess ta wthhed durng 1953.
Secton 502.1. Introductory. (a) The ncome ta conventon and
protoco between the Unted States and Greece, sgned ebruary 20,
1950, and Apr 20,1953, respectvey, and procamed by the Presdent
of the Unted States on anuary 15,195 , referred to n ths Treasury
Decson as the conventon, provdes n part as foows effectve anu-
ary 1,1953:
Abtc I
(1) The ta es whch are the sub|ect of the present conventon are:
(a) In the case of the Unted States of Amerca: the edera Income ta .
Incudng surta es (herenafter referred to as Unted States ta ).
(b) In the case of the ngdom of Greece: the ncome ta , ncudng the
scheduer or anaytca ta , the compementary ta and the professona
or busness ta (herenafter referred to as Greek ta ).
(2) The present conventon sha aso appy to any other ta es of a substan-
tay smar character mposed by ether contractng State subsequenty to
the date of sgnature of the present conventon.
Astce II
(1) In the present conventon, uness the conte t otherwse requres:
(a) The term Unted States means the Unted States of Amerca and
when used n a geographca sense means the States, the Terrtores of
Aaska and Hawa, and the Dstrct of Coumba.
(b) The term Greece means the terrtores of the ngdom of Greece.
(c) The term Unted States corporaton means a corporaton, assoca-
ton or other ke entty created or organzed In or under the aws of the
Unted States.
(d) The term Greek corporaton means a ega entty estabshed under
the aws of Greece.
(c) The terms corporatons of one contractng State and corporaton
of the other contractng State mean a Unted States corporaton or a Greek
corporaton, ns the conte t requres.
(f) The term Unted States enterprse means an Industra or commer-
ca enterprse or undertakng carred on n the Unted States by a ctzen
or resdent of the Unted States or by a Unted States corporaton.
(g) The term Greek enterprse means an ndustra or commerca
enterprse or undertakng carred on n Greece by a sub|ect or resdent of
Greece or by a Greek corporaton.
(h) The terms enterprse of one of the contractng States and enter-
prse of the other contractng State mean a Unted States enterprse or a
Greek enterprse, as the conte t requres.
() The term permnnent estabshment , when used wth respect to an
enterprse of one of the contractng States, means a branch, factory or
other cd pace of busness, but does not ncudo an agency uness that
agent has, and habtuay e ercses, a genera authorty to negotate and
concude contracts on behaf of such enterprse or has a stock of merchandse
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from whch he reguary As orders on behaf of such enterprse. As
enterprse of one of the contractng States sha not be deemed to have a
permanent estabshment In the other contractng State merey because It
carres on busness deangs In such other contractng State through a bona
fde commsson agent, broker or custodan actng In the ordnary course
of hs busness as such. The fact that an enterprse of one of the contract-
ng States mantans n the other contractng State a f ed pace of busness
e cusvey for the purchase of goods or merchandse sha not of Itsef con-
sttute such f ed pace of busness a permanent estabshment of such
enterprse. When a corporaton of one contractng State has a subsdary
corporaton whch s a corporaton of the other contractng State or whch
Is engaged In trade or busness n such other contractng State, such sub-
sdary corporaton sha not, merey because of that fact, be deemed to
be a permanent estabshment of Its parent corporaton.
(|) The term competent authorty or competent authortes means,
n the case of the Unted States, the Commssoner of Interna Revenue or
hs duy authorzed representatve In the case of Greece, the Genera Drec-
tor of Drect Ta es, or hs duy authorzed representatve.
(2) In the appcaton of the provsons of the present conventon by ether
of the contractng States, any term whch s not defned n the present conventon
sha, uness the conte t otherwse requres, have the meanng whch that term
as under the aws of such contractng State reatng to the ta es whch are the
sub|ect of the present conventon.
Artce TI
(1) Interest (on bonds, securtes, notes, debentures, or on any other form of
Indebtedness) receved from sources wthn the Unted States by a resdent or
corporaton of Greece not engaged In trade or busness n the Unted States
through a permanent estabshment theren, sha be e empt from Unted States
ta but such e empton sha not appy to such nterest pad by a Unted States
corporaton to a Greek corporaton controng, drecty or Indrecty, more than
CO percent of the entre votng power n the payng corporaton.
(2) Interest (on bonds, securtes, notes, debentures, or on any other form
of ndebtedness) receved from sources wthn Greece by a resdent or corpora-
ton of the Unted States not engaged n trade or busness n Greece through
a permanent estabshment theren, sha be e empt from Greek ta but ony to
the e tent that such nterest does not e ceed 9 percent per annum but such
e empton sha not appy to such Interest pad by a Greek corporaton to a
Unted States corporaton controng, drecty or ndrecty, more than 60 per-
cent of the entre votng power In the payng corporaton.
Artce II
Royates for the rght to use copyrghts, patents, desgns, secret processes
end formuae, trade-murks and other anaogous property, and royates (Incud-
ng rentas), (other than those n respect of moton pcture fms) for the use
of Industra, commerca or scentfc equpment, derved from sources wthn
one of the contractng States by a resdent or corporaton of the other contractng
Stnto not engaged n trade or busness In the former State through a permanent
estabshment theren, sha be e empt from ta by the former State.
Artce III
A resdent or corporaton of one of the contractng States, dervng from
sources wthn the other contractng State royates In respect of the operaton
of mnes, quarres, or other natura resources, or rentas from rea property, may
eect for any ta abe year to be sub|ect to the ta of such other contractng Stato
on the bass of net Income as determned under tbo aws of such other contract-
ng State durng such ta abe year.
Artce I
1)1 . Mends and Interest pad by a Greek corporaton sha be e empt from
Unted Sates ta e cept where the recpent Is a ctzen, resdent or corporaton
of the Unted States.
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: : . - Arrcue I A

(2) Prvate pensons and fe annutes derved from wthn one of the con-
tractng States by an Indvdua who Is a resdent of the other contractng Stat
bn be e empt from ta aton by the former contractng State.
(3) The term pensons as used In ths Artce means perodc payments
made In consderaton for servces rendered or by way of compensaton for
In|ures receved.
( ) The term fe annutes as used In ths Artce means a stated sum
payabe perodcay at stated tmes durng fe, or durng fe, an obgaton to
make the payments In return for adequate and fu consderaton n money cr
money s worth.

Abtce
(1) The authortes of each of the contractng States, In accordance wth the
practces of that State, may prescrbe reguatons necessary to carry out the
provsons of the present conventon.
(2) Wth respect to the provsons of the present conventon reatng to
e change of Informaton and mutua assstance In the coecton of ta es, the
contractng States may, n accordance wth ther respectve practces, prescrbe
rues concernng matters of procedure, forms of appcaton and repes thereto,
converson of currency, dsposton of amounts coected, mnmum amounts
sub|ect to coecton, nud reated matters.
Amcus I
(1) The provsons of the present conventon sha not be construed to restrct
In any manner any e empton, deducton, credt or other aowance accorded
by the nws of one of the contractng States In the determnaton of the ta es
mposed by such State.
(2) Shoud any dffcuty or doubt arse as to the Interpretaton or appcaton
of the present conventon, the competent authortes of the contractng States
sha undcrtnke to sette the queston by mutua agreement.
(3) The ctzens or sub|ects of one of the contractng States sha not, whe
resdent In the other contractng State, be sub|ected theren to other or more
burdensome ta es than are the ctzens or sub|ects of such other contractng
State resdng n Its terrtory. The term ctzens or sub|ects , as used n
ths Artce, Incudes a ega persons, partnershps nnd assocatons dervng
ther status from, or created or organzed under, the aws In force n, the
respectve contractng States. In ths Artce the word ta es means ta es of
every knd or descrpton whether natona. edera, State, provnca or
muncpa.

Abtc III
The competent authortes of the contractng States sha e change such Infor-
maton (beng Informaton whch such authortes have at ther dsposa) as Is
necessary for carryng out the provsons of the present conventon or for the
preventon of fraud or the admnstraton of statutory provsons aganst ega
, avodance In reaton to tho ta es whch ore the sub|ect of the present conven-
ton. Any Informaton so e changed sha be treated as secret and sha not be
dscosed to any person other than those concerned wth the assessment and
coecton of the ta es whch are the sub|ect of tho present conventon. No
nformaton sha bo e changed whch woud dscoso a technca secret, or
process reatng to trade, Industry, busness, or a professon.

Artce
(1) In no case sha the provsons of Artce III and I be construed
0 as to roposo upon cther of tho contractng States the obgaton
(a) to carry out admnstratve measures at varance wth the reguatons
and practce of ether contractng State, or
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(b) to suppy Informaton whch s not procurabe under ts own egsaton
or that of the State makng appcaton.
(2) The State to whch appcaton s made for nformaton or assstance
aha compy as soon as possbe wth the request addressed to It. Nevertheess,
such State may refuse to compy wth the request for reasons of pubc pocy
or If compance woud Invove dscosure of a technca secret or process reatng
to trade. Industry, busness, or a professon. In such caso It sha nform, as
soon as possbe, the State makng the appcaton.
Artce I
(1) The present conventon sha be ratfed and the Instruments of ratfca-
ton sha be e changed at Athens as soon as possbe.
(2) The present conventon Bhn become effectve on the frst day of anuary
of the year In whch the e change of the nstruments of ratfcaton takes pace.
It sha contnue effectve for a perod of 5 years begnnng wth that date and
Indefntey 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 thereafter, provded that at
east 0 months pror notce of termnaton has been gven, the termnaton to
become effectve on the frst day of anuary foowng the e praton of the
C-month perod.
(b) As used n ths Treasury Decson, any term defned n the con-
tenton sha have the meanng so assgned to t any term not so
defned sha, uness the conte t otherwse requres, have the meanng
whch such term has under the nterna revenue aws.
Sec. 502.2. Dvdends. (a) Dvdends pad on or after anuary 1,
1953, by a Greek corporaton are e empt from Unted States ta under
the provsons of Artce I of the conventon f the recpent s not a
ctzen, resdent, or corporaton of the Unted States. Such dvdends
are, therefore, not sub|ect to the wthhodng of Unted States ta at
source.
(6) The conventon does not change the rate of Unted States ta
mposed pursuant to sectons 71, 1, and 2 of the Interna Revenue
Code of 105 upon dvdends pad by a corporaton other than a Greek
corporaton. The wthhodng of Unted States ta wth respect to
such dvdends derved from sources wthn the Unted States by non-
resdent aens who are resdents of Greece, or by Greek corporatons,
s not changed by the conventon.
Sec. 502.3. Interest. (a) Genera. (1) Interest pad on or after
anuary 1,1953, by a Greek corporaton s e empt from Unted States
ta under the provsons of Artce I of the conventon f the recp-
ent s not a ctzen, resdent, or corporaton of the Unted States. In-
terest pad to such recpents s, therefore, not sub|ect to the wthhod-
ng of Unted States ta at source.
(2) Interest (other than nterest fang wthn the scope of para-,
graph (6)) on bonds, securteS| notes, debentures, or on any other
form of ndebtedness, ncudng nterest on obgatons of the Unted
States, obgatons of nstrumentates of the Unted States, and mort-
gages and bonds secured by rea property, whch s pad by a person
other than a Greek corporaton and whch s receved from sources
wthn the Unted States on or after anuary 1,1953, by a nonresdent
aen (ncudng a nonresdent aen ndvdua, fducary, and part-
nershp) who s a resdent of Greece, or by a Greek corporaton, s
e empt from Unted States ta under the provsons of Artce I (1)
of the conventon f such aen or corporaton at no tme durng the
ta abe year n whch such nterest s receved has engaged n trade or
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busness wthn the Unted States through a permanent estabshment
stuated theren. Such nterest s, therefore, not sub|ect to the wth-
hodng of Unted States ta at source. As to what consttutes a per-
manent estabshment, see Artce II (1) () of the conventon.
(b) empton not appcabe to nterest pad by subsdary corpo-
raton to ts parent corporaton. Under tto e cepton contaned n
Artce I(1) of the conventon any nterest receved from sources
wthn the Unted States and pad by a domestc corporaton to a Greek
corporaton s not e empt from Unted States ta f such Greek cor-
poraton contros, drecty or ndrecty, at the tme the nterest s pad,
more than 60 percent of the entre votng power of a casses of stock
of such domestc corporaton. The e empton from Unted States ta
provded by Artce I (1) of the conventon does not, therefore, appy
to such nterest pad by such domestc corporaton.
(c) Appcaton of e empton from wthhodng. (1) To avod
wthhodng of Unted States ta at source n the case of coupon bond
nterest to whch paragraph (a) (2) s appcabe, the nonresdent
aen who s a resdent of Greece, or the Greek corporaton, sha for
each ssue of bonds fe orm 1001-G n dupcate when presentng
tho nterest coupons for payment. Ths form sha be sgned by the
owner of the nterest, trustee, or agent and sha show the name and
address of the obgor, tho name and address of the owner of the
nterest, and the amount of the nterest. It sha contan a state-
ment () that the owner s a resdent of Greece, or s a Greek corpora-
ton, () that the owner s not engaged n trade or busness wthn
tho Unted States through a permanent estabshment stuated theren,
and, n the caso of nterest pad by a domestc corporaton to a Greek
corporaton, () that the owner does not contro, drecty or nd-
recty, more tan CO percent of the entre votng power of a casses
of stock of the Unted States domestc corporaton.
(2) The e empton from Unted States ta contempated by Artce
I (1) of tho conventon, nsofar as t concerns coupon bond nterest,
s appcabe ony to the owner of the nterest. The person presentng
the coupon or on whoso behaf t s presented sha, for the purpose of
the e empton from ta , bo deemed to be the owner of the nterest ony
f ho s, at the tme the coupon s presented for payment, the owner
of the bond from whch the coupon has been detached. If the person
presentng the coupon or on whoso behaf t s presented s not the
owner of the bond, orm 1001, and not orm 1001-G, sha be
e ecuted.
(3) The orgna and dupcate of orm 1001-G sha be forwarded
by the wthhodng agent to the Dstrct Drector of Interna Revenue,
Audt Dvson, Aen Returns Secton, Batmore 2, Maryand, wth
tho quartery return on orm 1012. orm 1001-G need not be sted
on fcorm 1012.
( ) To avod wthhodng of Unted State9 ta at source n the
caso of nterest, other than coupon bond nterest, to whch paragraph
(a) (2) s appcabe, tho nonresdent aen who s a resdent of Greece,
or tho Greek corporaton, sha notfy tho wthhodng agent by etter
n dupcate that such ncome s e empt from Unted States ta under
the provsons of Artce I (1) of the conventon. The etter of
notfcaton sha bo sgned by the owner of the nterest, trustee, or
agent and sha show the name and address of the obgor and the
name and address of the owner of the nterest. It sha contan s
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statement () that the owner s nether a ctzen nor a resdent of
the Unted States but s a resdent of Greece, or, n the case of a cor-
poraton, that the owner s a Greek corporaton, () that the owner
has at no tme durng the current ta abe year engaged n trade or
busness wthn the Unted States through a permanent estabshment
stuated theren, and, n the case of nterest pad by a domestc corpo-
raton to a Greek corporaton, () that the owner docs not contro,
drecty or ndrecty, more than 50 percent of the entre votng power
of a casses of stock of the Unted States domestc corporaton.
(5) Ths etter of notfcaton, whch sha consttute authorza-
ton for the payment of such nterest wthout wthhodng of Unted
States ta at source, sha be fed wth the wthhodng agent for
each successve 3-caendar-year perod durng whch such ncome s
pad. or ths purpose, the frst such perod sha commence wth
the begnnng of the caendar year n whch such ncome s frst pad
on or after anuary 1, 195 . ach such etter fed wth any wth-
hodng agent sha be fed not ater than 20 days precedng the date
of the frst payment wthn each successve perod, or, f that s not
possbe because of speca crcumstances, as soon as possbe after
such frst payment.
(6) If such etter s aso to be used as authorzaton for the reease,
pursuant to secton 502.7, of e cess ta wthhed from nterest, other
than coupon bond nterest, t sha aso contan a statement () that,
at the tme when the nterest was receved from whch the e cess
ta was wthhed, the owner was nether a ctzen nor a resdent
of the Unted States but was a resdent of Greece, or, n the case of
a corporaton, the owner was a Greek corporaton, () that the owner
at no tme durng the ta abe year n whch such nterest was receved
was engaged n trade or busness wthn the Unted States through a
permanent estabshment stuated theren, and, n the case of nterest
pad by a domestc corporaton to a Greek corporaton, () that
the owner dd not contro, drecty or ndrecty, at the tme when
such nterest was pad, more than 50 percent of the entre votng power
of a casses of stock of the Unted States domestc corporaton.
(7) Once a etter has been fed n respect of any 3-caendar-year
perod| no addtona etter need be fed n respect thereto uness the
Commssoner of Interna Revenue notfes the wthhodng agent
that an addtona etter sha be fed by the ta payer. If, after fng
a etter of notfcaton, the ta payer ceases to be egbe for the e emp-
ton from Unted States ta granted by the conventon n respect to
such nterest, such ta payer sha prompty notfy the wthhodng
agent by etter n dupcate. When any change occurs n the owner-
shp of the- nterest as recorded on the books of the payer, the e emp-
ton from wthhodng of Unted States tu sha no onger appy
uness e now owner of record s entted to and docs propery no a
etter of notfcaton wth the wthhodng agent.
( ) ach etter of notfcaton, or the dupcate thereof, sha be
mmedatey forwarded by the wthhodng agent to the Dstrct D-
rector of Interna Revenue, Audt Dvson, Aen Returns Secton,
Batmore 2, Maryand.
(d) Interest pad by domttto corporaton to Greek corporaton
where degree of stock ownershp uncertan. (1) In any case n whch
a Greek corporaton antcpates tho recept of nterest from a do-
mestc corporaton and the reatonshp e stng between tho Greek
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6 5
corporaton and the domestc corporaton s such as to render uncer-
tan whether, by reason of the e cepton contaned n Artce I (1)
of the conventon, the e empton w appy to such nterest, the Greek
corporaton sha not undertake to fe any orm 1001-G or etter of
notfcaton prescrbed by paragraph (c) uness t has, pror
to such fng, apped for and receved from the Commssoner of In-
terna Revenue, Washngton 25, D. C, a determnaton that such
Greek corporaton does not contro, drecty or ndrecty, more than
60 percent of the entre votng power n the payng corporaton. The
appcaton to the Commssoner sha contan a fu statement of a
the facts pertnent to a determnaton of the queston.
(2) As soon as practcabe after the appcaton has been fed, the
Commssoner of Interna Revenue w determne whether the Greek
corporaton has such contro of the domestc corporaton as to render
the e empton provded by Artce I (1) of the conventon napp-
cabe to nterest pad by such domestc corporaton to such Greek
corporaton and sha notfy the Greek corporaton of hs determna-
ton. The Greek corporaton sha forthwth fe wth the domestc
corporaton a copy of the Commssoner s etter of notfcaton.
(3) If the Commssoner s determnaton s that the Greek cor-
poraton does not contro, drecty or ndrecty, more than 50 percent
of the entre votng power of a casses of stock of the domestc cor-
poraton, the Greek corporaton may thereafter avod wthhodng at
the source wth respect to subsequent payments of such nterest by
compyng wth the provsons of paragraph (c), that s, by submttng
orm 1001-G n the case of coupon bond nterest, or the etter of notf-
caton for each 3-caendar-year perod n the case of nterest other
than nterest payabe by menns of coupons.
( ) A determnaton of the Commssoner that the Greek corpora-
ton does not have such contro of the domestc corporaton as to render
the e empton provded by Artce I (1) of the conventon napp-
cabe w appy unt such tme as the stock ownershp of the domestc
corporaton has changed to the e tent that nterest to be receved from
the domestc corporaton by the Greek corporaton s no onger e empt
from Unted States ta under Artce () of the conventon. If
Buch change n stock ownershp occurs, the Greek corporaton sha
prompty notfy bot the Commssoner of Interna Revenue and the
domestc corporaton of the then e stng facts wth respect to such
stock ownershp.
(5) In any enso n whch a Greek corporaton has receved on or
after anuary 1, 195 , nterest from a domestc corporaton and the .
reatonshp e stng between the Greek corporaton and the domestc
corporaton was at the tme the nterest was pad such ns to render
uncertan whether, by reason of tho e cepton contaned n Artce
I(1) of the conventon, such nterest was e empt from Unted States
ta , tho Greek corporaton sha appy to the Commssoner of In-
terna Revenue for a smar determnaton as to the degree of con-
tro at the tme the nterest was pad. If the Commssoner s deter-
mnaton s that at such tme tho degree of contro was such as to per-
mt tho appcaton of tho e empton provded by Artco I( of
tho conventon, hs otter of notfcaton may, sub|ect to the provsons
of secton 502.7(o), authorze tho reease of e cess ta wthhed wth
respect to such e empt nterest.
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S C. 502. . NATURAL R SOURC ROYALTI S AND R AL PROP RTT
R NTALS. The conventon does not change the rate of Unted States
ta mposed pursuant to sectons 71, 1, and 2 of the Interna
Revenue Code of 195 upon natura resource royates and rea prop-
erty rentas. The wthhodng of Unted States ta wth respect to
such, tems derved from sources -wthn the Unted States by non-
resdent aens who arc resdents of Greece, or by Greek corporatons,
s not changed by the conventon.
S C. 502.5. PAT NT AND CorrRGHT ROYALTI S. (a) Genera,
(1) Royates for the rght to use copyrghts, patents, desgns, secret
processes and formuae, trade-marks, and other anaogous property,
and royates and rentas for the use of ndustra, commerca or
scentfc equpment, whch are derved from sources wthn the Unted
States on or after anuary 1,1953, by a non-resdent aen (ncudng
a nonresdent aen ndvdua, fducary, and partnershp) who s a
resdent of Greece, or by a Greek corporaton, are e empt from Unted
States ta under the provsons of Artce II of the conventon f
such aen or corporaton at no tme durng the ta abe year n whch
such ncome s derved has engaged n trade or busness wthn tho
Unted States through a permanent estabshment stuated theren
Such royates are, therefore, not sub|ect to tho wthhodng of Unted
States ta at source. As to what consttutes a permanent estabsh-
ment, see Artce 11(1) () of the conventon.
(2) The provsons of ths secton sha have no appcaton to rent-
as or royates n respect of moton pcture fms.
(b) Appcaton of e empton from wthhodng. (1) To avod
wthhodng of Unted States ta at source n the case of the ncome to
whch paragraph (a) s appcabe, the nonresdent aen who s a
resdent of Greece, or tho Greek corporaton, sha notfy tho wth-
hodng agent by etter n dupcate that such ncome s e empt from
Unted States ta under the provsons of Artce II of tho conven-
ton. The provsons of secton 502.3(c) (other than those pertan-
ng to the degree of contro of votng power) reatng to the e ecuton,
fng and effectve perod of the etter of notfcaton prescrbed
theren wth respect to nterest, ncudng ts use for the reease of
e cess ta wthhed, are equay appcabe wth respect to the ncome
fang wthn the scope of ths secton.
(2) ach etter of notfcaton, or the dupcate thereof, sha be
mmedatey forwarded by the wthhodng agent to the Dstrct D-
rector of Interna Revenue, Audt Dvson, Aen Returns Secton,
Batmore 2, Maryand.
S C. 502.6. PRI AT P NSIONS AND LI ANNunr S. (a) Gen-
era. Prvate pensons and fe annutes, as defned n Artce I
(3) and ( ) of the conventon, derved from sources wthn the Unted
States on or after anuary 1,1953, by a nonresdent aen ndvdua
who s a Resdent of Greece are e empt from Unted States ta under
the provsons of Artce I (2) of the conventon. Such tems of
ncome are, therefore, not sub|ect to the wthhodng of Unted States
ta at source.
(b) Appcaton of e empton from wthhodng. (1) To avod
wthhodng of Unted States ta at source n the case of the tems
of ncome to whch paragraph (a) s appcabe, the nonresdent aen
ndvdua who s a resdent of Greece sha notfy the wthhodng
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6 7
agent by etter n dupcate that such ncome s e empt from Unted
States ta under the provsons of Artce I of the conventon Ths
etter of notfcaton sha be sgned by the owner of the ncome, sha
show the name and address of both the payer and the owner of the
ncome, and sha contan a statement that the owner, an ndvdua,
s nether a ctzen nor a resdent of the Unted States but s a resdent
of Greece.
(2) If such etter s aso to be used as authorzaton for the reease,
pursuant to secton 502.7(a) of e cess ta wthhed from such tems
of ncome, t sha aso contan a statement that the owner was, at ths
tme when the ncome was derved from whch the e cess ta ws
wthhed, nether a ctzen nor a resdent of the Unted States but
was a resdent of Greece.
(3) Ths etter sha consttute authorzaton for the payment of
such tems of ncome wthout wthhodng of Unted States ta u
source uness the Commssoner of Interna Revenue subsequentT
notfes the wthhodng agent that the ta sha be wthhed wth
respect to payments of such tems of ncome made after recept of such
notce. If, after fng a etter of notfcaton, the owner of the ncome
censes to bo egbe for the e empton from Unted States ta granted
by the conventon n respect to such ncome, he sha prompty notfy
the wthhodng agent by etter n dupcate. When any change occurs
n the ownershp of such ncome as recorded on the books of the payer,
tho e empton from wthhodng of Unted States ta sha no onger
appy uness the new owner of record s entted to and does proper|
fe a etter of notfcaton wth the wthhodng agent,
( ) ach etter of notfcaton, or tho dupcate thereof, sha be
mmedatey forwarded by the wthhodng agent to the Dstrct D-
rector of Interna Revenue, Audt Dvson, Aen Returns Secton,
Butmoro 2, Maryand.
Sec. 502.7. Reease op cess Ta Wtf d at Source. (a)
Genera. (1) In order to gve tho conventon effectve appcaton at
the earest practcabe date, the e emptons from wthhodng of
Unted States ta at source granted by ths Treasury Decson are
hereby made effectve begnnng anuary 1, 195 , contngent upon
compance wth the appcabe provsons of sectons 502.2 through
502.6.
(2) In the case of dvdends and nterest pad by a Greek corpora-
ton to a recpent other than a ctzen, resdent, or corporaton of the
Unted States, f Unted States ta at the statutory rate has been
wthhed on or after anuary 1, 195 , there sha be reeased by the
wthhodng agent and pad over to the person from whom t was
wthhed, an amount equa to the ta so wthhed from such tems.
(3) In the case of every ta payer whose address at the tme of pay-
ment was n Greece and who furnshes to the wthhodng agent the
etter of notfcaton prescrbed n sectons 502.3(c), 502.5 (), and
502.6(6) as authorzaton for the reease of e cess ta wthhed, f
Unted States ta at the statutory rate (30 percent as of the date of
approva of ths Treasury Decson) has been wthhed on or after
anuary 1, 195 from nterest (other than coupon bond nterest),
copyrght royates and ftther tems to whch secton 502.5(a) s ap-
pcabe, and from prvate pensons and fe annutes as defned m
Artce I, there sha be reeased (e cept as provded n paragraph
(b)) by the wthhodng agent and pad over to the person from whom
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t was wthhed an amount equa to the ta so wthhed from such
tems.
( ) In the case of every ta payer whose address at the tme of
payment was n Greece and who furnshes to the wthhodng agent
orm 1001-G ceary marked Substtute and e ecuted n accordance
wth secton 502.3 (c), f Unted States ta at the statutory rate hns
been wthhed from coupon bond nterest on or after anuary 1,195 ,
there sha be reeased (e cept as provded n paragraph (b)) by the
wthhodng agent and pad over to the person from whom t was
wthhed an amount equa to the ta so wthhed from such nterest.
One such substtute form sha be fed n dupcate wth respect to
each ssue of bonds and w serve wth respect to that ssue to repace
a orms 1001 prevousy fed by the ta payer n the caendar year
n whch the e cess ta was wthhed and wth respect to whch such
e cess s reeased.
(5) The orgna and dupcate of substtute orm 1001-G sha be
forwarded by the wthhodng agent to the Dstrct Drector of In-
terna Revenue, Audt Dvson, Aen Returns Secton, Batmore 2,
Maryand, wth the quartery return on orm 1012. Substtute orm
1001-G need not be sted on orm 1012.
(6) The provsons of ths secton (other than paragraph (c)) sha
have no appcaton to e cess ta wthhed at source whch has been
pad by the wthhodng agent to the dstrct drector of nterna
revenue.
(b) Interest pad where degree of stock ownershp s determned.
If Unted States ta at the rate of 2 percent or 30 percent, as the
case may be, has been wthhed on or after anuary 1,195 | from n-
terest pad by a domestc corporaton to a Greek corporaton whose
address at the tme of payment was n Greece, and f the reatonshp
e stng between the Greek corporaton and the domestc corporaton,
was, at the tme the nterest was pad, such as to render uncertan
whether, by reason of the e cepton contaned n Artce I (1) of the
conventon, such nterest was e empt from Unted States ta , the wth-
hodng agent sha reease and pay over to the Greek corporaton an
nmount equa to the ta O wthhed ony f the Greek corporaton (1)
furnshes to the domestc corporaton a copy of the Commssoner s
authorzaton of reease prescrbed n secton 502.3 (d) and (2) fes
the etter of notfcaton prescrbed n secton 502.3 ( ), or the sub-
sttute orm 1001-G prescrbed n paragraph (a) or ths secton,
whchever s appcabe.
(c) Amounts wthhed durng 1953. or provsons respectng the
refund of e cess ta wthhed durng the caendar year 1953, see secton
CO2.10.
S C. 502. . IN ORMATION To B URNISH D IN ORDINARY COURS S.
(a) Genera. In compance wth the provsons of Artce III
of the conventon the Commssoner of Interna Revenue w transmt
to the Greek Genera Drector of Drect Ta es, as soon as practcabe
after the cose of the caendar year 195 and of each subsequent
caendar year durng whch the conventon s n effect, the foowng
nformaton reatng to such precedng caendar year:
(1) The dupcate copy of each avaabe orm 10 2 Suppe-
ment fed pursuant to paragraph (6)| and
(2) The dupcate copy of each avaabe ownershp certfcate,
orm 1001-G, fed pursuant to secton 502.3(c), and substtute
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- - orm 1001-G, fed pursuant to secton 502.7 (a) and (o ), n con-
necton wth coupon bond nterest.
(b) Informaton return. (1) To factate compance wth Artck
III of the conventon, every Unted States wthhodng agent sha
make and fe n dupcate wth the Dstrct Drector of Interna
Bevenue for the dstrct n whch the wthhodng agent s ocated
an nformaton return on orm 1012 Suppement, wth respect to
Greek addressees, whch sha be fed for the caendar year 195 and
subsequent caendar years. Ths return sha bo fed smutaneousy
wth orm 1012.
(2) There sha be reported on such orm 10 2 Suppement a tems
of f ed or determnabe annua or perodca ncome (and, for 1953
and subsequent years, amounts descrbed n sec. 02(a)(2), sec. 631
(b) and (c), and secton 1235 of the Interna Bovenue Code of 103 ,
whch are consdered to be gans from the sae or e change of capta
assets) derved from sources wthn the Unted States and pad to non-
resdent aens (ncudng nonresdent aen ndvduas, fducares,
and partnershps) and to nonresdent foregn corporatons, whose ad-
dresses at the tme of payment were n Greece, ncudng such tems of
ncome upon whch, n accordance wth ths Treasury decson, no wth-
hodng of Unted States ta s requred e cept that any of such tems
whch consttute nterest n respect of whch orm 1001-53 or substtute
orm 1001-G has been fed n dupcate wth the wthhodng agent
are not requred to be reported on such orm 10 2 Suppement.
Sec. 502.9. Benefcares of a Domestc state or 1 rust. A non-
resdent aen who s a resdent of Greece and who s a benefcary of s
domestc estate or trust sha be entted to the e empton from Unted
States ta granted by Artces I. II, and I of the conventon wth
respect to dvdends, nterest, ana copyrght royates and the ke, to
the e tent such tem or tems are ncuded n that porton of the ncome
of such estate or trust whch s for woud, but for such e empton, be)
ncudbe n the gross ncome of the benefcary, provded that he oth-
erwse satsfes the requrements of these respectve artces. In order
to bo entted n such nstance to the e empton from wthhodng of
Unted States ta such bencfcnry must otherwse satsfy such requre-
ments and sha, where appcabe, e ecuto and submt to the fducary
of such estate or trust n tho Unted States tho approprate etter of
notfcaton prescrbed n sectons 502.3(c) and 502.5(5).
Sec. 502.10. Befund of cess Ta Wte| Durng 1953. (a) If
Unted States ta wthhed at tho source durng tho year 1953 from
dvdends, nterest, copyrght royates and tho ke, pensons, or fe
annutes s n e cess of the ta mposed under the nterna revenue
aws, as modfed by the conventon, a cam by the ta payer for the
refund of any overpayment resutng therefrom sha be made under
subchapter B of chapter CG of the Interna Bcvenue Code of 195 by
fng orm 3 together wth orm 10 0NB, orm 10 0NB-a, orm
10 0B, orm 1120, or orm 1120NB, whchever s appcabe, or wth
an amended return.
(b) The ta payer s tota gross ncome from sources wthn the
Unted States, ncudng every tem of capta gan sub|ect to ta under
the provsons of secton 2 (a) (1)(B) or211(c) of the Interna Bev-
enuo Code of 1939, sha be dscosed on the return. In the event that
securtes are hed n the name of a person other than the actua or
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650
benefca owner, the name and address of such person sha be fur-
nshed wth the cam. In the case of a cam nvovng an overpay-
ment of ta upon dvdends or nterest pad by a Greek corporaton, a
statement that the dvdends or nterest were _pad by such a corpora-
ton sha be ncuded n the cam. If the cam reates to other, nter-
est, copyrght royates and the ke, pensons, or fe annutes, there
sha aso be ncuded n such cam:
(1) A statement that, at the tme when such tem or tems of
ncome were derved from whch the e cess ta was wthhed, ()
the ta payer was nether a ctzen nor a resdent of the Unted
States but was a resdent of Greece, or, n the case of a corpora-
ton, () the ta payer was a Greek corporaton
(2) A statement that the ta payer at no tme durng the ta abe
year n whch such ncome was derved was engaged n trade or
busness wthn the Unted States through a permanent estabsh-
ment stuated theren and
(3) In the case of a cam nvovng an overpayment of ta
upon nterest pad by a domestc corporaton to a Greek corpora-
ton, a statement that the Greek corporaton, at the tme when the
nterest was pad, dd not contro, drecty or ndrecty, more than
50 percent of the entre votng power of a casses of stock of
the Unted States domestc corporaton. If the reatonshp
e stng between the Greek corporaton and the domestc corpora-
ton at the tme when such nterest was pad was such as to render
uncertan whether the e empton granted by Artco I(1) of
the conventon s appcabe to such nterest, there sha be fur-
nshed a fu statement of a the facts pertnent to a determna-
ton of the queston.
(c) If, however, the ta payer s an ndvdua who durng the
ta abe year derved from sources wthn the Unted States ncome
whch conssts e cusvey of pensons or fe annutes entted to
the beneft of Artce I of the conventon, the statement specfed
n paragraph (b) (2) sha not be requred.
Because t s necessary to brng nto effect at the earest pract-
cabe date the rues of ths Treasury Decson respectng reease or
refund of e cess ta wthhed| and e empton from wthhodng of
ta , t s hereby found that t s mpractcabe to ssue ths Treasury
Decson wth notce and pubc procedure thereon under secton (a)
of the Admnstratve Procedure Act, approved une 11, 19 0, or
sub|ect to the effectve date mtaton of secton (c) of that Act.
(Ths Treasury Decson s ssued under the authorty contaned n
sec. 7 05 of the Interna Revenue Code of 195 (Pubc Law 591, 3d
Cong., approved August 16, 195 26 U. S. C. 7 05) and n Artce
of the conventon.)
O. Gordon Dek,
Actng Commssoner of Interna Revenue.
Approved October 13,195 .
M. B. osom,
Actng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster October 1 , W5 , : 9 a. m.)
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651
UNIT D STAT S-UNION O SOUTH A RICA. TA
CON NTION
A conventon between the Unted States and the Unon of South
Afrca for the avodance of doube ta aton and the preventon of
fsca evason wth respect to ncome ta es was sgned at Pretora,
Unon of South Afrca, on December 13,19 6, and the Suppementary
Protoco was sgned at Pretora on uy 1 ,1950.
The conventon and suppementary protoco were approved for
ratfcaton wth a reservaton and an understandng wth respect to
the ta aton of profts or remuneraton of pubc entertaners and ath-
etes by the Unted States Senate on September 17, 1951 were so
ratfed bv the Presdent on December 1 , 1951, and by the Unon of
South Afrca on une 1 , 1952. The ratfcatons were e changed at
Washngton, D. C, on uy 15,1952. The conventon was procamed
by the Presdent on August 19, 1952, and s effectve wth respect to
ncome derved on and after uy 1,19 6.
The conventon and suppementary protoco read as foows:
Abtcu I
(1) The ta es referred to In ths conventon are:
(a) In the case of the Unted States of Amerca: The edera ncome
ta es. Incudng surta es and e cess-profts ta es.
(b) In the case of the Unon of South Afrca the foowng ta es Imposed
under the Income ta aws of the Unon: Norma and Super Ta es, Unds-
trbuted Profts Ta , Nonresdent Sharehoders Ta , cess Profts Duty
and Trade Profts Speca Levy.
(2) It Is mutuay agreed that the present conventon sha aso appy to any
other or addtona Income ta es Imposed by ether contractng State, subsequent
to the date of sgnature of ths conventon, upon substantay the same bases as
the ta es enumerated theren.
Artce II
As used In ths conventon:
(a) The terms person, Indvdua, and corporaton sha have the
same meanngs, respectvey, as they have under the revenue aws of the
ta ng State or the State furnshng the nformaton, as the case may be.
provded that the term corporaton when used n reaton to the Unon of
South Afrca sha be regarded as the equvaent of the term company
as used n the revenue aws of that State.
(b) The term enterprse Incudes every form of undertakng, whether
carred on by an Indvdua, partnershp, corporaton or any other entty.
(c) The term enterprse of one of the contractng States means, n re-
spect of each contractng State, an ndvdua resdent theren or a corpora-
ton, partnershp or other entty created or organzed In or ubder the aws
of that State, or the aws of any of Its States, Terrtores or provnces, as
the case may be, engaged n the carryng on of an enterprse n the terrtory
of that State.
(d) The term permanent estabshment ncudes branches, mnes and
o wes, farms, tmber ands, pantatons, factores, workshops, warehouses,
offces, agences and other f ed paces of busness of an enterprse, but does
not ncude a subsdary corporaton. When an enterprse of one of the
contractng States carres on busness In the other contractng State whether
personay, drecty or through a nomnee or through an empoye or agent
there who has authorty to contract for hs empoyer or prncpa or has a
stock of merchandse from whch he regunry fs orders whch he receves,
such enterprse sha be deemed to have a permanent estabshment n the
atter State. The fact that an enterprse of one of the contractng States
has busness deangs In the other contractng State through a commsson
agent, broker or other Independent agent, sha not be hed to mean that
such enterprse has a permanent estabshment In the atter State.
a3351C 53 2
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652
. (e) The term Commssoner for Inand Revenue means the Com-
mssoner for Inand Revenue of the Unon of South Afrca or hs duy
authorzed representatve.
(f) The term Commssoner of Interna Revenue means the Comms-
soner of Interna Revenue of the Unted States of Amerca or hs duy
authorzed representatve.
(g) The term competent authorty means the Commssoner for Inand
Revenue or the Commssoner of Interna Revenue and ther duy authorzed
representatves.
(h) The term Unted States of Amerca. when used In the geographca
sense, ncudes ony the States, the Terrtores of Aaska and Han-a, and
the Dstrct of Coumba.
(1) The term ndustra and commerca profts means Industra and
commerca ncome but sha not Incude ncome from or n the form of
rentas, royates, Interest, dvdends, management charges, compensaton
for abour or persona servces, or Income from the operaton of shps or
arcraft, or gans derved from the sae or e change of capta assets, and the
terms proft and profts mean Income.
( ) The terms rentas and royates sha ncude rentas or royates
arsng from easng rea or Immovabe or persona or movabe property or
from any Interest n such property, ncudng rentas or royates for the
use of, or for the prvege of usng, patents, copyrghts, secret processes and
formuae, goodw, trade-marks, trade brands, franchses and other ke
property.
(k) The term Interest sha Incude ncome rsng from Interest-bearng
securtes, pubc obgatons, government or muncpa securtes, mortgages,
corporate or debenture bonds, oans, deposts and current accounts.
(1) The term dvdends sha ncude a dstrbutons of the earnngs
or profts or corporatons.
Artce III
(1) The ctzens of one of the contractng States resdng wthn the other
contractng State sha not be sub|ected to the payment of more burdensome ta es
than the ctzens of such other State.
(2) The provsons of ths conventon sha not be construed to restrct In
any manner any e empton, deducton, credt or other aowance now or here-
after accorded by the aws of ether of the contractng States In the determna-
ton of the ta mposed by such State.
(3) oowng any apprecabe changes made In the fsca aws of ether of the
contractng States, the competent authortes of the two contractng States may
consut together.
Abtce I
(1) Notwthstandng any other provson of ths conventon, the Unted States
of Amerca n determnng the ta es of Its ctzens, or resdents, or corporatons,
may Incude n the bass upon whch such ta es are Imposed, a Items of ncome
ta abe under the revenne aws of the Unted States of Amerca, as though ths
conventon had not come Into effect The Unted States of Amerca sha, how-
ever, deduct from the ta es thus computed the amount of Unon ncome ta pad.
Ths deducton sha be made In accordance wth the benefts and mtatons of
secton 131 of the Unted States Interna Revenue Code as In effect on the day
of the entry Into force of ths conventon. It Is agreed that by vrtue of the
provsons of paragraph (2) of ths Artce the Unon of South Afrca satsfes
the smar credt requrement set forth In subsecton (a) (3) of that secton.
(2) The Unon of South Afrca In mposng Its ta es sha e empt from such
ta es and sha not take nto account n the determnaton of such ta es ncome
derved from sources wthn the Unted States of Amerca n accordance wth the
ncome ta aws of the Unon In effect on the day of entry Into force of ths
conventon.
Artce
(1) An enterprse of one of the contractng States Is not sub|ect to ta aton
by the other contractng State n respect of ts Industra and commerca profts
e cept n respect of such profts aocabe to Its permanent estabshment n the
atter State.
20 D. S. C. Me. 131.
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653
(2) No account sha be taken In determnng the ta In one of the contract-
ng States, of the mere purchase of merchandse effected theren by an enterprse
of the other State.
(3) or the purpose of ths conventon, the term Industra and commerca
profts sha not Incude the Items of Income e cuded from the defnton of
that term In paragraph (1) of Artce II. Sub|ect to the provsons of ths con-
venton such Items of Income sha be ta ed separatey or together wth ndustra
and commerca profts n accordance wth the aws of the contractng States.
Artce I
(1) If an enterprse of one of the contractng States has a permanent estab-
shment In the other State, there sha be attrbuted to such permanent estab-
shment the net Industra and commerca profts whch t mght be e pected
to derve f t were an Independent enterprse engaged n the same or smar
actvtes under the same or smar condtons. Such net profts w, n prn-
cpe, be determned on the bass of the separate accounts pertanng to soch
estabshment.
(2) The competent authorty of the ta ng State may, when necessary. In
e ecuton of paragraph (1) of ths Artce, rectfy the accounts produced, notaby
to correct errors and omssons or to reestabsh the prces or remuneratons en-
tered In the books at the vaue whch woud preva between Independent per-
sons deang at arm s ength.
(3) If (a) an estabshment does not produce an accountng showng Its own
operatons, or (b) the accountng produced does not correspond to the norma
usages of the trade n the country where the estabshment s stuated, or c)
the rectfcatons provded for In paragraph (2) of ths Artce cannot be effected
the competent authorty of the ta ng State may determne the net Industra
and commerca profts by appyng such methods or formuae to the operatons
of the estabshment as may be far and reasonabe.
( ) To factate the determnaton of Industra and commerca profts a-
ocabe to the permanent estabshment, the competent authortes of the con-
tractng States may consut together wth a vew to the adopton of unform
rues of aocaton of such profts.
Artce II
When an enterprse of ether of the contractng States, by reason of ts partc-
paton n the management or capta of an enterprse of the other contractng
State, makes wth or Imposes on the atter n ther commerca or fnanca re-
atons condtons dfferent from those whch woud be made wth or Imposed
on an Independent enterprse, any profts whch shoud normay have appeared
In the accounts of the atter enterprse, but whch have been In ths manner
dverted to the former enterprse may, sub|ect to appcabe measures of appea,
be Incorporated In the ta abe profts of the atter enterprse. To factate such
rectfcatons as may appear far and reasonabe the competent authortes of the
two contractng States may consut together.
Artce T
(1) Compensaton, other than pensons, for abour or persona servces per-
formed In one of the contractng States, pad by the other contractng State or
by the potca subdvsons or terrtores or possessons thereof to ndvduas
who are not ordnary resdent n the former State, sha be e empt from ta -
aton by such former State.
(2) Pensons and fe annutes derved from sources wthn one of the
contractng States and pad to ndvduas n the other State sha be e empt
from ta aton by the atter State.
Artce I
A professor or teacher from one of the contractng States who vsts the other
contractng State for the purpose of teachng, for a perod not e ceedng 2 years,
at a unversty, coege, schoo or other educatona nsttuton In such other
contractng State sha be e empted by such other contractng State from ta on
hs remuneraton for such teachng for such perod.
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65
fn f .. W n 7 .
Students or busness apprentces from one of the contractng States resdng
In the other contractng State for purposes of study or for acqurng busness e -
perence sha not be ta abe by the atter State In respect of remttances re-
ceved by them from wthn the former State for the purposes of ther mante-
nance or studes.
ABTICL I
Income dcrved from sources wthn cue of the contractng States by n re-
gous. scentfc, terary, educatona, or cnrtabo organzaton of the other
contractng State sha be e empt from ta aton by the State from whch the
Income Is derved If, wthn the meanng of the aws of that State such organ-
caton woud, If estabshed In that State be e empt In respect of such Income,
and If wthn the meanng of the aws of the other State It woud be e empt
In respect of Income derved from sources wthn sucU other State.
ATIC- II
Dvdends and Interest pad on or after the effectve date of ths conventon
by a corporaton created or organzed under the aws of the Unon of South
Afrca to Indvdua resdents of the Unon of South Afrca other than ctzens
of the Unted States of Amerca, or to corporatons created or organzed under
aws of the Unon of South Afrca sha, to the e tent that such dvdends and
Interest are ta ed by the Unon of South Afrca, be e empt from the ta es Im-
posed by the Unted States of Amerca.
ARTICL III
Where ta payer shows proof that the acton of the revenue authortes of
the contractng States has resuted In doube ta aton In hs case In respect
of any of the ta es to whch ths conventon reates, he sha be entted to odge
a cam wth the State of whch he Is a ctzen or resdent or, f the ta payer
Is a corporaton or other entty, wth the State In whch It was created or or-
ganzed. If the cam 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 doube ta aton In queston may be avoded
In accordance wth the terms of ths conventon.
. ABTICLC I
Wth a vew to the mure effectve Imposton of the ta es to whch ths con-
venton reates, each of the contractng States undertakes to furnsh to the
other contractng State such nformaton In the matter of ta aton, whch the
competent authorty of the former contractng State have at ther dsposa or
are n a poston to obtan under ther own aw, as may be of use to the com-
petent authorty of such other State n the assessment of the ta es to whch
ths conventon reates and to end assstance In the servce of documents In
connecton therewth. Such nformaton and correspondence reatng to the
sub|ect matter of ths Artce sha be e changed between the competent author-
tes of the contractng States In the ordnary course or on request.
ABTICL
(1) ach contractng State undertakes to end assstance and support n the
coecton of the ta es to whch ths conventon reates, together wth Interest,
costs and addtons to the ta es and fnes not beng of a pena character. The
contractng State makng such coectons sha be responsbe for the other con-
tractng State for the sums thus coected.
(2) In the case of appcatons 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 other contractng State and coected In that State
In accordance wth the aws appcabe to the enforcement and coecton of Its
own ta es.
(3) The appcatons sha be accompaned by snch documents as are requred
by the aws of the State makng the appcaton to estabsh that the ta es have
been fnay determned.
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655
( ) If the revenue cam has not been Anay determned the State to whch
appcaton Is made may, at the request of the other contractng State, take sorb
measures of conservancy as are authorzed by the revenue aws of the former
State In reaton to Its own ta es.
Abtcs I
(1) In the admnstraton of the provsons of ths conventon reatng to e -
change of Informaton, servce of documents and mutua assstance In coecton
of ta es, fees nnd costs Incurred In the ordnnry course sha be borne by the State
to whch appcaton s made but e traordnary costs Incdent to speca forms
of procedure sha be borne by the appyng tate.
(2) Documents nnd other communcatons or Informaton contaned theren,
transmtted under the provsons of ths conventon by one of the competent
authortes to the competent authorty of the other contractng State sha not bt
used by tho atter authorty e cept In the performance of ther dutes In te
determnaton, assessment and coecton of tho ta es.
Artcb II
(1) Such reguatons as may be necessary to Interpret and carry out the pro-
vsons of ths conventon may be prescrbed In ench of the contractng States.
Wth respect to the provsons of ths conventon reatng to e change of Informa-
ton, servce of documents and mutua assstance In the coecton of ta es, the
competent authortes may, by common agreement, prescrbe rues concernng
matters of procedure, forms of appcaton nnd repes thereto, converson of
currency, dsposton of amounts coected, mnmum amounts sub|ect to coec-
ton and reated matters.
(2) The competent authortes of the two contractng States may communcate
wth each other drecty for the purpose of gvng effect to the provsons of ths
conventon.
Artcb III
(1) Ths conventon sha be ratfed and the Instruments of ratfcaton sha
be e changed at Washngton as soon as possbe.
(2) Ths conventon sha become effectve on the 1st day of uy 10 6, and
e cept In matters of admnstratve assstance sha frst be apped In respect
of Income arsng on or after that date. It sha contnue effectve for a perod
of 3 years from that date and Indefntey after that perod, but may be termnated
by cther of the contractng States at the end of the 3-ycar perod or at any
tme thereafter provded that at east 0 months pror notce of termnaton
has been gven, the termnaton to become effectve the 1st day of uy foow-
ng the e praton of the 0-month perod.
I:v Wtness Whereof, the respectve Penpotentares have sgned ths con-
venton and have aff ed thereto ther seas. Done In dupcate In ngsh and
Afrkaans te ts at Pretora ths 13th day of December, 19 0.
or the Government of the Unted States of Amerca:
or the Government of the Unon of South Afrca:
Thomas Hocomb
aw H. Horurra
SUPPL M NTARY PROTOCOL
Artce I
(1) Profts derved by a Unted States enterprse from the operaton of arcraft
regstered n the Unted States of Amerca or shps whose port of regstry s n
the Unted States of Amerca, sha be e empt from Unon of South Afrca ta
as specfed In Artce 1(1) (b) of the conventon of December 13,19 0: Provded
that such e empton sha not be appcabe to any such enterprse whose busness
Is managed and controed In the Unon nor to an Indvdua whose Is ordnary
resdent In the Unon.
(2) Profts derved by a Unon enterprse from the operaton of arcraft reg-
stered n the Unon of South Afrca or shps whose port of regstry a In the Unon
of South Afrca sha be e empt from Unted States of Amerca ta .
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656
T :: : r . .-,- , 7 A TICL II : . , ) : . I
(1) An ndvdua who Is a resdent of the Unted States of Amerca sha be
e empt from Unon of South Afrca ta on profts or remuneraton In respect of
persona (Incudng professona) servces performed wthn the Unon of South
Afrca n any year of assessment If:
(a) He s present wthn the Unon of South Afrca for a perod or perods
not e ceedng n the aggregate 1 3 days durng that year, and
(b) The servces are performed for or on behaf of a person resdent n
the Unted States of Amerca, and
(c) The profts or remuneraton are sub|ect to Unted States of Amerca
ta .
(2) An Indvdua who s a resdent of the Unon of South Afrca sha be e -
empt from Unted States of Amerca ta on profts or remuneraton n respect of
persona (ncudng professona) servces performed wthn the Unted States
of Amerca In any ta abe year If:
(a) He s present wthn the Unted States of Amerca for a perod or pe-
rods not e ceedng n the aggregate 1 3 days durng that year, and
(b) T he servces are performed for or on behaf of a person resdent In the
Unon of South Afrca, and
(c) The profts or remuneraton are sub|ect to Unon of South Afrca ta .
(3) The provsons of ths Artce sha not appy to the profts or remuneraton
of pubc entertaners, such as stage, moton pcture or rado artsts, muscans
or athetes.
Artce III
A resdent or corporaton of one of the contractng States, dervng from sources
wthn the other contractng State royates n respect of the operaton of mnes,
quarres, or natura resources, or rentas from rea property, for any ta abe
year or year of assessment sha be, or may eect to be, sub|ect to the ta of
such other contractng State, on the bass whch woud be appcabe If such
resdent or corporaton were engaged In trade or busness wthn such other
contractng State through a permanent estabshment theren durng such ta abe
year or year of assessment.
Artce I
Artce of the conventon of December 13,19-16, Is amended by changng the
perod at the end of paragraph (1) to a comma and the addton thereafter of
the words Provded that If snch enterprse s a prvate company havng a
permanent estabshment wthn the Unon of South Afrca nothng In ths para-
graph sha affect any provsons of the aw of the Unon of South Afrca re-
gardng the mposton upon the sharehoders of that prvate company of the
ta es payabe In respect of ts ncome.
Artce
The conventon of December 13,19 6, Is amended by the deeton of Artce IL
A tce I
Artce I of the conventon of December 13, 19 6, a amended by Insertng
, at the end thereof the foowng sentence: No Informaton sha be e changed
1 whch woud dscose any trade secret or trade process.
Artce II
Artce of the conventon of December 13, 19 6, Is amended by deetng
paragraph ( ) and substtutng the foowng:
( ) The assstance provded for In ths Artce sha not be accorded n
respect of a ctzen or natona or corporaton of the State to whch appca-
ton s made.
Artce III
I (1) Ths protoco sha be ratfed and the Instruments of ratfcaton thereof
sha be e changed at Washngton as soon as possbe.
(2) Ths protoco sha be regarded as an Integra part of the conventon of
I eeembcr 13, 19 6, and sha, e cept as provded In paragraph 3 of ths Artce,
become effectve and contnue effectve n accordance wth Artce III (2)
of that conventon and, In the event of termnaton of such conventon, sha
termnate smutaneousy wth such conventon.
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657
(3) Notwthstandng the provsons of Artce III of the conventon sgned
at Pretora on December IS, 10 0, the provson of Artces I, II, and III of ths
protoco sha become effectve and frst be apped n respect of ncome arsng
on or after the 1st day of uy, 10 3.
Iw Wtness Wn R or the undersgned Penpotentares, beng authorzed
thereto by ther respectve Governments, have sgned ths protoco and have
aff ed thereto ther seas.
Do e In dupcate, n the ngsh and Afrkaans anguages, at Pretora ths
the 1 th day of uy, 1950.
or the Government of the Unted States of Amerca:
Bfrsaf.d C. Coske t
or the Government of the Unon of South Afrca:
P. O. Saceb
UNIT D STAT S-CANADIAN D ATH TA CON NTION
T. D. 5 55, C. B. 19 5, 3 1, Secton 2. : Rev. RuL M- 07
Stus of property.
(Aso Secton 62, Interna Revenue Code
of 1939, Secton 1.50, Reguatons
105.)
Shares of stock of a corporaton organzed n or under the aws of
Canada whose stock transfer offces are ocated n the Unted States
are not deemed to be stuated n the Unted States under the stus rues
contaned n Artce 11(f) of the conventon between the Unted States
of Amerca and Canada modfyng and suppementng the conventon
of uno ,19 , for the avodance of doube ta aton and the preven-
ton of fsca evason n the case of estate ta es and successon dutes,
effectve November 21, 1951, whch provdes that shares of stock of
a company are deemed to be stuated at the pace where the company
s ncorporated. Accordngy, shares of stock of such Canadan cor
poraton owned by a decedent who at the tme of death was a ctzen
and resdent of Canada and not a ctzen or resdent of the Unted
States, are not sub|ect to the edera estate ta .
UNIT D STAT S-UNIT D INGDOM INCOM
TA CON NTION
T. D. 55G9, C. B. 19 7-2, 100, Secton 7.516: Rev. Ru. 5 -5SS
Scope of conventon wth respect to determ-
naton of ndustra or commerca profts.
(Aso Part II, Secton 22 (b) (7) Secton 231,
Secton 39.231-1, Reguatons 11 .)
The actvtes n the Unted States of the M Company, Lmted,
on behaf of the N Company, Lmted, both of whch are foregn
corporatons managed and controed In the Unted ngdom, do not
consttute a trade or busness through a permanent estabshment
for pur svs of the Income ta conventon between the Unted States
and the Unted ngdom, and accordngy, commssons receved by
the M Company, Lmted, on saes n the Unted States of products
of the N Company, Lmted, are not sub|ect to Unted States Income
ta .
Advco has been requested whether commssons receved by the M
Company, Lmted, a foregn corporaton managed and controed n
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65
the Unted ngdom, on saes n the Unted States of products of the
N Company, Lmted, aso such a foregn corporaton, are sub|ect to
Unted States ncome ta .
The M Company, Lmted, mantans a showroom n New York Cty
where ts saesmen soct orders from sampes for merchandse pro-
duced by the N Company, Lmted. Orders are transmtted by ma
drect to the N Company, Lmted, whch shps the merchandse to
the customer, who remts drecty to the N Company, Lmted. The
N Company, Lmted, pays a commsson on saes of ts merchandse
made through the saes organzaton of the M Company, Lmted.
Nether company mantans any stocks of goods n the Unted States
from whch saes are made.
Artce III() of the ncome ta conventon between the Unted
States and the Unted ngdom, Treasury Decson 55G9, C. B. 19 7-
2,100, provdes, n part, that a Unted ngdom enterprse sha not
be sub|ect to Unted States ta n respect of ts ndustra or com-
merca profts uness t s engaged n trade or busness n the Unted
States through a permanent estabshment stuated theren. The M
Company, Lmted, s a Unted ngdom enterprse as that term s
defned n Artce II (g) and () of the conventon. In Artce 11(1)
thereof t s provded that the term permanent estabshment does
not ncude an agency uness the agent has, and habtuay e ercses,
a genera authorty to negotate and concude contracts on behaf of
such enterprse or has a stock of merchandse from whch he reguary
fs orders on ts behaf.
It s hed that the actvtes n the Unted States of the M Company,
Lmted, a foregn corporaton managed and controed n the Unted
ngdom, on behaf of the N Company, Lmted, a smar foregn
corporaton, do not consttute a trade or busness through a perma-
nent estabshment stuated n the Unted States. Accordngy, com-
mssons receved by the M Company, Lmted, on saes n the Unted
States of products of the N Company, Lmted, are not sub|ect to
Unted States ncome ta .
UNIT D STAT S-UNIT D INGDOM D ATH TA
CON NTION
Treasury Decson 55G5, C. B. 19 7-1,125, Rev. Bu. 5 -01
Secton 2.10 : Stus of property.
arned but unpad commssons due a Unted States ctzen dom-
ced In the Unted States at the tme of hs death consttute a debt
wthn the meanng of Artce 111(2) (c) of the Conventon between
the Unted States and the Unted ngdom and have a stus ony
n the Unted States.
Commssons that accrue after the date of decedent s death are
contngen tupon future busness. Accordngy, the rght to future
commssons does not consttute a debt under the Conventon.
Advce has been requested whether commssons recevabe by a
Unted States ctzen domced n the Unted States at the tme of
hs death under the terms of a contract tfth a Brtsh nsurance com-
pany woud consttute a debt wthn the meanng of Artce III
(2) (c) of the Unted States Unted ngdom Death Ta Conventon,
C. B. 19 7-1,125.
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659
The decedent, a Unted States ctzen and domcary, was te
Amercan representatve of a Brtsh nsurance company. Under hs
contract wth the company, the decedent was entted to a commsson
on a nsurance sod by the company n the Unted States. The con-
tract aso provded that commssons woud be pad durng the year
of the decedent s death and for the fve succeedng years. Decedent
bequeathed ths obgaton to hs wfe who agreed to accept from
the company n eu thereof the sum of OO doars.
Artce III(2) of the Unted States-Unted ngdom Death Ta
Conventon prescrbng the rues of stus for the purpose of the
Conventon provdes n part as foows:
(c) Debts, scoured or unsecured, other than the forms of Indebtedness
for whch specfc provson Is made heren, sha be deemed to be stuated
at the pace where the decedent was domced at the tme of death
Ths rue refers to both secured and unsecured debts, and com-
rehends bonds, smpe contract debts, and bank deposts characterzed
y the debtor-credtor reatonshp. It s not ntended to cover con-
tracts of empoyment or agency whch contnue for a perod beyond
the date of death of any of the partes thereto. Snce debts cannot
be ta ed by the country where the decedent was not domced, ths
partcuar rue s, n ctfect, an e empton from ta mposed on the
bass of stus of property.
It s we estabshed that ta e emptons are gven a rgd nter-
pretaton. The term debt as used generay n the Unted States
ncudes not ony a f ed and defnte sum of money, but aso any ob-
gaton the amount of whch can be ascertaned from e stng data
by computaton or s capabe of beng ready reduced to a certanty.
Carro et a. v. Green et a., 92 U. S. 509, MUU v. Scott, 99 U. S. 25
Unted States v. Regan, 232 U. S. 37. To consttute a debt, therefore,
thero must be an ascertanabe sum of money owng from one person
to another and the rght of the credtor to enforce and receve payment
of the amount due.
In vew of the foregong t s hed that any sum due the decedent
under the contract at the date of hs death whch sum was capabe of
beng reduced to a certanty consttutes a debt under Artce III
(2) (c) of the Conventon and has a stus ony n the Unted States.
The rght to commssons that accrue after the date of the decedent s
death, cng contngent upon future busness, docs not consttute a
debt.
Paragraph (2) of Artce III provdes that the stus of rghts and
nterests not wthn the specfc casses of property for whch stus
rues are provded n the Conventon sha be determned n accordance
wth the ta aw n force n the country of nondomce. Inasmuch
as the rght to commssons accrung after the death of the decedent
ssung from or enforceabe aganst a Brtsh corporaton s not wthn
any of the descrbed casses of property, ts stus s determned under
Brtsh aw.
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660
SUBPART C -COMMITT R PORTS
MPLOYM NT S CURITY ADMINISTRATI
INANCING ACT O 1953
Home of Bcpresentatvcs Report No. 2T, ghty-thrd Congress, rst Sesson
May 1 , 1953
Mr. Reed of New Tork, from the Commttee on Ways and Means, submtted
the foowng report to accompany H. It. S173 :
The Commttee on Ways and Means, to whom was referred the b (II. R.
5173) to provde that the e cess of coectons from the edera unempoyment
ta over unempoyment compensaton admnstratve e penses sha be used to
estabsh and mantan a 200,000,000 reserve n the edera unempoyment
account whch w be avaabe for advances to the States, to provde that
the remander of such e cess sha be returned to the States, and for other
purposes, havng consdered the same, report favoraby thereon wthout amend-
ment and recommend that the b do pass.
Pbncpa eatures or H. R. 3173
The purpose of H. R. 5173 Is to strengthen the edera-State unempoyment-
Insurance program by provdng that a ta es coected under the edera
Unempoyment Ta Act sha be devoted e cusvey to the basc purposes of
ths program. To acheve ths ob|ectve, H. R. 0173 provdes as foows: .
(1) Begnnng on uy 1,1053 (and for each fsca year thereafter) an amount
equa to the e cess of ta es coected under the edera Unempoyment Ta
Act over the cost of admnsterng the edera and State operatons of the
unempoyment-nsurance program w be earmarked and paced In tn edera
unempoyment account Ths account Is aready estabshed under e Utng aw
and Is a subsdary account n the Unempoyment Trust und.
(2) At the end of each fsca year the amount equa to the e evss ta
coectons (f any) s to be earmarked and paced In the edera unempc yaent
account unt that account reaches a baance of 200 mon and thereafter n
such years as may be necessary to mantan ths baance. The annua e cess
ta coectons for the mmedate future are. estmated at appro matey GO
mon to 63 mon.
(3) Any such e cess not requred to ether acheve the orgna 200 mon
baance or to mantan the baance w be aocated to the trust accounts
(n the Unempoyment Trust und) of the varous States n the proporton
that ther covered payros bear to the aggregate of a States.
The sums aocated to States trust accounts are to be generay avaabe
for beneft payments. A State may, however, through a speca appropraton
act of ts egsature, utze the aocated sums (not to e ceed amounts de-
posted n ts trust fund n the prevous 5 fsca years) to suppement edera
admnstratve grants n fnancng ts admnstratve operatons.
( ) The 200 mon baance (or any esser baance) n the edera unem-
poyment account w be avaabe to States wth depeted reserve accounts for
:e purpose of assstng them n the fnancng of ther unempoyment beneft
payments. Any State whoso reserve account at the end of any quarter s ess
:an the amount of benefts pad n such quarter and n the precedng three
|uarters may appy, through Its governor, for an advance from the 200 mon
ccount to ts own trust fund. As a further quafyng condton for obtanng
hs advance, the State must certfy at the tme of appcaton that t s coectng
contrbutons for ts own trust fund at a rate at east equa to 2.7 percent
the hghest standard rate of State unempoyment ta coectons) of ts covered
myro. The argest advance whch a State may receve n any quarter s the
argest amount of benefts pad by t In any 1 of the ast precedng quarters.
(5) Repayment of tho advances obtaned by States n accordance wth the
borc condtons arc to be made by cther (a) transfer of funds from the trust
ccount of tho borrowng State (at tho drecton of Its governor) to the edera
ncnpoyment account, or (b) a decrease n the 00 percent aowabe credt
gnnst the 3 percent edera unempoyment ta . Ths decrease n aowabe
a credts w begn after the second anuary 1 on whch outstandng advances
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661
have not been repad by transfer of funds from the State s trust fund. Tee
decrease In the 00 percent aowabe credt aganst the 3 percent edera men-
poyment ta w be at tbe cumuatve rate of S percent (5 percent of 3 percent)
for each year In whch tbe advance Is st outstandng unt the resutng
addtona edera ta es coected have been suffcent to repay the advance.
Genera Statement
Tbe edera unempoyment ta Is a 3-percent ta eved upon the payros
(up to the frst 3,000 of annua Income of workers) of a empoyers of or
more workers durng 20 weeks In the year n a but certan specfed categores
of empoyment. Tbe empoyer Is permtted to offset up to 90 percent of the
edera ta (2.T percent of ta abe payros) wth any ta es pad to an nnea-
poyment-nsurnnce system under tbe aws of the State n whch be does busness.
The edera aw aso permts tbe empoyer to Incude In hs offset any State
ta savngs that are aowed hm under the aws of hs State.
When the Congress passed the unempoyment ta ng provsons of the Soca
Securty Act In 1935 t was beeved that 10 percent of the tota cost of the
unempoyment com ensaton program woud be needed for admnstratve e -
penses. or ths reason the aw provded the ma mum offset of 90 percent (2.7
ercent of ta abe wages) and reserved 10 percent of the ta for the edera
Government. edera ta coectons from ths source are not earmarked for
unempoyment-compensaton purposes under e stng aw but go Instead nto
the genera fund of the Trensury. ach ytar Congress approprates money for
grants to the States to cover the admnstratve e penses of ths program. The
amount of the appropraton Is determned by the admnstratve needs of
the Stntes and not by the estmated coectons of the edera unempoyment ta .
Contrary to the orgna Intent and e pectaton of tbe Congress, the three-
tenths of 1 percent tn has proved to be e cessve and, dependng upon the bass
of cnconton, has yeded between 700 mon to 1 bon n e cess of the
funds that have been dsbursed to meet the edera-State admnstratve costs
of Ue program. Ths amount has been used to meet the genera e penses of
other actvtes of the edera Government.
In the unanmous opnon of your commttee, nnd Indeed of a e ecutve
departments concerned, the fu amount of the ta coectons from the edera
unempoyment ta shoud be used e cusvey for strengthenng and Improvng
the Naton s unempoyment Insurance program as orgnay contempated.
It Is further agreed that the two basc needs to whch these e cess ta coec-
tons shoud be devoted are for the protecton of State trust accounts aganst
the contngency of Insovency nnd the provson for greater fe bty n admn-
stratve operatons. Your commttee beeves that these two agreed needs can
best be met through the methods provded In H. . 5173.
The provson of a oan account, as estabshed under IT. R. 5173, from whch
States wth depeted accounts may secure repayabe advances, recognzes the
edera nterest In protectng the sovency of State trust accounts In a manner
consstent wth the orgna Intent that States be charged wth utmate respons-
bty In fnancng the benefts whch they eect to provde.
The provson contaned n H. It. 5173 that States may utze for admnstra-
tve cost purposes (under approprate safeguards) that porton of ta coectons
credted to ther accounts w serve to make more fe be and w better adapt
the. admnstratve structure of the edera system to the varyng needs and
condtons of the country.
Attenton s Invted by your commttee to the fnct that the prncpe that tbe
cdern unempoyment ta coectons shoud not be regnrded as avaabe for
genera c endturcs has been recognzed by the Congress n the enactment of
the so-caed George oan fund provsons (sees. 90 (h) and 1201 of the Soca
Securty Act). Under these provsons the e cess of the edera unempoyment
ta coectons over the amount of dsbursements for admnstratve costs snce
the ntaton of the edera-State empoyment program was to be avaabe to
Stntes wth depeted reserve accounts. Under the George oan fund t was eft
argey to the dscreton of the Stntes ns to whether they woud revse ther ta
structures so ns to ranke nnv advances In fnct repayabe. The conference of
State ofcas admnsterng Stnte operatons of ths program ponted out ths
defect to your commttee In the pubc hearngs nnd recommended the strengthen-
ng of the repayabe oan provson by the method of reducng tho aowabe
offset aganst the edera ta , as Is provded In II. It. 517.1.
In regard to the second basc need greater fe bty and adaptabty n
admnstraton your commttee beeves that ths can best be met by eavng to
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.662
tbe provnce of the States the use of aocated e cess coectons to suppement
edera grants.
: . Under H. R. 5173 the e cess over the 200 mon baance (or the nmount neces-
A ary to mantan ths baance) can be used ony for beneft purposes nness a
State egsature approprates these funds for admnstratve purposes.
Your commttee has pad partcuar attenton to to request of the Treasury
Department that tbe Intaton of ths program be effectuated n such manner as
to have a mnmum adverse effect on tbe edera budget. H. R. 0173 foows,
therefore, the Treasury recommendaton as to the tmng and method of the
earmarkng of the funds Invoved. A substanta revson of the orgna bs
has aso been made In H. R. 5173, wth the resut that there w be no aocaton
of e cess ta coectons to the States unt after tbe accumuaton of the 200
mon baance In the edera unempoyment account. There w, therefore, be
no cash wthdrawas (e cept In the contngency of a State needng a oon) for
at enst 3 or years.
Techhca Anayss
S CTION 1
Ths secton provdes that the b may be cted as the mpoyment Securty
Admnstratve nancng Act of 1053.

