SP CI L TT NTION | ,0 the cautonary notce on ths page that pub-

hshed rungs of the ureau do not have the force and effect
of Treasury Decsons and that they are appcabe ony to facts presented n the pubshed case
Treasury Department : : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn II-2
ULY-D C M R, 1933
IN T IS ISSU
Pa .
Introductory Notes
Contents - 11
Rungs Nos. 6263-6581
oard of Ta ppeas 1 28
Income Ta
Part I (1932 ct) 29-99
Part O (1928 ct) 100-152
Part n (1926 and Pror cts) 153-267
state Ta 268-306
Saes Ta 307-377
Msceaneous Ta 378-381
Msceaneous 382-506
Inde SO7 523
The ratngs reported n the Interna Revenue uetn are for the nformaton of ta payers and ther counse as
showng the trend of offca opnon n the admnstraton of the ureau of Interna Revenue the rungs other than
Treasury Decsons have none of the force or effect of Treasury Decsons and do not commt the Department to
any nterpretaton of the aw whch has not been formay approved and promugated by the Secretary of the
Treasury. ach rung embodes the admnstratve appcaton of the aw and Treasury Decsons to the entre
state of facts upon whch a partcuar case rests. It s especay to be noted that the same resut w not neces-
sary be reached n another case uness a the matera facts are dentca wth those of the reported case. s t s
not aways feasbe to pubsh a compete statement of the facts underyng each rung, there can be no assurance
that any new case s dentca wth the reported case. s bearng out ths dstncton, t may be observed that the
rungs pubshed from tme to tme may appear to reverse rungs prevousy pubshed.
Offcers of the ureau of Interna Revenue are especay cautoned aganst reachng a concuson n any case
merey on the bass of smarty to a pubshed rung, and shoud base ther |udgment on the appcaton of a per-
f taent provsons of the aw and Treasury Decsons to a the facts n each case. These rungs shoud be used as
ads n studyng the aw and ts forma constructon as made n the reguatons and Treasury Decsons prevousy
ssued.
In addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna Revenue
to pubsh a rungs and decsons, ncudng opnons of the Genera Counse for the ureau of Interna Revenue,
whch, because they announce a rung or decson upon a nove queston or upon a queston n regard to whch
there e sts no prevousy pubshed rung or decson, or for other reasons, are of snch mportance as to be of
genera nterest It s aso the pocy of the ureau to pubsh a rungs or decsons whch revoke, modfy, amend,
or affect n any manner whatever any pubshed rung or decson. In many nstances opnons of the Genera
Counse for the ureau of Interna Revenue are not of genera nterest because they annonncc no new rung or no
new constructon of the revenue aws but smpy appy rungs aready made pubc to certan stuatons of fact whch
are wthout speca sgnfcance. It s not the pocy of the ureau to pubsh such opnons. Therefore, the numbers
assgned to the pubshed opnons of the Genera Counse for the ureau of Interna Revenue are not consecutve.
No unpubshed rung or decson wt be cted or reed upon by any offcer or empoyee of the ureau of Interna
Revenue as a precedent n the dsposton of other cases. Uness otherwse specfcay ndcated, a pubshed
rungs and decsons hare receved the consderaton and approva of the Genera Counse for the ureau of
Interna Revenue.
UNIT D ST T S GO RNM NT PRINTING O IC . W S INGTON : 1934
or sae by the Superntendent of Documents, Washngton, DC.
See back of tte for prces
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The Interna Revenue uetn servce for 1934 w consst of weeky
buetns and semannua cumuatve buetns.
The weeky buetns w contan the rungs and decsons to be
made pubc and a Treasury Department decsons (known as Treas-
ury decsons) pertanng to Interna Revenue matters. The sem-
annua cumuatve buetns w contan a rungs and decsons (n-
cudng Treasury decsons) pubshed durng the prevous s months.
The compete uetn servce may be obtaned, on a subscrpton
bass, from the Superntendent of Documents, Government Prntng
Offce, Washngton, D. C, for 2 per year. Snge copes of the weeky
uetn, 5 cents each.
New subscrbers and others desrng to obtan the 1919, 1920, and
1921 Income Ta Servce may do so from the Superntendent of Docu-
ments at prces as foows: Dgest of Income Ta Rungs No. 19
(contans dgests of a rungs appearng n Cumuatve uetns 1
to 5, ncusve), 50 cents per copy Cumuatve uetns Nos. 1 to 5,
contanng n fu a rungs pubshed snce pr, 1919, to and n-
cudng December, 1921, as foows: No. 1, 30 cents No. 2, 25 cents
No. 3, 30 cents No. 4, 30 cents No. 5, 25 cents.
Persons desrng to obtan the Saes Ta Cumuatve uetns for
anuary- une and uy-December, 1921, may procure them from the
Superntendent of Documents at 5 cents per copy.
Persons desrng to obtan the Interna Revenue uetn servce for
the years 1922, 1923, 1924, 1925, 1926, 1927, 1928, 1929, 1930, 1931, 1932,
and 1933, may do so at prces as foows:
Cumuatve uetn 1-1 ( anuary- une, 1922) 40 cents
Cumuatve uetn 1-2 ( uy-December, 1922) 30 cents
Cumuatve uetn II- ( anuary- une, 1923) 30 cents
Cumuatve uetn II-2 ( uy-December, 1923) 40 cents
Cumuatve uetn III- ( anuary- une, 1924) 50 cents
Cumuatve uetn III-2 ( uy-December, 1924) 50cents
Dgest No. 13 ( anuary, 1922-December, 1924) 60 cents
Cumuatve uetn I -1 ( anuary- une, 1925) 40cents
Cumuatve uetn I -2 ( uy-December, 1925) 35cents
Dgest No. 17 ( anuary-December, 1925) 25 cents
Cumuatve uetn - ( anuary- une, 1926) 40 cents
Cumuatve uetn -2 ( uy-December, 1926) 30 cents
Dgest No. 21 ( anuary-December, 1926) 15 cents
Cumuatve uetn I-1 ( anuary- une, 1927) 40cents
Cumuatve uetn I-2 ( uy-December, 1927) 40cents
Dgest No. 22 ( anuary, 1925-December, 1927) 35 cents
Cumuatve uetn II-1 ( anuary- une, 1928) 35cents
Cumuatve uetn II-2 ( uy-December, 1928) 50 cents
Cumuatve uetn III-1 ( anuary- une, 1929) 50 cents
Cumuatve uetn III-2 ( uy-December, 1929) 55cents
Cumuatve uetn I -1 ( anuary- une, 1930) 50 cents
Cumuatve uetn I -2 ( uy-December, 1930) 50 cents
Cumuatve uetn - ( anuary- une, 1931) 65 censt
Cumuatve uetn -2 ( uy-December, 1931) 30 cents
Cumuatve uetn I-1 ( anuary- une, 1932) 30cents
Cumuatve uetn I-2 ( uy-December, 1932) 30cents
Cumuatve uetn II-1 ( anuary- une, 1933) 30cents
Cumuatve uetn II-2 ( uy-December, 1933) 50cents
Dgest (ncome ta rungs ony, pr, 1919, to December,
1930, ncusve) 1.50
nqures n regard to these pubcatons and subscrptons shoud
be sent to the Superntendent of Documents, Government Prntng
Offce, Washngton, D. C.
()
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn II-2, n addton to
a decsons of the Treasury Department (caed Treasury decsons)
pertanng to Interna Revenue matters, contans Genera Counse s
opnons, and rungs and decsons pertanng to ncome, estate, saes,
and msceaneous ta es, as ndcated on the tte-page of ths ue-
tn, pubshed n the weeky uetns ( oume II, os. 27 to 52,
ncusve) for the perod uy 1 to December 31, 1933. It aso con-
tans a cumuatve st of announcements reatng to decsons of the
Unted States oard of Ta ppeas pubshed n the Interna Rev-
enue uetn Servce from anuary 1, 1932, to December 31, 1933.
Income Ta rungs are prnted n three parts. Rungs under the
Revenue ct of 1932 are pubshed as Part I, the secton headngs
correspondng wth the sectons of that aw and the artce headngs
correspondng wth the artce headngs of Reguatons 77. Rungs
under the Revenue ct of 1928 are pubshed as Part II, the secton
and artce headngs correspondng wth the secton and artce head-
ngs of the Revenue ct of 1928 and Reguatons 74. Rungs under
the Revenue ct of 1926 and pror cts are prnted as Part III, the
secton and artce headngs correspondng wth the secton and
artce headngs of the Revenue ct of 1926 and Reguatons 69.
R I TIONS.
The foowng abbrevatons are used throughout the uetn:
, , C, etc. The names of Indvduas.
. R. M. Commttee on ppeas and Revew memorandum.
. R. R. Commttee on ppeas and Revew recommendaton.
. T. . oard of Ta ppeas.
C. . Cumuatve uetn.
CL D.- Court decson.
C. S. T. Capta Stock Ta Dvson.
D. C. Treasury Department crcuar.
. T. state Ta Dvson.
G. C. M. Genera Counse s memorandum.
I. T. Income Ta Unt.
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses, accord-
ng to content.
Mm. Mmeographed etter.
MS. Msceaneous Dvson.
O. or L. O. Soctor s aw opnon.
O. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng ta decson.
S. T. Saes Ta Dvson.
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I
S. M. Soctor s memorandum.
So. Op. Soctor s opnon.
S. R. Soctor s recommendaton.
T. Tobacco Dvson.
T. . M. dvsory Ta oard memorandum.
T. . R. dvsory Ta oard recommendaton.
T. D. Treasury decson.
and v are used to represent certan numbers, and when used wth the word
doars represent sums of money.
The practce of promugatng Treasury Decsons that embody
court decsons reatng to the nterna revenue has been dscontnued.
ereafter opnons of the courts, wth approprate headnotes for the
nformaton and gudance of ta payers and offcers and empoyees of
the ureau of Interna Revenue, w be pubshed n the Interna
Revenue uetn wthout forma approva and promugaton by the
Secretary of the Treasury.
NNOUNC M NT R L TING TO O RD O T PP LS D CISIONS.
Under the provsons of the recent Revenue cts, reatng to ap-
peas to the oard of Ta ppeas, the Commssoner may acquesce
n the decson of the oard or he may, f the appea was heard by
the oard pror to the passage of the 1926 ct, cause to be nsttuted
a proceedng n court for the coecton of any part of a ta deter-
mned by the Commssoner to be due but dsaowed by the oard,
provded that such proceedng s commenced wthn one year after
fna decson of the oard. s to appeas heard by the oard after
the passage of the 1926 ct, the Commssoner may, wthn s
mouths after the oard s decson s rendered, fe a petton for a
revew of the decson by a Crcut Court of ppeas or by the Court
of ppeas of the Dstrct of Coumba however, as to decsons
rendered on and after une 7, 1932, pettons for revew must be
fed wthn three months after the decson s rendered. In order
that ta payers and the genera pubc may be nformed as to whether
or not the Commssoner has acquesced n a decson of the oard
of Ta ppeas dsaowng a ta determned by the Commssoner
to be due, announcement w be made n the weeky uetn at the
earest practcabe date. notce that the Commssoner has ac-
quesced or has nonacquesced n a oard decson reates, however,
ony to the ssue or ssues decded n favor of the ta payer. Dec-
sons so acquesced n shoud be reed upon by offcers and empoyees
of the ureau of Interna Revenue as precedents n the dsposton
of other cases before the ureau.
or addtona nformaton whch w be of assstance n the use
of the Interna Revenue uetn servce read the Introductory
Notes to the atest Dgest.
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CONT NTS.
Rung.
4370._
4371_.
4372..
4373..
4374..
4375..
4376..
4377..
4378..
4379..
4380..
4381..
4384..
4385..
4392.
43 3.
4394.
4395.
4396.
4397.
4399.
4400.
4401.
4402.
4403.
4405
4408
4407
108
4409
4410..
4411
4412
4413
4414
Court decsons:
694
695
696
697
C98
699
700
701
702
703
704
700
Rung No.
Page.
II-27-6274
II-27-6275
I1-29 ( OO
II-29-6301
II-30-6314
II-30-6316
II-31-6328
II-31-6327
II-32-6331
I1-32-6336
II-34-6356
I1-34-6362
II-34-6363
11-34-6361
11-34-6359
II-34-635S
II-34-6361
I1-34-6365
II-34-6366
I 11-34-6367
/ II-34-6369
II-34-6370
1I-35-63 5
II-37-6401
II-37-6404
II-37-6405
II-39-6423
11-39-6425
II-39-6420
11-10-6438
I1-40-6434
II-41-6451
II-42-6458
II-41-64S4
I1-44-6485
IM4-6486
1I-14-M87
I1-44-6488
I1-44-6489
I1-44-6490
I1-45-6495
IM5-0502
IM5-6503
IM6-65I5
II-46-6516
I1-47-6525
I1-47-6526
II-17-6524
1I-50-6501
II-50-6562
I1-50-6563
I1-50-6564
I1-50-6565
1I-52-658I
I1-27-6267
1-27-6268
I1-27-6269
11-27-6271
I1-28-6286
1I-28-6285
I1-28-6283
-28-6284
1I-28-6287
I1-29-6294
I1-29-6295
1I-29-6296
II-30-6306
I1-30-6308
350
352
89
476
387
313
343
312
117
435
219
351
352
353
344
343
364
358
387
357
442
443
404
347
345
438
409
480
430
322
354
466
355
220
334
337
an
333
327
307
444
430
433
380
378
453
444
428
434
497
3S0
340
341
329
169
190
309
369
251
230
116
224
290
221
227
255
:
159
Rung.
Court decsons Contnued.
707
708
709
710
711
712
713
714
715
716
717
718
719
720
721
722
723
724
725 ,
726. ,
727
728.
729
730..
731
732
733
734.
735.
736
737..
738
739
740
741
742.
743 -
744
745
746
747
748...-
749.
7S0
751
752
753
754
755
756
757
758.
759
760
761
762
763
764
765
766
Goneru Counse s memo-
randa:
11034 _.
11743
11800
11893
11903
11933
11954
Rung No.
II-30-6310
II-30-6309
II-31-6319
II-31-6321
II-31-6322
II-31-6325
I1-32-6332
11-32-6333
II-32-6334
I1-33-6342
II-33-6343
I1-33-6345
II-33-6344
I1-34-6357
11-34-6354
I1-34-6355
II-35-6376
I-35-6374
I1-35-6377
II-35-6378
I1-36-6388
I I-30-63 9
I1-36-6390
I1-37-6397
II-37-6396
II-37-6398
II-38-6409
II-38-64I0
II-38-6411
11-39-6415
11-39-0416
11-10-6431
I1-40-6432
II-11-6444
II-41-6445
11-12-6455
11-42-6456
II-42-6457
II-43-6466
I1-43-6467
11-14-6481
I1-44-6482
11-44-6478
I1-16-6509
II-45-64S4
I1-46-6510
II-47-6521
II- 17-6522
11-48-6533
II-48-6535
I1-48-6538
1M9-6546
I1-49-6545
11-49-6547
-50-6556
II-50-6557
II-51-6570
II-51-6571
I1-52-0579
U-52-6578
II-35-63S3
I1-27-6264
II-31-6320
II-28-6282
11-29-6292
I1-28-6281
I1-33-6341
( )
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Rung.
enera Counse s memo-
randa Contnued.
11989
12000
12004
12012-
12016
12008
12070
12118 -
12137
12148
12151
12159
12167 --
12206 -
12207 -
12208.
12227
12300
12309. -
12313.
12333 --.
12355 -
12357
12393
12433
oard of Ta ppeas:
10051.
20878.
21481
21643
23410 _.
24912
25126
25269
25427.
25428
28971
29951
30903
32335
33231
33242
36343
30724.
36725
36726
36727
36728
36729
36737
37S05
37806
37887-37S98.
38006
38519
38520
38864-
38903-
38904.......
39148-
39916
40174
40176
40181
40182-
40619
40926
41472
41610
41962
41963
42528-
42707
42718-
42719.
43495.
43629.
43860.
43968-
44508.
44852.
44638.
ung No.
II-30-6311
I1-32-6330
I1-30-6307
II-35-6373
II-30-6312
II-34-6360
11-35-6382
11-37-6395
II-4C-6429
II-36-63.87
1I-40-O430
11-40-6438
II-38-0408
II-39-6419
II-41-6442
II-45-6492
II-46-6508
-52-6575
II-44-6476
II-45-6498
1I-51-656S
II-45-6493
II-41-6452
11-4.5-6497
11-48-6507
II-35-6371
II-45-6491
II-44-6475
I1-36-0386
II-27-6263
II-35-6371
11-45-6491
II-36-63S6
II-36-63S6
II-36-63S6
II-35-6371
II-44-6475
II-28-0280
I1-46-8504
II-30-6303
11-36-0386
I -49-6542
II-37-6394
I1-37-0394
II-37-6394
II-37-6394
II-37-6394
II-37-6394
II-27-6263
I1-37-0394
I1-37-0394
II-14-6475
II-35-6371
I1-38-6406
II-38-0406
11-36-6386
II-48-8531
II-48-6531
II-39-6(14
11-13-6462
II-51-6566
I1-51-6566
II-51-0566
-51-6566
II-52-6574
11-27-6203
II-35-6371
II-44-6475
II-42-6454
I1-42-6454
11-45-0491
11-38-6406
II-36-63S6
II-38-63S6
I 1-50-65.53
II-35-6371
II-45-8491
II-40-6427
II-45-6491
II-27-6263
1I-15-6491
Page.
ss
62
168
60
359
314
316
Ut
81
57
115
131
126
395
83
87
128
30
71
420
68
LOO
414
39S
91
17
19
13,25
27
17
11
8
17
13,25
11
10,23
22
1
3, IS
5
5
5

d
2
2
M
14
13,-25
17
2
2
7
18
4
1(1
18
10
10
5
5
27
4
16
y
3
4
6
4,6,18,
19
9
9
4, 18
16
1
12
20
23,24
3
Rung.
No.
oard of Ta ppeas Con.
44940
44943
45014
45015
45016.
45221.
45265
45266.
45267
45352
45353
45359.
45360.
45361.
45362
45363
45368
45392-
45393
45429
46297
46327
46335
46603-
47117
47974..
49144
49259
49517
49552
49891
60051
50336
51064
51102
51103
51104
51171
61172..
61173-
51317.
62132-
52370-
52496-
62861.
53039.
63040.
63458-
53715-
64050.
54660..
54880.
55299.
55341
65342.
56(127
56314
58449
58095.
56748.-.
56865.
56960.
57045.
58857.
58858.
58871
59190
60.569
60661
60700
60627
61055
61278
62410
02S3S-
63416
63417
63632
88014.
60891.
66964. ,
67422-
69007
Page.
II-51-6566
27
I1-30-6303
21
11-49-6542
19
I1-19-6542
25
II-49-6542
24
I1-38-6406
19
11-38-6406
22
I1-38-6406
22
II-38-8456
18
11-38-6406
28
I1-38-6406
28
I1-38-6406
19
11-38-6406
21
II-38-6406
20
II-38-6406
23
II-38-6406
26
II-38-C408
22
II-38-6406
17
II-38-6406
17
1I-43-6462
7, 12,
21,25
II-42-6454
3
I1-31-6317
17
II-39-6414
25
II-52-6574
19
II-45-6491
8
TIT M
18
II-29-6291
14
II 39-8414
9
I1-10-6427
22
II-36-63S6
24
II-47-6517
2, 16
I1-50-6533
4. 18
II-3I-0317
24,25
II-51-6566
9
IM3-6462
2
II 13 6462
13
II-43-6482
13
II-29 6291
25
II-29-6291
21
II-29-6291
25
I1-36-6386
18
II-37-6394
25
II-36-6386
24
II-36-6386
18
11-30-6303
21
II-51-6566
14
II-51-6566
14
II-39-6414
9
II-38-6406
2
II-40-6427
24
II-36-6386
9
II-41-6440
4
II-36-6386
20
II-38-6400
13
II-38-6406
13
II-45-6491
8
II-36-6386
4
II-41-6440
19,27
II-35-6371
24
II-44-6476
10
II-33-6340
8
II-36-6386
1
II-32-6329
10
II-51-6566
10
II-5I-C506
10
II-32-6329
16,22
II-51-6566
14
II-32-6329
24
II-52-6574
18
I1-46-6504
1
II-38-6406
22
II-51-6566
3
II-44-6475
27
II-45-6491
8
II-39-6414
10
II-51-6566
6
II-51-6566
5
II-39-6414
16
II-47-6517
16
II-45-6491
3
II-32-6329
24
II-32-6329
24
II-36-4 386
1
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II
Rung No.
Page.
Rung.
Rung No.
Offce decsons (I. T.):
2700
2701
2702
2703
2704
2705
2706
2707
2708
2710
2711..
2712.
2713
2714
2715
2716
2717
2718
2719
2720.
2721
2722
2724.
2728.
2727
2729
2730
2731
2732
2733..
2734..
2735-.
2736
2737
2738
2739
2740
2741
2742
2743..
2744..
2745
2748
2747
2748
Offce decsons (S. T.):
687
689
690..
691
692
693
694
695
696
II-27-6265
73
11-27-6206
76
I1-29-0293
212
II-30-6304
39
II-30-8308
169
II-3I-6318
67
11-32-8335
393
II-33-0348
394
II-34-6351
40
II-34-6353
79
II-35-6372
51
II-35-6375
138
I1-35-6370
394
11-35-6380
394
n-35-6381
394
I1-36-6392
409
II-38-6407
94
II-39-6420
395
II-39-6421
414
II-40-6428
71
II-41-6441
38
II-4I-6443
198
II-42-6459
415
II-43-04 3
29
II-43-6464
42
II-43-8465
55
II-13-6470
397
1I-44-6477
418
II-45-6496
397
11-16-8505
43
II-46-0506
45
II-17-6518
46
II-18-8532
162
II-18-6534
131
I1-48-6536
190
II-48-6537
199
II-18-6540
420
I1-49-6548
400
II-I9-6549
401
II-49-6551
48
II-50-8554
77
II-50-6555
103
II-50-6559
402
I1-51-6567
37
II-51-6572
422
I1-52-8576
70
II-52-0577
72
I1-27-6270
315
II-27-8272
304
II-27-6273
369
11-28-6288
341
II-29-8298
317
II-29-6299
498
II-31-6323
312
II-31-0324
365
II-32-6338
324
II-33-0346
317
Offce decsons (S.T.) Con
697
698
699
700
701
702
703
704
705
708
707
708
709
710
711
712
713
714
Offce decsons ( . T.):
2
3
Offce decsons (MS.):
140
141
142
143
144
145 -
Offce decson (T.):
2
Offce decson (P. T.):
1
Mmeographs:
4033
4035
4040
4070
4071
4077
4079
4081
4082
4090
4092.
4099
4100
4101
4102
4107
4108
4118
Msceaneous _.
II-33-6347
I1-34-6388
I1-36-6391
II-38-6412
II-39-6418
11-39-0422
I1-40-6433
I1-40-8435
II--6446
I1-41-6447
II-41-6448
II-43-6468
11-44-6479
I1-44-8480
I1-1.5-6499
II-40-65II
I1-48-6539
I1-50-6558
I1-37-8399
II-39-6417
II-28-6290
.. 8349
II-37-G400
II-41-6449
11-46-6513
1I-49-6550
II-42-6460
11-16-6512
r-27-8276
I1-29-6297
I1-30-6313
II-40-6437
II-41-6450
II-43-647I
I1-43-6469
II-13-6472
11-43-6474
I1-15-8500
I1-47-6520
II-47-6519
11-47-6529
T 1-47-6530
I1-47-6523
I1-49-6544
11-19-6543
I1-51-6573
-27-6277
I1-27-6278
I1-32-6337
I1-37-0402
I1-47-6527
I1-52-6580
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CONT NTS O CUMUL TI ULL TINS (I. T.) 1 TO 5 S. T. OR 1920 ND 1921: INT RN L
R NU 1-1,1-2, -, II-2. UI-1. III-2, I -1, I -2, -, -2. I-1, I-2, U-1, IM, III-1, ID-1,
I -1. I -2, -, -2, I-I, I-2. 11-1. ND II-2.
Cumuatve uetn.
Income Ta :
December, 1919 (No. 1)
anuary- une, 1920 (No. 2).
uy-December, 1920 (No. 3)
anuary- une, 1921 (No. 4)
uy-December, 1921 (No. 5)
Saes Ta :
1920 (S. T. 1-20)
anuary- une, 1921
uy-December, 1921...
Interna Revenue uetn:
anuarv- une, 1922 (No. 1-1)
uv-December, 1922 (No. 1-2)...
anuary- une, 1923 (No. II-)
uy-December, 1923 (No. II-2)..
anuarv- une, 1924 (No. III-)...
uy-December, 1924 (No. 111-2)..
anuary- une, 1925 (No. I -1)...
uy-December, 1925 (No. I -2)..
anuary- une, 1926 (No. -)
uy-December, 1920 (No. -2)...
anuary- une, 1927 (No. I-1)...
uy-December, 1927 (No. I-2)..
anuarv- une, 1928 (No. II-1)..
uy-Deeember, 1928 (No. II-2).
anuary- une, 1929 (No. III-1).
uy-December, 1929 (No. III-2)
anuary- une, 1930 (No. I -1)...
uy-December, 1930 (No. I -2)..
anuary- une, 1931 (No. -)
uv-December, 1931 (No. -2)...
anuary- une, 1932 (No. I-1)...
uy-December, 1932 (No. I-2)..
anuary- une, 1933 (No. II-1)..
uy-December, 1933 (No. II-2).
( III)
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O RD O T PP LS
CUMUL TI LIST O NNOUNC M NTS R L TING TO
D CISIONS O T UNIT D ST T S O RD O T
PP LS PU LIS D IN T INT RN L R NU
ULL TIN S R IC ROM NU RY 1, 1932, TO
D C M R 31, 1933, INCLUSI .
nnouncements reatng to the acquescence or nonacqucscence of the
Commssoner In decsons of the Unted States oard of Ta ppeas, as
pubshed n the weeky Interna Revenue uetn, from December 22, 1024,
to December 31, 1931, ncusve, are prnted n Cumuatve uetn 2,
pages 1-106. The st beow, therefore, contans ony such announcements
pubshed In the weeky uetns from anuary 1, 1032, to December 31,
1933, ncusve.
II-52-6574
The Commssoner acquesces n the
Unted States oard of Ta ppeas:
foowng decsons of the
Ta payer.
Docket
oard of Ta ppeas.
No.
oume.
Page.
40546
24
435
37695
24
435
37693
24
435
37694
24
435
37696
24
435
41034
24
435
25194
38687

429
39980
25
211
39593
25
1246
39593
25
1246
56960
69007
28
586
20765
24
376
41295
27
1091
60700
28
1291
39019
27
1210
25414
25
834
31704
25
1276
16229
21
464
27623
24
18
39167
24
334
33242
27
1305
36224
26
1208
bees, Chares T -
bees, Cfford
bees, rancs, estate of
bees, ohn T
bees, atherne
bees, Wemenc
cme Manfodng Co., Inc
deade Park Land et a., trustees.
fremow, Davd, estate of..- -
fremow, Sarah, e ecutr ..
abama Mnera Land Co..
bert Lea Packng Co., Inc
brccht et a., atherne ., e ecutrces 1
coma Corporaton
e ander, . ., estate of
en, Irene C...
ed mercan Corporaton
mercan Cgar Co
mercan eature m Co
mercan Securty Trust Co. et a., e ecutors
nderson, C.
nderson, Gustave..
Rung No. 6574 Incudes a acquescence and nonacques enco notces pubshed n tho Interna
Revenue uetn servce from anuary 1, 1U32 to December 31, 1933.
state ta decson acquescence reates to deducton of 133,000.
state ta decson.
(1)
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cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
shforth, bert ., estate of
shforth et a., Mabe ., e ecutors 1
tkns, . ., estate of.
tkns, Mrs. .
.
adwn, orence G
afour, Sr Robert
a, Php D. C
ankers Dary Credt Corporaton-
arber, rthur
arber, Php C
arber, St. George
arber Trusts, Sarah P
arcay, W. L
arker, red
Ice Coa Co.
eaumont, Lous D...
ebb, Rchard ., estate of ..
e, Ivor .3
eows as Power Co.
ent Co., R. G
ernsten, Isaac M
est, rank
ngham, Robert W
rdneck Reaty Corporaton.
scayne ay Isands Co.
oodgood, dth
um, uus, trustee.
oehrnger, Rudoph 4
oos ros. Cafetera Co
org eck Co
owden, Pau kers
rnton, Lan McDonad.
rown, erence
ryan et u ., C.
ryan et u ., L.
47190
48009
49354
47190
48009
49354
38520
38519
32387
40230
36737
48329
26747
26755
26757
26747-
26757
8743
51102
67637
31931
46569
49422
41295
22335
/ 18592
29104
/ 57312 1
59796 /
36729
36746
51051
46079
f 27616
I 35098
40147
26750
f 39242
I 40939
I 45741
I 51507
49891
39200
/ 24223
34964
51923
63715
/ 24667
36637
24036
24037
26
26
28
28
23
25
27
26
25
25
25
25
26
28
27
25
27
27
25
26
28
20
27
25
23
25
25
29
25
24
26
28
26
19
19
1410
472
814
111
111
1 Nonacquesccnce pubshed n uetn II-1, pa.ee 1. wthdrawn.
1 state ta decson acquescence reates to deducton of 33,0O0.
1 cquescence reates to that part of decson hodng that Water . ncttman s not abe as a 1
feree and to mtaton ssue.
cquescence reates to ssue nvovng secton 115(g) of the Revenue ct of 1928.
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3
cquescence s Contnued.
Tapayer.
uck, ohn ., estate of
uck et a., Mary M., e ecutors 1
uena sta Land Deveopment Co.
uffao Unon Iron urnace Co. 1
uock, George
urton, en|amn T
uter, U.
Caforna Coast O Co
Camp Manufacturng Co
Carman, .
Carne-Goude Manufacturng Co.
Carter Pubcatons, Inc
Cathcy, George
Cathey, Luke
Catn, Dane
Catn, Theron
Centra Market Street Co.4..
Centra Natona ank, trustee
Centra Renderng Corporaton
Champon, Davd .5
Champon, T. Perre
Chapman Dewey Land Co
Chapman Dewey Lumber Co.
Chcago Northwestern Ry. Co.
Chrstopher, Rache S.7
Cty ank armers Trust Co. et a., e ecutors 7.
Cark et a., ames, e ecutors
Cements, W. L
Ceveand Trndad Pavng Co.8.
Cnchfed Securtes Co
Docket
No.
32584
44153
44684
32584
44153
440S4
2025
16075
16076
31209
61055
46055
25018
35955
44321
44939
50178
20074
27095
44838
66891
46056
46057
25421
25413
24837
28701
20776
55569
63818
55568
37403
51059
33466
37402
47130
50196
51058
36343
47704
31869
34499
46058
41962
46297
40554
oard of Ta ppeas.
oume.
25
25
13
23
2.3
28
24
25
22
26
23
24
24
20
25
25
902
25
537
25
162

679
28
160
24
506
24
506
25
834
25
834
25
499
25
1123
24
376
27
1312
27
1312
25
1106
state ta decson acquescence reates to vaue of certan rea estate n San rancsco and vaue of
stock of Langendorf akng Co. for estate ta purposes and reasonabeness of Commssoner s aowance
for support of the wdow.
cquescence reates to Issue regardng deductons for obsoescence of bast furnaces.
cquescence reates to Issue 2 of decson.
cquescence reates to ssue regardng apportonment of ta es among affated corporatons.
cquescence reates to bass upon whch gan or oss upoa redempton of stock shoud be computed.
cquescence reates to foowng ssues: Matera and suppes ad|ustment amortzaton of bond
premum assessment of assocaton of raway e ecutves raroad Y. M. C. .
state ta decson.
1 Nonacquescence notce pubshed n Cumuatve uetn -2, pages 83 and 84, revoked.
G
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1
3
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1
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2

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:
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9

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8
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5
4
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7
7
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4
cqus bounces Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
gnton Cotton Ms, Inc
oats, Inc. (R. I.), . P.1
Cochrane, Davd
Cogate, Mary
Coorado Utah Coa Co
Coumban Carbon Co.s
Coumbus rck Te Co.
Commerca Investment Trust Corporaton 4.
Connectcut Rver Power Co
Contractors Constructon Suppy Co.s_
Cook, zabeth .
Cook, M. M., estate of
Cooke, eatrce
Coombs, zabeth M
Coombs, . oward
Cooper, ohn I
Corbett, ott R
Cornng Trust Co., trustee
Cornwe, . L
Costeo, oseph 7
Cotton, G.
Crokcr, ua
Cromwe ct a., Wam Neson, e ecutors8-
Crouse, George N
Crowey, oseph ., estate of
Crownmshed Shpbudng Co
Cuver, Wnner T
Cunard Coa Co.
Curts, Laura M
54880
38904
60428
61882
63799
42743
42707
43495
50051
18591
29106
41963
38579
53044
26751
44768
44769
32610
40115
40926
29252
30303
22640
59655
41121
42619
43446
51419
35472
18987
37574
26874
26875
28792
56314
28
28
26
27
26
25
26
28
25
20
25
27
25
25
25
24
27
26
24
27
25
27
24
26
25
24
24
26
28
24
24
25
24
27
26
Dah, ndrew ., estate of 44845
Dah et a., ua, e ecutors 44845
Daev, ugene S., e ecutor 26645
Davs, ohn 20703
De orest, ate R. 37284
Deaware udson Co.
cquescence reates to contrbutons ssue and ssue respectng deducton of amount pad to treasurer
of Rhode Isand on account of ncreasng capta stock.
1 Nonacquescence pubshed n uetn I-14, page 1, revoked.
cquescence reates to ncuson In consodated Invested capta of capta stock ssued for a te and
brck manufacturng pant, etc.
cquescence reates to the foowng Issues: Deducton of e penses In connecton wth Issuance of
preferred stock deducton for dvdends credted to accounts of empoyees for purchase of stock.
I Nonacquescence notce pubshed In Cumuatve uetn -2. pages 83 and 81, revoked.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to that part of decson hodng that Water . ettraan s not abe as a transferee
and to mtaton ssue.
state ta decson nonacquescence pubshed In Cumuatve uetn -2. page 84, revoked.
state ta decson.
cquescence reates to deductons for addtona royates and offcers saares and drectors fees.
II Oft ta decson.
u Nonacquescence pubshed n Cumuatve uetn I-2, page 12, wthdrawn.
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1
3
-
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1
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2

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:
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9

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8
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cqt|escences Contnued.
Ta payer.
Denns, rank ., estate of 1
Denns, Merry M., e ecutr 1
Detrot Trust Co. et a., e ecutors
Dcknson, bert G
Drksen, nna L., e ecutr
Drksen, Theodore ., estate of.
Dome Co
Domnon Natona ank
Dougas Co., ohn
Dre e Packng Co
Duff, Robert C.
Dunham, Water
.
Pass Pedras Negras rdge Co.
asterwood, r., W.
astcrwood, r., Mrs. W.
sendrath, dwn W
sendrath et a., dwn W., e ecutors.
sendrath, Maron
sendrath et a., Rose L., trustees
sendrath, Wam
sendrath, Wam N., estate of
k ns, ae D.
ott-Grante Lnen Corporaton
more Mng Co
mery, Mary M., estate of
nameed Metas Co
nns Ice Co
vergreen Cemetery ssocaton .
ack, e ander D
as Cty Ice fe everage Co
ame Cannng Co
armers Lfe Insurance Co.4
armers Loan Trust Co., trustee
edera Street Peasant aey Passenger Ry. Co
dety Savngs Loan ssocaton
rst Natona ank of oston, admnstrator-
rst Natona ank of ey West
orence Manufacturng Co
50263
50263
35472
35015
43176
17717
17717
41887
52165
38726
20775
37552
66308
42460
40181
63416
40182
63417
36726
36724
36727
36728
36725
36724
39255
48212
46768
52972
40899
19011
22021
22022
26259
42184
30726
20452
67636
20774
43317
29465
29758
14862
31801
39406
45215
36438
46583
45186
15383
26079
oard of Ta ppeas.
oume.
26
26
25
23
24
24
26
26
23
24
23
27
23
28
28
28
28
28
28
28
28
24
26
27
25
25
24
25
26
27
24
27
26
24
23
25
26
25
state ta decson.
cquescence reates to ssue 1 of decson.
Nonacqueseence pubshed n Cumuatve uetn -, pago 9, revoked.
cquescence reates to ssue n connecton wth opton payment receved for purchase of
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2
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1
3
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0
1
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2
2

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:
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9

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0
0
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0
0
8
9
0
5
4
3
7
7
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6
cquescenceb Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ok, . ...
orest Products Chemca Co
orres, Lord
oster, L. .1 ...
oster, N. C, estate of1
oster et a., Ward, e ecutor3.
rank, m
G.
Gamb, .
Gambe Stockton Co.
Gardner, Chares .4
Garron et a., Isabe . ., e ecutors _
George, erome R
George Machnery Co., R.
Gnsberg, bert _.
Gnsberg, Nathan .
Gobe Constructon Co.
Goden, dward
Godman, Ma we
Gordon, zze 5
Gordon, Ma L.6
Gotteb Reaty Co
Graeper, W.
Grand Rver Grave Co.
Green, Robert D.e
Green, W. S.
Grey u Corporaton
Grffs, Stanton 4
Grffths, George W
Grffths, ohn
Guaranty udng Loan Co.
Guf Coast Irrgaton Co.7
Gurnee, ugustus Coe, estate of8
.
aberand, Pau
aey-Oa Coa Co
aaday, Sarah P
amburg, r., Sam
anscom, dward ., estate of2
anscom et a., Meve, e ecutors .
28396
31018
46621
40229
43973
43086
32984
32984
60224
47902
42707
38575
47705
45240
61218
27628
27629
43438
51694
53310
27625
30302
22332
22333
42528
46619
23085
53647
43786
46373
63487
47376
38577
42498
43074
55352
33694
40081
41343
42619
29289
30962
26754
30304
44992
44992
26
27
26
26
25
25
27
26
26
25
26
27
26
24
24
25
24
24
27
27
28
27
22
24
26
27
25
25
25
27
24
24
25
24
25
24
24
24
1 cquescence reates to Issuo regardng fng of separate return for 1925.
state ta decson.
I cquescence reates to ncuson n consodated nvested capta of capta stock ssued for a te and
brck manufacturng pant, otc.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
1 cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton Issue.
cquescence reates to transactons 1, 2, 3. and 4.
cquescence reates to a Issues e cept affaton ssue.
state ta decson nonacquescence pubshed n Cumuatve uetn -2, page 88, revoked.
G
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a
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
0
9

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3
0
0
0
0
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8
9
0
5
4
3
7
7
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cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
arbcson Lumber Co., W.
arbson, Raph W
arbson, Wam bert
arrah, Mare
arrah, Wam
artford- mpre Co
astngs, rederck
a vara, Chares
ay, W.
avman Co.,
emph, Cfford1--
ervey, W. R_ --
ess, Nathane
ettman, Water .1 --
ckman, anne Snyder
mchoch ros. Co
res Co., Chares
obbs, enry --
obbs, Teck
otter, nta Owens
offer, T.
ongsworth, .
oster, George ue
oughton, anson
oughton, r., mory, estate of..
oughton, rthur
oughton, Chares ., estate of..
ouston ros.1..
ouston, George T.
ouston, orace .
ouston, Php D.
unter, C. W., e ecutor
unter, George ., estate of
untngton, enry ., estate of 4
uyer s, Inc
I.
Independent Ice Coa Co
Ingas, Chares C, estate of
Interstate Reaty Co
Itcn scut Co
33076
51012
54346
54347
25269
21643
29958
41736
53600
3SS01
32841
37499
16552
38573
46806
33279
22341
16253
41728
42709
45663
47781
27352
27351
33374
33375
54282
29461
29445
29444
29446
29465
12052
13104
22008
22009
22007
45417
45417
45429
28369
29154
39841
67639
57835
46272
50981
16429
20899
24
26
26
27
27
26
27
25
25
25
25
25
24
2-
24
26
26
26
26
24
24
27
26
26
26
26
26
22
22
22
22
26
26
28
24
27
25
25
25
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton ssue.
cquescence reates ony to deducton for busness e penses n 1920 and to number of feet of tmber
cut durng 1919.
cquescence reates to ssue regardng oss from operaton of a farm n 1925 and 1926 and ssue regard-
ng ncreasng defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
state ta decson.
G
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d

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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
0
9

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/


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7
/

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3
0
0
0
0
0
8
9
0
5
4
3
7
7
P
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#
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8
cqcescences Contnued.
Ta payer.
.
ammcrdner,
ansas Cty Leasehod Improvement Co.1
ansas Cty Memphs arms Co
asch, d
asch, Theodora
eey, ohn P
ent, verett
bee, O. .3 ---
nney Co., Inc., G. R
rchner, uus C
nght, . D
raemer, Samue
uhn, Ida L
unau et a., Oscar . C, trustees
L.
Lake Chares Nava Stores
Landers, Dougas ., estate of
Lawson, ohn
Leamngton ote Co
Ledesdorf, Samue D
Leonard odng Corporaton, George ., estate of
Lev, George .2
Ley, Mary C.2
Lberty arms Co
Lncon, Robert Todd, estate of
Lppncott et a., . ertram, e ecutors
Lppncott, Water, estate of 3
Lttauer, ugene, estate of4
Lttauer et a., Lucus N., e ecutors 4
Ltte, C.
Lvngood, Chares ., e ecutor 5
Locb, r., et a., Wam, trustees
Loge, oseph
Longyear, r., ohn M --
Longyear, Mary ., estate of
Docket
No.
41643
46555
35718
51000
48293
48293
38233
39576
42589
46064
24882
31397
32980
25428
56865
37822
32609
40267
64815
34630
36940
35443
40232
48413
48305
48871
22336
22337
26717
29899
39167
49233
49233
51858
51858
61821
40899
34161
37762
40071
47117
56027
62410
36438
46583
oard of Ta ppeas.
oume.
25
495,
17
213
25
1166
25
284
25
284
26
212
26
482
27
377
26
1091
27
1305
28
188
25
686
24
216
27
509
25
173
21
1347
25
154
26
1004
26
881
26
46
27
377
27
377
22
1298
24
334
27
735
27
735
25
21
25
21
27
1022
25
585
26
635
24
798
28
1085
25
252
1 cquescence reates to March 1, 1913, vaue, for purposes of cacuatng gan 0r oss upon sae of and
at ersaes, Mo. whether the nvested capta of the Smcoe Reaty Co. shoud be ncreased for 1918
and the March 1, 1913, vaue, for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
tv Improvement Co.
1 cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton ssue.
state ta decson.
state ta decson acquescence reates to Issues 4, 5, and 7 of decson.
Nonacquescence pubshed n Cumuatve uetn I-, page 10, revoted.
G
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9
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Loughborough Deveopment Corporaton
Loure, Davd
Luhrg Coeres Co
M.
Markham Irrgaton Co.1
Martn ote Co. and affated corporatons
Martn et a., . are, trustees
Martn, T. S., estate of
Martns, ndy 2
Marvn, Water S.1
Matagarda Cana Co.1
Matthews, . P
Maudn, 1. M
McCa, orence4
McCoo, ess
McDonad, L. G
Mc wan, nna
Mc wan et a., nna ., e ecutors
Mc wan, .
Mc wan, Lan G
Mc wan, W. ., estate of
McGrew, zabeth W
McLennan, . R
McMan, Wam Northrup, estate of 5
Mead Coa Co., C.
Memphs Memora Park
Mercante-Commerce Natona ank n St. Lous
et a., e ecutors and trustees 4
Messer, Rchard ., estate of4
Metropotan Propertes Corporaton
Mchgan Trust Co. et a., e ecutors 4
Mby Dow Coa Mnng Co
Mgrm ros., Inc , .
Msssspp Packng Co., Iuc
Mtche, L. C
Mtche, Oscar 7
51064
27630
40048
41344
16275
44583
44583
22334
38578
40082
41345
26250
26239
47702
4G059
25427
25996
25997
25995
25994
25997
26753
26730
45966
42718
42719
54660
49259
53458
35443
42513
45032
42513
22021
22022
26259
42184
33177
20772
41610
41680
41874
54673
29
24
26
24
24
24
24
27
25
24
22
22
26
24
27
26
26
26
26
26
25
25
27
28
28
21
27
24
27
24
24
24
28
27
101
1 cquescence reates to a ssues e cept affaton ssue.
1 cquescence reates to that part of decson hodng that Water . ettman Is not abe as a trans-
feree and to mtaton ssue.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
1 state ta decson.
1 state ta decson acquescence, e cept n so far as concerns the queston of stus.
4 cquescence reates to ssue 1 of decson.
T cquescence reates to ssues regardng assgnment of earnngs of ron mnes n payment of ega serv-
ces, and deducton of amount pad to son for aeged servces rendered.
37408 34 2
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1
3
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2

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:
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9

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10
cquescences Contnued.
Ta| payer
Mobe Lght Raroad Co.1.
Moorehead, Wam
Moorshead, 0
Murchson, Mrs. .
Murphy, Mae . eey
Murray, dward
Murray, Rebecca
Murtha Schmoh Co
Musgrove, oyd L
Mutua ssurance Socety of rgna
N.
Na et aL, R- ., e ecutors
Natona Capta Insurance Co. of the Dstrct of
Coumba
Natona Contractng Co.1
Natona M Suppy Co
Natona Packng Corporaton
Netcher, Chares, estate of
Netcher, Gadys Over, e ecutr
Netcher, Irvng
Netcher, Townsend
Newaygo Portand Cement Co
Newbock O Co. of Te as
Newbury, Moe Netcher
Newbury, Moe Netcher, trustee...
Newe et a., Sterng, e ecutors 4
New ngand Power Co
New Market Investment Co.
Newton, zabeth .
Newton, oseph R., estate of
New York, Chcago St. Lous R. R. Co.
North Sde Lumber Tmber Co
Northern Coa Co.
Noyes, ansen 7
Oakey, Rchard _.
Ontaro Reaty Co.5.
O Rear, . C.8
O.
Docket
No.
41026
42062
25853
57045
62838
38222
40176
58858
40174
58857
17911
42591
43911
53044
56748
24520
37001
31668
33971
38053
38053
38052
38050
36319
28045
38049
3 052
57835
f 18593
29105
35719
47703
47705
21047
34924
34945
38574
45778
35721
32335
oard of Ta ppeas
oume.
23
22
28
28
26
28
28
17
27
24
27
28
25
23
24
26
26
26
26
27
26
26
26
25
25
17
26
26
23
27
24
25
24
17
28
1 cquescence reates to foowng ssues: 1. Whether paymonts recevod by a trustee on behaf of pet-
toner h the ta abe years n accordance wth a wrtten agreement entered nto by and between pettoner
and another n 1900 consttute ta abe payments of rent or nonta abe payments on the seng prce of
assets. 2. Whether pettoner sustaned statutory net osse3 for 1924 and 1928 whch can be d educted from
ts ncome for 1925 and 1926, respectvey.
1 cquescence n oard s decson that pettoner had the rght to aocate overhead e penses to each
contract on competed bass and that formua used by pettoner was permssbe and ssue reatve to
neggence.
1 Nonacquoscence pubshed n Cumuatve uetn I-2, page o, rovoked.
state ta docson.
cquescence reates to March 1, 1913, vaue, for purposes of cacuatng gan or oss upon sae of and
at ersaes, Mo. whether the nvested capta of the Smcoe Reaty Co. shoud be ncreased for 1918 and
the March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
8 cquescence reates to nventory ssue.
7 cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to ssue as to aowabe deducton of cost of operatng automobe party used n
ta payer s busness n 1924.
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1
3
-
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1
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2
2

0
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:
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9

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11
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Pane et a., rancs Ward, e ecutors.
Pane, Wam ., estate of
Pam each Mather Co
Parkand Ice Coa Storage Co
Peavy- yrnes Lumber Co.
Peavy-Moore Lumber Co.
Peavy-Wson Lumber Co.
Pegg, bert O.1
Pennsyvana Investors Co.
Perkns et a., acob
Pershouse, ce
Pershouse, Mabe
Phps, C.
Pctora Revew Co
Pggy Wggy Corporaton _ .
Pztz Dry Goods Co., Lous.
P-M- Petroeum Co.
Poar Ice Coa Co
Pope, Ove R
Powe, en|amn I
Prce, Laura M
Prce, W.
Prophyactc rush Co.
Prosser, Constance _
Putnam Trust Co
unn, van
unn, Martn M.
unn, Pau
R.
Rapp, ohn W., estate of...
Rauh Reatv Co
Reardon Sons Co., ohn.
Rato Mnng Corporaton
Rchards rschfed, Inc
Rggs Natona ank 3
Robson, Cara P., estate of
cquescence reates to that part of decson hodng that Water . ettman s not abe as a
teree and to mtaton Issue.
cquescence reates to thrd ssuo of decson.
Nonacqueseence pubshed n Cumuatve uetn -2, page 99, wthdrawn.
34113
34113
43850
67640
15824
16354
25984
15823
16355
25986
15822
16356
25985
22338
20766
28701
26749
26748
47901
43995
25126
43860
46585
50576
54779
67638
29274
50380
40659
41072
32996
47845
47846
26752
34743
8544
8598
8574
28618
32822
20773
48692
56877
21715
30903
26645
25
25
24
27
25
25
25
27
24
25
25
25
26
26
28
22
24
27
25
26
24
21
25
26
26
26
26
24
26
24
25
24
17
25
764
764
536
1346
223
223
223
377
376
1123
513
518
995
472
412
161
360
1346
1161
509
216
216
676
513
655
970
970
970
1061
48
376
980
1289
615
949
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12
cquescencbs Contnued.
Ta payer.
Docket
No.
oard 0/ Ta ppeas.
oume. Page.
Rodeo- ac|o erry Co.1
Rosenberg, Lous
Rosenboom nance Corporaton
Roth, Gorton
Roy Ttcomb, Inc
Russe, C. C
Russe, Mrs. C. C
8.
St. Lous Unon Trust Co., e ecutor
Sanders, W. C
San Martnez O Co
Sappngton, G. Rdgey
Schepp Co., L
Schermerhorn, arret Puman.
Scov Manufacturng Co
Scruggs, Gross R
Scruggs Investment Co
Scruggs, Maran P
Seaconnet Coa Co.4
Seares Rea state Trust
Securtes Co
Securty rst Natona ank of Los ngees et a.,
e ecutors 5
Ses Sportng Goods Co
Shand, Gadsden
Shaw, Davd, estate of
Shea, R. P
Smcoe Reaty Co.8
Sncare et a., een ., e ecutors,.
Sncare, enry P., estate of
Sncare, r. enry P., estate of
Sncare et a., Murray, e ecutors
Sncare, Regnad
Sncare, Wam, estate of
Sou as Meta Cuvert Co
Smathers Power Typewrter Co
Smth et a., zabeth D., e ecutors.
Smth, I. N., estate of
Smth, esse, e ecutr
Smth, Mrs. esse
36411
48528
27626
35778
40903
22568
29138
46060
46061
45966
26651
37447
43121
51944
42908
43145
29854
3023S
33610
46270
38711
18089
24489
40553
45429
20771
26238
34499
37835
40034
35720
37703
29252
37520
37520
37864
37703
41070
43968
39291
49668
39291
49668
18876
22313
24
24
24
26
24
24
24
27
25
25
25
25
26
25
24
24
24
24
25
25
28
24
22
24
24
17
26
26
20
26
20
26
26
28
25
25
24
24
1 cquescence reates to deducton of contrbuton to ctory ITghway .
1 cquescence reates to hodng of oard that dstrbutons receved fro)
/ ssocaton.
1 from oseph . nch Co. were
not parta qudatng dvdends.
s state ta decson acquescence, e cept n so far as concerns the queston of stus.
cquescence reates to nventory ssue.
cquescence reates to ssue regardng oss frcm deraton of a farm n 192f. and 1026 and ssue regardng
ncreasng defcency for 1925 by amount of nterest cccrued on bonds e changed for art ob|ects.
e cquescence reates to March 1, 1913, vaue, for purposes of cacuatng gan or oss upon sae of and at
ersaes, Mo. whether the nvested capta of the Smcoe Ieaty Co. shoud be ncreased for 1918 and the
March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod Im-
provement Co.
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a
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
0
9

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13
cq0e8Cencb8 Contnued.
Ta payer.
Smth, Lous, estate of
Smoot, Lews
South Memphs Land Co.
Southard, enne
Southern Raway Co. et a
ne Son Co., C. . .
prunt Son, Inc., e ander,
andard eef Co
Standard Conveyor Co
Stauffen, Theodora
Stearns, Robert L
Stegeman, .
Stegeman, r., bert
Stegeman, anne L
Stegeman, . M
Stegeman, . R
Stegeman, Mabe
Stegeman, Wam L
Stevens, ohn
Stevenson Consodated O Co.s
Stock Yards ank of Cncnnat
Stockham, |ah
Stone et a., Irvng ., e ecutors and trustees
Stone, Irvng Lee, estate of
Stoneman, Davd
Stromeyer, Irene
Stromeyer, Wam
Strong, arod C.5
Suvan, ugene C
Sunburst O Refnng Co
Tabot, . .
Te as Irrgaton Co.7
Thompson, dward W
Thompson, W. L
Docket
No.
18876
32578
44500
42092
21481
29951
37887-
37898
34946
38408
20770
33159
36393
40873
26756
37573
26643
26650
26644
26647
26646
26649
26648
296S5
43416
41085
22569
43830
43830
27627
55341
55342
38576
29389
45979
36191
40083
41346
51103
51104
31029
33464
42340
45957
oard of Ta ppeas.
oume.
24
25
27
27
27
24
24
24
25
25
24
25
25
25
25
25
25
25
24
23
25
26
26
26
24
28
28
25
26
23
23
24
28
28
25
Tfft, Chares
cquescence reates to foowng Issues: 1. Dd pettoner reaze ta abe ncome from unrefunded por-
tons of amounts deposted by shppers for constructon of factes for use of such shpppers 2. Whore
bonds were sod at a premum pror to March 1, 1913, s the amortzed porton of such premum ta abe
Income 3. Dd Commssoner erroneousy e cude from ad|ustment for matera and suppes an amount
equvaent to nfaton contaned n book vaue of such materas and suppes as were not used durng 1920
cquescence reates to Inventory ssue.
1 cquescence reates to ssues regardng reducton of ncome for fsca year endng November 30,1924, by
oss sustaned for 11 months endng November 30,1922, and Incuson n ncome for a years of 1 par vaue
of capta stock of Sunburst O Gas Co. receved by pettoner as a premum.
1 state ta decson acquescence reates to ssue nvovng deductons from gross estate.
cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to oss ncurred n sae of a boat.
oquescence reates to a Issues e cept affaton ssue.
G
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a
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2
0
1
3
-
0
1
-
2
2

0
4
:
0
9

G
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0
0
0
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8
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0
5
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7
7
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14
cquescences Contnued.
Tapayer.
Docket
No.
oard of Ta ppeas.
oume.
Tfft, Lews .
Tmes-Pcayune Pubshng Co.
Tobev, Maurce
Toerton Warfcd Co.1
Tracy, Wam R
Trcou, Sae S
Trout, . W
Turner, atheen M.
Turrsh, enry
Twn e O Syndcate
U.
Uster Deaware R. R. Co.
Unon Lard Corporaton
Unon Pacfc R. R. Co. ct a
Unted utographc Regster Co
Unted States Trust Co. of New York, trustee.
aant, the Netcher.
W.
Waker, George ., estate of
Ward ros. Co.-.
Warner Co.5.
Washngton Market Co
Watson, r., ohn -------
Wayne County ome Savngs ank
Whceock, R. L
Whccock, Mrs. R. L
Whte Oak Transportaton Co.7
Whtney, Ward M
Whtson, Thomas
Wco , C. -
31030
33465
42341
45958
48892
49539
27624
45320
45513
28093
40258
39020
22340
44742
29518
28927
20769
f35639-
35649
35684
35685
40060
40061
40062
30384
26747-
26757
38051
31869
30992
53039
53040
59190
43912
53414
49144
37806
37805
18088
37927
40233
46371
25
27
24
23
25
25
27
27
24
26
25
24
26
27
25
26
23
24
26
25
27
20
28
28
24
26
25
27
cquescence reates to Issuo regardng deducton of oss sustaned by pettoner durng nonaffated
perod.
cquescence reates to that part of decson hodng that Water . ettman s not abo as a trans-
feree and to mtaton ssue.
cquescence reates to donatons ssue amortzaton of dscount on bonds ssued pror to 1913 computa-
ton of ta for 1920.
state ta decson.
1 Nonacquescence pubshed n Cumuatve uetn II-1, page 24, wthdrawn.
Nonacquescence pubshed n Cumuatve uetn I-2, page 18, revoked.
cquescence reates to nventory Issue.
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15
cqoescences Contnued.
Ta payer.
Wams, a
Wams, W. W
Wamson, e ander
Wamson, rchbad (Lord orres)
Wson Co., Inc., of Caforna
Wson Commsson Co
Wrson Co., Lee
Wson Shpbudng Co.1
Wnne, Water G
Wood, red T
Wood Lumber Co., .
Wray, za
Wrght, George M
Wrght, Leonard Marsha
Y.
Young, the P
Yukon aska Trust
Z.
Znsser Co
Docket
No.
29273
46062
40231
43972
40229
43973
20768
20767
33826
34337
60900
38808
23605
24156
25881
25854
45508
3.SS6S
34161
5242
oard of Ta ppeas.
oume.
Page.
25
1161
24
506
25
154
25
154
24
376
24
376
25
840
25
182
27
369
27
162
25
1013
24
94
22
858
28
21
24
815
26
635
21
152
cquescence does not reate to ssue 5 of decson.
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1G
The Commssoner does NOT acquesce n the foowng decsons
of the Unted States oard of Ta ppeas:
Ta payer.
Docket
No.
oard of Ta ppeas.
.
beson Reaty Co., Inc.
beson s, Inc
ckerman, Irvng C_
ameda Park Co
brecht et a., atherne ., e ecutrces 1
ker, era M. oher
ed urrers Corporaton
mercan rck Te Corporaton
mes, r., Ward
partment Corporaton
rabo Manufacturng Co
rchbad, dward
rchbad, oseph
rchbad, r., oseph .
rmstrong, Wam M..
sh ton, Ward
R.
abson, red
abson, Gustavus
abson, enry
anger, esse M., e ecutr
anger, Water ., estate of3.
ankers Trust Co., trustee
artett, . emp
av, Robert P
cbb, Rchard ., estate of
ecbe, unus, trustee
eebe, Marcus, estate of
efast Investment Co.s
e Sons, Samue.
ndey, Mary M., estate of
ss, Sydney R
ss, aentne
oard of re Underwrters of the Cty of Duuth.
oca Ccga Deveopment Co
oehrnger, Rudoph 4
owman- tmore otes Corporaton
53792
53793
30311
31634
40948
40949
8355
41295
36116
50059
29994
49817
42024
50489
61660
65064
61661
65062
61673
65063
40419
39148
52224
52223
52222
32177
32177
32459
63632
66014
41295
52707
52707
19128
38056
41647
45616
5SS71
55902
53422
43150
40446
49891
41472
43629
21
24
24
25
27
25
24
22
27
26
26
27
27
27
25
28
27
27
27
23
23
24
28
2S
27
26
20
17
22
28
26
26
26
25
29
24
1 state ta decson nonacqucscencc reates to State nhertance ta ssue.
1 state ta decson.
Nonacquescence In ssue as to whether pettoner s entted to deducton tor amortzaton of the Laa
tract warehouse for 1918.
Nonacquescence reates to ssue nvovng reorganzaton.
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17
Nonacquesckn ces Contnued.
Ta payer.
oard of Ta ppeas.
oume.
owman ote Corporaton.
rackman, . W
radbury, I. C...
rtsh- mercan Tobacco Co., Ltd.
rookyn Cty R. R. Co...
rookyn ueens Transt Corporaton .
rown, rank ., estate of
rown, . C
rown, arry
rown, Pear ., e ecutr
uck, ohn ., estate of 1
uck et a., Mary M., e ecutors
uffao Unon Iron urnace Co.2..
uock, George3
unge North mercan Gran Corporaton.
urdette, Cara
urey, anche ., e ecutr
urr, dward L
usche, . C.
usness Rea state Trust of oston.
uter- etch Co
C.
Cadwaader, Mary een
Carey bre Products Co., merson.
Carey Sat Co
Carro, .
Carro, Lena Carter
Carson, ohn
Carson, Rose L
Carter, . L
Carter, . L., admnstrator
Carter, Mrs. . L
Carter, .
Carter, Le N
Carter, Maude ., estate of
Carter, r., W. T
Casses, Robert
10651
24912
28971
38006
45714
45780
41224
20353
20353
47677
33343
4S136
47677
32584
44153
44684
32584
44153
44684
16075
16076
31209
47800
37321
44909
58795
9447
10202
10755
33469
42684
50305
45169
45170
)
24
24
23
27
27
27
26
25
26
26
25
25
23
23
27
25
26
26
10
25
23
46327
27
1078
36381
26
675
36382
26
675
51880
27
65
51881
27
65
45393
28
236
45392
28
236
51882
27
65
47669
27
65
61883
27
65
51884
27
65
61885
27
65
47669
27
65
51886
27
65
58793
26
1401
state ta decson nonacquescence reates to deducton of amount of a cam fed aganst the estate
and aowed by probate court.
Nonacquescence reates to ssue regardng deducton from gross ncome of fsca year ended pr 30,
1919, of reserve for renng bast furnaces.
Nonacquescence reates to ssue 1 of decson.
cquescence pubshed n Cumuatve uetn -, page 10, wthdrawn.
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18
Non acq | esce n ces Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Centra Market Street Co.1
Centra Unon Trust Co. of New York, e ecutor...
Champon, Davd .1
Champon, T. Perre5
Chapman, C.
Chenowth, . C
Chcago Northwestern Ry. Co.
Cark Thread Co.
Coastwse Transportaton Corporaton...
Cobegh, Margaret dwards, estate of s.
Coumbus rck Te Co. .
Commerca Garage Co
Commerca Investment Trust Corporaton
Communty ond Mortgage Corporaton..
Cone, dward
Cook, zabeth .8
Cook, Sam
Cooper, . T.
Cre, Grace Mc rde
Crspn, Mrs. gerton
Crosby, Oscar T
Cross, Maurce
Cuuard Coa Co.10.
Cuppa, erome C.
D.
Davdson, Watson P
Davs, C. R. -
Davs, rederck
Davs, Thomas L
Degener, ohn ., estate of5
Degener, r., et a., ohn ., e ecutors 5.
De Lsser, orace, estate of 12
Depew, Ganson
Dohrmann, ndrew . C
Doomte, Inc
Dort, . Daas, estate of5
24837
31736
55569
63818
55568
52496
38349
36343
38903
47974
39916
40765
42707
41646
43495
50051
43784
58777
38579
35014
3144
43136
45267
51317
32735
26874
26875
28792
58545
46486
10299
32950
37324
37395
38500
38500
2459
50860
20658
23969
60661
44735
25
25
27
27
28
26
22
28
28
24
26
22
28
27
20
25
25
7
20
28
27
24
26
26
27
10
20
24
24
20
26
2
27
19
19
28
20
499
757
1312
1312
53
M
1407
1127
725
170
791
793
143
480
1401
1351
92
798
1020
236
1234
1079
234
1401
158
1233
931
405
405
185
1S5
102
51o
507
466
1270
1321
1 Nonacquescence reates to ssue regardng oard s ursdcton of subsdares.
1 Nonacquescence reates to ssue whether redempton of stock was equvaent to ta abe dvdend.
1 Nonacquescence reates to foowng ssues: Undermantenance proft and oss on bonds retred
amortzaton of bond dscount.
I Nonacquescence reates to Issue respectng deprecaton.
state ta decson.
8 Nonacquescence roates to ncuson n consodated nvested capta of capta stock ssued for prom
Issory notes.
Nonacquescence reates to deducton n 1926 of e cess of market vaue over sae prce of stock sod to
empoyees.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
cquescence pubshed n Cumuatve uetn TI-1, page 1, wthdrawn.
Nonacquescence reates to e pendtures for mne equpment.
II cquescence pubshed n Cumuatve uetn -, page 17, wthdrawn.
state ta decson acquescence pubshed n Cumuatve uetn -2, page 18, recaed.
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1
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2

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9

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19
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
28
666
27
209
23
1342
26
286
26
286
23
1351
28
367
27
25
26
318
25
1272
27
105
27
423
28
236
26
116
24
876
23
1124
25
612
26
551
22
1291
22
1291
24
75
27
1
27
1
26
708
26
708
26
1328
28
1183
27
837
26
794
22
1027
25
1351
25
757
25
612
4
1071
28
236
Drawoh, Inc
Drumheer, George
Duff, Robert C.1
Dunham et a., Lucy ee, e ecutors a_
Dunham, Mary rgna, estate of 2
.
fert, ar C
kns, Wam L., estate of.
the D. Co
verhart, ames Wam
armount Cemetery ssocaton.
armers Cotton O Co
armers Lfe Insurance Co.
edman, enry O
ed, Marsha.
fth Street udng.
rst Natona ank n St. Lous
rst Natona ank of oston, admnstrator2.
rst Peopes Trust
etmann, Wam M., estate of4
etmann, r., et a., Wam M., e ecutors 4__
etcher, Saathe R
oger Co., .
oger state Co
oster, Carone ., estate of2
oster, et. a., Chares . W., e ecutors2..
oster, L. .5
o Rver Paper Co
G.
Gae, my
Gambe Stockton Co.6
Garcn, dward
Gardner, Chares .7
Garre, Dane T., estate of
Garvan, ohn oseph, estate of2.
Gassner, Lous 8
Gerard, re
45014
41515
45752
37552
46603
46003
45781
56449
32032
26675
30925
42811
42679
43317
45359
36908
16627
29264
45537
44278
48078
44746
45403
28449
28449
33041
22212
30721
31200
35147
46672
46672
43086
20878
61672
42707
21657
38575
31736
44746
4017
45221
Nonacquescence reates to ssue 2 of decson.
state ta decson.
1 Nonacquescence does not reate to ssue n connecton wth opton payment receved for purchase
of and.
cquescence notce pubshed n Cumuatve uetn -2, pages 23 and 24, recaed.
1 Nonacquescence reates to deductons n 1924 and 11)25 on account of osses resutng from aeged saes
of securtes.
Nonacquescence reates to ncuson n consodated nvested capta of capta stock Issued for proms-
sory notes.
7 Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme and
under the same agreement.
1 cquescence pubshed n Cumuatve uetn I, pages 24, 27, wthdrawn.
G
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a
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1
3
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1
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2
2

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:
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9

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8
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0
5
4
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7
7
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20
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Gcrach, Theodore R
Gaddng, Marv D., estate of1
G. M. S. Co .
Goet|en Metson Co
Godberg, arry S.1
Godschmdt et a., Georgette, e ecutors .
Godschmdt, enry P., estate of
Graham, M.
Green, Robert D.4
Greeneaf Te te Corporaton
Gregory, veyn
Grffs, Stanton 5
Gutar Trust state
Guf Coast Irrgaton Co.6.
Guf, Mobe Northern R. R. Co.7 .
Gummey, rank
ancock, G. an.
anson, Chares C.
arrs, en a
arrs, Smon
arrson, .
art, ohn
.
artey, Cavour, e ecutor.
artey, G. G., estate of..
auser, W.
awcy Investment Co
cdrck, . T
eer, . G
emph, Cfford 5
enn, . W
ermann, ohn C
ckman, oward C
eronymus, Car Rchard, estate of.
ghway Traer Co
gey Co., .
, D. ., estate of 1
ct a., Pau ., e ecutors 1
odges, gnes Wey, e ecutr
odges, W. L., estate of
38042
41641
31435
16383
17875
5389
16138
16138
38335
53647
46740
552 9
38577
35102
33694
40081
41343
24887
42150
61056
36867
15398
10980
31632
45361
52795
60115
42343
42343
43301
43302
45169
45170
33533
40634
38573
37102
51959
37369
48930
44568
51003
29399
29399
38336
38336
27
27
26
26
4
14
14
26
24
26
27
25
25
24
22
25
23
10
24
28
27
27
27
26
23
24
25
25
20
27
27
24
28
25
24
24
26
26
state ta decson.
1 cquescence pubshed n Cumuatve uetn -, pegrs 24 , 27, wthdrawn.
1 state ta decson acquescence pubshed n Cumuatve uetn -2, paye 27, recaed.
Nonacquescence reates to transacton 5.
Nonacquescence reates to vaue of common stock of mercan Chan Co.. Inc.. and the bass of aocs
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme and
under the same agreement.
8 Nonacquescence reates to affaton ssue.
Nonacquescence reates to ssues nvovng award of Interstate Commerce Commsson n 1920 for
transportaton of Unted States mas n 1U16 and 1917 and deducton n 1926 for deprecaton on ways
and structures.
Nonacquescence appes to the entre decson of the oard nsofar as t s ad verse to the Commssoner,
Parta acquescence pubshed n uetn I-28, page 1, revoked.
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8
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5
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#
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21
Nonaoqubscences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
odges, W. L., trustee
omes akery Confectonery-
omes, Car
omes, . ., trustee
omes, Margaret .
ousehod Products, Inc.
ousman, Carence
ousman, rederck
ouston aseba ssocaton
ouston ros.1
ouston, George T.1
ouston, orace .1
ouston, Php D.1
uburd, Chares ., estate of
uburd, De orest, ndvduay and as e ecutor
and trustee
unter, G. W., estate of
untngton, enry ., estate of
utchson Coa Co
Impera evator Co
Impera Investment Co
Indanapos, Crawfordsve Danve ectrc
Ry. Co
Indanapos Northwestern Tracton Co
Iten scut Co
Ives Dary, Inc
ackson astern Ry. Co.
ackson, Wermch Trust
amson Coa Coke Co..
anotta, Stea S.
efferson Standard Lfe Insurance Co
ohnston, ugh Mc rney, ndvduay and as
e ecutor and trustee
ones, esse R |.
38337
44 9- 3
52861
51473
53395
44943
52861
48631
51570
53394
44809
58798
58774
43985
45430
12052
13104
22008
22009
22007
22028
22028
33564
45429
34939
35688
29291
33859
33861
43667
45164
39873
38295
42149
32307
f 31690
34088
61172
43149
22028
68285
26
27
27
27
27
24
26
26
24
22
22
22
22
27
27
25
28
24
25
28
24
24
25
23
22
24
24
28
25
27
27
28
eeys, dward L I 45360
errgan, rthur L 58794
Nonacquescence reates to March 1,1913, vaue, and to the bass for the deducton for depeton and for
the computaton of gan or oss upon subsequent sae of the tmber.
state ta decson.
Nonacquescence reates to Issue whether ta payer sustaned a net oss n any busness reguary carred
on n 1924 whch coud be carred forward and deducted from ta abe ncome In 1925.
Nonacquescence reates to ssue nvovng deducton for deprecaton on ways and structures.
Oft ta decson.
G
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2
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1
3
-
0
1
-
2
2

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:
1
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2
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2
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3
0
0
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0
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8
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0
5
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7
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22
NoN C t SC s C S Contnued.
Ta payer.
ng, ohn M
napp, tte .1
och, arry
ountze, Chares T
ountze ct a., Chares T., e ecutors.
ountze, Luther L., estate of
ru, rancs 2
Lafayette Lfe Insurance Co.
Laun, fred
Laun, .
Leepcr, rank ., estate of_.
Leeper, Pear
Leetona urnace Co
Levne, yman
Lebes Co.,
Lndenr.an, Wam S., e ecutor
Lttaucr, ugere, estate of1
Lttauer ct a., Lucus N., e ecutors
M.
Maory, L. W., estate of
Manchester Coa Co
Manhattan Lfe Insurance Co
Margay O Corporaton
Markham Irrgaton Co.4
Marvn, Water S.
Matagarda Cana Co.4
McCormck et a., Cyrus ., trustees
McCrory, Luke W., trustee
McLster, rank
McMan, Wam Northrup, estate of
Meyer, Robert R
Mgetta, Oga
Mer, bert
Ms, . II. Ooadby
Mtche, Oscar :
Mtche, Wam.
Mod|esk, Raph..
Moore read Co..
Moore, G.
Docket
No.
41549
26
2775
7
55318
26
37323
24
37535
24
37535
24
16985
10
f 41721
42663
45347
45348
45266
45265
32272
7435
28544
35038
58871
51858
51858
33231
33392
60827
44891
41344
38578
400S2
41345
44139
32444
48562
45966
44032
36379
45368
58797
41680
41874
54673
58799
49517
41645
38351
oard of Ta ppeas.
oume.
23
20
26
28
28
23
8
23
28
25
25
27
24
28
26
24
25
24
26
25
27
27
27
25
28
26
27
26
28
22
26
1 cquescence pubshed n Cumuatve uetn II-1, page 17, wthdrawn.
cquescence pubshed n Cumuatve uetn -, pages 36, 38, wthdrawn.
state ta decson nonacquesccnce n respect to that part of decson whch hods that accrued Interest
pad on edera ncome ta es for 1927 and 1928 from date of decedent s death to November 5, 1930, s a
proper aowabe admnstratve e pense.
Nonacquesccnce reates to affaton ssue.
Nonacqucscence reates o vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under tho sume agreement.
state ta decson nonacquesccnce as to queston of stus.
I Nonacquescence reates to ssue regardng deducton from ncome of sprnkng ta .
G
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1
3
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1
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2

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2
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3
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0
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0
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8
9
0
5
4
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7
7
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23
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume. Pago.
Morgante rush Co., Inc
Moro Reaty odng Corporaton.
Morrss et aL, ua L
MoTss Reaty Co. Trust No. 1.
Morrss Reaty Co. Trust No. 2.
Morse, mma R., estate of1
Mosser, Chares
Mueer, ar W
Murphy et a., red T., trustees
Murphy Persona Property Trust
Mutua Lfe Insurance Co. of New York.
N.
Nashve, Chattanooga St. Lous Ry.
Natona Contractng Co.a
Natona Land Constructon Co.
Natona Ppe oundry Co.
Nea et a., . enry, trustees
Ne, ames
Nems, rank aywood
Nems, Mrs. rank aywood
Newport Co
New York Lfe Insurance Co
Nbey-Mmnaugh Lumber Co
Nchos Co Lumber Co
Ncodemus, r., . C
Nesen Co., .
North mercan Investment Co.
Northern Coa Co.s
Noyes, ansen 6
O.
Oakman et a., Mame R
Ogden, ugh W
Od Msson Portand Cement Co.
dnger Mortuary ssocaton
Omaha Coca-Coa ottng Co
O Rear, . C.7
26369
37406
44759
50490
41023
41024
45863
45864
41023
45863
41024
45864
44652
55399
45362
43795
43795
9764
33799
24520
40126
32997
45403
9290
51887
51888
35431
38880
17527
23601
52326
62569
8899
30183
34945
38574
42917
23943
38853
3G502
52641
32335
24
25
23
23
23
27
27
28
25
25
23
24
25
25
26
S
27
27
24
24
20
24
26
26
24
24
25
24
24
25
23
26
28
state ta decson.
Nonaequescence reates to ssuo 1 of decson and ssue regardng deductbty of overhead costs n
1925.
1 cquescence pubshed n Cumuatve uetn I -2, page 43, revoked. Revocaton of pror acqu-
escence and present nonaequescence are due to the faure of the oard s decson to mt the word ds-
trbuted to the cash dstrbutons made to the stockhoders.
cquescence pubshed n Cumuatve uetn -, page 46, wthdrawn.
Nonaequescence reates to statute of mtatons ssue.
Nonaequescence reates to vaue of common stock of mercan Chan Co.. Inc.. and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
7 Nonaequescence reates to ssue regardng amount of oss sustaned by pettoner by reason of destruo-
on by fre of hs resdence and furnture.
G
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d

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t
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
1
0

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3
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0
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0
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8
9
0
5
4
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7
7
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#
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24
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Oswego as Corporaton.
Owens, . T...
Owens, Mrs. .
Owens, O. O...
Pacfc Nash Motor Co
Pacfc Rock Grave Co
Peabody, Cornea aven, estate of
Peabody et a., Stephen, e ecutors .-
Petauma Santa Rosa R. R. Co.1...
Peters, ndrew
Pheps ct a., Lus ames, e ecutors .
Phps, Wam S
Perce, dward
Pttsburgh thetc Co..
Pettner, Maude rown.
P-M- Petroeum Co.4.
Post Shedon Corporaton.
Powe, T. I. are
Pryor Lockhart Deveopment Co.
Purse, ames N
R.
Randoph, ranke Carter
Randoph, R. D
Raymond, oward W
Reaty ssocates, as syndcate manager 6.
Reed, Latham R
Rehtam, Inc -
Rchardson et a., orrest, e ecutors 1
Rchfed O Co
RfTe, enry
Rey, Stoker Corporaton
Roberta, Water . ---
Robertson, . O
Rodeo- ae|o erry Co.4.
Rormer, Lous
51890
51889
58544
27921
58800
45016
44652
42921
3576
36584
37534
49552
52370
36411
48528
5S850
28301
32673
34352
63149
63150
31986
45169
45170
28776
39647
39647
13830
54050
50336
f 24446 1
31769 /
58796
f 60569 1
I 66964
I 67422
33345
/ 50576
54779 /
56695
64464
38872
45668
51326
54124
26
27
27
26
23
26
24
24
11
28
27
24
26
27
25
24
28
27
26
27
27
27
26
17
26
28
27
25
3
26
24
28
24
27
1 state ta decson.
Nonacquescence reates to that part of decson concernng purchase of ta payer s own bonds at ess
than par whch were hed as an nvestment. cquescence notce as to ths ssue pubshed n Cumuatve
uetn II-2, page 31, revoked.
1 state ta decson nonacquescence wth respect to the trusts for the son and daughter.
Nonacquescence reates to frst Issue of decson.
1 cquescence pubshed n Cumuatve uetn -2, page 59, wthdrawn.
state ta decson acquescence pubshed n Cumuatve uetn -2, page 00, recaed.
G
e
n
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a
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d

f
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g

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k

U
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t
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
1
0

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2
7
/

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3
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0
0
0
0
8
9
0
5
4
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7
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s
_
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#
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25
Nonacquescences Contnued.
Ta payer.
Rosenboom nance Corporaton
Ross, anche S.2
Rosser, . M., e ecutor
Roth, W. .
S.
St. Lous Southwestern Ry. Co
St. Lous Unon Trust Co., e ecutor 5
Saomon, Leon 4
San Caros Mng Co., Ltd.4
Sand Sprngs Ry. Co
Sathcr Lease Thomas Sathcr Co
Schwartz- asser Improvement Co
Scott, Thomas ., estate of7
Seaconnet Coa Co.s
Seatree, Wam rnest
Securty rst Natona ank of Los ngees ct a.,
e ecutors
Sewyn ddy Co
Sheafer Pen Co., W. - -
Shepherd Syndcate ..
Shenker, Smon
Sberbatt, Soomon
Skff, rank . -
Sma s, Ino
Smth, Mrs. Grant-
Smth, Mton, gstate of
Smth, r., Mton, e ecutor
Snyder, Inc., . S. M.
Southern Caforna Rock Grave Co.
Southern Raway Co. et a. -
Sprague Son Co., C. .8.
ng Cty oundry Co...
es, Inc
Dockot
No.
35778
40903
51171
40765
45065
13319
27768
33938
45966
3725
12231
39525
32438
32439
31979
36876
50336
18089
22094
33640
45429
21612
36604
48332
51327
58801
46335
51173
53791
43300
43305
43306
52132
52132
36686
30898
21481
29951
37887-
37898
34946
21169
45015
oard of Ta ppea .
oume.
24
28
24
22
24
27
4
8
24
21
26
26
27
24
25
28
25
27
2(3
26
28
28
24
26
28
28
26
26
27
24
25
28
Nonacquescence does not reate to the oard s hodng that dstrbutons receved from oseph II.
nch Co. were not parta qudatng dvdends.
Oft ta decson.
state ta decson.
cquescence pubshed n Cumuatve uetn -, pages 56, 57, wthdrawn.
state ta decson nonacquescence as to queston of stus.
cquescence as to ssue 2 pubshed n Cumuatve uetn I-1, page 6, and nonacquescence as to
ssue 1 pubshed n Cumuatve uetn I , pago 11, wthdrawn.
1 state ta decson nonacquescence wth respect to the trusts for the son and daughter.
1 Nonacquescence reates to statute of mtatons ssue.
Nonacquescence reates to Issue whether ta payer sustaned a net oss In any busness reguary carred
on tn 1924 whch coud be carred forward and deducted from ta abo ncome n 1925.
o Nonacquescence reates to ssues nvovng addtona compensaton, renta nterest on addtons and
betterments, and back ma pay for use of propertes durng edera contro.
37408 34 3
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U
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
1
0

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2
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2
7
/

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3
0
0
0
0
0
8
9
0
5
4
3
7
7
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s
s
_
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#
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26
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta |
Staney Co. of merca.
Stearns, Marsha, admnstrator
Stern et a., Samue . ., e ecutors .
Stetson, Ioa Wse
Stevenson Consodated O Co.1
Stockhom nskda ank
Stone, . C, estate of
Stone, Mrs. II. C, e ecutr --
Stone et a., Irvng ., e ecutors and trustees
Stone, Irvng Lee, estate of
8traus, aron
Straycr, Water
Streefkerk, Mrs. S -
Strong, arod C.4
Sturgeon- ubbard Trust
Sturgeon et a., Ron S., trustees
Suncrest Lumber Co
Swartz, Inc., dward O
Swft, Mary Dodson, estate of ---
Swskv, Tobv W
T.
Tabot, rederck C, estate of
Tabot, . .
Tabot et a., Susan D., e ecutors
Tabot, Wam , estate of
Tayor, . Sedon, estate of
Tayor, r., et a., . Sedon, e ecutors
Tayor, esse Carter
Tayor, udson L
Tennessee Consodated Coa Co
Terre aute, Indanapos astern Tracton Co
Terre aute Tracton Lght Co
Terry, nna Davs
Te as Irrgaton Co.7
The ub, Inc
3.r)3 Le ngton venue Corporaton
Totson Manufacturng Co
Ttus, C. Dckson
Todd, Ws
Toerton Warfed Co.
Towers Suvan Manufacturng Co
31516
33142
40023
48930
2459
41743
43416
55755
38336
38336
43830
43830
65091
48564
45363
38576
37095
37095
33244
36650
44909
42032
20411
36191
20409
20409
64444
64444
51891
51892
33383
33858
33860
45446
.100 3
41346
46298
65089
44167
20705
37536
45320
40508
26
24
2
26
27
23
25
26
26
26
26
27
27
28
25
25
25
26
25
26
25
27
23
27
27
27
27
27
27
24
24
24
26
24
26
27
27
24
24
23
25
1 state ta decson acquescence pubshed n Cumuatve uetn -2t page 67. recaed.
1 Nonacquescence reates to ssue regardng ncuson n ncome for 1926 of 180,823.35 receved upou
e change by pettoner of 250,000 snares of Sunburst O Gas Co. stock wth that corporaton.
state ta decson nonacquescence reates to ssue nvovng property transferred by trust agreement.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme and
under the same agreement.
Nonacquescence reates to deprecaton aowance n computng oss n sae of a boat.
state ta decson.
7 Nonacquescence reates to affaton ssue.
Nonaoquescence reates to ssue regardng deducton of oss sustaned by two affated companes
durng fsca year ended anuary 31,1924, and the ta abe perod ebruary 1 to pr 25,1924, n computng
the consodated net Income for ta abe perod pr 26 to December 31, 1924, and the year 1925.
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27
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume. Page.
Tro|an O Co
Twn e O Syndcate
Tyer et a., Sdney ., trustees.
U.
Unon Guardan Trust Co., e ecutor 1
Unon Pacfc R. R. Co. et a.
Unon Trust Co., trustee
Unted O Co -
.
an Camp Packng Co., Inc.
oebe, acob, estate of
oebe, Water W., e ecutor
ounteer State Lfe Insurance Co...
on Gunten, Chrstan W
onnegut ardware Co
W.
Waggoner, a.-
Waggoner, W. T
Waker, Tabot C. ---
Wa, rank .4 -
Wardman, arry
Warner Coeres Co. of Deaware
Watab Paper Co
Wes argo ank Unon Trust Co., admnstrator
West rgna-Pttsburgh Coa Co
Wheeng Mod oundry Co. (De.)
Whte, uet C
Whte Oak Transportaton Co.5
Whte, Rta M. oher
Whte, Sdney -
Wco Sons, .
Wams et a., rank G., e ecutors
Wson, Luke ., estate of
. Shpbudng Co. --
33757
45052
56449
44735
35639-
35649
35684
35685
40060
40061
40062
42917
38082
42922
51622
46131
6009
6009
54176
61278
44940
33517
33516
20407
7359
22348
34679
24773
28082
3 6 5
41733
46076
51387
20411
20337
25030
23410
58775
1S0S8
36112
58776
40619
33564
32444
34337
26
26
28
26
26
24
25
26
7
7
27
28
28
24
24
27
4
24
26
27
27
24
27
26
24
25
26
28
25
25
25
1 state ta decson.
1 Nonacquescence reates to ssue regardng renta nterest and ssue concernng net oss of Los ngees
Sat Lake . . Co. for perod anuary 1 to pr 30, 1921.
state ta decson acquescence pubshed n Cumuatve uetn -2, page 73, rocaed.
4 cquescence pubshed n Cumuatve uetn -, page 68, wthdrawn.
Nonacquescence reates to statute of mtatons
Nonacquescence reates to ssue 5 of decson.
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28
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
rage.
Wobber ros
Wobbers, Inc
Wopert, Urban
Wood urnture Co., .
Woodward, George 1
Y.
Youngstown Sheet Tube Co
Z.
Zeger, bert W -
Zeger. Cfford
Zobeen, George
Zobeen, Mrs. dward
36875
36874
48563
40565
42279
28149
35511
46291
46292
45352
45353
26
26
27
21
24
23
23
28
28
322
322
155
564
1258
1246
1091
1091
236
236
cquescence pubshed In Cumuatve uetn -2, page 78, wthdrawn.
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INCOM T RULINGS. P RT I.
R NU CT O 1932.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce 51: What ncuded n gross ncome. II-43-6463
I. T. 2725
R NU CT O 1932.
Dscount on bank acceptances secured by warehouse certfcates
on Government cotton, and sgned by the Secretary of grcuture,
In transactons entered nto under authorty of secton 4, part 1,
Tte I of the grcutura d|ustment ct, or gan or proft de-
rved from the purchase and sae of such acceptances, may not be
e cuded from gross ncome.
dvce s requested whether the dscount on bank acceptances,
whch are sgned by the Secretary of grcuture and secured by
warehouse certfcates on Government cotton, or gan or proft de-
rved from the purchase and sae of such acceptances, s sub|ect to
edera ncome ta .
The transactons n whch the Secretary of grcuture sgns the
bank acceptances are entered nto under the authorty granted by
secton 4, part 1, Tte I of the grcutura d|ustment ct, ap-
proved May 12, 1933, whch provdes as foows:
Sec. 4. The Secretary of grcuture sha have authorty to borrow money
upon a cotton n hs possesson or contro and depost as coatera for such
oans the warehouse recepts for such cotton.
There s no provson n the ct cted, or n the Revenue ct of
1932, under whch the dscount, or gan or proft derved from the
purchase and sae of the bank acceptances n queston, may be e -
cuded from gross ncome. It foows that such ncome must be
reported n the ta payer s edera ncome ta return and s sub|ect
to ta .
(29)
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22(a), rt. 53.
30
II-52-6575
G. C. M. 12300
Post aowances pad by te Unted States to certan offcers
and empoyees of the oregn Servce are n the nature of add-
tona compensaton, and are sub|ect to edera ncome ta . The
aowances to such offcers and empoyees for vng quarters, n-
cudng heat, fue, and ght, are not compensatory n character,
and such aowances do not consttute ncome sub|ect to edera
ncome ta .
n opnon s requested reatve to the ta abty under the Rev-
enue ct of 1932, of post aowances and the vaue of vng quarters,
ncudng heat, fue, and ght, granted to offcers and empoyees of
the State Department n the oregn Servce of the Unted States.
It s contended that n provdng resdence quarters and aowances
for quarters to such offcers and empoyees of the oregn Servce
of the Unted States, the prmary consderaton of the Government
has been the nterest of the Unted States and not the nterest of the
offcers and empoyees of the oregn Servce. In ths connecton
detaed nformaton was submtted as to the purpose of the severa
cts of Congress provdng for such aowances.
The ct of ebruary 23, 1931 (46 Stat., 1207), reatng to the
cassfcaton of cerks n the oregn Servce of the Unted States,
provdes n part as foows:
Sec. 3. That the Secretary of State Is hereby authorzed, at posts where n
s |udgment t s requred by the pubc nterests for the purpose of meetng
the unusua or e cessve costs of vng ascertaned by hm to e st, to grant
compensaton to cerks assgned there n addton to the basc rates heren
specfed, wthn such appropratons as Congress may make for such purpose:
Provded, however, That a such addtona compensaton wth the reasons
therefor sha be reported to Congress wth the annua udget.
The ecutve order, dated une 8, 1931, reatng to representaton
and post aowances, states that post aowances are granted for the
foowng purpose:
7. ssstance n ad|ustng offca ncomes at certan posts to the ascertaned
cost of vng at such posts.
In vew of the above, ths offce s of the opnon that such post
aowances are n the nature of addtona compensaton and const-
tute ta abe ncome to the recpents.
y the ct of pr 29, 1926 (44 Stat., 330, 333), the Secretary
of State was authorzed to provde quarters for offcers of the oregn
Servce at paces where, n hs |udgment, t woud be n the pubc
nterest to do so. Under the ct of une 26, 1930 (46 Stat., 818),
authorzng appropratons to provde aowances for quarters for
the oregn Servce, the prme purpose n mnd appears to have
been not the queston of gvng addtona comforts to those offcers
but of nsurng more compete servce to the Unted States and ts
ctzens tradng and traveng abroad.
Upon carefu consderaton of a the evdence, ths offce s of
the opnon that such aowances for vng quarters, ncudng heat,
fue, and ght, are not compensatory n character and do not con-
sttute ncome whch s sub|ect to edera ncome ta .
The concuson reached heren s not n confct wth Genera
Counse s Memorandum 11453 (C. . II-1, 26) whch hods that
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31
22(a), rt. 58.
the vaue of vng quarters, or aowances therefor, where such
quarters are furnshed not for the convenence of the empoyer
but as a part of the compensaton for servces rendered, shoud be
ncuded n gross ncome.
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
rtce 58: Sae of stock and rghts. II-27-6264
G. C. M. 11743
R NU CTS O 1928 ND 1032.
In construng the frst n, frst out rue, stock acqured
through the e ercse of rghts shoud be consdered as havng
been acqured when the stock rghts were e ercsed, rather than
when the orgna stock was purchased. If stock rghts ssued
n respect of severa dfferent ots of stock are e ercsed at the
same tme, any sae of stock acqured through such e ercse w he
presumed to have been made from stock acqured through rghts
ssued n respect of the earest acqured ot, and f the atter ot
was aso acqured through rghts e ercsed at the same tme as
rghts n other ots were e ercsed, then the same prncpe may
be carred back as many generatons as are necessary n order
to dscover whch ot shoud be presumed to have been sod frst.
n opnon s requested reatve to the proper method of comput-
ng the bass of stock acqured by the e ercse of stock rghts. The
foowng probems are submtted:
, a ta payer, acqured 250 shares of the M Company common stock on
une 8. 1920. Rghts were ssued as of the record date May 20, 1921, cang
for 1 share at 100 for every 5 hed. e ercsed hs rghts and receved 50
shares. kewse e ercsed the rghts receved September 8, 1922, cang
for 1 share at 100 for every 5 shares hed. gan the rghts receved une
10, 1924, cang for 1 share at 100 for every 5 hed were e ercsed.
Thus mmedatey after the e ercse of the rghts receved on une 10, 1924,
had 432 shares, acqured as foows:
Shares.
une 8, 1920 250
May 20, 1921 50
September 8, 1922 60
une 10, 1924 72
432
The bass of these 432 shares was found by takng the cost prce of the orgna
250 shares and addng the subscrpton prce of the 182 shares receved through
the e ercse of the rghts.
These 432 shares were carred on the books of as ot No. 1.
e ercsed the rghts receved on une 8, 1926, and thereby receved 72
shares, whch he set up on hs books as ot No. 2.
e ercsed the rghts receved une 1, 1928, and thereby receved 72 shares
ssued on the 432 shares orgnay hed, that s, ot No. 1. The 72 shares
receved, he set up as ot No. 3. e receved 12 shares ssued on ot No. 2.
These 12 shares he set up as ot No. 4.
On May 23, 1930, receved rghts whch he e ercsed, thereby acqurng
72 sares on ot No. 1. These 72 shares he set up as ot No. 5. Tweve shares
were receved on ot No. 2. These 12 shares he set up as ot No. 6. The
12 shares receved on ot No. 3 were set up as ot No. 7 and the 2 shares receved
on ot No. 4 were set up as ot No. 8.
Thus through the e ercse of the rghts ssued to stockhoders of record
May 23, 1930, receved 72 shares ssued on ot No. 1, 12 shares ssued on
ot No. 2, 12 shares Issued on ot No. 3, and 2 shares ssued on ot No. 4.
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22(a), rt. 68.
32
These 98 shares are represented by one certfcate, No. P . ses 85
shares out of the shares represented by certfcate No. P .
ueston No. 1: Whch 85 shares were sod
ueston No. 2: If sod 60 shares, whch 60 shares were sod
ueston No. 3: If sod 100 shares and turned n certfcate No. P
and a certfcate representng the other shares owned, whch shares were sod
ueston No. 4: What s the proper method of settng up the ots
(a) If purchased 100 shares of the M Company common stock n 1920
and e ercsed the rghts n 1921, 1922, and 1924, shoud the orgna stock
and the stock acqured through each of these ssues of rghts be set up as one
ot
(b) If acqured 100 shares n 1925 and e ercsed the rghts receved n
1926, 1928, and 1930, how many ots of stock wth dfferent cost bases woud
have Shoud the ots be set up as ndcated above or shoud the ots be set
up n bocks that s, takng the tota number of shares, woud ot No. 1 con-
sst of 432 shares ot No. 2 of 72 shares ot No. 3 of 84 shares arrved at
by groupng ots Nos. 3 and 4 and woud ot No. 4 consst of 98 shares
arrved at by groupng ots Nos. 5, 6, 7, and 8
ueston No. 5: If purchased 100 shares n 1923 at a prce substantay
dfferent from the 250 shares orgnay purchased and e ercsed a rghts
receved upon the 100 shares, and assumng that sod 600 shares n 1931 and
that the tme of acquston of the shares can not he ascertaned nor can the
shares be otherwse dentfed as beng attrbutabe to any partcuar sub-
scrpton or purchase, what 600 shares were sod
In respect of the frst queston t s stated n the nqury that
receved one certfcate, No. , representng 98 shares acqured
through e ercse of rghts ssued on May 23, 1030, and that 85 of
these shares are sod. The queston correcty assumes that a of
the 98 shares represented by the certfcate do not have the same
bass for gan or oss, and that t becomes matera, therefore, to
decde whch shares were sod. efore attemptng to answer ths
queston, however, t s convenent to consder whether a proper
method has been foowed n settng up the varous ots of stock,
and ndeed, n queston (4), the etter specfcay makes ths nqury.
In the opnon of ths offce t s proper to ncude n ot 1 a
of the orgna stock and a of the stock acqured through e ercse
of rghts ssued pror to anuary 1, 1925, because even though those
shares are sod to-day, the method of determnng bass prescrbed
by artce 39 of Reguatons 65 s the method st used (T. D. 4145,
C. . II-1, 59), and that method resuts n assgnng the same
bass to an orgna share as s gven to a share acqured through
e ercse of rghts. Snce has not bought other M Company stock
havng a dfferent bass between the tme of the orgna purchase
and the tme the rghts n queston were ssued, there s no reason
why a these shares havng the same bass shoud not be ncuded
n one ot. If other M Company shares had been purchased n the
meantme havng a dfferent bass, ths resut woud not foow, due
to the requrements of the frst n, frst out rue, but ths queston
w be dscussed under queston 5. or purposes of queston 1,
the etter of nqury correcty states that ot 1 contans 432 shares,
each of whch has the same bass for gan or oss.
In respect of stock acqured through e ercse of rghts ssued sub-
sequent to December 31, 1924, the method of determnng the bass
s determned by artce 39 of Reguatons 69 and the correspondng
artces of ater reguatons. That method resuts n gvng a bass
to shares acqured through e ercse of rghts whch s dfferent from
the bass assgned to the shares n respect of whch the rghts are
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33
22(a), rt. 58.
ssued. Therefore, when e ercsed the rghts ssued on une 8,
1926, and acqured 72 addtona shares thereby, such shares w
form ot 2, snce ther bass for determnng gan or oss s dfferent
from that of the shares n ot 1.
On une 1, 1928, rghts were ssued cang for 1 new share for
each 6 shares aready hed, wth the resut that on e ercsng
such rghts acqured 72 new shares n respect of the 432 shares n
ot 1, and 12 snares n respect of ot 2. Snce the shares n ot 1
have a dfferent bass from the shares n ot 2, t foows that the
72 shares receved n respect of ot 1 w have a dfferent bass from
the 12 shares receved n respect of ot 2. Moreover, the 72 shares
receved n respect of ot 1 w have a dfferent bass from the shares
n ot 1, and the 12 shares receved n respect of ot 2 w have a
dfferent bass from the shares n ot 2. Therefore, there are now
four ots of shares, each ot havng a dfferent bass, and the ta -
fayer s correct n settng up four dfferent ots on hs books. (See
. T. 2417, C. . II-1, 59.)
The rghts ssued on May 23, 1930, aso caed for 1 new share
for each 6 shares hed, so that , on e ercsng the rghts, acqured
new shares as foows: 72 shares n respect of ot 1 whch are cor-
recty set up as ot 5 12 shares n respect of ot 2, whch are correcty
set up as ot 6 12 shares n respect of ot 3, whch are correcty
set up as ot 7 and 2 shares n respect of ot 4, whch are correcty
set up as ot 8. These 98 shares ast receved are represented by
one certfcate, No. P , and the queston s, If ses 85 of the
shares represented thereby, whch 85 shares were sod
Snce these 85 shares are dentfed as beng from the 98 shares
ast receved, the presumpton of frst n, frst out s appcabe
ony n decdng between ots 5 to 8, ncusve, for the presumpton
s not used e cept to the e tent that the shares can not be dentfed,
and the shares sod are dentfed as havng beonged n ots 5 to 8.
(See Ceveand Trust Co., e ecutor, v. Commssoner, 24 . T. .,
132, C. . -2, 14.) In the opnon of ths offce, 72 of the 85 shares
shoud be presumed to hav been sod from ot 5, 12 shares from ot
6, and 1 share from ot 7. rtce 58 of Reguatons 77 provdes
that f the stock n respect of whch the rghts are ssued
was purchased at dfferent tmes or at dfferent prces and the stock
rghts ssued n respect of such stock can not be dentfed as havng
been ssued n respect of any partcuar ot of such stock, the bass
for determnng the gan or oss from the sae of the new
shares n cases where the rghts are e ercsed, sha be ascertaned
n accordance wth the prncpes ad down n artce COO. The
prncpes ad down n subdvsons (3) and (4) of artce 600 nd-
cate that any sae of stock acqured through e ercse of rghts w,
under such crcumstances, be presumed to have been made from the
stock acqured through rghts ssued n respect of the earest acqured
stock. The earest acqured stock n the nstant case s ot 1, and the
72 shares n ot 5, acqured through e ercse of rghts ssued n respect
of ot 1, shoud therefore be presumed to have been sod before any
of the shares n ots 6 to 8. The ne t earest acqured stock s ot
2, and the 12 shares n ot 6, acqured through e ercse of rghts
ssued n respect of ot 2, shoud therefore be presumed to have been
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22(a), rt. 58.
34
sod before any of the shares n ots 7 or 8. Ths accounts for 84
of the 85 shares.
In respect of the remanng share, t may be contended that no
dstncton can be made between ots 7 and 8, on the ground that
those two ots were not ony both acqured through e ercse of
rghts ssued at the same tme n respect of ots 3 and 4, but that
ots 3 and 4, themseves, were aso acqured through the e ercse of
rghts ssued at the same tme on une 1, 1928, and presumaby
e ercsed at the same tme. In other words, the dstncton between
ots 5 and 6 on the one hand, and ots 7 and 8 on the other, s that
whe ots 5 and 6 were acqured through e ercse of rghts ssued,
and presumaby e ercsed, at the same tme, those rghts were never-
theess ssued n respect of ots 1 and 2, and ots 1 and 2 were acqured
at dfferent tmes, whereas n the case of ots 7 and 8, even the
parent ots 3 and 4 were acqured at the same tme. owever,
the grandparent of ot 7 s ot 1, whe the grandparent of ot
8 s ot 2, and therefore, by carryng back the prncpes of artce 600
to an earer generaton, we arrve at the concuson that ot 7
shoud be presumed to have been sod before ot 8. Whe ths may
appear at frst gance to be carryng the presumpton of frst n,
frst out to rather rdcuous e tremes, t must be recognzed that,
at best, the presumpton s smpy an arbtrary rue of thumb
whch the courts have uphed. (See Snyder v. Commssoner, 54
ed. (2d), 57.) The presumpton s one of aw, not of fact and
nether from the factua nor from the ega standpont s t any
more arbtrary to assume that ot 7 s sod before ot 8 than t
woud be to assume that ot 1 s sod before ot 8. Not to presume
that ot 7 s sod before ot 8 woud requre the averagng of the
bases of the shares n both ots, and t was to avod such averagng
that the frst n, frst out rue has been adopted and uphed. (See
Sknner v. aton, 45 ed. (2d), 568, cert, dened, 283 U. S., 837
urdett Stryker v. Commssoner, 21 . T. ., 561 Wam P. enks
v. Commssoner, 22 . T. ., 910.)
The queston shoud be consdered, ho ever, whether the poston
of the ureau n smar stuatons on the 2-year hodng perod for
capta gan or oss purposes requres a dfferent resut from that
whch has been reached above, partcuary n vew of the fact that
artce 58 of Reguatons 77 contans a sentence not n the pror
reguatons statng that In the determnaton of the earest pur-
chases of stock the rues prescrbed n subparagraphs ( ), ( ),
(C), and (D) of secton 101(c)8 (reatng to the perod for whch
property has been hed) for capta gan or oss purposes sha be
apped. Whe subparagraphs ( ), ( ). (C), and (D)
of secton 101(c) 8 do not dea wth stock acqured through e ercse
of rghts, the queston arses whether the ureau s mpedy bound
to appy to such stock the same acquston date for purposes of the
frst n, frst out rue, as t appes for capta gan or oss
purposes.
In the opnon of ths offce the ureau s not so bound, and shoud
not attempt to appy the same rue. It s mpossbe to do so con-
sstenty, because the ureau s capta gan or oss rue now s that
the porton of each share acqured through e ercse of rghts, whch
represents the rghts, has been hed as ong as the orgna stock,
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35
22(a), rt. 58.
and that the other porton of the new share, representng the new
nvestment, has been hed ony from the tme the stock rght was
e ercsed. (G. C. M. 11645, C. . II-1, 117.) Consequenty,
where the orgna stock has been hed more than two years, but the
stock acqured through e ercse of rghts has not, the tota gan
or oss on sae of the new stock s dvded nto two portons, one of
whch s ordnary gan or oss, whe the other s capta gan or oss.
The frst n, frst out rue, on the other hand s smpy a pre-
sumpton as to what shares out of severa dfferent ots are sod,
and snce whoe shares and not parts of shares are sod, an acqus-
ton date whch spts the shares nto parts can not be consstenty
apped.
Ths offce s therefore of the opnon that n construng the
frst n, frst out rue, stock acqured through e ercse of rghts
shoud be consdered as havng been acqured when the stock rghts
were e ercsed, rather than when the orgna stock was purchased.
If stock rghts ssued n respect of severa dfferent ots of stock
are e ercsed at the same tme, then, as aready ponted out, any
sae of stock acqured through such e ercse w be presumed to
have been made from stock acqured through rghts ssued n respect
of the earest acqured ot, and f the atter ot was aso acqured
through rghts e ercsed at the same tme as rghts n other ots
were e ercsed, then the same prncpe may be carred back as many
generatons as are necessary n order to dscover whch ot shoud
be presumed to have been sod frst.
ueston No. 2 reates to the case where sod 60 shares and the
queston s, whch 60 shares were sod. If 60 shares were sod from
certfcate No. P , then, accordng to prncpes aready stated,
these are a presumed to have been sod from ot 5. If the 60 shares
were sod wthout havng been dentfed n any way whatever, then
they are presumed to have been sod from ot No. 1.
ueston No. 3 reates to the case where sod 100 shares, turnng
n certfcate No. P and a certfcate representng a the other
shares owned, and nqures whch shares were sod. It s known that
the 98 shares represented by certfcate No. P represent ots 5 to
8, ncusve, and the other certfcate must therefore represent the 588
shares contaned n ots 1 to 4, ncusve. It s arguabe that, snce
has turned n a hs certfcates, none of the shares sod can be dent-
fed as comng from any partcuar ot, and that consequenty a
the 100 shares shoud be presumed to have been sod from ot 1.
Ths argument woud be much stronger f certfcate No. P , as
we as the other certfcate, had represented 100 or more
shares, or f each certfcate had represented ess than 100 shares.
ut certfcate No. P n fact contaned ess than 100 shares, whe
the other certfcate contaned more than 100 shares, and f had
desred to se a the shares from the atter certfcate he woud not
have needed to turn n certfcate No. P . Therefore, the most
reasonabe presumpton s that was seng a the shares rep-
resented by certfcate No. P , and makng up the baance of 2
shares from the other certfcate. ccordngy, ths offce s of the
opnon that a of ots 5 to 8, ncusve, had been sod, together wth
2 shares from ot 1. (Compare Ceveand- Trust Co. v. Commssoner,
supra owbert v. Penrose, 38 ed. (2d), 577 M. . Scanon v.
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22 (a). rt. 68.
36
Commssoner, 21 . T. ., 1120.) owever, f good evdence were
ntroduced that dd not ntend to se any partcuar shares, and
that hs ony purpose n turnng n both certfcates was to have a
hs remanng shares represented by one certfcate, then probaby a
the shares shoud be presumed to have been taken from ot 1. On
the other hand, f certfcate No. P were n fact assgned drecty
to the buyer by the ta payer, such an assgnment woud tend very
strongy to ndcate that the partcuar shares represented by such
certfcate were n fact sod. (See M. . Scanon. supra.)
ueston 4 has aready n effect been answered, but for the sake
of carty t s agan answered specfcay as foows:
(a) The orgna stock and the stock acqured through e ercse of
rghts ssued n 1921, 1922 and 1924, shoud be set up as one ot,
assumng that no other orgna purchases were made between the
dates of these ssuances of rghts.
(b) If acqured 100 shares n 1925 and e ercsed the rghts re-
ceved n 1926, 1928, and 1930, woud have 8 dfferent ots of stock
wth dfferent cost bases, provded that dd not aso have the 250
orgna shares referred to n questons 1 to 3, or the 100 orgna
shares referred to n queston 4(a).
eturnng to the set-up n questons 1 to 3, queston 4(b) suggests
that nstead of 8 ots, perhaps there shoud be ony 4, arrved at by
groupng ots 3 and 4 nto one and ots 5 to 8 nto another ot.
The reason behnd ths suggeston s evdenty the thought that
ots 3 and 4 were acqured through rghts presumaby e ercsed at
the same tme, and that ots 5 to 8 were aso acqured through
rghts presumaby e ercsed at the same tme. Ths queston has
aready been dscussed above, and the concuson has been reached
that paragraphs desgnated as (3) and (4) of artce 600 of Regua-
tons 77 furnsh a method for dstngushng between these ots for
purposes of the frst n, frst out rue, even though they are ac-
qured through rghts e ercsed at the same tme, and that conse-
quenty there shoud be 8 ots rather than 4. The 8 ots ceary
have dfferent bases for gan or oss, and s ceary entted to rey
on ths and dstngush the dentca shares sod f he can. Ths
beng so, t woud appear to foow that even where the shares sod
can not be dentfed, the 8 ots shoud nevertheess be dstngushed
for the purpose of appyng the presumpton of frst n, frst out.
ueston No. 5 reates to the case where purchased 100 shares
n 1923 at a dfferent prce from that pad for the 250 shares pur-
chased n 1920, that he e ercsed a the rghts on the 100 shares
(and presumaby aso on the 250 shares), and that he sod 600
shares n 1931, none of whch can be dentfed as beng attrbutabe to
any partcuar subscrpton or purchase. The nqury s then made,
What 600 shares were sod In such a case the ots woud be
arranged as foows: In ot 1, the 250 shares purchased n 1920,
together wth the 110 shares acqured n 1921 and 1922 through
e ercse of rghts, or a tota of 360 shares n ot 2, the 100 shares
purchased n the open market n 1923 n ot 3, the 72 shares acqured
through e ercse of rghts ssued on une 10,1924, n respect of ot 1
n ot 4, the 20 shares acqured through e ercse of rghts ssued
on une 10, 1924, n respect of ot 2 n ot 5, the 60 shares acqured
through e ercse of rghts ssued on une 8, 1926, n respect of ot 1,
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37
22(a), rt. 64.
and so on. It s unnecessary to proceed further, because the 600
shares sod woud be assumed to come from these 5 ots n the order
named, under prncpes aready stated n ths memorandum.
It may be argued that ot 3 shoud be ncuded n ot 1 under
queston 5, snce the shares n these 2 ots have the same bass for gan
or oss, and that ot 4 shoud be ncuded n ot 2 for the same reason.
Ths coud be done n the nstant e ampe wthout changng the
resut, but f 400 undentfed shares had been sod, nstead of 600,
the resut woud be dfferent. or e ampe, suppose the ad|usted
bass of each share n the dfferent ots, after ssuance of rghts, s
as foows:
Lot 1, 360 shares at 100.
Lot 2, 100 shares at 150.
Lot 3, 72 shares at 100.
Lot 4, 20 shares at 150.
Under ths stuaton, f 400 undentfed shares are sod, 360 shares
w have a bass of 100, or 36,000, and 40 shares w have a bass
of 150, or 6,000, makng a tota bass of 42,000 for the 400 shares
sod. ut f ot 3 s put wth ot 1, and ot 4 s put wth ot 2,
and the 400 shares are a presumed to be sod from ot 1, then the
bass of such shares w be 40,000 nstead of 42,000. In the opnon
of ths offce, the 100 shares at 150 are acqured before the 72 shares
at 100 are acqured, and therefore, under the frst n, frst out
rue, the 100 shares at 150 shoud be presumed to be sod before
the 72 shares at 100. ence, 4 ots shoud be set up nstead of 2.
owever, where the ta payer has ony one orgna ot of stock,
as assumed under the precedng questons, then the ta payer may
ncude n that ot a shares acqured through e ercse of rghts
ssued n respect thereof pror to anuary 1, 1925.
rtce 64: orgveness of ndebtedness. II-51-6567
I. T. 2745
R NU CT O 1932.
The amount of deposts renqushed to the M ank to provde
t wth a surpus, wth the understandng that the depostors
shoud be repad from dvdends decared on the bank s capta
stock, s not ta abe ncome.
dvce s requested whether the amount of deposts renqushed
to the M ank to provde t wth surpus represents ta abe ncome to
the bank for edera ncome ta purposes.
It appears that the M ank s a corporaton organzed under the
aws of the State of R. The deposts nvoved were renqushed to
provde the bank wth surpus aganst whch to charge osses ds-
cosed n ts securtes account, and wth the understandng that the
depostors shoud be repad from dvdends decared on the bank s
capta stock. The stock has been deposted n escrow wth another
bank unt repayment to the depostors has been made from dv-
dends on the stock.
The amount of the deposts so renqushed s hed not to be ta -
abe ncome, as defned n secton 22(a), Revenue ct of 1932.
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23(a), rt. 122.
38
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 122: Traveng e penses. II-41-6441
I. T.2721
ND CT OP 1932.
The ordnary and necessary e penses pad or Incurred by the
ta payer In connecton wth hs dutes as a member of a dstrct
board of the N. R. . Recovery oard consttute an aowabe
deducton for edera Income ta purposes as a busness e pense
for the ta abe year n whch pad, provded he submts evdence
showng that a such e pendtures were made n furtherance
of the work he was dong for the Government, and that the
e pendtures woud not have been made had he not been n the
servce of the Government.
dvce s requested whether the ordnary and necessary e penses
ncurred by n the performance of hs dutes as set forth beow
consttute an aowabe deducton from gross ncome for edera
ncome ta purposes.
The ta payer was apponted a member of a dstrct board of the
N. R. . Recovery oard embracng the States of R and S, and works
under orders ssued drect from Washngton, D. C. The ta payer
was drafted by the Presdent to serve wthout compensaton or
e pense aowance.
Secton 23(a) of the Revenue ct of 1932 provdes that n com-
putng net ncome there sha be aowed as deductons a the ord-
nary and necessary e penses pad or ncurred durng the ta abe
year n carryng on any trade or busness, ncudng traveng e -
penses whe away from home n the pursut of a trade or busness.
rtce 122 of Reguatons 17, under the Revenue ct of 1932,
reads as foows:
Traveng e penses as ordnary understood, ncude raroad fares and meas
and odgng. If the trp s undertaken for other than busness purposes, the
raroad fares are persona e penses and the meas and odgng are vng
e penses. If the trp s soey on busness, the reasonabe and necessary trav-
eng e penses, ncudng raroad fares, meas, and odgng, become busness
nstead of persona e penses.
The Unted States oard of Ta ppeas hed n the ppea of D.
C. ackng (9 . T. ., 312, C. . -2, 35), that snce the ta payer
was empoyed by the Unted States durng the year 1918 and e -
pended from hs own funds for subsstence and transportaton for
hmsef and secretary, n connecton wth hs empoyment, an amount
greater than that aowed hm by the Unted States for that purpose,
the amount so e pended s a proper deducton from gross ncome.
ccordngy, a the ordnary and necessary e penses pad or
ncurred by the ta payer n the performance of hs dutes as a
member of a dstrct board, N. R. . Recovery oard, consttute an
aowabe deducton for edera ncome ta purposes as a busness
e pense for the ta abe year n whch pad, provded he submts
evdence showng that a such e pendtures were made n further-
ance of the work he was dong for the Government, and that they
woud not have been made had he not been n the servce of the
Government n other words, that the e pendtures were made en-
trey for the beneft of the Government and n furtherance of the
work whch t had requested hm to perform.
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39
123(c), rt. 151
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 151: Ta es. II-30-6304
I. T. 2703
R NU CTS O 1928 ND 1932.
The cense ta mposed by the State of Montana on the sae or
dstrbuton of gasone s deductbe as a ta n the edera ncome
ta return of the consumer who pays t and to whom t s not re-
funded, f, however, the cense ta s added to or made a part of
the busness e pense of such consumer, t can not be deducted by
hm separatey as a ta .
rung s requested reatve to who s entted to deduct the
cense ta mposed by the State of Montana on the sae of gasone.
The defnton of terms used n the gasone cense ta are gven
n secton 2396.1 of the Suppement to the Revsed Codes of Montana,
1923-1927.
The gasone dstrbutors and deaers cense ta mposed under
chapter 185 of the Revsed Codes of Montana, 1921, has been var-
ousy amended by changes n the specfc sectons or the enactment of
whoe new chapters, n some nstances wthout specfc repea of pror
egsaton, up to and ncudng the amendments mposed by chapter
6 of the Laws of Montana, 1931.
Sectons 2382 and 2383 of the Revsed Codes of Montana, 1921,
as thereafter amended and set forth n chapter 6 of the Laws of
Montana, 1931, effectve pr 1, 1931, mpose a cense ta of 5 cents
for each gaon of gasone sod or dstrbuted durng the perod
pr 1, 1931, to March 31, 1932, and for each year thereafter unt
March 31, 1911. ta of 3 cents per gaon s kewse mposed on
each gaon of gasone sod or dstrbuted after March 31, 1941.
Sectons 2 and 3 of chapter 19 of the aws of 1927, whch are
shown as sectons 2396.2 and 2396.3 n the Suppement of the Revsed
Codes of Montana, 1923-1927, have thereafter been amended and are
set forth n chapter 6 of the aws of 1931.
Chapter 175 of the Laws of Montana, 1931, amends pror egsa-
ton, frst enacted as secton 1 of chapter 17 of the aws or 1927, whch
provdes for refund of gasone cense ta es n certan nstances, as
foows:
Secton 1. That any person who sha purchase and use any gasone, wth
reference to whch there has been pad nto the treasury of the State of
Montana, under the aws of ths State censng deaers n gasone, a ta at
the rate of fve cents (5 cents) per gaon, for the purpose of operatng or pro-
peng statonary gas engnes, tractors used for agrcutura purposes other
than on the pubc hghways or streets of ths Stnte, motor boats, aeropanes or
arcraft, or for ceanng or dyeng, or for any commerca use other than pro-
peng vehces upon any of the pubc hghways or streets of ths State, and
who has pad sad ta ether drecty to the State of Montana or ndrecty
as a part of the purchase prce of sad gasone, sha be aowed and pad as a
refund or drawback an amount of money equa to fve cents (5 cents) mu-
tped by the number of gaons of gasone so purchased and used, upon
presentng to the board of equazaton of the State of Montana, wthn the
tme aowed by aw, a sworn statement, accompaned by the orgna pad
nvoces showng such purchase and use, whch statement sha set forth that
the ta has been pad, the tota amount of such gasone so purchased upon
whch he has pad the ta and whch has been used by such consumer other
than for propeng vehces operated upon any of the pubc hghways or
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23(c), rt. 151.
40
streets of ths State, and whch statement sha contan such addtona Infor-
maton as may be requred by the board of equazaton of the State of Montana
on forms to be furnshed by sad board provded that such refund or draw-
back sha not e ceed the ta mposed by aw. such appcatons for re-
funds or drawbacks sha be fed wth the board of equazaton of the State
of Montana wthn s (6) months after the date on whch such gasone was
purchased as shown by such pad nvoces. The board of equazaton of the
State of Montana sha have s ty (60) days thereafter wthn whch to make
such nvestgaton as It may desre, to ascertan the truths of the statements
made. If the stutement Is found to be correct by sad board of equazaton of
the State of Montana, sad refund or drawback sha be pad out of the gaso-
ne cense ta drawback fund n the same manner as other cams aganst
the State are pad.
Sk.o. 2. acts and parts of acts n confct herewth are hereby repeaed.
Secton 23(c) of the Revenue cts of 1928 and 1932 provdes that
n computng net ncome there sha be aowed as deductons ta es
pad or accrued wthn the ta abe year, wth certan e ceptons not
here matera. rtce 151 of Reguatons 74 and 77, reatng to the
Revenue ct of 1928 and the Revenue ct of 1932, respectvey, pro-
vdes that n genera ta es are deductbe ony by the person upon
whom they are mposed.
Whe some of the anguage of the statute under whch the gaso-
ne cense ta s mposed woud ndcate that t s to recompense
the State for a cense granted the deaer or dstrbutor, the amount
of ta s such that the aw shoud be regarded as a revenue measure,
not provdng so much for a cense as for a ta . That por-
ton of the aw cted n whch provson s made for refund of the
ta to the consumer who uses the gasone for purposes other than
propeng vehces on the pubc hghways or streets s desgned
to ft the burden of the ta paced on such consumer. It foows,
therefore, that t s the purpose of the Montana aw to mpose the
Sasone cense ta upon the ndvdua consumer and not upon the
eaer or dstrbutor.
In accordance wth secton 23(c) of the Revenue cts of 1928
and 1932 and artce 151 of Reguatons 74 and 77, t s hed that the
cense ta mposed by the State of Montana on the sae or dstr-
buton of gasone s deductbe as a ta n the edera ncome ta
return of the consumer who pays t and to whom t s not refunded.
If, however, the cense ta s added to or made a part of the busness
e pense of such consumer, t can not be deducted by hm separatey
as a ta .
ktce 151: Ta es. II-34-6351
I. T. 2708
R NU CT O 1932.
The ta provded by the reta saes act enacted by the State
of Inos, effectve pr 1, 1933, whch s Imposed upon the
vendor of tangbe persona property, Is deductbe under secton 23
(c) of the Revenue ct of 1932 n determnng hs net ncome
sub|ect to edera ncome ta .
dvce s requested n regard to the deductbty for edera n-
come ta purposes of the ta mposed under the reta saes act en-
acted by the State of Inos, effectve pr 1, 1933. The ta
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41
23(c), rt. 151:
provded by the act s mposed upon persons engaged n the busness
of seng tangbe persona property at reta n the State.
The provsons of the Inos reta saes act, n so far as per-
tnent to the dscusson of the queston presented, read as foows:
Sec. 2. ta s Imposed upon persons engaged In the busness of seng
tangbe persona property at reta n ths State at the rate of 3 per cent
of the gross cash recepts from such saes n ths State of tangbe persona
property made n the course of such busness on and after the 1st day of the
ne t caendar month after the takng effect of ths act and pror to uy 1,
1935. owever, sueh ta s not mposed upon the prvege of engagng n
any busness n nterstate commerce or otherwse whch busness may not,
under the Consttuton and statutes of the Unted States, be made the sub|ect
of ta aton by ths State.
Sec. 3. On or before the 15th day of the second caendar month after the
takng effect of ths act, and on or before the 15th day of each caendar month
thereafter unt but not ncudng ugust, 1935, every person engaged n the
busness of seng tangbe persona property at reta n ths State durng
the precedng caendar month sha make a return to the department statng:
1. The name of the seer
2. s address or the address of hs pace of busness
3. The tota saes at reta of a tangbe persona property sod by hm n
the course of such busness durng the precedng caendar month
4. The tota cash amount refunded by the seer durng the precedng
caendar month to purchasers on account of tangbe persona property re-
turned to hm, upon the sae at reta of whch, the ta heren mposed had
been pad
5. The tota cash recepts durng the precedng caendar month from the
ae at reta of tangbe persona property made In the course of such busness
on and after the 1st day of the ne t caendar month after the takng effect
of ths act
6. The tota amount of saes at reta of tangbe persona property durng
the precedng caendar month, made In the course of such busness payment
for whch was not made to the seer durng the precedng caendar month
and sha at the same tme pay to the department the amount of the ta
heren Imposed. owever, the tem of cash refunds shown as provded heren
p.bove In subdvson 4 of ths secton sha be aowed as a credt aganst the
tota cash recepts as provded In subdvson 5. Such return sha be made
on forms prescrbed and furnshed by the department, sha be made under
oath or affrmaton and sha contan such other nformaton as the depart-
ment may reasonaby requre.

Seo. 7. If t sha appear that an amount of ta has been pad, whch was
not due under the provsons of ths act, whether as the resut of a mstake of
fact or an error of aw, then such amount sha be credted aganst any ta
due or to become due under ths act from the person who made the erroneous
payment or such amount sha be refunded to such person by the department.
Snce the ta provded by the act s mposed upon the vendor of
tangbe persona property, t s the opnon of ths offce that he may
deduct the amount thereof as a ta under secton 23(c) of the Reve-
nue ct of 1932, n determnng hs net ncome sub|ect to edera
ncome ta .
In the case of a vendor whose books are kept on the accrua bass,
the amount of the ta accrued durng the perod covered by hs ed-
era ncome ta return may be deducted n determnng hs net n-
come. Where the vendor s books are kept on the cash recepts and
dsbursements bass, ony the amount of the ta actuay pad durng
the perod covered by hs edera ncome ta return may be deducted
n determnng hs net ncome.
37408 34 4
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23(c), rt. 151.
42
rtce 151: Ta es. II-43-6464
I. T. 2726
R NU CT OP 1932.
The capta stock ta mposed by secton 215 of the Natona
Industra Recovery ct s an e cse ta eved wth respect to (and
s contngent upon) carryng on or dong busness. Where a do-
mestc corporaton s engaged n busness durng the entre caendar
year 1933 the capta stock ta for the fsca year ended une 30,
1033, accrued on une 1G, 1933, the date of enactment of the ct,
and the capta stock ta for the fsca year endng une 30, 1934,
accrued on uy 1, 1933, the begnnng of that fsca year.
rung s requested reatve to the accrua date of the capta stock
ta mposed by secton 215 of the Natona Industra Recovery ct
where the ta payer s a domestc corporaton and s engaged n bus-
ness durng the entre caendar year 1933.
The corporaton w fe an ncome ta return for that year and
use the accrua method of accountng. The queston nvoved s
whether the capta stock ta mposed by secton 215 of the Natona
Industra Recovery ct for the year ended une 30, 1933, and for
the year endng une 30, 1934, w both accrue n the caendar year
1933 and be deductbe n computng net ncome for that year.
Secton 215 of the Natona Industra Recovery ct provdes n
part as foows:
(a) or each year endng une 30 there s hereby mposed upon every
domestc corporaton wth respect to carryng on or dong busness for any
part of such year an e cse ta of 1 for each 1,000 of the ad|usted decared
vaue of ts capta stock.

(c) The ta es mposed by ths secton sha not appy
(3) to any domestc corporaton n respect of the year endng une 30,
1933, f t dd not carry on or do busness durng a part of the perod from
the date of the enactment of ths ct to une 30, 1933, both dates ncu-
sve.
The Natona Industra Recovery ct, whch mposes an e cse ta
upon every corporaton wth respect to carryng on or dong bus-
ness, measured by the ad|usted decared vaue of ts capta stock,
was approved on une 16, 1933. s that ta s not a contnuaton
of an e stng ta (the capta stock ta mposed by secton 700(a),
Tte II, of the Revenue ct of 1924 havng been repeaed, effectve
on une 30, 1926, by secton 1200(a) of the Revenue ct of 1926),
the ta for the fsca year ended une 30, 1933, must be hed to have
accrued on une 16, 1933, the date of enactment of the Natona
Industra Recovery ct, provded the corporaton was engaged n
busness on that date. (Cf. I. T. 2675, C. . II-1, 105.) Not
unt then had the event (the enactment of the Natona Industra
Recovery ct) occurred whch woud permt the accrua of such
ta wthn the rue ad down n Unted States v. nderson (269
U. S., 422).
s the capta stock ta s an e cse ta eved wth respect to
and s contngent upon) carryng on or dong busness, the ta
or the fsca year endng une 30, 1934, accrued on uy 1, 1933,
the begnnng of that fsca year, n the case of a corporaton dong
busness on that date. (See The Pctora Revew Co. v. Comms-
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43
1123(c), rt. 161.
s ner, 26 . T. ., 472, C. . I-2, 8 Coumban Carbon Co. v. Com-
mssoner, 25 . T. ., 456, C. . I-1, 2 G. C. M. 10613, C. . I-1,
173.) It foows that where a domestc corporaton s engaged n
busness durng the entre caendar year 1933 the corporaton shoud
accrue as of une 16, 1933, the capta stock ta for the fsca year
ended une 30,1933, and shoud accrue as of uy 1, 1933, the capta
stock ta for the fsca year endng une 30, 1934. (See G. C. M.
8553, C. . I -2, 109.) The corporaton n the nstant case w,
therefore, be permtted to deduct n ts return for the caendar year
1933 the capta stock ta for the year ended une 30, 1933, as we as
such ta for the year endng une 30, 1934, the ta es for both fsca
years havng accrued n the caendar year 1933.
rtce 151: Ta es. II-46-6505
I. T. 2731
R NU CT O 1932.
The vendor may deduct the ta of 1 per centum mposed by
the Okahoma saes ta aw, effectve uy 10, 1933, n determnng
net ncome for edera ncome ta purposes. In so far as the vendee
Is concerned the ta s merey an addtona cost of the artces
purchased, and s not an aowabe deducton n hs edera ncome
ta return.
rung s requested whether the ta of 1 per centum m-
posed by the Okahoma saes ta aw s deductbe by the vendor or
the vendee n computng net ncome.
The pertnent provsons of the aw (ch. 196, Okahoma Sesson
Laws, 1933), whch became effectve uy 10,1933, are as foows:
Sec. 4. There s hereby eved a ta of 1 per centum (1 ) upon the gross
proceeds of a saes of tangbe persona property consstng of goods, wares
or merchandse, sod at reta n the State of Okahoma, to consumers or users
and a ke ta upon the gross proceeds of a saes, wthn ths State, derved
from the foowng:
Upon a saes of tckets, or admssons to paces of amusement and athetc
events
Upon a saes of eectrcty, eectrc ght current, eectrc power, gas (nat-
ura or artfca) to domestc or ndustra consumers thereof
Upon a saes of servce to teephone subscrbers and others, for the trans-
msson of messages and/or conversatons, whether oca or ong dstance
Upon a saes of servce for the transmsson of messages, by teegraph
companes
Upon a saes of servce n radocastng, whether n the transmsson of
messages or otherwse, or n the easng, hrng or rentng of radocastng
equpment or factes
Upon a saes of food, confectons or drnks, prepared or compounded by
hotes, restaurants or other dspensers and sod at reta and served for mme-
date consumpton upon the premses, or devered or carred away from the
premses for consumpton esewhere.
Upon the sae of goods, wares or merchandse, as defned by secton 4 of ths
act, by condtona saes contracts or by parta payment or nstament pay-
ment pan, the ta sha be pad upon the whoe or the saes prce at the tme
such contract s entered Into.
No vendor sha advertse or hod out to the pubc n any manner, drecty
or ndrecty, that the ta heren mposed s not consdered as an eement In
the prce to the consumer. voaton of ths provson sha consttute a
msdemeanor.
The ta heren eved sha be computed and coected as herenafter provded.
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23(c), rt. 151.
44
Sec. 5. The ta heren eved sha not appy to the sae of raw products
from farms, orchards or gardens, by the producers or owners thereof, for re-
sae nor to the sae of ve stock, poutry or other farm products, by the pro-
ducers or owners thereof, for resae nor to the sae of o, gas, or other
mneras for resae and/or for manufacture and resae nor to the sae of
other raw materas, by the producers or owners thereof, for resae nor to
saes at whoesae for resae nor to the sae of gasone sub|ect to the gasone
e cse ta eved by aw nor to the sae of cgarettes sub|ect to any stamp
ta eved by aw of the State of Okahoma nor to the sae of any other
commodty upon the sae of whch any ta s mposed under or by vrtue of
artce 10 (ten), secton 12 (tweve) of the consttuton of the State of Oka-
homa nor to tckets or admssons to State or county fars nor to any sae
by the State or any muncpa subdvson thereof.

Seo. 6. (a) very vendor, at the tme of makng the return requred
hereunder, sha compute and pay to the commsson the ta due for the preced-
ng caendar month.

(c) It sha be the duty of every vendor requred to make a report and pay
any ta under ths act, to keep and preserve sutabe records of the gross
proceeds of saes ta abe under ths act, and such other books of account as
may be necessary to determne the amount of ta due hereunder .
Wth reference to the vendor, the rues and reguatons promu-
gated by the Okahoma Ta Commsson, whch have the force and
effect or aw, state, n paragraph (b) on page 7 and paragraph (11)
on page 10, respectvey, as foows:
(b) The vendor, as used n ths secton and throughout the act, beng the
seer of tangbe goods, wares or merchandse, to consumers or users, Is
the ta payer and s the person whose duty t s to pay the ta es eved by the
act, to the Okahoma Ta Commsson.

(11) Under every provson of the aw the vendor s the ta payer. e
pays to the State the ta mposed by the aw upon hs tota ta abe saes. It Is
not matera as to who s the purchaser.
Inasmuch as the vendor s the ta payer he may deduct the amount
of the ta pad or accrued as a ta under secton 23 (c) of the Revenue
ct of 1932, n determnng net ncome. Where the vendor coects
the ta from the vendee he must ncude the amounts so coected
n hs gross ncome for edera ncome ta purposes. The vendee
may not deduct ths amount as a ta notwthstandng t s passed
on to hm by the vendor. owever, where an amount equa to the
ta s pad by the vendee wth respect to goods purchased for con-
sumpton or use n hs trade or busness, such amount may be de-
ducted as a busness e pense, or t may be treated as a capta tem
where such costs are propery captazed rather than deducted as
e penses. In so far as the vendee s concerned the ta s merey
an addtona cost of the artces purchased.
In the case of a vendor whose books are kept on the accrua bass,
the amount of the ta actuay accrued durng the perod covered by
hs edera ncome ta return may be deducted n determnng hs
net ncome. Where the vendor s books are kept on the cash recepts
and dsbursements bass, ony the amount of the ta actuay pad
durng the perod covered by hs edera ncome ta return may be
deducted n determnng hs net ncome.
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45
23(c), rt. 151
rtce 151: Ta es. II-46-6506
I. T. 2732
R NU CT O 1832.
The Mchgan saes ta of 3 per cent Imposed upon saes by
retaers under secton 2, act 107, Mchgan Pubc cts of 1933,
effectve uy 1, 1933, s an e cse ta mposed by the State on the
vendor for the prvege of engagng n the busness of makng
aes at reta. or edera ncome ta purposes, the ta s an
aowabe deducton ony n the return of the vendor upon whom t
s mposed and who s abe for ts payment. In so far as the
vendee s concerned the ta s merey an addtona cost of the
artces purchased.
rung s requested whether the Mchgan saes ta of 3 per cent
mposed upon a saes by retaers s deductbe by the vendor or
the vendee for edera ncome ta purposes.
The aw n queston, act 167, Mchgan Pubc cts of 1933. became
effectve uy 1, 1933. Secton 2 provdes n part as foows:
Sec. 2. Imposton of the ta . There s hereby eved upon and there sha
be coected from a persons engaged n the busness of makng saes at reta,
as herenbefore defned, an annua ta for the prvege of engagng n such
busness equa to 3 per cent of the gross proceeds thereof, ess deductons
aowed n secton 4.