S CTION
Secton of tbe b amends secton 1001(c) of the Interna Revenue Code
( edera Unempoyment Ta Act), whch mts the tota credts aowed to a
ta payer under subsectons (a) and (b) of such secton to 00 percent of the
edera ta aganst whch such credts are aowabe.
Secton 1001(a) permts credt aganst the edera ta for contrbutons Wth
respect to tbe ta abe year pad Into a State unempoyment fund on or before
the due date of the edera return for such year. Credt Is aso permtted under
e stng aw for contrbutons pad after the due date of the edera return,
bat ths credt Is not to e ceed 00 percent of the amount whch woud have been
aowabe as credt on account of such contrbutons had they been pad on or
before the due date of the edera return. An addtona credt Is aowabe under
secton 1601(b) wth respect to the amount of contrbutons whch a ta payer Is
reeved from payng to an unempoyment fund under tbe provsons of a State
aw whch have been certfed for the ta abe year as provded In secton 1C02 of
the code.
The amendment to secton 1001(c) makes no change n tbe credts aowed
under subsectons (a) and (b) of secton 1001 of e stng aw or n tbe appca-
ton of the 90-percent mtaton provded In subsecton (c) but does provde,
under certan crcumstances, for a reducton of the amount of the tota credts
so computed. The purpose of such reducton of the amount of tota credts whch
woud otherwse be aowabe s to provde a means of repayment to tbe edera
unempoyment account of the amount of any advance or advances to the account
of any State In the Unempoyment Trust und made under tte II of the Soca
Securty Act, as amended by the b.
If any baance of an advance or advances made under snch tte II to the
account of a State remans unreturned on anuary 1 of each of 2 consecutve
ta abe years, the tota credts whch woud be aowabe, e cept for ths amend-
ment, to a ta payer sub|ect to the unempoyment compensaton aw of such State
are reduced for the ta abe year begnnng wth tbe second such anuary 1,
uness pror to December 1 of that ta abe year the tota amount of nny advance
or advances made to the account of such State has been fuy returned. The
tota credts w aso be reduced n the case of any succeedng ta abe year
begnnng wth a consecutve anuary 1 on whch such a baance of an unreturned
advance or advances e sts, uness pror to December 1 of that ta abe year tbe
advance or advances made to the account of the State pror to such date are fuy
returned.
ampe (7). If an advance s made to the account of State In 105
and such advance Is not fuy returned pror to December 1, 1950, a baance
of an advance w reman unreturned on anuary 1 of each of 2 consecutve
ta abe years (1955 and 1050), and the tota credts w be reduced for the
ta abe year 195 In tbe case of any ta payer who durug such year Is sub|ect
to the unempoyment compensaton aw of State .
ampe ( ). If on advance made to the account of State T In 195 s
fuy returned n 1955, but an advance made to the account of such State In
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663
193 to not returned pror to December 1, 1950, the tota credts w I
reduced for the ta abe year 1956 (a baance of advances w reman unre-
turned on anuary 1 of each of 2 consecutve ta abe years, namey, 1 B
and 1950). If such a baance e sts on anuary 1, 1057, and a advances
mnd to the account of State T pror to December 1, 1957, are not fuy
returned pror to December 1,1057, the tota credts w be reduced for tt
ta abe yenr 1057.
Where the ta credt Is to be reduced wth respect to ta payers sub|ect to the
unempoyment-comrensnton aw of a partcuar State, the reducton In the ca e
of each such ta |ayer wth respect to the ta abe year whch begns wth the
second consecutve anuary 1 on whch a baance of an unreturned advance A
advances e sts w be 5 percent of the ta Imposed by secton 1600 of the Coce
wth respect to the wages pad by the ta payer durng such ta abe year whch
are attrbutabe to such State. or each succeedng ta abe year begnnng wb
a consecutve anuary 1 on whch such a baance of unreturned advances e sts,
the reducton In tota credts w be Increased by an addtona 5 percent. Toes.
n each of the above e ampes the reducton In credt for the ta abe year 1956
w be 5 percent of the ta Imposed by secton 1600 wth respect to the wag s
pad by such ta payer durng such ta abe year whch are attrbutabe to snea
State. In e ampe (2) the reducton In credt In the case of a ta payer sub|ect
to the unempoyment eom ensaton aw of State for the year 1957 woud be
10 percent of the ta so Imposed.
or purposes of computng the amount of any such reducton, wages sub|ect to
the ta Imposed by secton 1000 of the code, sha be attrbuted to a partcusr
State If such wages are sub|ect to the unempoyment compensaton aw of the
State. If wages sub|ect to the ta Imposed by secton 1600 arc not sub|ect to the
unempoyment compensaton aw of any State, the determnaton as to whether
such wages, or any porton thereof, are attrbutabe to the State wth respect to
whch the reducton In credt Is Imposed sha be made In accordance wth rues
or reguatons prescrbed by the Secretary of the Treasury.
CTION B
Secton 5 of the b makes varous technca amendments to the Soca Secu-
rty Act and to the Interna Revenue Code.
The amendment to secton 303(a)(5) of the Soca Securty Act makes :
cear that the funds credted to the State account pursuant to the b may,
sub|ect to tho restrctons contaned n ths b, be used for admnstratve
e penses of the State In connecton wth Its unempoyment compensaton aw
and pubc empoyment cces. At the same tme It Imposes a sancton wth
respect to such use of funds, n that a voaton of the restrctons contaned In
ths b w be a ground for refusa to certfy payment to the State under
secton 303(a) of the Soca Securty Act.
The amendment to secton 1603(a) ( ) of the Interna Revenue Code to aso
Intended to serve the dua purpose of permttng the use of credted funds for
admnstratve purposes and to mpose a sancton for voaton of the restrctons
on such use contaned n ths b (namey, that the State aw woud cease to be
approvabe under such secton 1603).
Subsecton (c) of secton 5 of the b amends secton 90 (b) of the Soca
Securty Act to provde that advances to the edera unempoyment account
pursuant to secton 1202(c) of the Soca Securty Act sha not be Invested.
The purpose of ths amendment (whch must be read wth the amendment made
by sec. 5(d) of the b to sec. 90 (e) of the Soca Securty Act) s to prevent
the unempoyment trust fund, and the varous accounts theren, from earnng
nterest on non-ntercst-bcarng advances to the edera.unempoyment account
from the conern fund of the Treasury. The amount In the unempoyment trust
fund whch at any tme cannot be Invested by reason of these amendments
Is whchever of the foowng amounts Is the smaer: (1) The tota outstandng
advances at such tme from the genera fund n the Treasury to the edera
unempoyment account, or (2) the sum of (a) the baance In the edera unem-
poyment account nt such tme, and (o) the aggregate at such tme of the
reductons under paragraph (1) of the ast sentence of secton 90 (e) of the
Soca Securty Act (added b| sec. 5(d) of the b).
Under secton 00 (e) of the Soca Securty Act a proportonate part of the
Interest receved from Investments of moneys n the unempoyment trust fund
s credted quartery to each account n the fund on the bass of the average
day baance In such account. Subsecton (d) of secton 5 of the b amends
ths provson so as to prevent (1) the credtng of nfrett to the accounts of
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66
the States on the bass of non-nterest-bearng advances to such accounts from
the edera unempoyment account, and (2) the credtng of Interest to the
. edera unempoyment account on the bass of non-nterest-bearng advances
: to such account from the genera fund of the Treasury.

MPLOYM NT S CURITY ADMINISTRATI
INANCING ACT O 195
I Senate Report No. 1021, ghty-thrd Congress. Second Sesson. Caendar No. 163 .
une 1 (egsatve day, une 11), 105 .
, Mr. Mkn, from the Commttee on nance, submtted the foowng report
to accompany H. R 5173 :
The Commttee on nance, to whom was referred the b (H. R. 5173) to
provde that the e cess of coectons from the edera unempoyment ta over
unempoyment compensaton admnstratve e penses sha be used to estabsh
and mantan a 200 mon reserve n the edera unempoyment account whch
w be avaabe for advances to the States, to provde that the remander of
such e cess sha be returned to the States, and for other purposes, havng con-
sdered the same, report favoraby thereon wth amendments and recommend
that the b as amended do pass.

-
Prncpa eatures or H. R. 5173
The purpose of H. It. 5173 s to strengthen the edera-State empoyment
I securty program by provdng that a ta es coected under the edera Unem-
poyment Ta Act sha be devoted e cusvey to the basc purposes of ths
program. To acheve ths ob|ectve, H. R. 5173 provdes as foows:
(1) Begnnng on uy 1, 1053 (and for each fsca year thereafter), an amount
equa to the e cess of ta es coected under the edera Unempoyment Ta Act
over the cost of admnsterng the edera and State operatons of the empoye
taent securty program, Incudng unempoyment Insurance and pubc empoy-
ment offces, w be earmarked and paced n the edera unempoyment account.
Ths account s aready estabshed under e stng aw and Is a subsdary ac-
count n the unempoyment trust fund.
(2) At the end of each fsca year the amount equa to the e cess ta coectons
(If any) Is to be earmarked and paced In the edera unempoyment account
unt that account reaches a baance of 200 mon and thereafter In such
years as may be necessary to mantan ths baance. The estmated e cess ta
coectons for fsca year 105 are appro matey 70 mon. The annua e cess
ta coectons for the ne t fsca year are estmated at appro matey 00 mon
to . mon.
(3) Any such e cess not requred to ether acheve the orgna 200 mon
baance or to mantan the baanco w bo aocated to the trust accounts (n
the unempoyment trust fund) of tho varous States In the proporton that ther
covered payros benr to the aggregate of a States.
The sums aocated to States trust accounts are to be generay avaabe for
beneft payments. A State mny, bowover, through a speca appropraton act
of ts egsature, utze the aocated sums (not to e ceed amounts deposted In
Its trust fund In the prevous 0 fsca years) to suppement edera admnstra-
tve grants In fnancng Its admnstratve operatons.
( ) The 200 mon baance (or any esser baance) In the edera unem-
poyment account w bo avaabe to States wth depeted reserve accounts for
the pur so of assstng them In the fnancng of tcr unempoyment beneft
payments. Any State whose reserve account at the end of any quarter Is ess
than the amounts of benefts pad n such quarter and n the precedng three
quarters may appy, through Its governor, for an advance from the 200 mon
account to Its own trust fund. The argest advance whch a State may receve
In any quarter s the argest amount of benefts pad by It n any one of the ast
four precedng quarters.
(5) Repayment of the advances obtaned by States In accordance wth the
above condtons nro to be made by ether (a) transfer of funds from the trust
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665
account of the borrowng State (at the drecton of ts governor) to the edera
unempoyment account, or (6) a decrease n the 90 percent aowabe credt
aganst the 3 percent edera unempoyment ta . Ths decrease n aowabe
ta credts w begn after tbe second anuary 1 on whch outstandng advances
have not been repad by transfer of funds from the State s trust fund. Tbe
decrease In the DO percent aowabe credt aganst the 3 percent edera unem-
poyment ta w be at tbe cumuatve rate of percent (5 percent of 3 percent)
for each year n whch tbe advance s st outstandng nnt the resutng add-
tona edera ta es coected hare been suffcent to repay tbe advance.
G N RAL STAT M NT
The edera unempoyment ta Is a 3-percent ta eved upon the payros (op
to tbe frst 3.000 of annua Income of workers) of a empoyers of or more
workers durng 20 weeks n the year n a but certan specfed categores of
empoyment. The empoyer s permtted to offset up to 90 percent of the ed-
era ta (2.7 percent of ta abe payros) wth any ta es pad to an unempoy-
ment-Insurance system under the aws of tbe State n whch he does busness.
Tbe edera aw aso permts tbe empoyer to Incude In hs offset any State ta
savngs that are aowed hm under tbe aws of hs State.
When the Congress passed the unempoyment ta ng provsons of the Soca
Securty Act of 1U33 It was beeved that 10 percent of the tota cost of the unem-
poyment compensaton program woud be needed for admnstratve e penses.
or tbs reason the aw provded the ma mum offset of 00 percent (2.7 percent
of tnabe wages) and reserved 10 percent of tbe ta for tbe edera Govern-
ment. edera ta coectons from tbs source are not earmarked for empoy-
ment securty purposes under e stng aw but co Instead Into Ue genera fund
of the Treasury. ach year Congress approprates money for grants to the
States to cover tbe admnstratve e penses of ths program. The amount of
tbe appropraton s determned by the admnstratve needs of the States and
not by tbe estmated coectons of tbe edera unempoyment ta .
Contrary to the orgna ntent and e pectaton of the Congress, the three-
tenths of 1 percent ta has proved to be e cessve and, dependng upon the bass
of cacuaton, has yeded between 700 mon to 1 bon In e cess of the
funds that have been dsbursed to meet tbe edera-State admnstratve costs of
tbe program. Ths amount has been used to meet the genera e penses of other
actvtes of the edera Government
In tbe opnon of your commttee, the fu amount of the ta coectons from
tbe edera unempoyment ta shoud be used e cusvey for strengthenng aud
Improvng the Naton s empoyment securty program as orgnay contempated.
It s further agreed that tbe two basc needs to whch these e cess ta co-
ectons shoud be devoted are for the protecton of State trust accounts aganst
tbe contngency of Insovency and the provson for greater fe bty In admn-
stratve operatons. Your commttee beeves that these two agreed needs
can best be met through the methods provded In II. R. 6173.
The provson of a oan account, as estabshed under H. It. 5173, from whch
States wth depeted accounts may secure repayabe advances, recognzes tbe
edera nterest In protectng tbo sovency of State trust accounts n a manner
consstent wth the orgna Intent that States be charged wth utmate respons-
bty n fnancng the benefts whch they eect to provde.
The provson contaned In II. II. T 173 that States may utze for admnstra-
tve coat purposes (under approprate safeguards) that porton of ta coectons
credted to ther accounts w nerve to make more Uc be and w better adapt
the admnstratve structure of the. edera-State system to tbe varyng neeUs
and condtons of the country.
Attenton Is Invted by your commttee to the fact that the prncpe that the
edera unempoyment ta coHcctons shoud not be regarded ns avaabe for
genera e pendtures has been recognzed by tbo Congress In the enactment of the
so-cued Ueorge oan fund provsons (sees. S M (h) and 1201 of the Soca Secu-
rty Act). Under these provsons the e cess of tbe edera unempoyment ta
coectons over the amount of dsbursements for admnstratve costs snce the
ntaton of the cdern-Statp empoyment securty program was to be avaabe
to States wth depeted reserve accounts. Under tbe George oan fund t was
eft argey to the dscreton of the States as to whether they woud revse ther
tn structures so as to make any advances In fact repayabe. The conference of
State offcas admnsterng State operatons of tbs program recommended the
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666
srtrengthenng of the repayabe oan provson by the method of reducng the
aowabe offset aganst the edera ta , as s provded In H. R. SI73.
In regard to the second basc need greater fe bty and adaptabty n ad-
mnstraton yonr commttee beeves that ths can best be met by eavng to
te provnce of the States the use of aocated e cess coectons to suppement
edera grants.
Under II. It. 5173 the e cess over the 200 mon baance (or the amount
necessary to mantan ths baance) can be used ony for beneft purposes uness
a State egsature approprates these funds for admnstratve purposes.
Technca Anayss
S CTION
Ths secton provdes that the b may be cted as the mpoyment Securty
Admnstratve nancng Act of 105 .
:
S CTION
Secton of the b amends secton 1601 (c) of the Interna Revenue Code
( edera Unempoyment Ta Act), whch mts the tota credts aowed to a
ta payer under subsectons (a) and (b) of such secton to 00 percent of the
edern ta aganst whch such credts are aowabe.
Secton 1001 (a) permts credt aganst the edera ta for contrbutons wth
respect to the ta abe year pad Into a State unempoyment fund on or before
the due date of the edera return for such year. Credt s aso permtted
under e stng aw for contrbutons pad after the due date of the edera return,
but ths credt s not to e ceed 90 percent of the amount whch woud have been
aowabe as credt on account of such contrbutons had they been pad on or
before the due date of the edera return. An addtona credt s aowabe
under secton 1C01 (b) wth respect to the amount of contrbutons whch a
ta payer Is reeved from payng to an unempoyment fund under the provsons
of a State aw whch bare been certfed for the ta abe year as provded n
secton 1002 of the code.
The amendment to secton 1C01 (c) makes no change n the credts aowed
under subsectons (a) and (b) of secton 1001 of e stng aw or n the nppca-
ton of the 90-percent mtaton provded n subsecton (c) but docs provde,
under certan crcumstances, for a reducton of the amount of the tota credts
so computed. The purpose of such reducton of the amount of tota credts
whch woud otherwse be aowabe s to provde a means of repayment to the
edera unempoyment account of the amount of any advance or advances to
the account of any State n the unempoyment trust fund made under tte II
of tbe Soca Securty Act, as amended by the b.
If any baance of an advance or advances made under such tte II to the
account of a State remans unreturned on anuary 1 of each of 2 consecutve
ta abe years, the tota credts whch woud be aowabe, e cept for ths amend-
ment, to a ta payer sub|ect to the unempoyment compensaton aw of such
State are reduced for the ta abe year begnnng wth the second such anuary 1,
uness pror to December 1 of that ta abe year the tota amount of any advance
or advances made to the account of such State has been fuy returned. The
tota credts w aso be reduced n the case of any succeedng ta abe year
begnnng wth a consecutve anuary 1 on whch such a baance of an unreturned
advance or advances e sts, uness pror to December 1 of that ta abe year the
advance or advances made to the account of the State pror to such date are
fuy returned.
ampe (/). If an advance s made to the account of State n 105 and
such advance s not fuy returned pror to December 1, 1950, a baance of an
advance w reman unreturned on anuary 1 of each of 2 consecutve ta abe
years (1955 and 1956), and the tota credts w be reduced for the ta abe year
1950 In tbe case of any ta payer who durng such year Is sub|ect to the unem-
poyment compensaton aw of State .
ampe (2). If on advance made to the account of State T n 195 Is fuy
returned n 1953, but an advance made to the account of such State In 1955 Is
not returned pror to December 1, 1950, the tota credts w be reduced for
the ta abe year 1950 (a baance of advances w reman unreturned on anuary
1 of each of 2 consecutve ta abe years, namey, 1955 and 1950). If such a
baance e sts on anuary 1,1957, and a advances made to the account of State
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T pror to December 1, 1057, are not fuy returned pror to December . 1907.
the tota credts w be reduced for the ta abe year 1957.
Where the ta credt s to be reduced wth respect to ta payers sub|ect to tbe
unempoyment-compensaton aw of a partcuar State, the reducton In tbe case
of each such ta payer wth respect to tbe ta abe year whch begns wth the
second consecutve anuary 1 on whch a baance of an unreturned advance or
advances e sts w be 0 percent of tbe ta Imposed by secton 1GOO of the
code wth respect to the wages pad by the ta payer durng such ta abe year
whch are attrbutabe to such State. or each succeedng ta abe year begn-
nng wth a consecutve anuary 1 on whch such a baance of unretnmed
advances e sts, tbe reducton In tota credts w be Increased by an addtona
5 percent Thus, n each of tbe above e ampes the reducton n credt for the
ta abe year 1950 w be 5 percent of the ta mposed by secton 1600 wth
respect to the wages pad by such ta payer durng such ta abe year whch are
attrbutabe to such State. In e ampe (2) tbe reducton n credt n the case of
a ta payer sub|ect to tbe unempoyment compensaton aw of State Y for the
year 1957 woud be 10 percent of the ta so Imposed.
or purposes of computng the amount of any such reducton, wages sub|ect
to the ta Imposed by secton 1C00 of the code, sha be attrbuted to a partcuar
State f such wages are sub|ect to the unempoyment compensaton aw of the
State. If wages sub|ect to the ta Imposed by secton 1000 are not sub|ect to
the unempoyment compensaton aw of any State, the determnaton as to
whether such wages, or any porton thereof, are attrbutabe to tbe State wth
respect to whch the reducton In credt Is Imposed sha be made In accordaace
wth rues or reguatons prescrbed by the Secretary of the Treasury.
Secton 5 of the b mokes varous technca amendments to the Soca Securty
Act and to the Interna Itcvenue Code.
The amendment to secton 303 (a) (5) of the Soca Securty Act makes It
cour that the funds credted to the State account pursuant to the b may,
sub|ect to the restrctons contaned In ths b, be nsed for admnstratve
e penses of the State In connecton wth ts unempoyment compensaton aw
and pubc empoyment ofces. At the urno tme t Imposes a sancton wth
respect to such use of funds. In that a voaton of the restrctons contaned a
ths b w bo a ground for refusa to certfy payment to the State under
secton 303 (a) of the Soca Securty Act
The amendment to secton 1003 (a) ( ) of the Interna Revenue Code s aso
Intended to serve the dua purpose of permttng the use of credted funds for
admnstratve purposes and to Impose a sancton for voaton of the restrctons
on such use contaned n ths b (namey, that the State aw woud cease to be
approvabe under such sec. 1G03).
Subsecton (c) of secton 5 of the b amends secton 90 (b) of the Soca
Securty Act to provde that advances to the edera unempoyment account
pursuant to secton 1202 (c) of the Soca Securty Act sha not be nvested.
The purpose of ths amendment (whch must be read wth th amendment made
by sec. 5 (d) of the b to sec. 90 (e) of the Soca Securty Act) Is to prevent
the unempoyment trust fund, and tbe varous accounts theren, from earnng
nterest on non-nterest-benrng advances to the edera unempoyment account
from the genera fund of the Treasury. Tbe amount In the unempoyment trust
fund whch at any tme cannot be Invested by reason of these amendments Is
whchever of the foowng amounts Is the smaer: (1) The tota outstandng
ndvnnces nt such tme from the genera fund n the Treasury to the edera
unempoyment account, or (2) the sum of (a) the baance In the edera unem-
poyment account at such tme, and (6) the aggregate at such tme of the
reductons under paragraph (1) of the ast sentence of secton 90 (e) of tbe
Soca Securty Act (added by sec. 5 (d) of the b).
Under secton 001 (e) of the Soca Securty Act a proportonate part of the
nterest receved from nvestments of moneys In the unempoyment trust fund
s credted quartery to each account n the fund on the bass of the average
day baance n such account. Subsecton (d) of secton 5 of the b amends
ths provson so as to prevent (1) tbe credtng of Interest to the accounts of
the States on the bass of non-nterest-benrng advances to such accounts from
the edera unempoyment account, and (2) the credtng of nterest to the
edera unempoyment account on the bass of non-nterest-bearng advances to
such account from tbe genera fund of the Treasury.
A. .A.
33310 53 3
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66
AM NDM NTS TO TH RAILROAD R TIR M NT ACT,
TH RAILROAD R TIR M NT TA ACT, AND TH
RAH.ROAD UN MPLOYM NT INSURANC ACT
House of Representatves Report No. 1 9, ghty-thrd Congress, Second Sesson
une 21,105
Mr. Woverton, from the Commttee on Interstnte and oregn Commerce, sub-
mtted the foowng report to accompany H. . 7 0:
The Commttee on Interstate and oregn Commerce, to whom was referred
the b (H. It. 7 0) to amend the Raroad Retrement Act, the Raroad Retre-
ment Ta Act, and the Raroad Unempoyment Insurance Act, barng consd-
ered the same, report favoraby thereon wth amendments and recommend that
the b as amended do pass.
rnovsoNs or the Repocted B
The reported b woud amend the Raroad Retrement Act, the Raroad Re-
trement Ta Act, and the Raroad Unempoyment Insurance Act In the foow-
ng respects:

AM NDM NTS TO TH RAILROAD R TIR M NT TA ACT
Benefts payabe under the Raroad Retrement Act are presenty fnanced by
a payro ta of ( A percent on raroad empoyees and an equa ta on ther
empoyers, payabe on each empoyee s compensaton up to 300 a month, and
by contrbutons from the edera Government on account of credtabe mtary
servce.
The reported b woud Increase the ta base from 300 to 350 a month, effec-
tve uy 1,195 , eavng the ta rate of ( , percent unchanged.
Compensaton for servce as a deegate to a natona or nternatona conventon
of a raway abor organzaton, If such deegate has not prevousy rendered serv-
ce covered under the Raroad Retrement Act, woud be dsregarded. As a-
ready noted, the reported b woud dsquafy such deegates for any benefts
under the Raroad Retrement Act

ncreae n credtabe and ta abe compensaton ate for retrement purpotct
The b proposes to amend the Raroad Retrement Act and the Raroad
Retrement Ta Act by Increasng, for beneft and ta ng purposes, the ma mum
compensaton from the present 300 to 350 a month.
Increasng the credtabe compensaton base from 300 to 350 woud provde,
of tsef, hgher retrement benefts and survvor benefts In the future for the a-
most two-thrds of the actve raroad workers who now earn In e cess of 300 a
month, snce ther annutes woud be based on a hgher average monthy com-
pensaton. In the future an Increasng number of empoyees and ther fames
w beneft from ths Increase In the ta abe base.
Snce about 30 percent of a present empoyees do not earn more than 300 a
month, the Increase n the ta base woud not affect them, because the e stng ta
rates have not been chnnged. The remanng two-thrds woud pay the empoyee
ta begnnng uy 1, 11)5 , on the ncrease from 300 to 350 per month n the
ta abe base. The tota ta abe payro woud bo Increased by about 0 percent
or 50 mon a year, and retrement-ta coectons by about 50 mon a
year. Ths amendment woud of Itsef resut n ncreased benefts whch woud
cost appro matey 31 mon n year 25 mon under the retrement and 0
mon under the survvor provsons.
The 31 mon ncrease In retrement and survvor benefts resutng from the
proposed Increase n the credtabe base, pus the addtona cost for other Retre-
ment Act amendments Incuded n the b. Incudng the savngs from the change
n the dsabty work cause, woud tota appro matey 5 mon. The 50
mon addtona revenue woud more than pay for a the ncreased benefts
provded for In the b.
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669
When the 300 mt on the credtabe and ta abe compensaton base was
estabshed In 11)37, 9 percent of the number of raroad empoyees were earazg
no more than 300 a month. Aso, 9 percent of the tota raroad payro was
credtabe and ta abe under the 300 mtaton In effect wthout change darng
the past 1 years. Snce 1937, wage rates have more than doubed. The average
annua earnngs per raroad empoyee In 1937 was 1,7 0 In 1953, It was , 00.
As n resut, at the present tme, ony 30 percent of the empoyees are earnng
300 a month or ess, and ony 0 percent of the payro Is credtabe and ta abe
under the 300 mtaton now In the aw.
ven wth the proposed Increase In the credtabe and ta abe compensaton to
350 a month, ony percent of the payro woud be ta abe compared wth SS
percent 1 yenrs ago. In other words, the proposed Increase In compensaton to
350 woud st appy to a smaer percentage of the tota payro than was the
case In 1937.
The 300 per month ceng on credtabe and ta abe compensaton for raroad
retrement purposes has been recognzed as out of date by many raroad com-
panes for a number of years, as evdenced by the fact that they have estabshed
suppementa pans coverng ther offcas and empoyees who reguary earn sa-
ares hgher than that amount As ong as 5 years ago the Raroad Retrement
Board bad knowedge of 53 such suppementary pans and made a study of them.
There are undoubtedy a consderabe number that have snce been estabshed.
The empoyee who pays the ta on the addtona monthy compensaton n
e cess of 300 but not n e cess of 350, as proposed n the b, woud be ade-
quatey compensated by the ncreased benefts resutng from credtng the add-
tona compensaton. He woud receve 3 for each 1 n ta es he pad by reason
of ths provson n the b.
The effect of ncreasng the credtabe and ta abe base to 300 on empoyees
annutes Is Iustrated by the foowng tabe.
Tabe 1. ffect of ncreasng credtabe and ta abe bate to 350 per month on
empoyee retrng on fu annutes after 30 years of servce, assumng e
servce after ncrease n base to be at 330
Increase In
monthy annuty
Increase fa
Year of servce
Increase In
arrr. :e
Avcrnpc monthy compensaton
before Increase In base
BecTPcate
(or te
e pectancy
ot UH years
Before
After
Per
Per
ta es to date
base
baso
month
year
of retrement
after retre-
ment
Increase
ncreoso
0
to
20.70
17.
12 . 0
207.00
11,12 . 0
S3.10100
1
I ,.
S3
50
It
10
639.00
. 5 7.30
11 0
101 CO
751.20
H3. 0
17100
167. 0
070. Of

10 t
12 . SO
1,532.50
r A
1 M
6.00
2. 0
1.03100
t
1 5
1. 0
(17.50
fourcc: ncarR before the Commttee on Interstate and oreen Commerce, noose ot ncrrcsentares,
3d Cons., 2d tu., on 11. . W0, n b to amend the aroad Uetrcmcnt Act, the aroad Retrement
Tut Act, and the aroad Unempoyment Insurance Act, p. 6 .
Moreover, as aready ndcated, the Increase n credtabe monthy compensaton
from 300 to 350 woud aso operate to ncrease survvor benefts.
The addtona revenue, to be coected from the carrers under the proposed
amendment to Increase the ta base, woud amount to 2S mon a year on a
eve cost bass. However, a very substanta percentage of ths amount w be
offset by an automatc ad|ustment In the edera ncome ta payabe by the
carrers. Assumng that the edera ncome ta rate on corporatons w not
change greaty from the present rate, the addtona 2S mon, whch t Is
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670
estmated they woud have to pay under the proposed amendment, woud be
offset to the e tent of appro matey 60 percent by redactons In ther corporate
Income-ta payments. urthermore, an addtona amount woud be saved by
reductons In ther suppementa penson pans.
It s aso Important to note that the proposed Increase In the compensaton
base to 350 a month woud be In conformty wth the Presdent s recommendaton
for an Increase n the credtabe and ta abe wage base from 3,G00 to ,200
a year under the od-age and survvors Insurance program. The House of Repre-
sentatves, on une 1, 105 , dd adopt the Presdent s recommendaton In ths
respect when It passed H. It. 0306, a b to amend the Soca Securty Act and
the Interna Revenue Code, etc.
A
Sectons SOI to 20 . In cate n earnng base for ta purposes
The change In the ma mum compensaton from 300 to 350 a month, effected
by the precedng sectons of the b for the purposes of the Raroad Retrement
Act, s paraeed by the amendments made by sectons 201, 202, 203, and 20 of
the b to sectons 1500,1501,1510, and 1520, respectvey, of the Raroad Retre-
ment Ta Act Under these amendments the empoyee ta , the empoyee repre-
sentatve ta , and the empoyer ta woud appy to as much as 350 of compen-
saton n any mouth, rather than ony to 300 as Is now the case.
Secton 205. Ta on compensaton of deegates to raway abor conventont
Ths secton woud amend secton 1532 of the Raroad Retrement Ta Act
so ns to e cude from ta aton the compensaton, for servce as a deegate to a
natona or nternatona conventon of a raway abor organzaton, of any
person who has no other prevous credtabe servce, and woud make the Ta Act
conform to the Retrement Act In ths respect,

Changes f stng Law
In compance wth cause 3 of rue III of the Rues of the House of Repre-
sentatves, changes In e stng aw made by the b, as Introduced, are shown
as foows (e stng aw proposed to be omtted Is encosed n back brackets,
new matter Is prnted n tacs, e stng aw n whch no change s proposed s
shown n roman):
RAILROAD R TIR M NT TA ACT
Past I Ta oh mpoyees . .
S C 1500. BAT O TA .
In addton to other ta es, there sha be eved, coected, and pad upon the
ncome of every empoyee a ta equa to the foowng percentages of so much
of the compensaton, pad to such empoyee after December 31,10 6, for servces
rendered by bm after such date, as Is not n e cess of 300 for any caendar month
before uy 1, HH, and as s not n e cess of S350 for any caendar month, after
une SO, 195 :
1. Wth respect to compensaton pad durng the caendar years 19 7 and
19 , the rate sha be 5 per centum
2. Wth respect to compensaton pad durng the caendar years 19 9,1950,
and 1951, the rate sha be 6 per centum
3. Wth respect to compensaton pad after December 31, 1951, the rate
sha be G / per centum.
S C 1501. D DUCTION O TA ROM COMP NSATION
(a) Requrement. The ta Imposed by secton 1500 sha be coected by the
empoyer of the ta payer by deductng the amount of the ta from the compen-
saton of the empoyee as and when pad. If on empoyee Is pad compensaton
after December 31,19 0, by more than one empoyer for servces rendered durng
any caendar month nfter 1910 and the aggregate of such compensaton Is In v cvut
of . for tny month before uy I, IWH, or n crcess of t SO for any month after
une SO, tost, the u to e deducted by ench empoyer oer Hum n mordnnta
unt of u natona ruwny-nuor organsaton empoyer from thu conpcnmton
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671
pad by hm to the empoyee wth respect to such month sha be that proporton
of the ta wth respect to such compensaton pad by a such empoyers whcb
the compensaton pad by hm after December 31,19 6, to the empoyee for serv-
ces rendered durng such month bears to the tota compensaton pad by a
such empoyers after December 31,10 0, to such empoyee for servces rendered
durng such month and In the event that the compensaton so pad by such em-
poyers to the empoyee for servces rendered durng such month Is ess than 300
f tuch month t before u / 1,195 , or t ess than 3350 f tuch month t after
une SO, 195 , each subordnate unt of a natona raway-Iabor-organzaton em-
poyer sha deduct such proporton of any addtona ta as the compensaton
pad by such empoyer after December 31, 10 0, to such empoyee for servces
rendered durng such month bears to the tota compensaton pad by a such
empoyers after December 31,10 0, to such empoyee for servces rendered durng
such month.
Pabt II Ta on mpoyee Representatves
S C. 1310. RAT O TA .
In addton to other ta es, there sha be eved, coected, and pad upon the
Income of each empoyee representatve a ta equa to the foowng percentages
of so much of the compensaton, pad to such empoyee representatve after
December 31, 10 0, for servces rendered by hm after such date, as s not n
e cess of 300 for any caendar month before uy 1,195 , and at It not n e cess
of 350 for any caendar month after une SO, 195 :
1. Wth respect to compensaton pad durng the caendar years 10 7 and
10 , the rate sha be 11 per centum
2. Wth respect to compensaton pad durng the caendar years 19 9, 1950,
and 1051, the rate sha be 12 per centum
3. Wth respect to compensaton pad after December 31, 1951, the rate
sha be 12 per centum.
Pabt III Ta on mpoyees
S C 1510. RAT O TA .
In addton to other ta es, every empoyer sha pay an e cse ta , wth respect
to havng ndvduas In hs empoy, equa to the foowng percentages of so much
of the compensaton, pad by such empoyer after December 31,10 6, for servces
rendered to hm after December 31, 1030, as s, wth respect to any empoyee
for any caendar month before uy 1, 195 , not n e cess of 300, and for any
caendar month after une SO, 195 , not In e cest of 350: Provded, hotccver. That
If an empoyee s pad compensaton after December 31, 19 0, by more than one
empoyer for servces rendered durng nny caendar month after 1936, the ta
mposed by ths secton sha appy, th rcpcet to any caendar month before
uy 1,195 to not more than 300, and th rcpcet to any caendar month after
une SO, 195 , to not more than 350 of the aggregate compensaton pad to such
empoyee by a such empoyers after December 31, 10 6, for servces rendered
durng such month, and each empoyer other than a subordnate unt of a natona
rawny-abor-organzuton empoyer sha be abe for that proporton of the ta
wth respect to such compensaton pad by a such empoyers whch the com-
pensaton pad by bm after December 31, 10 0, to the empoyee for servces
rendered durng such month bears to the tota compensaton pad by a such
empoyers after December 31,19 6, to such empoyee for servces rendered durng
such month and n the event that the compensaton so pad by snch empoyers to
the empoyee for servces rendered durng such month Is ess than 300 / the
month t before uy 1, 195 , or t est than 3350 f the month t after une SO,
195 , each subordnate unt of a natona raway-abor-organzaton empoyer
sha be abe for such proporton of any addtona ta as the compensaton pad
by such empoyer after December 31,1916, to such empoyee for servces rendered
durng such month bears to tho totn compensaton pad by n such empoyers
after December 31, 1UI0, to such empoyee for servces rendered durng such
month:
1. Wth respect to compensaton pad durng tho caendar years 19 7 and
10 , tho rata sha bo 5 per centum |
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672
2. Wth respect to compensaton pad durng the caendar years 10 9,1050,
and 1951, the rate sna be 6 per centum
S. Wth respect to compensaton pad after December 31, 1951, the rate
sha be 6 per centum.
Past I Genera Provsons

BBC 15 1. D INITIONS.
As used In ths subchapter

(e) Comfemsato . .
A payment made by an empoyer to an Indvdua through the empoyer s pay-
ro sha be presumed, In the absence of evdence to the contrary, to be compensa-
ton for servce rendered by such Indvdua as an empoyee of the empoyer In the
perod wth respect to whch the payment s made. An empoyee sha bo deemed
to be pad, for tme ost the amount he Is pad by an empoyer wth respect to an
dentfabe perod of absence from the actve servce of the empoyer, ncudng
absence on account of persona n|ury, and the amount be Is pad by the empoyer
for oss of earnngs resutng from hs dspacement to a ess remuneratve pos-
ton or occupaton. If a payment Is made by an empoyer wth respect to a per-
sona In|ury and Incudes pay for tme ost, the tota payment sha be deemed to
be pad for tme ost uness, at the tme of payment, a part of such payment s
specfcay apportoned to fuctors other than tme ost, n whch event ony such
part of the payment as s not so apportoned sha be deemed to be pad for tme
ost, Compensaton for servce as a deegate to a natona or nternatona con-
venton of a raway abor organzaton defned as an empoyer n subsecton
(a) of ths secton sha be dsregarded for purposes of determnng the amount
of tares due pursuant to ths Act f the ndvdua renderng such servce has not
prevousy rendered servce, other than as such a deegate, whch may be ncuded
n hs years of servce for purposes of the Raroad Retrement Act.
AM NDM NTS TO TH RAILROAD R TIR M NT ACT,
TH RAILROAD R TIR M NT TA ACT, AND TH
RAILROAD UN MPLOYM NT INSURANC ACT
IScnate Report No. 2222, cht|-thtrd Concre, Second Seuon. Caendar No. 22 0.
August 5, 195
Mr. Cooper, from the Commttee on Labor and Pubc Wefare, submtted
the foowng report to accompany II. It. 7 10
The Cotmttco on Labor and Pubc Wefare, to whom was referred tho b
(II. II. 7M0) to amend the Itrond ctremcut Act, tho Iaroad Itctremont
Ta Act, and the Iaroad Unempoyment Insurance Act, havng consdered
the same, report favoraby thereon wthout amendment and recommend that the
b do pass.
The changes whch the b woud make In the Ratroad Retrement Act, the
Baroad Retrement Ta Act, and the Raroad Unempoyment Insurance Act
may be summarzed as foows:
Amendments to Tub Raroad Retrement Ta Act
Benefts payabe under the Raroad Retrement Act are presenty fnanced
by a payro ta of 6 percent on raroad empoyees and an equa ta on ther
empoyers, payabe on each empoyee s compensaton up to 300 a month, and
by contrbutons from the edera Government on account of credtabe mtary
servce.
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673
The M woud Increase the ta base from 300 to 1350 a month, effectve
uy 1,195 , eavng the ta rate of 6 percent unchanged.
Compensaton for servce as a deegate to a natona or Internatona con-
venton of a raway abor organzaton. If such deegate has not prevousy
rendered servce covered under the Raroad Retrement Act, woud be dsre-
garded. As aready noted, the b woud dsquafy such deegates for any
benefts under the Raroad Retrement Act

Inereate In credtabe and ta abe compensaton bate for retrement purpose
The b proposes to amend the Raroad Retrement Act and the Raroad
Retrement Ta Act by Increasng, for beneft and ta ng purposes, the ma mum
compensaton from the present 300 to 350 a month.
Increasng the credtabe compensaton base from 300 to 350 woud provde,
of tsef, hgher retrement benefts and survvor benefts n the future for the
amost two-thrds of the actve raroad workers who now earn In e cess of
300 a month, snce ther annutes woud be based on a hgher average monthy
compensaton. In the future an Increasng number of empoyees and ther
fames w beneft from ths Increase In the ta abe base.
Snce about 30 percent of n present empoyees do not earn more than 300
a month, the Increase In the ta bnso woud not nffect them, because the e stng
ta rates have not cen changed. The remanng two-thrds woud pay the
empoyee ta begnnng uy 1, 195 , on tho ncrease from 300 to 350 per
month In the ta abe base. The tota ta abe payro woud be Increased by
about 0 percent or 50 mon a year, and retrement-ta coectons by about
50 mon a year. Ths amendment woud of Itsef resut n ncreased benefts
whch woud cost appro matey 31 mon a year 25 mon under the
retrement and 0 mon under the survvor provsons.
The 31 mon ncrease n retrement and survvor benefts resutng from
the proposed Increase In the credtabe base, pus the addtona cost for other
Retrement Act amendments Incuded n the b, ncudng the savngs from the
change n the dsabty work cnuse, woud tota appro matey 5 mon.
The 50 mon addtona revenue woud more than pay for a the Increased
benefts provded for In the b.
When tho . 00 mt on tho credtabe and ta abe compensaton base was
estabshed In 19. 17, 9 percent of the number of raroad empoyees were earn-
ng no moro than 300 a month. Aso, OS percent of the tota raroad payro
was credtabe and ta abo under the 300 mtaton In effect wthout change
(urng the past 13 years. Snce 1937, wage rates have more than doubed.
The average annua earnngs per raroad empoyee n 1937 was 1,7 0 In
1053, It was , 00. As n resut, at the present tme, ony 30 percent of the
empoyees are earnng 300 n month or ess, and ony 0 percent of the payro
Is credtabe and ta abo under the 300 mtaton now In the aw.
ven wth tho proposed Increase In tho credtabe and ta abe compensaton
to . 150 a month, ony percent of the payro woud be tn obc compared wth
OS percent 1 years ago. In other words, the proposed nerenso n compensaton
to 350 woud st oppy to a smaer percentage of tho tota payro than was
the rasn In 1I I7.
Tho . . A per month ceng on eredtnho and ta abo compensaton for ra-
road retrement purposes has been recognzed ns out of dntc by many raroad
companes for a number of years, as evdenced by the fact that they have estab-
shed suppementa pans coverng ther offcas and empoyees who reguary
earn saares hgher than that amount. As ong ns S years ago the Raroad
Retrement Hoard had knowedge of 53 such suppementary pans and made a
study of them. There are undoubtedy a consderabe number that have snce
been estabshed.
The empoyee who pays the ta on the addtona monthy compensaton In
e cess of 300 but not In e cess of 350, as proposed In the b, woud be ade-
quatey compensated by tho Increased benefts resutng from credtng the
addtona compensaton, there Is testmony that he woud receve 3 for each 1
In ta es pad by reason of ths provson n the b.
The effect of Increasng the credtabe and ta abe base to 350 on empoyees
annutes Is Iustrated by the foowng tabe.
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67
Tabe 1. ffect of ncreasng credtabe and ta abe bate to 350 per month on
empoyees retrng on fu annutes after SO gear of servce, assumng a
servce after ncrease n bate to be at 350
Years of servce
Increase In
monthy annuty
Increase m
Increase In
oerrccMo
Avcmee monthy compensaton
before Increase In baso
agcrcrate
for fe
Before
After
Per
ta e to date
e pectancy
base
base
Per
of retrement
of 12 s years
Increase
Increase
month
year
after retre-
ment
0 ...........
0
20
S
20.70
17.23
2 . 0
207.00
1,120. 0
(OS. 00
3,109.00
2oo
1
1
250
2,967.90
200. ......... ......
2St.
20
13. 0
6.ee
791.20
2,070.00
3O0 _ _.
raw
fC 0. ...
15
ass
12120
2. 0
). 0
6 . 0
1,992.90
O.
1
10
IN
179.00
LOW 00
300 ......... ..
nf1 , 7T.. . I

tA
1 7. 0
17. 0
300
Source: Hearnm before the Commttee on Inter ate and orren Commerce. Boose of Representatve ,
3d (. on.. 2d sess., on H. It 7 0, a b to amend the Raroad Retrement Act, the Raroad Retrement
Ta Act. and the Raroad Unempoyment Insurance Act, p. 9 .
Moreover, ns aready Indcated, the Increase Is credtabe monthy conpen-
. sntnn from 300 to 350 woud aso operate to Increase survvor benefts.
The addtona revenue, to he coected from the carrers under the proposed
amendment to Increase the ta base, woud amount to 2 mon a year on a
eve cost bass. However, a very substanta percentage of ths amount w be
offset by an automatc ad|ustment In the edera ncome ta payabe by the
carrers. Assumng that the edera Income-ta rate on corporatons w not
change greaty from the present rate, the addtona 2 mon, whch It Is
estmated they woud have to pay under the proposed amendment, woud be
offset to the e tent of appro matey 50 percent by reductons In ther corporate
Income-ta payments. urthermore, an addtona amount woud be saved by
reductons n ther suppementa penson pans.
It s aso mportant to note that the proposed Increase In the compensaton
base to 350 a month woud he In conformty wth the Presdent s recommenda-
ton for un Increase In the credtabe and ta abe wage base from 3,COO to ,200
a year under the od-nge nnd survvors Insurance program. The House of
Representatves, on une 1, 105 , dd adopt the Presdent s recommendaton In
ths respect when It passed H. It. I S0A, a b to amend the Soca Securty Act
nnd the Interna Revenue Code, etc. Ths b Is now pendng before the Senate.

Tonr commttee urges the prompt passage of the reported b.
S cnos-nT-S cno. panaton or Tre Commttee B
Bceons 201 to tOk. Increase n earnngs base for ta purposes
The change In the ma mum compensaton from 300 to 330 a month, effected
by the precedng sectons of the b for the purposes of the Raroad Retrement
Act, s paraeed by the amendments made by sectons 201, 202, 203, and 20
of the b to sectons 1500, 1501, 1510, nnd 1520, respectvey, of the Raroad
Retrement Ta Act. Under these amendments the empoyee ta , the em-
poyee representatve ta , and the empoyer ta woud appy to as much as 350
of compensaton n any month, rather than ony to 300 as s now tbe case.
Bccon 205. Ta on compensaton of deegates to rahcay abor conventon
Ths secton woud amend see Ion 1532 of the Raroad Retrement Ta Act
so as to e cude from ta aton the compensaton, for servce as a deegate to
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, 675
- natona or Internatona conventon of a raway abor organzaton, of any
person who baa no other prevous credtabe servce, and woud make the Ta
Act conform to the Retrement Act In tbs respect
CHANG S IN ISTING LAW
In accordance wth subsecton ( ) of rue I of the Standng Roes of toe
Senate, the changes made In e stng aw are shown as foows (e stng av
proposed to be omtted Is encosed In back brackets, new matter Is prnted a
Itacs, e stng aw In whch no change Is proposed Is shown n roman) :

RAILROAD R TIR M NT TA ACT
. Tabt I Ta on mpoyees
S C 1500. RAT O TA .
In addton to other tu es, there sha be eved, coected, and pad upon the
Income of every empoyee a ta equa to the foowng percentages of so much
of the compensaton, pad to such empoyee after December 31,1910, for servces
rendered by Md after such date, as Is not In e cess of 300 for any caendar month
before uy 1,105), and as s not n e cess o| 350 for any caendar month after
une 30,11)5):
1. Wth respect to compensaton pad durng the caendar years 19 7 and
IS, the rate sha be 5 per ceutum
2. Wth res ct to compensaton pad durng the caendar years 19 9,
1050, and o, the rate sha be 0 per centum
3. W respect to compensaton pad after December 31, 1931, the rate
sha be 0 A per ceutum.
S C. 1501. D DUCTION OP TA ROM COMP NSATION.
(a) Requrement. The ta mposed by secton 1500 sha be coected by the
empoyer of the ta payer by deductng the amount of the ta from the compen-
saton of the empoyee as and when pad. If an empoyee Is pad compensaton
after December 31,1010, by more tbnn one empoyer for servces rendered durng
any caendar month after 10 0 and the aggregate of such compensaton Is In e cess
of 300 for any month before uy 1,105). or n e cess of 350 for any month after
une SO, 105), the tas. to be deducted by each empoyer other than a subordnate
unt of a natona raway-abor-organzaton empoyer from the compensaton
pad by hm to the empoyee wth respect to sucb month sha be that proporton
of the tn wth respect to such compensaton pad by a such empoyers whch
the compensaton pad by hm after December 31,10 0, to the empoyee for serv-
ces rendered durng such mouths bears to the tota comcnsnton pad by a
such empoyers after December 31, 10 (1, to such empoyee for servces rendered
durng such month and In the event that the com cnsaton so pad by such em-
poyers to the empoyee for servces rendered durng such month Is ess than 300
f such month s before uy 1,105), or s ess than 350 f such month s after une
SO, 105), each subordnate unt of a natona raway-abor-organzaton empoyer
sha deduct such proporton of any addtona ta as the compensaton pad by
such empoyer after December 31, 10 0, to such empoyee for servces rendered
durng such month bears to the tota compensaton pad by a such empoyers
after December 31, 10 0, to such empoyee for servces rendered durng such
month.

Past II Ta on mpoyee nr| tt S A ATvB
S C t. RAT OP TA .
In addton to other ta es, there sha be eved, coected, and pad npon the
Income of each empoyee representatve a ta equa to the foowng percentages
of so much of the compensaton, pad to such empoyee representatve after
December 31,10 0, for servces rendered by hn after such date, as Is not n e cess
of 300 for any caendar nonth before uy 1,105), and as s not n e cess of 350
for any caendar month after une 30,105):
1. Wth respect to compensaton pad durng the caendar years 19-17 and
10 , the rate sha be 11 per centum
2. Wth respect to compensaton pad durng the caendar years 19 3,
1050, and 1901, the rate sha be 12 per centum
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676
. Wth respect to compensaton pad after December 1, 1031, tc rate
sha be 12 /| per centum.