The ta hereby mposed sha be payabe from and after une 30, 1933.
Other provsons of the aw, so far as pertnent to the dscusson
of the questons presented, read as foows:
Secton 1. Defntons. That when used n ths act:

(b) The term sae at reta means any transacton by whch s trans-
ferred for consderaton the ownershp of tangbe persona property, when
such transfer s made n the ordnary course of the transferor s busness and
s made to the transferee for consumpton or use or for any other purpose than
for resae n the form of tangbe persona property. The term sae at reta
ncudes condtona saes, nstament ease saes and any other transfer of such
property when the tte s retaned as securty for the purchase prce but s
ntended to be transferred ater. The term sae at reta sha not ncude
an soated transacton n whch any tangbe persona property s sod, trans-
ferred, offered for sae, or devered by the owner thereof, or by hs representa-
tve for the owner s account, such sae, transfer, offer for sae or devery not
beng made n the ordnary course of repeated and successve transactons of
a ke character by such owner or on hs account by such representatve.
(b 2) The term sae at reta ncudes saes of eectrcty for ght, heat
and power and sae of natura and artfca gas when made to the consumer
or user for consumpton or use rather than for resae.
(c) The term gross proceeds means the nmount receved n money, credts,
property or other money s worth n consderaton of saes at reta wthn
ths State, wthout any deducton on account of the cost of the property sod,
the cost of materas used, the cost of abor or servces purchased, amounts
pad for nterest or dscounts, or any other e penses whatsoever, nor sha any
deducton be aowed for osses. Credts or refunds fur returned goods may
be deducted.

Seo. 5. ddtona ta . The ta mposed by ths act sha he n addton
to a other cense fees and ta es eved by aw as a condton precedent to
engagng or contnung n any busness ta abe hereunder, e cept as n ths act
otherwse specfcay provded.

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23(c), rt. 151.
46
Sec. 13. Ta en sae of busness. The ta and any Interest or penates
mposed by ths act sha be a en upon the property of the ta payer used n
connecton wth the busness for the prvege of dong whch the ta s
mposed.

Sec. 23. dvertsng rembursement. No person engaged n the busness of
seng tangbe persona property at reta sha advertse or hod out to the
pubc n any manner, drecty or ndrecty, that the ta heren mposed s not
consdered as an eement n the prce to the consumer. Nothng contaned n
ths act sha be deemed to prohbt any ta payer from rembursng hmsef
by addng to hs sae prce any ta eved hereunder.
In vew of the provsons of aw quoted above t s evdent that
the ta s an e cse ta mposed by the State on the vendor for the
prvege of engagng n the busness of makng saes at reta. or
edera ncome ta purposes, such ta s an aowabe deducton under
secton 23(c) of the Revenue ct of 1932 ony n the return of the
vendor upon whom t s mposed and who s abe for ts payment.
In so far as the vendee s concerned the ta s merey an addtona
cost of the artces purchased.
Where the vendor coects the ta from the vendee he must ncude
the amounts so coected n hs gross ncome for edera ncome ta
purposes. The vendee may not deduct ths amount as a ta not-
wthstandng t s passed on to hm by the vendor. owever, where
an amount equa to the ta s pad by the vendee wth respect to
goods purchased for consumpton or use n hs trade or busness such
amount may be deducted as a busness e pense or t may be treated
as a capta tem where such costs are propery captazed rather
than deducted as e penses.
In the case of a vendor whose books are kept on the accrua bass,
the amount of the ta actuay accrued durng the perod covered by
hs edera ncome ta return may be deducted n determnng hs
net ncome. Where the vendor s books are kept on the cash recepts
and dsbursements bass, ony the amount of the ta actuay pad
durng the perod covered by hs edera ncome ta return may bo
deducted n determnng hs net ncome.
rtce 151: Ta es. II-47-6518
I. T. 2733
R NU CT O 1932.
The ta mposed under the provsons of the Caforna reta
saes ta act of 1933 s an e cse tn mposed by the State on the
vendor for the prvege of engagng n the busness of makng
saes at reta. or edera ncome tn purposes the ta Is an
aowabe deducton as a ta under secton 23(c) of the Revenue
ct of 1032 to the vendor ony, upon whom t s mposed and who
s abe for ts payment. Where the vendor coects the amount of
the ta from the vendee he must ncude the amount so coected
n hs goss ncome. The amount equvaent to the ta pad by
the purchaser consttutes addtona cost to hm of the artce
purchased.
dvce s requested whether the Caforna saes ta , mposed upon
the vendor for the prvege of engagng n the busness of makng
saes at reta, s an aowabe deducton by the vendor or the vendee
for edera ncome ta purposes.
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47
23(c), rt. 151
The aw under whch the ta s mposed s the Reta saes ta
act of 1933. Secton 3 provdes:
Seo. 8. or the prvege of seng tangbe persona property at reta a ta
Is hereby Imposed upon retaers at the rate of 2 per cent of the gross recepts
of any such retaer from the sae of a tangbe persona property sod at
reta In ths State on and after ugust 1. 1933, and to and ncudng une 30,
1935 and at the rate of 2 per cent of the gross recepts of any such retaer
from the sae of a tangbe persona property sod at reta n ths State on
and after uy 1, 1935. Such ta sha be pad at the tme and In the manner
herenafter provded and sha be n addton to any and a other ta es.
Other provsons of the aw, so far as pertnent to the dscusson
of the queston presented, read as foows:
Seo. 2. The foowng words, terms and phrases when used n ths act have
the meanngs ascrbed to them In ths secton, e cept where the conte t ceary
Indcates a dfferent meanng:

(f) Gross recepts means the tota amount of the sae prce of the reta
saes of retaers, Incudng any servces that are a part of such saes, vaued
In money, whether receved n money or otherwse, ncudng a recepts, cash,
credts and property of any knd or nature, and aso any amount for whch
credt Is aowed by the seer to the purchaser, wthout any deducton there-
from on account of the cost of the property sod, the cost of the materas
used, abor or servce cost, Interest pad, osses or any other e pense whatso-
ever provded, however, that cash dscounts aowed and taken on saes sha
not be ncuded, and gross recepts sha not ncude the sae prce of
property returned by customers when the fu sae prce thereof s refunded
ether n cash or by credt, nor sha gross recepts ncude the prce receved
for abor or servces used n nstang, appyng, remodeng or reparng the
property sod.
or the purpose of ths act the tota amount of the sae prce above men-
toned sha be deemed to be the amount receved e cusve of the ta hereby
mposed provded, that the retaers sha estabsh to the satsfacton of the
board that the ta mposed hereunder had been added to the sae prce and
not absorbed by the retaer.
(g) oard means the State oard of quazaton.

Seo. 8. It sha be unawfu for any retaer to advertse or hod out or state
to the pubc or to any customer, drecty or Indrecty, that the ta or any
part thereof Imposed by ths act w be assumed or absorbed by the retaer or
that t w not be added to the seng prce of the property sod, or If added
that t or any part thereof w be refunded. ny person voatng any of the
provsons of ths secton sha be guty of a msdemeanor.
Sew. 8 . The ta hereby mposed sha e coected by the retaer from the
consumer n so far as the same can be done.
Sko. 9. The ta eved hereunder sha be a drect obgaton of the retaer
and sha be due and payabe n quartery nstaments on or before the 15th
day of the month ne t succeedng each quartery perod .

Seo. 12. Thrty days after the effectve date of ths act, t sha be unawfu
for any person to engage n or transact busness as a retaer wthn ths
State, uness a permt or permts sha have been Issued to hm as herenafter
prescrbed.
The ta mposed under the provsons of the Caforna reta
saes ta act of 1933 s an e cse ta mposed by the State on the
vendor for the prvege of engagng n the busness of makng saes
at reta. or edera ncome ta purposes the ta s an aowabe
deducton as a ta under secton 23(c) of the Revenue ct of 1932
to the vendor ony, upon whom t s mposed and who s abe for
ts payment. Where the vendor coects the amount of the ta from
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523(c), rt. 151.
48
the vendee e must ncude the amount so coected n hs gross
ncome. The amount equvaent to the ta pad by the purchaser
consttutes addtona cost to hm of the artce purchased.
In the case of a vendor whose books are kept on the accrua bass,
the amount of the ta actuay accrued durng the perod covered
by hs edera ncome ta return may be deducted n determnng
hs net ncome. Where the vendor s books are kept on the cash
recepts and dsbursements bass, ony the amount of the ta actuay
pad durng the perod covered by hs edera ncome ta return may
be deducted n determnng hs net ncome.
rtce 151: Ta es. II 9-6551
I. T. 2741
R NU CTS O 1928 ND 1932.
The amount of the deducton aowabe under the edera ncome
ta aw on account of ta es pad under the Wsconsn ncome ta
aw for ta abe years ended pror to November 30, 1931 (the date
on whch ocper v. Ta| Commsson of Wsconsn ct a., 284 U. S.,
206, was decded), s the amount of ta for whch the ta payer was
abe under the State ncome ta aw on account of hs or her n-
dvdua ncome computed separatey. Where n the admnstra-
ton of the State ncome ta aw the State ta ng authortes per-
mtted the ncome of one spouse to be reduced by the osses of the
other resutng n n smaer State ta than woud have been pad f
the ncome of each had been computed on the bass of separate
returns, no deducton s aowabe n e cess of the ta actuay
pad.
or ta abe years endng on or after November 30, 1931, where
separate State and separate edera ncome ta returns are fed
by husband and wfe, each spouse s entted to deduct on the
edera ncome ta return the amount of State ncome ta pad on
the separate State return. Where separate State returns, but a
|ont edera return, are fed, the sum of the State ncome ta es
may be deducted on the |ont edera return. Where a |ont State
return and separate edera returns are fed, each spouse shoud
be permtted to deduct that proporton of the State ncome ta
pad whch the average ncome of each bears to the combned aver-
age ncome.
Inqury s made as to the amount of Wsconsn ncome ta whch
may be deducted for edera ncome ta purposes n vew of the
decson of the Unted States Supreme Court n the case of oeper v.
Ta Commsson of Wsconsn et a. (284 U. S., 206), wheren t was
hed n effect that the Wsconsn statute was unconsttutona n so
far as t requred that the ta be computed on the combned average
ta abe ncome regardess of whether separate or |ont returns were
fed by husband and wfe.
Ob|ecton has been rased by ta payers to the aowance as a
deducton n the separate edera ncome ta returns of husband and
wfe of ony that amount of Wsconsn ncome ta es whch woud
have been due from each f the ta had been computed on ther sepa-
rate ncomes by the State of Wsconsn. It s ponted out that under
the Wsconsn statutes a husband and wfe are permtted to make
separate returns or to |on n a snge |ont return. urthermore,
a refund from the State of the e cess of the ta computed on the
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49
23(c), rt. 151
combned ncome over the amount due f computed on the separate
ncomes of husband and wfe s dened uness the ta payer pad the
ta under protest and, pror to the ssuance of the Unted States
Supreme Court decson on November 30, 1931, appeared before the
county ncome ta board of revew and ob|ected to the computaton
of the ta on the bass of the combned ncome.
It s contended that where the husband and wfe eect to fe a
|ont State return the prncpes ad down n the Unted States
Supreme Court decson n the case of oeper v. Ta Commsson
of Wsconsn et a., supra, are not appcabe, and that n the separate
edera returns aowance shoud be made for the State ncome ta
actuay assessed and pad. The queston s, therefore, whether n
the case of spouses who fed separate edera ncome ta returns and
a |ont State ncome ta return the amount of State ncome ta
actuay pad shoud be aowed as a deducton n the proporton
that the ncome of each bears to the combned ncome and whether
where separate State returns are fed the Unted States Supreme
Court decson shoud be foowed and ony that amount of State
ncome ta aowed as a deducton whch woud have been due from
husband and wfe f such ta had been computed on ther separate
returns.
fter carefu consderaton t s beeved that a dstncton must
be drawn between |ont returns fed by husband and wfe under the
Wsconsn ncome ta aw for ta abe years ended pror to November
30, 1931, the date of the oeper decson, and ta abe years endng
on or after that date. efore the oeper decson the Wsconsn
ncome ta was mposed n the same manner whether husband and
wfe reported ther ncome n a |ont return or n two separate re-
turns. There was no true eecton as n the case of the edera
ncome ta aw. The ev condemned by the Unted States Supreme
Court was the mposton of a ta on one person measured by the
ncome of another. Ths ev was present whether husband and wfe
reported ther ncome to the State of Wsconsn on one pece of paper
or on two peces of paper. Therefore, n computng the amount of
State ncome ta deductbe for edera ncome ta purposes for
ta abe years ended pror to the date of the oeper decson the
prncpe stated n that decson shoud be foowed n cases where
husband and wfe fed |ont State ncome ta returns as we as n
cases where they fed separate State ncome ta returns.
The stuaton was changed by the decson of the Supreme Court
n the case of oeper v. Ta Commsson of Wsconsn et a., supra.
Secton 71.09, 4(c) (S the Wsconsn statute reads n part as foows:
Marred persons vng together as husband and wfe may make separate
returns or |on n a snge ont return. In ether case the ta sha be com-
puted on the combned average ta abe ncome.
The second sentence quoted above was nufed by the decson of
the Unted States Supreme Court n the oeper case but the court
dd not hod that where a true eecton e sts a |ont return s not
permssbe. The court was not asked to pass upon the egaty of a
|ont return, vountary fed, wth fu knowedge that two courses
eadng to dfferent ta resuts are open to the partes. It s beeved
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23 (c), rt. 152.
50
that the effect of the oeper decson s to permt a true eecton, as
s the case under the edera aw.
It foows that the amount of the deducton aowabe under the
edera ncome ta aw on account of ta es pad under the Wsconsn
ncome ta aw for ta abe years ended pror to November 30, 1931,
s the amount of ta for whch the ta payer was abe under the
State ncome ta aw on account of hs or her ndvdua ncome
computed separatey. Where n the admnstraton of the State
ncome ta aw the State ta ng authortes permtted the ncome of
one spouse to be reduced by the osses of the other, resutng n a
smaer State ta than woud have been pad f the ncome of each
had been computed on the bass of separate returns, no deducton n
e cess of the ta actuay pad s aowabe for edera ncome ta
purposes.
or ta abe years endng on or after November 30, 1931, where
separate State and separate edera ncome ta returns are fed by
husband and wfe, each spouse s entted to deduct on the edera
ncome ta return the amount of State ncome ta pad on the sepa-
rate State return. Where separate State returns, but a |ont edera
return, are fed the sum of the State ncome ta es pad on the sepa-
rate returns may be deducted on the |ont edera return. Where a
|ont State return and separate edera returns are fed, each spouse
shoud e permtted to deduct for edera ncome ta purposes that
proporton of the State ncome ta pad whch the average ncome
of each bears to the combned average ncome.
It may be ponted out that n accordance wth Mmeograph 3958
(C. . I-2, 33) no deducton s aowabe wth respect to ta es
egay or mpropery coected. The e cess amount pad under an
erroneous nterpretaton of the Wsconsn ncome ta aw, therefore,
s not deductbe as a ta n edera ncome ta returns.
rtce 152: edera dutes and e cse ta es. II 9-6543
Mm. 4108
Deductbty for edera ncome ta purposes of the processng
ta , compensatng ta , and ta on foor stocks mposed by the
grcutura d|ustment ct, approved May 12, 1933 (Pubc,
No. 10, Seventy-thrd Congress).
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, November 22,1933.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Ta es mposed under the provsons of the grcutura d|ust-
ment ct (Pubc, No. 10, Seventy-thrd Congress) are deductbe,
for edera ncome ta purposes, from gross ncome as ta es for the
ta abe year n whch pad or accrued, dependng upon the manner
n whch the books of the ta payer are kept. They are deductbe
for edera ncome ta purposes ony by the person abe for the ta
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51
23(e), rt. 171.
under the provsons of artce 8, Reguatons 81 (processng ta ),
or artce 19, Reguatons 81 (compensatng ta ), or artce 6, Regu-
atons 82 (ta on foor stocks), or abe as vendee under the prov-
sons of secton 18 of the ct, artces 27 and 28, Reguatons 81, or
artce 7, Reguatons 82.
These ta es are deductbe as ta es for the year n whch pad or
accrued, provded (a) that they are not refunded or credted to the
ta payer, or (b) that the equvaent of a deducton from gross n-
come n respect of the ta es s not obtaned by ther beng added to
and made a part of the e penses of the busness or the cost of the
artces of merchandse wth respect to whch they are pad or ac-
crued, or (c) that such equvaent has not been otherwse obtaned.
(See artces 151 and 152, Reguatons 77.)
Inqures n regard to ths mmeograph shoud refer to the number
thereof and the symbos IT: : RR.
Guy T. everng,
Commssoner.
S CTION 23(e). D DUCTIONS ROM GROSS
INCOM : LOSS S Y INDI IDU LS.
rtce 171: Losses. II-35-6372
( so Secton 111, rtce 561.) I. T. 2711
R NU CT O 1932.
The ta payer s rea property In New ersey was sub|ected to a
ta sae In 1932 by the muncpaty of R and was thereafter hed
by the muncpaty.
ed, the acquston by the muncpaty was not a sae on whch
a oss may be camed for ncome ta purposes.
The ta payer owned rea property n New ersey whch was sub-
|ected to a ta sae n 1932 by the muncpaty of R and was there-
after hed by the muncpaty. The queston nvoved s whether the
ta sae consttutes a cosed transacton on whch a oss may be
deducted n the ta payer s 1932 return.
n e amnaton of the Comped Statutes of the State of New
ersey (1911-1924), voume 2, ndcates that when a muncpaty
acqures rea property at a ta sae there s no actua sae so ong as
the rght of redempton e sts. Paragraph 208-444a (35) of such
comped statutes provdes n part:
Land hed oy muncpaty assessed n name of owner no sae whe hed
ty muncpaty. 32. Where a parce of and s hed by the muncpaty
under a sae not redeemed, then unt the rght of redempton s barred, a
subsequent ta es, assessments for benefts and other muncpa charges sha be
assessed In the name of the owner, as f no sae had been made, .
It s accordngy hed n the nstant case that the acquston of
the property by the muncpaty n 1932 for ta es was not a sae on
whch a oss may be camed for ncome ta purposes.
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23(k), rt. 204.
52
S CTION 23(k). D DUCTIONS ROM GROSS
INCOM : D PR CI TION.
rtce 204: Capta sum recoverabe through II-28-6281
deprecaton aowances. G. C. M. 11933
R NU CT O 1032 ND TRIOR R NU CTS.
In the case of budngs or other property pad for by the essor
nnd turned over to the essee under a ease whch provdes that
such property s to be mantaned by the essee and the same
property or ts equvaent In vaue returned to the essor at the
e praton of the ease n as good condton and vaue as when
eased
1. The essee shoud not be aowed deprecaton deductons on
property n whch he has made no capta nvestment. When the
essee makes e pendtures n performance of hs obgaton, he may
deduct the amount pad for ordnary repars n the year n whch
pad, and e pendtures for capta tems shoud be amortzed over
the fe of the property repaced or the remanng term of the
ease, whchever s shorter. No dstncton s to be recognzed
on the ground that the essee s books of account are kept on the
accrua bass.
2. The essor shoud not be aowed to take deprecaton deduc-
tons n res ect of the eased property durng the contnuance of
the ease. The cost or other bass of the property, ad|usted for
deprecaton to the begnnng of the ease, shoud reman unds-
turbed unt the end of the ease, when t may be amortzed over
the estmated usefu fe of the property as then determned.
The foregong rues shoud be apped to cases wheren the essor
and essee are affated corporatons whch fe consodated
returns.
n opnon s requested reatve to the poston whch shoud be
taken concernng (1) the aowance of deprecaton deductons for
eased property where, under the terms of the ease, the essee s ob-
gated to mantan the same and to return t or equvaent property at
the termnaton of the ease, and (2), f under such crcumstances de-
precaton deductons are to be dened both the essor and essee,
whether the rue s so far appcabe as to deny such deductons to
essor and essee corporatons whch are affated and fe conso-
dated returns.
I.
In Wess v. Wener (279 U. S., 333, Ct. D. 60, C. . III-1, 257)
t was hed that a essee who has made no nvestment n budngs on
the eased premses s not entted to deprecaton deductons n re-
spect of such budngs, even though the essee s obgated to keep
the same n ke condton as the same now are n, speakng of the
date of the e ecuton of the ease, and n case of ther destructon or
remova from any cause to repace them wth budngs of a far
cost or vaue of a sum equa to or greater than the vaue of the
e stng budngs. The crcut court of appeas, n that case (27
ed. (2d), 200), woud have permtted the essee to antcpate actua
performance of such an obgaton by permttng hm to set up, by
deductons out of the annua ncome from the eased premses, a
reserve to restore or repace the orgna budngs. The Supreme
Court, refusng to permt the essee to do ths, sad:
The crcut court of appeas, Interpretng Untc States v. Ludey (274 U. S.,
295). sad that the purpose of the Revenue ct s to ta ony gan, and that
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53
23(k), rt. 204.
the amount thus aowed to be set asde Is not gan, but Is capta that has
gone nto gross ncome. ut t s very cear that as yet the capta of the essee
has not gone Into t, and upon the consderatons |ust mentoned t s not enough
that he has made a contract, that very possby may not be carred out to repace
that capta at some future tme. If, as we thnk, such a contract s not enough
to cause the essee a present oss by wear and tear, the fact, whch may be
assumed, that the property was used by hm n hs busness, does not matter.
Of course he must show an Interest n the property and a present oss to hm
to make the statute appy. Itacs supped.
(See aso revoort ote Co.. 1 . T. ., 132, C. . -, 8 re-
voort ote Co. v. Renecke, 36 ed. (2d), 51, Ct. D. 139, C. .
III 2. 305 et Raway Co. of Chcago v. Conmssoner, 9
. T. ., 804, C. . -2, 6, affrmed 36 ed. (2d , 541, certorar
dened 281 U. S., 742 Oho Govereaf Dary Co. v. Commsson , 13
. T. ., 1320, affrmed wthout opnon, 34 ed. (2d), 1022 Ter-
mna Raroad ssocaton of St. Lous v. Commssoner, 17 . T. .,
1135, affrmed 61 ed. (2d), 166 (certorar dened 288 U. S., 604)
and Terre aute, Indanapos astern Tracton Co. v. Comms-
soner, 24 . T. ., 197 now on appea to the Crcut Court of
ppeas for the Seventh Crcut).)
In the case of Oho Covereaf Dary Co. v. Commssoner, supra,
the oard of Ta ppeas, referrng to ts pror decsons n the
ppea of Wam . Osthemer (1 . T. ., 18) and et Raway
Co. of Chcago v. Commssoner, supra, sad:
In those cases, as In ths, the ta payers kept ther books on an
accrua bass. In Wam . Osthemer, supra, the oard sad:
In order that an tem may be accrued, however, a abty must actuay
be ncurred n the ta abe year. (Schuster d Co. v. Wams, 283 ed., 115.)
The statute recognzed the accrua bass of makng returns by provdng for the
deducton of e penses ncurred but not pad. It Is apparent that no abty
n praesent was ncurred under the terms of the ease n queston n the years
1918 and 1919 however we known t mght ave been that a abty n some
amount woud be ncurred at some tme n the future. The abty to restore
chattes as good as new or as good as when receved when a ease s utmatey
canceed or surrendered at some ndefnte or Indetermnate tme n the future s
not a present actua abty, and s not the actua ncurrng of an e pense or
abty.
The content of the foregong quotaton appears to concde en-
trey wth the vew of the Supreme Court as set forth n the e cerpt,
above set forth, from the opnon n Wess v. Wener, supra.
In Terre aute, Indanapos astern Tracton Co. v. Comms-
soner, supra, the oard of Ta ppeas sad:
It Is aso setted that where the essee covenants to mantan the property
n as good condton as when taken ever from the essor, the essee s entted to
a deducton for a capta tems so made by t , spread over the fe of the
partcuar property or remanng term of the ease, whchever s shorter.
(Duffy v. Centra R. Co. of New ersey, 268 U. S., 55.)
nd the essee, when t makes good the oss, s entted to deduct
the entre amount so e pended ether n the year n whch made (f an ord-
nary repar), or (f a capta tem), over the fe of the property repaced or
remanng term of the ease, whchever s shorter. In that manner the essee
w have returned to It ts entre cost of mantanng the property whch t s
entted to deduct, and the essor, at the end cf the term, w receve back ts
property or ts equvaent n vaue n as good a condton and vaue as when
eased.
s to the essor, the queston whether he s entted to deprecaton
deductons on property turned over to the essee under the terms
and condtons ndcated has been thoroughy revewed by the oard
of Ta ppeas n Terre aute, Indanapos astern Tracton
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23(k), rt. 204.
54
Co. v. Commssoner, supra. fter revewng ts pror decson n
the ppea of . Wthem Co. (6 . T. ., 1), the oard sad:
It s argued on behaf of the pettoners n the Instant proceedngs that
the Whem case s dstngushabe from ther cases by reason of the term of
the ease, the opton granted, and the arge mprovements paced on the
Whem property by the essee. Whe these may be dstngushng facts, we
thnk t s true that the underyng ega prncpe s the same n both cases.
The statute ony permts the owner of property used n the busness to take a
reasonabe deducton for e hauston, wear and tear. When property s
eased wth a provson n the ease that t s to be mantaned by the essee
and the same property or ts equvaent n vaue returned to the essor at
the e praton of the ease n as good a condton and vaue as when eased,
we beeve trat t woud be contrary to the meanng of secton 234(a)7 of
the Revenue ct of 1921 to fnd that the essor had actuay suffered any oss
deductbe under that secton, for, as sad n Wess v. Wener, supra, he must
show a present oss to hm to make the statute appy.
Pettoners further argue that to deny the essor the rght to take the deduc-
ton s to deny the deducton to anyone, snce t s setted that the essee s
not entted thereto. ut such a stuaton s more apparent than rea. The
essor s dened the deducton because t has not and w not suffer any oss
for the reason that the essee has promsed to make good any oss that mght
occur on account of e hauston, weur and tear. It mght be added
that n makng such a contract the essor woud naturay receve a ess renta
than f t had agreed to mantan the upkeep of the property tsef.
Pettoners poston s that n eases of such ong duraton as the ones here
In queston, the proper appcaton of secton 234(a)7 shoud be to permt the
essor to deduct an amount commensurate wth the actua e hauston, wear
and tear of the property unt ts entre capta sum has been so deducted and
to ncude n the essor s ncome at the end of the term the vaue of the prop-
erty turned over to the essor at that tme. We do not thnk, however, that ths
poston gves fu effect to the actua agreement e stng between the essor
and essee. The respectve eases provded that the essee woud durng sad
term renew, repar and repace the same, so as to mantan and keep the
demsed premses n as good order, repar and condton as the same are now
and n ther present state of effcency . The presumpton s that the
partes w perform n accordance wth ther agreement. Ths beng true, we
do not thnk t woud be reasonabe to aow the essor a deducton for e -
hauston, etc., when such e hauston was constanty beng arrested by the
essee. We, therefore, hod to our decson n . Whem Co., supra. The
respondent s determnaton on ths ssue Is sustaned.
fter carefu consderaton, t s the opnon of ths offce that the
poston of the ureau shoud conform wth the rungs ndcated n
the decsons revewed above. That s to say, n the case of budngs
or other property pad for by the essor and turned over to the essee
under a ease whch provdes that such property s to be mantaned
by the essee and the same property or ts equvaent n vaue re-
turned to the essor at the e praton of the ease n as good condton
and vaue as when eased.
1. The essee shoud not be aowed deprecaton deductons on
property n whch he has made no capta nvestment. When the
essee makes e pendtures n performance of hs obgaton, he may
deduct the amount pad for ordnary repars n the year n whch
pad, and e pendtures for capta tems shoud be amortzed over
the fe of the property repaced or the remanng term of the ease,
whchever s snorter. No dstncton s to be recognzed on the
ground that the essee s books of account are kept on the accrua
bass.
2. The essor shoud not be aowed to take deprecaton deduc-
tons n respect of the eased property durng the contnuance of
the ease. The cost or other bass of the property, ad|usted for
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25, rt. 291.
deprecaton to the begnnng of the ease, shoud reman unds-
turbed unt the end of the ease when t may be amortzed over the
estmated usefu fe of the property as then determned.
II.
The foregong rues shoud be apped to cases wheren the essor
and essee are affated corporatons whch fe consodated returns.
It was hed n Swft Go. v. Unted States (Ct. of Cs.) (38 ed.
(2d). 366) that n provdng for consodated returns Congress was
smpy ayng down the prncpe that where a group of companes
consttuted a snge busness unt, the net ncome, determned n
accordance wth the genera prncpes of aw, shoud be combned,
osses beng offset aganst gans, and the rate of ta shoud be
determned by the reaton between such combned net ncome and
the nvested capta of the group as a whoe, each corporaton beng
at a tmes separatey recognzed and ndvduay abe for ts
proporton of the ta accordng to the net ncome propery assgn-
abe to t. (See aso G. C. M. 8618, C. . I -2, 180, and compare
artce 31 of Reguatons 75 and 78.) Where nether the essee nor
the essor s entted to a deducton accordng to the genera prn-
cpes of aw, t shoud foow that the deducton does not become
aowabe because t happens that the essor and essee are affated
corporatons whch fe consodated returns.
S CTION 23(n). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
rtce 261: Contrbutons or gfts by ndvduas.
R NU CT O 1932.
Contrbutons to Savaton rmy and branches. (See I. T. 2747,
Page 70.)
S CTION 25. CR DITS O INDI IDU L G INST
N T INCOM .
rtce 291: Credts of ndvdua aganst II-43-6465
net ncome. I. T. 2727
( so Secton 147, rtce 811 Secton 148,
rtce 831.)
R NU CT O 1032.
The entre amount of Interest or dvdends receved durng 1932
from a domestc budng nnd oan assocaton Is sub|ect to edera
ncome ta . If a budng and oan assocaton has been hed to be
e empt from fng ncome ta returns and payng ncome ta , It
s not requred to make a return of nformaton wth respect to
dvdends pad by t to ts members or sharehoders. Such asso-
caton must, however, fe nformaton returns wth respect to
nterest payments amountng to 1,000 or more durng any ta abe
year, begnnng wth the caendar year 1932.
rung s requested concernng the status for edera ncome
ta purposes of dstrbutons made by domestc budng and oan
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56
assocatons to hoders of nstament stock whch matured pror to
the passage of the Revenue ct of 1932 (but after ts effectve date),
and the abty of such assocatons to fe returns of nformaton
wth respect to such dstrbutons made n 1932.
In the case submtted, nstament shares are pad for at the rate
of 1 a month on each share of stock subscrbed. Dvdends, de-
cared semannuay, are not pad n cash but are credted to the
accounts of the sharehoders on the books and records of the assoca-
ton. Upon maturty of the stock the face vaue thereof s pad n
cash, or by means of a pad-up stock certfcate, or certfcate of de-
post. In pr, 1932, the nnth seres of nstament shares matured
and sharehoders receved 202a doars per share n cash or ts
equvaent. Of such dstrbuton, 147a doars consttuted a return
of amounts pad n and 55a doars consttuted accumuated
dvdends.
Snce the Revenue ct of 1932 contans no provson wth respect
to the e empton of any porton of the nterest or dvdends receved
from a domestc budng and oan assocaton, the entre amount of
nterest or dvdends receved from such an assocaton durng the
year 1932 s sub|ect to edera ncome ta . The term nterest
refers to nterest on money oaned to the assocaton, whether such
oans arc ordnary straght oans or are represented by certfcates of
depost, and the amount of nterest n the hands of the recpent s
sub|ect to both the norma ta and surta .
The term dvdends appes to the earnngs on a casses of
stock of a budng and oan assocaton, whether nstament, ma-
tured, unmatured, fu-pad, or prepad, to the e tent that they are
pad out of earnngs accumuated after ebruary 28, 1913. Secton
25 (a) 1 of the Revenue ct of 1932 provdes for the aowance as a
credt aganst the net ncome of an ndvdua, for the purpose of
the norma ta , of the amount of dvdends receved from a domestc
corporaton sub|ect to edera ncome ta . Therefore, begnnng
wth the year 1932 dvdends pad to ts sharehoders by an e empt
domestc budng and oan assocaton are sub|ect to both the nor-
ma ta and the surta . Dvdends credted on nstament stock,
however, consttute ncome ta abe to the sharehoders ony n the
year n whch they are actuay pad or become unquafedy sub|ect
to demand. Consequenty, where the earnngs of the assocaton are
not pad to the hoders of nstament stock unt maturty of the
stock, credts of such earnngs to ther accounts do not represent
ncome unt the stock has matured. Income n each case s to be
determned as the e cess of the amount receved on the maturty
of the shares over the amount pad n on the shares or, f acqured
pror to March 1, 1913, the vaue of the shares as of that date pus
the aggregate amount pad n subsequent thereto. ence, the amount
of 55a doars, whch represents the tota amount of earnngs (ac-
cumuated snce ebruary 28, 1913) credted on each share of n-
stament stock as of the date of maturty n 1932, must be reported
as ta abe ncome for the year 1932, regardess of the year or years
n whch such earnngs were credted to the account of the stock-
hoder on the books of the assocaton.
Uness a corporaton s sub|ect to the edera ncome ta mposed
by the Revenue ct of 1932 t s not requred to make returns of
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44, rt. 352.
nformaton wth respect to the dvdends dstrbuted by t. (See
secton 148(a) of the Revenue ct of 1932.) ccordngy, f a
budng and oan assocaton has been hed to be e empt from the
requrement of fng ncome-ta returns and payng ncome ta , t s
not requred to make a return of nformaton wth respect to dv-
dends pad by t to ts members or sharehoders. Such assocaton
must, however, fe nformaton returns wth respect to nterest pay-
ments amountng to 1,000 or more durng any ta abe year, begn-
nng wth the caendar year 1932. (See secton 147(a) of the
Revenue ct of 1932 and artce 811 of Reguatons 77.)
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 44. INST LLM NT SIS.
rtce 352: Sae of rea property nvovng II-36-6387
deferred payments. G. C. M. 12148
R NU CTS O 1926. 1928, ND 1932.
If a casua sae of rea property contempates but two payments,
one durng the frst year and one n a ater year, the Income may
be returned on the nstament bass f the payment receved In
the frst year does not e ceed the percentage of the seng prce
specfed n the statute.
The term nta payments contempates at east one other
payment n addton to the Inta payments. Where the entre
purchase prce s to be pad In a ump sum n a ater year, there
beng no payment durng the frst year, the Income may not be
returned on the nstament bass.
Income may not be returned on the Instament bass where no
payment n cash or property other than evdences of ndebtedness
of the purchaser s receved durng the frst year, the purchaser
havng promsed to make two or more payments In ater years.
Inqury has been made as to the ureau s poston on severa
questons arsng under secton 212(d) of the Revenue ct of 1926
and secton 44 of the Revenue cts of 1928 and 1932.
These sectons provde that ncome may be returned on the n-
stament bass under certan crcumstances, namey, (1) n the
case of a person who reguary ses or otherwse dsposes of per-
sona property on the nstament pan (2) n the case of casua
saes or dspostons of persona property or rea property, f n
ether case the nta payments do not e ceed 40 per centum 25
per centum under the Revenue ct of 1926 of the seng prce.
(Certan addtona prerequstes must aso be satsfed f persona
property s nvoved.) The statute then provdes that s used
n ths secton the term nta payments means the payments
receved n cash or property other than evdences of ndebtedness
of the purchaser durng the ta abe perod n whch the sae or
other dsposton s made. (The ta abe perod n whch the sae
or other dsposton s made w hereafter usuay be referred to
as the frst year. )
37408 34 5
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58
our questons have been asked n connecton wth casua saes
of rea property, whch w be stated and answered n the order
presented:
(1) May ncome be returned on the nstament bass when the
payments n cash or property other than evdences of ndebtedness
of the purchaser receved durng the frst year do not e ceed 40
per cent of the seng prce (25 per cent under the Revenue ct of
1926), but the entre baance of the purchase prce s to be pad n
a ump sum n a ater year
Ths queston has aready been answered n the affrmatve n I. T.
2G91 (C. . II-1, 52), and the poston there taken s affrmed.
The reguatons of the ureau mpy that the ony test of whether
a sae s on the nstament pan s whether the nta pay-
ments e ceed the percentage of the seng prce specfed n the
statute. ( rtce 44, Reguatons 69 artce 352, Reguatons 74,
77.) Moreover, even f ths mpcaton were not n the reguatons,
there s no e press requrement n secton 212(d) of the Revenue
ct of 1926 or n secton 44 of the Revenue cts of 1928 and 1932
that casua saes of rea property must consttute what are com-
mony known as nstament saes n order to permt the return
of ncome on the nstament bass, the ony requrement n the
statutes beng that the nta payments must not e ceed 40 per
cent of the seng prce (25 per cent under the Revenue ct of 1926).
Therefore, even f a casua sae of rea property contempates but
two payments, one durng the frst year and one n a ater year, the
ncome may be returned on the nstament bass f the payment
receved n the frst year does not e ceed the percentage of the
seng prce specfed n the statute.
(2) May ncome be returned on the nstament bass where the
ony payment receved n cash or property other than evdences of
ndebtedness of the purchaser durng the frst year s a nomna
payment such as 1, the contract provdng for the payment of the
entre baance n a ump sum n a ater year
Ths queston s dentca wth the one answered above e cept that
t s specfed that the nta payment s nomna. In the opnon
of ths offce the answer s the same. The stuaton fas teray
wthn the requrements of the statutes and reguatons, and s as
much wthn ther sprt and purpose as where the nta payment
s substanta.
(3) May ncome be returned on the nstament bass where no
payment n cash or property other than evdences of ndebtedness
of the purchaser s receved durng the frst year, the purchaser
havng promsed to pay the entre purchase prce n a ump sum n a
ater year
In the opnon of ths offce the answer to ths queston must be
n the negatve. The statutes provde that ncome may be returned
on the nstament bass f the nta payments do not
e ceed a certan percentage of the seng prce, and ths use of the
term nta payments fary mpes that there must be more than
one payment n order to satsfy the statute. It s true that there s
no substanta economc dfference between the poston of a seer who
s to receve the entre purchase prce n a ater year and the poston
of one who s to receve 1 n the frst year and the entre baance
n a ump sum n a ater year. ut t s equay true that there s no
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44, rt. 352.
substanta economc dfference between a seer who receves e acty
40 per cent of the seng prce durng the frst year and a seer who
durng the frst year receves 1 over 40 per cent of the seng prce,
yet the Revenue cts of 1928 and 1932 draw the ne at 40 per cent.
In other words, Congress, n enactng the subsectons of the statutes
referrng to casua saes of rea property, dd not state n genera
terms a broad purpose that seers are to be permtted to defer the
payment of ncome ta whenever the payment of the purchase prce
s deferred, but on the contrary framed an e act defnton, n part
usng mathematca terms, permttng the nstament bass of re-
turnng ncome to be used ony n certan cases where payment s
deferred. Ths mathematca e actness of defnton s agan ev-
denced n the same subsecton n referrng to casua saes of persona
property, the ncome from whch may not be returned on the nsta-
ment bass uness the seng prce e ceeds 1,000. In such cases
a sae for 1,000 woud not be wthn the statute, but a sae for 1
over 1,000 woud satsfy the statute.
ccordngy, ths offce s of the opnon that the term nta
payments contempates at east one other payment n addton to
the nta payments and that where the entre purchase prce s to
be pad n a ump sum n a ater year, there beng no payment durng
the frst year, the ncome may not be returned on the nstament
bass. The oard of Ta ppeas has so hed n the case of Thomas
. Prendergast, ., v. Commssoner (22 . T. ., 1259). See aso
Wanut Reaty Trust v. Commssoner (23 . T. ., 850).
(4) May ncome be returned on the nstament bass where no
payment n cash or property other than evdences of ndebtedness of
the purchaser s receved durng the frst year, the purchaser havng
promsed to make two or more payments n ater years
The statute s satsfed f the nta payments do not
e ceed the specfed percentage of the seng prce, but the statute
provdes that the term nta payments means the payments
receved n cash or property other than evdences of ndebtedness of
the purchaser durng the ta abe perod n whch the sae
s made. Itacs supped. Therefore, f and s sod for 20,000
under a contract provdng that the purchaser s to pay nothng
durng the frst year, and 5,000 durng each of the four succeedng
years, t s cear that no nta payments are provded for. The
5,000 whch s to be pad durng the second year s not an nta
payment wthn the meanng of the statute because t w not be
receved durng the ta abe perod n whch the sae s
made.
In the opnon of ths offce the statute fary mpes that there
must be an nta payment n order for ncome to be returned on
the nstament bass, and t foows that where the frst payment s to
be receved durng the second year, the ncome may not be returned
on the nstament bass.
It may be argued that where no payment s receved durng the
frst year the nta payments do not e ceed 40 per centum of the
seng prce, and that the requrements of the statute are teray
satsfed. ut ths s not so. Where no payment s receved durng
the frst year, the stuaton s not correcty and teray e pressed
by sayng that the nta payments do not e ceed 40 per centum
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44. rt. 863.
60
of the seng prce, for ths very statement mpes two thngs, (1)
that there has Tbeen an nta payment, and (2) that t was not n
e cess of 40 per cent of the seng prce, whereas the truth s that no
nta payment has been made.
The ony theory under whch such a statement woud correcty
and teray e press the stuaton woud be to hod that there may
be an nta payment of zero, but ths s tsef a contradcton n
terms, for the term payment mpes that somethng s pad,
and zero s not somethng t s teray nothng.
Moreover, to hod that the provson of the statute that the nta
payments do not e ceed 40 per centum of the seng prce s sats-
fed where no payment s receved durng the frst year, but two or
more payments are receved n ater years, woud ogcay ead to
the concuson that the statute s satsfed where no payment s re-
ceved durng the frst year, the entre purchase prce beng receved
durng a ater year, yet t has aready been stated under queston
(3) that ths does not satsfy the statute, and that the oard has so
hed.
urthermore, so to hod woud aso ogcay ead to the concuson
that the statute s satsfed f no payment s receved durng the frst
year, 50 per cent of the seng prce s receved durng the second
year, and 50 per cent n the thrd year. The payment receved dur-
ng the second year coud not be treated as an nta payment (and so
be hed not to satsfy the statute uness t consttutes 40 per cent or
ess of the seng prce) because the term nta payments s
confned by the statute to payments made durng the frst year.
ccordngy, t s concuded that ncome may not be returned on
the nstament bass where no payment n cash or property other
than evdences of ndebtedness of the purchaser s receved durng
the frst year, the purchaser havng promsed to make two or more
payments n ater years.
. arrett Pretttman,
Genera Counse, ureau of Interna Revenue.
rtce 353: Sae of rea property on nsta- II-35-6373
ment pan. G. C. M. 12012
R NU CT O 1932.
ta payer sod certan rea estate at a oss In 1930 and camed
the oss as a deducton for that year. Tte dd not pass to the
vendee. fter recevng parta payments the vendor repossessed
the property n 1932.
The ta payer shoud report as ncome for the year of reposses-
son the dfference between (1) the entre amount of the pay-
ments actuay receved on the contract and retaned by hm, and
(2) the sum of the profts prevousy returned as ncome (zero)
and an amount representng what woud have been a proper ad-
|ustment for e hauston, wear and tear, etc., of the property dur-
ng the perod t was n the hands of the purchaser had the sae
not been made. The bass of the property becomes ts former
seng prce.
n opnon s requested reatve to the method of reportng ncome
for 1932 where property, whch was sod on the nstament psm, was
repossessed n that year.
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61
44, rt 353.
The ta payer sod certan rea estate (whch cost hm 11,000) for
9,000 n the year 1930. Tte to the property dd not pass to the
vendee. oss of 2,000 was taken n the return of the ta payer for
1930. The down payment pus a parta payments amounted to
4,000. s the vendee faed to pay the baance due of 5,000 the
vendor repossessed the property n 1932.
The Income Ta Unt e presses the vew that the ta payer
(vendor) shoud be requred to report as ta abe ncome for 1932,
the year of repossesson, the dfference between 6,000 (the 4,000
receved as payment on the contract and retaned by the ta payer
pus the 2,000 oss taken as a deducton n 1930), and an amount
representng what woud have been a proper ad|ustment for wear
and tear of the property durng the perod t was n the hands of
the purchaser had the sae not been made. The Income Ta Unt
aso suggests that the bass of the property n the hands of the
ta payer for the purpose of determnng deprecaton and/or gan
or oss on subsequent dsposton s the orgna bass at the tme
of sae, namey, 11,000. The concusons reached heren are not
n accord wth the vews of the Unt.
It s we estabshed that f property s sod at a oss, the amount
of the oss must be taken n ts entrety n the year of sae, not-
wthstandng that the transacton may n every respect quafy as
an nstament sae. (I. T. 2063, C. . 111-2, 108 George P. Sacks
v. Commssoner, 23 . T. ., 307 Darwn D. Martn v. Comms-
soner, 24 . T. ., 528, affrmed C. C. . 2, 61 ed. (2d), 942, and
cases cted.) ssumng that the sae n 1930 was a bona fde trans-
acton, ths offce sees no reason why the oss actuay sustaned
shoud not be aowed as a deducton for that year regardess of
the fact that under the terms of the contract tte to the property
dd not pass to the vendee.
rtce 353 of Reguatons 77, appcabe to the year 1932, reads n
part as foows:
If the vendor has retaned tte to the property and the purchaser defauts
n any of hs payments, .and the vendor repossesses the property by agreement
or process of aw, the dfference between (1) the entre amount of the pay-
ments actuay receved on the contract and retaned by the vendor and (2) the
sum of the profts prevousy returned as Income n connecton therewth and
an amount representng what woud have been a proper ad|ustment for e haus-
ton, wear and tear, obsoescence, amortzaton, and depeton of the property
durng the perod the property was n the hands of the purchaser had the sae
not been made, w consttute gan or oss, as the case may be, to the vendor
for the year In whch the property s repossessed, and the bass of the property
n the hands of the vendor w be the orgna bass at the tme of the
sae.
Under the foregong anguage the ta payer shoud report as n-
come for the year of repossesson the dfference between (1) the
entre amount of the payments actuay receved on the contract and
retaned by hm, . e., 4,000, and (2) the sum of the profts prevousy
returned as ncome (zero) and an amount representng what woud
have been a proper ad|ustment for e hauston, wear and tear, etc., of
the property durng the perod t was n the hands of the purchaser
had the sae not been made. The vendor shoud not, n the opnon
of ths offce, be requred to return as ncome for the year 1932 the
oss taken as a deducton for 1930.
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52, rt. 392.
62
The provson n the foregong artce of Reguatons 77 reatve
to the bass of the property n the hands of the vendor can not be
apped under the crcumstances of ths case. The bass of the prop-
erty to the repossessng vendor shoud not be ncreased by the amount
of the oss prevousy camed. In other words, the bass of the
property to hm becomes ts former seng prce the amount by
whch the oss was f ed.
. arrett Prettyman,
Genera Counse, ureau of Interna/ Revenue.
P RT . R TURNS ND P YM NT O T .
S CTION 51. INDI IDU L R TURNS.
rtce 381: Indvdua returns.
R NU CT O 1932.
Income ta returns for fsca years ended n 1933. (See T. D. 4408,
page 426.)
S CTION 52. CORPOR TION R TURNS.
rtce 391: Corporaton returns.
R NU CT O 1982.
Income ta returns for fsca years ended n 1933. (See T. D. 4408,
page 426.)
rtce 392: Returns by recevers. II-32-6330
G. C. M. 12000
R NU CT O 1932.
Where trustees hande a porton of the assets of a bank for
the purpose of qudatng them, the trust s not a separate ta -
abe entty from the qudatng bank. The ncome of the trust
s the ncome of the qudatng bank and shoud be returned as
such.
In 1932 a trustees agreement was e ecuted by and between C,
actng commssoner of bankng of the State of Wsconsn and statu-
tory recever of the M ank , party of the frst part, and
, duy eected by the drectors of the reorganzed M ank, and ,
duy eected by the credtors of sad bank, partes of the second part.
The agreement states that the M ank, a denquent bankng corpo-
raton, by resouton of ts drectors turned over ts assets on Octo-
ber , 1932, to the commssoner of bankng for qudaton and
reorganzaton that such assets are now n the hands of C that
60 per cent of the abty to depostors has been assumed by the
reorganzed M ank n consderaton of the assgnment to t by C
of certan cass assets of the M ank that the baance of the
assets of sad bank, known as cass assets, have been set asde n
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63
52, rt. 39
a speca trust under the drecton and contro of the partes of
the second part that agreements of unsecured credtors of the bank,
representng more than 90 per cent of the aggregate cams aganst
the bank, have been secured, wheren sad credtors have agreed to
accept payment of the baance of ther cams not taken over by the
reorganzed bank out of the proceeds of the qudaton of the spe-
ca trust that the partes of the second part w ssue partcpatng
trust certfcates to a depostors and unsecured credtors of the bank
for the 40 per cent of ther cams not taken over by the reorganzed
bank that the partes of the second part w qudate the speca
trust, aded by the advce of the credtors commttee of the M ank,
whch consents to ths agreement that the partes of the second part
w act at a tmes under the supervson of C and hs deputy, the
drector of qudaton, and w make monthy report to sad drector
n the manner requred of recevers for denquent State bankng cor-
poratons that the compensaton of the partes of the second part
sha be f ed by the above-mentoned credtors commttee, sub|ect to
the approva of C that whenever a suffcent amount of cash s n the
possesson of the partes of the second part, upon and wth the ap-
prova of the party of the frst part, a qudatng dvdend sha be
pad to a hoders of partcpatng trust certfcates that the cred-
tors agreement s made a part of ths agreement that ths contract
sha be bndng upon a credtors of the bank that the partes of
the second part reease C from any abty arsng by reason of hs
havng been n statutory possesson and contro or the assets of the
M ank.
The credtors agreement provdes that the credtors w accept
repayment of ther cams n the foowng manner: rst, that there
sha be set asde n a speca trust such securtes of the bank
as are of doubtfu vaue or coectbty, together wth a certan
amount of other securtes, a to be seected by the credtors com-
mttee and the reorganzaton commttee, sub|ect to approva of the
State bankng department, from whch trust fund the cams not
assumed by the reorganzed bank sha be pad second, that the
trust sha be admnstered by two trustees, one to be seected by
the credtors commttee and the other by the drectors of the reor-
ganzed bank, both of whom are to act under the drecton and con-
tro of the commssoner of bankng that the compensaton of the
trustees sha be f ed by the credtors commttee, sub|ect to the
approva of the commssoner of bankng that the commttee sha
act n an advsory capacty to the trustees durng the qudaton of
the trust that the reorganzed bank sha have the prvege of
purchasng at any tme at the vaue thereof, any of the assets so
segregated, wth the e cepton of cash, and to substtute therefor any
of the assets whch sha have been taken over by the reorganzed
bank thrd, f and when a cams of credtors of the bank have
been repad n fu, the remander of the assets of the trust sha
revert to, and become the property of the stockhoders of the M
ank, as of the date of suspenson that a assets not so paced n
trust, or used to retre bs payabe and preferred cams, sha be
and reman the property of the bank upon ts agreement to assume
and repay to the credtors ther proporton of the fu vaue thereof
at certan named tmes from the reopenng of the bank, and n
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52, rt. 392.
64
certan proportons and that the agreement of the bank s to be
evdenced by certfcates of depost n the reorganzed bank.
It s stated n the trustees agreement that the M ank s a
denquent bankng corporaton. Secton 220.08 of the Wscon-
sn Statutes, 1929, as amended, provdes n part as foows:
220.08. Denquent banks commssoner may take possesson. (1) Whenever
t sha appear to the commssoner of bankng that any bank or bankng
corporaton to whch ths chapter s appcabe natona banks are e cuded
as voated ts charter or any aw of the State, or s conductng ts busness
n an unsafe manner, or f the capta s mpared,
or f any such bank or bankng corporaton sha suspend payment
or s n an unsound or unsafe condton , the Commssoner may forth-
wth take possesson of the property and busness of such bank and
retan such possesson unt such bank sha resume busness, or ts
affars be fnay qudated as heren provded.

(16) Whenever any hank has been competey qudated, the com-
mssoner sha cance the charter of such bank .

(18) Whenever a pan for the reorganzaton of any bank has been
agreed upon wthn 10 days after the commssoner has been
charge and such pan has been entered nto by the depostors and
unsecured credtors , whch represent not ess than 90 per cent of
the amount of deposts and unsecured cams , the commssoner
may forthwth approve such reorganzaton pan and a
other depostors and unsecured credtors sha be sub|ect to such
agreement .
In Unted States v. Parker (9 ed. (2d), 473), the edera Dstrct
Court for the Western Dstrct of Wsconsn, n rung on the status
of the commssoner of bankng under secton 220.08, supra, of the
Wsconsn statutes, sad that the commssoner hods the property
of the banks as a recever. It w be noted that n the trustees
agreement C, the party of the frst part, s referred to as actng
commssoner of bankng of the State of Wsconsn and statutory re-
cever of the M ank. (Itacs supped.) See aso In re Ctzens
Savngs Trust Co. (171 Ws., 601 177 N. W., 905).
rtce 71 of Reguatons 77 provdes n part as foows:
rt. 71. Gross ncome of corporaton n qudaton. When a corporaton
s dssoved, ts affars are usuay wound up by a recever or trustees n ds-
souton. The corporate e stence s contnued for the purpose of qudatng
the assets and payng the debts, and such recever or trustees stand n the stead
of the corporaton for such purposes. ny saes of property by them
are to be treated as f made by the corporaton for the purpose of ascertanng
the gan or oss.
In Tayor O Gas Co. et a. v. Commssoner (47 ed. (2d),
108, certorar dened, 283 U. S., 862), and n urnet v. Le ngton
Ice Coa Co. (62 ed. (2d), 906 Ct. D. 707, page 234, ths u-
etn ), the courts hed that the provson n pror reguatons, cor-
respondng to the provson |ust quoted, s a reasonabe reguaton
and shoud be gven effect. Therefore, n so far as the actng com-
mssoner of bankng s qudatng the bank s assets n the nstant
case, t seems cear that any ncome reazed from such assets s
ta abe to the bankng corporaton. The commssoner s actng as
a statutory recever of the corporaton, and the statute ceary eon-
tempates that the bankng corporaton sha reman n e stence
unt qudaton s competed. (See paragraph 16, quoted above,
mpyng that the corporate charter s not to be canceed n such a
case unt the bank has been competey qudated. )
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G5
52, rt. 392.
The queston drecty n ssue n the nstant case, however, s
whether the so-caed speca trust s a separate ta abe entty or
smpy a part of the qudatng process of the corporaton. In the
opnon of ths offce the atter aternatve s the proper treatment
of the stuaton. The trustees agreement provdes that the
partes of the second part, who are n mmedate possesson and
management of the assets of the speca trust, w act at a
tmes under the supervson of C and hs deputy, the drector of
qudaton, and w make monthy report to sad drector n the
manner requred of recevers for denquent State bankng cor-
poratons. The agreement further provdes that the amount of
compensaton of the partes of the second part s sub|ect to C s
approva, and that no qudatng dvdends can be pad wthout hs
consent. Irrespectve of the fact, therefore, that the partes of the
second part purport to reease C from a abty arsng from hg
poston as statutory recever, the so-caed speca trust s n
effect smpy an agency of the statutory recever, approved by the
credtors, to hep qudate a porton of the corporaton s assets.
Moreover, the credtors agreement provdes that f and when
a cams of credtors of the bank have been repad n fu, the
remander of the assets of the trust sha revert to, and become
the property of the stockhoders of the M ank, as of the date of
suspenson. Ths provson shows that whe the credtors have
agreed to ook ony to the speca trust for the payment of a cer-
tan proporton of ther cams, the credtors have not purchased the
assets of the speca trust. The trust assets are st the assets
of the qudatng corporaton, sub|ect to the payment of credtors,
and any surpus w go to the corporaton s stockhoders as n the
case of any other assets. ccordngy, the speca trust s not
a separate ta abe entty. Its ncome s the ncome of the qudatng
bank and shoud be returned as such.
It s not cear ether from the statute, or from the agreements,
whether the reorganzed bank s a new and dfferent corporaton
from the orgna bank or s merey a contnuaton thereof. The re-
organzaton of a corporaton may or may not resut n a new
corporaton, dependng on a the surroundng crcumstances (14a
C. ., 1041, 1045). If the reorganzed bank s a new corporaton,
the orgna corporaton s nevertheess st n e stence unt ts
assets have been qudated, and any ncome from the trust assets
s the ncome of the orgna corporaton. If the reorganzed bank
s smpy a contnuaton of the orgna corporaton, then the stua-
ton s that a corporaton has agreed wth ts credtors that a certan
porton of ther cams sha be satsfed ony from certan assets
whch the corporaton sets asde for that purpose (but whch the
credtors have not purchased), the corporaton remanng fuy abe
for the baance of the credtors cams. In such a case the corpora-
ton s a fortor ta abe on any ncome reazed from the assets so
set asde.
The concuson that the speca trust s not a separate ta abe
entty s supported by the authortes. In Tayor O Gas Co. v.
Commssoner, supra, the stockhoders of a corporaton adopted a
resouton that t be dssoved, and authorzed the presdent and
drectors to act as trustees for the credtors and stockhoders.
the necessary documents to accompsh the dssouton accordng to
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52, rt. 392.
66
aw were fed wth the secretary of state. Later the trustees con-
veyed a the property to another corporaton for 150,000 n cash.
The Crcut Court of ppeas, fth Crcut, hed that the proft
was ta abe to the corporaton, quotng wth approva a provson
n artce 547, Reguatons 45 (whch s dentca wth the provson
n artce 71 of Reguatons 77, quoted above), and statng n part:
Ths s a reasonabe reguaton and shoud be gven effect. (Unversa at-
tery Co. v. Unted States, 281 D. S., 580.)

Concedng for the purpose of argument that the ega tte to the
property vested In the trustees by the dssouton, no part of the tte passed
to the stockhoders thereby. The rea owner was st the company unt such
tme as ts affars were qudated, the debts pad, and the resdue dstrbuted
to the stockhoders. The proft on the transacton was earned by the corpora-
ton, and the assessment of the ta es based thereon was vad.
Smar concusons were reached n urnet v. Le ngton Ice
Coa Co., supra uton s ecutors v. Commssoner (47 ed. (2d),
436) red . eebush et a., Trustees, v. Commssoner (24
. T. ., 660) S. . Mac ucen Co. v. Commssoner (26 . T. .,
1337) and Paraf|ne O Co. v. Commssoner (28 . T. ., May 31,
1933).
In the cases |ust cted those responsbe for the creaton of the
trust were the qudatng corporaton and the stockhoders,
whe n the nstant case they were the qudatng corporaton (act-
ng through ts statutory recever, C) and the credtors. ut ths
does not dstngush the cases. Regardess of who s prmary
responsbe for the creaton of the trust, the credtors of the
qudatng corporaton have the frst cam on the assets of the
trust, and the corporaton s entted to the resdue. The fact
that the corporaton permts the resdue to be pad drecty to ts
stockhoders nstead of to the qudatng corporaton, does not, as
the above cases show, reeve the corporaton from ta on any ncome
reazed by the trust. The stuaton s smar n ths respect to
that nvoved where a corporaton eases ts property, and drects
the essee to pay the rent drecty to the stockhoders of the essor.
The rent s ncome to the essor corporaton athough t does not
pass through the hands of the essor. Rensseaer S. R. Co. v.
Irwn, 239 ed., 739, 249 ed., 726, certorar dened, 246 U. S.. 671
West nd St. Ry. Co. v. Macy, 246 ed., 625 Northern R. Co. of
New ersey v. Lowe, 250 ed., 850 mercan Teegraph Cabe
Co. v. The Unted States, 61 Ct. CLs., 326, certorar dened, 271
U. S., 660, T. D. 3799, C. . -. 295 The Western Unon Tee-
graph Co. v. Commssoner, 27 . T. ., 265 Od Coony Trust
Co. v. Commssoner, 279 U. S.. 716, Ct. D. 80, C. . III-2. 222
Unted States v. oston Mane Raroad, 279 U. S., 732, Ct. D. 73,
C. . III-2, 315 Marquette O Dstrbuton Co. v. Commssoner,
27 . T. ., 960, March 20, 1933.)
The case of en v. Commssoner (19 ed. (2d), 716, certorar
dened, 284 U. S., 655, Ct. D. 417, C. . -2, 315) s not contrary
to the concuson reached n the nstant case, for n en v. Conv-
msson-er the queston here n ssue was not presented to the court.
It s we setted that questons whch merey urk n the record,
nether brought to the attenton of the court nor rued upon, are
not to be consdered as havng been so decded as to consttute prece-
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67
103, rt. 62L
dents. (Webster v. a, 266 U. S., 507 Parte akete Cor-
poraton, 279 U. S., 438 Unted States v. Mtche, 271 U. S., 9, T. D.
3865, C. . -, 233.) Moreover, the transacton nvoved n en
v. Commssoner took pace n 1922, 10 years after the orgna cor-
poraton had merged wth another, and the two had become a
thrd. y that tme, the orgna corporaton may have passed com-
petey out of e stence.
In vew of the foregong, t s hed that the trust s not a
separate ta abe entty from the qudatng bank and that the
ncome of the trust s the ncome of the qudatng bank and
shoud be returned as such.
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
S CTION 55. PU LICITY O R TURNS.
rtce 421: Inspecton of returns.
R NU CT O 1932.
Speca Commttee to Investgate oregn and Domestc, Ocean and
r Ma Contracts. (See T. D. 4378, page 219.)
rtce 421: Inspecton of returns.
R NU CT O 1032.
Speca Commttee to Investgate Recevershp and ankruptcy
Proceedngs and ppontment of Recevers and Trustees. (See
T. D. 4397. page 220.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 103. MPTIONS ROM T ON
CORPOR TIONS.
rtce 521: Proof of e empton. II-31-6318
I. T. 2705
R NU CT O 1932.
Durng the year 1932 an empoyees benefcary assocaton receved
contrbutons from members amountng to 37,403.83 doars, or 95.92
per cent of ts net ncome, and nterest (ess ess on nvestments)
amountng to 1,590.83 doars, or 4.08 per cent. Interest actuay
receved was 8,314 36 doars and oss on the sae of bonds was
6,723.53 doars.
ed, that the 85 per cent mtaton of secton 103(16) of the
Revenue ct of 1932 refers to gross ncome and that the nterest
ncome receved may not be reduced by the oss on the sae of bonds
n determnng whether that ncome s n e cess of 15 per cent. s ess
than 85 per cent of ts gross ncome conssted of amounts coected
from members for the soe purpose of payng benefts and meetng
e penses, ths assocaton s not entted to e empton under secton
103(16) of the Revenue ct of 1932.
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(103, rt. 525.
68
Durng the year 1932 an empoyees benefcary assocaton receved
contrbutons from members amountng to 37,403.83a doars, or
95.92 per cent of ts net ncome, and nterest (ess oss on nvest-
ments) amountng to 1,590.83a doars, or 4.08 per cent. The fnan-
ca statement shows that 8,314.36a- doars was receved from nterest
and a oss of 6,723.53a doars was ncurred on the sae of bonds.
It therefore becomes necessary to determne whether the 85 per
cent mtaton of secton 103(16) appes to gross or net ncome.
Secton 103(16) of the Revenue ct of 1932 and the correspondng
provsons of the Revenue ct of 1928 provde e empton for:
ountary empoyees benefcary assocatons provdng for the payment of
fe, sck, accdent, or other benefts to the members of such assocaton or ther
dependents, f ( ) no part of ther net earnngs nures (other than through such
payments) to the beneft of any prvate sharehoder or ndvdua, and ( ) 85
per centum or more of the ncome conssts of amounts coected from members
for the soe purpose of makng such payments and meetng e penses.
y reason of the reference to coectons from members for the
purpose of payng fe, sck, accdent, or other benefts to members
and meetng e penses, t s evdent that the 85 per cent mtaton n
the ct refers to gross ncome. Snce osses ncurred on the sae of
securtes are ordnary deductbe for the purpose of computng net
ncome, and the mtaton n the above-quoted secton refers to gross
ncome, t foows that the nterest ncome receved may not be
reduced by the oss on the sae of bonds n determnng whether
the nterest ncome s n e cess of 15 per cent.
Inasmuch as ess than 85 per cent of the gross ncome of the asso-
caton durng the year 1932 was receved from members, t s not
entted to e empton for that year under the provsons of secton
103(16) of the Revenue ct of 1932. The assocaton s, therefore,
requred to fe a return for the year 1932 and returns for pror years
durng whch ess than 85 per cent of ts gross ncome conssted of
amounts coected from members for the soe purpose of payng
benefts and meetng e penses. Returns w aso be requred for
future years n whch ess than 85 per cent of ts gross ncome s
receved from members.
rtce 525: udng and oan assocatons II-51-6568
and cooperatve banks. G. C. M. 12333
R NU CTS O 1928 ND 1932.
dvances or oans made on nvestment certfcates Issued by the
M udng and Loan ssocaton shoud be dsregarded n de-
termnng the status of such assocaton under ecton 103(4)
of the Revenue cts of 1928 and 1932. Loans made n 1931 to
persons who ater wthn the year subscrbed to stock shoud be
treated as oans to members.
n opnon s requested reatve to the e empton of the M ud-
ng and Loan ssocaton for the years 1931 and 1932 under secton
103(4) of the Revenue cts of 1928 and 1932.
The facts n the case matera to the dscusson of the questons
presented are as foows:
The evdence submtted shows that durng 1931 the assocaton
oaned 400a doars, of whch the sum of 137a doars, or more than
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69
103, rt. 525.
34 per cent, was oaned to persons who were not stockhoders. The
assocaton advses that of the atter amount the sum of 120a doars
represents advances made to hoders of nvestment certfcates. It
s stated that the nterest on these nvestment certfcates s pay-
abe perodcay, quartery, or semannuay that the nvestor
needng funds goes to the assocaton and asks to wthdraw the
amount represented by hs nvestment certfcate that the nvestor
fnds that f he wthdraws the amount needed pror to an nterest
payment date he w sacrfce a certan amount of nterest, the
amount dependng upon the date of wthdrawa and that he s
advsed by the assocaton that f, nstead of wthdrawng, he w
borrow from the assocaton the sum needed, when the nterest pay-
ment date on hs certfcate arrves he then can cash hs nvest-
ment certfcate and cance the promssory note whch he has gven
to the assocaton. Interest s charged by the assocaton on the
romssory note gven by the hoder of the nvestment certfcate,
he assocaton contends that n ths way the nvestor saves n-
terest whch he woud otherwse ose, and that the so-caed oan
s but a return to the nvestor of the amount he had prevousy
oaned to the assocaton. It s stated that after emnatng the
amount of 120a doars, representng advances to the hoders of the
nvestment certfcates, the oans to persons who were not hoders
of stock of the organzaton aggregated but 17a doars.
In connecton wth the oans made durng the year 1931 to hoders
of membershp shares, t s stated, wth respect to oans made after
March 10, 1931, that shares were subscrbed for at the tme the
oans were made that n the case of 16 oans made pror to that
date aggregatng 50a doars, membershp shares were subscrbed for
between March 10, 1931, and pr 13, 1931 and that, wth respect
to 9 oans aggregatng 29a doars, membershp shares were sub-
scrbed for between pr 13, 1931, and October 19, 1931.
It appears that oans made durng the year 1932 amounted to 147a
doars, and that of ths amount the sum of 46a doars represented
amounts advanced to hoders of nvestment certfcates n the same
manner as such advances were made to hoders of these certfcates
durng the year 1931, as e paned above. It s shown that a other
oans made by the assocaton durng 1932 were made to members.
On the foregong facts advce s requested whether the organza-
ton named s entted to e empton and, more partcuary, whether
the so-caed oans made to hoders of nvestment certfcates are
to be emnated n determnng whether substantay a the bus-
ness of the assocaton for the years n queston was confned to
makng oans to members.
In consderaton of the queston of e empton the ureau has
recognzed that the acceptance of deposts s one of the methods used
by budng and oan assocatons n rasng funds. The amounts
so receved are treated as borrowed money. The practce on the part
of budng and oan assocatons of borrowng money tends to ad-
vance the prmary purpose for whch such assocatons are presumed
to operate. ny mtaton on ths method of securng funds woud
necessary restrct the concept of the functons of a budng and
oan assocaton. n ncdent to the acceptance of deposts s the
obgaton to repay a of the deposts upon demand of the depostors.
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103, rt. 527.
70
Ths s equay true wth respect to parta wthdrawas, whether
or not the parta wthdrawas take the form of bona fde oans.
It s the opnon of ths offce that advances or oans made on
nvestment certfcates ssued by the M udng and Loan ssoca-
ton shoud be dsregarded n determnng the status of such assoca-
ton under secton 103(4) of the Revenue cts of 1928 and 1932. It
s further the opnon of ths offce that oans made durng the year
1931 to persons who ater wthn the year subscrbed for stock shoud
be treated as oans to members and that the methods of operaton
of the M udng and Loan ssocaton are such as to entte t to
e empton for the years 1931 and 1932 under secton 103(4) of the
Revenue cts of 1928 and 1932.
. arrett Pretttman,
Genera Counse, ureau of Interna Revenue.
rtce 527: Regous, chartabe, scentfc, II-52-6576
terary, and educatona organzatons and I. T. 2747
communty chests.
( so Secton 23(n), rtce 261.)
R NU CT O 1932 ND PRIOR R NU CTS.
The Savaton rmy s e empt from edera ncome ta under
secton 103(6) of the Revenue ct of 1932 and the correspondng
provsons of pror Revenue cts. Contrbutons made to t by
ndvduas are deductbe by them n computng net ncome, sub|ect
to the mtaton proscrbed by secton 23(n) of the Revenue ct
of 1932 and the correspondng provsons of pror Revenue cts.
Ths rung s appcabe to a branches of the organzaton
whch are component parts of ts natona organzaton and have
smar purposes and actvtes.
dvce s requested whether the Savaton rmy s e empt from
edera ncome ta , and whether contrbutons made to the Savaton
rmy and ts varous branches are aowabe deductons n the
ncome ta returns of ndvdua donors.
The organzaton was ncorporated wthout capta stock n 1899
under an act entted n act to provde for the ncorporaton of
the Savaton rmy. (See ch. 468, Laws of New York State, 1899.)
The certfcate of ncorporaton provdes n part as foows:
fth. Sad The Savaton rmy s desgned to operate as a regous and
chartabe corporaton n a the States and Terrtores of the Unted States.
S th. The genera ob|ects and purposes of the Savaton rmy are as foows:
To have the custody and contro of a the temporates and property, rea
and persona, beongng to the Savaton rmy n the Unted States, and
revenues therefrom, and the admnstraton of the same n accordance wth the
dscpne, rues and usages of the Savaton rmy. To see that the entre
recepts, revenues and emouments derved therefrom and from a the varous
branches of ts work, arc devoted e cusvey to the benevoent, regous and
phanthropc purposes of the Savaton rmy n the Unted States, wth the
e cepton of a moderate and reasonabe compensaton to those conductng and
havng the management of ts ob|ects and purposes.
or the sprtua, mora and physca reformaton of the workng casses for
the recamaton of the vcous, crmna, dssoute and degraded for vstaton
among the poor and owy and the sck for the preachng of the Gospe and
the dssemnaton of Chrstan truth by means of open-ar and Indoor meetngs.
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71
103, rt. 532
The evdence submtted shows that the organzaton has estabshed
throughout varous parts of the Unted States paces for regous
meetngs, odgng sheters for the poor, homes for the rescue of faen
women, hosptas, etc., whch are conducted as a part of ts regous
and chartabe work. It appears that a branches of the organza-
ton are component parts of ts natona organzaton and have
smar purposes and actvtes.
The corporaton s ncome s derved from contrbutons, egaces,
endowments, and from the sae of donated waste matera, books,
perodcas, and other artces. The corporaton receves ad n the
form of cty and State grants toward the cost of operatng women s
and chdren s homes, hosptas, and nurseres. The ncome s used
to pay for the mantenance of men s and women s soca nsttutons,
women s and chdren s homes, hosptas, nurseres, and fresh ar
camps, to carry on famy wefare work and regous actvtes, and
to defray genera admnstratve e penses. No offcer, member, or
empoyee receves any pecunary proft from the corporaton s opera-
tons e cept reasonabe compensaton for servces rendered.
entted to e empton under the provsons of secton 103(6) of the
Revenue ct of 1932 and the correspondng provsons of pror
Revenue cts. The corporaton s not, therefore, requred to fe
returns for 1932 and pror years and future returns w not be
requred so ong as there s no change n the organzaton, ts pur-
poses, or methods of dong busness.
Snce t s hed that the corporaton s entted to e empton under
paragraph (6) of secton 103 of the evenue ct of 1932, and the
correspondng provsons of pror Revenue cts, t foows that
contrbutons made to t by ndvduas are deductbe by them n
computng net ncome, sub|ect to the mtaton prescrbed by secton
23 (n) of the Revenue ct of 1932 and the correspondng provsons
of pror Revenue cts.
Ths rung s appcabe to a branches of the organzaton whch
are component parts of ts natona organzaton and have smar
purposes and actvtes.
btce 532: armers cooperatve marketng II-40-6428
and purchasng assocatons, and corpora- I. T. 2720
tons organzed to fnance crop operatons.
The M Marketng ssocaton was formed wthout capta stock
for the purpose of estabshng and operatng a farmers market
pace for members for whch rent s charged. The assocaton s
organzed and operated on a cooperatve bass. In nstances where
t markets products for producers a commsson s charged. Its
Income s from booth rent, commssons, and fees, and s used to
meet operatng e penses.
ed, the organzaton s entted to e empton under secton
103(12) of the Revenue ct of 1932.
dvce s requested whether the M Marketng ssocaton s en-
tted to e empton under secton 103(12) of the Revenue ct of
ased
Savaton rmy s
R NU CT O 1932.
1932.
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103, rt. 532.
72
The M Marketng ssocaton was formed durng 1932 wthout
capta stock for the purpose of estabshng and operatng a road-
sde, curb, or farmers market. It s organzed and operated on a
cooperatve bass. actes were provded so that ts members
mght assembe, grade, dspay, se, advertse, and market fruts,
vegetabes, and other farm products. n agency was estabshed to
act n ts own name, or as agent for members of the assocaton,
n the handng and marketng of farm products. ny bona fde
producer of agrcutura products may become a member of the
assocaton. The prmary actvtes of the assocaton consst of
rovdng a market pace for members for whch rent s charged,
n nstances where the organzaton markets products turned over to
t by producers, a fat seng commsson of per centum s charged.
Its fnanca statement as of May 1, 1933, dscoses that ts ncome
conssts of booth rent, commssons, and fees, and s used to meet
operatng e penses.
ased on the foregong, t s hed that the organzaton s entted
to e empton under the provsons of secton 103(12) of the Revenue
ct of 1932.
rtce 532: armers cooperatve marketng II-52 6577
and purchasng assocatons, and corpora- I. T. 2748
tons organzed to fnance crop operatons.
R NU CTS O 1921, 1924, 1926, 1928, ND 1932.
The term suppes and equpment as used In secton 103(12)
of the Revenue ct of 1932 and correspondng sectons of pror
Revenue cts, wth the e cepton of the Revenue ct of 1918,
ncudes groceres and a other goods and merchandse used by a
farmer n the operaton and mantenance of a farm or the farmer s
househod. farmer s cooperatve assocaton whch purchases
such suppes or equpment w not by reason of that fact be
dened e empton, provded the vaue of such purchases for non-
members does not e ceed the vaue of such purchases for mem-
bers, and provded the vaue of the purchases made for persons
who are nether members nor producers does not e ceed 15 per cent
of the vaue of a ts purchases.
dvce s requested whether a farmer s cooperatve marketng or
purchasng assocaton whch buys groceres for ts farmer patrons
s entted to e empton from edera ncome ta under the Revenue
ct of 1932 and pror Revenue cts.
It s hed that the term suppes and equpment as used n secton
103(12) of the Revenue ct of 1932 and correspondng provsons of
pror Revenue cts, wth the e cepton of the Revenue ct of 1918,
ncudes groceres and a other goods and merchandse used by a
farmer n the operaton and mantenance of a farm or the farmer s
househod. farmer s cooperatve assocaton whch purchases such
suppes or equpment w not by reason of that fact be dened
e empton, provded the vaue of such purchases for nonmembera
does not e ceed the vaue of such purchases for members, and pro-
vded the vaue of the purchases made for persons who are nether
members of the organzaton nor producers does not e ceed 16 per
cent of the vaue of a ts purchases.
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73 112, rt. 579.
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 111. D T RMIN TION O MOUNT
O G IN OR LOSS.
rtce 561: Determnaton of the amount of gan or oss.
R NU CT O 1932.
Ta sae n New ersey where the property s acqured by a
muncpaty. (See I. T. 2711, page 51.)
S CTION 112. R COGNITION O G IN OR LOSS.
rtce 571: Recognton of gan or oss. II-48-6532
I. T. 2734
R NU CT O 1932.
The e change of ourth Lberty Loan 4 4 per cent caed or
uncaed bonds for new Treasury bonds maturng October 15, 1945,
consttutes a transacton n whch gan or oss w be recognzed for
edera ncome ta purposes. The gan or oss w be the dfference
between the cost or other bass of the od bonds and the far market
vaue of the new bonds on the date of the e change.
rtce 579: Invountary converson of property. II-27-6265
I. T. 2700
R NU CT O 1932.
Where funds are receved by the ta payer as the resut of con-
demnaton proceedngs by the Unted States Government, the app-
caton of the funds to the reducton of mortgage ndebtedness on
another pece of busness property does not consttute an e pend-
ture n the acquston of other property smar or reated n
servce or use wthn the meanng of secton 112(f) of the
Revenue ct of 1032.
dvce s requested reatve to the appcaton of secton 112(f) of
the Revenue ct of 1932 to transacton nvovng the sae of a pece
of property to the Unted States Government under condemnaton
proceedngs.
The ta payer states that she s the owner of a pece of property
ocated n the cty of R, State of Y, consstng of two stores and an
apartment overhead erected on a ot 50 feet by 100 feet that the
property to be acqured by the Government covers appro matey 200
feet by 200 feet and that wthn two bocks of the ocaton of the
property n queston she owns another pece of property whch s
eased at the present tme for stores and whch s encumbered by a
mortgage hed by a bank. The ta payer nqures whether the app-
caton of the funds receved from the Unted States Government to
the reducton of the frst mortgage on the second parce of property
consttutes an e pendture n the acquston of other property
37408 34 e
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113, rt. 594.
74
smar or reated n servce or use wthn the meanng of secton
112(f) of the Revenue ct of 1932.
Secton 112(f) of the Revenue ct of 1932 provdes:
Invountary conversons. If property (as a resut of ts destructon n
whoe or In part, theft or sezure, or an e ercse of the power of requston or
condemnaton, or the threat or mmnence thereof) s compusory or nvo-
untary converted nto property smar or reated n servce or use to the
property so converted, or nto money whch s forthwth n good fath, under
reguatons prescrbed by the Commssoner wth the approva of the Secretary,
e pended n the acquston of other property smar or reated n servce or
use to the property so converted,-or n the acquston of contro of a corporaton
ownng such other property, or n the estabshment of a repacement fund, no
gan or oss sha be recognzed. If any part of the money s not so e pended,
the gan, f any, sha be recognzed, but In an amount not n e cess of the
money whch s not so e pended.
The dscharge of a debt bv a debtor s not the acquston of
property e cept n the sense that t can be sad that by dschargng
the debt the debtor acqures from the credtor the debt and thus
e tngushes t. Lkewse, when a debt s created the debtor does
not dspose of any property e cept n the sense that the creaton of
the debt creates a speces of property n the hands of the credtor.
When the debt s secured by a mortgage the dscharge of the debt by
the debtor resuts n no acquston by the debtor of any property.
Whe t s true that the property whch was mortgaged to secure the
debt s, by the payment of the debt dscharged from the encumbrance,
the property notwthstandng the mortgage has at a tmes beonged
to the debtor or mortgagor benefcay.
It s accordngy hed that where funds are receved by the ta -
payer as the resut of condemnaton proceedngs by the Unted States
Government, the appcaton of the funds n the reducton of mort-
gage ndebtedness on another pece of busness property acqured
by the ta payer pror to the date of the condemnaton of the prop-
erty n queston does not consttute an e pendture n the acqus-
ton of other property smar or reated n servce or use wthn
the meanng of secton 112(f) of the Revenue ct of 1932, and,
therefore, does not meet the requrements of that secton of the aw.
S CTION 113. D UST D SIS OR D T RMINING
G IN OR LOSS.
rtce 594: Property acqured by transfer II-44-6476
n trust after December 31, 1920. G. C. M. 12309
R NU CT O 1932.
Where property was transferred by the grantor to a trust nter
vvos n 1923, and was dstrbuted to the benefcary n 1932, secton
113(a)3 of the Revenue ct of 1932 s appcabe n computng gan
or oss upon dsposton of the property by the benefcary. The
bass n the hands of the benefcary s the same as the bass to the
grantor of the trust.
n opnon s requested wth respect to the bass for computng
gan or oss from the sae or other dsposton of stock devered
to the benefcary upon termnaton of a trust nter vvos.
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75
113, rt. 504
s the benefcary of a trust created by hs father under an
Indenture dated n 1920. The stock n queston was transferred by
the grantor to the trust n December, 1923. Under the trust nstru-
ment the grantor and one of the three trustees retaned the power to
drect the dsposton, nvestment, and renvestment of the trust
property, but retaned no power to termnate the trust. The ncome
of the trust was to be pad to the grantor, at hs dscreton, for the
use of hs son unt the. atter reached the age of 21 years. rom
that date the ncome was to be pad drecty to the son. In the
dscreton of the trustees the prncpa of the trust coud be trans-
ferred to at any tme after he reached hs twenty-ffth brthday.
The grantor ded n 1924. The benefcary reached hs twenty-
ffth brthday n 1932, and the trustees dstrbuted to hm n that
year shares of stock whch had been acqured by them from the
grantor n December, 1923. The specfc queston s, What s the
bass for computng gan or oss from the sae by the benefcary of
stock transferred by the grantor to a trust nter vvos n 1923, and
dstrbuted to the benefcary n 1932
Secton 113(a) (3) and (5) of the evenue ct of 1932 reads as
foows:
(3) Transfer n trust after December 31, 1920. If the property was acqured
after December 31, 1920, by a transfer n trust (other than by a transfer n
trust by a bequest or devse) the bass sha be the same as t woud be n the
hands of the grantor, ncreased n the amount of gan or decreased n the
amount of oss recognzed to the grantor upon such transfer under the aw
appcabe to the year n whch the transfer was made.
(5) Property transmtted at death. If persona property was acqured by
specfc bequest, or f rea property was acqured by genera or specfc devse
or by ntestacy, the bass sha be the far market vaue of the property at the
tme of the death of the decedent. If the property was acqured by the
decedent s estate from the decedent, the bass n the hands of the estate sha
be the far market vaue of the property at the tme of the death of the
decedent. In a other cases f the property was acqured ether by w or by
ntestacy, the bass sha be the far market vaue of the property at the tme
of the dstrbuton to the ta payer. In the case of property transferred n
trust to pay the ncome 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, the bass of such property n the hands of the persons
entted under the terms of the trust nstrument to the property after the
grantor s death sha, after such death, be the same as f the trust nstrument
had been a w e ecuted on the day of the grantor s death.
The Commttee on nance, reportng on the revenue b of 1924,
stated n reaton to secton 204 (a)3 of the Revenue ct of 1924,
whch s substantay the same as secton 113(a)3 of the Revenue
ct of 1932, as foows:
There s no provson n the e stng aw whch corresponds to paragraph
(3) of subdvson (a). ccordng to ths paragraph, the bass for determn-
ng gan or oss from the sae or other dsposton of property acqured after
December 31, 1920, by a vountary transfer n trust, s the same as t woud
be n the hands of the grantor, foowng the prncpe ad down n paragraph
(2) as to gfts.
Secton 113(a) 3 of the Revenue ct of 1932 f es the bass for gan
or oss purposes of property acqured by a transfer n trust after
December 31, 1920 (other than by a transfer n trust by a bequest or
devse), and the bass so f ed appes both to the trustee and to the
benefcary. ccordngy, where property of a trust nter vvos
whch has the same bass n the hands of the trustee as t had n
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113, rt. 605.
76
the hands of the grantor s transferred by the trustee to the bene-
fcary, the bass n the hands of the benefcary s the same as the
bass to the trustee and to the grantor of the trust.
Secton 113 (a) 5 of the Revenue ct of 1932 appes ony to prop-
erty transmtted at death. In Genera Counse s Memorandum 11309
(C. . II-1, 126), n connecton wth whch the present nqury
arose, a testamentary trust was nvoved whch was ceary governed
by that secton of the ct. In the nstant case, the property was
transferred by the grantor to a trust nter vvos after December 31,
1920. In the opnon of ths offce secton 113 (a)3 of the Revenue
ct of 1932 s appcabe. The bass n the hands of the benefcary
s, therefore, the same as the bass to the grantor of the trust.
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
rtce 605: d|usted bass for determnng II-27-6266
gan or oss. I. T. 2701
R NU CT O 1932.
ta payer has an opton for each ta abe year of deductng
or chargng to capta account carryng charges on unmproved and
unproductve rea property, such as ta es and nterest, pad durng
the ta abe year. Ths opton appes ony to rea property whch
s both unmproved and unproductve. No part of the e pendtures
desgnated as cost of mantenance and upkeep may be charged
to capta account.
dvce s requested reatve to the proper treatment for edera
ncome ta purposes of carryng charges on nonproductve rea
property under the provsons of secton 113(b) 1( ) of the Revenue
ct of 1932. Some of the property s unmproved and some s m-
proved. Inqury s aso made as to whether a pro rata porton of
cost of mantenance and upkeep of such property, such as (a)
saares of manager and assstant who have drect supervson of
a propertes, (b) wages of aborers whose work conssts of mowng
weeds and makng mnor repars on budngs whch are not pro-
ducng ncome, (c) rent of offce space necessary to do busness, and
(d) saares of bookkeepers and cerks necessary to mantan a
records pertanng to rea estate hodngs, may be captazed as
carryng charges.
Secton 113(b) 1( ) of the Revenue ct of 1932 provdes:
(b) d|usted ass. The ad|usted bass for determnng the gan or oss
from the sae or other dsposton of property, whenever acqured, sha be the
bass determned under subsecton (a), ad|usted as herenafter provded.
(1) Genera rue. Proper ad|ustment n respect of the property sha n
a cases be made
( ) for e pendtures, recepts, osses, or other tems, propery chargeabe
to capta account, ncudng ta es and other carryng charges on unmproved
and unproductve rea property, but no such ad|ustment sha be made for
ta es or other carryng charges for whch deductons have been taken by the
ta payer n determnng net ncome for the ta abe year or pror ta abe years
The pertnent part of artce 605 of Reguatons 77, promugated
under the Revenue ct of 1932, provdes: In the case of
unmproved and unproductve rea property, carryng charges, such
as ta es and nterest, whch have not been taken as deductons by
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77
113, rt. 605.
the ta payer n determnng net ncome for the ta abe year, or a
pror ta abe year, are propery chargeabe to capta account.
Under the above-quoted provsons of the aw and reguatons a
ta payer has an opton for each ta abe year whether carryng
charges on unmproved and unproductve rea property, such as
ta es and nterest, pad durng the ta abe year sha be charged to
capta account or deducted n determnng the ta payer s net n-
come for such ta abe year. Ths opton appes ony to carryng
charges on rea property whch s both unmproved and unproductve.
The ureau has hed that e pendtures for advertsng wth re-
spect to unproductve property can not be captazed as carryng
charges. (I. T. 2284, C. . -, 10.) It s beeved that ths rue
s appcabe to the e pendtures desgnated n the ta payer s etter as
cost of mantenance and upkeep. It s hed, therefore, that no
part of such e pendtures may be propery charged to capta ac-
count for edera ncome ta purposes regardess of whether such
e pendtures are attrbutabe to mproved unproductve rea prop-
erty or rea property whch s both unmproved and unproductve.
rtce 605: d|usted bass for determnng II-50-6554
gan or oss. I. T. 2742
R NU CTS O 1028 ND 1032.
ass for computng gan or oss upon the sae of communty prop-
erty n New Me co by the survvng spouse where the marta
reatonshp s dssoved by reason of death of one of the spouses.
rung s requested as to the bass for determnng gan or oss,
for edera ncome ta purposes, from the sae of property acqured
by the survvng spouse under the communty property aws of the
State of New Me co.
The New Me co Statutes, nnotated (Compaton of 1929), re-
atng to the nterests of the husband and wfe n separate property
and communty property, provde n part as foows:
68-302. Separate property of the wfe. property of the wfe owned by
her before marrage and that acqured afterwards by gft, bequest, devse or
descent, wth the rents, ssues and profts thereof s her separate property.
The wfe may wthout the consent of her husband convey her separate prop-
erty. L. 07, ch. 37, secton 8 Code 15, secton 2757.
68-303. Separate property of the husband. property owned by the hus-
band before marrage, and that acqured afterwards by gft, bequest, devse or
descent, wth the rents, ssues and profts thereof s hs separate property. L.
07, ch. 37, secton 9 Code 15, secton 2758.

68-401. Communty property Conveyances by marred women Lmtatons.
other property acqured after marrage by ether husband or wfe, or both,
s communty property .
Under secton 68-403 of the New Me co statutes the husband has
the management and contro of the persona property of the com-
munty, and durng coverture the husband has the soe power of
dsposton of the persona property of the communty, other than
testamentary, as he has of hs separate estate: but the husband and
wfe must |on n a deeds and mortgages affectng rea estate.
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113, rt. 605.
78
The aw of descent and dstrbuton contaned n the New Me co
statutes provdes n part as foows:
38-104. Dstrbuton of common property on death of wfe. Upon the death
of the wfe, the entre communty property, wthout admnstraton, beongs to
the survvng husband, e cept such porton thereof as may have been set apart
to her by a |udca decree, for her support and mantenance, whch porton s
sub|ect to her testamentary dsposton, and n the absence of such dsposton,
goes to her descendants, or hers, e cusve of her husband. L. 07, ch. 37,
secton 26 Code 15, secton 1840.
38-105. Dstrbuton of common property on death of husband. Upon the
death of the husband one haf of the communty property goes to the survvng
wfe and the other haf s sub|ect to the testamentary dsposton of the hus-
band, and n the absence of such dsposton goes one-fourth to the survvng
wfe and the remander n equa shares to the chdren of the decedent and
further as provded by aw. In the case of the dssouton of the communty
by the death of the husband the entre communty property s equay sub|ect
to hs debts, the famy aowance and the charge and e penses of admnstra-
ton. L. 07, ch. 37, secton 27 Code 15, secton 1841.
It s the setted aw of New Me co that the wfe has a vested nter-
est n the communty property. ( eas v. res, 25 N. M., 459, 185
Pac, 780 aca v. Tage of een et c ., 30 N. M, 541,240 Pac, 803
ernandez v. ecker, 54 ed. (2d), 542.) On the death of the wfe
the entre communty estate beongs to ter husband. On the other
hand, upon the death of the husband one haf of the communty
estate goes to the wfe and the other haf s sub|ect to the testa-
mentary dsposton of the husband and n the absence of such ds-
poston the communty estate goes one-fourth to the survvng wfe
and the remander n equa shares to the chdren of the decedent,
and further as provded by the statute of descent of New Me co.
urthermore, upon the death of the wfe no property s transferred
to the husband and there s no nhertance whch s sub|ect to ta
under the nhertance ta aw of New Me co. State v. Chavez, 34
N. M., 258, 280 Pac, 241.) Nor s there any estate transferred to
the husband whch s sub|ect to edera estate ta . ernandez v.
ecker, supra.) In the atter court decson t was ponted out that
athough the wfe has a vested nterest n the communty property
her nterest ceases at her death. She does not have a rght of testa-
mentary dsposton of the property, and no part thereof goes to her
descendants f she predeceases her husband. The entre estate sur-
vves to the husband and he retans the management and contro of
the property after the wfe s death the same as before her death.
(Secton 38-104, New Me co Statutes, nnotated, 1929.)
In State v. Chavez, supra, the Supreme Court of New Me co
stated that the concusons reached by t n that case dd not con-
fct wth the prncpes announced n cas v. res, supra, and
aca v. age of een et a., supra, and commented as foows:
In the former case we had before us the queston of dvdng the
communty property between the vng spouses whose communty was de-
stroyed by dvorce. In that case we hed that the wfe s nterest n the com-
munty property was equa to that of the husband, and regardess of the
fact that the statute makes hm manager of the communty, hs rghts were
not superor to hers. There was no queston n that case as to what ther
respectve rghts may have been n case ether had ded durng the e stence
of the communty. We know of no reason why the egsature s not abe to
provde survvorshp n favor of one spouse and deny t to another whe
recognzng that so ong as they ve and reman members of the marta com-
munty the rghts of one are not of an nferor nature to those of the
other.
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79
116, rt. 643.
In yew of the prncpes estabshed by the above decsons, t s
the opnon of ths offce that, for edera ncome ta purposes, (1)
n a case where New Me co communty property s nvoved and the
wfe predeceases her husband, the bass for determnng gan or
oss from the subsequent sae of communty property by the husband
s the cost (ad|usted) of such property to the communty, or f the
property was acqured pror to March 1, 1913. ts cost (ad|usted) to
the communty or ts March 1, 1913, vaue, whchever s greater and
(2) n a case where New Me co communty property s nvoved
and the husband predeceases hs wfe, and the property s a part of
her one-haf nterest vestng durng coverture, the bass for deter-
mnng gan or oss from a subsequent sae by the wfe s the cost
(ad|usted) to the communty, or f the property was acqured pror
to March 1, 1913, ts cost (ad|usted) to the communty or ts March
1, 1913, vaue, whchever s greater and (3) as to any porton of
the other one-haf of the communty property acqured by the wfe
from her husband upon hs death, the bass for determnng the gan
or oss s governed by secton 113(a)5 of the Revenue cts of 1928
and 1932, or, f the sae was made pror to the enactment of such
cts, the basc vaue s that obtanng at the date of the husband s
death.
S CTION 116. CLUSIONS ROM GROSS
INCOM .
rtce 643: Compensaton of State offcers II-34-6353
and empoyees. I. T. 2710
R NU CT O 1032.
The compensaton of a bona fde offcers and empoyees of the
State bankng department of Iowa engaged n the qudaton
of State banks s e empt from edera ncome ta . n attorney
(other than an assstant attorney genera) apponted by the eonrt
under secton 9240 of the Code of Iowa, 15)31, s nether an offcer
nor an empoyee of the State and hs compensaton s .sub|ect to
edera ncome ta .
rung s requested n regard to the ta abe status of the com-
pensaton receved by ndvduas from the bankng department of
the State of Iowa n connecton wth the qudaton of cosed banks
under the supervson of the State bankng department.
Secton 9131 of the Code of Iowa, 1931 edton, provdes for the
appontment by the governor and confrmaton by the senate of a
superntendent of bankng, whose term of offce s four years. That
offcer s gven genera contro and supervson of a State banks
and trust companes. y secton 913G of the code he s authorzed
to appont bank e amners, who are requred by secton 9138 to gve
corporate surety bonds for the fathfu dscharge of ther dutes.
Sectons 9238 to 9243, ncusve, of the code read:
92. 8. Lqudaton ght of evy suspended. If any such bank sha fa
or refuse to compy wth the demands made by the sad superntendent, or f
the sad superntendent sha become satsfed that any such bank s n an
nsovent or unsafe condton, or that the nterests of credtors requre the
cosng of any such bank, he may appont an addtona bank e amner to
assst hm n the duty of qudaton and dstrbuton, whereupon the rght
of evy, or e ecuton, or attachment aganst sad bank or ts assets sha be
suspended.
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116, rt. 643.
80
9239. Recevershp dstrbuton. The superntendent of bankng may appy
to the dstrct court for that dstrct n whch sad bunk s ocated, or a |udge
thereof, for the appontment of sad superntendent as recever for such bank,
and ts affars sha thereafter be under the drecton of the court, and the
assets thereof after the payment of the e penses of qudaton and dstrbu-
ton sha be rataby dstrbuted among the credtors thereof, gvng preference
n payment to depostors.
9240. ttorney for recever. The attorney genera of the State, or such
assstants as may be apponted by the court, sha represent the superntendent
of banks n a proceedngs provded for hereunder.
9241. Genera assgnments. No genera assgnment for the beneft of credtors
sha be of any vadty.
9242. Superntendent as recever. The superntendent of bankng henceforth
sha be the soe and ony recever or qudatng offcer for State Incorporated
banks and trust companes and he sha serve wthout compensaton other
than hs stated compensaton as superntendent of bankng, but he sha be
aowed cerca and other e penses necessary n the conduct of the recevershp.
9243. pense of qudaton. e penses of supervson and qudaton
sha be f ed by the superntendent, sub|ect to approva by the court or a
|udge thereof, and sha upon hs certfcate be pad out of the funds of such
bank n hs hands.
The supervson of State banks and the admnstraton of the
State aws appcabe thereto are essentay governmenta func-
tons. (I. T. 1316, C. . 1-1, 105 I. T. 2214, C. . I -2, 46.)
The addtona bank e amner apponted by the superntendent
of bankng under secton 9238 s to assst hm n the duty of quda-
ton and dstrbuton, the superntendent beng the soe and ony
recever or qudatng offcer (secton 9242) of nsovent State
banks and trust companes. The superntendent may appy to the
court havng |ursdcton for the appontment of sad superntend-
ent as recever for such bank, and ts affars sha thereafter be
under the drecton of the court (secton 9239). The superntend-
ent when apponted s the recever and the addtona bank
e amner s hs assstant and under hs contro. Such an e amner
s not charged wth any statutory duty e cept to the e tent he rep-
resents hs prncpa. s compensaton s not f ed by aw but by
the superntendent, sub|ect to the approva of the court. e hods
for no specfed tenure. e s empoyed by the State n the e ercse
of a governmenta functon and pursuant to statute. Such an e -
amner s, therefore, an empoyee of the State and hs compensaton as
such s e empt from edera ncome ta .
The cerca hep n such recevershps s aso empoyed by the
superntendent pursuant to statutory authorty (secton 9242), and
n connecton wth the e ercse of a governmenta functon. Such
persons are therefore empoyees of the State of Iowa and ther
compensaton as such s e empt from edera ncome ta . (I. T.
1316, supra.)
The fact that the compensaton of the addtona bank e amner
and of the cerca assstants s pad out of the funds of the nsovent
bank s mmatera. ettm-an v. Warwck, 108 ed., 46 Davd .
Cochrane v. Commssoner, 26 . T. ., 1167.)
The ony ega representatve of the superntendent of bankng
under secton 9240 of the code s the attorney genera of the State,
or such assstants as may be apponted by the court. Secton 151
of the code provdes as foows:
ssstant attorneys genera. The attorney genera may appont a frst assst-
ant attorney genera and suc other assstant attorneys genera as may be
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81
116, rt. 643
authorzed by aw, who sha devote ther entre tme to the dutes of ther
postons. The assstant attorneys genera sha, sub|ect to the drecton of tha
attorney genera, have the same power and authorty as the attorney genera.
n assstant attorney genera apponted under the above secton
s a State offcer, snce he nods a statutory offce for a specfed term
and possesses the same power and authorty as the attorney genera.
If the court apponts one of such assstant attorneys genera to rep-
resent the superntendent, hs compensaton as such s e empt from
edera ncome ta .
nother queston arses where the court apponts an attorney,
other than an assstant attorney genera, to represent the supern-
tendent. Such an attorney s not apponted by the attorney gen-
era. e possesses none or the power or authorty of the attorney
genera, e cept the rght to represent the superntendent, a rght
any attorney empoyed or apponted coud possess n the absence
of statutory restrcton. e occupes the same status and has the
same authorty as that possessed by any attorney apponted for
a recever by a court n the e ercse of ts genera equty |ursdc-
ton. s dutes and tenure of offce are not prescrbed by statute,
and hs emouments are f ed by the superntendent, sub|ect to the
approva of the court. Such an attorney, therefore, acks the essen-
tas necessary to consttute hm a pubc offcer. (Metcaf ddy v.
MtcheU, 269 U. S., 514, T. D. 3824, C. . -, 218 emng v.
owers, 11 ed. (2d), 789, T. D. 3833. C. . -. 201.) Such an
attorney apponted by the court s aso not an empoyee of the State,
snce the performance of hs dutes nvoves the use of |udgment
and dscreton on hs part, he s requred to use hs best profes-
sona sk, and he s sub|ect to no contro e cept that of the court.
(Metcaf ddy v. Mtche, supra S. M. 5694, C. . -2, 159.)
s compensaton s not, therefore, e empt from edera ncome ta .
In vew of the foregong, t s concuded that the compensaton
of a bona fde offcers and empoyees of the State bankng depart-
ment of Iowa engaged n the qudaton of State banks s e empt
from edera ncome ta . n attorney (other than an assstant
attorney genera) apponted by the court under secton 9240 of
the Code of Iowa, 1931, s nether an offcer nor an empoyee of the
State and hs compensaton s sub|ect to edera ncome ta .
rtce 643: Compensaton of State offcers II-40-6429
and empoyees. G. C. M. 12137
R NU CT O 1932 ND rROR R NI CTS.
The compensaton of the vocatona teachers tranng staff of the
M Unversty, whch Is pad n part out of funds contrbuted by the
edera Government under the Smth- ughes ct of ebruary 23,
1917 (30 Stat., 929), s sub|ect to edera ncome ta . The
teachers are not State empoyees but are empoyees of a prvate
corporaton.
n opnon has been requested as to the ta abe status for edera
ncome ta purposes of compensaton receved by members of the vo-
catona teachers tranng staff of the M Unversty whch s pad
n part out of funds contrbuted by the edera Government under
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116, rt. 643.
82
an ct approved ebruary 23, 1917 (39 Stat., 929), known as the
Smth- ughes ct.
The ct n queston provdes for annua appropratons to the re-
spectve States for the purpose of payng saares of teachers engaged
n vocatona educaton. Secton 5 of the ct provdes that any
State desrng to secure the benefts of the appropratons sha,
through egsatve authorty, accept the provsons of the ct and
desgnate or create a State board to consst of not ess than three mem-
bers for the purpose of cooperatng wth the edera oard of oca-
tona ducaton. In pursuance of that secton of the ct the State
of R through ts egsature accepted the provsons of the Smth-
ughes ct. The department of pubc nstructon of the State of
R desgnated the M Unversty as one of ts agences to carry out
the vocatona tranng.
The M Unversty was founded as the n , by
charter from the State of R, to provde hgher educaton n that
State. In a second charter was granted under the name of the
, whch ater was changed to M Unversty. Throughout ts
hstory the unversty has been party supported by the State of R
n connecton wth pubc sprted ctzens. It s not a part of the
schoo system of that State.
The specfc queston s whether the compensaton of the teachers
who consttute the staff of the M Unversty engaged n vocatona
tranng, and who are pad out of funds to whch contrbutons are
made by the edera Government and the State of R, s e empt from
edera ncome ta .
rtce 643 of Reguatons 77 provdes that compensaton receved
for servces rendered to a State or potca subdvson thereof s
ncuded n gross ncome uness (a) the person receves such com-
pensaton as an offcer or empoyee of a State or potca subdvson,
and (b) the servces are rendered n connecton wth the e ercse
of an essenta governmenta functon. In the nstant case the ta -
payers are empoyed by the M Unversty, athough seecton of
such empoyees s approved by the department of pubc nstructon
of the State of R. Such approva s apparenty requred for the
reason that the State desres to e ercse to some e tent supervson
wth respect to the empoyment of persons engaged n vocatona
nstructon. out of State trave by the teachers of the voca-
tona tranng staff must be approved by the governor. Ths s
evdenty done n the nterest of economy and for the further rea-
son that the State s charged wth the admnstraton of the edera
funds n connecton wth the funds whch t contrbutes. The stua-
ton s one n whch the State of R has smpy desgnated the M
Unversty as a medum through whch to carry out the vocatona
tranng provsons of the Smth- ughes ct, and uses the teachers
empoyed by the unversty for that purpose. ut the desgnaton
of a prvate educatona nsttuton as an agency of the State to
conduct vocatona tranng s not suffcent to warrant the cassfca-
ton of ts teachers as empoyees of the State.
In genera, where a person s a bona fde State empoyee, engaged
n the e ercse of an essenta governmenta functon, the mere fact
that the empoyee receves hs compensaton out of funds contrbuted
n part by the edera Government does not take from hm hs
rght of e empton from edera ta aton. or e ampe, t was
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83
141, rt. 711.
hed n I. T. 2677 (C. . II-1, 141) that the compensaton of an
agrcutura teacher n the pubc schoo system of rgna was
e empt from edera ncome ta even though e was pad n part
out of funds contrbuted by the edera Government under the ct
of ebruary 23, 1917 (39 Stat., 929), whch s the Smth- ughes
ct.
It was hed, however, n I. T. 2698 (C. . II-1, 70) that where
an ndvdua was an empoyee of the pubc heath department of
a State and was aso apponted by the Secretary of the Treasury
as a fed agent of the Unted States Pubc eath Servce, hs
compensaton from the State was e empt from edera ncome ta ,
but the compensaton pad to hm drecty by the edera Govern-
ment was ta abe. The empoyee n the atter case hed two postons,
one as a State empoyee and the other as a edera empoyee.
Concedng, on the bass of urnet v. Coronado O Gas Co. (285
U. S., 393, Ct. D. 485, C. . I-1, 265), that educaton, whether voca-
tona or otherwse, s an essenta governmenta functon, the fact
remans n the nstant case that teachers empoyed by the M Un-
versty are not State empoyees but are empoyees of a prvate
corporaton. Snce the ta payers n the nstant case are not State
empoyees t must be hed that ther compensaton as teachers n the
M Unversty s sub|ect to edera ncome ta , even though ther
servces are rendered n connecton wth the e ercse of an essenta
governmenta functon.
. arrett Pretttman,
Genera Counse, ureau of Interna Revenue.
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 141. CONSOLID T D R TURNS O
CORPOR TIONS.
rtce 711: Consodated returns of affated II-41-6442
corporatons for 1932 and subsequent ta abe G. C. M. 12207
years.
R NU CT O 1932.
Where a group of corporatons s affated wthn the meanng
of secton 141(d) of the Revenue ct of 1932 and the common
parent company s n the hands of a trustee n bankruptcy, who s
operatng the property or busness of the company and s, there-
fore, requred to make returns for the corporaton under secton
52(a) of that ct, a consodated return may be made by such
trustee on behaf of the parent company and ts subsdares, pro-
vded the requrements of Reguatons 78 governng the makng of
consodated returns are met.
The opnon of ths offce s requested whether, n the case of a
group of corporatons affated wthn the meanng of secton 141(d)
of the Revenue ct of 1932, where the common parent corporaton
s n the hands of a trustee n bankruptcy, a consodated return may
be made by such trustee on behaf of the parent corporaton and ts
subsdares, provded the requrements of Reguatons 78 governng
the makng of consodated returns are comped wth.
The prvege of fng a consodated return s condtoned upon
whether the corporatons to be |oned n such a return are affated
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5141, rt. 711.
84
wthn the meanng of the term affated group, defned n secton
141(d) of the Revenue ct of 1932, whch reads n part as foows:
s used n ths secton an affated group means one or more
chans of corporatons connected through stock ownershp wth a common
parent corporaton f
(1) t east 95 per centum of the stock of each of the corporatons (e cept
the common parent corporaton) s owned drecty by one or more of the other
corporatons and
(2) The common parent corporaton owns drecty at east 95 per centum
of the stock of at east one of the other corporatons.
Under secton 70a of the ankruptcy ct, the trustee n bank-
rupt, upon hs appontment and quafcaton, s vested wth the
tte to a of the property of the bankrupt at the date of the ad|ud-
caton, e cept as to property whch s e empt (Unted States Code
nnotated, tte 11, secton 110). e s entted to have certfcates
of corporate stock transferred to hs name n the pace of the certf-
cates standng n the name of the bankrupt. (Wson v. The tantc
oS St. Lawrence Raroad Co., 2 ed., 459.) e has the rght under
the authorty and contro of the court to admnster the same (Rob-
ertson v. oward, 229 U. S., 254), and to vote the stock at stock-
hoders meetngs, athough f he aows the bankrupt to do ths, the
other stockhoders have no rght to ob|ect. (State v. errs (1875),
42 Conn., 5G0.) The trustee of a bankrupt corporaton takes not
ony the rghts and tte of the bankrupt, but aso such rghts and
tte as e ecuton credtors may have. (In re ood ay Packng
Co., 280 ed., 866.) In the enforcement of the rghts of credtors
and stockhoders, he can do by aw substantay a that they them-
seves coud have done before bankruptcy. (Throckmorton v. ck-
man et a., 279 ed., 196, 202.) Thus, he has two rghts as to prop-
erty n hs custody, . e., that of the bankrupt and that of a credtor
hodng a en by ega or equtabe proceedngs thereon. (In re
Seward Dredgng Co., 242 ed., 225.)
n e amnaton of the decsons appcabe to the earer ta ng
statutes dscoses that the courts hed that a ta mposed on corpora-
tons aone docs not e tend to a trustee n bankruptcy. (Unted
States v. Wht-rdge et a., 231 U. S., 144 Scott v. Western Pac. R.
Co. et a., 246 ed., 545.) s under the ankruptcy ct the entre
roperty of the bankrupt vested n the trustee, the ncome n queston
ncome receved by the trustee arsng from the bankrupt s property
n hs hands was not the ncome of the bankrupt corporaton, but
of the trustee and was sub|ect to ncome and e cess-profts ta onv
f the statutes authorzed the assessment of the ta aganst hm.
(Renecke v. Gardner, 277 U. S., 239, 241.) Congress, therefore, pro-
vded for the fng of returns by trustees n bankruptcy of corpora-
tons and made sub|ect to ta the ncome thus dscosed. (Secton
13(c) of the Revenue ct of 1916 and correspondng provsons of
ater cts.) Secton 52(a) of the Revenue ct of 1932 provdes n
part as foows:
In cases where trustees n bankruptcy, are
operatng the property or busness of corporatons, such , trustees,
sha make returns for such corporatons n the same manner and
form as corporatons are requred to make returns. ny ta due on the bass
of such returns made by , trustees, sha be coected n the
same manner as f coected from the corporatons of whose busness or property
they have custody and contro.
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85
141, rt. 711.
rtce 392 of Reguatons 77 construes ths anguage of the statute
to mean that Notwthstandng that the powers and functons of a
corporaton are suspended and that the property and busness are
for the tme beng n the custody of the , trustee, ,
sub|ect to the order of the court, such , trustee, ,
stands n the pace of the corporate offcers and s requred to perform
a the dutes and assume a the abtes whch woud devove upon
the offcers of the corporaton were they n contro.
rom the foregong, t s pan that the effect of both the statute
and the reguatons s to treat the trustee n bankruptcy as standng
n the shoes of the corporaton and ts offcers and drectors where
trustees n bankruptcy, are operatng the prop-
erty or busness. Ths s n accordance wth approved ega prn-
cpes. Throckmorton v. ckman, supra Remngton on ank-
ruptcy, oume II, secton 1143, page 959.) It s we estabshed
that the trustee may contnue the busness (In re Demonco s, 256
ed., 414 In re Isaacson, 174 ed., 406 In re Mchgan Motor Spe-
cates Co., 288 ed., 377), as tne courts are vested wth ampe
authorty to keep the busness ave. (Secton 2(5), ankruptcy
ct, Unted States Code nnotated, tte 11, secton 11.)
No provson s made n the ta ng statute for treatment of the
bankrupt for ncome ta purposes as though a break occurs n the
contnuty of the corporaton by reason of the ad|udcaton n bank-
ruptcy. The contnuty of the accountng perod for whch the
return s requred must be mantaned by the trustee n bankruptcy,
as no provson s made for separate returns wth respect to the same
year coverng the perod before bankruptcy and the perod subse-
quent thereto, or for aocatng the ncome or the ta between such
perods. though the trustee takes ega tte to the bankrupt s
property and may operate the busness, Congress apparenty ntended
to avod the ega mpcaton that a new entty s thereby created for
ncome ta purposes. Under the Revenue ct the same entty s
regarded as contnung, athough n custoda egs wth the same
rghts and prveges and the same ta abe status whch t had before
bankruptcy. (Secton 52(a) of the Revenue ct of 1932.)
Techncay, of course, the corporaton no onger drecty owns
95 per centum of the stock of ts subsdary, as absoute tte s vested
n the trustee but snce the statute regards the corporate entty as
contnung durng the perod of operaton of the busness by the
trustee n bankruptcy and requres t to be treated for ncome ta
purposes n the same manner as before bankruptcy, wth the trustee
paced n the shoes of the corporate offcers and drectors (sectons
52(a) and 274 of the Revenue ct of 1932), t s the opnon of ths
offce that the mere change of ega ownershp, whch takes pace
by operaton of the bankruptcy aw, does not consttute such a
break n the drect ownershp of the stock of the subsdary as to de-
prve the trustee of the rght to make a consodated return for the
bankrupt corporaton.
In ppeas and Revew Recommendaton 818 (C. . 1-1, 296), t
was hed, under the Revenue cts of 1918 and 1921, that consodated
returns must be accepted durng the perod companes were n the
hands of recevers. ccordngy, t has snce been the practce of the
ureau to accept consodated returns from recevers of corporatons
and aso from trustees n bankruptcy, such acton apparenty beng
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141, rt. 711.
86
based upon the fact that both recevers and trustees are deat wth
smary, no dstncton beng made n the sectons of the statutes
referrng to them, and that genera recevers and trustees n bank-
ruptcy are often smary stuated wth respect to the tte whch
they hod to property. (16 etcher Cyc. Corp., pages 304-305.)
s an ndcaton of the atttude of the courts wth reference to the
queston of the effect of the vestng of tte n the trustee n bank-
ruptcy, the court n the case of Lavenste m Corporaton v. Comms-
soner (25 ed. (2d), 375), hed that corporatons were affated
wthn the meanng of the Revenue ct of 1918, athough the stock
of one was transferred to a credtors1 commttee. In reversng the
decson of the oard of Ta ppeas n Lavensten Corporaton v.
Commssoner (6 . T. ., 1134), whch dened affaton because
the aeged actua owners had no record tte to the
stock and coud acqure such tte ony by payng the debts n
fu, the court sad:
True, the stock stood In ther names the credtors commttee
on the books of the corporaton, but they hed t merey for the purpose of
controng the corporaton, .