Past III Ta o wpotkbs
S C Ht. RAT OP TA .
In addton to other ta es, every empoyer sha pay an e cse tn , wth respect
to havng Indvduas In hs empoy, equa to the foowng percentages of so much
of the compensaton, pad by Buch empoyer after December 31,11)10, for servces
rendered to bm after December 1, 11)3(1, ns Is, wth respect to any empoyee
for any caendar month before uy 1, 105, not In e cess of 300, and for any
caendar month after une 30,10 ok, not tn e cess of S350: Provded, hoeceer. That
f an empoyee Is pad compensaton after December 31, 11) 0, by more tbnn one
empoyer for servces rendered durng any caendar month after 11)30, the tn
mposed by ths secton sha appy, teth respect to any caendar month before uy
1, 195 to not more than 300, and tch respect to any caendar month after une
30, u. ), to not more than 3350 of the aggregate compensaton pad to such em-
poyee by a such empoyers after Dceombe.- 31,1910, for servces rendered durng
such month, and ench empoyer other than a subordnate unt of a natona
rawny-abor-organznton empoyer sha be abe for that proporton of the
ta wth respect to such compensaton pad by a such empoyers whch the
compensaton pad by hm after December 31, 19 0, to the empoyee for servces
rendered durng such month bears to the tota compensaton pad by a such
empoyers after December 31.19 0, to such empoyee for servces rendered durng
such month and n the event that the compensaton so pad by such empoyers
to the empoyee for servces rendered durng such month Is ess than 300 f the
month s before uy 1, 195 , or s ess than .150 f the month s after une SO,
195., each subordnate unt of a natona rawny-abor-organzaton empoyer
shn be abe for such proporton of any addtona ta as the compensaton pad
by such empoyer after December 1,19 0, to such empoyee for servces rendered
durng sm-b month bears to the tota compensaton pad by a such empoyers
after December 31, 19 0, to such empoyee for servces rendered durng such
month :
1. Wth respect to compensaton pad durng the caendar years 19 7 and
19 , the rate sha be 5 per centum
2. Wth respect to compensaton pad durng the caendar years 19 9,
1950, and 1951, the rate sha be C per centum
3. Wth respect to compensaton pad after December 31, 1931, the rate
sha be 0 per centum.
SOCIAL S CURITY AM NDM NTS O 195
Book of Representatves Report No. 1 9 , ghty-thrd Cong-ren, Second Sesson
May 2 , 195
Mr. Beed, from the Commttee on Ways and Means, submtted the foowng
report to accompany H. It. 9300 :
I. Purpose and Score or the B
Tour commttee has consdered a aspects of the od-age and survvors Insur-
ance program, aded by the e tensve anayss made by Its Subcommttee on
Soca Securty.
A ma|or shortcomng of the present program s ts nadequate coverage. As
ong as coverage Is not substantay unversa, arge numbers of peope reachng
age G5 w ether be whoy wthout the protecton the program affords or be
egbe for benefts whch are reduced because they are based on ony part of
the Indvdua s earnngs. Your commttee s recommendng substantay
unversa coverage.
tenson of coverage Is fundamenta to securng for the future an approprate
reatonshp between the od-age and survvors nsurnace and the od-age assst-
ance programs. Od-age and survvors nsurance has responsbty for provd-
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677
ng a foor of protecton aganst dependency for the aged retred worker and ht
dependents and for the dependent survvors of workers who de. Od-age assU-
ance a a secondary ne of defense. After the e tenson of coverage In 1530,
whch brought some 10 mon addtona workers under the system, toe per-
centage of aged recevng od-age and survvors Insurance benefts Increased
rapdy, whe od-age assstance decned. In 1050, 22.5 percent of the aged
persons In the country were recevng od-age assstance and 17.1 percent were
recevng od-neo and survvors Insurance. Hy the end of S, ft.O percent of
the need persons were recevng od-age assstance as compared wth 3 . percent
recevng od-age and survvors Insurance benefts, wth an addtona 13 percent
egbe for benefts but not recevng them because they had not retred. TTth
the further e tenson of coverage recommended by your commttee. It s est-
mated that 75 percent of a persons over C5 w be egbe for Insurance beneft
by 10C0 ns compared to 7 percent nt the present tme.
Tour commttee regards as of speca sgnfcance the e tenson of coverage
to the farm popuaton. A tte over one-haf of the presenty noncovered groups
are farmers and farmworkers. In countes where more than 50 percent of the
popuaton ves on farms, 31 percent of the aged are now recevng od-age as-
sstance and 13 percent od-nge and survvors nsurance. In nonfarm countes,
on the other hand, ony 17 percent receve od-age assstance, whte 36 percent
receve od-age and survvors Insurance benefts. These data Iustrate the fact
that where coverage of the od-age and survvors nsurance program Is more com-
pete, od-age assstance more neary assumes ts proper roe as a subsdary
program. Wth e tenson of od-age and survvors Insurance coverage to farmers
and farmworkers, far more of these workers w be quafyng for benefts under
od-age and survvors nsurance and thus have ess need of od-age assstance.
Another advantage of e tendng coverage to these and other groups now oat-
sde the system Is that not ony more of the aged but aso more of the young
wdows and chdren w be recevng benefts wthout a means test. Accord-
ngy, these od-age and survvors Insurance benefcares are abe to mantan
a sense of ther own contnued ndependence and of ther dgnty and worth
as Indvduas, even though ther support from earnngs has been cut oft by
the retrement or death of the Insured worker. The knowedge that benefts
w be pad Irrespectve of whether the Indvdua Is n need supports and stmu-
ates hs own thrft and Intatve, snce he can add hs persona savngs (n-
cudng home ownershp and Insurance), as we as pensons he may receve
as a resut of hs work, to the basc od-age and survvors Insurance benefts.
The protecton afforded by the program may be consdered adequate ony when
benefts are hgh enough, when added to savngs and assets normay accumu-
ated, so most benefcares w not have to appy for pubc assstance for the
ordnary e penses of vng. A frst step In accompshng ths ob|ectve Is to
correct the condtons whch resut n very ow benefts whch some Indvduas
receve under the program.
Your commttee Is makng recommendatons whch w attack the basc causes
for most of these ow benefts, through provsons assurng that benefts w more
reastcay refect the ndvdua s actua earnngs on whch he customary
depends for Is support. tenson of coverage w In Itsef contrbute to a
more adequate eve of beneft payments by assurng that a of an ndvdua s
earnngs can be counted toward hs beneft payments, regardess of bs type of
work. urther than ths, aowance Is made for dsregardng mted perods
of ow or no earnngs usuay occasoned by short-term absence from covered
work. Such perods shoud not be permtted to dstort the eve of earnngs used
ns the bass for beneft computaton.
Long perods of absence from covered work generny Indcate that the Ind-
vdua has not been dependent on hs own earnngs from work for support, and
benefts are propery reduced or not pad under such crcumstances. An m-
portant e cepton to ths prncpe, however, Is the case of workers who are oat
of empoyment by reason of a tota dsabty astng for an e tended perod of
tme. Your commttee has recommended speca provsons to prevent oss or
reducton of beneft rghts on account of dsabty. The commttee consders
t very Important that dsabed persons be heped to return to sef-supportng
empoyment wherever possbe. The speca provsons recommended by yonr
commttee are e pected to stmuate the referra of handcapped persons to the
State vocatona rehabtaton programs.
The goa of provdng on adequate foor of protecton through the benefts
pad under the od-nge and survvors Insurance system further requres that
the eve of benefts be ad|usted at ths tme. Your commttee s recommend-
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67
Ing that beneft payments now be Increased, both for future benefcares and
for the 6.3 mon persons now on the ros.
In recommendng ncreased benefts, your commttee has been conscous of
the mportance of preservng the wage-reated character of the od-age and
survvors nsurance system, and of.accompshng these Increases n such a
way as to preserve a reasonabe dfferenta between mnmum and ma mum
benefts reated to dfferences In ndvdua earnngs. Dfferenta wage pay-
ments n our economy refect dfferences n Indvdua productvty, dfferences
In costs of vng In the varous sectons of the country, and dfferences In In-
dvdua standards of vng. The benefts under the soca Insurance system
shoud gve recognton to these dfferences n ndvdua earnngs.
Your commttee beeves that the program shoud contnue to pay benefts to
Insured workers who are 63 years of age and over ony when they are sub-
stantay retred from ganfu empoyment Tour commttee beeves, however,
that more recognton shoud be gven to the vaue to retred workers of con-
tnung to do some work to the e tent they are abe. Oder peope shoud be
freer than at present to take part-tme, Intermttent, or seasona work after they
retre wthout osng ther benefts. Your commttee recommends, therefore, a
more bera and fe be test, apped on an annua bass for wage earners as
we as for sef-empoyed persons who arc so treated under present aw. An
Increase In the amount that a retred worker may earn whe contnung to
receve bs benefts s aso provded.
II. Sumhabt or Prncpa Provsons or the B
/. Od-age and urvvon nurance
1. tenson of coverage. Od-age and survvors Insurance coverage woud be
e tended to appro matey 10 mon persons who work durng the course of a
year n obs now e cuded from the program. The groups brought Into the
program under the b are as foows:
(a) Sef-empoyed form operators whose net earnngs from farm sef-empoy-
ment tota 00 or more n a year, wth a speca provson to make t easer for
ow-Income farm operators to compute ther net earnngs (about 3.6 mon).
(6) Professona sef-empoyed persons now e cuded, other than physcans,
whose net earnngs from professona sef-empoyment tota 00 or more n a
year, ncudng awyers, dentsts, archtects, engneers, accountants, funera
drectors, osteopaths, chropractors, veternarans, naturopaths, optometrsts,
mnsters, and Chrstan Scence practtoners (about 00,000).
(c) mpoyees of State and oca governments who are covered by State and
oca retrement systems, other than pocemen and fremen, under vountary
agreements between the State and the edera Government, f a ma|orty of the
members of the system vote n a referendum and two thrds of those who vote
favor coverage (about 3.5 mon).
(d) arm workers who are pad at east 200 by a gven empoyer In a caen-
dar year, wth speca provsons to coordnate the annua earnngs test wth
the quartery Insured status requrements (about 1.3 mon).
(e) Domestc workers n prvate nonfarm homes (and others who perform
work not n the course of the empoyer s trade or busness) who are pad 50
n cash.wages by an empoyer In a caendar quarter but who do not meet the
2 -day test requred In the present aw (about 250,000).
(/) Mnsters and members of regous orders empoyed by nonproft organ-
zatons If the organzaton eects to cover them and f at east two-thrds of such
Indvduas eect to be covered (about 250,000).
(g) Most edera empoyees not covered by retrement systems, Incudng
temporary empoyees n the fed servce of the Post Offce Department, census-
takng empoyees of the Bureau of the Census, cvan empoyees of Coast Guard
post e changes, and certan other groups, and aso empoyees of dstrct edera
Home Loan Banks and the Tennessee aey Authorty, who have retrement
systems (about 150,000).
(A) Amercan ctzens empoyed outsde of the Unted States by foregn
subsdares of Amercan empoyers, under vountary agreements between the
edera Government and the parent Amercan company (about 100,000).
(I) Those nomeworkers who are now e cuded from empoyee coverage (a-
though they may now be covered as sef-empoyed persons) because the servces
they perform are not sub|ect to State censng aws (about 100,000).
(/) Certan empoyees engaged In fshng and reated actvtes, ether on
vesses of 10 net tons or ess or on shore (about 50,000).
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679
( ) Amercan ctzens empoyed by Amercan empoyers on eases and e
craft of foregn regstry (very few peope Invoved).
Z Computaton of average month / tcage. Up to 5 years In whch earsfe
were owest (or none stent) coud be dropped from the computaton of A a
average monthy wage.
3. arnngs hate. The tota annua earnngs on whch benefts woud be ca -
puted and contrbutons pad s rased from 3,000 to ,200.
. Increase n benefts. (a) More than 0.3 mon persons now on the beeeS:
ros woud have ther benefts Increased. The average Increase for retrr
workers woud be about 0 a month, wth proportonate Increases for depends-
and survvors. The range In prmary nsurance amounts woud be 30 to I0 3
as compared to 23 to S5 under present aw.
(6) Persons who retre or de In the future woud. In genera, have ther bras-
fts computed by the foowng new formua: (1) 65 percent of the frst 110
average monthy wage (rather than 100 as In present aw) pus 20 percent .
the ne t -10 (rather than IS percent of the ne t 200) (11) the mc:
monthy beneft amount for a retred worker woud be 30. and the mnr::
amount payabe where ony one survvor Is entted to benefts on the decease
Insured person s earnngs, woud be 30 (t) the ma mum monthy fancy
beneft of 10 .75 woud be Increased to 200: (Iv) the provson of e sts:
aw that tota famy benefts cannot e ceed 0 percent of the worker s averer
monthy wage woud not reduce tota famy benefts beow H tmes the nsnrf
worker s prmary nsurance amount or 50, whchever Is the greater and t
ump-sum death payments woud not e ceed 255, the ma mum under e strt
aw.
5. Lmtaton on earnngs of benefcares. The earnngs mtaton on bene-
fcares under age 75 woud be made the same for wage-earners and sef-ea-
poyed persons. A benefcary coud earn as much as 1,000 In a year a as
empoyment, covered or noncovered. He woud ose 1 month s beneft for er
unt of 0 (or fracton thereof) of earnngs (covered or noncovered) In e ces
of 1,000, but n no case woud he ose benefts for months n whch he nether
earned more than S0 In wages nor rendered substanta servces In sef-empoy-
ment. Benefcares resdng In foregn countres woud have ther beneft
suspended for ony month n whch they worked on 7 or more days.
C. gbty for bevfts. (a) As an aternatve to the present requrements
. for fuy Insured status, on Indvdua woud be fuy Insured f a the quarters
eapsng after 105 and up to the quarter of hs death or attanment of age (3
were quarters of coverage, provded be bad at east 6 quarters of coverage after
305 .
(b) Benefts woud be pad to the survvng aged wdow, wdowed motber,
and chdren, or parents of any ndvdua who ded pror to September 1,195
and had at east 0 quarters of coverage.
7. Proscrt offon of beneft rghts for dsabed. The perod durng whch s
, Indvdua was under an e tended tota dsabty woud be e cuded n deter-
mnng hs nsured status and the amount of benefts payabe to hm upon retre-
ment or to hs survvors In the event of bs death. Ony dsabtes astng more
than 0 months woud be taken Into account. Determnatons of dsabty woad
be made by State vocatona rehabtaton agences or other approprate State
agences pursuant to agreements wth the Secretary of Heath, ducaton, and
Wefare.
. Lmtaton on payments to persons outsde the Unted States. Benefts ta
survvors or dependents woud not be pad for any month n whch such sur-
vvor or Cependents resded outsde the Unted States uness such survvor er
dependent met certan requrements of resdence In the Unted States or the
Insured ndvdua on whose record the beneft Is based was currenty Insured oa
the bass of mtary servce wage credts or earnngs as an Amercan ctzen eo-
oyed abroad by an Amercan empoyer.
9. Deportaton, and perods of unacfu resdence. A benefts payabe on tb
bass of an ndvdua s wage record woud be termnated npon notfcaton by the
Attorney Genera that the ndvdua has been de ortcd from the Unted States
for certan specfed rauses. arnngs derved durng- perods of unawfu res-
dence n the Unted Spates as determned by the Attorney Genera coud not bt
used In determnaton of Insured status or beneft amount.
10. Rccomputaton of benefts for cork after enttement. An Indvdua may
have hs beneft recomputed to take Into account addtona earnngs after en-
ttement If he has covered earnngs of at east 1,000 In a caendar year after
1053 and after the year In whch hs beneft was ast computed.
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6 0
11. Contrbuton ratc. - mpoyers and empoyee w contnue to share
equay, wth the rates on each beng as foows:
Hat
Caendar years: . penmt)
105 -50
1900-0
1905-60
1970-7
1975 and after
The sef-empoyed woud pay 1 tmes the above rates.
S. ute assstance
1. The provsons of the 1952 amendments, presenty schedued to e pre on
September 30, 195 , wth respect to temporary Increases In edera payments to
States for od-age assstance, ad to dependent chdren, ad to the bnd, and ad
to the permanenty and totay dsabed are e tended through September 0,
19D5.
2. The provsons of the 1050 amendments for approva of certan Stnte pans
for ad to the bnd whch dd not meet te requrements of cause of secton
1002 (a) of the Soca Securty Act are e tended from une 30, 1955, to une
0,1957.
III. T NSION O OLD-AG AICD SCB T OBS ISSUBANC CO RAG
A. Genera
The od-age and survvors Insurance program now covers about out of 10 of
the Naton s obs. Durng the course of a year about 62 mon peope work In
empoyment or sef-empoyment that s covered under the program. The b
woud e tend coverage to about 10 mon addtona peope who In the course
of a year work In obs that are not now covered. Specfcay, coverage woud be
e tended to sef-empoyed farm operators and professona persons (other than
physcans), members of State and oca government retrement systems (other
than pocemen and fremen), addtona farmworkers and domestc workers,
mnsters and members of regous orders, most edera empoyees not covered
by retrement systems, and certan other smaer groups that w be descrbed
hereafter.
The ony ma|or groups who woud st reman e cuded from the program are
pocemen and fremen covered by State or oca retrement systems, physcans,
members of the Armed orces, and edera cvan empoyees covered by the
cv servce retrement system and other staff retrement systems. The Com-
mttee on Retrement Pocy for edera Personne, estabshed by Pubc Law
655, 2d Congress, has submtted to the Congress recommendatons for an nte-
prated program of retrement and survvor protecton for members of the Armed,
orces and empoyees under the cv servce retrement system, ncudng cover-
age under od-age and survvors Insurance. The recommended e tenson of
soca-securty coverage n these areas Is of great nterest to your commttee n
rew of ts ursdcton over such egsaton. However, your commttee has not
yet e amned these recommendatons and therefore takes no poston on them at
ths tme.
B. Specfc coverage groups added
1. Sef-empoyed farm operators. One of the ma|or stumbng bocks to cover-
age of farm operators n the past has been the apparent necessty of requrng
ow-ncome farm operators, who may have no ncome ta abty, to keep records
that they do not ordnary mantan. Ths probem has now been soved, and a
smpfed reportng procedure for ow-ncome farm operators Is made possbe by
a speca provson In the b. Ths speca provson, together wth the reguar
procedures now In effect for the nonfarm sef-empoyed covered under the pro-
gram, consttute a practcabe admnstratve method for coverng sef-empoyed
farm operators. About 3.0 mon farm operators woud be covered In the course
of a year.
The speca provsons for ow-Income form operators are as foows: A sef-
empoyed farm operator wth gross ncome of not more than 1, 00 n a year
who reports hs Income ta on a cash bass (rather than an accrua bass) coud
report, for credt toward benefts under od-age and survvors Insurance, ether
bs actua net earnngs from farm sef-empoyment, as determned on bs Income
ta return, or SO percent of hs gross Income. If he eected to use the atter
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opton, be woud be spared the necessty of keepng records of hs
computng deprecaton, and so forth. Practcay a farm operators know
ther gross Income and coud easy appy the GO-perccnt rue.
A farm operator whose gross Income from sef-empoyment was more thaa
1, 00 woud hnve to compute bs net earnngs. If bs actua net earnngs as
computed were ess than 000, be coud, If be wshed, report 900 otherwse fc
woud hnve to report bs actua net
In any case, rentas receved In the form of crop shores, ke other rentas froa
rea estate, woud be e cuded from gross Income for soca-securty purposes.
Lke urban busnessmen, the sef-empoyed farm operator w report bs net
ncome for soca-securty purposes by transferrng the nformaton from hs
Income ta return to a smpe suppementary form. If hs net earnngs from
sef-empoyment (ether actua or presumed) do not amount to as much as
or more In a gven year, he pays no sef-empoyment ta on such Income and re-
ceves no credt toward benefts.
The foowng tabuar outne summarzes these provsons for dfferent
ncomes, aong wth a possbtes as to net ncome:
Gross Income
Net Income
Soca securty net earnngs
Standard method
Aternatve method
Under 00 ...
Under 00
None .
None,
00 to 799
Under 00
None ...
None.
Do
00 to 799
None.
00 to 1,799
Under 00
None. . ........
50 percent of gross n-
come.
Do
00 to 1,799
Net ncome.....
None ....
50 percent of gross n-
come,
1, 00 and over
Under 00 ....
900.
Do
S100 to 99
900.
Do
900 and over
( ).
Cannot be used In a other cases, Indvdua can use ether standard or aternatve method.
2. Sef-empoyed professona peope. The b woud e tend coverage to about
00,000 peope wbo durng the course of a year are sef-empoyed n the practce
of certan professons. Wth one e cepton, physcans, the professona peope
who woud be covered are those who are now specfcay e cuded: awyers,
dentsts, archtects, engneers, accountants, funera drectors, osteopaths, chro-
practors, veternarans, naturopaths, optometrsts, Chrstan Scence practton-
ers, and those few mnsters who do not perform servces for a church or other
organzaton. Sef-empoyed physcans w contnue to be e cuded. Coverage
of persons n the sef-empoyed professona groups woud be on the same bass
as that on whch other nonfarm sef-empoyed peope are now covered. Thus,
anyone wth annua net earnngs of 00 or more from covered sef-empoyment.
Incudng professona sef-empoyment, woud be covered. Professona peope
woud re|ort ther earnngs for soca-securty purposes annuay wth ther
Income-ta reports as s done by the sef-empoyed peope now covered.
Coverage of sef-empoyed professona peope, ke the coverage of the sef-
empoyed now under the program, woud be compusory. Tour commttee s
awure that some groups have e pressed a preference for coverage on a vountary
ndvdua bass. There are, however, fundamenta ob|ectons to that approach.
The hstory of vountary soca Insurance on an Indvdua eectve bass n the
Unted States and In other countres ndcates defntey that ony a very sma
proporton of n egbe Indvduas actuay eect to partcpate. Those wbo do
partcpate are usuay not the peope of beow-average ncome wbo are n the
greatest need of the protecton afforded. Moreover, vountary coverage attracts
amost e cusvey peope who, because they are aready od or for other reasons,
can e pect a argo reftrn for ther contrbutons. Ths adverse seecton of
rsks coud resut In a sgnfcant dran on the funds of the program.
3. mpoyee of State and oea governments under retrement ytemt. The
present ow provdes for coverng State and oca government empoyees under
vountary agreements between the ndvdua States and the edera Government.
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6 2
ountary group coverage s necessary In ths area because tbe edera Gov-
emnent cannot, tnder tbe Consttuton, Impose tbe soca-securty ta es on the
States.) The present ow e cudes from coverage under a edera-State agree-
ment, however, empoyees who are In postons covered by a State or oca re-
trement system on the date the agreement Is made appcabe to tbe coverage
group to whch they beong (e cept for members of the Wsconsn retrement
fund, for whom coverage was made avaabe under speca provsons enacted
In 53). About 3.5 mon empoyees (not countng 200,000 pocemen and fre-
men) are In postons covered by State and oca retrement systems n tbe course
of a year.
Severa States and a arge number of oca governments have secured od-age
and survvors nsurance coverage for empoyees who were under a retrement
system by dssovng the system before brngng the group under the edera
State agreement cept n a few cases where the od-age and survvors n-
surance program aone provded greater protecton than the abandoned system,
the atter has been repaced by a suppementa system, after od-age and sur-
vvors nsurance coverage was secured. An estmated 300,000 empoyees now
bavc such combned protecton.
Under the b a State coud brng members of a State or oca retrement sys-
tem (e cept pocemen and fremen) under ts od-age and survvors Insurance
agreement provded that a referendum by secret wrtten baot was hed among
the members of the system, that a ma|orty of the members of the system egbe
to vote n the referendum dd so, and that at east two-thrds of those votng n
the referendum voted In favor of od-age and survvors nsurance coverage.
These requrements seem to your commttee to be adequate to assure that any
referendum s reasonaby representatve of the wshes of the retrement system
members but they are not so restrctve as to make coverage Impossbe wherever
an ndfferent mnorty fas to vote.
Tbe b contnues the present e cuson of pocemen and fremen who are
covered by a State or oca retrement system. Pocemen and fremen, because
of the arduous nature of ther work, have speca provsons n ther retrement
systems such as ower retrement ages, and fee t woud be unwse to attempt
to ntegrate these provsons wth od-age and survvors nsurance.
The b states that It s the pocy of the Congress In makng coverage avaabe
to retrement system members that the protecton of members and benefcares
of the retrement system not be Impared by reason of coverage of the retrement
system members under od-age and survvors Insurance. The b aso makes t
mpossbe to cover retrement system members wthout a referendum, by ds-
sovng the retrement system, after the enactment of the referendum provsons.
Under present aw, empoyees whose postons are covered by a retrement sys-
tem but who are not themseves egbe for membershp In the system receve
tbe same treatment as empoyees who are members of the retrement system.
The b provdes for coverng these empoyees (other than pocemen and fre-
men) wthout a referendum. (Snce the referendum requrements are desgned
to protect e stng retrement rghts, they are napproprate for ths group, whch
bas no retrement protecton.) The b aso provdes that such empoyees woud
not be permtted to vote In any referendum on coverage for the retrement system
members, snce they coud be covered even f, as a resut of an unfavorabe
referendum, the members of the system were not covered. They coud, however,
be covered aong wth retrement system members If a referendum was favorabe.
The b woud aso provde for coverng wthout a referendum, at any tme
Tror to anuary 1, U.TS, empoyees who coud not be covered when ther coverage
pronp was covered because they were under a retrement system, but whose sys-
tem was Inter dssoved by acton taken pror to enactment of the b. (It a
necessary to do ths because these empoyees coud not be covered by means of
a referendum, snce there woud be no actve members of a retrement system
who coud vote In a referendum.)
. armworker . Under present aw a farmworker Is covered ony If he a
pad at east T 0 n a quarter by a snge empoyer and Is reguary empoyed
. by that empoyer. The test of reguar empoyment s very cumbersome- and
compcated and Is so restrctve that t covers ony 700,000 workers a sma pro-
porton of those who earn ther vng through farmwork. Before the worker
can meet the reguary empoyed test for coverage he must frst work for an
empoyer contnuousy tbrougbout an entre caendar quarter. He Is then
reguary empoyed n each succeedng quarter If he does fu-tme farmwork
for the empoyer on as many as ( O days In that quarter or In the precedng quar-
ter. If durng any quarter be fas to work for 60 days for the some empoyer,
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tbe chan Is broken and be must serve another quafyng quarter before be en
Benn be covered.
Tbe probem facng your commttee was that of amendng ths restrcts
provson In such a way as to brng n more peope wbo earn ther vfe
through hred farmwork and yet to e cude ncdenta and temporary empoyw
and avod Imposng an mpossbe burden on the farm operator at the pot
harvest perod. Yonr commttee beeves that ths probem has been soved
Under tbe b a farmworker woud be covered n hs work for any one be-
poyer If be receves cash wages of 200 or more n the year from that empo|pr.
Ths provson woud brng nto the program about 1.3 mon workers In add-
ton to those now covered, whe contnung to e cude those farm empoyes
who are normay engaged n other actvtes housewves and schoochdm.
for e ampe and who do farmwork ony n the peak harvest perods. Te
use of an annua test, rather than a quartery one, woud avod tbe artfrU
and arbtrary spttng up of the seasons for the varous crops, so that the fara
operator woud not, n the mdst of bs busest season, have to make oat soefc-
securty reports for hs covered farmworkers.
Under ths provson farmworkers earnngs woud be reported nnnuat.
Therefore, t Is necessary to make some provson for convertng annua earnngs
nto quarters of coverage. Your commttee proposes that farmworkers be gvra
two nnnrtcrs of coverage for annua earnngs amountng to 200 bat ess thss
300 three quarters of coverage for annua earnngs amountng to 300 but ea
than 00 and four quarters of coverage for annua earnngs amountng to
00 or more. Snce a farmworker woud never be covered uness he had t D ,
he woud be assured of two quarters of coverage for each year In whch be ra
covered and, therefore, coud acqure and retnn Insured status even though
covered on ony the mnmum bass.
5. Domestc tcorkcrs n prvate home and other who perform trorfc not tA
the course of the empoyer s busness. Tbe b woud cover a domestc workers
who work n nonfarm prvate homes and wbo are pad 50 In cash wages by
an empoyer n a caendar quarter. It woud deete the unnecessary and comp-
cated requrement of present aw mtng the coverage of domestc workers tA
those wbo work for a snge empoyer on 2 days durng a caendar quarter.
The smpfed test of coverage for domestc servces n prvate homes provded
by the b woud cover, durng the course of a year, about 200,000 more house-
hod workers thnn does the present aw. It woud aso afford addtona coverage
for from 50.000 to 100,000 workers who under present aw are covered on sora
but not a of ther domestc obs.
Most of the domestc workers who woud contnne to be e cuded from coverage
woud be students, housewves, and others who spend comparatvey tte tme
workng for pny. Under the b amost 00 percent of the persons whose ma|or
actvty Is domestc empoyment woud be covered.
Persons nformng other types of servce not In the course of the empoyer s
trade or busness woud, ke domestc workers, be covered by the b If tbey
are pnd 50 In ensh wages by nn empoyer In a caendar quarter. Ths woud
gve coverage to perhaps 50,000 persons. Your commttee proposes ths prov-
son to Improve and smpfy tho coverage of such servces and to retan tbe
prncpe, now In tho present aw, of appyng tho same coverage test for these
nonbusness servces as Is apped to domertc servces performed n prvate
homes. It Is Important to esnbsh unform tests for these two types of work
bccnHO thero arc certnn knds of nonbusness servces whch arc not. strcty
spcnkng, domestc servce In prvate homes but whch are dffcut to dstngush
from domestc servce.
0. Mnsters and members of regous orders. The b provdes for coverng
empoyed mnsters and members of regous orders (other than those who
hnvc taken a vow of poverty) under provsons whch are essentay the same
as those under whch ay empoyees of nonproft organzatons are now covered.
Mnstera empoyees and ay empoyees woud be separate groups for purposes
of coverage but an organzaton whch has both ay empoyees and mnstera
empoyees coud not cover tbe mnstera empoyees uness the ay empoyees
were aso covered.
In order for a mnster or member of a regous order to be covered the em-
poyng organzaton woud have to fe a certfcate ndcatng Its desre to cover
the mnsters nnd members of regous orders In Its empoy, and at east two
thrds of Its empoyees who are mnsters or memhers of regous orders woud
have to sgn a certfcate ndcatng ther desre for coverage. Ony those cm-
33316
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poyees who sgn the orgna certfcate woud be covered Intay. mpoyees
who do not sgn the orgna certfcate may secure coverage by fng a suppe-
menta certfcate at any ater date. Any mnster or member of a regons
order who s empoyed by the organzaton after Its mnsters and members of
regons orders have been covered woud be covered automatcay. As Ind-
cated esewhere n ths report, the b woud cover sef-empoyed mnsters on
the same bass as other sef-empoyed persons now covered rnd other sef-
empoyed groups covered under the b. Some mnsters and members of re-
gous orders may have part of ther ncome covered as sef-empoyment In-
come even though the ma|or part of ther ncome s receved In the form of
saary. ees and honorarums pad to the mnster as an ndvdua and
ncome from any other actvtes n whch the mnster may engage on a sef-
empoyment bass woud not be reported by the nonproft organzaton coverng
the mnster as an empoyee, but woud be reported by the mnster wth bg
ncome-ta return f they amounted to as much as 00 n a year.
Your commttee gave carefu consderaton to suggestons that mnsters of
churches and those empoyed by regous nsttutons, as we as those who
are actuay sef-empoyed, be aowed to partcpate n od-age and survvors
Insurance as sef-empoyed persons on an ndvdua vountary bass. Your
commttee recognzes that the terms empoyer and empoyee are not usuay
used to descrbe the reatonshp between a mnster and hs church, and the
b provdes that nothng n the reevant sectons of the aw sha be construed
to mean that a mnster Is au empoyee of any organzaton for any purpose
other than for soca securty. Nevertheess the servces of the mnster are
usuay performed under condtons more ke those of empoyment than of sef-
empoyment It does not seem desrabe to cover any group of empoyees as
sef-empoyed persons ether from the standpont of the od-age and survvors
nsurance program or from the standpont of the empoyees, f they woud be
requred to pay a hgher rate than other empoyees for the same benefts, whe
the organzaton that empoys them woud pay no contrbutons at a. More-
over, as we have ndcated earer In ths report, there are fundamenta ob|ec-
tons to coverng any group of workers under provsons whch permt an In-
dvdua to obtan coverage soey at bs own opton.
7. Cvan empoyee of the edera Government not covered ou a retrement
tytem. The b woud e tend coverage to appro matey 150,000 cvan
empoyees of the edera Government and Its nstrumentates who are not
now covered by retrement systems. Your commttee beeves that any edera
empoyee now ackng retrement protecton shoud be covered by od-age and
survvors nsurance f the servces he performs for the Government are of a
type that woud be covered f performed for a prvate empoyer. Accordngy,
the b e tends coverage to a edera empoyees not covered by retrement
systems, wth the foowng e ceptons: the Presdent, the ce Presdent,
Members of Congress, empoyees n the egsatve branch, Inmates of edera
prsons. Interns, student nurses, and other student empoyees of edera hos-
ptas, and persons empoyed on a temporary bass durng emergences such as
earthquakes or foods.
The b woud aso e tend coverage to about 200 empoyees of dstrct edera
Home Loan Banks and about 10,000 empoyees of the Tennessee aey Authorty.
These empoyees are covered by retrement systems that are, or w be, desgned
to be suppementary to the od-age and survvors Insurance program.
. Unted Statcg ctzent empoyed outsde of the nted States by foregn tuo-
daret of Amercan empoyers. The b woud make od-age and survvors
Insurance coverage possbe for about 100,000 Unted States ctzens who are
empoyed outsde of the Unted States by foregn subsdares of parent Amercan
companes.
or varous reasons, Amercan empoyers frequenty operate n other countres
through subsdares ncorporated or otherwse estabshed under the aws of the
foregn country. Under present aw Amercan ctzens workng for Amercan
empoyers In foregn countres are covered under od-age and survvors nsurance.
The Unted States ctzens empoyed by the subsdares of Amercan empoyers
are key to have the same cose connecton wth the Unted States and the same
e pectaton of returnng to the Unted States, as Unted States ctzens empoyed
outsde the Unted States by the parent company.
The Unted States cannot mpose the empoyer ta of the od-age and survvor
Insurance program upon the foregn subsdares of Amercan empoyers. Ac-
cordngy, the Unted States ctzens empoyed by these subsdares must be
covered under speca provsons whch w avod the evy of a ta on these
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subsdares. Your commttee proposes tbat the Unted States ctzens In ques-
ton be covered, at the opton of the Amercan empoyer Invoved. If the ane
makes an agreement wth the Secretary of the Treasury to pay soca accnr
ta for these empoyees. In order to avod adverse seecton, the b provS
that a of tbe Amercan ctzens empoyed by a gven subsdary woud have tA
be covered If any were covered.
0. Borne workers. The b woud e tend empoyee coverage to about OWW
addtona home workers. Home workers who have the status of empoyees
under the usua common-aw rues appcabe In determnng empoyer-empoyr
reatonshp have been covered snce 1937. In addton, under the 1950 cznec-
ments, borne workers who do not have empoyee status under the usua comces-
aw rues are covered as empoyees If they work accordng to specfcatons cf
the person for whom the work Is done on materas or goods furnshed by that
person and requred to be returned to hm or hs desgnee, f they are pad eas
wages of 50 or more durhg a caendar quarter by a gven empoyer, and f tfce|
are sub|ect to State censng aws. The b woud cover as empoyees th
home workers who meet a the condtons specfed In the 1050 amendmess
e cept the condton that the servces be sub|ect to censng requrements under
State aw. By emnatng the censng requrement, the b provdes empoye
coverage to a home workers who perforn servce under substantay the sase
condtons Irrespectve of the State In whch the Indvdua Is ocated. On Its
other hand, for e ampe, any home worker n a rura area who s not sub|ect ts
any supervson or contro by any person whomsoever, and who buys raw mate-
ras md makes and competes any artce and ses the same to any person, even
though It Is made accordng to specfcatons and the requrements of some sc|e
purchaser, woud contnue to be e cuded from coverage as an empoyee.
10. mpoyees engaged n fshng and reated actvtes. Under present aw,
empoyees engaged In the catchng of fsh, shefsh, and other aquatc speces
(e cept samon and habut), ether from the shore or as offcers or crew members
of vesses of 10 net tons or ess, are e cuded from od-age and survvors Insur-
ance coverage. Under ths provson the protecton of tbe program Is dened to
many of tbe ower-pad workers In the fshng Industry. Ths gap n protecton
has been partcuary evdent snce sef-empoyed owners of fshng vesses were
covered n 1951. The b woud correct ths stuaton by coverng those empoyee
fshermen, cam dggers, etc., who are now e cuded. About 50,000 addtona
peope woud be covered n the course of a year under ths provson.
11. Unted States ctzens empoyed by Amercan empoyers on teases en
arcraft of foregn regstry. The Soca Securty Act amendments of 1950 e -
tended od-age and survvors Insurance coverage to most Unted States ctzens
workng outsde the Unted States for Amercan empoyers. The 1950 amend-
ments faed, however, to brng In Amercan ctzens empoyed by Amercas
empoyers on vesses and arcraft of foregn regstry. Tbe b woud correst ths
stuaton by coverng ths sma group of Amercan ctzens on the same bass as
other Amercan ctzens workng outsde the Unted States for Amercan
empoyers.
T. arnngs Babe
Under the provsons of the b, tbe ma mum amount of covered earnngs
consdered, for both ta and beneft purposes, woud be rased from 3,600 to
,200 a year, effectve anuary 1,1955.
The ma|or reason for ths proposa s to mantan tbe prncpe of od-age and
survvors Insurance (as emboded In the statutory beneft provsons) that bene-
fts shoud, wthn mts, vary wth tbe ndvdua s prevous earnngs. Snce
the benefts pad upon retrement or death are reated to past earnngs. It foows
that the basc factor In the determnaton of beneft amounts Is the eve of
prevous earnngs. Over three-ffths of the mae workers reguary covered by
the program now earn more than 3,000, the ma mum amount counted far
beneft purposes. Tour commttee beeves that f the prncpe that benefts
shoud vary wth earnngs Is to be mantaned, addtona earnngs above the
3,000 mt must be counted toward benefts. It foows tbat those who earn
above tbat amount shoud receve hgher benefts than those whose earnngs are
smaer.
arnngs somewhat above 3,600 do not, under present condtons, mark a
man as hgh pad but are typca earnngs In ma|or sectons of commerce and
Industry. Average annua fu-tme earnngs In manufacturng ndustres a
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1053 were about ,000. The average for mnng was about , 00 and for
transportaton, amost , 00. Sked workers In any Industry earn more than
the average for the Industry.
or workers who have earned ma mum wages under the program, the bene-
ft Increases In the amendments of 1050 and 1952 dd not qute compensate for
the Increase n prces whch has taken pace snce the beneft eves were set
In 1 39. No recognton has been gven to the substanta Increase In the eve
of vng as measured by the e tent to whch Increases In wages have e ceeded
ncreases In prces. Under the formua provded In the 1939 aw, a worker who
earned ma mum wages under the program and who retred now woud be
gettng a beneft of 7.20. The Increase In prces snce 1939 has been such that
ths beneft of 7.20 woud now need to be over 90 (rather than the S5 pro-
vded by present aw) In order for ths retred worker to buy the same eve of
vng that was contempated by the 1939 act. If benefts were to be Increased
In proporton to the ncrease whch has occurred n wages, ths beneft of 7.20
woud now need to be somewhat over 110 a month. The b woud rase the
beneft for the worker earnng the ma mum credtabe wages to 103.50.
Basng the wage base to ,200 woud restore appro matey the same rea-
tonshp between genera earnngs eves and the ma mum wage base that
e sted n 1931. In 1953, appro matey 3 percent of regunry covered mae
workers had earnngs u more than ,200.
An Increase In beneft amounts to compensate for the genera Increase In the
eve of earnngs coud be mn.e by a revson of the beneft formua, wthout
any Increase In the wage base, but such a step woud have a ma|or dsadvantage.
The percentage of workers recevng benefts at or near the ma mum woud
reman at east as hgh as at present, thus weakenng the basc prncpe that
benefts shoud vary wth past earnngs.
- .
S CTION-BY-S CTION ANALYSIS
The frst secton of the b contans a short tte, Soca Securty Amend-
ments of 195 . The remander of the b Is dvded nto four ttes: Tte I,
whch amends tte II of the Soca Securty Act tte II, whch amends the
Interna Revenue Code tte III, whch makes certan amendments reatng
. to pubc assstance and tte I , whch makes severa conformng amend-
ments In the Raroad Retrement Act and other aws.
Tte II. Amendments To Interna Revenue Code
AM NDM NTS TO D INITIONS O S L - MPLOYM NT INCOM AND
B LAT D D INITIONS
Secton 201 (a) (2) of the b woud e tend the appcaton of the sef-em-
poyment ta to sef-empoyed farmers by emnatng paragraph (2) of secton
1(a) of the Interna Revenue Code. In addton, It woud amend such secton
1(a) by estabshng an optona method of reportng ncome for sef-em-
poyed farmers. Under ths amendment, a farmer who reports bs Income on the
cash recepts and dsbursements bass may deem 50 percent of bs gross Income
from farmng to be bs net enrnngs from sef-empoyment attrbutabe to farm-
ng, provded such gross ncome s not more than 1, 00. If the gross Income from
farmng Is more than 1, 00 and the net earnngs from sef-empoyment as com-
puted under the provsons of secton 1(a) are ess than 900, such net earn-
ngs, at hs opton, may be deemed to be 900. or ths purpose, gross Income
Is the e cess of gross recepts from farmng over the cost or other bass of
property whch was purchased and sod n carryng on such trade or busness,
ad|usted n accordance wth the provsons of paragraphs (1) through (6) (to
the e tent appcabe) of secton 1 (a), as amended by the b. Ths defnton
of gross Income s for the purpose of computng net earnngs from sef-empoy-
ment attrbutabe to farmng and does not affect the computaton of gross In-
come of a farmer for Income-ta purposes. As an ustraton, a farmer on a
cash bass who receved 1,200 from the sae of produce rased on the farm, 200
from the sae of vestock rased on the farm and not hed for breedng or dnry
purposes, and 300 for the sae of a dary cow whch had an ad|usted cost of 200
and had been hed for 1 year, woud have gross recepts of 1,700 whch shoud
be reduced by the ad|usted cost of the dary cow ( 200) and whch shoud then
be ad|usted by emnatng the proft on the sae of the dary cow (whch under
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see. 117( ) woud be treated aA a con from the sae of a capta asset and wta
under sec. 1(a) ( ) (sec. 1(a) ( ) of e stng aw) woud be e cuded fna
the term cross Income from farmng In arrvng at gross Income for aeL
empoyment ta purposes). Thus, the farmer s gross Income In ths case wot
be 1, 00.
Secton 201(a) aso amends secton 1(a) (1) of the code to make t cear ttr.
tho term rentas as used theren Incudes rentas pad n the form of en
bares.
Secton 201(b) (1) amends secton 1(b) of the code by Increasng the Hnau-
ton on sef-empoyment Income sub|ect to the sef-empoyment ta (for t a
years endng after 105 ) from 3,000 to ,200.
Secton 201(b)(2) amends secton S(b) of the code to Incude as wags ,
for purposes of computng sef-empoyment Income , remuneraton of sa
States ctzens empoyed by a foregn subsdary of a domestc corporaton w
has entered nt an agreement pursuant to secton 1 20 (m) for the purpose :
havng the Insurance system estabshed by tte II of the Soca Securty z
e tended to servce performed by such ctzens.
Under the e stng paragraphs ( ) and (5) of secton 1(c) of the co ,
mnsters of a church In the e ercse of ther mnstry , members of a rer
order In the e ercse of dutes requred by such order, physcans, awyers, de
tsts, osteopaths, veternarans, chropractors, naturopaths, optometrm
Chrstan Scence practtoners, archtects, certfed pubc accountants, aenw-t-
ants regstered or censed as accountants under State or muncpa Iawr, fu-tss
- practcng pubc accountants, funera drectors, and professona engneers, b
the e ercse of ther respectve professons, are not sub|ect to the sef-empe|-
ment ta . Secton 201(c) of the b woud repea these e cusons e cept t
the case of physcans, thereby sub|ectng to sef-empoyment ta the sef-es-
poymcnt Income from the practce of a of the professons now e cuded.
The amendments made by secton 201 w be appcabe ony wth respect t
ta abe years endng after 105 .
B UHD O C RTAIN TA S D DUCT D ROM WAG S
Secton 202(a) (1) of the b amends secton 1 01(d) (3) of the Interna Be
enue Code, reatng to speca refunds of empoyee ta pad on aggregate war -
n e cess of 3,000 receved by on empoyee from more than one empoyer dores
a caendar year, so as to conform the speca refund provsons to the Increase
made by the b In the mtaton on wages from 3,000 to ,200.
Secton 1 01(d)(3) of the Code presenty provdes that no speca refund
sha be made uness (A) the empoyee makes a cam, estabshng hs rg t
thereto, after the caendar year In whch were receved the wages wth respect
to whch refund of ta s camed, and (B) such cam Is made wthn 2 years
after the caendar year In whch such wages were receved. Paragraph (2) c
secton 202(a) of the b amends secton 1 01(d) (3) of the code so as to provde
an e cepton to ths provson n the cose of an empoyee of a State or any
potca subdvson thereof whose servces are covered for purposes of tte II
of the Soca Securty Act by reason of an agreement (or modfcaton) pursuant
to secton 21 of the Soca Securty Act whch s effectve as of a date more than
2 years pror to the date such agreement (or modfcaton) was agreed to. t
woud aow a speca refund to be made In the case of such empoyees. If cam
for such refund s made wthn a perod of 2 years after the end of the caendar
year n whch such agreement (or modfcaton) was agreed to by the State acd
the Secretary of Heath, ducaton, and Wefare.
Paragraph (2) of secton 202(b) of the b amends secton 1 01(d)( )(A)
of the code, reatng to speca rues appcabe to speca refunds In the case
of edera empoyees, so us to conform the provsons thereof to the Increase
made by the b In the mtaton on wages from 3,000 to ,200.
Paragraph (3) of secton 202(b) of the b further amends such sectoa
1 01(d) ( ) of the code by addng at the end thereof a new subparagraph (C).
reatng to speca refunds In the case of ctzens of the Unted States performcr,
servces outsde the) Unted States for a foregn subsdary corporaton of a
domestc corporaton whch has entered nto an agreement under secton 1 26(a)
of the code (added by the b) for the purpose of obtanng coverage under tte
II of the Soca Securty Act for such empoyees. ( or a dscusson of the cr-
cumstances and condtons under whch a domestc corporaton may enter ata
such an agreement, see n ths report the e panaton of secton 209 of the bL)
Such new subparagraph (C) woud make the speca refund provsons n sec-
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ton 1 01(d) of e stng aw appcabe to amounts deducted In any caendar
year after the caendar year 195 from the remuneraton of empoyees whose
servces are covered under tte II of the Soca Securty Act by reason of such
on agreement. or purposes of speca refunds In the case of amounts pad pur-
suant to any such agreement the term empoyer ncudes a domestc corpora-
ton the term wages ncudes remuneraton for servces covered by such an
agreement and the term ta or ta Imposed by secton 1 00 ncudes an
amount equvaent to the empoyee ta whch woud be mposed If the servces
covered by the agreement consttuted empoyment as defned n secton 1 2(1
of the code.
Subsecton (c) of secton 202 amends secton 1 20(e) of the code so as to con-
form such secton to the ncrease made by the b n the mtaton on wages
from .1,000 to ,200.
Subsecton (d) of secton 202 provdes that the amendments made by subsec-
tons (a)(1), (b)(2), and (c), reatng to the Increase n the mtaton on
Tv-ages from 3,000 to ,200, sha be appcabe ony wth respect to remunera-
ton pad after 105 .
COLL CTION AND PAYM NT Or TA S WITH B SP CT TO COAST GUABD CHANG S
Secton 203(a) of the b amends secton 1 20(e) of the Interna Revenue
Code, whch reates to the empoyee and empoyer ta es mposed wth respect
to certan servces performed In the empoy of the Unted States or In the em-
poy of any nstrumentaty whch Is whoy owned by the Unted States. st-
ng aw provdes, among other thngs, that the head of the edera department,
ngency, or Instrumentaty havng contro over the servces performed n ts
empoy, or such agents as mny be desgnated by hm, sha (1) determne whether
an Indvdua has performed servces whch consttute empoyment as defned
n secton 1 26 of the code, (2) determne the amount of remuneraton whch
consttutes wages as defned n secton 1 26, and (3) make the requred return
and payment of the ta es mposed by sectons 1 00 and 1 10.
A Inter secton of the b amends the defnton of empoyment contaned n
doctnn 1 20(b) of the code so ns to remove tho e cuson from empoyment of
servces performed by certan cvan empoyees In Const Gnnrd changes and
other Const Guard actvtes. ( or a further dscusson of cdcrn servces as
affected by ths h, see In ths report the e panaton of secton 20.1(d) of the
b.) Secton 203(a) of the b amends secton 1 20(e) of the code so as to
moke the provsons of such secton appcabe to servces performed by a cvan
empoyee, who s not compensated from funds approprated by the Congress, n
the Coast Guard changes or other actvtes, conducted by an nstrumentaty
of the Unted States sub|ect to the ursdcton of the Secretary of the Treasury,
at nstaatons of the Coast Guard for the comfort, peasure, contentment, and
menta and physca mprovement of personne of the Coast Guard. Secton
203(a) further provdes that the Secretary of the Treasury s deemed to be the
bead of the nstrumentaty for whch cvan empoyees of Coast Guard -
changes perform servces.
Subsecton (b) of secton 203 of the b provdes that the amendment made
by such secton sha become effectve anuary 1,1955.
AM NDM NTS TO D INITION 0 WAG S
Secton 20 (appcabe ony wth respect to remuneraton pad after 105 )
amends secton 1 26(a) of the Interna Revenue Code whch defnes the term
wages for purposes of the edera Insurance Contrbutons Act.
Subsecton (a) of ths secton of the b amends secton 1 26(a)(1) of the
code, reatng to the 3,600 mtaton on remuneraton whch consttutes wages.
Subsecton 1 20(a)(1) In e stng aw provdes that tho term wages docs
not Incude thnt part of the remuneraton pnd wthn nny caendar yenr by an
empoyer to nn empoyee whch e ceeds the frst 3,000 of such remuneraton
(e cusve of remuneraton e cepted from wages by the succeedng paragraphs
of sec. 1 20(a)) pad wthn such caendar yenr by such empoyer to such em-
poyee for empoyment. The amendment woud Increase the amount of the m-
taton from 3,000 to ,200 but otherwse woud make no change n the pro-
vsons of secton 1 26(a)(1).
Subsecton (b)(1) of ths secton of the b amends subparagraph (B) of
secton 1 26(a) (7) of the code, whch reates to cash remuneraton for domestc
servce. Secton 1 20(a) (7) (I ) now provdes for the e cuson from wages of
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rash remuneraton pad In a caendar quarter for domestc servce In a prvate
borne of the empoyer nnesa such remuneraton pad In such caendar quarter
for such servce Is 50 or more and the empoyee Is reguary empoyed by the
empoyer In the caendar quarter In whch the payment Is made. The empoye
Is reguary empoyed by an empoyer durng a caendar quarter If be per-
formed domestc servce In a prvate home of the empoyer on at east 2 days
In that caendar quarter or durng the precedng caendar quarter. The amend-
ment woud emnate the 2 -day test, thus makng coverage of domestc serrkt
dependent soey on recept of 50 In cash wages n a caendar quarter by u
empoyee from an empoyer for such servce.
As under e stng aw, domestc servce does not Incude servce descrbed
In secton 1 20(h)(5) of the code (servce performed on a farm operated fee
proft).
Paragraph (2) of subsecton (b) of ths secton amends secton 1 26(a) (7) by
addng a new subparagraph (C). Ths new subparagraph reates to cash re-
muneraton receved for servce not In the course of the empoyer s trade or bus-
ness and shoud be consdered together wth the repea of secton 1 26(b) (3) d
the code, whch woud be accompshed by secton 205(b) of the b. Sectea
1 20(b) (3) of the code now e cepts from empoyment servce not In tbe course
of the empoyer s trade or busness performed by an empoyee In a caen hr
quarter uness the cash remuneraton pad by the empoyer to the empoyee for
such servce Is 50 or more and the empoyee Is reguary empoyed by the ea-
poyer durng the caendar quarter to perform such servce. The effect of tbe
new subparagraph (C) of secton 1 20(a) (7), together wth the repea of para-
graph (3) of secton 1 20(b), Is to emnate the 2 -day test and to mnke cover-
age of servce not In the course of the empoyer s trade or busness depend soey
on recept of cash remuneraton of 50 or more In the caendar quarter.
The test reatng to cash remuneraton of 50 or more aso Is changed sghty.
Under e stng aw, the 50 must be pad for servce performed In a caendar
quarter durng whch the empoyee s reguary empoyed by the empoyer to per-
form such servce, and the tme of payment Is unmportant. Under the new
deeton 1 20(a) (7) (C), the test Is payment of 50 In a caendar quarter for the
Servce, and the tme, of performance of the servce Is uum ortant.
Tho new subparagraph ((. ) of secton 1 20(a) (7) Incorporates the provson A f
seeton 1 20(b) (3) of e stng aw that servce not In the course of the empoy,
er s trade or busness doeR not Incude domestc servce In a prvate home of the
empoyer and does not Incude servce descrbed n secton 1 20(h) (5) (servce
performed on a farm operated for proft).
Paragraph (3) of subsecton (b) of ths secton amends secton 1326(a)(S)
of the Interna Revenue Code by Insertng a new subparagraph (B) and by
desgnatng the e stng provsons of secton 1 20(n) ( ) as subparagraph (A).
The new subparagraph (B) woud e cude from wages cash remuneraton rad
by an empoyer to an empoyee In any caendar year for agrcutura abor on-
ess such remuneraton Is 200 or more. Ths amendment shoud be consdered
n connecton wth the amendment to paragraph (1) of secton 1 26(b) of the
code whch woud be effected by secton 205(a) of the b.
Under the e stng provsons of secton 1 20(b) (1) of the Interna Revenue
Code the crtera whch determne whether agrcutura abor performed for an
empoyer Is Incuded In coverage under the edera Insurance Contrbutons Act
are ted In wth the caendar quarter. Agrcutura abor performed by an em-
poyee for an empoyer In a caendar quarter s e cepted from empoyment under
e stng aw uness the cash remuneraton paw In that quarter by the empoyer to
the empoyee for such Inbor Is 50 or more and the empoyee Is reguary empoyed
|n that quarter by such empoyer to perform such agrcutura abor. or pur-
poses of secton 1 20(a) (1), an ndvdua Is deemed to be reguary empoyed
by an empoyer durng a caendar quarter ony If (1) such Indvdua
performs agrcutura abor for such empoyer on a fu-tme bass on 60
days durng the quarter, and (II) the quarter was Immedatey pre-
ceded by a nuafyng quarter. A quafyng quarter Is defned as (I) any
quarter durng n of whch tbe Indvdua was contnuousy empoyed by tbe
empoyer, or (II) any subsequent quarter meetng the test of cause (1) above If.
after the Inst quarter durng a of whch the Indvdua was contnuousy em-
poyed by the empoyer, ench Intervenng quarter met the test of cause (I). An
ndvdua Is aso deemed to be reguary empoyed by an empoyer durng a ca-
endar quarter If he was reguary empoyed (upon appcaton of causes (1) aad
(II)) by the empoyer durng the precedng caendar quarter. (II. Rett. No.
2771, 1st Cong., 2d sess. (conference report on II. R. 6000), p. 05.)
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Tbe prncpa effects of the amendments made by paragraph (S) of secton
20 (b) and by secton 205(a) of the bU are to emnate the present reguary
empoyed concept as a requrement for coverage of agrcutura abor under the
edera Insurance Contrbutons Act to pace the coverago test for agrcu-
tura abor on a caendar-year bass Instead of on a caendar-quarter bass ns at
present and to make coverage depend soey on the payment of cash remunera-
ton of 200 or more In a caendar year by the same empoyer to the empoyee for
such abor. It Is contempated that empoyers of Indvduas performng agr-
cutura abor who meet ths test woud report wages annuay.
At the present tme, servces performed In connecton wth the gnnng of cot-
ton and servces performed In connecton wth the producton or harvestng of
crude gum, (oeoresn) from a vng tree or the processng of such crude gum
nto gum sprts of turpentne and gum resn, f such processng s carred on
by the orgna producer of the crude gum, are e cepted from empoyment under
the e stng secton 1 20(b)(1) of the code. The amendment to secton
1 20(b)(1) of the codo undo by secton 20r (a) of the b woud remove the
s ecHc e cepton of these servces from enpyument and woud have the effect
of coverng such servces under the edera Insurance Contrbutons Act on the
same bass as other agrcutura abor.
AM NDM NTS TO D rNITION Or MPLOYM NT
Secton 203 amends subsecton (b) of secton 1 20 of the Interna Revenue
Code, whch defnes empoyment for purposes of the edera Insurance Contr-
butons Act.
Subsecton (a) of ths secton of the b amends paragraph (1) of secton
1 20(b) of the code by emnatng from the defnton of empoyment the e stng
e cepton of agrcutura nbor, e cept n tho case of servco performed by
foregn agrcutura workers under contracts entered nto n accordance wth
tte of the Agrcutura Act of 10 0, ns amended. Tte of such act now
provdes Unt no workers nny e avaubo under It for empoyment after Do-
. cembcr 31, 1053. Tho e cepton under Bcctnn 1 20(b)(1) of the codo w, of
course, bo noperatve when tto of tho Agrcutura Act ceases to bo effectve.
Subsecton (b) of ths secton repeas paragraph (3) of secton 1 20(b) of the
code (whch e cepts from empoyment servce not In the course of the empoyer s
trade or busness), and makes approprate conformng changes n the remander
of the secton.
Paragraph (5) of secton 1 20(b) of the code now e cepts from empoyment
any servce performed by an ndvdua on or In connecton wth a vesse not an
Amercan vesse, or on or In connecton wth an arcraft not nn Amercan arcraft,
f the ndvdua Is empoyed on and n connecton wth such vesse or arcraft
when outsde the Unted States. Subsecton (c) of secton 205 of the b amends
secton 1 20(b) (S) of tbe code (redesgnated by the b as secton 1 20(b) ( ))
so as to make the e cepton appcabe ony f the ndvdua Is not a ctzen of
the Unted States or the empoyer Is not an Amercan empoyer. Consequenty,
If the ndvdua s a ctzen of the Unted States and the empoyer Is an Amer-
can empoyer, the servces of Ue ndvdua on foregn-fag vesses or foregn-Hag
crcraft w not be e cepted from empoyment whether performed here or abroad.
Ths change woud have the effect of treatng servces performed by these Ind-
vduas the same as servces performed by ctzens of the Unted Stats as em-
poyees of Amercan empoyers, whch now consUtute enpyoment whether per-
formed here or abroad.
Subsecton (d) (1) of ths secton amends the e stng paragraph (7) of
secton 1 20(b) of the code (redesgnated by tbe b as paragraph (0)) to Incude
. In empoyment certan servces performed for the edera Government. Sub-
paragraph (B) of secton 1 20(b)(7) now e cepts from empoyment servces
performed n the empoy of any nstrumentaty of the Unted States f such
Instrumentaty was e empt from the ta Imposed by secton 1 10 on December
31,1050, wth certan desgnated e ceptons. Ths subparagraph s amended by
the b to provde that servce performed by an Indvdua n the empoy of any
such Instrumentaty woud be e cepted from empoyment ony f such servce
s covered by a retrement system estabshed by such nstrumentaty. Tbe
amendment aso provdes that servce performed n the empoy of a edera
Home Loan Bank and servce performed by cvans for Coast Guard changes
and certan other Coast Guard actvtes are no onger e cepted from empoyment.
Subsecton (d) (2) of ths secton amends subparagraph (C) of such e stng
paragraph (7), whch now e cepts from empoyment servce performed by 13
specfc categores of edera empoyees. The amendment deetes the foowng
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691
seven categores: temporary empoyees In the Hed aerree of the Post Offce
Department who are e cuded from the cv servce retrement system tempo-
rary census-takng empoyees of the Bureau of the Census edera empoyees
who are pad on a contract or fee bass edera empoyees who receve com-
pensaton of 12 a year or ess certan consuar agents ndvduas empoyed
under edera unempoyment reef programs and members of State, county,
or communty commttees under the Producton and Marketng Admnstraton
and smar bodes, uness such bodes are composed e cusvey of fn-tne
edera empoyees. The effect of these deetons Is to remove the e cepton
from empoyment n the case of servce performed by empoyees In these seven
categores.
Subsecton (d) (2) of ths secton aso amends two of the remanng s cate-
gores In the e stng secton 1 20(b) (7) (C). The present e cepton from
empoyment of servces performed In hosptas, homes, or other Insttutons of
tn Unted States by patents or nmates of those Insttutons Is amended to
e cept ony servce performed by Inmates of pena Insttutons. The e cepton
Is no onger appcabe to servce performed by an empoyee wbo Is a patent at
a edera hospta or home. The present e cepton from empoyment of servce
performed by an Indvdua who Is e cuded from the cv servce retrement
system because he s covered by another retrement system Is amended so that
servce performed by an Indvdua covered under the retrement system of the
Tennesseo aey Authorty Is no onger e cepted from empoyment.
Subsecton (e) of ths secton amends the present secton 1 -t(b)(0) of the
code (redesgnated as paragraph ( ) by the b) so that the empoyment e -
cepton w no onger be appcabe to servces of certan mnsters and members
of regous orders empoyed by an organzaton e empt from Income ta under
secton 101(0) of the code If the organzaton has fed a certfcate under secton
1 20(1) of tho code wavng Its e empton from the ta es Imposed under the
edera Insurance Contrbutons Act.
Tho present subparagraph (II) of secton 1 20(b)(0) of the code e cepts
from empoyment servce performed by ay empoyees of these organzatons
uness the organzaton (es a certfcate of waver under secton 1 20(1) of
the code. Ths provson woud be retnned wthout any substantve change and
woud be redesgnated as subparagraph (A). The present subparagraph (A)
e cepts from empoyment servce performed by a duy ordaned, commssoned,
or censed mnster of a church n the e ercse of hs mnstry or by a member
of a regous order n the e ercse of dutes requred by such order. Ths woud
be emnated and In Its pnce woud be substtuted a new subparagraph (B)
e ceptng such servces f performed In the empoy of an organzaton e empt
from Income ta under secton 101(0) of the code. The new subparagraph (B)
woud, however, permt the waver, under condtons specfed In secton 1 2
- (1) (2) (as amended by the b) of the e empton from ta wth respect to
servces performed by mnsters and members of regous orders (not Incudng
any member of a regous order who hns taken a vow of poverty as a member of
such order) empoyed by such an organzaton If the organzaton has fed wth
the Interna Revenue Servce a certfcate ndcatng ts desre to cover Its
mnsters and members of regous orders. The servces of those cergymen
wbo concur n the fng of the certfcate, and those empoyed nfter the certfcate
becomes effectve (or after the certfcate was fed, f the certfcate was made
effectve retroactvey) woud not onger be e cepted from empoyment.
Secton 1 20(b) (15) of the Interna Bevenue Code now e cepts from empoy-
ment servce performed by empoyees In fshng and smar actvtes uness
performed n connecton wth commerca samon or habut fshng or on a
vesse of more tbnn 10 net tons. Subsecton (f) of ths secton of the b woud
emnate ths e cepton, nnd make approprate conformng changes.
Subsecton (g) of ths secton provdes that the amendments made by sub-
sectons (n) and (b) (reatng to agrcutura abor and servce not In the
course of the empoyer s trade or busness) w be appcabe ony wth respect
to servces (whenever performed) for whch the remuneraton Is pad after
106 , nnd thnt the amendments made by subsectons (c), (d), (e), and (f)
(reatng to servce .on foregn-fag vesses and arcraft. edera servce, servce
performed by mnsters, and fshng and reated servce) w be appcabe ony
wth respect to servces performed after 103 .
AM NDM NT TO D IN1T10N Or M LOTLB
Secton 206 amends subsecton (d) of secton 1 26 of the Interna Rcvenr|
Code, whch defnes the term empoyee for purposes of the edera Insurance
Contrbutons Act.
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692
Secton 1 20(d) (3) (0) of the code now Incudes a an empoyee any Indvdua
who performs servces for remuneraton for any person as a bomeworker per-
formng work, accordng to specfcatons furnshed by the person for wbom the
servces are performed, on materas or goods furnshed by such person and
requred to be returned to such person or a person desgnated by bm. If the
performance of such servces Is sub|ect to censng requrements under the aws
of the State In whch such servces nro performed. Subsecton (a) of secton
200 of the b amends such secton 1 20(d)(3) (C) so as to emnate the re-
qurement that the performance of the servces be sub|ect to State censng
requrements, effectve wth respect to servces performed after 105 .
Ths amendment woud not Incude, however, as empoyees, homeworkers who
nro not sub|ect to supervson or contro by any person wth respect to ther
homo work actvtes, and who buy raw matera and nako any artce and te
such artce to any person even though It Is made accordng to specfcatons
provded by some snge purchaser.
WAI S Or TA MPTION BT NONPBOrT OHO ANIMATIONS WITH BISP OT TO
MINIST RS IN TIr MI LOT
The present paragraph (0)(A) of secton 1 20(b) of the Interna Revenue
Code e cepts from empoyment servces performed by a duy ordaned, com-
mssoned, or censed mnster of a church n the e ercse of hs mnstry or by a
member of a regous order n the e ercse of dutes requred by such order. As
amended and redesgnated as paragraph (S)(B) by secton 205(e) of the b,
such paragraph woud contnue to e cept from empoyment servces performed
In the empoy of an organzaton e empt from Income ta under secton 101(0)
of the code by a duy ordaned, commssoned, or censed mnster of a church
In the e ercse of bs mnstry or by a member of a regous order n the e ercse
of dutes requred by such order. However, such e cepton woud have no app-
caton to servces performed by any such mnster or member of a regous order
(other than a member of a regous order who has taken a vow of poverty as
a member of such order), as an empoyee of an organzaton whch Is e empt
from Income ta under secton 101(0) of the code, durng nny perod In whch a
certfcate fed by such organzaton pursuant to secton 1 20(1) (2) of the code
appes to bm. Secton 207 of the b woud amend secton 1 26(1) of the code
to set forth the condtons and procedures appcabe wth respect to the fng of
such certfcates.
A certfcate fed by an organzaton under such secton 1 20(1) (2) woud
certfy that It desres to hare the nsurance system estabshed by tte II of the
Soca Securty Act e tended to servce performed by ts empoyees who are
mnsters or members of a regous order. When such a certfcate s fed, both
the organzaton and the empoyees to whch the certfcate appes are, for the
perod durng whch t s n effect, sub|ect to the ta es mposed by sectons 1 00
and 1 10 of the code n the same manner as a prvate empoyer and hs em-
poyees. The certfcate fed by the organzaton must certfy that at east
two-thrds of Its empoyees who are mnsters or members of a regous order
ave concurred In the fng of the certfcate, and the certfcate must be accom-
paned by a st contanng the sgnature, address, and soca securty account
number (If any) of each empoyee who concurs In the fng of the certfcate.
Such st may be amended at any tme by fng wth the prescrbed offca a sup-
pementa st or sts contanng the sgnature, address, and soca securty ac-
count number of each addtona empoyee who concurs n the fng of the cer-
tfcate. However, such a certfcate may not be fed by an organzaton uness
(A) such organzaton does not have any ay empoyees wth respect to whom a
certfcate may be fed pursuant to paragraph (1) of secton 1 20(1), or (B)
such organzaton, has fed a certfcate pursuant to such paragraph (1) wth
respect to Its ay empoyees. A certfcate fed pursuant to paragraph (2) of
sucb secton sha be In effect for the perod begnnng wth the frst day of
whchever of the foowng caendar quarters may be specfed n the certfcate:
(1) The quarter n whch the certfcate s fed, (2) the succeedng quarter, or
(3) If the certfcate Is fed durng the caendar year 1955, any quarter n such
year pror to the quarter n whch t s fed. However, a suppementa st fed,
after the frst month foowng the frst caendar quarter for whch the certfcate
Is n effect, or foowng the caendar quarter n whch the certfcate was fed,
sha be n effect ony wth respect to those servces performed by an ndvdua
whose name appears on such suppementa st whch are performed by hm
after the caendar quarter n whch such suppementa st s fed.
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693
Secton 1 20(1), ns amended by tbe b, woud further provde that the perod
for whch the certfcate Is effectve may bo termnated by tbe organzaton at tbe
end of a specfed caendar quarter upon Rvng 2 years advance notce In wrtng.
but ony If the certfcate has been In effect for a perod of not est than years
at to tme of the recept of tbo notce of termnaton. Tbe organzaton may
revoke Its notce of termnaton by gvng a wrtten notce of such revocaton
pror to to cose of the caendar quarter specfed In tbo notce of termnaton.
The certfcate (and any notce of termnaton or revocaton of such notce) mnst
be ted n such form and manner and wth such offca as may be prescrbed by
reguatons.
To wnver perod mny In any enso be termnated by the Secretary or hs
deegate If e mN Hnt to organzaton whch ted to certfcate tns fred
to compy smtuntay wth the provsons of the edera Insurance Contrbu-
tons Act. In such case, the organzaton must be gven 00 days advance notce
n wrtng that tbo perod covered by the certfcate w termnate at tbe end
of the caendar quarter specfed In the notce. Any such notce may be revoked
by gvng wrtten notce of revocaton pror to the cose of the caendar
quarter specfed n the notce of termnaton. A notce of termnaton or
revocaton thereof may not be gven wthout tbe pror concurrence of the Secre-
tary of Heath, ducaton, and Wefare. If the perod covered by the certfcate
s termnated by the organzaton tsef, t may not thereafter fe a certfcate
under secton 1320(1) of the code and f a certfcate fed by an organzaton
pursuant to paragraph (1) of secton 1 20(1) wth respect to Its ay empoyees
s termnated, the perod covered by any certfcate fed by such organzaton
pursuant to paragraph (2) of such secton wth respect to mnsters and members
of a regous order In Its empoy sha be termnated at tbe same tme.
CHANG S IN TA SCH DUL S
Secton 203(a) of tbe b woud amend secton S0 of the Interna Revenue
Code, reatng to the rate of ta upon sef-empoyment Income. Under e stng
aw tbe rate of ta upon sef-empoyment Income In the case of any ta abe
year begnnng nfter December 31, 1909, Is percent Under the b the rates
of ta for ta abe years begnnng after December 31,19G9, are as foows:
or ta abe years Permt
Begnnng nfter Dec. 31,1000, and before an. 1,1075 . S
Begnnng after Dec. 31, 107 , and subsequent year
Subsectons (b) and (c) of secton 20 woud amend sectons 1 00 and 1 10.
respectvey, of the Interna Revenue Code, reatng to the rates of the ta es
under the edera Insurance Contrbutons Act Under e stng aw the rate
of the empoyee ta and of the empoyer ta for tbe caendar year 1970 and
subsequent caendar years Is 3 /A percent. Under the b tbe rates of each
such ta for the caendar year 1070 and subsequent caendar years are as foows:
Percent
or the cncndar yenrs 1070 to 197 , ncusve . . ... S
or tbe caendar year 1975 and subsequent caendar years- , ... _
rOB IO SU6IDIAUI S O AM ICAN MPLOY RS
Under the Interna Revenue Code the defnton of tbe term empoyment
does not Incude servce performed outsde the Unted States for a foregn
corporaton, and the b makes no change In the defnton wth respect to such
servces.
Secton 209 of the b amends secton 1 2 of the code by addng at the
end thereof a new subsecton (m). Such subsecton (m) provdes tbat the
Secretary or hs deegate sha enter nto an agreement, at the request of any
domestc corporaton, for the purpose of e tendng od-age and survvors n-
surance coverage to ctzens of the Unted States performng servce outsde
the Unted States n tbe empoy of any one or more foregn subsdares of
such domestc corporaton. A foregn subsdary Is defned as (1) a foregn
corporaton more tha/ SO percent of the votng stock of whch Is owned by tbe
domestc corporaton desrng to enter nto the agreement, or (2) a foregn cor-
poraton more than 50 percent of the votng stock of whch s owned by a foregn
corporaton descrbed n cause (1). Such en agreement sha not be appcabe
to any servce performed by, or remuneraton pad to, an empoyee, f such
servce or remuneraton woud be e cuded from the term empoyment or
the term wages , respectvey, were the servce performed n the empoy of the
domestc corporaton. Any such agreement sha be appcabe In a respects
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69
n the case of any ctzen of the Unted States who, after the agreement becomes
effectve, Is empoyed by the foregn subsdary or subsdares named In the
agreement
If at any tme after such an agreement Is entered Into the domestc corporaton
desres to have the od-age and survvors Insurance system e tended to ctzens
of the .Unted States performng servce In the empoy of one or more foregn
subsdares other than the subsdary or subsdares specfed In the agreement,
the agreement may be amended so as to e tend such system to such ctzens.
Any agreement so amended sha be appcabe In a respects In the case of
servce performed In the empoy of any foregn subsdary to whch the amend-
ment reates. Any such agreement sha requre the domestc corporaton to
pay to the Secretary or hs deegate, amounts equvaent to the sum of the
empoyee and empoyer ta es whch woud be Imposed under sectons 1 00 and
1 10 of the code (Incudng nterest and penates) If the servces under the
agreement consttuted empoyment and the remuneraton for such servce
consttuted wages, under secton 1 26 of the code. It sha aso requre the
domestc corporaton to compy wth reguatons, reatng to payments and re-
ports, prescrbed by the Secretary to carry out the purposes of such subsecton.
Paragraph (2) of such secton 1 26(m) provdes that an agreement sha
be made effectve for the perod begnnng ether wth the frst day of the caen-
dnr quarter In whch the agreement Is entered Into or the frst day of the
succeedng caendar quarter. However, no agreement may be made effectve
pror to anuary 1, OW. An amendment to an agreement e ecuted after the
frst month foowng the frst caendar quarter for whch the agreement Is In
effect sha appy, In the case of servces performed for the subsdary or sub-
sdares SDccfed In the amendment, ony after the caendar quarter n whch
the amendment Is e ecuted.
Paragraph (3) of such secton 1 26(m) provdes that the domestc corporaton
mny termnate such an agreement, wth respect to any one or more of Its foregn,
subsdares, effectve at the end of a caendar quarter. However, the term-
naton may be made ony upon gvng 2 years advance notce n wrtng and
ony f at the tme of the recept of such notce the agreement has been In
effect for a perod of not ess than years. Any such notce of termnaton may
be revoked by gvng, pror to the cose of the caendar quarter specfed theren,
a wrtten notce of revocaton. A notce of termnaton or revocaton thereof
sha be fed In such form and manner as .may be prescrbed by reguatons.
The perod for whch an agreement Is effectve wth respect to any foregn
subsdary sha termnate automatcay at the end of any caendar quarter
In whch at any tme the domestc corporaton does not own more than 00 per-
cent of the votng stock of such subsdary.
Paragraph ( ) of such secton 1 20(m) drects the Secretary, upon a fndng
that any domestc corporaton has faed to compy substantay wth the terms
of Its agreement under such secton 1 26(m), to gve such corporaton not ess
than GO days advance notce In wrtng that the perod covered by ts agree-
ment w termnate at the end of a caendar quarter specfed n such notce.
Any such notce of termnaton, however, may be revoked by the Secretary aa
provded In such paragraph. No such notce of termnaton or revocaton sha
be gven wthout the pror concurrence of the Secretary of Heath, ducaton,
and Wefare.
Pursuant to paragraph (5) of such secton 1 26(m), If the agreement s
termnated In ts entrety the domestc corporaton ma not agan enter Into an
agreement wth respect to servce performed for any foregn subsdary and
f the agreement Is termnated wth respect to any subsdary the domestc
corporaton may not thereafter make such agreement appcabe to that
subsdary.
Paragraph (0) of snch secton 1 20(m) specfes that a amounts receved
by the Secretary pursuant to an agreement wth a domestc corporaton under
such secton sha be regarded as ta es coected pursuant to subchapter A of
chapter 0 of the code for purposes of secton 201 of the Soca Securty Act,
whch reates to the amounts to be approprated to the edera Od-Age and
Survvors Insurance Trust und.
Paragraph (7) of such secton 1 26(m) provdes that ad|ustments of any
overpayments or underpayments of amounts due under an agreement sha be
made, wthout Interest, n accordance wth reguatons prescrbed by the Secre-
tary. If an overpayment cannot be ad|usted the amount thereof sha be re-
pad, but ony f a cam therefor s fed wth the Secretary wthn 2 years
from the tme such overpayment was made.
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695
Paragraph 9 of such secton 1 26 (m) provdes that the reguatons of the
Secretary under such secton sha be desgned to make the requrements Imposed
on domestc corporatons wth respect to servce performed n the empoy of
foregn subsdares the same. Insofar as practcabe, as the requrements mposed
on empoyers pursuant to subchapters (A) and ( ) of chapter 9 of the code.
D DUCTIONS ROM 0D0S INCOM OB PATM NTS WTTH R SP CT TO MPLOY S O
C RTAIN OR IGN CORPORATIONS
Secton 210, whch adds a new subsecton to secton 23 of the Interna Revenue
Code, provdes that amounts pad by a domestc corporaton under the provsons
of an agreement entered Into as provded by secton -).G(m) may be deducted In
computng net ncome, but ony to the e tent that the domestc corporaton
actuay bore the burden of the payment Amounts nvoved whch were wth-
hed from the wages of the empoyees of the foregn corporaton or whch were
supped by the foregn corporaton may not gve rse to a deducton for the
domestc corporaton whch pays over such amounts to the Secretary. Any
rembursement of any amount whch has been deducted by the domestc corpo-
raton under the provsons of ths secton must be Incuded In the gross ncome
of such corporaton for the ta abe year In whch t s receved.
-
Tte IT Msceaneous Provsons
Ths tte amends the Raroad Retrement Act In severa respects In order to
preserve the e stng reatonshp between the raroad retrement and od-age
and survvors Insurance systems. It aso provdes for redesgnatng cross ref-
erences In other acts to provsons of the Interna Revenue Code and the Soca
Securty Act redesgnated by the b.
SOCIAL S CURITY AM NDM NTS O 195
Senate Report No. 10 7, cbt|-trd Congrea. Second Senon. Caendar No. 200- .
uy 27 (egsatve day, uy 2), 195
Mr. Mkn, from the Commttee on nance, submtted the foowng report
to accompany H. R. 9300 :
The Commttee on nance, to whom was referred the b (H. R 93G6) to
amend the Socn Securty Act and the Interna Revenue Code so as to e tend
coverage under the od-age and survvors Insurance program, Increase the benefts
payabe thereunder, preserve the nsurance rghts of dsabed ndvduas and
Increase the amount of earnngs permtted wthout oss of benefts, and for other
purposes, havng consdered the same, report favoraby thereon wth amendments
and recommend that the b do pass.
I. PUBP0 AND SCOP O TH BILL
A basc program of contrbutory od-age and survvors Insurance Is mportant
to the economc securty of Amercan fames. Tour commttee Is convnced
that coverage of ths system shoud he substantay broadened. urther than
that, changes are needed In the beneft structure to brng benefts more n ne
wth present-day prce and wage eves. Speca provsons are needed to prevent
the reducton of benefts for workers who, because of tota dsabty, cannot con-
tnue to work, and fnay the retrement test shoud be amended so as to promote
greater freedom for oder workers to take part-tme or seasona work.
In makng recommendntons for brngng a szabe proporton of these workers
under the od-age and survvors Insurance system, your commttee has consd-
ered both the admnstratve feasbty of ther coverage and the wshes of the
members of these groups, as e pressed through ther spokesmen n testmony
before the commttee. Tour commttee found that, n some nstances, there was
a dvson of opnon, partcuary among the farm operators and the professona
sef-empoyed.
In the Interest of securng as broad coverage as possbe under the program,
your commttee carefuy consdered the possbty of aowng ndvduas
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, 696
workng In such occupatons to eect coverage on a vountary bass. In ths
war tbe probem of dverse opnon on entrance Into the program coud bave
been resoved, our commttee concuded, bowever, tbat e tenson of coverage
on an ndvdua vountary bass nvoved grave dangers wtb respect to tbe
fnancng of tbe system, as we as dscrmnaton aganst tbe great ma|orty of
workers covered under the program on a compusory bass. Therefore, where
tbe commttee found that substanta agreement dd not e st among a group
as to whether t desred to be covered, the commttee concuded tbat It woud
be wser to contnue the e cuson of that group rather than aow ts members
to eect coverage as ndvduas.
Tbe od-age and survvors Insurance system contans beneft provsons whch
aow for the payment of benefts n Indvdua cases that are consderaby In
e cess of the vaue of the contrbutons pad. Thus workers retrng In the eary
years after ther coverage under the program started are permtted to draw
fu-rate bencts on tbe bass of a short perod of work and contrbutons. Aso,
the survvors Insurance protecton to Indvduas wth arge fames s espe-
cay vauabe. These provsons are necessary to tbe effectve fufment
of the purposes of the system In preventng dependency. They woud, however,
make the program vunerabe to adverse seecton f coverage were to be made
avaabe on the bass of Indvdua choce. Those who woud eect coverage under
a vountary opton are prmary those who coud e pect tho argest return for
a reatvey sma contrbuton. Tbe defct In ther contrbutons woud bave to
be made up by ncreasng tbe contrbuton rate for tbe covered group as a whoe.
The resut woud be tbat those who are compusory covered nong wth ther
empoyers woud have to bear a arge part of tbe cost of the dfference between
what tbe seect group pays and what t receves.
Tour commttee s convnced that the compusory character of the system
must be preserved, and that In tbe absence of overrdng consderatons of a
speca character, as Is present n the case of members of the cergy, any e ten-
son of coverage must be on a mandatory bass wth respect to Indvduas.
The amendments recommended by your commttee woud e tend coverage to
some 7 mon peope who durng the course of a year work n obs not now
covered by the program. Ths represents a substanta e panson of coverage
over present aw. Wth more peope quafyng for od-age and survvors nsur-
ance, fewer w have to rey on pubc assstance to meet ther day vng
e penses after retrement or death of the breadwnner.
As a means of affordng securty for the Amercan peope In a way consstent
wth ther ndependence and dgnty, your commttee recommends approva of
fundamenta reforms n the od-age and survvors Insurance beneft structure.
These changes w rase the eve of benefts and reate benefts more reastcay
to the Indvdua s customary earnngs whe workng. Thus, provson Is made
for Increasng the ma mum on the annua amount of earnngs on whch workers
pay soca-securty ta es and whch count n the computaton of ther benefts,
Tbe rse In wage eves makes such an ncrease Imperatve so tbat norma work
earnngs may be refected n the beneft amounts payabe under the system. Pro-
vson s aso made for dsregardng mted perods of ow or no earnngs n the
computaton of average earnngs.
urther, speca provsons are made to protect the beneft rghts of workers
who become totay dsabed. Where a worker who has been reguary empoyed
under the program s prevented from contnung hs coverage by reason of tota
dsabty, your commttee beeves tbnt bs nsured status under tbe system
shoud be preserved and that the beneft payabe on hs record upon hs retre-
ment or upon hs death shoud not be reduced. A further desrabe effect of tbe
provson for tbe protecton of the beneft rghts of dsabed workers w be the
Impetus gven to referra of handcapped persons to tbe State vocatona rehab-
taton programs.
The genera Improvement of beneft eves tbnt may be e pected from enactment
of tbe above provsons Is rounded out by nn amendment to tbe formua used n
computng beneft amounts and by Increased payments to the 6.5 mon benefc-
ares currenty on the beneft ros.
nay your commttee beeves oder peope who are retred, but who are
abe to undertake at east some productve empoyment shoud have more gen-
erous provsons made than In present aw wth respect to ther recept of beneft
payments under the program. To ease the stuaton of retred workers who
undertake part-tme, ntermttent, or seasona work, your commttee recom-
mends a more bera and fe be test of retrement, apped on an annua bass
for wage earners as we as sef-empoyed persons. The recommended test woud
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697
aow for hgher earnngs whe drawng benefts. Moreover, after an Indvdua
reaches 72 years of age, he coud draw benefts wtbont any mtaton on hs
earnngs.
II, Svmuabt or Prncpa Provsons or tbz Bu
A. Od-age and survvors nsurance
1. tenson of coverage. Od-age and survvors Insurance coverage woud be
afforded to appro matey 7 mon persons who work durng the coarse of
year In obs now e cuded from the program. Tbe groups brought nto the
program under the b are as foows:
(a) mpoyees of State and oca governments who are covered by State sod
oca retrement systems, other than pocemen and fremen, under vountary
agreements between the State and the edera Government, If a ma|orty of the
uembcrs of the system vote In a referendum In favor of coverage (about 13
mon).
(6) armworkers who are pad nt east 50 In cash wages by a gven empoyer
n a caendar quarter (about 2.0 mon).
(o) Domestc workers n prvate homes (and others who perform work not a
the course of the empoyer s trade or busness) who are pad 50 In cash wages
by an empoyer n a caeudnr quarter, regardess of the 2 -day test requred a
the present aw (about 250,000).
((/) Mnsters and members of regous orders, whether sef-empoyed or em-
poyees, f tey eect Indvduay for coverage as sef-empoyed persons (about
200.000).
(e) Amercan ctzens empoyed outsde the Unted States by foregn sub-
sdares of Amercan companes under vountary agreements between the
edera Government and the parent Amercan concern (about 100,000).
(/) Homeworkers who are now e cuded from coverage as empoyees (whether
or not they ore now covered as sef-empoyed persons) because ther servces
arc not sub|ect to State censng aws (about 100,000).
(17) mpoyees engaged n fshng and rcuted actvtes, on vesses of 10 net
tons or ess or on shore (about 50,000).
(A) Amercan ctzens empoyed by Amercan empoyers on vesses an ar-
craft of foregn regstry (n very sma number).
2. Computaton of average monthy wage. Up to S years In whch earnng
were owest (or none stent) coud be dropped from the computaton of the
average monthy wage.
3. arnngs base. The tota annua earnngs on whch benefts woud be com-
puted and contrbutons pad woud be rased from 3,600 to ,200.
. Increase n benefts. (a) More than 0.5 mon persons now on the beneft
ros woud have ther benefts ncrensed. The average Increase for retred
workers woud be nbmt 0 a month, wth proportonate Increases for dependents
and survvors. The range In prmary Insurance amounts for those now on the
ros woud be 30 to 0 .50 as compared to 25 to S3 under present aw.
(o) Persons who retre or de In the future woud. In genera, have ther
benefts computed by the foowng new formua: 65 percent of the frst 110 of
average monthy wage (rather than 100 as n present aw) pus 20 percent of
the ne t 2 0 (rather than 13 percent of the ne t 200).
(c) The mnmum monthy beneft amount for a retred worker woud be 30.
and the mnmum amount payabe where ony one survvor Is entted to benefts
on the deceased Insured person s earnngs, woud be 30.
(d) The ma mum monthy famy beneft of 1G3.75 woud be Increased to
200 the provson of e stng aw that tota famy benefts cannot e ceed SO
percent of the worker s average monthy wage woud not reduce tota fam|
benefts beow I tmes the Insured workers prmary nsurance amount or 50,
whchever s the greater.
5. Lmtaton on earnngs of benefcares. The enrnngs mtaton woud be
removed at age 72. or benefcnrcs under age 72 the earnngs mtaton woud
be made the same for wage earners nnd sef-empoyed persons. A benefcnr|
coud earn as much as 1,200 n a year from covered work wthout oss of benefts.
He woud ose 1 month s beneft for each unt of S0 (or fracton thereof) of
covered earnngs In e cess of 1,200, but In no case woud be ose benefts for
months In whch he nether earned more than S0 In wages nor rendered sub-
stanta servces n sef-empoyment. Benefcares engaged In uncovered work
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69
outsde the Unted States woud have ther benefts wthhed for any month In
whch they worked on 7 or more days. t
6. gbty for benefts. (a) As an aternatve to the present requrements
for fuy Insured status, an ndvdua woud be fuy Insured If a the quarters
eapsng after 195 and up to the quarter of bs death or attanment of age OS
were quarters of coverage, provded he had at east 0 quarters of coverage after
195 .
(o) Benefts woud be pad to the survvng aged wdow, wdowed mother, and
chdren, or parents Of any Indvdua who ded after 1939 and pror to Septem-
ber 1,1950, and had at east 6 quarters of coverage.
7. Preservaton of beneft rghts for dsabed. The perod durng whch an
Indvdua was under an e tended tota dsabty woud be e cuded In deter-
mnng hs Insured status and to amount of benefts payabe to hm upon retre-
ment or to hs survvors In to evcut of hs death. Ony dsabtes astng
more than 6 months woud be taken Into account. Determnatons of dsabtes
generay woud be made by State vocatona rehabtaton agences or other
approprate State agences pursuant to agreements wth the Secretary of Heath,
ducaton, and Wefare.
. Recomputaton of bencftt for work after enttement. An Indvdua may
have hs beneft recomputed to take Into account addtona earnngs after en-
ttement If be has covered earnngs of more than 1,200 n a caendar year after
1953 and after the year n whch hs beneft was ast computed.
9. Contrbuton rates. mpoyers and empoyees w contnue to share equay,
wth the rates on each beng as foows:
Rate
Caendar years: (percent)
105 -59 2
19G0-0 .. 2H
905-09 -.___
1970-7
1975 and after .
The sef-empoyed woud pay 1 tmes the above rates.
B. Pubo asttance
1. The provsons of the 1952 amendments, presenty schedued to e pre on
September 30,105-1, wth respect to temporary Increases n edera payments to
States for od-age assstance, ad to dependent chdren, ad to the bnd, and ad
to the permanenty and totay dsabed are e tended through September 30,1956.
2. T provsons of the 1950 amendments for approva of certan State pans
for ad to the bnd whch dd not meet the requrements of cause ( ) of sec-
ton 1002(a) of the Soca Securty Act are e tended from une 30, 1955, to
une 30.1957.
III. tenson of Od-Aoe and StnmvoBS Insurance Coverage
A. Genera
The od-age and survvors Insurance program nOw covers about out of 10 of
tbe Naton s obs. Durng the course of a year about 02 mon peope work In
empoyment or sef-empoyment covered under the program. Tbe commttee-
approved b woud afford coverage to about 7 mon peope who In the course
of a year work In obs that are not now covered.
Under the b, coverage woud be e tended to members of State and oca re-
trement systems (other than pocemen and fremen), addtona farm workers
and domestc workers, mnsters and members of regous orders, and certan
other smaer groups.
The ma|or groups who woud st reman e cuded from the program are sef-
empoyed farm operators and sef-empoyed professona persons, members of the
Armed orces, most edera cvan empoyees, and pocemen and fremen cov-
ered by a State or oca government retrement system.
B. Bpecfo coverage groups added
. mpoyees of State and oca governments under retrement systems. In
tbe course of a year about 3.5 mon empoyees (other than pocemen and fre-
men) are In postons covered by State and oca retrement systems. The
present aw, whch provdes for coverng State and oca government empoyees
under vountary agreements between the ndvdua State and the edera Gov-
ernment, e cudes from coverage under an agreement empoyees who are In
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699
postons covered by a State or oca retrement system on the date the agreement
U made appcabe to the coverage groups to whch they beong (e cept for mem-
bers of the Wsconsn retrement fund, for whom coverage was made avaabe
under speca provsons enacted In 19S3).
Under present aw the ony way In whch empoyees under a retement system
can be covered Is by dssovng the system before the group Is brought under
the edera-State agreement Severa States and a arge number of oca gov-
ernments sve secured od-age end survvors nsurance coverage for empoyees
by ths method. In a e cept a few cases where the od-nge nnd survvors nsur-
ance system aone provdes greater protecton than the dssoved system, a
suppementa system has been estabshed to repace the abandoned system after
od-age and survvors nsurnnce coverngo was secured. An estmated 300,000
empoyees now have the combned protecton of od-age and survvors nsurance
and a suppementa syntcm.
Under the b, a State coud brng members of a State or oca retrement
system (e cept pocemen and fremen) under ts od-age and survvors Insurance
agreement, f a referendum by secret wrtten baot s hed among the members
of the system and a ma|orty of the members of the system egbe to rote n the
referendum vote In favor of od-nge nnd survvors nsurance coverage.
The b contnues the present e cuson of pocemen and fremen who are
covered by a State or oca retrement system. I ocemen and fremen, because
of the speca demands made by ther work, usuay have speca provsons In
ther retrement systems (retrement at age 50 or 03, for e ampe) and most of
them beeve that It woud be unwse to attempt to coordnate these provsons
wth the provsons of the od-age and survvors Insurance system.
The b states that It Is the pocy of the Congress In makng coverage avaabe
to retrement system members that the protecton of members and benefcares
of the retrement system not be mpared by reason of coverage of the retrement
system members under od-age and survvors nsurance. The b aso removes
the possbty that retrement system members (other than pocemen and fre-
men) may be covered wthout a referendum, by dssovng the retrement system.
Under present aw, empoyees whose postons are covered by a retrement
system but who are not themseves egbe for membershp n the system cannot
bo covered under od-age and survvors nsurance. The b woud permt these
empoyees (other than pocemen and fremen) to be covered wthout a referen-
dum even If the members of the retrement system were not covered. The em-
poyees woud not be permtted to vote In any referendum on coverage for the
retrement system members, snce they coud be covered regardess of the out-
come of the referendum. If the retrement system members were covered after
a favorabe referendum, however, empoyees n postons covered by the system
but not themseves egbe for membershp n the system woud aso be ncnded
under the agreement.
The b woud aso provde for coverng wthout a referendum, at any tme
pror to anuary 1, 103 , empoyees who coud not be covered when ther cover-
age group wns brought In because they were under a retrement system, but
whose system was ater dssoved by acton taken pror to enactment of the
b. It Is necessary to do ths because the referendum provsons coud not be
apped to these empoyees, 6nce there woud be no actve members of a retre-
ment system who coud vote In a referendum.
The b amends the provson of the House b so a State may consder any
potca subdvson or any combnaton of potca subdvsons as havng
a separate retrement system for the purposes of the referendum. The b aso
requres that each pubc Insttuton of hgher earnng sha be consdered as
havng a separate retrement system for the purposes of the referendum. Speca
provson Is made n the b for coverage under the Utah agreement of em-
poyees performng servces for certan enumerated unts of the State In pos-
tons covered by a retrement system who are precuded from coverage under
present aw. Speca provson Is aso made for coverage under a State agree-
ment, at the opton of the State, of servces of Inspectors of agrcutura prod-
ucts empoyed to perform servces In connecton wth agreements between States
and the Unted State/ Department of Agrcuture. As In the House b, cvan
empoyees of State Natona Guard unts woud be covered at the opton of the
State.
2. armtcorkert. Under the present aw, n order to be covered, a farm-
worker must be reguary empoyed by one empoyer and receve cash wages of
50 or more In a caendar quarter from that empoyer. The defnton of regu-
ary empoyed Is compcated and dffcut to appy. In genera, after a farm-
33510 53 3
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700
worker has worked for one empoyer contnuousy for an entre caendar quarter,
he Is reguary empoyed In succeedng quarters If he works for that em-
poyer on a fu-tme bass on at east 60 days durng the quarter. Records
must be kept over a substanta perod before It Is cear.whether or not an In-
dvdua Is covered. The b woud substtute a smpe coverage test for the
present test. A farmworker woud be covered wth respect to hs work for an
empoyer If he Is pad at east 50 In cash wages by that empoyer In a. caendar
quarter. The compe tes of the tme test woud be emnated yet the recom-
mended test woud contnue to e cude from coverage the most Intermttent or
short-term workers and avod nusance reportng of smn amounts of wages.
The coverage test for farmworkers under the House b Is more restrctve than
the test In the commttee-approved b. Under the House b, a farmworker
woud be covered wth respect to hs work for an empoyer If he Is pad 00
or more In cash wages by that empoyer durng the course of a year and em-
poyers woud make annua, rather than quartery, reports of the cash wages
pad to farmworkers who meet the test.
Both the House-approved, and the commttee-approved bs woud e tend cov-
erage to cotton-gn workers. The House b woud have e tended coverage to
gum nava stores workers the commttee b contnues the present e cuson
of these workers.
The commttee-approved b woud cover a tota of about 2.0 mon addtona
farmworkers, or about 1.3 mon more than woud be covered under the
House b.
3. Domestc tcorkert n prvate toncs and others who perform work not
n the coune of the empoyer s busness. The b, ke the House b, woud
cover a domestc workers who work In nonfarm prvate homes and who are
pad A 50 In cash wages by an empoyer In a caendar quarter. It woud deete
the unnecessary and compcated requrement of present aw mtng the cover-
age of domestc workers to those who work for a snge empoyer on 2 days
durng a caendar quarter. The smpfed test of coverage for domestc serv-
ces n prvate homes provded by the b woud cover, durng the course of a
year, about 250,000 more househod workers than docs the present aw. It
woud aso afford addtona coverage for from 50,000 to 100,000 workers who
under present aw are covered on some but not a of ther domestc |obs.
Most of the domestc workers who woud contnue to be e cuded from
coverage woud be students, housewves, and others who spend comparatvey
tte tme workng for pay. Under the b amost 00 percent of the persons
whose ma|or actvty s domestc empoyment woud be covered.
Persons performng other types of servce not In the course of the empoyer s
trade or busness woud, ke domestc workers, be covered by the b f thAy
are pad 50 In cash wages by an empoyer In a caendar quarter. It Is estmated
that ths woud gve coverage to about 00,000 persons. 1 our commttee proposes
ths provson to Improve and smpfy the coverage of such servces and to
retan the prncpe, now In the present aw, of appyng the same coverage test
for these nonbusness servces ns Is apped to domestc servces performed In
prvate homes. It Is Important to estabsh unform tests for these two types of
work because there are certan knds of nonbusness servces whch are not,
strcty speakng, domestc servce In prvate homes but whch are dffcut to
dstngush from domestc servce.
. nster and members of regous orders. Under the present aw any
servce performed by a mnster of a church In the e ercse of hs mnstry or
by a member of a regons order n the e ercse of dutes requred by such
order Is e cuded from coverage. About 200.000 mnsters and 100,000 members
of regous orders are affected by ths e cuson. The commttee b woud
permt mnsters and the few members of regous orders who have not taken a
vow of poverty to secure coverage by fng a certfcate ndcatng ther desre
to be covered as sef-empoyed persons. In genera, a mnster or a member of
a regous order who has not taken a vow of poverty woud have 2 years after
coverage became avaabe, or after he became a mnster or a member of such
regous order, In whch to take advantage of ths provson. An eecton of
coverage once made woud be rrevocabe.
Cnder the House b mnsters and members of regons orders empoyed by
a nonproft organzaton (other than a member of a regous order who has
taken a vow of poverty ns a memwr of the order) coud be covered f the or-
ganzaton fed a certfcate coverng them and at east two-thrds of the mn.
Isters and members of regous orders empoyed by the organraton sgned thA
certfcate Indcatng ther desre for coverage. Mnstera empoyees who
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701
sgned the certfcate and those empoyed after coverage of the organzaton be-
gan woud hare been covered. The House-approved b woud bare covered
sef-empoyed mnsters on a compusory bass.
A provson for coverage on an Indvdua eecton bass, whe not generay
desrabe, s consdered by your commttee to be |ustfed n ths area because
of the speca crcumstances. Many churches have e pressed the fear that ther
partcpaton In the od-nge and survvors nsurance program as empoyers of
mnsters mght Interfere wth the we-estabshed prncpe of separaton of
church and state. . Many church representatves aso beeve that ndvdua
mnsters who do not wsh to be covered ou grounds of conscence shoud not be
requred to partcpate n the program.
S. Unted States ctzens empoyed outsde of the Unted States by foregn tut.
tdare of Amercan empoyers. Under present aw. Unted States ctzens
workng outsde of the Unted States for Amercan empoyers are covered under
od-age and survvors nsurance. The b woud e tend ths coverage to ncude
Unted States ctzens workng for foregn subsdares of Amercan companes.
These provsons woud make coverage avaabe to roughy 100,000 Unted
States ctzens workng abroad for such subsdares.
Amercan empoyers frequenty fnd t necessary to carry on ther operatons
In other countres through subsdares estabshed under the aws of a foregn
country. The Unted Sutes ctzens workng for such subsdares are key to
have the same cose economc and persona tes wth the Unted States, and the
same e pectaton of returnng to the Unted States, as do Unted States ctzens
workng abroad for Amercan empoyers.
The coverage of these ctzens w prevent the gaps In coverage under od-age
and survvors nsurance whch woud otherwse occur when ctzens who ordn-
ary work n covered empoyment wthn the Unted States work abroad for a
perod for a subsdary of an Amercan company. Addtona dsadvantages aso
arse because workers may refuse to accept empoyment, reazng that ther od-
age and survvors nsurance protecton w suffer t they do so. Ths new cov-
erage woud emnate these dffcutes.
Because the Unted States cannot evy the empoyer ta of the od-age and
survvors Insurance program upon foregn subsdares of Amercan empoyers,
the Unted States ctzens empoyed by these subsdares must be covered tnder
speca provsons whch w avod the evy of a ta on these foregn subsd-
ares. Accordngy, the b provdes for the coverage of Unted States ctzens
workng abroad for a foregn subsdary of an Amercan empoyer f the Amer-
can empoyer Invoved makes on agreement wth the Secretary of the Treasury
to pay the soca-securty ta es for the Unted States ctzens empoyed abroad by
the foregn subsdary.
In order to avod adverse seecton, the b provdes that a of the Amercan
ctzens empoyed by a gven subsdary woud have to be covered If any were
covered.
The commttee b Is the same as .he House b wth respect to Unted States
ctzens empoyed by foregn subsdares of Amercan empoyers e cept for
mnor technca amendments.
0. Iomctcorkcrs. The Commttee-approved b, ke the House-approved bn,
woud e tend empoyee coverage to about 100,000 addtona homeworkers. Home-
workers who have the status of empoyees under the usua common-aw rues
appcabe In determnng empoyer-empoyee reatonshp have been covered
snce 1037. In addton, under the 1050 amendments, homeworkers who do not
have empoyee status under the usua common-aw rues are covered as empoyees
If they work accordng to specfcatons of the person for whom the work s done
on materas or goods furnshed by that person and requred to be returned to
hm or hs desgnee, It they are pad cash wages of 50 or more durng a caendar
quarter by a gven empoyer, and f they are sub|ect to State censng aws.
The b woud cover as empoyees those homeworkers who meet a the condtons
specfed n the 1050 amendments e cept the condton that the servces be
sub|ect to censng requrements under State aw. By emnatng the censng
requrement, the b provdes empoyee coverage to a homeworkers who perform
servce under substantay the same condtons Irrespectve of the State h whch
the ndvdua s ocated.
7. mpoyees engaged n fshng and reated actvtes. Under present aw,
empoyees engaged In the catchng of fsh, shefsh, and other aquatc speces
(e cept samon and habut), ether on the shore or as offcers or crew members
of vesses of 10 net tons or ess, are e cuded from od nge and survvors nsur-
ance coverage. Under ths provson the protecton of the program a dened
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702
to many of the ower pad workers In the fshng Industry. Ths gap In protec-
ton has been partcuary evdent snce sef-empoyed owners of fshng vesses
were covered In 1951. The b woud correct ths stuaton by coverng those
empoyee fshermen, cam dggers, etc., who are now e cuded. About 50,000
addtona peope woud be covered n the course of a year under ths provson.
. Unted Sates ctzens empoyed by Amercan empoyers on vesses and
arcraft of foregn regstry. Snce 1050 most Unted States ctzens workng
outsde the Unted States for Amercan empoyers have been covered under od-
age and survvors Insurance. The amendments of 1050 faed, however, to make
ths coverage e tenson appcabe to Amercnn ctzens empoyed by Amercan
empoyers on vesses and arcraft of foregn regstry. The b woud correct ths
stuaton by coverng ths sma group of Amercan ctzens on the same bass as
other Amercan ctzens workng outsde the Unted States for Amercan
empoyers.
9. Cvan empoyees of edera Government. The House b woud have
e tended coverage to certan edera empoyees Incudng temporary empoyees
In the fed servce of the Post Offce Department, empoyees of dstrct edera
home-oan banks, Tennessee aey Authorty, and others. These provsons were
deeted by your commttee because It was thought unwse to e tend coverago to
addtona edera empoyees and n some Instances afford edera empoyees
overappng beneft rghts under od age and survvors Insurance as we as
under another edera retrement system. Moreover, under present aw servces
of edera empoyees that have been covered by od-age and survvors Insurance
are aso credtnhe In certan crcumstances under the cv-servce retrement
system. Tour commttee beeves the practce of aowng dua benefts on the
bass of the same servce shoud be dscontnued. The b, therefore, woud
prohbt the use of edera servce that has been credted under od-age and
survvors nsurance for beneft purposes under any other edera retrement
system.
.
. arnngs Base
Under the provsons of the b the ma mum amount of covered earnngs
consdered, for both ta and beneft purposes, woud be rased from 3,600 to
,200 a year, effectve anuary 1,1055.
The ma|or reason for ths proposa s to mantan the prncpe of od-age
and survvors Insurance that benefts shoud vary sgnfcanty wth the Ind-
vdua s prevous earnngs. Snce the benefts pad upon retrement or death are
fgured on the bass of the ndvdua s past earnngs, t foows that the basc
factor n the determnaton of beneft amounts f the eve of prevous earnngs
whch can be counted. Over three-ffths of the mae workers reguary covered
by the program now earn more than 3,600, the ma mum amount counted for
beneft purposes. About haf of retred men who have had ther benefts based
on ther earnngs after 1950 are gettng benefts at or wthn 10 of the 5 ma -
mum beneft payabe under present aw. The reason why ther benefts do not
vary more s not that ther earnngs have been the same but that the ma mum
Is too ow to refect the dfferences n ther earnngs. Your commttee beeves
that f the prncpe that benefts shoud vary wth earnngs s to be mantaned,
addtona earnngs above the 3,600 mt must be counted toward benefts.
It foows that those who earn above that amount shoud receve hgher benefts
than those whose earnngs are ess.
arnngs somewhat above 3,600 do not, under present condtons, mark a
man as hgh pad but are typca earnngs In ma|or sectons of commerce and
Industry. Average annua fu-tme earnngs n manufacturng ndustres n
1053 were about ,000. The average for mnng was about , 00 and for
transportaton, amost , 00. Sked workers In any ndustry earn more than
the average for the Industry.
or workers who have earned ma mum wages under the program, the bene-
ft Increases n the amendments of 1050 and 1052 dd not qute compensate for
the ncreases n prces whch has taken pace snce the beneft eves were set n
1939. No recognton has been gven to the substanta Increase n the eve
of vng as measured by the e tent to whch Increases n wages have e ceeded
Increases n prces. Under the formua provded n the 1039 aw, a worker who
earned ma mum wages under the program and who retred now woud be
gettng a beneft of 7.20. The Increase In prces snce 1939 has been such that
ths beneft of 7.20 woud now need to be over 90 (rather than the 5 pro-1
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703
Tded by present aw) In order for ths retred worker to hay the same ere
of vng that was contempated by the 1030 act. If benefts were to be In-
creased In proporton to the Increase whch has occurred In wages, ths beneft
of 7.20 woud now need to be somewhat over 110 a month. The b wond
ase the beneft for the worker earnng the mnmum credtabe wages to 10 .50.
An Increase In beneft amounts to compensate for the genera ncrease a the
eve of earnngs cond be made by a revson of the beneft formua, wthest
any ncrease In the wage base, bat sach a step woud have a ma|or dsadvantage.
The percentage of workers recevng benefts at or near the ma mum wond
reman at east as hgh as at present, thus weakenng the basc prncpe teat
benefts shoud vary wth past earnngs.
A
S CTION-BY-S CTION ANALYSIS
The frst secton of the b contans a short tte. Soca Securty Amendments
of 11)5 . The remander of the b s dvded nto four ttes: tte I. whr
.amends tte II of the Soca Securty Act tte 11, whch amends the Interna
Revenue Code tte III, whch makes certan amendments reatng to puhc
assstance and tte I , whch makes severa conformng amendments In te
Raroad Retrement Act and other aws.

Tte II Amendments to Interna Revenue Code or 103 a|vd Ihtebna
Revenue Code of 1030
G N RAL STAT M NT
Tte II of the Ionsc b contans amendments to the Interna Revenue Code
of 1030. Under your commttee s b, tte II, wth one e cepton, conssts of
amendments to the Interna Revenue Code of 103 (H. . 300, S3d Cong.. 2d
eess.). A consderabe number of the changes made by your commttee n tb
House b consst merey of redesgnatng references to sectons of the Interna
Revenue Code of 1930 to the correspondng sectons of the Interna Revenue Cede
of 105 , am conformng the provsons of the b to the stye of the 11)5 Code.
A references In ths porton of your commttee s report to the Interna Revenue
Code or the code are to the Interna Revenue Code of 105 .
AM NDM NTS TO D INITIONS TO B LT- MPLOYM NT INCOM AND R r AT D
D INITIONS
Secton 201 of the b, as does secton 201 of the House b, contans amend-
ments to the provsons reatng to the ta on sef-empoyment ncome. The
House b woud e tend the appcaton of the sef-empoyment ta , on a ccon-
pusory bass, to sef-empoyed furmers, to sef-empoyed mnsters of a chores
and members of a regous order, and to sef-empoyed awyers, dentsts, osteo-
paths, veternarans, chropractors, naturopaths, optometrsts. Chrstan Scence
practoners, archtects, certfed pubc accountants, accountants regstered A
censed as accountants under State or muncpa aw, fu-tme practcng pubc
accountants, funera drectors, and professona engneers. Servces performed
by these ndvduas u such capacty are e cuded from the sef-empoyment
tn under e stng aw. Your commttee has deeted these provsons of the
House b and certan addtona provsons deang e cusvey wth such e ten-
son of coverage. Your commttee s b, does, however, contan amendments
to the code to e tend coverage, on a vountary bass, to servce performed by t
duy ordaned, commssoned, or censed mnster of a church n the e ercse
of hs mnstry or by a member of a regous order In the e ercse of dutes
requred by such order (other than a member of a regous order who has taken
a vow of poverty ns a member of such order). Ths e tenson of coverage on
vountary bass s appcabe to mnsters and members of regous orders
whether they perform servce of the type to whch these provsons are appcabe
as empoyees or asAsef-cnpoyed Indvduas,
Subsecton (a) of ths secton, whch corresponds to secton 201(b)(1) of
the House b, amends secton 1 02(b) of the code by Increasng the mtaton
on sef-empoyment Income sub|ect to the sef-empoyment ta for ta abe years
endng after 105 from 3,600 to ,200.
Subsecton (b) of ths secton, whch corresponds to secton 201(b) (2) of
the House b, amends secton 1 02(b) of the code to Incude as wages, for
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70
purposes of computng sef-empoyment Incomes, remuneraton of Unted States
ctzens empoyed by a foregn subsdary of a domestc corporaton whch has
entered Into an agreement pursuant to secton 3121(1) of the code, added by
secton 20 of the b, for the purpose of havng the nsurance system estabshed
by tte II of the Soca Securty Act e tended to servce performed by such
ctzens.
Subsecton (c)(1) of ths secton amends secton 1 02(c)(2) of the code by
removng from the defnton of trade or busness the e cuson, presenty
contaned In such secton, cf the performance of servce by a duy ordaned, com-
mssoned, or censed mnster of a church n the e ercse of hs mnstry or by
a member of a regous order n the e ercse of dutes requred by such order,
when the performance of such servce Is rendered by an ndvdua as an em-
poyee. The effect of ths provson s to make paragraph ( ) of secton 1 02(c)
appcabe to a servce performed by a mnster or by a member of a regous
order, In hs capacty as such, rrespectve of whether the Indvdua In the
performance of such servce s an empoyee or a sef-empoyed Indvdua.
(Sec. 1 02(c)( ) of e stng aw e cudes from the term trade or busness
the performance of servces by a duy ordaned, commssoned, or censed mn-
ster of a church In the e ercse of bs mnstry or by a member of a regous
order In the e ercse of dutes requred by such order.)
Subsecton (c) (2) of ths secton amends secton 1 02(c) of the code so as to
make the provsons of paragraph ( ) of such secton Inappcabe to servce
(other than servce performed by a member of a regous order who has taken
a vow of poverty as a member of such order) performed by a mnster or a
member of a regous order durng the perod for whch a certfcate fed by such
Indvdua under secton 1 02(e), as added by the b, s n effect.
Subsecton (c) (3) of ths secton woud add a new subsecton (e) (not con-
taned n the House b) to secton 1 02 of the code, whch Is made necessary
by reason of your commttee s acton e tendng coverage to mnsters and mem-
bers of a regous order on a vountary bass. Ths subsecton provdes that
any ndvdua who s a duy ordaned, commssoned, or censed mnster of a
church or a member of a regous order (other than a member of a regous
order who has taken a vow of poverty as a member of such order) may fe a
certfcate certfyng that he eects to have the nsurance system estabshed by
tte II of the Soca Securty Act e tended to servce performed by hm n the
e ercse of hs mnstry or as a member of a regous order. Such an eecton
may be made ony by fng a certfcate n such form and manner, and wth such
offca, as may be prescrbed by reguatons of the Secretary of the Treasury or
hs deegate.
The certfcate must be fed on or before the due date of the retnrn (deter-
mned wth regard to any e tenson of tme granted for fng such return) for
the ndvdua s second ta abe year (whether or not consecutve) endng after
105 for whch he has net earnngs from sef-empoyment (computed wthout
regard to paragraph ( ) of secton 1 02(c), reatng to the defnton of trade
or busness for purposes of the sef-empoyment ta ) of 00 or more, some part
of whch was derved from the performance by the Indvdua of servce In the
e ercse of hs mnstry or as a member of a regous order. Thus, a mnster
v o performs servce In the e ercse of hs mnstry durng 1035 and 1950 and
who woud have net earnngs from sef-empoyment for each of such years of
00 or more f the performance of such servce were not e cuded from the
defnton of trade or busness woud not be permtted to fe a certfcate after
the due date for fng hs ncome-ta return for the ta abe year 1950. In
determnng the perod durng whch a certfcate may be fed, there sha not
be Incuded any ta abe year for whch a mnster or a member of a regous
order (1) has no Income from the performance of servce n the e ercse of hs
mnstry or as a member of a regous order, or (2) hns Income from the
performance of such servce whch woud, not consttute net earnngs from
sef-empoyment If such servce were ncuded wthn the term trade or
busness.
A certfcate fed by a mnster or a member of a regous order sha be
effectve for the frst ta abe year wth respect to whch It s fed and for a
succeedng ta abe years. A certfcate may be made effectve wth respect to a
partcuar ta abe year ony If t s fed on or before the due date for fng the
Income ta return for such ta abe year. Thus, f an ndvdua fes hs Income
ta return on a caendar-year bass and the due date for hs return for the
caendar year 1955 s Apr 15,1956. a certfcate to be effectve for the caendar
rear 1053 must be fed on or before Apr 15, 1950. If such Indvdua fes a
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705
certfcate after Apr IS, 1966, and before the One date of hs Income ta retan
for the caendar year 1056, the frst ta abe year for whch the certfcate may be
effectve Is the caendar year 1056. An eecton to h.ve the nsurance system
estabshed by tte II of th#, Soca Securty Act e tended to servce of the type
here Invoved whch s e ercsed by the fng of a certfcate may not thereafter
be revoked.
Secton 201(d) provdes that the amendments mndc by secton 201 are app-
cabe ony wth respect to ta ube years endng after 190 .
BM C D Or C BTAIf TA S D DUCT D MOM WAO S
Secton 202 of the b correspond to secton 202 of the House b.
Secton 202(a)(1) of the b amends secton 0 13(c)(1) of the Interna
Revenue Code, reatng to speca refunds of empoyee ta pad on aggregate
wages In e cess of 3,000 receved by an empoyee from more than 1 empoyer
durng a caendar year, so as to conform the speca-refund provsons to the
Increase mnde by the b In tho mtaton on wnges from 3,000 to ,200.
Secton 1 01(d)(3) of tho Interna Revenue Code of 1U3U presenty provdes
that no speca refund sha bo mndc uness (A) the empoyee makes a cao.
estabshng bs rght thereto, after the caendar year n whch be receved the
wages wth respect to whch refund of ta Is camed and (B) such cam Is
made wthn 2 years after the caendar year In whch such wages were receved.
Secton 202(a) (2) amends such secton 1 01(d) (3) so as to provde an e cepton
to ths provson In the case of an empoyee of a State or any potca subdvson
thereof whose servces are covered, for purposes of tte II of the Soca Securty
Act, by reason of an agreement (or modfcaton) pursuant to secton 21 of the
Soca Securty Act whch s effectve as of a date more than 2 years pror to
the date such agreement (or modfcaton) wus agreed to. It woud aow a
speca refund to be mnde In the case of such empoyees, If cam for such refund
Is made wthn 2 years after the caendar year In whch such agreement (or
modfcaton) was agreed to by the State and the Secretary of Heath, duca-
ton and Wefare. The amendment Is mnde to the Interna Revenue Code of
1039, rather than to the Interna Revenue Code of :. , snce the statutory perod
wth respect to the aowance of credt or refund of such amounts Is prescrbed
by the 11)39 code.
Secton 202(b)(1), whch corresponds to secton 202(b)(1) of the House
b, merey makes a change In the headng of secton 0113 of the code.
Pnrngraph (2) of secton 202(b) of the b amends secton 6 13(c)(2)(A)
of the code, reatng to specn rues appcabe to speca refunds In the case
of edera empoyees, so as to conform the provsons thereof to the Increase
made by the b In the mtaton on wages from 3,000 to ,200.
Paragraph (3) of secton 202(b) of the b, whch corresponds to secton
202(b) (3) of the House b, amends secton 6 13(c) (2) of the code by addng
at the end thereof a new subparagraph (C), reatng to speca refunds In the
case of ctzens of the Unted States performng servces outsde the Unted
, States for a foregn subsdary corporaton of a domestc corporaton whch has
entered Into an agreement under secton 3121(1) of the code (added by sec.
20S of the b) for the purpose of obtanng coverage under tte II of the Soca
Securty Act for such empoyees. ( or a dscusson of the crcumstances and
condtons under whch a domestc corporaton may enter Into such an agree-
ment, see In ths report the e panaton of sec. 20S of the b.) Such new sub-
paragraph (C) woud make the speca-refund provsons n secton 0 13(c) of
the code appcabe to amounts deducted n any caendar year after the caen-
dar year 19. from the remuneraton of empoyees whose servces are covered
under tte II of the Soca Securty Act by reason of such an agreement. or
purposes of speca refunds n the case of amounts pad pursuant to any such
agreement the term empoyer Incudes a domestc corporaton the term
wages Incudes remuneraton for servces covered by such an agreement
and the term ta or ta Imposed by secton 3101 Incudes an amount
equvaent to the empoyee ta whch woud be Imposed If the servces covered
by the agreement consttuted empoyment as defned In secton 3121 of the code.
Subsecton (e) of secton 202 of the b, whch corresponds to secton 202(c)
of the House b, amends secton 3122 of the code so as to conform such secton
to the Increase made by the b In the mtaton on wages from 3,000 to
.200.
Subsecton (d) of secton 202 provdes tbat the amendments made by sub-
sectons (a)(1), (b), and (c), reatng to the ncrease n the mtaton on
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706
wagea from 3,600 to ,200, sha be appcabe ony wth respect to remunera-
ton pad after 105 , and that the amendment to the 1030 Code made by ub
secton (a) (2) sha be effectve as If t had been enacted as a part of secton
1 01(d) (3) of the Interna Revenue Code of 1030 as added by secton 203(c)
of the Soca Securty Act Amendments of 1000.
COLL CTION AND PATM NT O TA S WITH R SP CT TO COAST OCABO CHANG S
Secton 203(a) of the House b woud amend secton 1 20(e) of the Interna
Revenue Code of 1030, whch reates to the coecton and payment of the em-
poyee and empoyer ta es Imposed wth respect to certan servces performed n
the empoy of the Unted States or n the empoy of any nstrumentaty whch s
whoy owned by the Unted States. Ths provson of the Bouse b was
made necessary by secton 205(d) of the House b whch woud amend the
defnton of empoyment contaned In secton 1 20(b) of the Interna Revenue
Code of 1030 so as to remove the e cuson from empoyment of servces per-
formed by certan cvan empoyees In Coast Guard e changes and other
Coast Guard actvtes. Snce your commttee s b does not e tend coverage
to servces performed by these cvan empoyees n Coast Guard e changes
and other Coast Guard actvtes, secton 203(a) of the House b s unnecessary
and has been deeted.
AM NDM NTS TO D INITION O WAG S
Secton 203, whch corresponds to secton 20 of the House b, amends sec-
ton 3121(a) of the Interna Revenue Code whch defnes the term wages for
purposes of the edera Insurance Contrbutons Act.
Subsecton (a) of ths secton of the b amends secton 3121(a)(1) of the
code, reatng to the 3,600 mtaton on remuneraton whch consttutes wages.
Secton 3121(a) (1) provdes that the term wages does not ncude that pnrt
of the remuneraton pad wthn any caendar year by an empoyer to an empoyee
whch e ceeds the frst 3,000 of such remuneraton (e cusve of remuneraton
e cepted from wages by the succeedng paragraphs of sec. 3121(a)) pad wthn
such caendar year by such empoyer to such empoyee for empoyment The
amendment woud ncrease the amount of the mtaton from 3,000 to ,200
but otherwse woud make no change In the provsons of secton 3121(a)(1).
Subsecton (b)(1) of ths secton of the b, whch corresponds to secton
20 (b)(1) of the House b, amends subparagraph (B) of secton 3121(a)(7)
of the code, whch reates to cash remuneraton for domestc servce. Secton
3121(a)(7)(B) now provdes for the e cuson from wages of cash remunera-
ton pad n a caendar quarter for domestc servce n a prvate home of the
empoyer uness such remuneraton pad In such caendar quarter for such
servce Is 30 or more and the empoyee Is reguary empoyed by the empoyer
n the caendar quarter In whch the payment Is made. The empoyee Is regu-
ary empoyed by an empoyer durng a caendar quarter f be performed do-
mestc servce In a prvate home of the empoyer on at east 2 days In that
caendar quarter or durng the precedng caendar quarter. The amendment
woud emnate the 2 -day test, thus makng coverage of domestc servce de-
pendent soey on recept of 50 n cash wages n a caendar quarter by an
empoyee from an empoyer for such servce.
As under e stng aw, domestc servce does not Incude servce descrbed n
secton 3121(g) (5) of the code (servce performed on a farm operated for proft).
Paragraph (2) of subsecton (b) of ths secton, whch corresponds to secton
20 (b) (2) of the House b, amends secton 3121(a) (7) of the code by addng a
new subparagraph (C). Ths new subparagraph reates to cash remuneraton
receved for servce not n the course of the empoyer s trade or busness and
shoud be consdered together wth the repea of secton 3121(b) (3) of the code,
whch woud be accompshed by secton 20 (b) of the b. Secton 3121(b) (3)
of the code now e cepts from empoyment servce not n the course of the em-
poyer s trade or busness performed by on empoyee In a caendar quarter uness
the cash remuneraton pad by the empoyer to the empoyee for such servce s
50 or more and the empoyee Is reguary empoyed by the empoyer durng the
caendar quarter to perform such servce. The effect of the new subparagraph
(C) of secton 3121(a) (7), together wth the repea of paragraph (3) of secton
3121(b), Is to emnate the 2 -day test and to make coverage of servce not In the
course of the empoyer s trade or busness depend soey on recept of cash
remuneraton of 50 or more n the caendar quarter.
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707
The test reatng to cash remuneraton of SCO or more aso Is changed sghty.
Under e stng aw, the 50 must be pad for servce performed Id a caendar
quarter durng whch the empoyee Is reguary empoyed by the empoyer to per-
form such servce, and the tme of payment Is unmportant. Under the new
secton 121 (a) (7) (C), the test a payment of 50 In a caendar quarter Cor tbt
servce, and the tme of performance of the servce Is unmportant.
The new subparagraph (C) of secton 3121(a)(7) Incorporates the provses
of secton 3121(b) ( ) of the code that servce not In the course of the empoyer s
trade or busness does not Incude domestc servce In a prvate home of the
empoyer and does not Incude servce descrbed n secton 3121(g) (5) (servce
performed on a farm operated for proft).
Paragraph (3) of subsecton (b) of ths secton of the b amends sectoa
3121(a)( ) of the Interna Revenue Code by Insertng a new subparagraph
(D) and by desgnatng the e stng provsons of secton 3121(a) ( ) as sub-
paragraph (A). The new subparagraph (B) woud e cude from wages easS
remuneraton pad by an empoyer to an empoyee In any caendar quarter for
agrcutura abor uness such remuneraton Is 50 or more. Ths provson of
your commttee s b dffers from the correspondng provson of the Hocse
b whch woud e cude from wages cash remuneraton pad by an empoyer
to an empoyee In any caendar year for agrcutura abor uness such remuner-
aton Is 200 or more. Ths amendment shoud be consdered In connecton wt
the amendment to paragraph (1) of secton 3121(b) of the code whch woad
be effected by secton 20 (a) of the b.
Under the e stng provsons of secton 3121(b)(1) of the Interna Revenue
Code, agrcutura abor performed by an empoyee for an empoyer In a ca-
endar quarter Is e cepted from empoyment uness the cash remuneraton pad
by the empoyer to the empoyee for such abor Is 50 or more and the empoyee
Is reguary empoyed In that quarter by such empoyer to perform such agr-
cutura abor. or purposes of secton 3121(a)(1), an Indvdua Is deemed
to be reguary empoyed by an empoyer durng a caendar quarter
ony f (1) such Indvdua performs agrcutura abor for such
empoyer on a fu-tme bass on 60 days durng the qnarter, and (U)
the quarter was Immedatey preceded by a quafyng quarter. A quafyng
quarter s defned as (I) any quarter durng a of whch the Indvdua was
contnuousy empoyed by the empoyer, or (II) any subsequent quarter meet-
ng the test of cause (1) above If, after the ast quarter durng a of whch
the Indvdua was contnuousy empoyed by the empoyer, each Intervenng
quarter met the test of cause (1). An Indvdua Is aso deemed to be reguary
empoyed by an empoyer durng a caendar quarter If he was reguary em-
poyed (upon appcaton of causes (I) and (II)) by the empoyer durng the
precedng caendar quarter. (H. Rept. No. 2771, 1st Cong., 2d sess.
(conference report on H. R. 0000), p. 95.)
The prncpa effects of the amendments made by paragraph (3) of secton
203(b) and by secton 20 (a) of the b are to emnate the present reguary
empoyed concept as a requrement for coverage of agrcutura abor under the
edera Insurance Contrbutons Act and to make coverage depend soey on
the payment of cash remuneraton of 50 or more n a caendar quarter by the
same empoyer to the empoyee for such abor.
Secton 3121(b)(1) of the code e cepts from empoyment servce performed
In connecton wth the gnnng of cotton and servce performed In connecton
wth the producton, harvestng, or processng of crude gum (oeoresn) from
a vng tree or the processng of such crude gum nto gum sprts of turpentne
and gum resn, If such processng s carred on by the orgna producer of the
crude gum (the atter e cepton Is e pressed In the code n terms of servce
performed n connecton wth the producton or harvestng of any commodty
defned as an agrcutura commodty n secton 15(g) of the Agrcutura Mar-
ketng Act). The amendment to secton 3121(b) (1) of the code made by sectoa
20 (a) of the b woud remove the specfc e cepton from empoyment of
servces performed In connecton wth the gnnng of cotton and woud have the
effect of coverng such servces under the edera Insurance Contrbutons Act
on the same bass as other agrcutura abor.
AM NDM NTS TO D INITION O MPLOYM NT
Secton 20 amends subsecton (b) of secton 3121 of the Interna Revenne
Code, whch defnes empoyment for purposes of the edera Insurance Con-
trbutons Act, Ths secton dffers In certan matera respects from secton 20
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70
of the House b, whch aso contans amendments to the defnton of the term
empoyment -... .
Subsecton (a) of ths secton of the b amends paragraph (1) of secton
121(b) of the code by emnatng from the defnton of empoyment the e st-
ng e cepton of agrcutura abor, e cept In the case of servce performed (1)
n connecton wth tbe producton or harvestng of any commodty defned as an
agrcutura commodty n secton 15(g) of the Agrcutura Marketng Act, as
amended, and (2) by foregn agrcutura workers under contracts entered nto
In accordance wth tte of the Agrcutura Act of 19 9, as amended. Tte Y
of such act now provdes that no workers may be avaabe under such tte for
empoyment after December 31, 1955. The e cepton under secton 3121(b)(1)
of the code of servce performed by foregn agrcutura workers w, of course,
be noperatve when tte of tbe Agrcutura Act ceases to be effectve. The
correspondng provsons n the House b e cuded ony servces performed by
foregn agrcutura workers.
Subsecton (b) of ths secton, whch corresponds to secton 205(b) of tbe
House b, repeas paragraph (3) of secton 3121(b) of tbe code (whch e cepts
from empoyment servce not n tbe course of the empoyer s trade or busness),
and redesgnates certan of the succeedng paragraphs of secton 3121(b).
Paragraph (5) of secton 3121(b) of the code e cepts from empoyment any
servce performed by an ndvdua on or In connecton wth a vesse not an
Amercan vesse, or on or n connecton wth an arcraft not an Amercan arcraft,
f tbe ndvdua Is empoyed on and n connecton wth such vesse or arcraft
when outsde the Unted States. Subsecton (c) of secton 20 of tbe b, whch
corresponds to secton 205(c) of the House b, amends secton 3121(b)(5) of
the code (redesgnated by the b as secton 3121(b)( )) so as to make the
e cepton appcabe ony If the ndvdua s not a ctzen of the Unted States
or the empoyer Is not an Amercan empoyer. Consequenty, If the Indvdua
s a ctzen of the Unted States and the empoyer s an Amercan empoyer,
servces of the ndvdua on foregn-fag vesses or foregn-fag arcraft w not
be e cepted from empoyment whether performed here or abroud. Ths change
has the effect of treatng servces performed by these ndvduas the same as
other servces performed by ctzens of the Unted States as empoyees of Amer-
can empoyers, whch now consttute empoyment whether performed here or
abroad.
Secton 205(d) of the House b contans amendments to secton 1 26(b) (7)
of the Interna Revenue Code of 1939. (The provsons of sec. 3121(b) (7) of
the Interna Revenue Code of 195 correspond to the provsons of sec. 1 26(b) (7)
of the 1939 code.) The term empoyment, as It woud be amended by these
provsons of the House b, woud Incude servces performed by most edera
empoyees not covered by retrement systems, Incudng temporary empoyees n
the fed servce of the Post Offce Department, census-takng empoyees of the
Bureau of the Census, cvan empoyees of Coast Guard post e changes, and
certan other groups, and aso empoyees of edera home-oan banks and the
Tennessee aey Authorty, who hare retrement systems. The House b. In
secton 205(e), contans amendments to secton 1 26(b)(9) of the Interna
Revenue Code of 1939, the prncpa effect of whch woud be to e tend coverage,
on a vountary bass, to servce performed by mnsters and members of regous
orders empoyed by certan nonproft organzatons f the organzaton eects
to cover such ndvduas and If at east two-thrds of such ndvduas eected to
be covered. Secton 207 of the House b woud amend secton 1 20(1) of tbe
Interna Revenue Code of 1939 so as to prescrbe tbe manner n whch such an
eecton coud be made. Tour commttee s b contans no provsons corre-
spondng to those contaned n subsectons (d) and (c) of secton 205 of the
House b and contans no provson for an eecton by n nonproft organzaton
for coverage of servces performed by mnsters nnd members of a regous order.
( or a dscusson of the provsons of the b e tendng coverage, on a vountary
bass, to mnsters and members of regous orders, see n ths report the e pa-
naton of sec. 201 of the b.)
Secton 3121(b) (15) of tbe Interna Revenue Code e cepts from empoyment
servce performed by empoyees n fshng and smar actvtes uness performed
n connecton wth commerca samon or habut fshng or on a vesse of more
than 10 net tons. Subsecton (d) of ths secton of the b, whch corresponds
to secton 205(f) of the House b, emnates ths e cepton and renumbers tbe
succeedng paragraphs of secton 3121(b).
Subsecton (e) of ths secton provdes that the amendments made by sub
sectons (a) and (b) (reatng to agrcutura abor and servce not In tbe
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tonne of the empoyer s trade or busness) sha be appcabe ony wth respect
to servces (whenever performed) for whch the remuneraton Is pad after
105 , and that the amendments made by subsectons (c) and (d) (reatng to
servce on foregn-Das vesses ond arcraft and fshng and reated servce) staU
be appcabe ony wth respect to servces performed after 195 .
AM NDM NT B LATINO TO COLL CTION Or MPLOY TA
Secton 205 of the b, for whch there Is no correspondng provson In tht
House b, amends secton 3102(a) of the code so as to provde that an empoyer
who In any caendar quarter pays to an empoyee cash remuneraton to whc
paragraph (7) (B) or (C), ( ) (B), or (10) of secton 3121(a) of the code Is
appcabe may deduct an amount equvaent to the empoyee t Imposed t|
secton 3101 from any such payment of remuneraton, even though at the tme
of payment the tota amount of such remuneraton pad to the empoyee t
the empoyer In the caendar quarter s ess than 50. Secton 31r_ (a) noA
provdes thut the empoyee ta mposed by secton 3101 sha be coected by the
empoyer by deductng the amount of such ta from the wages as and wfaea
pad.
Paragraphs (7) (B) and (C). ( )(B),and (10) of secton 3121 (a), as amended
by the b, e cept from the term wages remuneraton pad n a caendar quarter
to an empoyee by an empoyer for domestc servce In a prvate home of tfc
empoyer, servce not In the course of the empoyer s trade or busness, agr-
cutura abor, and Industra homework, respectvey, f the cash remuneratka
pad n the quarter for such servce Is ess than 50.
The amendment makes cear that an empoyer payng cash remuneraton far
any such.servce or abor may, at that tme, deduct from such remunerates
an amount equvaent to the empoyee ta Imposed by secton 3101 even thor
the empoyer caunot thnn ascertan whether the S. O test w be met. Thus, aa
empoyer payng 10 to an empoyee n a caendar quarter of 1055 for agrcu-
tura abor may deduct 20 cents from such payment even though the empoyer
has made no pro. payment of cash remuneraton to the empoyee n that quar-
ter for such abor. Of course, ths provson of the b sha not be construed
as authorzng the empoyer to retan the amount so wthhed f It Is subse-
quenty ascertaned that the remuneraton pad to the empoyee does not const-
tute wages.
AM NDM NT TO D INITION O MPLOT
Secton 200, whch corresponds to secton 206 of the House b, amends subsec-
ton (d) of secton 3121 of the Interna Uevenue Code, whch defnes the term
empoyee for purposes of the edera Insurance Contrbutons Act,
Secton 3121(d)(3)(C) of the code Incudes as an empoyee any ndvdua
who performs servces for remuneraton for any person as a homeworker per-
formng work, accordng to specfcatons furnshed by the person for whom tbe
servces are performed, on materas or goods furnshed by such person and
requred to be returned to such person or s person desgnated by hm. If the per-
formance of such servce Is sub|ect to censng requrements under the aws o(
the State n whch such servces are performed. Subsecton (a) of secton 206
of the b amends such secton 3121(d) (3) (C) so as to emnate tbe requrement
that the performance of the servces be sub|ect to State censng requrements,
effectve wth respect to servces performed after 195 .
Ts amendment woud not ncude, however, as empoyees, homeworkers who
are not sub|ect to supervson or contro by any person wth respect to ther
homework actvtes, and who buy raw matera and make any artce nnd se
such artce to any person even though t s made accordng to specfcatons
provded by some snge purchaser.
WAI S Or TA MPTION BY NONPRO IT ORGANIZATIONS WITH B SP CT TO
MIN1ST BS IN TH IR MPLOY
Under e stng aw servces performed by a duy ordaned, commssoned,A
censed mnster of a church In the e ercse of bs mnstry or by a member of
regous order In the e ercse of dutes requred by such order are e cepted fros
empoyment. Secton 205(e) of the House b woud e tend coverage, on
vountary bass, to mnsters nnd members of regous orders empoyed by certan
nonproft organzatons If the organzaton eects to cover such Indvduas sad
f at east two-thrds of such ndvduas eect to e covered. Secton 207 of tbe
House b woud amend secton 1 20(1) of the Interna Revenue Code of 1 33
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710
eo as to prescrbe the manner In whch such an eecton coud be made. Tour
commttee s b retans the e cepton from empoyment contaned In present aw
wth respect to servces performed by a mnster or member of a regous order.
Accordngy, secton 207 of the House b has been omtted In your commttee s
b. ( or provsons of your commttee s b reatng to servces performed by
mnsters and members of regous orders, see sec. 201 of the b and the porton
of ths report dscussng that secton.)
CHANG S IN TA SCH DUL S
Secton 207(a) of the b, whch corresponds to secton 20 (a) of the Bouse
b, amends secton 1 01 of the Interna Revenue Code reatng to the rate of
ta upon sef-empoyment Income. Under e stng aw the rate of ta upon sef-
empoyment Income In the case of any ta abe year begnnng after December 31,
1909, s , h percent. Under the b the rates of ta for ta abe years begnnng
, after December 31,10C0, are as foows:
or ta abe yenrs Percent
Begnnng after Dec. 31,1069. and before an. 1,1975 B
Begnnng after Dec. 31, 137 6
Subsectons (b) and (c) of secton 207, whch correspond to subsectons (b)
and (c) of secton 20 of the House b, amend secton 3101 and 3111, respectvey,
of the Interna Revenue Code, reatng to the rates of the ta es under the edera
Insurance Contrbutons Act. Under e stng aw the rate of the empoyee ta
and of the empoyer ta for the caendar year 1070 and subsequent caendar
years Is Z percent. Under the b the rates of each such ta for the caendar
year 1970 and subsequent caendar years are as foows: .
Percent
or the caendar years 1970 to 197 , Incusve :_ 3 6
or the caendar year 1075 and subsequent caendar years
OR IGN SUBSIDIARI S O DOM STIC COHPO ATIO
Secton 20 of your commttee s b amends secton 3121 of the Interna
Revenue Code by addng at the end thereof a new subsecton (1) for the purpose
of e tendng od-age and survvors nsurance coverage to ctzens of the Unted
States performng servce outsde the Unted States n the empoy of any
one or more foregn subsdares of a domestc corporaton. Ths secton of
the b corresponds to secton 209 of the House b e cept that technca and
carfyng amendments have been made by your commttee.
Such subsecton (1) provdes that the Secretary or hs deegate sha enter
Into an agreement, at the request of any domestc corporaton, for the purpose
of e tendng od-age and survvors Insurance coverage to Unted States
ctzens performng servce outsde the Unted States n the empoy of any one
or more foregn subsdares of such domestc corporaton. A foregn sub-
sdary s defned (In par. ( ) of sec. 3121(1)) as (1) a foregn corporaton
more than 50 percent of the votng stock of whch Is owned by the domestc
corporaton desrng to enter Into the agreement, or (2) a foregn corporaton
more than 50 percent of the votng stock of whch Is owned by a foregn corpora-
ton descrbed n cause (1). Such an agreement sha not be appcabe to any
servce performed by, or remuneraton pad to, an empoyee, f such servce or
remuneraton woud be e cuded from the term empoyment or the term
wages, respectvey, were the servce performed In the Unted States. Any
such agreement sha aso be appcabe In a respects In the case of any ctzen
of the Unted States who, on or after the effectve date of the agreement, Is
empoyed by the foregn subsdary or subsdares named In the ngreement.
If at nny tme after such an agreement Is entered Into the domestc corporaton
desres to hove the od-age nnd survvors Insurance system e tended to ctzens
of the Unted States performng servce In tho empoy of one or more foregn
subsdares other than the subsdary or subsdares specfed n the agreement,
the agreement may be amended so as to e tend such system to such ctzens.
Any agreement so amended sha be appcabe n a respects In the case of servce
performed In the empoy of nny foregn subsdary to whch the nmendment
reates. Any such agreement sha requre the domestc corporaton to pay to
the Secretary or bs deegate amounts equvaent to the sum of the empoyee
and empoyer ta es whch woud be Imposed under sectons 3101 and 3111 of the
code (Incudng Interest, addtona amounts, and penates) wth respect to
remuneraton whch woud be wages If the servces covered by the agreement
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consttuted empoyment. It sha aso requre the domestc corporaton to corn|
wth reguatons, reatng to payments and reports, prescrbed by the Secretn
or bs deegate to carry out the purposes of such subsecton.
Paragraph (2) of such secton 3121(1) provdes that an agreement sha
made effectve for the perod begnnng ether wth the frst day of the eaesds:
quarter In whch the agreement Is entered nto or the frst day of the soccevd-
Ing caendar quarter. However, no agreement may be made effectve pror s
anuary 1,1055. An amendment to an agreement e ecuted after the frst mres
foowng the frst caendar quarter for whch the agreement s In effect ta
appy, n the case of servces performed for the subsdary or mbsd ar.-.-
specfed In tbe amendment, ony after the caendar quarter In whch the amend-
ment Is e ecuted.
Paragraph (3) of such secton 3121(1) provdes that the domestc corporatsa
may termnate such an agreement, wth respect to any one or more of Its for-
egn subsdares, effectve at the end of a caendar quarter. However, the ter-
mnaton may be made ony upon gvng 2 years advance notce In wrtng t-1
ony If at the tme of the recept of such notce the agreement has been In effas
for a perod of not ess than years. Any such notce of termnaton may n
revoked by gvng, pror to the cose of the caendar quarter specfed theren,
wrtten notce of revocaton. A notce of termnaton or revocaton thereof hzZ
be fed In such form and manner as may be prescrbed by reguatons. TS
perod for whch an agreement Is effectve wth respect to any foregn srabsdsn
sha termnate automatcay at the end of any caendar quarter n whch at t
tme the foregn corporaton ceases to be a foregn subsdary as defned In tt
subsecton.
Paragraph ( ) of such secton 121(1) drects the Secretary, upon a ftadb
that any domestc corporaton has faed to compy substantay wth the terss
of Its agreement under such secton 3121(1), to gve such corporaton not ks
than CO days advance notce n wrtng that the perod covered by ts agree-
ment w termnate at the end of a caendar quarter specfed In such notce.
Any such notce of termnaton, however, may be revoked by the Secretary u
provded In such paragraph. No such notce of termnaton or revocaton saL
be gven wthout the pror concurrence of the Secretary of Heath, ducaton
and Wefare.
- Pursuant to paragraph (5) of such secton 3121(1), If the agreement Is ter-
mnated n ts entrety by notce of termnaton, gven ether by the domestc
corporaton or tbe Secretary, tbe domestc corporaton may not agan enter nt
an agreement wth respect to servce performed for any foregn subsdary and
f tbe agreement s termnated wth respect to any foregn subsdary the do-
mestc corporaton may not thereafter make such agreement appcabe to that
subsdary.
Paragraph (0) of such secton 3121(1) provdes that for purposes of secton
201 of tbe Soca Securty Act, reatng to appropratons to tbe edera Od-Age
and Survvors Insurance Trust und, remuneraton pad for servces of Amer-
can ctzens abroad covered by an agreement under secton 3121(1) between a
domestc corporaton and the Secretary, whch woud be wages If the servces
consttuted empoyment and whch s reported to the Secretary or hs deegate
pursuant to such agreement or reguatons Issued under secton 3121(1) sha be
consdered wages sub|ect to the ta Imposed by the edera Insurance Coa-
trbutons Act
Paragraph (7) of such secton 3121(1) provdes that ad|ustments of any over-
payments or underpayments of amounts due under an agreement sha be made,
wthout nterest, In accordance wth reguatons prescrbed by the Secretary.
If an overpayment cannot be ad|usted the amount thereof sha be repad, bat
ony f a cam therefor Is fed wth tbe Secretary wthn 2 years from the tme
such overpayment was made.
Paragraph ( ), whch defnes a foregn subsdary of a domestc corporaton,
has aready been dscussed nbovc.
Paragraph (0), not contaned In tbe House b, makes cear that each domes-
tc corporaton whch enters Into an agreement under ths subsecton sha far
purposes of such subsecton and of secton 6 13(c)(2)(C), reatng to speca
refunds, be consdered an empoyer In ts capacty as a party to such agreement
separate and dstnct from Its dentty as a person empoyng Indvduas on Its
own account.
Paragraph (10) of such secton 3121(1) provdes that the regurtons of the
Secretary under such secton sha be desgned to make the requrements m-
posed on domestc corporatons wth respect to servce performed n the empoy
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of foregn subsdares the same, Insofar as practcabe, at the requrements
Imposed on empoyers sub|ect to the edera Insurance Contrbutons Act.
D DUCTIONS SO GROSS INCOM IBB PAYM NTS WITH US BCT TO UPIOY U O
C BTAIf rOBCIOH COB OBATION
Secton 209 of tbe b corresponds to secton 210 of the Honse b. Secton
200 adds to tbe Interna Revenue Code a new secton 170, whch provdes that
amounts pad or Incurred by a domestc corporaton under the provsons of an
agreement entered Into as provded by secton 3121(1) may be deducted In com-
putng ta abe Income, but ony to tbe e tent that the domestc corporaton
actuay bore the burden of tbe payment. Amounts Invoved whch were wth-
hed from the wages of the empoyees of the foregn corporaton or whch were
supped by the foregn corporaton may not gve rse to a deducton for the
domestc corporaton whch pays over such amounts to the Secretary. Any
rembursement of any amount whch has been deducted by the domestc cor-
poraton under the provsons of ths secton must be Incuded In the gross
Income of such corporaton for the ta abe year In whch t s receved.
-
TITL I MISC LLAN OUS PBOTISIONS
Ths tte amends the Raroad Retrement Act In severa respects In order to
preserve tbe e stng reatonshp between tbe raroad retrement and od-age
and survvors Insurance systems. It aso provdes for redesgnatng cross refer-
ences In other acts to provsons of the Soca Securty Act redesgnated by the
b.
Ths tte In the b as reported by your commttee dffers from the House
b n severa respects. rst, the effectve dates In the amendments to the Ba-
road Retrement Act have been changed to conform to those provded In the
approprate amendments to tte II of the Soca Securty Act. Second, In the
retrement test used under the Raroad Act for survvors, age 75 fans been re-
duced to ase 72 as the age above whch deductons are not Imposed, In order to
conform to the change made In tbe retrement test n the Soca Securty Act.
Thrd, snce the Interna Revenue Code of 19,r contans ts own provsons wth
respect to references In other aws to sectons of the 1039 code, the part of
secton 02 of the b reatng to ths matter has been deeted.
SOCIAL S CURITY AM NDM NTS O 195
Ronse of Representatves Report No. 2670, ghty-thrd Congreu, Second Sesson
. August 20, 105
Mr. Reed, from the commttee of conference, submtted the foowng con-
ference report to accompany H. R. 93G :
The commttee of conference on the dsagreeng votes of the two Honses on
tbe amendments of tbe Senate to the b (H. R. 03G6) to amend tbe Soca Se-
curty Act and the Interna Revenue Code so as to e tend coverage tnder the
od-age and survvors Insurance program, Increase tbe benefts payabe there-
under, preserve the nsurance rghts of dsabed ndvduas, and Increase the
amount of earnngs permtted wthout oss of benefts, and for other purposes,
havng met, after fu and free conference, have agreed to recommend and do
recommend to ther respectve Houses as foows:

STAT M NT O TH MANAG RS ON TH PART O TH HOUS
The managers on the part of the Honse at the conference on the dsagreeng
rotes of the two Houses on the amendments of the Senate to the b (H. It.
13G6) to amend the Soca Securty Act and the Interna Revenue Code so as to
attend coverage under the od-age and survvors Insurance program. Increase
e benefts payabe thereunder, preserve the Insurance rghts of dsabed In-
I vduns. and Increase the amount of earnngs permtted wthout oss of bene-
ta, and for other purposes, submt the foowng statement In e panaton of tbe
erect of the acton agreed upon by tbe conferees and recommended n tbe accom-
aDyng conference report:
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713
The foowng Senate amendments made technca, cerca, carfyng, or
conformng changes (ncudng changes n secton references made necessary
by the enactment of the Interna Revenue Code of 195 ): 5.9,10,13.15. 25. 2S-S3.
2. 35, 7- , 0-00. 01-03. 07, 0 . 71-73. 79, 0, 3, . 0. 67, 97,100-110. 112-12 ,
135,13 .1 2,1 3, 1 0, 1 7,1 9,150, 152,153, 155-159. 101, 102, 103. 160. 16S-1A A ,
1 , 190-199. 201-237, 239-253. 257-259. 201-20 , 200-270. 272. 273. 275-237.
29 -31 , 31 0, 321, 323-32 , 30-333, 335-337. 339, and 3 0. Wth respect to thrse
amendments (1) the House ether recedes or recedes wth amendments wbk
are technca, cerca, carfyng, or conformng In nature, or (2) the Senate
recedes n order to conform to other acton as reed upon by the commttee of
conference.
Amendments Nos. 1, 2, and 3: The Honse b amended secton 209 (h) of the
Soca Securty Act so as to e cude from wages, for purposes of od-age and sur-
vvors nsurance, cash remuneraton pad by an empoyer to an empoyee n any
caendar year for agrcutura abor uness such remuneraton s 200 or more.
Ths provson woud repace the provson In present aw (emnated by secton
101 (a) ( ) of the b) whch e cudes agrcutura abor performed In a caendar
quarter from covered empoyment uness the cash remuneraton pad for such
abor Is 50 or more and the Indvdua performng surh abor a reguary
empoyed for that purpose. Under the Senate amendments, coverage for agr-
cutura abor woud depend upon the payment to the empoyee of 50 or more
In a caendar quarter rather than 200 or more In a caendar year. The Senate
recedes from amendments Nos. 1 and 2, and the House recedes from Its dsagree-
ment to amendment No. 3 wth an amendment reducng the amount of such cash
remuneraton from 200 to 100, wth the resut that, under the conference
agreement, coverage for agrcutura abor depends upon the payment to a
empoyee by any one empoyer of 100 or more In a caendar year.
Amendment No. : The House b removed the e cuson from empoyment
of servces performed In connecton wth the producton, harvestng, or processng
of crude gum (oeo-resn), thereby coverng such servces under od-age and
survvors nsurance on the same bass as other agrcutura abor. The Senate
amendment restored the provson e cudng such servces from coverage. The
House recedes.
Amendment No. 6: The House b contnued In effect the provsons of the
present aw e cudng from empoyment servces performed by foregn agrcu-
tura workers under contracts entered nto n accordance wth tte of the
Agrcutura Act of 19 9. The Senate amendment provded In addton for
the e cuson from empoyment of servces performed by foregn agrcutura
workers awfuy admtted to the Unted States from the Bahamas, amaca, and
the other Brtsh West Indes on a temporary bass to perform agrcutura
abor. The House recedes.
Amendment No. 7: Secton 101(c) of the House b e tended coverage to
most servce (now e cuded) performed by empoyees of edera nstrumen-
tates who are not nready covered by a federay estabshed retrement system.
It aso e tended coverago to servce performed by two groups of empoyees
(empoyees of edera home oan banks and Indvduas sub|ect to the retre-
ment system of the T A) who are now covered by other retrement systems.
nragroph (3) of secton 101(c) made certan admnstratve provsons app-
cabe to cvan empoyees of Coast Guard e changes and other actvtes (who
consttute one of the groups brought under coverage by the b). The Senate
amendment deeted these provsons, thereby contnung the e cuson of these
empoyees from coverage. The House recedes wth on amendment whch In
effect restores the House anguage but contnues the e cuson from coverage of
empoyees of edera home oan banks and Indvduas sub|ect to the retrement
system of the T A.
Amendment No. : Secton 101(d)(1) of the House b provded for the
covern o of certan mnsters and members of regous orders empoyed by
nonproft ta -e empt organzatons u on the fng by the organzaton concerned
of a certfcate (concurred In by two-thrds of the cergymen empoyees) wavng
ts e empton from the tn es Imposed by the edera Insurance Contrbutons
Act. Cergymen who concur n the fng of such certfcate, and those empoyed
by the organzaton thereafter, woud be covered on a compusory bass. Secton
101(d) (2) of the House b provded for the coverage, on a compusory bass,
of sef-empoyed mnsters and memwrs of regous orders (as we as other
mnsters and members of regous orders to the e tent that ther ncome Is
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71
derved from sef-empoyment). Secton 101(d)(3) of the House b made It
1 cear that nothng n the b shoud be construed to mean that any mnster s
1 en empoyee of an organzaton for any purposes other than those specfed. .
The Senate amendment struck out these provsons of the House b, and sub-
sttutcd a new provson whch woud permt both empoyed and sef-empoyed
I mnsters and members of regous orders (other than those who have taken a
vow of poverty) to eect vountary and on an ndvdua bass, as provded In.
secton 1 02(e) of the Interna Revenue Code of 105 (added by amendment
No. 200), to be covered under od-age and survvors nsurance as sef-empoyed
Indvduas. The substtuted provson woud aso permt Chrstan Scence
practtoners (who under the House b are covered on a compusory bass as
professona sef-empoyed) to eect coverage on the same ndvdua bass. In
addton, the Senate amendment contaned a new provson provdng that mn-
sters and members of regous orders (and Unted States ctzens performng
mnstera servces n the empoy of Amercan empoyers) sha compute ther
I net earnngs from sef-empoyment derved from such servces wthout regard
to certan provsons of the Interna Revenue Code of 105 reatng to Income
I from sources outsde the Unted States. The House recedes wth a cerca
amendment.
Amendment No. 11: Secton 101(g)(1) of the House b e tended coverage
, to sef-empoyed farm operators havng annua net earnngs of 00 or more
from sef-empoyment. I : aso provded for sef-empoyed farm operators an
optona method of reportng ncome for od-age and survvors nsurance pur-
, poses under ths provson, the farm operator coud presume hs net earnngs
from farmng to be 50 per centum of hs gross Income from farmng If such gross
, ncome Is ess than 1,S00, and coud presume hs net earnngs from farmng to
be 900 f such gross ncome s more than 1, 00 and such net earnngs (other-
wse computed) woud be ess than 000. Secton 101(g) (2) of the House b
provded that, n determnng net earnngs from sef-empoyment, rentas pad
1 n the form of crop shares shoud not be Incuded.
Secton 101(g) ( ) of the House b e tended coverage to a professona sef-
empoyed ndvduas, e cept physcans, on the same bass as nonprofessona
sef-empoyed ndvduas are now covered. Among those to whom coverage
woud be e tended by ths provson are awyers, dentsts, osetopatbs, veternar-
ans, chropractors, naturopaths, optometrsts, Chrstan Scence practtoners,
1 archtects, accountants (of severa specfed types), funera drectors, and pro-
fessona engneers.
The Senate amendment strkes out these provsons, thereby contnung n
effect the present e cuson from coverage of sef-empoyed farm operators and
sef-empoyod professona Indvduas.
The House recedes wth an amendment whch (1) restores the House prov-
: sons reatng to the coverage of sef-empoyed farm operators, and (2) contnues
the present e cuson from coverage of most professona sef-empoyed ndvd-
uas but e tends coverage to archtects, accountants, funera drectors, and eng-
neers (aong wth Chrstan Scence practtoners on the bass provded by
I amendments Nos. and 200).
.Amendment No. 12: Ths amendment, whch reates to the e cuson of coa
royates In computng net earnngs from sef-empoyment, merey restores a
I provson, contaned In secton 101(g) (3) of the House b, whch was strcken
out by amendment No. 11 aong wth the provsons reatng to coverage of sef-.
empoyed farm operators and sef-empoyed professona ndvduas. In vew.
t of the acton taken by the conferees on that amendment, the Senate recedes.
, Amendments Nos. 1 ,10, 17,1 , and 19: Secton 101(h) (1) of the House b,
reatng to the prohbton aganst coverage of empoyees n postons under a
. Stnte or ocn retrement system, made such prohbton Inappcabe to empoyees
who (whe hodng such postons) are Inegbe to be members of such system.
The same provson of the House b provded that ndvduas n postons under
Btch a system (other than those negbe for membershp and pocemen and
fremen), ether on the date of the enactment of the b or on the dote the State
agreement Is made appcabe to ther coverage group, can be covered for od-age
, and survvors nsurance purposes ony upon a referendum. The Senate nroend-
| ments, whch are technca In nature, dvded ths provson Into two subpara-
, graphs In order to permt the appcaton of separate effectve dates to the two
, parts. The House recedes.
Amendments Nos. 20, 21, 22, 23, and 2 : The House b provded that 90 days
.notce be gven a egbe empoyees of any referendum hed on the queston of
whether servce sub|ect to a State or oca retrement system shoud be covered
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715
under a State agreement for od age and Survvors Insurance purposes. It aso
provded, as a condton of such coverage, that a ma|orty of the egbe em-
poyees must vote In the referendum and that two-thrds of those votng mast
Tote In favor of coverage. The Senate amendments woud requre that not ess
than 00 days notce be gven, and that a ma|orty of the egbe empoyees vote
In faror of coverage. The House recedes.
Amendments Nos. 20 and 27: The Honse b provded that. If a State or oca
retrement system covers postons of State empoyees and empoyees of one
or more potca subdvsons, or covers empoyees of two or more potca sub-
dvsons, each snch subdvson (and the State, If Its empoyees are aso covered)
may be deemed to have a separate retrement system for purposes of secton
2s of the Soca Securty Act. The Senate amendments provded that any
one or more of the subdvsons concerned (or any one or more of such sub-
dvsons and the State, If State empoyees are covered) may be deemed to have
a separate retrement system the subdvsons coud thus be grouped together,
f desred, accordng to sze, ocaton, number, or type of personne Invoved.
The Senate amendments aso provded that, where a retrement system covers
poston.- of empoyees of more than one nsttuton of hgher earnng (ncudng
a unor coege or teachers coege), the empoyees of each such Insttuton
sha (f the State so desres) be deemed to have a separate retrement system
for purposes of secton 21 . The House recedes.
Amendment No. 31: Ths amendment added to the House b a new provson,
effectve anuary 1, 1055, permttng a State to deem certan nspectors of agr-
cutura products to be State empoyees who woud consttute a separate cov-
erage group for purposes of secton 21 of the Soca Securty Act. The House
recedes.
Amendment No. 33: Ths amendment added to the House b a new provson
permttng the modfcaton of the agreement entered nto wth the State of
Utah pursuant to secton 21 of the Soca Securty Act so that the agreement
w appy to servces performed by empoyees of certan desgnated schoos and
State agences (wth the empoyees of each such schoo and agency consttutng
a separate coverage group). The State may Incude any one or more of these
groups under the agreement and any group so Incuded by a modfcaton agreed
to before 1055 mny be covered retroactvey wth respect to servces performed
after any date specfed n the modfcaton, but not earer than December 31.
1950. The House recedes wth a cerca amendment.
Amendment No. 3 : Ths amendment added to the House b a new pro-
vson provdng that f the agreement entered nto wth the State of Arzona
pursuant to secton 21 of the Soca Securty Act s modfed pror to anuary
1, 1950, so as to make such agreement appcabe to servce performed by em-
poyees n postons covered ty the Arzona Teachers Retrement System (a of
whom sha be deemed to consttute a separate coverage group), such modfca-
ton may be made effectve wth respect to servce performed n such postons
after any effectve date specfed theren but not earer than December 31,1950.
The House recedes wth a cerca amendment.
Amendment No. 30: Secton 101 ( ) of the nouse b estabshed a presump-
ton that work deductons have been made from the benefts of certan State and
oca empoyees whose servces pror to 1055 were covered retroactvey by a State
under an agreement entered Into under secton 213 of the Soca Securty Act.
Ths presumpton woud enabe empoyees who were entted to od-age and
survvors Insurance benefts (and not sub|ect to deducton under secton 203(b)
of the Soca Securty Act) at the tme the servces were performed to quafy
for recomputaton of ther prmary Insurance amounts, and woud arse soey
for the purpose of determnng enttement to such a recoraputaton. (Under
e stng Ipw such a recomputaton Is authorzed ony where the prmary beue-
feary has had deductons from benefts on account of servces performed durng
12 months out of a perod of 36 months.) Ths amendment makes carfyng
changes wth respect to the method of recomputaton and provdes addtona
dates as of whch an ndvdua may be presumed to become entted to od-are
Insurance benefts, ut It makes ony mnor changes In the substance of the
House b. The Honse recedes.
Amendment No. 5: Ths amendment woud remove funera drectors from,
the st of the professons e cuded from coverage by secton 211(c) (5) of the
Soca Securty Act, thereby coverng them under od-nge and survvors Insurance
on n compusory bass. In vew of the acton taken by the conferees on amend-
ment No. 11 (reatng to professona sef-empoyed), the Senate recedes.
33510 S3 10
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Amendments Nos. 6 ,- 5, and 06: The House b provded that the deter-
mnaton of an Indvdua s startng and dosng dates for purposes of computng
hs average monthy wage shoud, where more than one date was possbe.
be made on the bass of the dates yedng the hgher average monthy wage.
The Senate amendments woud base ths determnaton nstead on the dates
yedng the hgher prmary nsurance amount, n order to avod the necessty,
of nsng the date whch produces the hgher average monthy wage even though
use of an aternatve date woud produce a hgher prmary Insurance amount and
therefore a hgher beneft. The House recedes.
Amendments Nos. 69 and 70: Secton 102(e)(2) of the House b provded
that an ndvdua, n computng hs average monthy wage, coud drop out the
5 years of owest earnngs (nstead of the such years) ony f he had at east
20 quarters of coverage pror to bs cosng date. The Senate amendment em-
nated the requrement that the 20 quarters occur pror to the cosng date,
thereby permttng the 0-year dropout n the case of any ndvdua havng at
east 20 quarters of coverage regardess of when the quarters occurred. The
House recedes.
Amendment No. 7 : The House b provded that an Indvdua coud secure
a work recomputaton of hs prmary Insurance amount (to take account of
earnngs after the ast prevous computaton thereof) ony f he has earnngs
of not ess than 1,000 In a caendar year after 1933 and after the ast prevous
computaton of such amount. Ths amendment, In order to conform wth the
ncrease made by amendments Nos. 130-13 , n the e empt amount for retre-
ment test purposes, woud requre earnngs of more than 1,200 (rather than
earnngs of not ess than 1,000 ) n any such caendar year as a condton of
the recomputaton. The House recedes.
Amendment No. 75: Ths amendment added to the House b a provson
makng t cear that an ndvdua can quafy for ony one work recomputa-
ton on the bass of earnngs In any one caendar year. The House recedes.
Amendment No. 76: Under the House b, an ndvdua who quafed for
a work recomputaton before 1953, and who aso bad enough earnngs durng
195 to quafy hm for a work recomputaton under the new provsons added
by the b, woud have to choose one or the other snce the recomputaton under
e stng aw woud precude a recomputaton under the new provsons on the
bass of hs 195 earnngs. The Senate amendment emnates the necessty for
ths choce, thereby makng t possbe for the Indvdua to obtan the recom-
putaton under e stng aw and aso (f It woud ncrease the beneft) under
the new provsons. The House recedes.
Amendments Nos. 77, 7 , SI, and S2: Under the House b, In the frst work
recomputaton to whch an ndvdua becomes entted after enactment a ap-
pcabe startng and cosng dates and beneft formuas woud be used, even
though the or 5 years of owest earnngs were dropped out In a prevous com-
putaton of such ndvdua s prmary nsurance amount. The Senate amend-
ments, to avod a compete reopenng of the beneft recomputaton provsons nnd
the necessty of redetermnng data aready avaabe, woud provde that where
the drop-out provsons have prevousy been apped n computng an Indvdua s
prmary nsurance amount, any rocouputnton sha bo made ony through uso
of the new beneft formua In secton 215(a) (1) (A) of the Soca Securty Act,
as amended by the b. The House recedes.
Amendment No. S5: The House b permtted the ncuson. In the computa-
ton or recomputaton of an Indvdua s prmary Insurance amount, of earnngs
for the year n whch the ndvdua became entted to od-age nsurance bene-
fts or fed hs appcaton for recomputaton, but ony upon appcaton fed
after the cose of that year. If he shoud de n the year n whch be became
entted to od-age nsurance benefts or fed bs appcaton for a recomputa-
ton, however, the survvors coud not obtan a recomputaton of hs prmary
nsurance amount snce they woud be entted to such a recomputaton ony
f the Indvdua hmsef coud have obtaned the recomputaton upon fng an
appcaton therefor n the month of bs death. The Senate amendment woud
make t cear that the survvors coud obtan the recomputaton. The House
recedes.
Amendments Nos. , 9, 90, 91,02, 93, 9 , 93, 96, and 9 : Secton 102(e) (5) of
the House b contaned provsons preservng the rghts of Indvduas to
quafy for certan recomputatons under e stng nw pror to 1935. These
amendments make t cear that f an Indvdua des wthout fng bs app-
caton for such a recomputaton, any of bs survvor| entted to monthy benefts
or a ump-sum death payment on the bass of hs earnngs coud fc an appca-
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717
Hon and secure the recomputaton to whch he woud hare been entted. The
House recede .
Amendment No. 00: The Houm b provded that the cosng date for an
ndvdua who des or who becomes entted to od-age nsurance benefts In
1956 woud be uy 1, 1056 (Instead of anuary 1, 11)50), If use of the ater
date woud resut to a hgher prmary Insurance amount and the Indvdua
bad not ess than s quarters of coverage after 105 and the ater cosng date
woud be permtted n a such cases regardess of whch startng date or benet
formua was used. The Senate amendment, to take care of ndvduas newy
covered In 1055, provded that the ater cosng date woud be used ony wth a
startng date of December 31, 105 , and ony n computng the prmary nsur-
ance amount under the new formua contaned n secton 215(a)(1)(A) of
the Soca Securty Act, as amended by the b. The House recedes.
Amendment No. I: The House b provded that the recomputaton of an
ndvdua s prmnry Insurance amount sha be effectve (where be has not
ded) for and after the month In whch he ted the appcaton for such recom-
putaton. The Senate amendment, to provde od-age Insurance benefcares on
the ros n September 105 wth an adequate opportunty to fe appcatons,
woud provde that the recomputaton can be effectve for up to 12 months retro-
actvey. The House recedes.
Amendment No. 125: The House b provded that the amount of a ump-sum
denth payment under secton 202(1) of the Soca Securty Act may not e ceed
255, whch s the ma mum (three tmes the ma mum prmary nsurance
amount) permtted under e stng aw. The Senate amendment woud emnate
ths mtaton, so that the ump-sum death payment based on an Indvdua s
earnngs woud contnue to be equa to three tmes the amount of such nd-
vdua s prmary Insurance amount. Tbe Senate recedes.
Amendments Nos. 120, 127, 12 , 120, 136, 1 5, 1 . and 15 : The House b
retaned as a part of the retrement test tbe provsons of present aw (sec-
ton 203 of the Soca Securty Act) whch provde that deductons from benefts
on account of earnngs sha be made ony for months In whch the benefcary
concerned (or, n the case of dependents benefts, the od-age Insurance bene-
fcary) s under the age of 75. The Senate amendment owered from 75 to 72
tbe age above whch such deductons w not be mposed under tbe amended
provsons of secton 203 (or under those of the present provsons of secton
203 whch, to take care of ndvduas whose ta abe years do not concde wth
the caendar year, w reman n effect for months after 100 ). Tbe House
recedes.
Amendments Nos. 130, 131, 132, 133, 13 , and 1 : The House b. In pacng
the retrement test entrey on an annua basts, provded that no deductons
from benefts woud be made on account of earnngs f such earnngs do not
e ceed 1,000 for a ta abe year of 12 months (or a proportonate amount
for a shorter ta abe year). The Senate amendment Increased tbe amount
of earnngs permtted wthout deducton from benefts to 1,200 for a ta abe
year of 12 mouths (or 100 tmes the number of months Invoved for a shorter
tn aho year). Tho House recedes.
Amendments Nos. 137, 1.10, 1 0, and : The nouse b, n combnng wages
and net earnngs from sef-empoyment as earnngs for retrement test pnr-
poses, Incuded earnngs derved from noncovercd empoyment wthn the
Unted States as we as net earnngs from sef-empoyment derved from certan
noncovercd trades and busnesses. The Senate amendment provded that ony
earnngs arsng from covered empoyment and sef-empoyment sha be Incuded
n earnngs for retrement test purposes. (It Is e pected that the possbty
of changng the date for tng reports of earnngs for retrement test purposes,
so as to conform wth the new Apr 15 fng date for ncome-ta returns, w
be consdered eary In the ne t sesson of Congress.) The Senate recedes.
Amendment No. 151: The House b contaned a provson requrng that
deductons be made from the benefts of survvors and dependents who are resd-
ng abrond, e cept n certan specfed cases. The Senate amendment deeted ths
provson. The Hoa.se recedes.
Amendment No. 1C0: Secton 107 of the House b provded that any wages
and sef-empoyment Income earned by an ndvdua whe he Is unawfuy n
the Unted States may not be counted n computng hs benefts, f the Attorney
Genera has notfed the Secretary of such unawfu resdence. Secton 103 of
the House b provded that no benefts sha be pad under secton 202 of the
Soca Securty Act on the bass of the wages and sef-empoyment ncome of any
ndvdua after such ndvdua has been deported under any one of fourteen
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71
specfed paragraphs of secton 2 1(a) of the Immgraton and Natonaty Act, If
the Attorney Genera has notfed the Secretary of such deportaton. The Sen-
ate amendment deeted these provsons of the House b.
The House recedes wth an amendment provdng that (1) no such benefts
sha be pad to any Indvdua on the bass of hs wages and sef-empoyment
ncome for any month after the Attorney Genera notfes the Secretary that
such Indvdua has been deported under one of the specfed paragraphs and
before he has been awfuy readmtted to the Unted States, (2) no beneft| sha
be pad to any survvor or dependent of an Indvdua so deported and not aw-
fuy readmtted for any month In whch such survvor or dependent Is outsde
the Unted States, e cept In the case of survvors and dependents who are ct-
zens of the Unted States, and (3) earnngs by such Indvdua after he has
been so deported sha not deprve hs survvors and dependents (under sec. 203
of the Soca Securty Act) of benefts to whch they are otherwse entted.
Amendment No. 163: The House b provdes an aternatve bass for deter-
mnng fuy Insured status n the case of ndvduas newy covered on anuary
1, 1955 (and others vng on that date). Under ths provson, the ndvdua
woud be fuy Insured for od-age and survvors Insurance purposes f a of the
quarters eapsng after 195 and before uy 1, 1950, or (f ater) before the
quarter n whch he attans-retrement age or des, are quarters of coverage. The
Senate amendment makes t cear that there must be at east r of such quarters
so eapsng. The House recedes.
Amendment No. 10 : Secton 109 (b) of the House b amended secton 213 (a)
(2) (B) of the Soca Securty Act so as to provde a method for credtng quar-
ters of coverage on the bass of annua amounts of wages receved for agrcu-
tura abor. The Senate amendment deeted ths provson as beng unnecessary
when It paced the coverage test for agrcutura abor on a quartery rather than
an annua bass. The House recedes wth an amendment whch n effect restores
the House anguage wth an approprate modfcaton to conform wth the acton
taken by the conferees on amendments Nos. 1-3 (reatng to coverage for agr-
cutura abor).
Amendment No. 107: Tho House b provded that any ndvdua who ded
pror to September 1,1950, havng at east s quarters of coverage but not beng
fuy Insured under the aw In effect at that tme, sha be deemed to have ded a
fuy Insured Indvdua (e cept for purposes of determnng enttement of a
former wfe dvorced). Such Indvdua s prmary Insurance amount woud be
computed under the provsons of secton 215(d) ( ) of the present Soca Securty
Act, e cept that hs cosng date woud be the frst day of the quarter n whch
he ded. The Senate amendment provded that f the ndvdua was currenty
nsured when be ded, and some other person was entted to a beneft on the
bass of ha wages, hs prmary Insurance beneft woud be computed under
the act aa n effect pror to September 1950: n a other cases the computaton
woud be as provded n tho House b. The House recedes.
Amendment No. 1ST: Ths amendment adds to tho b a new secton provdng
that servce whch s performed after 105 n the empoy of the edera Govern-
ment, and whch consttutes empoyment tnder secton 210(a) of the Soca
Securty Act, sha not be credted toward benefts under any federay estabshed
retrement system other than the od-nge and survvors nsurance system and
the raroad retrement system. Tho House recedes wth an amendment mtng
the appcaton of the secton to edera servce newy covered by the b.
Amendment No. 1 0: Ths amendment woud deete secton 201 (a) of the
House b, whch made the necessary changes n the provsons of the Interna
Bevenue Code reatng to the e cuson of farm Income from net earnngs from
sef-empoyment for purposes of the Sef- mpoyment Contrbutons Act to
correspond wth the changes made In secton 211 (a) of the Soca Securty Act
(reatng to coverage of sef-empoyed farm operators for od-age and survvors
Insurance purposes). To conform wth the acton taken by the conferees wth
respect to the coverage of these farm operators, the Senate recedes.
Amendment No. 200: Ths amendment woud deete secton 201 (c) of the
House b, whch made the necessary changes In the provsons of the Interna
Bevenue Code reatng to the e cuson of professona servces from the defn-
ton of trade or busness for purposes of the Sef- mpoyment Contrbutons
Act to correspond wth the changes made by the House b n secton 211 (c)
of the Soca Securty Act (reatng to the e cuson from coverage of professona
ef-empoyed ndvduas for od-age and survvors Insurance purposes).
In addton, ths amendment woud add new provsons to secton 1 02 of the
Interna Revenue Code of 195 to repace the provsons strcken out by amend-
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719
Dents Nos. and 27 , and to conform wth the new provsons added by
amendment No. (as we as those added by amendment No. 5, reatng r
coverage of funera drectors). Secton 1 02(e), as added by ths amendment,
woud permt any empoyed or sef-empoyed mnster or member of a regom
order (other than one who has taken a vow of poverty), and any Chrstan
Scence practtoner, to fe a certfcate certfyng that he eects to be covered
by the od-age and survvors Insurance system estabshed by tte II of the
Soca Securty Act. Any such ndvdua woud be covered as a sef-empoyed
ndvdua (and sub|ect to the sef-empoyment ta ) for the ta abe year wt
respect to whch the certfcate s fed and a succeedng ta abe years, but be
woud be requred to te such certfcate on or before the due date of the return
for bs second ta abe year endng after 195 for whch he has net earnngs free
sef-empoyment (some part of whch was derved from servce as such mnster,
member, or practtoner) of 00 or more.
The House recedes wth amendments (1) conformng wth the acton taken by
the conferees on amendment No. 11 (reatng to the coverage of sef-empoyed
professona ndvduas), and (2) makng certan cerca, carfyng, and
conformng changes.
Amendment No. 233: Ths amendment woud deete secton 203 of the Hoose
b, whch mnde the necessary changes n the Interna Revenue Code to corre-
spond wth the chnnges made by the House b n secton 205(p) (3) of the Soca
Securty Act (reatng to the appcaton of certan speca rues to cvL-.n
empoyees of Coast Guard e changes). To conform wth the acton taken by the
conferees wth respect to the coverage of edera empoyees, the Senate recedes.
Amendments Nos. 25 , 2. . , and 250: These amendments make changes In the
provsons of the Interna Revenue Code reatng to the e cuson of cash remu-
neraton pad for agrcutura abor from wages for purposes of the edera
Insurance Contrbutons Act whch correspond wth the changes made by the
Senate amendments In secton 200(h) of the Soca Securty Act (reatng to
coverage of agrcutura abor for od-age and survvors Insurance purposes).
The Sonntc recedes from amendments Nos. 25 and 255, and the House recedes
from ts dsagreement to amendment No. 250 wth an amendment to conform
wth the acton tnken by the conferees on amendments Nos. 1-3 (reatng to
coverage of agrcutura abor).
Amendment No. 200: Ths amendment makes changes In the provsons of the
Interna Revenue Code reatng to the e cuson of certan forms of agrcutura
abor from empoyment for purposes of the edera Insurance Contrbuton
Act whch correspond wth the changes made by Senate Amendments Nos. and
6 n secton 210(a) (1) of the Soca Securty Act (reatng to the e cuson from
coverage for od-age and survvors Insurance purposes of servces performed as
crude gum workers and as West Indan agrcutura workers awfuy admtted
to the Dntcd States on a temporary bass). To conform wth the nrton takes
by the conferees W respect to the coverage of such servces, tho House rerars.
Amendment No, 205: Ths amendment woud deete secton 205(d) of the
House h, whch made the necessary changes n the provsons of the Interna
Revenue Code reatng to tho e cuson of edera servce from empoyment
for purposes of the edera Insurance Contrbutons Act to correspond wth the
changes made by the House h In secton 210(a) of the Soca Securty Act
(reatng to the e cuson of edera servce from empoyment for od-age and
survvors nsurance purposes).
Ths amendment woud aso deete secton 205(e) of the House b, whch
made the necessary changes In the provsons of the Interna Revenue Code reat-
ng to the e cuson from empoyment of servces performed n the empoy of
nonproft ta -e empt organzatons for purposes of the edera Insurance Con-
trbutons Act to correspond wth the changes made by the House b n secton
210(a) of the Soca Securty Act (reatng to the e cuson from coverage for
od-age and survvors Insurance purposes of servces performed n the empoy
of such organzatons).
The House recedes wth an amendment to conform wth the acton taken by
the conferees on (ntendment No. 7 (whch n effect restored the House anguage
reatng to coverage of edera empoyees but contnued the e cuson from
coverage of edera home oan bank empoyees and T A empoyees) and amend-
ment No. (whch provded for the coverage of mnsters on an Indvdua
vountary bass).
Amendment No. 271: The Senate amendment ndded to the House b a new
Secton makng It cear that an empoyer may deduct, from the remuneraton
pad by hm to an empoyee for domestc servce, for servce not n the course of
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720
bs trade or busness, for agrcutura abor, or fur Industra homework, an
amount equvaent to the empoyee ta Imposed by secton 3101 of the Interna
Revenue Code of 195 , even though at the tme of payment he cannot be certan
that the test for abty to the ta w be met The House recedes wth an
amendment desgned to conform wth the acton taken by the conferees a
pacng the coverage and ta abty tests for agrcutura abor on an annua bass.
Amendment No. 27 : Ths amendment deetes the provsons of the House b
whch estabshed procedures for the fng of certfcates by nonproft organza-
tons, wavng ther ta e empton wth respect to mnsters and members of
regous orders In ther empoy, n order to enabe such mnsters and members
of regous orders to obtan coverage under the od-age and survvors Insurance
system. To conform wth the acton taken by the conferees on amendments
Nos. and 200, the House recedes, wth an amendment provdng that the st
accompanyng any certfcate fed by a nonproft organzaton wth respect to ts
ay empoyees may be amended (by fng a suppementa st, as provded In
e stng aw) ony wthn a perod of 2 years after the certfcate takes effect.
Amendment No. 310: The House b provded that whenever a domestc corpo-
raton enters Into an agreement to have the empoyees of one or more of ts
foregn subsdares covered under od-ago and survvors Insurance, and such
agreement s termnated In ts entrety, the domestc corporaton may not agan
enter nto such an agreement Under the Senate amendment the prohbton
aganst enterng nto a ater agreement woud e st ony If the former agree-
ment was termnated by a notce of termnaton fed by the domestc corporaton
or by the Secretary or hs deegate. The House recedes.
Amendment No. 322: The House b provded that a amounts receved by
the Secretary from a domestc corporaton pursuant to an agreement for the
coverage of the empoyees of a foregn subsdary of such corporaton shoud be
regarded for purposes of secton 201 of the Soca Securty Act (reatng to the
edera Od-Age and Survvors Insurance Trust und) as ta es coected under
the edera Insurance Contrbutons Act. The Senate amendment provded that
for purposes of secton 201, remuneraton (pad for servces covered by the
agreement) whch woud consttute wages f the servces consttnted empoy-
ment and whch Is reported to the Secretary or hs deegate pursuant to the
agreement or approprate reguatons, sha be consdered wages sub|ect to
empoyment ta es. The House recedes.
Amendment No. 329: Ths amendment added to the House b a new provson
requrng that each domestc corporaton whch enters nto an agreement for
the coverage of the empoyees of one or more foregn subsdares sha be
consdered an empoyer In ts capacty as a party to such agreement separate
and dstnct from ts Identty as an empoyer of Indvduas on Its own account
The House recedes.
Amendment No. 33 : Secton 301 of the House b, e tended for one addtona
year (to September 30,1955) the provson of the 1952 amendments to the Soca
Securty Act whch Increased the proporton of State pubc assstance e pend-
tures to be borne from edera funds. The Senate amendment e tended that
provson for 2 addtona years (to September 30,1950). The House recedes.
Amendment No. 33 : Ths amendment owers from 75 to 72 the age above
whch deductons from raroad retrement survvor benefts on account of outsde
earnngs w not be Imposed under the Raroad Retrement Act of 1037. In
order to conform wth the acton taken by the conferees n deang wth the
correspondng age requrement for the retrement test n secton 203 of the
Soca Securty Act, therHouse recedes.
Amendment No. 3 1: Ths amendment woud add to the House b a new
secton 03, reatng to servce wrformed n the empoy of certan tn -e enpt
organzatons after 1950 and pror to 1955. Under ths amendment, f an nd-
vdua was empoyed durng such perod by a ta -e empt organzaton whch
faed to fe a waver certfcate under secton 1 26(1) (1) of the Interna
Revenue Code of 1039, and hs servce woud have consttuted empoyment f the
organzaton had fed such certfcate, the ndvdua w bo deemed to havo
receved remuneraton for empoyment (as defned In secton 210 of the Soca
Securty Act and secton 1 20(b) of the Interna Revenue Code of 1939) to the
e tent that empoyment ta es (not refunded) have been pad wth respect
thereto. Ta es pad pror to the enactment of the b must have been pad n
pood fath and upon the assumpton thnt the certfcate was fed. Smary, If
the organzaton fed the certfcate but the Indvdua s sgnature dd not appear
on the st of concurrng empoyees, hs remuneraton may be deemed to consttute
remuneraton for empoyment to the e tent that empoyment ta es (not refunded)
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721
were pad wth respect thereto. The House recedes wth an amendment ma kns
t cear that n ether case a part of the empoyment ta es must have been pad
before the enactment of the b, and provdng that the Indvdua concerned
(where the certfcate was fed but hs sgnature dd not appear on the st) most
De hs request to have such remuneraton treated as remuneraton for empoy-
ment wthn 2 years after the enactment of the b.
Amendment No. 3 2: Ths amendment added to the House b a new secton
0 , whch woud drect the Secretary to conduct a fu and compete tndy of
the feasbty of provdng Increased mnmum benefts ( 55, 60, or 75 a month)
under tte II of the Soca Securty Act The study woud ncude estmates of
the ncreased costs Invoved, the mpact on the Trust und, and the reductons
n pubc assstance grants whch mght resut from such Increased benefts.
The House recedes wth an amendment to make t cear that the Secretary s
the Secretary of Heath, ducaton, and Wefare.
Dane A. Rr.n ,
Thomas A. f.nkss.
Rchard M. Smpson,
ebe Coopkr,
ohn D. Dng f .
Manager on the art of the Uou f.
T NDING AND IMPRO ING TH UN MPLOYM NT-
COMP NSATION PROGRAM
Hoot of Representatves Report No. 2001, ghty-thrd Confreu, Second Sesson
une 20. 103
Mr. Reed of New York, from the Commttee on Ways and Means, submtted
the foowng report to accompany H. R. 9700 :
The Commttee on Ways and Means, to whom was referred the b (H. R. 9700)
to e tend and Improve the unempoyment-compensaton program, havng con-
sdered the same, report favoraby thereon wthout amendment and recommend
that the b do pass.
PURPOS S
H. R. 9700 e tends the unempoyment-nsurance system to amost mon
workers to whom ths protecton Is not avaabe today. Thus, your commttee s
b provdes the frst ma|or e tenson of the unempoyment-nsurance system
snce Its ncepton In 1035.
Wth the e cepton of reatvey mnor ad|ustments, the edera Unempoy-
ment Ta Act has remaned substantay unchanged In the amost 20 years
whch have eapsed snce Its enactment. However, your commttee beeves t
no onger approprate to deny the basc protecton of ths system to any segment
of our workng popuaton to whom e tenson of coverage Is demonstraby prac-
tca, and to whom coverage can be e tended wthout dong voence to the need
for recognton of State and oca varatons n empoyment condtons. Ths
ob|ectve s acheved by H. R. 9709.
Your commttee has recenty recommended the e tenson of the od-age and
survvors nsurance system to appro matey 10 mon persons now e cuded
from that program. Whe these two proposas for broad e tenson frst wth
respect to od-nge and survvors Insurance and now wth respect to unempoy-
ment Insurance are In no sense dependent upon each other, your commttee
conceves of them as part of a broad program to brng our soca-securty system
to maturty.
Hstorcay, unempoyment nsurance has been prmary a State program.
H. R. 9709 contnues ths basc pattern. Whe the probem of unempoyment
must aways be one of natona concern, geographc varatons both n economc
condtons and In empoyment practces make t essenta that actua mpemen-
taton of an unempoyment-Insurance system be carred out by State acton.
As a resut, the edera Unempoyment Ta Act has never concerned tsef wth
the amount of benefts or the duraton for whch benefts may be pad. These
have aways been matters for State determnaton. In hs economc report
transmtted to the Congress on anuary 2 , 1051, the Presdent descrbed the
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722
present eve of beneft as nadequate and the duTton of beneft as defcent
In man States. He urged State acton to correct these defects. Your commttee
agrees wth the Presdent that these matters shoud be eft to State determnaton.
The ma|or purposes of B. B. 9709 are summarzed as foows:
1. The edera Unempoyment Ta Act s e tended to empoyers of or more
empoyees In each of 20 weeks (nstead of or more n 20 weeks as under the
present aw). It Is estmated that ths provson w make unempoyment-
nsurance protecton avaabe to appro matey 1.3 mon workers not now
covered.
2. Unempoyment Insurance Is e tended to substantay a edera cvan
empoyees, an addton of appro matey 2.5 mon workers.
3. States are authorzed to e tend e perence-ratng ta reductons to new
and newy covered empoyers after they have had at east 1 year of coverage
under the State aw Instead of 3 years as requred today.
. The b emnates the prvege of payng the edera unempoyment ta
n quartery nstaments.
G N RAL STAT M NT
1. tenson of ta to empoyer of four or more
The b e tends the edera Unempoyment Ta Act to empoyers who empoy
or more empoyees In each of 20 weeks durng the year. The present aw mts
the ta to empoyers of or more n the same perod, athough a number of
States have aready owered ther own requrements so as to cover empoyers
wth ess than empoyees. (See tabe, pp. , 5.)
rom the standpont of the Indvdua worker, nnempoyment nsurance pro-
tecton s as Important f he works for a sma empoyer as f he works for an
empoyer of thousands. Moreover, t s as mportant to mantan the purchasng
power of empoyees of sma frms as of arge frms. In ths connecton, the
e tenson of coverage provded by your commttee s b woud partcuary
beneft sma communtes where a arge proporton of workers are empoyed by
sma frms.
Your commttee Is satsfed that admnstratve dffcuty s no onger a sub-
stanta obstace to e tendng coverage to sma frms. On the other hand, your
commttee beeves that the further coverage Is e tended nto ths area, the
further the edera Government Is movng Into an area where dfferences In
State and oca condtons become a sgnfcant factor. There s a twght zone
where needed fe bty can ony be mantaned through State acton. It may be
approprate that unempoyment protecton be e tended nto ths frnge area,
but your commttee beeves that such e tenson shoud be eft to State deter-
mnaton In the ght of oca varatons n empoyment patterns. Yonr com-
mttee does not beeve that ths probem e sts to any apprecabe e tent wth
respect to the e tenson of coverage to empoyers of four or more.

2. Reduced rates for new and newy covered empoyer
In a States, empoyers are granted reductons n the unempoyment ta es
they must pay the State f ther unempoyment e perence meets certan requre-
ments. The edera Unempoyment Ta Act aows empoyers to credt ths
reducton aganst cher edera unempoyment ta . In other words, an empoyer
who has receved such a reducton s credted wth the dfference between the
amount actuay pad and the amount he woud have been requred to pay If he
had not receved the reducton. The edera aw grants ths addtona credt,
however, ony f the State aw requres an empoyer to have at east 3 years of
e perence before he can be gven a ta reducton. Ths means tht a new or
newy covered empoyer s requred to pay the fu ta for at east these Inta
years even though hs e perence n those years s as favorabe as that of an
estabshed empoyer. In many States, ths means that new empoyers carry a
very arge proporton of current unempoyment ta es. They are thus put at a
compettve dsadvantage wth estabshed empoyers and are requred to carry
an e tra fnanca oad at a tme they can perhaps east afford It
The Presdent, In hs economc report of anuary 2 , 195 , recommended that
Congress aow the shortenng, from 3 years to 1, of the perod requred to
quafy for a rate reducton. Secton 2 of H. R. 9709 carres out ths recom-
mendaton In ts entrety. In effect, durng the frst 3 years of an empoyer s
coverage, the amendment w permt a State to te the perod of e perence
requred before rate reducton to the perod of tme the new empoyer has had
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723
e perence under the aw. In other words, the rate for an empoyer who baa
hnd 1 year s e perence may be based on 1 year s e perence, the rate for 1 who
has bad e perence for 2 years, on the bass of 2 years e perence.
It woud be emphaszed that ths amendment merey permts a State to e tend
rate redacton on the bass of 1 year s e perence f t desres to do so. It does
not requre such State acton.
The amendment Is not ntended to gve new and newy covered empoyers any
compettve advantage over estabshed empoyers, but merey to equaze as
much as possbe the opportunty for rate reductons between new and estabshed
empoyers. The factors used to measure the e perence of empoyers vary from
Stute to State. Under the amendment, t s ntended that the State measure the
e perence of new and newy covered empoyers by the same factor (or factors)
that It uses to measure the e perence of estabshed empoyers. or e ampe,
one of the most common factors Is a reserve baance (the e cess of contrbutons
coected over benets pad and charged to the empoyer s account). Thus, a
State whch uses a reserve baance for estabshed empoyers must do so for new
empoyers. However, In some States, an empoyer who does not have 3 years of
e crence. as the edera aw now requres, coud not attan the reserve baance
now requred of estabshed empoyers. In these States, therefore, a propor-
tonate reducton woud have to be made In ths reserve requrement to enabe
new empoyers wth ess tnn 3 years e perence to take advantage of the
permsson granted by the b s new rate-reducton provson. Snce the b
does not ntend to gve new empoyers any greater advantage than estabshed
empoyers, any dfference In reserve requrements granted to new empoyers
woud therefore have to bear the same proporton to the requrement paced on
estabshed empoyers as the perod of coverage requred of the two groups. or
e ampe. If a 6-A rccnt reserve requrement s requred of estabshed empoyers
wth 3 years e pereuce, at east percent must be requred of empoyers wth 2
years e perence.
3. mnaton of quarter / ntament prvege
The b emnates the rght to pay the unempoyment ta In quartery nsta-
ments. Ths amendment Is desgned to reeve the Government of an e stng
admnstratve burden. Moreover, ths admnstratve burden woud be some-
what ncreased If the new empoyers covered by ths b were permtted to pay
ther ta .In quartery nstaments.
mnaton of ths provson shoud not Impose an undue burden on ta payers.
Ths Is ndcated by the fact that some 5 percent of the tota ta es due are now
pad at the tme of fng the return wthout usng the nstament-payment
opton. urthermore, unke the od-age and survvors Insurance ta , the unem-
poyment ta Is not due unt the year after that In whch the ta abe wages are
pad. The od-age and survvors nsurance ta , on the other hand, s payabe
n quartery nstaments durng the year n whch the wages are pad.
A
S CTION-BY-S CTION ANALYSIS
Secton 1. Defnton of empoyer
Ths secton e tends the appcaton of the edera unempoyment ta Imposed
by secton 1000 of the Interna Revenue Code by amendng secton 1607(a) of
the Code so as to provde that the term empoyer does not ncude any
person uness on each of some 20 days durng the ta abe year, each day
beng In a dfferent cne-dnr week, the tota number of ndvduas who were
empoyed by hm In empoyment, as defned In secton 1007(c), for some porton
of the day (whether or not at the same moment of tme) was four or more.
Thus, the defnton of the term empoyer under the b Is the same as the
defnton of that term under e stng aw e cept for the substtuton of the
words four or more for eght or more. Ths amendment Is effectve wth
respect to servces performed after December 31,195 . Snce ony a person who
s an empoyer, qs defned, for the ta abe year In whch the wages are pad
s sub|ect to the edera unempoyment ta , the amended defnton of the term
empoyer w c appcabe n determnng whether wages pad n 1903 or
subsequent years are ta abe.
Secton 1. perence rata for fetc empoyer
Ths secton amends secton 1602(a) of the Interna Revenue Code to permt
the States to e tend rate reductons to new and newy covered empoyers after
they have had a year s e perence and yet retans the rght of these empoyers
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to addtona credt aganst tber edera unempoyment ta wth respect to nch
reduced rate. At present, the Code aows empoyers to obtan addtona credt
aganst the edera ta ony after they have had 3 years e perence. Ths
amendment tes the perod of e perence requred before redactons In the State
. ta rate may be so credted, to the perod of tme the new empoyer has bad
e perence under the aw. Thus, f the State wshes to ava Itsef of ths
provson, the rate for an empoyer who has had a year s e perence must be
based on a year s e perence, the rate for one who has had 2 years, on the
bass of 2 years e perence. At the end of or more years, the empoyer s
e perence woud contnue to be based, as at present, on 3 or more years of
e perence.
Secton 3. Tme for payment of ta
Ths secton amends secton 1005(c) of the Interna Revenue Code so as to
provde that after 11)55 the tota amount of the ta sha be pad not ater
than anuary 31 ne t foowng the cose of the ta abe year. Under e stng
ow, the ta payer may eect to pay the ta In four equa Instaments foowng
the cose of the ta abe year Instead of In a snge payment Secton 3 of
the b aso contans a conformng amendment to secton 1005(d) of the code.

Secton (6). Bonneve Power empoyccA
Ths subsecton contans conformng amendments to sectons 1000(e) and
1007 (m) of the Interna Revenue Code. These sectons of the Code permt
coverage under the State unempoyment-compensaton programs of certan serv-
ces performed n the empoy of the Bonneve Power Admnstrator. Inas-
much as the empoyees performng these servces w be covered under the
provsons of tte of the Soca Securty Act, as added by secton (a) of
the b, sectons 1600(e) and 1007(m) of the Code are made nappcabe wth
respect to such servces performed after December 31,195 .
CHANG S IN ISTING LAW
In compance wth cause 3 of Rue III of the Rues of the Bouse of Repre-
sentatves, changes In e stng aw mode by the b as ntroduced, are shown as
foows (e stng aw proposed to be omtted Is encosed In back brackets, new
matter Is prnted n tacs, e stng aw n whch no change s proposed s
shown In ronan):
INT RNAL R NU COD . .
S C 1602. CONDITIONS O ADDITIONAL CR DIT ALLOWANC .
(a) State Stahdabds. A ta paper sha be aowed an addtona credt
tnder secton 1001(b) wth respect to any reduced rate of contrbutons permtted
by a State aw, ony If the Board fnds that under such aw
(1) No reduced rate of contrbutons to a pooed fund or to a partay
pooed account. Is permtted to a person (or group of persons) havng Ind-
vduas In hs (or ther) empoy e cept on the bass of hs (or ther) e per-
ence wth respect to unempoyment or other factors bearng a drect reaton
to unempoyment rsk durng not ess than the three consecutve years Imme-
datey precedng the computaton date or
(2) No reduced rate of contrbutons to a guaranteed empoyment account
s permtted to a person (or a group of persons) havng Indvduas In hs (or
ther) empoy uness (A) the guaranty of remuneraton was fufed n the
year precedng the computaton date and (IB) the baance of such account
amounts to not ess than 2 per centum of that part of the pay ro or pay
ros the three years precedng the computaton date by whch contrbutons
to such account were measured and (C) such contrbutons were payabe
to such account wth respect to three years precedng the computaton date
(3) No reduced rate of contrbutons to a reserve account Is permtted to
a person (or group of persons) havng ndvduas n hs (or ther) empoy
uness (A) compensaton has been payabe from such account throughout the
year precedng the computaton date, and (B) the baance of such account
amounts to not ess than fve tmes the argest amount of compensaton pad
from such account wthn any one of the three years precedng such date,
and (C) the baance of such account amounts to not ess than 2 /| per centum
of that part of the pay ro or pay ros for the three years precedng such
date by whch contrbutons to such account were measured, and (D) such
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- contrbutons were payabe to nch account wth respect to the three year
precedng the computaton date.
Tor any pcrton (or group of peront) v ho hat (or have) not Seen tvb|ect to the
State av for a perod of tme tuffcent to compute the reduced rate permtted
by paragraph (I), (2), and (3) of th tubsectton on a three-year battt, the
perod of tme requred may be reduced to the amount of tme the perton or
groun of pcrton ) ha (or have) had e perence under or hat (or have) been
tubfeet to the State ata, whchever t approprate, but n no cote est than one
year mmedatey precedng the computaton date.