We see no mert n the argument that affaton shoud be dened where the
stock of one corporaton has been pedged as securty for the debts of ts owners
on the theory that they have thereby parted wt contro over the
corporaton.
Whe ths offce does not regard that court decson as controng
n the nstant case, t s beeved the reasonng of the court s app-
cabe (as affectng the statutory requrement of drect ownershp
where ega tte s vested by operaton of aw n the trustee who
represents the credtors under the ankruptcy ct) wth greater
force than where tte s vested n a credtors commttee by vrtue
of a vountary agreement between the partes. though the an-
guage of the statute under whch the Lavensten case arose s broader
than the anguage of the e stng statute, there appears to be no
matera dfferences n the nstant case whch |ustfy a dfferent
concuson.
In Genera Counse s Memorandum 7331 (C. . III-2, 135) t
was hed that where a parent corporaton, for a ega ntra vres
purpose, has paced the record ownershp of a share of stock of a
subsdary n a nomnee, such nomnee beng at a tmes egay
obgated to hod and dea wth such share accordng to such orders
and drecton as the parent corporaton may, from tme to tme,
gve hm, the ownershp of the parent corporaton s drect wthn
the meanng of secton 141(d) of the Revenue ct of 1928. Lke-
wse, ths offce s of the opnon, as heretofore ndcated, that where
the tte or record ownershp of stock of a subsdary s vested by
operaton of aw n a trustee n bankruptcy, such trustee beng at a
tmes egay obgated to hod and dea wth the stock accordng to
such orders and drecton as the court, n whose custody the bank-
rupt parent corporaton s paced, may gve hm, the ownershp of
the parent corporaton s drect wthn the meanng of secton
141(d) of the Revenue ct of 1932, for the purpose of enabng the
trustee to make a consodated return for the corporaton n compy-
ng wth secton 52(a), whch requres hm to make returns n the
same manner and form as corporatons are requred to make re-
turns.
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87
147, rt. 811.
ccordngy, t s the opnon of ths offce that where a group
of corporatons s affated wthn the meanng of secton 141(d) of
the Revenue ct of 1932 and the common parent company s n the
hands of a trustee n bankruptcy who s operatng the property or
busness of the company and s, therefore, requred to make returns
for the corporaton under secton 52(a) of the Revenue ct of 1932,
a consodated return may be made by such trustee on behaf of the
Sarent company and ts subsdares, provded the requrements of
guatons 78 governng the makng of consodated returns are
met.
Ths concuson s not nconsstent wth secton 70a (3) of the
ankruptcy ct, whch specfcay provdes that the trustee sha be
vested by operaton of aw wth the tte of the bankrupt to powers
whch he mght have e ercsed for hs own beneft, but not those
whch he mght have e ercsed for some other person. The prv-
ege of makng a consodated return nstead of a snge corporate
return, f the bankrupt corporaton may be benefted thereby, woud
seem to be n the nature or a power granted by statute to whch
the trustee n bankruptcy succeeds snce, under the ta ng statute
and artce 392 of Reguatons 77, he stands n the pace of the
corporate offcers and s requred to perform a the dutes and
assume a the abtes whch woud devove upon the offcers of
the corporaton were they n contro.
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
rtce 711: Consodated returns of affated II-45-6492
corporatons for 1932 and subsequent ta abe G. C. M. 12208
years.
R NU CT OP 1932.
Where a group of corporatons s affated wthn the meanng of
secton 141(d) of the Revenue ct of 1932, and a subsdary com-
pany s n the hands of a trustee n bankruptcy or a recever, who s
operatng the property or busness of the company and s, therefore,
requred to make returns for the corporaton under secton 52(a) of
that ct, the ncome of such a subsdary company may be ncuded
n a consodated return for the affated group, provded the trustee
n bankruptcy or the recever, as the case may be, e ecutes orm 1122
and consents to the provsons of Reguatons 78 governng the
makng of consodated returns. (See G. C. M. 12207, page 83, ths
uetn.)
. arrett Prettyman,
Genera Counse, weau of Interna Revenue.
S CTION 147. IN ORM TION T SOURC .
rtce 811: Return of nformaton as to payments
of 1,000.
R NU CT O 10. 2.
Interest payments of 1,000 or more durng the ta abe year by
e empt budng and oan assocaton. (See I. T. 2727, page 55.)
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147, rt. 811.
88
rtce 811: Return of nformaton as to pay- II-49-6544
ments of 1,000. Mm. 4107
Returns of nformaton requred to be fed by nsurance
companes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, November 22,1933.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Insurance Companes, and Others Concerned:
Secton 147(a) of the Revenue ct of 1932 provdes:
Payments of 1,000 or more. persons, n whatever capacty actng, n-
cudng essees or mortgagors of rea or persona property, fducares, and em-
poyers, makng payment to another person, of nterest, rent, saares, wages,
premums, annutes, compensatons, remuneratons, emouments, or other f ed
or determnabe gans, profts, and ncome (other than payments descrbed n
secton 148(a) or 149), of 1,000 or more n any ta abe year, or, n the case of
such payments made by the Unted States, the offcers or empoyees of the
Unted States havng Informaton as to such payments and requred to make
returns In regard thereto by the reguatons herenafter provded for, sha
render a true and accurate return to the Commssoner, under such reguatons
nnd n such form and manner and to such e tent as may be prescrbed by hm
wth the approva of the Secretary, settng forth the amount of such gans,
profts, and ncome, and the name and address of the recpent of such payment.
rtce 813 of Reguatons 77 provdes n part:
Cases where no return of nformaton requred. Payments of the foowng
character, athough over 1,000, need not be reported n returns of Informaton
on orm 1099:

(I) Tayments of saares, rents, royates, nterest (e cept bond nterest re-
qured to be reported on ownershp certfcates), and other f ed or determna-
be ncome aggregatng ess than 2,500 made to a marred Indvdua.
If the marta status of the payee s unknown to the payor, or f the marta
status of the payee changed durng the ta abe year (see artce 295), the
payee w be consdered a snge person for the purpose of fng a return of
Informaton on orm 1099.
Secton 22(b) of the Revenue ct of 1932 reads n part:
cusons from gross ncome. The foowng Items sha not be ncuded
In gross ncome nnd sha be e empt from ta aton under ths tte:
(1) Lfe nsurance. mounts receved under a fe nsurance contract pad
by reason of the death of the nsured, whether n a snge sum or n nsta-
ments (but f such amounts are hed by the Insurer under an agreement to pay
Interest thereon, the Interest payments sha be ncuded n gross ncome)
(2) nnutes, etc. mounts receved (other than amounts pad by reason
of the death of the nsured and nterest payments on such amounts) under
a fe nsurance, endowment, or annuty contract, but f such amounts (when
added to amounts receved before the ta abe year under such contract) e ceed
the aggregate premums or consderaton pad (whether or not pad durng
the ta abe year) then the e cess sha be ncuded n gross ncome. In the
case of a transfer for a vauabe consderaton, by assgnment or otherwse, of
a fe nsurance, endowment, or annuty contract, or any Interest theren, ony
the actua vaue of such consderaton and the amount of the premums and
other sums subsequenty pad by the transferee sha be e empt from ta aton
under paragraph (1) or ths paragraph .
The e cess of the amounts receved over the aggregate premums
or consderaton pad as provded n secton 22(b) 2 comes wthn
the meanng of the term f ed or determnabe ncome whch s
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89
5147, rt. 813.
requred to be reported n returns of nformaton uuder secton
147 (a). very fe nsurance company s requred to fe an nforma-
ton return on orm 1099 n each case where such e cess amount
pad durng the caendar year was 1,000 or more to a snge person,
a partnershp, or a fducary, or 2,500 or more to a marred person.
Payments n respect of poces surrendered before maturty and
apsed poces need not be reported n returns of nformaton on
orm 1099.
Where for 1933 or a pror caendar year a showng s made that
due to ack of detaed accountng records t s mpractcabe to
determne what porton, f any, of the amounts descrbed n secton
22(b) 2 and pad by the nsurance company s n e cess of the aggre-
gate premums or consderaton pad to the company, the reportng
of the gross amount pad durng the year by the company under
the contract w be consdered a suffcent compance wth the pro-
vsons of ths mmeograph. The nformaton returns shoud be so
prepared as to ndcate ceary that the report s of the gross amount
pad. In such cases, where t appears that the e cess amount woud
not equa or e ceed 1,000 n the case of a payment to a snge
person, a partnershp, or a fducary, or 2,500 or more to a marred
person, a report of the gross amount need not be made. or 1934
and subsequent caendar years, the nformaton returns sha show
the e cess of the amounts descrbed n secton 22(b)2 and pad
by the nsurance company over the aggregate premums or con-
sderaton pad to the company, as provded by the precedng para-
graph of ths mmeograph.
Correspondence and nqures regardng ths mmeograph shoud
refer to the number and the symbos IT: : CTR.
Gu T. everno,
Commssoner.
rtce 813: Cases where no return of II-29-6300
nformaton requred. T. D. 4370
INCOM T .
rtce 813, Reguatons 77, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
rtce 813 of Reguatons 77 s hereby amended by nsertng after
paragraph () a new paragraph readng as foows:
( ) Payments of commssons made by fre nsurance companes, or other
companes nsurng property, to genera agents, e cept when specfcay
drected by the Commssoner to be fed.
Gut T. everno,
Commssoner of Interna Revenue.
pproved uy 8, 1933.
Dean cheson,
ctng Secretary of the Treasury.
37408 34 T
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149, rt. 841.
90
S CTION 148. IN ORM TION Y CORPOR TIONS.
rtce 831: Return of nformaton as to payments
of dvdends.
R NU CT O 1932.
Dvdend payments to members or sharehoders by e empt bud-
ng and oan assocaton. (See I. T. 2727, page 55.)
S CTION 149. R TURNS O RO RS.
rtce 841: Return of nformaton by brokers. II-43-6474
Mm. 4082
Returns of nformaton requred to be fed by brokers and oter
agents.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, October 14, 1933.
Coectors of Interna Revenue, Interna Revenue gents n- Charge,
and Others Concerned:
Secton 150 of the Revenue ct of 1928 and secton 149 of the
Revenue ct of 1932 provde that every person dong busness as a
broker sha, when requred by the Commssoner, render a correct
return duy verfed under oath, under such rues and reguatons as
the Commssoner, wth the approva of the Secretary, may prescrbe,
showng the names of customers for whom such person has transacted
any busness, wth such detas as to the profts, osses, or other
nformaton whch the Commssoner may requre, as to each of such
customers, as w enabe the Commssoner to determne whether a
ncome ta due on profts or gans of such customers has been pad.
rtce 841 of Reguatons 74 and 77 provdes that when drected
by the Commssoner, ether specay or by genera reguaton,
every person dong busness as a broker sha render a return on
orm 1100, showng the names and addresses of customes to whom
payments were made or for whom busness was transacted durng
the caendar year or other specfed perod ne t precedng, and gvng
the other nformaton caed for by the form.
In accordance wth the foregong, a persons or organzatons
actng at any tme durng the caendar years herenafter specfed
as broker or other agent n stock, bond, or commodty transactons
(ncudng banks whch hande cearng orders for depostors or
custodan accounts) are hereby drected to fe returns of nforma-
ton on orm 1100 wth respect to a customers, depostors, or
accounts for whom or whch busness was transacted durng each
of the caendar years 1929, 1930, 1931, and 1932 and each caendar
year thereafter. separate orm 1100 must be prepared for each
caendar year for each customer, depostor, or account for whom
or whch busness was transacted durng the year, upon whch shoud
be shown the name and address and the other nformaton provded
for n the form. orm 1100 s prnted on whte paper and a dup-
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91
149, rt. 841.
cate thereof s prnted on pnk paper. In each case where the ac-
count s guaranteed or others have power to ssue buy or se orders
and to make wthdrawas of cash or securtes from the account, a
dupcate of the form as prepared on whte paper w be made on
the pnk form for each name and address, other than the customer,
requred to be entered on the reverse sde of orm 1100. orm
1100 s provded for use as a etter of transmtta to accompany
orms 1100.
orms 1100 for the caendar years 1929, 1930, 1931, and 1932, ac-
companed by orm 1100 propery fed out and e ecuted, shoud
be forwarded to the nterna revenue agent n charge of the dvson
n whch the broker, agent, or bank s ocated not ater than No-
vember 15, 1933. The forms for the caendar year 1933 and subse-
uent caendar years shoud be forwarded to the Commssoner of
nterna Revenue, Sortng Secton, Washngton, D. C, not ater than
ebruary 15 of the year foowng that for whch the returns are
made.
orms 1100 for the caendar years 1929, 1930, 1931, and 1932,
whch show that the customers sted theren are ocated n an
nterna revenue agent s dvson other than that n whch the forms
are fed, w be forwarded by the nterna revenue agent n charge
to the Commssoner of Interna Revenue, Sortng Secton, Wash-
ngton, D. C.
Inqures and correspondence regardng ths mmeograph shoud
refer to the number and the symbos IT: : CTR.
Gut T. evekng,
Commssoner.
rtce 841: Return of nformaton by brokers. II-46-6507
G. C. M. 12433
R NU CTS O 1928 ND 1932.
uctoneers engaged n seng shares of stock for customers
are not e empt from furnshng the nformaton requred by sec-
ton 149 of the Revenue ct of 1932 wth respect to such saes on
the ground that they are not brokers wthn the contempaton of
the statute. It s not necessary for the ureau to ook ony to
secton 149 of the Revenue ct of 1932 for authorty to requre the
nformaton caed for, snce secton 1104 of the Revenue ct of
1926, as amended by secton 618 of the Revenue ct of 1928, gves
the Commssoner such rght.
n opnon s requested whether the frm of s requred to
furnsh returns of nformaton under secton 149 of the Revenue
ct of 1932 upon request of the Commssoner.
Secton 149 of the Revenue ct of 1932 reads as foows:
very person dong busness as a broker sha, when requred by the Com-
mssoner, render a correct return duy verfed under oath, under such rues
and reguatons as the Commssoner, wth the approva of the Secretary, may
prescrbe, showng the names of customers for whom such person has trans-
acted any busness, wth such detas as to the profts, osses, or other n-
formaton whch the Commssoner may requre, as to each of such customers,
as w enabe the Commssoner to determne whether a ncome ta due on
profts or gans of such customers has been pad.
In accordance wth that provson of aw etters requestng a st
of customers and detas as to profts and osses have been sent to a
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149, rt. 841.
92
number of brokers, ncudng severa frms whch hod themseves out
to be auctoneers, one of whch s the frm of .
It s argued that the frm of , as auctoneers, can not be
requred to furnsh such nformaton, and n the bref fed on ther
behaf emphass s ad upon the common aw dstncton between an
auctoneer and a broker.
If t be conceded that the common aw concept of an auctoneer
dffers from that of a broker n that a broker s one empoyed to
negotate purchases and saes for other partes of property of whch
he has nether possesson nor contro, t must equay be conceded that
such a concept does not ncude a stock broker. stock broker does
have possesson and contro of the property and transfers the owner s
tte thereto by devery n the same manner as an auctoneer.
anta v. Cty of Chcago, 172 111., 204, 50 N. ., 233 Northrup v.
Shook, 18 ed. Cases, 10329 Cothran Connoy v. Unted States,
276 ed., 48.) Therefore, a strct adherence to the common aw con-
cept of a broker woud e cude a stock broker. owever, the secton
of aw nvoved does not requre a strct constructon. It s a reme-
da provson, enacted to prevent frauds upon the revenue, and
shoud be so construed as to accompsh effectuay the ob|ect of the
Legsature n enactng t. (Cquofs Champagne, 3 Wa., 114,145.)
The term broker n ts broader sense, the sense n whch t s
used n secton 149 of the Revenue ct of 1932, comprehends one
who acts as the medum of negotatng and contractng any knd of a
bargan. ( amburger v. Corr, 157 Pa. St., 133, 27 t., 681.) Ths
offce does not concede that an auctoneer engaged n seng stock s
not a broker wthn the contempaton of that secton of aw.
It s not necessary, however, that the ureau ook ony to secton
149 of the Revenue ct of 1932 for authorty to requre from the
frm of nformaton as to profts and osses of customers.
Secton 1104 of the Revenue ct of 1926, as amended by secton 618
of the Revenue ct of 1928, reads as foows:
Sec. 1104. The Commssoner, for the purpose of ascertanng the correctness
of any return or for the purpose of makng a return where none has been made,
s hereby authorzed, by any offcer or empoyee of the ureau of Interna
Revenue, ncudng the fed servce, desgnated by hm for that purpose, to
e amne any books, papers, records, or memoranda bearng upon the matters
requred to be ncuded n the return, and may requre the attendance of the
person renderng the return or of any offcer or empoyee of such person, or the
attendance of any other person havng knowedge n the premses, and may
take hs testmony wth reference to the matter requred by aw to be ncuded
n such return, wth power to admnster oaths to such person or persons.
Ths secton was construed by the Unted States Dstrct Court,
Dstrct of New ersey, n the case of R. T. Mes, Revenue gent n
Charge, v. Unted ounders Corporaton. Ths decson s dated
March 10, 1933. The statement of facts, n so far as matera, and
the memorandum opnon of the court n that case, read as foows:
The Department cams that ths e change resuted n a ta abe ncome havng
been receved by the stockhoders who made the e change of stock, and the
names of stockhoders, together wth amount of stock and method of e change,
shoud be dvuged, so that proper assessments may be made aganst the per-
sons whose ncome was ncreased, f not reported by them n ther annua
report.
In some nstances stockhoders reported the e change, and whether such
e change created an addtona ncome, as the court understands the stuaton,
s stU debatabe and a sub|ect of e stng tgaton.
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93
149, rt. 841.
The defendant contends that ths statute does not gve the Government
power or authorty to engage n a fshng e pedton and appes ony when
the name of the ndvdua stock owner or ta payer s known and dscosed.
No queston s rased as to the rght of the Government to proceed n ths
cass of cases.
We must nterpret the statute as It reads, and I am convnced that uuder ts
terms t s the duty of a corporaton, where any queston arses as to the
ta abty of transfers or e changes of stock, to dscose the names of the
e changng stockhoders, so that the queston of each stockhoder s ncome
may be ad|usted and assessed f awfu to do so.
I am unabe to construe the statute n the manner suggested by the defend-
ant, and the resut s that the moton to vacate the order of udge Porman,
requrng the defendant to produce Its books, etc., for e amnaton by Govern-
ment agents, s dened, and the order confrmed.
In vew of the foregong, ths offce s of the opnon that aucton-
eers engaged n seng shares of stock for customers are not e empt
from furnshng the nformaton requred by secton 149 of the
Revenue ct of 1932 wth respect to such saes on the ground that
they are not brokers wthn the contempaton of the statute.
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
rtce 841: Return of nformaton by brokers. II-47-6519
Mm. 4099
tenson of tme for fng Informaton returns on orm 1100
for 1929 to 1932 by banks, trust companes, and ther affates.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, November 7, 1933.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Reference s made to Mmeograph 4082, dated October 14, 1933
(see on page 90), whch drects a persons or organzatons act-
ng at any tme durng the caendar years 1929, 1930, 1931, and
1932 as broker or other agent n stock, bond, or commodty trans-
actons (ncudng banks whch hande cearng orders for depostors
or custodan accounts), to fe returns of nformaton on orm 1100
not ater than November 15, 1933, wth respect to a customers, de-
postors, or accounts for whom or whch busness was transacted
durng those years.
n e tenson of tme to December 31, 1933, s hereby granted to
banks and trust companes and corporatons or other organzatons
affated wth them, for fng nformaton returns on orm 1100
for the years 1929, 1930, 1931, and 1932 as requred by Mmeograph
4082.
Inqures and correspondence regardng ths mmeograph shoud
refer to the number and the symbos IT: : CTR.
Gut T. evernq,
Commssoner.
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261, rt. 1131. 94
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 203. N T INCOM O LI
INSUR NC COMP NI S.
rtce 971: Ta -e empt nterest and reserve II-38-6407
funds. I. T. 2717
R NU CT OP 1932 ND PRIOR R NU CTS.
Where coupons attached to certan fe nsurance poces known
as guaranteed premum reducton poces are eft wth the
company to accumuate at nterest, the amount of such nterest
actuay pad out n cash, or amounts apped to shorten the
premum-payng perod, or to purchase addtona nsurance, or
to pay renewa premums, whch amounts are consdered as the
equvaent of cash payments, are aowabe as deductons n com-
putng the net ncome of the fe nsurance company.
Informaton s requested wth respect to the deductbty by fe
nsurance companes of nterest on coupons pad under the foowng
crcumstances:
Lfe nsurance companes ssue certan fe nsurance poces
known as guaranteed premum reducton poces to whch are
attached coupons. Upon each annua premum-payng date a coupon
matures, whch may be turned n to the company n payment of the
premum to the amount of the face vaue of the coupon, or f the
premum s pad n fu n cash the pocyhoder may use the coupon
to purchase pad-up addtons to the face of the pocy, or the coupon
may be coected at any tme wth nterest or may be apped to
shorten the premum-payng perod of the pocy.
It s hed that where coupons are eft wth the company to ac-
cumuate at nterest, the amount of such nterest actuay pad out n
cash, or amounts apped to shorten the premum-payng perod, or
to purchase addtona nsurance, or to pay renewa premums, whch
amounts are consdered as the equvaent of cash payments, are
aowabe as deductons n computng the net ncome of the fe
nsurance company.
SUPPL M NT . POSS SSIONS O T UNIT D ST T S.
S CTION 251. INCOM ROM SOURC S WIT IN
POSS SSIONS O UNIT D ST T S.
rtce 1131: Ctzens of the Unted States II-29-6292
and domestc corporatons dervng ncome G. C. M. 11903
from sources wthn a possesson of the
Unted States.
R NU CT O 1932.
If a edera empoyee, who s a ctzen of the Unted States
resdent n Puerto Rco, can quafy under secton 251 of the
Revenue ct of 1932, he conos wthn a speca cass of ta payers
and hs saary receved for servces performed n Puerto Rco
as an empoyee of the Unted States Government s not to be n-
cuded n hs gross ncome from sources wthn the Unted States.
If he can not quafy as comng wthn a speca cass of ta -
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95
251, rt. 1131.
payers, . e., does not satsfy the condtons of secton 251, then
he reports as a nonresdent ctzen and hs saary pad by the
Unted States must be ncuded as an tem of gross ncome, but
In ths crcumstance the ta payer may ava hmsef of the credt
provsons of secton 131 (a) 1 of the Revenue ct of 1932.
n opnon s requested whether empoyees of the Unted States
Government n Puerto Rco are requred to render ncome ta returns
to the edera Government on ther saares.
Secton 4 of the Revenue ct of 1932, entted Speca casses of
ta payers, provdes that the appcaton of the genera provsons
and of Suppements to D, ncusve, to each of the speca casses
of ta payers desgnated n secton 4, sha be sub|ect to the e -
ceptons and addtona provsons found n the suppement app-
cabe to such cass. Subsecton (g) reads as foows:
(g) Indvdua ctzens of the Unted States or domestc corporatons, sats-
fyng the condtons of secton 251 by reason of dervng a arge porton of
ther gross ncome from sources wthn a possesson of the Unted States,
Suppement .
Secton 251, entted Income from sources wthn possessons of
Unted States, provdes that n the case of a ctzen of the Unted
States satsfyng certan condtons gross ncome means ony gross
ncome from sources wthn the Unted States. The condtons are
(1) f 80 per centum or more of the gross ncome of such ctzen
(computed wthout the beneft of secton 251), for the 3-year perod
mmedatey precedng the cose of the ta abe year (or for such
part of such perod mmedatey precedng the cose of such ta abe
year as may be appcabe) was derved from sources wthn a
possesson of the Unted States and (2) f, n the case of such ctzen,
50 per centum or more of hs gross ncome (computed wthout the
beneft of ths secton) for such perod or such part thereof was
derved from the actve conduct of a trade or busness wthn a
possesson of the Unted States ether on hs own account or as an
empoyee or agent of another.
If a edera empoyee who s a ctzen of the Unted States res-
dent wthn Puerto Rco, can quafy under secton 251 of the ct
of 1932 he comes wthn a speca cass of ta payers and the pro-
vsons of secton 116(a) whch e cude from gross ncome n the
case of an ndvdua ctzen of the Unted States, a bona fde non-
resdent of the Unted States for more than s months durng the
ta abe year, amounts receved from sources wthout the Unted
States (e cept amounts pad by the Unted States or any agency
thereof) does not appy.
If a edera empoyee, who s a ctzen of the Unted States res-
dent n Puerto Rco, can not satsfy the condtons prescrbed n
secton 251 and makes hs return as a nonresdent ctzen of the Unted
States, then hs saary receved as an empoyee of the Unted States
Government can not, under the provsons of secton 116(a), be e -
cuded from hs gross ncome. Secton 131(a) 1, whch permts a
credt of the ta pad to any possesson of the Unted States, woud
appy to such nonresdent ctzen, but woud not appy to a ctzen
quafyng under secton 251, for subsecton (g) of secton 251 reads:
Credts aganst ta . Persons entted to the benefts of ths secton sha not
be aowed the credts aganst the ta for ta es of foregn countres and posses-
sons1 of the Unted States aowed by secton 131.
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322, rt. 1254.
96
Wth respect to whether earned ncome s from sources wthn or
wthout Puerto Rco, attenton s nvted to I. T. 2286 (C. . -,
52), wheren t s hed that the pace where the servces are performed
s the controng factor n determnng the source of ncome. (Cf.
secton 119(a)3 and secton 119(b)3 of the Revenue ct of 1932.
Summarzng, f the ta payer can quafy under secton 251 of the
Revenue ct of 1932, hs saary receved for servces performed n
Puerto Rco as an empoyee of the Unted States Government s not
to be ncuded n hs gross ncome from sources wthn the Unted
States, but f the ta payer can not quafy as comng wthn a speca
cass of ta payers, . e., does not satsfy the condtons of secton 251,
then he reports as a nonresdent ctzen and hs saary pad by the
Unted States must be ncuded as an tem of gross ncome, but n ths
crcumstance the ta payer may ava hmsef of the credt provsons
of secton 131 (a) 1 of the Revenue ct of 1932.
SUPPL M NT O. O RP YM NTS.
S CTION 322. R UNDS ND CR DITS.
rtce 1254: Cams for refund by ta payers. II-47-6520
Mm.4092
Refund cams and amendments thereto.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, October 30, 1933.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Offcers and mpoyees of the ureau of Interna Revenue, and
Others Concerned:
Reference s made to the decsons of the Supreme Court n the
cases of Unted States v. Memph s Cotton O Co. (288 U. S., 62, Ct, D.
626, C. . II-1, 307) Unted States v. enry Prentss Co., Inc.
(288 U. S., 73, Ct. D. 627, C. . II-1. 311): Unted States v. actors
cf- nance Co. (288 U. S., 89, Ct. D. 628, C. . II-1, 315) ems
ros. ag Co. v. Unted States (289 U. S., 28, Ct. D. 649, C. .
II-1. 33S) and George Moore Ice Cream Co., Inc., v. Rose, Coec-
tor of Interna Revenue (53 S. Ct., 620, Ct. D. 676, C. . II-1,
341).
s the resut of the decsons n the above-mentoned cases, the fo-
owng prncpes are estabshed wth respect to the suffcency of
cams for refund fed pror to May 1, 1929:
(a) Where a tmey cam contans no specfc grounds, but charges
overpayment generay, the cam may be corrected by amendment
before re|ecton (even though the perod of mtaton appcabe to
the fng of cams has e pred) to ncude any specfc ground (e -
cept as provded n (c) beow), ncudng speca assessment where
the Commssoner s unabe satsfactory to determne nvested cap-
ta and such an assessment s requred by secton 210 of the Revenue
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97
322, rt. 1254.
ct of 1917 or secton 327(a) of the Revenue ct of 1918 or the
Revenue ct of 1921.
(6) tmey cam for refund based upon one or more specfc
grounds may not be amended after the bar of the statute to ncude
other and dfferent grounds. If, however, the cam gves notce,
athough n genera terms, that asde from the specfc grounds
aeged an overpayment has been made n reference to other tems, the
cam may, pror to re|ecton thereof, be ampfed by amendment as
to such other tems.
(c) The act of the Commssoner of Interna Revenue n grantng
or refusng speca assessment under secton 327(d) of the Revenue
ct of 1918 or the Revenue ct of 1921 s dscretonary and admn-
stratve. Such an assessment s not ordered e cept upon appca-
ton by the ta payer and the grevance that w support an appca-
ton therefore assumes adherence to the statute, and counts upon
e traordnary condtons as |ustfyng a cam that the statute s
oppressve. (Unted States v. enry Prentss Co., supra.)
Therefore, a tmey cam for refund, whether genera or specfc,
based upon error of aw or fact can not be turned by amendment,
after the bar of the statute, nto a cam requestng the Commssoner
to e ercse the dscretonary |ursdcton gven hm under secton
327(d). Conversey, a tmey cam for refund based soey upon
the ground that the Commssoner shoud e ercse the dscretonary
|ursdcton vested n hm under secton 327(d) can not be turned
by amendment, after the bar of the statute, nto a cam based upon
error of aw or fact. In ether such case the amendment woud con-
sttute an entrey new cam. See paragraph (6) above.
The decsons of the Supreme Court above referred to reate to
cams for refund fed pursuant to the reguatons n force pror to
May 1, 1929. (See the frst footnote to the decson rendered n
Unted States v. Memphs Cotton O Co., supra.) Therefore, those
decsons are not controng wth respect to cams for refund fed
on or after that date. s to such cams, Treasury Decson 4265
(C. . III-1,110) provdes as foows:
(1) cam for refund or credt of any nterna revenue ta , or for refund
of nterest or penates, erroneousy or egay coected shoud be made
on the form prescrbed by the Treasury Department ( orm 843), and shoud
be fed wth the coector of nterna revenue, athough a cam w not be
consdered defectve soey by reason of the fact that t s not made on the
form or that t s fed wth the Commssoner of Interna Revenue. The
cam must set forth n deta and under oath each ground upon whch a refund
or credt s camed, and facts suffcent to apprse the Commssoner of the
e act bass thereof. ny cam whch does not compy wth the requrements
of the precedng sentence w not be consdered for any purpose as a cam
for refund or credt
(2) No refund or credt w be aowed after the e praton of the statutory
perod of mtaton appcabe to the fng of a cam therefor e cept upon one
or more of the grounds so set forth n a cam, or an amendment thereof, fed
pror to the e praton of such perod.
(3) These reguatons sha take effect on May 1, 1929, an sha be
appcabe to a cams fed on or nfter such date, and a other reguatons
are modfed n so far as they are Inconsstent wth these reguatons.
Smar provsons are contaned n artce 1254 of Reguatons 77.
ccordngy, cams for refund fed pror to May 1, 1929, w
be consdered and acted upon n accordance wth the rues heren.
cam for refund whch fas to set forth any grounds why a
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901, rt. 1281.
98
refund s due w be prompty re|ected, provded such acton has
not theretofore been taken, and provded the cam has not been
amended n accordance wth the rues stated n (a) above.
ttenton s aso nvted to Treasury Decson 4235 (C. . II-2,
76), whch provdes n part that any cam whch has been dsa-
owed w be reconsdered and aowed at any tme pror to the
e praton of the statutory perod of mtaton for brngng sut, f
t ceary appears that the cam shoud be aowed on the merts,
but that no reopenng or appcaton for reopenng w e tend the
perod wthn whch sut can be brought, nor w a reconsderaton
of a cam be consdered as a reopenng of the cam. (See further
the decson of the Unted States Dstrct Court, Southern Dstrct
of New York, n the case of eebncr v. Unted States, 50 ed. (2d),
904. Ct. D. 357, C. . -2, 291.)
Correspondence and nqures regardng ths mmeograph shoud
refer to the number and the symbos IT: : CTR.
Gut T. everno,
Commssoner,
TITL II. T ON TR NS RS TO OID INCOM T .
S CTION 901. IMPOSITION O T .
rtce 1281: Transfers to avod ncome ta . II-43-6472
Mm. 4081
Transfer agents through whom stock or securtes are trans-
ferred to foregn transferees as descrbed n secton 901 of the
Revenue ct of 1932 to fe statements.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, October 13, 1933.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Offcers and mpoyees of the ureau of Interna Revenue, and
Others Concerned:
Under secton 901 of the Revenue ct of 1932 there s mposed
upon the transfer of stock or securtes by a ctzen or resdent of
the Unted States or by a domestc corporaton or partnershp, or
by a trust whch s not a foregn trust, to a foregn corporaton as
pad-n surpus or a contrbuton to capta, or to a foregn trust, or
to a foregn partnershp, an e cse ta equa to 25 per centum of the
e cess of (1) the vaue of the stock or securtes so transferred over
(2) ts ad|usted bass n the hands of the transferor as determned
under secton 113 of the Revenue ct of 1932. Under secton 902
ths ta does not appy f the transferee s an organzaton e empt
from ncome ta under secton 103 of the Revenue ct of 1932, or f
pror to the transfer t has been estabshed to the satsfacton of the
Commssoner that such transfer s not n pursuance of a pan hav-
ng as one of ts prncpa purposes the avodance of edera ncome
ta es.
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99
901, rt. 128L
transfer agents through whom any transfers descrbed n sec-
ton 901 of the Revenue ct of 1932 are made shoud mmedatey
report such transfers to the Commssoner of Interna Revenue, Sort-
ng Secton, Washngton, D. C, a statement beng furnshed wth
respect to each transfer showng the name and address of the trans-
feror and of the transferee, a descrpton of the stock or securtes
and quantty or number transferred, and the date of transfer. These
statements shoud be submtted n the form of a etter snce no
prnted form w be prepared for the purpose.
Inqures regardng ths mmeograph shoud refer to ts number
and the symbos IT: : CTR.
Gut T. everng,
Commssoner
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22(a), rt. 51. 100
INCOM T RULINGS. P RT II.
R NU CT O 1928.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce 51: What ncuded n gross ncome. II-45-6493
G. C. M. 12355
R NU CT O 1928.
The so-caed agreements of purchase and resae entered Into
between the M unk and ts customers consttute n substance and
effect oans by the bank of the amounts nvoved n the varous
contracts. The bank shoud report as gross ncome the entre
amount of nterest charged ts customers n such transactons. The
bank s not entted to treat as ncome from ta -e empt securtes
the nterest payabe by the obgors on such securtes durng the
perod they are hed by the bank, but such nterest shoud be
treated as the ncome of the customer submttng the securtes as
coatera.
n opnon s requested reatve to the proper treatment, for n-
come ta purposes, of certan nterest by the M ank.
Durng the years 1929 to 1931. ncusve, certan transactons were
entered nto by the M ank and ts customers whch, t s stated,
resuted n the purchase and resae of ta -e empt securtes. It
was the practce for a customer ownng such securtes and desrng
to secure temporary funds to enter nto a wrtten agreement wth
the bank provdng as foows:
greement made the day of , 19 , between the customer here-
nafter referred to as the party of the frst part, and the bank , herenafter
referred to as the party of the second part,
WITN SS T :
1. That the party of the frst part, n consderaton of the agreements heren-
after contaned, to be performed by the party of the second part, agrees to
se and dever to the sad party of the second part on the day and year frst
above wrtten the foowng securtes:
for whch n consderaton thereof the party of the second part agrees to pay to
the party of the frst part
2. In consderaton of the premses, the party of the frst part agrees to
repurchase and the party of the second part agrees to se sad securtes on
or before
3. Upon the faure of sad party of the frst part to accept devery of sad
securtes as provded for n cause 2 hereof, and to make payment therefor, then
the party of the second part may mmedatey, wthout further notce to the
party of the frst part, se the above-mentoned securtes at pubc or prvate
sae, at any broker s board or otherwse, and appy the proceeds of sad sae
as far as needed toward the above contract prce, and of any or a other
obgatons or abtes of the party of the frst part to the party of the
second part, accountng to the party of the frst part for any surpus arsng
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101
22(a), rt. 51.
the party of the frst part remanng abe to the party of the second part
for any defcency remanng unpad after such appcaton.
4. In the event of faure of sad party of the second part to dever sad
securtes and accept payment therefor under ths repurchase agreement, then
the sad party of the frst part may, wthout further notce of the party of
the second part, buy n the party of the second part under terms and
condtons correspondng to those descrbed n the precedng paragraph.
5. Devery and payment to be made at the offce of the party of the -
part.
Other forms of agreements are used but they are smar to the
above form n a substanta respects.
The bank charges nterest at varous rates dependng upon the
amount nvoved, the type of securtes, the perod over whch the
transacton e tends, and the customer. Interest may e ceed, equa,
or be ess than the nterest payabe by the obgor on the securtes
nvoved. Where ta -e empt securtes are purchased and resod
t s the practce of the bank to charge the customer nterest durng
the perod the bank hods the securtes, but nstead of ncudng
such nterest n ts ncome ta return, the bank treats the transac-
ton as an nvestment n ta -e empt securtes and e cudes nterest
(at the rate named n the securtes) from ts ta abe ncome. Where
the nterest charged s ess than the rate of nterest payabe on the
securtes (where the bank, for e ampe, purchases from a cus-
tomer 4 per cent Treasury bonds and requres the customer to pay
ony 3 per cent upon the amount nvested by the bank n such
securtes) the bank treats as nonta abe nterest 4 per cent of the
amount nvested and e cudes such 4 per cent nterest from ts
tota ncome derved from oans. The resut s that the bank not
ony fas to pay ncome ta upon the 3 per cent nterest charged
the customer but an addtona 1 per cent of the amount nvested
s treated as ta -e empt nterest and emnated from the bank s
ncome. Usng the above e ampe, and assumng that securtes n
the amount of 100,000 were purchased for four months, the bank
woud ncude n gross ncome 3 per cent of 100,000 for four months,
or 1,000, but woud e cude from gross ncome 4 per cent of 100,-
000 for four months, or 1,333.33. In effect, the bank s deductng
from ts admttedy ta abe ncome the e cess of the rate payabe
on the ta -free securtes over the nterest charged the customer,
as we as emnatng entrey the nterest charged the customer on
the purchase and resae contract.
rom an e amnaton of the document quoted above and the
others submtted, t appears (1) that the dentca securtes whch
are sod to the bank are requred to be hed by t for repurchase
by the customer, and that the customer s entted to demand and
receve such dentca securtes when he performs hs agreement
to repurchase (2) that upon the faure of the customer to repur-
chase the securtes and to make payment therefor as stpuated, the
bank may se the securtes, appy the proceeds of the sae upon
the repurchase prce, and ether credt the customer wth any e cess
or hod hm abe for any defcency (3) that the customer s
egay bound both to repurchase the securtes and to pay any
defcency remanng unpad after the appcaton of the proceeds
of sae (the customer not havng a mere opton to repurchase)
(4) that the customer agrees to pay nterest at a stpuated rate
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22(a), rt. 51.
102
upon the amount advanced by the bank and (5) that the vaue of
the securtes may or may not equa the amount advanced by the
bank. dvce s requested whether ths type of transacton shoud
be treated as a bona fde purchase and resae of securtes, or whether
t shoud be treated as an nterest-bearng oan secured by coatera.
In the opnon of ths offce the aeged purchase and resae agree-
ments smpy effect a oan of money by the bank upon coatera
securty, and such agreements shoud not be treated as purchases
by the bank of securtes for nvestment. It s unnecessary for the
purpose of ths memorandum to determne whether such a purchase
and resae transacton reay appro mates a chatte mortgage or
a pedge. It s suffcent to say that n ether case the treatment
accorded the transacton by the bank shoud not be accepted for
edera ncome ta purposes.
In 11 Corpus urs, Chatte Mortgages, paragraph 15, page 413, t
s stated that a b of sae wth an agreement permttng repurchase
may consttute a chatte mortgage under crcumstances smar to
those here presented. The paragraph s as foows:
Condton permttng repurchase. b of sae wth an agreement permt-
tng repurchase may consttute ether a chatte mortgage or a condtona
sae, ts character dependng on the surroundng crcumstances and the nten-
ton of the partes. The fact that a b of sae contans an agreement to rese
the property to the seer at a f ed prce or confers on hm an opton to repur-
chase t does not, n tsef, estabsh that the transacton s a mortgage, es-
pecay when there s no debt to be secured and no obgaton to repay. ut the
transfer may be shown to be a mortgage by evdence that the vendor s obga-
ton contnued, that he bound hmsef to pay nterest, that the b of sae
was gven to secure a oan, or that the amount of consderaton was Inadequate
as a purchase prce.
To the same effect s Whttemore v. sher (132 111., 243, 24 N. .,
636) and ountan v. ryce (33 S. C. q., 234). In the same way
a b of sae wth an obgaton (or permsson) to repurchase may
consttute a pedge, dependng upon the crcumstances of the transac-
ton, and a deed of rea estate under ke crcumstances may be hed
to be a mortgage. In any event, the substance of the transacton
s that property s made to consttute securty for the payment of
a debt. In ths case, the obgaton to repurchase n tsef |ustfes
the treatment of such a transacton as a oan. Indeed, n ths case
a the characterstcs of the transactons ndcate that n substance
the bank s makng oans to ts customers rather than purchasng
securtes for ts own account. The chargng of nterest, the agree-
ment to redever to the customer the dentca securtes pur-
chased from hm, the absoute obgaton upon the customer to
repurchase, the rght gven the bank to se the securtes f the
customer does not repurchase, the rght of the bank to appy the
proceeds of a sae upon the customer s obgaton wth a resutng
abty on the part of the customer for any defcency, and the
possbe dsparty between the so-caed purchase prce as compared
to the vaue of the securtes, strongy ndcate that the transactons
are n substance oans of money by the bank to ts customers. These
crcumstances are ceary suffcent to requre treatment of the trans-
actons as oans.
In rst Natona ank n Wchta v. Commssoner (19 . T. .,
744, affrmed bv the Crcut Court of ppeas, Tenth Crcut, 57 ed.
(2d), 7, Ct. D. 663, C. . II-1, 210, certorar dened October 17,
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103
22(a), rt. 52.
1932. 287 U. S., 636, moton for rehearng dened November 14,
1932), there was presented a case where the rst Natona ank n
Wchta entered nto an agreement wth the rown-Crummer Co.,
deaers n muncpa bonds, whereby the company sod to the bank
certan ta -e empt bonds but the rown-Crummer Co. had the
prvege of purchasng the bonds from the bank upon the payment
of the sum advanced by t, pus nterest from the date of purchase
by the bank unt the date of repurchase by the company. The
Commssoner hed that the nterest charged the company consttuted
ncome to the bank, whe the bank contended that t derved ncome
from ta -e empt securtes durng the perod the bonds were n
ts hands. The oard of Ta ppeas sustaned the Commssoner
n hodng that the bank derved ta abe ncome n the amount of
nterest charged the company, and the Crcut Court of ppeas
affrmed the decson of the oard. Whe there may be some df-
ference between the contract of the partes n the rst Natona
ank n Wchta case and the contract nvoved n the nstant case,
such dfference s not consdered suffcent to requre a treatment
contrary to that accorded the transacton n the case cted above.
In fact, the crcumstances n the nstant case present a stronger
bass for reachng a ke concuson because the customer s bound
to repurchase the securtes. s stated n rst Natona ank of
Wchta v. Commssoner, supra, the Comptroer of the Currency
has ndcated that ths feature aone s suffcent to consttute the
transacton a oan sub|ect to the mt prescrbed by secton 5200,
Revsed Statutes.
In vew of the foregong, t s the opnon of ths offce that the
so-caed agreements of purchase and resae entered nto between
the M ank and ts customers consttute n substance and effect oans
by the bank of the amounts nvoved n the varous contracts that
the bank shoud report as gross ncome the entre amount of the
nterest charged ts customers n such transactons and that the
bank s not entted to treat as ncome from ta -e empt securtes
the nterest payabe by the obgors on such securtes durng the
perod they are hed by the bank. On the contrary, such nterest
shoud be treated as the ncome of the customer who submtted the
securtes to the bank as coatera, notwthstandng an agreement
between the customer and the bank that the bank may accrue as ts
own ncome the nonta abe nterest payabe on the ta -e empt
securtes.
. arrett Pretttman,
Genera Counse, ureau of Interna Revenue.
rtce .r)2: Compensaton for persona servces. II-50-6555
I. T. 2743
R NU CT O 1928.
Where an empoyee returns 30 per cent of hs saary to hs em-
poyer (urng the ta abe year n pursuance of an agreement on
hs part to accept a 30 per cent reducton n saary, the amount so
returned shoud not be ncuded n hs gross ncome.
rung s requested whether an amount returned by to hs
empoyer durng the caendar year 1931 equa to 30 per cent of hs
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22 (b), rt. 84.
104
saary, n eu of a fat saary reducton, shoud be ncuded n hs
gross ncome for that year, under the crcumstances set forth beow:
In the year 1931 the fnanca status of the M ssocaton was such
that t was not possbe to mantan the saary schedue then n effect.
s the organzaton dd not wsh to reduce ts personne, t was
decded to make drastc cuts n saares and thus keep each man
empoyed. In vew of the uncertanty as to the permanence of the
saary reductons, and for the reason that t was to the nterest of
those empoyed to retan the saary eve, each empoyee was gven
hs saary check n the orgna amount. Pror to the recept of the
check, however, each empoyee was requred to gve to the M sso-
caton hs persona check or cash for the amount of the decrease n
hs saary.
n empoyee who accepts empoyment, or who contnues n em-
poyment under the crcumstances set forth, s hed to have receved
ony the amount of the reduced saary. In other words, where an
empoyee returns 30 per cent of hs saary to hs empoyer durng
the ta abe year n pursuance of an agreement on hs part to accept
a 30 per cent reducton n saary, the amount so returned shoud not
be ncuded n hs gross ncome for that year.
rtce 58: Sae of stock and rghts.
R NU CT O 1928.
Method of computng the bass of stock acqured by the e ercse
of stock rghts. (See G. C. M. 11743, page 31.)
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 84: Interest upon State obgatons. II-39-6415
Ct. D. 736
INCOM T R NU CTS O 1926 MD 1928 D CISION O COURT.
1. empton Interest1 ward n Condemnaton Proceedngs
Consttuton auty.
The obgaton of a muncpaty to pay an award n condem-
naton proceedngs s not an obgaton of a potca subdvson
of a State wthn the meanng of secton 213(b)4 of the Revenue
ct of 1926 and secton 22(b) of the Revenue ct of 1928, and
nterest pad upon the award s not e empt from ta . The e empt-
ng cause s to be construed n the ght of ts genera purpose,
whch was to safeguard the borrowng power of the States. Ta -
aton of the nterest was not unconsttutona, the ta beng upon
the pro erty of the ta payer and not mposng any burden upon
an nstrumentaty of the State.
2. Decson ffrmed.
The decson of the dstrct court (60 ed. (2d), 291, Ct. D. 580,
C. . I-2, 67) affrmed.
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105
22(b), rt. 84.
Unted States Crcut Coubt of ppeas for the Second Crcut.
Unted States Trust Co. of New York as ecutor of the W of Wam
urhans I sham, pantff-appeant, v. Chares W. nderson, Coector of
Interna Revenue for the Thrd Coecton Dstrct of New York, defendant-
appeee.
une 13, 1933.
OPINION.
ugustus N. and, Crcut udge: The nterests n rea estate beongng to
the decedent Isham were condemned by the cty of New York under secton 976
of the Greater New York charter. y vrtue of that secton, tte to the nterest
n the frst pot passed to the cty on pr 1, 1925, and to the second pot on
une 2, 1926. Upon the makng of the award n the condemnaton proceedngs
nterest at 6 per centum was aowed to the property owner from the dates
when the cty took tte. In the case of the frst pot condemned, the decedent
receved hs award, wth nterest, n 1927, and n the case of the second pot n
1928.
Secton 213(b) of the Revenue ct of 1926 provdng certan e emptons from
Income ta es reads as foows:
Sec. 213. (b) The term gross ncome does not ncude the foowng tems,
whch sha be e empt from ta aton under ths tte:

(4) Interest upon ( ) the obgatons of a State, Terrtory, or any potca
subdvson thereof, or the Dstrct of Coumba or ( ) securtes ssued under
the provsons of the edera arm Loan ct, or under the provsons of such
ct as amended or (C) the obgatons of the Unted States or ts possessons.
very person ownng any of the obgatons or securtes enumerated n cause
( ), ( ), or (C) sha, n the return requred by ths tte, submt a statement
showng the number and amount of such obgatons and securtes owned by
hm and the ncome receved therefrom, n such form and wth such nformaton
as the Commssoner may requre. In the case of obgatons of the Unted
States ssued after September 1, 1917 (other than posta savngs certfcates of
depost), the nterest sha be e empt ony f and to the e tent provded n the
respectve cts authorzng the ssue thereof as amended and suppemented,
and sha be e cuded from gross ncome ony f and to the e tent t s whoy
e empt to the ta payer from ncome ta es.
The pantff-appeant contends that the foregong secton apped to the
nterest receved by the decedent upon hs award n the year 1927 and rendered
t e empt from ta aton.
Secton 22(b) of the Revenue ct of 1928 s dentca wth secton 213(b) of
the ct of 1926. The pantff-appeant contends that t apped to the nterest
receved by the decedent upon hs award In 1926 and rendered t smary
e empt.
The questons before us are (1) whether the statutory e emptons from ta a-
ton of the obgatons of a State or any potca subdvson
thereof covered the nterest receved by the decedent n 1927 and
1928 upon the condemnaton awards, and (2) whether, f they dd not, ta aton
of these nterest tems under the genera provsons of the cts of 1926 and 1928
was beyond the consttutona power of Congress because t nvoved ta ng a
State nstrumentaty.
There s no doubt that the cause e emptng from ta aton obgatons of a
State or any potca subdvson thereof may be so nterpreted as
to embrace amost anythng whch a State or muncpaty s bound to pay and
may thus e empt ncome whch s wthn the ta ng power of the Unted
States. The queston s, how broady the word obgatons s to be con-
strued and |ust what ncome s covered by the e empton.
In determnng the scope of the word we must bear n mnd the setted rue of
constructon that ta e emptons are never ghty to be nferred ( ener v.
Coona Trust Co., 275 U. S., at page 235 T. D. 4112, C. . II-1, 207 ), and w
not be apped to a partcuar case uness granted n the statute n pan terms.
(Denman v. Sayton, 282 U. S., at page 519 Phoen Insurance Co. v. Tennessee,
161 U. S., at page 177 Chcago dc. Raroad v. Ouffcy, 120 U. S., at page 575
37408 34 8
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522(b), rt. 84.
106
oksburg tc. Raroad Co. v. Denns, 116 U. S., at page 668 Phadepha do.
Raroad v. Maryand, 10 ow., at page 393.)
The phrase e emptng nterest upon the obgatons of a State
or any potca subdvson thereof has been used n every Revenue ct snce
the adopton of the s teenth amendment to the Consttuton of the Unted
States. t the tme that amendment was proposed, t was argued that It woud
pace the borrowng capacty of the States at the mercy of the edera ta ng
power. On ebruary 8, 1910, Senator orah submtted to the Senate a resou-
ton. No. 175, drectng the |udcary Commttee to report whether the pro-
posed amendment woud f adopted authorze Congress to ay a ta
upon ncome derved from State bonds and other muncpa securtes or woud
authorze Congress to ta the nstrumentates or means and property of the
State or the saary of State offcers. (Congressona Record, voume 45, page
1585.)
It Is cear from the wordng of the foregong resouton that the author had
partcuary n mnd the queston whether the amendment woud adversey affect
the power of the States and ther potca subdvsons to borrow money.
In vans v. Gore (253 U. S., at page 262 T. D. 3037, C. . 3,93 ), ustce an
Devanter, whe dscussng the ncome ta egsaton under the Revenue ct of
1918 whch attempted to ta |udca saares, sad that Congress refused to
treat nterest receved from bonds ssued by a State or any of ts countes or
muncpates as wthn the ta ng power. Ths statement (at page 262) In
the footnote of the opnon n vans v. Oore, as we as the anguage of the con-
gressona conference report of ebruary 8, 1919, reatng to the Revenue ct of
1918 (voume 57, Congressona Record, 2988), treated the e empton as desgned
to safeguard the borrowng power of the States and to prevent ta aton whch
mght mpar ts effcacy or burden the property or nstrumentates of the
States. In Dcnman v. Sayton (282 U. S., 514), where the deductbty from the
gross ncome of a ta payer of nterest on ndebtedness Incurred to purchase ta -
e empt obgatons or securtes was dscussed and hed not aowabe, the
Supreme Court pany had n mnd securtes Issued to borrow money.
The anguage of secton 213(b) of the Revenue ct of 1926 makes t reason-
aby cear that the e emptons of nterest upon obgatons of a State and
upon obgatons of the Unted States reate to obgatons of the same
knds. Subdvson e empts securtes ssued under the provsons of the
edera arm Loan ct, and subdvson C provdes that n case of ob-
gatons of the Unted States ssued after September 1, 1917, the
nterest sha be e empt ony f and to the e tent provded n the respectve
cts authorzng the ssue thereof . It seems manfest, not ony
because of the ob|ects sought to be attaned by the e emptons, but aso from
the use of the term ssued both n subdvsons and C, that the obga-
tons referred to n subdvson were ony such as mght be ssued n the
e ercse of the borrowng power of the States.
n award n condemnaton, bearng nterest, can not be regarded as ssued
by a muncpaty, nor can ta aton of the nterest receved upon such an award
n any way affect the borrowng power of the State. There s no barganng
by the muncpaty n connecton wth the matter. The owner of the property
condemned s obged to se t because of the e ercse of the rght of emnent
doman. There was no competton between the cty and other prospectve
purchasers, for the cty had a pror rght to the property and one that was
sub|ect ony to the requrement that t pay a far prce. On the other hand,
Rtnte and muncpa bonds and securtes ssued to borrow money, f ta
e empt, w command a better prce n the market than f they are sub|ect
to ta aton, because the purchaser s not compeed to buy them and, beng a
free agent, may be nduced by the ta -e empton feature to prefer them to
prvate bonds for nvestment. It dsregards the whoe purpose of the e emp-
ton to appy t to nterest upon obgatons of a State whch t can compe
a ctzen to take n e change for the far vaue of hs property. The rate of
nterest s f ed by aw and nether t. nor the amount of the award ad|udged
as of the tme of takng, s a matter over whch he has any contro.
Not ony s the meanng whch we attrbute to obgatons of a State n
accord wth the evdent purposes of grantng the e empton, but ths meanng
has been gven to smar words n varous decsons rendered by the Crcut
Courts of ppea and the oard of Ta ppeas.
In mercan scose Corporaton v. Commssoner (56 ed. (2d), 1033)
(C. C. . 3), the Unted States had refunded, n 1926, ncome ta es egay co-
ected for the years 1917 to 1919, and had added, pursuant to statute, nterest on
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107
22(b), rt. 84.
the amount so coected. The ta payer camed thut the Interest was e empt
from edera Income ta es because It was upon obgatons of the Unted
States, but the Crcut Court of ppeas of the Thrd Crcut hed that It
was not e empt, sayng:
The e emptons of Congress were evdenty meant to ad n the fotaton
of Government bonds and securtes by makng them ta -free and, therefore,
more attractve to nvestors. We see no reason why the constructon of the
statute shoud be so broadened ns to cover a transacton whch had no reaton
to the fotaton of securtes, but was one where the Government had wrong-
fuy coected money, and, n rghtng the wrong had pro tanto, compensated
therefor by payng nterest.
It s argued that the mercan scose decson shoud propery have been
put on the ground that the rght to a refund arose after September 1, 1917,
and that the nterest accrung thereupon was e pressy sub|ected to Income
ta es under the ast cause of secton 213(b)4(C). ut the court of appeas
e pressy put ts decson on the ground that the word obgatons mennt
Government bonds and securtes. It evdenty made no dfference that the
words obgatons of the Unted States, and not the words obgatons of
a State, were beng nterpreted, for the e emptons under secton 213(b)4 were
recproca, and the meanngs of the two phrases must be regarded as dentca.
In ansas Cty Southern Raway Co. v. Commssoner (16 . T. ., 665)
the oard of Tu ppeas hed that nterest pad by the Unted States to the
ansas Cty Southern Raway Co. upon deferred payments, due as com-
pensaton for the use of ts raroad propertes, whe operated by the Ra-
road dmnstraton, was not e empt from ta aton as nterest upon ob-
gatons of the Unted States and ts possessons. The decson was afrmed
by the Crcut Court of ppeas for the ghth Crcut ansas Cty South-
ern Raroad Co. v. Commssoner, 52 ed. (2d), 372.) The decson of the
oard n Mssour Pacfc Raway v. Commssoner (22 . T. ., at page 295)
kewse nvoved the queston of whether nterest pad by the Raroad dmn-
straton coud be ta es and was to the same effect as ansas Cty Southern
Raway Co. v. Commssoner (16 . T. ., 665).
In ne v. Commssoner (26 . T. ., 745) the oard of Ta ppeas fo-
owed the decson of udge ondy n the case at bar.
The decson n Ierna Savngs Loan Socety v. San rancsco (200 U. S
310) s sgnfcant. There the vadty of a ta mposed by the State of Ca-
forna as apped to checks or orders sgned by the Treasurer of the Unted
States was n queston. Secton 3701 of the Revsed Statutes e empted stocks,
bonds, Treasury notes and other obgatons of the Unted States from ta a-
ton by or under State authorty. Whe the Supreme Court hed
that such checks were obgatons of the Unted States, t determned that
they dd not come wthn the e empton. Though the decson does not govern
the present case, t shows that the word obgatons n an e empton caus|fc
s to be construed n the ght of the genera purposes of the e empton and s
not necessary a-embracng.
In vew of the foregong, we thnk that the dstrct court was rght n hod-
ng that nterest upon the condemnaton awards was not e empt under secton
213(b)4 of the ct of 1920, or secton 22(b) of the ct of 1928.
It s argued that the offce decson of the Commssoner of Interna Revenue
n 1920 (O. D. 591, C. . 3, 113), hodng that nterest upon a condemnaton
award s nterest upon an obgaton of a potca subdvson of a State and
s accordngy e empt, ought to be foowed.
We are not, however, referred to any contnuous governmenta practce n
conformty wth ths rung. The contrary vew was taken by the oard of Ta
ppeas n ansas Cty Southern Raway Co. v. Commssoner (16 . T. .,
665), and kewse by the Crcut Courts of ppea of the Thrd and ghth
Crcuts, and the orgna rung of the Commssoner has been e pressy re-
voked. Under such crcumstances, there can be no obgaton to gve the frst
departmenta rung any concusve weght. (Merrtt v. Cameron, 137 U. S., at
pages 551-552.)
The appeant nay contends that to ta the nterest on the awards s to
mpose an unawfu burden upon an nstrumentaty of a State. The answer
to ths s that the ta was upon the decedent s property, namey, the nterest
on hs awards, and he was n no sense an nstrumentaty of the State. The
functons of the State were nether mpared nor affected by the ta , nor coud
any burden possby be ad by t upon State nstrumentates.
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523(a), rt. 121.
108
s ughes, O. ., sad In Wcuta v. unn (282 U. S., 216 Ct D. 280, O. .
-, 309 ), where the Supreme Court hed that profts on saes of muncpa
bonds were sub|ect to edera Income ta es:
The power to ta Is no ess essenta than the power to borrow money, and.
In preservng the atter, t s not necessary to crppe the former by e tendng
the consttutona e empton from ta aton to those sub|ects whch fa wthn
the genera appcaton of nondscrmnatory aws, and where no drect burden
Is ad upon the governmenta nstrumentaty, and there s ony a remote, f
any. Infuence upon the e ercse of the functons of government.
( t page 223.) efore the power of the Congress to ay the e cse
ta n queston can be dened n the vew that t mposes a burden upon the
States borrowng power, t must appear that the burden s rea, not Imagnary
substanta, not neggbe. ( t page 234.)
The decson n urnet v. Coronado O Gas Co. (285 U. S., 393 Ct. D. 485,
C. . I-1, 2051) does not affect our concuson here. There, ands granted by
the Unted States to the State of Okahoma for the support of pubc schoos
and dedcated to State purpose under the State consttuton, were eased by the
State to a prvate company for e tracton of o and gas. The State reserved
a part of the gross proceeds, whch was pad nto the pubc schoo fund, whe
the essee was aowed to retan the remander. In such crcumstances, the
ease was treated as an nstrumentaty of the State and edera ta aton upon
the ncome derved by the essee under t was hed to be unconsttutona, be-
cause a burden upon an Instrumentaty of a State. Such a ta mght have
nterfered wth the rght of the atter to secure the best te ms n barganng
for the easng of Its ands. In the present case there was no barganng, nor
any possbty of barganng, between the ta payer and the cty of New York.
Tte passed to the atter by the e ercse of the rght of emnent doman. The
rea estate of the ta payer was not eased but transferred n nvtum to the
cty. Ta aton of the nterest upon hs award affected no governmenta func-
ton. (Group No. O Corporaton v. ass, 283 U. S., 279 Ct D. 330, O. .
-, 153 .)
Decree affrmed.
rtce 84: Interest upon State obgatons.
NT CT OP 1928.
Purchase and resae agreements of ta -e empt securtes. (See
G. C. M. 12355, page 100.)
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 121: usness e penses. II-35-6374
Ct. D. 724
INCOM T R NU CT OP 1928 D CISION O COURT.
1. Deducton Persona pense Lega pense Trade ob
usness.
penses ncurred by ta payer for ega servce In prosecutng
tgaton, wth other hers at aw of a arge estate, whereby a sub-
stanta amount was recovered by the estate, the ta payer recevng
her proportonate share thereof, are a persona e pense wthn the
meanng of secton 24(a) of the Revenue ct of 1928 and are not
an aowabe deducton, under secton 23(a) of that ct, as an
e pense n carryng on any trade or busness.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (26 . T. ., 741)
affrmed.
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109
23(a), rt. 121.
Unted States Crcut Court of ppeas for the Second Crcut.
Cara I ndey, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton to revew a decson of the oard of T. ppeas.
efore Manton, ugustus N. and, and Chase, Crcut udges.
March 6. 1933.
OPINION.
Chase, Crcut udge: The pettoner s one of severa hers at aw of Mary T.
, who ded ntestate n 1921. The admnstrator of the estate of Mary T.
fed an estate ta return and pad the ta computed thereon. Subse-
quenty, the Commssoner determned a defcency n the ta amountng to
1,130,616.08. The admnstrator pad the defcency under protest and brought
sut n the Dstrct Court for the Dstrct of Mnnesota to recover that as we
as te orgna ta pad. The sut was unsuccessfu and, upon advce of counse,
the admnstrator decned to take an appea. Thereupon, ths pettoner |oned
wth some of the other hers n takng an appea n the name of the admns-
trator and obtaned a reversa of the |udgment. s a resut, the estate recovered
the sum of 1,221,963.35 of whch ths pettoner receved her proportonate
share. She pad her share of the e penses of the tgaton undertaken by the
hers who acted wth her to have the rghts of the estate determned on appea
when the admnstrator decned to do that. Ths was pad n accordance wth
an agreement among the hers provdng for each to bear one-seventh of the
e penses. In 1928 the pettoner pad as her part of the fees of attorneys n
compance wth her agreement the sum of 13,507.65. She deducted ths
amount from her own gross ncome for that year n computng her net ncome
n her return.
The Commssoner dsaowed the deducton and determned a defcency
based upon the ncuson of that amount n her net ta abe ncome. The
oard of Ta ppeas sustaned the Commssoner and the pettoner now
seeks to revew ts decson.
The deducton Is camed under secton 23(a) of the Revenue ct of 1928
whch s quoted so far as appcabe:
In computng net ncome there sha be aowed as deductons:
(a) penses. the ordnary and necessary e penses pad or ncurred
durng the ta abe year n carryng on any trade or busness, .
No one w deny that the deducton camed can be aowed ony f t fary
fas wthn the provsons of the statute. That the payment was a necessary
e pense ncurred by the pettoner s pan enough. It s safe to assume that
no appea woud otherwse have been taken. Nor can t be sad that the
fees of attorneys are not ordnary e penses n the conduct of tgaton. (Com-
pare ornhauscr v. Unted States, 276 U. S., 145 T. D. 4222, C. . II-2, 267 .)
The dffcuty wth the poston of the pettoner s found In the attempt to
show that what she pad was an e pense n carryng on any trade or busness.
In enan v. owers (50 ed. (2d). 112 Ct. D. 367, C. . -2, 346 ), we
hed that a vountary payment by the benefcary of a trust by way of add-
tona C mpensaton to the trustees was a persona e pense and not deductbe.
It s true that n the enan case the e pense was apparenty unnecessary
whe here t had to be ncurred. Moreover, n Comm soner v. Wurts-Dundas
(54 ed. (2d), 515), we hed that the fees of attorneys necessary pad by
a guardan to obtan addtona ncome to whch the guardanshp was en-
tted were deductbe e penses In computng the net ncome n the guardan s
return. ut t must be notced that the e penses were n no sense persona
and were ncurred n the performance of a duty to obtan a ncome beongng
to the guardanshp.
In ths case, however, the pettoner was actng ony to secure her own
persona rghts as an her at aw even though she and the others dd so In
the name of the admnstrator. It must be remembered that the statute
(secton 24(a) of the 1928 ct) e pressy provdes that there sha be no
deducton for persona e penses. We can fnd no |ust bass for hodng that
the payments sought to be deducted stand any dfferenty than woud fees the
pettoner may have pad attorneys to secure advce upon whch to base her
decson to |on wth the other hers n defrayng the e pense of the appea.
er persona rghts were nvoved she pad attorneys to protect them and
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523(a), rt. 121.
110
Congress dd not see ft to aow any deducton from the gross ncome of a
ta payer for purey persona e penses. In ths respect ths case stands e -
acty as dd Commssoner v. ed (42 ed. (2d), 820), where we hed such
e penses as these coud not be deducted.
ffrmed.
rtce 121: usness e penses. II-42 6455
Ct. D. 742
INCOM T R NU CT O 1928 D CISION O CODRT.
Deducton Ordnary and Necessary pense.
pendtures made by the guardan of a ward for cerca serv-
ces n connecton wth the dsbursement of the ward s ncome, for
whch dsbursement the guardan receved commssons, are not
deductbe as ordnary and necessary e penses pad n carryng on
busness, wthn the meanng of secton 23 of the Revenue ct of
1928, where the dutes confded to the guardan were deegated to
empoyees ns a matter of persona convenence. The Government
s not bound by the decree of the surrogate court aowng the
guardan s account n whch such e pendtures were charged aganst
the ward s ncome.
Unted States Dstrct Court, astern Dstrct of New York.
Cordea dde Robertson, as Genera Guardan of the Person and state of
her Infant Son nthony Newton Duke, pantff, v. Water . Cortcn, Co-
ector of Unted States Interna Revenue for the rst Dstrct of the State
of New York, defendant.
une 16, 1933.
OPINION.
yers, D. .: Ths s an acton at aw to recover from the coector of n-
terna revenue of ths dstrct, 53.69, representng a ta of 47.56 wth 6.13
nterest sad to have been mpropery assessed n connecton wth the pantff s
ncome ta return for 1928, as guardan of her mnor son, nthony N. Duke.
The return asserted as a deducton authorzed by aw (ne 16) the sum of
1,942.68, whch embraced an tem of 777 descrbed as cerca hep, etc.
That tem was dsaowed, and the ta assessed n connecton therewth pre-
sents the pendng queston.
The peadngs rase no ssue of fact, but a moton by pantff for |udgment
on the peadngs was dened when made n advance of tra so that the pantff
mght have opportunty to dentfy, n the ega sense, the e pendtures
here nvoved wth those e amned n Commssoner of Interna Revenue v.
Wurts-Dundas (54 ed. (2d), 515).
It now becomes necessary to concude whether, as the resut of the tra, the
pantff has succeeded n so dong.
The ward s ncome for the year n queston was 22,831.97 accordng to the
return, derved as to 22,279.33 from trust companes as trustees, and as to
552.64 from nterest on bank baances and mortgage certfcates.
There was actuay receved a further sum not ncuded n the return, but t
was shown at the tra that ths was ta -pad at the source.
Under a decree of the surrogate s court of New York County, the guardan
s permtted to e pend the nfant s ncome for hs support and educaton to
the e tent of 28,800 per year, n order that he may mantan the scae of
vng whch s approprate to one of hs affuence. Ths s the provson of
the decree of May 14, 1980, .|udcay settng the guardan s ntermedate ac-
count coverng the perod from December 1, 1923, to December 31, 1928, ncu-
sve. The authorzaton above referred to s prospectve n operaton, to com-
mence on anuary 1, 1930.
The |udca settement so obtaned, sanctoned the e pendtures whch had
been made by the guardan durng the perod embraced n the account, n-
cudng those here nvoved, and e amnaton of the annua nventory and ac-
count fed n the surrogate s court at the cose of each caendar year reveas
that for the years 1926, 1927, and 1928, the guardan apped a porton of her
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I
23(a), rt. 121.
son s ncome to the househod e penses of the famy of whch he was a member,
hs stepfather, Thomas Markoe Robertson, beng the head.
The testmony s that the ward durng the year 1928 was chargeabe wth
one-quarter of such e penses, whch nvove the mantenance of homes n
Westbury and Southampton as we as the attendant charges for motorng,
yachtng and the ke. stabshng hs share of those dsbursements gave rse
o the dsputed tem, whch represents cerca servces, namey:
Share of Mss Cummns wages 559. 00
Share of Mss Wams wages 143. 00
702.00
. . a, accountant s servces 22. 50
52.50 75.00
777.00
The atter tem nvoves . 2.50 for servces n connecton wth the sad
Intermedate accountng whch was fed n the New York County surrogate s
court n November, 1929, and mght we have been embraced n the costs
awarded n the fna decree theren.
The testmony of Mss Wams aone was offered on ths tra, and t s
to the effect that she s empoyed by the ward s stepfather, and Is the prvate
secretary of the pantff. She has entre charge of the etter s bank accounts
as guardan. The ward ves wth hs mother and stepfather, and pays one-
quarter of a costs of the varous estabshments and appurtenances, and con-
sequenty the bs have to be checked n order to be sure of ther accuracy.
These mantenance charges run about 60,000 annuay, of whch the ward s
share s around 15,000.
so she checks the bs that are persona to hm, for tuton at schoo,
doctor s charges and the ke. She segregates the tems, and operates three
bank accounts n order to accompsh these purposes. She draws a checks,
e amnes vouchers and recepts, and spends from two to four hours per day
In tese varous dutes. s stated, 143 was pad n 1928 to ths wtness.
Nothng was sad about Mss Cummns servces, as to whom there s
charged neary four tmes as much.
The ncome ta return reveas that the guardan ncuded, n her deducton
of 1,942.68, the sum of 949.85 as commssons, presumaby computed accordng
to the New York aw, and not questoned by the coector.
That sum was more than suffcent to pay the dsputed tem.
The questons of aw are: rst, was the coector requred to regard the
acquescence of the surrogate s court of New York County n these partcuar
charges of the guardan aganst her son s ncome as bndng upon hm Second,
If not, were they ordnary and necessary e penses pad durng the ta abe year
n carryng on the busness of the guardanshp
The answer to the frst queston s n the negatve. Iofed v. Commssoner,
etc. (7 . T. ., 1302), whch nvoved payments made from ncome of mnors
to defray the e penses of removng a former guardan and an admnstratr
for ncompetence, s not to the contrary.
ere there was no ssue made between the speca guardan representng the
Infant, n the accountng proceedng, and the pettoner theren, touchng the
proprety of these deductons from the ward s ncome thus there was no
rea ad|udcaton by the surrogate whch, under the prncpes of comty, mght
be urged as controng.
More mportant s the fact that the surrogate dd not purport to construe
secton 23 of the Unted Stntes Revenue ct of 1928, whch s the duty of ths
court, wth respect to these matters. It s qute concevabe that the decson
heren w not be deemed apposte upon the ne t settement of the guardan s
accounts n the surrogate s court.
The answer to the second queston does not nvove consderng whether
there s such a thng as carryng on the busness of admnsterng a ward s
estate, for such has been recognzed for the purposes of the Revenue ct
(Commssoner, etc., v. Wurts-Dundas, supra).
Under crcumstances that nvove preservng the estate, or ncreasng t,
awyers bs have been aowed as proper deductons.
ere the guardan was not requred to put forth efforts to garner the ncome,
as w be seen from the consttuency above stated. Nor was she caed upon
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523(a), rt. 121.
112
to preserve or ncrease the ward s estate durng the ta abe year. The dutes
of coecton conssted n depostng checks n a bank, a process yng wthn
the capacty of (he average person.
The dsbursement of the ncome s one of the thngs compensated for by tho
commssons aowed by aw. So far as the bs for tuton and other e pend-
tures persona to the ward are concerned, supervson thereof was confded
to the guardan the ward s mother by the surrogate s court. If she chose
to deegate that duty to others, that was a matter of persona convenence
to her, rather than such a busness e pense as the cases have sanctoned for
the purposes of ncome ta deductons.
Wth reference to the househod bs, t w be seen that, however consd-
erabe they may be n number and n deta, they represent n effect what the
pantff s husband and hersef present to the guardan as the nfant s share
of mantanng the famy abodes and menage they come therefore to the
guardan wth the presumpton of reguarty and authentcty nherent n
ther sponsorshp. It woud be a strange reasonng that woud ead to the
concuson that the ward s ncome shoud be e empt n part from the ta n
queston n order that he may be made secure aganst mstaken charges pre-
sented by hs mother and hs stepfather.
If checkng these varous bs s to be regarded as part of the cost of man-
tanng the estabshments, on the theory that eaborate domestc admnstra-
ton nvoves cerca servces, the answer woud be that they may be presumed
to have been absorbed n the genera charge of 25 per centum of rent and
househod e pense, charged to the ward for the year 1928 as stated.
These refectons nduce the beef that the coector was rght and that the
Items n queston represent e pendtures made by the guardan for her own
persona convenence, rather than necessary deductons n connecton wth
the busness of her guardanshp, and that udgment must be awarded to the
defendant, wth costs.
rtce 121: usness e penses. II-48-6533
Ct. D. 755
INCOM T R NU CTS O 1924, 1926, ND 1928 D CISION OP SUPR M
COU T.
1. Deducton Ordnary and Necessary pense,
Where the ta payer, a commsson agent, and formery the
secretary of a corporaton whch had been ad|udged an nvo-
untary bankrupt and had a dscharge from ts debts, durng the
years 1924-1928 pad substanta portons of the debts of the
corporaton n order to reestabsh hs reatons wth customers
he had known when actng for the corporaton and to sodfy
hs credt and standng, such payments are n the nature of cap-
ta e pendtures and are not deductbe from ncome for those
years as ordnary and necessary busness e penses, wthn the
meanng of secton 214 of the Revenue cts of 1924 and 1926 and
secton 23 of the Revenue ct of 1928.
2. Decson ffrmed.
The decson of the Crcut Court of ppeas, ghth Crcut (63
ed. (2d), 976), affrmng 25 . T. ., 117, affrmed.
Supreme Court of the Unted States.
Thomas . Wech, pettoner, v. Guy T. everng, Commssoner of Interna
Revenue, respondent.
On wrt of certorar to the Crcut Court of ppeas for the ghth Crcut
November 6, 1933.
OPINION.
Mr. ustce Cardozo devered the opnon of the court.
The queston to be determned Is whether payments by a ta payer, who Is
In busness as a commsson agent, are aowabe deductons n the computaton
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113
23(a), rt- 121.
of hs Income If made to the credtors of a bankrupt corporaton In an en-
deavor to strengthen hs own standng and credt.
In 1922 pettoner was the secretary of the . L. Wech Co., a Mnnesota
corporaton, engaged n the gran busness. The company was ad|udged an
Invountary bankrupt, and had a dscharge from ts debts. Thereafter the
pettoner made a contract wth the eogg company to purchase gran for
It on a commsson. In order to reestabsh hs reatons wth customers
whom he had known when actng for the Wech company and to sodfy
hs credt and standng, he decded to pay the debts of the Wech busness
so far as he was abe. In fufment of that resove, he made payments of
substanta amounts durng fve successve years. In 1924, the commssons
were 18,028.20 the payments 3,975.97 n 1923, the commssons 31,377.07
the payments 11,968.20 In 1926, the commssons 20,925.25, the payments
12,815.72 In 1927, the commssons 22,119.61, the payments 7,379.72 and
In 1928, the commssons 26,177.56, the payments 11,068.25. The Comms-
soner rued that these payments were not deductbe from ncome as ord-
nary and necessary e penses, but were rather n the nature of capta e pend-
tures, an outay for the deveopment of reputaton and good w. The oard
of Ta ppeas sustaned the acton of the Commssoner (25 . T. ., 117),
and the Court of ppeas for the ghth Crcut affrmed. (63 . (2d), 976.)
The case s here on certorar.
In computng net ncome there sha be aowed as deductons
a the ordnary and necessary e penses pad or ncurred durng the ta abe
year n carryng on any trade or busness. (Revenue ct of 1924, ch. 234
43 Stat., 253, 269, secton 214 26 U. S. C, secton 955 Revenue ct of 1926,
ch. 27 44 Stat., 9, 26, secton 214 26 U. S. C. pp., secton 955 Revenue ct of
1928, ch. 852 45 Stat., 791, 799, secton 23 cf. Treasury Reguatons 65, artces
101, 292, under the Revenue ct of 1924, and smar reguatons under the
cts of 1926 and 1928.)
We may assume that the payments to credtors of the Woch company were
necessary for the deveopment of the pettoner s busness, at east n the sense
that they were approprate and hepfu. McCuoch v. Maryand, 4 Wheat.,
316.) e certany thought they were, and we shoud be sow to overrde hs
udgment. ut the probem s not soved when the payments are characterzed
as necessary. Many necessary payments are charges upon capta. There
s need to determne whether they are both necessary and ordnary. Now,
what s ordnary, though there must aways be a stran of constancy wthn t,
s none the ess a varabe affected by tme and pace and crcumstance. Ord-
nary n ths conte t does not mean that the payments must be habtua or norma
n the sense that the same ta payer w have to make them ofte . awsut
affectng the safety of a busness may happen once n a fetme. Tho counse
fees may be so heavy that repetton s unkey. None the ess, the e pense
s an ordnary one because we know from e perence that payments for such
a purpose, whether the amount s arge or sma, arc the common and accepted
means of defense aganst attack. (Cf. Iornhauscr v. Unted States, 276 U. S.,
145.) The stuaton s unque n the fe of the ndvdua affected, but not n
the fe of the group, the communty, of whch he s a part. t such tmes
there are norms of conduct that hep to stabze our |udgment, and make t
certan and ob|ectve. The nstance s not erratc, but s brought wthn a
known type.
The ne of demarcaton s now vsbe between the case that s here and
the one supposed for ustraton. We try to cassfy ths act as ordnary or the
opposte, and the norms of conduct fa us. No onger can we have recourse
to any fund of busness e perence, to any known busness practce. Men
do at tmes pay the debts of others wthout e a obgaton or the ghter
obgaton mposed by the usages of trade or by neghbory amentes, but
they do not do so ordnary, not even though the resut mght be to heghten
ther reputaton for generosty and opuence. Indeed, f anguage s to be
read n ts natura and common meanng (Od Coony R. R. Co. v. Comms-
soner, 284 U. S., 552, 560 Yooford Reaty Co. v. Rose, 286 U. S., 319, 327),
we shoud have to say that payment n such crcumstances, nstead of beng
ordnary s n a hgh degree e traordnary. There s nothng ordnary n the
stmuus evokng t, and none n the response. ere, ndeed, as so often In
other branches of the aw, the decsve dstnctons are those of degree and
not of knd. One strugges n van for any verba formua that w suppy a
ready touchstone. The standard set up by the statute s not a rue of aw t
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523(c), rt. 151.
114
Is rather a way of fe. Lfe In a ts funess must suppy the answer to
the rdde.
The Commssoner of Interna Revenue resorted to that standard n assess-
ng the pettoner s ncome, and found that the payments n controversy came
coser to capta outays than to ordnary and necessary e penses n the
operaton of a busness. s rung has the support of a presumpton of
correctness, aud the pettoner has the burden of provng t to be wrong.
(Wckwre v. Renecke, 275 U. S., 101 ones v. Commssoner, 38 . (2d), 550,
552.) Uness we can say from facts wthn our knowedge that these are
ordnary and necessary e penses accordng to the ways of conduct and the
forms of speech prevang n the busness word, the ta must be confrmed.
ut nothng tod us by ths record or wthn the sphere of our |udca notce
permts us to gve that e tenson to what s ordnary and necessary. Indeed,
to do so woud open the door to many bzarre anaoges. One man has a
famy name that s couded by thefts commtted by an ancestor. To add to
hs own standng he repays the stoen money, wpng off, t may be, hs ncome
for the year. The payments fgure n hs ta return as ordnary e penses.
nother man conceves the noton that he w be abe to practce hs vocaton
wth greater ease and proft f he has an opportunty to enrch hs cuture.
orthwth the prce of hs educaton becomes an e pense of the busness,
reducng the ncome sub|ect to ta aton. There s tte dfference between
these e penses and those n controversy here. Reputaton and earnng are
akn to capta assets, ke the good w of an od partnershp. (Cf. Coony
Coa d Coke Corporaton v. Commssoner, 52 . (2d), 923.) or many, they are
the ony toos wth whch to hew a pathway to success. The money spent n
acqurng them s we and wsey spent. It s not an ordnary e pense of the
operaton of a busness.
Many cases n the edera courts dea wth phases of the probem presented
n the case at bar. To attempt to harmonze them woud be a fute task.
They nvove the apprecaton of partcuar stuatons, at tmes wth border-
ne concusons. Typca ustratons are cted n the margn.1
The decree shoud be affrmed.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 151: Ta es.
R NU CT O 1928.
Montana gasone ta . (See I. T. 2703, page 39.)
Ordnary e penses: Commssoner v. I cope s-Pttsburgh Trust Co. (60 . (2d), 187),
e penses Incurred n the defense of a crmna charge growng out of the busness of the
ta payer mercan Rong M Co. v. Commssoner (41 . (2d). 314), contrbutons to
a cvc Improvement fund by a corporaton empoyng haf of the wage earnng popuaton
of the cty, the payments beng made, not for charty but to add to the sk and pro-
ductvty of the workmen (cf. the decsons coated In 30 Coumba Law Revew, 1211,
1212, and the dstnctons there drawn) Comng Cass Works v. Lucas (37 . (2d),
7 8). donatons to a hospta by a corporaton whose empoyees wth ther dependents
made up two-thrds of the popuaton of the cty arrs v. Lucas (48 . (2d), 187),
payments of debts dscharged n bankruptcy, but sub|ect to be revved by force of a new
promse. Cf. Lucas v. O bre rush Co. (281 U. S., 115), where addtona compensa-
ton, reasonabe n amount, was aowed to the offcers of a corporaton for servces pre-
vousy rendered.
Not ordnary e penses: ubngcr v. Commssoner (36 . (2d), 724), payments by the
ta payer for the repar of fre damage, such payments beng dstngushed from those for
wear and tear Loud v. Commssoner (55 . (2d), 842), counse fees Incurred by the
tapayer, the presdent of a corporaton, In prosecutng a sander sut to protect hs
reputaton and that of hs busness: 105 West 55th Street v. Commssoner (42 . (2d).
849) and arkccU O Gas Co. v. Unted States (00 . (2d), 257), gratutous payments
to stockhoders In settement of dsputes between them, or assume the e pense of a
awsut n whch they had been made defendants Whte v. Commssoner (61 . (2d),
720), payments n settement of a awsut aganst a member of a partnershp, the effect
beng to enabe hm to devote hs undvded efforts to the partnershp busness and aso
to protect Its credt.
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115
23(e), rt. 171
rtce 151: Ta es.
R NU CT O 1928.
Wsconsn State ncome ta es, husband and wfe fng ether |ont
or separate State and ether |ont or separate edera returns. (See
L T. 2741, page 48.)
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
rtce 171: Losses. II-40-6430
G. C. M. 12151
R NU CT O 1928.
No part of the Increased prce, whch the ta payer pad for
surface and and mprovements In order to avod tgaton arsng
out of damage thereto caused by the ta payer s coa mnng opera-
tons, s deductbe as an e pense for the year 1930. Unt there
has been a sae or other dsposton of the property t can not .be
determned whether a oss has actua been sustaned.
n opnon s requested whether the ta payer shoud be permtted
to deduct as an e pense for the year 1930 any part of the cost of
surface and and mprovements thereon whch were purchased by
the ta payer n that year prmary to avod tgaton over the
damage caused by ts coa mnng operatons. The nqury arses
as a resut of the decson of the oard of Ta ppeas n Man-
chester Coa Co. v. Commssoner (24 . T. ., 577, nonacquescence,
C. . I-1, 10).
The ta payer corporaton s the owner of coa ands whch t has
eased to coa companes on a royaty bass. In some cases t does
not own the surface over the coa. Durng and after the e tracton
of the coa the surface has been n|ured by subsdence, causng breaks
and n|ury to wes and budngs. In pror years suts were entered
aganst the ta payer by the owners of the damaged surface and
whch resuted n verdcts often n e cess of the actua fee vaue of
such and and mprovements. fter numerous costy suts the ta -
payer decded to purchase the surface and and mprovements at
agreed prces. Ths procedure was foowed n 1930. When the
purchases were made the ta payer, after consutaton wth ts eng-
neers and the essee company, determned what t consdered to be
the vaue of the surface and and mprovements. Ths vaue was
charged to a so-caed and account. The dfference between ths
vaue and the cost was charged as and damages and deducted as
an e pense on the ta payer s ncome ta return.
In the case of the Manchester Coa Co., supra, the ta payer com-
pany was engaged n the mnng of coa by the open-pt or strppng
method, whch operaton destroyed the market vaue of the surface
of the ands so mned. In ts decson n that case the oard hed
that as the mnng operatons resuted n the destructon of the entre
vaue of the surface and not merey an mparment or shrnkage of
such vaue, the cost of the and shoud be added to the cost of the coa
n determnng the depeton aowabe. The oard dstngushed ts
decson n that case from ts decson n the case of Mrs. . C. Pugh,
Sr., ecutr , et a., v. Commssoner (17 . T. ., 429, C. . -2,58,
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23 (k), rt. 204.
116
affrmed 49 ed. (2d), 76, certorar dened, 284 U. S., 642), n whch
t hed that a shrnkage n the vaue of surface rghts n and owned
by the pettoners, due to seepage from wes dred thereon, was
not an aowabe deducton to the pettoners for the year n whch
the oss n vaue took pace, and that unt there had been a sae or
other dsposton of the property t woud be mpossbe to state
whether a gan or a oss woud be sustaned.
In the present case the ssue s whether any part of the ncreased
prce, whch the ta payer corporaton pad for the surface and
and mprovements n order to avod tgaton arsng out of damage
to such and and mprovements caused by the ta payer s coa mnng
operatons, s deductbe as an e pense. The nstant queston s ds-
tngushabe from the questons nvoved n the appeas of the Man-
chester Coa Co. and Mrs. . C. Pugh, Sr., et a., supra. In so far
as the prncpe nvoved n the cases decded by the oard s ap-
pcabe to the ssue here under consderaton, t s the opnon of
ths offce that the decson n the Pugh case, dsaowng a deduc-
ton for mparment of vaue of surface and, has a more drect
bearng thereon, snce both the Pugh case and the nstant case n-
vove merey an mparment n the vaue of the surface and.
It s aso the opnon of ths offce that the queston here nvoved
s governed by the prncpe ad down n I. T. 2657 (C. . I-2, 55),
that The purchase of property at a prce greater than ts market
vaue does not resut n a deductbe oss for ncome ta purposes.
(See aso M. . eUmers v. Commssoner, 5 . T. ., 198 Schuman
Pano Co. v. Commssoner, 10 . T. ., 118 O. D. 851, C. . 4, 179
. R. R. 906, C. . 1-1, 143.) The rung ast cted ( . R. R. 906)
hed that the purchase of a factory and equpment for more than ther
rea vaue, n order to sette tgaton, resuted n no deductbe oss
under the ct of ugust 5, 1909. The same prncpe s appcabe
under the ater Revenue cts. Unt there has been a sae or other
dsposton of the property t can not be determned, n cases of
ths character, whether a oss deductbe for ncome ta purposes
has n fact been sustaned.
ccordngy, t s the opnon of ths offce that the ta payer may
not deduct as an e pense for the year 1930 any part of the ncreased
prce whch t pad for the surface and and mprovements n ques-
ton.
. arrett Pretttman,
Genera Counse, ureau of Interna Revenue.
S CTION 23(k). D DUCTIONS ROM GROSS
INCOM : D PR CI TION.
rtce 204: Capta sum recoverabe through deprecaton
aowances.
R NU CT O 1928.
owance of deprecaton deductons for eased property where
essee s obgated to mantan same and to return t or equvaent
property at termnaton of ease. (Sec G. C. M. 11933, page 52.)
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117
23(m), rt. 242.
S CTION 23(m). D DUCTIONS ROM GROSS INCOM :
SIS OR D PR CI TION ND D PL TION.
rtce 242: owabe capta addtons n II-32-6331
case of mnes. T. D. 4376
( so Secton 111, rtce 561.)
INCOM T .
rtces 222 and 1561 of Reguatons 69, artce 242 of Regua-
tons 74, and artce 561 of Reguatons 74, as amended by Treasury
Decson 4321 C. . -2, 169 , amended.
Treasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
rtce 222 of Reguatons 69 and artce 242 of Reguatons 74
are hereby amended by the emnaton of the frst sentence of para-
graph (b), and the substtuton therefor of two sentences readng
as foows:
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 account recoverabe through deprecaton. -
pendtures for equpment (ncudng ts nstaaton and housng) and for re-
pacements 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
ncrease the vaue of the mne, or (2) do not decrease the cost of producton of
mnera unts, or (3) do not represent an amount e pended n restorng prop-
erty or n 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.
rtce 1561 of Reguatons 69 s hereby amended by nsertng after
the second sentence n the second paragraph thereof the foowng:
In the case of mnes and o or gas wes the cost or other bass of the
property sha not be ncreased by (1) e pendtures made n the ta abe year
1925 or subsequent ta abe years and aowed under artce 222 or artce 223
ss deductons n computng net ncome, or (2) e pendtures made n ta abe
years pror to 1925 and aowed as deductons n computng the net ncome of
the ta payer for such ta abe years.
rtce 561 of Reguatons 74, as amended by Treasury Decson
4321 (C. . -2,169), s hereby amended by nsertng after the thrd
sentence of the second paragraph thereof the foowng:
In the case of mnes and o or gas wes the foowng sha not be consdered
as tems propery chargeabe to capta account: (1) pendtures made n
the ta abe year 1928 or subsequent ta abe years and aowed under artce
242 or artce 243 as deductons n computng net ncome (2) e pendtures
made n ta abe years pror to 1928 and aowed as deductons n computng
the net ncome of the ta payer for such ta abe years.
Gut T. everno,
pproved uy 26, 1933. Commssoner.
Thomas ewes,
ctng Secretary of the Treasury.
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52, rt. 391. 118
S CTION 23(n). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
rtce 261: Contrbutons or gfts by ndvduas.
R NU CT O 1928.
Contrbutons to Savaton rmy and branches. (See I. T. 2747,
page 70.)
P RT I . CCOUNTING P RIODS ND M T ODS O CCOUNTING.
S CTION 44. INST LLM NT SIS.
rtce 352: Sae of rea property nvovng deferred
payments.
R NU CT O 1928.
Casua saes of rea property on nstament pan. (See G. C. M.
12148, page 57.)
P RT . R TURNS ND P YM NT O T .
S CTION 52. CORPOR TION R TURNS.
rtce 391: Corporaton returns. II-33-6341
G. C. M. 11954
R NU CT O 1928.
Snce the ta payer, a foregn corporaton, had both an agent
n the Unted States and an offce or pace of busness n the
Unted States, t s not wthn the provsons of secton 235 of
the Revenue ct of 1928. Secton 52(a) of the Revenue ct of
1928 s controng, and a return form fed In the name of the ta -
payer whch was not sworn to by the presdent, vce presdent,
or other prncpa offcer and by the treasurer or assstant treas-
urer, Is not a return wthn the meanng of the statute.
n opnon has been requested whether a foregn corporaton,
havng an offce or pace of busness n the Unted States and aso an
agent theren, may be hed to have fed a return whch starts the
runnng of the perod of mtaton prescrbed by secton 275 of the
Revenue ct of 1928, where the return form submtted was not
sworn to as requred by aw.
Secton 52(a) of the Revenue ct of 1928 provdes as foows:
Requrement. very corporaton sub|ect to ta aton under ths tte sha
make a return, statng specfcay the tems of ts gross ncome and the deduc-
tons and credts nowed by ths tte. The return sha be sworn to by the
presdent, vce presdent, or other prncpa offcer and by the treasurer or
assstant treasurer.
Secton 235 of the Revenue ct of 1928 provdes as foows:
If any foregn corporaton has no offce or pace of busness n the
Unted States but has an agent n the Unted States, the return sha be made
by the agent.
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119
101, rt. 501.
The nstant ta payer had both an agent n the Unted States
and an offce or pace of busness n the Unted States. ccord-
ngy, t s not wthn the provsons of secton 235 of the Revenue
ct of 1928, but secton 52(a) of that ct s controng. orm 1120
fed n the name of the ta payer was not sworn to by the pres-
dent, vce presdent, or other prncpa offcer and by the treasurer
or assstant treasurer, and was not, therefore, a return wthn the
meanng of sectons 52(a) and 275 of the Revenue ct of 1928.
(Lucas v. The Pod Lumber Co., 281 U. S., 245, Ct. D. 266, C. .
I -2, 396.) Genera Counse s Memorandum 11000 (C. . I-2,
298) s not n pont, snce n that case the ta payer had no offce
or pace of busness n the Unted States.
. arrett Pretttman,
Genera Counse, ureau of Interna Revenue.
S CTION 55. PU LICITY O R TURNS.
rtce 421: Inspecton of returns.
R NU CT O 1928.
Speca Commttee to Investgate oregn and Domestc, Ocean and
r Ma Contracts. (See T. D. 4378, page 219.)
rtce 421: Inspecton of returns.
R NU CT O 1928.
Speca Commttee to Investgate Recevershp and ankruptcy
Proceedngs and ppontment of Recevers and Trustees. (See
T. D. 4397, page 220.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. C PIT L N T G INS ND LOSS S.
rtce 501: Defnton and ustraton of II-37-6395
capta net gan. G. C. M. 12118
R NU CT O 1928.
n unmted conveyance for a cash consderaton of the essor s
reserved royaty under an o and gas ease, or a fractona nterest
theren, may be treated as a sae of a capta asset wthn the pur-
vew of the capta gans provson (secton 101) of the Revenue
ct of 1928, provded the nterest n the property sod otherwse
fas wthn the defnton of the term capta assets as defned
n secton 101.
n opnon s requested whether, n vew of the decson of the
Supreme Court of the Unted States n the case of urnet v. arme
(287 U. S., 103, Ct. D. 611, C. . I-2, 210), an unmted conveyance
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101, rt. 501.
120
for a cash consderaton of the essor s reserved royaty under an
o and gas ease, or a fractona nterest theren, may be treated as
a sae of a capta asset under secton 101 of the Revenue ct of
1928.
In urnet v. arme, supra, the Supreme Court of the Unted
States hed that where an owner n fee e ecutes an o and gas ease
for a specfed term and as ong thereafter as o and gas sha be
produced by the essee, n consderaton of a cash bonus and stpu-
ated royates measured by the producton of o and gas, the bonus
and royates are not gan from the sae or e change of capta
assets wthn the meanng of secton 208(a) 1 of the Revenue ct
of 1924, but are ta abe as ordnary ncome. The court sad that rre-
spectve of any partcuar characterzaton of the payments n the
oca aw, for the purpose of appyng the capta gans provson
the Revenue cts of Congress have ther own crtera, and when
|udged accordngy an o and gas ease s not to be descrbed as a
sae of the mnera content of the so, usng the term ether n
ts technca sense or as t s commony understood. Referrng to
ts pror decsons under the corporaton e cse ta aw of 1909.
the Supreme Court sad that they estabshed, for purposes o
defnng ncome n a ta measured by t, that payments by essees
to essors under mnng eases were not a converson of capta, as
upon a sae of capta assets, but were ncome to the essor, ke pay-
ments of rent, ctng Stratton s Independence, Ltd., v. owbert (231
U. S., 399) Godfed Consodated Mnes Co. v. Scott (247 U. S.,
126) Stanton v. atc Mnng Co. (240 U. S., 103) on aumbachv.
Sargent Land Co. (242 U. S., 503) and Unted States v. wabh
Mnng Co. (247 U. S., 116). The decson n urnet v. arme,
supra, confrmed a ne of opnons of the oard of Ta ppeas,
ncudng enry L. erg et a. v. Commssoner (6 . T. ., 1287)
ohn T. urkett v. Commssoner (7 . T. ., 560) ames R. Parkey
et a. v. Commssoner (16 . T. ., 441) enry arme v Comms-
soner (19 . T. ., 376) and W. P. erguson v. Commssoner (20
. T. ., 130).
The oard of Ta ppeas has hed that a conveyance by deed,
for a cash consderaton, of an nterest n the essor s mnera rghts,
sub|ect to an e stng o and gas ease under whch the essee has
the rght to operate for a term of years or so ong as o or gas s
produced from the and by the essee, consttutes a sae of a capta
asset wthn the capta gans provson (secton 206) of the Revenue
ct of 1921. (/. . Murphy v. Commssoner, 9 . T. ., 610, C. .
III-2, 37, and . D. Reynods v. Commssoner, 10 . T. ., 651,
C. . III-2, 44.) fractona nterest n the royaty reserved,
under the ease was consdered to have passed to the grantee as an
ncdent of the conveyance n each of the cases cted.
The oard has aso decded that the conveyance for a cash
consderaton of a fractona nterest n a reserved royaty as such
s a sae of property wthn the meanng of secton 202 of the
Revenue ct of 1921, and that the grantor of such an nterest s
not entted, n determnng ta abe ncome, to appy aganst the
consderaton receved a depeton deducton based upon the ds-
covery vaue depeton base provded for n secton 214 (a) 10 of the
Revenue ct of 1921. ( ppea of nna Tayor, 3 . T. ., 1201
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121
103, rt. 521.
/. M. udson v. Commssoner, 14 . T. ., 983.) These decsons
of the oard sustaned the poston of the Commssoner. If such a
conveyance of a reserved royaty, or a fractona nterest theren,
consttutes a sae of property for the purposes of secton 202 of the
Revenue ct of 1921 t aso quafes as a sae of a capta asset
under secton 206 of that ct, assumng that the reserved royaty s
an nterest whch the essor has owned for more than two years
pror to the conveyance.
The ureau has hed foowng the oard s decson n the case
of . . Murphy v. Commssoner, supra, that a conveyance by
royaty deed of a fractona nterest n the o, gas, and other mn-
eras under certan ands, and n the royaty rghts m respect thereto,
wthout mtaton as to duraton of tme s a sae of capta assets,
and that the provsons of secton 208 of the Revenue ct of 1926
are appcabe to such a sae. (I. T. 2524, C. . I -1,199.) In such
a case the fractona nterest n the reserved royaty passes to the
grantee as an ncdent of the grant of a fractona nterest of the
essor s reserved o and gas rghts sub|ect to the ease.
s heretofore ndcated, the case of urnet v. arme, supra,
estabshes the prncpe that a payments from essee to essor under
an o and gas ease are ncome from the use of the and and are
not gan from the sae or converson of capta assets. Ths rue
shoud be apped n a cases where the nstrument of grant may be
cassfed propery as a ease. Ths offce s of the opnon, how-
ever, that n the case of an unmted conveyance for a cash con-
sderaton of the essor s reserve royaty under an o and gas ease,
or of a fractona nterest theren, as n the cases of . . Murphy v.
Commssoner, supra, and the ppea of nna Tayor, supra, the
conveyance may be treated as a sae of a capta asset wthn the
purvew of the capta gans provson (secton 101) of the Revenue
ct of 1928, provded the nterest n the property sod otherwse
fas wthn the defnton of the term capta assets as defned n
secton 101.
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
S CTION 103. MPTIONS ROM T ON
CORPOR TIONS.
rtce 521: Proof of e empton. II-31-6319
Ct. D. 709
INCOM T R NU CTS O 1926 ND 192S D CISION OP COURT.
empton Mutua ke Insurance ssocaton.
fre Insurance assocaton orgnay organzed as a purey mu-
tua assocaton whch subsequenty authorzed Issuance of non-
partcpatng term nsurance for a f ed premum, about 10 per
cent of ts busness beng wrtten upon the term pan, s not a
mutua fre nsurance assocaton that s e empt from ta under
secton 231(11) of the Revenue ct of 1926 and secton 103(11)
of the Revenue ct of 1928. udng and oan assocaton cases
dstngushed.
87408 34
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103, rt. 521.
122
Court of Cams of the Unted States.
atmore qutabe Socety v. The Unted States.
May 8, 1933.
OPINION.
Green, udge, devered the opnon of the court.
Ths acton s begun to recover ta es aeged to have been wrongfuy co-
ected from pantff for the years 1025, 1926, 1927, and 1928.
The pantff s a vountary assocaton dong an nsurance busness. The
Commssoner assessed upon ts net ncome for the years mentoned above the
corporaton ncouu| ta . The pantff cams to be e empt therefrom under the
provsons of the statute that read as foows:
Sec. 103. emptons from ta on corporatons.
The foowng organzatons sha be e empt from ta aton under ths tte:

(11) armers or other mutua ha, cycone, casuaty, or fre nsurance com-
panes or assocatons (ncudng nternsurers and recproca underwrters)
the ncome of whch s used or hed for the purpose of payng osses or
e penses.
There s no dspute as to the facts, athough there s a dspute as to the ut-
mate concusons whch may be drawn therefrom. s stated above, the pan-
tff s a vountary assocaton dong a fre nsurance busness, wthout havng
any capta stock. Its orgna charter provded for nsurng bouses from oss
by fre and that each member shoud contrbute annuay to the osses and share
the gans and advantages arsng by reason of the covenants of nsurance and
the payments requred from the subscrbers or members. very person nsur-
ng was requred to depost a certan sum whch was to be returned at the
e praton of the pocy taken out wth a proportonabe dvdend of the profts
that had accrued, deductng osses and ncdent charges. Under the terms of
the charter the members of the socety secured nsurance poces for a term of
seven years, and at the concuson of the 7-year perod each member was re-
qured to pay hs respectve proporton of a osses and charges for that
perod. Later, n 1865, a pan of perpetua nsurance was adopted under whch
a member ou the payment of a f ed depost was protected aganst parta or
tota oss by fre of the property nsured to the e tent nsured, perpetuay or
to such a tme as he ceased to be a member by wthdrawng hs depost. Pror
to the tme when the pan of perpetua nsurance was adopted, and n 1858, a
resouton was adopted authorzng the socety to wrte term nsurance at a
f ed premum for a perod of ess than seven years. The pantff contends
that under these facts t was at a tmes a mutua company n whch the mem-
bers were the partes nsured and that the provson for wrtng term nsurance
was merey ncdenta.
The defendant on the other hand contends that t Is not a mutua company
wthn the meanng of the statute, and that ts ncome s not used or hed
for the purpose of payng osses or e penses. The atter ob|ecton w frst be
consdered.
ndng 9 shows that the company had a surpus of 1,336,482.57 n 1924
whch ncreased each year thereafter unt n 1928 t reached the sum of
1,719,610.44. The defendant contends that ths surpus was arger than was
necessary to pay the ordnary osses and e penses of the company. The pan-
tff practcay admts ths, but argues n effect that under the crcumstances
of the case no more s carred than woud be dctated by ordnary prudence.
The evdence shows that the company mts ts rsk to budngs n the cty of
atmore, whch undoubtedy enhances the amount to whch t mght In event
of an e tensve fre be caed upon to pay. The company was n e stence at the
tme of the great atmore fre whch so argey depeted Its surpus that It
needed to be ncreased and but up. It s now contended that the company
carres no more than s proper n vew of the fact that such a fre mght recur.
s we vew the stuaton, whe t s not key that there w be another such
1 Revenue ct of 1928 (45 Stat., 791. 812). The same provson was contaned n
secton 231 of the Revenue ct of 1928 (44 Stat., 9, 39).
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123
103, rt. 521.
great confagraton t s qute possbe. Defendant cas attenton to the fact
that the surpus s ncreasng somewhat each year, but we do not thnk that
ths shows that t s not hed for the purpose of payng osses or e penses.
The ony other dsposton that coud be made of t s to dstrbute a certan
porton thereof to the stockhoders, for whch provson has been made by a
resouton adopted provdng that f at any tme the. reserved surpus shoud
amount to a sum equa to 10 per cent of the tota amount of the rsks assumed
by the pantff, pus 00,000, such e cess shoud be dstrbuted among the
members as a dvdend but no dvdend has ever been pad. We doubt whether
the word dvdend s proper as apped to such a dstrbuton. Certany
t woud not be a dstrbuton of any profts but merey a return to the mem-
bers of amounts coected whch were n e cess of the amount necessary to
meet osses and e penses. The dstrbuton s made when t s determned that
t s no onger necessary to hod these amounts to pay osses and e penses
and f a arger amount was accumuated than necessary or hed onger than
necessary the purpose of the accumuaton was to pay osses and e penses
therewth, and the acton of the assocaton n accumuatng more than was
necessary or hodng the accumuatons onger than was necessary was merey
an error n |udgment and does not affect the purpose and ob|ect n vew.
The other ob|ecton, as we thnk, s more serous and fata to the pantff s
case. s before stated, the pantff was orgnay a purey mutua company
n whch the premums pad by each member consttuted a common fund de-
voted to the payment of any osses that mght occur and n whch a of the
persons nsured were members of the assocaton and equay assessed n pro-
porton to each member s nsurance ether to meet osses whch mght occur n
the future or whch the company mght not have on hand funds to dscharge.
ut subsequenty and durng a perod whch nvoved the years for whch the
ta es n queston were eved the company or assocaton by vrtue of another
resouton authorzed the ssue of term nsurance for a f ed premum for a
perod of ess than seven years. The pantff contends that as ony about 10
per cent of ts nsurance was wrtten upon the term pan for a f ed premum,
ths amount s too sma to affect the genera nature of the company. We do
not thnk ths poston s we taken. s to those who receved ths term n-
surance at a f ed premum, there was no mutuaty. They pad n advance
for ther nsurance, and that was the end of a payments and abtes so far
as they were concerned. That the number so nsured s sma compared wth
the tota number nsured under the mutua pan appears to us to make no
dfference. There s nothng n the evdence to show that there was any
restrcton on the number that mght be so Insured or the proporton of the
rsks that mght be so undertaken. If t had been one-thrd nstead of one-
tenth, we thnk no one woud contend that the company coud receve the beneft
of the e empton. We do not thnk the provsons for e empton apped to a
company that was party mutua and party not. Such a hodng woud, we
thnk, e tend the e empton to cases that were not wthn the ntenton of
Congress, for there woud be no way of drawng the ne e cept to say that
when a arge proporton of the nsurance wrtten was not upon the mutua
pan the company was not a mutua company, and that when ony a sma
proporton was so wrtten the assocaton st remaned mutua.
There are a number of decsons whch hod that the fact that a budng and
oan assocaton oans money to nonmembers or receves deposts w not
deprve t of the e empton from ncome ta granted to budng and oan
assocatons by the edera statute. ut we thnk that the cases are not
parae wth the one at bar. In the case of the budng and oan assocatons,
the busness whch they dd wth nonmembers was not budng and oan
busness, f we consder the words budng and oan shoud be construed
together. udng and oan assocatons are organzed for the purpose of
makng oans to members for the purpose of constructng budngs (usuay
homes) and recevng nstament payments to cance the oans. In the cases
cted, the deposts receved or the oans made had nothng to do wth budng
purposes. So far as the budng and oan busness was concerned the com-
panes were st purey mutua and the members shared equay n the profts
or osses as the case mght be. ut n the nstant case the term nsurance,
whe wrtten for nonmembers, was nsurance busness nevertheess, and as we
construe the statute, n order to be entted to the e empton the pantff
must show that the nsurance busness was conducted on a mutua bass. Ths
was ceary not the case as to the pocyhoders who took out term nsurance.
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103, rt. 525.
124
They were not members, were not entted to any refund of premums pad
upon the surrender or canceaton of ther poces, or to share n the dstrbu-
ton of the earnngs and profts of the company. In short, so far as those who
hed poces for term nsurance were concerned, there was no mutuaty.
We thnk that when Congress provded the e empton set out n the statute
t ntended that t shoud appy ony to companes that are purey mutua and
that consequenty the pantff was sub|ect to the corporaton ta .
It foows that the pantff s petton must be dsmssed, nnd t s so ordered.
The M ssocaton was ncorporated as a budng and oan
assocaton under the aws of Wyomng. borrowers subscrbed
for oan certfcates, whch dd not entte them to partcpate
In the management of the assocaton. The Wyomng statutes
provde that those hodng stock n a budng and oan assocaton
sha be consdered members thereof.
Ths organzaton s not wthn the e empton of secton 103(4)
of the Revenue ct of 1928 whch s e tended to those assocatons
substantay a the busness of whch s makng oans to members.
n opnon s requested reatve to the ta abe status of the M
ssocaton.
The assocaton was ncorporated under the aws of Wyomng as a
budng and oan assocaton. borrowers subscrbed for oan
certfcates, whch do not entte them to partcpate n the manage-
ment of the assocaton.
Chapter 331 of the Wyomng statutes, 1920, secton 5222, provdes
that a persons, companes, and corporatons hodng stock n a
budng and oan assocaton sha be consdered members thereof
unt such stock s duy transferred upon the books of the assocaton
or s canceed, forfeted, or wthdrawn. Chapter 103, secton 6, Ses-
son Laws of Wyomng, 1927, reatng to budng and oan assoca-
tons, provdes that the membershp n any assocaton comng under
the provsons of that act sha consst of persons hodng shares
theren.
On the foregong facts t s concuded that borrowers who were
merey requred to subscrbe for oan certfcates coud not be con-
sdered as members of the assocaton n determnng ts status for
edera ncome ta purposes under secton 103(4) of the Revenue
ct of 1928, whch e empts budng and oan assocatons sub-
stantay a the busness of whch s confned to makng oans to
members.
Whe those persons who merey hod the oan certfcates ssued
by the assocaton are requred to pay certan fees, yet they hod no
stock theren and are not subscrbers to stock. They have no vote
and no voce whatever n the contro or management of the assoca-
ton. The assocaton beng ncorporated, the fundamenta rue cted
herenbefore that membershp n an ncorporated budng and oan
assocaton can ony be acqured through stock ownershp or at east
through a subscrpton to stock s appcabe. The mere hoders of
oan certfcates do not meet ths test. eng nether stockhoders
rtce .525: udng and oan assocatons
and cooperatve banks.
R NU CT O 1028.
II-28-6282
G. C. M. 11893
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125
5111, rt. 561.
theren nor subscrbers to stock they ack the prme requstes of
membershp. Whe budng and oan assocatons may ordnary
f the requrements of membershp theren, yet such of them as are
ncorporated may not n so dong voate the rue of genera app-
caton that true membershp n a corporaton can ony be secured
through stock ownershp or subscrpton to stock. In the opnon
of ths offce those persons who merey hod oan certfcates ssued by
the assocaton and are nether owners of stock theren or subscrbers
thereto are not bona fde members of the assocaton wthn the
meanng of the e empt provsons of the aw.
Ths offce s, therefore, of the opnon that the M ssocaton s
not entted to e empton under secton 103(4) of the Revenue ct
of 1928.
rtce 525: udng and oan assocatons and cooperatve
banks.
R NU CT O 1028.
Loans to nonmembers to defer wthdrawas of deposts and to
nonmembers who ater n the year became members. (See G. C. M.
12333, page 68.)
rtce 527: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1928.
empton of Savaton rmy and branches. (See I. T. 2747,
page 70.)
rtce 532: armers cooperatve marketng and pur-
chasng assocatons, and corporatons organzed to
fnance crop operatons.
R NU CT O 1028.
Suppes and equpment, defned. (See I. T. 2748, page 72.)
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 111. D T RMIN TION O MOUNT O
G IN OR LOSS.
rtce 561: Determnaton of the amount of gan or oss.
R NU CT O 1028.
mendment of artce 561 of Reguatons 74, as amended by Treas-
ury Decson 4321 (C. . -2, 169). (See T. D. 4376, page 117.)
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6. 126
S CTION 113. SIS OR D T RMINING
G IN OR LOSS.
rtce 591: ass for determnng gan or oss from sae.
R NU CT O 1928.
Communty property n New Me co, the marta reatonshp beng
dssoved by death of one of the spouses. (See I. T. 2742, page 77.)
S CTION 116. CLUSIONS ROM GROSS
INCOM .
Secton 116. II-38-6408
G. C. M. 12167
R NU CT O 1928.
Durng the year 1930 the ta payer was empoyed as master of
a steamshp engaged n trade between certan Unted States ports.
e was absent from the Unted States and ts terrtora waters
for 234 days durng that year n the performance of hs dutes as
master of the vesse, due to the fact that the rreguartes of tbe
Unted States coast ne and safe navgaton requred that the
vesse be operated beyond the terrtora waters of the Unted
States.
ed, that the ta payer has met the condtons prescrbed by sec-
ton 116(a) of the Revenue ct of 1928 under whch e empton s
aowed. e was a bona fde nonresdent ctzen of the Unted
States for more than s months durng the ta abe year, and hs
compensaton consttuted earned ncome from sources wthout the
Unted States.
The nstant case nvoves the queston whether the ta payer may
be cassfed as a bona fde nonresdent ctzen of the Unted States
for more than s months durng the ta abe year 1930. and receve
the beneft of the e empton provded by secton 116(a) of the
Revenue ct of 1928.
Durng the year 1930 the ta payer was empoyed as master of the
steamshp M, operated by the O Company. The shp n queston was
of Unted States regstry and engaged n trade between the cty of
R, State of S, and certan other Unted States ports. The ta payer
was absent from the Unted States and ts terrtora waters for 234
days durng the year 1930 n the performance of hs dutes as master
of the vesse, due to the fact that the rreguartes of the Unted
States coast ne and safe navgaton requred that the vesse be
operated beyond the terrtora waters of the Unted States. Durng
that year the ta payer receved compensaton as master of the shp
amountng to doars. e ncuded ths compensaton n hs n-
come ta return and pad a ta of s doars. e now seeks to recover
the ta on the ground that hs compensaton consttuted earned ncome
from sources wthout the Unted States, receved by a ctzen of the
Unted States who was a bona fde nonresdent thereof for more than
s months durng the ta abe year, and was therefore e empt from
ta aton.
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127
116.
Secton 116 of the evenue ct of 1928 provdes for certan e -
cusons from gross ncome, ncudng
(a) arned ncome from sources wthout Unted States. In the case of an
ndvdua ctzen of the Unted States, a bona fde nonresdent of the Unted
States for more than s months durng the ta abe year, amounts receved
from sources wthout the Unted States f such amounts consttute earned
ncome as defned n secton 31 but such ndvdua sha not be aowed as a
deducton from hs gross ncome any deductons propery aocabe to or
chargeabe aganst amounts e cuded from gross ncome under ths subsectoa
In construng the phrase a bona fde nonresdent of the Unted
States for more than s months durng the ta abe year, the ureau
has hed that t appes to any mercan ctzen who s actuay out-
sde the Unted States for more than s months durng the ta abe
year. The absence need not be contnuous, but may be made up of
severa trps where the perods of absence from the Unted States
amount n the aggregate to more than s months durng the ta abe
year. It has aso been hed that the ctzen s not requred to be a
resdent of any foregn country, but s ony requred to be a nonres-
dent of the Unted States for more than s months. (G. C. M. 9848,
C. . -2, 178, and rungs cted theren.)
rtce 1023 of Reguatons 74 recognzes that a person s status
as a resdent or nonresdent of the Unted States may be affected by
hs empoyment aboard shp. That artce reads n part as foows:
Resdence may be estabshed on a vesse reguary engaged n
coastwse trade, but the mere fact that a saor makes hs home on a vesse fyng
the Unted States fag and engaged n foregn trade s not suffcent to estab-
sh resdence n the Unted States, even though the vesse, whe carryng on
foregn trade, touches at mercan ports.
Under the above-quoted provson of the reguatons a person em-
poyed aboard a shp whch pys wthn the terrtora waters of the
Unted States may under some crcumstances be cassfed as a res-
dent of ths country. If resdence may be estabshed by a person
whe empoyed aboard a vesse wthn the terrtora waters of the
Unted States, t foows that f the shp on whch he s engaged op-
erates beyond the terrtora waters, or on the hgh seas, for more
than s months durng the ta abe year, he shoud be treated as a
nonresdent wthn the meanng of secton 116(a) of the Revenue
ct of 1928.
Wth respect to men empoyed aboard shps, ths offce has prev-
ousy hed n the case of offcers and ensted men of the Navy on duty
afoat, that f they are wthout the Unted States and ts terrtora
waters for more than s months durng the ta abe year ther com-
pensaton for servces wthout the Unted States and ts terrtora
waters s e empt. (I. T. 2293, C. . -2, 33 S. M. 5446, C. . -,
49.)
In the nstant case the stuaton s not materay dfferent from
that of a nava offcer n charge of a Unted States batteshp whch
eaves one mercan port for a cruse on the hgh seas and returns to
another mercan port after an absence of more than s months.
(I. T. 2293, supra.) oth derve ncome for servces performed wth-
out the Unted States and ts terrtora waters, and both are out
of the Unted States for the perod of tme prescrbed by the stat-
ute. (S. M. 5446, supra.) ccordngy, the ta payer has met the
condtons prescrbed by secton 116(a) of the Revenue ct of 1928
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116, rt. 642.
128
under whch e empton s aowed. e was a bona fde nonresdent
ctzen of the Unted States for more than s months durng the
ta abe year, and hs compensaton consttuted earned ncome from
sources wthout the Unted States. (Sectons 31(a), 119(c)3, and
116(a) of the Revenue ct of 1928.)
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
rtcus 642: Income of States. II-46-6508
G. C. M. 12227
R NU CT O 1928.
The Income receved by the ta payer under the Interests hed by
hm In eases of Caforna State tdeands s not e empt from ed-
era ncome ta .
Inqury has been made as to the ta abty of ncome receved by
the ta payer n 1930 from certan nterests hed by hm n eases of
Caforna State tdeands.
Under the provsons of chapter 303, Statutes of Caforna of 1921,
the State of Caforna of ered to gve to ctzens of the State permts
to prospect for o and gas or other mneras upon any ands be-
ongng to the State, ncudng tdeands, under certan condtons
set forth n the act. The State was to receve a share of the ncome
derved from such ands, whch ncome was to be used for genera
overnmenta purposes. or ts servces n connecton wth the
ng of appcatons and securng of permts, the ta payer s aw
frm agreed to accept per cent of whatever proceeds mght there-
after accrue to certan operators. The agreement was entered nto
n each case wth the operator pror to the fng of the appcaton,
so that the aw frm had a nterest n the proceeds from each
venture. orma assgnments evdencng these nterests were made
n 1929.
It aso appears that the ta payer was one of a group of persons
who secured on ther own behaf ease or permt No. , whch
was recorded n the name of a cent. Nether the ta payer nor any
of the partes who obtaned ths ease operated under t. They
entered nto subeases, retanng ony an nterest n the producton
from the property. The other ense nterests whch the ta payer
had and from whch he derved ncome were receved as compensa-
ton for servces rendered to cents of the ta payer s aw frm n
fng appcatons and securng permts. In other words, a of the
ta payer s ncome here n queston was derved from hs share of
the proceeds arsng from the producton of o and gas by others.
The ta payer contends that hs ncome from these ease nterests
s e empt from edera ncome ta n vew of the decson of the
Unted States Supreme Court n the case of urnet v. Coronado
O d- Gas Co. (285 U. S., 393, Ct. D. 485, C. . I-1, 265), n whch
t was hed that the ncome of a essee of State schoo ands n Oka-
homa, derved from the producton by t of o and gas from such
ands, s not sub|ect to edera ncome ta for the reason that a
ease of such ands s an nstrumentaty of the State used n carry-
ng out an essenta governmenta functon and that to ta the
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129
116. rt. 642.
ncome arsng from the ease woud resut n an mposton upon
the ease tsef.
In arrvng at ts concuson n the Coronado case the Unted
States Supreme Court took nto consderaton the fact that under
the decsons of the Supreme Court of Okahoma a ease for the e -
poraton, deveopment, and producton of o and gas does not resut
n a sae of o and gas n pace. In a smar case nvovng schoo
ands n Te as, Group No. 1 O Corporaton v. ass (283 U. S.,
279, Ct. D. 330, C. . -, 153), an opposte concuson was reached
by the Unted States Supreme Court n vew of the decsons of the
Supreme Court of the State of Te as hodng that such a ease does
resut n the sae of o and gas n pace.
In Western O Refnng Co. v. enago O Corporaton et a.
(16 Pac. (2d), 190) the Supreme Court of Caforna ad down the
genera rue as to the effect of such an o and gas ease n that State.
fter revewng a number of cases nvovng o and gas eases, the
court stated as foows:
Other cases mght be cted, but the rue appears to be that, under the ord-
nary o and gas ease, the rght of entry upon and for the purpose of e por-
ng for o vests n the essee upon the e ecuton of the ease, but the tte to
the o and gas Is nchoate, and does not rest unt the o and gas are reduced
to possesson. In other words, the o and gas ease s to be dstngushed
from the ordnary ease n that the essee, under such o ease, does not
acqure a vested nterest n the o and gas n pace pror to ts deveopment,
but ony a rght to enter and deveop the we and remove the o when so
deveoped.
(See aso Gracosa O Co. v. Santa arbara County, 99 Pac, 483,
and andn Petroeum Co. et a. v. Superor Court n and for Los
ngees County et a., 293 Pac, 899.)
It s apparent, therefore, that the genera rue n Caforna as to
the effect of an o and gas ease, that s, whether t effects a sae of
o and gas n pace, does not dffer materay from the Okahoma
rue.
In ts opnon n the case of wnet v. Coronado O Gas Co.,
supra, whch foowed the prncpe ad down by that court n
the case of Gespe v. Okahoma (257 U. S., 501), hodng that
nether eases of trba Indan ands nor the ncome therefrom may
be ta ed by the State, the Supreme Court stated:
We are dsposed to appy the doctrne of Oespe v. Okahoma strcty and
ony n crcumstances cosey anaogous to those whch t dscosed.
Itacs supped.
smar statement s contaned n the ater decson of that
court n the case of urnet v. . T. ergns Trust (288 U. S., 508,
Ct. D. 653, C. . II-1, 214), nvovng the queston of e empton
of ncome derved by a trust created for the purpose of enterng nto
an o and gas ease on ands acqured by the cty of Long each,
Caf., for water suppy purposes. In the atter case the facts were
dstngushed from those nvoved n the Coronado case, and the
e empton camed was dened. It must be determned, therefore,
whether the crcumstances n the nstant case are cosey anao-
gous to those nvoved n the case of urnet v. Coronado O C-
Gas Co., supra.
In the opnon of ths offce the facts and crcumstances n the
nstant case are ceary dstngushabe from those n the Coronado
case. In the frst pace, the ands nvoved are State tdeands, and
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118, rt. 642.
130
dd not come to the State of Caforna from the edera Govern-
ment mpressed wth an e press trust requrng them to be used
e cusvey for pubc schoo purposes, as dd the Okahoma ands
nvoved n the Coronado case. ( urnet v. . T. ergns Trust,
supra.) The ncome of the State from the ands n the nstant case
was pad nto the State treasury to be used for genera purposes.
The ta payer s not a essee of State schoo ands nor s he an operat-
ng assgnee of any such ands. ven f he be consdered as a essee
under the ease recorded n the name of a cent for the beneft of
severa ndvduas, ncudng the ta payer, e s not an operatng
essee. e performs no servces whatever as a producer of o and
gas, or any other product, from State schoo ands. e s not an
nstrumentaty of the State by whch ts property s converted nto
money to be used n carryng out an essenta governmenta functon
of the State. s ncome does not fow from contracts entered nto
by and between the ta payer and the State, but arses from contracts
made between the ta payer and thrd persons, to whch contracts
the State s not a party. Ta aton of such ncome coud n no way
resut n a burden on the State or an nstrumentaty thereof.
In vew of the foregong, ths offce s of the opnon that the
ncome receved by the ta payer under the nterests hed by hm
n eases of Caforna State tdeands s not e empt from edera
ncome ta .
. arrett Pretty man,
Genera Counse, ureau of Interna Revenue.
rtce 642: Income of States. II-51-6570
Ct. D. 763
INCOM T R NU CT O 1928- D CISION O COURT.
1. empton State Instrumentaty Sae of O and Gas
Lease of Schoo Lands of Montana.
Where the State of Montana e ecuted a ease of o and gas
ands dedcated to the support of the pubc schoos of the State,
and the assgnee n 1920 sod ts nterest n the and to another
corporaton, one-thrd of the purchase prce payabe n cash and
the baance to be pad out of producton of o from the ands,
the ncome derved by the assgnee durng the years 1929, 1930, and
1931 from the proceeds of the sae s not e empt from edera ta
as ncome derved from an nstrumentaty of the State, but s n
the nature of a proft upon the sae of a capta nvestment at a
prce above cost.
2. Decson oowed.
The decson of the Court of Cams In the case of rnest
Whtworth Marand v. Unted States (53 ed. (2d), 907. Ct. D. 738,
page 184, ths uetn) foowed.
Dstrct Court of the Unted States n and for the Dstrct of Montana.
Rce O Co., a Corporaton, pantff, v. Unted States of merca, defendant.
September 8, 1933.
opnon.
Prat, .: The queston here s on the demurrer to (he compant, that t does
not state facts suffcent to consttute a cause of acton.
Ths s an acton for the recovery of ncome ta es aeged n the compant
to have been erroneousy ncuded n the ncome ta returns made by pantff
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131 119, rt. 675.
to the Commssoner of Interna Revenue. Cams for refund of such tu es
were made and dened by the Commssoner. The State of Montana e ecuted
a certan o and gas ease to one George . Staunard thereafter the pantff
became the owner thereof through assgnment dated uy 13, 1920.
The ncome n queston was derved from proceeds of sae of o taken from
the ands descrbed n the ease. Pantff cams that such ncome was In
fact e empt and mmune from mposton of edera ncome ta , because the
sad o and gas ease under whch pantff operated sad premses was an n-
strumentaty of the State of Montana for the utzaton of sad ands ded-
cated to the support of pubc schoos and to ta the fruts of the ease woud
burden the State of Montana n the performance of the governmenta functon
of mantanng such schoos and to ta the ncome of the operator of sad o
and gas easehod arsng from ts operaton thereof, amounted to mposton
upon the ease tsef.
It appears from the compant that pantff sod ts nterest n the ands on
September 10, 1926, to the Marne Corporaton for 3,000,000. One mon do-
ars was pad n cash and 2,000,000 were to be pad out of producton of o
from the ands ncuded n the ease. y the terms of the contract governng
ths transacton tte was to pass to the purchaser as of ugust 11, 1926. There-
fore, can t be sad that the ncome n queston was derved by pantff as a
essee of the ands or was t n the nature of a proft upon the sae of a capta
Investment at a prce above cost n vew of the facts here, the atter woud
seem to afford the correct answer under Marand v. Unted States (53 . (2d),
907) and WUoutt v. unn (282 U. S., 216 Ct. D. 280, C. . -, 309 ).
The demurrer of defendant w therefore have to be sustaned, and It Is so
ordered.
rtce 643: Compensaton of State offcers and empoyees.
R NU CT O 1928.
ocatona tranng teachers empoyed n prvate nsttutons and
pad n part from edera funds. (See G. C. M. 12137, page 81.)
S CTION 119. INCOM ROM SOURC S WIT IN
UNIT D ST T S.
rtce 675: Rentas and royates. II-48-6534
L T.2735
R NU - CTS O 1021, 1024, 1926, ND 1928.
The ta payer, a nonresdent aen author, entered nto a num-
ber of contracts conveyng to partes n ths country voume and/or
frst or second sera rghts, and moton pcture rghts or dramatza-
ton rghts n hs terary works.
ed, such grants were censes, and payments made under the
contracts are rentas or royates from or for the prvege of usng
copyrghts and other ke property. the ncome In queston s
from sources wthn the Unted States e cept (1) the payments
derved from the contract wth C for certan Canadan rghts
(2) such of the payments, f any, under the contract wth , na
have ther source n the e ercse of dramatc rghts n Great
rtan and Canada, and esewhere abroad (3) such of the pay-
ments for the moton pcture rghts as can be defntey assgned
to the prvege of usng foregn copyrghts outsde the Unted
States.
Of ce Decson 988 (C. . 5, 117) s revoked and I. T. 1231
(C. . 1-1, 206) s modfed.
dvce s requested whether certan payments receved durng the
years 1921 to 1928 by the ta payer, a nonresdent aen author, are
ta abe as ncome from sources wthn the Unted States.
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119, rt. 675.
132
The ncome n queston was receved pursuant to contracts made
by the ta payer wth a number of pubshers and producers. Under
the contract wth the M Company the ta payer granted the voume
and second sera rghts n certan books aready wrtten, reservng
a stpuated royaty per copy sod. The contract aso provded that
the M Company shoud have the rght to pubsh n the Unted
States a new books of the ta payer and some of hs oder books at
royaty rates mutuay agreeabe to the contractng partes. con-
tract wth the N Company gave that company the moton pcture
rghts throughout the word n certan wrtngs of the ta payer n
consderaton of stpuated sums payabe n nstaments. con-
tract wth granted hm the dramatzaton rghts n the Unted
States and Canada (wth an opton on the ngsh and foregn
rghts) n certan wrtngs of the ta payer. Stpuated sums were
to be pad to hm as royates. The R Company was granted frst
mercan and Canadan sera rghts n the ta payer s e cusve out-
put of both ong and short stores for whch the R Company was to
pay a stpuated sum. contract wth C granted hm a cense for
one year, renewabe at hs opton, to pubsh and se certan books
n Canada. stpuated royaty per copy was to be pad.
rom the nformaton furnshed by offcers of the M and N Com-
panes t appears that the premnary negotatons to a of these
contracts occurred n the Unted States between the ta payer s agents
and the pubshng and moton pcture corporatons. The contracts
were drawn and submtted to the ta payer n a foregn cty where he
sgned them. It s not stated where the pubshng and moton pc-
ture corporatons e ecuted the contracts, whether the ta payer after
sgnng the contracts transmtted them drecty to the pubshng and
moton pcture corporatons, or whether the ta payer after sgnng
the contracts transmtted them to hs agents n ths country for
devery to the pubshng and moton pcture corporatons.
The years nvoved are the caendar years 1921 to 1928, ncusve.
Reference w be made ony to the Revenue ct of 1928, snce the
dfferences e stng n earer cts are mmatera. The appcabe
provsons of the Revenue ct of 1928 are a.s foows:
Sec. 119. Income from sources wthn Unted States.
(a) Gross ncome from sources n Unted States. The foowng tems of
gross Income sha be treated as ncome from sources wthn the Unted States:

(3) Persona servces. Compensaton for abor or persona servces per-
formed n the Unted States
(4) Rentas and royates. Rentas or royates from property ocated n
the Unted States or from any nterest n such property, ncudng rentas or
royates for the use of or for the prvege of usng n the Unted States,
patents, copyrghts, secret processes and formuas, good w, trade-marks,
trade brands, franchses, and other ke property and
(5) Sae of rea property. Gans, profts, and ncome from the sae of rea
property ocated n the Unted States.

(c) ross ncome from sources wthout Unted States. The foowng tems
of gross ncome sha be treated as ncome from sources wthout the Unted
States:

(3) Compensaton for abor or persona servces performed wthout the
Unted States
(4) Rentas or royates from property ocated wthout the Unted States or
from any uterest n such property, ncudng rentas or royates for the use of
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133
119, rt. 075.
or for the prvege of usng wthout the Unted States, patents, copyrghts,
secret processes and formuas, good w, trade-marks, trade brands, franchses,
and other ke propertes and
(5) Gans, profts, and ncome from the sae of rea property ocated wthout
the Unted States.

(e) Gans, profts, and ncome from

(2) from the sae of persona property produced (In whoe or In part) by
the ta payer wthn and sod wthout the Unted States, or produced (n whoe
or n part) by the ta payer wthout and sod wthn the Unted States,
sha be treated as derved party from sources wthn and party from sources
wthout the Unted States. Gans, profts and ncome derved from the pur-
chase of persona property wthn nnd ts sae wthout the Unted States or
from the purchase of persona property wthout and ts sae wthn the Unted
States, sha be treated as derved entrey from sources wthn the country n
whch sod, .
rtce 678 of Reguatons 74 reads as foows:
ae of persona property. Income derved from the purchase and sae of
persona property sha be treated as derved entrey from the country n
whch sod, . The word sod ncudes e changed. The country
n whch sod ordnary means the pace where the property Is marketed.
Ths artce does not appy to Income from the sae of persona property pro-
duced (n whoe or n part) by the ta payer wthn and sod wthout the Unted
States or produced (n whoe or n part) by the ta payer wthout and sod
wthn the Unted States. (See artce 682.)
(See aso artces 674 and 675 of Reguatons 74.)
Patents, copyrghts, and other franchses have, from the earest
tmes, been regarded as havng a f ed and mmovabe stus n the
pace where they are e ercsabe, the same as rea property has
n the pace where t s stuated, athough patents, copyrghts, and
franchses are persona property. It s pan from the provsons
of secton 119(a) 3, 4, and 5, secton 119(c) 3, 4, and 5, and secton
119(e) 2 that Congress ntended to treat ands, patents, copyrghts,
and franchses as a snge cass for the purpose of rentas or roya-
tes from or f0r the use of or for the prvege of
usng, but for the purpose of saes t ntended to treat rea property
as a cass by tsef and to treat patents, copyrghts, and franchses
n the cass wth a other persona property. The queston here
presented s, therefore, whether the ncome derved by the ta payer
was compensaton for abor or persona servces, rentas or royates
from, or for the use of, or for the prvege of usng copyrghts n
the Unted States, or was gans, profts, and ncome from the sae
of persona property.
ased upon the anguage of Genera Counse s Memorandum 236
(C. . I-2, 27), t s contended that a sums receved by the ta -
Sayer under the contracts entered nto wth the M Company and the
, Company on account of terary productons wrtten by the ta -
payer after the date of such contracts are for persona servces
actuay rendered to the M Company and the R Company. The
contracts provde that a new books sha be pubshed
n the Unted States by sad M Company, the royaty terms to be
arranged hereafter M Company contract and we contract for
the ta payer s e cusve output, both ong stores and short
stores, . frst mercan and Canadan sera
rghts R Company contract . These contracts pre-
scrbe n no manner what the ta payer sha wrte. They merey
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119, rt. 676.
134
provde that f the ta payer wrtes any new books or stores, the
pubshers sha have certan rghts n ther pubcaton and sae
n the Unted States. They are nether contracts of empoyment
nor contracts for the rendton of persona servces. Contracts o
empoyment, or for rendton of servces are, however, frequenty
entered nto wth wrters and artsts. The case of Ingram v. owers
(57 ed. (2d), 65) nvoves such a contract, and Genera Counse s
Memorandum 236, supra, refers to another. In Ingram, v. owers,
supra, the ta payer agreed to sng nto a recordng apparatus for
the purpose of makng phonograph records. The ta payer n the
nstant case dd not agree to wrte any books or stones whatever.
e merey agreed that f he dd wrte books or stores the con-
tractng pubsher shoud have certan mted rghts to pubsh
them n the Unted States. Ths offce concudes that no part of
the ncome here n queston s compensaton for abor or persona
servces.
The queston remans whether the ncome was Rentas or roya-
tes from or for the use of or for the prvege of
usng copyrghts, or whether t was from saes of per-
sona property.
Copyrght s the e cusve rght of the owner to mutpy and
dspose of copes of an nteectua product. (Drone on Copyrghts.)
copyrght s the e cusve prvege, secured accordng to certan
ega forms, of prntng, or otherwse mutpyng, pubshng and
vendng copes of certan terary or artstc productons. ( mer-
can Tobacco Co. v. Werckmester. 207 U. S., 284, quotng defnton
from ouvers Law Dctonary.) It ncudes aso the e cusve
rght to transate, dramatze, or to perform, represent or to dever
n pubc, or to make records by whch the composton may be
mechancay reproduced or performed. (13 Corpus urs, 945.)
In n Outne of Copyrght Law by Rchard C. De Wof
(pages 77-78) t s stated:
Through n scres of censes the varous rghts ncuded In a snge copyrght
may be. parceed out among a number of dfferent censees, and ths s a means
of reazng the fuest vaue of a copyrghted work. In the case of a book,
for e ampe, the foowng seres of rghts may be the sub|ect of separate
dsposton by cense: Rghts of frst, and of second, sera pubcaton book
pubcaton transaton dramatzaton, and the makng of movng pctures.
The copyrght owner keeps the ega tte to the parent copyrght a the tme,
but he ses the rght to use It n the varous ways mentoned. There may
aso be a dvson of terrtory by cense. may be gven the rght to per-
form a pay n New York and on the road. Ths of course s a dfferent
thng from the assgnment of foregn copyrghts, e. g., for Canada, for Great
rtan, etc.
In 13 Corpus urs (1094-1095) t s stated that a copyrght s an
ndvsbe thng and can not be spt up and partay assgned,
ether as to tme, pace, or partcuar rghts or prveges, ess than
the sum of a the rghts comprehended n the copyrght that e cu-
sve rghts may, however, be granted, mted as to tme, pace, or
e tent of prveges whch the grantee may en|oy and that the better
vew s that such mted grants operate merey as censes and not
as technca assgnments, athough often spoken of as assgnments.
(New cton Pubshng Co. v. Star Co., 220 ed., 994 Godwyn
Pctures Corporaton v. owe Saes Co., 282 ed., 9.)
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135
119, rt. 675.
It s apparent from the facts n ths case that n no nstance dd
the ta payer assgn hs terary property n ts entrety or hs copy-
rght theren, or hs ndvsbe rghts theren n grantng the sera,
the voume, the book, the second sera, the dramatc or moton pc-
ture rghts to the varous contractng partes. The ta payer n these
contracts granted the pubshers and producers censes to use n
partcuar ways hs terary property and hs copyrght theren, and
e acted from them certan payments for that use. These were not,
and coud not be, contracts of saes they were n fact contracts of
cense, and the payments for such censes consttuted rentas or
royates sub|ect to ta as such. Chares . atenbach v. The
Unted States, 66 Ct. Cs., 581 state of rnest Gustav offman v.
Commssoner, 8 . T. ., 1272, acquescence C. . II-2, 18.)
The fact that a payment n the nature of a rent or royaty s n a
ump sum rather than so much per annum, per unt of property, per
performance, per book sod, or a certan percentage of the recepts
or profts, does not ater the character of the payment as rent or
royaty. (O. D. 1028, C. . 5, 83 ppea of . M. M. S. rown-
ng Co., 6 . T. ., 914, acquescence C. . II-1, 5.) Nor s t
matera whether the royaty s pad n advance. ppea of oe-
de s ewery, Inc., 2 . T. ., 611.) It s accordngy the opnon
of ths offce that the payments n queston are rentas or royates
from for for the use of or for the prvege of usng
copyrghts and other ke property. Snce
the grant by the ta payer n each nstance s so ceary the grant of
a partcuar rght n a the rghts consttutng the ta payer s ter-
ary property and copyrght, the concuson s obvous that the grant
s a cense and not a sae.
The appcabe Revenue cts regard royates from mercan
copyrghts (or for the use of or for the prvege of usng n the
Unted States copyrghts and other ke property) as ncome from
sources wthn the Unted States, and royates from foregn copy-
rghts (or for the use of or for the prvege of usng wthout the
Unted States copyrghts and other ke property) as ncome from
sources wthout the Unted States. Substantay a the ncome here
n queston consttutes royates from, or for the use of. or for the
prvege of usng mercan copyrghts. detaed cassfcaton here
s deemed unnecessary. It seems suffcent to say that a the ncome
n the nstant case s ncome from sources wthn the Unted States,
e cept (1) the payments derved from the contract wth C for cer-
tan Canadan rghts (2) such of the payments, f any, under the
contract wth , as have ther source n the e ercse of dramatc
rghts n Great rtan and Canada, and esewhere abroad (3) such
of the payments for the moton pcture rghts as can be defntey
assgned to the prvege of usng foregn copyrghts outsde the
Unted States.
In Offce Decson 988, supra, a grant of a rghts of sera pub-
caton n the Unted States n certan terary works was through
error sad to be a sae. Such a grant coud ony be a cense. Offce
Decson 988 s accordngy revoked.
In I. T. 1231, supra, t was stated that there was a sae of sera
rghts of pubcaton. Snce t s hed that such a grant coud ony
be a cense, I. T. 1231 s modfed to accord wth the vews heren
e pressed.
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141, rt. 713.
136
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 141. CONSOLID T D R TURNS O CORPOR -
TIONS 1929 ND SU S U NT T L Y RS.
foregn corporaton, because of ts e cuson from the prveges
of affaton by secton 238 of the Revenue ct of 1928, can not be
recognzed as a common parent corporaton under secton 141(d)
of that ct. Its 100 per cent owned domestc subsdares may
not be permtted to fe a consodated return as an affated group
for the ta abe year 1929, on the bass of that connecton.
n opnon s requested whether a consodated ncome ta return
for the year 1929 may be fed for a group of domestc corporatons
where the common parent corporaton s a foregn company.
The M Company, a foregn corporaton, owns 100 per cent of
the outstandng capta stock of a number of corporatons organzed
under the aws of varous States of the Unted States. Some of such
domestc corporatons n turn own 100 per cent of the capta stock of
other corporatons organzed n the Unted States. The queston s
whether, under such crcumstances, the domestc companes may fe
one consodated return for the year 1929, e cudng therefrom ony
the foregn common parent corporaton.
Secton 141 of the Revenue ct of 1928 reads n part as foows:
(d) s used n ths secton an affated group means one or more chans
of corporatons connected through stock ownershp wth a common parent cor-
poraton f
(1) t east 95 per centum of the stock of each of the corporatons (e cept
the common parent corporaton) s owned drecty by one or more of the other
corporatons and
(2) The common parent corporaton owns drecty at east 95 per centum
of the stock of at east one of the other corporatons.

(e) consodated return sha be made ony for the domestc corporatons
wthn the affated group.
Secton 238 of the 1928 ct provdes that:
foregn corporaton sha not be deemed to be affated wth any other
corporaton wthn the meanng of secton 141 or 142.
The defnton of an affated group, as set forth n secton
141(d), consdered aone, makes no e cepton of a foregn corpora-
ton and sets up the test ony of connecton through stock ownershp
wth a common parent corporaton. Therefore, n the determnaton
of the composton of an affated group t mght be sad, f
nothng more was requred to be taken nto consderaton, that the
group shoud be recognzed as one affated group rrespectve
of the fact that the common parent corporaton s a foregn corpora-
ton. The provson of secton 141(e) coud then be taken to mean
that of such an affated group ony the domestc corporatons
theren may be aowed to fe a consodated return.
Secton 238 of the ct provdes that a foregn corporaton sha
not be deemed to be affated cth any other corporaton wthn the
meanng of secton 141. The queston s whether ths means that
rtce 713: Corporatons to be ncuded n
consodated returns for 1929 and subsequent
ta abe years.
R NU CT O 1928.
II-31-S320
G. C. M. 11800
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137
5150, rt. 841.
a foregn corporaton sha be e cuded from any consderaton
whatever under secton 141. If ths s the proper nterpretaton of
secton 238, t foows that a foregn corporaton can not be recog-
nzed as a common parent corporaton, wthn the purvew of
secton 141(d), and f there s no domestc corporaton to take ts
pace as common parent corporaton, by the proper connecton
through stock ownershp, the corporatons nvoved must be con-
sdered not to consttute an affated group. The stuaton n such
a case becomes one n whch the stock of a number of corporatons
s owned by the same nterests, . e., a cass connecton. The
Revenue ct of 1928 does not permt the fng of consodated
returns upon the bass of the ownershp of stock by the same
nterests.
In artce 2 of Reguatons 75 and 78, t s stated that the term
affated group does not ncude any corporaton whch, under
secton 141, can not be ncuded n a consodated return.
On prncpe t woud seem that f a foregn corporaton sha
not be deemed to be affated wth any other corporaton wthn the
meanng of secton 141, no effect can be gven to ts stock hodngs
n any other corporaton for any purpose affectng the determna-
ton of affatons under that secton. ffaton, for edera ta
purposes, means connecton through stock ownershp n the manner
specfed n secton 141(d), and f a foregn corporaton s not to
be deemed to be affated wth any corporaton the resut s that
the stock hodngs of such a corporaton are not to be consdered for
the purpose of determnng the composton of an affated group.
ccordngy, t s the opnon of ths offce that the M Company,
a foregn corporaton, because of ts e cuson from the prveges
of affaton, can not be recognzed as a common parent corpora-
ton under secton 141(d) of the Revenue ct of 1928. Its 100 per
cent owned domestc subsdares may not, therefore, be permtted
to fe a consodated return as an affated group for the ta abe
year 1929, nasmuch as ther connectons through stock ownershp
wth that company can not be recognzed. Some of these domestc
subsdares are n turn parent companes ownng 100 per cent of
the stock of other domestc companes, and consodated returns
shoud, of course, be accepted from such affated groups.
S CTION 150. R TURNS O RO RS.
rtce 811: Return of nformaton by brokers.
R NU CT O 1928.
Requrement and nstructons wth respect to fng orms 1100
and 1100 . (See Mm. 4082, page 90.)
rtce 841: Return of nformaton by brokers.
R NU CT O 1028.
tenson of tme for fng nformaton returns on orm 1100
for 1929 to 1932 by banks, trust companes, and ther affates. (See
Mm. 4099. page 93.)
37408 34 10
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162, rt. 863. 138
SUPPL M NT . ST T S ND TRUSTS.
S CTION 162. N T- INCOM .
rtce 8G3: Decedent s estate durng admn- II-35-6375
straton. L T. 2712
R NU CTS O 1926 ND 1928.
In Pennsyvana the wdow s e empton s of the same char-
acter as the wdow s aowance, the year s support, or smar
aowance provded n the statutes of other States, and takes pr-
orty n payment over edera ncome ta .
Informaton s requested whether the wdow s e empton or
aowance, provded Tby secton 8446 of the Pennsyvana statutes,
takes prorty over ncome ta es due the Unted States from the
estate of her deceased husband.
Under secton 8446, Pennsyvana statutes, the wdow (or chdren
formng a part of the famy, f there be no wdow entted) may
retan or cam ether rea or persona property, or the proceeds of
ether rea or persona property, beongng to the estate to the vaue
of 500. It s made the duty of the e ecutor or admnstrator to
have the property so retaned or camed apprased and set apart for
the use of the wdow or chdren or, f a cam s made for 500 n
money, the e ecutor or admnstrator s requred to set apart that
amount from the funds of the estate to the wdow or chdren.
In Pennsyvana the wdow s e empton s regarded as a sub-
stanta rght whch may be vgorousy and competey enforced
aganst the estate. Thus, n v. (32 Pa. St., 511), where the
wdow commenced an acton aganst the admnstrator who had re-
fused to set apart her e empton, the court hed that the wdow s
rght to the e empton was paramount to the rghts of credtors.
Nor s ths rght of e empton defeated because the property of the
husband was eved upon pror to hs death under a |udgment wav-
ng e empton. ( eetem Co. v. Getz, 5 Pa. Super. Ct., 71.) ven
as to a en for cty ta es fed aganst property beongng to the
husband and sod to satsfy the ndebtedness, the wdow s e emp-
ton was hed to be superor to the en of the cty. ppea of
Cty of entown, 109 Pa. St., 75.)
The wdow s e empton provded by the Pennsyvana aw s
of the same character as the wdow s aowance, the year s sup-
port, or smar aowance provded n the statutes of other States.
The prorty of ths cass of aowances over nterna revenue ta es
s dscussed n I. T. 2430 (C. . II-2, 72), I. T. 2518 (C. . I -1,
158), and G. C. M. 4217 (C. . TIT2, 162). Whe the decsons
cted reate to cases of wdows domced n the States of Mssour,
Georga, and Coorado, respectvey, the generay accepted doctrne
as to the prorty of such statutory aowances s consdered and the
poston of the ureau n respect to them s outned.
In vew of the foregong, t s hed that the wdow s e empton
n Pennsyvana takes prorty n payment over edera ncome ta .
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139 275, rt. 1201.
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 203. N T INCOM O LI
INSUR NC COMP NI S.
rtce 971: Ta -e empt nterest and reserve funds.
R NU CT O 1928.
Interest on coupons of guaranteed premum reducton poces.
(See I. T. 2717, page 94.)
SUPPL M NT L. SS SSM NT ND COLL CTION O D ICI NCI S.
S CTION 275. P RIOD O LIMIT TION UPON
SS SSM NT ND COLL CTION.
rtce 1201: Perod of mtaton upon II-42-6456
assessment of ta . Ct. D. 743
ncome ta revenue act of 1928 decson of court.
1. ssessment1 Statute of Lmtaton.
Where a decedent ded on May 31, 1928, and a return coverng
hs Income from anuary 1 to May 31, 1028, was fed by hs
e ecutors on March 15, 1929, accompaned by a request for prompt
audt and assessment addressed to the coector, an assessment of
addtona ta for the above ta abe perod, made on pr 28,
1930, was barred because made after the e praton of the 1-year
perod provded n secton 275(b) of the Revenue ct of 1928.
2. Same Request for Prompt ssessment Tme and Pace of
ng.
request for prompt audt and assessment, fed wth the return
and addressed to the coector, s propery and duy fed, both as
to tme and pace, wthn the meanng of secton 275(b).
Unted States Crcut Court of ppeas, ghth Crcut.
Thomus S. Mafft, as Coc ecutor, and Wnfred . Wash, as Coe ecutr , of the
state of dward . Wash, Deceased, appeants, v. Lous . ecker, Co-
ector of Interna Revenue, appeee.
ppea from the Dstrct Court of tbe Unted States (or the astern Dstrct of Mssour.
une 24, 1933.
ooth, Crcut udge, devered the opnon of the court.
Ths Is an appea from a udgment for defendant, appeee, n an acton
brought by appeants to recover ncome ta es and nterest whch were pad by
them and whch t s aeged were egay assessed.
|ury was waved and the case tred to the court
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275, rt. 1201.
140
The fndngs by the court are set out n the margn.1
y requests for decaratons of aw tmey made, defendant rased the ques-
tons now presented on ths appea. They may be stated thus:
(1) Whether the wrtten request for a prompt audt of the return and a
prompt assessment of the ta abty of the decedent, dward . Wash, was
propery and duy fed by the e ecutors of hs estate, the appeants heren,
as provded for n secton 275(b) of the Revenue ct of 1928 ( 45 Stat., 856).
(2) Whether t was the duty and obgaton of e ecutors to make and fe
a return of ncome receved by ther testator durng the fractona part of a
ndngs of act.
The pantffs n ths case are the duy quafed e ecutor and e ecutr under the w
of dward . Wash, deceased. The sad dward . Wash ded May 31, 1928.
or the years precedng the caendar pear 1928, dward . Wash bad made returns
of hs ncome on the bass ot the caendar year.
The pantffs heren, as e ecutors, made a return of Income receved by the sad
dward . Wash for the perod from anuary 1 to May 81, 1928, and ncuded n that
return certan profts whch the decedent had reazed on the sae of securtes, bat dd
not. ut the tme of rng such return, pay the ta on such proft. The proft whch was
derved from the sae of such securtes was ncuded n the assets of the estate of the
decedent for the purpose of determnng the estate ta , and the estate ta was determned
by the vaue of the estate ncudng such profts.
The ncome ta return for the perod from anuary 1 to May 31, 1928, as fed by the
e ecutors, was fed on March b. 1929. ttached to sad ncome ta return wa a
request for a prompt assessment whch was sgned by sad e ecutor and e ecutr , whch
request was n the foowng anguage:
COLL CTOR O INT RN L R NU ,
St. Lous, Mo.
Dear Sn: There are fed herewth ta returns by the undersgned as e ecutors under
the w of dward . Wash. In accordance wth secton 275 of the Revenue ct of
1928, we respectfuy request a prompt audt of sad returns and a prompt assessment of
any ta abty that may be asserted thereunder.
Sgned) Thomas S. Mafftt,
Sgned) Wnfred . Wash,
ecutors under the w of dward . Wash.
Sad request for a prompt assessment beng attached to the return was ed wth the
coector of nterna revenue at St. Lous smutaneousy wth and attached to the return
on March 15, 1929.
On pr 28, 1930, and more than one year after the above request was so fed, the
Commssoner of Interna Revenue assessed an addtona ta of 7,156.55, pus nterest
thereon n the sum of 487.53 and notfed the pantffs heren of such assessment.
Thereafter, and on Mny 3, 1930, the tota sum of 7,644.08 was pad to the defendant
as coector by the pantffs heren. Thereafter a cam for a refund of sad amount was
made, whch cam was subsequenty dened by the Commssoner of Interna Revenue.
Thereafter ts sut was fed for the recovery of such cam.
No persons other than the pantffs heren, as the e ecutor and e ecutr under the
w of dward . Wash, are the owners of the cam heren asserted or nterested
theren : no assgnments or transfer of the cam heren asserted, or any part thereof, or
Interest theren, has been made.
CONCLDSIONS O L W.
rst: The request for prompt assessment was not bndng n aw as a compance wth
secton 275(b) and dd not mt the tme wthn whch an assessment of addtona ta
mght be made to one year from the date that sad return was ted.
a. ecause t was not fed after the return was made, but contemporaneousy, and
6. ecause t was not fed wth the Commssoner of Interna Revenue, but fed wth
the coector.
Second : Under the Revenue ct n force n 1928 and 1929, the pantffs In ths case
were requred to moke two returns of ncome for ta es for the year 1928, to wt, one for
Income receved by the decedent for the ast fve months of bs fe, that s, from anuary
1 to May 31, 1928, ncusve, and a separate return for hs estate n ther hands durug
the seven months from une 1 to December 31, 1928, ncusve.
Thrd: The evy and assessment of ta es aganst ncome receved by the decedent
from anuary 1 to May 31, 1928, beng the porton of the year that the decedent ved.
Is the assessment of an Income ta for a ta abe year.
ourth : The reguatons promugotcd by the Commssoner of Interna Revenue requr-
ng e ecutors to make a separate return for a decedent for that porton of a ta abe year
that the decedent had ved, ore vad and proper, and the evy and assessment of an
Income ta by the Commssoner of Interna Revenue for such perod of tme, as consttut-
ng a ta abe year, arc wthn the mts of congressona enactment and are vad and
effectve.
fth : n e ecutor under the w of a decedent Is a fducary for the decedent wthn
the meanng of that term as used n the Revenue ct of 1928.
S th : though the property was Incuded In the assets of the estate of dward .
Wash at the tme of hs death and was sub|ected to the estate ta , f such property had
been receved as proft by the sad dward . Wash In the year durng whch he ded,
such proft s ncome to hm and s to be ta ed as such, and the mposton of ncome
ta es and estate ta es on the same property, at dfferent tmes ond In the hands of dffer-
ent persons, athough they be mposed wthn the same year, s not ob|ectonabe on the
ground that such Imposton of Income ta es and estate ta es aganst the same property Is
doube ta aton.
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141
275, rt. 1201.
year that ther testator had ved and whether there was abty for a ta
on Income for such fractona part of a year.
(3) Whether profts derved by Ue decedent, whch profts were ncuded n
and formed a part of the assets of the decedent for the purpose of the estate
ta , and were sub|ect to ta es as corpus, were aso ta abe as ncome durng
the same year.
The frst of these questons cas for a constructon of the statute referred
to. It reads so far as here drecty nvoved as foows:
(b) Request for prompt assesstnent. In the case of ncome receved durng
the fetme of a decedent, or by hs estate durng the perod of admnstraton,
or by a corporaton, the ta sha be assessed, and any proceedng n court wth-
out assessment for the coecton of such ta sha be begun, wthn one year
after wrtten request therefor (fed after the return s made) by the e ecutor,
admnstrator, or other fducary representng the estate of such decedent,
or by the corporaton, but not after the e praton of two years after the return
was fed.
Paragraph (a) of the same secton reads as foows:
(a) Genera rue. The amount of ncome ta es mposed by ths tte sha
be assessed wthn two years after the return was fed, and no proceedng In
court wthout assessment for the coecton of such ta es sha be begun after
the e praton of such perod.
y comparson of paragraphs (a) and (b), the purposes of the atter are
apparent. One purpose was to shorten the tme from two years to one year
for assessng the ta where ncome had been receved durng the fetme of
the decedent, but snbsequent to hs ast return. To secure such shortenng of
the tme, there were two prerequstes: (1) the fng of a return (2) a re-
quest by the e ecutor or admnstrator for prompt audt and assessment.
return was necessary n order that the audtng and the assessng offcers mght
have nformaton upon whc to work a request was necessary n order that
the offcers mght know that the statute shortenng the tme for assessment was
nvoked.
If fng the request sets the 1-year mtaton runnng, common farness woud
suggest that the request shoud not be fed before the return s fed. ut
the moment the return Is fed, the matera upon whch to work Is furnshed
and no good reason s suggested why the request shoud not be fed at once.
The words of the statute fed after the return s made are satsfed, so
far as purpose s concerned, f the fng of the request takes pace not before
the return s made. Such constructon of the words fed after the return Is
made s apparenty n accord wth the vews of the offcers charged wth the
e ecuton of the statute. In Reguatons 74 of the Treasury Department re-
atng to ncome ta under the 1928 Revenue ct, we fnd n artce 1201 the
foowng statement (page 307) :
The .request, n order to be effectve, must be made after the return s fed.
nd n artce 1202 the foowng statement, referrng to the request (page
309) :
nor s t of any effect f made before the return s fed.
smar statement s found n Reguatons 65 under the Revenue ct of
1924.
In the case of Nchos v. Lee (16 Coo., 147) the court had tefore t secton
3577 of the Coorado Genera Statutes of 1883 whch provded as foows:
Whenever, after nventory and apprasement theren, as heren provded,
t sha appear that the persona estate of apy decedent s nsuffcent to ds-
charge the |ust debts resort may be had to the rea estate.
In dscussng the statute, the court sad:
The words after nventory and apprasement can propery be taken ony
as a desgnaton of the tme at whch, or before whch, the admnstrator may
not make hs appcaton. Itacs ours.
ven f the words fed after the return s made are hed to requre a
defnte sequence of acts, yet the case at bar does not show faure n respect
to such sequence. Where acts are requred to be done n a certan order and
they are done on the same day, t w be presumed that they are done n the
order requred. (62 C. ., page 979 Dea v. nderson, 165 Ga.. 416 RevTs
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5322, rt. 1254.
142
Ucrs v. Ca on s ers, 12 ush ( y.), 558 errs v. Chc-Mnt Gum Co., 7
De. Ch., 270 no oton v. Cuver, 2 Pnney (Ws.), 243.)
ut It Is contended that the request for prompt audt and assessment was
not fed wth the proper offcer that t shoud have been fed wth the Com-
mssoner of Interna Revenue and not wth the coector.
It s to be noted that the statute does not specfy wth what offcer the
request sha be fed nor do the reguatons. Ths s an mportant fact to
be consdered.
It s ne t to be noted that the coector s the revenue offcer wth whom the
average ta payer most commony cones n contact the return s fed wth hm
he s requred to audt the return and f mathematca errors are dscovered,
to notfy the ta payer notce and demand for payment, n case defcency s
estabshed, come to the ta payer from the coector. To the average ta -
payer, the coector s the representatve of the ta ng and coectng authorty.
It s further to be noted that a request for prompt audt and assessment fed
wth the coector reaches the persons requred to be prompt more qucky than
f fed at Washngton wth the Commssoner. n e amnaton of artce 451
of Reguatons 74 of the Treasury Department reatng to ncome ta w show
that an audt of the return s made by the coector, and a survey and cassfca-
ton s made by revenue agents detaed from the offces of nterna revenue
agents n charge, before the return s forwarded to Washngton. Promptness
on the part of these offcas s |ust as essenta to the carryng out of the pro-
vsons of the statute as s promptness on the part of offcas at Washngton
or esewhere through whose hands the return passes. Tme s accordngy saved
by fng the request for promptness wth the coector nstead of wth the
Commssoner.
It s st further to be noted that at the tme the request for prompt audt
and assessment n the case at bar was eft wth the coector, hs attenton was
caed to t, and he receved and retaned t wthout dscamer of authorty
to receve and fe t.
nay, the we-known rue of constructon of ta statutes shoud be ap-
ped : that where the anguage of the statute s uncertan, t shoud be construed
favoraby to the ta payer. Goud v. Goud, 245 U. S., 151.)
In that case the court n ts opnon sad (page 153) :
In the nterpretaton of statutes evyng ta es t s the estabshed rue not
to e tend ther provsons, by mpcaton, beyond the cear mport of the an-
guage used, or to enarge ther operatons so as to embrace matters not spe-
cfcay ponted out. In case of doubt they are construed most strongy aganst
the Government, and n favor of the ctzen.
The case of Mutua Lumer Co. v. Poe (44 . (2d), 922, and 50 . (2d), 1079),
reed upon by appeee, s not n pont because n that case the statute nvoved
e pressy requred that the notce under consderaton shoud be fed wth the
Commssoner.
Our concuson s that the request for prompt audt and assessment was
propery fed, both as to tme and pace, and that the assessment was made
after the statutory mtaton had e pred and was, therefore, nvad.
We fnd t unnecessary to dscuss the other questons presented on ths appea.
The |udgment s reversed wth nstructons for further proceedngs not In-
consstent wth the vews heren e pressed.
SUPPL M NT O. O RP YM NTS.
S CTION 322. R UNDS ND CR DITS.
rtce 1254: Cams for refund by ta payers.
R NU CT O 1928.
Refund cams and amendments thereto. (See Mm. 4092, page 96.)
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143 ( 606, rt. 1301.
TITL I . DMINISTR TI PRO ISIONS.
S CTION 606. CLOSING GR M NTS.
rtce 1301: Cosng agreements reatng to II-30-6305
ta abty n respect of nterna-revenue Ct. D. 705
ta es.
INCOM T R NU CT O 1028 D CISION O COURT.
1. Sut Cosng greement adty bsence of Consweha-
TION.
cosng agreement under secton 606 of the Revenue ct of
1928 consttutes a statutory bar to an acton at aw to recover
any part of the ta es covered by the agreement (where there s no
showng of fraud or mafeasance or msrepresentaton of fact ma-
teray affectng the determnaton or assessment made), even
though there was no consderaton for the agreement.
2. Cosng greement adty pprova by ctng Seuetary.
pprova of a cosng agreement by the ctng Secretary of
the Treasury consttutes an approva by the Secretary of the Treas-
ury wthn the meanng of secton 606 of the Revenue ct of 1028.
Dstrct Court of the Unted States for the Dstrct of Rhode Isand.
WUam . Perry et a., Trustees, v. rank . Page, Coector of
Interna Revenue.
pr 21, 1938.
OPINION.
Letts, .: Ths Is an acton at aw, wth |ury tra waved, brought by the
survvng trustees under the w of one rank . azard, deceased, to recover
the sum of 11,123.04, representng ta es pad by the estate for the year 1927.
It s aeged that ths ta was erroneousy assessed nnd coected upon ncome
of the estate whch, under the terms of the w of the decedent, was to e used
e cusvey for chartabe purposes and shoud have been deducted from gross
Income as not ta abe under the provsons of sectons 214 and 219 of the
Revenue ct of 1926.
To ts cam the defendant has set up as a bar to the acton a cosng agree-
ment e ecuted n pr, 1929, by the pantff trustees and by the Commssoner
of Interna Revenue. Ths agreement, whch s set out on a form customary
used for that purpose, carres upon ts face the foowng:
The nbove agreement has been approved by the Secretary of the Treasury
n accordance wth the provsons of secton 000 of the Revenue ct of 1928,
the approva beng specfcay enumerated on Schedue No. 19S0, dated pr
23. 1929.
Ths certfcate appears to have been ndorsed Mr. ond, ct g Sec t y.
Turnng to Schedue No. 1980 ntroduced as an e hbt, we fnd another form
nstrument customary used n the offce of the Commssoner of Interna Rev-
enue bearng date of pr 23, 1929, addressed to the Secretary of the Treasury
and purportng to submt for hs consderaton, and requestng hs approva of,
the acton of the Commssoner of Interna Revenue n enterng nto the sette-
ment agreement here nvoved. t the foot of ths nstrument appears the
foowng notaton:
Treasury Department,
Offce of the Secretary,
pr 27, 1929.
pproved:
enry errck ond,
ctng Secretary of the Treasury.
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600, rt. 1301.
144
The pantffs have set up n repy, and by way of avodance of the ega
effect of ths settement agreement, the foowng contentons:
rst. That the entre amount of the ta coected beng mposed upon n-
come whch had been set apart for chartabe purposes under the terms of
decedent s w, there was no coor of awfu rght or cam on the part of the
Government to assess or coect the ta and that, therefore, there was no con-
sderaton for the settement agreement entered nto.
Second. The pantffs contend that secton 606 of the Revenue ct of 1928
requres that any settement agreement must be approved by the Secretary
or Undersecretary of the Treasury, n person, before the agreement becomes
bndng and that the e hbt, Schedue 1980, bearng the aforementoned n-
dorsement by enry errck ond, ctng Secretary, does not estabsh the
necessary approva of the agreement by the Secretary or Undersecretary.
The pantffs thrd and fourth repcatons to the defendant s pea aege
that the settement agreement was entered nto through the mafeasance of the
Commssoner of Interna Revenue and by reason of msrepresentaton of a
matera fact by hm, or hs agents and servants, and was, therefore, not
bnd ng upon the pantffs. t the tra of the case no serous effort was made
to sustan ether of these aegatons and t s affrmatvey found that there
was no mafeasance or msrepresentatons ether by the Commssoner or hs
agents and servants, wthn the meanng and ntendment of secton 606 of the
Revenue ct of 1928.
The ony two rea ssues nvoved are, therefore, n regard to the need and
adequacy of consderaton for the agreement and, secondy, whether the record,
as above summarzed, dscoses an approva by the Secretary of the Treasury
wthn the meanng of sad secton 606.
t the very outset of the consderaton of a sut of ths character, one s
concerned wth the query of whether or not the ta n queston was, n whoe
or n part, mpropery assessed and coected. The concuson arrved at n
that connecton does not, however, necessary contro the resut to be readed
after gvng ega effec : and consderaton to the subsequent vountary, athough
perhaps mstaken, acts of the partes. I am satsfed from a study of the pro-
vsons of the decedent s w and the testmony and other e hbts presented
that, were t not for the nterventon of the settement agreement, the pan-
tffs here woud be entted to a recovery of the fu amount of the ta In
queston. (Stocum et a. v. owers, 15 ed. (2d), 400 owers v. Socum, 20
ed. (2d). 3 r 0, Treasury Decson 4122, C. . II-1, 247.)
If ths concuson be correct, t s cear that the Government on ts part
In enterng nto the settement agreement nether gave up nor surrendered
anythng. There s nothng n the record to suggest ether a desre or Inten-
ton to pursue further nvestgaton or make any addtona assessments upon
the ncome of the estate for the year 1927. There was no surrender of any
rght or cam on the part of the Unted States by agreeng to retan the fu
amount of 11,123.04. The ony apparent coorabe controversy whch e sted
between the partes was the cam of the pantffs that a refund of the fu
amount shoud be made and the contenton by the Government that no ad-
dtona refund shoud be made, there havng been refunded n March, 1929, a
sma amount of the orgna coecton.
Counse for the defendant dwe n ther bref and argument upon the fact
that n 1927 a porton of the estate ncome, upon whch the ta was mposed,
had not, durng 1927, been specfcay aocated or desgnated under the w to
a specfc benefcary. Ths fact s emphaszed to support the contenton that
as of the tme the settement agreement was sgned the Government dd have a
coorabe cam to a part, at east, of the ta assessed. The quetng of ths
dfference s presented as a ega consderaton for the agreement. It s dffcut
to dscern, however, even f there were a coorabe bass for the Government s
contenton, how the settement of an argument over a porton coud consttute
a consderaton runnng to the pantffs for acquescence n the retenton by the
Government of the whoe. The Government, by enterng Into the settement
agreement, made no compromse, no surrender, of any dscosed coorabe ega
rght. There was gven no consderaton for the commtment of the ta payer
n the sense consderaton s empoyed n the aw of contracts.
What then s the effect of ths ack of consderaton upon the vadty of the
settement agreement In my opnon, there s none. There s a stated perod
wthn whch the ta payer or the Government may sue, or be sued, n respect
to ncome ta es. In one stuaton, the ta payer may, by vountary consent,
cause ths perod to be e tended. Ths act on the ta payer s part s, for conven-
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145
5606, rt. 1301.
enee, caed a waver. In another stuaton, If both partes vountary consent
to a fna statement of the ta account and f ths consent be evdenced by a
wrtten nstrument and approved by the Secretary or Undersecretary of the
Treasury n manner specfed n sad secton, the effect of such vountary and
concurrng acts s to shorten the perod. The ega sgnfcance of such acton
on the part of the ta payer and the desgnated offcas of the Government s
nether dependent upon, nor atered by, ether the accuracy or farness of the
resutng ta burden. Ths procedure, requrng as t does the concurrng
acton of both partes, resuts n what s caed a settement agreement. The
effect of such an agreement s stated by the statute. The acts take on ega
sgnfcance and radate consequences, not because of the prncpes of contract
aw, but because of statutory specfcaton wthn a egsatve fed whch
permts a soveregn to contro and desgnate how, when and where t may be
sued.
In the case of etna Lfe Ins. Co. v. aton (43 ed. (2d), 711, 714 Ct. D. 225,
C. . I -2, 263 ), and, ., In referrng to the character and effect of a cosng
agreement, sad:
We are cear that by the cosng agreement the partes n fact ntended to
sette a questons reatng to the vadty of the assessments for 1923 and
1924, and that, rrespectve of ths, the Revenue ct made the agreement a
statutory bar.
In the case of ankers Reserve Lfe Co. v. Unted States (42 ed. (2d), 313,
316), the Court of Cams In an opnon wrtten by Ltteton, ., sustanng a
demurrer to the decaraton, hed thnt that court was wthout |ursdcton to
entertan a sut to recover ncome ta after a settement agreement had been
entered nto. The court sad:
Congress thus e pressy authorzed the partes by agreement to shorten the
perod of mtaton for the determnaton, assessment, and coecton of a ta
and for the fng of cams for refund, abatement, credt, and the nsttuton
of sut for the recovery of the amount pad.
Some of the authortes e amned seem to toy wth the noton that n deang
wth these settement agreements a gude may be found by turnng to the aw
of contracts. I am convnced, however, that that s not the case. We are dea-
ng wth acts, the ega sgnfcance of whch may be arbtrary stated by
Congress so ong as there Is no consttutona confct. These consequences as
stated are:
(1) the case sha not be reopened as to the matters agreed upon
(2) n any sut, acton, or proceedng, such agreement, or any determnaton,
assessment, coecton, payment, abatement, refund, or credt made n accord-
ance therewth, sha not be annued, modfed, set asde, or dsregarded.
I fnd that there was no consderaton runnng from the Government to the
ta payer ncdent to the stpuaton here presented as a settement agreement,
but that such absence of consderaton does not ater Its concusve and bndng
effect.
The queston yet remans as to whether the settement agreement was e ecuted
n a respects n compance wth the statute so as to consttute an nsuperabe
bar to recovery n ths acton. No ssue s rased n regard to the suffcency of
the form of the nstrument. There s no contenton that t was not propery
and tmey sgned by the pantffs In ths case. The testmony of former Com-
mssoner ar n dentfyng hs sgnature ceary estabshes a prma face case
that the settement agreement was tmey and propery e ecuted by hm.
Paragraph (b) of secton 606 of the Revenue ct of 1928 provdes, In addton
to the e ecuton of the agreement by the ta payer and the Commssoner or hs
subordnate, ns foows:
If such agreement s approved by the Secretary, or the Undersecretary,
wthn such tme as may be stated n such agreement, etc.
The agreement carres upon ts face a certfcate certfyng that t has been
approved by the Secretary of the Treasury, dated pr 23. 1929, and carres
the notaton of Mr. ond, ct g Sec t y, pr 27, 1929. The ast cause of
ths certfcate s as foows: the approva beng specfcay enumerated on
Schedue 1980. Turnng to ths schedue, we fnd a communcaton addressed
to the Secretary of the Treasury, bearng date pr 23, 1929, requestng hs ap-
prova of the settement agreement. Ths schedue or communcaton purports
to be sgned by Mr. ar, then Commssoner. Upon ths schedue appears a
notaton dated pr 27, 1929, pproved: enry errck ond, ctng Secretary
of the Treasury.
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610.
146
The pantffs contend that, under the statute, the approva must be gven by
the person who s n fact Secretary of the Treasury, or the person who s In
fact Undersecretary of the Treasury that these documents sgned by Mr. ond,
as ctng Secretary, are nsuffcent and that, therefore, the agreement never
became bndng upon the pantffs or a bar to ths acton.
Counse for the pantffs, n tracng the egsatve hstory of the secton of
the statute nvoved, dscose support for ther contenton, at east to the e tent
that t was the ntenton of Congress that these agreements shoud not be passed
upon by mnor subordnates, but shoud have the approva of one of the two
ma|or offcas of the Department. It w be noted, however, that the statute
does not requre the sgnature or approva n wrtng by these offcas. It con-
dtons the bndng effect of the agreement ony upon ther approva. I am of
the opnon that the nterpretaton of the ntendment of ths requrement
shoud not be so technca or strcty construed as to be at tmes unworkabe
and mpractca. fter a, Government must go on and t can scarcey be as-
sumed that Congress ntended, n event of absence or dsabty of the Secretary
and Undersecretary, wth an actng and desgnated head of the Department In
charge, that the machnery of government n any respect shoud be brought to a
standst. No queston s rased that Mr. ond was at the tme ctng Secre-
tary of the Treasury no doubt s rased n respect to the fact that the agree-
ment here nvoved was approved by Mr. ond and as ctng Secretary of the
Treasury. It may reasonaby be assumed, n the absence of any evdence to the
contrary, that the Secretary of the Treasury approved the offca acts of hm
who was the actng head of hs Department. Not that he approved In the sense
that the matter was specfcay brought to hs attenton and that he, by word or
deed, gave e press and specfc approva thereto, for there s no evdence that
such was the case, but the Secretary may be deemed to have generay approved
a offca acts of the ctng Secretary. ssumng, however, that there was n
ths case no persona approva, genera or specfc, by ether the Secretary of
the Treasury, n person, or the Undersecretary, n person, I am satsfed that
the requrements of the statute were met by the approva of the agreement by
hm who was the actng head of the Department.
The necessty of thus gvng a practca nterpretaton to the specfc requre-
ments of a congressona act, n regard to how and by whom an offca duty
must be dscharged, Is revewed n the eary ease of Wams v. Unted Staes
(1 ow., 200). (See aso Ro ford nttng Co. v. Moore Tcrncy, Inc., 265
ed., 177 Unted States v. endauer, 122 ed., 703, 707 Chcago, Mtoaukee t
St. Pau Ry. Co. v. Unted States, 244 U. S., 351.)
The authortes cted by counse for the pantffs, such as that of the otany
Worsted Ms v. Unted States (278 U. S., 282 Ct. D. 39, C. . III-1, 279 ),
n support of the contenton that when a statute mts a thng to be done In a
partcuar mode, t ncudes the negatve of any other mode, dea wth a totay
dfferent probem and the genera anguage empoyed must be consdered n the
ght of the specfc ssue nvoved. I have been abe to fnd no authorty, and
none have been cted, whch woud ustfy the contenton that the actng head
of an e ecutve department may not dscharge the dutes of government dee-
gated to or mposed by aw upon the ttuar head of that department.
I fnd, therefore, that the settement agreement peaded In bar to ths acton
was propery e ecuted and propery approved, and consttutes a bar to any
recovery n ths sut.
udgment may be entered for defendant
S CTION 610. R CO RY O MOUNTS
RRON OUSLY R UND D.
Secton 610. II-28-62S3
Ct. D. 699
INCOM T R NU CTS O 1921 ND 1928 D CISION O COCRT.
1. Sut Money Pad by Mstake.
Where t was the understandng of both the ta payer corporaton
and the Government that an overassessment aganst the corpora-
ton for the year 1918 shoud be credted wth a ta owng by ts
subsdary for the year 1917, but through error the entre amount
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147
610.
was refunded In 1923, sut brought by the Government In 1927 was
not barred by the statute of mtatons, snce the acton was not
for coecton of the unpad ta , but for the recovery f money pad
by mstake.
2. Duty Imposed by Statute.
Secton 252 of the Revenue ct of 1021 Imposes upon the Govern-
ment the duty, when refund s aowed for a gven year, of deduct-
ng therefrom a ta due for any other year, and Is a pubc aw of
whch ta payer was charged wth notce. Wth the known duty of
makng the deducton goes the recproca duty on the part of the
ta payer of not retanng a refund from whch deducton of any
other ta due and unpad has not been made.
3. Decson ffrmed.
The decson of the Dstrct Court, Southern Dstrct of Inos
(52 ed. (2d), 666), affrmed.
Unted States Crcut Court of ppeas for the Seventh Crcut.
Wooner Dstng Co., appeant, v. The Unted States of merca, appeee.
ppea from the Dstrct Court of the Unted States for the Southern Dstrct of Inos,
Northern Dvson.
efore sohuer and Sparks, Crcut udges, and Wkerson, Dstrct udge.
December 29, 1932.
opnon.
schukr, Crcut udge: The appea s from a |udgment aganst appeant
for money aeged to have been pad t by appeee through mstake.
The facts appear by stpuaton. pr 1, 1918, appeant s subsdary fed
wth the Unted States coector of nterna revenue at Pttsburgh, Pa., ts
ncome and profts ta return showng 2,457.96 due for 1917, whch ta was
assessed accordngy. October 9, 1918, the ta payer fed through the coec-
tor s offce a cam for abatement of th.nt assessment, whch cam the Comms-
soner of Interna Revenue re|ected December 26, 1922 but the ta remaned
unpad. pr 29, 1919, the ta payer fed ts return for the year 1918, report-
ng a ta of 5,994.86, whch amount was assessed aganst t and was pad to
the same coector. Subsequenty, on audt and revew of the ast-named
return, the Commssoner determned that the ta payer owed no ta for the
year 1918, and ssued the usua certfcate of overassessment and refund n
favor of the ta payer for the 1918 ta of 5,994.86, and sted t wth the co-
ector at Pttsburgh n December, 1922, notfyng the ta payer accordngy.
Shorty after aowance of refund for the 1918 ta , under date of anuary 2,
1923, the ta payer, by hs attorneys, sent the Commssoner, who duy receved
t, ths etter:
I have the honor to respond, on behaf of the Duquesne Dstrbutng Co.,
Pttsburgh, Pa., to your etter addressed to t under date of December 26, 1922,
wheren you re|ected cam for abatement n the amount of 2,457.96 hereto-
fore fed by that company. It appears from your etter dated November 25,
1922, that the Duquesne Dstrbutng Co. was overassessed for 1918 n the
amount of 5,994.86. It further appears n your etter of December 26, 1922,
that n your opnon you can not under the pertnent etter and reguatons
permt the offsettng of the atter overassessment aganst the cam for abate-
ment frst referred to.
The company has no ob|ecton to dsaowance of the cam for abatement
n vew of the crcumstances that have transpred snce t was fed, provded
that the amount of the overassessment for 1918 s credted to t or to the
Wooner Dstng Co.. n some manner whch may be conceved proper by you.
ery truy yours,
Crocker. ohnson Shores,
Lye T. verson.
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610.
148
The requste and customary notfcaton of the overassessnent and over-
payment of the 191S tu and of the dsaowance of ta payer s contenton
respectng the 1917 ta was duy paced on fe n the coector s offce, but,
through some une paned bunder, the Government s check for the entre
amount of the refund for the 1918 ta was ssued, and on ebruary 10, 1923,
was sent to the ta payer, and was pad ebruary 19, 1923. Later the aeged
error n fang to deduct the unpad 1917 ta was caed to the ta payer s
attenton, but te amount was not pad or refunded to the Government. The
sut was brought n 1927, and the decaraton charged that the faure to
deduct from the payment to the ta payer the amount of the 1917 ta was
through mstake, and demanded |udgment accordngy. ury was waved, and
upon the stpuated facts the court gave |udgment for appeee.
The defense to the acton s that the sut, n essence, was for the coecton
of the unpad 1917 ta , and that the acton therefore was barred by tbe
statute of mtatons, snce t was not commenced unt more than fve years
after the ta payer s return for the 1917 ta . (Secton 250(d), Revenue ct
of 1921 42 Stat.. 265.)
It s conceded that ths s the ony way n whch any statute of mtatons
s here nvoved, and that, f ths s n fact a sut to recover money pad out
by mstake, and not a sut to coect the 1917 ta , there s no defense to t.
Secton 252 of the Revenue ct of 1921 (42 Stat., 268) specfes that where
a refund s aowed for the ta of any year there sha be deducted therefrom
whatever, f any, ta s due the Unted States for any other year, and the
baance ony be refunded. Ths s a pubc aw of whch every person s
supposed to be aware and must take notce, and appeant must be hed to
have known at the tme t receved the refund of the 1918 ta that t was
then the duty of every person connected wth the refundng of the ta to
deduct therefrom the unpad 1917 ta .
Wth the known duty of makng the deducton goes the recproca duty
on the part of the ta payer that he do not take or receve from the Govern-
ment the refund from whch there s not deducted the amount of any other
ta then due and unpad. That those actng for the Government dd not
deduct t most ceary ndcates a mstake. That appeant mstakeny receved
and retaned t s the ony concuson whch can be drawn wthout mpeach-
ment of appeant s good fath.
ut the stpuaton tsef dspes any doubt respectng mstake n the pay-
ment. It rectes the appcabe statutes and the Treasury reguatons whch
make cear the duty respectng the deducton, and specfes n severa paces
that the payment wthout the deducton was made through nadvertence,
error, or mstake.
ut, regardess of the statutes, the conduct on both sdes makes It evdent
that the ntenton and understandng of both was that the 1917 ta woud be
deducted, and payment made ony of the dfference. The etter of anuary
2, 1923, to the Commssoner from the attorneys for ta payer makes t pan
that the ta payer e pected the deducton of the 1917 ta to be made. The
mtaton upon coecton of that ta had not then e pred, and ths conduct
of the partes evdences ther wngness and ther understandng that the
deducton woud be made, and the dfference ony pad, and of tsef suff-
centy manfests the mstake n makng the payment wthout the deducton.
Secton 610(b) of the Revenue ct of 1928 (45 Stat., 875) specfcay authorzes
the brngng of actons by the Government for money pad out by t through
mstake.
Concusve repy to the ta payer s asserton that ths s n fact a sut for
the 1917 ta s the fact that t s nothng of the knd. It s a sut for |ust
what t purports to be the recovery of money pad by mstake. If the ev-
dence to support ths acton conssted ony of the showng of the unpad 1917
ta , then, whoy apart from the statute of mtatons, the acton woud fa
for want of proof to sustan t. n acton specfcay brought for money pad
by mstake woud not be supported by mere proof of an unpad ta . ppe-
ant can not be permtted to dctate the sort of acton to be brought aganst
t. ppeee chose to brng sut to recover payment whch t made by mstake
to appeant, and we are satsfed that the evdence fuy sustans the |udgment
rendered.
ffrmed.
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140
611.
S CTION 611. COLL CTIONS ST Y D Y
CL IM IN T M NT.
Secton 611. II-33-6342
Ct. D. 716
INCOM T R NU CT O 1928 D CISION O COURT.
Cam n batement Suffcency.
document entted Cam for abatement, ted by pantff on
ugust 31, 1920, requestng that assessment of addtona ta for
1918 be abated on the ground that t was wthout warrant of aw
and ega, s a cam n abatement wthn the meanng of secton
611 of the Revenue ct of 1928. That secton does not requre that
the cam sha fuy compy wth the statute and the reguatons,
but contempates any cam fed for the purpose of abatng the ta
and whch operates to stay coecton.
Court of Cams of the Unted States. No. Lr-2DO.
. S. ckes dc Co. v. The Unted States.
une 5, 1933.
OPINION.
Ltteton, udge, devered the opnon of the court.
The ony queston n ths case s whether a document fed by pantff u-
gust 31, 1920, entted Cam for abatement, askng that the entre addtona
assessment of 6,136.88 be abated on the ground that the assessment was
wthout warrant of aw and ega, was a cam n abatement wthn the
meanng of secton 611 of the Revenue ct of 1928, whch provdes that f any
ta was assessed pror to une 2, 1924, and wthn the perod of mtaton
propery appcabe thereto and f a cam n abatement was fed,
and f the coecton of any part thereof was stayed, the payment of any
part of such ta sha not be consdered as an overpayment. We thnk the
cam for abatement fed comes wthn the provsons of secton 611. Ths
secton does not requre that the cam n abatement contempated theren sha
be a cam fuy compyng wth the statute and the reguatons of the Treasury
Department, but contempates any cam whch may be fed havng for ts
purpose the abatement of the ta whch operates to stay coecton of the ta
assessed. The fact that coecton of ta had been stayed by some act of the
ta payer was the reason for the provson that a ate coecton shoud not be
regarded as an overpayment.
It s stpuated and we have found as a fact that coecton of the ta was
stayed by the fng of the cam for abatement. The case, therefore, comes
wthn the pan provsons of secton 611 and the petton must be dsmssed.
It s so ordered.
Secton 611.
revenue act of 1028.
batement cam fed, coecton stayed, but coecton made after
e praton of perod. (See Ct. D. 751, page 209.)
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614.
150
S CTION 614. INT R ST ON O RP YM NTS.
Secton 614. II-32-6332
Ct. D.713
INCOM T R NU CT O 1928 D CISION O COURT.
Interest on Overpayments Settement of War Cams ct.
Secton 24(e), Trang wth the nemy ct, as amended (as
amended by secton 18, Settement of War Cams ct of 1928),
mtng the payment of nterest on the refund of nterna revenue
ta es mposed n respect of property n the hands of the en
Property Custodan, was not repeaed by secton 614 of the Rev-
enue ct of 1028, the atter ct beng genera egsaton reatng
to ta es.
Court of ppeas of the Dstrct of Coumba.
Unted States Reatone I. . arbenndustre ktengeseschaf t, appeant,
v. Davd urnet, Commssoner of Interna Revenue Ogden L. Ms, Secre-
tary of the Treasury W. 0. Woods, Treasurer of the Unted States and
oward Sutherand, en Property Custodan.
ppea from the Supreme Court of the Dstrct ot Coumba,
pr 10, 1933.
opnon.
an Orsoe, ssocate ustce: Ths appea Is from a |udgment of the
Supreme Court of the Dstrct of Coumba, dsmssng appeant s petton for
a wrt of mandamus to compe the Commssoner of Interna Revenue to
compute and aow, and to compe the Treasurer of the Unted States to pay
to the en Property Custodan, nterest on a ta refund whch was made
to the en Property Custodan for appeant s account n May, 1929.
It appears that n 1918 the en Property Custodan sezed the capta
stock of an mercan corporaton, hed by three Indvduas as trustees for
a German corporaton. The pettoner s the successor In nterest of the
German corporaton. fter the sezure by the en Property Custodan he
sod the stock for 5,296,332, whch amount was deposted u the Treasury of
the Unted States n an dentfed trust account.
On March 15, 1924, nterna revenue ta es assessed aganst the three nd-
vdua trustees, from whom the stock was sezed, n the amount of 3,262,268.91,
were pad by the en Property Custodan out of moneys deposted n the
trust account. The Custodan fed a cam for refund of the ta es so pad,
whch cam was aowed, and the fu sum was repad to the Custodan on
March 15, 1929, but no nterest was pad thereon.
Ths sut s to compe the Commssoner of Interna Revenue to compute the
nterest on sad ta es from 1924 to 1929, and to requre the Treasurer of the
Unted States to pay the same to the en Property Custodan. To the pet-
ton, settng forth n substance the above facts, the respondents answered,
admttng the facts but chaengng the |ursdcton of the court on the ground
that mandamus s not a proper remedy, and chaengng the rght of the
pettoner to the payment of nterest on ts cam. Pettoner demurred to the
answer. The demurrer was overrued, and pettoner, eectng to stand upon
ts demurrer, a |udgment was entered dsmssng the petton, from whch
ths appea was taken.
We thnk ths case can be dsposed of on the snge queston of the rght cf
the pettoner to recover nterest for the perod durng whch the money pad,
as a ta , was n the possesson of the Government. Pettoner contends that
ts case comes wthn the provsons of secton 014 of the genera Revenue ct
of May 29, 1928 (45 Stats., 791, 876), whch provdes as foows: (a) Interest
sha be aowed and pad upon any overpayment n respect of any nterna-
revenue ta , at the rate of 6 per centum per annum, as foows: (2)
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151
15614.
In the case of a refund, from the date of the overpayment to a date precedng
the date of the refund cheek by not more than 30 days, such date to be
determned by the Commssoner.
Respondents rey upon the provsons of secton 18 of the Settement of War
Cams ct of March 10, 1928 ( 45 Stat., 254, 276), whch reads as foows:
(e) In case of any nterna-revenue ta mposed n respect of property
conveyed, transferred, assgned, devered, or pad to the en Property
Custodan, or sezed by hm, and mposed n respect of any perod (n the
ta abe year 1917 or any succeedng ta abe year) durng whch such property
was hed by hm or by the Treasurer of the Unted States, no nterest or cv
penaty sha be assessed upon, coected from, or pad by or on behaf of, the
ta payer nor sha any nterest be credted or pad to the ta payer n respect
of any credt or refund aowed or made n respect of such ta .
It Is contended by the pettoner that the ater genera Revenue ct of May
29, 1928, operates to repea by mpcaton the provsons of secton 18, supra.
Ths contenton, we thnk, s untenabe on severa grounds. The Settement of
War Cams ct was n the nature of speca egsaton, reatng to aen
property sezed and n the hands of the en Property Custodan, and provd-
ng for the dsposton thereof whe the genera Revenue ct of 1928 was
genera egsaton, reatng to the coecton of ncome ta es by the Natona
Government It s eementary that a speca statute reatng to a partcuar
sub|ect, n the absence of manfest nconsstency, w not be repeaed by the
mere enactment of a ater genera statute, reatng to the same sub|ect, uness
the ater ct specfcay provdes for the repea of the earer ct, or for a
genera repea of a cts reatng to the sub|ect.
The cts here n queston were passed at the same sesson of Congress, and
but a short tme ntervened between the passage of the Settement of War
Cams ct and the genera Revenue ct. In Lews Sutherand on Statutory
Constructon, second edton, voume 1, secton 268, the author under the head
of acts passed at the same sesson says:
The presumpton s stronger aganst mped repeas where provsons sup-
posed to confct are n the same act or were passed at neary the same tme.
In the frst case t woud manfesty be an nadvertence, for t s not supposabe
that the egsature woud deberatey pass an act wth confctng ntentons
n the other case the presumpton rests on the mprobabty of a change of
ntenton, or, f such change had occurred, that the egsature woud e press t
In a dfferent act wthout an e press repea of the frst.
nd, n reference to the constructon to be paced upon such statutes, passed
at the same sesson of the egsature, the same author contnues:
Statutes enacted at the same sesson of the egsature shoud receve a
constructon, f possbe, whch w gve effect to each. They are wthn the
reason of the rue governng the constructon of statutes n pan matera. ach
s supposed to speak the mnd of the same egsature, and the words used n
each shoud be quafed and restrcted, f necessary, n ther constructon and
effect, so as to gve vadty and effect to every other act passed at the same
sesson.
ppyng the above rue to the cts here n queston, we fnd no dffcuty n
dsposng of pettoner s contenton. The Settement of War Cams ct was
deang wth property over whch Congress had absoute and compete contro.
The aen pettoner had no ega or consttutona cam to recover any part of
the sezed property, e cept through the generosty of Congress. Congress, there-
fore, n deang wth the sub|ect of nterest on ta es to be refunded on such
property, was egsatng aone n respect of that cass of property and of that
cass of ownershp.
On the other hand, under the genera Revenue ct, Congress was deang wth
a matter of ta aton upon the property of the ctzen, whose consttutona and
property rghts were nvoved, and upon whch the ta ng power coud ony be
e ercsed under strct rues of genera equaty. The sub|ect matter of the two
cts was radcay dfferent the cass of property Invoved n the two cts was
radcay dfferent hence there s no ega bass upon whch the provsons of
the Revenue ct can be hed to repea by mpcaton the nterest provsons of
the earer Settement of War Cams ct.
Though t be conceded that the two cts treat generay of the same sub|ect,
t by no means foows that the ater ct may be regarded as repeang by
mpcaton the earer ct. Such an mpcaton arses ony where there s
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618.
152
an nconsstency between the two cts whch can not be reconced. No such
nconsstency here e sts. In Rodgcrs v. tUted States (185 U. S., 83, 87) the
court sad:
It s a canon of statutory constructon that a ater statute, genera n ts
terms and not e pressy repeang a pror speca statute, w ordnary not
affect the speca provsons of such earer statute. In other words, where
there are two statutes, the earer speca and ater genera the terms of the
genera broad enough to ncude the matter provded for n the speca the fact
that the one s speca and the other s genera creates a presumpton that the
speca s to be consdered as remanng an e cepton to the genera, and the
genera w not be understood as repeang the speca, uness a repea s
e pressy named, or uness the provsons of the genera are manfesty ncon-
sstent wth those of the speca.
It s unnecessary, however, to appy ths strct rue of constructon to the
present case. Secton 24(c) paced a mtaton upon the payment of nterest on
ta es refunded under the Settement of War Cams ct, whch reated to the
speca sub|ect of the settement of cams of mercan natonas aganst
Germany, ustra, and ungary, and of natonas of Germany, ustra, and
ungary, aganst the Unted States, and for the utmate return of a property
hed by the en Property Custodan. The Settement of War Cams ct
embraced a of these sub|ects, and was n the nature of a fna dsposton
thereof. Congress was here treatng wth a separate and ndvdua matter
unreated to the Revenue ct of 1928, whch contaned no reference to the pror
ct or sought to repea any of the provsons contaned theren.
Wth ths dsposton of the case, t s unnecessary to consder the queston
of |ursdcton.
The |udgment s affrmed.
S CTION 618. MIN TION O OO S ND
WITN SS S.
Secton 618.
revenue act op 1028.
uctoneers engaged n seng stock. (See G. C. M. 12433,
page 91.)
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153 201, rt. 1541
INCOM T RULINGS. P RT III.
R NU CT O 1926 ND PRIOR CTS.
TITL II. INCOM T .
P RT I. G N R L PRO ISIONS.
S CTION 201. DISTRI UTIONS Y CORPOR TIONS.
etce 1541: Dvdends. II-44-6478
Ct. D. 749
INCOM T R NU CT O 1924 D CISION O COURT.
1. Deducton Dvdend from Domestc Corporaton udng
and Loan ssocaton.
sum receved n 1924 upon wthdrawa from a budng and
oan assocaton, n e cess of the amounts pad n on account of
membershp fee and stock subscrptons and consstng of accumu-
ated profts, consttutes a dvdend wthn the meanng of secton
201(a) of the Revenue ct of 1924, and s deductbe from gross
ncome under the provsons of secton 234(a)0 of that ct. I. T.
1605 (C. . LI-1, 5) foowed.
2. Decson ffbmed.
The decson of the oard of Ta ppeas (23 . T. ., 1279)
affrmed.
Umted States Crcut Court of ppeas for thh Thrd Crcut.
Commssoner of Interna Revenue, pettoner, v. aron Ward d Son , by
Lqudatng Trustees, respondent.
Upon petton for revew from the Unted States oard of Ta ppeas.
efore uffnqton, Davs, and Thompson, Crcut udges.
une 8, 1933.
opnon.
. Thompson, Crcut udge: Ths s an appea from an order of redetermna-
ton of the oard of Ta ppeas. In March, 1916, the respondent, a New
ersey corporaton, subscrbed to 1,000 shares of the capta stock of the
ourteenth Ward udng and Loan ssocaton, a domestc corporaton.
The respondent pad a membershp fee of 1 at the tme of the subscrpton
and 97,000 n monthy nstaments of 1,000 each, or an aggregate sum of
97,001. Thereafter t apped to the assocaton for wthdrawa of ts nvest-
ment and on March 18, 1924, t receved 129,840 from the assocaton n fu
payment of ts stock.
Under the consttuton of the assocaton, a member was permtted to wthdraw
hs nvestment after wrtten notce. ach member was sub|ect to certan fnes
or penates for faure to compy wth the rues of the assocaton. s n-
vestment, ncudng any profts credted to hs stock, was sub|ect to a propor-
tonate share of any osses sustaned by the assocaton. The profts of the
assocaton were computed quartery and a proportonate amount thereof
credted to the shares of each member. member who wthdrew before the
termnaton of the frst year of hs subscrpton was entted to receve the
3740S 34 11
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201, rt. 1541.
154
nmounts pad by hm, ess unpad fnes and hs proporton of any oss sus-
taned by the assocaton. member who wthdrew before the termnaton of
any subsequent year of hs subscrpton was entted to receve the amounts
pad by hm, pus a percentage of the profts credted to hs shares, ess unpad
fnes and hs proporton of any oss. The consttuton further provded that
the owner of the stock ceased to be a member of the assocaton when hs
stock mntured and was pad. No stockhoder coud wthdraw any amount
ether of profts or nvestment e cept by surrenderng hs stock for cancea-
ton and termnatng hs membershp.
The respondent wthdrew from the assocaton and receved 32,839 n
e cess of the amount pad by t for the stock. The pettoner camed that
ths sum was ta abe as a gan or a qudatng dvdend. The respondent
contended, and the oard of Ta ppeas hed, that the sum n e cess of the
amount pad by the respondent for the stock was a dvdend from a domestc
corporaton and, therefore, was e empt from ta aton under the provsons
of sectons 201(a) and 234(a)6 of the Revenue ct of 1924. These sectons
read:
Sec 201. (a) The term dvdend when used n ths tte means
any dstrbuton made by a corporaton to ts sharehoders, whether n money
or n other property, out of ts earnngs or profts accumuated after ebruary
28, 1913. (20 U. S. C. ., secton 2115 a.)
Sec. 234. (a) In computng the net ncome of a corporaton sub|ect to the
ta mposed by secton 230 there sha be aowed as deductons:

(6) The amount receved as dvdends (a) from a domestc corporaton
. (28 . 8. C. ., secton 986.)
Cases cted by the pettoner contanng a dscusson of the meanng of the
term dvdend are not authortatve because Congress has specfcay defned
the word n the ct and thus made that defnton e cusve. The nstant
case contans a the essentas of a dvdend, as defned In paragraph (a) of
secton 201. Dstrbuton In money was made by the assocaton to one of ta
sharehoders out of profts of the assocaton. The profts n queston were
necessary accumuated after ebruary 28, 1913. snce the respondent dd not
become a sharehoder unt 1916.
The Treasury Department, when rung n respect to budng and oan
assocatons, commtted tsef to the vew that the profts of the assocaton,
perodcay credted to ts members, are to be treated as dvdends wthn
the meanng of secton 201(a). The rung of the Interna Revenue ureau,
I. T. 1665, reported n Cumuatve uetn II-, pages 5 and 6, reads:
Whe not actuay dstrbuted, these profts are credted perodcay n
proporton to the amount of stock actuay pad for n the same manner that
dvdends are credted and pad n tbe ordnary commerca corporaton. The
sharehoder s entted to no credts f there are no earnngs and such credts
vary wtb the vcsstudes of the busness. They are n a very true sense
smar to the dvdends n other corporatons. If such perodca credts were
nterest on money advanced, they woud be f ed n amount and pnyabe
whether the corporaton had net earnngs or not.
It s bod, therefore, that the perodca dstrbutons of earnngs on runnng
nstament shares of stock pad or credted by a budng and oan assocaton
to the hoders of ths cass of stock are dvdends wthn the defnton of a
dvdend as set forth n secton 201 of the Revenue ct of 1921, n so far as
they are out of earnngs accumuated subsequent to ebruary 28, 1913.
The assocaton accumuated and nvested the dues pad perodcay by the
members. The profts were derved from nvestment of the dues and not
from (ho sae of any of the property owned by the assocaton. Profts, when
made by the assocaton, were credted reguary to the shares of the members
n tbe same proporton as the number of shares owned by the member bore to
the tota number of outstandng shares. We thnk the profts made and ap-
portoned among the stockhoders consttuted a dvdend of profts. Ths s so
athough the profts were accumuated unt the shares matured, nstead of
beng decared and pad at reguar ntervas. See Cury v. The Savngs Unon
(22 Wa., 38).
The order of the oard of Ta ppeas s affrmed.
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155 204, rt. 1591.
- rtce 1545: Dstrbutons n qudaton.
R NU CT O 1926.
Transfer of purchase money notes to stockhoder upon dssouton
of corporaton. (See Ct. D. 758, page 174.)
S CTION 202. D T RMIN TION O MOUNT
O G IN OR LOSS.
ttce 1561: Determnaton of the amount of gan or oss.
R NU CT O 1021.
n agreement made n 1904 for a contngent compensaton reazed
n 1923. (See Ct. D. 714, page 187.)
rtce 1561: Determnaton of the amount of gan or oss.
R NU CT O 1926.
mendment of artce 1561, Reguatons 69. (See T. D. 4376,
page 117.)
S CTION 204. SIS OR D T RMINING G IN OR
LOSS, D PL TION, ND D PR CI TION.
rtce 1591: ass for determnng gan or II-36-6388
oss from sae. Ct. D. 727
( so Secton 208, rtce 1651.)
INCOM T R NU CT O 1921 D CISION O COURT.
1. ass fob Determnng Gan or Loss Sae of Stock.
Where a ta payer n 1920 and 1921 acqured stock n a corpora-
ton organzed by hm, for whch he pad cash, the gan derved
from the sae of the stock n 1922 was propery based upon the
dfference between the cash pad for the stock and the prce re-
ceved upon ts sae, n accordance wth secton 202(a) of the
Itevenue ct of 1921. ddtona assets turned over to the cor-
poraton by the ta payer were propery e cuded n determnng
the cost of the stock, snce there was no proof that the corpora-
ton ever rendered any consderaton therefor. The aeged actua
vaue of the stock, as shown by offers therefor after the corpora-
ton was organzed, may not be consdered as evdence of ts vaue
when acqured.
2. Capta Net Gan Capta ssets.
Where stock was barganed for n 1920 and ssued at dfferent
dates, the ast bock beng ssued n 1921, n ascertanng whether
proft on the sae of a the stock n 1922 was ta abe as capta
net gan or as ordnary net ncome the effectve date of the ta -
payer s stock rghts was that of ts ssuance and not that of the
subscrpton agreement. The stock, not havng been hed for proft
or nvestment for more than two years, was not a capta asset
wthn the meanng of secton 206(a)0 of the Revenue ct of 1921.
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204, rt. 1591.
156
3. Decson ffrmed.
The decson of te oard of Ta ppeas (22 . T. ., 1241)
affrmed.
Unted States Crcut Court of ppkaus, Tenth Crcut.
Maytw G. Summer , dmnstratr , ( . T. .. state of . . Sommers, Deceased,
pettoner, v. Commssoner of Interna Revenue, respondent.
efore Lews, Cottera, and Phu|ps, Crcut udges.
ebruary 20. 1933.|
OPINION.
Cotteea, Crcut udge, devered the opnon of the court.
The ncome ta nvoved s of the deceased husband of pettoner, for the
caendar year 1922. defcency was found by the Commssoner, of 16,615.23,
as to whch there were some ad|ustments, eavng a net defcency of 14,531.2(1
redetermnaton was sought before the oard of Ta ppeas and the Com-
mssoner s hodng was affrmed. The admnstratr now appeas to ths
court assertng there was error n arrvng at the defcency.
rom 1908 to 1920, Summers was genera manager of the Great Western O
Co., dong busness n Coorado, Utah, and Wyomng. Under hs management
the company acqured a vauabe patronage and ts affars prospered. In 1920,
he and hs assneates offered to buy the busness for 70,00U, but t was sod to
Gaes O Co. for 150,000 and 20,01)0 was donated to hm by the vendor, pro-
vded he woud cance hs contract wth (e Gates O Co. and not nterfere wt
the sae.
s ne t enterprse was to organze the Sommers O Co., n the same fed.
e secured the cooperaton of the Contnenta O Co., and agreed wth t e
woud subscrbe for 00 per cent of the stock of the new company, and the
Contnenta woud subscrbe for the remander. The pan was carred out,
e cept for the ssuance of a few quafyng shares to drectors. The Sommers
O Co. was organzed n 1920. Its books show the capta stock was ssued for
100 a share, pad n cash. e pad for hs stock, n cash, as foows: uy 17,
1920, 12,000 ugust 24, 1920. 12,000 October 18, 1920. 18,000 ebruary 1,
1921. 12,000 tota 54,000. The Contnenta aso pad kewse for ts shares.
t the tme the Sommers O Co. was organzed Sommers owned a ease on
the property of Neef ros. rewng Co., at Denver, Coo., near the tracks of
the Denver Ro Grande Raroad Co., and certan trackage rghts secured
from that company, sutabe for the whoesae busness of the o company.
e assgned the ease and trackage rghts to the company, but t does not
appear that he was pad anythng therefor. e aso transferred to the new
company the account of the uaker State O Co.. but t was hed by hm as
presdent of the new company and beonged to t. That company prospered and
dd a arge busness. In November, 1922, he sod hs stock n that company
for 142,000. In computng hs proft on the sae, the Commssoner used as a
bass the cost of hs stock 54,000 and computed the gan by deductng at
turn from the sae prce of the stock. Ths was n accordance wth secton
202(a) of the Revenue ct of 1921 (42 Stat., 229). whch provdes that gan or
oss n a sae transacton sha be ascertaned on a bass of cost.
ut the pettoner contends the proper bass was 129,000, measured by the
cash pad and the addtona assets turned over to the company for hs 60
per cent nterest, or the actua vaue of the stock as shown by bona fde offers
therefor after the Sommers O Co. was organzed.
There are obvous reasons for refusng pettoner s contentons. One of them
s that there was no record or proof that the Sommers O Co. ever rendered
any consderaton for the ease and trackage rghts transferred by hm to the
company. The evdence of ther vaue was propery e cuded. The ony proof
s contaned n the books of the company, whch show the ssuance of stock
for the cash par vaue thereof, and ths occurred at the dates of the ssues,
subsequent to the trnnsfer.
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157
205, rt. 1611.
n Item of good w Is reed upon as beng e changed for the stock. ut
It had been earned by hm as a representatve of the Great Western O Co.,
beonged to t, passed to the Gates O Co., and was not assgnabe by hm,
as hs property or persona asset, to the Sommers O Co. Good w s
not susceptbe of separate ownershp or transfer. It arses ony out of a
partcuar busness and has no e stence apart from t. (Pfeghar ardwre
Specaty Co. v. ar, 30 . (2d), 614 Metropotan ank v. St. Lous Dspatch
Co., 140 U. S., 436 In re Lese- udge Co., 272 ., SS6.) nother dffcuty wth
the contenton Is that there was no showng of any transfer of good w to the
Sommers O Co. It dd have the beneft of Sommers s nfuence and the patro s
he had attracted In hs connecton wth the Great Western O Co. ut, as
stated, that good w passed to the Gates O Co. There was not and coud not
be any transfer of It to the Sommers O Co.
The pettoner aso rees on the vaue of the stock he acqured from the
Sommers O Co., and compans of the e cuson of evdence ottered to show
the stock was worth not ess than 250 a share, and hs 60 per cent nterest n
the company was worth not ess than 129,000. The evdence was not ad-
mssbe, n vew of secton 202(c) of the Revenue ct of 1921, whch provdes
that no gan or oss sha be recognzed uness the property receved n e -
change has a defnte and ready reazabe market vaue. There was no
evdence of any market vaue of the property e changed for the stock, e cept
the cash pad for t. That was the statutory method of reachng the vaue of
the stock, because the stock coud have no market vaue unt t was Issued.
None of t was for sae. Later offers for the stock were not evdence of such
vaue. (Sharp v. Unted States, 191 U. S., 341.) The test woud be the vaue
on the organzaton of the company, and not afterward at the dates shown n
the offers of the proof.
nother queston remans. The stock was barganed for n 1920, ssued at
dfferent dates, the ast bock of 120 shares ebruary 1, 1921, and the sae of
a was made In November, 1922. Was that bock ta abe as a capta net
gan as contended by pettoner, or as ordnary net ncome, as rued by the
oard It s urged that Sommers s Interest was a unt 00 per cent of the
stock and shoud be construed to have been ssued as of the date of the agree-
ment. That agreement was bndng on the subscrbers, but not the corpora-
ton. (Crosby v. Stratton, 17 Coo. pp., 220, 68 Pac, 130.) s nvestment
Increased wth each ssue of stock, and the vaue of It was not affected by the
prevous nvestments. The effectve date of hs stock rghts was that of ssu-
ance of the stock. Unt that date, there was not a fna subscrpton, and to
ast stock ssued represented no nterest theretofore nvested n the capta of
the company. Secton 20C(a)6, evenue ct of 1921, whch appes, provdes
that capta assets mean property acqured and hed by the ta payer for
proft or nvestment for more than two years. The stock coud not therefore
be a capta asset wthn the meanng of that secton.
We are of the opnon that the oard of Ta p eas correcty decded the
controversy and ts decson s accordngy atrmed.
S CTION 205. IN NTORI S.
rtce 1611: Need of nventores.
R NU CT O 1018.
usness of propagaton and cuture of oysters. (See G. C. M.
12004, page 168, and I. T. 2704, page 169.)
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206, rt. 1621.
158
S CTION 206. N T LOSS S.
rtce 1621: Net osses, defnton and com-
putaton.
II-33-6343
a. D.717
ncome ta revenue act ok 1020 decson of court.
Nbt Losses Ta - empt Interest Consttutonaty of
Statute.
Secton 206 (a) 5 of the Revenue ct of 1926, whch requres the
ncuson n gross ncome of ta -e empt nterest n ascertanng the
amount of net oss, s consttutona, and pantff s net oss for
192G. aowed as a deducton from ts ncome for 1927, was propery
computed by the ncuson of such nterest n gross ncome, n
accordance wth the provsons of that secton. The deducton of
the whoe or any part of a oss of one ta abe year from the net
ncome of another ta abe year s whoy wthn the dscreton of
Congress, whch has the power to cassfy accordng to the fact
and to mt the deducton provded n the above secton to those
ta payers: who actuay sustan operatng osses, notwthstandng
that n determnng that fact ncome e empt from ta aton s to
be consdered.
Court of Cams of the Unted States. No. M-390.
Phadepha re d Marne Insurance Co. v. The Unted States.
Ltteton, udge, devered the opnon of the court.
The computaton of the amount of the net oss for 1926 whch was aowed
by the defendant as a deducton from pantff s ncome for 1927 was n ac-
cordance wth the provsons of secton 206 of the Revenue ct of 1926 and
ths s not questoned, but pantff contends that, the entre oss for 1926 of
92,447.31. representng the e cess of aowabe deductons over ts ta abe
gross ncome, was deductbe from net ncome for 1927 and that the provsons
of secton 206(a)5 of the 1926 ct, whch requres that such oss be reduced
by the amount of nterest receved free from ta , s unconsttutona and vod
under the rue ad down n Natona Lfe Insurance Co. v. Unted States
(277 U. S., 508 T. D. 4206, C . II-2, 296 ) and n Dcnman v. Ma/ton
(282 . S., 514 Cr. D. 318, C . -, 380 ). It s nssted that the ta of
. 2,391.03 coected for 1927 resuts aone from the fact that pantff receved
33,250 from ta -free securtes and that t was sub|ected to greater burdens
m ts ta abe ncome for 1927 soey because t owned certan ncome that was
e empt from ta . e thnk secton 206(a)5 s consttutona. We fa to
see the parae between the queston presented n ths ease and that decded
n Natona Lfe Insurance Co. v. Unted States, supra, and n Dcnman v.
Sayton, supra. The ta -e empt nterest receved n 1926 by pantff n ths
case has never been sub|ected to ta . ad Congress been so mnded, t coud
have requred pantff to pay a ta upon ts entre net ncome of 80,401.91
for 1927 and. had t done so, the pantff coud not compan.
Under our system of ta aton each ta abe year stands aone and the de-
ducton of the whoe or any part of a oss of one ta abe year from the net
ncome of another ta abe year s whoy wthn the dscreton of Congress and
t may consttutonay pace any mtaton t desres upon such deducton.
In provdng for the deducton aowabe under secton 206(a) t was wthn
the consttutona power of Congress to cassfy accordng to the fact and to
mt the deducton theren provded to those ta payers who actuay sustaned
operatng osses, notwthstandng that n the determnaton of the fact ncome
e empt from ta aton s to be consdered. Ths rue has been foowed by the
oard n a number of cases uphodng the consttutonaty of secton 20t(a)5.
In Warren Steam Pump Co. (23 . T. ., 585) the oard sad: Ta abe n-
come as defned n the severa Revenue cts Is determned on a bass of a
May 29. 1933.
OPINION.
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159
206, rt. 1522.
12-month perod, e cept n partcuar crcumstances not necessary to dscuss
here. departure from ths rue was naugurated by the so-caed net-oss pro-
vson of the Revenue ct of 1918, and contnued n subsequent Revenue cts.
Ths provson of the severa cts s not open to a ta payers, but ony those
who come wthn ts terms, and the oss to be carred forward must be
measured by the terms of the statute, and not otherwse. gance at the
provsons of secton 206(a) of the Revenue ct of 1920, wth whch we are
concerned here, dscoses a very detaed pan of determnng a oss that may
be carred forward nto another year. We see no reason why Congress n
grantng ths partcuar boon may not mt t so that the oss to be carred
forward s an actua and true oss, and not an artfca one whch arses from
the e cuson of certan nonta abe ncome.
Pantff s not entted to recover and the petton s dsmssed. It s so
ordered.
rtce 1622: Cam for aowance of net oss. II-30-6306
Ct. D. 706
INCOM T R NU CT O 1921 D CISION O COURT.
1. Net Loss ffatkd Corporatons Consodated and Sepa-
rate Returns.
Where an affated group of corporatons of whch the ta payer
corporaton was a member fed a consodated return for the year
1921, dscosng a net oss, the ta payer may not carry forward
nto ts separate returns for the years 1922 and 1923 the fu
amount of ts separate oss for 1921. Ony such proporton of the
consodated net oss as the net oss of each member bears to the
aggregate net oss of the group may be apped aganst the net
ncome of each for the succeedng ta abe year.
2. Same: Ta - empt Dvdends.
Ta -e empt dvdends receved by the affated group are to be
ncuded n gross ncome for the purpose of determnng the amount
of statutory net oss to be carred forward nto the separate return
by the ta payer.
3. Decson ffrmed.
The decson of the oard of Ta ppeas (21 . T. ., 997)
affrmed.
Court of ppeas of the Dstrct of Coumba.
ack Sugar Co., Ltd., appeant, v. Davd urnet, Commssoner of Interna
Revenue.
ppea from the oard of Ta ppeas.
efore Martn, Chef ustce, and Robb, an Orsde, tz, and Groneb,
ssocate ustces.
ebruary 6, 1933.
OPINION.
Martn, Chef ustce: Ths appea arses upon a rung of the Commssoner
of Interna Revenue, sustaned by the oard of Ta ppeas, ascertanng the
net oss shown by a consodated return made by a group of affated corpora-
tons, and determnng the proporton thereof whch one of the affated group
mght carry forward Into ts separate return for the ne t succeedng year. The
ssues ca for partcuar reference to sectons 204. 214(a) and 240, Revenue ct
of 1921. The oard s opnon s reported n 21 . T. ., 997.
It appears that for the ta abe year 1921 the appeant. awk Sugar Co.,
was a member of an affated group of fve corporatons whch submtted a con-
sodated return of ncome. The net ncomes and net osses of the Indvdua
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206, rt, 1622.
160
members of the affated group for the year 1921, us fnay determned and
approved by e Commssoner of Interna Revenue, are as foows:
mounts of
net ncome or
oss from the
operaton of
ndvdua
members.
Income from
dvdends re-
ceved by
each mem-
ber.
Net ncome
Names of members of afmed group.
pus dv-
dends or net
oss of each
member.
Daves dpc- Co., Ltd -
1 287, 207. 78
220, 504. 20
4, 131.35
55.484. 59
110,189.40
None.
2,107.00
None.
None.
1 397, 377.18
22U. 504. 20
2, 0O4. 39
55. 484 59
132,871.71
Pear Cty rut Co., Ld -
132,871.71
Loss e cusve of ncome from dvdends
125,844.07
112,276.40
13,507.67
1 Net ncome. 1 Loss. 1 Income. Net oss.
ccordng to the foregong tabe t appears that the appeant ta payer, f
separatey consdered suffered a net oss n the year 1921 n the sum of
220,564.20 that t receved no returns from nonta abe dvdends n that year
that the tota oss of the affated corporatons, e cusve of ncome from non-
ta abe dvdends, was 125,844.07: that the tota ncome receved n that year
by the group from nonta abe dvdends was 112,270.40 and that the statutory
net oss of the affated group as computed by the Commssoner was : ,.r 07.G7.
ccordngy no ncome ta was assessed aganst the affated corporatons for
the ta abe year 1921.
or the ta abe years 1922 and 1023 the appeant fed a separate ncome
return, and carred forward as a deducton n ths return the fu amount of ts
separate net oss for 1921, to wt, the sum of 220,504.20. Ths cam was
made under secton 204(b) of the Revenue ct of 1921. The Commssoner
refused to aow ths deducton, but permtted a deducton of 6,041.60 for the
year 1922, whch he apportoned as appeant s net oss as a member of the
affated group for 1921. Ths apportonment was accompshed by aottng to
each member of the group, whch f consdered separatey woud have sustaned
a net oss, such a proporton of the consodated net oss as the net oss of the
member sustaned to the aggregate net oss of the group. No such deducton
was aowed to appeant for the year 1923, nasmuch as the net oss thus cur-
red over was absorbed by the return for 1922. Ths acton of the Comms-
soner was sustaned upon appea by the oard of Ta ppeas, whereupon the
present appea was taken.
ppeant s compant as set out n ts petton fed wth the Roard. s that the
Commssoner n computng ts net ta abe ncome for the years 1022 and 19 3
refused to aow t to carry forward as a deducton the fu net oss separatey
sustaned by t for the caendar year 1921, such net oss amountng as aforesad
to 220,504.20. ppeant therefore prayed that the oard shoud fnd t
entted to a deducton n that sum n computng ts ta abe ncome for the
years 1922 and 1923.
In ths court, however, the pettoner s contenton s that n computng the
porton of the net oss whch t coud carry forward to the years 1922 and 192: ,
the nonta abe dvdends receved by ts affates shoud be dsregarded, and
that the combned oss of the affated group shoud not be reduced by the
nonta abe ncome of any of ts members before the apportonment thereof to
the severa members of the group.
It may be doubted whether the atter queston s propery before us upon ths
appea, nasmuch as t was not specfcay presented to the Roard of Ta
ppeas. Nevertheess, appeant s severa contentons are so cosey nterre-
ated that we fee |ustfed n consderng them together n ths opnon.
Upon a revew of the record we are convnced that both contentous of the
appeant are erroneous.
It s pan beyond dspute that t was not the egsatve ntent to permt a
member of an affated group |onng n a consodated return, to make use of
ts separate net oss for 1921 as an offset aganst the net gans of ts assocate
members In (hat year, thereby reducng the net ncome of the combned group
and at the same tme permt t to make use of such net oss as a deducton n
ts separae return for the years 1922 and 1923. Such a procedure obvousy
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161
207, rt. 1631.
woud resut n aowng a doube deducton for the net oss of such member
of the group, frst, as an offset n the consodated return for 1921, and, second,
as a deducton u the subsequent separate return of the member for 1922 and
1923. Therefore appeant s cam for n deducton of ts entre net oss for 1921,
n computng ts ncome ta es for the years 1922 and 1923, s overrued.
Swft t Co. v. Unted States, 38 . (2d), 385.)
The second contenton of appeant s kewse untenabe. The computaton
made by the Commssoner whereby the net oss of the affated group, to
wt, 125,844.07, s offset n part by the addton to gross ncome of ta -e empt
dvdends receved by the group n the sum of 112,276.40, eavng a statutory
net oss of 13,567.67, reaches a correct resut accordng to the terms of the
statute. The Commssoner dd not err n hodng that the ta -e empt dvdends
shoud be ncuded n gross ncome for the purpose of determnng the amount
of the statutory net oss to be carred forward by appeant. Sectons 204 and
240, Revenue ct of 1921. (Cf. Genera Securtes Corporaton, 23 . T. .,
130 Crocker rst Nat. ank v. Commssoner, 26 . T. ., 1078 dams case,
19 . T. ., 781 Schesnger case, 5 . T. ., 943 Warren Steam Pump Co., 23
. T. ., 585 Orr v. Scmbowcr, 20 . T. ., G05.) (See Woo ford Reaty Co.,
Inc., v. Rose, Coector, 286 U. S., 319 Ct. D. 493, C. . I-1, 154 .)
The decson of the oard of Ta ppeas s affrmed.
S CTION 207 (R NU CT O 1924).
ISC L Y RS.
rtce 1631 (Reguatons 65): sca years I1-42-6457
endng n 1924. Ct.D.744
INCOM T R NU CT O 1924 D CISION O COURT.
1. Income Computaton Capta Net Loss sca Year of
Partnershp ndno n Caendar Year 1924.
Where the ta payer 1n hs return for the caendar year 1924
showed a capta net oss, but a arge ordnary net ncome partay
due to hs share n partnershp profts for the fsca year endng
n une, 1924, the other ncome for 1924 to whch the porton
of partnershp ncome sub|ect to 1924 rates sha be added, n
accordance wth secton 207(b) of the Itevenue ct of 1924, means
the net ncome on whch the ta at reguar rates s cacuated
wthout the ncuson of capta.1 tems, uness suc tems are
brought theren by the operaton of secton 208 reatng to them.
Where, as here, separate computaton of the capta net osses s
to the advantage of the Government and s therefore prescrbed,
n accordance wth secton 208(c), the tem of capta net oss thus
put under the 12 per centum fat rate can not fgure n the com-
putaton of the ta es under the reguar rates, and the other
ncome to whch partnershp gans are to be added s unaffected
by the capta Items.
2. Decson fhrmed.
The decson of the oard of Ta ppeas (19 . T. ., 1928)
affrmed.
Unted States Crcut Court or ppeas for the fth Crcut.
George G. Westfcdt, pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas (Dstrct of
Lousana).
efore ryan, oster, and Sbey, Crcut udges.
March 13, 1933.
opnon.
Sbey, Crcut udge: The ta payer n hs returns for the caendar year
1924 showed a capta net oss, but a arge ordnary net ncome. Part of the
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208, rt. 1651.
162
atter was due to hs share n the profts of a partnershp whch had a fsca
year endng n une, 1924. part of the partnershp profts was therefore
attrbutabe to busness done n 1023, and by secton 207(b) of the Revenue
ct of 1024 shoud have ta rates of 23 apped to t n computng the ta -
payer s 1924 ta es. The specfc provson here mportant s. wt parentheses
added, In such cases the part of such ncome (that derved from the partner-
shp) sub|ect to the rates n effect for the most recent caendar year (1924)
sha be added to the other ncome of the ta payer sub|ect to such rates (those
of 1924) and the resutng amount sha be paced n the ower brackets of the
rate schedue appcabe to such year, and the part of such ncome sub|ect to
the rates n effect for the ne t precedng caendar year (1923) sha be paced
n the ne t hgher brackets of the rate schedue appcabe to such year. The
soe dspute s whether the tem of capta net oss s to fgure n the other
ncome a ove taczed so as to reduce the net ncome for 1924 to whch the
partnershp ncome attrbutabe to 1923 s to be added, or whether the capta
net oss s to be set apart entrey e cept to take 12 per centum of t fnay
as n credt on the ta . y the crtca words other Income we thnk Con-
gress meant smpy the net ncome on whch ncome ta at reguar rates s beng
cacuated. It woud or woud not ncude capta tems accordng to the oper-
aton of secton 208 reatng to them. Orgnay a gans and osses athough
arsng from what are now caed capta transactons were treated ke other
gans and osses. To avod the hardshp of reazng n one year gans reay
accumuated over a perod of years, the devce of treatng them at the ta -
payer s opton us capta gans and makng a fat rate ta of 12 per centum
on such net gans was ntroduced n the Revenue ct of 1921. In the Revenue
ct of 1924 net osses In such transactons were smary treated. In substance
at the Government s opton for the separate computaton s to be re|ected f t
resuts n ess ta es than the usua method. When, as here, t s found that
separate computaton of the capta net osses s to the advantage of the
Government and s therefore prescrbed, the capta tems thus put under the
12 per centum fat rate go out of the computaton of the ta es under the
reguar rates, and the other ncome to whch partnershp gans are to he
added s unaffected by the capta tems. The computaton of the Commssoner
uphed by the oard of Ta ppeas was correct, and the petton for revew
s dened.
S CTION 208. C PIT L G INS ND LOSS S.
rtce 1651: Defnton and ustraton of capta
net gan.
revenue: act of 1021.
ffectve date of stock rghts. (See Ct. D. 727. page 155.)
rtce 1651: Defnton and ustraton of II-48-6535
capta net gan. Ct. D. 756
INCOM T R NU CT O 1921 D CISION O COURT.
1. Income Capta (Ian Capta ssets Sae ok udngs
rected on Land cqured for Investment.
Where a rea estate deaer acqures unmproved and for nvest-
ment n 1919, erects budngs thereon and ses them n 1922 and
1923. wthn two years after ther erecton, the and beng acqured
more than two years pror to the saes s a capta asset wthn
the meanng of secton 206 of the Revenue ct of 1921, and so much
of the proft derved from the saes as s apportonabe to the en-
hancement n ts vaue s ta abe as capta gan, but the bud-
ngs whch were erected on the unmproved and wthn two years
pror to the saes do not come wthn the terms of that secton,
and so much of the proft as s attrbutabe thereto s ta abe as
ordnary ncome.
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163
208, rt. 1651.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (23 . T. ., 418)
affrmed.
Court of ppeas of the Dstrct of Coumba.
een M. Dungan, dmnstratr of state of Davd . Dungan, Deceased,
appeant, v. Davd urnet, Commssoner of Interna Revenue, appeee.
ppea from the oard ot Ta ppeas.
efore Martn, Chef ustce, and Robb, an Orsde, tz, and Groner,
ssocate ustces.
une 5, 1933.
OPINION.
Groner, ssocate ustce: Ths s an appea by een M. Dungan, as ad-
mnstratr of the estate of Davd . Dungan, deceased, from a decson of
the oard of Ta ppeas determnng ncome ta defcences for the years
1922 and 1923.
The case s sad to be one of frst mpresson.
condensed statement of facts taken from the fndngs of the oard s as
foows: Deceased (Dungan) was durng the years 1922 and 1923, and for
severa years pror thereto, engaged n the rea estate busness n the Dstrct
of Coumba. It was hs practce to purchase unmproved parces of and and
to erect houses thereon, mosty of a sma resdenta type, whch he woud
se n snge unts. Durng 1919 he purchased two such tracts of and n the
northwest secton of the Dstrct of Coumba, upon whch e subsequenty but
houses. Some of these houses he sod n 1922 and 1923. The profts derved
from these saes are the tems n dspute n ths proceedng. The and was
acqured by Dungan more than two years pror to the dates of the saes hut
the budngs were erected wthn the two years. Deceased fed for 1922 and
1923 ncome ta returns n whch he reported the profts from the saes as
capta net gans wthn the meanng of secton 206 of the Revenue ct of
1921 (42 Stat., 227). The Commssoner treated the profts as ordnary ncome
and asserted the defcences. The dvson of the oard of Ta ppeas to
whch appea w s taken reversed the Commssoner and hed that no further
ta was due. The entre oard revewed the decson of the dvson, and
hed that so much of the proft as was apportonabe to the enhancement n
vaue of unmproved and was ta abe as capta gan, but so nuch as was
attrbutabe to the houses erected thereon (wthn the 2-year perod) was
not capta gan and was returnabe and ta abe as ordnary ncome. If a
the profts arsng from the sae of the property are ta abe as capta gan,
there s no defcency.
The queston for decson, therefore, s whether the oard of Ta ppeas
was rght n segregatng the amount of profts reazed as between the hnd
tsef and the mprovements paced thereon and n hodng that the portoc
of the profts aocabe to the mprovements the budngs was not eaptaS
gan wthn the statute. The formua used to ascertan what porton of profts
s attrbutabe to and and what porton to budngs has the approva of both
ta payer and Commssoner.
Secton 200(b) of the Revenue ct of 1921 (42 Stat, 227) provdes that
ny ta payer who for any ta abe year derves a capta net
gan may pay n eu of the ta mposed by sectons 210 and 211 a ta of
12 per cent on such capta net gan.
The term capta assets means property acqured for nvestment and
hed for more than two years. The purpose of the ct. by a reducton of the
reguar ta rate, was to stmuate consummaton of proftabe transactons
n property bought for nvestment n other words, to e pedte saes of prop
erty whch woud be otherwse postponed by reason of the hgh rate of ta a
ton. It was antcpated the Government woud be the ganer by ncreased
revenues. (See urnet v. arme, 287 U. S.. 103 Ct. D. G, C. . I-2, 210 .)
In the Sde of stocks, bonds, or and bought for nvestment as an entrety,
the appcabty of the provsons of the statute depends soey on the queston
of the tme of acquston, but here we have n case n whch property sod as a
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5208, rt. 1654.
164
whoe was acqured, part more than two years pror to sae and part ess than
two years. The dffcuty that frst suggests tsef n such crcumstances s
how to aocate the profts. owever perpe ng that may be ordnary, t s
agreed n ths case the method adopted s far. Ta payer, however, nvokes
the common-aw rue that when budngs are erected on and, the former
become part and parce of the atter and the two are merged nto and become
one, and he nssts that f Congress had ntended to depart from ths rue of
dentty of budngs wth the and on whch they stand, t woud have sad
so n pan and approprate anguage. The queston, for many reasons, s
not whoy free from doubt, but the doubt dsappears, we thnk, when the
anguage of the provson of the ct s consdered n connecton wth the estab-
shed practce n the admnstraton of other provsons of the ta aws n
reaton to the same sub|ect matter, . e., ands and budngs, etc. In none
of these s the common-aw rue of dentty foowed.
or nstance, unversay budngs and and are ta ed separatey for State
ta aton purposes. When the budngs are torn down, or destroyed, the custom
s to abate the ta assessment accordngy. or purposes of deprecaton under
the edera ta aws, the and and budngs are consdered separatey. In
the case of the remova of tmber, aowance s made for depeton, and so
aso n the case of mneras, or o or gas removed from the and. If the owner
of the and and budngs destroys the atter to make room for another, the
ta aws permt a deducton equa to the vaue of the destroyed budngs
as a oss sustaned n the year of demoton. These ustratons whch occur
to us seem to recognze that n ta ng statutes the common-aw rue Is no
onger aways appcabe, that the fcton whch t estabshed has yeded to
practca consderatons, far ake to the soveregn and the ctzen. Nor s
the rue nfe be even n cases between prvate partes, for the ownershp
of a house erected upon and may sometmes he severed from that of the
and by e press stpuaton or Imped understandng, n whch case the house
s to be regarded as personaty. (Mnor on Rea Property, 2d ed., voume 1,
secton 23.)
s we have seen, the statute makes the ower ta rate appcabe n the case
of profts derved from the sae of property acqured and hed by the ta -
payer for more than two years. ere admttedy the houses were hed for
nvestment ess than two years before sae, and so, as a matter of actua
fact, the nvestment was made ess than two years before the profts were
reazed, and here, as we have seen, the profts were determned and unds-
puted. Ths hstory and sequence put the case squarey outsde the anguage
of the secton (200). In such crcumstances to appy the common-aw rue
that whatever Is anne ed to the freehod becomes part of t. and thus to ds-
regard the perod of tme as apped to acquston of the houses, woud be to
substtute a ega fcton for a ong-recognzed pocy of severance of and and
budngs where actuaty s and ought to be the controng consderaton.
When ogc and the pocy of a State confct wth a fcton due to hstorca
tradton, the fcton must gve way. ( ackstonc v. Mer, 1 8 U. S.. 189,
200.)
ffrmed.
rtce 1654: Capta net osses. II-31-6321
Ct. D. 710
INCOM T R NU CT O 1928 D CISION O COURT.
Capta Gans and Losses Capta Net Loss.
Where a ta payer n 1927 ses at a oss stock purchased In
1924, the oss sustaned s a capta net oss wthn the meanng
of secton 208(a)6 of the Revenue ct of 1920, and the ta s
propery computed under secton 208(c), notwthstandng the fact
that no other saes or e changes of capta assets had been made
durng the ta abe year from whch capta gan had been de-
rved. The statute does not requre that there must be both
capta gan and capta oss durng the same year n order to
produce capta net oss or gan.
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165
208, rt. 1654
... Unted States Crcut Court of ppeas, ghth Crcut.
George . Pper, r., appeant, v. Lev M. Weuts, as Coector of Interna
Revenue for the Dstrct of Mnnesota, appeee.
ppea from the Dstrct Court of the Unted States for the Dstrct of Mnnesota.
pr 11, 1933.
OrNION.
an akenburgh, Crcut udge, devered the opnon of the court.
The facts and ssue n ths appea, as n the tra ccurt, are thus succncty
stated by the tra |udge:
rom the stpuaton of facts t appears that Mr. Pper, the pantff,
purchased 300 shares of the capta stock of the Mnneapos rtfca Ice
Rnk, Inc., n the year 1924, for whch he pad 30,000. e hed ths stock
unt 1927, when he sod t for -1. e therefore sustaned a oss of 29,990,
for whch he was not compensated by nsurance or otherwse. e dd not
acqure nor enter nto a contract or opton to acqure shares of the capta
stock of the Mnneapos rtfca Ice Rnk, Inc., wthn 30 days before or
after the sae of the shares purchased. In 1927 he dd not se or e change
any property hed by hm for more than two years, other than these shares.
In hs ndvdua ncome ta return for the caendar year 1927, Mr. rper
deducted from gross ncome 29,996 as a oss sustaned wthn the caendar
year 1927, wthn the meanng of secton 214(a) (4) and (5) of the Revenue
ct of 1920 (Tte 20, U. S. C. ., paragraph 955).
The Commssoner of Interna Revenue determned a defcency n the
pantffs ta abty for the caendar year 1927 of 1,528.82, hodng that
the oss from the sae of the stock n queston consttuted a capta net oss
wthn the meanng of secton 208(a)6 of the Revenue ct of 1926 (Tte 26,
U. S. C. ., paragraph 939), and that t was therefore not a proper deducton
from the pantffs gross ncome. The computaton of the pantff s ta
abty under secton 208(c) of the Revenue ct of 1926 resuted n a
defcency as determned by the Commssoner. Mr. Rper pad the defcency,
and brought ths sut to recover the amount pad.
The ony queston nvoved s whether the pantffs conceded oss s a
capta net oss wthu the meanng of secton 208(a)0 of the Revenue ct
of 1926.
There s no dspute as to the facts, and the queston prrsented s purey one
of aw. The contenton of appeant s thus stated:
The capta net oss wth whch the statute deas can ony e st when
there have been saes or e changes of capta assets at bot gan and oss
resutng n nn amount of oss greater than the amount of gan. If there
have been saes or e changes of capta assets at a oss and no saes or
e changes of capta assets at a gan the statute s Inappcabe. In such a
stuaton a ta payer s entted to the beneft of secton 214(a) (4) and (5).
t the outset t may be we to state some estabshed rues of aw whch
must govern our consderaton and dsposton of ths ssue.
It may be conceded that, where n the anguage of a statute the egsatve
body s Intent ceary appears t s to be presumed that t sad what t meant
to say but courts shoud construe a statute n such manner as to avod
absurdty or n|ustce. ( chos v. Commssoner (C. O. . 8), 61 P. (2d), 191.)
statute shoud be reasonaby construed to carry out ts purposes and ob|ects
where the meanng s not perfecty cear. ( dety Natona ank cC- Trust
Co. v. Commssoner (C. C. . 8), 39 . (2d), 58.)
tng may be wthn the etter of a statute and not wthn ts meanng,
and wthn ts meanng, though not wthn ts etter. The ntenton of the
awmaker s the aw. (Smuthe v. ske, 23 Wa., 374, 380.)
The rue of strct constructon w not be pressed so far as to reduce a
ta ng statute to a practca nuty by permttng easy evason. (Carbon
Stee Co. v. Lewcyn, 251 U. S., 501.)
v The rue that ta aws sha be construed favoraby for the ta payers s
not a reason for creatng or e aggeratng doubts of ther meanng. (Irwn,
Coector, v. Gavt, 208 U. S., 101 T. D. 3710, C. . I -1, 123 .)
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166
The Intenton of the awmaker s the aw, and must govern where t may
be deduced reasonaby from the anguage empoyed. Wth ths In mnd et
us e amne nto the egsatve and |udca hstory of ths statute. ( urnet
v. arme, 287 D. S., 103, 108.) The pertnent provsons foow:
Secton 208, 1926 Revenue ct (Tte 20, U. S. C. ., paragraph 939
Capta gans aDd osses) (44 Stat. L., 19) :
Sec. 208. (a) or the purposes of ths tte
(1) The term capta gan means ta abe gan from the sae or e change
of capta assets consummated after December 31, 1921
(2) The term capta oss means deductbe oss resutng from the sae
or e change of capta assets
(3) The term capta deductons means such deductons as are aowed
by secton 214 for the purpose of computng net ncome, and are prowry
aocabe to or chargeabe aganst capta assets sod or e changed durng the
ta abe year
(4) The term ordnary deductons means the deductons aowed by
secton 214 other than capta osses and capta deductons
(5) The term capta net gan means the e cess of the tota amount of
capta gan over the sum of ( ) the capta deductons and capta osses, pus
( ) the amount, f any. by whch the ordnary deductons e ceed the gross
ncome computed wthout ncudng capta gan
(6) The term capta net oss means the e cess of the sum of the capta
osses pus the capta deductons over the tota amount of capta gan.

(b) In the case of any ta payer (other than a corporaton) who for any
ta abe year derves a capta net gan, there sha (at the eecton of the ta -
payer) he eved, coected and pad, n eu of the ta es mposed by sectons
210 and 211 of ths tte, a ta determned as foows:
parta ta sha frst be computed upon the bass of the ordnary net
ncome at the rates aud n the manner provded n sectons 210 and 211, and
the tota ta sha be ths amount pus 12 2 per centum of the capta net gan.
(c) In the ease of any ta payer (other than a corporaton) who for any
ta abe year sustans a capta net oss, there sha be eved, coected, and
pad, n eu of the ta es mposed by sectons 210 and 211 of ths tte, a ta
determned as foows:
parta ta sha frst be computed upon the bass of the ordnary net
Income at the rates and n the manner provded n sectons 210 and 211, and
the tota ta sha be ths amount mnus 12 per centum of the capta net oss
but n no case .sha the ta under ths subdvson be ess than the (a es m-
posed by sectons 210 and 211 computed wthout regard to the provsons of
ths secton.
The frst egsaton upon ths specfc sub|ect s to be found n secton 206
of the Revenue ct of 1921. by the S ty-seventh Congress (Stat. L., voume
42, pages 232, 233). Wthout quotng fuy, t s suffcent to pont out that
ths ct permtted ths same reducton of ta upon capta net gans as n the
ct of 1920 above set out. The provson of the atter ct wth respect to
capta osses was not ncuded In ths ct of 1921. The purpose of secton 206
of the ct of 1921 s thus stated n unut v. arnc (287 U. S., 1. c. 106) :
efore the ct of 1921, gans reazed from the sae of property were ta ed
at the same rates as other ncome, wth the resut that capta gans, often
accrung over ong perods of tme, were ta ed n the year of reazaton at the
hgh rates resutng from ther ncuson n the hgher surta brackets. The
provsons of the 1921 Revenue ct for ta ng capta gans at a ower rate,
reenacted n 1924 wthout matera change, were adopted to reeve the ta payer
from these e cessve ta burdens on gans resutng from a converson of capta
nvestments, and to remove the deterrent effect of those burdens on such con-
versons. ( ouse Report No. 3 0, Ways and Moans Commttee, S ty-seventh
Congress, frst sesson, on the revenue b of 1921, page 10 see e ander v.
ng, 4G . (2d), 235 Ct. D. 291, C. . -, 223 .)
In ke manner we seek the ntent and purpose of the Revenue ct of 1924,
n secton 208(a) of whch provson was made for the deducton of 12 per
centum of the capta net oss, n computng ncome, nstead of the fu amount
of sad oss as theretofore. In the ascertanment of the ntent of Congress and
the purpose of the ct we are agan permtted to resort to egsatve hstory.
(Unted States v. Grca Northern y. Co. (C. C. . 8). 57 . (2d), 385 urnet
v. arme, supra.) When the Revenue ct of 1924 was caed up n the ouse
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167
208, rt. 165 .
of Representatves of the S ty-eghth Congress, Mr. Greon of Iowa, charman
of the Ways an Means Commttee n charge of the b, n e panng ts
provsons and purposes, sad:
very mportant provson n the b reates to the aowance for capta
osses. It s provded that the amount by whch the ta s reduced on account
of capta osses sfa not e ceed 12 per cent of the osses, and the provson
of the e stng aw, that the ta on the sae or dsposton of capta assets
sha be mted to 12 per cent of the gan, s retaned.
e then referred to the aw of 1921 provdng that capta gans shoud ony
be ta ed at the rate of 12 per cent, and contnued:
Unfortunatey, we were not abe to ncude n the aw, by reason of oppo-
ston n the other ouse, a smar provson wth reference to capta osses.
It was ncuded n the ouse b, but was taken out In the Senate. s a resut
we have found that, n the anguage of the Secretary of the Treasury, the
Government s contnuay beng t psawed, because the arge nvestors take
ther profts ony when they ream need them, but aways take ther osses
and get fu credt. They do that because, as the matter stands now, there
Is ony a 12 per cent ta on the gans, and they get fu credt for the osses.
We have therefore nserted n ths b provsons smar to those contaned n
the amendment to the Revenue ct whch passed the ouse ast summer, pro-
vdng that capta gans nnd capta osses sha both be paced on the same
bass that capta gans sha be ta ed at 12 per cent, at the eecton of the
ta payer, and that capta osses sha ony receve an aowance for deducton
at the rate of 12 per cent. I reay coud magne nothng that s farer, and
If ths provson s retaned n the b, and I ntend t sha be f I am abe to
keep t there, t w resut n the addton of a arge amount of revenue to the
Government out of whch t s now beng defeated, and sometmes n a very
mproper manner. I want to say n ths connecton that even as matters stand
the Government Is gettng far more revenue than t woud f saes of capta
assets were ta ed at the fu rate. ( oume 65, Congressona Record, Part 3,
S ty-eghth Congress, frst sesson, page 2428.)
The egsatve ntent and purpose s thus made cear, and shoud be pre-
served n constructon f the anguage of the ct permts. The pertnent pro-
vsons of the aw of 1924 have been reenacted n the cts of 1926, 1928, and
1932. Secton 208(c) of the Revenue ct of 1926 governs here.
The Commssoner of Interna Revenue and the oard of Ta ppeas have
consstenty construed these Revenue cts n conformty wth the contenton
of the Government and the decson of the tra court n the nstant case.
(Dahnger v. Commssoner, 20 . T. ., 176 Gbert and Chase, pettoners, v.
Commssoner, 21 . T. ., 1245 kns v. Commssoner, 24 . T. ., 572.)
The case of eo v. Commssoner (16 . T. ., 868), upon whch appeant
pates some reance s, rather, an ndrect rung n appeee s favor. The frst
syabus hods that:
The term capta net gan , as used n subdvson (b) of secton 206 of
the Revenue ct of 1921, comprehends the net resut of a transactons durng
any ta abe year, nvovng the sae or e change of capta assets, provded such
resut represents a net gan to the ta payer.
Long-estabshed departmenta practce s entted to much consderaton.
(Commssoner v. Lberty Natona ank (C. C. . 10), 58 . (2d), 57 dety
Natona ank d Trust Co. v. Commssoner (C. C. . 8), 39 . (2d), 1. c. 61.)
Much of the argument of counse for appeant s based upon the use of the
word net n descrbng capta gans, and osses. It s contended that
wthout e changes of capta assets at a gan, there can be no net capta oss
over gan wthn the meanng of secton 208(e). The nfrmty of ths conten-
ton appears upon e amnaton of the terms of the 1921 Revenue ct, n
whch no provson s made for capta oss deductons. Nevertheess, the
capta gans deat wth are descrbed ns capta net gans, whch mean
the e cess of the tota amount of capta gan over the sum of the capta
deductons and capta osses and the reduced percentage of ta aton was
aowed whether or not there had been any capta oss due to the e change
of capta assets. So. under the ct of 1920, the term capta net oss
means the e cess of the sum of the capta osses pus the capta deductons
over the tota amount of capta gan f any. If there s no such capta
gan, the greater the capta oss. (Rasp v. Cty of Omaha et ah, 113 Neb.,
463.) Of course the ct, n provdng for these reduced ta es and deductons
must, n terms, contempate the strkng of a baance f contemporaneous
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8212, rt. 23.
168
gans and osses e st. It Is to bo observed that there are other factors In the
computaton, to wt capta and ordnary deductons In arrvng at the net
gan or oss. The term net as no sgnfcance of the nature urged by
appeant. Ths case has been argued as dependng entrey upon secton 208
of the ct of 19126. It s pertnent aso to consder secton 200(a)2 of the
same tte. (44 Stat. L., 17.) Under the headng net osses we fnd:
Sec. 206. (a) s used n ths secton the term net oss means the e cess
of the deductons aowed by secton 214 or 234 over the gross ncome wth
the foowng e ceptons and mtatons:

(2) In the case of a ta payer other than a corporaton, deductons for
capta osses otherwse aowed by aw sha be aowed ony to the e tent
of the capta gans.
There were no capta gans n ths yenr.
The Commssoner of Interna Revenue determned a defcency n the pan-
tffs ta abty for the year 11)27 of ,.r 28.82, the computaton beng made
under secton 208(c) of the Revenue ct of 1920. s acton was sustaned
by the tra court. The |udgment was correct n any aspect of the case and,
accordngy, s affrmed.
P RT II. INDI IDU LS.
S CTION 212. N T INCOM O INDI IDU LS
D IN D.
rtce 23: ases of computaton. II-30-0307
( so Secton 205, rtce 1611.) G. C. M. 12004
R NU CT O 1018.
The net ncome of a person engaged n the busness of propa-
gaton and cuture of oysters can not be propery computed upon
the bass of nventores. The net ncome of such a ta payer s
the amount of the gross saes of oysters pus a other tems of
gross ncome ess aowabe deductons, to be reported on the cash
recepts and dsbursements bass or the accrua bass n accordance
wth the method of accountng used by the ta payer n keepng ts
books and n fng ts returns.
Recommended that Offce Decson 684 (C. . 8, 80) be modfed.
It has been suggested that Offce Decson 684 shoud be modfed
n order to carfy ts meanng reatve to the bases on whch ta -
payers engaged n the busness of propagaton and cuture of oysters
may report ther ncome. The decson n queston reads as foows:
The net ncome of a person engaged n the busness of propagaton and cu-
ture of oysters can not be propery computed upon the bass of nventores.
mended returns w be requred for those years for whch returns have been
based upon nventores. The net ncome s the gross recepts for the year ess
the necessary busness e pense and other aowabe deductons.
It s ponted out that ths offce decson seems to be mseadng n
that the wordng gross recepts eads to the concuson that re-
cepts mean money n hand or payments for goods sod, and that a
ta payer engaged n the busness n queston has no rght to fe
returns on the accrua bass.
It s further ponted out that n the admnstratve appcaton
of ths decson t has been hed that t s drected to the composton
of the gross ncome of a ta payer engaged n the propagaton of
oysters and that t does not mean that a tems, both as to ncome
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213(a), rt. 32
and deductons, must be reported on the cash bass. In other words,
f a ta payers books are kept and ts returns are fed on the accrua
bass, an amended return refectng a tems on the cash bass s not
ony not requred but s not aowabe.
Certan ta payers have contended that under the ast sentence
of ths offce decson a redetermnaton of the net ncome s per-
mtted on a cash bass n cases where the books have been kept and
the returns have been fed on the accrua bass, e cept wth respect
to nventores.
In order to avod the mseadng nference that the term gross
recepts means n a cases money n hand or payments for goods
sod, and to precude the erroneous concuson whch foows that a
ta payer engaged n the busness n queston has no ega rght to
fe returns on the accrua bass, t s recommended that Offce Dec-
son 684 be amended to read as foows:
The net ncome of a person engaged n the busness of propagaton and cuture
of oysters can not be propery computed upon the bass of nventores. The
net ncome of such a ta payer : te amount of the gross saes of oysters pus
n other tems of gross ncome ess aowabe deductons, to be reported on
the cash recepts und dsbursements bass or the accrua bass n accordance
wth the method of accountng used by the ta payer n keepng ts books and
n fng ts returns.
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
rtce 23: ases of computaton. II-30-6308
( so Secton 205, rtce 1611.) I. T. 2704
R NU CT O 1918.
In vew of Genera Counse s Memorandum 12004 (page 168, ths
uetn), Offce Decson 684 (C. . 3, 80) s amended to read as
foows:
The net. ncome of a person engaged n the busness of propagaton and cu-
ture of oysters can not be propery computed upon the bass of nventores. The
net ncome of such a ta payer s the amount of the gross saes of oysters pus
a other tems of gross ncome ess aowabe deductons, to be reported on the
cash recepts and dsbursements bass or the accrua bass n accordance wth
the method of accountng used by the ta payer n keepng ts books and n
fng ts returns.
S CTION 213(a). GROSS INCOM D IN D:
INCLUSIONS.
rtce 32: Compensaton for persona II-27-6267
servces. Ct. D. f
ncome ta revenue act of 1926 decson of court.
Income onus.
bonus pad to an empoyee of a raroad company by
authorzaton of the stockhoders of a hodng company, whch
owned a the stock of the empoyer company, consttuted add-
tona compensaton rather than a gft, and was therefore ta abe
to the empoyee as ncome.
37408 34 12
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213 a), rt. 32.
170
Unted States Crcut Court of ppeas for the fth Crcut.
ames W. uns, Coector of Interna Revenue, appeant, v. . L. awcy,
appeee.
ppea from the Dstrct Court of the Unted States for the Western Dstrct of Te as.
anuary 12, 1933
OPINION.
Sbey, Crcut udge: ames W. ass, coector of nterna revenue, appeas
from the |udgment on a verdct drected aganst hm n favor of . L. awey
for recovery of an ncome ta for the year 1925. The queston s whether
10,250 receved hy awey that year was a gft or addtona compensaton
for servces. awey had for 22 years been the genera audtor of the Paso
Southwestern Raroad Co., a the stock of whch was owned by Paso
Southwestern Co. The atter had no actve busness, and was a mere hodng
company. We w ca the former the Raroad company, the atter the odng
company. Negotatons begnnng n the sprng of 1924 cumnated n the sae
by the odng company of a the stock of the Raroad company to the South-
ern Pacfc Co. The raroad and ts busness were turned over to the pur-
chaser on October 31, 1924, but the sae was as of May 1, 1924, and an ac-
countng was to be had of operatons meanwhe n whch t was e pected
that the odng company woud be found due the Southern Pacfc Co. a sub-
stanta sum. The consderaton of the sae was 28,000,000 of stock and
29,500,000 of bonds of the purchasng company, to be ssued drecty to the
stockhoders of the odng company. The odng company had no other
assets, and snce ts abtes remaned to be setted, the bonds were deposted
n a bank for the stockhoders. The stockhoders thus became stockhoders n
the Southern Pacfc Co., and thereby retaned an nterest n the Raroad
company. On November 10, 1924, the drectors of the odng company
sent to each of ts stockhoders what was caed a Statement of pan
of reorganzaton. It revewed n deta the transactons above outned,
and referrng to the possbe debt to the Southern Pacfc Co. contnued:
In addton to ths sum the drectors request that the stockhoders
of the company authorze them n recognton of the ong and fathfu
serrce of the offcers and empoyees of the raroad to pay to offcers
and empoyees to be desgnated by the drectors addtona compensaton
to be decded by the drectors, and that they be authorzed to set asde for
such compensaton a sum not to e ceed 1,000,000, retanng to meet ths and
a abtes of the odng company and e penses of the reorganzaton so
much of the deposted bonds as mght seem necessary. The appontment of
a commttee to fnay dspose of the bonds was suggested. ach stockhoder
sgned a repy, statng that he understood about the unsetted abtes, e -
penses and bonuses to empoyees, and apponted a commttee of fve to
pay the e penses, compensate empoyees, to ad|ust and sette the accounts, etc.,
chargng t a aganst the deposted bonds. The commttee set asde 1,500,000
of the bonds, borrowed money on thorn whch was ater repad by a sae of the
bonds, nnd on December 22 pad out accordng to ther account bonus
010,940, and on anuary 2 bonus 273,750. There s testmony that sonc
of the arger payments were dvded so as to prevent the recpent gettng t
a n the same ta abe year. The commttee reported to the stockhoders on
ebruary 24, 1923, ther progress n meetng the unsetted e penses, obga-
tons to Southern Pacfc Co., bonuses to empoyees, etc. The commttee s
report and statement of anuary (. 1927, showed as pad out compensaton.
1924, 619,940 1925, 280,450 tota, 900,390. The payments were made
ony to empoyees who were not members of any unon, but there was no set
formua, the representatves of the commttee gvng attenton aso to the
fnanca and famy condton of the empoyee. ach check was accompaned
by a card Wth apprecaton and best wshes of Paso Southwestern Co.
from commttee npponted November IS. 1924. awey receved 32,500.
haf of whch wont nto hs own and haf nto hs wfe s ncome-ta return. e
protested the ta on ths tem, and on payment asked for a refund, referrng to
t n hs cam aways as a bonus.
The oard of Ta ppeas and the Court of Cams have readed opposte
concusons as to the ta abty of ths dstrbuton. ( arnes v. Commssoner,
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171
213(a), rt. 32.
17 . T. ., 1002 Schumacher v. ntcd States (55 ed. (2d). 1007 Ct. I
480, C. . I-1, 216 .) awey rees strongy on ones v. Commssoner (31
ed. (2d), 755) and ar, Commssoner, v. Rosseter (33 ed. (2d), 280).
ach of these eases n hodng payments to empoyees to be nonta abe gfts
rees on the fact that there was no obgaton to pay and the payments were
over and above the wages and saares due. The controng mportance of
that fact has snce been dened by the Supreme Court n Od Cotonu Co. v.
Commssoner (279 U. S., at page 730 Ct. D. 80, O. . III-2, 222 ), where
the queston was whether the tgant owed a ta , sayng: The payment for
servces even though entrey vountary was nevertheess compensaton wthn
the statute. gan n Lucas. Commssoner, v. O bre rush Co. (281 U. S.,
115 Ct. D. 265. C. . I -2, 384 ), where the queston was whether the t-
gant coud deduct the payment as an e pense of busness, a ke resut was
reached. Noe v. Parrott (15 ed. (2d), 069 T. D. 3908, C. . -2, 149 ), waa
approved. In sher v. Commssoner (59 ed. (2d), 192) t was rued that
absence of ega duty to pay s not concusve of a gft. Whether a payment n
a gven case sha be deemed ta abe compensaton or a gft e empt from tat
depends on the ntenton of the partes and partcuary that of the payer, to
be determned from the attendng facts and crcumstances.
Income that may be ta ed ncudes gan derved from abor. ( sner v,
McComber Macomber , 252 U. S., 189 T. D. 3010, C. . 3. 25 .) One who n
the peace and under the protecton of the Unted States ganfuy e ercses
hs facutes of mnd or body may be caed on to share the gan wth the
Pubc Treasury. Secton 213 of the Revenue ct of 1926 here appcabe
ncudes n gross ncome to be ta ed gans, profts and ncome derved from
saares, wages or compensaton for persona scrrcc of whatever
knd and n whatever form pad. It e cudes property acqured by gft,
bequest, devse or nhertance. The ntent s that a recepts n whatever form
that come because of abor and servce, whether payment coud he compeed
or not, sha be ta ed as arsng from abor. That ony s a gft whch s
purey such. not. ntended as a return of vaue or made because of any ntent
to repay another what s hs due, but bestowed ony because of persona
affecton or regard or pty, or from genera motves of phanthropy or charty.
Those payments made because of past servces but over and above what was
contracted and compeabe to be pad have been caed addtona compensaton
and bonuses, and are ta abe ncome to the recpent. rom the standpont
of the payer aso they are recognzed as dsbursements for wages or saares,
and when pad n the conduct of a reguar busness may be deducted as nn
e pense thereof. See Reguatons 69, artce 108. The meanng n ths con-
necton of addtona compensaton as a payment for servces above what s
demandabe s cear. onus has a parae meanng: Somethng gven n
addton to what s ordnary receved by or strcty due to the recpent
money gven n addton to an agreed compensaton. Webster s Internatona
Dctonary. earng n mnd the proper meanng of these terms n ookng
at the documents that attended these payments we are at once mpressed that
n no case were they caed gfts, but n every nstance compensaton, add-
tona compensaton or bonuses to empoyees was the term used. ven the
card whch accompaned each says: In apprecaton, whch connotes that
somethng has been apprased and ts vaue acknowedged. The payments
were made to none but od empoyees. They were confned to nonunon men,
whch suggests some recognton of oyaty n abor dsputes. There s no
evdence of persona reatonshps eadng to persona gfts. Where fnanca
and famy condtons were consdered there may have been added a mnor
eement of charty, but ths does not appear to have nfuenced the payment
of 32,500 to awey. We thnk t pan that ths sum was a bonus pad hm
n recognton of ong and fathfu servce.
ganst ths concuson s put forward the fact that nether the odng
company nor the commttee camed a deducton for the payment n ther ta
returns. It s true that a payment whch s a gft as respects the payer, and
so not deductbe, w key be a gft n the hands of the recpent and not
ta abe, but t s not true that because a payment may not have been taken
as a deducton by the payer that t can not be ta ed as ncome to the recpent.
The former may have overooked or waved hs rght to deduct, whch woud
not reeve the atter from hs duty to pay ta es. Or t may happen that the
payer was not, when the obgaton was assumed and the payment made,
engaged n busness and so not wthn the statute aowng the deducton. ThU
seems probabe n ths case.
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172
gan t s ob|ected that the empoyer was not the odng company or
ts stockhoders, but was the nroad company, and that the Raroad company
aone coud make addtona compensaton that a vountary payment by anyone
ese s necessary a gft. The ob|ecton woud have force where the thrd
person had no nterest n the empoyment and no cause to fee obgated to
compensate the servce. ut n ths case athough the stockhoders authorzed
the payment t was made out of funds reay beongng to the odng company
as the proceeds of the sae of ts assets, and the odng company was the
soe owner of the Raroad company. I the addtona compensaton was
fary due, and shoud have been pad out of the Raroad company s assets,
t woud have come to the same thng n settng wth the Southern Pacfc
Co. Te stuaton produced by the sae made t nevtabe that whatever was
pad shoud eventuay be the oss of the stockhoders. In determnng the
ncdence of ta aton, corporate organzaton of ta payers s not ordnary
to be dsregarded. urnet, Commssoner, v. Commonweath Improvement Co.
fCt. D. 622, C. . II-1, 277 urnet, Commssoner, v. Carke, Supreme
Court, December 12, 1932 Ct. D. 020, C. . II-1, 175 Panters Cottcm
O Co. v. opkns, Coector, 53 ed. (2d), 825 Ct. D. 446, C. . I-1, 149 .)
ut n a case ke ths where nether corporaton nor stockhoder s the ta -
payer, and motve and ntent s the queston, the substance of the matter shoud
be ooked to. The evdence does not requre a fndng that the payment to
awey was a gft, and the court erred n so nstructng the |ury.
The cam for refund set up that the payment was made by the odng
company. The amended peadngs and the evdence showed an nvovement
of Its stockhoders. The pont s made that there was a departure from the
case made by the cam for refund. . P. Stevens ngravng Co. v. Unted
States, 53 ed. (2d), 1 Sncad, Coector, v. more. 59 ed. (2d), 312.) The
dfference s but a deta, not gong to the substance of the controversy and
not cacuated to occason a surprse. There was no forbdden departure.
The cause s reversed, and remanded for further proceedngs not nconsstent
wth ths opnon.
rtce 42: Sae of persona property on II-49-6545
nstament pan. Ct.D. 759
ncome ta revenue act of 1026 decson of court.
1. Net Income Instament Saes.
Where an automobe deaer who ses cars on the nstament
pan takes customers notes secured by condtona sae contracts,
ndorses the notes to fnance companes and ses and assgns to
them hs nterest n the contracts, and where the fnance companes
pay to the deaer the face of the unpad purchase prce ess nsur-
ance and nterest charges and coect the notes themseves, the
transactons wth the fnance companes are propery treated as
saes rather than as oans, and ncome from the nstament saes
under secton 212(d) of the Revenue ct of 1926 may not e
aocated beyond the year n whch the customers contracts were
assgned to .he fnance companes.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (22 . T. ., 224)
affrmed.
Unted States Crcut Court of ppeas for the Second Crcut.
Lucus II. mer, pettoner, v. Commssoner of Interna Revenue, respondent.
ppea y the ta payer from an order of the oard of Ta ppeas f ng n defcency n
hs ncome ta for the years c|u and
efore L. and, ugustus N. and, and Chase, Crcut udges.
une 5, 1933.
OPINION.
L. and, Crcut udge: The queston rased by ths appea s of the ta -
payer s rght under secton 212(d) of the ct of 1926 whch was made retro-
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213(a), rt. 42.
actve to aocate part of hs ncome from nstament saes among the years
when hs customers actuay pad for the goods. Ths n turn depends upon
whether the transactons between hm and two fnance companes were
saes or oans. If saes, he agrees that the Commssoner and the oard were
rght, who refused to aow the payments to bo spread beyond the year n
whch he assgned hs customers contracts to the fnance companes f oans,
the Commssoner agrees that he shoud have been aowed to aocate the
payments to the years when the buyers actuay pad.
The ta payer was a seng agent n artford for ord motor cars, whch
he sod upon the nstament pan. s terms of sae were 50 cash down,
and a seres of weeky or monthy payments over a perod of IS mouths. s
evdence of the customer s ndebtedness e took one or more notes, bearng
nterest, secured by a contract of condtona sae, whch reserved tte to
hm, and gave hm the rght to retake and se the car upon defaut n the pay-
ment of any nstament. eng n need of ready funds, he rased money upon
these notes by ndorsng them to companes organzed for that purpose, and
assgnng hs nterest n the contracts. or the earer part of the perod n
queston he deat wth a Maryand company, n whch he bad no nterest
but ater he organzed a company of hs own n artford. though he was
the prme mover n ths company, and owned or controed substantay a
ts shares, for the purposes of ths case t s to be treated as a stranger.
The nature of the transactons wth the Maryand company s eft very
vague n the fndngs and n the evdence the ta payer can not ask more than
that we assume them to have been of the same knd as those wth the artford
company, about whch we can earn more. To ths company he sod and
assgned hs customers contracts outrght, ncudng hs nterest as condtona
seer, and ndorsed ther notes. or ths he receved the face of the unpad
purchase prce, ess nsurance charges whch the company agreed to pay.
pparenty t aso deducted some nterest charges for tsef, though the notes
themseves bore nterest. The company agreed to te hm of any defaut, upon
whch he was at once to retake the car under the contract and se t, probaby
as ts agent, though that s not cear but n any event he was to repay the
amount reazed. The company got a the payments from the customer drect,
and was repad n fu, f he dd not defaut. If he dd, t kept a he had pad,
got the proceeds from the sae of the car, and the deaer merey made up the
dfference between these amounts and the orgna advance.
Such transactons are somewhat ambguous and admt of defnton as oans
or saes on sght dfferences. If a merchant dscounts bs customer s note
at a bank, ndorsng t, but gettng mmedate credt for ts dscount vaue, t
woud be a most unnatura thng to consder t a oan from the bank. e
remans abe f the customer defauts, but the coecton s n the bank s hands,
and the transacton s cosed n the absence of a defaut. If, on the other
hand, a merchant pedges hs accounts to a fnance company and coects
them hmsef, payng the oan out of hs coectons, t s ceary a oan, and
has awavs been so consdered. ( ome ond Co. v. McCenney, 239 II. S.. 508
In Re Oo tham Can Co., 48 ed. (2d), 540 (C. C. . 2) : In Rc Grand Unon Co.,
219 . R., 353 (C. C. . 2) Nat. T. C. Co. v. Orcutt, 259 . R 830 (C. C. .
7) Commerca Securty Co v. ocomb, 202 . It., 057 (C. ( . . 5).) The
aw n Connectcut s the same. ( arker Pano Co. v. Commerca Securty Co.,
93 Conn., 129.) These transactons were dfferent the fnance companes co-
ected the notes themseves, and, as we have sad, f the customer dd not
defaut, the deaer had no more to do than f he had dscounted hs note wth a
bank. Nor was there any equty n the assgned accounts for whch the com-
panes were responsbe to the deaer the fu amount was pad, ess a some-
what nebuous nterest charge, whch gave the companes a proft of more
than the nterest on the customer s note. If the deaer was the companes
agent to retake and se the cars, ther nterest never reverted to hm t
remaned n them as t had been orgnay transferred. It s at east open to
doubt whether ths was not the reaton, and doubts are resoved aganst the
ta payer. In some cases ndeed the companes appear to have retaken the cars
themseves. In any event, the deaer s abty was ony to pay what remaned
of the customer s debt, he never became abe for the orgna advance he had
receved.
It s true that n the contract between the ta payer and the artford com-
pany, the advances were spoken of as oans. but ths s not concusve,
especay as the deaer sod hs rghts to the company. Possby the
partes thought of them as oans a merchant mght smary regard a ds-
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213(a), rt. 45.
174
counted note, or any other transfer of property whose vaue he warranted. It
s possbe, as we have suggested, to construe these transactons n ether way.
We ncne to consder them as more neary anaogous to dscounts, because
they were cosed transactons uness the customer defauted, the deaer havng
nothng to do wth coecton because there was no equty to be remtted
because, though the deaer was to enforce the coatera, he may have done so
as agent for the company, whch remaned entted to the proceeds and because
he was never abe for the advances as such. In any ease the evdence s not
cear enough to upset the fndngs.
Order affrmed.
rtce 44: Sae of rea property nvovng deferred
payments.
R NU CT O 1926.
Casua saes of rea property on nstament pan. (See G. C. M.
12148. page 57.)
rtce 45 : Sae of rea property on nsta- II 19-6546
ment pan. Ct. D. 758
( so Secton 201, rtce 1545.)
INCOM T R NU CT O f)2C D CISION O COURT.
1. Instament Sae Payments Receved Inta Pay-
ments Dsposton of vdences of Indebtedness.
Where a corporaton sod rea estate, recevng ess than one-
fourth of the purchase prce n cash and the baance n pur-
chaser s notes secured by mortgage and ater n the same year
dssoved and dstrbuted the notes and mortgages to ts soe stock-
hoder, part of the vaue of the property dschargng a debt owed
to the stockhoder, the amount of the debt so pad does not con-
sttute payments receved n cash or property wthn the mean-
meanng of secton 212(d) of the Revenue ct of 1920, and s not
a part of the nta payments wthn the meanng of that subd-
vson.
2. Instament Sae Dssouton of endor Corporaton.
vendor corporaton may report ncome receved from sae of
rea estate upon the nstament bass, regardess of the fact that
ater n the same ta abe perod t Is dssoved.
3. Instament Sae Net Income Proft rom Dstrbuton of
Purchase Money Notes Satsfacton of Debt.
hcrc a corporaton s soo stockhoder reeases frst mortgages
upon rea estate owned by the corporaton, for the purpose of aow-
ng t to gve cear tte to purchasers buyng on the nstament
bass, and the transacton s treated as creatng a debt owng by
the corporaton to ts stockhoder, the transfer to the stockhoder,
upon dssouton of the corporaton, of purchase money notes and
mortgages, to the e tent that they dscharged the debt, consttutes
payment of such debt and can not be regarded as whoy a qu-
datng dvdend. Upon such dsposton of the notes at face vaue
n the amount of the debt, a ta abe proft s reazed by the cor-
poraton.
4. Decson Reversed.
The decson of the oard of Ta ppeas (23 . T. ., 790)
reversed.
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213(a), rt. 45.
Unted States Crcut Court of ppeas for the Second Crcut.
Durum udng Corporaton, pettoner-appeant, v. Commssoner of Interna
Revenue, respondent.
ppea from the Unted States oard of T ppeas.
efore Manton, Swan, and Chase, Crcut udges.
uy 5, 1933.
OPINION.
Duram udtg Corporaton pettons for revew of a decson of the oard
of Ta ppeas redetermnng a defcency n ncome ta es for the year 19 6
n the amount of 15,822.32. Reversed and remanded.
Swan, Crcut udge: In ebruary, 1926, the pettoner, Duram udng
Corporaton, sod two parces of rea estate at a proft over ther cost. The
ssue presented by ths appea s whether t was entted to- return ths proft
for ta aton upon the nstament bass, pursuant to secton 212(d) of the
Revenue ct of 1926 ( 26 U. S. C. ., secton 953d). The saes were mue for
part cash and the baance n the purchaser s notes secured by mortgage. The
cash receved from the purchaser was ess than one-fourth of the purchase
prce but subsequenty, upon dssouton of the pettoner n ugust, 1926. the
uforesad purchase money notes and mortgages (as we as a sma amount of
other property) were dstrbuted to ts soe stockhoder 41,758.71 of the vaue
of the property so dstrbuted dscharged a debt owed to the stockhoder, the
remander beng treated as a qudatng dvdend. The Commssoner contends
that the amount of the debt so pad must be added to the cash payments made
by the purcbaser earer n the year, thereby causng the nta payments
to e ceed 2.5 per cent of the purchase prce and precudng the use of the
nstament bass n reportng the proft on the rea estate saes. Ths conten-
ton was sustaned by the oard of Ta ppeas.
Secton 212(d) of the Revenue ct of 1926 gves a ta payer the prvege
of reportng ncome on the nstament bass f the nta payments do not
e ceed one-fourth of the purchase prce. (See urnet v. S. rf L. tg. Corpora-
ton, 288 U. S.. 406 Ct. D. 651. C. . II-1, 195 .) It then defnes the term
nta payments as foows :
s used In ths subdvson the term nta payments means the payments
receved n cash or property other than evdence of ndebtedness of the pur-
chaser durng the ta abe perod n whch the sae or other dsposton s made.
ut ths statutory defnton tsef requres defnng. though evdences of
ndebtedness of the purchaser are not to be deemed nta payments, s ths
kewse true of what may be reazed durng the ta abe perod from dsposng
to a thrd person the purchaser s evdences of ndebtedness The oard has
hed that what s so reazed must be consdered payments receved n cash
or other property. Wth ths construrton of the statute we can not agree.
When the purchaser s notes are sod or otherwse dsposed of to a thrd party,
they are not pad, nor does the vendor then receve payment for the and n
the ordnary sense of the word. In speakng of payments receved, we thnk
the statute refers to payments receved from the purchaser of the and. The
secton comprses n a snge phrase payments receved n cash or pro|erty
other than evdences of ndebtedness of the purchaser. Ceary evdences of
ndebtedness of the purchaser can ony be receved from the purchnser t s
mpct that payments of cash or other property are to be receved from the
same source. Moreover, when the vendor dsposes of the purchaser s notes
he enters nto a separate transacton wth a thrd party whch may tsef resut
n proft or oss. Ths s e pressy recognzed by secton 44(d) of the Revenue
ct of 1928. That statute of course, s not controng as to the pettoner s
ansactons n 1926 but we vew t as merey an e press recognton of what
was equay true under the 1926 ct by reason of the genera provsons (sec-
tons 202-2(14) wth respect to the sae of property by a ta payer. (Compare
Meagher v. Com r, 20 . T. ., 68, 72 rgna each Corporaton v. Comms-
soner, 23 . T. ., 1170, 1175.) Therefore, as we nterpret secton 212 d), the
pvege of reportng upon the nstament oass depends upon the transactons
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213(a), rt. 50.
176
between the vendor and pt)chaser of the and durng he ta abe perod t s
not made condtona upon what dsposton the vendor may make of the pur-
chaser ) evdence of ndebtedness by transactons wth thrd partes durng the
ta abe perod n whch the and was sod. Such transactons are separate and
ndependent and w themseves be the bass for a return of proft or oss.
No court decson has been caed to our attenton whch contradcts ths
vew. Most of the oard s decsons to the contrary rest upon Packard Ceve-
and Motor Co. (14 . T. ., 118). That was a case where automobes were
sod under nstament contracts and a the nstament notes were forthwth
dscounted wth a credt company pursuant to an arrangement e stng when
e automobes were sod on nstaments. Ceary the whoe proft ou the sae
was reazed n the ta abe year n queston whether or not the nstament bass
of reportng was permtted. Other decsons reed upon, of a smar character,
are Myt nner v. Commssoner (4 . T. ., 890) Ges v. Commssoner (20
. T. ., 570) mer v. Commssoner (22 . T. ., 224). It s tme that
Chapman v. Commssoner (19 . T. ., 878) can not be so e paned but t
foows the earer authortes on the theory that any converson of an nsta-
ment note nto cash wthn the ta abe perod n whch the and was sod s an
nta payment or reasons aready stated we can not accept the oard s
constructon of secton 212(d).
The Commssoner suggests that the method of reportng on the nstament
bass presupposes that the ta payer w contnue n busness and shoud not
be deemed appcabe when the ta payer s dssoved durng the ta abe perod
n whch the sae s made. Ths s a consderaton whch mght we have
weght wh Congress n formuatng ts egsatve pocy, but we fnd no such
mtaton n the statute.
The ta payer s debt to ts soe stockhoder arose from the fact that the
stockhoder reeased frst mortgages upon the pettoner s rea estate for the
purpose of aowng t to gve a cear tte to the purchasers. The pettoner
urges that the reease of the frst mortgages shoud be treated as a vountary
contrbuton to capta and the dstrbuton of the purchase money notes and
mortgages as beng whoy a qudatng dvdend. (See rgna each Corpo-
raton v. Commssoner, 23 . T. ., 1170.) ut the partes treated the trans-
acton on the books of the corporaton as creatng a debt whch was pad, and
the oard has so found the facts. There s support for the fndng and we must
accept t. To the e tent that the purchase money notes and mortgages pad
ths debt the corporaton Is n the same poston as f t had sod a porton of
them for cash and used the cash to pay ts debt. (See atcheer v. Comms-
soner, 19 . T. ., 1050.) On ths dsposa of the mortgage notes at face vaue
n the amount of the debt, t reazed a proft whch t must return for ta aton.
On ths bass, we understand the pettoner to admt a defcency of 2,957.09,
whch the Commssoner does not queston. ,
ccordngy the order of the oard s reversed am the cause remanded for
entry of an order of defcency n the amount sated.
rtce 50: When ncuded n gross ncome. II-30-6309
Ct.D.708
INCOM T R NU CTS O 1010 ND 1917 D CISION O COURT.
Gross Income ecutor s ee Constructve Recept.
Where, under Pennsyvana aw, e ecutors compensaton may be
f ed and pad when earned, or when parta or fna accounts are
prepared and fed, and where an e ecutor of three estates, who
kept hs persona accounts on the bass of actua recepts and ds-
bursements, performed servces as e ecutor n the years 1916 and
1017, and mght have been pad n 1910 for servces rendered In that
year, but chose to wat unt 1917, when frst and parta accounts
were fed, the amount earned n 1916 may not be consdered as con-
structvey receved durng that year, wthn the meanng of artce
24 of Reguatons 33, and ta ed at 1016 rates, but was propery
ta ed at 1917 rates as ncome receved durng that year.
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177
I 213(a), rt, 50.
Dstrct Cottut op the Unted States for the Westekn Dstrct ok
1 knnsyvana.
ohn, M. reeman v. Unted States of merca.
March 31, 1 : .
OPINION.
Mc car, .: In 1916 pantff was apponted e ecutor of tree estates. e
performed servces durng that year for sad estates of the far vaue of
60,344.80. There were suffcent funds n each of sad estates durng that year
to pay for servces of pantff chargeabe to that year. Pantff dd not pre-
sent a b to sad estates durng 1916 for hs servces of that year. The estates
dd not set asde, credt or pay durng 1916 anythng to pantff on account of
servces earned by hm n 1916. In 1917 frst and parta accounts were fed n
court n two of sad estates by pantff. efore dong so pantff f ed and
caused to be pad to hm for servces rendered n the years 1916 and 1917. n
sad two estates and aso n the thrd estate, 72,316.45. Pantff kept hs ac-
counts on te bass of actua recepts and dsbursements. e returned the
aforesad sun: of 72,316.45 as ncome for 1917. e subsequenty fed a cam
of refund wth the Commssoner of Interna Revenue for 15,227.94 on the
ground that the vaue of the servces rendered by hm n 1916 to sad estates
was ncome for that year, and that by reason of the dfference between the 1916
and 1917 rates e was entted to a return of sad sum. Pantff s cam was
refused by the Comn ssoner. Ths acton s brought to recover sad cam
nganst the Unted States, the coector of nterna revenue to whom the ta
was pad beng out of offce.
The queston for decson s whether the sum of 60,344.80 for servces ren-
dered by pantff durng 1910 was ta abe to pantff as ncome for that year.
The appcabe Revenue cts of 1916 and 1917 requred pantff (as he dd)
to make hs ncome ta returns on the bass of actua recepts and dsburse-
ments as ths was hs method of keepng accounts. The Commssoner of In-
terna Revenue, wth the approva of the Secretary of the Treasury, by Regu-
atons 33 defned and ustrated what were actua recepts under sad ct
(whch reguaton s recognzed as vad by both partes), the reevant part
beng as foows:
ctua recept s a reducton to possesson. Constructve recept s where
ncome s credted to or made avaabe to recpents and s to be reported as n-
come as credt to account of recpents of savngs-bank nterests, etc.
In the case of compensaton for servce rendered, where no determnaton of
compensaton s had unt the competon of the servce, the amount receved
n consderaton of the servce s ncome to be accounted for as for the caendar
year of ts rece pt.
Where the servce and payment perod s dvded by the end of the ta abe
year, the compensaton for the perod so dvded at the end of the year w
be accounted for as ncome for the year n whch payment s actuay receved.
The reguaton as to constructve recepts was no doubt made to prevent
fraud by ta payers who mght fa to reduce to possesson nterest credted to
accounts n hank, to coect nterest coupons on bonds, or to coect other moneys
credted to. or set apart for them so as to essen the amount of ther ta es.
Under Pennsyvana aw e ecutors may be compensated for servces as ren-
dered. It s customary n most estates, f a parta account s fed, for the
e ecutor to f and pay for hs servce (as was done n two of the estates under
consderaton) at or about the tme of the preparaton and fng of such parta
accounts, and where fna accounts ony are fed (uness unduy protracted) to
f and pay for such servces a or about the tme of the preparaton and fng
of such fna accounts. Pantff, therefore, had t n hs power to pay for he
1916 servces n 1916, or wat, as he dd, n two of the estates unt preparaton
of the parta accounts n 1917, or he mght have wated unt the preparaton
of fna accounts.
If the 1916 rate had been more favorabe to the Government than the 1917
rate t coud not, n my opnon, have charged pantff the 1916 rate for the
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213(a). rt. 50.
178
1910 servces. Pantff had the rght am foowed the custom In havng hs
1910 servces pad n 1 )17. The ncome for the servces rendered by pantff
n 101 t was not credted to or made maabe to pantff n 1910. e dd
not present bs for hs )10 servces n 1910, or was there any money credted
to hm n sad estates for such servces rendered n 1910.
Constructve payments are not to be nferred n a cases where money s
credted to another whch he s at berty to draw upon at any tme. In
Masmchusettg Lfe Insurance Co. v. Unted States (53 Supreme Court Reports,
337 LCt. D. 038, C. . II-1, 280 ) t was hed that an nsurance company
was not entted to deduct from gross ncome nterest uncondtonay credted
to pocyhoders n 1920 whch bad not been actuay wthdrawn durng that
year. The Supreme Court, n an opnon handed down ebruary 6, 1933. by
Mr. ustce Roberts, sad, page 5:
Wo are referred to a reguaton whch provdes: Income whch s credted
to the account of or set apart for a ta payer and whch may be drawn upon
by hm at any tme s sub|ect to ta for the year durng whch so credted or
sot apart, athough not then actuay reduced to possesson. It s argued that
the reguaton requres the pocyhoder to report nterest credted to hm
ns receved n the year of credt. The concuson drawn s that f the credt
s ncome to the nsured t must consttute a constructve payment by the
company. In ths vew the transacton s sad to come wthn te term pad
and we may dsregard the word accrued. Ths reguaton has, however, not
been apped n any case where ncome has been credted to another by a
ta payer empoyng the cash recepts and dsbursements method of accountng
and specfcay t has not been nvoked to requre pocyhoders to report as
ncome the dvdends or nterest credted to them n cases such as ths. No
ta s demanded of them unt actua recept of the money. The constructve
payment theory s, we thnk, untenabe.
Reguatons 33 aforesad, whch provdes that such ncome sha be accounted
for n the year receved where no determnaton of compensaton s had unt
the competon of the servce woud, n prncpe, requre, where no compen-
saton s f ed unt after a part of the servces s performed, that such com-
pensaton shoud be accounted for n the year receved.
I have e amned the cases cted by pantff and defendant n ther brefs,
not any of whch are determnatve of the ssue here nvoved. I am of tbe
opnon that pantff dd not constructvey receve u 1910 compensaton for
servces rendered by hm that year whch were pad n 1917. I am aso of
opnon that the ncome for such servce was not ta abe n 1910.
Let an order for |udgment be prepared n accordance wth the foregong
fndngs of fact, concuson of aw and ths opnon.
rtce 50: When ncuded n ross ncome. II-47-6521
Ct. D. 753
INCOM T R NU CT O 1024 D CISION O COURT.
1. Gan or Loss Sae of Rka. state Contngent Labty.
Where ta payer sod her nterest n certan rea estate to a cor-
poraton n 1925 for cash and other consderatons, remanng con-
tngenty abe on an outstandng mortgage whch the corporaton
dd not assume, the e cess of cash receved by her over that org-
nay pad consttuted ta abe ncome for 1925. Profts are ta abe
n the year n whch they occur, and the ta may not he wthhed
because of the possbty of oss occurrng n ater years.
2. D CISION IRM D.
The decson of the oard of Ta ppeas (23 . T. ., 1148)
affrmed.
3. Certorar Dened.
Petton for certorar dened on October 9, 1933.
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179
213(a), rt, 50.
Unted States Crcut Court of ppkas for the Seventh Crcut.
orence . ar sett, pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton tor revew of decson of the Unted Statrs oard of Ta ppeas.
efore schuer and vans, Crcut udges, and L mky, Dstrct udge.
ebruary 17, 1933.
OPINION.
Ths appea s from a decson of the oard of Ta ppeas whch ncuded,
Impropery as pettoner contends, the sum of 18,142.05 n her 1925 ta abe
ncome.
vans, Crcut udge: Pettoner asserts that the amount n controversy,
beng the profts obtaned on a orda rea estate (ea, shoud not have been
ncuded n her 1925 ta abe ncome, but were profts of the year 1930. The
Commssoner and the oard of Ta ppeas hed otherwse.
The facts out of whch the controversy arses may be brefy stated as foows:
Pettoner, a Mwaukee resdent, and ower ros., orda rea estate
deaers, purchased, n 1925, 10,474 acres of orda rea estate for 104,748.
The purchase prce was pad by (a) the assumpton of an outstandng mort-
gage of 35,000 (6) the e ecuton of a second mortgage securng four notes
of 10,000 each for the payment of whch pettoner became abe and (r)
cash advanced by the two purchasers. ach pad 12,774.10. corporaton
was organzed to purchase and dspose of the and whch was conveyed to the
corporaton for a prce aggregatng 1(10,000 and 400 shares of ts capta
stock. ghty-fve thousand doars was pad n cash, and the baance was
represented by the two outstandng mortgages, aggregatng 75,000, ony the
former of whch the corporaton assumed.
The capta stock of the corporaton was 1,400 shares, 1,000 shares of whch
were sod to the pubc and 400 shares dvded equay between pettoner and
ower ros. rom the proceeds of the sae of the stock to the pubc, 85,000
was apped on the purchase prce of the and, the baance used n part to appy
on one of the mortgages. fter the costs and commssons ncdent to the sae
were pad, pettoner receved, uy, 1925. as her part of the dea, 30,916.15.
er profts, whch were reazed n 1925, were therefore 18,142.05. owever,
she was contngenty abe on the four 10,000 notes whch ower ros,
e ecuted. The venture turned out bady for the corporaton whch fnay er-
mtted the and to be sod on forecosure n 1930. suffcent sum was reazed
to satsfy the outstandng mortgages, but nothng was reazed on the stock.
Upon ths statement of facts we agree wth the Commssoner and the oard
of Ta ppeas that pettoners profts on the transacton occurred n 1925,
and the possbe oss on the 40,000 mortgage was not deductbe therefrom.
It s true there was a possbty of pettoner s beng caed upon to make
good a |udgment predcated upon the four notes of 10,000 each. owever,
that was a oss whch she was requred to meet when and f t occurred. If t
ever occurred she coud deduct the oss from the gans and profts for the
year wheren t occurred. s stated n urnet v. uff (288 U. S., 5(5), decded
ebruary 6, 1933:
te mere e stence of abty s not enough to estabsh a de-
ductbe oss. There s abty n the ease of a breach of contract, but as
the court sad n Lueas v. mercan Code Co. (280 U. S., 445, 450 Ct. D. ICS,
C. . I -1, 314 ), even an unquestonabe breach does not resut n oss f
the n|ured party forgves or refrans from prosecutng hs cam. nd whether
a ta payer w actuay sustan a oss through embezzement of trust funds
of whch he s trustee w depend upon a varety of crcumstances. If there
s abty on hs part for the msappropraton, t does not create a certanty
of oss, as the defacaton may be made good by the one who caused t, or the
abty of the ta payer may be enforced ony to a mted e tent or not at a.
The requrement that osses be deducted n the year n whch they are sus-
taned cas for a practca test. The oss must be actua and present.
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213(a), rt. 52.
180
The Government ta s due the y ar the profts occur. The ta may not be
wthhed because perchance there may be a oss due to a rse or fa of vaues
or due to msmanagement, etc.
The order of the oard of Tu ppeas s affrmed.
rtce 50: When ncuded n gross ncome.
R NU CT O 1926.
dvance payment on sae cosed n ater year. (See Ct. D. 754,
page 200.)
rtce 52: ampes of constructve recept. II-34 6354
Ct. D. 721
INCOM T R NU CT O 1928 D CISION O COURT.
1. Gross Income Proceeds of ssgned Contract.
Where pettoner, an attorney at aw, and other attorneys
entered nto a contract wth a cent, agreeng to conduct ega
proceedngs to estabsh her rghts n a certan trust estate and
to receve as compensaton for ther servces 40 per cent of any
amount whch mght be recovered, and where, before any amount
was recovered or there was any assurance that there woud be,
pettoner made a wrtten assgnment to hs wfe of an undvded
one-haf of hs nterest n the contract, the entre amount receved
as the pettoner s share n the proceeds of the contract was ta -
abe ncome to hm. Inasmuch as the contract of empoyment cre-
ated a reatonshp of attorney and cent, there coud be no trans-
fer of the corpus or res and the gft effected merey an equtabe
assgnment of possbe future ncome.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (24 . T. ., 531)
affrmed.
Unted States Crcut Coort of ppeas fob the Nnth Crcut.
arry . Dougherty, pettoner, v. Commssoner of Interna Revenue,
respondent.
Upon petton to revew an order of the Unted States oard of Ta ppeas.
efore Wbur and Sawte e, Crcut udges, and Cavanah, Dstrct udge.
anuary 30, 1933.
opnon.
Sawtee, Crcut udge: The respondent determned that the entre pro-
coeds of a certan contract, herenafter set forth, were ta abe as the ncome
of pettoner, despte an assgnment of one haf of the proceeds of the contract
by pettoner to hs wfe. The oard of Ta ppeas hed that the determna-
ton of the respondent was correct and ths appea s from the decson of the
oard.
The ta n queston s for the caendar year 1920, and was assessed under
secton 213(a) of the Revenue ct of 1920 (44 Stat., 23 20 U. S. C. ., secton
953).
In 1912, pettoner, an attorney at aw, and one Robert . oone were en-
gaged n tgaton n the State of Inos to estabsh the rghts of one Mrs.
stee owand n a trust estate created by her father-n-aw, ohn D. en-
nngs, who ded n 1889. Ths tgaton termnated unsuccessfuy to Mrs.
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181
213(a). rt. 52.
owand. Certan adverse nterests were represented by the aw trm of Cam -
be scher, of Chcago. In 1923. dwn ennngs, the Inst survvng son
of ohn D. ennngs, and brother-n-aw of Mrs. owand, ded. Mr. Camp-
be, of the frm of Campbe scher, upon earnng that pettoner st repre-
sented Mrs. owand, stated to ettoner that, n connecton wth the pror
tgaton, he had studed and brefed the queston of Mrs. owand s rghts n
the trust estate and that he had reached the concuson that, n vew of the
death of dwn ennngs, Mrs. owand was entted to a substanta nterest
theren. Campbe offered to gve hs bref to pettoner. Pettoner sad that
he woud ascertan the wshes of hs cent wth regard to the matter, but that
n no event coud he hande tgaton for her, because a poston he then hed
wth the Standard O Co. of Indana occuped a of bs tme and attenton.
It was oray agreed between Campbe and pettoner that pettoner woud
not engage n any of the tgaton, but that pettoner was smpy to furnsh
the cent. t a conference between Mrs. owand and her husband and pet-
toner and Campbe, t was agreed that a b to construe the w shoud be
fed, and that a of the work In connecton wth the proceedng shoud be
performed by the frm of Campbe scher, and nether pettoner nor oone
woud be requred to do any work n connecton wth the case. The contract
e ecuted by Mrs. owand and the attorneys, n Chcago, on November 5, 1923,
s as foows:
I hereby appont arry . Daugherty (pettoner), Robert . oone, ohn
G. Campbe and erman . scher, r., to act as my soctors and attorneys
n a matters pertanng to my nterest n the trust estate founded by the ust
w of ohn D. ennngs, deceased. They are authorzed to commence or par-
tcpate n any proceedngs they deem necessary n order to estabsh my nter-
est theren. s ther fu compensaton for servces they are to receve an
amount equa to 40 per cent of any money or property I am nwarded or receve
n connecton wth the sub|ect matter of sad trust estate t beng agreed and
understood that ths compensaton s to be n addton to any fees whch may
be awarded, ether to me on account of my soctors fees, or drecty to my
soctors, by any court, from the trust estate s u whoe, on account of ega
servces rendered by them n any sut or suts whch they nsttuted or partc-
pated In nvovng the sub|ect matter above mentoned, but does not ncude
anythng whch I may receve drecty from the estate of dwn ennngs,
deceased, as dstngushed from the sad trust estate found by the w of ohn
I). ennngs, deceased.
anuary 30, 1924, pettoner wrote a etter to hs wfe, ncosng hs copy of
the contract of empoyment wth Mrs. owand, and on the margn of the con-
tract pettoner ndorsed an assgnment to hs wfe of an undvded one-haf of
hs nterest n the contract. Some tme n 1925 pettoner oray advsed Camp-
be of ths assgnment. t the tme of ths assgnment or gft the tgaton to
whch the contract reated was pendng and undetermned. There was no
assurance that there woud be a successfu termnaton or settement n favor
of Mrs. owand, and pettoner s nterest n the contract and the vaue of
the nterest transferred to hs wfe was therefore whoy contngent and
undetermnabe.
In une, 1926, the tgaton was setted, and Mrs. owand receved 943,005
n satsfacton of her cam. Pursuant to the contract. 40 per cent of ths
amount was pad to the attorneys. Pettoner receved 47,180, or one haf of
the amount due hm under the contract of empoyment, and the other haf was,
pursuant to the assgnment, pad to pettoner s wfe, who deposted the money
n her own name and used t for her own beneft and purposes.
The respondent added to pettoner s gross ncome for the year n queston
the sum pad to pettoner s wfe under the assgnment. The oard of Ta
ppeas affrmed ths determnaton on the ground that the sum n queston
represented compensaton pad to pettoner for hs ega servces and was
therefore ncome ta abe to hm, under the decson of the Supreme Court n
Lucas v. ar (281 U. S., 111).
It s contended that n Lucas v. ar, supra, there was no contract to whch
an assgnment coud attach and no res or property whch was susceptbe of
assgnment, whe n the case at bar there was a vauabe contract whch was
ncome producng and whch consttuted an assgnabe property rght of the
pettoner.
In Lucas v. ar, supra, t was agreed between a husband and hs wfe that
any property ether of us now has or may hereafter acqure cther by
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213(a), rt. 52.
182
earnngs (Incudng saares, fees, etc.), or any rghts by contract or other-
wse sha be treated and consdered and hereby s decared to be
receved, hed, taken, and owned by us as |ont tenants, and not otherwse, wth
the rght of survvorshp. In sustanng a ta on the husband for the whoe
of the saary and attorney s fees earned by hm, and ta abe under a statute
smar to the one here nvoved, the court sad:
very forcbe argument s presented to the effect that the statute seeks
to ta ony ncome benefcay receved, and that takng the queston more
techncay the saary and fees became the |ont property of ar and hs wfe
on the very frst nstant on whch tey were receved. We we mght hestate
upon the atter proposton, because however the matter mght stand between
husband and wfe, he was the ony party to the contracts by whch the saary
and fees were earned, and t Is somewhat hard to say that the ast step n the
performance of those contracts coud be taken by anyone but hmsef aone.
ut ths case s not to be decded by attenuated subtetes. It turns on the
mport nnd reasonabe constructon of the ta ng ct. There s no doubt that
the statute coud ta saares to those who earned them and provde that the
ta coud not be escaped by antcpatory arrangements and contracts, how-
ever skfuy devsed to prevent the saary when pad from vestng even for a
second n the man who earned t. That seems to us the mport of the statute
before us and we thnk that no dstncton can be taken accordng to the motves
eadng to the arrangement by whch the fruts are attrbuted to a dfferent tree
from that on whch they grew.
Inasmuch as the contract of empoyment n ths case created a reatonshp of
attorney and cent, there coud be no transfer of the corpus or res, nnd the
gft effected merey an equtabe assgnment of pettoner s possbe future
ncome. In Poe v. Seaborn (282 U. S., 101, 117 Ct. D. 259, C. . I -2, 202 ),
(he court sad : The very assgnment n that case (Lucas v. ar, 281 U. S., I)
was bottomed on the fact that the earnngs woud be the husband s property,
ese there woud have been nothng on whch t coud operate. So, here, the
assgnment coud operate on nothng but the earnngs of pettoner. The fact
that pettoner dd no work n connecton wth the tgaton out of whch the
ncome arose does not ater the stuaton. Is pror servces n connecton
wth that tgaton undoubtedy prompted the partes n makng the contract
of empoyment whch gave rse to the ncome, and hs nterest n the contract
at the tme of the assgnment was, of course, whoy uncertan and contngent.
We are, therefore, unabe to dstngush ths case from the broad rue of
Lucas v. ar, supra, that the fruts shoud not be attrbuted to a dfferent
tree from that on whch they grew, and from cases n whch the courts have
hed that antcpatory arrangements transferrng ncome to accrue from per-
sona servces to be rendered by the assgnor are unavang for ta purposes.
(See shop v. Commssoner (C. C. . 7), 54 . (2d), 298 Ct. D. 477, C. . I-1,
1G41 Luce v. urnet ( pp. D. C), 55 . (2d), 751 Parker v. Routzahn (C. C.
. 6), 56 . (2d), 730 Ct. D. 489, C. . I-1, 250 umentha v. Commssoner
(C. C. . 2), 60 . (2d), 715.)
ffrmed.
ktce 52: ampes of constructve recept. II-43-6466
Ct.D.745
ncome ta revenue act of 1021 decson of court.
Gross Income Uncoected Interest Coupons Constructve
Recept.
The fact that the menta and physca condton of the ta payer
n 1923 rendered hm unabe to cp and cash nterest coupons
whch had matured between anuary 1, 1923, and the date of hs
death, September 18, 1923, dd not reeve hs estate from the
abty to pay ncome ta upon the nterest whch was construc-
tvey receved by the decedent, though uncoected. The aw con-
tempates that one who s ncapabe of managng hs own affars
may have another to do that for hm, and that even though such a
condton e st, the ncome that s sub|ect to hs unfettered com-
mand may be ta ed to hm whether he sees ft to en|oy t or not.
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183
213(a), rt. 52.
Dstbct Court of the Unted States fob the Western Dvson or hk
Western Dstbct of Mssour.
a C. Loose, as ecutr of the Last W and Testament of acob L. Loose,
Deceased, and Indvduay, pantff, v. Unted States of merca, defendant.
L uy 11, 1933.
OPINION.
Reeves, . Ths Is a sut to recover a ta pad under protest. The amount,
ncudng nterest was 12,974.86. It was pad on anuary 3, 1930. Pantff
seeks to recover the amount thereof wth nterest at 6 per centum from the tme
t was pad.
The agreed statement of facts shows that acob L. Loose deceased on Sep-
tember 18, 1923, nnd that pror to hs death, and after December 31, 19L 2,
nterest coupons n the sum of 34,687.50 on sundry securtes owned and hed
by hm had matured for payment. ecause of hs physca and menta condton
he was unabe to cp and cash sad coupons athough the debtors were entrey
sovent and responsbe.
fter the death of Mr. Loose, the coupons were treated as assets of the estate,
and an estate ta was pad as requred by aw. Subsequenty t was determned
that such coupons shoud have been treated as ncome durng the year 1923 and
that same were ta abe as such.
the prncpa facts are agreed to by the partes, ncudng the physca
dsabty of Mr. Loose. The agreed statement of facts was suppemented, how-
ever, by the ntroducton of affdavts, showng a menta nfrmty of the decedent
so as to render t mpossbe n vew of the crcumstances for hm to have
converted sad coupons nto cash.
Other facts as they become pertnent w be stated n the course of ths
memorandum opnon.
1. ppcabe revenue aws provde that the gross ncome sha ncude
ncome derved from nterest. Treasury reguatons duy promu-
gated provde for constructve recept n certan cases, and partcuary n
the case of nterest as foows:
Where nterest coupons have matured but have not been cashed, such nterest
payment though not coected when due and payabe, s nevertheess avaabe
to the ta payer, and shoud therefore be ncuded n hs gross ncome for the
year durng whch the coupons matured.
Wthout more, ths woud seem to sette the matter.
2. owever pantff contends that the physca and menta ncapacty of tho
decedent at the tme woud reeve hm of the abty to pay the ncome ta on
sad coupons under the crcumstances.
Nether menta nor physca ncapacty w reeve one of hs duty to pay
ta es. (De atre v. dmonds, 200 Mo.. 246, 1. c. 276 Commssoner v. nn-
ham, 35 ed. (2d), 503, 1. c. 504 Ct. D. 207, C. . I -2, 289 .)
3. gan, n deang wth the queston of dvdends on corporate stocks, a
speca enactment of the Congress provded that a ta abe dstrbuton made
by a corporaton to ts sharehoders or members sha be Incuded n the gross
ncome of the dstrbutees as of the date when the cash or other property s
unquafedy made sub|ect to ther demands.
Pantff nssts that such an enactment shows the purpose of the Congress
to e cude matured nterest coupons before the amount thereof has actuay
been receved n cash. Ths s suggested under the we known ma m, pres-
son unum est e cuso aterus.
Ceary the ma m s nappcabe. y the enactment wth respect to dv-
dends, Congress put such on the same bass as matured nterest. When the
dvdend was decared and set apart, t had an dentca status wth nterest
matured. In the case of the dvdend, t ony became avaabe by affrmatve
act of the board of drectors. The fund for ts payment had to be approprated.
In the case of the nterest coupons, the contract obgaton of the debtor was o
provde funds for ts payment. In the absence of congressona act, t may be
questoned whether the Commssoner coud have promugated a reguaton n
respect of unpad dvdends. y such an enactment t was wthn hs rght to
make such reguaton.
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5213(b), rt. 87.
184
4. It shoud be borne In mnd that the e ecutr treated the coupons as a
part of the assets of the estate. They were duy Inventored and an estate
ta pad thereon. Ths was requred to be done before the same were cashed.
efore they coud become assets of the estate they must have been treated as
ncome.
s sad n Corss v. owers (281 U. S., 376, 1. c. 378 Ct. D. 188, C. . I -1,
254 ) :
The ncome that s sub|ect to a man s unfettered command and that he Is
free to en|oy at hs own opton may be ta ed to hm as hs ncome whether he
sees ft to en|oy t or not.
Ths s true, even f sufferng from a menta or physca nfrmty. The aw
contempates that one who s Incapabe of managng hs affars may have another
to do that for hm.
Other questons were dscussed by counse, but the foregong appear to be
suffcent to decde the ease.
ccordngy, the recovery s dened and the ssues are found for the Gov-
ernment.
It s so ordered.
S CTION 213(b). GROSS INCOM D IN D:
CLUSIONS.
rtce 74: Interest upon State obgatons.
R NU CT O 1926.
Interest pad by a muncpaty upon award n condemnaton
proceedngs. (See Ct. D. 736, page 104.)
rtce 87: Income of States. I O-6431
Ct.D. 738
INCOM ND C SS TRO ITS T R NU CTS O 1916, 1917, ND 1918
D CISION O COURT.
empton State Instrumentaty Sae or O and Gas Leases
or Schoo Lands of Okahoma.
The proft derved by a essee from the sae of o and gas eases
of schoo hnds acqured from the State of Okahoma s not e empt
from edera ta aton. The prncpe that one Government may
not evy a ta upon the functons or nstrumentates of another
appes ony where the ta woud be a rea and drect burden upon
the State s e ercse of ts governmenta functons, and can not be
apped to ths case, where no substanta burden s cast upon the
State s easng power by ta ng the proft from a sae by the nd-
vdua essee.
Coubt of Cams of the Unted States. No. -322.
rnest Whtworth Marand v. The Unted States.
une 5, 1033.
OPINION.
Ltteton, udge, devered the opnon of the court.
Pantff s moton, for a new tra on the queston whether the profts de-
rved by hm from the sae of eases theretofore acqured from the State ot
Okahoma were sub|ect to edera ncome ta was aowed wth eave to take
addtona testmony wth respect to ths queston. ddtona evdence was
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185
213(b), rt. 87.
taken and we have made addtona speca fndngs of facts as requested by the
partes.
Pantff rees n genera upon the prncpe announced n Ocspc v. State
of Okahoma (257 U. S., 501), and apped n urnet v. Corona-do O d Oas Co.,
supra 285 U. S., 393, Ct. D. 485, C. . I-1, 2C5 , and contends that the rue ad
down by the court n these cases enttes hm to |udgment under fndng 7
heren that f the profts derved from the resae of such eases by the essees
of the State are hed sub|ect to ncome and e cess profts ta es by the edera
Government, that hodng woud have the effect to restrct and to mt sub-
stantay the market for such eases, and to substantay essen the prce
obtanabe by the State therefor. e cams that the case of Wcuts v.
Itunn (282 U. S., 216 Ct. D. 280, C. . -, 309 ), s aso an authorty u hs
favor upon the prncpe upon whch he rees for the reason that n that case
the court sad before we can restrct ther (the ta ng cts ) appcaton upon
the ground of a burden cast upon the State s borrowng power, where the ta
s not ad upon the contract made by the State n the e ercse of that power,
or upon the amounts payabe thereunder, but s ad upon the resut of dstnct
transactons by prvate owners, t must ceary appear that a substanta bur-
den upon the borrowng power of the State woud actuay be mposed.
efore the power of the Congress to ay the e cse ta n queston can be de-
ned n the vew that t mposes a burden upon the State s borrowng power,
t must appear that the burden s rea, not magnary substanta, not
neggbe.
e, therefore, contends that the ta here n queston must be hed nvad
on the ground that under the facts t has been made to appear that t casts
n substanta burden upon the State s easng power and that ts effect s to
hamper the State s efforts to make the best terms possbe for ts pubc schoos,
a functon strcty governmenta n character. The defendant aso rees upon
the case of Wcuts v. unn, supra, as authorty for ts poston that the profts
on the sae of the eases are sub|ect to edera ta aton.
We have agan carefuy consdered ths queston n the ght of the addtona
facts estabshed on the new tra, and n the ght of the reargument and the
authortes cted by the partes n support of ther respectve postons, and have
agan come to the concuson announced n the opnon of December 7, 1931,
that pantff s not entted to recover and that the petton must be dsmssed.
In Group No. 1 O Corporaton v. ass (283 U. S., 279 Ct. D. 330, C. . -,
153 ), the court had before t the queston of the ta abty of profts derved
from o eases on pubc ands of Te as. In that State, unke Okahoma,
the grantng of a ease on o and gas ands consttutes a sae of o and gas
ocated beneath the surface. The case therefore was one of a camed
mmunty from ta aton because of the source of the tte. The court, whe
recognzng that the State s property before sae coud not be ta ed by the
edera Government, nor coud the sae thereof be ta ed, sad:
ut t does not foow that the same property n the hands of the buyer,
or hs use or en|oyment of t, or the ncome he derves from t, s aso ta
mmune. (New runswck v. Unted States, 276 U. S., 547 orbes v. Grace|,
94 U. S., 762 Tnker v. erguson, 22 Wa., 527 see Weston v. Chareston, 2
Pet., 449, 468 eaze ank v. cnno, 8 Wa., 533, 547.) Theoretcay, any ta
mposed on the buyer wth respect to the purchased property may have some
effect on the prce, and thus remotey and ndrecty affect the seng govern-
ment. We may assume that f the property s sub|ect to ta after sae, the
governmenta seer w generay receve a ess favorabe prce than f t
were known n advance that the property n the hands of ater owners, or even
of the buyer aone, coud not be ta ed.
ut the remote and ndrect effects upon the one government of such a
nondscrmnatory ta by the other have never been consdered adequate
grounds for thus adng the one at the e pense of the ta ng power of the
ether. (See Wcuts v. unn, 282 U. S., 216, 231 ducatona ms Corpora-
ton v. Ward, 282 U. S., 379 Metcaf ddy v. Mtche, 269 U. S., 514, 523-524
T. D. 3824, C. . -, 218 .) Ths court has consstenty hed that where
property or any nterest n t has competey passed from the Government
to the purchaser, he can cam no mmunty from ta aton wth respect to t,
merey because t was once Government owned, or because the sae of t
effected some Government purpose. (Neno runswck v. Unted States, supra
orbes v. Oracey, supra Tucker v. erguson, supra see Oromer v. Standard
37408 34 13
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5213(b), rt. 87.
186
Dredgng Co., 224 U. S., 362, 371 Choctaw, O. f O. R. Co. v. Mackey, 256 U. S.,
531, 537 Centra Pacfc . Co. v. Caforna. 162 II. S., 91, 125 Raroad Co. v.
Ponston, 18 Wa., 5, 35-37 Weston v. Chareston, supra, 468.)
The court recognzed the prncpe of the Gespe case, but, upon the basa
that the property had passed to the buyer, hed that the mts of the mmunty
had been e ceeded. The ncome from the o and gas produced was hed n
that case sub|ect to ta by the edera Government.
In Susquehanna Power Co. v. State Ta Commsson of Maryand (No. 1)
(283 U. S., 201), mmunty was camed from State ta aton because of the use
of property otherwse ta abe, pursuant to and n connecton wth a cense
from the edera Government. The court n denyng the cam for mmunty
sad:
ssumng, for present purposes, that the cense of the Power Commsson
s a edera nstrumentaty, mmune from ta aton or other drect nter-
ference by the State, t does not foow that the property appeant uses n ts
power pro|ect s cothed wth that mmunty. The e empton of an nstrumen-
taty of one government from ta aton by the other must be gven such a
practca constructon as w not unduy mpar the ta ng power of the one
or the approprate e ercse of ts functons by the other.
In the case of the Indan Motorcyce Co. v. Unted States (283 U. 8., 570
Ct. D. 354, C. . -, 430 ), the court reaffrmed the prncpe of mmunty
and apped t n that case whch nvoved a ta eved on the sae of motor-
cyces to a muncpa corporaton for use n ts poce servce, and dstngushed
the case of Wcuts v. unn, supra, as foows: for the ta es there
n queston were not ad on transactons nvovng an e erton of governmenta
functons and ther bearng on governmenta operatons was so ndrect or
remote as to pace them outsde the prncpe whch s appcabe here.
In urnet v. Coronado O d Gas Co., supra, the court apped the prncpe
announced In the Gespe case and hed that ncome derved from the sae
of o and gas produced from ands eased from the State of Okahoma was
e empt from ta , but ndcated that the prncpe shoud not be e tended.
It was there sad that: We are dsposed to appy the doctrne of Gespe v.
Okahoma strcty and ony n crcumstances cosey anaogous to those whch
t dscosed.
In o m Corporaton v. Doyu (28(3 . S., 123) the court decned to
appy the prncpe of mmunty where the burden upon the State was ndrect
and remote. In ths case the court sad:
The prncpe of the mmunty from State ta aton of nstrumentates of
the edera Government, and of the correspondng mmunty of State nstru-
mentates from edera ta aton essenta to the mantenance of our dua
system has ts nherent mtatons. It s amed at the protecton of the
operatons of government (McCuoch v. Maryand, 4 Wheat., 316, 436), and
the mmunty does not e tend to anythng yng outsde or beyond govern-
menta functons and ther e ertons. (Indan Motooyce Co. v. Unted
States, 283 U. S., 570, 576, 570.) Where the mmunty e sts, t s absoute,
testng upon an entre absence of power ( ohnson v. Maryand, 254 U. S.,
51, 55, 56), but t does not e st where no drect burden s ad upon the
governmenta nstrumentaty, and there s ony a remote, f any, nfuence
upon the e ercse of the functons of government. (Wfcuts v. unn, 282
U. S., 216, 225.)
The mmunty from ta aton appes ony where the ta woud be a rea and
drect burden upon the State s e ercse of ts governmenta functons and t
s our opnon that under the cases cted the burden upon the State of Okahoma
n easng ts pubc ands on the best possbe terms, because of the ta that
may be e acted from the essee upon the sae by hm of hs eases from the
State, s so ndrect and remote as to pace t outsde the prncpe that one
Government may not evy a ta upon the functons or nstrumentates of
another. though t s shown n ths case that a essee of o ands from the
State of Okahoma woud pay more to the State for a ease n the frst Instance,
f he were assured that profts from the sae of a ease woud be e empt from
edera ncome ta , ths was doubtess true n Group No. I Ott Corporaton v.
ass, supra.
The ta offends the Imped consttutona prohbton ony If t s Imposed
drecty upon a governmenta nstrumentaty, or f, though t s not so
mposed, ts effect s to pace a drect and substanta burden upon the e ercse
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187
213(b), rt. 90,
of a governmenta functon. (Wcuts v. unn, 282 T . S., 216 Metcaf ddy
v. Mtche, 269 U. S., 514.) gan derved by a ta payer through a sae of
property or nterest theren acqured from a State, whether acqured In the
form of a ease or by purchase, does not, In our opnon, fa wthn the
mped consttutona prohbton aganst ta aton. The mmunty does not
e tend to anythng yng outsde or beyond governmenta functons and ther
e ercse . (Indan Motocyce Co. v. Unted States, supra.) The
Immunty from ta aton e tends ony to those agences through whch the
State mmedatey and drecty e ercses ts soveregn powers, and t s apparent
that not everyone who uses hs property or derves a proft, as a resut of hs
deangs wth the Government, may cothe hmsef wth mmunty from ta aton.
(Metcaf ddy v. Mtche, supra.)
Pntf s not entted to recover and hs petton s dsmssed. It s so
ordered.
rtce 88: Compensaton of State offcers and empoyees.
R NU CT O 1926 ND PRIOR R NU CTS.
ocatona tranng teachers empoyed n prvate nsttutons and
pad n part from edera funds. (See G. C. M. 12137, page 81.)
rtce 90: Income accrued pror to March 1, II-32-6333
1913. Ct. D. 714
( so Secton 202, rtce 1561.)
INCOM T R NU CT O 1921 D CISION O COURT.
1. Gross Income ass fob Determnng Gan ob Loss.
Where pettoner made an agreement In 1904 wth a foregn com-
pany whereby t was agreed that he shoud receve a one-fourth
nterest n any enhancement n vaue above par of shares of stock
of the company paced n hs hands, If certan contngences oc-
curred, and where the stock so hed was turned over durng the
war to the en Property Custodan, who sod t and n 1923 pad
pettoner hs share n the enhancement n vaue, the entre amount
receved from the en Property Custodan, ess attorneys fees
pad by hm, was ta abe ncome to pettoner, rather than the
dfference between the March 1, 1913, vaue of the stock and ts
seng prce. The agreement was not a capta asset of ascer-
tanabe vaue on March , 1913, beng ony a promse of future
payments under specfed condtons.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (22 . T. ., 36)
affrmed.
3. Certorar Dened.
Petton for wrt of certorar was dened by the Supreme
Court on March 27, 1933 ( 53 S. Ct., 526).
Unted States Crcut Court of ppeas for the Seventh Crcut.
rtz Worm, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore scuer and Sparks, Crcut udges, and Wkerson, Dstrct udge.
October 19, 1932.
OPINION.
Pettoner seeks a reversa of an order of the oard of Ta ppeas approvng
a defcency assessment of ncome ta for the year 1923.
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5213(b), rt. 90.
188
In 1904, the pettoner was manager for the German- mercan Portand
Cement Works, herenafter referred to as the mercan company. Twenty-
fve hundred shares of the stock of the mercan company, a controng Inter-
est, were owned by the Portand Cementfabrk emmoor, herenafter referred
to as the German company. In that year, pettoner made a new agreement
wth the German company. e was eected presdent and genera manager of
the mercan company and hs powers were enarged. The stock certfcate
for 2,500 shares of the mercan company was paced n hs hands, unndorsed.
It was agreed that f he made a success of the mercan company he woud
be gven one-fourth nterest n the enhancement of the vaue of ths stock above
par, that e shoud receve one-four,h of such enhanced vaue n case of a sue
thereof, that n case he resgned there was to be an accountng and that f he
ded hs estate woud receve the beneft thereof.
Pettoner was successfu wth the mercan company and pad off ts
mortgage ndebtedness. The vaue of the stock, as was found by the oard,
became stabe and the stock on March 1, 1913, was worth at east 200 per share.
Durng the war the stock certfcate for 2,500 shares was turned over to the
en Property Custodan. New drectors were apponted by the Custodan,
but pettoner remaned n hs poston as presdent and manager. The stock
was sod n 1919 by the Custodan for 280 per share, and n 1923 the Custo-
dan pad the pettoner 100,000, ess certan ad|ustments whch are not here
matera, as hs share n the enhancement of the vaue of the stock above par.
Pettoner n hs ncome ta return for 1923 reported as ncome ony that
porton of the amount receved from the Custodan whch represented the
dfference between the seng prce of the stock and the vaue of 225 per share
whch pettoner camed t was worth on March 1, 1913.
The Commssoner, n audtng the return rued that the entre amount
receved by the pettoner from the Custodan, after deductng attorneys fees
pad by the Custodan, was ncome of the pettoner for 1923 and made a
defcency assessment accordngy. The oard of Ta ppeas sustaned the
Commssoner, and to revew that order ths petton Is brought.
Wkerson, Dstrct udge: Secton 213 of the Revenue ct of 1921 (ch.
130, 42 Stat., 227, 238) requres that for ncome ta purposes there sha be
ncuded gans, profts, and ncome derved from compensaton
for persona servce or saes, or deangs n property, whether rea
or persona, growng out of the ownershp or use of or nterest In such
property or gans or profts and ncome derved from any source
whatever.
That secton aso requres that the amount of such tems, e cept as other-
wse provded, sha be ncuded n the gross ncome for the ta abe year n
whch receved by the ta payer.
The s teenth amendment, grantng to the Congress power to ta ncomes
wthout apportonment, became effectve ebruary 25, 1913. If a part of the
tota gan receved by the ta payer accrued durng the perod before the
effectve date of the amendment, t must be deemed for ncome ta purposes,
as accreton to capta not ta abe by the ncome ta cts enacted under the
s teenth amendment. (Lucas v. e ander, 279 U. S., 573 Ct. D. 76, C. .
III-2, 273 .)
Secton 202(b) of the Revenue ct of 1921 (ch. 136, 42 Stat., 227, 229)
provdes:
The bahs for ascertanng the gan derved or oss sustaned from the
sae or other dsposton of property, rea, persona, or m ed, acqured before
March 1, 1913, sha be
(1) If ts far market prce or vaue as of March 1, 1913, s n e cess of
such bass, the gan to be ncuded n the gross ncome sha be the e cess
of the amount reazed therefor over such far market prce or vaue.
Treasury Reguatons 62, artce 90, provdes:
ny cam e stng uncondtonay on March 1, 1913, whether presenty
payabe or not and hed by a ta payer pror to March 1, 1913, whether ev-
denced by wrtng or not, and a nterest whch had accrued thereon before
that date, do not consttute ta abe ncome, athough actuay recovered or
receved subsequent to such date.
Pettoner cams that the agreement by whch he was to receve one-fourth
of the enhanced vaue of the stock In certan contngences was a part of hs
capta on March 1, 1913 and that the vaue of ths agreement on March 1,
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189
213(b), rt. 90.
1913, shoud be found and deducted In determnng the amount receved by
hm from the proceeds of the sae of the stock whch s to be ncuded as a
part of hs ncome for 1923.
In order to determne the gan derved by pettoner from the agreement
whch s to be treated as ncome, we must wthdraw from the gross proceeds
an amount suffcent to restore the capta vaue that e sted on Starch 1, 1913.
The burden of proof to estabsh the amount of that capta vaue, cearv, s
upon the pettoner. ( urnet v. ouston, 283 U. S., 223, 227 Ct. D. 328, 0. .
-, 343 Renecke v. Spadng, 280 U. S., 227, 233 Ct. D. 154, C. . I -1,
305 otany Ms v. Unted States, 278 U. S., 282, 289 Ct. D. 39, C. . III-1,
279 Unted States v. nderson. 269 U. S., 422, 443 Ct. I). 34, C. . II-2, 87 .)
To be sure, the ta ng statutes must be construed wth nn eye to possbe
consttutona mtatons so as to avod doubts as to vadty (Lucas v.
e ander, supra) but a constructon whch reeves the ta payer of the
burden of showng facts from whch, under the rues of proof, the capta vaue
e stng on March 1, 1913, may be ascertaned s not permssbe. ( urnet v.
ouston, supra, 228.)
It s cear that by the agreement of 1904, pettoner dd not become the
owner of any porton of the shares of stock. s nterest wns mted to par-
tcpaton n the enhanced vaue of the stock. Pettoner h d no nterest n any
dvdends pad on the stock. If the stock was sod beow par he receved
nothng.
That whch t s camed shoud have been vaued as a capta asset conssted
of the promse of the German company to pay one-fourth of the vaue of the
stock of the mercan company above par n certan contngences, ns foows:
(1) If the German company shoud se the stock, pettoner woud receve
one-fourth of the amount receved for the stock n e cess of 100 per share
(2) If pettoner shoud resgn as presdent and manager of the mercan
company, there woud be on accountng and the German company woud pay to
pettoner one-fourth of the vaue of the stock above par
(3) If pettoner shoud de, there woud be an accountng and the German
company woud pay to pettoner s estate one-fourth of the vaue of the stock
above par.
The payment promsed f the Gorman company shoud eect to se the stork
was whoy dependent upon an act beyond the contro of pettoner and whch
t was mpossbe to foresee.
The payment promsed to be made f pettoner shoud resgn hs poston
wth the mercan company was, of course, wthn the power of pettoner to
contro. To receve the payment, however, pettoner wns obged to gve up
hs poston wth the mercan company, and there s no bass n the record
for vaung the promse, when the uncertan and specuatve eement of the
resgnaton requred as a condton of the obgaton to pay s taken nto
consderaton.
The promse to pay to pettoner s estate In the event of hs death approaches
more neary the ed of reasonabe certanty. ut here pettoner made no
attempt to make a showng of the vaue of the promse on March 1, 1913, on
the assumpton that the vaue of the stock woud reman constant unt pet-
toner shoud de. If the vaue of the promse coud have heen ascertaned by
resort to the mortaty tabes and to methods empoyed n fe nsurance and
annuty computatons, pettoner dd not eect to foow that course. e bases
hs cam upon the contenton that the vaue on .March 1. 1013, of the promse
of the future payments s one-fourth of the vaue of the stock on that date
nbove par. That contenton, as we have ponted out aready, can not bo
sustaned.
Ths case, n our opnon, acks those eements of certanty upon whch to
base a vauaton as of March 1, 1913, whch are to be found n the cases upon
whch pettoner rees. (Compare Lucas v. e ander, 279 I . S., 573 Lunch v.
Turrsh, 247 U. S., 221 drcdge v. Unted States, 31 ed. (2d). 924: entucky
Tobacco Products Co. v. Lucas, 5 ed. (2d), 723 Patt v. owers, 13 ed. (2d),
951 osmer v. Commssoner, 25 ed. (2d), 87 Ruth Iron Co. v. Commssoner,
26 ed. (2d), 30 Saunders v. Commssoner, 29 ed. (2d), 834 Portage Sca
Co. v. Commssoner, 49 ed. (2d), 985 Commssoner v. Stephens, 51 ed. (2d),
681.)
The case s more neary anaogous as to contngency n the promsed pay-
ments to Workman v. Commssoner (41 ed. (2d), 139) and Woods v. Lcccyn
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214(a), rt. 101.
190
(252 ed.. 106). The observaton n urnet v. ouston (283 T . S., 223, 228) a
pertnent:
The mpossbty of provng a matera fact upon whch the rght to reef
depends, smpy eaves the camant upon whom the burden rests wth an unen-
forceabe cam, a msfortune to be borne by hm, as t must be borne n other
cases, as the resut of a faure of proof.
(See aso urnet v. Logan, 283 U. S., 404. 413 Ct. D. 351, C. . -, 345 .)
The order of the oard of Ta ppeas s affrmed.
S CTION 213(c). GROSS INCOM D IN D:
NONR SID NT LI N INDI IDU L.
rtce 92: Gross ncome of nonresdent aen II 48-6536
ndvduas. I. T. 2736
R NU CT O 1918.
Offce Decson 988 (C. . 5,117), n whch t was stated that a non-
resdent aen author sod to a domestc corporaton a rghts of
sera pubcaton n the Unted States n certan terary works, and
hed that proft on the transacton was not ncome from sources
wthn the Unted States and not sub|ect to wthhodng, s revoked,
n vew of I. T. 2735 (see page 131. ths uetn).
S CTION 214 (a) 1. D DUCTIONS LLOW D INDI-
IDU LS: USIN SS P NS S.
rtce 101: usness e penses. II-27-6268
Ct. D. 694
INCOM T R NU CT O 1926 D CISION OP COURT.
1. Counse ees Ordnaby and Necessaby usness pense.
n amount pad by pettoner to hs attorneys for servces
rendered and e penses Incurred n connecton wth demands made
on behaf of hs dvorced wfe for an accountng of hs admnstra-
ton of her fnanca affars durng ther marrage was a persona
e pense, and therefore not deductbe as an ordnary and necessary
busness e pense under the provsons of secton 214(a) 1 of the
Revenue ct of 192G.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (23 . T. ., 304)
affrmed.
Court of ppeas of the Dstrct of Coumba.
enry Sanderson, appeant, v. Davd urnet, Commssoner of Interna Rev-
enue, appeee.
ppea from the oard of Ta ppeas.
efore Mabtn, Chef ustce, and Robb, an Obsde, tz, and Gbonkr,
ssocate ustces.
anuary 16, 1933.
OPINION.
Gboner, ssocate ustce: Ths s a ta case, and nvoves pettoner s ncome
ta es for the year 1925. The facts are not dsputed, and show pettoner resded
n New York, and from 1911 to 1918 was a genera partner n the frm ot
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191
214(a), rt. 101.
Chares D. arney Co., members of the New York Stock change. In 1919
he became a speca partner, and In 1921 retred entrey from the frm. e
was marred n 1914 to zabeth arehd oward. s wfe at the tme of
the marrage was worth a tte over a mon doars. Pror to the marrage
she had mantaned an account wth the arney frm, whch n 1923 she trans-
ferred to the Centra Unon Trust Co. She bought, sod, and carred securtes
on margn, had money advanced to her and bs pad through the arney
frm. In 1915 she purchased and on Long Isand on whch she erected a
resdence, whch when competed, cost 1,220,000. Pettoner advanced 000,000
of hs own money to assst n payng for the home. In 1921 pettoner and
hs wfe went abroad, where n 1923 dffcutes between them arose, resutng
In a separaton and n 1920 n a dvorce n Pars, where both then resded
and contnued to resde for some tme thereafter. In the mdde of 1024, pet-
toner receved a etter from a New York attorney askng an accountng of
pettoner s admnstraton of hs wfe s fnanca affars. Pettoner then re-
taned counse and engaged accountants to e amne the detas of hs wfe s
transactons as shown by the books of the arney company and the Centra
Unon Trust Co. One of the demands made by pettoner s wfe was that
by reason of a depost by her n 1914 of 100,000 wth arney Co. she was
entted to have a haf of pettoner s nterest n the frm s profts, but ths
cam was wthdrawn, and n ebruary, 1925, counse for pettoner s wfe
presented to hm a b n equty, whch t was represented he ntended to
fe, aegng that wth fu confdence n her husband Mrs. Sanderson had
permtted hm to assume contro of her capta, that he had arbtrary com-
mnged her funds wth hs own, usng her securtes as coatera for hs
oans, dvertng ncome from her, transferrng vauabe securtes of hers to
hs account, usng her money for vng e penses, retanng contro over her
account before and after ts transfer to the Unon Centra Trust Co., and dong
dvers other mproper acts, wherefore she prayed that he be drected to render
a |ust and fu accountng and dever to her n cash and securtes whatever
shoud appear due. The b n equty was never fed, and pettoner s wfe
ater dscamed a knowedge of ts contents, but pettoner, to avod tgaton
and ts dsagreeabe features, compromsed the dspute by check contrary to
the wshes of hs attorney, and pad n the year 1925 on account of counse
fees and other e penses n connecton therewth, 37,562.03. The oard hed
that ths e pense arose drecty out of pettoner s marta stuaton and was
a persona e pense wthn the meanng of secton 215 of the eveuue ct
of 1920 (44 Stat., 9). Pettoner, on the other hand, contends the amount
was deductbe ns an ordnary and necessary busness e pense under the
provsons of secton 214(a) 1, and rees upon ornhauser v. Unted States
(270 U. S., 145 T. D. 4222 C. . II-2, 267 ), and varous decsons of the
Ta oard snce the ornhauser case.
In the ornhauser case the Supreme Court hed that attorney s fees pad
by the ta payer n defense of an accountng sut brought by hs former aw
partner respectng shares of stock whch the ta payer had receved for pro-
fessona servces camed by the partner to have been performed durng the
e stence of the partnershp wore deductbe as ordnary and necessary e penses
n carryng on a trade or busness. The oard of Ta ppeas have apped the
rung n the ornhauser case n a number of subsequent cases. In unson v.
Commssoner (18 . T. ., 2. 32), where a ta payer engaged detectves to guard
hs busness property mpered through crcumstances arsng In the operaton
of the busness, t was hed the e pense was deductbe. In Contnenta Co, v.
Commssoner (19 . T. ., 1095) the oard approved a deducton of attorney s
fees pad for servces performed n representng ta payer before the edera
Trade Commsson n defendng ta payer aganst charges of mproper practces.
nd n Ctron- ycr Co. v. Commssoner (21 . T. ., 308) the oard approved
attorney s foes pad n defendng the ta payer aganst a conspracy ndctment
n connecton wth an aeged conspracy to defraud the Unted States n the
purchase of wre n connecton wth the busness of the ta payer. In the ast-
named case the oard sad: If the fees were pad n defense of an acton or
proceedng drecty connected wth and pro matey resutng from the ordnary
and proper conduct of the ta payer s busness, they are ordnary and necessary
e penses of the busness and deductbe as such. nd they apped the same
rue n the case of oward v. Commssoner (22 . T. ., 375) and n Potter v.
Commssoner (20 . T. ., 252).
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S214(a), rt. 101.
192
We thck the quoted anguage above correcty states the appcabe rue, but
we do not fnd n the facts n the case under consderaton a |ustfcaton for ts
appcaton here. In the oard s fndng of facts there s a statement to the
effect that when the controversy between pettoner and hs wfe began the atter
camed, by vrtue of the depost by her of 100,000, a haf nterest n hs profts
n the frm of whch he had formery been a member. If the deducton camed
had resuted from e penses ncurred n defendng ths cam, there woud be
good ground for contendng that t was e pended n protectng hs busness
nterest , and n that aspect was a busness e pense, the deducton of whch s
aowabe, but the statement of facts aso shows that ths cam was wthdrawn
and that the rea grounds of the controversy were matters aeged n the b
of compant, and these, as we have seen, reated entrey to questons arsng
out of the purchase and erecton of the Long Isand resdence, the aeged com-
mngng by the husband of hs and hs wfe s funds, the use by hm of her
securtes as coatera for hs oans, and the use of her money for vng
e penses, rather than anythng whch had any reaton to any busness |n whch
he was then or had formery been engaged. In the state n whch we fnd the
record, t s, of course, mpossbe to segregate or aocate any part of the
e pendture m e by pettoner to the wthdrawn cam wth reaton to a
share of hs busness ncome, or, as a matter of fact, to know that even a sma
part of t was attrbutabe to that cam. If pettoner s wfe had a cam
aganst the partnershp of whch pettoner was formery a member, the cm
doubtess woud have been made aganst the partnershp rather than aganst
one of ts members. The fact that t was not tends very strongy to show that
the concuson stated above s the correct one and that the threatened proceedng
was n fact for an accountng between husband and wfe growng whoy out of
ther domestc affnrs. and ths becomes even more apparent when t s consd-
ered that the dspute was apparenty part and parce of the separaton and
dvorce. It was therefore a persona rather than a busness controversy.
In ths aspect, the doctrne announced by the Supreme Court n the orn-
hauser case, supra, s wthout nfuence, and we thnk the decson of the oard
shoud be affrmed.
ffrmed.
rtce 101: usness e penses. II-37-6396
Ct.D. 731
ncome ta revenue act of 1921 decson of court.
1. Dedtcton Ordnary and Necessaky penses Capta -
pendtures.
Instament payments made by pettoner coa company n e -
tngushment of an obgaton to pay the cost prce of a spur track
to ts coa ands are capta e pendtures and are not deductbe
from ncome as ordnary and necessary e penses.
2. Decson trmkd.
The decson of the oard of Ta ppeas (24 . T. ., 1006)
affrmed.
Unted States Crcut Court of ppeas for the Seventh Crcut.
Crppe Creek Coa Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
1 etton for revew of decson of the Unted States oard of Ta ppeas.
efore schueb and vans, Crcut udges, and ttz- enby, Dstrct udge.
March 23, 1033.
OPINION.
vans, Crcut udge: The controversy between pettoner and respondent
grows out of certan payments made by pettoner whch t deducted from ts
ncome as ordnary and necessary e penses. Respondent contends that these
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193
214(a), rt. 101.
payments were made n reducton of a abty and as such were not deductbe
from pettoner s ncome. The ta es nvoved are upon ncomes for the years
1922 and 1923.
Pettoner was an Inos corporaton wth ts prncpa offce In Gaesburg.
It acqured eases on coa ands near ryant, uton County, 111. (whch ands
were about 3 mes from the tracks of the C, . . R. R.), for the purpose
of suppyng the street raways of Mnneapos and St. Pau wth screen-
ngs coa. The Transt Suppy Co., a purchasng agent for sad street ra-
ways, had e perenced dffcuty n 1917 n securng the necessary coa
requrements (whch amounted to appro matey 300 tons a day) of sad street
raways and had caused pettoner to be organzed to acqure coa eases and
mne the coa. Ied, who represented the Transt Suppy Co., hed the stock
of pettoner and was apparenty nfuenta wth the street car companes.
efore coa coud be successfuy mned and sod, t was necessary to construct
a spur track from the C, . . R. R. to the eased coa ands. It was out of
the cost of ths spur track and the payments made as a resut thereof that
ths controversy arose.
Pettoner and the raroad company contracted for the constructon of the
spur track, the estmated cost of whch was 90,372. Of ths cost the raroad
company was to pay 10,000 and pettoner, 24,000 upon the e ecuton of the
ngreement. The baance ( 56,372) was to be pad by pettoner n four equa
nstaments upon demand. Compcatons and dffcutes arose because the
actua cost e ceeded the estmated cost by 52,955.16. Pettoner orgnay
agreed that shoud cost e ceed estmate t woud prompty be pad. Pettoner
was unabe, however, to pay the baance of 56,372 n four equa nstaments,
and t was aso unabe to pay the sum of 52,955.16, the dfference between
actua and estmated cost.
Numerous agreements were made between the Interested partes n an effort
to pay the cost of the spur track. It was frst agreed (1917) between the ra-
road company and pettoner that whe the atter was to pay the cost of the
spur track, the raroad company woud aow a rebate of 3 for every car
haued over the track on whch the raroad receved 15 or more revenue. Im-
medatey upon the e ecuton of ths agreement, the Transt Suppy Co. entered
nto an agreement to purchase, at cost prce f. o. b., a of ts coa requrements
(about 300 tons a day) from pettoner for 15 years. Pettoner, In 1919,
assgned ts rght to the 3 per car rebate to the Transt Suppy Co. for moneys
by t advanced to pay the estmated cost of the spur track. It became neces-
sary, however, to change ths agreement when the raroad company began
appyng ths 3 rebate to the satsfacton of ts cam of 52,955.16, the amount
over and above the estmate whch the raroad company pad for the construc-
ton of the spur track. Pettoner and the Transt Suppy Co. thereupon entered
nto another agreement (1921) under whch pettoner agreed to pay the
Transt Suppy Co. 3 per car and the Transt Suppy Co. was to receve the 3
per car rebate after the raroad s cam was e tngushed unt the money by
t advanced was fuy pad. y ths 1921 agreement, the assgnment to the
Transt Suppy Co. of the obgaton of the raroad company to remburse, n-
cuded n the contract of 1921, was permtted to stand but was to be reassgned
to pettoner when 02,724.02 was pad ether by the raroad or by pettoner,
the atter s abty beng e pressy mted to the above amount and ts pay-
ment, n the manner above descrbed. Under ths atter contract, pettoner
pad the Transt Suppy Co. 17,232 n 1922 and 20,817 n 1923.
Lookng through the form of the varous agreements to the substance and
keepng n mnd the reatonshp of the partes who operated, controed, and
managed the street raway companes, the Transt Suppy Co., and pettoner,
as we as the purpose and ob|ect of the agreements, we reach the concuson
that the 3 payments were a made to satsfy the debt created by the construc-
ton of the spur track. The 1919 agreement between pettoner and the Transt
Suppy Co. was for the e pressed purpose of repayng the atter company for the
moneys advanced by t for pettoner. It s true, ths agreement provded that
n no event sha (pettoner) be abe to pay to
(Transt company) any porton of sad sum e cept n the
manner and to the e tent heren set forth. The 3 per car payments theren
provded were, however, merey nstament payments n satsfacton of a debt
created by the constructon of the spur track and whch debt the Transt Suppy
Co. satsfed upon pettoner s agreement to repay.
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5214(a) , rt. 112.
194
The partes, though no doubt actuated by good fath, entered Into the frst
agreement upon a mutuay mstaken assumpton respectng the cost of the pur
track. When the actua cost became known, new agreements had to be and were
made. The addtona cost was a drect obgaton of the pettoner. gan the
atter, unabe to advance the ensh, was requred to pay the amount advanced by
another, out of Its future busness. Ths sum was f ed, as In the prevous
agreement, at 3 per car. The amount of the nstament and he bass upon
whch t was computed were, however, unmportant. The sgnfcant fact was
that t was a payment n e tngushment of an obgaton to pay the cost prce
of the spur track. Inasmuch as the cost prce of ths track was a capta nvest-
ment (Coony Coa d Coke Corporaton v. Commssoner, 52 . (2d), 923 Ct- D.
439, C. . I-1, 278 Oauey Mt. Coa Co. v. Commssoner, 23 . (2d), 574),
a sums pad by pettoner In e tngushment thereof fe under that head rather
than ordnary and necessary e penses.
Pettoner cas attenton to and stresses the fact that after ts ndebtedness
for constructon of the spur track was e tngushed, the payment of the 3 per
car dd not cease. If ths were the ony fact to be consdered, t woud strongy
support pettoner s poston. owever, t must yed to the more persuasve
facts dscosed n the foregong statement.
The agreement between pettoner and the Transt Suppy Co., entered nto
n 1921, stated that ts purpose was to carry out more fuy the Intent of the
prevous agreement whch provded for the assgnment of the 3 per car rebates.
That agreement was made by the partes when they abored under a mstake as
to the cost of the spur track. Inasmuch as the second agreement was merey
to carry out the Intent of the partes set forth n ther frst agreement, and was
made necessary through ths mutua mstake of fact, t s, we thnk, necessary
to read the two agreements together and to fnd that the assgnment of the 3
rebates and the 3 per car addtona payments were made for the soe purpose
of satsfyng a capta obgaton for whch pettoner aone was abe.
The order of the oard of Ta ppeas s affrmed.
rtce 101: usness e penses.
R NU CTS O 1024 ND 1926.
ountary payment by former secretary of bankrupt corporaton of
substanta porton of ts debts. (See Ct. D. 755, page 112.)
rtce 112: When charges deductbe. II-52 6578
Ct. D. 7G6
ncome ta revenue act ok 1 26 decson ok coutt.
1. Deductons Losses Sae o Instament ass.
Where ta payer s wfe n 1923 sod certan shares of stock whch
she had receved from hm by gft after March 1. 1913, and pror
to December 31, 1920, at a prce ess than ther vaue at the date
of the gft, the payments beng spread over the years 1924, 1925,
1920, and 1927, the oss sustaned may not be spread over the
perod covered by the nstament payments, snce the transacton
was competed and the oss defntey f ed n 1923. Secton 212(d)
of the Revenue ct of 1920, deang wth saes made on the nsta-
ment pan, permts a ta payer to spread the ncome therefrom
over the perod covered by the nstament payments, but makes
no provson for apportonng osses sustaned.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (23 . T. ., 307)
affrmed.
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195
214(a), rt. 11
Couet of ppeas of the Dstbct of Coumba.
George P. Sacks, appeant, v. Davd urnet, Commssoner of Interna Revenue.
ppea from the oard of Ta ppeas.
efore Mabtn, Chef ustce, and Robb, tz, and Gboneb, ssocate ustces.
une 26, 1933.
OPINION.
tz, ssocate ustce: Ths s a petton to revew a decson of the oard
of Tu ppeas.
The decson of the oard sustaned the Commssoner. The stpuated
facts are as foows:
In 1023 pettoner s wfe sod certan shares of stock whch had been gven
her by pettoner after March 1, 1913, and pror to December 31, 1920. The
vaue of the shares at the date of the gft was 157,466.07. The seng prce
was 126,604.23. The payments were 51,604.23 n 1924 and 25,000 n each of
the years 1925, 1926, 1927. usband and wfe fed a |ont return n 1927 and
deducted 6,094.27 as the proporton of oss whch the amount receved n
that year bore to the tota sae prce. The Commssoner decded that the sae
was a cosed transacton n 1923 and that there was no provson n the statute
for spreadng a oss on the sae of property over the perod covered by the pay-
ments. Pettoner contends otherwse and nssts that under secton 212(d)
of the Revenue ct of 1926 made appcabe to pror years by secton 1208 of
that ct he s entted to spread the oss over the perod covered by the
nstament payments.
The precse pont attempted to be sustaned by the same arguments sub-
mtted to us was consdered and decded by the Court of ppeas n the
Second Crcut n December, 1932, n the case of Martn v. Commssoner (01
. (2d), 942 Ct. D. 686, C. . II-1, 226 ). In that case udge Man ton, re-
ferrng to secton 212(d), says that secton grants authorty for reportng ony
ncome on the nstament bass that t specfcay provded by ct of Con-
gress a prvege whch pror thereto was dependent on reguatons promugated
by the Commssoner, but that t makes no reference to osses, and as to ths
omsson and ts effect n crcumstances ke those we are consderng, he says:
The statute mtng the thng to be done n a partcuar mode ncudes
the negatve of any other mode. ( otany Worsted Ms v. Unted States, 278
U. S., 282, 49 S. Ct., 129 Ct. D. 39, C. . UI-1, 279 .) Ordnary osses are
deductbe ony n the year n whch they are sustaned. (Lucas v. mercan
Code Co., 280 U. S., 445 Ct. D. 108, C. . I -1, 314 .) The genera prn-
cpe underyng ncome ta statutes snce the s teenth amendment was adopted
has been a computaton of gans and osses on the bass of annua accountng
for the transactons of the year. ( urnet v. Sanford rooks Co., 282 U. S.,
359 Ct. D. 277, C. . -, 363 .) In order to support a rght to deduct over
a perod of years a oss sustaned n a partcuar year, there must be some au-
thorty therefor n the statute permttng the deducton, or otherwse the gen-
era prncpe of an annua accountng for ta purposes must be apped.
(Wooford Reaty Co. v. Rose, 2S0 U. S., 31 Ct. D. 403, C. . I-1, 154 .)
The ncome ta aw s concerned ony wth reazed osses as we as reazed
gans. (Wess v. Wener, 279 . S., 333 Ct. D. GO, C. . III-1, 257 .) The
transacton here was competed and the oss defntey f ed n 1925. (Leweyn
v. ec. Reducton Co., 275 U. S., 243 Dresser v. Unted States (Ct. CI.), 55
. (2d), 409, 512 Ct. D. 503, C. . I-1, 207 .)
ut pettoner urges that ncome s a fe be term and as used n secton
212(d) ncudes equay resuts from a transacton whether gan or oss
foow, but ths contenton s not supported by ether reason or authorty. In
the Martn case, supra, t was re|ected, and n Wooford R. Co. v. Rose (286
U. S., 310-327), the Supreme Court sad, referrng to a neary smar con-
tenton that to nterpret the words net ncome as used n the ta ng statute
to ncude aso net oss woud bo a metamorphoss too great to be vewed
wthout a shock.
In the vew we take of the appcabe statutes, the Commssoner was ceary
rght, and we consequenty affrm the decson of the oard.
ffrmed.
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8214(a)4, 6, 6, rt. 141.
196
S CTION 214 (a) 4, 5, ND 6. D DUCTIONS LLOW D
INDI IDU LS: LOSS S.
rtce 141: Losses. II-35-6376
( so Secton 214(a)7, rtce 151.) Ct. D. 723
INCOM T R NU CTS O 1913, 1916, 1917, 1918. ND 1921 D CISION
O COURT.
1. Deductons Losses.
Losses sustaned n the years 1913 to 1923 by a corporaton
whch was organzed and fnanced by a partnershp as a ma
order branch of ts mercante busness but operated as a dstnct
and separate entty and fed Income, capta stock, and State
franchse ta returns for those years, are not deductbe by the
partnershp or by the Indvdua partners, as the corporaton
Is a separate entty for ta purposes and can not be regarded as
an agent for the partnershp.
2. Same ad Debts.
Yeary advances, foowed n subsequent years by further ad-
vances, are not deductbe as bad debts where they are not ascer-
taned to be worthess and charged off wthn the ta abe year.
Unted States Dstbct Coubt, Southern Dstrct of New York.
Margaret . amson and Martha . amson, Indvduay and as Survvng
ecutrces of the state of Chrstna rbucke, Deceased, pantffs, v.
Wam . dwards, ormery Coector of Interna Revenue for the Second
Dstrct of Netc York, defendant.
Same v. rank Cos owers, as ecutor of the Last W and Testament of
rank . owers, Deceased, Coector of Interna Revenue, etc., defendant.
Same v. ohn Z. Lowe, r., ormery Coector of Interna Revenue, etc.,
defendant.
Margaret . amson and Martha . amson, Indvduay and as dmns-
tratrces of the state of Catherne . amson, Deceased, pantffs, v.
Wam . dcards, formery Coector of Interna Revenue for the Second
Dstrct of New York, defendant.
Same v. rank Cos owers, as ecutor of the Last W and Testament of
rank . owers, Deceased, Coector of Interna Revenue, etc., defendant.
Same v. ohn Z. Lowe, r., ormery Coector of Interna Revenue for the
Second Dstrct of New York, defendant.
pr 27, 1933.
OPINION.
Co e, D. .: These are motons by the defendants to dsmss for nsuffcency
amended compants n s suts brought by the persona representatves of
Chrstna rbucke and Catherne . amson, deceased, to recover ta refunds
for the years 1914 to 1923, ncusve. The compants are a substantay
Identca, e cept for varatons n partes, amounts, and forma aegatons
and the motons present for determnaton a snge queston, whether the
yeary osses sustaned by Chares Wams Stores, Inc., a New York corpora-
ton, from 1914 to 1923, ncusve, shoud be aowed as deductons n the per-
sona ncome ta returns of Chrstna rbucke and Catherne . amson for
the years n whch the osses were concurrenty sustaned by the corporaton.
In 1912, Chrstna rbucke, Wam . amson and Catherne . amson
became partners n the frm of rbucke ros., whch had for many years been
engaged n the coffee, sugar and whoesae grocery busness n New York,
Chcago, Pttsburgh and foregn countres. The busness was composed of a
number of dfferent departments, each mantaned and operated as a dstnct
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197
214 (a) 4, 5, 6, rt. 141.
branch or unt and there were aso varous separate au ary servces, nde-
pendenty controed, and usng dstnctve trade names dfferent from that
of the partnershp. The stated capta of the frm appearng u the partnershp
agreement was 7,000,000, but the partners had on depost an addtona
37,613,515.49, thereby gvng the frm an nta capta of 44,613,515.49.
fter the formaton of the partnershp, t was decded to estabsh a ma
order busness, n order to have a new means for utmate dstrbuton of
the partnershp products, and n ebruary, 1913, Chares Wams Stores, Inc.,
was ncorporated n New York, wt an authorzed capta of 1,000,000, con-
sstng of 10,000 shares of the par vaue of 100 each. The name gven to the
corporaton was purey fcttous, and chosen so as to wthhod from the trade
knowedge that rbucke ros, was engagng n the ma t rder busness. It
was determned aso that at the outset the busness woud be restrcted to
nes whch dd not compete wth reguar rbucke products.
The 10,000 shares of the stock of the company were orgnay ssued, 4,545
shares to Wam . amson, 2.475 shares each to Chrstna rbucke and
Catherne . amson, 5 shares to W. G. Gmore, and 500 shares to Chares .
amson and a of ths stock was fuy pad for by the partnershp and charged
on Its books to oans on coatera ca, and ater n the same year trans-
ferred to oans recevabe. The stock of the company contnued n the names
of the orgna stockhoders durng the entre perod nvoved n the present
suts.
Durng the succeedng years, the partnershp from tme to tme made sub-
stanta cash advances to the ma order company, whch were a charged on
the partnershp books to oans recevabe and for the perod endng une
23. 1923, when Catherne . amson ded, the tota of such advances amounted
to 29,670,000, aganst whch there were credts of 3,321,438.65, eavng a net
oss of 26,348,501.35. y a settement agreement, dated pr 25, 1925, ths
net oss was dstrbuted among the three partnershp nterests, the nterest of
Catherne . amson beng charged wth 13,065,001.42, and that of Chrstna
rbucke wth 12,003,009.17.
The ma order company had a arge organzaton of ts own, and was op-
erated as a dstnct and separate entty from the partnershp, wth separate
books, offces, and bank accounts, and wth separate eected offcas. It fed
edera corporaton ncome ta returns for the years 1913 to 1923, ncusve,
but pad no ta es because osses were shown n each year. It aso fed ed-
era stock ta returns and State franchse ta returns for the years n queston.
In the edera ncome ta returns of the partnershp, and the ndvdua
partners, for the years 1913 to 1923, ncusve, the operatons of the ma order
busness were omtted, and no deductons were camed or aowed for osses
sustaned by the corporaton and t Is nssted n the present suts that these
returns were erroneous, and shoud be corrected so as to refect the concurrent
yeary osses of the company.
It s frst contended by the pantffs that the corporaton was a mere depart-
ment of the rbucke partnershp, and that the corporate entty shoud be ds-
regarded for ta purposes: but I thnk ths contenton s suff- enty answered
by N on v. Lvcas (42 ed. (2d). S33 (O. C. . 2)) Panters v. opkns (288
U. S., 332 Ct. D. 492, C. . I-2, 153 ) and Daton v. mccrs (287 U. S., 404).
In the N on case, supra, t was hed squarey that a partnershp coud not
treat a whoy owned corporaton as a mere department of ts busness for ta
purposes. Indeed, the facts n that case are much stronger n support of the
pantffs poston than are the facts of the cases at bar, for n the N on case
the corporaton mantaned ony a shadow of a separate e stence, and prac-
tcay a of ts products were sod to the partnershp at prces d etated by the
partners, whereas n the cases at bar the corporate organzaton was kept sepa-
rate and apart from the partnershp, and saes were made drecty to the pubc
wthout nterference by the partners, and n such a way as not to compete wth
the products handed by the partnershp. urthermore, n the cases at bar,
there was no compete dentty of nterest between the corporaton and the
partnershp, as ony three of the fve stockhoders of the corporaton were mem-
bers of the partnershp and even the proportonate nterests of these three n
the stock of the corporaton were entrey dfferent from ther nterests n the
partnershp.
It s further argued that even f the corporate entty shoud not be dsre-
garded, st the net yeary advances made by the partnershp shoud be charged
off as bad debts at the end of the year, and aowed as deductons n the Ind-
vdua ta returns of the partners. The appcabe ta statutes a provde,
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214(a)9, rt. 201.
198
however, that ony such debts are aowabe deductons as are actuay ascer-
taned to be worthess and charged off wthn the ta abe year. (Revenue
cts of 1918 and 1921, secton 214(a)7 Revenue cts of 1916 and 1917, secton
5(a)S th Revenue ct of 1913, secton II .) The advances made to the
corporaton were nether charged off by the partnershp durng any of the
years for whch refunds are sought, nor were the amounts ascertaned to be
worthess n those years, for they were foowed n subsequent years by further
advances n very substanta amounts, ndcatng ceary that In so far as the
partnershp was concerned the amounts unpad were open as vad recevabes.
The fna contenton of the pantffs s that the corporaton was merey an
agent for the partnershp but ths contenton s not borne out by the aega-
tons of the compants for pany the corporaton was actng ony for tsef
as propretor of ts own busness, and was n no sense an agent for the partner-
shp, whch merey provded the funds to fnance the busness. The reaton
of the partnershp was merey that of a credtor, and the fact that the n-
dvdua partners were argey nstrumenta n shapng the pocy of the cor-
poraton dd not change the reaton to one of agency and make the partnershp
abe for a of the corporaton s acts.
The motons of the defendants to dsmss the amended compants n a s
suts are granted.
S CTION 214(a)7. D DUCTIONS LLOW D
INDI IDU LS: D D TS.
rtce 151: ad debts.
R NU CTS O 1913, 1016, 1917, 1918, ND 1921.
Yeary advances to corporaton. (See Ct. D. 723, page 196.)
S CTION 214 (a)8. D DUCTIONS LLOW D INDI-
IDU LS : D PR CI TION.
rtce 164: Capta sum recoverabe through deprecaton
aowances.
R NU CT O 1926 ND PIIIOR R NU CTS.
owance of deprecaton deductons for eased property where
essee s obgated to mantan same and return t or equvaent prop-
erty at termnaton of ease. (See G. C. M. 11933, page 52.)
S CTION 214(a)9. D DUCTIONS LLOW D INDI-
IDU LS : D PL TION.
rtce 201: Depeton of mnes, o and gas II-41-6443
wes deprecaton of mprovements. I.T.2722
R NU CTS O 1918 ND 1921.
I. T. 1920 (C. . III-, 188), hodng n part that
In a case where an orgna essee competey renqushes hs ease and a
thrd person enters nto a new agreement wth the fee owner to whch the
orgna essee s not n any sense of the word a party, t s not beeved that
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199
217, rt. 324
such orgna essee woud be entted to depeton f by a coatera agreement
wth the new essee he receved as consderaton for renqushng hs ease an
amount based on the o thereafter recovered
s modfed n so far as t s nconsstent wth the decson of the
Unted States Supreme Court n Pamer v. ender (287 U. S., 551,
Ct. D. G41, C. . II-1, 235).
rtce 222: owabe capta addtons n case of mnes.
R NU CT O 1020.
mendment of artce 222, Reguatons 69. (See T. D. 4370, page
117.)
S CTION 214 (a) 10. D DUCTIONS LLOW D INDI-
IDU LS: CONTRI UTIONS OR GI TS.
rtce 251: Contrbutons or gfts.
R NU CT O 1926 ND PRIOR R NU CTS.
Contrbutons to Savaton rmy and branches. (See I. T. 2747,
page 70.)
S CTION 215. IT MS NOT D DUCTI L .
rtce 291: Persona and famy e penses.
R NU CT O 1929.
Medca and hospta e penses. (See Ct. D. 754, page 200.)
S CTION 217. N T INCOM O NONR SI-
D NT LI N INDI IDU LS.
rtce 321: Rentas and royates.
R NU CTS O 1921, 1924, ND 1926.
Payments receved by author wth respect to hs terary wrtngs.
(See I. T. 2735, page 131.)
rtce 324: Sae of persona property. II-48-6537
I. T. 2737
R NU CT O 1918.
I. T. 1231 (C. . 1-1, 206) s modfed n so far as t stated that
there was a sae of rghts of sera pubcaton, n vew of I. T. 2735
(page 131, ths uetn). Under such a contract there coud not be
a sae but ony a grant of a cense.
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5218, rt. 336.
200
S CTION 218. P RTN RS IPS.
rtce 336: Dstrbutve shares of partners. II-47-6522
( so Secton 213 (a), rtce 50 Secton 215, Ct. D. 754
rtce 291.)
ncome ta revenue act of 1926 decson of court.
1. Deducton Persona penses Medca and ospta -
P NS S.
Medca and hospta e penses ncurred by an ndvdua, member
of a aw partnershp, are persona e penses wthn the meanng of
secton 215(a) 1 of the Revenue ct of 1926.
2. Income Partnershp Dstrbutve Share.
The ta payer s dstrbutve share of the profts of a partnershp
Is ta abe to hm, under the provsons of secton 218(a) of the
Revenue ct of 1928, athough he aows hs partners to retan a
part of hs share.
8. Income Sae: dvance Payment.
n advance payment receved by the ta payer n 1925 In connec-
ton wth the sae of reaty s propery ncuded n Income for 1926,
where tte was not passed nor the deed devered unt the ater
year.
4. oard of Ta ppeas ndng op act Revew of oard s
ndng auaton Opnons of perts.
fndng of fact by the oard of Ta ppeas as to far market
vaue of property s bndng upon the court uness unsupported by
evdence. In determnng such vaue the oard Is not bo.und by
the opnons of e perts.
5. Decson ffrmed.
The decson of the oard of Ta ppeas (23 . T. ., 1288)
affrmed.
6. Certorar Dened.
Petton for certorar dened on October 9, 1933.
Unted States Crcut Court of ppeas, ourth Crcut.
Lous M. ourne, pettoner, v. Commssoner of Interna Revenue, respondent.
On petton to revew the decson of the Unted States oard of Ta ppeas.
efore Northcott and Soper, Crcut udges, and Chesnut, Dstrct udge.
anuary 10, 1933.
opnon.
Northcott, Crcut udge: Ths s a petton to revew a decson of the
Unted States oard of Ta ppeas. The decson of the oard s reported n
23 . T. ., 1288, and Invoves edera ncome ta for the year 1926 In the
amount of 980.58.
The pettoner Is a awyer practcng n the State of North Carona and kept
hs persona books on the cash recepts and dsbursements bass. In the year
In queston he was n a atmore hospta for an e tended perod and
camed as a deducton from hs ncome medca and hospta e penses ncurred
durng hs ness.
Durng the year 1926, pettoner was the head of a aw frm that had a net
Income for that year of 24,023.34. Of ths amount the pettoner actuay
coected and kept 5,234.85. The partnershp agreement provded for an equa
dvson of profts but pettoner aowed hs partners to retan a part of hs
share. There s no contenton that the partners were not responsbe to pet-
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201
218, rt. 336.
toner for the remander of hs share of the profts, nor Is t contended that the
partners were not sovent.
Durng the month of November, 1925, pettoner receved the sum of 5,000
as an advance payment or earnest money n connecton wth the sae of
a tract of and. The tte to the aud was not passed upon or the deed devered
unt anuary 19, 1920, when an addtona 20,000 was pad on the purchase
prce of the and. Pettoner contends that ths payment of 5,000 shoud not
be ncuded n hs ncome or the year 1926, when the sae was cosed, but
shoud be charged n the year 1925 when receved.
It s aso contended that the oard erred n ng the vaue, as of March 1,
1913, of the tract of and sod and that the profts from the sae were thereby
paced too hgh.
Wth respect to pettoner s cam for deducton for medca and hospta
e penses due to hs ness we thnk that the decson of the oard that such
e penses were not a proper deducton s correct.
Secton 215(a) of the Revenue ct of 1926 provdes that:
(a) In computng net ncome no deducton sha n any case be aowed n
respect of
(1) Persona, vng, or famy e penses .
The e penses n queston were persona and not a proper deducton.
The aw partnershp of whch pettoner was the head coected for the year
n queston the net sum of 24,023.34 of whch the pettoner was entted to
8,007.78. Secton 218(a) of the Revenue ct of 192G provdes as foows:
(a) Indvduas carryng on busness n partnershp sha be abe for
ncome ta ony n ther ndvdua capacty. There sha be ncuded n com-
putng the net ncome of each partner hs dstrbutve share, whether dstrb-
uted or not, of the net ncome of the partnershp for the ta abe year, or, f
hs net ncome for such ta abe year s computed upon the bass of a perod
dfferent from that upon the bass of whch the net Income of the partnershp
s computed, then hs dstrbutve share of the net ncome of the partnershp for
any accountng perod of the partnershp endng wthn the ta abe year upon
the bass of whch the partner s net ncome s computed.
Ths statute has been construed by the courts and t has unformy been hed
that a partner must report hs dstrbutve share whether receved or not
urnet v. Lennger, 285 U. S., 136 arrs v. Commssoner, 39 . (2d), 546)
Ruprecht v. Commssoner, 39 P. (2d), 458 Ct. D. 212, C. . I -2, 302 are
v. Commssoner, 38 . (2d), 965 Ct. D. 246, C. . I -2, 363 Larsen v. urnet,
50 . (2d), 308.)
The partnershp agreement gave the pettoner one-thrd of the net ncome
and he s propery chargeabe wth that amount.
s to the advance payment of 5,000 made the atter part of the year 1925,
we are agan of the opnon that the concuson of the oard s correct. s was
ponted out by udge Genn, n mercan Land Investment Co. v. Comms-
soner (40 . (2d), 336), the queston of whether the payment was to be ncome
or not coud not be determned unt the sae was competed. Ths was aso
the hodng by the Supreme Court n the case of Lucas, Commssoner, v. North
Te as Luvber Co. (281 U. S., 11 Ct. D. 169, C. . I -1. 294 ), where Mr.
ustce uter sad :
n e ecutory contract of sae was created by the opton and notce, De-
cember 30. 1916. In the notce the purchaser decared tsef ready to cose
the transacton and pay the purchase prce as soon as the paperswere pre-
pared. Respondent dd not prepare the papers necessary to effect the trans-
fer or make tender of tte or possesson or demand the purchase prce n
1916. The tte and rght of possesson remaned n t unt the transacton
was cosed. Consequenty uncondtona abty of vendee for the purchase
prce was not created n that year. (Gobcr v. art, 36 Te as, 139. Cf.
Unted States v. nderson. 269 II. S.. 422, 441 T. D. 3839, C. I . -. 179)
mercan Natona Co. v. Unted States, 274 U. S., 99 T. D. 4099, C. . I-2,
193 .) The entry of the purchase prce n respondent s accounts as ncome
n that year was not warranted. Respondent was not entted to make re-
turn or have the ta computed on that bass, as ceary t dd not refect
1916 ncome.
The oard f ed the far market vaue of the and n queston (an 88-acre
tract) at 100 per acre, or 8,800 as of March 1, 1913. Ths s a fndng of
fact by the oard that s bndng upon us uness unsupported by evdence.
37408 84 14
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219, rt. 347.
202
(Phps ct a. v. Commssoner, 283 U. S., 589 Ct. D. 350, C. . -, 2041:
urnet, Commssoner, v. Lennger, 285 U. S., 136 tantc ank Trust Co.
v. Commssoner, 59 . (2d), 363 Ct D. 606, O. . t-2. 254 .)
We are of the opnon that the fndng was rght. The pettoner purchased
the and on ebruary 14, 1913, for 5,000, and whe there was evdence that
In addton to the cash pad the pettoner s account for ega servces was a
part of the purchase prce, |et those servces were f ed by the pettoner
hmsef at between one and fve thousand doars.
The oard n determnng vaue of property for ncome ta purposes s not
bound by opnon of e perts, and ths court has no power to revew such a
fndng uness unsupported by evdence. nchor Co. v. Commssoner, 42
ed. (2d), 90.)
The vaue paced on the and was n our opnon a far one.
ffrmed.
S CTION 219. ST T S ND TRUSTS.
rtce 343: Decedent s estate durng admnstraton.
R NU CT O 1926.
Prorty n payment of wdow s e empton n State of Pennsy-
vana over edera ncome ta . (See I. T. 2712, page 138.)
rtce 347: Income of trusts ta abe to II-37-6397
grantor. Ct. D. 730
INCOM T R NU CT OP 1926 D CISION O COURT.
Income Revocabe Trust Ta abe to Grantor Incompete
Gft.
Where the ta payer gave certan securtes to hs wfe, who
thereupon assgned them to the ta payer and hersef as trustees
for the beneft of ther chdren, under a trust deed revocabe at
any tme by the husband upon wrtten notce to the wfe, and the
securtes wore then deposted n a safe depost bo open to ether
trustee, there was no vad gft of the securtes and the Income
from the trust s ta abe to the husband, under the provsons of
secton 219(g) of the Revenue ct of 1926, as the rea creator of
the trust.
Unted States Crcut Court of ppeas, ourth Crcut.
Rchard N. ackson, pettoner, v. Commssoner of Interna Revenue,
respondent.
On petton to revew the decson of tbo Unted States oard of Ta ppeas.
efore Parker, Northcott, and Sor R, Crcut udges.
pr 4, 1933.
OPINION.
Soper, Crcut udge: The queston nvoved n ths proceedng Is whethe
the ta payer, n computng hs ncome ta for the year 1927, shoud have been
requred to ncude n hs gross ncome the ncome from certan securtes
covered by a deed of trust e ecuted on pr 1, 1927, by hs wfe. Thereby she
gave and assgned them to the ta payer and hersef, upon certan trusts for
the beneft of ther chdren, provdng for the payment of the ncome to tem
or for ther beneft n equa shares durng certan perods and for the utmate
devery of shares of the corpus of the estate to them or ther descendants, and
the fna termnaton of the trusts. cross remander for the beneft of each
chd was created n the event of the death of the other, eavng no ssue. It
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203
231, rt. 522.
wag aso provded that In case of the death of both chdren and ther descend-
ants before the tme f ed for the dstrbuton of the respectve shares of the
corpus, then upon the death of the ast survvor, the entre corpus shoud be
pad over free from the trust to the ta payer. It was aso provded that n
the event of the death of the wfe before the death of the ta payer, regardess
of whether there shoud then be vng chdren or descendants, the entre trust
estate shoud be pad over to the ta payer free from the trust. nay, t was
provded that the deed mght be revoked at any tme by the ta payer by
wrtten notce of hs ntenton to revoke gven to hs wfe.
The ta payer testfed n substance that e had prevousy owned the secur-
tes n queston, and that at or shorty before the tme when the deed was
e ecuted, he had gven them to hs wfe wth the understandng that she woud
smutaneousy create the trust and that he made no reservaton of ownershp
or nterest In the securtes. In order to carry the understandng nto effect,
the securtes were devered to the wfe, and by her devered to the ta payer
and hersef as trustees, and were then deposted for safe-keepng n u safe
depost bo rented for the purpose, to whch access was open to ether trustee
under the terms of the renta agreement. Ths arrangement obvousy eft the
property at east partay sub|ect to the persona contro and domnon of the
ta payer n case he shoud e ercse the power to revoke the deed. e dd
e ercse ths power and revoked the deed on September 28, 1928.
The Commssoner determned that the ncome from the trust estate was
chargeabe to the ta payer on the ground that he had not made a vad gft of
the securtes to hs wfe n the eye of the aw, and was hmsef the rea
creator of the trust and was therefore sub|ect to the provsons of secton
219(g) of the Revenue ct of 1926 (44 Stat., 9), whch provdes that whore
the grantor of a trust has, at any tme durng the ta abe year, ether aone
or n con|uncton wth any person not a benefcary of the trust, the power to
revest n hmsef tte to any part of the corpus of the trust, then the ncome
of such part of the trust for such ta abe year sha be ncuded n computng
the net ncome of the grantor. Ths determnaton was propery uphed In our
opnon by the oard of Ta ppeas. The ndspensabe condtons of a vad
gft Incude not ony the ntenton of the donor to dvest hmsef rrevocaby of
tte, domnon and contro, but aso the rrevocabe transfer of tte, domnon
and contro over the sub|ect of the gft by devery, so that the donor can
e ercse no further act of domnon or contro over t. en-West Comms-
son Co. v. Grumbes, 129 ed., 287.) The crcumstances whch we have reated
show qute ceary that the ta payer n ths case had not devered the securtes
so fuy and competey to hs wfe as to renqush a domnon and contro
over them, and the decree of the oard of Tu ppeas must therefore be
affrmed.
P RT III. CORPOR TIONS.
S CTION 231. CONDITION L ND OT R
MPTIONS O CORPOR TIONS.
rtce 517: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1026 ND PRIOR R NU CTS.
empton of Savaton rmy and branches. (See I. T. 2747,
page 70.)
rtce 522: armers or other mutua ha, cycone, casuaty,
or fre nsurance companes or assocatons.
R NU CT O 1926.
Purey mutua fre nsurance assocaton osng e empton by ssu-
ng term nsurance. (See Ct. D. 709, page 121.)
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231, rt. 523.
204
rtce 523: armers cooperatve marketng
and purchasng assocatons.
II-33-6344
Ct.D.719
INCOM ND C SS PRO ITS T R NU CT O 1921 D CISION O
COURT.
1. MPTION RM RS SSOCI TION.
corporaton engaged n the busness of buyng, pasteurzng,
and dstrbutng mk, whose stock was owned by a cooperatve
assocaton, and whch made appro matey 17 per cent of ts pur-
chases of produce from nomnembers of the assocaton and reserved
ts profts to purchase rea estate, budngs, and equpment nstead
of payng them to members of the assocaton, and dd not act as
saes agent, s not a farmers assocaton that s e empt from ta
under secton 231(11) of the Revenue ct of 1921.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (23 . T. ., 1007)
affrmed.
3. Certorar Dened.
Petton fcr wrt of certorar was dened by the Supreme Court
on March 27, 1933 (53 S. Ct., 527).
Unted States Crcut Court ok ppeas fob the Nnth Crcut.
urr Creamery Corporaton, a Corporaton, pettoner, v. Commssoner of
Interna Revenue, respondent.
Upon petton to revew the decson of the Unted States oard of Ta ppeas.
Mack, Crcut udge: The pettoner heren seeks a revew of the oard of
Ta ppeas order whch affrmed respondent s determnaton denyng e emp-
ton to pettoner from ncome and e cess proft ta es for the years 1922 and
1923, under secton 231(11) of the Revenue ct of 1921. The reevant statutory
and reguatory provsons are quoted n the margn.1
1 Skc. That the foowng organzatons sha be e empt from ta aton under ths
tte

(11) armers , frut growers , or ke assocatons, organzed and operated as saes
agents for the pu se of marketng the products of members aud turnng back to them
the proceeds of saes, ess te necessary ceng e penses, on the bass of the quantty of
produce furnshed by them or organzed and operated as purchasng agents for the pur-
pose of purchasng suppes and equpment for te use of members and turnng over suc
suppes and equpment to such members at actua cost, pus necessary e penses
Treasury Reguatons G2, as amended by Treasury Decson 3511 (C. 15. 11 2, page 201) :
rt. 522. Cooperatve assocatons. fa) Cooperatve assocatons, actng as saes
agents for farmers, frut growers, ve-stock growers, darymen, etc., or engaged n the mar-
ketng of farm products, and turnng back to the producers the proceeds uf the saes of
ther products, 1 ss the necessary operatng e penses, on the bass of the produce fur-
nshed by them, are e empt from ncome ta and sha not be requred to fe returns.
Thus cooperatve dary companes, whch are engaged n coectng mk and dsposng of
It or the products thereof and dstrbutng the proceeds, ess necessary operatng e penses,
among the producers upon the bass of the quantty of mk or of butter fat n the mk
furnshed by such producers, are e empt from the ta . If the proceeds of the busness
are dstrbuted n any other way than on such a proportonate bass, the assocaton does
not meet the requrements of the statute and s not e empt. The accumuaton and man-
tenance of a reasonabe reserve for deprecaton or possbe osses or a reserve requred by
State statute or a reasonabe snkng fund or surpus to provde for the erecton of
budngs and factes requred n busness, or for the purchase and nstaaton of
machnery and equpment, or to retre ndebtedness ncurred for such purposes w not
destroy the e empton. corporaton organzed to act as a saes agent for farmers, or
to market cooperatvey the products of the farm, and havng a capta stock on whch t
efore Wbur, Sawtee, and Mack, Crcut udges.
December 23, 1932.
OPINION.
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231, rt. 523.
The facts nre fuy stated n the oard s opnon (23 . T. ., 1007). Those
essenta to our decson may be summarzed as foows:
urr Creamery Co., of whch urr was soe stockhoder, was engaged n
the busness of buyng, pasteurzng, and dstrbutng mk. In 1919, urr
became a member of the Caforna Mk Producers ssocaton, herenafter
caed assocaton. Ta payer was organzed under the aws of Caforna to
take over a part of the assets of the urr Creamery Co. The capta stock of
ta payer conssted of 1,000 shares of 100 par vaue per share.
The purposes for whch ta payer was formed, as stated n the artces of
ncorporaton, were practcay unmted. The drectors were empowered, under
the by-aws, to decare dvdends out of surpus profts arsng from the eon-
duct of the busness. Shorty after ta payer was organzed, urr Creamery
Co. agreed wth the assocaton to se COO shares of the capta stock of
the ta payer to the assocaton for 00,001), reservng an opton to the urr
Creamery Co. to se the remanng 400 shares for 40,000. Ta payer duy
transferred the fu amount of ts authorzed capta stock of 100,000 par
vaue to the urr Creamery Co. for that part of the assets of that company
used n the dstrbuton of mk. urr Creamery Co. was egay dssoved
n 1921. rom 1920 unt 1925, urr was manager of ta payer. e receved as
compensaton a separate saary and aso a percentage of the profts of the bus-
ness based upon the amount of stock of the ta payer whch he owned. In hs
ncome ta return urr treated the ncome whch he receved from the ta payer
as dvdends receved. t December 31, 1921, ta payer had a surpus of
89,483.50 at December 31, 1922, the surpus was 116,009.21 at December 31,
1923, the surpus was .5169,082.83. These amounts were retaned n the bus-
ness of the ta payer for the purchase of addtona equpment. The remander
of the profts of ta payer, other than those pad to urr as compensaton, were
turned over to the assocaton at the end of each month. Money was aso pad
over upon demand of the assocaton whenever t was avaabe.
The busness of ta payer durng 1922 and 1923 was dstrbutng mk, cream,
and dary products to ts customers. Ta payer obtaned raw mk from asso-
caton and pasteurzed t. ssocaton charged ta payer the same amount
for mk that t charged any other creamery. ssocaton dd not produce
certfed mk, and accordngy ta payer purchased such mk, amountng to
about one-thrd of the tota of mk purchased, from persons not connected wth
assocaton. In order to meet competton, ta payer had to dea n certfed
mk, and t aso bought a comparatvey sma amount of cottage cheese and
butter from persons not connected wt assocaton. Nothng was bought from
outsders that coud be bought from members of the assocaton. No refunds
were made to those persons not connected wth assocaton.
Ta payer handed appro matey one-thrd of the mk and cream of the asso-
caton n 1922 and 1923. ssocaton requred the ta payer to take a the mk
whch coud not be sod to other creameres. t tmes ths surpus mk was
churned and the buttermk sod to |obbers. Due to the fact that ta payer was
pays a dvdend not e ceedng the ega rate of Interest n the State n whch It Is ncor-
porated and In whch substantay a of the outstandng capta stock s owned by
actua producers, w not for such reasons be dened e empton, but any ownershp of
stock by others than actua producers who market ther products through the assocaton
must be satsfactory e paned n th appcaton for e empton. In every such case
the assocaton w be requred to show that the ownershp of ts capta stock has been
restrcted as far as possbe to actua producers, and that the assocaton has not voun-
tary sod or ssued any stock to nonproducers. Thus, If by statutory requrement a
offcers of an assocaton must be stockhoders, the ownershp of a share of stock by a nou-
producer to quafy hm as an offcer w not destroy the assocaton s e empton. Lke-
wse, If a stockhoder for any reason ceases to be a producer and the assocaton s unabe,
because of a consttutona nhbton or other reason beyond the contro of the assoca-
ton, to purchase or retre the stock of such nonproducer, the fact that, under such cr-
cumstances, a sma amount of the outstandng capta stock s owned by stockhoders
who arc no onger producers w not destroy the e empton.
(b) Cooperatve assocatons organzed and operated as purchasng agents for farmers,
frut growers, ve-stock growers, darymen, etc.. for the purpose of buyng suppes and
equpment for ther use and turnng over such suppes and equpment to them at actua
cost, pus necessary operatng e penses, are aso e empt. The provsons of paragraph
(a) reatng to a reserve, snkng fund, or surpus and to capta stock sha appy to
assocatons comng under ths paragraph.
In order to be e empt under ether (a) or (b) an assocaton must estabsh that It
has no net ncome for Its own account, other than that refected n a reserve, snkng
fund, or surpus specfcay authorzed n paragraph (a). n assocaton actng both
as a saes and a purchasng agent Is e empt f as to each of Its functons It meets the
requrements of the statute.
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231. rt. 523.
206
requred to take ths surpus mk ts profts were sometmes reduced, and dur-
ng the ast s months of 1922, ta payer operated at a oss. In 1922 and 1923,
ta payer bought appro matey 83 per cent of ts mk from assocaton.
In 1921, the board of drectors of ta payer passed a resouton that the profts
of ta payer, f needed, were to be used for the purchase of rea estate, budng,
and creamery equpment necessary for conductng the busness, and that after
the rea estate and budngs and creamery equpment were pad for, urr was
authorzed to draw out hs percentage of the profts earned by the ta payer.
Whe on the record before us we shoud have dffcuty n fndng that ta -
payer was a whoy owned subsdary of assocaton, nevertheess, for the pur-
poses of ths case, we sha proceed, as dd the oard of Ta ppeas, on the
assumpton that assocaton had acqured, pror to 1922, the entre capta
stock. We aso accept the stpuaton of the partes that assocaton s ta
e empt wthn the provsons heren nvoved. Ta payer contends that on these
assumptons aone, t, too, s entted to ke e empton.
Ceary the anguage of the statute affords no bass for thus dsregardng
ta payer s separate corporate e stence and actvtes. True t s that courts
w at tmes perce through the she of separate corporate dentty, and, to
prevent or to defeat fraud, w treat the two bodes as a snge entty. To a
mted e tent too, and for defnte purposes, the Revenue cts treat affated
corporatons as a ta unt even though one be not a fuy owned subsdary of
the other, e pressy permttng or requrng consodated returns. ut the
fact here urged that utmatey the members of the ta -e empt assocaton,
because of ts ownershp of ta payer s stock, must be the benefcares of ta -
payer s net ncome, does not, n the ght of eementary prncpes of statutory
constructon (Rverdae Co-op. Creamery ss n v. Commssoner, 48 . (2d),
711), |ustfy nn e tenson to ta payer of the ta -e empton rghts e pressy
conferred ony upon assocaton. (See urnet v. Commonweath Improvement
Co., Unted States Supreme Court, December 12, 1932 (Unted States Day
Suppement Inde , page 74) Ct. D. G22, C. . II-1, 277 .) Whe member-
shp n assocaton enabed each member ndrecty to share n whatever profts
ta payer mght earn, t n no sense made them members of ta payer ta payer
was not a membershp assocaton but an ordnary corporaton for proft, wth
capta represented by shares of stock.
Under the statute, an assocaton, to be entted to e empton, must not ony
be organzed but actuay operated n the manner and for the purposes specfed.
It may be conceded that the broad charter powers present no obstace. ( rut
Growers Suppy Co. v. Commssoner, 56 . (2d), 90.) If we shoud assume
that assocaton s members coud ndrecty be deemed members of ta payer,
nevertheess, on ths record, we can not fnd that the oard of Ta ppeas
erred n hodng that under the rut Growers Suppy Co. case, ta payer dd
not so operate as to become ta e empt.
Whe the oard found that n addton to buyng some cheese and butter
from outsders, ta payer, to meet competton for the trade of certan customers,
had to dea In certfed mk, and that nothng was bought from outsders whch
coud be bought from members, we can not nterpret ths fndng as meanng
that these actvtes wth outsders, however advantageous n order to enabe
It to meet competton n the sae of members products, were absoutey neces-
sary rather than commercay desrabe. Ta payer coud we have confned
Itsef to the marketng of members products, even though wth smaer proft.
No showng, however, was made that woud have enabed the oard to deter-
mne the profts derved from each of these actvtes.
Dd the ta payer, eveu as to the members produce, operate as a saes agent
In the manner and for the purpose specfed n the reguatons The proceeds
of saes ess necessary seng e penses, were not turned back to members on
the bass of quantty of produce furnshed by them. On the contrary, by resou-
ton adopted n 1921, profts were to be reserved unt further notce, for pur-
chase of rea estate, budngs and equpment. arge surpus was yeary
accumuated. There was no showng as to what shoud be deemed by the
oard to be a reasonabe reserve for these and other permssbe purposes
wthn the reguatve requrements. (Rverdae Co-op. Creamery ss n v.
Commssoner, supra. See, too, South Carona Produce ss n v. Commssoner,
50 . (2d), 742 Producers Creamery Co. v. Unted States, 55 . (2d), 104
Ct. D. 5 , C. . I-1, 223 .) Nor was there any evdence ether as to the
proceeds of saes or as to necessary seng e penses.
Order affrmed.
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207 234, rt. 561.
rtce 523: armers cooperatve marketng and purchasng
assocatons.
R NU CTS O 1921. 1924, ND OG.
Suppes and equpment, defned. (See I. T. 2748, page 72.)
S CTION 233. GROSS INCOM O CORPOR TIONS
D IN D.
rtce 548: Gross ncome of corporaton n qudaton.
R NU CT O 1926.
Proft on sae by qudatng agent. (See Ct. D. 707, page 234.)
S CTION 234. D DUCTIONS LLOW D
CORPOR TIONS.
rtce 561: owabe deductons. TI-38-6409
Ct, D. 733
INCOM T R NU CT O 1926 D CISION O COURT.
1. Deducton Ta es onus.
onus payments made by pettoner In 1926 and. 1927 to the
secretary of the Commonweath of Pennsyvana, pursuant to the
aw of that State, on account of ncreases n ts capta stock n
those years, were n consderaton for the grant of the prvege or
franchse of carryng on busness wthn the State, and were not
deductbe from gross ncome as ta es pad or accrued wthn the
ta abe year wthn the meanng of secton 234(a)3 of the Reve-
nue ct of 1926.
2. Decson ffrmed.
The decson of the oard of T: ppeas (25 . T. ., 1382)
affrmed.
Unted States Crcut Court op ppeas for the Thrd Crcut.
No. 5022. The Unted Gas Improvement Co., pettoner, v. Commssoner of
Interna Revenue, respondent.
No. 5023. The Unted Gas Improvement Co., pettoner, v. Commssoner of
Interna Revenue, respondent.
Upon petton for revew from the Unted States oard of Ta ppeas.
efore Davts and Thompson, Crcut udges.
pr 13, 1933.
OPINION.
Thompson, Crcut udge: These are pettons for revew of two decsons
of the oard of Ta ppeas determnng defcences In the ncome ta es of the
pettoner for the years 1926 and 1927. The pettoner s a corporaton or-
ganzed under the aws of Pennsyvana. Durng the year 1926 t ncreased ts
capta stock and, on account of ths Increase, made a payment to the secretary
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234, rt. 561.
208
of the commonweath of the State of Pennsyvana, as requred by the Pennsy-
vana act of May 3, 1899 (P. L. 189, secton 1). In 1 )27 the pettoner n-
creased ts capta stcck ou nne dfferent occasons and, upon each such n-
crease, made a bonus payment to the secretary of the Commonweath. The
payments pror to pr 20. 1927. were made as requred by the above cted act,
tnd those thereafter as requred by the act of pr 20, 1927 (P. L. 322). In
computng ts net ncome for the years 1926 and 1927, the pettoner deducted
the amounts (bus pad from ts gross ncome upon the ground that the payment
desgnated a bonus In the act, s n fact and aw a ta . The Commssoner
of Interna Revenue dsaowed the deducton. The oard of Ta ppeas ap-
proved the acton of the Commssoner. The cases were consodated for
hearng before the oard of Ta ppeas and by stpuaton of counse were
consodated for argument before ths court.
Payments so made by corporatons to the secretary of the Commonweath are
transmtted by hm to the treasury department, paced n the genera fund, an
accounted for by the State treasurer under the subtte Corporaton ta es.
The saary of the Governor, those of hs cabnet offcers, the members of the
egsature, the |udges, the State poce, as we as other current e penses of
the State government, are approprated from ths genera fund.
The pettoner contends that a bonus, pad nto the treasury and used for the
mantenance of agences of the State government, s a ta and, as such, s de-
ductbe wthn the meanng of secton 234(a)3 of the Revenue ct of 1926
whch prov. dcs :
In computng the net ncome of a corporaton sub|ect to the ta mposed
by secton 2, 0 there sha be aowed as deductons:

Ta es pad or accrued wthn the ta abe year .
We do not thnk ths contenton tenabe. The character of the payments s
not determned by the uses to whch the pad-n funds nre approprated.
bonus s a consderaton pad to the State for the gant of the prvege or fran-
chse of carryng on corporate busness wthn the State. ta , on the con-
trary, s not a consderaton for the grant of a prvege or franchse. It has
been defned as a charge or burden ad upon ersons or property for pubc
purposes a forced contrbuton authortatvey mposed. (Tcvander v. Ruyg-
dac, 299 ed., 746, 753.) The vew that a bonus s not a ta s sustaned by
the Pennsyvana decsons. In Commonweath v. re f Western Transporta-
ton Co. (107 Pa., 118). the supreme court affrmed the ower court upon that
court s opnon. In dscussng the dstncton between a bonus and a ta , t
was there sad:
t|,c |(|e 0f a consderaton Is aways present when we speak of
a bonus. ouver defnes t thus: premum pad to a grantor or vendor,
as the bank pad a bonus to the State for ts charter. consderaton gven
for what s receved. So n Raroad Company v. Manand (21 Wa., 456),
the dstncton between a ta and a bonus s ceary drawn, and the stpuaton
contaned n the charter of the atmore Oho Raroad Co., requrng
It to pay to the State of Maryand one-ffth of the whoe amount receved
by t for the transportaton of passengers, s decared on page 473, to be nothng
more or ess than a bonus, such as a State as a rght to e act for the
grant of a franchse, and on the facts of that case the aw mposng t was hed
vad, because t was a bonus and not a ta . (Commonweath v. re West-
ern Transportaton Co., 107 Pa., 112, 115.)
See aso Commonceath v. Danve essemer Co. (207 Pa., 302), decded
upon authorty of Commonweath v. rc Western Transportaton Co., supra.
Ths court has had occason to dfferentate between a bonus and a ta . In
In re York Sk Mfg. Co. (192 ed., SI), an nsovent corporaton ncreased ts
capta stock before ad|udcaton n bankruptcy. The Commonweath of Penn-
syvana fed a cam as a preferred credtor of the bankrupt for the unpad
bonus. It contended that the bonus thus due was a ta and therefore const-
tuted a preferred cam. The referee refused to consder the unpad bonus as
a preferred cam, upon the ground that t was not a ta but was a consderaton
payabe to the Commonweath for a beneft conferred. The dstrct court
sustaned the rung of the referee and ts decson was affrmed by ths court.
We are of the opnon that the oard of Ta ppeas rghty hed that the
bonus payments were not deductbe as ta es. The decsons are affrmed.
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209
234, rt. 561.
rtce 561: owabe deductons. II-45-6494
( so Secton 1113, rtce 1351.) Ct. D. 751
INCOM ND PRO ITS T R NU CTS O 1918. 1921, 1928, ND 1928
D CISION O COURT.
1. ssessment and Coecton Cam for batement Statute
of Lmtatons.
Where a cam was fed In 1919 for the abatement of 1918 ta ,
assessed In 1919, and coecton was stayed, secton 611 of the
Revenue ct of 1928 prevents the recovery, as an overpayment, of
the ta coected n 1925 after the statutory perod for coecton
had e pred.
2. Sut Cam foe Refund Suffcency.
Cams for refund requestng aowance for amortzaton upon
a power pant constructed durng and subsequent to the war, and
n whch the percentage of vaue n use as prevousy f ed by the
Commssoner was not protested, are nsuffcent as a bass for a
sut to secure an ncreased amortzaton aowance based upon a
esser post-war vaue n use, n vew of the provsons of secton
1113 of the Revenue ct of 1926, whch requres that the precse
ground upon whch recovery s sought sha be frst presented to
the Commssoner n a cam for refund.
3. Deducton mortzaton - aue n Use: Reasonabe ow-
ance.
Where pantff constructed a new power pant durng and sub-
sequent to the war, and the evdence showed that a the new
boers were used at dfferent tmes, athough the pant mght have
been operated wth ess, the Commssoner s determnaton of a
72 per cent vaue n use was reasonabe.
4. Same Computaton actes Contnued n Use n Post-
war Perod.
Where property sub|ect to amortzaton has not been sod or
abandoned, but s contnued n use n the post-war perod, a proper
and reasonabe aowance for amortzaton s the dfference be-
tween the orgna cost of the property and ts post-war resdua
vaue, where such vaue n use s ess than the repacement cost,
n accordance wth secton 234(a)8 of the Revenue cts of 1918
and 1921 and artce 184 of Reguatons 45 and 62. The aowance
can not be based upon both post-war vaue n use and post-war re-
pacement cost
5. Same pportonment.
Where a contract for a power pant was made In 1918, but the
costs of constructon were e pended durng 1918, 1919, and 1920,
the amortzaton aowance was propery apportoned over those
years, n accordance wth pror practce and artce 185 of Regu-
atons 62.
Dstrct Court of tub Unted States for the Western Dstrct of
. Pennsyvana.
Mc eesport Tn Pate Co., a Corporaton Organzed Under and stng by
rtue of the Laws of the State of Pennsyvana, and a Resdent of the
Western Dstrct of Pennsyvana, pantff, v. D. . ener, Coector of In-
terna Revenue for the Twenty-thrd Dstrct of the Unted States n the Com-
monweath of Pennsyvana, defendant.
Mc eesport Tn Pate Co., a Corporaton Organzed Under and stng by
rtue of the Laws of the State of Pennsyvana, and a Resdent of the West-
ern Dstrct of Pennsyvana, pantff, v. The Unted States of merca,
defendant.
uy 3, 1933.
OPINION.
bove suts present practcay the same questons, and reate to pantffs
ta es for the year 1918. The ony ssue not common to each sut s the cam
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234. rt. 561.
210
aganst the coector for 30,890.01, coected after the e praton of the statute
of mtatons.
s to the cam based upon the statute of mtatons, t s pan to us that
secton 611 of the Revenue ct of 1928 prevents recovery by the pantff. The
ta was assessed n 1919, a cam for abatement was fed ate n the same year,
and coecton of the ta was stayed by the coector. The ta was not co-
ected unt 1925, after the perod of coecton had e pred, but the cam for
abatement brought the matter wthn the scope of secton 611 of the ct of 1928,
and prevents the return of the amount coected to pantff as an overpayment.
(See Graham and oster v. Goodce, 282 U. S., 410 Ct. D. 287, C. . -, 191 .)
The man ssues reate to the amortzaton of war factes. In 1918 te
pantff s pant conssted of 44 hot ms, and was then the argest tn-pate
pant n the word. Twenty-two of ts ms had been but n 1915 and 1916 to
meet the growng demands for pantff s products. Pantff s steam power
pant, but n 1902, was obsoescent n 1917 and nterfered wth a proper pro-
ducton, and ate n that year t was resoved to construct a new steam power
pant upon another ste. The new boers were desgned to have suffcent
capacty to operate 20 addtona hot ms. Land was purchased besde the
rver at a cost of over 200,000, retanng was constructed and a boer house
wth 12 boers was but. The orgna pan was to have 16 boers, but before
the competon of the constructon the war had ended, and the 26 hot ms,
and the 4 addtona boers ntended for ther operaton, were not but.
The aowance camed by pantff as a deducton for amortzaton s founded
upon the constructon of ts boer house. n e amnaton of the records of
the Commssoner of Interna Revenue reatng to the matter dscoses the fact
that pantff, from tme to tme, has vared ts amortzaton cam. In ts two
returns fed n 1919, t camed an aowance of 714,119.18. In a return fed
March 15, 1920, t camed an aowance for that year of 97,001.94, makng the
tota deducton camed for the two years 811,121.12. These cams were based
upon a cost of 2,501,121.12. The proper cost, t s now agreed (f the cost of
the and and wa be ncuded), s 2,470,222.58. On October 13, 1923, pantff
fed a cam for a tota amortzaton aowance of 1,134,865.33, of whch 683,-
282.40 was camed for 1918. In ths cam the percentage of vaue n use,
theretofore f ed by the Commssoner at 72 per cent, was not mentoned, the
72 per cent fndng beng accepted. On March 14, 1925, pantff fed a cam
for refund, n whch no change was made n the amount of amortzaton camed
n the mmedatey precedng cam, but n whch the entre amount was camed
as a credt to the 1918 ta es.
Pantff s orgna peadngs n the nstant suts are based upon the cam
of an amortzaton aowance of 1,134,805.33, whch, as stated, accepted the
Commssoner s fndng of 72y2 per cent as the vaue n use. Upon tra, how-
ever, t offered proof whch (t contended) showed the vaue n use to be
735,014.33. Ths amount was reached by a re|ecton of the Commssoner s
72 per cent vaue n use, and the adopton of a 7/12 vaue, and the use of an
average of the estmates of engneers as to the cost of a steam-boer pant
whch woud have met the needs of the pantff n the post-war perod. Per-
msson was gven pantff to amend ts cam to brng t nto agreement wth
ts proof, but no forma order aowng a specfc amendment has been
submtted.
fter the Commssoner stated hs determnaton that pantff s boer house
had a vaue n use of 72 per cent, no protest n respect to that fndng was
made by the pantff, but hs determnaton was accepted n subsequent cams.
Under such crcumstances there s consderabe force n the contenton of the
defendant s counse that the pantff s estopped by statute and reguatons from
now attemptng to set up a dfferent vaue n use. The statute (secton 1113
of the Revenue ct of 1920), and the reguatons estabshed by ts authorty,
requre a cam for refund upon the Commssoner wheren a facts reed
upon n support of the cam shoud be ceary set forth under oath. Whe the
pantff dd protest aganst the orgna fndng of the Commssoner of the
vaue n use of the boer house, ts protest had, n part, been sustaned. t
no tme was any cam made to the Commssoner that the vaue n use was as
sma as ndcated n testmony offered by pantff, and he had no opportunty
to rue upon a cam to that effect. No such opportunty havng been gven hm.
the sut must fa n so far as t s based upon that cam. (Unted States v.
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211
234, rt. 561.
et f Tarrant Mfg. Co., 283 U. S., 269 Ct. D. 336, C. . -, 431 .) The
necessty of fng a cam s not dspensed wth because the cam w In a
probabty be re|ected. (Roek Inand R. R. Co. v. Unted States. 254 U. S., 141
Ct. D. 2, C. . 4, 342 .)
The Immedatey foregong coum|nt, n respect to the cam of the defendant
that pantff was prevented from now assertng a ess vaue n use than that
determned by the Commssoner, s perhaps unnecessary n vew of the fact that
the evdence has faed to satsfy us that the Commssoner was n error n
f ng the vaue n use at 72 2 per cent. The testmony showed that a the new
boers of the pantff were n use at dfferent tmes, but that the pant mght
have been operated wth s n actve operaton. It s qute pan that at east
two spares were desrabe, f not entrey necessary. Part of the tme, n the
post-war perod, eght boers were used, and eght were used at the tme of
tra, when pantff was operatng the same number of ms as n the post-war
perod. In any event, n the repacement of a manufacturng pant, good
engneerng woud dctate proper provson for a reasonabe ncrease n the
output n the future. Under a the testmony t woud seem that the Comms-
soner s determnaton of the vaue n use was based upon sound reasonng. It
w be remembered that some of the 12 boers were nstaed subsequent to the
cose of the war.
The ne t matter for comment s seemngy compcated by the fact that the
pantff s testmony as to repacement cost was based upon the theory that the
vaue n use of pantff s boer house was 58 per cent, not 11k per cent,
and we therefore have no defnte testmony of the repacement cost n the post-
war perod of a pant whch had a 72 per cent vaue n use. The dearth of
such testmony s mmatera, however, n vew of our concuson that pantff
s not entted to an amortzaton aowance based upon vaue n use and to an
addtona aowance based upon repacement cost n the post-war perod.
Congress, by artce 234(a)8, of the Revenue cts of 1918 and 1921, con-
ferred wde powers upon the Commssoner of Interna Revenue n respect to the
amortzaton of war factes. Pursuant to those powers, among others, the
Commssoner has, wth proper approva, estabshed artce 184. Reguatons 62
(artce 184 of Reguatons 45 beng substantay the same). That artce, as
t reates to the present cams, provdes that the amortzaton aowance s the
dfference between the orgna cost of the property and the vaue of the property
on the bass Indcated by ts subsecton (2), whch s as foows:
(2) In the case of property not ncuded n (1) above, the vaue sha be
the estmated vaue to the ta payer n terms of ts actua use or empoyment
n hs gong busness, such vaue to be not ess than the sae or savage vaue of
the property and not greater than the estmated cost of repacement under nor-
ma post-war condtons ess deprecaton and depeton.
The subsecton (1), referred to n the subsecton (2) quoted, reates to
property whch has been sod by the ta payer or entrey dscarded by hm.
The ta payer, n the nstant case, s endeavorng to appy both subsectons to
ts advantage. though st usng the facty, and ntendng to contnue the
use, t seeks to have the court treat the matter as though the boer house had
been dscarded n part. s stated, Congress has gven the Commssoner great
power n the matter of amortzaton, and snce orgnay conferrng that power,
has taken no acton to curb or confne t. or 10 years the reguatons of the
Commssoner have been estabshed, and for that perod hs nterpretatons of
them have been known. Durng that perod he has apped the reguatons n
the same manner as In the amortzaton aowance to the pantff. Ths app-
caton of the aw has been accepted and foowed by the oard of Ta ppeas
and by varous courts, durng the e stence of the reguatons, as beng a cor-
rect observance of the statute provdng for amortzaton. Under such cr-
cumstances, t s not for ths court to undertake to estabsh a new reguaton,
or to nterpret the e stng reguaton n another way than that n whch t
has been construed by ts author, and as unversay accepted.
y secton 184 of both Reguatons 45 and 62, the Commssoner of Interna
Revenue reasonaby e ercsed the power conferred upon hm by statute and
by such sectons t s provded that the aowance for amortzaton, where the
property has not been sod or abandoned, sha be the amount of the dfference
between the actua cost of the property and the post-war resdua vaue, where
(as here) such vaue s ess than the repacement cost.
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236, rt. 591.
212
Pantff 1ms aso contended that the amortzaton aowance, whatever t
may be, shoud have been credted to ncome for 1918, nstead of beng spread
over the years 1018, 191 ), and 1920. The cam s based upon the fact that
the contract for the boer pant had been made n 1918. The costs therefor,
however, were not e pended n 1918, but n the years over whch the aowance
was spread. The spread was n accordance wth pror practce and foowed
artce 1S5, Reguatons 02, whch provdes:
The amortzaton aowance sha he apportoned and (b) In
cases where the property was not competed n tme for use n the producton
of artces contrbutng to the prosecuton of the war, on the bass of the
e pendtures made on account of whch amortzaton s aowed.
s was artce 184, so artce 185 has been estabshed by the Commssoner
pursuant to genera powers conferred upon hm, and what has been sad n
respect to artce 184 s equay appcabe to artce 185. We see no error
n the apportonment of the amortzaton aowance to the ncomes for the
three years n whch the cost of the property was e pended.
udgment w bo entered for the defendant n each case.
rtce 5GC: Ta on bank or other stock. II-29-6293
I. T. 2702
R NU CT O 1021.
I. T. 1407 (C. . 1-2, 193), whch hods n part that amounts
advanced by a corporaton to ts sharehoders to pay ta es assessed
aganst the sharehoders, because of the ownershp of the shares, are
not deductbe n computng the net ncome of the corporaton, s, n
vew of the Commssoner s acquescence n the decson of the oard
of Ta ppeas n Wayne Cmmty ome Savngs ank v. Com-
mssoner (26 . T. ., 761 page 14, ths uetn , revoked n so far
as t s nconsstent wth that decson.
S CTION 23G. CR DITS LLOW D CORPOR TIONS.
rtce 591: Credts aowed. II-46-6509
Ct. D. 750
INCOM T R NU CT O 1818 D CISION O COURT.
1. Net Income Deducton owed by Merchant Marne ct.
The ta abe net ncome for the year 1920 of a steamshp com-
pany entted to the benefts of secton 23 of the Merchant Marne
ct s correcty determned n accordance wth sectons 230, 238,
and 301(b) of the Revenue ct of 1918 and secton 23 of the Mer-
chant Marne ct by aowng as a credt the amount of war-
profts and e cess-profts ta es computed by deductng, wth other
Items, from ts tota net ncome an amount equvaent to the net
earnngs of vesses engaged n f regn trade, as aowed by the
Merchant Marne ct, rather than the amount of such ta es
whch woud have been payabe had there been no such deducton.
The Revenue ct of 1918 and the Merchant Marne ct, enacted n
1920, must be read together, the former mposng a ta ony upon
net ncome, whch coud not be propery computed wthout takng
the deducton whch the Merchant Marne ct provded n the case
of companes compyng wth ts provsons.
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236, rt. 591|
2. Decson ffrmed.
The decson of the dstrct court. (58 ed. (2d), 792, Ct. D. 539,
C. . I-2, 402) affrmed.
Unted States Crcut Court of ppeas for the rst Crcut.
Pau . ertesen, Recever, pantff, appeant, v. Thomas W. Whte, Coector
of Interna Revenue, defendant, appeee.
ppea from the Dstrct Court of the Unted States for the Dstrct of Massachusetts.
efore ngham, Wson, and Morton, .
une 15, 1933.
OPINION.
ngham, .: Ths s an acton brought by ertesen, recever of the Crowe
Thurow Steamshp Co., aganst Thomas W. Whte, as coector of nterna
revenue, to recover an aeged overpayment of 50,000 n ta es for the year
1920. In hs answer the coector peaded a genera dena that he was not the
proper party defendant and a former |udgment of dsmssa n the Court of
Cams as a bar to the acton. The dstrct court dd not pass upon the ssue
rased by the genera dena or whether the ta coector was the proper party
defendant, but hed that the sut was barred by the |udgment of the Court of
Cams and by estoppe n pas.
The acton n the Court of Cams was brought uy 7, 1926, by the recever
aganst the Unted States, and nvoved, among other ssues, the egaty of the
ta for 1920 aganst the Steamshp company, the partes here beng n effect
the same as there.
In the Court of Cams the recever sought to recover from the Unted States
155,906.71, a porton of an overpayment admtted by the Government for the
year 1918, but whch the Commssoner of Interna Revenue had apped n
payment of ta es for other years, to wt, 37,875.07 for 1917, 68,279 for 1919,
and 49,752.39 for 1920, a of whch appcatons the recever aeged were
wrongfuy and egay made, as the ncome and profts ta es for those years
were erroneousy camed by the Commssoner to be due.
Durng the pendency of the proceedngs n the Court of Cams the recever
offered a settement wth reference to a these tems, e cept the appcaton
made for the payment of the ta for 1917, and ater a dsmssa order was
entered n the Court of Cams on a moton n whch the recever asked the
court to dsmss the petton fed uy 7, 1926, n sad cause, wthout pre|u-
dce, however, to the asserton by the camant, by sut or otherwse, of ts
cam to receve the sum wthhed and apped to the aeged underpayment by
the camant of the ta for the year 1917, for the reasons, as he shows, that,
snce the fng of sad petton a other matters have been satsfactory
ad|usted between the camant and the Unted States.
The dstrct court aso found that the Commssoner of Interna Revenue had
acted upon the above offer of settement by assessng the ta es for 1919 and
1920 n accordance therewth and the pantff was for that reason aso estopped
from mantanng ths sut.
rom ths |udgment of the dstrct court the appea s prosecuted.
If we assume n the pantff s favor that he was not precuded from man-
tanng ths sut ether on the ground of res |udcata or estoppe n pas, and
that he coud mantan the same aganst the coector as the proper party de-
fendant, we regard the |udgment of the dstrct court as correct when the case
s consdered on ts merts.
The merts of the controversy between the partes turn upon the method em-
poyed by the Commssoner n assessng the norma ncome ta of the Steam-
shp company for the year 1920. In assessng that ta the war-profts and
e cess-profts ta had frst to be computed. The genera method of arrvng at
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236, rt. 591.
214
the war-profts and e cess-profts ta Is set out n Tte III, secton 301(b) of
the Revenue ct of 1918 (40 Stat., 10S8), whch provdes:
Sec. 301. (b) or the ta abe year 1919 and each ta abe year thereafter
there sha be eved, coected, and pad upon the net ncome of every corpora-
ton (e cept corporatons ta abe under subdvson (c) of ths secton) a ta
equa to the sum of the foowng:
IRST R C T.
20 per centum of the amount of the net ncome n e cess of the e cess-
profts credt (determned under secton 312) and not n e cess of 20 per
centum of the nvested capta
S COND R C T.
40 per centum of the amount of the net ncome n e cess of 20 per centum
of the nvested capta.
Secton 312 reads:
Sec 312. That the e cess-profts credt sha consst of a specfc e empton
of 3,000 pus nn amount equa to 8 per centum of the nvested capta for the
ta abe year.
une 5, 1920, Congress passed the Merchant Marne ct (41 Stat., 98S), secton
23 (page 997) of whch reads as foows:
Sec. 23. That the owner of a vesse documented under the aws of the
Unted States and operated n foregn trade sha, for each of the 10 ta abe
years whe so operated, begnnng wth the frst ta abe year endng after the
enactment of ths ct be aowed as a deducton for the purpose of ascertanng
hs net Income sub|ect to the war-profts and e cess-profts ta es mposed by
Tte III of the Revenue ct of 1918 an amount equvaent to the net earnngs
of suc vesse durng such ta abe year, determned n accordance wth rues
and reguatons to be made by the (shppng) board: Provded, That such
owner sha not be entted to such deducton uness durng such ta abe year
he nvested, or set asde under rues and reguatons to be made by the
board n a trust fund for nvestment, n the budng n shpyards n the Unted
States of new vesses of a type and knd approved by the board, an amount,
to be determned by the Secretary of the Treasury and certfed by hm to the
board, equvaent to the war-profts and e cess-profts ta es that woud have
been payabe by such owner on account of the net earnngs of such vesses but
for the deducton aowed under the provsons of ths secton .
The Crowe Thurow Steamshp Co., havng shown tsef entted to the
benefts of ths secton by havng but two new vesses, the Commssoner of
Interna Revenue, on October 21, 1920, assessed the e cess-profts ta under
secton 301(b) of the Revenue ct of 1918, but, nstead of takng the tota
net ncome of the company as the bass of computaton, he ascertaned the net
ncome sub|ect to the war-profts and e cess-profts ta by deductng from the
tota net ncome an amount equvaent to the net earnngs of the company s
vesses engaged n foregn trade, as authorzed by secton 23 of the Merchant
Marne ct.
The net earnngs from foregn trade were 1,392,165.51, whch, deducted from
the tota net ncome of 1,713,755.57, eft 321,590.00 as the net ncome sub|ect
to the war-profts and e cess-profts ta . On ths bass the war-profts and
e cess-profts ta mposed by Tte III, secton 301(b) was found to be 9,69S.45.
Ths amount Is accepted by the pantff as correct.
The secton reatng to nn assessment of the company s norma Income ta
s secton 230 of the Revenue ct of 1918. It provdes that upon the net Income
of every corporaton there sha be eved, coected and pad for each caendar
year after 1918 10 per centum of the net ncome n e cess of the credts provded
n secton 236, and among the credts there provded Is the amount of any
ta es mposed by Tte III (war-profts and e cess-profts ta ) for the same
ta abe year.
In assessng the Income ta of the company for 1920 the Commssoner, n
accordance wth hs constructon of sectons 230, 236 and 301(b) of the Revenue
ct of 1918 and secton 23 of the Merchant Marne ct, deducted wth other
tems from the tota net ncome of the company, as a credt, the 9,698.45
whch had been mposed as a war-profts and e cess-profts ta for the year
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215
236, rt. 591.
1920. The foowng tabuaton shows how the Commssoner arrved at the
tota ta whch was fnay assessed for 1920:
Tota e cess-profts and war-profts ta 9, 698. 45
Net Income 1,713,755.57
:
Interest on Unted States obgatons
not e empt 20,085.05
Profts ta 9,698.45
empton 2, 000.00
31, 783. 50
aance ta abe at 10 per cent 1, 681, 972. 07
mount of ta at 10 per cent 168,197. 21
Tota ta assessabe 177, 895.66
The war-profts and e cess-profts ta that woud have been assessed aganst
the pantff but for secton 23 amounts to 495,833.77 and the pantff cams
the assessment of the company s norma ncome ta shoud have been as foows,
or 48,613.54 ess than as assessed by the Commssoner:
Tota war-profts and e cess-profts ta 9, 698. 45
Net ncome 1,713,755.57
Less:
Interest on Unted States obgatons
not e empt 20,085.06
Profts ta 495, 833. 77
empton 2, 000.00 519,918.82
aance ta abe at 10 per cent 1,195, 836. 75
mount of ta at 10 per cent 119, 583.67
Tota ta assessabe 129,272.13
Ths dfference of 48,613.54, wth nterest, the pantff here seeks to recover.
s we understand t the pantff cams that secton 23 n no way modfes
or affects Tte III of the Revenue ct of 1918 reatng to war-profts and e cess-
profts ta es that as to a shpowner takng advantage of ts provsons, as we
as to others, war-profts and e cess-profts ta es are mposed by Tte III on the
tota net ncome, but f he compes wth secton 23 and the rues and regua-
tons of the Shppng oard, he s reeved from payng to the Government such
part of those ta es as are due to the net earnngs of a vesse or vesses engaged
n foregn trade and that, n ths case, as the amount of war-profts and e cess-
profts ta thus mposed woud be 496,833.77, that s the amount that, by sec-
tons 230 and 236 of the Revenue ct, shoud be deducted as a credt from the
net ncome of the company n ascertanng ts norma ncome ta .
The pan wordng of secton 23, however, warrants no such theory. Tte III,
secton 301(b) provdes that there sha be eved, coected and pad upon the
net ncome of every corporaton a ta equa to the sum of the foow-
ng, etc. Ths apped at the tme of the passage of the Revenue ct of 1918
and st appes to every corporaton, be t a manufacturer or shpowner. fter
the enactment of the Merchant Marne ct n 1929 the net ncome of the ord-
nary corporaton sub|ect to the war-profts and e cess-profts ta es mposed by
Tte III, secton 301(b) was a sum obtaned by takng the gross ncome and
appyng the deductons aowed by secton 234, Tte II, whe the net ncome
of a shpowner takng advantage of secton 23 and sub|ect to such ta es was
that sum further dmnshed by the net earnngs of vesses engaged n foregn
trade.
In secton 23 Congress recognzed that the war-profts and e cess-profts
ta es there spoken of were to be mposed by Tte III of the Revenue ct
of 1918, and smpy changed the amount of the net ncome upon whch these
ta es were to be thus mposed. The 9,698.45 was the ony ta mposed, that s
eved, coected and pad by vrtue of Tte III and the ony ta that coud
have been deducted as a credt from the net ncome wthn the meanng of the
e press terms of sectons 230 and 236 n determnng the norma ncome ta .
To the e tent that secton 23 atered the method of ascertanng the net ncome
sub|ect to war-profts and e cess-profts ta es mposed by Tte I of the ct
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236. rt. 591.
216
of 1918, t modfed Tte I of the Revenue ct and we fnd nothng In the
egsatve hstory of the Merchant Marne ct whch woud ead to a dfferent
constructon. It s true that the Senate and ouse conferees submtted a report
recommendng an amendment to the Revenue ct n order better to carry out
the purpose of secton 23 and that ths report was re|ected. ut ths re|ecton
was soey on the ground, as stated by the Speaker of the ouse, that t seems
to the Char ceary that t s not wthn ther (the conferees ) |ursdcton,
because there s nothng n the Senate amendment that, n the opnon of the
Char, paces these matters n conference. In other words t was smpy rued
that t was not wthn the |ursdcton of the conferees to amend the Revenue
ct when ony the queston of an amendment to the merchant marne b pro-
posed by the Senate was submtted to them. urthermore no ob|ecton was
taken to the statement of Mr. dmonds, for the ouse conferees and commttee,
that an amendment nserted (n the Marne ct) by the Senate affectng the
Revenue ct must naturay have somethng to do wth the Revenue
ct, and we coud not make an amendment of that knd uness we dd amend
or change the Revenue ct, and, as we see t, no e cepton coud have been
taken to such a sef-evdent proposton. In any event, as we have shown, sec-
ton 23, construed n the ony way ts pan anguage warrants, modfed the
Revenue ct of 1918 tn the e tent requred to gve effect to that secton.
It s aso suggested that ths nterpretaton of the sectons nvoved here
shoud not be gven as n|ustce to the ta payng shpowner woud resut: and
that bs tota payments of ta es thus assessed woud be more than hs payment
of war-profts and e cess-profts ta es and norma ncome ta computed n the
ordnary way. ut the money saved from the war-profts and e cess-profts
ta was not money pad to the Government for ts beneft but money of the ta -
payer nvested n new shps for ts own beneft and whe the pantff s norma
ncome ta s ncreased by a tte ess than 50,000, the revenue of the Govern-
ment Is, n fact, dmnshed by the sum of 437,521.78, the ta payer proftng
to that e tent over what he woud otherwse have had to pay. There can be
no n|ustce n that. urthermore t s vountary wth the ta pnyng shp-
owner whether secton 23 sha be nvoked or not.
In hs assgnments of error and bref the appeant suggests that secton 23
of the Merchant Marne ct, f construed as above s a revenue ct that t
orgnated n the Senate and hence s unconsttutona by vrtue of rtce I,
secton 7. cause 1 of the Consttuton. Whe secton 23 amends Tte III so
far as t reates to certan shpowners that s ony an ncdent to ts genera
purpose, ts prmary ob|ect beng to estabsh the mercan merchant marne
upon a sound and permanent bass. It s not a b o rase revenue. (Unted
State v. Norton, 91 U. S 506, 568, 509 Turn Cty ank v. Nebeker. 167 D. S
196.) On the contrary t dmnshes the revenue of the Government. Secton
23 of tsef does not ncrease the ta payer s norma ncome ta . s norma
ncome ta s ncreased because secton 236, Tte II, aows as a credt ony
the amount of ta mposed upon the ta payer for that year by secton 301 of
Tte III.
The concuson here reached conforms to the decson of the oard of Ta
ppeas of une 14. 1928, n tantc t Carbbean Steam Navgaton Co. v. Con-
ms.oncr of Interna Revenue (12 . T. ., 606), where the e act queston here
under consderaton was passed upon. In that opnon the oard sad:
The two cts (the Revenue ct of 1918 and the Merchant Marne ct) must
be read together. avng comped wth the condtons of the Merchant Marne
ct, whch was effectve before any ta for 1920 became due under the Revenue
ct, pettoner became entted to a certan addtona deducton n computng
ts net ncome sub|ect to ta under Tte III. The Revenue ct mposed a ta
ony upon net ncome, and the net ncome of pettoner coud not have been
propery computed wthout takng the deducton whch the Merchant Marne
ct provded shoud be aowed under the Revenue ct. The ta mposed was
to be computed upon ths net ncome, not upon what the ncome woud have
been had the Revenue ct stood aone, or had the pettoner not taken the
necessary steps to entte It to ths addtona deducton. The resut n ths
case s that there was not suffcent net ncome sub|ect to profts ta to resut
n the mposton of any ta and consequenty n computng net ncome sub|ect
to ncome ta there was no credt to be camed on the ground that a profts
ta was mposed on pettoner by the Revenue ct.
The |udgment of the dstrct court s affrmed wth costs n ths court to the
appeee.
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217
240, rt. 632,
S CTION 240. CONSOLID T D R TURNS O
CORPOR TIONS.
rtce 632: Consodated returns. II-34-6355
Ct. D. 722
INCOM T R NU CT O 1926 D CISION O CODRT.
1. Consodated Returns Insurance and Nonnsurance Com-
panes.
The Revenue ct of 1926 does not permt a company engaged
ony n soctng nsurance on a commsson bass to fe a con-
sodated return, under secton 240(a), wth a company engaged
n ssung nsurance poces and assumng rsks common to nsur-
ance companes, whch atter company owned a the stock of the
former. It was the purpose of the Legsature, n enactng the
provsons e cusvey appcabe to nsurance companes, to segre-
gate such companes from other corporatons for ta purposes, and
pursuant to such purpose a dfferent ta rate was made appcabe
to nsurance companes, no provson beng made for a ta rate
appcabe to consodated ncome of these dfferenty ta ed unts.
In the absence of a statute so provdng, the Commssoner has
no authorty to appy the ta rates of ether cass to consodated
ncome of nsurance and nonnsurance companes.
2. Certorar Dened.
Petton for wrt of certorar was dened by the Supreme Court
on May 22, 1933 (53 S. Ct, 786).
Unted States Crcut Court or ppeas, S th Crcut.
The Cncnnat Underwrter gency Co., pettoner, v. Commssoner of
Interna Revenue, respondent.
Petton to revew an order of the Unted States oard of Ta ppeas.
efore Moorman, ckenooper, and Smons, Crcut udges.
anuary 17, 1033.
OPINION.
Moorman, Crcut udge: The queston n ths case s whether the pet-
toner, an Oho corporaton engaged n soctng nsurance on a commsson
bass but not engaged n assumng nsurance rsks or ssung Insurance poces,
shoud have been permtted to fe consodated ta returns for the years
1926 and 1927 wth another Oho corporaton, the ureka Securty re
Marne Insurance Co., whch was engaged n ssung Insurance poces and
assumng nsurance rsks common to nsurance companes.
The ct of 1926, secton 240(a), gave to affated corporatons the rght to
make consodated returns for 1926 and subsequent years. In defnng such
corporatons t provded n part that two or more domestc corporatons shoud
be deemed to be affated f one corporaton owned at east 95 per centum
of the votng stock of the other or others. The ureka company owned a
of the capta stock of the pettoner, and as the genera anguage of the ct
s broad enough to ncude a domestc corporatons, nsurance companes
and others, It Is contended by the pettoner that the decson of the oard
of Ta ppeas n dsaowng ts affaton wth the ureka company s con-
trary to the provsons of the ct.
There woud be much force n the pettoner s contenton were t possbe
to gve t effect wthout defeatng the egsatve ntent of other provsons of
the ct. One of such purposes, as appears from provsons made e cusvey
appcabe to nsurance companes, was to segregate such companes from other
corporatons for ta purposes. Pursuant to ths purpose t was provded that
n eu of the ta rates of 13 and 13 4 per cent eved upon the ncome of
37408 34 15
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240, rt. 633.
218
other corporatons, the rate appcabe to Insurance companes shoud be 12
per cent. Nowhere was provson made for a ta rate appcabe to the con-
sodated ncome of these dfferenty ta ed unts. It s contended by the
pettoner that ths defcency n the ct may be supped by an appcaton by
the Commssoner of the hgher cass rate to the consodated resut, but ths
contenton fnds dena n the crcumstance that there s no authorty n the
Commssoner so to do, and that ta rates are f ed by statute and not by
admnstratve procedure. There beng, therefore, no statutory rate for such
consodated resut nor any authorty for appyng ether of the cass rates,
the ony souton of the stuaton that s practcabe s to construe the genera/
provsons reed upon as permttng ony such affaton as coud be effected
wthout affectng the other purposes of the ct. Ths was what was done n
crcumstances amost dentca wth those here nvoved n re Companet
udng Corporaton v. Commssoner (51 ed. (2d), 488 Ct. D. 458, C. .
I-1, 177 ). It was fuy warranted under the rue forbddng constructons
whch ead to absurd consequences. In re Chapman, 166 U. S., 661, 667
Unted States v. atz, 271 U. S., 354, 357.)
It s true that under earer cts and to some e tent under the ct of 1926 the
Interna Revenue Department permtted affatons between nsurance com-
panes and other corporatons. There were provsons even n the earer cts
whch made It mpractcabe to permt the affaton, and we can fnd no |ust-
fcaton for the Department s practce under those cts. Whe the cts of
1921 and 1924 made speca provson for the ta ng of nsurance companes,
nether of them f ed the rate of ta aton dfferenty from that provded for
other corporatons. The ct of 1926, havng erected ths addtona barrer to
affaton, can not be sad to have approved a practce nduged n though not
|ustfed under the earer cts. Nor was there recognton or approva of the
practce under the ct of 1926 n the passage of the ct of 1928. The argument
for the pettoner s that as the ater ct e pressy e cuded nsurance com-
panes from affatons, t must be assumed that Congress regarded the earer
one as permttng t. suffcent answer to ths s that the provson was
nserted n the ct, as shown by the conference report of the commttees from
the two ouses, as a carfyng amendment. If reason for the carfcaton
must he found, t s enough to say that the ct of 1926 erected such barrers
to affaton between nsurance companes and other corporatons n prescrbng
dfferent ta rates that t was not deemed necessary to e cude nsurance com-
panes n terms, but as the ct of 192S removed these barrers from ts effectve
date. anuary 1,1929, by provdng for the same ta rate, t was then necessary.
In order to e cude nsurance companes, that specfc provson be made to that
effect.
The order of the oard s affrmed.
rtce 633: When corporatons are affated. II-35-6377
Ct D. 725
ncome ta revenue act of 102f decson of court.
1. Consodated Return ffaton Ownershp of Stock.
Two corporatons are not affated wthn the meanng of secton
240(c) of the Revenue ct of 1926 where one stockhoder owned 98
per cent of pettoner corporaton and 25 per cent of the aeged
affate and three other stockhoders n the affate each owned
25 per cent of ts stock, the atter three beng members of the same
famy as the stockhoder who owned 98 per cent of pettoner corpo-
raton, but havng nether benefca nor ega ownershp of any of
Its shares. The statute does not contempate ndrect nterest, but
requres that at east 95 per cent of the votng stock of the corpo-
ratons sha be owned by the same nterests. andy arman v.
urnet (284 U. S., 136) foowed.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (26 . T. ., 404)
affrmed.
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219
257, rt. 1090.
Unted States Crcut Court of ppeas for the Second Crcut.
Pagrove Co., pettoner, v. Commssoner of Internet Revenue, respondent.
ppea from an order of the oard of Ta ppeas f ng a defcency aganst the
pettoner from ncome ta es for the year 1025.
efore L. and, Swan, and ugustus N. and, Crcut udges.
March 6, 1933.
OPINION.
Per curam: The ony queston n ths case Is whether the pettoner was
affated wth . psten Co. We may gnore the other two partes to the
affaton. We regard the case as rued by andy arman v. urnet (284
U. S., 136 Ct. D. 425, C. . -2, 370 ). The change n the ct of 1918 mts,
rather than e tends, affaton. The orgna ct read owned or controed
the ct of 1920, under whch ths case arses (secton 240(c)), uses ony the
word owned. It s pan that the same nterests dd not own 95 per cent
of both companes. ugust psten, r., owned 98 per cent of the pettoner
and 25 per cent of . psten Co. The other three owners (we omt
ugust psten, Sr. s, nsgnfcant hodng), aso each owned 25 per cent.
It s true that these three were members of the same famy as ugust p-
sten, r., and we may assume that n practce they acted n concert wth hm,
but they had nether benefca nor ega ownershp of any shares n the Pagrove
Co., and t s ths aone whch counts.
The same resut foows f we treat those shares transferred by rnest G.
psten to ugust psten, r., as n fact hed for the beneft of . psten
Co. If so, the three other sharehoders n psten Co. dd ndeed have
ndrect nterest n these Pagrove shares but the statute does not contem-
pate such nterests. ven though we mght assume that the psten company
coud tsef be regarded as a sharehoder n the pettoner, the sharehoders of
the psten company were not for that reason to be treated as such share-
hoders. The statute sets a grosser, more egastc, test, and the condtons
were not fufed.
Order affrmed.
S CTION 245. T S ON INSUR NC COMP NI S.
rtce 681: Reserve funds.
ND CT O 1026 ND TRIOR R NU CTS.
Interest on coupons of guaranteed premum reducton poces.
(See I. T. 2717, page 94.)
P RT I . DMINISTR TI PRO ISIONS.
S CTION 257. R TURNS TO PU LIC R CORDS.
rtce 1090: Inspecton of returns. II-34-G356
T.D.4378
mendment to Treasury Decson 4359 C. . I-2, 305 to
permt nspecton of returns by Speca Commttee to Investgate
oregn and Domestc, Ocean and r Ma Contracts.
Treasury Department,
Washngton. I). O.
To Coectors of Interna Revenue and Others Concerned:
Treasury Decson 4359 (beng reguatons prescrbed by the Sec-
retary and approved by the Presdent, appcabe to the nspecton
of returns under the Revenue ct of 1932 and pror Revenue cts,
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5257, rt. 1090.
220
and ncorporated as part of artce 421 of Income Ta Reguatons
77) s amended by nsertng between paragraphs 13 and 14 thereof
a new paragraph numbered 13(a) readng as foows:
13(a). Notwthstandng any other provsons of these reguatons, returns
may be nspected by the Speca Commttee to Investgate oregn and Domestc,
Ocean and r Ma Contracts, apponted under Senate Resouton 349,
Seventy-second Congress, to the same e tent and n the same manner as by a
seect commttee of the Senate specay authorzed to nvestgate returns
by a resouton of the Senate.
Thomas ewes,
ctng Secretary of the Treasury.
pproved ugust 3, 1933.
rankn D. Roosevet,
The Whte ouse.
CUTI ORD R INSP CTION OP T R TURNS Y SP CI L COMMITT
TO IN STIG T OR IGN ND DOM STIC, OC N ND IR M IL CON-
TR CTS, UNIT D ST T S S N T .
Pursuant to the provsons of secton 55 of the Revenue ct of
1932 (47 Stat., 189), secton 55 of the Revenue ct of 1928 (45 Stat.,
809), and secton 257 of the Revenue ct of 1926 (44 Stat., 51),
It s hereby ordered that returns sha be open to nspecton by
the Speca Commttee to Investgate oregn and Domestc, Ocean
and r Ma Contracts, apponted under Senate Resouton 349,
Seventy-second Congress, such nspecton to be n accordance and
upon compance wth the rues and reguatons prescrbed by the
Secretary of the Treasury and approved by the Presdent under date
of December 13,1932. as amended ths date.
rankn D. Roosevet.
The Whte ouse,
ugust 3,1933.
rtce 1090: Inspecton of returns. II 41 6484
T. D.4397
mendment to Treasury Decson 4359 C. . I-2, 305 , as
amended by Treasury Decson 4378 page 219, ths uetn , to
permt nspecton of returns by Speca Commttee to Investgate
Recevershp and ankruptcy Proceedngs and ppontment of Re-
cevers and Trustees.
Treasury Department.
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Treasury Decson 4359 (beng reguatons prescrbed by the Secre-
tary and approved by the Presdent, appcabe to the nspecton of
returns under the Revenue ct of 1932 and pror Revenue cts, and
ncorporated as part of artce 421 of Income Ta Reguatons
77), as amended by Treasury Decson 4378 (page 219, ths uetn),
s further amended by changng paragraph numbered 13(a) thereof
to read as foows:
13(a). Notwthstandng any other provsons of these reguatons, returns
may be nspected by the Speca Commttee to Investgate oregn and Domestc,
Ocean and r Ma Contracts, apponted under Senate Resouton 349, Seventy-
second Congress, or by the Speca Commttee to Investgate Recevershp and
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221
262, rt. 1135.
ankruptcy Proceedngs and ppontment of Recevers and Trustees, apponted
under Senate Resouton 78, Seventy-thrd Congress, to the same e tent and
In the same manner as by a seect commttee of the Senate specay authorzed
to nvestgate returns by a resouton of the Senate.
W. . Woodn,
Secretary of the Treasury.
pproved October 18, 1933.
rankn D. Roosevet,
The Whte ome.
CUTI ORD R INSP CTION O T R TURNS Y SP CI L COMMITT
TO IN STIG T R C I RS IP ND N RUPTCY PROC DINGS ND
PPOINTM NT O R C I RS ND TRUST S, UNIT D ST T S S N T .
Pursuant to the provsons of secton 55 of the Revenue ct of
1932, secton 55 of the Revenue ct of 1928, and secton 257 of the
Revenue ct of 1926, It s hereby ordered that returns sha be open
to nspecton by the Speca Commttee to Investgate Recevershp
and ankruptcy Proceedngs and ppontment of Recevers and
Trustees, apponted under Senate Resouton 78, Seventy-thrd Con-
gress, such nspecton to be n accordance and upon compance wth
the rues and reguatons prescrbed by the Secretary of the Treasury
and approved by the Presdent under date of December 13, 1932, as
amended under date of ugust.3, 1933, and as further amended ths
date.
rankn D. Roosevet.
The Whte ouse,
October IS,1933.
S CTION 262. INCOM ROM SOURC S WIT IN T
POSS SSIONS O T UNIT D ST T S.
rtce 1135: Ctzens of the Unted States de- II-29-6294
rvng ncome from sources wthn a posses- Ct. D. 702
son of the Unted States.
ncome ta revenue acts of 1921, 1924, and 1026 decson of court.
1. Gross Income Income from Sources Wthn Possessons of
Unted States.
ctzen of the Unted States, resdent In the Phppne Isands,
who devoted most of hs tme to the busness of a mnng corpora-
ton n the Phppnes, and who, durng the years 1920-1925, de-
rved more than 89 per cent of hs ncome from snary, drector s
fees, and dvdends of the corporaton, the ma|or porton of such
ncome beng derved from dvdends, was not entted to the bene-
fts of secton 202 of the Revenue cts of 1921, 1924, and 1926. The
provsons of that secton, construed n the con|unctve, requre
not ony that 80 per cent or more of gross ncome be derved from
sources wthn a possesson of the Unted States, as specfed In
subdvson (a)(1), but aso, as specfed n subdvson (a)(3),
that 50 per cent or more of gross ncome be derved from the actve
conduct of a trade or busness wthn a possesson of the Unted
States ether on ta payer s own account or as an empoyee or
agent of another.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (23 . T. ., 378)
affrmed.
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262, rt. 1135.
222
3. Certorar Dened.
Petton for wrt of certorar dened by the Supreme Court on
March 27, 1933 ( 53 S. Ct., 526).
Court of ppeas of the Dstrct of Coumba. No. 5547.
ohn W. aussermann, appeant, v. Da-vd urnet, Commssoner of Interna
efenue, appeee.
ppea from the oard of Ta ppeas.
efore Martn, Chef ustce, and Robb, an Orsdb, tz, and Groneb,
ssocate ustces.
anuary 3, 1933.
opnon.
Grower, ssocate ustce: Ths appea nvoves defcences n Income ta es
for the years 1922 and 1923, and, by consodaton under No. 5548, the years
1924 and 1925. Pettoner s a ctzen of the Unted States, who has resded n
the Phppne Isands snce November, 1S98. e was formery a member of
the Phppne bar, but n 1903, as attorney for a group of nterested partes,
he organzed the enguet Consodated Mnng Co. as a soeedad anonma
under the provsons of the code of commerce of Span then n effect In the
Phppne Isands. e became a member of the board and owned a sma
Interest n the shres of the organzaton. Later he ncreased hs hodngs.
Pror to 1915 the mnng company had fnanca dffcutes and suspended opera-
tons, and n that year pettoner reorganzed the company and devoted there-
after practcay hs entre tme to ts affars. In 1917 he became ts argest
stockhoder, and snce that date he and hs former aw assocates have dom-
nated ts affars. Durng each of the years 1920 to 1925, ncusve, more than
80 per cent of pettoner s gross ncome was derved from sources wthn the
Phppne Isands and conssted of amounts receved as saary and drector
fees and by dstrbutons by way of dvdends out of the earnngs of the mnng
company. In 1920 pettoner s tota ncome amounted to appro matey 26,000,
of whch a tte more than 2,700 resuted from saary and drector s fees,
a tte more than 12,000 from dvdends from the mnng company and a
tte more than 11,000 from other ncome. In 1921 hs tota ncome was a
tte n e cess of 5,000, of whch appro matey 3,600 was dvdends from
the mnng company and a tte ess than 500 saary. In 1922 hs tota
ncome was above 20,000, hs saary 1,000, hs dvdends 18,000. In 1923
hs saary was neary 13,000 and hs dvdends 68,000. In 1924 hs saary
was 2,600 and hs dvdends 100,000. nd n 1925 hs saary 600 and hs
dvdends 120,000, of a tota ncome of 124,000.
In fng hs ncome-ta returns for the severa years, pettoner camed the
benefts of secton 262 of the Revenue cts of 1921, 1924, and 1926. The Com-
mssoner hed, and the oard sustaned hs hodng, that the amounts receved
out of the earnngs of the mnng company upon hs nterest theren dd not
represent ncome derved from the actve conduct of a trade or busness wthn
a possesson of the Unted States by the pettoner ether on hs own account
or as an empoyee or agent of another. The fndngs of fact by the oard
show that pettoner derved more than SO per cent of hs tota gross ncome
from sources wthn the Phppnes, but the oard hed that whe ths fact
satsfed the requrements of subdvson (a)(1) of secton 262, t was not
.suffcent because subdvsons (a)(1) and (a)(3) shoud be construed n the
con|unctve rather than n the ds|unctve or aternatve, and that snce pet-
toner s ncome was not derved from the actve conduct of a trade or busness
ether on hs own account or as ngent or empoyee of another, he was not
entted to the benefts of the secton.
Pettoner on ths appea assgns as error, frst, the acton of the oard n
hodng subdvsons (a)(1) and (a)(3) of secton 262 con|unctve rather than
ds|unctve, and second, that the oard erred n not hodng that 50 per cent
of pettoner s gross ncome was derved from the actve conduct of a trade or
busness by pettoner on bs own account, etc.
rom what has |ust been sad, t w he seen that the questons presented
nvove a constructon of secton 2G2(a) of the Revenue ct of 1921. The secton
s as foows:
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223
262, rt. 1135.
Sec. 202. (a) That n the case of ctzens of the Unted States or domestc
corporatons, satsfyng the foowng condtons, gross ncome means ony
gross ncome from sources wthn the Unted States
(1) If 80 per centum or more of the gross ncome of such ctzen or domestc
corporaton (computed wthout the beneft of ths secton) for the 3-year
perod mmedatey precedng the cose of the ta abe year (or for such part of
such perod mmedatey precedng the cose of such ta abe year as may be app-
cabe) was derved from sources wthn a possesson of the Unted States and
(2) If, n the case of such corporaton, 50 per centum or more of ts gross
ncome (computed wthout the beneft of ths secton) for such perod or such
part thereof was derved from the actve conduct of a trade or busness wthn
a possesson of the Unted States or
(3) If, n the case of such ctzen, 50 per centum or more of hs gross n-
come (computed wthout the beneft of ths secton) for such perod or such
part thereof was derved from the actve conduct of a trade or busness wthn
a possesson of the Unted States ether on hs own account or ns an empoyee
or agent of another.
It s therefore obvous that f subdvson (a)(1) of secton 2G2 shoud be
construed n the ds|unctve, pettoner s not chargeabe wth the ta , but we
agree wth the Commssoner and the oard that ths nterpretaton can not
be sustaned.
The anguage of the secton shows that Congress was deang wth two
casses of ta payers, namey, ndvduas and corporatons. Subparagraph (1),
appcabe to both, provdes that If 80 per centum or more of gross ncome s
derved from sources wthn a possesson of the Unted States, and (2) n the
case of a corporaton f 50 per centum of such gross ncome was derved from
the actve conduct of a trade or busness wthn a possesson of the Unted
States, and (3) n the case of an ndvdua (Unted States ctzen) f 50 per
centum of gross ncome was derved from the actve conduct of a trade or
busness, etc., ether on hs own account or as an empoyee or agent of another,
benefts of the secton sha appy.
In our vew t s mpossbe to nterpret the secton otherwse than to ascrbe
to ts requrements the condton that a corporaton must brng tsef wthn
the terms of subdvsons (1) and (2) and the ndvdua wthn subdvsons
(1) and (3). Pettoner apparenty concedes the correctness of ths nterpre-
taton of the statute as appcabe to corporatons, but nssts that by the use
of the word or at the concuson of subparagraph (2) Congress dd not ntend
the nterpretaton we thnk shoud be made to appy to an ndvdua. ut ths
woud be a straned constructon of the secton. Congress was deang, as we
have aready seen, wth two casses of ta payers, and t s pan that the re-
qurements as to each were the same. oth must have derved 80 per centum of
gross ncome from sources wthn a possesson of the Unted States and both
must have derved 50 per centum or more from the actve conduct of a trade
or busness, kewse wthn a possesson of the Unted States. To hod wth
pettoner woud be to say that the congressona purpose n the enactment was
to appy the rue |ust above announced to corporatons but n the case of an
ndvdua to e tend the benefts of the secton wthout regard to whether any
part of such ncome was derved from the actve conduct of a busness. The
contrary of ths has been consstenty the rung of the Treasury Department
snce the enactment of the Revenue ct of 1921. (See Treasury Reguatons 62,
artces 1135 and 1136.)
We therefore pass from ths phase of the case to the nqury whether 50 per
cent of pettoner s gross ncome was derved from the actve conduct of a trade
or busness wthn a possesson of the Unted States ether on hs own account
or as an empoyee or agent of another. s we have aready ponted out, the
greater porton of pettoner s ncome for the years 1920 to 1925 was receved
as dvdends from the mnng company. The oard hed as to ths ncome that
he receved t as a stockhoder and not from the actve conduct of a trade.
Ths we thnk was correct. On pettoner s behf t s argued that the mnng
company was not a corporaton but was n fact a partnershp organzed under
the code of commerce then n force n the Phppne Isands and that he occu-
ped to the company the reatonshp of managng partner. e aso nssts that
even f the company was a corporaton, n vew of the reaton whch we men-
toned as e stng between the company and hmsef, he derved hs ncome from
t n the actve conduct of a trade or busness ether on hs own account or as
an empoyee or agent of the company. We thnk nether of these postons s
sustanabe.
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224
s to the frst, f t were necessary to determne the precse character of the
mnng company, that s o say. whether t s n fact a corporaton, or, as
counse for pettoner nssts, a |ont-stock company, the record shows that t
has a managng board of drectors, that ts capta s dvded nto votng shares,
that t has a presdent and vce presdent, and that ts earnngs are dstrbuted
to ts sharehoders rataby accordng to the number of ther shares, respectvey,
and thus s wthn the test, estabshed by the Revenue ct of 1021 where the
term corporaton s sad to ncude assocatons, |ont-stock companes, and
nsurance companes, and artce 1502 of Reguatons G2, promugated under
ths provson, defnng these as ncudng assocatons dong busness n an
organzed capacty whether created by State aws, agreements, decaratons of
trust, or otherwse. The Supreme Court n urk-Waggoner v. opkns, Co-
ector (269 U. S., 110 T. D. 3780, C. . -, 147 ), has sustaned the correct-
ness of ths nterpretaton and hed that unncorporated |ont-stock assocatons
wth a f ed capta stock dvded n shares represented by certfcates transfer-
abe on the books of the company and whose affars are managed by a board
of drectors and e ecutve offcers and who conduct ther busness n genera
form ke a corporaton are sub|ect by the ct to be ta ed as corporatons.
Pettoner s company s n a respects wthn ths descrpton, and wthout
regard to whether under the Spansh aws t was techncay a corporaton, t s,
we thnk, under the ta aws of the Unted States as much wthn that category
as though t had been granted a charter f ng the mts of ts rghts and
responsbtes, and f our concuson n ths respect s correct, t woud foow
that pettoner, n recevng dvdends from the company, dd not thereby derve
ncome from the actve conduct of a trade or busness ether on hs own account
or as an empoyee or agent of another. It s qute true that pettoner snce
1915 has devoted hs entre tme to the busness of the company, and t s
equay true that the saary pad hm for these servces was vasty nadequate,
consdered as aganst the servces rendered, and t s apparent he ooked to the
dstrbuton of the profts rather than to the saary as a proper reward of hs
efforts, but the fact remans that he receved the ncome, the ta aton of whch
s the sub|ect of dspute, |ust to the same e tent rataby as the other share-
hoders of the company receved thers. In ths aspect, as we thnk, these
amounts were not derved, wthn the contempaton of the revenue aws, from
the actve conduct of a trade or busness, notwthstandng the fact that pet-
toner s efforts argey produced them.
Ths vew s supported by the recent decson of the Supreme Court n urnet,
Commssoner, v. Cark, decded December 12, 1932 Ct. D. 020, C. . II-1, 175 ,
n whch the Supreme Court, speakng of a somewhat smar stuaton and
cam, sad: The respondent was empoyed as an offcer of the corporaton
the busness whch he conducted for t was not hs own. There were other
stockhoders. nd n no sense can the corporaton be regarded as hs ater ego,
or agent. Nor, n our vew, can he be regarded as the ater ego of the corpo-
raton.
ffrmed.
P RT . P YM NT, COLL CTION, ND R UND O T ND
P N LTI S.
S CTION 270. D T ON W IC T S LL
P ID.
rtce 1203: Coecton of ta by sut, II-28-6284
Ct. D. 700
ncome ta revent e act of 1024 decson op court.
1. Sut on ond Statute of Lmtatons Duress.
bond, havng been gven n connecton wth an abatement
cam, condtoned upon payment of ta . nterest, and penates
fnay determned by the Commssoner to be due, was enforceabe
even though e ecuted subsequent to the e praton of the perod
of mtaton for coecton. The bond, havng served the purpose
of a deay and reconsderaton, was supported by adequate con-
sderaton, and was not e ecuted under duress.
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270, rt. 1203.
2. Certorar Dened.
Petton for wrt of certorar was dened by the Supreme Court
on pr 10, 1933.
Unted States Crcut Court of ppeas for the fth Crcut.
Unted States of merca, appeant, v. C. 31. Root and dety Depost Co.
of Maryand, appeees.
ppea from the Dstrct Court of the Unted States for the Northern Dstrct of Teas.
anuary 5, 1033.
opnon.
utcheson, Crcut udge: The Unted States brought ths sut on a bond
gven by appeee Root n connecton wth au abatement cam. y the cond-
ton of the bond Root and hs surety, the other appeee, obgated themseves
to pay sums of money fnay ad|udcated by the Commssoner of Interna
Revenue to be due the Unted States by the prncpa for the perod covered
by the cam as ta es, penates and nterest.
ppeee Root contended that, because at the tme the bond was e acted the
ta was uncoectbe because barred, the obgaton of the bond to pay the
amount of the ta was wthout bndng force. -The dstrct |udge before whom
the case was tred upon a |ury waver, agreeng wth ths vew, dened recov-
ery. ppeant comes here nsstng that the case s rued by Unted States v.
ohn arth Co. (279 U. S., 370 Ct. D. 65, C. . III-1, 189 ) Guf States
Stee Co. v. Unted States (56 ed. (2d), 43, affrmed November 7, 1932 Ct.
D. 608, C. . I-2, 314 ).
The condton of the bond n each of these cases, though dfferng from that
of each of the others n verbage, s n substance and n ega effect the same.
In each of the cases the bond, gven n connecton wth a cam n abatement,
was condtoned to awat the fna acton of the Commssoner on the cam.
In the arth case, the agreement was to pay ny part of the ta whch the
Commssoner found to be due n the Stee case, t was To pay so much
of the cam as Is not abated that s. to pay a of the cam e cept that
part found by the Commssoner not to be due. In ths case t was To pay
a sums of money fnay ad|udcated by the Commssoner of Interna
Revenue to be due for the perod covered by the cam as ta es, penates and
nterest, that Is, pay such part of the defcency as remaned after the cam
had been ad|udcated.
ppeees urge that though the condton of the bond n sut s substantay
the same as that of the others, the crcumstances of ts gvng are so dfferent
that those cases can not rue ths. They say that those bonds, vountary
gven whe the ta was st coectbe for the purpose of ganng tme to pay,
were supported by adequate consderaton that ths bond, gven, after mta-
ton had barred the coecton of the ta , In order to prevent a wrongfu evy,
was e acted by duress and Is wthout consderaton. We thnk appeant has
the rght of t.
The facts are undsputed. On March 15, 1923, wthn the perod of mtaton
appcabe, the Commssoner of Interna Revenue assessed aganst Root an
addtona ta of 27,000.98. In uy, 1924, as the resut of a notce from the
Revenue Servce that t had a ta warrant ready to ssue, and uness the
addtona ta was pad there woud be an mmedate dstrant, Root, com-
pyng wth the condton f ed that a bond be fed, fed an abatement cam.
The cam rected the fng n pr, 1918, of hs ncome ta return, the
assessment on March 15, 1923, of the addtona ta , the ssuance of ta war-
rant, and the demand for payment. It contended that the addtona assess-
ment was erroneous, and concuded wth a prayer that the ta payer be gven
speca consderaton and treated as a ta payer wthout nvested ncome that
the ta he ad|usted upon a reasonabe bass, and that the Department fnd
that he has fuy pad a ta es due.
The bond, rectng the makng of the addtona assessment and the fng
of the abatement cam, was condtoned n effect to pay such amount of the
ta as by hs acton on the cam n abatement, the Commssoner determned
to be due. The coecton of the ta stayed, the Commssoner proceeded to
ree amne the assessment n the ght of the cam, and on anuary 24, 1928,
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270, rt. 1203.
226
he notfed the ta payer that hs cam had been aowed for 7,510.97, re|ected
for 19,490.01. e further advsed hm that he had 30 days n whch to present
addtona evdence to the Commssoner, and 00 days after fna determnaton
to fe hs petton wth the oard of Ta ppeas. The cam havng been
fnay ad|udcated In accordance wth the former decson, and a certfcate
of overa sessment ssued accordngy, the ta payer fed hs petton wth the
oard of Ta ppeas. The oard, on pr 30, 1930, n accordance wth a
stpuaton and request of the partes, entered an order that the statute of
mtatons had barred te coecton of the addtona ta .
fter the entry of ths order, the coecton of the ta havng then been
stayed by the e ecuton of the bond for more than s years, demand was
made upon Root that he perform the condton of hs bond by payng the
19,409.01 wth nterest, 8,092.97, whch the Commssoner had ad|udcated
as due. Upon hs refusng to pay on the ground that the abty of the bond
fe wth the abty on the ta , ths sut was fed.
In hs answer Root for the frst tme made the contenton that the bond was
wthout consderaton because e acted by duress. The record shows that
Root took no step n the ong course of these proceedngs e cept of hs own
voton, and at no tme was there any duress, ether n fact or n aw, prac-
tced on hm. True the coector dd nsst upon payment, and dd advse hm
that n defaut of payment there woud be dstrant. These demands however,
were made n the most courteous and consderate way. The ta payer was
gven the fuest tme to consder and determne hs course he was aowed
to fe cam n abatement, was gven e tenson after e tenson of tme to fe
hs bond. Speca consderaton was gven the cam, and the resut of ts
fng was that the assessment was abated 7,510.97. So unoppressve were
the demands, so conspcuous was the ndugence shown, that the ta payer s
representatve wrote You have been so very knd and obgng about ths
matter that I hate to ask any further favors, but f ths (a further e tenson
of tme for makng the bond) can be granted we w be under astng obga-
tons. Such facts do not make out a case of duress.
Unt an assessment has been ad|udcated to be uncoectbe, t s the duty
of a coector to press for ts coecton, and the performance of that duty
s not affected by the fact that the assessment whch he has n hand to coect,
s or may be barred by a statute of mtatons.
When the demand s pressed the ta payer may pay t, or stay ts coecton
n some approprate way. If he pays t, esteemng t wrongfuy coected, he
may sue to recover t back. If, preferrng to deay ts payment unt he can
have ts vadty determned, e makes a bond or sgns a waver, such bond
or waver s enforceabe accordng to ts terms, though mtaton has aready
run aganst the coecton of the ta . (Stange v. Unted States, 282 U. S., 270
fCt. D. 274, C. . -, 414 rown Sons v. urnet, 282 U. S., 283 Ct. D. 279,
O. . -, 274 Mascot O Go. v. Unted States, 282 U. S., 434 Ct. D. 286,
C. . -, 190 Unted States v. ogshre, 37 ed. (2d), 720.) avng
the rght to compe mmedate payment uness the ta payer makes the re-
qured appcaton to stay the coecton, the e acton of a waver or bond
can not be duress. (Unted States v. Southern Lumber Co., 51 ed. (2d). 956
urnet v. Chcago Raway qupment Co., 282 U. S., 295 Ct. D. 276, C. .
- , 323 McDonne v. Unted States, 59 ed. (2d), 293 Ct D. 570, C. .
I- 2, 32S .) If, after the Commssoner had fnay determned the amount
due the ta payer, nstead of fng hs petton wth the oard for a ree am-
naton, had pad the ta , he coud not have recovered t as an overpayment
( ryant-Lnk Co. v. opkns, 47 ed. (2d), 1068 Ct. D. 329, C. . -, 430
Graham and oster v. oodoe, 282 U. S., 409 Ct. D. 287, C. . -. 191
Magee v. Unted States, 282 U. S.. 432 Ct. D. 285, O. . -, 189 arttoett
Ms v. Rose. 61 ed. (2d), 441.) Where, as here, the ta payer, upon the
condton that he agree to pay a amounts found fnay to be due, has secured
consent to he a cam n abatement, askng speca treatment, the postpone-
ment of the coecton of the ta unt the cam was fnay acted upon, and a
substanta reducton of the ta , no reason presents tsef why he shoud not
perform hs agreement. On the contrary, we thnk t pan that here, as In
te ohn arth case, The ta payer has obtaned hs ob|ect by the use of
the bond, and he shoud not ob|ect to makng good the contract by whch he
obtaned the deay sought.
The |udgment s reversed, and the cause Is remanded for further proceed-
ngs not nconsstent wth ths opnon.
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227
273 and 274, rt. 1231,
S CTIONS 273 ND 274. D ICI NCY IN T N.
rtce 1231: Defcency defned.
( so Secton 280, rtce 1291.)
II-29-G295
Ct. D. 703
ncome ta revenue act of 1018 decson of court.
Transferee stoppe.
Where wavers were e ecuted and pettons fed wth the oard
of Ta ppeas by offcers of a transferee company, n the name
and under the sea of the dssoved transferor company whch had
sod a ts assets to the transferee, the atter assumng a the a-
btes of the former, the authorty of such offcers to e ecute
the wavers or to prosecute the appeas may not be dened by the
transferee company n an acton n equty by the Unted States to
recover of the transferee the defcences n ta determned by the
oard of Ta ppeas pursuant to stpuaton of counse.
Though the dssouton of the transferor was known to the Com-
mssoner, such waver and appeas obvousy havng been for ts
own beneft the transferee s estopped to assume an nconsstent
poston and deny ther vadty or the |ursdcton of the oard.
Unted States Crcut Court ok ppeas, S th Crcut.
The Yarner Coeres Co., appeant, v. The Unted States of merca, appeee.
ppea from the Dstrct Court for the Northern Dstrct of Oho, astern Dvson.
cks, Crcut udge: So far as the matters nvoved are here matera,
ths was a b n equty to recover of the Wof Run Coa Co., heren caed
the Wof company, and ts transferee and obgee, the Warner Coeres Co.,
heren caed the Warner company, ncome and profts ta es n the sums of
5,414.50 and 13,069.00, wth nterest, for the years 1918 and 1919, respectvey.
The court dsmssed the b as to the Wof company and entered a decree
aganst appeant, the Warner company, for the amounts sued for.
The court made speca fndngs of fact and concusons of aw n accordance
wth equty rue No. 70 . These fndngs of fact are not now controverted.
So far as reevant, the fndngs of fact are, that the Wof company n due
course fed ts ta returns for 1918 and 1919 that these varous returns were
e ecuted by ts secretary, Whtworth, and ts treasurer, Warner, both of whom
were charged wth attendng to ts ta matters that on pr 21, 1923, the
Wof company, by Warner, who was then ts vce presdent, e ecuted powers
of attorney to certan persons connected wth a frm of pubc accountants,
authorzng them to represent the company before the Treasury Department n
busness pertanng to ts ta returns that n October, 1919, the Wof com-
pany sod a ts assets to the Warner company for seventy-fve hundred shares
of the stock of the Warner company, whch shares were of greater vaue than
the amount of the ta es sued for that as part consderaton the Warner
company agreed to pay a the abtes of the Wof company and to save t
harmess aganst any and a cams, demands and actons arsng out of any of
ts obgatons and abtes.
On November 1, 1923, at a meetng of ts board of drectors, of whch
Warner was charman and Whtworth, secretary, the Wof company was ds-
soved by a forma resouton, whch decared that the company had competey
cosed ts busness and pad a ts debts and abtes. On November 10,
1923, the company, by Warner, ts presdent, and Whtworth, ts secretary,
certfed the dssouton to the secretary of state of Oho. Upon the dsso-
uton of the Wof company ts drectors by vrtue of sectons 8742 and 8743
of the- Genera Code of Oho, became trustees wth power to sette the com-
pany s affars.
On pr 10, 1926, the Commssoner of Interna Revenue addressed to the
Wof company a 60-day etter proposng an addtona assessment of ncome
and profts ta es of 7,103.73 for 1918, and on ugust 3, 1920, he forwarded
a smar etter proposng an addtona assessment of 18,280.14 for 1919. These
anuary 20, 1933.
OPINION.
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273 and 274, rt. 1231.
228
etters never reached the former drectors, trustees of the dssoved Wof
company, as such, but the nference s cear that they were brought to the
attenton of Warner, a former drector of the Wof company and who was
then vce presdent, and Whtworth, who was then secretary and treasurer
of the Warner company, and both of whom were at the tme handng ts ta
affars. Thereupon Whtworth, sgnng as secretary n the name of the Wof
company, e ecuted wavers, whch f vad, protected the Commssoner aganst
the mtaton for the assessment and coecton of the proposed defcences.
These wavers, n order to compy wth a requrement of the reguatons of the
ureau, were e ecuted under the sea of the ong snce dssoved Wof company.
On une 9, 1926, and October 1. 1026, pettons were fed wth the oard of
Ta ppeas n the name of the Wof company to redetermne the proposed
defcences. These pettons were sgned by Whtworth as secretary and by
an attorney connected wth the accountng frm to whch the before-mentoned
power of attorney had been e ecuted by the Wof company. Notwthstandng
these wavers and pettons, e ecuted n the name of the Wof company, the
Department of Interna Revenue knew that ths company had been dssoved
n 1023. That nformaton had been brought drecty to the attenton of the
revenue coector at Ceveand, where the offces of the Wof company s
successor, the Warner company, were ocated, and yet wth ths nformaton
n hand, the Commssoner, nstead of movng ether to dsmss the pettons
or to proceed aganst the trustees of the dssoved corporaton, acquesced n
the procedure nsttuted before the oard. Ths no doubt seemed to a partes
to be a practca way (Tyer v. Unted States, 281 U. S., 497 Ct. D. 190, C. .
I -1, 383 ) of determnng the proposed defcences aganst the Wof company
for the payment of whch, t was mutuay understood, the Warner company was
abe under ts contract. The proceedngs before the oard were, n due course,
cosed by stpuaton sgned by counse empoyed by vrtue of the before-men-
toned power of attorney. owever, the fees of counse were pad, eventuay,
by the Warner company. In ths stpuaton t was agreed that the defcences
for the years n queston were for the amounts heren sued for and orders of
redetermnaton were accordngy entered and the ta es assessed aganst the
Wof company. s a resut, appeant, the transferee and obgee of the Wof
company, was benefted n two partcuars, . e. (1) t avoded a |eopardy
assessment to whch t woud have been forced to respond and (2) the orgnay
proposed defcences were substantay reduced.
The ponts made n the dstrct court, and repeated here, are, that the
defcency assessments were vod because the Wof company had been dssoved
ong before the ssuance of the 60-day etters that these etters shoud have
been addressed to the trustees of the company that Whtworth and Warner
were unauthorzed to act for the dssoved corporaton and that the wavers
were therefore nvad and noperatve that the statute of mtatons had
barred the assessment and coecton of the ta es: that the pettons before the
oard of Ta ppeas e ecuted by Whtworth and Warner n the name of the
Wof company were unauthorzed and vod and that the oard was therefore
wthout |ursdcton over ether the proposed defcences or the Wof company.
We are of the opnon that appeant s not n a poston to rase these ques-
tons. It s obvous that the e ecuton of the wavers by Whtworth and Warner
and the proceedngs before the oard of Ta ppeas were not ntended for
the protecton of the dssoved Wof company. It s |ust as obvous that they
were ntended to and dd beneft the Warner company, whch these offcas then
represented, and that the use of the corporate name and sea of the Wof com-
pany, acquesced n by the Commssoner, was nomna ony and fuy under-
stood to be so by the Commssoner. ppeant can not therefore now assume
a contrary and nconsstent poston at the e pense of the Government. (See
Magee v. Unted States, 282 U. S., 432. 434 Ct. D. 285, C. . I-1, 189 Inde-
pendent I. C. Storage Co. v. Commr., 50 ed. (2d), 31, 33 (C. C. . 5) Ct. D.
471, C. . I-1, 308 Lucas v. unt, 45 ed. (2d). 781. 782 (C. C. . 5)
artv U Ms v. Rose, 61 ed. (2d), 441, 444 (C. C. . 5) Pmburgh, Termna
Coa Corporaton v. Rener, 56 ed. (2d), 1072, 1076 (D. C.) Ct. D. 501, C. .
I-1, 225 .) ppeant was the rea party n nterest before the oard and t
shoud not n a court of equty be permtted to compan of rreguartes after It
had n the name of the Wof company receved a the beneft that t was entted
to under ts contract wth the Wof company. (See aey v. R. R. Co., 22
Wa., 604, 644 ames v. Germana Iron Co., 107 ed., 597, 617 (C. C. . 8)
Souffront v. Compagne Den Sucreres, 217 U. S., 475, 487.)
The decree of the dstrct court s affrmed.
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229
5273 and 274, rt. 1233.
rtce 1233: Coecton of a defcency.
( so Secton 284, rtce 1304.)
II-39-G416
Ct.D.737
INCOM T R IS D ST TUT S D CISION O COURT.
1. ssessment and Coecton of Ta Informaty of ssess-
ment Coecton by Credt.
n overpnyment of pantffs ncome a for the year 1919 whch
was credted upon an addtona ta for that year assessed aganst
hs deceased wfe can not be recovered on the ground that the credt
was ega because the assessment was made aganst the wfe n
her name rather than aganst hn.sef as e ecutor of her estate.
fter the ta due upon the wfe s ncome bad been pad, t coud
not be recovered merey because t had not been formay assessed.
2. stoppe.
Where ta payer specfcay requested and authorzed the app-
caton of an overpayment of hs ncome ta n satsfacton of an
addtona ta on hs deceased wfe s ncome, and dd not attack the
vadty of such settement unt ong after the e praton of the
perod of mtaton wthn whch assessment coud be made aganst
hm as e ecutor, he s estopped by hs own conduct to queston the
settement made.
3. ssgnment of Cam.
Secton 3477, Revsed Statutes, reed upon by pantff, s not
appcabe to the facts n ths case. That secton was enacted as
a protectve measure to ad the Government n defendng cams
aganst t rather than as an nstrument for prosecutng a cam
aganst the Government for an amount to whch the camant s not
otherwse entted.
Court of Cams of the Unted States. No. L-1S3.
Ltteton, udge, devered the opnon of the court.
Pantff contends that the assessment n 1924 of the ta upon the ncome
of hs wfe for 1919 was vod because there was no such person as Mary
Mur n e stence at the tme the assessment was made that the assess-
ment was the same as f t had been made aganst a fcttous person that
coecton thereof from pantff by credt was ega and that, snce a ega
assessment of the ta aganst pantff as e ecutor of the estate of Mary Mur
Is barred by the statute of mtaton, the amount of o7,GS0.4G of pantff s
overpayment for 1919 retaned and apped by the Government n satsfacton
of the addtona ta due n respect of the ncome of Mary Mur for 1919
shoud be refunded.
We can not sustan ths cam. In the frst pace t s not necessary that a
ta be assessed before t can be egay coected. If a ta s due and s
coected wthout assessment t can not he recovered on that ground aone.
In Myersdae ue Co. v. Unted Sates (70 C. Cs 705, 44 ed. (2d), 437) t
was sad Ta es may bo and often are coected wthout assessment and ths
s recognzed by sectons 273 of the Revenue cts of 1924 and 1920, but, n
such case, the ta f egay due can not be recovered merey because t had
not been formay assessed. The correctness of the ta of 157,GS0.4G n
respect of the ncome of pantff s wfe for 1919 s not questoned.
In the ne t pace, pantff was the duy quafed and actng e ecutor of
the estate of hs wfe and was resduary egatee under her w. e receved
the etters showng the determnaton of the addtona ta due upon hs wfe s
ncome for 1919 and, aso, the notces and demand ssued by the coector. e
and hs attorneys thereupon wrote the coector of nterna revenue wthn
the tme wthn whch the ta coud be egay assessed and coected request-
ohn Mur, an Indvdua, v. The Unted States.
une 5, 1933.
opnon.
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5277 and 278, rt: 1271
230
ng and authorzng hm to pay the ta due upon the ncome of Mary Mur
for 1919 by retanng and appyng n satsfacton thereof 157,680.46 of the
overpayment aowed pantff n respect of hs Income ta for 1919. Ths
was done by the offca act of the Commssoner and the pantff was duy
advsed thereof. though he had numerous deangs wth the Commssoner s
offce between ebruary 18, 1925, and ugust 12, 1927, wth respect to the
nterest payabe to hm upon hs overpayment for 1919, no attack was made
upon the vadty of the settement and no queston was rased wth respect
thereto unt anuary 27, 1930, amost fve years after the e praton of the
statute of mtaton wthn whch assessment coud be made aganst hm as
e ecutor. In these crcumstances pantff can not now queston the satsfac-
ton of the addtona ta due n respect of the ncome of hs wfe for 1919 n
accordance wth hs specfc request and authorzaton. (Dau e v. Unted
States, 75 C. Cs., 633, 59 ed. (2d), 842 Ct D. 596, C. . I-2, 373 .) In
addton he s estopped by hs own conduct to queston the settement made
at hs request.
It s aso contended that the request and authorzaton of hmsef and hs
attorneys, authorzng the Commssoner to retan and appy a suffcent amount
of the overpayment by hm n respect of hs ta for 1919 n satsfacton of
the addtona ta due n respect of the ncome of hs wfe for 1919, const-
tuted a transfer or assgnment of a cam whch he had aganst the Unted
States and such assgnment was nu and vod under secton 3477 of the
Revsed Statutes, and that the amount of 157,080.46 of hs 1919 overpayment
so apped shoud therefore be refunded. In our opnon the provson of sec-
ton 3477, Revsed Statutes, has no appcaton here. Ths secton was n-
tended to prevent frauds upon the Treasury of the Unted States n the pay-
ment of cams by the Government and a transfers and assgnments of any
cam upon the Unted States or any order for recevng payment thereof by
the transferee were decared vod so that ony the orgna camant coud
prosecute the cam and receve payment, e cept n cases where the assgn-
ment was e ecuted after the aowance of the cam, the ascertanment of the
amount due. and the ssuance of a warrant to the orgna camant for pay-
ment thereof. In ths case there was no probabty that the Unted States
coud suffer n|ury n respect of the overpayment of the ta by pantff on
hs ncome for 1919. e dd not assgn hs cam aganst the Government to
hs overpayment of ta to some other person who mght attempt to coect
t from the Government, but, on the contrary, he requested and authorzed
the Government to retan a porton of the amount due hm as an orgna
cam, n payment and satsfacton of the amount of the ta due the Govern-
ment n respect of the ncome of hs wfe. Mary Mur, for 1919, for the pay-
ment of whch under the aw he was abe as e ecutor of her estate at tho
tme ho made the request and gave the authorzaton.
Secton 3477 of the Revsed Statutes was enacted ns a protectve measure
to the Government n defendng cams aganst t and was not Intended, as t
s here attempted to be apped, as an nstrument for prosecutng a cam
aganst the Government for an amount to whch the camant s not otherwse
entted. The petton must be dsmssed. It s so ordered.
S CTIONS 277 ND 278. P RIOD O LIMIT TION UPON
SS SSM NT ND COLL CTION O T .
fsttce 1271: Perod of mtaton upon assess- II-28-6285
ment of ta . Ct. D. 698
INCOM T R NU CT O 1021 D CISION O COURT.
Waver adty Sgnature or Commssoner.
n assessment and coecton waver coverng the years 1917
and 1918, e ecuted by the ta payer In 1923, was not rendered
neffectve by the fact that the sgnature of the Commssoner
was not paced upon t unt 1930, after the e praton of the
perod of mtaton, where, durng the perod covered by the
waver, the ta payer had benefted by the Commssoner s re-
ance thereon, the returns for the years 1917 to 1921 havng been
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231
277 and 278, rt. 1271
e amned, consderaton gven to cam for refund and credt, and
overassessment or the year 1018 apped as a credt aganst unpad
ta for the year )17. The wrtten consent of the Commssoner,
requred by the statute, was suffcenty evdenced by the ndorse-
ment of the word waver upon the assessment st.
Coubt of Cams of the Unted States.
I. II. Steams Co. v. The Unted States.
March 13. 1933.
opnon.
Whaey, udge, devered the opnon of the court.
The pantff brngs ths sut to recover an overpayment of 14,928.07 found
by the Commssoner due the pantff for the ta abe year 1918 and apped
to a defcency for the year 1917. t the tme of the appcaton the pantff
had ed a waver sgned by t, but the sgnature of the Commssoner was not
paced thereon unt severa years after the ta abty for the years n
queston had been fnay ad|usted.
or the fsca years t 17 and 1918 pantff fed ts ncome and ncome and
profts ta returns and pad the ta es theren dscosed. The 5-year perod
provded for n secton 2oO(,d) of the evenue ct of 1921, n whch coecton
coud be made for any addtona assessment on the 1917 return, e pred
pr 10, 1923, uness both the Commssoner and the ta payer consent n
wrtng to a ater determnaton, assessment, and coecton of the ta .
In ebruary, 1921, the pantff e ecuted an unmted waver, and the Com-
mssoner sgned ths waver on ebruary 0, 1923. Ths waver e pred on
pr 1, 1924, under the provsons of the Commssoner s mmeograph etter
3085 (C. . II-, 174).
The 5-year mt on the 1918 return for addtona assessment e pred uno
19, 1924. The pantff, therefore, on ebruary 19, 1923, e ecuted another
waver coverng both the year 1917 and the year 1918 and, nstead of beng
unmted n tme, e pred by ts terms on March 1, 1925. On une 26, 1923,
the Commssoner of Interna evenue made an addtona assessment aganst
the pantff for the fsca year ended uy 31, 1917, n the sum of 22,189.10.
oowng ths assessment the pantff ted on ugust 9, 1023, a cam for
refund and credt for the four fsca years, commencng ugust 1, 1917, and
endng uy 31, 1921.
fter an audt of the varous years covered by the cam for refund and
credt, the Commssoner on March 1, 1924, one month before the frst waver
had e pred, and wthn the perod of the second waver, approved a schedue
of overassessments, ncudng an overassessment n favor of pantff for
14,928.07, and transmtted t to the approprate coector for acton n accord-
ance wth the drectons appearng thereon. On une 12, 1924, the coector
returned the sad schedue wth hs certfcaton of the appcaton of the credt
n accordance wth nstructons and aso forwarded to the Commssoner at
the same tme a schedue of refunds and credts on whch the sad overpay-
ment n favor of pantff was shown as havng been credted. The Comms-
soner sgned the schedue of refunds and credts une 28, 1924, and trans-
mtted a certfcate of overassessment to pantff. The sad overpayment was
thus apped as a credt aganst the remanng unpad ta abty for the fsca
year endng uy 31, 1917, reducng the outstandng abty for that year to
5,829.07, whch was pad September 15, 1924, after a second notce and demand
on September 1, 1924. The Commssoner s sgnature was not paced on the
waver of ebruary 19, 1923, unt pr 7, 1930.
On May 16, 1930, the pantff fed two cams for refund, each n the amount
of 14,928.07 for the fsca years ended uy 31, 1917, and uy 31, 1918,
respectvey.
The soe contenton of the pantff s that the sgnature of the Commssoner,
havng been paced on the waver many years after the perod for assessment
and coecton, was neffectve for the vadaton of such coecton. The purpose
of a waver s to e tend the tme f ed by statute n whch an assessment and
coecton coud be made by the Commssoner and the desre of the ta payer n
e ecutng t s to have hs returns carefuy and deberatey e amned and
audted for the years n queston so he can receve the beneft of any errors,
overassessments, and correctons of aeged underpayment. The statute does
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85277 and 278, rt. 1271 .
232
not requre or demand that the actua waver e ecuted by pantff be sgned
by the Commssoner. It ony provdes both Commssoner and ta payer con-
sent n wrtng to a ater determnaton, assessment, and coecton.
When the addtona assessment was made une 26, 1923, the statute had
not run even under the frst waver, whch dd not e pre unt pr 1, 1924,
and coecton coud, and undoubtedy woud, have been then made had t not
been for the acton of pantff n fng a cam for refund and credt n ugust,
1923, at or about the tme demand was beng made for the payment of the
ta . s a resut of the fng of the cam, a consderaton of whch neces-
stated an e amnaton of pantff s returns for four years begnnng n 1917
and endng n 1921, and thus mght we have requred, and dd requre, more
tme than remaned unt the frst waver e pred, t s certany reasonabe
to say that n such consderaton the Commssoner reed upon the second
waver whch was then on fe.
It s thus evdent that pantff benefted, at ts own request, by the actons
of the Commssoner under the second waver. Coecton of 20,757.14 was
wthhed from ugust, 1923, unt September, 1924, when, as a resut of the
appcaton of the credt, pantff had to pay ony 5,829.07. The frst waver
ncuded ony the year 1917 and the second waver ncuded both 1917 and
1918 ceary the Commssoner acted under the greater whch ncuded the
esser n the number of ta abe years and n tme e tenson. The pantff
derved an advantage by the e ecuton of the waver. In the case of Lberty
akng Co. v. ener (37 ed. (2d), 703 Ct. D. 194, C. . I -1, 231 ), the
court sad:
t woud be unconsconabe to aow the ta payer to afterwards
repudate a consent upon whch the Commssoner has acted and reed. It
appears that, n the crcumstances, the e ecuton of the wavers was a neces-
sary ncdent to the securng of further consderaton of the pantff s ta
abty.
The pantff n ths case accepted the benefts of the Commssoner s acts
under the waver and for amost seven years dd nothng to ndcate the ack
of the sgnature of the Commssoner on the waver before Its e praton n
any way affected Its bndng effect. It was not unt the sgnature of the
Commssoner was paced on the waver more than s years after the coecton
had been made that the pantff fed a refund cam for the amount of the
overassessmeut for the fsca year 1918, and wthn four days thereafter sut
was commenced n ths court. The statutory perod of s months n whch
the Commssoner has to pass on a refund cam before sut can be commenced
was gnored. The sut s based on an account stated. ( ontct-Tecr Co. v.
Unted States, 283 U. S., 258 Ct. D. 334, C. . -, 328 .)
If the waver gven on ebruary 19, 1923, s vad and bndng a the acts
of the Commssoner are tmey and proper. In our opnon the contenton of
the pantff s wthout mert and most technca In nature and effect. There Is
nothng n the statute whch requres the Commssoner to gve hs consent In
any partcuar tme or perod to the waver. It Is not dsputed that he dd
sgn the waver. The contenton s ds sgnature was not paced thereon unt
the e tenson perod named n the waver had e pred. ut when settement
was made and for many years afterwards whe the waver was wthout the
actua sgnature of the Commssoner, the pantff dd not compan on the
contrary, t accepted the benefts under the waver, and no acton was taken
unt the sgnature was attached years afterwards.
In cpse Lawn Mover Co. v. Unted States, No. 10, decded by ds court
November 14, 1932 Ct. D. 629, C. . II-1, 292 , the proof was that a waver
had been fed n response to a wrtten request by the Commssoner and had
been mspaced and coud not be produced n evdence. The assessment st,
as n the nstant case, was ndorsed waver. The court hed that the sgnng
of the assessment st by the Commssoner wth the ndorsement waver on
t was suffcent under the statute. In the present case the assessment st
contaned the word waver. It s contended that ony the frst waver was
meant by the use of ths word. ut we can see no reason for such an mpca-
ton and restrcton of ts use. oth wavers were on fe at the tme and the
second waver ncuded both years under controversy, and, n our opnon, the
ntendment by the use of the word apped to the second and not to the frst
waver whch ony covered the one year.
In Sabn v. Unted States (70 C. Cs., 574) ths court hed vad a waver
wnch the ta payer had attempted, by wrtten Instrument, to revoke pror to
the ndorsement thereon of the Commssoner s approva. The court sad:
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233
277 and278, rt. 127L
The statute does not requre that a consent, n order to be vad, must be
n one nstrument or that t sha be In any partcuar form. that Is
requred s that the consent be evdenced n wrtng.
The statute requres no more than that there sha be wrtten evdence of
the fact that both partes understand that the mtaton perod specfed n the
statute s not to govern the matter and, therefore, that when a date to whch
the perod has been e tended s specfed there sha be a compete understand-
ng about t. No date was specfed n the waver n ths case but the wrtngs
eave no doubt as to the understandng of the partes that the perod specfed
In the statute was not to contro.
In the nstant case both partes had a cear understandng that the statutory
perod had been e tended and both acted upon that understandng. or years
the pantff was satsfed and contented wth the understandng. ut by some
mysterous channe, after s years the pantff earns the Commssoner has
paced hs sgnature to the waver and then for the frst tme he compans
about what was the understandng. No compant was made whe hs sgnature
was ackng.
ta payer can e ecute a vountary waver after the statutory mtaton
has e pred. (Stanoe v. Unted States, 68 C. Cs., 395, 2S2 U. S., 270 Ct. D.
274, C. . -, 414 .)
In the case of Trustees for Oho g Sandy Coa Co. (43 ed. (2d), 782),
the court n commentng on a waver gven after the bar had aegedy faen,
sad:
s to the sgnng of the wrtten wavers by the Commssoner, a that s
requred by the statute s that the Commssoner and ta payer consent n
wrtng to the e tenson. ut, apart from ths, the ta payer, by the
e ecuton of the waver, has obtaned deay n the assessment of addtona
ta es and a more deberate and thorough consderaton of the questons n-
voved. Under such crcumstances the ta payer ought not be heard to urge
the bar of the statute, whch t e pressy agreed to wave.
In Commssoner v. nd (52 ed. (2d), 1075 (C. C. . 9)), the court hed
that a waver beng a unatera agreement dd not requre the sgnature of
the Commssoner to gve t effect. It Is unnecessary for us to foow ths
decson to the e tent t goes because In the case before us the Commssoner
dd sgn the waver athough many years had eapsed after ts e praton. The
sgnature of the Commssoner havng been gven to the waver together wth
the other crcumstances of the case, we beeve, and so hod, that the acts of
the Commssoner were vad and proper under a consent n wrtng by both
partes.
The facts n the case of oser v. Ooodce (49 ed. (2d), 391) are very
smar to the facts n ths case and n the Moser case the court hed:
It woud seem by the decsons that the wrtten approva by the Interna
Revenue Commssoner s not deemed ndspensabe to the vadty of a waver.
s was sad n tange v. Unted States, herenabove cted: waver s not a
contract, and the provson requrng the Commssoner s sgnature was n-
serted for purey admnstratve purposes and not to convert nto a contract
what s essentay a vountary, unatera waver of a defense by a ta payer.
so n ken v. urnet Ct. D. 275, C. . -, 471 , above cted: The requre-
ment n secton 250(d) of that ct that the Commssoner sgn the consent
was nserted to meet e gences of admnstraton, and not as a grant of
authorty to contract for wavers. It shoud be hed, In my opnon, that where
a ta payer deposts wth the Interna Revenue Commssoner a wrtten waver
In due form and that waver s accepted and acted upon, the date when the
Commssoner actuay ndorses thereon hs wrtten approva does not change
the date when the waver becomes effectve.
In our opnon the petton shoud be dsmssed. It s so ordered.
rtce 1271: Perod of mtaton upon assessment of ta .
R NU CT O 1918.
stoppe, where waver sgned by successor corporaton pror to
e praton of mtaton perod. (See Ct. D. 764, page 246.)
87408 84 16
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1001.
234
S CTION 280. CL IMS G INST TR NS-
RR D SS TS.
rtce 1291: Cams n cases of transferred assets.
R NU CT O 1926.
Wavers e ecuted and pettons fed wth oard of Ta ppeas
by offcers of transferee company, n the name and under the sea of
dssoved transferor company. (See Ct. D. 703, page 227.)
S CTION 284. CR DITS ND R UNDS.
rtce 1302: batement, credt, and refund ad|ustments.
R NU CT O 1921.
Duty of the Government when refund s aowed to deduct ta es
due for other years, and the ta payer s recproca duty not to retan
refund from whch such deducton has not been made. (See Ct. D.
099, page 146.)
rtce 1304: Cams for refund by ta payers.
R NU CT O 1928.
Overpayment of pantff s ta credted aganst addtona ta
assessed aganst hs deceased wfe. (See Ct. D. 737, page 229.)
rtce 1304: Cams for refund by ta payers.
R NU CT O 1926 ND PRIOR R NU CTS.
Refund cams and amendments thereto. (See Mm. 4092, page 96.)
TITL . O RD O T PP LS.
S CTION 1001. COURT R I W O O RD S D CISION.
Secton 1001. II-30-0310
( so Secton 233, rtce 548.) Ct.D. 707
INCOM T R NU CT O 1920 D CISION O COURT.
1. ursdcton of Court Petton foe Revew Moton to a-
cate Decson.
petton for revew of a decson of the oard of Ta ppeas,
fed more than s months after such decson, was tmey, beng
wthn s months after dena by the oard of a moton to vacate
the decson. Such moton, tmey fed, suspended the runnng
of the perod aowed by secton 1001 of the Revenue ct of 1926,
wthn whch petton for revew mght be fed, unt dsposton
of the moton.
2. Corporaton Sae of ssets.
Where the board of drectors of a qudatng corporaton ap-
ponted ts prncpa stockhoder as agent to receve a assets, make
such dsposton thereof as he saw ft, and pay qudatng dv-
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235
1001.
dends to the stockhoders, and where sae of the assets was ef-
fected by b of sae and deed e ecuted by the corporaton by ts
presdent and secretary, the proft from such sae was ta abe to
the corporaton.
3. Decson Reversed.
The decson of the oard of Ta ppeas (23 . T. ., 463) re-
versed.
Unted States Crcut Court of ppeas, ourth Crcut.
Davd urnet, Commssoner of Interna Revenue, pettoner, v. Le ngton Ice d
Coa Co., respondent.
On petton to revew the decson of the Unted States oard of Ta ppeas.
efore Northcott and Soper, Crcut udges, and Chesnut, Dstrct udge.
anuary 10, 1933.
opnon.
Northoott, Crcut udge: Ths s a petton to revew a decson of the
Unted States oard of Ta ppeas, whch decson s reported n 23 . T. .,
463.
Petton for revew was taken from a decson of the oard of Ta ppeas
entered on May 29, 1931. moton to vacate that decson was dened by the
oard of Ta ppeas on December 1, 1931. The case s brought to ths court
by petton for revew fed May 27, 1932, pursuant to the provsons of sectons
1001-1003 of the Revenue ct of 1926 (ch. 27, 44 Stat., 9, 109-110).
On November 6, 1926, respondent corporaton had s stockhoders, of whom
fve consttuted ts board of drectors. T. S. anes was the prncpa stock-
hoder and owned 122 shares out of a tota of 165 shares. anes was secretary
and treasurer and was In the actve management and contro of the corporaton s
property.
On November 6, 1926, a of the stockhoders met and adopted the foowng
resouton:
Resoved, that the board of drectors be Instructed to take such acton as
n ther opnon w be to the best nterests of the stockhoders, ookng to the
qudaton of ths corporaton.
Thereafter, on the same day, the board of drectors met and adopted a
resouton n the foowng terms:
Resoved, that the Le ngton Ice Coa Co. cease operatons as a corpora-
ton on December 14, 1926, and that Mr. T. S. anes Is hereby apponted as
agent for the stockhoders to receve a assets n knd from sad corporaton,
and that he s hereby nstructed to make such dsposton of the sad assets as
he may see ft. That the offcers of the corporaton are hereby nstructed to
make deed to the rea estate ether to T. S. anes gent, for the stockhoders
or drect to any party named by the sad Mr. nnes.
Lqudaton dvdends sha be pad by Mr. anes, as funds become ava-
abe, to the stockhoders of record at date of dssouton accordng to ther
varous hodngs.
fter the adopton of the resoutons of November 6, 1920, there was no other
meetng of ether the stockhoders or the board of drectors.
On November 16, 1926, nnes (sgnng n hs ndvdua capacty) entered nto
a contract wth Southeastern Ice Uttes Corporaton (herenafter caed the
Uttes Corporaton) to se to It certan property, whch, wth mnor e cep-
tons, embraced a of the assets of the respondent.
On December 11, 1926, anes, sgnng T. S. anes, Trustee, devered to the
Uttes Corporaton a b of sae to the property descrbed n the contract of
November 16, 1926. On the same day a deed for the rea estate of the ta -
payer was e ecuted by the ta payer corporaton by . N. Ncese as presdent
and T. S. nnes as secretary, and a b of sae of the property mentoned n the
contract of November 26, 1926, and n the b of sae e ecuted by anes on that
day, was e ecuted n the name of the ta payer by Neese as presdent and anes
as secretary.
Payment for the property so conveyed to the Uttes Corporaton, n the
amount of 38,500, was made In 1926 by check payabe n the name of the ta -
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1001.
236
payer corporaton and deposted In Its name. Such amount was pad out by
checks n the corporaton s name, frst to credtors and then rataby to the
stockhoders.
The corporaton was fnay dssoved n May, 1927.
The Commssoner of Interna Revenue determned that the ta payer had sod
ts property and reazed a proft thereon, and assessed a defcency In the
amount of 2,796.05. The oard of Ta ppeas hed that the assets of the
respondent were transferred to anes before the sae was made to the Uttes
Corporaton, and entered ts order of no defcency.
Thereafter a moton to vacate that decson was made on the ground that
the oard n the meanwhe had decared that t had wrongy decded ths case.
That moton was dened.
The frst queston presented s as to the |ursdcton of ths court to hear
the appea, t beng urged on behaf of the respondent that the petton for
revew was fed too ate and was not fed n accordance wrth secton 1001 of the
Revenue ct of 1026. Ths secton reads as foows:
The decson of the oard rendered after the enactment of ths ct (e cept
as provded n subdvson (|) of secton 283 and subdvson (h) of secton 318)
may be revewed by a Crcut Court of ppeas or the Court of ppeas of the
Dstrct of Coumba as herenafter provded, f a petton for such revew s
fed by ether the Commssoner or the ta payer wthn s months after the
decson was rendered.
The e ceptons referred to n the secton above quoted have no bearng upon
the questons now beng dscussed.
Secton C01 of the Revenue ct of 1928 provdes:
(d) decson of the oard (e cept a decson dsmssng a proceedng for
ack of |ursdcton) sha be hed to be rendered upon the date that an order
specfyng the amount of the defcency s entered n the records of the oard.
If the oard dsmsses a proceedng for reasons other than ack of |ursdcton
and s unabe from the record to determne the amount of the defcency deter-
mned by the Commssoner, or f the oard dsmsses a proceedng for ack of
|ursdcton, an order to that effect sha be entered n the records of the oard,
and the decson of the oard sha be hed to be rendered upon the date of
such entry.
We are of the opnon that the petton was fed n tme. smar queston
was before the Crcut Court of ppeas for the Seventh Crcut (Grffths v.
Commssoner, 50 ed. (2d), 782), and n consderng t the court sad:
Respondent has fed a moton to dsmss the appea on the ground that the
petton for revew of the oard s order of redetermnaton was receved and
odged wth the oard on September 30, 1929, whch was one day after the
e praton of s months from the date of the order of redetermnaton, and
hence was beyond the tme granted by statute n whch a petton for revew
may be fed. (Sectons 1001, 1005(a), Revenue ct of 1926, ch. 27, 44 Stat., 9
(2(3 U. S. C. ., sectons 1224, 1228(a).))
It s pettoner s contenton, however, that snce Ids petton for a rehearng
fed on uy 8, 1929, was not dened unt September 20, 1929, hs tme for
fng a petton for revew was thereby e tended for s months from the ast-
named date. It s conceded by respondent that n the edera courts the fng
of a moton to reopen or vacate a |udgment or decson stops the runnng of the
tme for appea, and that t begns to run anew from the tme the moton s ds-
posed of. (Morse v. Unted States, 270 U. S., 151, 40 S. Ct., 241, 70 L. d., 518.)
Respondent nssts, however, that ths we-estabshed practce s not suffcent
to overrde the pan words of the statutes, whch provde that the appea must
he taken wthn s months after the decson s rendered, and that the decson
sha become fna upon the e praton of the tme aowed for fng a petton
tor revew, f no such petton has been duy fed wthn such tme.
Wth respondent s contenton we are unabe to agree, and we see no reason
why the genera and unform rue shoud not be apped to these statutes n the
same manner as apped to other smar statutes. In Morse v. Unted States,
supra, the statute under dscusson provdes that a appeas from the Court of
Cams sha be taken wthn 90 days after |udgment s rendered and If a
moton for a new tra or a petton for a rehearng was duy and seasonaby
fed t suspends the runnng of the statute, and the tme wthn whch the
proceedng must be ntated begns from the date of the dena of ether the
moton or petton.
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237
1001
nd In the Morse case above referred to Chef ustce Taft sad:
There s no doubt under the decsons and practce n ths court that where
a moton for a new tra n a court of aw, or a petton for a rehearng n a
court of equty, s duy and seasonaby fed, t suspends the runnng of the
tme for takng a wrt of error or an appea, and that the tme wthn whch
the proceedng to revew must be ntated begns from the date of the dena
of ether the moton or petton. ( rockctt v. rockctt, 2 ow., 238, 241
Raroad Company v. radcys, 7 Wa., 575, 578 Memphs v. rown, 94 U. S.,
715, 718 Te as Pacfc Rahcay v. Murphy, 111 U. S., 488, 489 spen Mnng
d Smetng Co. v. ngs, 150 U. S., 31, 36 ngman v. Western Manufactur-
ng Co., 170 U. S., 075, 678 Unted States v. ott, 223 U. S., 524, 539 ndrews
v. rgnan Rahcay, 248 U. S., 272 Chcago, reat Western Raway v.
asham, 249 U. S., 164, 167.) The suspenson of the runnng of the perod
mted for the aowance of an appea, after a |udgment has been entered,
depends upon the due and seasonabe fng of the moton for a new tra or
the petton for rehearng. In ths case after the frst moton for a new tra
had been overrued, on May 4, 1924, no moton for a new tra coud be duy and
seasonaby ted under rue 90 of the Court of Cams, e cept upon eave of the
Court of Cams. Ths eave, though apped for twce, was not granted.
ppcatons for eave dd not suspend the runnng of the 90 days after the
dena of the moton for a new tra wthn whch the appcaton for appea
must have been made. or that reason, the moton of the Government to ds-
mss the appea as not n tme, and so for ack of |ursdcton, must be granted.
though the Supreme Court has ndcated that the oard of Ta ppeas
s not a court (Od Coony Trust Co. v. Commssoner, 279 U. S., 716 Ct. D. 80,
C. . III-2, 222 ) ts work s of a |udca character ( ar v. Ostcren
Machne Co., 275 U. S., 220 T. D. 4120, C. . II-1, 181 ), and we are of the
opnon that the rue governng appeas from courts shoud preva us to appeas
from the decson of the oard.
It s famar aw that a decson s not fna, wthn the meanng of the
statute provdng for an appea, unt dsposton of an appcaton for rehear-
ng or reconsderaton seasonaby made and entertaned. (Ctng cases.)
(Unted States e rc. Dascomb v. oard of Ta ppeas, 16 ed. (2d), 337.)
The deay on the part of the pettoner n presentng the moton to vacate
the opnon and decson s accounted for by the fact that on November 5,
1931, the oard of Ta ppeas handed down an opnon e pressy repudatng
Its decson n the present case. ( eebush et /., Trustees, v. Commssoner,
24 . T. ., 660.) In the eebush case the oard sad:
We are aware that the decson we have reached In ths proceedng appears
to be n confct wth our decson n Le ngton Ice f Coa Co. (23 . T. .,
463). We thnk our decson n that case was wrong and shoud not be foowed
n the future.
fter ths the respondent fed ts moton to vacate. Ths was done 23 days
after the decson of the oard n the eebush case and was reasonaby
prompt. The moton to vacate was not passed on by the oard as a whoe
but ony by the member who wrote the opnon n the present case. ust why
ths shoud have been the case we are at a oss to understand, but such s the
stuaton presented by the record.
The oard of Ta ppeas bus apparenty not adopted rues specfcay
deang wth rehearngs or motons to vacate (athough t s apparent to us
that t shoud do so) but such pettons and motons are often fed wth the
oard and are receved and acted upon |ust as n ths case. In the absence
of a rue we are of the opnon that the moton to vacate was fed n tme and
that ts fng prevented the decson of the ourd from becomng fna unt the
moton to vacate was passed upon. Were ths not the proper rue t s con-
cevabe that a petton for a rehearng or a moton to vacate mght be pendng
before the oard of Ta ppeas when the petton for revew woud have
been aready fed n a hgher court, a stuaton not consstent wth the usua
rue governng procedure of appeas.
The soe queston presented upon the merts s whether the sae of the assets
of the respondent company was made by the company or whether the resou-
tons of the stockhoders and of the board of drectors consttuted such a trans-
fer of the assets so that the sae was made by anes nstead of the company.
Under the aw of North Carona, a corporaton contnues for three years to
be a body corporate for the purpose of dsposng of ts property and dvdng
ts assets. Secton 1193, Code of North Carona 1931. Ths statute s appca-
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1002.
238
be to any corporaton. (Worthngton v. Gmers, 190 N. C, 128, 129 Smathert
v. ank, 135 N. C, 410, 413 Genera ectrc Co. v. West sheve Imp. Co.,
73 ed., 386.)
rtce 548 of Treasury Reguatons 09 provdes:
When a corporaton s dssoved, ts affars are usuay wound up by a
recever or trustees n dssouton. The corporate e stence s contnued for
the purpose of qudatng the assets and payng the debts, and such recever or
trustees stand n the stead of the corporaton for such purposes . ny
saes of property by them are to be treated as f made by the corporaton for
the purpose of ascertanng the gan or oss. No gan or oss s reazed by a
corporaton from the mere dstrbuton of ts assets n knd upon dssouton,
however they may have apprecated or deprecated n vaue snce ther acqus-
ton .
Reguatons of ths character when reasonabe shoud be gven effect. (Un-
versa ISattcry Co. v. Unted States, 2S1 U. S., 580 Ct D. 220, C. . I -2, 422 .)
s rected above, the oard of Ta ppeas n the case of ecbush et a.,
Trustees, v. Commssoner, supra, has reversed ths decson n the nstant case
and decded that a sae made under smar crcumstances was a sae by the
company. smar queston was before the Crcut Court of ppeas of the
fth Crcut n Tayor O Gas Co. v. Commssoner (47 . (2d), 10S) (cer-
torar dened, 2S3 U. S., 802), where the court sad:
Concedng for the purpose of argument that the ega tte to the property
vested n the trustees by the dssouton, no part of the tte passed to the
stockhoders thereby. The rea owner was st the company unt such tme as
Its affars were qudated, the debts pad, and the resdue dstrbuted to the
stockhoders. The proft on the transacton was earned by the corporaton,
and the assessment of the ta es based thereon was vad.
We agree wth the concuson reached n the Tayor O Gas Co. case and
by the oard of Ta ppeas n Its more recent decsons that the sae was a
sae by the ta payer company and the profts were propery ta abe.
It s contended on behaf of the ta payer that the concuson reached by (he
oard of Ta ppeas n the present case Is a fndng of fact not to be ds-
turbed when supported by testmony but here the facts are a admtted and n
no sense dsputed, and the concuson of the oard s a concuson of aw prop-
ery revewabe by us.
The petton to revew was fed seasonaby and the decson of the oard
of Ta ppeas s reversed.
S CTION 1002. NU .
Secton 1002. II-34-G357
Ct.D. 720
INCOM T R NG CT O 1920 D CISION O COURT.
1. enue Petton fob Revew.
The Crcut Court of ppeas for the Second Crcut has no |urs-
dcton to revew an order of the oard of Ta ppeas nvovng
ncome ta of an estate of a Massachusetts decedent, where the
ta return had been fed by the e ecutors wth the coector for
the dstrct of Massachusetts. The fact that one of the e ecutors
resdes n New York does not gve the second crcut |ursdcton.
Secton 225(b) of the Revenue ct of 192G, provdng that a return
by one of two or more |ont fducares may be fed n the oee
of the coector of the dstrct where such fducary resdes can not
be taken as cuttng down the e pct provson of secton 1002(b),
whch states that a decson of the oard may be revewed, n the
case of a person (other than an ndvdua), by the crcut court
for the crcut n whch s ocated the offce of the coector to
whom such person made the return. n estate s regarded as a
person (other than an ndvdua) wthn the meanng of the
atter secton.
2. Certorar Dened.
Petton for wrt of certorar was dened by the Supreme Court
on May 15, 1933 (53 S. Ct., 696).
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239
1002,
Unted States Crcut Coubt of ppeas fob the Second Crcut.
ames C. yer, Chares . yer, and rederck yer, ecutors and Trustees
of the state of rederck yer, Deceased, pettoners, v. Commssoner of
Interna Revenue, respondent.
Petton to revew an order of the oard of Ta ppeas f ng a defcency In Income
ta es aganst the pettoners for the year 1925.
efore L. and, Swan, and Chase, Crcut udges.
ebruary 14, 1933.
opnon.
L. and, Crcut udge: rederck yer, a resdent and nhabtant of Massa-
chusetts, ded n 1918, by ds w appontng the three pettoners hs e ecutors.
They quafed, but hs estate was so deayed n admnstraton, that durng the
year 1925 they were st hodng t as such. They fed an ncome ta return
as e ecutors for that year n the dstrct of Massachusetts, on whch the Com-
mssoner ater assessed a defcency, at a tme when they had been dscharged
as e ecutors, and had taken over the estate as trustees. s such trustees they
fed a petton wth the oard of Ta ppeas to revew the defcency, whch
the oard reduced, but f ed at 1,492.26. Ths order was entered on Septem-
ber 24, 1932, and on November 1 of that year the pettoners as e ecutors
and trustees fed ths petton to revew the order of the oard. t that
tme two of them were resdents and nhabtants of Massachusetts, and the
thrd, a resdent and nhabtant of New York.
We thnk that ths court has no |ursdcton over the ca.se. Secton 1002(a)
of the ct of 3926 provdes that n the case of an ndvdua, the decson
of the oard sha be revewed by the Crcut Court of ppeas for the
crcut whereof he s an nhabtant, or f not an nhabtant of any crcut,
then by the Court of ppeas of the Dstrct of Coumba. Secton 1002(b)
provdes for revew In the case of a person (other than an ndvdua)
by the Crcut Court of ppeas for the crcut n whch s ocated
the offce of the coector to whom such person made the return, and n case
such person made no return, then by the Court of ppeas of the Dstrct of
Coumba. The word erson s defned n secton 2 of the ct as meanng
an ndvdua, a trust or estate, a partnershp or a corporaton. Thus sec-
ton 1002(b) s to be construed as though t read n case of a trust or estate,
a partnershp or a corporaton, and as ths s the case of an estate, the ony
crcut n whch the petton shoud have been fed was that n whch the
estate pettonng had fed Its return. That was Massachusetts, and the
frst crcut aone had |ursdcton.
The pettoners argue that ths resut s forbdden by secton 225(b) of the
ct of 1926, whch provdes for returns by fducares of whch an e ecutor s
one (secton 200(b)). The concudng anguage of secton 225(b) on whch
they rey s: ny fducary requred to make a return under ths ct sha
be sub|ect to a the provsons of ths ct whch appy to ndvduas. It
seems to us cear that ths can not be taken as cuttng down the e pct pro-
vson for appeas from the oard of Ta ppeas. ducares are ndeed to
fe returns as ndvduas, and be n genera sub|ect to the same procedure
as they, but the dstncton between an ndvdua and any person other
than an ndvdua, made by sectons 1002(a) and 1002(b) s too partcuar
not to preva aganst that genera provson. The pace where an estate s
return s to be fed s the resdence of the e ecutor (secton 227(b)), though
f there are more than one, any one of them may seect hs own resdence for
that purpose, sub|ect to the Commssoner s reguatons (secton 225(b)). ut
t was apparenty ntended that, havng once seected the pace where tho
return shoud be fed, the opton was at an end fducares must revew the
ta there they were not free thereafter to go to another crcut whch mght
seem more favorabe or convenent, even though one of them ved there.
We are pressed wth our decson n Matheson v. Com r (54 ed. (2d), 537),
and that of the seventh crcut n Rusk v. Com r (53 ed. (2d), 428). In
the frst of these the testator had fed hs return where he ved, and had
ded after fng a petton of revew wth the oard. fter ts decson the
e ecutors fed ther petton n the crcut where the return had been fed
and where one of them ved. The argument of the Treasury was that as the
e ecutors ved In severa crcuts, they were not coectvey nhabtants of
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1003 and 1004.
240
any crcut, and must go to the Dstrct of Coumba and ths we re|ected.
It s to be observed that t was not possbe to brng such a stuaton wthn
the frst cause of secton 1002(b), because the e ecutors had not fed any
return, as they have n the case at bar. Moreover, t woud have been a per-
verson of the ntent of the words to appy to them the ast cause of that
secton. tera readng woud resut n hodng that athough the ta payer
hud fed hs return wth the coector where he resded, even hs snge e ecu-
tor, aso resdent n the same dstrct, must go to the Dstrct of Coumba to
revew the oard s decson, because he had made no return. That woud
certany have upset the pan of secton 1002, as a whoe, whch made resdence
or fng the test of |ursdcton. Thus we had ether to hod that subdvson
(a) apped when the ta payer had fed the return and ded pendng appea
to the oard, or there was no rght of appea at a, e cept one whch msap-
ped the whoe scheme of the ct. In that emergency we used secton 1002 (a Y,
sayng that the e ecutors were pro hac vce ndvduas. In effect what we
dd was to treat both proceedngs to revew the Commssoner as snge, and
aow a revvor when the orgna appeant ded durng the frst appea. In
Rusk v. Com r, supra (03 ed, (2d), 428), the ta payer ded after rng a
petton to revew the oard s decson. That was strcty a revvor.
ere, however, secton 1002(b) appes n fu the pettoners fed the
return n Massachusetts they were persons (other than ndvduas). Un-
ess we are to construe the secton as coverng such a case, t appes ony to
corporatons, for partnershps us such are not ta ed, and can have no def-
cences to revew. If a that was meant was to provde for revew by cor-
poratons, t was e traordnary not to name them, and to descrbe them by so
cumbersome a ocuton. We concude therefore that the petton was fed n
the wrong crcut, and that we have no |ursdcton.
Petton dsmssed for ack of |ursdcton.
S CTIONS 1003 ND 1004. URISDICTION.
Sectons 1003 and 1004. II-49-6547
Ct. D. 760
INCOM T R NU CT O 1924 D CISION O COURT.
1. oard of Ta ppeas ndng of act auaton op
Mortgage Notes Revew of oard s ndng.
Where the owner of and n orda, vaued at 40,000 as a dary
farm, sod t n 1025 to a purchaser who bought for subdvson
purposes, recevng 60,000 n cash and the baance of the purchase
prce of 237,500 n notes maturng over a perod of fve years,
but the purchaser s pro|ect faed owng to the coapse of the
and boom and the former owner remaned In possesson and con-
tnued to use the property as a farm, the fndng of the oard
of Ta ppeas that the notes had a far market vaue of 20,000
was sustaned by evdence of the vaue of the property for dary
purposes, and such fndng may not be reversed by the court.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (23 . T. ., 579)
afrmed.
Unted States Crcut Court of ppeas for the fth Crcut.
Ives Dary, Inc., pettoner, v. Commssoner of Interna Revenue, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas (Dstrct of
orda).
efore ryan, oster, and Sbey, Crcut udges.
May 24, 1933.
opnon.
oster, Crcut udge: Ths petton to revew a decson of the oard of
Ta ppeas presents purey a queston of fact. The fndngs and opnon of
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241
1003 and 1004.
the oard reported In 23 . T. ., 579, fuy cover the case and we may refer
thereto for the facts n deta.
refy stated, the matera facts are these: Pettoner owns some 485 acres
of and, ocated about 17 mes north of Mam, a. It had been acqured
pror to 1924 at a cost of 27,600. The and was used as a dary farm and
Improvements for that purpose had been paced on t. These mprovements
had a deprecated vaue of 13,266.71 n 1925 and the whoe property was
carred on the books of pettoner at a vaue of 40,860.71. In 1925 the entre
property was sod to Lorran G. Smth for 237,500, 60,000 cash and the ba-
ance represented by ve notes, maturng respectvey on ebruary 15, 1920, to
1930, ncusve, secured by a mortgage on the and and mprovements. In
addton thereto, aso secured by the mortgage, Smth had e ecuted a note for
12,250, representng one-haf of the broker s commsson on the sae, whch he
had agreed to pay. Smth ntended to subdvde the property nto ots, to be
reeased from the mortgage as sod but ths pro|ect faed and the entre prop-
erty remaned n pettoner s possesson and contnued to be used as a dary
farm. In makng ts Income ta return for 1925 pettoner consdered these
notes as havng no far market vaue and dd not ncude them n the proft on
the sae. The Commssoner vaued the notes at ther face amount and treated
the transacton as an Instament sae. On ths bass the Commssoner deter-
mned a defcency of 2,998.93. The oard of Ta ppeas gave a far market
vaue of 20,000 to the notes and redetermned the defcency at 643.37. To
sustan the burden of showng that the notes had no far market vaue pet-
toner Introduced the testmony of seven wtnesses, some bankers and some
rea estate men. These wtnesses f ed the vaue of the property for agrcu-
tura purposes at from 20 to 50 per acre and the testmony tended to show
that n the opnon of the wtnesses the notes coud not be sod wthout recourse
and standng aone were not consdered good coatera for a oan at a bank.
Cason, presdent of pettoner, testfed that the vaue of the property for
agrcutura purposes was 50 per acre that he had made no effort to se the
notes that he had endeavored to use them as coatera for a oan of 15,000
.wth a bank n Mam and the oan was decned uness he woud personay
Indorse the note.
We are not at berty to reverse a decson of the oard of Ta ppeas
based on facts found by the oard f there s any substanta evdence to sus-
tan t. (Phps v. Commssoner, 283 U. S., 580 Ct. D. 350, C. . -, 204 .)
The orda and boom had coapsed and t may be assumed that the property
had no vaue for the purpose for whch Smth purchased t. It may aso be
assumed that Smth was not suffcenty sovent to add any consderabe vaue
to the notes. ut the fact remans that the and and mprovements had a far
vaue of over 40,000 as a dary farm before the sae to Smth and that vaue
had not apprecaby decned. Ths was substanta evdence that the oard
coud consder as opposed to the opnon evdence of the wtnesses. We concur
In the concuson reached by the oard. The petton s dsmssed and the
|udgment of the oard Is affrmed.
Sectons 1003 and 1004. II-40-6432
Ct. D. 739
INCOM T R NU CTS O 1917, M8, ND 1021 D CISION O COURT.
1. vdence Revew of oard s ndngs Partnershp.
fndng of the oard of Ta ppeas that the ta payer, a
partnershp, was composed of ony two members, rather than ve,
as contended by pettoners, beng ether an utmate fact drawn
from other facts found, or a concuson of aw from the facts
found, s revewabe, nud beng ampy supported by the evdence
w not be reversed.
2. Same: raud.
fndng of the oard of Ta ppeas that a return was fase
and frauduent and fed wth the ntent of evadng the ta , f sup-
ported by any substanta evdence, w not be reversed.
3. Decson ffrmed.
The decson of the oard of Ta ppeas (22 . T. ., 1393)
affrmed.
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1003 and 1004.
242
Unted States Crcut Coukt of ppeas, ghth Cmcurr.
No. 9582. . P. Wckham, pettoner, v. Commssoner of Interna Revenue,
respondent.
No. 9583. . P. Wckham, dmnstrator of the state of . . Wckham,
Deceased, pettoner, v. Commssoner of Interna Revenue, respondent.
On petton to revew decsons of Unted States oard of Ta ppeas.
efore Stone, an aucenet|hgt, and ooth, Crcut udges.
May 10, 1933.
OPINION.
ooth, Crcut udge, devered the opnon of the court.
There are here two pettons for revew of a decson and two orders of the
oard of Ta ppeas, one of whch orders redetermned the defcency n the
ncome ta es of . P. Wckham for the years 1917 to 1923, ncusve, and
added a 50 per centum penaty because of fraud wth ntent to evade the ta
the other order redetermned the defcency n the ncome ta es of . . Wck-
ham for the same years. The penaty was abated because of the death of
. . Wckham on March 9, 1925.
The two cases were consodated for hearng before the oard of Ta ppeas
and the two pettons for revew are submtted n ths court upon one record.
The fndngs of the oard of Ta ppeas are set out n the margn.1
1 ndngs or act.
Contnuous snce about 1S88 to 1923, ncusve, . P. Wckham and hs brother . .
Wckham, now deceased, were soe members of a copartnershp rm known as . .
Wckham Co., and were engaged n the budng constructon and pavng busness at
Counc uffs. Iowa. . . Wckham. the busness head of the rm, was a man of
unusua e ecutve and busness abty nnd n domnant fgure n the busness affars of
Counc uffy. e was presdent of two banks n Counc uffs, as we as prncpa
owner and e ecutve head of the Natona Constructon Co. and the Wkkhnm ru2e
Ppe Co.. a corporatons. Under ths management the affars of . . Wckham
Co. prospered and at tmes t carred as much as 100,000 n cash deposts n the banks,
and had assets vaued at not ess than 400,000.
bout 1893 or 1900, eanor Wckham, a sster, became bookkeeper for . . Wckham
Co. and contnued as such up to and ncudng the years nvoved. No contract of
empoyment was entered nto wth eanor Wckham for these dutes, nor other under-
standng had. e cept that . . Wckham tod her, at the tme, that they needed her
n the offce nnd asked her to come n and be n the busness. Later, two brothers.
ohn and Leo Wckham began workng for the frm under smar crcumstances. When
the frst of these brothers came to the frm about 1906 or 1907, . . Wckham sad to
hm: You mght |ust as we go nto the busness, ohn, and a work together. Wo
w a have an utorest n t. Leo, who came n 1916, wan tod by . . Wckham
that they wanted hm to earn the busness and go n wth them and that they
woud gve hm an nterest n the concern. No saares were pad by the partnershp
frm to any of these empoyees nor does the record show the tme they devoted to
ts affars. . however, owned stock n the Natona Constructon Co. and the Wckham
rdge Ppe Co., famy corporatons, smutaneousy operated by them, from whch
they derved substanta dvdends. rom the ast-named corporaton, durng at east
two of these years, eanor Wckham drew a yeary saary of 7,500 as secretary.
of these Wckham brothers drew certan weeky aowances as e penses when out on
the busness of the rm.
On September 17. 1919, ames Wckham. father of these brothers and sster, ded at
the famy homestead n Counc uffs, Iowa. or many years the father had been
assocated wth hs brother O. P. Wckham, n a partnershp frm, as budng contractors
and manufacturers of brck. t the tme of hs death. ames Wchh-m owned certan
undscosed busness nterests and propertes, the tte to whch stood n the names of
. . Wckham and . P. Wckham. and whch had been under the management and
contro of these brothers. On the day foowng the funera of ther father, these chdren
of ames Wckham assembed at the famy homestead and entered Into the foowng
wrtten agreement: Partnershp agreement entered nto ths 21st day of September, 1919.
by and between . . Wckham. . P. Wckham. eanor . Wckham, Leo . Wckham
and ohn . Wckham, a chdren of ames Wckham, decedent, who ded on Septem-
ber 17, 1919, whereby a agree and consent to carry on wthout dvson or nterrupton,
the busness known as the Wckham busness nterests of Counc uffs, Iowa, and othor
ocates, In whch .Tnrues Wckham, decedent, had a workng nterest at the tme of
hs death, the busness havng been managed by . . Wckham and . P. Wckham, the
two odest sons of the decedent, n whose name or names the tte to the propertes was
taken n such manner as seems best suted to the convenence of the busness, and
accordng to the best |udgment of . . Wckham and . P. Wckham. nd we the above-
named chdren of ames Wckham. decedent, ngree to contnue and carry on the busness
In the same manner, as partners, and wthout dvson or Interrupton, uuder the manage-
ment of . . Wckham and . P. Wckham agreeng that a profts and earnngs of
every descrpton and character sha beong 30 per centum to . . Wckham, 30 per
centum to . P. Wckham, 20 per centum to eanor . Wckham, 10 per centum to Leo
. Wckham and 10 per centum to ohn . Wckham. Investments are to be made
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243
1003 and 1004.
The oard of Ta ppeas made no concusons of aw separate from the
fndngs of fact. Counse for pettoner compan of ths omsson as em-
barrassng them n the presentaton of ther argument In ths court.
Whe we apprecate the compant of counse as not warranted, we do
not thnk the omsson s of vta mportance.
The two fndngs of the oard of Ta ppeas whch are attacked by the
pettoner are the frst and the ast, readng as foows:
Contnuous snce about 188S to 1923, ncusve, . P. Wckham and hs
brother . . Wckham, now deceased, were soe members of a copartnershp
frm known as . . Wckham Co. .
The returns fed by the pettoner . P. Wckham for each of the years
nvoved were fase and frauduent and were so made and fed wth the ntent
of evadng the ta .
when deemed advsabe by . . Wckham or . P. Wckham, and It Is further agreed
that ths partnershp agreement sha operate from anuary 1, 1019, and termnate De-
cember 31, 1928, uness termnated by mutua agreement or by death of some of the
partners pror to December 31, 1928.
or the ta abe years here n controversy, the net Income of . . Wckham Co. wa
as foows:
1917 83, 759. 66
1918 160. 744. 18
1919 49, 973. 96
1920 147, 716. 01
1921 173, 498. 21
1922 39, 947. 28
1923 74, 034. 42
Not accounted for In the earnngs shown above s the cost of 15 brck houses but
durng these years from matera and abor supped and pad for by the partnershp, to
whch . . Wckham and . P. Wckham took ont tte each camng a one-haf
nterest.
Tror to 1923 no Income ta return was fed n behaf of . . Wckham Co. nor
dd ether of the two partners, each of whom fed persona ncome ta returns for a
of the years nvoved, report any ncome derved by them from the busness of that
partnershp. Some tme durng 1923 offcas of the Treasury Department began an
Investgaton of the affars of the partnershp of . . Wckham Co., and of the
returns fed by ts members. Some negotatons were had by these offcas and . .
Wckham whch resuted In a postponement of the Investgatons unt the Sprng of
1924. One condton for such postponement was the e ecuton of assessment wavers
by . . and . P. Wckham who represented to the Government offcas that they were
the soe members of the partnershp frm of . . Wckham Co. and consttuted a of the
partes of nterest.
On March 12, 1924, a return for the. caendar year 1923 was fed n behaf of . .
Wckham Co. Ths return represented that frm to be a 2-member partnershp con-
sstng of . . Wckham and . P. Wckham, between whom ts Income amountng to
28,238.06 was apportoned n equ parts. In hs Indvdua Income tu return for
1923, each of these partners reported 14,119.03, or one-haf of the amount shown n the
partnershp return, as ncome receved by hm from the partnershp In 1923. In May,
1924, Robert R. Wade, a certfed pubc accountant, was empoyed to audt the accounts of
the partnershp and to put them n shape for the Government agents. Wade worked
upon accounts about three months and prepared a set-up from the bank depost tckets
and canceed checkR, whch was the ony memoranda found In the offce. These memo-
randa faed to show the true ncome of ths frm by more than 208,000: but, from
them, an amended partnershp return was prepared and fed for the caendar year
1923. On the same date denquent returns for a pror years to and ncudng 1918
were fed. These returns showed . . Wckham Co. to be a 5-member partnershp
wth nterests dvded, upon a percentage bass, among the foowng aeged partners:
Members.
Interest.
30
. . Wckham per centum
. P. Wckham per centum 30
eanor . Wckham per centum 20
I.eo . Wckham per centum 10
ohn . Wckham per centum.- 10
Omtted from such returns were amounts receved by the partnershp for work per-
formed for the cty of Counc uffs, In these years, as foows:
1921 86, 988. 48
1022 ), 002. 33
1923 27, 470. 22
1917 22. 046. 93
1918 24, 700. 90
1919 3.751.32
1920 34,713.17
. P. Wckham and . . Wckham each fed Income ta returns for the years 11118
to 1922. ncusve, but nether reported any Income receved n these years from . .
Wckham Co. or 1923. each of these partners reported recept of 14,119.03 as hs
dstrbutve share of the earnngs of that frm ths beng one-haf of ts reported
earnngs for the perod as sh wn n the partnershp return fed May 13, 1924. On
May 26. 1924, these partners fed amended ncome ta returns for 1923 n whch they
reported ess amounts than formery returned, to wt, 2,874.67 as ther respectve porton
of the partnershp earnngs for 1923. On May 26. 1924. . P. Wckham fed amended
ncome ta returns for 1919, 1020 and 1021, n whch he reported Income receved from
the frm of . . Wckham Co., for these years, n respectve amounts of 15,588.48,
52,103.18. and 22,032.86.
The returns fed by the pettoner . P. Wckham for each of the years Invoved were
fase and frauduent and were so made and fed wth the ntent of evadng the ta .
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1003 and 1004.
244
s to the frst, the pettoner contends that the partnershp durng the years
n queston was composed of ve persons: . . Wckham, . P. Wckham, Leo
. Wckham, ohn . Wckham, brothers, and eanor . Wckham, a sster.
The queston whether a of these ve persons, or ony the frst two of them
made up the partnershp s revewabe. The fndng of the oard of Ta
ppeas on the matter s ether an utmate fact drawn from the other facta
found, or a concuson of aw from the facts found.
s to the other matter, whether . P. Wckham fed frauduent returns
wth ntent to evade the ta es for the years 1917 to 1923, ncusve, our nqury
s mted to whether there s substanta evdence to support the fndng.
M M RS O T P TN S IP.
It s conceded that . . Wckham and . P. Wckham organzed the partner-
shp, . . Wckham Co., about 1S88, and that these persons contnued to
be members of the partnershp durng a the years n queston.
The nqury thus resoves tsef nto the queston whether the three other
persons mentoned became members of the partnershp pror to 1917 and
remaned such unt after 1923.
Commencng wth the year 1888, the frm of . Wckham Co. was
engaged n the busness of pavng, and road and raroad constructon and
pubc work n the cty of Counc uffs.
eanor Wckham, a sster, began to work n the offce of the frm about
1900, accordng to the testmony of . P. Wckham but accordng to the
testmony of eanor hersef, she began In 1893. Whatever the tme, no con-
tract of empoyment was made, but . . Wckham tod her that they needed
her n the busness, and asked her to come n and be n the busness. No
saary was pad her by the frm, nor does t appear what amount of tme she
devoted to the work. Durng at east two of the years now n controversy,
she receved a saary of 7,500 a year from the Wckham rdge Ppe Co.,
argey a famy corporaton, n whch she owned stock.
It s contended by pettoner that a more defnte agreement was entered
nto n wrtng n 1919. Ths w be taken up ater.
ohn and Leo Wckham began workng for the frm ater than eanor, but
under smar crcumstances. They aso owned stock n the Wckham rdge
Ppe Co. and drew substanta dvdends thereon. They aso drew aow-
ances from the frm when out on the busness of the frm.
In 1919 ames Wckham, father of these brothers and sster, ded. e and
hs brother, O. P. Wckham, had for many years been n partnershp carryng
on the busness of contractors and manufacturers of brck. t the tme of hs
death, ames Wckham owned certan busness nterests and propertes whch
had been managed by . . Wckham and . P. Wckham, and the tte to
whch stood n ther names.
Shorty after the death of the father n September, 1919, the sons and
daughter aready mentoned mot at the father s home, where most of them
ved, and entered nto the agreement whch s set -out n the fndngs of the
oard of Ta ppeas.
It s the contenton of pettoner that ths agreement made defnte the terms
of a 5-memher partnershp, . . Wckham Co., aready e stng.
It s the contenton of respondent that the agreement dd not reate to the
partnershp, . . Wckham Co., but to certan busness theretofore carred
on by the father. The oard of Ta ppeas apparenty took ths atter
vew.
The nstrument Itsef ends some support to both vews.
The testmony of . 1 . Wckham, eanor Wckham and ohn P. Wckham
s to the effect that the agreement reated to the partnershp, . . Wckham
Co., aready e stng.
There are, however, other facts whch must be consdered n determnng
the queston whether eanor Wckham, ohn Wckham and Leo ckham
were members of the partnershp of . . Wckham Co. Some of these
reate to occurrences whch were before and some after the agreement of 1919.
No return on behaf of the partnershp was made before May, 1924, for any
year pror to 1923. Yet there was net ncome of the partnershp for a those
years, 1917 to 1922, ncusve, varyng from 33,000 to 173,000.
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245
1003 and 1004.
. . Wckham and . P. Wckham each fed ncome ta returns for the
years 1918 to 1922, ncusve, but nether reported any ncome from the partner-
shp of . . Wckham Co.
In the ndvdua ncome ta return for 1923, Leo . Wckham swore that he
receved a saary of 2,600 from the partnershp, but the return showed no
ncome as a member of the partnershp.
The 1921 ndvdua return of eanor . Wckham reported as ncome from
partnershps none. The same report was made on her 1923 return.
In 1923 the Government agent began an nvestgaton. . . Wckham tod
the agent that e wshed a postponement of the nvestgaton. e was tod
that a postponement coud not be had uness wavers were gven by the nd-
vdua members of the partnershp. . . Wckham reped: There s ony
two of us n ths partnershp I w sgn mne now, and I w take my brother s
waver over to hm and have hm sgn t. The wavers were sgned by . .
Wckham and . P. Wckham.
March 12, 1924, durng the perod of postponement, a partnershp return for
1923 was fed, sworn to by . . Wckham. e stated that there were two
members to the partnershp, hmsef and . P. Wckham. The return shows
that the ncome of the partnershp was to be dvded between hmsef and . P.
Wckham, 50 per centum each.
Indvdua returns fed at the same tme for . . Wckham and . P.
Wckham showed ncome from the partnershp of 50 per centum to each.
In the Sprng of 1924, however, the partnershp had empoyed an e pert
named Wade to audt the accounts of the partnershp and put them n shape
for the Government agents. In May, 1924, amended returns for 1923 and
severa pror years were fed for the partnershp whch showed a 5-member
partnershp.
In May, 1924, . . Wckham and . P. Wckham aso fed amended ndvdua
returns on the same bass for 1919, 1920 and 1921, showng ncome receved from
the frm of . . Wckham Co.
Ths change of poston on the part of . . Wckham and . P. Wckham
In May, 1924, s sgnfcant. It came after the e pert Wade had undertaken to
put the accounts of the partnershp n shape for the Government agents, and
after the agreement of September, 1919, had been brought to ght by an
Intensve search. Pror to May, 1924, the fact (f t was a fact) of a 5-member
partnershp had apparenty been competey overooked by . . Wckham and
. P. Wckham, as we as by the aeged other members.
urther, n 1922, the partnershp sought reef from the nsurance provsons
of the Iowa workmen s compensaton aw. The appcaton stated that the
partnershp, . . Wckham Co., was composed of . . Wckham and . P.
Wckham, and was sworn to by both of them.
We thnk the dea of a 5-member partnershp of . . Wckham Co. was
an afterthought brought about by the e gences of an embarrassng ta
stuaton.
Under the decsons of the courts of Iowa, o make a partnershp there must
be a mutua agreement or understandng between the partes to share n
the profts and osses of the concern. There must aso be an ntent by the
severa partes to enter nto the reaton of partners. ( aswc v. Standrng,
132 N. W.. 417 Mer v. aker, 140 N. W., 407 emng v. emng, 174 N. W.,
040 orence v. o , 188 N. W., 966 Mavm Nat. v. naday, 192 N. W..
843 Tracey v. udy, 210 N. W., 793 Norwood v. Parker, 217 N. W 622 nney
v. ank of Pymouth, 236 N. W., 31.)
ewng the facts above stated n the ght of the authortes cted, we
thnk a 5-member partnershp of . . Wckham Co. was not proven.
ctons sometmes speak ouder than words.
The fndng of the oard of Ta ppeas that the partnershp of . .
Wckham Co. durng the years n queston was composed of . . Wckham
and . P. Wckham as the soe members s ampy supported and, n our |udg-
ment, s rght.
The assgnment of error based on the e cuson of testmony has been
e amned, but we thnk t s wthout mert.
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1003 and 1004.
246
T M TT R O P N LTI S.
The oard of Ta ppeas assessed 50 per centum fraud penates aganst
. P. Wckham for the years 1917 to 1923, Incusve. Smar penates aganst
. . Wckham are not now camed, owng to the death of . . Wckham.
s a bass for the penates aganst . P. Wckham, the oard of Ta p-
peas found:
The returns fed by the pettoner . P. Wckham for each of the years
nvoved were fase and frauduent and were so made and fed wth the ntent
of evadng the ta .
The queston on ths appea s whether ths fndng s supported by any
substanta evdence.
There s evdence tendng to show that the ndvdua returns of . P. Wck-
ham for the years pror to 1923 reported no ncome from the partnershp,
athough the partnershp had net ncome for each of those years.
or the year 1923 the ncome of the partnershp was 74,034 and the share
of . P. Wckham was . 37,017. s orgna return for that year reported
14,119 from the partnershp.
The fng of the amended returns n 1924 after the commencement of the
Investgaton by the Government dd not wpe out or cure the fasty of the
orgna statements.
urther, f the partnershp was, durng the years n queston, composed of
two members ony, as the oard of Ta ppeas has found, and we thnk
correcty, then the amended returns of . P. Wckham made n 1924 were
fase and frauduent n that they reported as beongng to hm 30 per centum
nstead of 50 per centum of the partnershp earnngs.
urther, the amended returns of 1924 were fnse and frauduent n that
they omtted ta abe ncome receved by the partnershp for work performed
for the cty of Counc uffs for the years 1917 to 1923, ncusve, amountng
to about 208,000.
Ir s attempted to e cuse these fase returns by testmony that . P. Wck-
ham was a smpe-mnded man and dd not understand the returns that he
sgned and verfed. Ths testmony dd not mpress the oard of Tu
ppeas, nor has t mpressed us.
In vew of a the evdence bearng upon the matter, we can not say that
ths fndng aganst . P. Wckham by the oard of Ta ppeas was not sup-
ported by substanta evdence.
The fndngs and order of the oard of Ta ppeas n each case are
approved and confrmed, and the petton for revew n each case s dsmssed.
INCOM ND TRO ITS T R NU CT O 1P18 D CISION O COURT.
1. oard of Ta ppeas ursdcton Defcency Notce Sent
to Predecessor Corporaton ffect of ppea by Successor
Corporaton.
Where a defcency notce Is maed to a corporaton whch has
been dssoved, and such notce s receved by ts successor, w:hch
operates under substantay the same name, wth substantay the
same assets, the same drectors and offcers, and the same stock-
hoders who hod the same proportonate share of stock as was
hed n the od corporaton, the oard of Ta ppeas has |urs-
dcton of a petton fed by the successor corporaton for redeter-
mnaton of the asserted defcency. The faure of the Comms-
soner to desgnate the successor corporaton as transferee n the
defcency notce does not deprve the oard of |ursdcton.
Sectons 1003 and 1004.
( so Sectons 277 and 278, rtce 1271.)
II-51-6571
Ct. D. 764
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247
1003 and 1004.
2. stoppe adty of Wavers.
Under the crcumstances of ths case, where the successor cor-
poraton sgned wavers pror to the e praton of the perod of
mtaton, t Is estopped by ts conduct to deny ter vadty.
3. Decson Reversed.
The decson of the oard of Ta ppeas (24 . T. ., 54)
reversed.
Unted States Crcut Court of ppeas, S th Crcut.
Commssoner of Interna Revenue, pettoner, v. Nchos rf Co Lumber Co.,
respondent.
Petton to revew order of Unted States oard of Ta ppea .
efore Moorman, cks, and ckenooper, Crcut udges.
une 29, 1933.
opnon.
Per curam: s of December 28, 1922, the Nchos Co Lumber Co. was
reorganzed under the aws of the same State but wth the name of Nchos
Co Lumber Company. or ther stock n the od company the stockhoders
were gven the same proportonate share of preferred and common stock In
the new company. The new company succeeded to a the busness and assets
of the od company and the atter was thereupon dssoved. owever, the
busness was contnued n substantay the same name, wth substantay the
same assets, the same stockhoders, the same drectors and the same offcers
as under the prevous charter. The case nvoves ncome and profts ta es for
the years 1919 and 1920.
Pror to the e praton of the perod of mtatons, wavers were sgned,
and on December 10, 1926, a defcency notce was maed to Nchos Co
Lumber Company. Thereupon the present respondent appeaed to the oard
of Ta ppeas for a redetermnaton of the aeged defcency. The evdence
before the oard was confned amost e cusvey to the sub|ect of the vadty
of the wavers but the oard dd not decde ths queston, for, havng con-
cuded that the defcency notces were addressed to and ntended for the od
company, then dssoved, and that that company aone was authorzed to fe a
petton wth the oard of Ta ppeas for a redetermnaton of the defcency,
ack of |ursdcton n the oard was found to e st. The petton of the
respondent was thereupon dsmssed. The Commssoner fes the present
petton to revew.
The queston of the |ursdcton of ths court to entertan a petton to revew
on behaf of the Commssoner of Interna Revenue was setted by the case of
Commssoner v. Lberty ank t Trust Co. (59 ed. (2d), 320), to whch
decson the court adheres.
Upon authorty of urnet v. San oaqun rut f Investment Co. (52 . (2d),
123 (C. C. . 9) Ct. D. 406, C. . -2, 2601) Commssoner of Interna Reve-
nue v. New York Trust Co. (54 . (2d), 463 (C. C. . 2) Ct. D. 540, C. .
I-2. 320 ) Pttsburgh Termna Coa Corporaton v. ener, Coector (56
. (2d), 1072 (D. C, Pa.) Ct. D. 501, C. . I-1, 225 ) and North mer-
can Coa Corporaton v. Commssoner of Interna Revenue, decded on order
by ths court November 11, 1932, we are of the opnon that respondent was
estopped by ts conduct to deny the vadty of the wavers, and that the faure
to desgnate the respondent as transferee n the notce does not deprve the
oard of Ta ppeas of ts |ursdcton. The decson of the oard of Ta
ppeas Is therefore reversed and the cause Is remanded wth drectons to the
oard to set asde the order dsmssng ths proceedng and to hear and deter-
mne the matters companed of n the petton.
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s.1 248
TITL I. G N R L DMINISTR TI PRO ISIONS.
S CTION 611. COLL CTIONS ST Y D Y CL IM
IN T M NT. (1928)
Secton 611. II-52-6579
Ct. D. 765
INCOM ND PRO ITS T R NU CTS O 1921 ND 1928 D CISION O
COURT.
Sut Coecton Lmtaton Cam fob batement Payment
of Ta by Tbansfebee.
Where a corporaton whch had sod ts assets and dstrbuted
the proceeds pro rata to ts stockhoders fed a cam n abatement
of addtona ta es assessed aganst t and coecton of the ta
was stayed, the subsequent payment by a stockhoder-transferee
of hs aquot porton of the ta s not recoverabe by hm as an
overpayment under the provsons of sectons 607 and 611 of the
Revenue ct of 1928. It s mmatera whether coecton of the
ta was stayed at the nstance of the corporaton or at the nstance
of the stockhoder-transferee.
Unted States Crcut Coubt of ppeas fob the Nnth Crcut.
Unted States of merca, appeant, v. rank . Pfaffnger, appeee.
Upon appea from the Dstrct Court of the Unted States for the Southern Dstrct of
Caforna, Centra Dvson.
efore Wbcb and Sawtee, Crcut udges.
September 6, 1933.
OPINION.
Sawtee, Crcut udge: ppeee brought an acton at aw aganst ap-
peant n the dstrct court to recover the sum of 1,697.19, pus nterest,
representng ta es aeged to have been erroneousy coected from hm durng
the year 1924. The case was tred by the court, a |ury havng been waved
by the partes.
The court ndopted the speca fndngs of fact requested by the appeee,
and save |udgment aganst appeant. There was no request by appeant for
dfferent fndngs, nor were there any e ceptons to the rung of the court on the
admsson or re|ecton of evdence. ppeant dd submt requests for con-
cusons of aw, whch were dened by the court. To ths rung, as we as
to the rungs of the court n adoptng the proposed concusons of aw sub-
mtted by appeee, appeant duy e cepted.
t the concuson of the case appeant made a moton for |udgment, whch
moton was dened, but no e cepton was noted to the rung on such moton,
athough such rung s the bass of one of the assgnments of error n ths
court.
On March 28, 1918, the Pacfc Coast Saes ook Co., of Caforna, fed ts
ncome and proft ta return for the year 1917. ppeee was the owner of
50 shares of the capta stock of sad corporaton, out of a tota of 95 shares
ssued and outstandng. Durng the month of May, 1917, sad corporaton sod
a of ts assets, and durng the same year dstrbuted the proceeds from such
sae pro rata to ts stockhoders, ncudng appeee.
The Commssoner of Interna Revenue assessed addtona ta es aganst the
corporaton for the year 1917 n the amount of 32,399.30. On March 6,1922. the
corporaton fed wth the coector of nterna revenue at Los ngees ts cam
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249
611.
In abatement On ugust 30, 1933, the Commssoner notfed the corporaton of
the re|ecton of ts cam. copy of sad cam and the etter of the Comms-
soner are referred to n the court s fndngs of fact as e hbts and ,
respectvey, and are made a part thereof.
On une 30, 1924, the coector of nterna revenue demanded payment of
sad addtona ta for the year 1917 by those, ncudng appeee, who as
stockhoders of the corporaton had receved the assets thereof through ds-
trbuton n 1917, as aforesad. In accordance wth the demand, and n order
to prevent the mposton of threatened penates and the sezure and sae
of hs property to satsfy the cam so made for sad addtona ta es, appeee
pad the sad sum of 1,697.19 on une 3, 1924.
On une 29, 1928, wthn four years after such payment by appeee, he
fed wth sad coector of nterna revenue a cam for refund to hm of the
sad ast-mentoned sum. s cam was dsaowed on December 1, 1928.
The above s a summary of the facts as found by the court.
The court concuded as a matter of aw that the cam n abatement fed
by the corporaton was not a cam n abatement of the appeee that at
the tme of the coecton of sad sum of 1,697.19 from the appeee, the
coecton thereof was barred by aw and consttuted an overpayment of ta es
wthn the meanng of the provsons of secton 607 of the Revenue ct of
1928, and that no cam n abatement, wthn the meanng of secton 611 of
sad ct, was fed by appeee.
udgment was rendered n appeee s favor for sad sum together wth
Interest at the rate of 6 per cent per annum from une 30, 1924.
The reevant statutes are sectons 607 and 611 of the Revenue ct of 1928
and secton 250(d) of the Revenue ct of 1921, whch read as foows:
Sec. 607. ny ta (or any nterest, penaty, addtona amount, or add-
ton to such ta ) assessed or pad (whether before or after the enactment
of ths ct) after the e praton of the perod of mtaton propery app-
cabe thereto sha be consdered an overpayment and sha be credted or ,
refunded to the ta payer f cam therefor s fed wthn the perod of mta-
ton for fng such cam.
Sec. 611. If any nterna-revenue ta (or any nterest, penaty, addtona
amount, or addton to such ta ) was, wthn the perod of mtaton propery
appcabe thereto, assessed pror to une 2, 1924, and If a cam In abatement
was fed, wth or wthout bond, and f the coecton of any part thereof was
stayed, then the payment of such part (made before or wthn one year
after the enactment of ths ct) sha not be consdered as an overpayment
under the provsons of secton 607, reatng to payments made after the
e praton of the perod of mtaton on assessment and coecton.
Sec. 250. (d) The amount of ncome, e cess-profts, or war-profts ta es due
under any return made under ths ct for the ta abe year 1921 or succeedng
ta abe years sha be determned and assessed by the Commssoner wthn
four years after the return was fed, and the amount of any such ta es due
under any return made under ths ct for pror ta abe years or under pror
Income, e cess-profts, or war-profts ta cts, or under secton 38 of the ct
entted n ct to provde revenue, equaze dutes, and encourage the ndus-
tres of the Unted States, and for other purposes, approved ugust 5, 1909,
sha be determned and assessed wthn fve years after the return was fed,
uness both the Commssoner and the ta payer consent n wrtng to a ater
determnaton, assessment, and coecton of the ta and no sut or proceedng
for the coecton of any such ta es due under ths ct or under pror ncome,
e cess-profts, or war-profts ta cts, or of any ta es due under secton 38
of such ct of ugust 5, 1909, sha be begun, after the e praton of fve years
after the date when such return was fed, but ths sha not affect suts or pro-
ceedngs begun at the tme of the passage of ths ct: . Opportunty
for hearng sha be granted and a fna decson thereon sha be made as
qucky as practcabe. ny ta or defcency n ta then determned to be due
sha be assessed and pad, together wth the penaty and nterest, f any,
appcabe thereto, wthn 10 days after notce and demand by the coector
as herenafter provded, and n such cases no cam n abatement of the amount
so assessed sha be entertaned: Provded, That n cases where the Comms-
37408 34 17
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611.
250
soner beeves that the coecton of the amount due w be |eopardsed by
such deay he may make the assessment wthout gvng such notce or awatng
the concuson of such hearng.
s stated by appeant, the queston nvoved s, Does secton 611 of the
Revenue ct of 1928 appy to one who as a stockhoder and transferee pays
hs aquot porton of the ta assessed aganst the corporaton, the corporaton
havng fed a cam for the abatement of the ta so assessed
sewhere n the bref appeant states: The prmary queston for the court
to answer s whether rank . Pfafnger (appeee) s n a poston to escape
the appcaton that woud necessary be made of secton 611 of the Revenue
ct of 1928 f hs transferor, the Pacfc Coast Saes Co., were the pantff
here seekng to recover the ta pad.
ppeee says the queston nvoved s, Does secton 611 of the Revenue ct
of 1928 remove the mtaton for coecton of ta aganst appeee merey
because the Pacfc Coast Saes ook Co. fed Its cam to abate ta assessed
aganst t n 1922 for the year 1917
y the e press provson of secton 611, If the cam n abatement of the ta
was duy fed, and f the coecton of the ta was stayed, then the payment
of the ta (made before or wthn one year after the enactment of the ct, as
n ths case) sha not be consdered as an overpayment under the provsons
of secton 607.
It was the coecton of the ta that was stayed, and, n our |udgment, t
Is mmatera whether t was stayed at the nstance of the corporaton or at
the nstance of the stockhoder-transferee. The corporaton, n fng the cam
n abatement, was actng soey for ts stockhoders and transferees. ad t
succeeded n ts efforts, the ta woud, of course, have been canceed, and the
transferee thus reeved of a abty therefor.
The effect of the fng of the cam n abatement was to stay the coecton
of the ta atogether, not merey aganst the corporaton. nd we thnk t
. woud be ogca to hod that a stay means one thng as apped to the corpo-
raton, and another as apped to ts stockhoders and transferees.
It s cear that had the corporaton pad the ta there woud have been no
overpayment under the provson of secton 607, reatng to payments made
after the e praton of the perod of mtaton on assessment and coecton.
It s equay cear that had the corporaton s cam n abatement been aowed,
the transferees woud have been reeved of the payment of the ta , because
the ta Imposed upon the corporaton s the bass of abty of the trans-
ferees. It foows, therefore, that, f the perod of mtaton had not run
n favor of the corporaton t had not run aganst the transferees.
One who receves assets upon dssouton s abe to the e tent of assets
receved for the payment of ta es of the corporaton. (Phps v. Comms-
soner, 283 U. S., 589 Ct. D. 350, C. . -, 264 .)
We thnk the cam for the abatement of the ta , whch had been propery
assessed, e tended the mtaton for coecton thereof aganst the corporaton
and the stockhoders-transferees durng the stay, pendng dsposton by the
Commssoner of the cam for abatement of the ta .
ppeee contends that he fed no cam n abatement, that the ony cam
fed was the one fed by the corporaton, and that therefore he dd not
attempt to deay the coecton of the ta . We thnk t Is mmatera whether
he fed such a cam, or not. The cam fed by the corporaton had the
effect of stayng the coecton of the ta , and no effort was made to coect
the same, or any part thereof, pendng consderaton of the cam.
In vew of ths hodng, we thnk t s unnecessary to consder appeant s
contenton that the appeee knew of and partcpated In the fng by the cor-
poraton of the cam n abatement or the further contenton that appeee
s not entted to recover because he vountary pad the ta of the corporaton
wthout avang hmsef of n|unctve reef.
We are of the opnon that the ta pad by the appeee can not be consdered
as an overpayment wthn the meanng of secton 607, supra, and that the
court erred n renderng |udgment n hs favor.
udgment reversed.
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251
1113, rt. 1351.
S CTION 1113. LIMIT TIONS UPON SUITS ND
PROC DINGS Y T T P Y R.
rtce 1351: Suts for recovery of ta es erro- II-28-6286
neousy coected. Ct. D. 697
INCOM T R NU CT O 1D21 D CISION OP COURT.
L Sut to ecovee Ta es Coected by Dstrant ond Stat-
ute of Lmtatons.
bond gven by ta payer, after the e praton of the perod of
mtaton upon coecton, to foresta coecton by dstrant and
secure tme to pursue a re|ected cam for abatement, was sup-
ported by suffcent consderaton and was not e ecuted under
duress. Whether vewed as a contract substtuted for the ta ob-
gaton, or as a waver of the perod of mtaton, t consttuted a
vad defense to ta payer s acton for recovery of the ta coected.
2. Certorar Dened.
Petton for wrt of certorar was dened by the Supreme Court
on May 15, 1033.
Unted States Crcut Court of ppeas for the S th Crcut.
The Smmons Manufacturng Co., appeant, v. Car S. Routzahn, Coector of
Interna Revenue, appeee.
ppea from the Unted States Dstrct Court for the Northern Dstrct of Oho, astern
Dvson.
anuary 16, 1933.
opnon.
Smons, Crcut udge: ppeant, a ta payer, sued at aw for the recovery
of Income and proft ta es, and from |udgment n favor of the coector appsas.
The queston presented arses from the foowng facts: ddtona ncome
and proft ta es for 1918 were assessed aganst the ta payer on March 19, 1924,
wthn the statutory tme therefor. cam for abatement was fed, and oa
November 19, 1924, re|ected. On ebruary 10, 1925, the coector ssued a
warrant of dstrant, but on the ta payer s promse to furnsh a bond refraned
from servng t, whereupon the ta payer, n pr, 1925, gave a surety bond
runnng to the coector, rectng the fng of the cam for abatement, and
condtoned upon the payment of such porton of the ta as may be found
due and payabe, the ta payer contendng, however, that on the merts of the
case no ta was due or payabe. The competed return havng been fed une
15, 1919, the bond was gven after the appcabe 5-year perod of mtaton
had run. The Revenue ct of 1928 became effectve May 29, 1928. Secton 007
thereof cassfed as overpayments ta es assessed or pad after the e praton
of the perod of mtaton propery appcabe, whe secton 611 made an
mportant e cepton thereto. The two sectons are prnted n the margn.1 On
October 19, 1929, and more than one year after the enactment of the 1928 ct,
another warrant of dstrant was ssued by the coector, and under ts author-
ty the dsputed ta es were coected October 21,1929. Cam for refund season-
aby fed, was dened. The sut n the dstrct court aganst the coector
1 Sec. 607. ffect of e praton of perod of mtaton aganst Unted States.
ny ta (or any Interest, ppnaty, addtona amount, or addton to such ta ) assessed
or pad (whether before or after the enactment of ths ct) after the e praton of the
perod of mtaton propery appcabe thereto sha be consdered an overpayment and
sha be credted or refunded to the ta payer f cam therefor s fed wthn the perod
of mtaton for fng such cam. (U. S. C, Sup. I, Tte 26, secton 2607.)
Sec. 611. Coectons stayed by cam n abatement.
If any nterna-revenue ta (or any Interest, penaty, addtona amount, or addton
to such ta ) was. wthn the perod of mtaton propery appcabe thereto, assessed
pror to une 2, 1924, and f a cam n abatement was fed, wth or wthout bond, and
If the coUecton of any part thereof was stayed, then the payment of such part (made
before or wthn one year after the enactment of ths ct) sha not be consdered as an
overpayment under the provsons of secton 607, reatng to payments made after the
e praton of the perod of mtaton on assessment and coecton. (U. S. C, Sup. I,
Tte 26, secton 2611.)
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252
foowed. Is the ta payer prevented from recoverng the coecton by the
gvng of the bond 7
The ta payer contends that the coecton s a recoverabe overpayment wthn
the provsons of secton ( 07, supra that even though a cam for abatement
was fed, the coecton s not wthn the e cepton of secton O because made
after one year from the passage of the ct that the bond was not a waver
that no contractua obgaton resuted from t because there was no ta a-
bty at the tme t was gven, and therefore no consderaton to sustan t
that f the ta payer had pad the ta nstead of gvng bond, t coud have
recovered t back, wherefore the bond can be gven no greater effect as a defense
than actua payment that there was no acknowedgment of ndebtedness that
there was no subsequent fndng of a ta due and that the bond was gven
under duress.
The souton of the probem before us s not unattended wth dffcuty. The
precse queston has never been answered by the Supreme Court of the Unted
States. It appeared n the cases of Mascot O Co., Inc., v. Unted States (282
IT. S., 434 Ct. D. 288, C. . -, 190 ) and ener, Coector, v. re Coa f
Coke Co. (dem). In the Mascot case, the ta payer made a depost n escrow
wth a bank to cover the amount of the ta , but when the coector demanded
payment t was made by the ta payer under protest and not from the depost.
In the ener case a bond had been gven to secure payment of the ta . The
makng of the depost n the former case, and the gvng of the bond n the
atter, were after the appcabe statute of mtatons had run, and n each
case the ta payer nssted that the statute had not thereby been waved. The
queston of waver was, however, ad asde n both cases because of the crcum-
stance that the coectons had been made pror to the passage of the 1028 ct,
or wthn one year thereafter, and n consequence the ta payers were not pro-
tected from the operaton of secton 611 of that ct. Ths, n conformty wth
the decson n Graham v. oodce (282 U. S., 409 Ct. D. 287, C. . -, 191 ),
decded the same day. In the recent case of Chf States Stee Co. v. Unted
States (287 U. S., 312), decded November 7, 1932, the bond sued upon was gven
after the perod of mtaton, but as t contnued the protecton afforded by two
prevous bonds, the frst havng been gven wthn the perod, t s aso not
decsve. We are therefore eft to rey upon reason and anaogy, rather than
upon precedent for the souton of the probem that confronts us.
In Unted States v. The ohn arth Co. (279 U. S., 370 Ct. D. 05, C. .
III-1, 189 ), the sut was by the Unted States upon a bond to stay coecton
gven pror to the runnng of the statute. It was there hed that the makng
of the bond gave the Unted States a cause of acton separate and dstnct
from an acton to coect ta es whch t aready had, and that the statutes
peaded n bar coud not be e tended by mpcaton to a sut upon a subsequent
and substtuted contract. It was aso hed that by securng postponement of
the coecton of the ta es returned the ta payer waved the statutory mta-
ton of fve years that woud have apped had the vountary return of the ta -
payer stood and no bond been gven. Ths was on the ground that the ob|ect
of the bond was not ony to prevent the mmedate coecton of the ta , but
aso to prevent the runnng of tme aganst the Government, and t was snd,
The ta payer has obtaned hs ob|ect by the use of the bond, and he shoud
not ob|ect to makng good the contract by whch he obtaned the deay he
sought. In consderng the ohn arth case t must be noted that sut there
was on the bond, and not for coecton of ta es as such. In the nstant case
sut s not brought upon the bond, the ta es havng been aready coected by
dstrant. The sut s to recover ta es so coected, and the defense reed upon
s the ta payer s obgaton under the bond. The dfference, therefore, s n our
vew not matera. There Is merey a reversa of partes, and nstead of the
Unted States sung upon the bond, t here asserts the bond as a defense.
If the rung of the arth case s not here to be apped, ts dena as author-
ty must be based not ony upon dstngushng crcumstances, but upon crcum-
stances whch requre the appcaton of dfferent prncpes. The one dstn-
gushng crcumstance that seems to be mportant s the fact that the bond n
the arth case was gven before the runnng of the statute, and the. bond wth
whch wo are here concerned was gven after the statute had run, and ths
dstncton Is urged upon us as concusve by reason of the fact that n the
arth case the coector refraned from makng a coecton whch he had
authorty to make, whe here the coector had no authorty to make the coec-
ton. The ta therefore coud have been recovered back, and there was no
consderaton for the bond.
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1113, rt. 1351
vauaton of the above contenton necesstates a consderaton of the state
of the aw wth respect to the remedes avaabe to the coector at the tme
the bond was gven. The statute appcabe to the coecton here sought to be
recovered Is the Revenue ct of 1021. Secton 200(d) of that ct provded
that no sut or proceedng for the coecton of ta es due thereunder shoud be
begun after the e praton of fve years after the date when the return was fed.
y reason of the decson of the Court of Cams n Tc uay Ms v. Unted
States (61 Ct. CL, 363 T. D. 3805, C. . -, 322 ), t was thought that the
perod of mtaton contaned n the 1921 ct barred coecton by sut ony,
but dd not bar coecton by dstrant proceedngs. It was not unt the de-
cson of the Supreme Court n owers, Coector, v. Neo York t bany
Lghterage Co. (273 U. S., 346 T. D. 40 9, C. . I-1, 26S , decded ebruary 21,
1927), that t was known that the hodng of the Court of Cams n the
To away case was erroneous. In the meanwhe, coectors everywhere were
enforcng coecton of ta es n dstrant proceedngs after the 5-year perod of
mtaton had e pred. It was under such crcumstances that the warrant n
the nstant case ssued, and the bond was gven. There s nothng n the
record to ndcate bad fath on the part of the coector, and t s to be
assumed that he was actng under authorty thought by hm to be possessed.
Nor s there anythng n the record to ndcate that the ta payer dd not
have the same understandng of the aw. It was to deay mmedate coecton
by dstrant that the bond was gven. The ta payer was reeved of Immedate
payment, and had attaned the ob|ect noted n the arth case by the use of the
bond. We can not thnk that under these crcumstances there was not suff-
cent or adequate consderaton for that nstrument.
Other consderatons contrbute to ths vew. The ta payer had fed a cam
for abatement. It s true that t had aready been re|ected, but the bond
rected the fng of the cam, and t seems ogca to nfer from such recta
that the ta payer ntended to pursue ts cam by petton for rehearng or
some other approprate remedy. The gvng of the bond secured for t both
opportunty and tme to do so. esdes, there s nothng sacrosanct n a perod
of mtaton granted by the Unted States n a ta ng statute. (Unted
States v. Southern Lumber Co., 51 ed. (2d), 956 (C. C. . 8).) It confers no
vested rght, and can be repeaed wthout dena of due process (Graham v.
Goodce, supra), and such repea may be made operatve retroactvey (Mas-
cot O Co. v. Unted States, supra). We thnk n vew of what we have sad
that the bond was a contract substtuted for the ta obgaton wthn the
reasonng of the arth case. It s true that the court noted that the bond
theren consdered was gven we wthn the perod of mtaton, but we are
unabe to see that ths crcumstance was partcuary reed upon as a bass for
decson. Nor do we concude that secton 250(d) of the 1921 ct, as construed
n the owers case, operated to e tngush abty for the assessed ta . Con-
gress undertook to do that by secton 1100(a) of the Revenue ct of 1926,
prnted n the margn,2 but repeaed the secton as of the date of ts enactment
by secton 612 of the 1928 ct. The necessary mpcaton from both the enact-
ment and repea of secton 1106(a), n spte of some apparent dcta contra, s
that the perod of mtaton nether n cts pror to nor subsequent to the ct
of 1926 e tngushed the ta debt, however t may have barred coecton or
warranted recovery by the ta payer as an overpayment.
ut asde from the contractua obgaton created by the bond we thnk the
bond consttuted a waver of the perod of mtaton, not, perhaps, the e press
or technca waver provded for by the so-caed consent cause (secton 253)
of the 1921 ct, but at east an mped waver. In the arth case t was hed
that a bond gven to stay coecton pror to the runnng of the statute s a
waver. In Stange v. Unted Staes (282 U. S., 270 Ct. D. 274, C. . -, 414 )
t was hed that a waver s operatve even though gven after the perod of
mtaton has e pred, and ths on anaogy to the rue that prvate debts barred
by the statute of mtatons may be effectvey revved after the bar has faen
by a new promse wthout new consderaton (ctng Wston, Contracts, sec-
Skc. 1100. (a) The bar of the statute of mtatons aganst the Unted States In
respect of any Interna-revenue ta sha not ony operate to bar the remedy but sha
e tnRUsh the abty but no credt or refund n respect of such ta sha be aowed
uness the ta payer has overpad the ta . The bar of the statute of mtatons aganst
the ta payer n respect of any nterna-revenue ta sha not ony operate to bar the
remedy but sha e tngush the abty but no coecton In respect of such ta sha
be made uness the ta payer has underpad the ta . (U. S. C. pp., Tte 2G, secton
1249.)
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254
tons 160 to 184) and aso upon the assumpton that an effectve and not a fute
act was ntended. (See aso ken v. urnet, 282 U. S., 277 Ct. D. 275, O. .
-, 417 urnet v. Chcago Raway qupment Co., 282 U. S., 295 Ct. D.
276. C. . -. 3231, and orsem ros. Co. v. Unted States, 280 U. a, 453,
466 Ct. D. 167, C. . I -1, 260 .) ut whether we consder the bond as a
waver or as a substtuted contract, the resut so far as te ta payer Is con-
cerned s the same.
Some further consderaton shoud perhaps be gven to the argument that a
payment whch can be recovered back s not payment of a debt, and that the
bond therefore can be gven no greater effect as a defense than actua payment.
The statement, however, that the ta f pad coud have been recovered, Is ony
quafedy true. In the hypothetca case suggested the payment coud have
been recovered ony f the ta payer coud have e pedtousy pursued hs ad-
mnstratve remedy, have prompty thereafter sued for recovery, and have ob-
taned |udgment before the effectve date of the 1928 ct. ang n ths, a
cam for abatement havng been fed, the coecton woud have come wthn
the ambt of secton 611 of the 1928 ct, and recovery woud have been barred.
It s, of course, de to specuate upon what mght have been done, but whch
n fact was not done, yet, t s not wthout nterest to note that n Graham v.
Ooodce, supra, wheren sectons 607 and 611, supra, were construed, pay-
ments were made n November and December, 1924, and sut to recover them
back was st pendng when the 1928 ct took effect. The bond n the nstant
case was not gven unt pr 20, 1925. sde from ths, the argument, whe
not tenabe as demonstratng absence of consderaton for the bond, does possess
a seemng pausbty as an asserton of equtabe rght based upon a concept
of natura |ustce. ven ths seemng pausbty s, however, destroyed when
we come to consder the fact that the ta payer had fed a cam for abatement,
and the effect gven to such crcumstances by the Congress n the enactment of
secton 611 of the 1928 ct, and the Supreme Court n sustanng ts vadty.
The abatement cam undoubtedy caused the coector to deay coecton unt
the statute had run. Granted that the stay was not mandatory, and that the
coector was st under a duty to coect as noted n the Goodce case, yet
the practca effect of the cam was to deay coecton, and the bond assured
as t actuay brought about an addtona perod for consderaton and pay-
ment. ut for the bond, the coector coud have made coecton before the
1918 ct became effectve. That such resut was nether nequtabe nor a
dena of due process, under Graham v. Goodce, supra, has aready been
ponted out. The reason s thus e pressed by the court: Deay n coecton
had foowed upon the ta payers request for a consderaton of ther cam
that the ta shoud be abated, and n the mstaken beef on the part of the
admnstratve authortes that the statute of mtatons dd not bar coecton
by the approprate proceedngs of dstrant, the deay had been contnued unt
after the statute had run. On the dscovery of the mstake, as ponted out by
the decson of ths court (the owers case), the Congress sought to prevent a
refund of the amount thus coected. nd agan, referrng to the case of
orbes oat Lne v. oard of Commssoners (258 T . S., 338), t was sad:
ut whe the egsature coud not n such a case retroactvey create a
abty, the court recognzed that there s a cass of cases In whch defect In
the admnstraton of the aw may be cured by subsequent egsaton wthout
encroachng upon consttutona rght.
We see no mert n the contenton that snce the bond was condtoned upon
subsequent fndng of a ta due, and no such fndng was made, the promse to
pay was not enforceabe. The assessment had aready been made, the ta had
been found to be due, and the cam for abatement had been re|ected. In so far
as t may have been the ntenton of the ta payer to fe a petton for rehearng
that woud resut n a subsequent fndng, the record s sent as to what, f
anythng, was done. The ta payer can not by hs own conduct defeat a subse-
quent fndng and then deny abty on a promse to pay because no such
subsequent fndng had been made. Nor s there any mert to the cam that
the bond was obtaned by duress. The coector n good fath thought he coud
e ecute a warrant of dstrant. e endeavored to do so. In the then state
of the aw such dstrant was thought to be ega and wthn the authorty of
the coector. There s no showng contra. esdes, the ta payer was not
constraned to furnsh the bond. It coud have pad the ta , and then sued
to recover t back. There was no duress. (See urnet . Chcago Ra wat
qupment Co., supra.)
The udgment beow s affrmed.
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255
1113, rt. 1351:
rtce 1351: Suts for recovery of ta es erro-
neousy coected.
II-29-6296
Ct. D. 704
ncome and e cess trofts ta es |udca code decson of court.
Sut n quty ursdcton op Dstrct Court.
sut n equty n the dstrct court may not be avaed of to
restore to the ta payer the rght to prosecute an acton at aw com-
menced n that court for the recovery of ncome and e cess profts
ta es, whch acton had been dsmssed for want of prosecuton and
the court, as a court of aw, had ost |ursdcton to vacate the
|udgment because of the eapsed tme. Tte 28, subdvson
41(20), of the udca Code does not vest the dstrct court wth
equty |ursdcton to set asde a dsmssa of an acton aganst the
Unted States and thus deprve the atter of ts vested rght.
Unted States Dstrct Court, Dstrct of Mnnesota, Thrd Dvson.
New ngand urnture d Carpet Co., a Corporaton, pantff, v. The Unted
States of merca, defendant.
Nordbte, udge: The above-entted matter havng been reguary paced
upon the speca term caendar, came on for hearng on the 10th day of Oc-
tober, 1932, before the undersgned, one of the |udges of the above-named court,
on a notce of moton for an order dsmssng the b of compant fed heren,
on the foowng grounds:
(1) That ths court s wthout |ursdcton over the respondent, the Unted
States of merca.
(2) That ths court s wthout |ursdcton over the sub|ect matter com-
paned of.
(3) That ths court s wthout |ursdcton to gTant the reef prayed for
In the b.
(4) That ths court sttng as a court of cams s wthout |ursdcton to
grant equtabe reef.
(5) That the Unted States of merca has consented to be sued ony n
the Court of Cams and n the Unted States Dstrct Court sttng as a court
of cams and ths court s wthout |ursdcton to entertan a sut aganst the
Unted States of merca sttng as a court of equty.
(6) That the b of compant shows on ts face that the companant, f
It has not been guty of aches, has a fu, compete and adequate remedy at
aw.
The compant states a good cause of acton f ths court has |ursdcton
of an equtabe acton of ths character aganst the Unted States. The Unted
States can not be sued wthout ts consent. Ths court dd have |ursdcton
of the orgna acton at aw n whch a |udgment of dsmssa was entered
on pr 1, 1930. That sut was brought to recover ncome and e cess proft
ta es whch the pantff contends t had erroneousy pad under the nterna
revenue aws. The court had |ursdcton to enter the dsmssa, and the
|udgment of dsmssa entered thereafter became a fna |udgment. Ths court
as a court at aw ost |ursdcton to vacate or set asde the |udgment because
more than seven months had eapsed snce the entry thereof before any app-
caton was made to vacate the |udgment of dsmssa. No appea was taken
from that |udgment wthn the statutory perod. In another proceedng, ths
court determned that the ancent common-aw remedy of coram nobs was
not avaabe to the pantff to set asde ths |udgment, though the court dd
ntmate that pantff woud have recourse to a court of equty. The statute
of mtatons has now run, and the prosecuton of another acton to recover
these ta es s barred and, consequenty, uness the |udgment of dsmssa
can be set asde and vacated, the rght of pantff to recover the aeged over-
payment of ta es has been ost. The settng asde of any udgment and the
Order grantng moton to dsmss.
ebruary 17, 1933.
OPINION.
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256
renstatement of the acton at aw woud therefore deprve the Unted 8tates
of a rght wth whch t s now vested, vz, to forever bar the pantff from
recoverng ths aeged overpayment of ta es. Manfesty, ths court has no
ursdcton to dsturb or deprve the Unted States of ths vested rght uness
the Unted States has e pressy conferred such |ursdcton upon ths court.
Pantff brngs ths acton n equty. Paragraph 2 of the b of compant
reads n part as foows:
That ths s an acton n equty, brought by the pantff aganst the de-
fendant to restore to the pantff the rght to prosecute and have determned
an acton at aw commenced by the pantff n ths court on March 30, 1927,
for the recovery of ncome and e cess-proft ta es whch the pantff errone-
ousy pad to the defendant under the nterna revenue aws of the Unted
States, and whch acton was dsmssed by ths court on pr 1, 1930.
ny rght of |ursdcton must be ooked for n Tte 28, subdvson 41(20),
of the udca Code. Ths secton was recenty construed n Unted State v.
Turner (47 ed. (2d), 86 (C. C. . 8)), decded anuary 28, 1931. n whch
the court quoted the foowng from the case of Unted States v. ones (131
U. S., 1) :
We can not yed to the suggeston that any broader |ursdcton as to sub-
ect matter s gven to the crcut and dstrct courts than that whch s gven
o the Court of Cams. It s ceary the same ursdcton concurrent |urs-
dcton ony wthn certan mts as to amount and the anguage n whch
those mts are e pressed furnshes an addtona argument In favor of the
concuson whch we have reached.
Ths court has been cted to no case whch hods that any equty |ursdcton
Is vested n the dstrct courts n an acton aganst the Unted States, e cept
upon a cam aganst the Unted States for money. True, the utmate pur-
pose of ths acton s to vacate a |udgment of dsmssa and thus revve an
acton based upon a money demand but, n attemptng to reach that goa, the
pantff s endeavorng, by the ad of the equty arm of ths court, to dvest
the Unted States of a vested rght. The foowng dgest of the cases ndcates
a unformty of opnon aganst pantff s contenton:
In Unted States v. MoLemore (45 U. S., 280) t appears that the Unted States
recovered udgment aganst one Searoy, and a b was fed by hs survvng
e ecutor seekng to en|on the enforcement of the |udgment for the reason that
payments had been made upon the udgment for whch credt had not been
gven that s. payments were made to dfferent persons who succeeded each
other In the offce of dstrct attorney. The court In dsposng of the matter
used the foowng anguage:
There was no |ursdcton of ths case n the crcut court, as the Gov-
ernment s not abe to be sued, e cept wth ts own consent, gven by aw.
The b was dsmssed.
In et a), v. Unted States (50 U. S., 385), a b was fed on the equty sde
of the court by the companants to en|on a |udgment obtaned aganst the
companants by the Unted States. The court foowed the case of Unted
States v. Me1,emore and dsmssed the b.
rk v. Unted States (131 ed., 331) was a sut for n|uncton to restran
and en|on the Unted States and the Unted States marsha from sezng the
property of the companant pursuant to an e ecuton In favor of the Unted
States, ssued out of the Unted States dstrct court. pparenty, the wrt of
e ecuton was ssued n a scre facas proceedng. The court found that the
|udgment was egay obtaned, and that there was no adequate remedy at
aw but the court summary dsmssed as to the Unted States because the
Unted States can not be sued by an ndvdua e cept as permtted by cts
of Congress. (Ctng Unted States v. McLemore, supra, and Unted States v.
, supra.)
uckey v. Unted States (190 ed., 429 (D. C.)) was a b n equty to en-
|on an e ecuton of a |udgment at aw. It appeared from the b of compant
th:t n 1900 an acton was commenced by the Unted States aganst certan
defendants, ncudng the companant heren, to recover the sum of 22,344,
for cuttng and removng tmber from certan pubc ands of the Unted States.
Process was personay served upon companant. It aso appeared that n
the same year the grand |ury returned an ndctment n the same court aganst
the same defendants for the unawfu cuttng of tmber on pubc ands and
these two actons were pendng on the 8th day of November, 1900, when
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1113, rt. 1351
the companant entered Into negotatons wth the Unted State attorney
for settement or compromse of the cams aganst hm. ccordng to the
companant, t was hs understandng that upon payment of 000, a future
proceedng aganst hm woud be dscontnued. e pad the sum of 600, and
t appears that ths sum was credted as a fne mposed n the crmna case,
and thereafter, on May 11, 1901, |udgment was taken aganst the companant
by defaut n cv acton for the fu amount of the cam, together wth costs
and dsbursements. Of ths |udgment the companant had no notce unt
the 17th day of anuary, 1911, when he was confronted wth a wrt of e ecuton
In the hands of the Unted States marsha. In the court s opnon, the b
stated a good and mertorous defense and set forth suffcent grounds for
equtabe reef f the sut was one wthn the |ursdcton of the court.
demurrer was nterposed on the ground that the court had no |ursdcton.
The dstrct |udge used ths anguage:
The Unted States, by successve cts of Congress have consented to be
sued ur.on ther contracts ether n the Court of Cams or n a crcut or
dstrct court of the Unted States. (Ctng varous statutes.) ut I know
of no ct of Congress authorzng a sut of ths knd aganst the Government.
On the contrary, n Unted States v. McLcmore (4 ow., 280, 11 L. d., 977),
a |udgment of the crcut court en|onng the Unted States from proceedng
upon a |udgment was reversed and the b dsmssed for want of |ursdcton.
In v. Unted States et a. (9 ow., 386, 13 L. d., 185), a smar rung
was made. In rk v. Unted States (C. C.) (131 ed., 331), a sut was brought
aganst the Unted States and the Unted States marsha to en|on the e ecu-
ton of a |udgment, but as to the Unted States the b was dsmssed, wth
costs, for want of |ursdcton. It therefore foows that as to the Government
the b of compant n ths case must be dsmssed wth costs, and t Is so
ordered.
Ohenca v. Unted States (46 ed. (2d), 998) (C. C. . 9) was an appea
from an order made on the 23d day of pr, 1930, dsmssng appeant s
b In equty prayng for a decree settng asde a certan other decree entered
pro confesso on the 17th day of November, 1924, revokng and canceng an
order made on the 19th day of anuary, 1922, whch granted to appeant
a certfcate of naturazaton. The moton to dsmss was granted upon the
ground that the Unted States of merca was made a party defendant n sad
sut, and there was no provson of aw aowng or permttng the Unted
States to be sued n ths cause. The court stated:
The rue apped by the court beow, to the effect that the Unted States
can not be made a party to any sut, acton, or proceedng wthout e press
authorty of Congress s we setted n ths case. (Ctng cases.)
The ower court was sustaned.
In Unted States v. Turner, supra, one Chrstna P. Turner fed a b
aganst the Unted States prayng that her tte to a tract of and n North
Dakota be queted as aganst any cams of the Unted States, and for an
n|uncton aganst any dsturbance of her tte and possesson, and for genera
reef. It appeared that she aeged ownershp by purchase from one . C.
Turner, and she contended that In a deed made to her by . C. Turner, an error
was made n the descrpton, so that the deed descrbed another tract of
and. Other aegatons n the b ndcated that the Unted States had re-
covered a |udgment aganst . C. Turner, and had ssued an e ecuton under
the |udgment and eved on the same, and had sod the and. The dstrct
court entered a decree quetng the pantffs tte and granted the n|uncton
prayed for. Subsequenty, a moton was made to vacate the decree, whch
moton was overrued, and from that order the appea was taken. The opnon
was wrtten by udge Munger, who at some ength dscussed the |ursdcton
of the dstrct court, and ponted out that the |ursdcton of ths court was
concurrent wth the Court of Cams, and that the subsequent amendments had
not gven to the dstrct court any broader |ursdcton than that whch s gven
to the Court of Cams. The court hed n ths ease that udca Code (28
U. S. C. ., 41(20)) dd not gve |ursdcton to a dstrct court to enter a
decree quetng tte to ands, or to grant an n|uncton restranng the Unted
States from trespassng upon ands n a sut brought aganst the Government.
The ower court was reversed.
Wood v. Phps (50 ed. (2d), 714) (C. C. . 4) was an acton seekng to
e|ect a forest supervsor of the Unted States from certan ands, and to
en|on hm from camng or e ercsng domnon over the same, and from nter-
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258
ferng wth the free and unnterrupted use thereof by the pantff. The
court ntmated that an e|ecton woud e as aganst the forest supervsor, but
n that the sut sought to quet tte, the matter n ssue was the tte tsef
and n that the Unted States dd not consent to be sued, and coud not be made
a party defendant, pantffs sut to quet tte, therefore, woud be nugatory.
Pantff ctes two cases O Connor v. O Connor (146 ed., 994) (D. C.) and
run v. Mann (151 ed., 145) (C. C. . 8) whch dscuss the |ursdcton of
the Unted States courts n equty actons whch are brought to ad, reguate,
restran, or enforce a |udgment entered In an acton wheren the court was
vested wth |ursdcton. In O Connor v. O Connor, supra, there was a |udgment
of dsmssa entered n a sut at aw. b n equty was fed by the partes
to the orgna sut at aw to set asde a |udgment of dsmssa. The court cted
the anguage used n reeman v. owe (24 ow., 460), and quoted ustce
Neson as foows:
The prncpe s that a b fed on the equty sde of the court to restran
or reguate |udgments or suts at aw n the same court, and thereby prevent
n|ustce, or an nequtabe advantage under mesne or fna process, s not an
orgna sut, but ancary and dependent, suppementary merey to the orgna
sut, out of whch t had arsen, and s mantaned wthout reference to the
ctzenshp or resdence of the partes. (Ctng cases.)
That s, the court hed that the sut on the equty sde was merey ancary
to the acton at aw over whch the court had |ursdcton and that servce
mght be made upon the partes n the equty sut even though they resded
beyond the mts of the dstrct, and on page 997, the dstrct court states:
The present b, though an orgna b n the chancery sense of the word,
s a contnuaton of the former sut, on the queston of the |ursdcton of the
court. (Ctng cases.)
In rvn v. Mann, supra, t appeared that a decree of the edera court had
been aowed as the ony cam aganst the estate of a deceased person n the
county court of the State n whch the admnstraton was pendng. The prop-
erty of the estate conssted of certan ands and water rghts appurtenant
thereto. The statutes of the State mposed a duty upon the admnstratr to
se une empt rea property to pay debts. The admnstratr , however, camed
that the rea estate was e empt, and refused to take any steps to se the prop-
erty. n acton was commenced n the edera court n equty to render a
decree for the sae of the and n the State, notwthstandng the pendency of
the admnstraton n the county court. The queston arose as to the |ursdc-
ton of the edera court, and udge Sanborn used the foowng anguage:
Nor was the rght of the companant to nvoke ths |ursdcton condtoned
by the e stence of a edera queston or of dversty of ctzenshp or of the
amount n controversy. b n equty dependent upon a former acton of
whch the edera court had |ursdcton may be mantaned n the absence of
ether of these attrbutes (1) to ad, en|on, or reguate the orgna sut
(2) to restran, avod, e pan, or enforce the |udgment or decree theren or
(3) to enforce or obtan an ad|udcaton of ens upon, or cams to property n
the custody of the court n the orgna sut. Such a dependent sut s but a
contnuaton n a court of equty of the orgna sut, to the end that more
compete |ustce may be done. (Ctng cases.)
Obvousy, the court n these cases dd not have reference to the mtaton
paced on dstrct courts n an acton aganst the Unted States. The ony
reference to |ursdcton was to the amount n controversy and dversty of
ctzenshp. The dstrct court has equty as we as aw |ursdcton over
prvate persons where other |ursdctona facts are present. In the cases
cted by the pantff, the |ursdcton of the dstrct court Is not e tended nto
a fed where equty |ursdcton of the partes dd not e st. The court smpy
recognzed the rght, as we as the necessty, of reservng |ursdcton over the
orgna partes wherever they mght resde so far as t became necessary n the
furtherance of |ustce to contnue proceedngs n equty wth reference to the
|udgment or sut over whch the court had obtaned |ursdcton. The nherent
rght, however, of ths court to contnue suppementary actons wth reference
to suts and |udgments over whch t had |ursdcton, must necessary be
mted, so far as the Unted States s concerned, by the permssve cts of
Congress n vestng |ursdcton n ths court over the Unted States. Wthout
a speca pronouncement of Congress ndcatng ntenton to e tend |ursdcton
of the Unted States courts n :n acton of ths knd, ths court woud not fee
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259
1113, rt. 1351.
|ustfed In acceptng O Connor v. O Connor, supra, and run v. Mann, supra, as
any authorty for such e tenson.
The court Is we aware of the pecuar and unusua crcumstances whch
brought about the dsmssa, and the e cusabe negect whch caused the pan-
tff to permt the dsmssa to rpen nto a fna |udgment. The court fees,
however, that t has no aternatve but to sustan the Government s contenton,
and s therefore constraned to grant the moton to dsmss.
It s so ordered.
rtce 1351: Suts for recovery of ta es erro- II-32-6334
neousy coected. Ct. D. 715
ncome ta revenue act op 1020 decson op couet.
Sut Cam fob Refund Suffcency.
cam for refund based on the ground that amounts of nsta-
ment payments dd not consttute ncome unt receved s not a
suffcent cam, under secton 3226 of the Revsed Statutes as
amended, to entte the ta payer to sue on the grounds that the
contract, not beng assgnabe, had no ascertanabe market vaue In
1918, and that no proft coud be ascertaned unt cost had been
returned.
Coubt of Cams of the Unted States. No. L-82.
. O. erguson v. The Unted States.
pr 10, 1933.
OPINION.
Gbeen, udge, devered the opnon of the court.
In 1918 the pantff by a wrtten contract sod to the Genera ectrc Co.
hs entre busness and a the assets used n connecton therewth. One Gad-
ney was to receve a part of the purchase prce, but ths s not matera to
any queston rased heren. Under the contract a certan amount was to be
pad the pantff n cash and the baance n four equa annua nstaments
wth nterest No promssory notes or other negotabe nstruments were
e ecuted. It s agreed that the proft to pantff In ths transacton was
129,532.52. The Commssoner assessed a of ths proft aganst pantff
for the year 1918. The pantff pad ta es for that year accordngy, fed a
cam for refund, and now brngs ths sut on the ground that the deferred
payments provded for n the contract had no far market vaue In that year
and that consequenty there was no proft to be assessed unt hs cost had
been returned. The defendant contends that the sut s not based upon a
ground stated In the cam for refund and aso that the deferred payments
provded n the contract of sae had a far market prce or vaue n 1918 equa
to the fu amount thereof.
The frst queston to be determned n ths case s whether pantffs cam
for refund presented the same matter as that upon whch sut s brought. n
e amnaton of the cam shows that t contans some ncorrect statements and
aso that not a of ts statements are consstent Ths, however, woud not
prevent recovery thereon f t n some way or n some part thereof nformed
the Commssoner of the cam upon whch recovery s now sought. The fndngs
of fact show that n the appcaton for refund t was stated that the contract
nvoved n the case contaned causes whch, f voated consttuted
a forfeture of the payments not yet made by the Genera ectrc Co. Ths
statement was not correct. The contract was not assgnabe and there were
certan covenants made theren by the pantff, but none of these matters woud
have afforded ground for a forfeture. If an assgnment was made, t was a
mere nuty and woud not affect pantff s rghts under the contract. If
pantff broke the covenants made on hs part, t mght gve rse to a damage
sut or a vad countercam aganst the payments to be made by the other
party, but woud not otherwse affect the payments to be made by the Genera
ectrc Co. The matter whch seems to be reed upon as apprsng the
Commssoner of the cam now made was a statement In the appcaton for
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1113, rt. 1351.
260
refund that the amounts dd not consttute ncome unt pad by the Genera
ectrc Co. that t had been so hed by the Commssoner wth reference
to payments made to another party under the contract and that the cam s
based on such decson. Whe ths statement s not very cear or defnte,
we thnk the Commssoner must have understood that the pantff, by the
word amounts, referred to the payments to be made under the contract
and that he camed that these nstament payments dd not consttute ncome
unt receved, but ths s not the bass of the acton set forth n the petton
nor s t the cam now made, whch s that the obgatons of the purchaser for
deferred payments had no far market vaue n 1918. The petton aso con-
tans an aegaton that any ncome to pantff out of proft from the sae
was accountabe for by hm ether on the Instament bass or the deferred-pay-
ment pan.
It Is urged on behaf of defendant that the word amounts shoud be
construed as meanng deferred payments, but ths s ust another way of
statng that payments were to be made on the contract by nstaments. It
w be conceded that the Commssoner was duy nformed of ths fact, but
we do not thnk t heps pantff s case. that the Commssoner coud nfer
from the confused and ndefnte statements of the cam for refund was that
pantff camed the computaton of the ta was sub|ect to the rues that
apped to nstament contract cases under secton 212(d) of the Revenue
ct of 1926, and that therefore the Commssoner erred n assessng a ta
for the year 1918 upon the tota of pantff s profts nstead of upon the part
of the profts that was reazed n that year. Ths s ceary shown by the
fact that pantffs cam concuded wth the statement that t s contended
that the proft to be reported n each of the years 1918 to 1922, ncusve, Is as
foows:
1918 46,631.69
1919 20, 725. 20
1920 20, 725. 20
1921 20, 725. 20
1922 20, 725.20
129, 532.49
On an nstament saes bass the computaton set out n the appcaton for
refund of profts ta abe n the years 1918 to 1922, was correct, and nothng
was stated about computng the ta on any other bass. There was no menton
of the cost of the property, or that the contrnct coud not be assgned, or of
the cam now made and upon whch the sut must Le mantaned, f t can
be mantaned at a, namey, that no proft was reazed unt the cost had
been returned through the payments, and no aegaton that there was no ta
whatever due on the sae for the year 1918. Nor was t stated that payments
made up to and ncudng that year dd not e ceed the cost of the property.
Instead of aegng that no proft whatever was reazed n 1918, t was stated
to the contrary that 46,631.69 proft shoud be reported for that year and the
ta computed on the proporton of proft reazed for each year thereafter. The
Commssoner, as t seems to us, coud understand nothng from the refund
cam e cept that pantff s appcaton for refund was based on the cam that
the rues wth reference to nstament saes contracts n accordance wth sec-
ton 212(d) of the Revenue ct of 1926 shoud be arpw, and that hs cam
was n substance merey that 40,0o1.69 shoud bo ta ed n that year nstead
of 129,532.52. On ths cam the Commssoner correcty decded that as the
nta payment was more than one-fourth of the purchase prce the case dd
not come wthn the provsons of the secton above referred to and therefore
re|ected the cam made on ths bass.
We arc unabe to agree that the statements whch were made n the cam
to the offeft that there were covenants n the contract whch mght make the
payments forfetabe n any way affect ths concuson. ven f these state-
ments were correct (and n our |udgment they were not), the cam as set
forth n the appcaton for refund s not n any way based thereon. In so far
as t set out any matter that mght entte the pantff to a refund, the other
statements, f not n actua confct wth the aegatons wth reference to for-
feture of the payments, at east had no connecton therewth and made no
reference thereto. If pantff recovers at a n ths case, he must recover on
the ground that the contract, not beng assgnabe, had no market vaue, and
that no proft was reazed unt the cost to pantff had frst been receved,
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1113, rt. 1351
a of whch s, n our |udgment, an atoge her dfferent cam from that set
up n the appcaton for refund.
We do not thnk t necessary to determne whether the Commssoner pro-
ceeded correcty, but there are some observatons that shoud be made wth
reference to the stuaton when the Commssoner assessed the ta . e hed
that the ta was a due n the year of the frst payment as shown by nd-
ng 3. What the pantff proposed was that the ta shoud be assessed n
each year as the payments were receved n proporton to the amount thereof,
and ths pan woud have greaty reduced the amount of the pantff s ta .
If the pantff had nstead suggested the pan whch s now proposed n accord-
ance wth whch a the ta woud have been assessed at the tme of the ast
payment and the Commssoner had acted thereon, t probaby woud have
made but comparatvey tte dfference n the amount to be pad by hm.
Ths may have been one of the reasons why there was no suggeston of any-
thng of the knd n the cam for refund. ut however ths may be, we fnd
that after the statute of mtatons had run aganst the coecton of the ta
for the year n whch the ast payment was made, pantff fed hs petton and
amended petton and now cams that the ta shoud have been assessed under
a method whch was not proposed by the cam for refund.
We have so often hed that no recovery can be had where the sut s grounded
upon a dfferent cam from the one whch was made the bass for the app-
caton for refund that we thnk no ctaton of authortes s necessary to sus-
tan ths rue. It foows that the petton shoud be dsmssed and t s so
ordered.
Whaey, udge, and ooth, Chef ustce, concur.
ktce 1351: Suts for recovery of ta es erro- II-35-6378
neousy coected. Ct. D. 726
federa ta es revsed statutes decson op court.
1. Sut Cam fob Refund Suffcency of Cam.
tmey cam for refund, based on the ground that addtona
deprecaton shoud be aowed on budngs and machnery, does
not consttute such a cam for refund, under secton 3228 of the
Revsed Statutes as amended, as w support a sut to recover a
ta based on the dfferent ground, set forth n a cam for refund
fed after the e praton of the statutory perod of mtaton, that
the ta payer s entted to deprecaton of a contract for the pur-
chase of beached suphte.
2. Cases Dstngushed.
Unted States v. actors d nance Co. (288 U. S., 89 Ct. D. 628,
C. . II-1, 315 ) and Unted States v. Memphs Cotton O Co.
(288 U. S., 62 Ct. D. 626, C. . II-1, 307 ) dstngushed.
3. Case oowed.
Unted States v. Ienry Prentss Co., Inc. (288 U. S., 73 Ct. D.
627, C. . II-1, 311 ) foowed.
4. Rehearnq Dened.
Petton for rehearng dened.
Unted States Crcut Couet of ppeas, S th Crcut,
ryant Paper Co. v. oden.
ebruary 16, 1933.
opnon.
cks, Crcut udge: The petton s dened.
We dea here ony wth pont I thereof, whch s, that the opnon s con-
trary to the decsons of the Supreme Court n the cases of Unted States v.
actors nance Co. and Unted States v. Memphs Cotton O Co., both de-
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262
cded anuary 9, 1933. We can not yed to ths Insstence. In each of these
cases a genera tmey cam for refund was foowed by a specfc amendment
reatve thereto and e panatory thereof tendered after the e praton of the
statutory perod. Such s not ths case. ere there was a defnte, specfc
and tmey cam for refund for deprecaton upon budngs and machnery
and for osses upon certan accounts. fter the statute of mtaton had run
pantff sought to fe a refund cam based upon an aowance by the Com-
mssoner of deprecaton on the Nashwaak contract. The cam fed after the
e praton of the statutory perod was a compete departure from the tmey
cam and bore no reaton thereto. The case shoud therefore be agned wth
the case of Unted States v. enry Prentss Co., Inc., aso decded by the
Supreme Court on anuary 9, 1933, rather than wth the cases reed on n
the petton to rehear.
rtce 1351: Suts for recovery of ta es erro- II-41-6444
neousy coected. Ct.D.740
ncome ta revenue act of 1926 decson of court.
Sut Statute of Lmtatons ccount Stated.
Where pantff dd not accept the Commssoner s determnaton
of an overpayment of ta for 191G and an addtona ta for 1917,
as shown n a certfcate of overassessment maed to hm n 1923,
but fed a petton wth the oard respectng the 1917 ta , and a
decson was entered, n 1928, that there was no defcency for
1917, nether the certfcate of overassessment nor the oard s
decson consttuted an account stated, and sut brought n 1930
to recover the overpayment for 1916 was barred by the provsons
of secton 284(b) of the Revenue ct of 1926.
Court of Cams of the Unted States.
s P. are v. The Unted States.
une 5, 1933.
opnon.
Green. udge, devered the opnon of the court.
Pantff brngs ths acton to recover an overpayment of ncome ta for
191G and the case turns on the queston of whether the sut has been brought
In tme. The facts are not n dspute.
The pantff duy fed hs ncome ta return for 1916 and pad the amount
shown to be due thereby. Thereafter, the Commssoner of Interna Revenue
assessed a defcency for that year of 7,658.85, whch was pad uy SO, 1920.
November 25, 1921, the pantff fed a cam for refund n the sum of 5,975.23,
and uy 18, 1922, the Commssoner wrote pantff settng out the resut of
the audt of hs ta for the years 1913 to 1919, ncusve. December 19, 1922,
the Commssoner, after further consderaton and audt of the returns for
1916 and 1917 together wth other years, made a statement to pantff whch
showed an overassessment for 1916 of 5,322.25, and an addtona ta for
1917 of 9M,713.26. oth of these audts ncuded consderaton of the cam
for refund ted November 25, 1921. March 28, 1923, the Commssoner assessed
the addtona ta for 1917 of 93,713.26, and a few days ater sgned a forma
statement for the coector n whch appeared an overassessment n favor of
pantff for 1916 of 5,322.25, and theren nstructed the coector to appy
the overpayment as a credt aganst the ta owng (f any) on the ta payer s
account for subsequent perods. The coector comped wth the Comms-
soner s nstructons by appyng the 1916 overpayment as a credt aganst the
1917 addtona assessment and forwarded to the Commssoner a schedue of
refunds and credts duy sgned, on whch appeared the credt above referred
to and an tem of nterest on the overpayment of 852.43. uy 19, 1923, the
Commssoner maed a certfcate of overassessment to the pantff showng
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263
1113, rt. 1351.
an overassessment for 1916 of 5,322.25 whch had been credted to the 1917
addtona assessment. Ths certfcate contaned the foowng statement:
The baance (f any) of the overpayment s refunded to you by check of
the Treasury Department, forwarded herewth.
Incuded n the accompanyng check s nterest n the amount stated beow,
aowed on the credt, from the date of payment of the addtona ta to the
date of aowance of the cam.
check for the amount of nterest was accordngy ncosed and the amount
thereof pad to pantff.
Pantff, however, dd not accept ths concuson of the Commssoner, and
on pr 16, 1926, fed a petton wth the oard of Ta ppeas wth ref-
erence to hs ta es for 1917, aegng that the addtona ta whch had been
assessed for that year was barred from coecton snce coecton was not
made wthn fve years from May 1, 1918, when the return was fed. May 24,
1928, the pantffs contenton was sustaned by the oard of Ta ppeas
and a decson was entered that there was no defcency for 1917.
une 21, 1928, pantff fed a cam for credt of the overpayment for 1916
whch had been apped aganst the ta for 1917, askng that t be credted
aganst an outstandng assessment due for 1927. The cam for credt was
based on the fact that the overpayment for 1916 had been apped on a ta
whch was barred. Subsequenty, the Commssoner advsed the coector that
hs cam woud not be accepted as a cam for credt but woud be consdered
as a refund cam for 1916, and on November 22, 1928, the Commssoner re-
|ected the cam. uy 17, 1930, the pantff began ths sut.
The pantffs petton sets out the facts upon whch the sut s predcated,
but there s nothng n t to ndcate whether the sut s brought upon the
cam for refund, or the cam for credt, or upon an account stated, n whch
event the statutory perod of mtatons for makng refunds woud not appy.
three of these matters are dscussed n the brefs of the respectve counse.
We thnk t qute cear that the sut can not be mantaned upon ether the
cam for refund or upon the cam for credt. Manfesty, the sut upon the
cam for refund s barred, and we thnk that ths s equay true wth ref-
erence to a sut upon the cam for credt uness, as s contended, the statutory
provsons wth reference to cams for refund and credt are abrogated by
reason of the creaton of an account stated. We thnk there was no account
stated. In the case of Davd Davbe v. Unted States, decded by the Supreme
Court May 8, 1933 Ct. D. 677, C. . II-1, 346 , the Supreme Court sad,
as a reason why there was no account stated between the Government and
the ta payer, that no baance was arrved at as a resut of computaton and
agreement, that s, no baance arrved at by agreement between the Government
and the ta payer. In the case at bar, t woud seem cear that no baance
was agreed upon between the pantff and defendant as a resut of the certf-
cate of overassessment that was sent the pantff, for the certfcate stated
n substance that f any baance was due the pantff t woud be refunded
by check. The defendant dd not agree to pay the amount for whch sut s
now brought, nor can any promse to pay t be mped. bank was put
opposte the words mount refunded, and opposte the word Interest,
852.43, for whch a check was ncosed. In fact the attorney for pan-
tff n hs bref concedes that no agreement was reached as to the baance due
by ths certfcate of overassessment, but argues that on the other hand the
pantff repudated t by commencng a sut before the oard of Ta ppeas
to have the addtona assessment for 1917 set asde as barred. ut he con-
tends that when the oard of Ta ppeas rendered ts decson and pantff
accepted t, thereafter, at some ndefnte date an account stated arose. To
ths we can not agree. There was no account presented at that tme, and whe
the decson of the oard of Ta ppeas showed that the account presented
to the pantff by the Commssoner was erroneous and ths decson was
bndng upon the defendant n further court proceedngs t dd not make a
new account or brng the partes nto agreement. We therefore hod that
there was no account stated between the partes.
ut even f there had been an account stated, we do not thnk t woud
ava the pantff. If there was any such account t was presented at the
tme the pantff receved the certfcate of overassessment, but ths sut was
not brought unt more than s years after that date, and a sut upon an
account stated s therefore barred. Nor does the fact that the cam for
credt was fed wthn the perod of mtatons under the account stated (If
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1113, rt. 1351.
the certfcate of overassessment Is to be consdered an account stated) enabe
pantff to mantan a sut on the cam for credt. Ths fact woud not ater
the statutory provsons wth reference to the effect of fng a cam for
credt, for a sut upon a cam for credt and one upon an account stated
woud be based upon atogether dfferent and unreated matters. Under the
statutory provsons appcabe to the cam for credt fed n the case at bar
(secton 284(b), Revenue ct of 1926), no cam for credt coud be aowed
after four years from the tme the ta was pad. Ths perod had ong e pred
when the cam for credt was fed, consequenty even If t shoud be hed
that there was an account stated the cam for credt was not presented In
tme. Our concuson s that the pantff s sut s barred whether t be con-
sdered as based on the cam for refund, or an account stated, or upon the
cam for credt. It foows that the petton must be dsmssed and It s so
ordered.
rtce 1351: Suts for recovery of ta es erro- II-41-6445
neousy coected. Ct. D. 741
ncome ta revenue act of 1921 decson op court.
1. Sut Statute of Lmtaton ccount Stated Interest.
Where the Commssoner sgns a schedue of refunds and credts
showng an overpayment, of whch a certan amount s credted
aganst an addtona assessment the coecton of whch s barred
at the tme coecton was made by credt, and ssues a certfcate
of overassessment n the tota amount, statng the amount to be
refunded and to be credted, to whch the ta payer does not assent,
no account s stated. Sut brought n 1930 for the amount credted
n 1924 s barred by the statute of mtatons. ny cause of acton
for nterest accrued at the tme credt was granted and s aso
barred.
2. Case oowed.
Davd Daube v. Unted States (289 U. S., 367 Ct. D. 677, C. .
II-1, 346 ) foowed.
Court of Cams of the Unted States.
dward . Lesrnrng, Dane . Wentz, r., and dety-Phadepha Trust
Co. formery dety Trust Co.), ecutors of the state of Dane .
Wentz, Deceased, v. The Unted States.
une 5, 1933.
OPINION.
Green, udge, devered the opnon of the court.
The pantffs are e ecutors of the estate of Dane . Wentz, deceased, who
ded ebruary 8, 1926.
Ths sut Is brought upon what the pantffs cam to be an account stated
for 34,814.04 due the deceased. The evdence shows that the Commssoner, on
May 15, 1924, sgned a schedue of refunds and credts whch showed an over-
payment of 77,338.94 on the ta es of the deceased for 1919, of whch 34,814.04
was credted n the same schedue aganst that amount of an addtona assess-
ment for 1917. The addtona ta for 1917 had been assessed n tme, but
coecton was barred by the statute of mtaton of fve years provded n sec-
ton 250 of the Revenue ct of 1921 at the tme coecton was made by the
credt. In accordance wth ths schedue of refunds and credts, a certfcate
of overassessment was ater prepared by the Commssoner showng that the
testator s ta for 1919 had been overassessed In the amount of 77,338.94, and
that the report of the nterna-revenue agent In charge, dated October 17, 1923,
had been approved by ths offce as to the ad|ustment for ths year. The cer-
tfcate further went on to state, The amount of the overassessment w be
abated, credted, or refunded, as ndcated beow, and aso, If an overpay-
ment has been made and other ta es are due, credt w be made accordngy,
and any amount refundabe s covered by Treasury cheek transmtted herewth.
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2G5
1113, t. 1351
Notatons on the certfcate made beow showed that of the overassessment,
34,814.04 had been credted on addtona ta es for the year 1917 and that
42,024.90 was refunded. Ths certfcate, together wth a Treasury check for
the amount of the refund of 42,524.90 was devered to the testator about
une 15, 1924. fter the death of Dane . Wentz and on May 13, 1930, the
e ecutors of hs estate made appcaton to the Commssoner of Interna Reve-
nue for nterest on the overpayment for the year 1919 and for a refund o(
34,814.04 of the 1919 overpayment whch had been credted aganst ta es of
1917. In ths cam they set out a copy of the certfcate of overassessment for
1919 and aeged that the nterest was due thereon and that the credt above
referred to was vod, not havng been made wthn the statutory perod app-
cabe thereto. Ths cam was dened. The petton was fed and the sut
begun une 10, 1930.
Ths case, ke many others turns on the queston of whether the sut was
brought In tme and the partes agree that uness the sut can be based on an
account stated, the perod of mtatons for ts commencement has e pred.
It s contended on behaf of the pantffs that the certfcate of overassessment
referred to above consttuted an account stated n favor of the ta payer for
34,814.04 and that consequenty the pantffs had s years from the tme t
was devered to the ta payer n whch to brng sut and that the sut havng
been nsttuted une 10, 1930, t was begun n tme. The defendant contends
that the acts of the Commssoner, ncudng the devery of the certfcate of
overassessment, dd not consttute an account stated In showng anythng due
the ta payer, and that f there was any account stated through the certfcate
of overassessment t showed that nothng was due the ta payer after recept
of the refund aowed theren. It s aso nssted on behaf of the defendant
that nterest on the amount camed can not n any event be recovered, but as we
vew the case t w not be necessary to consder the pont thus rased.
number of transactons between the deceased and the Commssoner wth
reference to the ta es n sut and other ta es are shown by the fndngs of
fact n addton to what we have set out above n the opnon, but we do not
thnk t s necessary to refer to them as, n our opnon, they do not affect the
determnaton of the case.
In our vew, the decson heren s controed by the ease of Davd Daube
v. Unted States (75 C. Cs., 633, 59 ed. (2d), 842 Ct D. 596, C. . I-2, 373 )
and the opnon of the Supreme Court affrmng the decson of ths court n
Davd Daube v. Unted States, decded May 8, 1933. In the opnon rendered
by ths court n the Daube case, supra, t s stated that there are certan we-
setted prncpes from whch no court has ever vared whch appy to an
account stated. mong them s the rue that the partes must agree upon
the baance struck, that there must be a promse, e press or mped, for the
payment of such baance, and that where there are mutua or cross demands
the partes must come to an agreement as to the aowance or dsaowance
of the tems composng the account, but especay there must be an ad|ust-
ment, a baance struck, and an assent to the correctness of the baance.
urther, that the partes can not state an account by agreeng to part of the
tems, and eavng the others open for future ad|ustment or tgaton, and
that the test of an account stated s that the mnds of the partes met as to
the amount due. Nor does t make any dfference that a cam made n the
account may be groundess, athough f any part of the cam s dsputed so
that the baance stated s not admtted t does not become an account stated.
Ths ast s partcuary appcabe to the case now before us for the reason
that the defendant In the account charged the ta payer wth a credt on the
ta es of 1917, athough the tme had e pred wthn whch they coud egay be
coected. In the same case we aso sad: The admsson of one tem n the
account of the transactons between the partes offset by another tem w
not support an acton on an account stated as to the tem admtted, athough
t may consttute evdence of the correctness thereof n an acton otherwse
commenced. The authortes supportng these rues are too numerous for
ctaton.
ppyng these prncpes to the certfcate of overassessment whch was
devered to the ta payer and the schedue of refunds and credts whch
evdenty n some way came to the knowedge of the e ecutors, we are cear
that there was no account stated to whch both partes gave assent. The
sheet entted Certfcate of overassessment dd ndeed show the overassess-
87408 34 18
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1113, rt. 1351.
266
ment, but ths was ony one tem of the account whch was aso shown by
the same paper. The document showed that n defendant s statement of the
account the tem of 34,814.04 was credted upon the testator s ta es for 1917
and that the baance due the ta payer was 42,524.90, whch was accordngy
refunded to hm by check. Ths amount was the baance struck n the account
as stated by the Commssoner, but the evdence shows that the ta payer dd
not agree to ths baance, and that the defendant dd not agree that 34,814.04
was due the ta payer. Consequenty there was no account stated. See
s P. are v. Unted States Ct D. 740, page 262, ths uetn , ths day
decded by ths court.
We fnd nothng n the decson of the Supreme Court affrmng the Daube
case, supra, whch s n confct wth what we have set out above. On the
contrary, we thnk that the opnon theren shows that the Supreme Court had
no ntenton by the decson In the case of onct Teer Co. v. Unted States
(283 U. S., 258 Ct. D. 334, C. . -, 328 ), to overturn prncpes whch have
been agreed upon by a the courts of ths country and remaned setted for
neary a century, as seems to be contended on behaf of pantffs. In the
Daube case, supra, the Supreme Court cted wth approva the case of few-
hurger-Morrs Co. v. Tacott (219 N. Y., 505, 512), In whch the Court of ppeas
sad:
ut the very meanng of an account stated s that the partes have come
together and agreed upon the baance of ndebtedness, nsmu computasscnt, so
that an acton to recover the baance as upon an mped promse of payment
may thenceforth be mantaned.
In the ne t to the ast paragraph of the opnon n the Daube case the
Supreme Court stated n substance that the decson n the onwt Teer case,
supra, was mted n ts appcaton to cases where the evdence s such that
t sustans the nference of an agreement that the ta sha be repad. In
ths case, nstead of sustanng any such nference, the evdence ceary shows
the contrary. Prevous to the ssuance of the certfcate of overassessment
upon whch sut s brought the ta payer had fed cams for credt of the 1918
overpayment aganst the 1917 addtona ta . Instead of makng ths credt, the
certfcate upon whch pantffs now rey was ssued showng an overassessment
for te year 1919 n the amount of 77,338.94, and a baance was struck theren
between the ta payer and defendant by credtng 34,814.04 (the amount for
whch sut s now brought) upon addtona ta es for the year 1917 and refund-
ng to the ta payer by check 42,524.90. The check and the certfcate of over-
assessment were ssued une 13, 1924, and devered to Dane . Wentz about
une 15 of the same year. The petton heren was fed a few days before the
e praton of s years from the tme the certfcate was devered. Dane .
Wentz, so far as the record .shows, accepted the check whch had been sent hm
wthout makng any protest or ob|ecton thereto, but neary s years after-
wards the e ecutors of the estate fed a cam for nterest on the overpayments
aowed for 1918 and 1919 and for the refund of the 34,814.04 of the 1919 over-
payment credted aganst the 1917 ta . If any nference at a coud be drawn
from these facts, t woud be that Dane . Wentz agreed to the baance struck
by the Government, but we are ncned to thnk that the mere fact that he
accepted the check does not show that he agreed that the baance struck by the
Government was correct. The certfcate of overassessment showed ceary how
the Government computed the amount due the ta payer and the remsson of the
check to hm for that amount was n effect a statement that 42,524.90 was the
amount due hm and payment was beng made thereof. We are at a oss to
understand how t can be argued from ths state of facts that the Government
agreed that 34,814.04 more was due the ta payer.
It Is contended on behaf of the pantffs that the facts estabshed n
onwt Teer Co., supra, make the same knd of a case as that whch s now
before ths court. There may be much smarty between the actua facts n the
two cases but there s a great dfference n the facts submtted to the court.
When the onwt Teer case was submtted to ths court there was not a ne
or even a word sad n the bref of counse for ether party wth reference to an
account stated. There was an aegaton n the petton to the effect that the
Commssoner of Interna Revenue rendered a statement to the pantff n
whch statement the amount for whch sut was brought was actuay found
and agreed to be due to the pantff, and a statement n argument that the
acton was for the recovery of ths amount upon an aowed cam. p-
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267
1113, rt. 1351.
parenty there was no contenton over these aegatons, hut t was contended
on behaf of the Government that a refund coud not be made because the pro-
vsons of the statute were not comped wth. The Supremo Court therefore
had no occason to consder whether the facts n the case supported an account
6tated and we do not thnk t ntended to determne that queston. In vew
of the facts as found In the case now before ths court and the anguage of the
Supreme Court n the Daube case, supra, whch we have quoted above, we are
cear that the decson n the omvt Teer case, supra, s not controng n the
case at bar.
The case of Parks d WooUon Machne Co. v. Unted States (75 C. Cs., 204,
58 ed. (2d), 868 Ct. D. 562, C. . I-2, 1461) s aso cted n support of pan-
tffs theory but the cosng sentence of the opnon theren whch reads,
Recovery of the overpayment was barred when the sut was nsttuted, even
If t had been grounded upon an account stated, we thnk shows that t was
not ntended to hod that an account stated had been estabshed.
Nor do we fnd anythng n Nauntkeag Steam Cotton Co. v. Unted States,
decded by ths court anuary 9, 1933, that confcts wth what we have sad
above. That case nvoved a very dfferent state of facts from the one now
before the court and an atogether dfferent ssue was rased by the defendant.
Consequenty nothng was sad n the ma|orty opnon whch mght even re-
motey refer to an account stated, or to the queston of whether the sut was
brought n tme, whch woud have nvoved the dscusson of matters not
appearng n the case at bar. avng decded the case on the Issues presented,
obvousy t was not necessary for the court to go further and decde some ssue
that had not been rased.
Our concuson s that there s no evdence showng or tendng to show an
agreement, e press or mped, to pay ths sum to the ta payer, and we have
entered a fndng of fact accordngy. s we fnd n effect and hod that there
was no account stated, t foows that pantffs acton to recover the amount
of the credt s barred. The credt was defntey granted on May 15, 1924, when
the Commssoner approved and sgned the schedue of refunds and credts.
ny cause of acton for Interest accrued at that date, and s therefore aso
barred.
It foows from what has been stated above that pantffs petton shoud be
dsmssed, and It s so ordered.
rtce 1351: Suts for recovery of ta es erroneousy
coected.
R NU CT O 1028.
Insuffcency of one amortzaton bass n cam for refund as bass
for sut on another amortzaton bass. (See Ct. D. 751, page 209.)
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ST T T RULINGS.
TITL III. ST T T . (1926)
Reguatons 70(1926), rtce 19: Power to
change en|oyment.
II-31-6322
Ct. D. 711
estate ta revenue act op 1928 decson of court.
1. Gross state Transfers Power to ter or mend Trust
Instrument.
The vaue of certan shares of stock transferred by decedent
to hersef and another as trustees for the beneft of her two
daughters for fe was propery ncuded n the gross estate, under
the provsons of secton 302(d) of the Revenue ct of 192G, where
the donor reserved the rghts to drect payment of the entre net
ncome n unequa shares to her daughters n such amounts and
at such tmes as she saw ft, and to change, ater, or amend the
trust nstrument, e ceptng the rght to revoke or vacate the trust.
ssumng, as contended by pantffs, but not decdng, that the
power to drect unequa dstrbuton of ncome was the ony
change permtted to the donor by the trust nstrument, such
power can not be consdered sght or trva, but was mportant
and substanta.
2. Same: Transfer to Take ffect at Death Contngent
Remander.
Where the trust nstrument provded that n the event the donor s
daughters predeceased her she shoud have the rght to receve
ther respectve nterests n the corpus of the trust estate, such
nterest, beng a contngent remander and ceasng at the donor s
death, woud aso seem propery ta abe under the provsons of
secton 302(c) of the Revenue ct of 1926.
3. Consttutonaty of Statute.
Secton 302(d) of the Revenue ct of 1920, construed as m-
posng a ta upon property transferred n trust where the donor
retans contro, as ndcated above, does not voate the ffth
amendment.
4. Decson oowed.
The decson of the Supreme Court n the case of Porter et a. v.
Commssoner (288 U. S., 436 Ct. D. 647, C. . II-1, 354 )
foowed.
arrson Iobtzce and Trmbe IobWzca, as ecutors of the state of
Laura T. . IoUtzeUc, deceased, v. The Unted States.
Green, urge, devered the opnon of the court.
Ths acton nvoves the constructon of certan provsons of the estate a
as contaned n the Revenue ct of 1926, under whch the vaue of the gross
estate s frst determned and therefrom the net estate s ascertaned n accord-
ance wth the provsons of the statute.
Court of Cams of the Untf.d States.
May 8, 1933.
OPINION.
(2GS)
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269
Regs. 70(1926), rt. 19.
The partcuar provson wth whch we are concerned n ths case s secton
802 of the ct whch provdes, among other thngs, that:
Sec. 802. The vaue of the gross estate of the decedent sha be determned
by ncudng the vaue at the tme of hs death of a property, rea or persona,
tangbe or ntangbe, wherever stuated