S C 1605. PAYM NT O TA S.

C(c) Ikstat|.mkwt Payments. The ta payer may eect to pay the ta In
four equa nstaments Instead of In a snge payment, n whch case the frst
Instament sha be pad not Inter than the ast day prescrbed for the fng of
returns, the second Instament sha be pad on or before the ast day of the
thrd month, the thrd Instament on or before the ast dny of the s th month,
and the fourth Instament on or before the ast day of the nnth month, after
such ast day. If the ta or any Instament thereof Is not pad on or before the
ast dny of the perod f ed for Its payment, the whoe amount of the ta unpad
sha be pad upon notce and demand from the coector.
(c) Tme ron Payment. The ta tha be pad not ater than anuary St,
ne t fotocng the cote of the ta abe year.
(d) tenson or Tme fob Payment. At the request of the ta payer the
tme for payment of the ta or any Instament thereof may be e tended
under reguatons prescrbed by the Commssoner wth the approva of the
Secretary, for a perod not to e ceed s months from the ast day of the
perod prescrbed for the payment of the ta or any nstament thereof .
The amount of the ta n respect of whch any e tenson Is granted sha be
pad (wth Interest at the rate of one-haf of 1 per centum per month) on or
before the date of the e Iraton of the perod of the e tenson.

S C. 1606. INT RSTAT COMM RC AND D RAL INSTRUM N-
TALITI S.

(e) The egsature of any State may, wth respect to servce to be performed
after December 31, 19 5, and before anuary 1, 1955, by a aborer, mechanc, or
workman. In connecton wth constructon work or the operaton and mante-
nance of eectrca factes, as an empoyee performng servce for the Bonne-
ve Power Admnstrator (herenafter caed the Admnstrator), requre the
Admnstrator, who for purposes of ths subsecton s desgnated an nstru-
mentaty of tho Unted States, and any such empoyee, to moke contrbutons
to an unempoyment fund under a State unempoyment compensaton aw ap-
proved by the Board under secton 1003 and to compy otherwse wth such
aw. Such permsson s sub|ect to the condtons Imposed by subsecton (b)
of tbs secton upon permsson to State egsature to requre contrbutons
from Instrumentates of the Unted States. Tho Admnstrator s authorzed
and drected to compy wth the provsons of any appcabe State unempoy-
ment compensaton aw on brnf of the Unted States as tho empoyer of
Indvduas whose servce consttutes empoyment under such aw by reason of
ths subsecton.

S C. 1607. D INITIONS.
.
When used n ths subchapter
(a) mpoyer. The term empoyer docs not Incude any person uness on
each of some twen y days durng the ta abe year, each day beng n a dfferent
caendar week, the tota number of ndvduas who were empoyed by hm n
empoyment for some porton of the day (whether or not at the same moment
of tme) was eght four or more.

(m) Certan mpoyees or Bonneve Power Admnstrator. The term
empoyment sha Incude such servce as s determned by the Bonneve
Power Admnstrator (herenafter caed the Admnstrator) to be performed
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,-726
after December 31, 10 5, and before anuary 1, 1955, by a aborer, mechanc,
or workman. In connecton wth constructon work or te operaton and mante-
nance of eectrca factes, as an empoyee performng servce for the Ad-
mnstrator. The term wages means, wth respect to servce whch
consttutes empoyment by reason of ths subsecton, such amount of remu-
neraton as Is determned (sub|ect to the provsons of ths secton) by the
Admnstrator to be pad for such servce. The Admnstrator Is authorzed
and drected to compy wth the provsons of the Interna revenue aws on
behaf of the Unted States as the empoyer of Indvduas whose servce con-
sttutes empoyment by reason of ths subsecton.
.A,.
T NDING AND IMPRO ING TH UN MPLOYM NT
COMP NSATION PROGRAM
, , . Senate Report No. 170 . gt|-TMrd Congress. Second Sesson
uy 12 (egsatve day. uy 2), 103
Mr. Mkn, from the Commttee on nance, submtted tho foowng report
. to accompany II, R. 0700 :
The Commttro on nance, to whom wns referred tho b (II, R. 0700) to
e tend and Improve the mcnpoyment-comoaUo prurau), havng con-
sdered the same, report favoraby tbervon wthout amendment and recommend
. that te b do paA s.
. The b (II. II. 0700) woud e tend the protecton avaabe under the unem-
poyment Insurance system to around mon workers In the country who today
.ack ts protecton. In so dong, It woud consttute the rst u.-.1or e tenson
of the coverage of the unempoyment Insurance system snce It was estabshed
n 1035.
The unempoyment Insurance system has aways boon prmary a State
program, and II. It. 0700 contnues ths method of operaton. In so dong. It
recognzes that probems of unempoyment are of natona concern, but that
geographc varatons and varyng economc condtons wthn the severa States
make It essenta that actua Impementaton of the system be carred out by
State acton. In ne wth ths pocy the edera Unempoyment Ta Act has
not governed the amount of benefts or ther duraton.
In hs economc r port, transmtted to Congress on anuary 2 , 105 , the
Trcsdent recognzed that In some States the present eve of benefts Is Inade-
quate and the duraton of benefts s defcent. In ne wth hstorca pocy,
he urged State acton to correct these defects. Your commttee agrees wth the
Presdent that these matters shoud be eft to State determnaton.
The ma|or purposes of H. R. 0700 are summarzed as foows:
1. The edera Unempoyment Ta Act s e tended to empoyers of or more
empoyees In each of 20 weeks (Instead of or more n 20 weeks as under the
present aw). It s estmated that ths provson w make unempoyment-
Insurance protecton avaabe to appro matey 1.3 mon workers not now
covered.
2. Unempoyment Insurance Is e tended to substantay a edera cvan
empoyees, an addton of appro matey 2.5 mon workers.
3. States are authorzed to e tend e perence-ratng ta reductons to new
and newy covered empoyers after they have had at east 1 year of coverage
anter the State aw Instead of 3 years as requred today.
. The b emnates the prvege of payng the edera unempoyment ta
In quartery Instaments.
G N RAL STAT M NT
1. tenson of ta to empoyer of four or more
The b e tends the edera Unempoyment Ta Act to empoyers who empoy
or more empoyees In each of 20 weeks durng the year. The present aw
mts the ta to empoyers of or more n the same perod, athough a number
of States have aready owered ther own requrements so as to cover empoyers
wth ess than empoyees.
rom the standpont of the Indvdua worker, unempoyment Insurance pro-
tecton Is as Important f be works for a sma empoyer as If be works for an
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727
empoyer of thousands. Moreover, It Is as mportant to mantan the purchastng
power of empoyees of sma frms as of arge frms. In ths connecton, the
e tenson of coverage provded by your commttee s b woud partcuary
beneft sma communtes where a arge proporton of workers are empoyed by
sma frms.
The further coverage s e tended Into ths area, the further the edera
Government Is movng Into an area where dfferences In State and oca condtons
become a sgnfcant factor. There Is a twght zone where needed fe bty
can ony be mantaned through State acton. It may be approprate that un-
empoyment protecton be e tended nto ths frnge area, but your commttee
beeves that such e tenson shoud be eft to State determnaton In the ght
of oca varatons In empoyment patterns. Your commttee does not beeve
that ths probem e sts to any apprecabe e tent wth respect to the e tenson
of coverage to empoyers of four or more.
t. Reduced rata for new and nctcy covered empoyer
In a States, empoyers are granted reductons n the unempoyment ta es
they must pay the State If ther unempoyment e perence meets certan requre-
ments. The edera Unempoyment Ta Act aows empoyers to credt ths
reducton ngnnst ther edera unempoyment ta . In other words, nn empoyer
who has receved such n reducton Is credted wth the dfference between the
amount nctuay pad nnd the amount hu woud hnvo been requred to pay If
e had not receved the reducton. The edera aw grants ths addtona
credt, however, otdy If the State aw requres an empoyer to have at eant S
yearn of e perence before hu can Ih gven a tu reducton. Ths mean that
n now or newy covered empoyer Is requred to pay the fu ta for at east these
nta years even though hs e perence In those years Is as favorabe as that of
nn estabshed empoyer. In many States, ths means that new empoyers carry
a very argo protorton of current unempoyment ta es. They are thus put at
a compettve dsadvantage wth estabshed empoyers and are requred to carry
an e tra fnanca oad at a tme Uey can perhaps east afford It.
The Presdent, In hs economc report of anuary 2 , 105 , recommended
that Congress aow the shortenng, from years to 1, of the perod requred
to quafy for a rutc reducton. Secton 2 of II. It. 0700 carres out ths recom-
mendaton In Its entrety. In effect, durng the frst 3 years of an empoyer s
coverage, tbo amendment w permt a State to te the perod of e perence
requred before rate reducton to the perod of tme the new empoyer has hod
e perence under the aw. In other words, the rate for an empoyer who has
had 1 year s e perence may be based on 1 year s e perence, the rate for 1 who
has bnd e perence for 2 years, on the bass of 2 years e perence.
It woud be emphaszed that ths amendment merey permts a State to e tend
a rate reducton on the bass of 1 year s e perence f t desres to do so. It does
not requre such State acton.
The amendment Is not ntended to gve new and newy covered empoyers any
compettve advantage over estabshed empoyers, but merey to equaze as
much as possbe the opportunty for rate reductons between new and estabshed
empoyers. The factors used to measure the e perence of empoyers vary from
State to State. Under the amendment, t s ntended that the State measure the
e perence of new and newy covered empoyers by the same factor (or factors)
that It uses to measure the e perence of estabshed empoyers. or e ampe,
one of the most common factors Is a reserve beance (the e cess of contrbutons
coected over benefts pad and charged to the empoyer s account). Thus, a
State whch uses a reserve baance for estabshed empoyers must do so for
new empoyers. However, n some States, an empoyer who does not have 3
years of e perence, ns the edera aw now requres, coud not attan tbe re-
serve baance now requred of estabshed empoyers. In these States, therefore,
a proportonate reducton woud nve to be made In ths reserve requrement to
enabe new empoyers wth ess than 3 years e perence to take advantage of
the permsson granted by the b s new rate-reducton provson. Snce he
b does not ntend to gve new empoyers nny greater advantage than estabshed
empoyers, any dfference In reserve requrements granted to new empoyers
woud therefore have to bear the same proporton to the requrement paced on
estabshed empoyers as the perod of coverage requred of the_ two groups or
e ampe, f a 6-percent reserve requrement Is requred of estabshed empoyers
wth 3 years e perence, at east percent must be requred of empoyers wth
2 years e perence.
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72
3. mnaton of quartery nstament prvege :.: .
The b emnates the rght to pay the unempoyment ta In quartery In-
staments. Ths amendment s desncd to reeve tho Government of an e st-
ng admnstratve burden. Moreover, ths admnstratve burden woud be
somewhat Increased If the new empoyers covered by ths b wore permtted
to pay ther ta In quartery Instaments.
Humaton of ths provson shoud not Impose an undue burden on ta payers.
Ths Is Indcated by the fact that some 0 percent of the tota ta es duo are now
pad at the tme of Mng tho return wthout usng the Instament-payment
opton. urthermore, unke the od-age and survvors Insurance ta , the unem-
poyment ta Is not due unt the year after that In whch the ta abe wages
are pad. The od-age and survvors Insurance ta , on the other band, Is payabe
u quartery nstaments durng the year n whch the wages are pad.
-
CTI0N-BYS CTI0N ANALYSIS
Secton 1. Defnton of empoyer
Ths secton e tends the appcaton of the edera unempoyment ta m-
posed by secton 1600 of the Interna Revenue Code by amendng secton 1607
(a) of the code so as to provde that the term empoyer does not ncude any
person uness on each of some 20 days durng the ta abe year, each day beng
In a dfferent caendar week, the tota number of ndvduas who were empoyed
by hm In empoyment, as defned In secton 1007 (c), for some porton of the day
(whether or not at the same moment of tme) was four or more. Thus, the
defnton of the term empoyer under the b s the same as the defnton
of that term under e stng aw e cept for the substtuton of the words four
or more for eght or more. Ths amendment s effectve wth respect to
servces performed after December 31,195 . Snce ony a person who Is an em-
poyer, as defned, for the ta abe year n whch the wages are pad s sub|ect
to the edera unempoyment ta , the amended defnton of the term empoyer
w be appcabe n determnng whether wages pad In 1903 or subsequent
years are ta abe.
Secton S. perence rate for ne o empoyer
Ths secton amends secton 1602 (a) of the Interna Revenue Code to permt
the States to e tend rate reductons to new and newy covered empoyers after
they have had a year s e perence and yet retans the rght of these empoyers
to- addtona credt aganst ther edera unempoyment ta wth respect to
such reduced rate. At present, the code aows empoyers to obtan addtona
credt aganst the edera ta ony after they have had 3 years e perence. Ths
amendment tes the perod of e perence requred before reductons In the State
ta rate may be so credted, to the perod of tme the new empoyer has had
e perence under the aw. Thus, If the State wshes to ava tsef of ths pro-
vson, the rate for an empoyer who has had a year s e perence must be based
on a year s e perence, the rate for one who has had 2 years, on the bass of 2
years e perence. At the end of 3 or more years, the empoyer s e perence
woud contnue to be based, as at present, on 3 or more years of e perence.
Secton S. Tme for payment of a - ,
Ths secton amends secton 1603 (c) of the Interna Revenue Code so as
to provde that after 1953 the tota amount of the ta sha be pad not ater
than anuary 31 ne t foowng the cose of the ta abe year. Under e stng
aw, the ta payer may eect to pay the ta In four equa nstaments foowng
the cose of the ta abe year nstead of In a snge payment Secton 3 of the
b aso contans a conformng amendment to secton 1005 (d) of the code.

Secton (b). Bonneve Power empoyee
Ths subsecton contans conformng amendments to sectons 1606(e) and
1607(m) of the Interna Revenue Code. These sectons of the Code permt cover-
nge under the State unempoyment-compensaton programs of certan servces
performed In the empoy of the Bonneve Power Admnstrator. Inasmuch as
the empoyees performng these servces w be covered under the provsons of
tte of the Soca Securty Act, as added by secton (a) of the b, secton
1000(e) and 1607(m) of the Code are made nappcabe wth respect to such .
servces performed after December 31,195 .
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729
CHANG S IN ISTING LAW -
In compance wth subsecton of rue I of the Standng Rae of the
Bonne, change In e stng aw mnde by to b ore shown aa foow (e stng
aw propoaod to be omtted a cncoaed In bock brackcta new matter Is prnted
In tac e stt aw n whch no change propocd ahown In roman):
INT RNAL R NU COD
S C. 1M2. CONDITIONS O ADDITIONAL CR DIT ALLOWANC .
(a) State Standards. A ta payer sha be aowed an addtona credt under
secton 1001(b) wth respect to any reduced rate of contrbutons permtted by a
State aw, ony If the Hoard fnds that under such aw
(1) No reduced rate of contrbutons to a pooed fund or to a partay
pooed account. Is permtted to a person (or group of persons) havng Ind-
vduas In hs (or ther) empoy e cept on the bass of hs (or ther) e per-
ence wth respect to unempoyment or other factors bearng a drect reaton
to unempoyment rsk durng not ess than the three consecutve years mme-
datey precedng the computaton date or
(2) No reduced rate of contrbutons to a guaranteed empoyment account
s permtted to a person (or a group of persons) havng ndvduas n bs (or
ther) empoy uness (A) the guaranty of remuneraton was fufed n the
year precedng the computaton date and (B) the baance of such account
amounts to not ess than 2,/A per centum of that part of the pay ro or pay
ros for the three years precedng the computaton date by whch contrbu-
tons to such account were measured and (C) such contrbutons were pay-
abe to such account wth respect to three years precedng the computaton
date
(3) No reduced rate of contrbutons to a reserve account Is permtted to
a person (or group of persons) havng ndvduas n hs (or ther) empoy
uness (A) compensaton has been payabe from such account throughout the
year precedng the computaton date, and (B) the baance of such account
amounts to not ess than fve tmes the argest amount of compensaton pad
from such account wthn any one of the three years precedng such date,
and (C) the baance of such account amounts to not ess than 2 per centum
of that part of the payro or payros for the three years precedng such
date by whch contrbutons to such account were measured, and (D) such
contrbutons were payabe to such account wth respect to the three years
precedng the computaton date.
or any person (or group of persons) teho has (or have) not been sub|ect to the
State aw for a perod of tme suffcent to compute the reduced rates permtted by
paragraphs (1), (2), and (S) of ths subsecton on a three-year bass, the perod
of tme requred may be reduced to the amount of tme the person (or group of
persons) has (or have) had e perence under or has (or have) been sub|ect to the
State aw, whchever s approprate, but n no case ess than one year mmedatey
precedng the computaton date.
e
S C. 1605. PAYM NT O TA S.

(c) Instament Payments. The ta payer may eect to pay the ta In
four equa nstaments nstead of n a snge payment, n whch case the frst
nstament sha be pad not ater than the ast day prescrbed for the fng of
returns, the second Instament sha be pad on or before the ast day of the
thrd month, the thrd Instament on or before the ast day of the s th month,
and the fourth Instament on or before the ast day of the nnth month, after
such ast day. If the ta or any nstament thereof s not pad on or before the
ast day of the perod f ed for ts payment, the whoe amount of the ta unpad
sha be pad upon otce and demand from the coector.
(c) Tme for Payment. The ta sha be pad not ater than anuary SI, ne t
foowng the cose of the ta abe year.
(d) tenson or Tme for Payment. At the request of the tn payer the
tme for payment of the ta or any Instament thereof may be e tended under
reguatons prescrbed by the Commssoner wth the approva of the Secretary,
for a perod not to e ceed s months from the ast day of the perod prescrbed
for the payment of the ta or any Instament thereof). The amount of the ta
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730
In respect of whch any e tenson Is granted sha be pad (wth Interest at the
rate of one-haf of 1 per centum per month) on or before the date of the e prat Ion
of the perod of the e tenson. .
.-. , . , .
S C 160S. INT RSTAT COMM RC AND D RAL INSTRUM N-
TALITI S. , . ,
A
(e) The egsature of any State may, wth respect to serrce to be performed
after December 31,19 5, and before anuary 1,1055, by a aborer, mechanc, or
workman. In connecton wth constructon work or the operaton and mantenance
of eectrca factes, as an empoyee performng servce for the Bonneve Power
Admnstrator (herenafter caed the Admnstrator), requre the Admnstrator,
who for purposes of ths subsecton Is desgnated an Instrumentaty of the Unted
Stntes, and any such empoyee, to make contrbutons to an unempoyment fund
under a State unempoyment compensaton aw approved by the Board under
secton 100. and to compy otherwse wth such aw. Such permsson Is sub|ect
to the condtons mposed by subsecton (b) of ths secton upon permsson to
State egsatures to requre contrbutons from Instrumentates of the Unted
Stntes. The Admnstrator Is authorzed and drected to compy wth the prov-
sons of any appcabe State unempoyment compensaton aw on behaf of the
Unted States as the empoyer of Indvduas whose servce consttutes empoyment
under such aw by reason of thta subsecton.

S C. 1607. D INITIONS.
When used n ths subchapter
(a) mpoyer. The term empoyer does not Incude any person uness on
each of some twenty days durng the ta abe year, each day beng n a dfferent
caendar week, the tota number of Indvduas who were empoyed by hm n
empoyment for some porton of the day (whether or not at the same moment of
tme) was Heght four or more.

(m) Certan mpoyees of Bonneve Poweb Admnstrator. The term
empoyment sha Incude such servce as s determned by the Bonneve Power
Admnstrator (herenafter caed the Admnstrator) to be performed after De-
cember 31,1 5, and before anuary 1,1955, by a aborer, mechanc, or workman,
n connecton wth constructon work or the operaton and mantenance of eec-
trca factes, as an empoyee performng servce for the Admnstrator. The
term wages means, wth respect to servce whch consttutes empoyment by
reason of ths subsecton , such nmount of remuneraton as s determned (sub|ect
to the provsons of ths secton) by the Admnstrator to be pad for such servce.
The Admnstrator s authorzed and drected to compy wth the provsons of
the Interna revenue aws on behaf of the Unted States as the empoyer of
ndvduas whose servce consttutes empoyment by reason of ths subsecton.
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t . _ . r
I . -I I ..I . .-
. PARTY.- , . .
..:.... , 1
ADMINISTRATI AND MISC LLAN OUS
MATT RS
CUTI ORD R 10551
Inspecton of Income, e cess-profts, decared vaue e cess-profts,
capta stock, estate, and Rft ta returns by the Commttee on d-
ucaton and Labor of the House of Representatves.
By vrtue of the authorty vested n me by sectons 55(a), 50 ,603,
729(a), and 120 of the Interna Revenue Code (53 Stat. 29, 111, 171
6 Stat 9 9,100 55 Stat 722: 26 U. S. C. 55(a),50 , 603,729(),
and 120 ), t s hereby ordered that any ncome, e cess-profts, de-
cared vaue e cess-profts, capta stock, estate, or gft ta return
for the years 19 7 to 1953, ncusve, sha, durng the ghty-thrd
Congress, be open to nspecton by the Commttee on ducaton and
Labor of the House of Representatves, or any duy authorzed sub-
commttee thereof, n connecton wth ts studes of wefare and pen-
son funds wth a vew to ntatng egsaton to protect and conserve
these funds for the benefcares, sub|ect to the condtons stated n
Treasury Decson 606 , reatng to nspecton of returns by certan
commttees of the Congress, approved by me ebruary 11, 195 .
Ths ecutve order sha be effectve upon ts fng for pubca-
ton n the edera Regster.
DWTOHT D. S HOW t.
TH WHIT HOUS ,
August 6,195 .
( ed wth the Dvson of the edera Regster August 6, 105 , 3: 7 p. m.)
CUTI ORD R 1056
.
Inspecton of Income, e cess-profts, decared vaue e cess-profts,
capta stock, estate, and gft ta returns by the Commttee on the
udcary of tbe House of Representatves.
By vrtue of the authorty vested n me by sectons 55(a), 50 , 603,
729(a), and 120 of the Interna Revenue Code (53 Stnt 29, 111, 171
6 Stat. 9 9,100 55 Stat 722 26 U. S. C. 55(a), 50 ,603,729(a), and
. 120 ), t s hereby ordered that any ncome, e cess-profts, decared
vaue e cess-profts, capta stock, estate, or gft ta return for the
years 19 1 to 1953 ncusve, sha, durng the ghty-thrd Congress,
be open to nspecton by the Commttee on the udcary of the House
of Representatves, or any duy authorzed subcommttee thereof, for
the purpose of carryng out those provsons of House Resouton 50
C33310 53 17 (731)
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732
( 3d Cong., 1st sess.). agreed to ebruary 2 , 1953, reatng to the
conduct of studes ana nvestgatons wth respect to matters wthn
the |ursdcton of such commttee under cause 12(f) of rue I of
the Rues of the House of Representatves, adopted anuary 3,1953, n
accordance and upon compance wth the rues and reguatons pre-
scrbed by the Secretary of the Treasury n Treasury Decson 606
C. B. 195 -1, reatng to the nspecton of returns by certan com-
mttees of the Congress, approved by me ebruary 11, 195 .
Ths ecutve order sha be effectve upon ts fng for pubcaton
n the edera Regster.
. . DWIOHT D. NHOW R.
The Whte House,
.September A ,195 . - -
( ed wth the Dvson of the edera Regster September 2 ,105 , 2:1 p. m.)
CUTI ORD R 10572
Inspecton of Income, e cess-profts, decared vaue e cess-profts,
capta stock, estate, and gft ta returns by the Senate Commttee
on Labor and Pubc Wefare
By vrtue of tho authorty vested n me by sectons 55(a), 50 ,
003, 729(a), and 120 of the Interna Revenue Code of 1939 (53 Stat,
29, 111, 171 5 Stat, 9 9,100 55 Stat 722 26 U. S. C. 55(a), 50 ,
603, 729(a), and 120 ), t s hereby ordered that any ncome, e cess-
profts, decared vaue e cess-profts, capta stock, estate, or gft ta
return for the years 19 7 to 1953, ncusve, sha durng the ghty-
thrd Congress, be open to nspecton by the Senate Commttee on
Labor and Pubc Wefare, or any duy authorzed subcommttee
thereof, n connecton wth ts studes of wefare and penson funds
wth a vew to ntatng egsaton to protect and conserve these
funds for the benefcares, sub|ect to the condtons stated n Treasury
Decson 606 , reatng to nspecton of returns by certan commttees
of the Congress, approved by me ebruary 11,195 .
Ths ecutve order sha be effectve upon ts fng for pubca-
ton n the edera Regster.
Dwoht D. senhower.
The Whte House,
October 26,195 .
( ed wth the Dvson of the edera Regster October 27,105 ,10: a. m.)
CUTI ORD R 1057
Amendment of ecutve Order No. 10 0 provdng for the
admnstraton of the Defense Mobzaton Program.
By vrtue of the authorty vested n me by the Consttuton and aws
of the Unted States, ncudng the Defense Producton Act of 1950,
as amended (50 U. S. C. App. 2061 et seq.), and as Presdent of the
Unted States, t s ordered as foows:
A 1 . . 930 C H, 19S Snpp., p. .
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733
.. Sec. . Any reference n.-any reguaton or other ecutve docu-
ment ssued or approved by the Presdent to any provson of the Inter-
na Revenue Code of 1939 sha, e cept as may be nconsstent wth
. the Interna Revenue Code of 195 or otherwse napproprate, be
deemed aso to refer to the correspondng provson of the Interna
Revenue Code of 195 . . .
Dwoht D. se howeb.
The Whte House
November 6, 195 .
( ed wth the Dvson of the edera Regster November ,1951,10:0 a. n.)
D PARTM NT O TH TR ASURY- :
TR ASURY D PARTM NT ORD R NO. 150-36
Deegaton of functons created by the Interna Revenue Code
of 105 .
1. By vrtue of the authorty vested n me by Reorganzaton Pan
No. 20 of 1950 md secton 7ho I (a) of tho Interna Revenue Code of
195 , each dcegat on of authorty, and each rodcegaton of authorty
made pursuant to such deegaton, whch
(1) was n effect mmedatey precedng the enactment of the
Interna Revenue Code of 195 , and
(2) was contnued n effect upon the enactment of the Interna
Revenue Code of 195 pursuant to the provsons of secton 7 51 (b)
(3) of such Code,
h
s hereby amended to ncude any addtona or revsed functons
created or authorzed by the Interna Revenue Code of 195 whch are
essenta to the performance of, or are drecty reated to, any functon
ncuded n such deegaton or redeegaton of authorty. ach dee-
gaton or redeegaton of authorty so amended sha be sub|ect to
amendment, modfcaton, or revocaton to the same e tent, and n the
same manner, as authorzed mmedatey precedng ts amendment by
ths Order.
2. The precedng paragraph sha not be construed as deegatng
to any offcer or empoyee of the Interna Revenue Servce any func-
ton e stng under the Interna Revenue Code of 195 whch corre-
sponds to any functon whch e sted under the Interna Revenue Code
of 1939 and whch mmedatey precedng the enactment of the In-
terna Revenue Code of 195 has not been deegated by the Secretary.
3. Ths order sha be effectve on the day after the date of enactment
of the Interna Revenue Code of 195 .
M. B. osost,
Actng Secretary of the Treasury.
Dated August 17,195 .
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,. 73
. COMMISSION R S R ORGANIZATION ORD R NO.
Deegaton of authorty to conduct a dstrant sae of rea estate
at a pace more .than fve mes dstant-from the estate sezed.
Pursuant to the authorty vested n me as Commssoner of Interna
Revenue, t s hereby ordered:
1. The functon vested n the Commssoner of Interna Revenue
by secton 3701 (c) of the Interna Revenue Code to authorze a ds-
trant sae of rea estate at a pace more than 6 mes dstant from
the estate sezed s deegated to the Dstrct Drector of Interna
Revenue n whose Dstrct the estate s stuated.
2. Ths order sha be effectve as of uy 1,195 .
O. Gordon Dek,
Actnq Commssoner.
une 22, 195 ,
:
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735
ANNOUNC M NT O TH DISBARM NT AND SUSP N-
SION O ATTORN YS AND AG NTS ROM PRACTIC
B OR TH TR ASURY D PARTM NT
Under secton 261, Tte 5 of the Unted States Code, the Secretary
of the Treasury, after due notce and opportunty for hearng, s
authorzed to suspend or dsbar from further practce before the
Treasury Department any person, agent or attorney shown to be n-
competent, dsreputabe, or who refuses to compy wth rues and
reguatons governng the recognton of agents, attorneys or other
persons representng cents before the Treasury Department, or who
n any manner has wfuy and knowngy deceved, msted or threat-
ened any cent or prospectve cent by word, crcuar, etter, or ad-
vertsement. nroed persons are prohbted n any Treasury De-
partment matter from drecty or ndrecty empoyng, acceptng
assstance from, beng empoyed by, or sharng fees wth, any person
dsbarred or under suspenson from practce before the Treasury De-
partment To enabe enroed persons to dentfy such dsbarred or
suspended persons, the Interna Revenue Servce w announce n the
Interna Revenue Buetn the names and addresses of persons who
have been dsbarred or suspended from such practce, ther desgna-
ton as attorney, agent or other representatve, and the date of ds-
barment or perod of suspenson. Ths announcement w appear n
the weeky Buetns at the earest practcabe date after such acton
and w contnue to appear n the weeky Buetns for a perod of
2 months for each agent and attorney so suspended or dsbarred and
w ater be consodated and pubshed n the Cumuatve Buetn.
The foowng persons, after due notce and opportunty of hear-
ngs, have been dsbarred from further practce before the Treasury
Department:
Address
Desgnaton
DtA of dUba.-1-ft::
Rupert . Buckaew
Lynn W. rayn
Cyrus H. Grett
red H. Hcrskovt.
CUrk W. Renhardt.
Wam B. Soba
217 ast 10th St., Daas,
Te .
5 West Monroe St.,
Chcago, 111.
633 Coe St., Corpus
Chrst , Te .
21 7th Ave., New York,
N. Y.
Medna, Oho...........
71-37 1 7th St.. ew
Carden Hs, ueens,
N. Y.
Agent
Agent.
Agent.
Agent.
Agent.
Agent.
Aug. 11, 5 .
Aug. 11, 195 .
eb. ,165 .
Mar. 2 , 5 .
uy 2 , 1 5 .
Aug. 10, 195 .
The foowng person, after due notce and opportunty of hearng,
has been suspended from practce before the Treasury Department for
the perod stated:
SUSP NSION
Num
Address
Desgnaton
Perod of svpr moa
Mary zabeth Pren-
tce
3 North Hgh St., Co-
umbus, Oho.
Attorney
our years, from
Apr. 15,1953.
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r-. r:. .-
-It. a,.
IND . . : , - ....

A : rm
Abandonment, when oss deductbe ........ ........... 112
Accountng methods, mutua savngs banks, purchase dscounts on nsta-
ment mortgages, composte bass.................................. 109
Accountng perod:
stabshment of caendar or fsca year.. ..... ......... 110
Short ta abe year, duo date of return, Reguatons 11 amended .. 113
Ad|usted bass:
Beow cost of property......... ..... ........... ..... 1
Deprecabe property, e empt corporaton... .. .............. 163
ecton to reduce bass, e cessve deprecaton, e tenson, Regua-
tons 11 amended ....... .......... ........... 137
Admnstraton and procedure:
Appcabty of provsons of 1939 Code to 195 Code 733
Cv actons for recovery of ta es, dstrct courts, tra by |ury.
Pubc Law 559 597
Deegaton of authorty to Dstrct Drectors, dstrant sae of rea
estate . . 73
Practco before Treasury Department . . 735
Rues, revew of Ta Court decsons, Pubc Law 53 ........... 597
Sezure of automobes, voaton of wagerng ta aws . 399
Stopgap Reguatons prescrbed to contnue n effect e stng regua-
tons and deegatons of authorty to the e tent consstent wth
the provsons of the Interna Revenue Code of 195 7
Agents. (See Attorneys and agents.)
Acoho ta :
Advertsng: -
Booket advertsng acohoc beverages, dstrbuton to con-
sumer . ..................... ... sso
. Brochure of dsters merchandse, cooperatve bass.... 5 1
Isdo sgns and froo sampes furnshed to retaers, A A Regua-
tons No. 0 amondod..................................... 57
Mat bovoragos:
Prohbted statements................ ................... 503
tamn content 693
Matera empoyed In advertsng oonsmncr contosts........... 671
. Outdoor sgns n cortan Staes.............................. 5U2
. . Outndo sgns . ........ ............... .. 573
. Producers, Importers, whoesaers, Inducements to ndvdua
retaer ........................................ 579
Prohbted statements 591
Promotona pans, dscounts by whoesae quor deaers to
consumers . . 577
. Referrng to genera ne or specfo brand, Informaton shown.. 590
Retaer s contrbutons by brewers, Importers, whoesaers,
ntrastate mat bevcrago transactons...................... 57
Acoho:
. Competey denatured, formuae, Reguatons (Append )
, amendoa............... ........ .............. 507
Msceaneous amendments, Reguatons 3 amended 1
- Neutra sprts wth favorng, bendng materas added to
straght whsky bonds................................... 5
Ta -froo:
or frst ad, emergency core to pant empoyees...... .... 509
Recovery by redstaton... ......... ........ . 509
Suppes on arcraft recprocatng foregn country.......... 72
Used by trade or vocatona schoos ... .......... 510
Used In rubbng acoho .................... 509
Transportaton, semtraer carred by raroad S0
(737)
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73
Acoho ta Contnued -... ,.. .
Bendng, pure frut brandes produced at dfferent dsteres.. . 60
Bonds:
Consent of surety, new ocaton, speca denatured permttee... 61
port, one bond e ecuted to cover wthdrawas from more than
one warehouse........ .... .. .... ........ 73
Pena sum, vaue of a budngs on dstery premses . 56
Bottes:
Gass contaners encased n nonremovabe cases............... (03
Indca: .
Dsposa as cuet.... ........:................ . 65
portaton . 05
Breweres, used to produce soft drnks, Reguatons 1 amended.....
Cams:
Deegaton of authorty, Reguatons 3, , 5, 7,10,11,15,16,1 ,23
amended , . ...... 7
Drawback:
ed by arnes, quors wthdrawn for suppes on arcraft.
Reguatons 21, 2 , 2 , 31. amended . 5 2
Hosptas usng ta pad acoho.......................... 601)
Redempton, beer stamps................................... 0
Refund, beer stamps . ............................. 60
Refund of vaue, speca ta stamps ost or destroyed......... 665
Contaners:
Bottes, cases, dsted sprts, szes ndcated by etters precedng
sera numbers ... .................. 73
Gass, nonremovabe outer cases, ta pad stamp............... 5G3
: Poyethyene drums ...................... .--.....-.. 79
Separate compartments for transferrng brandy and wne....... 70
Denaturng pants:
Gaugng of denatured acoho removed In tank cars or tank trucks. 61
Industra, operatons permtted wthout supervson of storc-
kcepcr-gaugcr, Reguatons 3 amended..................... 02
Dsted sprts:
Bottes, cases, dstngushed by etters precedng sera numbers.. 73
Brandy, transferred n tank car wth wne, separato comparU
menta.................................................. 70
Commngng of homogeneous gn............................ 602
Destructon, -yoar torage penod........................... 00
Domestc, sae to foregn consuar offcers and dpomatc Offcas.. CO
avored gn bass, wne percentage.......................... 6 7
Lees brandy dsted from wne resdue....................... 50
Neutra sprts abe 69
Reducton n proof, percoaton through oak chps............. 657
Reducton, wth treated dcmnerazed water.................. 01
Regon Indcated on cases..... . ...................... 60
Returned or e changed for ke quantty...................... 601
Rye mash whsky packaged n paraffn ned cooperage, desgna-
ton and use . ....... ................. ... 0
Sampes, wthdrawa from bonded warehouses ........ 67
Stamp on bottes bearng words ght Communsm .......... 6 0
Sweetened and favored vodka as queur ............. 6 0
Ta -free, suppes on arcraft recprocatng foregn country...... 72
Ta pad, reabeng ................ 6
Transfer, storage n bond, pendng ta payment . ..... 657
odka produced from gran, cassed as Neutra Sprts Gran.. 72
Wthdrawa free of ta , use on vesses and arcraft. Reguatons
10 amended .. .......... . ................ 517
Dsteres:
. orms, formuae for cordas, queurs, and smar compounds
contanng wne (ncudng vermouth), approva ... . 3
: rut:
Brandes produced at dfferent dsteres, bendng . 60
Brandy, neutra brandy produeed from frut cores, pees.... 62
Resdue used n producton of brandy, desgnaton . 6
Regstered, abeng whsky shpped from one State to another
State for redstaton.... ................. 70
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Acoho ta Contnued
portaton:
Drawback, suppes on Teases and arcraft. Reguatons 2 and
31 amended................................... .....
ermented mat quors, brewer s sgnature on orm 16 9......
ermented mat quor: . ,
Beer
Advertsng n certan States......... ......... ..........
Appcaton for e portaton, orm 16 9, brewer s sgnature.
Reference to vtamn content n advertsements...........
Taste testa advertsements............................
Ta -free:
As shp s suppes, orders socted and devery made by
company other than brewer ......
Suppes on arcraft recprocatng foregn country .
Use on vesses and arcraft, Reguatons 1 amended...
orms:
230 and 237, nformaton shown, rectfer bottng sprts under
dfferent trade names.. ...... ...........
. _ 1632, stng of State permts and censes............. ......
16 7, Certfcate of Labe Approva, Appcaton, to Incude strp
abes...
16 9, brewer s sgnature ........................
ormua for eggnog, ngredents used
. . . Whoesaer s baso permt, orm 1633, use of secondary or trade
name.......... .
Importaton, cordas reduced In proof after recept n Unted States,
. nformaton on abca.................................. .....
Industra acoho pants:
Operatons permtted wthout supervson of storokecper-gauger,
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Reguatons 3 amended ..
Wthdrawa of ta -free acoho for pant empoyees frst ad,
emergency care..................................... -.-
Labeng:
Mended wne, red muscate . ................
By whoesae quor deaer ......... . ....... .....
Dsted whsky transferred from one State to anothor State for
redstaton and bottng.................................
Dster s rcn and trado names............................
Dry martn cocktas contanng oss than 25 percent vermouth.
avored vodka, quour.................... ...........
rut favored brandes ...............................
Grape wno, typo desgnaton... .... ............
Imported beverages, approva certfcates.....................
Mat beverages, prohbted statements........................
Neutra sprts or acoho ...........................
.. Reabeng of ta pad dsted sprts . .........
Rye mash whsky packaged n paraffn ne cooperage.. .
Strp, by botter of wnes, dsted sprts, mat beverage for
whoesae, reta quor deaer . .........
,. ermouth bended but not produced by wne bender ....
odka produced from gran, cassed as Neutra Sprts Gran...
Wno made from scuppcrnong grapes ........... .
Wne, produced n Unted States as Tokay .. . -
Labes, nformaton shown, mported cordas reduced n proof ater
recept n Unted States.......................... . .
Marks and brands:
Desgnaton of brandy produced from frut resdue... .......
Dsposa of unusabe ndca bottes as cuet ...............
portaton of empty ndca bottes . ......... ....
Imported sprts, obterated at rectfyng pant.. .
Regon ndcated on cases of dsted sprts.... . ....
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Icoho ta Contnued .: . - .: .- tttA
Materas: . .
Actvated carbon added to whsky to bA botted-n-bond 75
Cores, pees of frut used n producton of brandy, neutra brandy. 62
Dred cherres and crushed peach pts, use n apertf wne 6 2
Neutra frut resdue brandy used n producng frut-favored
brandes . 5 6
Use of wne n manufacture of gn .................. 5 7
Wne resdue, dstaton of ees brandy..... ..... ........ 59
Wne, use n rye queur, bourbon queur, rock and rye... . 6 5
Wnes, mtaton on sweetenng, sods content................ 7
Permts:
Amended basc, change n ocaton . 570
Amended, speca denatured acoho permttee, change of prem-
ses . .. . . ......... 51
Basc:
orm 1636, wne bender, abeng vermouth not of hs
producton . 5 5
Issuance, revocaton, suspenson, annument:
Reguatons 3 and Part 171 amended . .... 611
Reguatons 13 amended . . 65
Issuance to appcant convcted of Sherman Ant-Trust vo-
atons... ..._. . . 669
Termnaton, change n controng stock nterest of corpora-
ton 670
Importer s basc:
Coverng ocaton from whch saes of mported beverages
are made .. . 56
arous ports of entry . 567
. Snge, ssued to potca subdvson for use of ta -free acoho at
ts hgh schoos . ..... ........ ...... . 510
Whoesaer s basc:
- - Coverng ocaton from whch saes of mported beverages
are made........................................... 56
orm 1633:
Corporaton dsposng of former partnershp products.. 559
Use of secondary or trade name . ........ 56
Lstng appcant s State permts and censes. . . 56
Propretary sovents, saes by agent .. . . 0
Records, whoesae quor deaer, mcrofm nvoces................ 63
Rectfyng pants:
Labeng dry martn cocktas dstngushed from reguar martn
cocktas . 61
Lunchrooms on premses for use of empoyees . . . 60
Mantenance of records recept and custody of strp stamps,
degree of supervson requred of storekeeper-gaugers, Regua-
tons, , 5, 10, 11, and 15 amended . 523
Manufacturng eggnog, ngredents used...................... 57
Obteratng marks and brands on packages of mported sprts 6
Spansh typo bendng sherry used n ta abe rectfcaton of
brandy, wne .......... 77
Sprts botted under dfferent trade names.................... 59
Reta quor deaers:
Credt servce offered under franchse for partcuar ne of
quon.................................... ....... 676
Dsted sprts or wne returned to whoesaer for ke quantty.. 661
Gfts furnshed by whoesaer ........... ........ . 670
Labty for ta , arne servng quor to passengers............ 55
Returns, speca ta , orm 11, fed by successor trustee ......... 563
Saes, by agent of propretary sovents ... 0
Speca ta , e empton from, by wnemaker, saes at branch offce.... 660
Stamp bearng words ght Communsm ....................... 6 9
Stamps:
Speca ta :
Lost or destroyed, cam for refund of vaue . 665
Successor corporaton seng products of former partnershp. 659
Trustee s rght of successon............................. 663
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Acoho ta Contnued U . . ...
Stamps Contnued - ___
Strp, method of aff ng, decanter-type eontanera:. ....._..._ 7
Ta pad, gass contaners packaged n nonremovabe eases.. 663
States, aws regardng ntrastate mat beverage transactons between
brewers, Importers, whoesaers and retaers... . 57
Tanks, underground, nfammabe sovents on denaturng pant prem-
ses... . .......I...........: 63
Ta es:
Labty for, arne servng quor to passengers........ ...._ A 5
- Rectfcaton: - -
ompton, bended pure frut brandes............. 50
Use of treated demnerazed water In reducton of dsted
sprts ... 61
Refunds, vermouth wthdrawn from customs, returned to shpper .
n foregn country 75
Ta pad bottrg houses, mantenance of records recept and custody
of strp stamps, degree of supervson requred of storekeeper-
gaugcrs, Reguatons , 5, 10, 11, and 15 amended ...... ... 523
Transfer:
Brandy and wne In separate compartments of tank car........ 76
Raroad tnnk cars, route boards _ 92
Transfers, tank truck, specay denatured acoho and propretary
sovents . m 79
oatons:
Advertsng: f
Outsde sgns panted n o on wndow..... . ......... 573
Prohbted statements....... ............. .. 591
Advertsements:
Bboards or spectacuar sgns.... . 572
Booket contanng back teephone drectory and recpes
dsters advertsement on back cover:...-. 572
Laudatory, conspcuous references to, ustratons of
reta estabshment . ... 573
- Brandy, wne bendng, use of Spansh type bendng sherry . 77
- Brochure, cooperatve advertsng of dsters merchandse 5 1
- Credt servce offered under franchse for partcuar ne of
quors | _ 575
- Dstrbuton to consumer, booket advertsng acohoc bever-
APA :. 5 0
Gts to retaers ... ... _ . 573
- Gratutes to trade-buyer empoyee groups, contrbutons for
advertsng In retaer s pubcatons . 579
Intrastate mat beverage transactons, between brewers, m-
porters, whoesaers and retaers . . 57
Mandatory nformaton, promotona advertsng, consumer
contests . . 571
Partcuar brand of whsky returned by monopoy state.r I 5 3
Payment of dues by whoesaers to whoesaer-retaer assoca-
ton 577
- Promotona pans, dscount by whoesae quor deaer to con-
sumer ......... 577
Reference to vtamn content n advertsements of mat bcveragcs 592
Tasto tests advertsoments of mat beverages 52
Whoesaer s e cusve rght to uso credt corporaton s brand
name ... . # 1
Wne decanters, havng musca movements, unawfu Inducement. 575
Warehouses:
Industra acoho bonded:
Ta -free acoho for use on vesses and arcraft, Reguatons
3 amended ... . 517
Ta -free acoho wthdrawn for use n frst ad, emergency
care to pant empoyees.............. . .. . 500
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Acoho ta Contnued .- . : :-. . . -
Whoesae quor deaers: -, . ,_ ..
Dster corporate, dvson, secondary, trade -names, on .oaso
permt... .. ..A . .............. . A 6
Dues pad to whoesaer-retaer assocaton................... 577
Mcrofm nvoces retaned on premses....................... 63
Interna revenue bonded: ,
Actvated carbon added to whsky to be botted-In-bond . 75
ght-year storage perod, destructon of sprts.... . 69
One bond e ecuted to cover wthdrawas from more than
one warehouse . . . ... ...... ... 73
Sampes wthdrawn.. . ........ ..... . 67
Pacng own brand abe on dsted sprts . . . 5
Royaty arrangement grantng use of credt corporaton s brand
name.. ................................... A 1
Wne:
Apertf, dred cherres and crushed peach pts, use n manu-
facture .A _ 5 2
Bended, abeng red muscate......... . . 6 3
Cordas, queurs, and smar compounds contanng wne (n-
cudng vermouth), approva of formuae . . . 3
, Decanters havng musca movements, unawfu nducement.... 575
ggnog, desgnaton . . ..... ... 57
ormua for manufacture of champagne .. .... 622
Grape type desgnaton, scuppernong grapes..... ......... 5
Labeng:
Produced n Unted States as Tokay .:.. 6
Type desgnaton ... ..... . . 5 3
Refortfcaton for bendng purposes . ......... . 76
Returned or e changed for ke quantty. . A 61
Storerooms, bonded, bender abeng vermouth not of hs pro-
ducton..............................I.................. 6 5
Ta -free:
Refused by steamshp companv, returned to bonded wnery. 77
. Suppes on arcraft recprocatng foregn country.......... 72
. .. Use on vesses and arcraft, Reguatons 7 amended........ 617
Tota sods content, mtaton on sweetenng.... ... 7
Transferred n tank car wth brandy, separate compartments . 70
Use n rye queur, bourbon queur, rock and rye . . 5 5
Use of cufe or smar products to remove trace metas .. . 57
ermouth or apertf wne, sods content . ... . 77
Wneres, offce ocated n another cty, e empt from speca ta ... 660
Aens (nonresdent):
mpoyees of foregn governments, e t permts................... 23
oregn students n Unted States durng schoo year.... ....... 2
Offce desgnated for fng returns. Reguatons 11 amended........ 69
Termnaton of ta abe year of a departng aen ........ 3
Aens (resdent), termnaton of ta abe year of a departng aen........ 3
Amendments:
AA Reguatons No. 6:
Sectons 6.23, 6.23a (added), 6.29 57
Msceaneous Reguatons Reatng to Lquor:
Secton 171.1(b) (revoked), Subpart A, Part 171 (revoked) . 511
Reguatons 3:
Append ......... ........... .. . .. . 507
Sectons 1 2.15a, 1 2.26, 1 2.27, 1 2.2 , 1 2. 9, 1 2.52, 1 2.6 ,
1 2.69, 1 2.72, 1 2.73, 1 2.7 , 1 2.75. 1 2.7 , 1 2. 1, 1 2. 2,
1 2.9 , 1 2.9 , 1 2.323, 1 2.335, 1 2.3 1, 1 2.3 3, 1 2.3 5,
1 2.3 6, 1 2.3 7, 1 2.352, 1 2.353, 1 2.35 , 1 2.391, 1 2.392,
1 2.397, 1 2. 3, 1 2. , 1 2. 50, 1 2. 56, 1 2. 6 , 1 2.571,
1 2.57 e, 1 2.57 q, 1 2.6 3, 1 2.727, 1 2.730, 1 2.731,
1 2.73 (b), 1 2.7 9, 1 2.7 9a, 1 2.750, 1 2.751, 1 2.752(b).
1 2.752a, 1 2.752b, 1 2.752c, 1 2.752d, 1 2.753, 1 2.75 ,
1 2.75 b, 1 2.75 c, 1 2.762, 1 2.76 , 1 2.7 1,1 2.7 3, 1 2.7 ,
1 2.7 5, 1 2.7 7(e), 1 2.7 , 1 2. 00, 1 2. 20, 1 2. 7(a),
1 2.916, 1 2.91 , 1 2.927 92
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7 3
Amendments Contnued h.- A --.: . .
Reguatons 3 Contnued | . A.-.., Tw
Sectons 1 2.212 (revoked). 1 2.5 , 1 2.60, 1 2.7 , 1 2. 0.
1 2. 5, 1 2.9 , 1 2.9 . 1 2.99. 1 2.102, 1 2.136, 1 2.16 ,
1 2.17 , 1 2.1 6, 1 2.262, 1 2.263, 1 2.263a (added), 1 2.293,
1 2. 01b, 1 2. 05, 1 2. 96, 1 2.612, 1 2.51 , 1 2.527, 1 2.5 ,
1 2.57 a, 1 2.57 d, 1 2.653, 1 2.660, 1 2.66 , 1 2.677, 1 2.719,
1 2.729,1 2.730, 1 2.7 9,1 2.7 9a, 1 2.750, 1 2.751,1 2.752a,
1 2.752b, 1 2.752c, 1 2.752d, 1 2.753, 1 2.75 , 1 2.7 ,
1 2. 06, 1 2. 12, 1 2. 29, 1 2.90 , 1 2.93 , 1 2.963 1
Sectons 1 2.220, 1 2.226, 1 2.227a (added), 1 2.23 a (added).
- - 1 2.23 , 1 2.2 0, 1 2.262, 1 2.265, 1 2.266, 1 2.2 2a, 1 2.292,
1 2.55 , 1 2.656, 1 2.690, 1 2.7 7, 1 2. 32 511
Sectons. 1 2.220a, 1 2.220b, 1 2.221 through 1 2.225,1 2.22 (a),
1 2.236(b), 1 2.237, 1 2.239, 1 2.2 0a, 1 2.2 0b, 1 2.2 1
through 1 2.2 , 1 2.2 6 through 1 2.25 , 1 2.263, 1 2.26 ,
1 2. 55a, 1 2. 75(0, 1 2. 59 are revoked 511
Sectons 1 2.33 , 1 2.339, 1 2.3 2, 1 2.3 , 1 2.3 9, 1 2.351,
1 2.361, 1 2.396, 1 2. 1 , 1 2. 5 , 1 2.7 1, 1 2.761, 1 2. 0 ,
1 2.933, 1 2.93 are revoked 92
A . -, Sectons 1 2. 13, 1 2. 20, 1 2. 22, 1 2.57 m, 1 2.612, 1 2.617.
1 2.61 , 1 2.631, 1 2.639, 1 2.6 0, 1 2.771 7
Sectons 1 2.630a, 1 2.630b, 1 2.630 1, 1 2.630m. . Sr
Reguatons :
- . Sectons 1 3. 5 , 1 3.55 /, 1 3.595, 1 3.599, 1 3.600, 1 3.601,
1 3.603, 1 3.610, 1 3.617, 1 3.619 7
Sectons 1 3.552, 1 3.553, 1 3.55 k 523
Reguatons 5:
Sectons 1 . 99, 1 .550, 1 .59 f, 1 .650, 1 .65 , 1 .655,
1 .656, 1 .65 , 1 .670, 1 .677, 1 .679 . 7
Sectons 1 .593, 1 .59 , 1 .59 k 523
Reguatons 5 (Narcotcs):
Artces 00, 02, 03, 9 , 95, 06 0
Reguatons 7:
Sectons 17 .200, 17 .207 (revoked), 17 .29 , 17 .309, 17 .310.. 517
, Sectons 17 .36 , 17 .37 , 17 .376. 17 .377, 17 .37 . 17 .399.
17 . 11, 17 . 3b, 17 . , 17 . 6, 17 . 7, 17 . 9 - 7
Reguatons 10:
-: Sectons 1 5.272, 1 5.626, 1 5.635, 1 5.657 623
Sectons 1 5. 0, 1 5. 2, 1 5. , 1 5. 7, 1 5. 9, 1 5. 91
I... (revoked), 1 5. 92,1 5. 93,1 5. 9 ,1 5.67 , 1 5.796, 1 5. 51,
1 5.972 7
Sectons 1 5. 15, 1 5. 15a (added), 1 5. 19, 1 5. 20 517
Reguatons 11:
Sectons 1 9. 5, 1 9.5 , 1 9.60, 1 9.61, 1 9.62, 1 9.63, 1 9.65,
1 9.66, 1 9.155, 1 9.156, 1 9.166, 1 9.170, 1 9.1 5, 1 9.191
(revoked), 1 9.192, 1 9.193 (revoked), 1 9.19 , 1 9.195,
1 9.206, 1 9.213, 1 9.229, 1 9.230, 1 9.231 (revoked), 1 9.232
(revoked), 1 9.233, 1 9.23 , 1 9.235 (revoked), 1 9.2 0,
1 9.2 2 (revoked), 1 9.2 3 (revoked), 1 9.256a (added),
1 9.257 (revoked), 1 9.25 (revoked), 1 9.259, 1 9.261,
1 9.290, 1 9.302a (added), 1 9.302b (added), 1 9.305, 1 9.335,
1 9.336, 1 9.337, 1 9.3 6, 1 9.3 7, 1 9.357, 1 9.366 523
Secton 1 9.2 1 7
Reguatons 13:
Sectons 175.10 , 175.109 (revoked), 175.110 (revoked), 175.111
(revoked), 175.113, 175.11 (revoked) 65
Reguatons 15:
Sectons 190.9 , 190.11 , 190.119, 100.120. 190.121, 190.122,
190.12 , 190.126, 190.127, 190.12 , 190.131, 190.132, 190.133,
190.13 , 190.137, 190.15 , 190.3 5, 190.3 6, 190. 06, 190. 07
190. 0 , 190. 11, 190. 12, 190. 25, 190. 25a (added), 190. 25b
(added), 190. 25o (added), 190. 33 (revoked), 190. 3 ,
190. 35 (revoked), 190. 36, 190. 37, 190. 33, 190. 5, 190. 7,
through 190. 9 (revoked), 190. 0, 190. 2, 190. , 190.50 ,
190.566, 190.567, 190.50 , 190.573, 190.575, 190.579, 190.5b0,
190.6 2, 190.5 6, 190.5 , 190.5 9, 190.593, 190.653, 190.65 ,
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Amendments Contnued -..: 0 |- W c , ,
Reguatons 15 Contnued ._. . - . . . . I
Sectons Contnued - . .-f - pA|,
190.6 5, 190.6 7, 100.6 , 190.6 9, 190.690, 190.692 (re-
voked), 190.693, 190.69 , 190.695, 190.701, 190.703, 190.706,
190.73 , 190.739, 190.7 6, 190.753, 190.75 , 190.755 (revoked),
190.756 (revoked), 190.757, 190.75 , 190.759 (revoked),
190.76 , 190.76 (revoked), 190.767 (revoked), 190.7 1a
(added), 190.7 2 (revoked), 190.7 3 (revoked), 190.7 ,
190.7 5,190. 37a (added), 190. 37b (added), 190. 3 , 190. 39,
190. 2,190. 95,190.900a, 190.900b, 190.902, 190.90 , 190.920,
190.921,190.922, 190.925,190.927, 190.92 , 190.9 2, 190.966.. 523
Sectons 190. 9, 190.720, 190.765 _. 7
Reguatons 16:
Sectons 1 7.291, 1 7.293, 1 7.295, 1 7.296, 1 7.29 7
Reguatons 1 :
Sectons 192.31, 192.32 ... ..
Sectons 192.367, 192.369, 192.37 , 192.37 7
Sectons 192.390, 192.390a (added), 192.39 . 617
Reguatons 21:
Secton 191.165 5 2
Reguatons 23:
Sectons 1 .69, 1 1.70, 1 1.7 , 1 1.75, 1 1.76 7
Reguatons 2 :
Sectons 1 0.93, 1 0.1 6, 1 0.2 6 . 6 2
Reguatons 2 :
Sectons 176. , 176.9 (revoked), 176.9a (added), 176.10, 176.16,
176.17, 176.17a, 176.17n, 176.17o (revoked), 176.17p, 176.1 ,
176.19, 176.21, 176.22, 176.23, 176.35, 176.37, 176.3 , 176.39,
176. 1,176. 5, 176. , 176. 9, 176.52,176.52a (added), 176.52b
(added), 176.5 , 176.55 (revoked), 176.57, 176.5 , 176.59,
176.65, 176.66, 176.70, 176.71, 176.76, 176.77, 176. 1, 176. 2,
176. , 176. 5 6 2
Sectons 176.11, 176.11a (added), 176. 7, 176.59 663
Reguatons 31:
Secton 199.3 (added) 653
Sectons 199. , 199. 9, 199.50 (revoked), 199.62, 199.72,
199.11 , 199.117, 199.11 , 199.119 (revoked), 199.203, 199.205,
199.206, 199.207, 199.209, 199.211 6 2
Reguatons 0:
Artce 17 2 0
Reguatons :
Sectons 319.5a (added), 319.27a (added), 319.2 a (added),
319.36(a), 319.66, 319. 1, 319.100
Reguatons 105:
Sectons 1.2. 1.16, 1.1 , 1.19, 1.20, 1.27 2 0
Sectons 1.17, 1.2 , 1. 7a 2 6
Sectons 1.2 (a)(3), 1. 7a, 1. 7b 295
Secton 1.71 307
Reguatons 107:
Sectons 03.203, 03.205, 03.213 367
Reguatons 10 :
Sectons 6.1, 6.2(b) 6.3a(a) 303
Secton 6.2(b)(3) 295
Reguatons 111:
Secton 29.2 -7 102
Secton 29.25-3 61
Secton 29.122- 179
Secton 29.505-1 276
Reguatons 11 :
Sectons 39.22(b) (13)-1, 39.25-2 61
Sectons 39.22(b) (16)-1 (added), 39.23(a)-, 39.23(q)- 6
Sectons 39.23(a), 39.23(m)-, 39.23(m)-15, 39.23(cc)-, 39. -3,
39. - , 39.51-1, 39.131 (b)-, 39.1 3-7, 39.217-1 69
Secton 39.2 (c)- 102
Secton 39. 6-1 113
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Amendments Contnued . . .:, . | :
Reguatons 11 Contnued . :A - ... t f
Sectons 39.112(b)(7)-, 39.112(b)(7)-3, 39.113(a) 1 9-1, 39.113-
(b)()-,39.113(d)-,39.127(c)-, 39.15 -1, 39.201-1, 39.201-
5, 39.201-6, 39.202-2, 39.203A-1, 39.203A-2 ... 137
Secton 39.113(a) (5)- . _, 160
Secton 39.116-2 .1 w. 169
Secton 39.122- . _ _. . _._.. _ 179
Sectons 39.12 B-1 through 39.12 B- (added), 39.172-1.
39.190-1 1S
Secton 39.1 (a)- ._ 236
Secton 39.505-1 _ 276
, , Sectons 39.500-3, 39.506-5, 39.506-7 .. _ 277
Sectons 39.3 01(a) (1)-1, 39.3 01 (a) (3)-, 39.3 01(b)-3, 39.3 01-
(b)-7, 39.3 01(b)- , 39.3 01(b)-9 (added), 39.3 01(b)-10
(added), 39.3 01 (c)- 32
Reguatons 12 :
Sectons 0 .203, 0 .206, 0 .20 , 0 .20 a (added) . 361
Reguatons 130:
Secton 0. 33(a)-2... 137
Sectons 0. 3.trbM (added), 0. 57-1, 0. 57-2 (added),
0. 59(0-1 (added) . 25
Reguatons 131:
. , Sectons 315.6, 315.11, 315.91 . 3
Stopgap Reguatons (Interna Revenue Code of 195 ) . . 7
Treasury Decson 5565 (C. B. 19 7-1, 125):
Secton 2.107a . 306
Treasury Decson 50 2 (C. B. 19 -2, 70) 179
Amortzaton:
Cost baseba payers contracts, purchase of entre cub . ..... 101
Deducton for gran storage factes, Reguatons 11 amended . 1
mergency factes, determnaton of net ncome of cooperatve,
t _ deducton for patronage dvdends . 132
Gran storage facty, constructon of new warehouse ad|acent to
e stng vurchousc owned by an affated corporaton . . 196
Annutes:
Ta abty, amounts deducted from saary payments of empoyees of
e empt corporaton... ._.__..._.___._._ . . . . . 5S
Armed orces:
Pay, combat zone servce, Reguatons 111 and 11 amended ..... 61
, Pay, members statoned n urope , . 6
Ta , abatement, credt, etc., deceased members, perod of abatement
e tended, Reguatons 11 amended . . 137
Assessment of ta , parta aowance of overasscssment . 216
Assocatons, natona farm oan and producton credt, nformaton returns
reportng dvdends, Reguatons 11 amended . . 236
Attorneys and agents, servce organzaton, condut or actua ta payer.... 51
Automobes, dsposed of after notce of edera ta en, sub|ect to warrant
for dstrant............... ............................. ......... 29
B
Back pay, attrbutabe to pror years, bona fde empoyment of an attorney
wth authorty to commence sut to coect . 13
Bad debts, methods of computng percentages used by banks n determnng
addtons to bad debts rcscrvo .. ............................. 90
Banks:
Methods of computng percentages used n determnng addtons to
bad debts reserve .. . . 90
Mutua savngs, dstrbuton of Interest to nonresdent aen not
engaged n busness n Unted States............ ..w. . 16
Bass:
,, New resdence purchased wthn 1 year after sae of od resdence. . 155
Property transmtted at death, benefcary of revocabe trust, Rcgua-
_. tons 11 amended .... . .... ....... . 160
,, , Reorganzaton, stock of new corporaton n hands of former bond-
hoder _ 152
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Bass Contnued Pus
- Stork, reorgansaton, controng Interest tn Canadan corporaton -
transferred.................................................. ISO
Benefcares:
Property In trust for chdren. Income ta abe to trust.............. M
Stock bonus, penson, proft-sharng pans, desgnaton of benefcares
by empoyee 239
Benefts under pans:
Death payment by empoyer .................. ......... 5
Wage contnuaton pans, wthhodng of ncome ta at source........ 29
Bonds:
Interest:
Issued by potca subdvson, compact confrmed by Congress.. 60
10-year restamped coupons detached from apanese Government
prewar doar bonds . 172
Unted States savngs, new bond ssued n name of benefcary.. A 0
Budng and oan assocatons, dstrbuton of earnngs to nonresdent aen
members not engaged n busness n the Unted States.......... ... 1
C
Capta assets:
Copyrghts, grant of e cusve rght to e pot.... ... ...... 17
Stocks and bonds, restamped coupons detached from apanese prewar
doar bonds ....... 172
Capta e pendtures:
Cost baseba payers contracts, purchase of entre cub............. 101
Repars to raroad equpment amortsed as emergency facty...... ,
Capta gans an osses:
Aternatve ta , computaton ................................ 177
states and trusts, property sod preparatory to termnaton trust,
proceeds currenty dstrbutabe................................ 237
Indvduas:
Reaty, hodng perod 177
Restamped coupons detached from apanese Government prewar
doar bonds . 172
Property 117(|) treatment:
Ar rghts casement granted over porton of farm.. ..... ...- 1 5
Determnaton of hodng perod of reaty... .. ......... 177
Carrybacks and carryovers:
Amended appcaton for tentatve carryback ad|ustments, 195 Code. 30
Computaton of net operatng oss. Reguatons 111 and 11 amended. 179
Corporatons, change n name and capta structure .......... 1
Chartabo contrbutons. (See Contrbutons (deductbty).)
Ctzens of Unted States, compensaton for persona servces abroad for
organzatons operated by Unted States Army, Navy, Ar orce....... 109
Cams for refund or abatement:
ont return fed by dependent n communty property State....... 10
Overpayments, tentatve corporate returns........................ 3
Parta aowance of overassessment . .......... 2 0
Sgnature of ony one coe ecutor . ...... 2
adty, overpayment camed as credt at tme of fng . . 2
Commssons, receved by foregn agent for another foregn corporaton
seng merchandse n Unted States... . . 657
Commttee reports:
House of Representatves:
Report No. 27 660
Report No. 1 99 .- 66
Report No. 2001 .. 721
Report No. 1621 66
Report No. 179 ... 720
Report No. 2222 672
Soca Securty Amendments of 195 :
Conference Report No. 2679 ........ .. 712
House of Representatves Report No. 169 ................... 676
Senate Report No. 19 7 . 6 5
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Compensaton (receved):
Convenence of empoyer AA
Pant servces, deceased offcer s, wdow........................ 5
Rembursement for transportaton and movng e pense ........ 63
aue of meas or odgng. . 31
Sckness or In|ures, wage contnuaton pans, wthhodng of Income
ta at source 29
Constructve recept of ncome, by payee wthn prescrbed tme, deduc-
ton by payor, Reguatons 111 and 11 amended.................... 103
Contrbutons (deductbty):
Corporat :
enrft of potca subdvson of State ........... . 93
Membershp dues . ........ ..... .... 95
Proceeds from sports programs for beneft of Amercan Natona
Hcd Crofts, Reguatons 11 amended . . 6
State agency for deveopment hghway safety program . , 93
Transferred from e empt to none empt organzaton . .... 96
Year check devered..................... . ........... A 3
Indvduas:
Dencft of potca subdvson of State...... .......... 93
Membershp dues . . 95
State agency for deveopment hghway safety program......... 93
Transferred from e empt to none empt organzaton ...... 96
Tuton of chdren attendng church sponsored schoos .. . 97
Unted chartes pan admnstered by empoyer ........... . 9
Year check devered....... ..... ............. 93
Cooperatves, paronago dvdends, net ncomo, amortzaton of emergency
factes f 133
Copyrghts:
Lcense, grant of ess than a of rght......... .......... 17
Sae, property nternet, grant of e cusve rght to e pot........... 17
Corporatons:
Genera:
Contnuaton of same corporaton after reneorporatcn under new
charter . ... . . . 11
Servce organzaton, condut or actua ta payer . . 51
Lqudaton: -
ecton as to recognton of gan, e tenson. Reguatons 11
amended............................................ . 137
Retenton of charter................................... . 1 3
Court decsons:
Caderon dward B. Unted State y ... 230
Dngwa, Antretr, v. Commmoner............................... 13
redberg, Davd, v. Unted Sate .......... 223
Hoand Maron L. and the ., v. Unted Sate 215
Smth, Dane, y. Unted Sate 225
Credts aganst net Income, net ong-term capta gan or oss, computa-
ton, aternatve ta . 177
Credts aganst ta (corporaton), defcency dvdends. orms 975 and
976, fed wth approprate Dstrct Drector on or after November 1,
195 , Reguatons 11 amended . ....... ... 277
Credts (dependents), See emptons.)
Crmna prosecuton, convcton, wfu evason.......... .... .... 215
D
Decaratons. (See stmated ta .)
Deductons:
Busness e penses:
Conductng certan sports programs for beneft of Amercan
Natona Red Cross, Reguatons 11 amended......... . 6
Lvng e penses away from borne, member of Congress, Regu-
atons 11 amended.. ...... ...... 69
Mantenance and operaton, barrcades constructed by manu-
, facturer of mtary arcraft at cty-owned arport ...... 91
Membershp dues . ... 95
Pensons, perodc nstaments to wdow of deceased offcer.... 5
Poe drvng n raway road bed... . .... S2
Trave e penses ncurred by empoyees, genera rues........... 75
33910
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7
Deductons Contnued ,. ran
Contrbuton . (Set Contrbuton (deductbty).) ,,. -, ., ,,
Medca e pensos, foe for medca care ncuded n tuton . . 100
Nonbusness e penses, Indvduas, oss front sae of stamps oocotod
as hobby . . ...........
Persona e penses, estate ta , ncome n respect of decedents........ 107
Ta es:
, Ad vaorem, pad by essee on behaf of essor, mnng property.. 10
Cooperatve, determnaton of net ncome, deducton for patron-
age dvdends ......... ..................... 132
Georga, cgars and cgarettes ..... 7
Imposed by cty ordnance for prvege to engage In busness . 121
Okahoma, ad vaorem, rea estate and persona property, ac-
crua date.. 7
South Carona, acohoc beverages, tobacco, beer and soft
drnks . ..... ....................
When to be taken: . ,
Abandonment oss ........................ 112
Loss on worthess bonds . . ......... ... 60
acaton pay, tme of accrua...............................
Dependents (credt) (tee emptons).
Depeton: ...
Aowances In e cess of dcpetabe cost of property .... . 102
Mnng property and equpment, royaty payment Incudes amount
. for uso of pant...... ... ............. ...... . 01
uartzto defned ....... ........................ 10
Refractory and Gro cay defned................................. 10
Deprecaton:
Ad|usted bass, property of organsaton formery e empt from ta .. 103
Barrcades constructed by manufacturer of mtary arcraft at a
cty-owned arport .... , .. .... 01
ecton to reduce bass, e cessve deprecaton, e tenson, Regua-
tons 11 amended . . 137
Pant and equpment, royaty payment ncudes amount for use . 01
Dstrant:
Rea estate, sae conducted more than 5 mes from the property . 73
Warrant, property sub|ect to edera ta en sezed from thrd
party .... ..... ........................... . 20
Dstrbutons (corporatons):
Lqudaton n 1952 or 1953, eecton as to recognton of gan, Regu-
atons 11 amended .... ..... ............. 137
Redempton of remanng shares of soe stockhoder .... . .... 107
Redempton of stock hed by ma|orty stockhoder, parta qu-
__ daton . . . . . . 105
Reorganzaton, controng nterest n Canadan corporaton trans-
ferred . ... 150
Dvdends: A
Dstrbuton, earnngs from savngs and oan assocatons, nonres-
dent aen not engaged n busness n Unted States . 1
Lqudaton, parta, redempton of remanng shares of soe stock-
hoder 107
Pad credt, aowed corporatons, aternatve ta computaton .. 177
Patronage, net ncome, amortzaton of emergency factes . 132
Receved credt, aowed corporatons, aternatve ta computaton.. 177
Stock dvdends, dstrbuton pro rata to stockhoders . .. . 1