(d) To the e tent of any nterest theren of whch the decedent has at any
tme made a transfer, by trust or otherwse, where the en|oyment thereof was
sub|ect at the date of hs deuth to any change through the e ercse of a power,
ether by the decedent aone or n con|uncton wth any person, to ater,
amend, or revoke, .
The pantffs are the e ecutors of the estate of Laura T. . obtzee,
who ded on May 29, 1929. In 1927, the decedent e ecuted an ndenture of
trust for the beneft of her two daughters durng ther ves and provdng for
appontees and remandermen after ther deaths, aso namng hersef and
another party as trustees. There were a number of speca provsons attached,
but e cept as shown by sectons 2, 8, and 11 of the ndenture of trust set out
n the fndngs they are not matera to the determnaton of the questons
nvoved. It w be seen from an e amnaton of sectons 2 and 3 that the
donor of the trust aone reserves the rght to drect the trustees to pay over
and dstrbute the entre net ncome n unequa shares, and n such amounts
and at such tmes as she may see ft, unto her daughters, upon her wrtten
nstructons to the trustees and that secton 11 provdes:
The donor hereby reserves the rght to change, ater, or amend the terms
of ths ndenture at any tme durng her fe, Provded, however.
The donor sha not have the rght to revoke and vacate ths trust by any such
amendment or ateraton thereof.
The Commssoner of Interna Revenue treated the trust property as a part
of the estate of the decedent at the tme of her death and computed the estate
ta accordngy. To ths the puntffs ob|ected but pad the ta , and after
duy fng a cam for refund now seek to recover the amount of addtona
ta assessed and coected by vrtue of ths act of the Commssoner.
We thnk the decson n the case at bar s controed by the opnon n
Porter et a. v. Commssoner, decded by the Supreme Court March 13, 1933
(288 U. S., 436 333 C. C. ., paragraph 9195). In vew of the ast-named dec-
son much of the argument made by panffs n the openng bref has been
abandoned, but t s st camed that notwthstandng that decson the
pantffs are entted to recover. In ts opnon rendered n that case, the
Supreme Court sad wth reference to the provsons of secton 3012 quoted
above:
The net estate upon the transfer of whch the ta s mposed, s not mted
to property that passes from decedent at death. Subdvson (d) requres to
be ncuded n the cacuaton a property prevousy transferred by decedent,
the en|oyment of whch remans at the tme of hs death sub|ect to any change
by the e erton of a power by hmsef aone or In con|uncton wth another.
Pettoner argues that, as decedent was wthout power to revoke the transfers
or to ater or modfy the trusts n favor of hmsef or hs estate, the property
s not covered by subdvson (d). ut the ds|unctve use of the words ater,
modfy and amend negatves that contenton.
In the Porter case the trust nstrument contaned a paragraph reservng to
the donor power at any tme to ater or modfy the ndenture and any or a
of the trusts n any manner e ceptng any change In favor of hmsef or hs
estate. The same power to change, ater, or amend s contaned n the trust
nstrument nvoved n the case at bar. The mtaton s worded sghty dffer-
ent and n the Porter case gave the donor a tte more power wth reference to
the change whch mght be made wth reference to the trusts. In the case at
bar the donor dd not have the rght to revoke and vacate the trust by any
amendment or ateraton, and t s contended by pantffs that the power to
drect unequa dstrbuton of the ncome between her two daughters was the
ony change permtted to the donor by the nstrument now before us. We
doubt very much whether ths contenton can be sustaned, but assumng for
the sake of the argument that t s correct we do not thnk t affects the udg-
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Regs. 70(1929), rt. 19.
270
ment whch must be rendered In the case. It s true that the opnon n the
Porter case docs not pass on the queston of whether every change, however
sght or trva, woud be wthn the meanng of the cause and that n the
nstant case the donor dd not retan as much power over the trust estate as
was reserved n the Porter case. Concedng ths, we thnk that the power re-
served can not be consdered sght or trva but was mportant and substan-
ta. If we are correct n ths concuson the statute s broad enough to cover
the property conveyed by the trust nstrument.
It woud seem aso that the donor under secton 3 of the trust nstrument
had a further nterest n the trust estate n the form of a contngent re-
mander. In event of the death of ether of her daughters durng her fetme
she had the rght to receve the respectve nterests of the benefcary or bene-
fcares and ths nterest ceased upon the death of the donor. Such an nterest
woud be ta abe. (See en v. Unted States, 70 C. Cs., 151, afrmed 283
U. S., 231 Ct. D. 333, O. . -, 462 .)
It s contended that to so construe the statute makes t a harsh provson.
We do not thnk so. The manfest purpose of the provson contaned n the
trust nstrument whch we have been construng was to evade the estate ta
and at the same tme retan a substanta contro of the property. If the con-
tenton of the pantffs that the property so conveyed was not sub|ect to the
estate ta shoud be sustaned, then even under the present aw t s e tremey
doubtfu whether the property conveyed by the trust nstrument woud be
sub|ect to the gft ta , and a trust nstrument of the character now n queston
woud afford a convenent method of avodng both the estate and gft ta es.
It s further contended by pantffs that the statute construed as stated
above s arbtrary and caprcous and vod under the ffth amendment of the
Consttuton. Wthout further quotatons, we thnk that the anguage used by
the Supreme Court n the Porter case wth reference to a smar consttutona
queston dsposes of ths ob|ecton.
rantffs petton must be dsmssed, and t s so ordered.
Where a trustor at her death n 1929 had the power to revoke,
ater, and amend a trust agreement, even though the power coud
not have been e ercsed by her unt anuary , 1930, the vaue of
the trust property nevertheess consttuted a part of her gross
estate.
Request s made for an opnon whether the vaue of certan trust
property consttuted a part of the decedent s gross estate.
On May , 1923, , who ded May , 1929, transferred certan
of her securtes to the M ank and her husband as trustees. The
trust nstrument under whch the property was transferred con-
taned the foowng provsons:
The trustor reserves the rght to revoke, ater, and amend ths trust n
whoe or n part, at any tme durng her fe, and reserves such rght after her
decease to her husband and upon the decease of the trustor and her husband
ths rght sha accrue to the sons of the trustor |onty, and to the survvor
of them.
Later e ecuted a further nstrument amendng the orgna trust
ndenture and provdng n part as foows:
Whereas I have reserved n the sad trust ndenture the rght to
revoke, ater or amend the same at any tme durng my fe.
Now therefore I hereby amend the sad trust ndenture:
(b) wavng unt anuary , 1928, the rght to revoke, ater
and/or amend the sad nstrument, so that the provsons of the sad trust
Reguatons 70(1929), rtce 19: Power to
change en|oyment.
II-3 -6383
G. C. M. 11034
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271
egs. 70(1928), rt. 19.
agreement can not be revoked, atered or amended In any partcuar by me or
by any one actng under my authorty between the date of ths nstrument and
anuary , 1928, provded, however, that at any tme before anuary , 1928,
the sad trust, as above amended, can be further contnued, wthout ateraton,
for one or more years from date.
Under date of December , 1927, e ecuted another nstrument
provdng n part as foows:
Whereas, by an amendment to the trust agreement above referred to the
sad trust was made rrevocabe unt anuary , 1928, wth the provson
that at any tme before that date the sad trust fund coud be further con-
tnued wthout ateraton for one or more years from that date, I now hereby
provde that the sad trust fund sha be contnued wthout ateraton unt
anuary , 1930, wth the further provson that at any tme before that
date the sad trust fund may be further contnued wthout ateraton for
one or more years from that date.
The admnstrator of s estate contends that the vaue of the
trust property does not consttute a part of the gross estate for the
reason that after the creaton of the trust the grantor receved no
beneft from the property and had no nterest theren and that at the
date of her death, the trust was, by vrtue of the provsons of the
nstrument e ecuted on December , 1927, rrevocabe, and coud not
be atered or amended.
Secton 302 of the evenue ct of 1926 provdes n part:
The vaue of the gross estate of the decedent sha be determned by ncudng
the vaue at the tme of hs death of a property, rea or persona, tangbe or
ntangbe, wherever stuated

(d) To the e tent of any nterest theren of whch the decedent has at any
tme made a transfer, by trust or otherwse, where the en|oyment thereof waa
sub|ect at the date of hs death to any chnnge through the e ercse of a power,
ether by the decedent aone or n con|uncton wth any person, to ater, amend,
or revoke, or where the decedent renqushed any such power In contempaton
of hs death, e cept n case of a bona fde sae for an adequate and fu
consderaton n money or money s worth.
Secton 302(d), supra, does not requre the trustor to be abe
actuay to revest the trust property n hmsef at the date of death.
that s necessary s that the power to ater, amend, or revoke be
vested n hm at that tme even though such power may not then be
e ercsabe. It s the e stence of such a power whch brngs the
trust wthn the statute. atherne . orecht et a. v. Comms-
soner, 27 . T. ., 1091.)
In the nstant case t s cear that the nstrument of December ,
1927, wheren t was provded that the sad trust fund sha be
contnued wthout ateraton unt anuary , 1930, dd not oper-
ate as a renqushment of the power whch the trustor had reserved
to revoke, ater, and amend the trust. Whe (the decedent)
was not, because of the provsons of the nstrument dated Decem-
ber , 1927, abe actuay to revest the trust property n hersef at
the date of her death, nevertheess she, at that tme, had the reserved
power to revest. s has aready been stated the e stence of such a
power s suffcent to brng the trust wthn the statute.
ccordngy, ths offce s of the opnon that the vaue of the
corpus of the trust created by on May , 1923, consttuted a part
of her gross estate.
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Regs. 70, rt. 24.
272
Reguatons 70, rtce 24: Genera rue. IT-46-6510
Ct.D.752
ST T T R NU CT O 1926 D CISION OP COURT.
1. Gboss state Property Passng Under Poweb of ppontment.
Where decedent, the donee of a genera power of appontment
under the w of hs father, e ercsed the power n favor of hs two
daughters, who woud have taken the property under the w of the
donor f the power had not been e ercsed, the e ercse of the
power by the donee was a awfu sub|ect of edera ta aton, and
the vaue of the property so passng was propery ncuded n the
decedent s gross estate, n accordance wth secton 302(f) of the
Revenue ct of 1926, notwthstandng the fact that the aw of
Pennsyvana treats the property as passng, not from the donee of
the power, but from the donor.
2. Res udcata.
decson of the Orphans Court of Pennsyvana, decarng the
State rue and hodng that the w of the donor vested the re-
mander n the daughters sub|ect to the rght of the donee of the
power to drect otherwse, was not res |udcata of the queston of
the rght of the edera Government to mpose an estate ta upon
the e ercse of the power.
3. Decson ffemed.
The decson of the oard of Ta ppeas (26 . T. , 082)
affrmed.
Unted States Crcut Court op ppeas for the Thrd Crcut.
oseph Waker Wear, Wam . Goodman and Wam Potter Wear, ecutors
of te state of Wam Potter, Deceased, pettoners, v. Commssoner of
Interna Revenue, respondent.
Petton for revew from the Unted States oard of Ta ppeas.
efore uffngton, Woo ey, and Thompson, Crcut udges.
May 26, 1933.
OPINION.
Wooey, Crcut udge: Wam Potter, the decedent, was donee of a gen-
era power of appontment under the w of hs father. e e ercsed the power
n hs own w by gvng the property to hs two daughters who, had he omtted
to e ercse t, woud have taken the property under the w of ther grand-
father, the donor, and the decedent s estate woud to that e tent have escaped
a edera ta . s the decedent dd, as a matter of fact, e ercse the power, the
Commssoner of Interna Revenue mposed upon hs estate a ta measured by
the vaue of the property passng under the power, on authorty of secton 302
of the Revenue ct of 1926. (44 Stat., 9 U. S. C. ., tte 26, secton 1094.) Ths
provson, In ayng down a bass for a ta abe net estate, prescrbed that the
gross estate shoud be determned by ncudng the vaue, at the tme of the
decedent s death, of rea and persona property (f) To the e tent
of any property passng under a genera power of appontment e ercsed by the
decedent (1) by w, . On appea to the Unted States oard of Ta
ppeas that trbuna hed the vaue of the property was propery ncuded n
computng gross estate and the addtona estate ta was awfuy determned.
The e ecutors of the decedent have fed ths petton for revew.
The pettoners admt the power n queston was a genera power of appont-
ment. They deny, however, that the donee ever e ercsed t. They take
ths stand not apnst the admtted fact that the donee dd actuay and e -
pressy e ercse the power but on the ground that t was egay an abortve act
n that t nether produced a new effect nor chanced the ega status of the
appontees n respect to the property from what t was before. To ths conten-
ton we brefy answer that the donee e ercsed the power. Whether t was
wthout ega effect In the Matter of Lansng, 1S2 N. Y., 238), and therefore
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273
Regs. 70, rt. 24.
fted the estate out of the ta ng ct and eft It under Pennsyvana aw. turns
on another queston whch the pettoners state as foows:
Dd the property over whch the decedent had a genera power of appont-
ment pass under the genera power of appontment
That queston Is predcated on the aw of Pennsyvana that, If the donee
of the power e ercse t n such a manner that the property passes e acty as t
woud have passed f the power had not been e ercsed, the property w be
treated as passng under the w of the donor. (26 R. C. L., 189 reeman s
state, No. t, 35 Pa. Sup. Ct., 185 Crous v. ramer, 279 Pa., 275 Potter s
state, 13 Dstrct Reports (Pa.), 667.) If the queston as framed by the pet-
toners states the whoe pont of the ease there s nothng to dscuss, for t s
ndubtaby setted n Pennsyvana aw as a matter of tte that where there a
Identty of the donee s appontee and the donor s contngent benefcary tte
passes from the donor of the power.
The rea queston, as we venture to put t, s whether the e ercse of a gen-
era power of appontment s a awfu sub|ect of edera ta aton, to be meas-
ured by the vaue of property whch under State aw passes, as n ths case,
not from the decedent donee of the power but from the donor.
The answer depends very much on how the queston s approached. If we
were deang wth a State rue of property, ths edera court woud, of course,
be bound by t. ut we are deang wth a rght of the edera Government to
evy a ta on a partcuar sub|ect the e ercse of a power of appontment.
Matters of edera ta aton, though controed e cusvey by edera egsa-
ton ( urnet v. arme, 287 U. S., 103, 110 Ct. D. 611, C. . I-2, 210 ), are
sometmes perpe ng because of the dffcuty n appyng provsons of a ed-
era ta ng ct to a sub|ect whch States under ther own aws regard dffer-
enty. To aws of the States the Congress can yed, and n some nstances,
such as n aowng deductons, has yeded. cept when e pressy and voun-
tary gvng way to State aws, the Congress, not permttng ts hand to be
stayed, may, wthn the Consttuton, reach out and evy edera ta es on such
sub|ects as t may seect (Lang v. Commssoner, 289 U. S., 109), however they
may be regarded at home.
The sub|ect of the ta n ths case s the e ercse of a genera power of
appontment. The ta s not on the property of the power but s on the e er-
cse of the power tsef. In many States a genera power of appontment, fo-
owng the ngsh rue, s regarded as an estate equvaent to out-and-out own-
ershp of the property, or an ownershp at east to the e tent of sub|ectng t to
abty for the donee s debts, and of course sub|ectng t to ta aton. (Chanter
v. esey, 205 U. S., 466 Lederer v. Pearce, 266 ed., 497 dety-PhadeU
pha Trust Co. v. McCaughn, 34 ed. (2d), 600, 602 T. D. 4239, C. . II-2,
373 Rosenberger v. McCaughn, 25 ed. (2d), 699, 700 278 U. S.f 604 T. D.
4171, C. . II-2, 253 .) In Pennsyvana and n some other mercan |ursdc-
tons, the rue Is |ust the opposte. Such beng the dversty of rues, we are
not concerned wth a queston whether one s rght and the other wrong, but
wth an atogether dfferent queston, whether a edera ta ng ct Is to be put
Into effect n one |ursdcton and not n another accordng to the dfferent ways
n whch the sub|ect of the ta s ooked upon.
We do not beeve the Congress ntended, by the quoted provson of the ct,
that the estate ta n respect to the e ercse of a genera power of appontment
shoud be Imposed and coected at the w of the States or upon the accdent
of the ctzenshp of the ta payer. Rather do we thnk t Intended the ta
shoud be ad, not on property and therefore not to be bound by a State rue of
property, but on an event arsng upon the death of the donee, that s, the e er-
cse of a power of appontment effectve on hs death. The estate ta beng a
death ta , rests upon the prncpe that death Is the generatng source from
whch the authorty to mpose such ta es takes ts beng, and t s the power to
transmt or the transmsson or recept of property by death whch s the sub-
|ect eved upon by a death dutes. ( norton v. Moore, 178 U. S., 41, 56, 57
Tyer v. Unted States, 281 U. S., 497, 502, 503 Ct. D. 190, C. . I -1, 383 .)
The queston here, then, s not whether there has been n strct sense of the
word a transfer (or a passng ) of the property by the death of the decedent,
or recept of t by rght of successon (or by a contngent rght under the
donor s w), but whether the death had brought nto beng or rpened for
the survvor property rghts of such character as to make approprate the
mposton of a ta upon that resut (whch Congress may ca a transfer ta ,
a death duty, or anythng ese t sees ft), to be measured, n whoe or n part,
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Regs. 70, rt. 24.
274
by the vaue of such rgh s. (Tyer v. Unted States, 2S1 U. S., 497, 502, 503
Unted States v. Provdent Trust Co., 30 ed. (2d), 339 Lang v. Commssoner,
289 U. S., 109.)
Recognzng ths us the essence of such ta egsaton as that here n ques-
ton, the Supreme Court on ano .her subparagraph of a ke secton of another
Revenue ct openy dsregarded the Maryand and Pennsyvana State rues of
property n respect to tenancy by the entrety as not controng on a queston
of ta aton and sustaned the edera ta as mposed not upon property but
upon the transmsson occasoned by death of one of the spouses. (Tyer v.
Unted States, supra Lang v. Commssoner, supra.)
nd, further, the Congress has, n some stuatons, power to ta transmsson
of property effected by death even though by the aw of the decedent s domce
such property s not part of hs estate. ( dety-Phadepha Trust Co. v.
McCaughn, 34 ed. (2d), 600, 602.)
Of course we reaze the pettoners w hasten to say there was n ths
case under the Pennsyvana rue no transmsson on the donee s death because
hs daughters had receved the property uuder the donor s w.
We have not been convnced that on the death of the donee nothng happened
In respect to the property of the power and n respect to the daughter s rght
to the property by the e ercse of the power. efore ts e ercse the daughters
of the decedent, the twce named recpents, had under Pennsyvana aw an
estate n the property of the power. ut t was a defeasbe estate, not unke
the nterest of a benefcary n a pocy of fe Insurance where the nsured has
reserved, yet has not e ercsed, the rght to change the benefcary. Ther estate
was abe to be whoy taken away from them by the e ercse of the power n
favor of others. So ong as the donee ved and retaned contro over the ds-
poston of the property the daughters ran that rsk, whch was akn to the
rsk of a change of benefcares n a pocy of nsurance. Not unt the donee
ded dd that rsk dsappear. Unt then he stood n ther way. Therefore t
was upon hs death wthout e ercsng the power adverse to them that the
estate of the daughters became ndefeasbe. Death, wth an e ercse of the
power n ther favor, was the event that wrought the change. Then ther
estate, theretofore contngent upon the none ercse of the power aganst them,
became vested, ke the nterest of a benefcary of a pocy of fe nsurance
becomes vested upon the death of the nsured wthout e ercsng a reserved
rght to change the benefcary, the vaue of whch must, under the cases,
be ncuded n the gross estate of the nsured for purposes of ta aton. (Chase
Natona ank v. Unted States, 278 U. S., 327 Ct. D. 40, C. . III-1, 308 .)
The generatng source of the change was the death of the donee wthout acton
adverse to them. That, too, was the generatng source of the ta . nd such a
ta , we hod, the edera Government, under ts soveregn power to evy ta es,
may awfuy mpose upon the e ercse of a power effectng such a change
to be determned by actua resuts thereby brought about rather than by con-
sderaton of rues whch defne and mt tte of property (Tyer v. Unted
States. 281 U. S., 497, 503), and to bo measured (rather than determned) by
the vaue of the property passug. (Stratton v. Unted States, 50 ed. (2d), 48
284 U. S., 601 Lee v. Commssoner, 57 ed. (2d), 399 2S6 U. S., 563 Pennsy-
vana Co., etc., v. Lcdcrer, 292 ed., 629 aney, ecutor, v. Commssoner, 17
. T. ., 464.)
The decson by the orphans court n Potter s state (13 Dstrct Reports
(Pa.), 667) (concernng the same power) s not res |udcata of ths case. The
partes were dfferent so aso was the queston. There the queston was
whether the daughters of Wam Potter took under the e ercse of the power
of appontment or under the w of the donor of the power. The court, merey
decarng anew the od Pennsyvana rue, hed that the w of the donor vested
the remander u the daughters sub|ect to the rght of the donee of the power to
drect otherwse. The queston of the rght of the edera Government to
mpose a ta on the e ercse of the power was not submtted to the orphans
court. ad t been submtted, we gravey doubt that a court of ts partcuar
ursdcton woud have taken cognzance of such a edera queston. The
|onder of the coector as a party was a mere gesture toward the ta queston
n the offng. It gave not even a edera tnge to the decson and bound the
edera Government not at a.
The order of the oard of Ta ppeas s affrmed.
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275
Regs. 70, rt. 25v
Reguatons 70, rtces 25: Ta abe nsurance. II-36-6389
Ct.D.728
ST T T R NU CTS O 1924 ND 1926 D CISION O COU T.
1. Gboss state Proceeds or Insurance Poces.
The proceeds of nsurance poces were, to an amount n e cess
of 40,000, propery ncuded n the decedent s gross estate, even
though the poces were ssued before the enactment of any
edera estate ta aw, where at the tme of death the power to
revoke and to change the benefcary was reserved to the nsured
aone.
2. Statute of Lmtatons ursdcton of oard Redetermna-
ton of Greater Defcency.
The oard of Ta ppeas has ursdcton to determne a
greater amount of defcency than that determned by the Com-
mssoner, where a cam therefor was asserted by the Comms-
soner before the hearng, even though, n the absence of an
appea to the oard, the coecton of the addtona ta woud
have been barred by the e praton of the perod of mtaton pre-
scrbed by secton 1009 (a) of the Revenue ct of 1924. y appea
to the oard the pettoner was brought wthn the provsons
of secton 308(e) of the Revenue ct of 1920, whch gves the
oard |ursdcton to redetermne the correct amount of the ta ,
the ony condton prescrbed theren beng that cam therefor
be asserted by the Commssoner at or before the hearng.
3. Decson ffrmed.
The decson of the oard of Ta ppeas (20 . T. ., 731)
affrmed.
Unted States Crcut Court of ppeas for the Nnth Crcut.
eena Lebes, as ecutr of the Last WU and Testament of Isaac Lebes,
Deceased, pettoner, v. Commssoner of Interna Revenue, respondent.
Upon petton to revew an order of the Unted States oard of Ta ppeas.
efore Wbur and Sawtee, Crcut udges, and Cavanah, Dstrct udge.
March 6, 1933.
OPINION.
Sawtee, Crcut udge: Ths s a petton to revew a decson of the Unted
States oard of Ta ppeas, n whch t was hed that there was a defcency
of 4,373.50 n the edera estate ta on the estate of Isaac Lebes, deceased.
Lebes ded on May 29, 1920. The pettoner, as e ecutr of hs estate, fed
an estate ta return therefor on May 29, 1921. The amount of the ta org-
nay assessed was 13,692.81, and ths amount was pad. On March 13, 1925,
the respondent assessed a defcency of 9,907.99, and on the foowng day no-
tfed the pettoner to that effect, the notce beng contaned n a defcency
etter. In that etter the respondent stated that an Immedate |eopardy
assessment woud be made. On ebruary 15, 1926, the pettoner e ecuted a
bond n whch appeared the statement that she was about to fe wth the
respondent her cam n abatement for the defcency ta of 9,907.99.
The record does not dscose the actua date of the fng of the cam n
abatement, but such cam was re|ected whoy on une 7, 1927, and the pet-
toner was so notfed. In the same etter of une 7, 1927, the pettoner
was aso nformed that there was an addtona defcency of 4,141.34, whch
ater was rased by the oard, at the request of the respondent, to 4,373.50.
It s ths atter amount that s the sub|ect of the present controversy. On
uy 26, 1927, the pettoner asked for a redetermnaton of the defcency, n a
petton fed before the oard of Ta ppeas, and on November 25, 1927, she
fed an amended petton. On October 15, 1930, the oard decded that there
e sted the defcency referred to above.
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Regs. 70, rt. 25.
276
t the hearng before the oard of Ta ppeas, by stpuaton the foowng
three ssues were submtted to the oard for decson:
(a) The ta abty of the communty nterest of the decedent s wdow, eena
Lebes, n the estate of the decedent, sad nterest beng one-haf of the
decedent s gross estate.
(b) The ta abty of the nsurance poces totang 196,979.34, beng the
proceeds of nsurance poces n e cess of 40,000, mentoned n the 60-day
etter from the Commssoner of Interna Revenue, dated une 7, 1927.
(c) Whether or not the assessment of any defcency n ta n e cess of th
tota ta heretofore assessed of 23,600.80 s barred by the statutes of m-
tatons.
The oard decded the foregong ssues as foows:
(a) The communty nterest of decedent s wdow s sub|ect to a edera
estate ta .
(b) One fe nsurance pocy of 50,000 s not sub|ect to a edera estate
ta , and the baance of 146,979.34 of the proceeds of the poces s sub|ect
to such ta .
(c) The assessment of a defcency n e cess of the tota ta s not barred
by the statute of mtatons.
The pettoner concedes that the communty property queston has been
fnay determned by the Supreme Court adversey to her contenton hence
Issue (a) s not urged on the petton for revew. (See Unted States v.
Somns, 269 U. S., 315 T. D. 3817, C. . -, 188 .)
Of the two remanng ssues, we w frst consder the one deang wth
the statute of mtatons.
s ponted out by the pettoner, an assessment made n ths proceedng
after the effectve date of the Revenue ct of 1924 une 2, 1924 woud
have to be wthn the perod mted by secton 1009 of that ct Secton 1009
provdes n part as foows:
(a) cept as provded n sectons 277, 278, 310, and 311, and subdvsons
(b) and (c) of ths secton, a nterna-revenue ta es sha, notwthstandng
the provsons of secton 3182 of the Revsed Statutes or any other provson
of aw, be assessed wthn four years after such ta es became due, and no
proceedng n court for the coecton of such a es sha be begun after the
e praton of fve years after such ta es became due.
Snce secton 305 of the same ct provdes that the ta sha be due and
payabe one year after the decedent s death, n the nstant case, under
ordnary crcumstances, no assessment coud have been made after May 29,
1925, and no proceedng n court for the coecton of the ta coud have
been begun after May 29, 1926. ccordngy, the pettoner contends that
the assessment and coecton of ths addtona defcency of 4,373.50 s
barred by the statute of mtatons.
The respondent, on the other hand, answers that the rght of revew by
the oard of an asserton of abty by the respondent e sts ony upon
the condtons whch the aw attaches to ts e ercse, and when the pettoner
appeaed to the oard she dd so n the ght of secton 30S(e) of the Revenue
ct of 1926. Secton 308(e) reads as foows:
The oard sha have ursdcton to redetermne the correct amount of
the defcency even f the amount so redetermned s greater than the amount
of the defcency, notce of whch has been maed to the e ecutor, and to
determne whether any addtona amount or addton to the ta shoud be
assessed, f cam therefor s asserted by the Commssoner at or before the
hearng or a rehearng.
ccordngy, the respondent argues that when the pettoner contested the
Commssoner s determnaton of the e tent of her abty by the same token
the pettoner, under the above secton, decded to hazard the fndng of an
obgaton arger than that theretofore asserted, even though, n the absence
of such appea, the Government, by renson of the statute of mtatons, mght
not have been abe to enforce payment.
We beeve that ths contenton s sound. s the respondent ponts out,
the pettoner dd not open the door to hersef aone. The anguage of
secton 308(e) s defnte and sweepng. The oard s gven |ursdcton to
redetermne the correct amount of the defcency even f the amount so
redetermned s greater than the amount of the defcency, notce of whch has
been maed to the e ecutor.
There s ony one condton ad down by the statute, to the e ercse of
ths |ursdcton to redetermne an amount greater than that asked for n
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277
Regs. 70, rt. 25|
the orgna defcency notce. That condton s that the ursdcton to make
such redetermnaton can be e ercsed If cam therefor s asserted by the
Commssoner at or before the hearng or a rehearng.
In the nstant case ths condton was met by the respondent, for he sent
the defcency etter to the pettoner on une 7, 1927, and the appea to the
oard was fed on uy 26, 1927.
It s not wthn the provnce of the courts to add new provsos to the statute.
s was sad by Mr. ustce rewer In the case of Unted States v. Oodenberg
(168 U. S., 95, 103) :
No mere omsson, no mere faure to provde for contngences, whch It
may seem wse to have specfcay provded for, |ustfy any |udca addton
to the anguage of the statute. In the case at bar the omsson to make specfc
provson for the tme of payment does not offend the mora sense.
ere, as n the Godenberg case, supra, the omsson, f any there were,
to make specfc provson for cams by the Commssoner when they are
barred by the statute of mtatons, does not offend the mora sense.
(See, aso, Crooks v. arreson, 282 U. S., 55, 60 Ct. D. 271, C. . -, 469 .)
urthermore, the rghts of the Government are never forecosed e cept by
statutory anguage ceary ndcatve of such purpose. In Unted States v.
ashve, etc., Ry. Co. (118 U. S., 120, 125) the court sad:
It s setted beyond doubt or controversy upon the foundaton of the great
prncpe of pubc pocy, appcabe to a governments ake, whch forbds
that the pubc nterests shoud be pre|udced by the neggence of the
offcers or agents to whose care they are confded that the Unted States,
assertng rghts vested n them as a soveregn Government, are not bound
by any statute of mtatons, uness Congress has ceary manfested Its
Intenton that they shoud be so bound. (Many cases cted.)
In the nstant case we beeve that Congress has faed ceary to manfest
that the statute of mtatons sha bar the Government from coectng ts
revenue, n proceedngs before the oard of Ta ppeas, whenever the Com-
mssoner sha have made cam therefor at or before the hearng
or a rehearng.
On the contrary, f there s room for any Inference, we beeve that the
Inference es the other way, namey, that Congress ntended that the oard
shoud have the power to redetermne the correct amount of the ta , even f
cam therefor was made by the Commssoner after the statute had run, but
before the hearng or a rehearng.
We ne t address ourseves to the queston of whether or not the nsurance
poces, totang 146,979.34, were propery ncuded by the oard as part of
the decedent s ta abe estate.
Nne Insurance poces orgnay were nvoved n ths case. In the Com-
mssoner s pror audt these poces, totang 196,989.31, a payabe to bene-
fcares other than the estate, were ncuded as part of the ta abe estate.
(There s no pont made of the dscrepancy of 9.97 n the fgure of the pror
audt as compared wth that frst asserted before the oard.) In the defcency
etter of une 7, 1927, however, the Commssoner announced that an ad|ust-
ment was made by e cudng the poces from the ta abe estate.
The frst of these poces, dated anuary 1, 1896, ssued by the Mutua Lfe
Insurance Co. of New York, for 50,000, orgnay payabe to the e ecutors,
admnstrators, or assgns, contaned no provson respectng revocaton or
change of benefcary, but by mutua consent, ndorsed on the pocy under
date of anuary 31, 1908, the pocy was changed to make the decedent s wfe,
her e ecutors, admnstrators, or assgns, the benefcares. The pocy ater,
on anuary 15, 1917, was assgned to Leon Lebes, a son. The oard of Ta
ppeas hed that the proceeds of that pocy shoud not be ncuded n the
gross estate. The respondent concedes that ths pont s not here n ssue,
snce the Commssoner has not appeaed.
The four poces n the second group, each for 25,000, were n the qutabe
Lfe ssurance Socety. ach was dated October 10, 1912. ach e pressy
reserved the rght of revocaton and the power to change the benefcary. Such
a change was made on anuary 17, 1917. Ths power to revoke and change
rested soey n the nsured, and was n no way dependent upon the consent
of the benefcary.
The four poces n the thrd group, each for 25,000, were n the Mutua
Lfe Insurance Co. of New York. In the body of each pocy was the provson
that t was ssued wthout rght to the nsured to change the benefcary.
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Regs. 70, rt. 25.
278
ach of these poces, however, bears on the face the foowng stamped
ndorsement: The benefcary s changed to (benefcary named). The rght
to revoke ths desgnaton of benefcary s reserved to the nsured. Under
date of anuary 15, 1917, by the above form of ndorsement the benefcary was
changed from eena Lebes, the orgna benefcary, to a son, Leon Lebes, as
to two poces, and to a daughter, Lna Lebes Lederman, as to the other two.
The pocy as now before ths court bears on ts face the power of revocaton
In the nsured, and such power contnued from anuary 15, 1917, to the date of
decedent s death. ach of the four poces n ths group s dated ebruary
8, 1915.
The reason that prompted the Commssoner to deduct the amount of the
nsurance poces whch was ncuded n the orgna assessment n hs
etter of defcency of une 7, 1927, presumaby s that the Commssoner fet
bound by the case of LeweUyn v. rck (268 U. S., 238 T. D. 3715, C. 13. I -1,
822 ) upon whch the pettoner heren strongy rees. In that case Mr.
ustce omes hed that poces ssued pror to the passage of the Revenue
ct of 1918 were not sub|ect to a edera estate ta .
fter the rck case came the decson of Chase Natona ank v. Unted
tates (278 U. S., 327 Ct, D. 40, C. . III-1, 308 ). In that decson the ony
reference to the rck case s to be found on page 333, where, after statng
the questons certfed, the court observed: Smar questons were mooted by
counse, but not decded, n Lewcyn v. rck.
It s somewhat sgnfcant that the court seemed to pass over the rck case
and to rey upon other cases, especay Satonsta v. Satonsta (276 U. S.,
260, 271). See, aso, Cootdge v. Long (282 U. S., 582, 598-599), n whch the
Satonsta case s cted wth approva as furnshng a good ustraton of
Incompete successon and Renccke v. Northern Trust Co. (278 U. S., 339
T. D. 4201, C. . III-1, 305 ).
In the Chase Natona ank case, supra, the court, at pages 336-337, sad:
ut we thnk that the rue apped n Satonsta v. Satonsta, supra, to a
successon ta s equay appcabe to a transfer ta where, as here, the power
of dsposton s reserved e cusvey to the transferor for hs own beneft.
Suc an outstandng power resdng e cusvey n a donor to reca a gft after
t s made s a mtaton of the gft whch makes t ncompete as to the donor
as we as to the donee, and we thnk that the termnaton of such a power at
death may aso be the approprate sub|ect of a ta upon transfers.
In the case of urnet v. Guggenhem, decded by the Supreme Court on
ebruary 6, 1933 Ct, D. 636, C. . II-1, 374 , the cases of Chase Natona
ank, supra, and Satonsta v. Satonsta, supra, are cted wth apparent
approva on the proposton that Ta aton s not so much concerned wth the
refnements of tte as t s wth the actua command over the property ta ed
the actua beneft for whch the ta s pad and that There has been a
steady wdenng of the concept of a transfer for the purpose of ta aton under
the provsons of Part I (of Tte III of the Revenue ct of 1924), whch deas
wth the estate ta . In the Guggenhem case, the court decded that deeds of
trust made n 1917, wth a reservaton to the grantor of a power of revocaton,
became ta abe as gfts under the Revenue ct of 1924, when, n 1925 there was
a change of the deeds by a canceaton of the power.
In ener v. Orandn (C. C. . 3) (44 . (2d), 141 Ct. D. 241, C. . I -2,430 )
there were nvoved two nsurance poces, and the queston was whether or not
havng been ssued n 1894 and 1906, before the passage of the Revenue ct,
they were ta abe, under the prncpe ad down n Lcoeyn v. rck, supra.
The court soved the probem n the foowng anguage:
In the two poces n queston, athough ssued before the ct was passed,
the nsured reserved the rght to change the benefcary, and so the transfers
dd not take pace unt Mr. Grandn s death. ccordngy they consttuted a
part of hs gross estate and were ta abe.
See the same case, on second appea (56 . (2d), 1082) certorar dened
(286 U. S., 561).
oth on reason and authorty, we beeve that the eght nsurance poces n
whch the decedent reserved the power of revocaton were part of hs ta abe
estate at the tme of hs death.
ccordngy, the decson of the oard of Ta ppeas s affrmed.
Decson affrmed.
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279
Regs. 70(1929), rt. 44.
Reguatons 70 (1929), rtce 44: Transfers for II-39-6417
pubc, chartabe, regous, etc., uses. . T. 3
bequest made by a decedent to trustees wth drecton to
dever the bequest to a corporaton to be organzed for educatona,
chartabe, or benevoent purposes s not deductbe under secton
303(a)8 of the Revenue ct of 1920.
n opnon has been requested as to the deductbty of a bequest
for educatona, chartabe, or benevoent purposes n determnng the
vaue of a decedent s net estate.
decedent by hs w named certan trustees to receve a porton
of the resdue of hs estate and dever the same to a corporaton to
be organzed by them, the ob|ect of the corporaton beng to estabsh
and mantan an educatona, chartabe, or benevoent nsttuton.
The trustees caused to be ncorporated a nonstock corporaton for
the e cusve purposes of conductng chartabe, educatona, and
benevoent work. The queston presented for decson s whether
the bequest shoud be aowed as a deducton under secton 303 (a)8
of the Revenue ct of 1926, whch permts the deducton of a be-
quests to or for the use of any corporaton organzed and operated
e cusvey for regous, chartabe, scentfc, terary, or educatona
purposes, ncudng the encouragement of art and the preventon of
cruety to chdren or anmas, no part of the net earnngs of whch
nures to any prvate stockhoder or ndvdua.
Testng ths bequest under the aws and court decsons of New
York, the decedent havng been a resdent thereof, the concuson
s |ustfed that the bequest mght be used for the purpose of estab-
shng and mantanng a prvate or benevoent nsttuton as ds-
tngushed from a pubc or chartabe use. In Peope v. Powers
(147 N. Y., 104, 41 N. ., 432) a bequest n trust for chartabe and
benevoent nsttutons n the cty of Rochester, N. Y., was hed
vad as reatng ony to such nsttutons as are both chartabe and
benevoent. In the case of In re Shattuck,s W (193 N. Y., 444, 86
N. ., 455) a bequest to the testator s e ecutors, n trust, to pay the
ncome to such regous, educatona, or eeemosynary nsttutons
as hs e ecutor shoud deem advsabc| was hed vod for ambguty
on the ground that whe some regous and educatona uses are
chartabe, others are not, and the unquafed term educatona
nsttutons does not necessary mport a pubc or chartabe nst-
tuton, but mght ncude a prvate nsttuton as we.
The case of In re Cunnngham s W (136 N. Y. S., 922) nvoved
the vadty of a bequest by a decedent to hs e ecutors and trustees
to be by them apped n ther best |udgment to such chartabe and
benevoent assocatons and nsttutons of earnng for the genera
uses and purposes of such assocatons and nsttutons as my sad
e ecutors may seect and n such sums as they may deem proper.
In hodng ths bequest vad the court stated that had the mta-
ton been n the ds|unctve to such chartabe or benevoent nsttu-
tons as hs trustees seected, t woud have been wthn the mschef
noted and condemned n the Shattuck case. The Court of ppeas
of New York (206 N. Y., 601, 100 N. 437), n approvng the rea-
sonng of the ower court hed that the decedent s w shoud be con-
sdered as though t read to such chartabe assocatons and to
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Regs. 70(1929), rt. 55.
280
such benevoent assocatons and such nsttutons of earnng as are
chartabe, as my e ecutors may seect.
In the nstant case t w be noted that the mtaton educatona,
chartabe, or benevoent s n the ds|unctve. The testator may
have had n mnd the estabshment of a chartabe nsttuton or an
educatona nsttuton, but n draftng hs w he made t possbe
for the trustees to use the bequest for the purpose of estabshng an
nsttuton from whch earnngs mght be derved by stockhoders
or ndvduas. It s true that the certfcate of ncorporaton pro-
vdes that the funds whch may be receved by the corporaton are
to be devoted e cusvey to chartabe, educatona, and benevoent
work. It s we setted, however, that the determnaton of whether
a gft s a vad charty depends upon the ntenton of the testator
as e pressed n the w, and, f t s not found there, the trustees by
ther own acts can not suppy the defcency.
It s hed, therefore, that where a bequest s made by a decedent to
trustees wth drecton to dever the bequest to a corporaton to be
organzed for educatona, chartabe, or benevoent purposes, the
bequest s not deductbe under secton 303 (a)3 of the Revenue ct
of 1926.
Reguatons 70(1929), rtce 55: Transfers II-37-6399
for pubc, chartabe, regous, etc., uses. . T. 2
Where nsurance s recevabe by benefcares other than the
estate and where some of the benefcares are chartabe organza-
tons, t s hed that for the purpose of the chartabe deducton
to whch the estate s entted the 40,000 statutory e empton
shoud be prorated among the benefcares, and the amount of the
nsurance recevabe by such organzatons shoud be reduced by
ther proportonate shares n the e empton.
dvce s requested reatve to the chartabe deducton from the
fross estate of a decedent n respect of nsurance payabe to bene-
cares other than the estate, some of the benefcares beng char-
tabe organzatons.
Secton 303 (a)3 of the Revenue ct of 1926 provdes that the
amount of the deducton aowabe for a transfer of property to
chartabe organzatons or for chartabe purposes sha not e ceed
the vaue at whch the property s ncuded n the gross estate of the
decedent. In the case of nsurance recevabe by benefcares other
than the estate that vaue s the e cess over the statutory e empton
of 40,000. Where some of the benefcares are chartabe organza-
tons, t s the practce of the ureau to reduce the chartabe deduc-
ton by proratng the e empton among the benefcares.
somewhat smar stuaton arose n the case of Louse . Gard-
ner et a. v. Commssoner (22 . T. ., 1076). The queston there
under consderaton was the deducton to be aowed for prevousy
ta ed property. It was contended by the estate that n determnng
the deducton wth respect to fe nsurance prevousy ta ed, the
computaton shoud be made wthout reference to the e empton of
40,000. In passng upon ths ssue the oard sad:
Ths argument s ceary contrary to the statute, whch specfcay provdes
that the vaue of the gross estate sha be determned by ncudng the vaue
of a property to the e tent of the amount recevabe by the e ecutors as
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281
Regs. 70(1929), rt. 105.
Insurance under poces taken out by decedent on bs own fe and to the
e tent of the e cess over 40,000 of the amount recevabe by a other bene-
fcares as nsurance under poces taken out by decedent upon hs own fe.
. . We thnk that the amount of the proceeds of the nsurance poces
deductbe In determnng the decedent s ta abe estate s correcty arrved at
by the method of proraton empoyed.
though the Gardner case s not drecty n pont, the reasonng
s appcabe to cases arsng under secton 303 (a)3 of the statute.
It s accordngy hed that for the purpose of the chartabe deduc-
ton to whch the estate s entted the 40,000 statutory e empton
shoud be prorated among the benefcares and the amount of the
nsurance recevabe by such organzatons shoud be reduced by ther
proportonate share n the e empton.
Reguatons 70(1929), rtce 105: Remedes II 3-C467
for coecton of ta and cams aganst trans- Ct. D. 746
ferred assets.
ST T T R NU CTS OP 1921 ND 192G D CISION O COURT.
In|uncton Dstrant Len.
The procedure provded by secton 316(a) of the Revenue ct of
1926 s not the soe remedy for the coecton of a defcency n
ta , where an estate has been dstrbuted before the determnaton
of the defcency, and as the coector has the rght to proceed by
way of dstrant to enforce the en wrch s mpressed upon the
estate, for the fu amount of the ta , at the date of the decedent s
death, a sut n equty to en|on the coector s mproper. Secton
409 of the Revenue ct of 1921 may not be nterpreted to mean
that no en attaches where a ta was returned and pad n fu
wthn one year of decedent s death.
Unted States Crcut Court of ppeas for the Nnth Crcut.
dgar D. Rosenberg, een Rosenberg ahn, and Caude N. Rosenberg, appe-
ants, v. ohn P. McLaugUn, Coector of Interna Revenue for the rst
Dstrct of Caforna, appeee.
ppea from the Dstrct Court of the Unted States for the Northern Dstrct of
Caforna, Southern Dvson.
une 19, 1933.
opnon.
errgan, Dstrct udge: ppeants have sought by a b n equty to en|on
the sae of an undvded nterest n certan rea property under dstrant pro-
ceedngs to coect a defcency n edera estate ta . Ths nterest was part
of the estate of Isdore Rosenberg, deceased, the father of appeants, who w
be hereafter referred to as the testator. The appea s from the order grantng
the coector s moton to dsmss the b of compant. The appeee concedes
that f the coector has no rght to proceed by dstrant to coect the defcency
n queston, appeants are entted to n|unctve reef. The ssues are nar-
rowed and the ony questons nvoved reate to the rght of the ureau of
Interna Revenue to proceed by way of dstrant under the state of facts
aeged n the b of compant.
The testator ded May 23, )23, whe the Revenue ct of 1921 was n force.
Less than a year after hs death hs wdow, who was the e ecutr of hs
estate, fed an estate ta return showng a ta due of 7,791.04 and pad the
ta on the same day. fterwards, and pror to the dstrbuton of the estate,
the e ecutr fed a cam for refund. Whe the cam for refund was pend-
ng, the estate was dstrbuted. Shorty thereafter the e ecutr ded. When
87408 34- 19
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Regs. 70(1929), rt. 105.
282
t became apparent that a refund woud be aowed, one of the appeants was
apponted admnstrator wth the w anne ed of the testator s estate.
refund n the sum of 4,787.60 was pad to the admnstrator une 5, 1925, and
dstrbuted to the hers. Subsequent to the effectve date of the Revenue ct
of 1926. the Commssoner determned a decency n ta aganst the estate
n the sum of 7,839.07, beng 3,501.47 more than the refund and maed to the
admnstrator the notce requred by secton 308(a) of the Revenue ct of
1926. (26 U. S. C. ., secton 1101.) The admnstrator appeaed to the oard
of Ta ppeas and the Commssoner s determnaton of the defcency was
uphed on ebruary 27, 1929. ( ppea of Rosenberg, 14 oard of Ta ppeas,
1340.) The Commssoner on uy 27, 1929, assessed the addtona estate ta
n the fu amount of the defcency, notwthstandng the payment of the
3,501.47 by the admnstrator prevous to the assessment. Thereafter the
appeee maed notce of dstrant to the admnstrator for the unpad baance
of the defcency.
ppeants are the chdren of the testntor and hs wdow and are the soe
hers and dstrbutees of the testator s estate ether n ther own rght or as
dstrbutees of ther mother s estate.
ppeants contend, frst, that the ony method by whch the defcency may
be coected s by transferee proceedngs under secton 316(a) of the Revenue
ct of 1926 ( 26 U. S. C. ., secton 1119(a)), and second, f the Government Is
not restrcted to that remedy, that there s no e stng en upon the property
for the defcency. The appeee contends that the transferee proceedngs are
an addtona and aternatve remedy for the coecton of the ta and that
there s a vad and subsstng en on the property enforceabe by dstrant
The coector was not restrcted to the transferee proceedngs provded by
secton 316(a) of the Revenue ct of 1926 to coect a defcency n ta aganst
an estate whch had been dstrbuted before the determnaton of the def-
cency, and mght foow any other vad procedure for coecton. The use of
the word sha, upon whch great stress s ad by appeants, s not mandatory
and does not confne the coector to a snge method of procedure. smar
queston of statutory nterpretaton was before ths court n regard to secton
280(a) of the same ct (26 U. S. C. ., secton 1069(a)), whch provdes for
transferee proceedngs to coect ncome ta es. In the case of Leghton v.
Unted States (61 ed. (2d), 530, affrmed by the Supreme Court on May 29,
1933 Ct. D. 684, C. . II-1, 305 ), t was contended that the coector was
precuded from proceedng to coect the ta by sut n equty to mpress the
property n the hands of transferees wth a trust by the new secton, and coud
ony enforce coecton by means of transferee proceedngs. In that case there
was a defcency In ncome ta determned aganst a corporaton after ts
property had been dstrbuted to ts stockhoders. Secton 280(a) s word for
word the .same as secton 316(a) e cept n so far as one deas wth ncome
ta and the other deas wth estate ta . The word sha s used n e acty
the same conte t n both statutes. It was hed n that case that the use of
sha dd not make the procedure mandatory, and that the remedy was not
e cusve but cumuatve on the authorty of Phps v. Commssoner (283
U. S., 589 Ct. D. 350, C. . -, 264 , and Unted States v. Updke (281 . S.,
489 Ct. D. 192, C. . I -1, 228 ). Two quotatons from the case of Phps v.
Commssoner, supra, may we be repeated here. Ths remedy s n add-
ton to proceedngs to enforce the ta en or actons at aw or n equty.
urther n the opnon It s sad The power of Congress to provde an add-
tona remedy for the enforcement of e stng abtes s cear. There Is
no vad reason for dstngushng between the two statutes and the decson n
the Leghton case s concusve upon ths pont.
The ony remanng queston s: Is there a vad and subsstng en upon
the property enforceabe by dstrant It s conceded that If such a en
attached to the property t arose under secton 409 of the Revenue ct of 1921
whch provded:
That uness the ta s sooner pad n fu, t sha be a en for 10 years
upon the gross estate of the decedent, e cept that such part of the gross
estate as s used for the payment of charges aganst the estate and e penses
of ts admnstraton, aowed by any court havng |ursdcton thereof, sha
be dvested of such en .
It Is argued by the appeants that the cause uness the ta s sooner pad
n fu refers to the due date of the ta as provded n secton 407 of the same
ct, whch s one year from the date of the decedent s death and that no en

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283
Regs. 70(1929), rt. 105.
arses unt such due date. ppeants further argue that the ta n the nstant
case havng been returned, and the amount returned havng been pad n fu
pror to such due date, no ta en ever attached to the property. These con-
tentons are not n accord wth the aw.
The anguage used n Page v. Sknner ((C. C. . 8), 298 ed., 731 T. D. 3C00,
O. . IU-1, 485 ), though assaed as merey dcta, correcty states the aw as
to when the property s mpressed wth the ta en.
The mposton took effect at the tme of death and the ta became at once
a en on the property of the estate, enforceabe by sae, f not pad, on proceed-
ngs n court (New York Trust Co. v. sner, 256 U. S., 345).
One test of the accrua of a ta so that the ta s saved from the effect of
repeang statutes has been whether or not a en for the ta attached to the
property before the repea and t has been hed n a ne of nhertance ta ea
commencng wth ertz v. Woodman (21S U. S., 205) that the ta accrued or
was mposed at the decedent s death and the estate of the decedent was m-
pressed wth a en at the same tme. (Unted States v. yor (C. C. . 1), 12
ed. (2d), 194 Crooks v. Loose (C. C. . 8), 36 ed. (2d), 571 Ct. D. 147, C. .
I -1, 372 O ren v. Surgess, 39 ed. (2d), 950, affrmed (C. C. . 3), 45 ed.
(2d), 1017 Ct D. 165, C. . I -1, 367 wbank v. Unted States, 37 ed. (2d),
383, affrmed (C. C. . 7), 50 ed. (2d), 409 Unted States v. Crukshank et a.,
48 ed. (2d), 352 Ct. D. 332, C. . -, 464 .) The thng that s ta ed s the
transfer of the decedent s estate upon hs death. The fu amount of the ta
Is f ed as a abty at that tme as provded by the statutes then n force and
the gross estate of the decedent s mpressed wth a en for the fu amount
of the ta . In the ght of these prncpes, t s cear that the cause of sad
secton 409, uness the ta s sooner pad n fu, refers to the termnaton
of the en by payment n fu durng the 10-year perod not to the mposton
of the en on the due date of the ta .
Reance s paced upon the anguage used n Unted States v. Woodward
(256 U. S., 632 T. D. 3195, C. . 4, 153 ), to the effect that an estate ta accrues
one year after the death f so provded by statute, and appeants argue there-
from that there Is nether abty nor en for the ta pror to accrua. Ths
case was not one concerned wth the ncdence of the ta . It consdered the
term accrua from the standpont of permssbe deducton under an ncome ta
provson. The effect of the decson n the Woodward ease was mted to a
narrow and dfferent proposton n the case of Unted States v. Mtche (271
U. S., 9).
ppyng these prncpes to the nstant case t foows that a en for the fu
amount of the estate ta was mpressed upon the gross estate of Isdore Rosen-
berg at the date of hs death. Snce the correct amount of the ta has never
been pad n fu, there s a present en upon the property for the unpad
porton of the ta . The fact that the defcency determned ncuded the amount
of the refund does not affect our concusons. In the case of Levy v. Comms-
soner (48 ed. (2d), 725) n ths crcut t was hed that the amount of a
refund mght propery be ncuded n the determnaton of a defcency. We are
not confronted wth the same stuaton as n the case of eey v. Unted States
(30 ed. (2d), 193 (C. C. . 9)), where there was no defcency determned and
the ony amount camed was that of the refund. The payment of the dffer-
ence between the amount of the defcency and that of the refund after the
determnaton of the defcency does not affect the e stence of the ta en.
The coector has the rght to enforce the en by dstrant and sae as pro-
vded n sectons 3187 and 3188 of the Revsed Statutes. though these sec-
tons appy to the enforcement of genera ens created under Revsed Statutes,
secton 3186, they aso appy to the enforcement of speca ens created by other
statutes. ( ackock v. Unted States, 208 U. S., 75.) ta en on property
may be enforced by sezure and sae under a warrant of dstrant where, at
the tme the en attached, the property beonged to the person abe to pay
the ta . ( artman v. ean, 99 U. S., 393 Mansfed v. cesor Refnng Co.,
133 U. S., 326 ackock v. Unted States, supra.) or estate ta purposes the
e ecutor or admnstrator s the person abe to pay the ta . Snce the estate
ta en attaches mmedatey upon the death of a decedent, the property at that
tme may be regarded as beongng to the ta payer, that s, the admnstrator
or e ecutor. Property whch consttuted the decedent s estate and passed nto
the hands of the e ecutor or admnstrator was mpressed wth the en and s
sub|ect to sezure and sae.
udgment affrmed.
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Regs. 70, rt. 308(e).
284
Reguatons 70, rtce 308(e): ursdcton of
oard.
II-38-6410
Ct. D. 734
ST T T R NU CTS O 1924 ND 1926 D CISION O COURT.
1. ursdcton of oard Redetermnaton of Greater De-
fcency ssessment Under Pror Revenue cts.
The oard of Ta ppeas has |ursdcton and power, under
secton 308(e) of the Revenue ct of 1926, to determne a greater
amount of defcency n estate ta than the amount of whch the
e ecutors had been notfed, where before the hearng the Comms-
soner asserted a cam for addtona ta , even though certan fe
nsurance poces, upon whch the cam was based, were men-
toned for the frst tme n the amended answer submtted more
than three years after the estate ta return was fed. The fact
that the ta abty arose under the Revenue ct of 1924 does
not render nappcabe the provsons of the above secton, snce
secton 1200(b) of the 1926 ct provdes that the Revenue ct
of 1924 sha reman n force for the assessment and coecton of
a ta es mposed by that ct, and secton 318(a) provdes that f
after the enactment of that ct the Commssoner sha determne
that an assessment of estate ta shoud be made under any of the
pror cts, the amount sha be computed under the appcabe
ct but assessed and coected n accordance wth the 1926 ct.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (18 . T. ., 1121)
affrmed.
Unted States Crcut Court of ppeas for the Second Crcut.
Lous M. Weer, Irwn R. ebroner, erbert . Maass and een W. eU-
broner, as ecutors and Trustees under the Last W and Testament of
Lous ebroner, Deceased, pettoners, v. Commssoner of Interna Reve-
nue, respondent.
Petton by Lous M. Weer and others, as e ecutors and trustees under
the w of Lous ebroner, deceased, for a revew of a decson of the Unted
States oard of Ta ppeas, f ng a defcency n ther edera estate ta
n the sum of 5,381.96, and aso of an order denyng ther moton to reopen
the proceedngs before the oard for the purpose of ntroducng further ev-
dence. Decson of the oard of Ta ppeas affrmed.
ugustus N. and, Crcut udge: Lous ebroner ded une 26, 1924,
eavng a w of whch the pettoners became e ecutors. On une 24, 1925,
they fed ther return for the edera estate ta . On uy 3, 1920, the Com-
mssoner of Interna Revenue sent to these e ecutors a defcency notce
f ng a defcency n ther ta at 20,178.84. Ths defcency was based upon
the faure of the e ecutors to ncude n ther a return certan fe nsurance
poces of the decedent payabe to benefcares other than the estate. They
appeaed from the assessment of defcency to the Unted States oard of Ta
ppeas by petton fed ugust 31, 1928. On September 12, 1928, and more
than three years after the fng of the edera estate ta return, the Comms-
soner fed an amended answer to the petton before the oard n whch he
aeged that three fe nsurance poces of the face vaue of 98,000 shoud
have been ncuded n decedent s gross estate and that the defcency shoud
be ncreased accordngy. These poces were In addton to those whch had
formed the bass for the defcency determned by the Commssoner and were
ppea from the Unted States oard of Ta ppeas.
efore Manton, ugustus N. and, and Chase, Crcut udges.
pr 17, 1933.
opnon.
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285
Regs. 70, rt. 308(e).
not Incuded In the amount stated as the gross estate In hs defcency etter
to the ta payer or n ther return.
The oard of Ta ppeas hed (1) that the three nsurance poces shoud
be ncuded n the gross estate and (2) that the cam for an addtona ta
had been propery asserted.
The orgna defcency assessed by the Commssoner was pad by the ta -
payers pror to the entry of the order upon the decson of the oard and s no
onger n queston. That order, based on the ncuson of the three nsurance
poces n the gross estate of the decedent, f ed a further defcency of
6,381.96, and s the bass of the present appea.
The queston presented to us s whether the oard of Ta ppeas coud prop-
ery ncrease the defcency assessed by the Commssoner by a cam for an
addtona ta , based whoy upon the three nsurance poces, when they were
mentoned for the frst tme n the Commssoner s amended answer to the
ta payers petton to revew the assessment before the oard.
The ta payers contend that the oard was wthout |ursdcton to ncude
the three nsurance poces n the gross estate, and thus to ncrease the fna ta
defcency, for the reason that those tems were not ncuded n the property
on whch the Commssoner s assessment was based or n the defcency notce
of uy 3, 1926, maed to the ta payers. Ths contenton s negatved by sec-
ton 308(e) of the Revenue ct of 1926 whch reguates the procedure before
the oard of Ta ppeas durng the pendency of the revew of the Comms-
soner s defcency assessment by the ta payer. It reads as foows:
The oard sha have |ursdcton to redetermne the correct amount of the
defcency, even f the amount so redetermned s greater than the amount of
the defcency, notce of whch has been maed to the e ecutor, and to deter-
mne whether any addtona amount or addton to the ta shoud be assessed,
If cam therefor s asserted by the Commssoner at or before the hearng or a
rehearng.
ut the ta payers nsst that the foregong subdvson ony authorzes the
oard to redetermne and ncrease defcences n ta returns made under the
ct of 1926 and does not cover returns ke the present made under the ct of
1924 or defcences arsng out of a ta abty under that ct. They say
secton 308(a) of the ct of 1926, provdng for an appea to the oard after
a determnaton and notce of defcency, ony reates to notces n respect to
ta es mposed by the atter ct because secton 307 of the ct of 1926 defnes
defcency thus:
s used n ths tte n respect of a ta mposed by ths tte the term
defcency means
(1) The amount by whch the ta mposed by ths tte e ceeds the amount
shown as the ta by the e ecutor upon hs return but the amount so shown on
the return sha frst be ncreased by the amounts prevousy assessed (or co-
ected wthout assessment) as a defcency, and decreased by the amounts
prevousy abated, refunded, or otherwse repad n respect of such ta .
We can see no ground for supposng that ths defnton of defcences mts
defcences to those under the ct of 1926. Secton 1200(b) of the ct of 1926
provdes that the Revenue ct of 1924 sha reman n force for the assessment
and coecton of a ta es mposed by such ct. We thnk that the ntro-
ductory words of secton 307 of the ct of 1920 were ntended to mt the scope
of the partcuar defnton n that secton to ta es mposed by that ct but not
to affect defcences under pror cts. Secton 318(a) and 318(e) of the ct
of 1926 deas wth defcences under pror cts and 318(a) provdes that f,
after ebruary 26, 1926, the Commssoner shoud determne that an assessment
of an estate ta shoud be made under any of the pror cts, the amount shoud
be computed under the ct appcabe but assessed and coected under the ct
of 1926. ow, after these provsons, t can be sad that secton 308(a) deprves
the oard of authorty to ncrease defcences arsng under the ct of 1924
passes our comprehenson. If such a contenton were sound, and the ct of 1926
does not appy to the case at bar because t does not reate to defcences under
the ct of 1924. there was no rght to appea to ths court, for the rght of such
an appea was frst gven n the ct of 1926.
Smar provsons empowerng the oard of Ta ppeas to revew defcen-
ces n ncome ta es assessed by the Commssoner appear n the ct of 1926.
They aso gve the oard |ursdcton to redetermne the correct amount of the
defcency even f the amount so redetermned s greater than the amount
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Regs. 68, rt. 10.
286
notce of whch has been maed to the ta payer. See secton 274(e). There
are provsons n secton 283(a) deang wth defcences n ncome ta es
under pror cts whch e acty resembe those of secton 318(a) reatng to
estate ta es.
Our decson n Davson v. Commssoner (GO ed. (2d), 51) construed sec-
ton 274(e) of the ct of 1026 and was to the effect that the oard of Ta
ppeas coud assess a defcency n ncome ta es greater than that determned
by the Commssoner under crcumstances much ke the present. We there
sad:
The pettoner chaenges the |ursdcton of the oard to assess a defcency
greater than the defcency set out n the 1925 notce because he asserts that
the statute of mtatons had run before the Commssoner s amended answer
was fed. Ths contenton s wthout mert. Secton 274(e) of the Revenue
ct of 1926 permts the oard to redetermne the correct amount
of the defcency, even f t be greater than the amount stated n the Com-
mssoner s notce to the ta payer. f cam therefor s asserted by the Com-
mssoner at or before the hearng or a rehearng. (Cement Gun Co. v. Com-
mssoner, 38 ed. (2d), 107.) The provsons of secton 277(b), Revenue ct
1926, and secton 274(a) of the ct cause the runnng of
the statute of mtatons to be suspended whe proceedngs are pendng
before the oard.
The decson n Cement Gun Co. v. Commssoner (36 ed. (2d), 107) Is In
accord wth Davson v. Commssoner, supra, as to aw and facts.
The ony dfference between the two decsons ast mentoned and the case
at bar s that here new property upon whch an addtona defcency has been
found was frst ntroduced n the answer of the Commssoner before the
oard of Ta ppeas and had never been consdered by the Commssoner or
ncuded n hs defcency notce. The ta payers theory seems to be that a
defcency can ony be ncreased by the oard when t concudes that the Com-
mssoner adopted a wrong rue of aw n deang wth the facts shown by the
return, or where the partcuar credts or debts upon whch the Commssoner
had based hs determnaton of the defcency were vaued mpropery. ut we
see no reason for supposng that secton 308(a) s so mted and we hod that
t enabes the oard of Ta ppeas to make a fu audt and do compete
|ustce between the partes whenever the ta payer seeks to revew the assess-
ment and the Commssoner asserts a cam that an addtona amount shoud
be assessed. It seems cear from the foregong that the oard proceeded
propery and rghty determned an addtona defcency. It can make no
dfference that n arrvng at ths determnaton t deat wth matters e trane-
ous to the orgna assessment.
The runnng of the statute of mtatons was suspended whe proceedngs
were pendng before the oard of Ta ppeas by secton 310 of the ct of
1926.
We understand that the appea from the order denyng a moton for a rehear-
ng s no onger pressed. ut n any event the dsposton of the appcaton
for a rehearng was a matter restng n the sound dscreton of the oard.
( ankers Pocahontas Coa Co. v. urnet, 287 U. S.. 308.)
The orders of the oard of Ta ppeas are affrmed.
TITL III. P RT I. ST T T . (1924)
Reguatons 68, rtce 10: Character of II-38-6411
nterests ncuded. Ct.D. 735
estate ta revenue act of 1924 decson of court.
1. Gkoss state Consttutonaty of Statute.
Secton 302(a) of the Revenue ct of 1924 s not voatve of
rtce I, secton 8, of the Consttuton, whch provdes that a
dutes, Imposts and e cses sha be unform throughout the Unted
States. Dfferences of State aw whch may brng a person wthn
or wthout the category desgnated by Congress as ta abe may not
be read nto the edera aw to spe out a ack of unformty.
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287
Regs. 68, rt. 10t
2. Gross state Rea state Located n Inos.
The vaue of the Interest of a decedent at the tme of hs death
n rea estate ocated n Inos shoud be ncuded n determnng
the vaue of hs gross estate under secton 302(a) of the Revenue
ct of 1924.
3. Sut Cam fob Refund mendment.
Where a cam for refund and a petton aege the wrongfu
ncuson of two specfed parces of rea estate n the decedent s
gross estate as not beongng to the decedent, such descrpton may
be enarged, to ncude a thrd parce n the same stuaton, n an
amended petton fed wth the court, f such petton s fed wthn
the tme wthn whch the cam for refund mght have been
amended.
4. Decson ffrmed.
The decson of the dstrct court (60 ed. (2d), 1063, Ct. D. 590,
C. . I-2, 429) affrmed.
Unted States Crcut Court of ppeas for the Seventh Crcut. Nos.
4872 1875.
The Contnenta Inos ank Trust Co., ecutor of the state of ctor
. Lawson, Deceased, appeant, v. Unted States of merca, appeee.
Unted States of merca, appeant, v. The Contnenta Inos ank Trust
Co., ecutor of the state of ctor . Lawson, Deceased, appeee.
The Northern Trust Co., a Corporaton, and dward erbert ennett, ecutors
of the state of Catherne ennett, Deceased, appeant, v. Unted States of
merca, appeee.
Wam D. Dean, dmnstrator cth the W nne ed of the state of Robert
. assett, Deceased, appeant, v. Unted States of merca, appeee.
ppeas from the Dstrct Court of the Unted States for the Northern Dstrct of Ino,
n stern Dvson.
May 26, 1933.
OPINION.
Causes numbered 4872, 4874, and 4875 were brought under secton 1025(c)
(ch. 234 of the ct of 1924 ( 43 Stat, 348), as amended ebruary 24, 1925 (ch.
309, 43 Stat., 972, 28 U. S. C ., secton 41(20)). They were suts to recover
certan estate ta es pad by the representatves of the severa estates referred
to, whch ta es were assessed and coected under and by vrtue of the Revenue
ct of 1924 (ch. 234, secton 301(a), and 302 (a) and (b) ). Cause No. 4873 s
the cross appea of the Government from the |udgment rendered n cause No.
4872, and the Government s herenafter referred to as cross-appeant as ds-
tngushed from the other appeants. The causes were heard at the same tme
and were submtted to the court wthout a |ury. The estates nvoved are
herenafter referred to respectvey as the Lawson, ennett, and assett estates.
ctor . Lawson ded testate n Cook County, 111., ugust 19. 1925. The
return for the estate ta was fed on ugust 19, 1920, and showed rea estate
Revenue ct of 1924 (ch. 234, 43 Stat., 253) :
Sec. 301. (a) In eu of the ta mposed by Tte I of the Revenue ct of 1921, a ta
equa to the sum of the foowng percentages of the vaue of the net estate (determned
as provded n secton 303) Is hereby mposed upon the transfer of the net estate of every
decedent dyng after the enactment of ths ct, wnether a resdent or nonresdent of the
Unted States: .
Sec. 302. The vaue of the gross estate of the decedent sha he determned by ncud-
ng the vaue at the tme of bs death of a property, rea or persona, tangbe or
Intangbe, wherever stuated
(a) To the e tent of the Interest theren of the decedent at the tme of hs death
whch after hs death s sub|ect to the payment of the charges aganst hs estate and the
e penses of ts admnstraton and Is sub|ect to dstrbuton as part of bs estate
(b) To the e tent of any nterest theren of the survvng spouse, e stng at the tme
of the decedent s death as dower, curtesy, or by vrtue of a statute creatng an estate n
en of dower or curtesy.
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Regs. 68, rt. 10.
288
n Inos vaued nt 778,542.68, rea estate n Wsconsn vaued at 484,500,
and other property whch wth the rea estate made a gross estate vaued at
21,559,940.78. Deductons for costs, chartabe bequests, and other charges
amounted to 15,397,133.12, eavng a net estate of 0,162,807.66. On ths a
ta of 655,546.15 was pad on ugust 19, 1926, and on anuary 30, 1928, an
aeged defcency was pad n the sum of 18,612.55, whch ncuded the sum
of 1,514.50 as nterest. The e ecutor of the estate fed sut to recover the
ta es so pad, basng hs cam for refund on the foowng grounds:
1. s to the entre amount, the unconsttutonaty of the Revenue ct of
1924.
2. s to the rea estate ocated n Inos and Wsconsn, the fact that n
those States rea estate of a decedent s not necessary sub|ect to payment of
charges aganst hs estate and the e penses of admnstraton.
3. s to the sum of 7,162.65 and nterest from the tme of payment of that
amount, the fact that t was pad on certan property whch was hed to beong
to Iver Norman Lawson rather than to the decedent n the case of Lawson v.
Inos Merchants Trust Co. (337 111.. 49).
The court found and ad|udged aganst the e ecutor of the Lawson estate on
ts frst and second contentons, and rendered |udgment for t on ts thrd con-
tenton n the sum of 9,165.19 and from that |udgment both partes have
appeaed.
In the ennett and assett estates each decedent was a resdent of Inos
and ded testate n the respectve years, 1925 and 1926. ach owned rea
estate n Inos at the tme of death, and each eft more than suffcent per-
sona property to pay a debts and costs of admnstraton. Returns were
made for the purpose of determnng the estate ta , and n each ease, the
Government ncuded the vaue of the rea estate n the gross estate, and the
ta thus cacuated was pad by the representatves of the respectve estates.
The suts to recover were based upon the frst two grounds as set forth n the
Lawson petton, and the court rendered |udgment aganst the camants.
Sparks, Crcut udge: It s frst contended by appeants that secton 302(a)
of the Revenue ct of 1924, supra, s voatve of rtce I, secton 8, of the
Consttuton of the Unted States,2 whch provdes that a dutes, mposts and
e cses sha be unform throughout the Unted States. It s admtted that
such requred unformty s geographca and not ntrnsc. It s not con-
tended by appeants that the aeged ack of geographca unformty appears
upon the face of the statute. They argue, however, that t arses by vrtue of
a decson of the Unted States Supreme Court n Crooks v. arreson (282
U. S., 55 Ct. D. 271, C. . -, 469 ), whch hed that a decedent s rea estate
under the aws of Mssour was not sub|ect to Ihc payment of e penses of
admnstraton and for that reason coud not be ncuded In the gross estate
of a resdent of that State for the purpose of computng estate ta es. ence
appeants nsst that the ta es ad under the secton referred to are not geo-
graphcay unform because the enactment does not ncude a decedent s rea
estate n Mssour.
Wth ths contenton we are not n accord. In Poe v. Seaborn (282 U. S., 101
I Ct. D. 259, C. . I -2, 202 ) the court sad, at pace 117, dfferences
of State aw, whch may brng a person wthn or wthout the category desg-
nated by Congress as ta abe, may not be read nto the Revenue ct to spe
out a ack of unformty.
In nocton v. Moore (178 U. S.. 41) the sub|ect of geographca unformty
was qute e haustvey treated, and Mr. ustce Whte there speakng for the
court used the foowng anguage, at page 106:
Though there s a provson that a dutes, mposts and e cses sha be
unform that s, to be ad to the same amount on the same artce n each
State yet ths w not prevent Congress from havng t n ther power to
cause them to fa very unequay and much heaver on some States than on
others, because these dutes may be ad on artces but tte or not at a used
n some other States, and of absoute necessty for the use and consumpton
n others n whch case, the frst woud pay tte or no part of the revenue
arsng therefrom, whe the whoe or neary the whoe of t woud be pad by
the ast, .
The Congress sha have power to ay and eoeet ta es, dutes. Imposts and e cses,
to pay the debts and provde for the connnon defense and genera wefare of the Unted
States: but a dutes, mposts and e cses sha be unform throughout the Unted
States.
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289
Regs. 68, rt. 10.
In Patton v. rady, . (184 t . S., 608) the ta assessed was an e cse on
tobacco whch was hed vad. The court quoted wth approva the foowng
anguage from the ead Money Cases (112 U. S., 580), The ta s unform
when t operates wth the same force and effect n every puce where the sub-
|ect of t s found. -
In orda v. Meon (273 U. S., 12) It was contended that because the State
of orda dd not mpose an nhertance ta , the edera estate ta ct was
unconsttutona n that t aowed as a credt agans the edera estate ta
the nhertance ta es pad to the States, and that resdent decedents of orda
were thus treated dfferenty from decedents who were resdents of other
States whch had nhertance ta aws. The court hed the ct vad, sayng,
The contenton that the edera ta s not unform because other States
mpose nhertance ta es whe orda does not, s wthout mert. Congress
can not accommodate ts egsaton to the confctng or dssmar aws of
the severa States nor contro the dverse condtons to be found n the varous
States whch necessary work unke resuts from the enforcement of the
same ta . that the Consttuton ( rtce I, secton 8, cause 1) requres
s that the aw sha be unform n the sense that by ts provsons the rue
of abty sha be the same n a parts of the Unted States.
In Phps v. Commssoner (283 U. S., 589 Ct. D. 350, C. . -, 264 the
court sad:
The e tent and ncdence of edera ta es not nfrequenty are affected
by dfferences n State aws but such varatons do not nfrnge the consttu-
tona prohbtons aganst deegaton of the ta ng power of the requrement
of geographca unformty. (Ctng orda v. Meon, supra Crooks v.
arreson, supra Poe v. Seaborn, supra and comparng ead Money Cases,
supra, and Cark Dstng Co. v. Western Maryand Ry. Co. (242 U. S. 311).)
If, when the edera estate ta ct was enacted, the aws of every State had
provded that a property of each decedent, rea or persona, shoud be sub|ect
to the payment of the charges aganst hs estate and the e penses of admnstra-
ton and aso be sub|ect to dstrbuton as part of hs estate, the queston of
geographca unformty woud not have arsen. ut f the contenton of ap-
peants were sound, then the subsequent enactment of any State to the effect
that resdent decedents rea estate shoud not be sub|ect to the charges, or
e penses of admnstraton, or to dstrbuton, as provded n the edera ct,
woud render the edera ct unconsttutona for ack of geographca un-
formty. In other words, an admttedy consttutona edera enactment woud
be rendered unconsttutona by a subsequent State enactment. The tme of
such State enactment s not of mportance, and the cases cted do not support
appeants contenton.
ppeants recognze the prncpe that wthout offense to the Consttuton,
an e cse may be based drecty upon and reated drecty to State aws where
those aws are of the essence of the thng ta ed. (See nt v. Stone Tracy Co.,
220 U. S., 107.) They contend, however, that the cassfcaton n the edera
statute s not of the essence of the thng ta ed. In ths we thnk they are
n error. The thng ta ed s the transfer of the certan net estates. The
mtaton s to the e tent of the nterest of the decedent n such estates whch
Is sub|ect to the payment of charges aganst hs estate and the e penses of ts
admnstraton, and whch s sub|ect to dstrbuton as part of hs estate. The
bass of the cassfcaton s the reaton of the property to the estate, and
It s of the essence of the thng ta ed.
It s contended by appeants that the tra court erred n hodng that rea
estate n Inos was propery ncuded n the gross estate. Ths queston
was decded by ths court adversey to ther contenton, March 10, 1933, In
state of dward M. Marbe et a. v. Commssoner of Interna Revenue.
Cross-appeant contends that the tra court erred In permttng the Lawson
estate to amend ts petton, and n renderng |udgment thereon for that
estate n the sum of 9,165.19. It s dscosed by the record that the thrd
ground of recovery was based on the aeged fact that there was ncuded In
the gross estate of ctor . Lawson certan rea estate whch beonged to
Iver Norman Lawson. ppeant had n ts cam for refund attacked the
vadty of the entre assessment, and under one paragraph of the cam had
asserted as a bass for such nvadty that the Commssoner had wrongfuy
Incuded certan rea estate and persona property whch beonged to Iver
Norman Lawson. In the specfc descrpton of such property n the cam,
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Regs. 68, rt. 14.
290
however, ony two tracts of rea estate were descrbed. y the order aow-
ng the fng of the amended petton, wthn the perod wthn whch appe-
ant mght have fed an amended cam for refund, appeant was permtted to
enarge the descrpton by ncudng a thrd parce. It s cross-appeant s con-
tenton now that no recovery can be had ns to such thrd parce n vew of the
fact that ts specfc descrpton was omtted from the cam for refund.
We consder the prncpes ad down n Unted States v. Memphs Cotton O
Co. (288 T . S., 62) as determnng ths queston adversey to such contenton.
udgment affrmed.
estate ta revenue act of 1924 decson of court.
Gross state Statutory Interest n Leu of Dower,
wdow s statutory one-haf nterest n rea estate n eu of
dower was propery Incuded n the decedent s gross estate, under
the provsons of secton 802(b) of the Revenue ct of 1924, where
she had eected to take under the w n eu of dower under
Mssour statutes whch aow her ether that eecton, one-haf
the rea and persona property f the husband de wthout chdren,
or a chd s part n eu of dower f there be chdren vng.
Decedent havng ded wthout chdren, the eecton of the chd s
hare was not avaabe to the wdow, and her eecton to take the
entre estate under the w coud not be avaed of to defeat the
ta .
Unted States Dstrct Court for the astern Dvson of the astern
udca Dstrct of Mssour.
Nee D. Scott, ecutr of the state of dward . Scott, pantff, v. Louta
. ecker, Coector of Interna Revenue, rst Dstrct of Mssour, defendant.
Davs, D. .: The facts n ths case have been stpuated by the partes.
The queston to be answered by the court has been agreed upon by counse
and s stated n the brefs. The probem presented arses out of an effort to
determne the e tent to whch the rea estate of dward . Scott, deceased,
s sub|ect to assessment for nhertance ta purposes.
Secton 302 of the Revenue ct of 1924 provdes:
The vaue of the gross estate of the decedent sha be determned by ncud-
ng the vaue at the tme of hs death of a property, rea or persona, tangbe
or ntangbe, wherever stuated.
(a) (b) To the e tent of any nterest theren of the survvng
spouse, e stng at the tme of the decedent s death as dower, curtesy, or by
vrtue of a statute creatng an estate n eu of dower or curtesy.
What was the e tent of the nterest of Nee D. Scott n the rea estate of
her husband e stng at the tme of hs death
1. She had a dowor nterest of one-thrd, under the foowng secton of the
Revsed Statutes 1929:
Se . 318. Dower n rea estate. very wdow sha be endowed of the thrd
part of a the ands whereof her husband was sezed of an estate
of nhertance to hod and en|oy durng her natura fe.
2. She had one-haf of hs rea estate sub|ect to hs debts, f she eected to
take t under the foowng statute:
Sec. 325. usband runq wthout chdren, wdow, how endowed. When
the husband sha de wthout any chd, or other descendants n beng, capabe
Reguatons 68, rtce 14: Dower and
curtesy.
II-28-6287
Ct,D.701
March 9, 1933.
OPINION.
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291
Regs. 68, rt. 14
of Inhertng, hs wdow sha be entted: , second, to one-haf of the
rea and persona estate beongng to the husband at the tme of hs death,
absoutey, sub|ect to the payment of the husband s debts.
The wdow eects whether to take under ths statute or dower under secton
318. Ths eecton s e pressy authorzed by secton 327. When the eecton
to take under secton 325 s made, t s n eu of dower. ocke v. ocke
(276 Mo., 572) construes ths statute and hods that secton 325 provdes an
estate that s a substtute for dower. oth estates can not be taken conse-
quenty ths statute does not create an estate n addton to dower. subst-
tute for dower and n eu of dower, mean the same thng.
We know of no reason why the defendant shoud not rey upon ths secton.
It may be that t has done so. ut f t has so reed, confuson has been
In|ected nto the case by the constant reference to a chd s part, as though
reance were beng paced upon secton 328 of the Mssour statute.
3. She had the rght to take under the w In eu of dower, and ths s
what she dd. The statute s:
Sec. 332. Land passng by w hed n eu of docer. If any testator sha,
by w, pass any rea estate to hs wfe, such deTse sha be n eu of dower
out of the rea estate of her husband whereof he ded sezed uness
the testator by hs w, otherwse decared.
We now state the queston whch the partes agree must be answered by the
court, and whch consttutes the soe ssue n ths case:
Is the wdow s chd s share nterest n the Mssour rea estate owned by
her husband on the date of hs death propery ncuded n the decedent s gross
estate for the purpose of determnng the net ta abe estate, or shoud ony
the vaue of the wdow s dower nterest n such property have been ncuded
In the gross estate
eference must here be agan taken of the Mssour statute reatng to when
a wdow may take a chd s share of her deceased husband s estate.
Secton 324 R. S., 1919, amended Laws 1921, page 119 (now, as agan amended
1927, secton 328 . S., 1929), effectve at the tme of the death of the deceased,
provded:
Chd s part, when taken n eu of dower. When the husband sha de,
eavng a chd or chdren or other descendants, the wdow may, n eu of
dower of the one-thrd part of a ands whereof her husband ded or sha de
sezed of an estate of nhertance, to hod and en|oy durng her natura fe,
eect to be endowed absoutey In a share of such ands equa to a share of a
chd of such deceased husband. The provsons of ths secton sha be sub-
|ect to the payment of her husband s debts.
Ths estate was avaabe to the wdow, when and ony when, the husband
sha de, eavng a chd or chdren. dward . Scott eft no-chd. Conse.
quenty, the estate created by ths secton, that s a chd s part, was never
avaabe to hs wdow. The wdow had or acqured no such an nterest n
the estate at the tme of the death, and she coud not by any sort of an eec-
ton have acqured such an nterest.
Ths concuson Is not out of accord wth Unted States v. Wate (C. O. . 8)
(33 . (2d), 567 Ct. D. 79, C. . III-2, 395 ), because there the deceased eft
a wdow and two chdren, and the rght of the wdow to take a chd s share
e sted. In Crooks v. Loose (C. C. . 8) (36 . (2d), 571 Ct. D. 147, C. .
I -1, 372 ), t was not the chd s share statute that was under consderaton.
Consequenty, we hod that under the crcumstances here present the wdow s
chd s share nterest n the rea estate of the deceased as provded by secton
328 was not propery ncuded n the decedent s gross estate for the purpose of
f ng the net ta abe estate. The wdow s dower nterest n such property as
provded by secton 318, or the one-haf nterest n eu of dower as provded
by secton 325, coud propery be ncuded n vaue of the ta abe nterest n
the estate. The defendant was |ustfed In avang tsef of the atter tem.
There can be no reason why t shoud be requred to eect to accept the bass
east advantageous to tsef. Partcuary where as here, the wdow eected to
take the entre estate under the w. Such a decson on her part coud not
possby defeat the ta .
ccordngy, counse may draft the |udgment.
.-
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Regs. 68, rt. 25.
292
Reguatons 68, rtce 25: Ta abe nsurance. II-36-6390
Ct.D.729
estate ta revenue act of decson of court.
1. Deductons Prevousy Ta ed Property.
Where the nterva between the deaths of two decedents was
more than fve years, but dstrbuton to the present decedent of
corporate stock receved by nhertance from the pror decedent
occurred wthn fve years pror to hs death, the vaue of the stock
may not be deducted n determnng the net estate of the present
decedent, under the provsons of secton 303(a)2( ) of the
Revenue ct of 19:24.
2. Decson ffrmed.
The decson of the oard of Ta ppeas (23 . T. ., 370)
affrmed.
Unted States Crcut Court of ppeas, S th Crcut.
Second Natona ank Trust Co. and George L. umphrey, ecutors and
Trustees of the state of rthur D. ddy, Deceased, pettoners, v. Comms-
soner of Interna Revenue, respondent.
Petton to revew an order of the Unted States oard of Tar ppeas.
efore Moorman, ckenooper, and Smons, Crcut udges.
March 14, 1033.
opnon.
Moorman. Crcut udge: Water S. ddy ded ntestate ugust 4, 1918, and
an estate ta was pad on hs estate. n order of dstrbuton was made on
une 8, 1920, and rthur D. ddy receved by nhertance 4,687 shares of
stuck from 1 s deceased brother s estate. rthur ddy ded testate pr 22,
1925, and hs e ecutors camed a deducton from hs gross estate of the shares
of sock receved from the brother s estate. The Commssoner dened the cam
on the ground ttat more than fve years eapsed between the death of the two
brothers, and determned a defcency. Upon petton the oard of Ta ppeas
affrmed. (23 . T. ., 370.) The case s brought to ths court by petton to
revew.
The soe queston s whether secton 303(a)2 of the Revenue ct of 1924
(43 Stat. L., :M ) authorzes the deducton of the vaue of property acqured
by nhertance from a pror decedent n a case where the nterva between the
two deaths was more than fve years but the dstrbuton to the second decedent
occurred wthn fve years pror to hs death. Ths secton of the statute
provdes:
Sec. 303. or the purpose of the ta the vaue of the net estate sha be
determned
(a) In the case of a resdent, by deductng from the vaue of the gross
estate