arned ncome (sources wthout Unted States):

mpoyee of contractor performng servces under contract between
Unted States Government and empoyer . ..... 10
Unted States ctzens ........ .... 109
ectons (manner and effect), contnued n effect under 195 Code, Stop-
gap Reguatons ...................... 7
mpoyees Trusts. (See Trusts: mpoyees .)
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7 9
I I
mpoyment ta es: ,
Agrcutura abor
Aera crop dustng and prayng..:...........:...._. ....:. .. . . 35
Commerca greenhouses..................._._..._....._..__ 359
Cotton gnnng, dentng operatona..............._. ..____ .._ 353
Domestc servce In farm home.. ........... .. ..... 356
Domestc servce n prvate farm home . . 355
arm management servces performed on another s farm 350
Hatchery . 266
tchen waste coectors.... . . 355
-- Manager of bean staton for cannng company ._. 3 3
Me can workers, Reguatons 12 amended ....... . 361
Poutry rasng .. . 26
uafyng quarter, remuneraton consdered wages.... 351
Domestc servce, housekeeper and nurse-companon n brother s
home..... .. . . . 3 1
mpoyer, partnershps, change n membershp......... ..... 2 2
mpoyer-empoyee reatonshp:
Arbtrators . ...... 332
Corporate vce presdent, part-tme servces, no saary . . . 57
Deverymcn, teephone drectores . 337
Demonstrators, empoyed by State nstrumentaty, pad by ad-
vertsng agency . . . 3
Drvers, truck, aundry, and dry ceanng....... . .. 339
scorts, off-duty traffc offcers.. .................... .. 3 6
unera servces, gravedgger............ . .... . 330
Home-workers, addressng enveopes, no cense requred ..... 336
Housekeeper and nurse-companon n brother s home .. . 3 1
Management servces, bean staton operated for cannng com-
pany 3 2
. Martme servce, vesse operated by genera agent of the Secre-
tary of Commerce, Reguatons 107 amended .. .... 367
Lfe nsurance saesmen:
u-tme _ 327
Part-tme.................................... ... 261
Saesmen:
Commsson bass, soctng orders from manufacturers ony. 335
New tres and recaps sod to contractors . . 337
Trade consutant .... 3 5
empt organzatons, |ont ownershp of ncome-producng property,
organzaton e empt under 101(6) and none empt organzaton... 36
Goverment empoyees:
Bnd operators of vendng stands .. .. . 32 , 326
Cty traffc offcers, off-duty escort servce .... .. 3 6
Cvan empoyees of unapproprated fund actvtes . . 369
Martme servce, vest e operated by genera agent of the Secre-
tary of Commerce, Reguatons 107 amended . 267
Raroad retrement:
Compensaton pad on or after uy 1, 195 , ta tabe.......... 1
Ta base 602
Rate, as affected by the amendments of 195 . 603
Refunds or credt, ta pad on partnershp ncome and successor
corporaton wages . 323
Thrcc-thousand-doar mtaton ( UTA), successor empoyer ... 371
Wages:
Commssons, deferred or renewa, part-tme fe nsurance saes-
men 261
Domestc servce, cash remuneraton, rent for outsde quarters
pad by empoyer........................................ 366
state ta :
Chartabe gfts and bequests:
Invason of prncpa, trust authorzaton, fe benefcares
mantenance . 302
Communty property, fe nsurance premums pad wth communty
funds 29
Credts aganst ta , foregn ta credt, computaton on Schedue S,
orm 706 certfcaton on orm 706C , T. D. 5565 amended . 306
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(750
state ta Contnued . ..,,/.. Pas
Dvdends decared before death, dvdends payabe after added to
.- . c -dvdcnd quotaton n determnng far market vaue _ 279
Insurance, fe:
Recevabe by benefcary other than estate, proceeds ncuded n
gross estate . ..................... .. . 29
Recevabe by estate, proceeds ncuded n gross estate......... 29
Transferred or assgned, snge premum n combnaton wth
annuty contract......... ... ... ............... 7
.-- Marta deducton:
Insurance, fe, survvng spouse, benefcary................... 29
Power of appontment:
ecton by spouse, certan Interest passng by w from de- -
cedent dyng after December 31, 10-17, and before Apr 3,
19 , Reguatons 105 amended... .... . 295
Insurance pocy proceeds ......... ..... 303
Survvor s aowance, property nterest passng from deceased
spouse n eu of antenupta agreement . 303
Nonresdents, not ctzens, Canadan stock transfer offces n Unted
States 657
Powers of appontment:
Created before or after October 21, 1912, property of decedent
sub|ect to, Reguatons 105 amended ....... . 2 6
ercse of:
. By decedents dyng before or after October 21, 19 2, Regua-
tons 105 amended . 2 6
Devsee and remandermen creatng trust of property...... 29
Returns: . . .
Amended, change In vauaton of gross estate ............ 301
Appcaton for determnaton of ta and e ecutor s dscharge,
Reguatons 105 amended ... 307
Decedent s share of ncome ta and estmated ta used n de-
termnng net estate .............. ...... 279
Stus of property:
Commssons, due Unted States ctzen and domcary from
Brtsh corporaton . 65
Stock, Canadan corporaton, transfer offces n Unted States... 657
Transfers:
Contempaton of death, certan property e cuded from gross
estate. Reguatons 0 (1937 edton) and Reguatons 105
amended 2 0
Income, possesson or en|oyment retaned, fe nsurance pocy.. . 2
Treates, ta , _ sted States and Canada, stus rues ....... . 657
Treaty, ta , conventon between Canada-Unted States 633
, auaton:
Optona method, fng amended return.................. . 301
Optona vauaton date, assets of corporaton devered n
qudaton .......... . 300
Stock, seng e -dvdend on date of decedent s death ........ 279
stmated ta :
Cotton gnners and oyster panters, decaraton requred ......... 125
Credt, ta overpayment In precedng year, vadty of cam........ 2
Decedent s e cess ncudbe n gross estate ...... . 279
tenson of tme for fng decaraton, Unted States ctzen n
Aaska , T2T
cess-profts ta :
Abnormates durng base perod................................ 252
Ad|usted e cess-profts net ncome:
Acqurng corporaton . . ........... 261
Lfe nsurance companes, Reguatons 130 amended............ 137
cess profts credts:
Raroad corporatons, T. D. 56 2 amended . ............ 179
. , Unused e cess-profts credt, component corporaton........... 261
Industry base perod rates of return, computaton of average bass ,
,. . perod net ncome. Reguatons 130 amended . 25
Reef for new corporatons, computaton of e cess-profts net Income. , 250
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751
changes of property: ::: - - tA
Corporaton s common stock for propertes of second corporaton.... 1 7
Invountary conversons, sezed by Aen Property Custodan .... 10
Sae of od and constructon of new resdence by trust.... .......... 15
Snge premum endowment pocy for cash and partcpatng pad-up
fe nsurance pocy.......................................... 57
cse ta es: .:..: ,. .
Admssons ta : .
Affars at nursery schoo ...................... 331
Cabaret, amounts pad for food, refreshment, etc., where enter-
tanment afforded . .. . ...... . .. . 37
. Charges by organzaton, operated for proft, procurng tckets for
customers . ... . .. 37
Cams for refund. cse Ta Reducton Act of 195 .... . 37
Conventon regstraton fee .............................. 37
empton, reasonabeness of e pense for taent . 379
ower shows hed for promoton and advancement of hort-
A cuture . 37
Parent-teacher assocaton, conductng affars for beneft of as-
t socaton . ........... ..... 3 0
Payment for grandstand events n addton to genera admsson
charge, agrcutura far, proft-makng organzaton . 3 3
- Servce charge, bona fde membershp cub, procurng tckets for
members ..... . ... 375
,.A . Bowng aeys, poo tabes, etc., communty center.............. . 00
Cabaret ta , foregn dpomatc offcers ...... .............. 377
. : Con-operated devces:
Amusement, gamng, speca ta abty, speca ta stamps.... 39
Hunter gum-vendng machne embodyng amusement feature... 393
Communcatons ta : . .
Amounts pad for the ease and servcng of equpment ony . 17
. Dstrct Drectors to authorze e tenson of tme for fng and
makng payment.. ... 1
Teephone company chargng reduced rates to empoyees . 17
Dues, ntaton fees, etc.:
Assessments made by soca, athetc, or sportng cub aganst
members.................. ............... .. 3 3
Import ta es:
Copper, suspenson of ta e tended, Pubc Law 52.. . 595
Meta scrap, suspenson of ta e tended, Pubc Law 67 ....... 599
Manufacturers ta :
Ar-condtoners, types of sef-contaned unts. ... ... ........ 10
Appances:
1 ectrc hot water heater, househod and nonhouschod use.. 1
Appances, foor stocks, refunds, deaers......... . . 15
Automobes, etc.:
Custom-made seat covers ...... ..... 09
Governmenta e empton, offca purposes, -H cubs... 15
Poe and genera purpose poe traers, combnaton poe and
cabe ree traers, ree and poe does, converter does,
farm wagons .. . . 0
... Rebut parts dstngushed from recondtoned and repared
parts 05
Truck bodes manufactured for own use n operaton of bus-
. . . ncss ...... ....................... 1
Busness and store machnes:
ectronc anaog computer.. . ... . 1
Suppes for dupcatng machnes........................ 1
: . Genera:
... . Cost of toos and des, e cuson from seng prce.. 15
Governmenta e empton, artces for offca purposes -H
cub 15
. Musca nstruments, maracas, bongos, castanets, and caves . 10
Rado and T recevers, tubes ncorporated n manufacture of
eectronc anaog computer .. ... . . . . 1
Sportng goods, computaton of ta . .A ..w 12
Sportng goods, tabe tenns tabes, unpanted and unstrped . 11
. Tres and tubes, press and gauge whee tres... .. 05
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752
cse ta es Contnued ., ,:. : . . . : -- : . . . .
Narcotcs: - ,. .-t (, , : :. ..f-. ..,:|r .., ,.hn
Ora prescrptons .-.A ... . .. ..._. ... ...... 699
Reguatons 6, provsons coverng e empt offcas, amended.... 0
Retaers ta :
ewery:
Charm wth nks for attachment to a braceet............ 39
Cross and Crown awards . . _. .. . 39
Luggage contents ornamented, mounted or ftted wth
precous metas..................................... 372
. Luggage:
ttngs and accessores dstngushed from contents........ 372
Zpper notebooks . . 373
Toet preparatons, saes to students of a beauty schoo or moton
pcture studo . 395
Returns, orm 720, pocy for furnshng nformaton e tended...... 03
Stamp ta es:
Bonds, etc.:
Corporate, renewa, assumpton by corporaton for nd-
vduas or for dfferent corporate entty. ..... . 3 5
Debentures modfed by suppementa ndenture. ....... 3 5
Mortgage notes, reaty corporaton : 3
Conveyances, mortgage debt, e cudabe from consderaton f
assumed 2
Payng cards, mnature, n charm for attachment to braceet... 39 .
. . Stocks, etc.:
empton, transfer, reorganzaton ..... . .. .3 7
- oregn corporaton, transfer, bass for vauaton n Unted
r, . States 3 5
Transfer, foregn nomnee . 3
Transfer from testamentary trust to now trust rght to ro
ceve, mere e pectancy . . 3 6
. - Transfers of trust corpus and rght to receve such corpus.. 3 0
Sugar ta : .
Raw, refned, sugar mported for producton of vestock feed... 1 2
Transportaton ta :
_ . Persons: .
Cams for refund, cse Ta Reducton Act of 195 .. . 37
- - Dstrct Drectors to authorze e tenson of tme for fng
, . . . and makng payment . 1
Members of Congress, U. S. Government transportaton re-
quests, e empton from ta .. . .-. 19
Wagerng ta es:
- Lotteres, wagerng, gamng devces, non-con-operated machnes,
occupatona ta , e cuson from ta ... . . 01
Property:
Accessora servces, oadng and unoadng wth speca
equpment . ... ........ .. ....... 21
CO. D. servce 27
Demurrage and other accessora servces . 27
Dstrct Drectors to authorze e tenson of tme for fng
. . and makng payment . 1
Hgh carbon coke . 20-
Loadng of freght on paets by carrer consdered acccs-
. . sora servces to transportaton..... . 21
Towng servce:
Barges oaded wth waste dredged from shp channes.. . 23
Launchng and shftng uncompeted vesses n shp
yard 22
Transported by subsdary . 2
. . Truckers haung under agreement wth produce companes. 2
_ Unmarketabe coa from mne to storage pant and subse-
. quent transportaton to preparaton pant 23
aoaton pay of carrer s drvers and hepers and nght
: . oadng charges . 25
.Merchants operatng wagerng poos, punch boards, etc., as
I _. trade stmuators to ncrease merchandse saes .... .. 01-_
. Sezure of automobes, voaton of wagerng ta aws.......... 390
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753
empt corporatons and assocatons:
Deprecabe property, ad|usted bass...... ..... ...... - 163
. Informaton returns.. . .. ....._....._.....__ I 125
oundaton, not engaged In e empt actvtes..... . 11111 .. 12
Promotng egsatve program for mprovement of busness condT
tons . . ... ... . . mmmm _ 131
Provdng teevson servce for members on cooperatve bass I / 131
Purchasng or other agency formed to servce 101(6) organzatons . 127
Testng so, agrcutura organzaton............... .. . _ 125
emptons:
Dependents:
Chd, mentay Incapactated parent, adopton petton fed,
Reguatons 111 and 11 amended . . .... 61
Iegtmate chd of servceman statoned n foregn country 1 107
Sor: attendng coege and son s wfe, communty property State. 10
Nonresdent, aens, foregn students n Unted States durng schoo
year.. .. 2
tenson of tme:
Decaraton of estmated ta , Unted States ctzen n Aaska . 12
Deegaton of authorty to grant reducton ..... 11
ng of corporaton ncome ta returns, further e tenson ...... 116
- Perod wthn whch to determne appcabty of 195 Code . 3
P
armers and farmng:
Corporaton testng so, e empt from Income ta 12
stmated ta , cotton gnnng and oyster pantng not consdered
farmng 125
Invountary converson, dseased catte........................... 1 3
rearms:
Cassfcaton:
Antque bunderbuss gun ... . ....... 33
Psto wth shouder stock attachment ...... ......II. 3
Pastc psto........ ........-........_ .....__.. 3
port:
Lcensed deaer . . ... . .. 39
Transported to a foregn country for e hbton or demonstra-
ton, subsequent return to Unted States . .- 32
Genera:
Possesson of suffcent parts to assembe a frearm ....... 33
Statutory references corrected, Reguatons 131 amended... ___ 3
Importer:
Antques or unservceabe frearms, mported for sae . 39
Remova from foregn trade zone............................ 397
Manufacturers e cse ta :
Cassfcaton:
are psto . ... ... 395
. 10 gauge gun conceaed n a cane ... .............. 395
Psto grp hand gun ...... ... .. . 395
Reguatons amended to conform to the provsons of the
Interna Revenue Code of 195 .................... .
Ta , transfer of parts to assembe frearm ... . 33
oregn corporatons:
Commssons as foregn agent on sae of another foregn corporaton s
merchandse n Unted States . . 657
Offce desgnated for fng returns, Reguatons 11 amended ... 69
oregn governments and empoyees:
waver of ncome ta e empton, retenton of mmgrant status, Reg-
uatons 11 amended 169
Waver of ncome ta e empton, ta effect where e empton derved
from treaty or nternatona agreement . 171
oregn persona hodng companes, ncome, compensaton for dstrbu-
ton and e hbton of moton pcture fm ......... . ......... 275
oregn ta credt:
Turkey, smar requrement..................................... 211
Unted ngdom, dvdends ... . . .... 210
orms 975 and 976 fed wth approprate Dstrct Drector on or after
November 1, 195 , Reguatons 11 amended. ..... 277
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T75
G A h-f yu: :A-. tn |(. f .I
Gan or oss: .. .. A.: : .: . A . r . ,- -. : -. . (, .I
Bus: .. --. -.1 Tf
Aowance In e cess of depetabe cost of property . 162
ecton to reduce bass for e cessve deprecaton, e tenson,
Reguatons 11 amended . . .. 137
Lqudaton, dstrbuton to new corporaton and stockhoders under
saes agreement.............................. . .......... - 15
Recognton:
Assets qudated n e change for stock ............ 1 7
Deferred payment sae of od resdence, new resdence purchased
wthn 1 year ... . . 153
Dstrbuton, e changes, corporaton qudated under taes
agreement . .................................... 15
changes soey n knd ................................... 1
Invountary converson: .
Ar rghts casement granted over porton of farm.. 1 5
Dseased catte ............ 1 3
Property sezed by Aen Property Custodan. ......... 10
-- Lqudaton n 1952 or 1953, Reguatons 11 amended......... 137
Recovery of war osses, German prewar doar bonds........... 197
- - Reorganzaton:
Controng nterest n Canadan corporaton transferred. . 150
Stock of new corporaton for bonds of od corporaton . 152
Repacement property, proposed use of renta property or home. 1
Sae of od and constructon of new resdence by trust . 15
Sae of od resdence n Unted States, new resdence purchased n
foregn country . 159
Snge premum endowment pocy e changed for cash and par-
tcpatng pad-up fe nsurance pocy . 67
Gambng gans and osses, ta payer not n trade or busness of gambng. 9
Gft ta :
Actuara cacuatons, transfers, ncome retaned for donor s support. 31ft
Appontment, power of:
Gfts mado n 19 3 and subsequent caendar years, Reguatons
10 amended . . 0
To revest benefca tte to property . . . 310
Consent under Revenue Act of 19 (spt gfts), between wfe and
donor spouse makng gfts to thrd-party donees . ....... 322
Domnon and contro:
Donor retans the rght to contro dsposton .. ... . 315
Income retaned by donor ........ 310
Transfer of stock ... . 317
cusons:
uture nterest, vested remander nterest by aw. . A . 320
Present nterest, property gft to mnor, wth or wthout ega
fuardanshp.... ..... ..... . . ..... 319
deducton: -. - . ..:
Termnabe nterest, of donee spouse n corpus, ncome accumua-
tons, 12-year trust . .:...,-. . 320
- Termnabe nterest,. Seres and G, Unted States savngs
bonds ... 321
Reeases:
Powers of appontment, created before or after October 21,19 2,
Reguatons 10 amended . 30
Remander Interest:
ested, ndefeasbe, to donee spouse, marta deducton.. . . 320
ested by aw, future nterest . . 320
Returns, fed by spouse consentng to donor spouse s gfts to thrd-
party donees........... ............... 322
Transfers:
Consderaton n money or money s worth, medca and vng
e penses for adut sea and hs famy... ..... 31
Contro not renqushed by donor.. ........... . 315, 321
. 1 uture nterest, spendthrft cause........................... 319
Income retaned for support of donor... ................... 310
Incompete gft, power to revest n grantor.................... 310
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.765
Gft ta Contnued
Transfers Contnued -tA
Power of appontment, eecton by spouse, certan nterest passng
bv w from decedent dyng after December 31, 19 7, and be-
fore Apr 3, 19 , Reguatons 10 amended................ MS
Trusts, spendthrft cause, ncome as future nterest................ 319
auaton, genera, stock transferred. .......................... .. 317
Gross Income:
cusons:
Compensaton of members Armed orces statoned In urope... M
-- Death benefts under penson pans . . 57
Death payment by empoyer to benefcary of an empoyee par
tcpant of pan . . . IS
Income dervng from former dramatzaton rghts to nove pro-
duced n specfo medum............................ . 12
Proceeds, sports programs for beneft of Amercan Natona Red
Cross, Reguatons 11 amended........................... 6
aue of meas or odgng furnshed .. . 31
Waver, mmgrants empoyed by nternatona organzaton or
foregn msson, Reguatons 11 amended .......... . 163
Incusons:
Amounts deducted from saary payments of empoyees of e empt
corporaton for purchase of annuty contract . IS
Contrbutons transferred from e empt to none empt organza-
ton . 96
Dstrbutons to stockhoders, corporaton qudated under saes
agreement . . . . 15
Guaranteed nterest on worthess bonds 50
- Income from sources wthout Unted States, ctzens of Unted
States 169
- Rembursement for transportaton and movng e penses, amounts
n e cess of actua e penses, convenence of empoyer . 13
H
Head of househod, servceman statoned In foregn country supportng
egtmate chd .... 107
Hodng perod: - -
German prewar doar bonds e changed for new bonds.............. 197
Rea property, date sae occurs ..... ... 177
Home, desgnaton of, member of Congress, Reguatons 11 amended.... 69
I
Income, from sources wthout Unted States, empoyee of contractor per-
formng servces under contract between Unted States Government and
empoyer . . ........ ................. 16
Indans, abty for edera ncome ta . ........ . 9
Informaton at source, rents coected by rea estate agents . 235
Inspecton, cty governments, purposes ordnance mposng fee to engage
n busness . . ........................... ....... . 1 1
Insurance:
Proceeds, ta abe ncome, e changng snge premum endowment for
cash and partcpatng pad-up fe pocy .... ............. 57
Insurance companes:
Lfe:
Ad|usted norma-ta net Income, 1953, Reguatons 11 amended. 137
Reserve nterest credt, 1953, Reguatons 11 amended........ 137
Interest:
empt:
Bonds Issued by potca subdvson, compact confrmed by
Congress . ..... . . ....... .. . .- W
Debenture notes ssued by nonproft corporaton to fnance
mprovements on muncpay owned budng....... . .. 69
Overpayments of ta , genera provsons 195 Code.............. 39
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756
Interest Contnued I, ,,. .. , -,
- Receved: A..,.: . ., ,,..,,.. Paw
. Actuay or constructvey by payee wthn prescrbed tme,
deducton by payor, Reguatons 111 and 11 amended....... 102
Unted States savngs bond, new bond ssued In name of bene-
fcary.. .. ................................ 0
- | Worthess bonds, guaranteed.. .. .. ............ 50
Underpayments of ta , genera provsons of 195 Code.. . 39
Inventores (LI O), department stores, uy 195 Bureau of Labor
Statstcs prce nde es............................................ CO
Invountary conversons:
Ar rghts easement granted over porton of farm............. .... 1 5
Dseased catte . ...... . 1 3
change of German prewar doar bonds for new bonds........... 197
Immnence of condemnaton, sae ...... ........ . 1
Property sezed by Aen Property Custodan...................... 10
t . : . . . ./ .
Legsaton: _ .....
ghty-thrd Congress: .,
Pubc Law 52 ..... ...: .. - 595
Pubc Law 517 __. .. ... 595
Pubc Law 53 ..... 597
Pubc Law 559 . 697
Pubc Law 567 . _...... .. ... 59
Pubc Law 67 . . 699
Pubc Law 729 ..... 599
, - Pubc Law 7 6 ..........,. ... 602
Pubc Law 761 ......... .-..-. ........ 603
Pubc Law 767 ........... ... 612
Lessors and essees, ad|usted bass, royaty payment ncudes use of pant
and equpment .. 91
Lens for ta es, automobe or other persona property In hands of thrd
party 29
Lqudatons:
mpoyees proft-sharng trust, contrbuton carryover aowabe... t.. 7
Redempton of stock hed by ma|orty stockhoder, dstrbuton n
parta qudaton ............... .. .. . 165
- . - Retenton of charter by corporaton................ ............. , 1 2
Lvestock saes, nvountary converson, dseased catte................. , 1 3
Losses:
Abandonment, when doductbo....__............., ............. 112
M
Medca e penses. (Set Deductons.)
Mnes, effect of payments for use of pant on depeton aowance........ 01
. Mtgaton of effect, statute of mtaton, Reguatons 11 amended...... 32
n , : ... , .:
Net ncome: , ,. , . .
Mutua savngs banks, purchaso dscounts on nstament.mortgages, .
composte bass . ......... 109
Trusts, gan from sae of property preparatory to termnaton, proceeds .
currenty dstrbutabe......... .......................... 237
Net operatng oss:
Carrybacks and carryovers, computaton, Reguatons 111 and 11 .
amended . . ....... 179
- . Corporatons, change of name, contro. unchanged reorganzaton
e changes . .. -. 1
Nonresdent aens. (See emptons, and ao Aens (nonresdent).)
Obgatons of: . ,
States and subdvsons, nterest on bonds of. potca subdvson
compact confrmed by Congress . - 60
Optons, empoyees stock pan and agreement, quafed restrcted
cassfcaton .................... 207
Overpayments, tentatve corporato returns, refund..................... 33
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757
P . -. . . .- ..
Partnershp Tt
Death of partner, change In membershp, contnuaton............. 2 3
Dstrbuton, rver pots assocaton............................. 271
Returns, change n membershp durng year..... ...... . 2 2
Ta abty, organzaton e empt under 101(6) and none empt organ-
zaton, |ont owners of ncome-producng property...... 36
Payment of ta , tentatve corporate returns, refund of overpayments.. . 3
Penates, denquent returns ........... . ....... 2
Pensons, wdow of deceased offcer of corporaton ........ 5
Perod mtaton, mtgaton of effect, Reguatons 11 amended......... 32
Persona e penses:
ounder s fee pad nonproft corporaton for prvege to ve In home. 101
Rembursement for meas and odgng whe awatng permanent
quarters, convenence of empoyer............................. S3
Persona hodng companes:
Defcency dvdends, date Ta Court decson becomes fna... . 276
Income, compensaton for dstrbuton and e hbton of moton
pcture fm 275
Subchapter A net ncome, deducton for ta es pad or accrued. Regua-
tons 111 and 11 amended 276
Possessons of Unted States, persona servces of Unted States ctzens
for Unted States Army, Navy, Ar orce organzatons 169
Practce before Treasury Department (Dsbarments and Suspensons).... 735
Procedure. (See Admnstraton and procedure.)
Pubc Laws:
ghty-thrd Congress:
No. 52, e tendng suspenson of mport ta on copper 595
No. 617, revsng the Organc Act of the rgn Isands of the
Unted States _ 595
No. 53 , authorzng the Supreme Court of the Unted States to
mako and pubsh rues for procedure on the revew of decsons
of The Ta Court of the Unted States _ 697
No. 559, to permt cv actons for recovery of ta es n dstrct
courts, tra by |ury ... . 097
No. 507, mpoyment Securty Admnstraton nancng Act
of 1U5 |... 59
No. 67 , e tendng suspenson of Import ta on meta scrap..... 609
No. 721), ora prescrptons for certan drugs.. . ... . 699
No. 7-1(1, Raroad Retrement Act, Raroad Retrement Ta
Act and Raroad Unempoyment Insurance Act . . 602
No. 701, amendng the boca Securty Act and the Interna .
Revenue Code . . 603
No. 707, e tenson of the unempoyment compensaton program. 612
R
Raroads:
Cost of drvng poes In roadbed, current e pense ....... 2
Cost of repars to equpment amortzed as emergency facty .
Reorganzed, carryovers of net operatng osses, T. D. 66 2 amended. 179
Rea estate:
Deferred payment sae of od resdence, new resdence purchased
wthn 1 year. 155
New resdence purchased In foregn country, sae of od resdence n
Unted States 159
Sae of od and constructon of new resdence by trust 15S
Records, nspecton, statstca transcrpt cards by Board of Governors,
edera Reserve System.................................... .... 119
Recoveres:
War osses:
tenson of tme for makng eecton, Reguatons 11 amended. 137
German prewar doar bonds ... .... . .. 197
Redempton of stocks and bonds:
Hed by ma|orty stockhoder, dstrbuton In parta qudaton . 165
- Part of shares of soe stockhoder sod to compettor, remander re-
deemed for amount equa to corporaton s earned surpus......... 167
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75
Refunds. (See Cams for refund or abatement.)
- Reguatons (set aso Amendments: Reguatons): - -. . . ,-
- Wthodng: ... . - - . : . - .- : Pat
- - Unted States-Austraan ncome ta conventon . . 01
Unted States-Greece ncome ta conventon................... - 63
Rents: ..-.
1 Receved by nonproft corporaton on muncpay owned budng... 59
Receved, foundaton, ncome-producng property ............. 12
: Reorganzatons:
Controng nterest In Canadan corporaton transferred..... . . 150
Dstrbuton to new corporaton and stockhoders, under saes agree-
ment . ... 15
change of stock for propertes of qudated corporaton . 1 7
change of stock of new corporaton for bonds of od corporaton . 152
Resdence. (See Rea estate.)
Returns:
Amended, prevousy fed returns to conform to 195 Code.. . 30
Consodated, eecton to fe separate returns after:
nactment of Interna Revenue Code of 195 . .... 13
Issuance of Reguatons 11 . ......... ...... ...... 212
Corporatons:
Consodated ncome ta returns, eecton to fe eparato returns
after:
nactment of Interna Revenue Code of 195 ...... . 13
Issuance of Reguatons 11 ...... . 212
tensons of tme for fng to conform to 195 Code :.. 30
ed for 1952 and subsequent years, aternatve ta computa-
r tons ....._. -... . 177
ng as snge entty after rencorporaton under Connectcut
statutes -. . 11
urther e tenson of tme for fng..... . . ... 116
Tentatve, refund of overpayments . 3
ractona part of year, termnaton of ta abe year of a departng
aen -. 3
Husband and wfe, decedent s share of ta deductbe from gross
estate ..... .... ............................ 279
Informaton: . .
empt organsatons .... . 125
orm 1099, rents coected by rea estate agents . 233
Natona farm oan and producton credt assocatons reportng
dvdends, Reguatons 11 amended ............ 236
Inspecton:
Commttee on ducaton and Labor of the House of Repro-
.. . sentatves ..| 731
Commttee on Government Operatons, House of Representa-
tves 120
Commttee on the udcary of the House of Representatves a . 731
. Corporaton ta , statstca transcrpt cards . 119
state, persons havng matera nterest ......- 121
edera Trade Commsson :._.. .... 117,11
Senate Commttee on Labor and Pubc Wefare . . . 732
State governments, procedures revsed and restated. C 122
,-, r Tme for fng:
Reducton n a granted e tenson of tme, deegaton of au- .
thorty . 110
Short ta abe year due to change n accountng perod, Regua-
tons 11 amended............. ............... .|....... 113
Royates: ...
Payment measured by producton of mnera for pant and equpment. 91
Receved by foundaton, ncome-producng property................ 12
.... s . .-.-
Sef-empoyment ta : :
Agrcutura abor:
arm operator managng bean staton for cannng company.... I 3 2
, .. Hatchery . ..... 206
Poutry rasng . .................. 26
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759
Sef-empoyment ta Contnued : u. - .-. .- : .
Partners and partnershps: .. -.: ._A Tv
arnngs, wdow and chdren, Indvdua ded Intestate, no ad-
mnstrator apponted.. ....... .... . ... _. 269
Rver pot s assocaton . .... .. 271
Professons, practcng engneer aso engaged n the contractng
busness,.. ...................... .-_ 27
Trade or busness:
Arbtrators . . - 332
Bnd operators of vendng stands 326
.. Custom operators haung and spreadng agrcutura me and
grndng feed on customers farms _ 266
Inspector of materas and equpment under contract wth cty _ 2 5S
Laundry and dry-ceanng route . . 339
Lfe nsurance saesmen:
u-tme 161
Part-tme ,. 261
Management servces, bean staton operated for cannng company. 3 2
taesmen, commsson bass, soctng orders from manufacturers
ony . ......... 335
Trade consutant . 3 5
Suppement U ncome, rents and royates, receved by foundaton ._ 12S
Suts, dstrct courts, |ury tra, Pubc Law 550 . ... 507
T
Ta Court of the Unted States, The:
Date decson becomes fna . 27
Decsons of, st of acquescences and nonacquescenccs . . 177
Revew of decsons............... .... ..... . 597
Ta es:
Deducton:
Georga, cgars and cgarettes... ... .
Mnng property, ad vaorem, pad by essee on behaf of essor 16
Okahoma, ad vaorem on rea estate and persona property, ac-
crua date . 7
South Carona, acohoo beverages, tobacco, beer, and soft
drnks .................... ......................... SS
Tobaeeo ta :
Cgarettes, equpped wth fters, mouthpeces..... 301
Cgars, equpped wth fters, mouthpeces . . 301
A v rtaton, tobacco products, to Armed orces beyond |ursdcton
of nterna revenue aws........... ...................... 391
oregn governments:
- Dpomatc personne n the Unted States, ta -free wthdrawa.. 3S9
Products of domestc manufacture for consumpton n the Unted
States, ta -free, dpomatc offcers and personne of embasses. . 3S9
orms 550, modfed, reproducton by manufacturers of tobacco prod-
uct- 391
,. orms 550-A, 550-B, persons authorzed to sgn 392
Insttutons, hosptas, State operated, dstrbuton by eterans Ad-
mnstraton of ta -free tobacco products... . 0
Packages, notces, ceophane outer wrapper ... ... . 390
Sea stores:
Tobacco products:
Devered to fshng vesses operatng under touch and
trade permts A. 393
Mtary Sea Transportaton Servce vesses, certfcate of
recept, sgnature . . 392
Stamps, aff ng, ceophane outer wrapper....... . 390
Unted States use of artces:
Dstrbuton by eterans Admnstraton of ta -free tobacco prod-
ucts to patents of State operated hosptas . 0
Traveng e penses, empoyees, genera rues...... ..... . 75
Treates:
Conventons:
Began-Unted States ncome ta ......... ..... .. 62
. Canada-Unted States, estate ta . .... 633
Unon of South Afrca-Unted States ncome ta .......... . 651
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760
Treates Contnued - PAn
Grantng ta e empton, ta effect of fng of waver by aen em-
poyees of foregn countres and nternatona organzatons....... 171
Reguatons:
Unted States-Austraa ncome ta conventon................ 61
Unted States-Greece ncome ta conventon . . . . 63
Unted States and Unted ngdom sae n Unted States by foregn
agent of another foregn corporaton s merchandse .......... 657
Trusts:
mpoyees :
Constructve recept of empoyee s nterest n fund ....... 239
Lqudated by empoyer, contrbuton carry-over aowabe . 97
Stock bonus, penson, proft-sharng pans, desgnaton of bene-
fcares by empoyee............................... .... 239
states and trusts:
Income ta abe to trust where property Is n trust for chdren.. 5
Net ncome, gan from sae of trust property, proceeds currenty
dstrbutabe 237
Income for beneft of grantor, tme durng whch war cause s n
effect.. 2 0
acaton pay, accrua and deducton .....................
W
Wavers:
Aens admtted for permanent resdence, empoyed by nternatona
organzaton or foregn msson, Reguatons 11 amended . 1C9
Ta e empton, aen empoyees, ta effect where e empton s derved -
from treaty or nternatona agreement. ......... 171
War osses:
Recoveres, tme for makng eecton e tended, Reguatons 11
amended . ............. 137
Recovery, German prewar doar bonds........................... 197
Wthhodng:
mpoyee:
Saesman, new tres and recaps sod to contractors ....... 337
State government, bnd operators of vendng stands......... 32 , 320
mpoyer, payments under wage contnuaton pans . . 29
oregn corporatons, nonresdent, schedue of rates at whch ta s .
wthhed . 11
Income ta at source:
Refund to nonresdent aen empoyee by empoyer .. .... 212
Reguatons under Unted States-Austraa ncome ta conven-
ton .. 61
Reguatons under Unted States-Greece ncome ta conventon.. 63
Unted States o and gas royates, ctzens of Puerto Rco...... 21
aue of meas or odgng furnshed, convenence of empoyer... 31
Labty for ta , advertsng agency actng as payng agent, cm- .
poyccs of State nstrumentaty.. ... ...1.. ............. 3
Nonresdent aens: :
mpoyees n Unted States, refund drect from empoyer....... 212
Puerto Rco, Unted States o and gas royates .......... 21
Schedue- of rates at whch ta Is wthhed.................... 11
... .-,,.- . ,:
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