(2) n amount equa to the vaue of any property ( ) formng a part of the
gross estate stuated n the Unted States of any person who ded wthn fve
years pror to the death of the decedent, or ( ) transferred to the decedent by
gft wthn fve years pror to hs death, where such property can be dentfed
as havng been receved by the decedent from such donor by gft or from such
pror decedent by nft. bequest, devse, or nhertance, or whch can be dent-
fed as havng been acqured n e change for property so receved. Ts de-
ducton sha be aowed ony where a gft ta or an estate ta under ths or
any pror ct of Congress was pad by or on behaf of the donor or the estate
of such pror decedent as the case may be,
cept for cause ( ) of ths ct, t s substantay dentca wth secton
403(a)2 of the Revenue ct of 1921. (43 Stat. L., 279.) In order to aevate
the hardshp of successve ta es wthn a short tme upon the same property,
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293
Regs. 68, rt. 36
Congress provded In the ct of 1921 for deductons from the gross estate of a
decedent of property receved from a pror decedent where the death of the
second decedent occurred wthn fve years of the death of the frst. t that
tme gfts made n contempaton of death were ta abe, and wthn the mta-
ton stated ths provson aowed deductons for gfts of that character as we
as those receved by bequest, devse or nhertance. Under that ct and pror
cts gfts nter vvos, not made In contempaton of death, were not ta abe.
The ct of 1924, however, ad a ta upon such gfts and provded for an add-
tona deducton as set forth n subdvson ( ). The purpose n aowng ths
deducton was the same as n the earer ct. The deductons aowed under
the ct of 1921 covered ony property, ncudng gfts In contempaton of death,
passng from the dead to the vng, and by the terms of the ct the two deaths
had to occur wthn fve years. The ct of 1924 dd not change n any way
what was aready covered by the ct of 1921, but added a new and dstnct pro-
vson reatng to gfts nter vvos whch had not theretofore been sub|ect to a
ta , eavng In effect and reenactng the earer provson aowng deductons
for property passng by gft n contempaton of death, bequest, devse or
nhertance where the second decedent s death occurred wthn fve years of the
frst. The property here n queston was receved by nhertance not by gft
nter vvos and fas wthn secton ( ) of the statute, whch aows the deduc-
ton ony where the death of the pror decedent occurred wthn fve years of
the death of the decedent whose estate s sub|ect to the ta .
The order of the oard of Ta ppeas s affrmed.
Reguatons 68, rtce 36: Cams aganst II-33-6345
the estate. Ct.D.718
estate ta revenue act of 1924 decson of court.
1. Gross state Deductons Cams ganst the state.
Where a decedent and hs daughter entered nto a wrtten con-
tract whereby, n consderaton of her agreement to make no cam
or demand aganst hm durng hs fe or aganst hs estate
after hs death for support, mantenance, or dstrbuton to her as
an her at aw, and to make no contest of hs w, he agreed to
create a trust for her beneft, ether nter vvos or upon hs death
(whch trust was not estabshed), such contract s In fact and
n substance an agreement on the part of the decedent to make a
bequest for the use of hs daughter, and an amount pad to her
by the e ecutr of hs w n purported compance wth the
terms of the agreement s not aowabe as a deducton from the
decedent s gross estate. The payment s n the nature of a testa-
mentary dsposton, and does not consttute a cam aganst the
estate contracted for a far consderaton In money or money s
worth wthn the meanng of secton 303(a) 1 of the Revenue
ct of 1924.
2. Petton Dsmssed.
Petton to revew the decson of the oard of Ta ppeas (23
. T. ., 1250) dsmssed.
Unted States Crcut Coubt of ppeas, S th Crcut.
Lan T. Latty, ecutr of the estate of S. D. Latty, Deceased, pettoner, T.
Commssoner of Interna Revenue, respondent.
Petton to revew order of Unted States oard of Ta ppeas.
efore Moorman, cken.ooper, and Smons, Crcut udges.
anuary 10, 1933.
opnon.
ckenooper, Crcut udge: Ths cause Invoves a queston of construc-
ton of secton 303 of the Interna Revenue ct of 1924 (ch. 234, 43 Stat.,
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Regs. 68, rt. 36.
294
253), pertanng to the estate ta , whch secton provdes n part as stated
n te note.
Samue D. Latty of Lakewood, Oho, ded testate on anuary 31, 1926, eavng
survvng hm hs wdow, Lan T. Latty, and a daughter by a prevous
marrage, een Mare Latty ackson. Under date of December 1, 1923, the
testator had entered nto a wrtten contract wth hs daughter whereby, h
consderaton of her agreement to make no cam or demand aganst hm
durng hs fe, or aganst hs estate after hs death, for support, mantenance
or dstrbuton to er as an her at aw, and not to contest any ast w and
testament whch he mght eave, he agreed to create a trust In the sum of
50,01 0, cther nter vvos or upon hs death, and, pendng the creaton of such
trust, to pay to her 2,500 per year as ncome thereon, or 5 per cent on the
agreed prncpa amount. The terms upon whch ths trust fund was to be
hed are not of mportance here and t s suhcent to say that the agreement
provded for a typca spendthrft trust, Mrs. ackson to receve the ncome
durng her fetme and beng gven a power of appontment by ast w and
testament as to the prncpa. rom the date of ths agreement to the date of
hs death, the father punctuay pad the stpuated ncome to hs daughter,
but faed to make any provson by hs w for the creaton of the trust.
fter hs death the e ecutr of hs estate pad to Mrs. ackson the sum of
5. 5,381.55, n purported compance wth the terms of the agreement of De-
cember 1, 1923, and the soe queston here nvoved Is whether, n computaton
of the estate ta , the e ecutr s entted to the deducton of ts sum from
the gross estate as a cam contracted bona fde and for a far consderaton
n money or money s worth under the secton above quoted. The deducton
was dened by the oard of Ta ppeas and the e ecutr brngs her petton
to revew the decson of that oard.
ssumng, as the oard of Ta ppeas dd, but not decdng, that the con-
tract between the decedent and hs daughter s supported by adequate con-
sderaton, and was vad, and that t created mutua obgatons, we are of
the opnon that t was n fact and n substance an agreement upon the father s
part to make a bequest for the use of hs daughter, and that as such t was
a cam to a dstrbutve nterest n the estate and not a cam aganst the
estate wthn the meanng of secton 303. In rscoe v. Crag (32 . (2d), 40
( t. D. 136, C. . III-2, 417 ) ths court hed that f the wdow aows a
the property eft by the deceased to pass as a part of hs estate, then, regard-
ess of the fact that an adverse dower nterest mght have been asserted, the
entre property does pass as a part of the deceased s estate and as such s
ta abe. In speakng of the rghts n personaty acqured by a wdow n the
event of her eecton not to take under the w, we aso sad: They are not
cams aganst the estate, but ony nterests n the net estate, and thus not
adverse to the estate as a whoe. In ths, they are unke dower rghts whch
have prorty over the cams of credtors. To substantay the same effect
see acobs v. Commssoner (34 . (2d), 233 (C. C. . 8) Ct. D. 128, C. .
III-2, 403 ) and Schuette v. ocers (40 . (2d), 208 (C. C. . 2) Ct. D. 191,
C. . 1 -1, 3S6 ). It s true that the father was at berty to make conveyance
of ths trust fund at any tme pror to hs death, but ths was not done. ad t
been dune the queston woud then have been presented whether the sub|ect of
such conveyance shoud be Incuded n the gross estate as a transfer made n con-
tempaton of death and not the sub|ect of bona fde sae for a far consdera-
ton n money or money s worth, uuder secton 302(c) of the Revenue ct of 1924.
(Safe Depost Trust Co. v. Tat, 295 ed.. 429 (D. C. Md.) T. D. 3544, O. .
III-, 470 Phps v. nchtc, 27 . (2d), 062 (C. C. . 3).) Ths queston
does not here arse but the cases cted may throw ght upon the meanng of
the words n money or money s worth, consdered beow.
1 S . 303. or the purpose at the ta I he vaue of the net estate sha be determned
(n) In the case of a resdent, by deductng from the vaue of the gross estate (1) Such
amounts for funera e penses, admnstraton e penses, cams aganst the estate, unpad
mortgages upon, or any ndebtedness n respect to, property to the e tent
that such cams, mortgages, or Indebtedness were ncurred or contracted bona fde and
for a far consderaton n money or money s worth as are aowed by the
aws of te |ursdcton under whch the estate s beng admnstered.
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295
Regs. 68, rt. 36.
It Is aso true that f the contract be supported by adequate consderaton and
vad, and f t be further regarded as creatng an obgaton on the part of the
father to estabsh the trust estate ether durng hs fetme or by hs w,
Mrs. ackson mght have asserted a cause of acton for breach of contract n
the event of the death of her father wthout havng made such testamentary
provson. ad such a course been pursued t s possbe that the cam mght
have been consdered as adverse to the estate as a whoe and as deductbe.
Ths we need not decde. It s enough that the cam was not so asserted or
ad|usted, and that Mrs. ackson receved the sum pad to her, not as damages,
but as her agreed dstrbutve nterest n her father s estate, and as f upon
specfc performance of hs contract. Under these crcumstances we thnk that
rscoe v. Crag, supra, and Schucttc v. owers, supra, both dsaowng deduc-
ton for dower where the wdow took under the w and the dower rghts were
not asserted as such, precude aowance of the deducton n the nstant case.
The soundness of the above-stated concuson s emphaszed, we thnk, when
we consder the purpose and effect of the addton to the anaogous secton of
the 1921 ct of the cause permttng the deducton of cams aganst the estate
ony to the e tent that such cams were ncurred or contracted bona fde and
for a far consderaton n money or money s worth. Possby the reason why
ths cause has not been specfcay the sub|ect of |udca constructon s that
Its meanng seems fary apparent to the ordnary ntegence. In the present
case we are not so much concerned wth whether there was a far consd-
eraton, athough t mght be somewhat dffcut to say |ust what ega rght
Mrs. ackson renqushed by her contract, as we are wth whether the con-
sderaton movng to the father may rghty be consdered as a consderaton
n money or money s worth. There are nstances n whch t s practcay
mpossbe to say that a far consderaton s not to be regarded as a consder-
aton n money or money s worth. (Cf. erguson v. Dckson, 300 ed., 961
(C. C. . 3), nvovng a contract n consderaton of marrage), but we thnk
that ordnary these words must be construed to evdence an ntent upon the
part of Congress to permt the deducton of cams ony to the e tent that such
cams were contracted for a consderaton whch at the tme cther augmented
the estate of the decedent, granted to hm some rght or prvege he dd not
possess before, or operated to dscharge a then e stng cam, as for breach
of contract or persona n|ury.
When the 1924 ct was reported by the Ways and Means Commttee n the
ouse of Representatves ( . R. 179, S ty-eghth Congress, frst sesson, page
28), the anaogy was drawn between the e cepton of a sae under secton 402(c)
of the 1921 ct (secton 302(c) of the ct of 1924), reatng to transfers made
In contempaton of death, and the cams permtted to be deducted under sec-
ton 303 then beng consdered. It was stated that on prncpe the same
mtaton shoud be apped here and the proposed amendment s desgned to
effect ths resut. It has aso been hed wth reference to secton 402(c) of
the 1921 ct and secton 302(e) of the 1924 ct that those transactons whch
are supported by a good consderaton, but whch nevertheess are purey testa-
mentary n ther nature and effect, are not saes for money or money s worth
wthn the Intent of the ct. (See Phps v. Gnchte, supra, and Safe Depost
Trust Co. v. Tat, supra.) sae mpes the recept of money or
money s worth as the purchase prce of that conveyed the contnued man-
tenance of the estate of the vendor at appro matey ts pree stng vaue.
testamentary dsposton s n the nature of a bounty and the antthess of a
sae. We thnk that the same ne of demarcaton must appy here, and f the
purpose of the partes was that the sub|ect of the contract mght pass as a part
of the estate and be made a matter of testamentary dsposton, and t dd so
pass or was so treated, the cam s not to be regarded as founded upon a
consderaton n money or money s worth.
or the reasons above stated the petton to revew s dsmssed.
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Regs. 68, rt. 44.
296
Reguatons 68, rtce 44: Transfers for pub-
c, chartabe, regous, etc., uses.
II-50-6556
Ct. D. 761
ST T T R NU CT O 1924 D CISION OP CODRT.
Gross state Deducton Chartabe equests auaton.
Where a decedent by bs w gave hs resduary estate Id trust
to pay annutes to certan benefcares, wth the provson that
shoud the benefcares eave daughters survvng them, such sur-
vvor or survvors shoud receve a desgnated sum and upon the
termnaton of the trusts the prncpa shoud be pad to certan
chartes, the resduary bequests to charty have no ascertanabe
vaue as of the date of the decedent s death, and are not deductbe
from the vaue of the gross estate under secton 303 (a)3 of the
Revenue ct of 1924.
Dstrct Court of the Unted States for the astern Dstrct or
Pennsyvana.
The Pennsyvana Company for Insurances on Lves and Orantna nnutes
and Chares Schmoee, ecutors of the state of Theodore C. mbaum, v.
Wam . rown, I tc ctng Coector of Interna Revenue for the rst
Dstrct of Pennsyvana.
hkpatkok, .: In ther return for nhertance ta , the e ecutors of Theo-
dore C. rnbaum camed the amount of 327,861.24 as a deducton from the
gross estate, on the ground that ths was the amount of a bequest to certan
chartes. The Commssoner of Interna Revenue dsaowed the deducton
and determned a defcency n the ta whc wth nterest was pad by the
e ecutors who brought ths sut for ts recovery. The case was tred to the
court wth n |ury. t the cose of the testmony each sde submtted a gen-
era pont for bndng nstructons n ts favor, thus eavng t for the court
to determne both aw and facts.
The Commssoner s reason for dsaowng the deducton was that the
resduary bequests to chartes had no ascertanabe vaue at the date of the
decedent s death.
y the w the entre resduary estate was gven to the e ecutors n trust
(1) to pay certan annutes to eght desgnated benefcares durng ther
respectve ves. (2) If ether of my neces. mma gesen or urora
Norberg, or my nephews, Car Norberg or w Norberg shoud eave daughters
survvng them, I gve to such survvng the sum of fve thousand doars
( 5,000) each. (3) Upon the termnaton of a of the foregong trusts
to pay over the prncpa to certan desgnated chartes.
It s apparent that the amount of the resduary estate whch w go to
charty w vary nversey wth the number of daughters survvng the four
named nephews and neces, at the rate of 5,000 for eaeh daughter. t the
tme of the decedent s death, September 8, 1924, the four nephews and neces
were vng and there were aso fve vng daughters. One nece was 57 years
od and marred, the other 56 years od and unmarred. The nephews were
respectvey 51 and 45 years od, both marred. four are st vng.
The assessment and payment of the ta can not be postponed unt the
termnaton of the trusts, and therefore whether or not any deducton Is
aowabe and, f so, how much, must be determned as of the date of the
decedent s death. t that tme the chances were, of course, sender that any
more daughters woud come nto the word to reduce the bequest to the char-
tes, and by ths tme they are neggbe. One or more of the daughters now
vng may de and so ncrease t.
vdence was submtted consstng of brth statstcs from the ureau of the
Census for the brth regstraton area of the Unted States, for the year 1924,
showng, I beeve, that no chdren were born to women over 55 years of age
and that the chance of a man over 45 of havng a daughter s about 1 to 32.
owever, the pantff dd not contend very serousy that the court coud
make any fndngs of fact by whch the amount whch the chartes w ut-
uy 18, 1933.
opnon.
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297
egs. 68, rt. 44.
matey take coud be ascertaned and t woud be udcrous to attempt to do so.
Of course n ths partcuar case anyone coud make a pretty good guess at t,
but f there were 20 nephews and neces, a young and a marred, the stuaton
woud be very dfferent. If that were the case the chartabe bequest mght
easy be cut n haf or more when the tme for dstrbuton arrved. I there-
fore fnd as a fact that t s mpossbe to ascertan the amount of the resduary
bequest to chartes as of the date of the decedent s death.
The pantffs rea contenton s that, snce the nterest of the chartes s
vested (sub|ect ony to be dvested or reduced upon certan contngences), t
s ncumbent upon the Government to show to what e tent t w be reduced
and, upon faure to make such showng, the whoe deducton shoud be aowed.
Parenthetcay, the pantff has not been qute consstent n ths, because he
has aready dmnshed hs cam for deducton by 25,000 aowng 5,000 for
each of the vng daughters. The Government contends that the chartes
have a contngent nterest ony, and that under umes v. Unted States (276
U. S., 487 T. D. 4185. C. . II-2, 378 ), no deducton can be aowed.
There s no possbe doubt that nterest of the chartes was vested, sub|ect
to be dvested n part at east on the happenng of contngences. (See Wheaton
Coa Co. v. arrs, 288 Pa., 204 Marsha s state, 252 Pa., 304 ce s state,
252 Pa., 394.)
It does not foow however that the pantff can cam the deducton.
uestons of vested or contngent nterest may be of the greatest mportance
n determnng the aenabty of the remander or ts abty to be sub-
|ected to cams of credtors, but we are here construng a ta ng statute and
determnng whether or not a deducton s aowabe. The deducton s of The
amount of a bequests, etc. s the court sad n umes v. Unted States,
supra, ut the fundamenta queston n the case at bar, s what
constructon sha be gven to a statute. Dd Congress n provdng for the
determnaton of the net estate ta abe, ntend that a deducton shoud be made
for a contngency, the actua vaue of whch can not be determned from any
known data It happened that, n the umes case, the remander was a
contngent one, but the pont that the court emphaszed s that the controng
queston s the uncertanty and unascertanabty of the amount camed, and
there s |ust as much uncertanty of amount nvoved n a vested remander
sub|ect to be dvested as n one whch s contngent.
The burden of proof s aways upon the ta payer camng an e empton.
Statutes aowng e emptons from ta aton to chartes are of course construed
beray n favor of the e empton, hut that does not affect the rue that one
camng a deducton must be abe to show, wth reasonabe certanty at east,
the amount whch he cams. In Itaca Trust Co. v. Unted States (279 U. S.,
151 Ct. D. 61, C. . III-1, 313 ), whe the amount by whch the deducton
mght be dmnshed coud not be ascertaned wth absoute certanty, t was
possbe to ascertan t wth reasonabe e actness.
If, as the pantffs contend, the vested character of the remander contros,
t can ready be seen where t woud ead. or e ampe, t s we setted n
Pennsyvana that a remander, though sub|ect to be whoy dvested by the
e ercse of power of appontment gven the fe tenant, may, none the ess, be a
vested remander. gan, under a w, the brth or survva of a snge chd
may operate to wpe out an entre remander nterest and yet not affect ts
character as vested. These consderatons make pan the necessty of adherng
cosey to the pocy of umes v. Unted States, supra, namey, that no deduc-
ton can be aowed the amount of whch can not be ascertaned at the testator s
death wth reasonabe accuracy. Ths case happens to be one n whch, n vew
of the arge amount of the resduary estate, the sma sze of the contngent
bequests and the age of the partes, the percentage of error In any guess at the
amount whch w go to charty s key to be sma, but the fact that such
cases w arse docs not ca for encroachment upon the pan pocy of the aw.
I therefore concude as matter of aw that the deducton was propery ds-
aowed, for the reason that the resduary bequests to charty have no ascer-
tanabe vaue as of the date of the decedent s death.
I affrm the defendant s ponts for charge that under a the aw and evdence
the verdct must be n favor of the defendant, and deny the pantff s pont,
aowng e ceptons to the pantff.
I fnd generay for the defendant.
udgment may be entered accordngy.
37408 34 20
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Regs. 63(1922), rt. 18.
298
TITL I . ST T T . (1921)
Reguatons 63(1922), rtce 18: Transfers
n contempaton of death.
II-37-6398
Ct.D.732
estate ta revenue act of 1921 decson op court.
1. Gross state Transfers Made n Contempaton op Death.
Gfts to the decedent s chdren of a matera part of hs property,
made wthn two years of hs death, were made n contempaton
of death wthn the meanng of secton 402(c) of the Revenue
ct of 1921, the facts and crcumstances dscosed, consdered n
the ght of the body and menta condton of the decedent at
the tme the transfers were made, havng faed to overcome the
presumpton, rased by the statute, that they were so made.
2. Same: Presumpton urden of Proof.
The presumpton rased by secton 402(c) paces the burden of
proof on the estate to show ether the negatve fact that the
transfers were not made n contempaton of death or to show
affrmatvey that they were made because of some mpeng motve
connected wth the purpose and thought of fe.
. 0. Myers, as dmnstrator of the state of . . Myers, Deceased,, v. The
Unted States.
Wams, udge, devered the opnon of the court.
The pantff, as admnstrator of . . Myers, deceased, seeks to recover
726,284.13, wth nterest, edera estate ta es mposed and coected by the
Commssoner of Interna Revenue under the provsons of sectons 401 and
402(c) of the Revenue ct of 1921. (42 Stat., 227.)
. . Myers, a resdent of shand, Oho, ded ntestate, December 2, 1923.
The pantff, as admnstrator of hs estate, duy fed an estate ta return
dscosng a gross estate of 5,905,487.14, and a ta abty of 802,150.70,
whch amount was pad. The return dscosed four gfts made by the
decedent to hs natura hers wthn two years of hs death, but the vaue
of the gfts was not ncuded n the gross estate.
Subsequenty the Commssoner of Interna Revenue ncuded the four gfts
n the gross estate but upon the consderaton of a protest fed by the
pantff, determned to ncude ony the vaue of the ast two gfts. These
gfts were made on May 14, 1923, and ugust 24, 1923, and had respectve vaues
of 350,000 and 3,019,159.30. The ncuson of these two gfts n the decedent s
gross estate resuted In a defcency assessment of 726,284.13, whch was pad
by pantff on une 21, 1927. Tmey cam for refund of the ta havng
been fed by the pantff, and re|ected by the Commssoner of Interna
Revenue, pantff has nsttuted ths sut to recover the amount so pad.
The chaenged ta was mposed and coected under secton 401, and secton
402(c) of the Revenue ct of 1921. Secton 402(c) reads:
Sec. 402. That the vaue of the gross estate of the decedent sha be
determned by ncudng the vaue at the tme of hs death of a property, rea
or persona, tangbe or ntangbe, wherever stuated

(c) To the e tent of any nterest theren of whch the decedent has at
any tme made a transfer, or wth respect to whch he has at any tme
created a trust, n contempaton of or ntended to take effect n possesson or
en|oyment at or after hs death (whether such transfer or trust s made or
Court of Cams of the Unted States. M-254.
pr 10, 1933.
OPINION.
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299 Reg . 63(1922), rt.
created before or after the passage of ths ct), e cept In case of a bona fde
sae for a far consderaton n money or money s worth. ny transfer of
a matera part of hs property n the nature of a fna dsposton or dstrbu-
ton thereof, made by the decedent wthn two years pror to hs death wthout
such a consderaton, sha, uness shown to the contrary, be deemed to have
been made n contempaton of death wthn the meanng of ths tte
The two gfts n queston amounted to 3,369,159.30, sghty ess than one-
thrd of the gross estate of 10,6-7,287.70, as determned by the Commssoner
of Interna Revenue. The transfers consttuted a matera part of the decedent s
estate. They were not made as a resut of a bona fde sae for a far con-
sderaton n money or money s worth. They were made wthn two years pror
to the decedent s death, and uness the contrary s shown must be deemed
to have been made n contempaton of death, and are sub|ect to the edera
estate ta mposed by sectons 401 and 402(c) of the ct of 1921. Ths pre-
sumpton s a rebuttabe one e pressy stated to be such by the statute and
may be overcome by proof that the transfers were motvated from purposes
assocated wth fe rather than wth death. (Unted States v. Wes, 283 U. S.,
102 Ct. D. 340, C. . -, 475 , affrmng Wes v. Unted Mates. 69 C. Cs., 485.)
The Supreme Court n Unted States v. Wes, supra, for the frst tme nter-
preted the phrase n contempaton of death as used n the edera ta ng
statutes. The court n that case was construng the Revenue ct of 1918, whch
Is dentca wth secton 402(c) of the Revenue ct of 1921. The decson n
that case s a comprehensve and dscrmnatng dscusson of the ntent and
meanng of the term n contempaton of death and estabshes the tests
whch must contro n the determnaton of whether partcuar transfers are
made n contempaton of death. The court sad :
Transfers n contempaton of death an ncuded wthn the same
category, for the purpose of ta aton, wth transfers ntended to take effect at
or after the death of the transferor. The domnant purpose s to reach sub-
sttutes for testamentary dspostons and thus to prevent the evason of the
estate ta . (Nchos v. Coodge, 274 T . S., 531, 542 T. I). 4072, C. . I-2, 351
MUken v. Unted States, ante, page 15 Ct. D. 320, C. . -, 472 .) s the
transfer may otherwse have a the ndca of a vad gft nter vvos, the dffer-
entatng factor must be found n the transferor s motve. Death must be
contempated, that s, the motve whch nduces the transfer must be of the
sort whch eads to testamentary dsposton. The queston, necessa-
ry, s as to the state of mnd of the donor.
s the test, despte varyng crcumstances, s aways to be found n motve,
It can not be sad that the determnatve motve s ackng merey because of the
absence of a conscousness that death s mmnent. It s contempaton of death,
not necessary contempaton of mmnent death, to whch the statute refers.
It Is concevabe that the dea of death may possess the mnd so as to furnsh
a controng motve for the dsposton of property, athough death s not
thought to be cose at hand. Od age may gve premonton and promptngs
Independent of morta dsease. Yet age n tsef can not be regarded as furnsh-
ng a decsve test, for sound heath and purposes assocated wth fe, rather
than wth death, may motvate the transfer. The words n contempaton
of death mean that the thought of death s the mpeng cause of the transfer,
and whe the beef n the mmnence of death mny afford convncng evdence,
the statute s not to be mted, and ts purpose thwarted, by a rue of con-
structon whch n pa e of contempaton of death makes the fna crteron
to be an apprehenson that death s near at hand.
If t s the thought of death, as a controng motve promptng the ds-
poston of pro erty. that affords the test, t foows that the statute docs
not embrace gfts nter vvos whch sprng from a dfferent motve. Such
transfers were made the sub|ect of a dstnct gft ta , snce repeaed.
The purposes whch may be served by gfts are of great varety. It s com-
mon knowedge that a frequent nducement s. not ony the desre to be reeved
of responsbtes, but to have chdren, or others who may be the approprate
ob|ects of the donor s bounty, ndependenty estabshed wth competences of
ther own, wthout beng compeed to awat the death of the donor and wthout
partcuar consderaton of that event. There may be the desre to recognze
speca needs or e gences or to dscharge mora obgatons. The gratfcaton
of such desres may be a more compeng motve than any thought of death.
s
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Regs. 63(1922), rt. 18.
300
oowng the anguage |ust quoted the court, referrng to the vews e pressed
by ths court n ts decson, sad:
We thnk that the Government s rght n ts crtcsm of the narrowness
of the rue ad down by the Court of Cams, n requrng that there be a con-
dton creatng a reasonabe fear that death s near at hand, and that such
reasonabe fear or apprehenson must be the ony cause of the transfer. It
s suffcent f contempaton of death be the nducng cause of the transfer
whether or not death s beeved to be near. ut t does not appear that the
decson of the court rests upon the mtaton thus e pressed. The court dd
not rey merey upon the fact that at the tme of the transfers decedent con-
sdered that he had recovered from hs former ness and beeved the assurances
gven hm by hs physcan that he need have no fear of ts recurrence or any
an ety whatever about hs state of heath. That fact was manfesty m-
portant, but, n addton to that, the court hed that the mmedate and movng
cause of the transfers was the carryng out of a pocy, ong foowed by
decedent n deang wth hs chdren, of makng bera gfts to them durng hs
fetme.
It s the contenton of the pantff that the facts n the nstant case make
a far stronger showng than the facts n the Wes case that the gfts n queston
were not made n contempaton of death. It s urged that the mpeng motve
for the gfts was to gratfy a vng purpose and was the fna consummaton
of pans whch were made by the decedent at east as eary as 1917. Pantff
says n hs bref:
the mpeng and domnant motve for the gfts of May 14 and
ugust 24, 1923, was hs gratfcaton over the attanment of a purpose whch
was so desrabe to hm durng hs fetme and the competon of pans for the
wefare of ther chdren whch he and Mrs. Meyer had ong deghted to
consder together. Ths purpose was the broader deveopment and tranng and
the ncreased happness of hs chdren durng hs fetme n preparaton for
the responsbtes of arge weath whch they woud ater have to assume.
Such motves were entrey unaffected by any thought of hs own death at any
tme.
The Supreme Court n the Wes case ponted out that In accordance wth
proper practce ths court shoud have found the utmate fact as to the mpe-
ng motve for the transfers. pprecatng fuy the grave responsbty ths
duty mposes upon the court, we have gven a most carefu consderaton to a
the facts and crcumstances shown to detect and determne the domnant motve
of the decedent n makng the transfers. We have reached the concuson that
the facts and crcumstances dscosed, consdered n the ght of the body and
menta condton of the decedent at the tme the transfers were made, fa to
overcome the presumpton rased by the statute, and have accordngy found
that the transfers n queston were made n contempaton of death.
The decedent was 74 years 8 months and 10 days od at the tme of hs death
on December 2, 1923. e was n every respect and n the best sense of the term,
what s commony known as a sef-made man. orn and reared on a farm,
where he ved unt he reached the age of 20 years, wth ony a common-schoo
educaton, and wthout the ad of nherted weath, through hs own untrng
efforts and abty, he became one of the great ndustra eaders of hs day and
at hs death eft a fortune of more than 10,000,000. The record dscoses that
he was a man of determned w, domnatng personaty, and possessed of
amost nfnte capacty for hard work. e was e ceptonay energetc and
actve, both physcay and mentay, nnd unt a short tme before hs death
kept n cose touch wth every deta of hs arge and vared busness enterprses.
e he ved n economy and thrft both n the use of tme and money. e prac-
tced these vrtues n hs own fe and ncessanty urged ther mportance upon
hs chdren. though a man of great weath, he ved frugay and smpy and
nduged n no u ures. e was not a bera or generous man n the e pend-
ture of money, ether n hs deangs wth hs famy or others, when hs great
weath s taken nto consderaton. Lberaty s a reatve term. donaton or
gft that woud be consdered as most bera and generous when made by one
of mted weath or means mght we be deemed nggardy f made by one of
ampe means or great weath.
Whe wtnesses testfed generay that he was most bera In hs deangs
wth the pubc and made arge and generous contrbutons to churches, educa-
tona and ether nsttutons, cross-e amnaton of these wtnesses deveoped that
the sum tota of such contrbutons durng the 20-year perod precedng hs
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301
Regs. 63(1922), rt. 18.
death was very sma 15,000 toward the budng of a Y. M. C. . n shand,
Oho, 25,000 for the reconstructon of an od ha at Wttenberg Coege. Sprng-
fed, Oho, whch was ater caed Myers a, 10.000 for a nurses home
whch he and hs wfe presented to a oca hospta, a 5,000 donaton to a co-
ege at shand, and a gft of 5,000 between 1012 and 1915, toward the rebud-
ng of a church at shand. sde from these outrght donatons the decedent
contrbuted annuay from 8 0 to 1,000 to the ngsh Lutheran Church at
shand. If he made other and further gfts than those stated, they are not
shown n the record.
n ncdent n connecton wth decedent s donaton of 5,000 to the coege at
shand, whch was made In 1923, ony a few months before hs death, throws
sgnfcant ght on hs menta atttude toward gvng. Shorty after sgnng hs
subscrpton for the 5,000 the coege found tsef n need of mmedate funds.
Decedent was nformed of that fact and requested to pay hs subscrpton, wth
the statement that f he woud do so 5 per cent woud be deducted from the
amount of the subscrpton. e accepted the proposton, wrote hs check for
4,750, and thus qudated hs vountary obgaton to contrbute 5,000 to a
coege n hs home town where he had ved for 50 years and where he had
amassed hs great fortune.
Unt after he had passed the age of 72 years decedent was no more bera
In deang wth members of hs famy than he was n hs pubc benefactons.
s famy conssted of hs wfe and four chdren, two sons and two daughters.
The odest son, George, ded n 1915 at the age of 40 years, unmarred. The
ony gft made by decedent to ths son was 60 shares of stock of a par vaue of
100 each, 0,000, whch was made n 1907. t the same tme he made a ke
gft to hs younger son ohn. e gave each of the three chdren at the tme
of ther marrage 15,000 n cash for the purpose of buyng a home. e ater
gave ohn 7,000 addtona for the competon of hs home. In 1918 he gave
to each of hs chdren 25,000 n Lberty bonds. sde from sma sums rangng
from 100 to 500 whch he gave the chdren from tme to tme whe vng
at home before ther marrage, and presents such as automobe and panos,
made to them subsequent to ther marrage, the sum tota of decedent s gf.ts to
hs chdren pror to December, 1921, was 0,000 to hs son George, 53,000 to hs
son ohn, and 40,000 to each of hs two daughters.
These facts are strkngy dssmar to the facts n the Wes case. Wes
for 30 years pror to the tme the gfts n queston n that case were made had
foowed a consstent pocy of makng arge gfts to hs chdren. It was a part
of hs phosophy of fe that the wse and proper thng for a rch man to do
was to make arge and generous advancements to hs chdren whe they were
young and coud have a father s advce n ts contro and management. It was
hs desre to see hs chdren estabshed In fe and traned n the management
of property whe he was ave and coud assst them. e preached ths whoe-
some doctrne to hs busness assocates year n and year out and consstenty
foowed It n deang wth hs chdren. Not ony that, he was severe n hs
crtcsm of some of hs rch assocates who foowed a dfferent pocy n deang
wth ther chdren a pocy characterzed by hm as nggardy. s fna
gfts, the sub|ect of the tgaton, were a baancng of the books, an equaza-
ton among hs chdren of ther gfts, and was stated by hm to be such, and
was so marked on hs books. e had aso been tod by hs physcan, an em-
nent specast n whom he had great confdence, a short tme before the gfts
were made, that he was fuy restored from a prevous ness that he was n
good heath for a man of hs age, and had no reason to fear a recurrence of hs
ament. Upon that record, and the facts as stated were supported by over-
whemng proof, both ora and documentary, t was hed that
The pantffs have not ony overcome the presumpton created by the statute
that the transfers were made n contempaton of death, but have defntey
estabshed the fact that the mmedate and movng cause of the transfers was
the carryng out of a pocy Inns foowed by decedent n deang wth hs ch-
dren of makng bera gfts to them durng hs fetme. e had consstenty
foowed that pocy for neary 30 years and the three transfers n queston were
a contnuaton an fna consummaton of such pocy .
ere a dfferent pcture s presented. We have a man, many tmes a mon-
are, wth a prncey ncome rangng as hgh as 700,000 a year, whose ony
gfts to hs chdren unt after he had passed the age of 72 years, asde from
sma weddng gfts and occasona presents such as automobes, panos, |ewery,
etc., were 25,000 n Lberty bonds gven to each of them n 1918 a man who,
though ampy abe to estabsh hs chdren comfortaby and Independenty n
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Regs. 63(1922), rt. 18.
302
fe, wthout serous mparment of hs great and rapdy mountng fortune, dd
not see ft to do so, but chose rather to eave them practcay to ther own.
resources unt they had reached mdde fe and who permtted a son to sup-
port a wfe and three chdren on the meager saary of 5,000 a year unt he
was past 39 years of age. The mere rectaton of these facts shows how unke
they are to the facts In the Wes ease, and uttery refutes the suggeston that
the decedent consstenty practced a pocy of makng arge and generous gfts
to hs chdren.
The decedent, however, durng the ast two years of hs fe adopted a more
bera and generous pocy and transferred to hs chdren by four separate
gfts property aggregatng more than 5,000,000 n vaue.
It s contended by pantff that the mpeng motve for these gfts was the
carryng out of vng purpose pans formuated by the decedent not ater
than 1917 the gvng of property to hs chdren n hs fetme and that the
gfts of May 14, 1923, and ugust 24, 1923, the gfts nvoved n sut, were the
accompshment and fna consummaton of these pans.
Decedent n the year 1917 was consderng the matter of makng a gft of
some of hs property to the chdren and dscussed the matter wth certan of
hs busness assocates. ust when he defntey concuded that he woud make
the gft s not dscosed. e was st consderng the matter n 1919 and so
nformed hs son ohn. owever that may be, the proof, n our opnon, eaves
no room for doubt that whatever pans he may have formuated n 1917, or
had n mnd at that tme n reference to makng a gft of property to hs
chdren, were competey and precsey e ecuted and consummated n the trust
agreement of December 22, 1921.
In 1917 the decedent nformed Mr. . D. Messck, a cose frend and busness
assocate, that he ntended to gve hs chdren some property of substanta
vaue, and dscussed wth hm the advsabty of pacng t In trust. e
nformed Messck that the reason he wanted to gve some of hs property to
hs chdren n hs fetme was that he had more than suffcent and that he
wshed them to have the use and en|oyment of t. In 1919 he dscussed these
pans wth Mr. . . Nutt, of Ceveand, and n 1919 he nformed hs son, ohn,
that he was consderng wth Mr. Messck creatng a trust n favor of hs
chdren. Mr. Nutt suggested that he make hs gft to the chdren outrght.
Ths suggeston was re|ected, the decedent statng that he wanted the gft to
be n the form of a trust where the bank coud ook after the securtes and
the chdren to have the Income for awhe.
In 1920 Mr. Messck was requested to prepare the trust agreement, whch
he dd, but the trust for certan busness reasons was not then e ecuted.
Subsequenty n 1921 decedent agan had Mr. Messck prepare a trust agreement
whch was e ecuted on December 22, 1921, depostng n trust for hs wfe and
three chdren stocks and bonds of the appro mate vaue of 1,200,000. The
ncome from the trust was payabe equay to the benefcares for three years,
at the end of whch tme three-fourths of the corpus was payabe to the
chdren n equa shares, and the remanng one-fourth was smary payabe
to them upon the death of ther mother. There s no evdence that the de-
cedent, ether n 1917 or at any tme pror to the e ecuton of the trust
agreement of December 22, 1921, ever panned or contempated gfts of property
to hs chdren other than the gfts emboded n ths agreement. pana
formuated by hm before that date for makng gfts to hs chdren were fuy
consummated by the e ecuton of ths trust agreement. There Is no evdence
that he then had n mnd or had formuated pans for other and further gfts.
Ths fact s concusvey shown by the decedent s statement to hs chdren on
Chrstmas, 1921, at the tme he presented them the trust agreement, that In
makng the gft he and hs wfe had succeeded n dong somethng they had
e pected to do and had been pannng to do for some tme. e had succeeded
n dong what he had panned to do, and a that he had panned to do
created a trust n favor of hs chdren.
The decedent was past 74 years of age at the tme the gfts of May 14, 1923,
and ugust 24, 1923, were made. They were made wthn a few months of the
date of hs death, and at a tme he was sufferng from an Incurabe maady.
It s true he had not been nformed of the nature of hs ament by ether the
physcans attendng hm or by hs chdren. It s true, aso, that up to a short
tme precedng hs death he retaned hs menta aertness, vsted hs offce
frequenty, dctated etters, e amned reports, sgned documents, hed con-
ferences wth hs assocates, and kept n cose touch wth hs busness affars.
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303
Regs. 63(1922), rt. 18.
e contnued to m ke occasona automobe trps, attended meetngs of boards
of drectors of corporatons n whch he was nterested, and addressed banquets
on two or three occasons at about or subsequent to the tme the gfts were
made. sde from the fact that he was osng weght there was very tte
change n hs persona appearance pror to ugust 24, 1923.
It s contended that these facts and crcumstances concusvey show that
the decedent had no knowedge of hs actua condton at the tme the gfts
were made that he fet no apprehenson that hs ness woud resut fatay,
and that hs body and menta condton n no way nfuenced hm n makng
the gfts.
Whe some of the facts and crcumstances shown are consstent wth the
theory that some motve other than contempaton of death mpeed the de-
cedent to make the gfts, they are far from concusve. conscousness that
death s Immnent s not requred to brng the gfts wthn the statute. It s
contempaton of death, not necessary contempaton of mmnent death, to
whch the statute refers. It s suffcent f contempaton of death be the n-
ducng cause of the transfer whether or not death s beeved to be near.
(Unted States v. Wes, supra.) We thnk the facts and crcumstances reed
upon, taken as a whoe, tend to support rather than to rebut the presumpton
that the gfts were made n contempaton of death. The decedent coud not
be unaware of the fact that he was sufferng from a most serous ament that
woud probaby prove fata. e had vsted the Ceveand cnc as eary as
ugust, 1921. or s months pror to that tme he had suffered from ndges-
ton and sharp pans n the stomach. e had ost 12 pounds n weght. e
was then found to have hgh bood pressure and was admonshed to sow up
n hs work and to go on an ordered det e was aso warned by the phys-
can that f he dd not foow these nstructons serous resuts woud foow.
e dsregarded these warnngs and contnued to work as hard as before. e-
tween that date and anuary 1, 1923, he had been attended by hs physcan,
Dr. Patton, on 22 occasons.
Whe n orda n anuary, 1923. he suffered ntense pans n the regon
of hs rght sde and abdomen. s sufferng was so acute that Mrs. Myers
had hm promse that upon ther return home he woud go to the Ceveand
cnc for an e amnaton. Shorty after hs arrva home on March 16, he
tod Dr. Patton that he was troubed wth a dsturbance n hs rght sde whch
he beeved to be hs append . Dr. Patton e amned hm and concuded that
the troube was cancer. e dd not nform decedent of what he suspected but
advsed hm to go to the cnc for e amnaton. On March 26 he was e amned
at the Ceveand cnc and hs ament was defntey ascertaned to be a can-
cerous growth at the |uncton of the arge and sma ntestnes. -ray pc-
tures confrmed ths dagnoss and dscosed the presence of a cancerous growth
of the sze of a sma grapefrut. It was estmated that ths growth had
then contnued over a perod of one or possby two years, and had become
so e tended that an operaton to remove t was not advsabe.
Decedent durng the course of the e amnaton referred to the recent death
at the cnc of one of hs cose frends from an appendcts operaton, and
e pressed the opnon that hs troube mght probaby be due to the same cause.
e was nformed by the physcans that ths was not true, and was tod that hs
case was not an operabe one, but woud be treated by -ray therapy. e
receved hs frst -ray treatment on the foowng day, March 27, and there-
after was sub|ected to smar treatments on pr 6 and uy 1, 1923.
e was not nformed by hs physcans at that tme that he was sufferng
from cancer. e dd not, so far as the record shows, ever nqure of hs
physcans as to the nature of hs ness, or dscuss the matter wth any one,
at any tme pror to November 8. 1923. It s most astonshng that the decedent
made no nqures of hs physcans at the tme of hs e amnaton on March
26, or at any tme thereafter as to the nature of hs ness. e went to the
cnc, accompaned by hs persona physcan and hs son, beevng that he prob-
aby mght have to undergo an operaton for appendcts, an operaton from
whch one of hs cose frends had recenty ded. That he then reazed that
hs condton was serous s not open to doubt. It s ncredbe that n man of
hs courage, good sense, and domnatng w, when nformed by hs physcans
that hs ament was not what he had suspected t mght be, woud not want
to know the e act nature of hs troube and woud not demand fu nformaton
of the resut of the e amnaton. In vew of the fact that he made no such
Inqures-the concuson s we ngh rresstbe that he understood and fuy
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Regs, 63(1922), rt. 18. 304
reazed the serousness of hs condton, and athough he may not have def-
ntey known that he had an nterna cancer, he suspected the truth, or n
any event he knew that he was sufferng from a maady that woud probaby
resut fatay to hm. e knew that he had a ump n hs sde as bg as a sma
grapefrut that t was very senstve and at tmes caused hm e crucatng
pan that t coud not be treated by an operaton, and that the -ray treatment
to whch he was sub|ected was a we-known and unversay recognzed treat-
ment for cancer. Whe, as pantff contends, -ray therapy treatments are
used for a number of aments other than cancer, one of ts prncpa uses s
for treatment of cancer, and ts use n ths case was hghy suggestve to
decedent, a man of superor ntegence, of the kehood of the presence of
cancer. ut wthout regard to whether the decedent knew or dd not know,
suspected or dd not suspect, the e act nature of hs ament pror to November
8, 1923, he undoubtedy apprecated the serousness of hs condton and
reazed that hs hod on fe was most precarous. Unke the donor n the
Wes case, the decedent was not tod by hs physcans before the gfts were
made that he had recovered hs heath and was competey cured of hs ament,
nor had he been assured by them that he woud recover. e knew when the
gfts were made that he had not recovered from hs ness and that hs heath
had not been restored. Whe he had receved temporary beneft from the -ray
treatments, he st had what he termed the ump n hs sde from whch
he suffered acutey when n an uncomfortabe poston, whether wakng, rd-
ng, or yng n bed. e was osng weght, sowy perhaps, but surey and.
progressvey. s strength and powers of endurance were wanng. These
strkng facts, together wth the obvous soctude of hs chdren, hs nurse,
and hs frends for hs heath and comfort, the frequent vsts of hs physcan.
Dr. Patton, the character of treatments receved at the cnc, coud hardy
have deceved a man of decedent s |udgment and nsght.
sde from ths most serous and aarmng body condton, decedent, at
and pror to the tme the gfts were made, was greaty dstressed n mnd
because of the recent death of hs wfe. They had been nseparabe com-
panons for a haf century, and her death was a great shock to hm. The
wtnesses a testfed that he never recovered from the bow, and that he
contnued to greve for her unt hs death.
It was under these crcumstances and condtons that the gfts nvoved were
made. It can not be sad that the decedent s body and menta condton at
the tme the transfers were made was such as to negatve or refute the pre-
sumpton created by the statute that they were made n contempaton of death.
The burden of proof s upon the pantff. e must show ether the negatve
fact that the transfers were not made In contempaton of death, or show
affrmatvey that they were made because of some mpeng motve consstent
wth the purpose and thought of fe, and thus by e cuson estabsh the fact
that they were not made n contempaton of death.
The mpeng motve for the gfts, as we have seen, was not and coud not
have been the carryng out of a pocy ong and consstenty foowed by the
decedent of makng arge advancements to hs chdren In hs fetme, because
he had never adopted or foowed such pocy at any tme pror to December,
1921, when he had passed the age of 72 years, nor was the mpeng motve
for the gfts the carryng out and fna consummaton of pans formuated as far
back as 1917 for makng gfts of property to hs chdren, as the trust agree-
ment of December 22, 1921, competey satsfed and consummated those pans.
The mpeng motve coud not have been that natura and audabe desre of
a parent to recognze the speca needs of hs chdren, as decedent had, n
two pror gfts aggregatng more than 2,000,000, estabshed them comfortaby
n fe, and they stood n no speca need of hs bounty at the tme the gfts
were made.
The gfts were made to hs three chdren, share and share ake, n the
same proportons and nterests n whch they had natura cams upon hs
bounty. The dstrbuton among the chdren was n no way dfferent than t
woud have been n the event of hs death ntestate. In the absence of a
showng to the contrary, the presumpton created by the statute must stand,
and the mpeng motve for the transfers must be deemed to have been the
desre of the decedent, n contempaton of hs own death, to transfer to hs
chdren a matera part of hs property n the nature of a fna dsposton
and dstrbuton of the same.
The petton s therefore dsmssed. It s so ordered.
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305
Regs. 63, rt. 23.
Reguatons 63, rtce 23: Property hed
|onty or as tenants by the entrety.
I-48-6538
Ct. D.757
ST T T R NU CT O fL D CISION O SUPR M COURT.
1. Gkoss state ont Tenancy cquston efore Passage
of ny state Ta ct.
Where the decedent at the tme of hs death n 1923 hed as
ont tenant wth hs wfe certan rea estate n Inos acqured
n 1909, one-haf the vaue of the property s propery ncuded n
determnng the vaue of the decedent s gross estate under secton
402(d) of the Revenue ct of 1921. That secton Is not apped
retroactvey, snce the e stence of the |ont tenancy at the date
of death and not ts creaton at an earer date furnshes the bass
for the ta .
2. Case oowed.
0wnn v. Commssoner (2S7 U. S., 224 Ct. D. 617, C. . II-1,
360 ) foowed.
3. Case Dstnotshed.
no v. Mc gott (258 U. S., 546) dstngushed.
4. Decson ffrmed.
The decson of the Crcut Court of ppeas, Seventh Crcut
(62 et. (2d), 591), affrmng 23 . T. ., 635, affrmed.
arod T. Grswod, W. W. S. Carpenter, and Lard e, ecutors of the
state of Wam . Rcdngton, Deceased, pettoners, v. Guy T. cverng,
Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Seventh
Crcut.
Mr. ustce Sutherand devered the opnon of the court.
Secton 402 of the Revenue ct of 1921 (ch. 136, 42 Stat., 227, 277, 278),
mposng an nhertance ta , provdes,
Sec. 402. That the vaue of the gross estate of the decedent sha be deter-
mned by ncudng the vaue at the tme of hs death of a property, .

(d) To the e tent of the nterest theren hed |onty or as tenants n the
entrety by the decedent and any other person, .
The decedent ded n 1923, whe the foregong provson was n effect. t
the tme of hs death he and hs wfe hed as |ont tenants certan rea estate n
Inos, tte to whch vested n them by conveyance on October 5, 1909. The
Commssoner vaued ths rea estate at 90,000, and ncuded the whoe of t n
the vaue of decedent s gross estate as beng wthn the reach of secton 402(d).
Upon appea to the oard of Ta ppeas, that trbuna, dsapprovng n part
the Commssoner s determnaton, hed that the vaue of ony decedent s one-
haf of the property coud be ncuded for the purposes of the tu . (23 . T. .,
635.) The crcut court of appeas affrmed. (62 . (2d), 591.)
Whether ths appcaton of the statute gves t a retroactve effect s the soe
queston here nvoved and wth that we fnd no dffcuty. Under the statute
the death of decedent s the event n respect of whch the ta s ad. It a
the e stence of the |ont tenancy at that tme, and not ts creaton at the
earer date, whch furnshes the bass for the ta . y the |udgment under
revew, ony haf of the vaue, that s to say, the vaue of decedent s nterest,
has been ncuded, eavng the survvors nterest unaffected. fter the crea-
ton of the |ont tenancy, and unt hs death, decedent retaned hs nterest n,
Supreme Court of the Unted States.
November 6, 1933.
OPINION.
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Regs. 63, rt. 23.
306
and contro over, haf of the property. Cessaton of that Interest and contro
at death presented the proper occason for the mposton of a ta . See Gcnn
v. Commssoner (287 U. S., 224 Ct. D. 617, C. . II-1, 360 ) and cases cted.
nd snce that s a that s sought to be reached by the ta here n queston,
the compant that the statute has been gven a retroactve appcaton obvousy
s wthout substance. The statute as apped does not ay a ta n respect of
an event aready past, but n respect of one yet to happen.
Pettoners nsst that no v. Mc gott (258 U. S., 546) s to the contrary,
but, ceary, t s not. There the ta return ncuded the vaue of decedent s
one-haf of the |onty owned property, but dd not ncude the vaue of the
haf whch had been owned and en|oyed by the survvng |ont tenant. Never-
theess, the Commssoner undertook to mpose a ta n respect of the vaue of
ths atter haf as we. Ths court hed that to do so was to appy the statute
retroactvey, and that ths, under the crcumstances of that case, coud not
be done. It dd not hod, or ntend to hod, that the statute was retroactve
In so far as the vaue of the decedent s haf of the ont estate was concerned.
That queston was not there nvoved. It s the ony queston here.
udgment affrmed.
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S L S T RULINGS.
TITL I . M NU CTUR RS CIS T S. (1932)
S CTION 601. CIS T S ON C RT IN RTICL S.
Reguatons 44, rtce 11: Scope of ta . II-44-6490
T. D.4401
T ON LU RIC TING OILS.
Secton 601 (c) of the Revenue ct of 1932, as amended by
secton 4(b) of the ct of Congress approved une 16, 1933
(Pubc, No. 73, Seventy-thrd Congress). rtce 11 of Regua-
tons 44, amended. Scope of ta .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 44, approved une 18, 1932, are amended b nsertng
n eu of the e cerpt from secton 601 of the Revenue ct of 1932
and the capton thereof at the begnnng of Chapter II, the
foowng:
Secton 601 (c) of the Revenue ct of 1932, as mended by the
ct pproved une 16, 1933 (Pubc, No. 73, Seventy-thrd
Congress).
(e) There s hereby mposed upon the foowng artces sod n the
Unted States by the manufacturer or producer, or mported nto rhe
Unted States, a ta at the rates herenafter set forth, to be pad by
the manufacturer, producer, or mporter:
(1) Lubrcatng os, 4 cents a gaon but the ta on artces de-
scrbed n ths paragraph sha not appy wth respect to the Importaton
of such artces. Under reguatons prescrbed by the Commssoner
wth the approva of the Secretary, no ta sha be mposed under
ths secton upon ubrcatng os sod to a manufacturer or producer of
ubrcatng os for resae by hm, but for the purposes of ths tte
such vendee sha be consdered the manufacturer or producer of such
ubrcatng os.
rtce 11 of Reguatons 44, as amended by Treasury Decson
4339, approved uy 16,1932 C. . I-2,446 and by Treasury Dec-
son 4362, approved March 3, 1933 C. . II-1, 380 s further
amended by strkng out the ffth paragraph and nsertng n eu
thereof the foowng:
On and after uy 1, 1933, no ta sha be n sed upon ubrcatng os
sod by a manufacturer or producer of such os to another manufacturer
or producer of ubrcatng os for resae by hm, provded the manufacturer
(307)
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601, Regs. 44, rt. 11. 308
makng the sae, pror to or at the tme of sae, obtans from the purchaser
a certfcate showng that the os are purchased by hm for resae. or
the purpose of ths ta the vendee sha be consdered the manufacturer or
producer of such ubrcatng os. On and after November 1, 1933, no ubr-
catng o sha be sod ta -free to another manufacturer or producer for
resae uness the purchaser has regstered wth the proper coector of nterna
revenue as a manufacturer or producer of ubrcatng os, and has obtaned
a regstraton certfcate on orm 637 bearng hs regstraton number, as pro-
vded n artce 7. as amended, of these reguatons, and uness the e empton
certfcate requred by the foregong sentence bears the purchaser s regstra-
ton number.
Ta -free saes of ubrcatng o to manufacturers under secton 601 (c) or
secton 620(1) (see artce 7) may be made under an e empton certfcate In
substantay the foowng form:
MPTION C RTI IC T .
The undersgned hereby certfes that he s a manufacturer or producer of
ubrcatng os, and hods certfcate of regstry No. , ssued by the co-
ector of nterna revenue at , and that the ubrcatng os
purchased hereunder are for resae by hm or use by hm as matera n the
manufacture or producton of ubrcatng os or as a component part of ubr-
catng os to be manufactured or produced by hm.
It s understood that the undersgned s abe for ta as the manufacturer
or producer upon hs resae, or upon hs use otherwse than as specfed above,
of the os purchased hereunder, uness specfcay e empted by aw. It s aso
understood that the frauduent use of ths certfcate to secure e empton w
sub|ect the guty partes to the penates provded by aw.
Name.
ddress.
Gut T. everng,
Commssoner of Interna Revenue.
pproved October 26, 1933.
Dean cheson,
ctng Secretary of the Treasury.
S CTION 601 O T R NU CT O 1932, S M ND D Y T
CT O UN 16, 1933. (PU LIC, NO. 73, S NTY-T IRD CON-
GR SS.) LU RIC TING OILS.
Reguatons 44, rtce 11: Scope of ta . II-46-6511
S. T. 712
ass for computng ta upon the sae or use of nonfud
ubrcatng os.
Secton 601 (c) of the Revenue ct of 1932, as amended by the ct
of une 16,1933 (Pubc, No. 73, Seventy-thrd Congress), mposes a
ta at the rate of 4 cents per gaon upon ubrcatng os sod n the
Unted States by the manufacturer or producer .
manufacturer or producer of nonfud ubrcatng os ta abe
under artce 11 of Reguatons 44, as amended by Treasury De-
cson 4339 (C. . I-2, 446) and Treasury Decson 4362 (C. .
II-1, 380), may use 8 pounds to the gaon as a bass for comput-
ng and reportng the ta upon the sae or use of such os.
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309
601 (c)2, Regs. 44, rt. 13|
S CTION 601 (c)2. W R S WORT.
Reguatons 44, rtce 13: Scope of ta . II-27-6269
Ct. D. 695
CIS T S R NU CT OP 1932 D CISION O COURT.
Sut n quty In|uncton to Restran Coecton of Ta .
The ta mposed by the Revenue ct of 1932 upon the manufac-
ture and sae of brewer s wort beng nether ega nor n the
nature of a penaty, coecton thereof may not be en|oned by a
sut n equty n the absence of speca and e traordnary cr-
cumstances renderng nappcabe secton 3224 of the Revsed
Statutes, whch prohbts such a sut.
Dstrct Court or the Unted States, Western Dstrct op New York.
No. 1528. roadway endng Corporato-n, pantff, v. O. T. ugdcn, Coector
of Interna Revenue for the Ttcenty-eyhth Dstrct of New York, defendant.
No. 1527. Cataract endng Corporaton, pantff, v. O. T. Sugden, Coector
of Interna Revenue for the Twenty-eghth Dstrct of New York, defendant.
der, Dstrct udge: oth of the above entted suts nvove dentca
ssues, and the facts n each are substantay the sums.
The companants are domestc corporatons, one dong busness n the cty
of uffao, N. Y., and the other n the cty of Rochester, N. Y. The defendant
s the coector of nterna revenue for the twenty-eghth dstrct of New York,
whch ncudes the ctes of uffao and Rochester.
These actons are brought n equty. Upon the fng of the bs of com-
pant, appcatons were made n each sut, upon verfed affdavts of offcers
of the companant corporatons, for temporary n|unctons restranng the
defendant from proceedng to coect or assess any and a ta es aganst the
companant corporatons upon the manufacture and sae of brewer s wort.
Temporary n|unctons were ssued. Motons by the companant corporatons
to make these n|unctons permanent pendng the determnaton of the suts
were dened upon the faure of the companant corporaton to furnsh securty.
Decson on motons to dsmss the b of compant In each sut was re-
served unt the end of the tra. The grounds of the motons whch were
set up In the amended answers as separate and dstnct defenses were:
a. That the companant corporatons had a compete and adequate remedy
at aw, of whch they had not avaed themseves.
b. The aeged causes of acton were barred under the provsons of secton
3224 of the Revsed Statutes prohbtng the mantenance of any sut for the
purpose of obtanng n|unctve reef to restran the coecton of any ta .
c. aure of the bs of compant to aege facts suffcent to consttute
a vad cause of acton n equty.
d. Lack of |ursdcton.
The companant corporatons rest ther prayer for equtabe reef upon the
grounds:
a. That the so-caed bend manufactured and sod by them s not n fact
brewer s wort, and therefore can not be ta abe as such.
b. That the ta n queston Is, n fact, a penaty.
c. That the ta s confscatory.
d. That the method of assessment and coecton pursued by the defendant
was ega.
It seems necessary to quote the appcabe provsons of the Revenue t
of 1932, wth bref comment on the ct and the reguatons. Secton 601, sub-
dvson c 2 of Tte I , reads as foows:
rewer s wort, 15 cents a gaon. Lqud mat, mat srup, mat e tract,
fud, sod, or condensed, made from mated cerea grans n whoe or n part,
uness sod to a baker for use n bakng, or to a manufacturer or producer of
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601 (c)2, Regs. 44, rt. 13.
310
mated mk, medca products, foods, cerea beverages or te tes, for use n
the manufacture and producton of such products, 3 cents a pound. or the
purposes of ths paragraph qud mat contanng ess than 15 per centum of
sods by weght sha be ta abe as brewer s wort.
The ta mposed under Tte I , secton 601, subdvson c 2 became
effectve une 21, 1932. (See artce 2 of Reguatons 44.) It attaches when
tte to the artce sod passes from the manufacturer (artce 5 of Reguatons
44), and sha be pad by the manufacturer on a saes made drecty or
through an agent (artce 4 of Reguatons 44). Returns must be fed wth the
ta on or before the ast day of the month foowng that for whch t s made,
e cept when otherwse prescrbed under artce 51, coverng |eopardy assess-
ments (artce 48 of Reguatons 44). ta es are due and payabe to the
coector wthout assessment by the Commssoner or notce from the coector
at the tme f ed for rng the returns (artce 49 of Reguatons 44).
nother provson of the Revenue ct of 1932, whch has appcaton to
these cases s secton 1105, whch reads as foows:
(a) If the Commssoner fnds that a person abe for ta (other than
ncome ta ) under any provson of the nterna-revenue aws desgns qucky
to depart from the Unted States or to remove hs property therefrom, or to
concea hmsef or hs property theren, or to do any other act tendng to
pre|udce or to render whoy or partay neffectua proceedngs to coect
such ta uness such proceedngs be brought wthout deay, the Commssoner
sha cause notce of such fndng to be gven to such person, together wth a
demand for an mmedate return and the mmedate payment of such ta , and
such ta sha thereupon become Immedatey due and payabe.
(b) If such person (1) s not n defaut n makng any return or payng
any ta under the nterna-revenue aws, and (2) furnshes to the Unted States,
under reguatons to be prescrbed by the Commssoner wth the approva of
the Secretary, securty approved by the Commssoner wth the approva of
the Secretary, that e w duy return and pay the ta to whch the Com-
mssoner s fndng reates, then such ta sha not be payabe pror to the
tme otherwse f ed for payment.
Somethng of the busness, hstory, the organzaton and the fnanca set-up
and status of the companant corporatons, as deveoped by the testmony on
the tra, must be stated. The roadway endng Corporaton was ncorpo-
rated and commenced busness on ugust 5, 1932, by borrowng the sum of
5,500. It apparenty acqured no other assets. On December 1, 1932, ts
bank book shows a baance on hand of 18.81. owever the entres n the
bank book dscose that from ugust 10, 1932, to October 12, 1932, ncusve,
ths corporaton deposted appro matey 100,000. The Cataract endng
Corporaton was ncorporated and began busness on uy 8, 1932, wth an
authorzed capta stock of 25,000, 1,500 of whch was cash and 23,500 of
stock was ssued for a quantty of machnery and tn cans.
1. On the queston whether the product ta ed was not brewer s wort,
the testmony offered by the companants was not convncng. In the road-
way case companant s wtness who was ts e pert gave practcay no
testmony on that pont. In the Cataract case after testfyng at ength as
to the anayss of a sampe, whch testmony was admtted over ob|ecton on
the ground of the uncertan dentfcaton of the sampe, the same wtness who
was n the empoy of both companants stated that the product s a duted
mat srup souton and not qud mat or wort. e caed t a bend. The
defendant offered the testmony of two Government chemsts. They testfed
that they made anayses of the product of companants and testfed pos-
tvey that they found t to be brewer s wort. urther that n ther opnon
t was made whoy or In part from mated cerea grans. Ths was the
entre testmony In these eases on the nature of companant s product. I
sha not comment further on ths queston at ths tme n vew of my con-
cusons shorty to be stated on the other questons nvoved.
2. Companants contend that the ta n queston s n fact a penaty, and
that therefore secton 3224 of the Revsed Statutes, whch w hereafter be
dscussed, s wthout appcaton. The companants offered n evdence the
Revenue ct of 1932 mposng the ta and the commttee hearngs n Congress
hed pror to ts passage. I must fnd that the entre ct was desgned and
passed for the purpose of rasng revenue for the support of government. s
stated by the Supreme Court In Lpke v. Lcderer (259 U. S., 557), the dstncton
between a ta and a penaty s, that the one has for ts purpose the rasng of
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311
C01(c)2, Regs. 44, rt. 13.
revenue and the other s punshment for an nfracton of the aw. Lpke v.
Lederer, supra, had under consderaton a penaty, so termed, n the Natona
Prohbton ct, a pena statute. It does not appy, because there s nothng
here to ndcate that the ta n queston was ncuded In the Revenue ct of
1932 for any other purpose than to rase revenue. ven assumng that
brewer s wort can not be used e cept n the manufacture of beer n voaton
of the Natona Prohbton ct, the Congress may ta that whch t prohbts,
and ths fact does not operate to consttute the ta a penaty. Ths was hed
by the Supreme Court n Unted Sates v. One ord Coupe (272 U. S., 321).
I concude that the ta mposed on brewers wort s not a penaty.
3. Companants contend that the ta n queston s confscatory because t s
so hgh as to resut n the destructon of ther busness. Of ths there s no
proof, but assumng t to be true, the courts are wthout power to nterfere n
vew of the rue ad down n McCray v. Unted States (195 U. S., 27), and
reterated n Mer v. Nut Margarne Co. (284 U. S., at page 500 Ct. D. 457,
C. . I-1, 370 ), where the Supreme Court sad:
The companant asserts that the e acton of 10 cents per pound whe n
the guse of a ta , s reay a penaty mposed to emnate competton wth
butter, and s therefore n e cess of the power granted to the Congress by the
Consttuton. ut, havng regard to McCray v. Unted States (195 U. S., 27),
we treat the mposton ad by the ct upon oeomargarne as u vad e cse
ta .
4. The contenton of pantffs that the method of assessment and coecton
was ega w be passed over for the reason that the orgna assessments have
been vacated and dscharged, as was set up n the amended answers and proven
upon the tra.
5. The man queston here s whether the companants had an adequate
remedy at aw of whch they have not avaed themseves and whether they
are barred from mantanng these suts n equty n vew of the provsons of
secton 3224 of the Revsed Statutes whch prohbt the mantenance of any
sut to restran the coecton or assessment of any ta uness, (1) there e sts
some speca and e traordnary crcumstances suffcent to brng the case wthn
some acknowedged head of equty |ursprudence, or uness, (2) t s determned
that the ta n queston s n fact a penaty and therefore wthout the provsons
of secton 3224. Uness the companants are brought by ther peadngs and
proof wthn the e ceptons above stated, these actons n equty w not e.
It s necessary to dscuss brefy the case of Mer v. Nut Margarne Co.,
supra, whch s authorty for the frst e cepton |ust stated to secton 3224.
In the Mer case, whch had to do wth the ta on oeomargarne, the Interna
Revenue ureau had faed to appea from adverse decsons rendered n
actons at aw determnng the product n queston not to be ta abe as oeo-
margarne and the Commssoner of Interna Revenue had advsed the trade
generay that the partcuar product was not ta abe. Upon ths rung the
companant n that case manufactured and sod over a consderabe perod
of tme thousands of doars worth of ts product not contempatng any a-
bty for ta es. The Supreme Court n ts decson rectng these facts and
other unusua facts as they appeared n ths case stated that by reason of
the speca and e traordnary facts and crcumstances, secton 3224 does not
appy. In the cases at bar there are no e traordnary facts and crcumstances
of the character and comparabe wth those that appear n the Mer case.
ere the companants dd not proceed wth ther obvous ega remedy whch s
to pay the ta and sue for recovery, whe n the oeomargarne cases there had
been decsons n cases at aw aganst the Interna Revenue ureau. These
cases can not be brought wthn the e cepton defned by the Mer case.
The other e cepton that woud take these cases wthout the provsons of
secton 3224 s that the ta s n fact a penaty. I have prevousy dscussed
that queston and hed that n these cases the ta s not a penaty and ds-
tngushed the case of Lpkc v. Lederer, supra, reed upon by the com-
panants.
On the queston of the consttutonaty of the ta rased by the companants,
the nterestng case of aey v. George (25 ) U. S., 16 T. D. 3347, C. .
1-2, 342 ) s cted. In ths case the ta payer sought reef n equty from the
provsons of the chd abor ta aw and the court hed that the unconsttu-
tonaty of the ta was not suffcent to nvoke equty |ursdcton n vew of
secton 3224 of the Revsed Statutes. On the same day that that decson was
handed down by the Supreme Court, t handed down the decson n Chd
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604, Regs. 46, rt. 24.
312
Labor Ta Case (259 U. S., 20), n whch t hed the chd abor ta aw
unconsttutona, but n the ast-mentoned case the ta payer pursued the
remedy provded by aw, whch s by payng the ta and sung for ts recovery.
(State Raroad Ta Cases, 92 . S., 575 Snyder v. Marks, 109 U. S., 189
Dodge v. Osborn, 240 U. S., 118 Graham v. Dupont, 262 U. S., 234 T. D.
3486, C. . II-, 226 .)
My concuson s that the companants have not brought themseves wthn
the e ceptons of secton 3224 of the Revsed Statutes, nor have they by
ther compants or ther proof estabshed ground for equtabe reef.
Decrees may be entered accordngy.
S CTION 603. TOIL T PR P R TIONS, TC.
Reguatons 46, rtce 22: Scope of ta . II-31-6323
S. T.693
aby powder hed to be ta abe.
ueston has been rased whether baby powder s ta abe as a
toet preparaton under secton 603 of the Revenue ct of 1932.
It s contended that a powder used on babes to reeve and pre-
vent chafng, prcky heat, etc., s not a toet powder wthn the
meanng of the aw because t contans certan speca ngredents
wth heang propertes, and s, therefore, medcna n ts reacton.
Secton 603 s broad n ts scope. It mposes a ta of 10 per cent
of the prce for whch the manufacturer, producer, or mporter
ses toet powders, and any smar substances, artces, or prepara-
tons, by whatsoever name known or dstngushed, whch are used
or apped or ntended to be used or apped for toet purposes.
Webster s New Internatona Dctonary defnes toet powder
as foows:
fne powder, usuay wth soothng or antseptc Ingredents, used to
sprnke or rub over the skn of the body, as after bathng, usuay ds-
tngushed from powder used as a cosmetc for the face.
Ths defnton does not dstngush between a powder used for
babes and a powder used for aduts, but defnes t as one apped
to the skn of the body. The fact that the artce has soothng
or antseptc ngredents does not warrant any change n ts
cassfcaton as a toet preparaton.
It s, therefore, hed that the powder n queston s sub|ect to
the ta of 10 per cent mposed by secton 603 of the Revenue ct
of 1932.
S CTION 604. URS.
Reguatons 46, rtce 24: Scope of ta . II-44-6479
S. T. 709
Ta abty of artces composed whoy or party of sheepskn
or ambskn.
ueston s presented whether artces made of sheepskn or amb-
skn, or artces of whch sheepskn or ambskn s the component
matera of chef vaue, are sub|ect to the ta mposed by secton
604 of the Revenue ct of 1932. That secton mposes a ta of 10
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313
605, Regs. 40, rt. 28.
per centum upon artces made of fur on the hde or pet or of
whch any such fur s the component matera of chef vaue, when
sod by the manufacturer, producer, or mporter.
Upon carefu consderaton of the ssue presented t s hed that
the foowng artces are commony or commercay known as
artces made of fur and that they are ta abe as such under secton
604 of the Revenue ct of 1932: rtces made of so-caed do-
mestc type sheepskn or ambskn whch has been dyed and/or
processed to resembe or mtate fur (such as mtaton beaver, mta-
ton wombat, or eectrfed sheepskn), and artces of whch
sheepskn or ambskn so dyed and/or processed s the component
matera of chef vaue.
It s aso hed that the foowng artces are not commony or
commercay known as artces made of fur and are not ta abe
under secton 604 of the Revenue ct of 1932: rtces made of
the so-caed domestc type sheepskn or ambskn (ordnary
used as a protecton aganst cod rather than for decoratve or stye
purposes) whch has not been dyed and/or processed to resembe or
mtate fur. ampes of such e empt artces are boys and work-
men s sheep-ned coats and shearng-ned sppers and goves.
The term domestc type used heren ncudes sheepskn or amb-
skn of ether domestc or foregn orgn, such as sheepskn or amb-
skn from merno or crossbred sheep or ambs.
S. T. 470 (C. . I-2, 460) s modfed n so far as t s nconsstent
herewth.
S CTION 605. W LRY, TC.
Reguatons 46, rtce 28: Scope of ta . II-30-6316
T. D.4373
Tn on |ewery Secton 605 of the Revenue ct of 1932.
rtce 28 of Reguatons 46, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
The ast paragraph of artce 28 of Reguatons 46, approved une
18, 1932, as amended by Treasury Decson 4351, approved ug st
30, 1932 C. . I-2, 461 , s further amended to read as foows:
mong the artces or parts of artces comng wthn the scope of secton 605
whch may be purchased ta free for further manufacture by a manufacturer
or producer who compes wth the regstraton provsons, are (1) a mount-
ngs made of or ornamented, mounted or ftted wt precous metas or m-
tatons thereof, or vory (2) pears, precous and semprecous stones and
mtatons thereof, whether uncut or cut and ready for use but not mounted
(3) watch cases, watcb movements or mechansms, parts for watches and
cocks, etc. and (4) other smar ncompete or unfnshed artces sub|ect
to ta under secton 605.
Parts for watches or cocks seng for more than 9 cents each may be sod
ta free by the manufacturer, producer, or mporter, to a manufacturer or
producer of watches or cocks, f at the tme of sae or pror thereto, the pur-
chaser furnshes a wrtten statement to the vendor to the effect that such
37408 34 21
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606, Regs. 46, rt. 36.
314
parts are to be used by hm n the manufacture or producton of a watch
or cock to be sod for ess than 3. Proper records of nvoces, orders, and
certfcates reatve to such saes must be retaned as provded In artce 60.
If upon nspecton t s found that the records wth respect to any such sae
do not contan proper certfcates wth supportng nvoces, ta sha be payabe
on such sae.
person who manufactures, produces, or mports parts for watches or cocks
and uses such parts n the manufacture or producton of watches or cocks to be
sod for ess than 3 s not abe for ta upon hs use of such parts.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 17, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
S CTION 606. UTOMO IL S, TC.
Reguatons 46, btce 8: ass of ta . II-40-6433
S. T. 703
The processng ta on cotton ncuded n the prce for whch tre
covers are sod may not be e cuded n computng the manufac-
turers e cse ta on the sae of such artces.
dvce s requested whether, n computng the manufacturers
e cse ta mposed by secton 606(c) of the Revenue ct of 1932 on
the saes prce of tre covers, the processng ta prevousy pad on
cotton used n ther manufacture and ncuded n the saes prce
may propery be e cuded.
Manufacturers of tre covers are sub|ect to e cse ta under secton
606(c) based on the prce for whch such artces are sod. In the
manufacture of tre covers processed cotton s used on whch a proc-
essng ta mposed by the grcutura d|ustment ct (Pubc, No.
10, Seventy-thrd Congress) has been pad. The provson n sec-
ton 9(a) of the atter ct permttng deducton of the weght of
processed cotton content, on whch a processng ta has been pad,
from the weght of a fnshed artce sub|ect to ta under the Revenue
ct of 1932 on the bass of weght, s appcabe to tres and nner
tubes, whch are the ony artces ta abe by weght under that ct.
Tre covers are ta abe on the prce for whch sod.
It s hed, therefore, that f a manufacturer of tre covers ncreases
the saes prce thereof to ncude a processng ta prevousy pad
by hm he s abe for the manufacturers e cse ta on the entre prce
for whch the tre covers are sod, ncudng the amount or the
processng ta .
Reguatons 46, rtce 36: Scope of ta . II-34-6360
G. C. M. 12068
earse chasss hed to be an automobe truck chasss ta abe
at the 2 per cent rate.
n opnon s requested whether a hearse chasss s an automobe
truck chasss wthn the meanng of secton 606(a), or s an other
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315
606, Regs. 46, rt. 40|
automobe chasss wthn the meanng of secton 606(b) of the
Revenue ct of 1932.
The chasss under consderaton s much onger than an automobe
chasss generay used for the transportaton of persons, e cept buses
and other smar vehces used for the transportaton of persons n
numbers. The a e constructon, sprngs, cutch, transmsson, pro-
peer shaft assemby, and other parts are a stronger and heaver
than smar parts generay used n the chasss of a vehce used for
the transportaton of persons wth the e ceptons above noted. It
s advertsed, sod, and generay hed out as a hearse chasss.
Under the reguatons of the ureau promugated under the Reve-
nue ct of 1921, automobe hearses were cassfed as automobe
trucks, and under the reguatons reatng to the Revenue ct of
1924 (the frst of the Revenue cts whch ta ed the chasss and
body separatey) the hearse chasss was regarded as an automobe
truck chasss. See artce 12 of Reguatons 47 under those aws
and decson n the case of The Sayers Scove Co. v. Unted
States (70 Ct. Cms., 85) (Ct. D. 219, C. . I -2, 420).
It s the opnon of ths offce that the cassfcaton under the
earer Revenue cts s correct. ccordngy, t s hed that a hearse
chasss s an automobe truck chasss wthn the meanng of secton
606(a) of the Revenue ct of 1932, and s sub|ect to ta as such.
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
Reguatons 46, rtce 40: Credt for ta es II-27-6270
on tres and nner tubes sod on automo- S. T. 6S7
bes and motor cyces.
Ta abty of e tra tres and Inner tubes sod wth a new
automobe.
dvce s requested concernng the ta abe status, under secton
606 of the Revenue ct of 1932, or e tra tres and nner tubes shpped
n connecton wth a new automobe, as dstngushed from spare tres
and nner tubes furnshed as orgna equpment.
In vew of the provsons of secton 606(e) of the Revenue ct
of 1932, the ta of 3 per cent mposed by secton 606(b) shoud be
computed on the sae prce of the automobe, ncudng the tres and
nner tubes normay sod thereon, as we as the spare tres and
nner tubes furnshed therewth as reguar equpment (whether or
not bed separatey) and credt may be taken aganst such ta
at the rate of 3 per cent of the purchase prce of such tres and tubes.
If, however, any e tra tres and nner tubes are sod wth a new
automobe, as dstngushed from spare tres and nner tubes, they
shoud be bed separatey. The ta of 3 per cent mposed by
secton 606(b) of the Revenue ct of 1932 on automobes shoud
not be computed on such e tra tres and nner tubes and no credt
s aowabe under secton 606(e) of the Revenue ct of 1932.
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609, Regs. 46, rt. 7.
316
S CTION 609. SPORTING GOODS.
Reguatons 46, rtce 7: Saes for further II-35-6382
manufacture. G. C. M. 12076
manufacturer or producer of tenns rackets may purchase
tenns racket frames and strngs ta -free for further manufac-
ture or producton.
n opnon s requested whether a manufacturer or producer of
tenns rackets may purchase tenns racket frames and strngs ta -free
for the purpose of further manufacture or producton.
Secton 609 of the Revenue ct of 1932 provdes n part as foows:
There s hereby mposed upon the foowng artces, sod by the manu-
facturer, producer, or mporter, a ta equvaent to 10 per centum of the prce
for whch so sod. Tenns rackets, tenns racket frames and strngs, .
Secton 620 of the Revenue ct of 1932, as amended by the ct of
une 16,1933 (Pubc, No. 73, Seventy-thrd Congress), reads n part
as foows:
Under reguatons prescrbed by the Commssoner wth the approva of the
Secretary, no ta under ths tte sha be Imposed wth respect to the sae
of any artce
(1) for use by the vendee as matera n the manufacture or producton of,
or as a component part of an artce enumerated n ths tte
(2) for resae by the vendee for such use by hs vendee, f such artce s n
due course so resod

or the purposes of ths tte the manufacturer or producer to whom an
artce s sod under paragraph (1) or resod under paragraph (2) sha be
consdered the manufacturer or producer of such artce.
Secton 620, as orgnay enacted and as amended by the ct of
une 16, 1933, ceary permts the sae of ta abe parts wthout the
mposton of the ta f the purchaser s to use such parts n pro-
ducng a ta abe artce.
Under the provsons of artce 7 of Reguatons 46, f the pur-
chaser desres to purchase ta abe parts ta -free to produce a ta abe
artce he must gve hs vendor a certfcate settng forth that such
parts are to be used n the producton of an artce to be ta abe
when sod.
The provsons of secton 620 are based upon the theory that nas-
much as the purchaser of parts s requred to pay a ta upon the
sae of the competed artce no ta w be ost to the Government
by aowng the saes of the component parts ta -free. The pur-
chaser may, f he desres, pay the ta to the vendor when he pur-
chases such parts and after usng them n producng a ta abe artce
whch he subsequenty ses he may take a credt for the ta pad on
the component parts. Ths credt s e pressy aowabe by the
terms of secton 621 of the Revenue ct of 1932.
If the purchaser of ta abe parts s to produce a competed tenns
racket and se the same he has the rght to purchase the parts there-
for wthout payng the ta upon the sae. To deny a producer the
rght to purchase such parts ta -free for further manufacture or
producton woud deny hm a prvege whch the statute e pressy
gves to hm. Such a dena, n effect, woud cass tenns racket
frames and strngs among the artces whch may not be purchased
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317 615, Regs. 44, rt. 9.
ta -free for such purposes. If Congress had ntended to e cept such
artces t woud have sted them among the e ceptons n the stat-
ute. s t dd not so st them, t s hed that a manufacturer or
producer of tenns rackets may purchase tenns racket frames and
strngs ta -free for further manufacture or producton.
. arrett Pretttman,
G tnera Counse, ureau of Interna Revenue.
Reguatons 46, rtce 53: Scope of ta . II-33-6346
S. T. 696
Saes made to a purchaser who subsequenty goes nto bank-
ruptcy, hed ta abe.
dvce s requested concernng the ta abty under secton 609 of
the Revenue ct of 1932 of saes of merchandse where the purchaser
subsequenty goes nto bankruptcy.
Secton 609 mposes a ta upon certan artces when sod by the
manufacturer, producer, or mporter. The ta attaches when tte to
the goods passes to the purchaser. If the purchaser subsequenty
goes nto bankruptcy ths does not n any way vtate the orgna
sae upon whch the ta was mposed.
smar ssue was decded n the case of Carter v. Savck ewery
Co. (26 ed. (2d), 571, T. D. 4198, C. . II-2, 345), wheren the
court consdered a statute contanng anguage substantay the
same as appears n secton 609 of the Revenue ct of 1932, and hed
that the ta s measured by the fu seng prce, whether or not t
s actuay coected.
ccordngy, the ta mposed under secton 609 s appcabe to
saes of merchandse where the purchaser subsequenty goes nto
bankruptcy.
S CTION 615. SO T DRIN S.
Reguatons 44, rtce 9: Saes to States II-29-6298
or potca subdvsons thereof. S. T. 691
Operaton of a soda fountan by a Stnte educatona nsttuton
hed to be a propretary functon as dstngushed from an essen-
ta governmenta functon.
dvce s requested whether the Unversty s sub|ect to the
ta on soft drnks mposed by secton 615(a) of the Revenue ct
of 1932.
It s contended by the Unversty that t s not sub|ect to the
ta because t s a State nstrumentaty that the operaton of the
soda fountan s part of the actvtes or the unversty and that as
such actvtes are carred on n the e ercse of a strcty govern-
menta functon no ta s payabe.
Whe there s no doubt that the conduct of an educatona nsttu-
ton by a State or a potca subdvson thereof consttutes an es-
senta governmenta functon urnet v. Coronado O Gas Co
285 U. S., 393 Ct. D. 485, C. . I-1, 265 ), yet t does not foow
s
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615, Regs. 44, rt. 41. 318
that, f to carry on such a functon the State enters nto prvate
busness, e empton from edera ta aton w e tend to that bus-
ness. The fact that no proft s derved from the prvate busness,
or that f a proft s derved t s pad nto the State treasury, does
not ater the case where the ta s mposed on saes and not upon
property. Snyder v. ettman, 190 U. S., 249.)
In the case of South Carona v. Unted States (199 U. S., 437)
the court ponted out the we estabshed dstncton between dutes
of a pubc character cast upon muncpa corporatons and those
whch reate to ther prvate busness. In the course of ts opnon
the court sad:
It s reasonabe to hod that whe the former Natona Govern-
ment may do nothng by ta aton n any form to prevent the fu dscharge
by the atter State of ts governmenta functons, yet whenever a State
engages n a busness whch s of a prvate nature that busness s not wth-
drawn from the ta ng power of the Naton.
(See aso nt v. Stone Tracy Co., 220 U. S., 107.)
rom a consderaton of the decsons cted and other decded cases
t s hed that the operaton of a soda fountan consttutes a propre-
tary functon as dstngushed from an essenta governmenta func-
ton, and that any person conductng such an actvty s sub|ect to
the ta mposed by secton 615(a) of the Revenue ct of 1932. The
fact that the actvty s carred on by an nstrumentaty of a State
or potca subdvson thereof does not change ts propretary
nature or warrant e empton from ta .
Reguatons 44, rtce 41: Scope of ta . II-30-6311
G. CM. 11989
Ta abty of carbonc acd gas sod for pressure purposes n
drawng beverages from receptaces. (S. T. 608 affrmed.)
cepton s taken to S. T. 608 (C. . I-2, 494), wth reference
to saes of carbonc acd gas sub|ect to ta under secton 615 (a)7 of
the Revenue ct of 1932. That porton of S. T. COS to whch e cep-
ton s taken s the concuson that a saes of carbonc acd gas to
any person conductng a soda fountan, ce cream paror, or smar
pace of busness, are sub|ect to the ta mposed under secton
615 (a)7 and that no e empton from the ta s provded because of
use by such person other than n connecton wth the manufacture of
beverages. The partcuar carbonc acd gas referred to s used for
pressure purposes n drawng and dspensng draft beer.
The effect of S. T. 608 s that carbonc acd gas used for pressure
n drawng draft beer w be sub|ect to ta f the gas s sod to the
operator of a soda fountan, ce cream paror, or smar pace of
busness, but w not be sub|ect to the ta when sod to other persons
to be used for the same purpose. The poston of the ureau as
refected n S. T. 608 s n accord wth the ony constructon of the
statute whch the anguage of that statute permts.
Secton 615(a)7 of the Revenue ct of 1932 provdes as foows:
Upon a carbonc avd gag sod by the manufacturer, producer, or mporter,
or by a deaer n such gas, to a manufacturer of any carbonated beverages,
or to any person conductng a soda fountan, ce cream paror, or other smar
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319
615, Regs. 44, rt. 41
pace of busness, and upon a carbonc acd gas used by the manufacturer,
producer, or mporter thereof n the preparaton of soft drnks, a ta of 4
cents per pound. Itacs supped.
The prncpa argument advanced n protest aganst S. T. 608 s
that at the tme of the enactment of secton 602(f) of the Revenue
ct of 1921, whch reads the same as secton 615(a)7 of the Revenue
ct of 1932, the sae of beer by persons operatng soda fountans was
not contempated by Congress. It s contended that Congress m-
posed a ta on carbonc acd gas sod to persons operatng soda
fountans n contempaton of the reguar soda fountan busness as
t was conducted at the tme of the passage of the Revenue cts of
1921 and 1932, . e., the busness of compoundng soft drnks. The
attenton of the ureau s drected to the egsatve commttee re-
ports wth reference to the Revenue ct of 1921, and t s contended
that the genera anguage of those reports ndcates that the ta es
mposed under secton 602 of the Revenue ct of 1921 are appcabe
to beverages or ngredents of beverages.
If the anguage of secton 615(a)7 of the Revenue ct of 1932
(and the same anguage used n secton 602(f) of the Revenue ct of
1921) were ambguous, or f the terms used theren were ready
susceptbe of more than one constructon, reference coud propery
be had to the egsatve hstory of the ta ng statutes for the pur-
pose of determnng the ntent of the egsators. y the e press
terms of the statute the ta attaches Upon a carbonc acd gas
sod to any person conductng a soda fountan, ce cream
paror, or other smar pace of busness . The terms of
the statute are cear and specfc and, accordngy, there s no am-
bguty presented and no uncertanty of meanng of terms whch
woud ether necesstate or permt a recourse to the rues of statutory
constructon ordnary empoyed n resovng ambgutes n a
statute. owever, f the hstory of the varous statutes mposng a
ta on carbonc acd gas were to be consdered, the resut of that
consderaton woud support a concuson contrary to that now
urged.
In secton 315 of the Revenue ct of 1917 a ta was mposed on
carbonc acd gas, and ths secton contaned a specfc provson
whch mted the ta to gas ntended for use n the manufacture
or producton of carbonated water or other drnks. rtce 35 of
Reguatons 44, ssued under the Revenue ct of 1917, provded
that carbonc acd gas used n drawng beer from contaners was
not sub|ect to the ta . In the enactment of the Revenue ct of 1918,
secton 315 of the Revenue ct of 1917 was repeaed and a ta made
appcabe to varous types of soft drnks, ncudng those made wth
the use of carbonc acd gas. In the Revenue ct of 1921 a ta
wTas mposed upon carbonc acd gas under secton 602(f) n sub-
stantay the same anguage as s now contaned n secton 015(a)7
of the Revenue ct of 1932. It w be noted that the dstncton
between the Revenue ct of 1917 and the Revenue cts of 1921 and
1932 s that n the 1917 ct t was provded that the carbonc acd
gas sub|ect to ta was that ntended for use n the manufacture
and producton of beverages. The fact that n mposng a ta on
carbonc acd gas under the Revenue ct of 1932 Congress saw ft to
adopt the provsons of the Revenue ct of 1921 nstead of the pro-
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615, Reg. 44, rt. 41.
320
vsons of the Revenue ct of 1917 s sgnfcant. Proper notce
must be taken of the crcumstance that had Congress ntended to
ta ony carbonc acd gas ntended for use n compoundng
beverages t woud have used anguage specfcay desgned to
accompsh ths end, such as t had used prevousy n the Revenue
ct of 1917.
That Congress was not unmndfu of the sgnfcance of the term
used s demonstrated by the fact that n secton 615(a)7 of the
Revenue ct of 1932 t s provded that the ta sha attach to a
carbonc acd gas used by the manufacturer, producer, or m-
porter thereof n the preparaton of soft drnks. s before stated,
there s no such mtaton of use wth respect to the carbonc acd
gas sod to operators of soda fountans, ce cream parors, or smar
paces of busness. In secton 615(a)6 of the Revenue ct of 1932,
mposng the ta on fnshed or fountan srups, the matter of use
appears to have been partcuary emphaszed. The ta on srups
s appcabe to the knds used n manufacturng soft drnks at
the rate of 6 cents per gaon, e cept that n the case of any srups
ntended to be used n the manufacture of carbonated beverages
sod n cosed contaners the rate sha be 5 cents per gaon. Where
any person manufacturng carbonated beverages manufactures and
uses srups n the manufacture of carbonated beverages sod n
cosed contaners, a ta s appcabe to such srups at the rate of 5
cents per gaon. The ta mposed on srups s not appcabe to
srups sod for use n the manufacture of certan beverages enu-
merated n other paragraphs of the ta ng statute.
ttenton has been drected to the fact that the mposton of the
ta as proposed n S. T. 608 nvokes a hardshp on certan ds-
pensers of beer n that carbonc acd gas may be used by other ds-
pensers of beer wthout the ncdence of the ta . It woud not
appear necessary that authorty be cted n support of the prncpe
that the hardshp of a ta as an ncdent to the operaton of any
busness s not a matter to be consdered n determnng the appca-
ton of the ta where such appcaton s specfcay provded by
the ta ng statute. In ths connecton t mght be stated that the
actua hardshp nvoved s neggbe, as, accordng to statements
made, the amount of ta appcabe to the carbonc acd gas used n
dspensng 15 gaons of draft beer amounts ony to about 4 cents.
s aready ndcated, by the pan provsons of the ta ng statute,
the ta mposed under secton 615(a)7 attaches upon a carbonc
acd gas sod to an 7 person conductng a soda fountan, ce cream
paror, or smar pace of busness. There s no anguage n the
statute whch ndcates that the purpose for whch the gas may be
used sha be consdered n determnng the appcaton of the ta .
Therefore, the poston taken by the ureau as set forth n S. T. 608
that saes of carbonc acd gas to any person conductng a soda
fountan, ce cream paror, or smar pace of busness are sub|ect
to ta regardess of the use by such person of the carbonc acd gas,
refects a proper nterpretaton of the anguage of the ta ng statute.
There appears to be no reason for a departure from a constructon
of the statute based upon ts precse terms.
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
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321
615, Regs. 44, rt. 41.
Regt|atons 44, rtcu: 41: Scope of ta . II-50-6558
S. T. 714
Ta abty of carbonc acd gas sod under varous condtons.
ueston s rased whether saes of carbonc acd gas to botter
|obbers who rese such gas to persons not wthn the scope of secton
615(a)7 of the Revenue ct or 1932 are sub|ect to ta .
Secton 615(a)7 mposes a ta of 4 cents per pound
Upon a carbonc acd gas sod by the manufacturer, producer, or mporter,
or by a deaer n such gas, to a manufacturer of any carbonated beverages,
or to any person conductng a soda fountan, ce cream paror, or other smar
pace of busness, .
The ta abty of a sae of carbonc acd gas, when made by a
manufacturer, producer, mporter or deaer, depends upon the type
of busness n whch the purchaser s engaged and not upon the use
to whch the gas s sub|ected by the purchaser.
It s cear from a consderaton of the terms of the aw that a
sae of gas made by a manufacturer, producer, mporter, or deaer
s sub|ect to the ta when made (1) to a manufacturer of any car-
bonated beverages, or (2) to any person conductng a soda fountan,
ce cream paror, or other smar pace of busness.
If the purchaser comes wthn ether of these genera casses the
ta s payabe by the seer rrespectve of the use or dsposton of
the gas by the purchaser. In no case may the manufacturer, pro-
ducer, or mporter of carbonc acd gas, or a deaer n such gas, take
credt for a resae of gas by a purchaser who fas wthn ether
cassfcaton.
It s equay cear that saes of gas when made to persons who do
not come wthn cassfcaton (1) or (2) are not sub|ect to the ta .
Saes to a deaer or to a dspenser of beer come wthn ths cass.
If a sae s made to a deaer no ta s due thereon, but saes made
by the deaer are ta abe or not ta abe under the aw, dependng
entrey upon whether hs purchaser comes wthn cass (1) or cass
(2), or conducts a type of busness outsde those casses.
One dffcuty n the admnstraton of the aw arses n cases where
the purchaser conducts more than one busness. Under such cr-
cumstances certan saes to the same purchaser may be ta abe and
others may be e empt. Where a sae s made to a manufacturer of
any carbonated beverages who s aso a deaer, the saes made to hm
as a manufacturer are ta abe and those made to hm as a deaer are
not ta abe. If these saes are separabe and the separate saes can
be ceary dentfed by any reasonabe method, the ta abty
shoud be ad|usted accordngy.
Where the capacty n whch the purchase s made can not be
estabshed at the tme of sae, the seer must pay the ta on the
entre quantty of gas sod, but may subsequenty cam credt for
the ta to the e tent that t s estabshed that ta was pad on gas
sod to the purchaser n hs capacty as a deaer. In camng credt
the seer must compy wth the requrements of artce 52 of Regu-
atons 44, as amended by Treasury Decson 4357 (C. . I-2, 515).
Resaes made by the purchaser n hs capacty as a deaer are gov-
erned by the rues set forth above. Therefore, botter |obbers re-
ferred to n the queston rased are sub|ect to ta on ther resaes
dependng upon the appcaton of those rues.
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616.
322
S CTION 616. L CTRIC L N RGY.
IL40-6438
T.D.4393
Ta on eectrca energy Secton 616 of the Revenue ct of
1932, as amended by secton 6 of the ct of une 16, 1933 (Pubc,
No. 73, Seventy-thrd Congress). Chapter , Reguatons 42,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 6(b) of the ct of Congress approved une 16, 1933
(Pubc, No. 73, Seventy-thrd Congress), provdes:
(b) Despte the provsons of ths secton the ta mposed under secton
616 of the Revenue ct of 1932 before Its amendment by ths secton on
eectrca energy furnshed before September 1, 1933, sha be Imposed, coected,
and pad In the same manner and sha be sub|ect to the same provsons of aw
(ncudng penates) as f ths secton had not been enacted.
Chapter of Reguatons 42, approved October 22, 1932, as
amen ded pror to ths Treasury decson, remans n fu force and
effect wth respect to the ta mposed by secton 616 of the Revenue
ct of 1932 on amounts pad for eectrca energy furnshed on or
after une 21, 1932, and before September 1, 1933.
Secton 616 of the Revenue ct of 1932 was amended by secton
6(a) of the ct of Congress approved une 16, 1933 (Pubc, No.
73, Seventy-thrd Congress). In conformty wth the aw as so
amended, Chapter of Reguatons 42, approved October 22, 1932,
s amended, effectve wth respect to eectrca energy sod on or
after September 1, 1933, to read as foows:
Chapter .
T ON L CTRIC L N C T.
Secton 6(a) of the ct of une 16, 1933 (Pubc, No. 73, Seventy-thrd Congress).
Sec. 6. (a) ffectve September 1, 1933, secton G16 of the Revenue ct of
1932 s amended to read as foows:
Sec. 616. Ta on eectrm energy for domestc or commerca consumpton.
(a) There s hereby mposed upon eectrca energy sod for domestc or
commerca consumpton and not for resae a ta equvaent to 3 per centum
of the prce for whch so sod, to be pad by the vendor under such rues and
reguatons as the Commssoner, wth the approva of the Secretary, sha pre-
scrbe. The sae of eectrca energy to an owner or essee of a budng, who
purchases such eectrca energy for resae to the tenants theren, sha for the
purposes of ths secton be consdered as a sae for consumpton and not for
resae, but the resae to the tenant sha not be consdered a sae for con-
sumpton.

rt. 39. ffectve perod. The ta appes to eectrca energy sod on or
after September 1, 1933, and before uy 1, 1935.
rt. 40. Scope o ta . The ta s mposed upon eectrca energy sod for
domestc or commerca consumpton and not for resae, e cept as provded
herenafter.
The term eectrca energy sod for domestc or commerca consumpton
does not ncude (1) eectrca energy sod for ndustra consumpton, e. g.,
for use n manufacturng, processng, mnng, refnng, shpbudng, budng
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323
016,
constructon, Irrgaton, etc., or (2) that sod for other uses whch kewse
can not be cassed as domestc or commerca, such as the eectrca energy used
by pubc uttes, waterworks, teegraph, teephone, and rado communcaton
companes, raroads, other common carrers, educatona nsttutons not oper-
ated for proft, churches, and chartabe nsttutons. owever, eectrca energy
s sub|ect to ta f sod for use n the commerca phases of ndustra or other
busnesses, such as n offce budngs, saes and dspay rooms, reta stores, etc.
Where eectrca energy s sod to a snge consumer for two or more purposes,
through separate meters, the specfc use for whch the energy s sod through
each meter, . e., whether for domestc or commerca consumpton, or for other
use, sha determne ts ta abe status. Where the consumer has a the eectr-
ca energy used at a gven ocaton furnshed through one meter, the pre-
domnant character of the busness carred on at such ocaton sha determne
the cassfcaton of consumpton for the purposes of ths ta .
The ta does not appy to eectrca energy sod for resae, e cept where the
eectrca energy s sod to an owner or essee of a budng who purchases such
eectrca energy for resae to the tenants theren. The sae of eectrca energy
to an owner or essee of a budng who purchases such eectrca energy for
resae to the tenants theren, sha for the purposes of ths ta be consdered
as a sae for consumpton and not for resae, but the resae to the tenants
sha not be consdered a sae for consumpton.
very person who purchases eectrca energy for resae (e cept resae by
the owner or essee of a budng to the tenants theren) must regster wth
the coector for the dstrct n whch s ocated hs prncpa pace of busness
(or, f he has no prncpa pace of busness n the Unted States, wth the
coector at atmore, Md.). The appcaton for regstry must show the name
and pace, or paces, of busness of the appcant. The coector w ssue regs-
traton numbers n a separate seres, begnnng wth No. 1, for hs dstrct.
ectrca energy so furnshed for resae sha be e empt from ta ony when
the vendee furnshes to the vendor a certfcate showng the vendee s regstra-
ton number and that the energy s to be resod by hm.
Where eectrca energy s sod to a person regstered under the provsons of
the precedng paragraph, a porton of whch s for domestc or commerca
consumpton by the vendee and a porton of whch s for resae, the certfcate
furnshed by such vendee must show the amount of such eectrca energy sod
to hm for domestc or commerca consumpton by hm and the amount sod
to hm for resae. The vendor must pay ta on the porton of such eectrca
energy sod to the vendee for domestc or commerca consumpton by the
vendee. Such vendee must n turn pay ta on the porton of such eectrca
energy resod by hm for domestc or commerca consumpton. The ta n
each case s based on the prce for whch the energy s sod.
The ta attaches to eectrca energy sod for domestc or commerca con-
sumpton, rrespectve of whether any of the energy sod s actuay used or
the charges therefor actuay coected. The ta s due on a such saes
whether the charge therefor s bed as a mnmum charge, a fat charge, a
servce charge, or otherwse.
Where a dscount s deductbe from the gross charge for eectrca energy
f payment therefor s made by the consumer wthn a prescrbed perod, or
where an addtona amount s added for faure to make payment wthn a
prescrbed perod, the ta sha be based on the entre amount actuay due.
kt. 41. Labty for ta . The ct, as amended, provdes that the ta sha
be pad by the vendor of eectrca energy sod for domestc or commerca
consumpton.
rt. 42. Rate of ta . The ta s mposed upon eectrca energy sod for
domestc or commerca consumpton at the rate of 3 per centum of the prce
for whch so sod.
MPTIONS.
Secton 616(c) of the Revenue ct of 1932, as amended by secton 6(a) of the ct of
Congress approved une 16, 1933 (Pubc, No. 73, Seventy-thrd Congress).
(c) No ta sha be mposed under ths secton upon eectrca energy sod
to the Unted States or to any State or Terrtory, or potca subdvson
thereof, or the Dstrct of Coumba. None of the provsons of ths secton
sha appy to pubcy owned eectrc and power pants. The rght to e emp-
ton under ths subsecton sha be evdenced n such manner as the Comms-
soner, wth the approva of the Secretary, may, by reguaton, prescrbe.
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616, Regs. 42, rt. 40.
324
bt. 43. emptons. ectrca energy sod to the Unted States or to any
State or Terrtory, or potca subdvson thereof, or the Dstrct of Coumba,
s e empt from the ta .
Saes of eectrca energy by eectrc and power pants owned by the Unted
States, or any State or Terrtory, or potca subdvson thereof, or the Ds-
trct of Coumba, are e empt from the ta .
DMINISTR TI PRO ISIONS.
ecton 616(b) of the Revenue ct of 1932, as amended by secton 6(a) of the ct of
Congress approved une 16, 1933 (Pubc, No. 73, Seventy-thrd Congress).
(b) The provsons of sectons 619, 622, and 625 sha not be appcabe wth
respect to the ta mposed by ths secton.
bt. 43 . dmnstratve provsons. The provsons of artces 44 to 48,
ncusve, of these reguatons are n fu force and effect wth respect to eec-
trca energy furnshed before September 1, 1933, but are not appcabe wth
respect to eectrca energy sod on or after such date.
The return and payment of ta on eectrca energy sod on or after Sep-
tember 1, 1933, w be governed, n so far as they are appcabe, by the admn-
stratve provsons of Reguatons 46, approved une 18, 1932, reatng to the
e cse ta es on saes by manufacturers, producers, or mporters. of the
appcabe admnstratve provsons of Reguatons 46 are hereby ncorporated
by reference n ths artce and chapter. (See artces 67 to 70, ncusve, 71
(as amended), 72, 73, and 77 to 79, ncusve, of Reguatons 46, approved
une 18, 193a)
Gut T. everng,
Commssoner of Interna Revenue.
pproved September 20, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
Reguatons 42, rtce 40: Scope of ta . II-32-6338
S. T. 695
ectrca energy furnshed farmers and frut growers for gen-
era purposes, hed ta abe that furnshed for rrgaton purposes,
hed not ta abe.
dvce s requested whether eectrca energy furnshed farmers
and frut growers for rrgaton and other purposes s ta abe under
secton 616 of the Revenue ct of 1932.
It s contended that the ta abe status of eectrca energy used
for a rrgaton purposes has not been defntey determned. It s
aso contended that the purey productve actvtes engaged n by
farmers n the growng of food products for whoesae dstrbuton
are ndustra n ther scope and not ta abe.
Upon carefu consderaton of the questons presented the ureau
hods that the genera operatons of farmng are ether domestc or
commerca n character and that, therefore, eectrca energy fur-
nshed for genera use n these operatons s sub|ect to the ta .
The mere fact that a few actvtes nvovng ndustra processes
are ncdentay carred on at a farm w not afect the ta abty of
the eectrca energy furnshed at such a ocaton through one meter.
The ureau aso hods that eectrca energy furnshed farmers
and frut growers, whether companes or ndvduas, e cusvey
for purposes of rrgaton, s not furnshed for domestc or com-
merca consumpton, wthn the meanng and ntent of the statute,
and that, therefore, t s not sub|ect to the ta .
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325
616, Regs. 42, rt. 40
or e ampe, et t be supposed that has one meter for resden-
ta ghtng, etc., and one for operatng a pump for rrgaton and
sprayng. Ony a sma porton of the energy s used for sprayng,
and no part of the water pumped s used for domestc purposes.
The energy furnshed on the resdence meter s sub|ect to the
ta , whereas that furnshed on the rrgaton meter s not ta abe.
Let t aso be supposed that Y has three meters, one used for
resdenta ghtng, etc., one for operatng a pump for rrgaton,
and one for operatng another pump for sprayng. No part of the
water pumped s used for domestc purposes.
The energy furnshed on the resdence and sprayng meters s
sub|ect to the ta , but that furnshed on the rrgaton meter s not
ta abe.
S CTION 616 O T R NU CT O 1932, S M ND D Y
T CT O UN 16, 1933 (PU LIC, NO. 73, S NTY-T IRD
CONGR SS).
Reguatons 42, rtce 40: Scope of ta . II-39-6418
S.T.701
Invocng eectrca energy furnshed or sod before and after
September 1, 1933.
dvce s requested by the Power Lght Co. as to the proper
method of nvocng ts customers for eectrca energy furnshed or
sod before and after September 1, 1933, the date when the change n
the bass of computng the ta on eectrca energy became effectve
under secton 616 of the Revenue ct of 1932 as amended by the
ct of une 16, 1933 (Pubc, No. 73, Seventy-thrd Congress).
It s stated that the corporaton does not nvoce the energy as of
the caendar month. number of ts bs are rendered for a perod
e tendng from the 10th of one month to the 10th of the succeedng
month.
It s hed that where bs rendered after September 1, 1933, n-
cude energy furnshed both before and after that date, the ta on
energy so furnshed shoud be computed on a pro rata bass for the
number of days covered by each ta abe perod. In other words, f
a meter s read on September 10, 1933, and the b rendered ncudes
energy furnshed from ugust 10 to September 10, the consumer w
be abe under the od aw for the ta on 21/31 of the amount pad
for the energy furnshed, and the vendor, pursuant to the provsons
of the ct of une 16,1933, w be abe for the ta on 10/31 of the
amount charged for energy sod by t and ncuded n the b.
It w be necessary for the company to keep the same evdence
and records after September 1, 1933, as t was requred to keep pror
to that date n order to determne ta abty.
Reguatons 42, rtce 40: Scope of ta . II-43-C468
S. T. 708
The ta attaches at the tme the consumer s bed for eec-
trca energy, rrespectve of whether the amount cue s coectbe.
Inqury s made as to when, under secton GIG of the Revenue ct
of 1932, as amended by the ct of une 16, 1933 (Pubc, No. 73,
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616, Regs. 42, rt. 40.
326
Seventy-thrd Congress), the ta attaches to saes of eectrca
energy, and whether the ta attaches where the charges for the
energy are uncoectbe.
Snce the measure of the ta mposed by secton 616 of the Revenue
ct of 1932, as amended by the ct of une 16, 1933, s the prce for
whch the eectrca energy s sod for domestc or commerca con-
sumpton, the ta s deemed to attach at the tme the energy s bed
to the consumer, because the prce of the energy s frst defntey
f ed at that tme. The ta s due on the bass of the saes prce,
as refected by the b furnshed the consumer, rrespectve of
whether the amount due s coectbe.
Reguatons 42, rtce 40: Scope of ta . II-45-6499
S. T.711
power company may take credt for ta es pad out of ts own
funds on eectrca energy furnshed for domestc or commerca
consumpton pror to September 1, 1933, where t s unabe to co-
ect from the consumers.
The queston s presented whether a power company may take
credt n ts returns for perods subsequent to ugust 31, 1933 for
ta es pad out of ts own funds on eectrca energy furnshed for
domestc or commerca consumpton pror to September 1, 1933,
where t s unabe to coect from the consumers.
It was the practce of the Power Co. to advance out of ts own
funds the tota ta shown on bs sent to consumers each month for
eectrca energy furnshed pror to September 1, 1933, the company
beng rembursed for such ta es when the consumers pad the bs.
Some of the bs have not been pad and are uncoectbe. The
power company desres to take credt n ater returns for the unco-
ectbe ta es n such cases.
Under the provsons of secton 616(a) of the Revenue ct of
1932, as orgnay enacted, and the reguatons pertanng thereto,
the consumer was the ta payer, and the power company was abe
for coecton of the ta on a payments made for eectrca energy
furnshed for domestc or commerca consumpton from une 21,
1932, to une 30, 1934, both dates ncusve, regardess of when such
payments were made. In eu of the ta mposed by secton 616(a)
of the Revenue ct of 1932, the ct of une 16, 1933 (Pubc, No.
73, Seventy-thrd Congress), effectve September 1, 1933, mposes
the ta upon the vendor of eectrca energy sod for domestc or
commerca consumpton and not for resae. Wth respect to
amounts pad for eectrca energy furnshed pror to September 1,
1933, the ta was not due unt the amounts were pad by the con-
sumers. Where, as n the nstant case, the power company pad n
advance the ta es on eectrca energy furnshed for domestc or
commerca consumpton pror to September 1, 1933, the company
may take credt n ts returns fed on or after that date for the ta es
advanced by t whch t s unabe to coect.
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327 617, Regs. 44, rts. 44, 45, 47
S CTION 617. G SOLIN .
Reguatons 44, rtces 44, 45, and 47. II-44-6489
T. D. 4400
T ON G SOLIN .
Secton 617 of the Revenue ct of 1932, as amended by secton
211 of the Natona Industra Recovery ct, approved une 16,
1933. rtces 44, 45, and 47 of Reguatons 44, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 44, approved une 18, 1932, are amended by nsertng
n eu of the quotaton from secton 617 of the Revenue ct of
1932 and the capton thereof at the begnnng of Chapter II, the
foowng:
Secton 617 of the Revenue ct op 1932, as mended by Secton 211
op the Natona Industra Recovery ct.
(a) There Is hereby Imposed on gasone sod by the mporter thereof
or by a producer of gasone, a ta of 1 cents a gaon, e cept that
under reguatons prescrbed by the Commssoner wth the approva of
the Secretary the ta sha not appy n the case of saes to a producer
of gasone.
(b) If a producer or mporter uses (otherwse than n the produc-
ton of gasone) gasone sod to hm free of ta , or produced or
mported by hm, such use sha for the purposes of ths tte be con-
sdered a sae.
(c) s used n ths secton
(1) the term producer Incudes a refner, compounder, or bender,
and a deaer seng gasone e cusvey to producers of gasone, as
we as a producer.
(2) the term gasone means gasone, benzo, and any other
qud the chef use of whch s as a fue for the propuson of motor
vehces, motor boats, or aeropanes. s used n ths paragraph the
term benzo does not ncude benzo sod for use otherwse than as
a fue for the propuson of motor vehces, motor boats, or arpanes,
and otherwse than n the manufacture or producton of such fue.
The frst paragraph of artce 44 of Reguatons 44 s amended to
read as foows:
rt. 44. Use of terms. The term gasone ncudes (1) a products
commony or commercay known as gasone regardess of ther cassfcatons
or uses, (2) a products commony or commercay known as benzo regardess
of ther cassfcatons e cept benzo sod for use otherwse than as a fue for
the propuson of motor vehces, motor boats, or arpanes, and otherwse than
n the manufacture or producton of such fue, and (3) any other qud the
chef use of whch s as a fue for the propuson of motor vehces, motor
boats, or arpanes.
rtce 45 s amended to read as foows:
rt. 45. Saes not sub|ect to ta . Secton 017 provdes that under regua-
tons prescrbed by the Commssoner, wth the approva of the Secretary, no
ta sha be mposed upon saes of gasone to a producer of gasone. On and
after November 1, 1933, no saes of gasone may be made ta -free to producers
of gasone uness the purchaser has regstered as such wth the coector for
hs dstrct and has obtaned a regstraton certfcate on orm 637 bearng
hs regstraton number, as provded n artce 7 of these reguatons, as
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617, Regs. 44, rts. 44, 45, 47. 328
amended. In order to estabsh the rght to ths e empton the vendor must
obtan from the purchaser pror to or at the tme of sae, and retan n hs
possesson, a certfcate showng that the purchaser s a producer of gasone
and bearng the regstraton number of such purchaser. If upon nspecton t s
found that the records of an mporter or producer do not contan proper cer-
tfcates, wth supportng nvoces, estabshng that the saes were e empt,
such mporter or producer w be requred to pay the ta .
Ta -free saes ot gasone to producers of gasone under secton 617 may
be made under an e empton certfcate n substantay the foowng form:
MPTION C RTI IC T .
( or use by Producers of Gasone Under Secton 617(a).)
The undersgned hereby certfes that he s a producer of gasone and hods
certfcate of regstry No. , ssued by the coector of nterna revenue
at
It s understood that the undersgned s abe for ta as a producer of
gasone wth respect to a gasone sod or used by hm, uness specfcay
e empted by aw. It s aso understood that the frauduent use of ths cer-
tfcate to secure e empton w sub|ect the guty partes to the penates
provded by aw.
Name.
ddress.
On and after une 17, 1933, the ta does not attach to any sae of benzo made
by the mporter thereof, or by a producer of gasone, f t s sod by hm for
use (1) otherwse than as a fue for the propuson of motor vehces, motor
boats, or arpanes, and (2) otherwse than as a matera n the manufacture or
producton of such fue. In order to estabsh the e empton the mporter or
producer must obtan from the purchaser, pror to or at the tme of sae, a cer-
tfcate to the effect that the benzo w be used by such purchaser for a purpose
other than as fue for the propuson of motor vehces, motor boats, or arpanes,
and other than n the manufacture or producton of such fue.
oowng s a form of e empton certfcate whch may be accepted by
mporters and producers as evdence of saes of benzo for ta -free purposes:
MPTION C RTI IC T .
( or use by Purchasers of enzo for Industra Purposes, Under Secton 617(c)2.)
Date7
The undersgned purchaser hereby certfes that he s a
(State busness and
and that the benzo n the order covered by
artce or artces manufactured.) ,
ths certfcate w not be used as a fue for the propuson of motor vehces,
motor boats, or arpanes, and w not be used n the manufacture or producton
of such fue, but w be used by hm for the foowng purpose:
The undersgned understands that f the benzo s used, or otherwse ds-
posed of by hm, under crcumstances where e empton from the ta s not war-
ranted by the aw, he w, f a regstered producer of gasone, be abe for the
ta upon hs sae or use of such benzo, and that whether or not a regstered
producer, he w, for frauduent use of the certfcate, be sub|ect to the 100 per
centum penaty provded by secton 1114(d) of the Revenue ct of 1926. The
undersgned aso understands that he must be prepared to estabsh by
competent evdence the purpose for whch such benzo was used.
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329
617, Regs. 44, rt. 47
If It s Impractcabe to furnsh a separate certfcate for each order or con-
tract, a certfcate coverng a orders between gven dates (such perod not to
e ceed a month) w be accepted. Such certfcates and proper records of
Invoces, orders, etc., reatve to ta -free saes must be retaned as provded
n artce 50. Where upon nspecton t s dscovered that an mporter s or
producer s records wth respect to any sae camed to be ta -free do not
contan a proper certfcate, wth supportng nvoces and such other evdence
as may be necessary to estabsh the character of the sae, the ta sha be
payabe by such mporter or producer on such sae.
rtce 47 s amended to read as foows:
bt. 47. Rate of ta . The ta s payabe by the mporter or by a producer
(1) at the rate of 1 cent a gaon on saes made pror to une 17, 1933 and
(2) at the rate of 1 cents a gaon on saes made on and after une 17,
1933.
Gut T. eveeng,
Commssoner of Interna Revenue.
pproved October 26, 1933.
Dean cheson,
ctng Secretary of the Treasury.
Reguatons 44, rtce 47: Rate of ta . II-52-6581
T.D.4414
Ta on gasone. Secton 617 of the Revenue ct of 1932, as
amended by sectons 211 and 217 of the Natona Industra Re-
covery ct, approved une 16, 1933. rtce 47 of Reguatons 44,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of secton 217(a) of the Natona Indus-
tra Recovery ct, the Presdent on December 5, 1933, procamed
December 5, 1933, as the date of the repea of the eghteenth amend-
ment to the Consttuton. Under secton 217(b) of the Natona
Industra Recovery ct the procamaton of the Presdent affects
the appcaton of the ta on gasone mposed by secton 617(a) of
the Revenue ct of 1932, as amended by secton 211(a) of the Na-
tona Industra Recovery ct, by reducng the rate, effectve anu-
ary 1, 1934, from y2 cents a gaon to 1 cent a gaon.
rtce 47 of Reguatons 44, approved une 18, 1932, as amended
by Treasury Decson 4400, approved October 26, 1933 see on page
3271, s amended to read as foows:
rt. 47. Rate of ta . The ta s payabe by the mporter, or by a producer,
(1) at the rate of 1 cent a gaon on a saes made pror to une 17, 1933, and
subsequent to December 31, 1933, and (2) at the rate of 1 cents a gaon on
a saes made durng the perod une 17, 1933, to December 31, 1933, both dates
ncusve.
Gut T. everng,
Commssoner of Interna Revenue.
pproved December 19, 1933.
. MoRG NT U, r.,
ctng Secretary of the Treasury.
37408 34 22
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620, Regs. 44, rt. 7.
330
S CTION 620. S L O TICL S OR URT R
M NU CTUR .
Secton 620 of the Revenue ct of 1932, as amended by secton
4(a) of the ct of Congress approved une 16, 1933 (Pubc, No.
73, Seventy-thrd Congress). rtces 7 and 9, Reguatons 44,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 44, approved une 18, 1932, are amended by nsertng,
n eu of artce 7 and the captons and the e cerpt from secton 620
of the Revenue ct of 1932 precedng such artce, the foowng:
Secton 620 of the Revenue ct of 1932, as mended ( ffectve
u-y 1, 1933) by the ct of une 16, 1933 (Pubc, No. 73, Seventy -
thbd Congress).
Under reguatons prescrbed by the Commssoner wth the ap-
prova of the Secretary, no ta under ths tte sha be mposed wth
respect to the sae of any artce
(1) for use by the vendee as matera n the manufacture or pro-
ducton of, or as a component part of, an artce enumerated n ths
tte
(2) for resae by the vendee for such use by hs vendee, f such
artce s n due course so resod

or the purposes of ths tte the manufacturer or producer to whom an
artce s sod under paragraph (1) or resod under paragraph (2) sha
be consdered the manufacturer or producer of such artce.
rt. 7. Ta -free men. On and after uy 1, 1933, where manufacturers and
ther vendees compy wth these reguatons, no ta sha be mposed under
Tte I on any artce when sod
(1) for use by the vendee as matera n the manufacture or producton of,
or as a comuonent part of, an artce enumerated n Tte I :
(2) for resae by the vendee for such use by hs vendee f such artce s n
due course so resod.
Regstraton. On and after November 1, 1933, no ta abe artce may be
sod ta -free under paragraph (1) or (2) of secton 620, as amended, uness
the vendor and the vendee have each regstered wth the coector of nterna
revenue for the dstrct n whch s ocated hs prncpa pace of busness (or
f he has no prncpa pace of busness n the Unted States, wth the coector
of nterna revenue at atmore, Md.), and uness the e empton certfcate
herenafter prescrbed shows the regstraton number of the vendee.
very person quafyng as a manufacturer of artces ta abe under Tte
I , or as a vendee wth an estabshed pace of busness reseng drect to
manufacturers of ta abe artces, w be granted a regstraton certfcate on
orm 637, upon appcaton to the coector for hs dstrct.
Coectors of nterna revenue are hereby authorzed to assgn regstraton
numbers to a manufacturers ocated n ther dstrcts who have fed returns
under the Revenue ct of 1932 coverng artces sub|ect to ta under these
reguatons.
Reguatons 44, rtce 7: Sae for further
manufacture.
T - R S L S.
II-44-C487
T. D. 4399
T - R S L S OR URTII R M NU CTUR .
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331
620, Regs. 44, rt. 7.
The fact that any person has regstered In accordance wth the provsons of
secton 615(c), reatng to the ta on soft drnks (see artce 23), w not
reeve such person of the requrement for regstraton under ths artce If
he desres to purchase artces ta -free n accordance wth the provsons of
paragraph (1) or (2) of secton 620, as amended.
obbers or deaers who are not manufacturng or producng ta abe artces
or seng ta abe artces drect to manufacturers for use n the manufacture
or producton of ta abe artces are not entted to purchase ta -free under
paragraph (1) or (2) of secton 620, as amended, and w not be granted a
regstraton certfcate.
The Commssoner s authorzed to cance the regstraton certfcate and to
deny the rght to se or purchase artces ta -free n any case where he s
satsfed that the regstrant s not a bona fde manufacturer of ta abe artces,
or a vendee reseng drect to manufacturers of such artces, or where ta -
free saes are beng made for purposes not warranted by the aw and these
reguatons.
rtces sod to a vendee for use by hm n the manufacture or producton
of ta abe artces. The e empton s provded wth respect to a ta abe artce
whch s sod for use by the purchaser as matera n the manufacture or pro-
ducton of a ta abe artce or as a component part of a ta abe artce.
or speca provsons wth respect to ta -free saes of ubrcatng os or
gasone to manufacturers or producers of ubrcatng os or gasone, see
artces 11 and 45, as amended.
To secure e empton under secton 620(1) the manufacturer must obtan
from hs vendee, pror to or at the tme of sae, and retan n hs possesson,
a certfcate showng that the vendee s a manufacturer of artces ta abe
under Tte I and that the artce purchased s to be used by hm as matera
n the manufacture or producton of another ta abe artce or as a component
part thereof.
manufacturer who purchases an artce under an e empton certfcate for
use n the manufacture or producton of a ta abe artce sha, for the purposes
of Tte I , be consdered the manufacturer of the artce so purchased, and s
abe for ta on hs use or resae of the artce uness the e empt character
of the use or resae s estabshed.
rtces sod for resae for use n the manufacture or producton of ta abe
artces. The e empton s provded wth respect to a ta abe artce whch s
sod by the manufacturer to any person (ether a deaer or another manufac-
turer) for resae wthout change n form to a manufacturer for use by hm as
matera n the manufacture or producton of a ta abe artce or as a com-
ponent part thereof, provded the artce s n due course so resod.
In order to estabsh e empton from ta n accordance wth secton 620(2)
t s necessary that (1) the manufacturer obtan from hs vendee (herenafter
referred to as the deaer ), pror to or at the tme of sae, and retan n hs
possesson, a certfcate showng that the deaer s n the busness of seng
drect to manufacturers of ta abe artces and that the artce s to be resod
by hm ony for use by hs vendee as matera n the manufacture or producton
of a ta abe artce or as a component part thereof, and (2) that the manu-
facturer obtan from the deaer proof that the artce has been so resod by the
deaer. Such proof sha be ether (a) a certfcate obtaned by the deaer from
hs vendee showng that such vendee purchased the artces for use n the
manufacture or producton of a ta abe artce and not for resae, or (6) a
sworn statement by the deaer that he has obtaned from hs vendee, and has n
hs possesson, such a certfcate. The certfcate requred by cause (1) above
e cuses the manufacturer for a perod of not more than two months from the
date when tte passes or the date of shpment (whchever s pror) from pay-
ng ta on the artce sod. If wthn two months the manufacturer has not
receved the proof requred by cause (2) above, then the temporary e empton
ceases and the manufacturer sha ncude the ta on the sae of such artce
n hs return for the month n whch such 2-month perod e pres. If such
proof ater becomes avaabe, a cam for refund of ta pad may be fed, or a
credt taken upon a subsequent return, wthn the 4-year perod of mtaton
prescrbed by secton 3228 of the Revsed Statutes, as amended.
oowng are forms of e empton certfcates whch w be accepted for
purposes of ths artce and whch must be adhered to In substance:
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620, Regs. 44, rt. 7.
332
MPTION C RTI IC T .
(Purchases for urther Manufacture under Secton 620(1).)
The undersgned hereby certfes that he s a manufacturer or producer of
artces ta abe under Tte I of the Revenue ct of 1932, as amended, and
hods certfcate of regstry No. , ssued by the coector of nterna revenue
at , and that the artce or artces specfed n the accom-
panyng order w be used by hm as matera n the manufacture or produc-
ton of, or as a component part of, an artce or artces, to be manufactured
or produced by hm, enumerated n such Tte I .
It s understood that for a the purposes of such Tte I the undersgned
w be consdered the manufacturer or producer of the artces purchased
hereunder, and (e cept as specfcay provded by aw) must pay ta on
resae or use, otherwse than as specfed above, of the artces purchased
hereunder. It s further understood that the frauduent use of ths certfcate
to secure e empton w sub|ect the guty partes to the penates provded by
aw.
Name.
ddress.
MPTION C TI IC T .
(Purchases for Resae under Secton 620(2).)
The undersgned hereby certfes that he s engaged n the busness of seng
drect to manufacturers or producers of artces ta abe under Tte I of the
Revenue ct of 1932, as amended, and hods certfcate of regstry No. ,
ssued by the coector of nterna revenue at , and that the
artce or artces specfed n the accompanyng order w be resod by hm
ony for use by hs vendee as matera n the manufacture or producton of.
or as a component part of, an artce or artces enumerated n such Tte I .
It s understood that the frauduent use of ths certfcate to secure e emp-
ton w sub|ect the guty partes to the penates provded by aw.
Name.
ddress.
If t s mpractcabe to furnsh a separate e empton certfcate for each
order, a certfcate coverng a orders between gven dates (such perod not
to e ceed a caendar month) w be accepted.
Proper records, wth the supportng orders, nvoces, certfcates, and sworn
statements requred by these reguatons, must be mantaned wth respect
to e empt saes as provded n artce 50. If such evdence can not be produced
on demand of any nterna revenue offcer, ta w be assessed. If any such
documents are fase or frauduent, the guty partes are abe to the penates
provded by aw.
Where a manufacturer or a vendee makes a sae under e empton certf-
cate, he must use reasonabe dgence to satsfy hmsef that the use of the
certfcate s warranted by the aw or reguatons. If the orgna vendor has
knowedge at the tme of hs sae that the artce sod by hm s not ntended
for use or resae by such vendee as specfed n the certfcate gven by the
vendee, the orgna vendor s abe for the ta and Is not reeved of abty
by the e empton certfcate. Where any person attempts to defeat the ta
mposed under Tte I by frauduenty gvng an e empton certfcate, he
s abe for the penates mposed by aw.
or reguatons as to other ta e emptons provded by aw, see artces
9 (as amended), 11 (as amended), 14, 18, 33, 39, 45, 55 (as amended), 56
(as amended), 57, and 57 .

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833
620, Regs. 44, rt. 9
Regt|atons 44, rtce 9: empt saes to II-44-6488
States and potca subdvsons thereof. T. D. 4399
e
Reguatons 44, approved une 18, 1932, are amended by nsertng
n eu of artce 9, as amended by Treasury Decson 4364, approved
pr 28, 1933 C. . II-1, 416 , the foowng:
Secton 620 of the Revenue ct of 1932, as mended ( ffectve
uy , 1933) by the ct of une 16, 1933 (Pubc, No. 73, Seventy-
thrd Congress).
Under reguatons prescrbed by the Commssoner wth the approva
of the Secretary, no ta under ths tte sha be mposed wth respect
to the sae of any artce

(3) for resae by the vendee to a State or potca subdvson
thereof for use n the e ercse of an essenta governmenta functon,
f such artce s n due course so resod.

rt. 9. Saes to States or potca subdvson thereof and to the Unted
States. No ta w attach to the drect sae of artces by the manufacturer
to States or potca subdvsons thereof for use n the e ercse of an essenta
governmenta functon, provded the e empt character of the sae s estabshed
by an e empton certfcate n the form prescrbed n ths artce.
Saes to the Unted States, the Dstrct of Coumba, or a Terrtory or pos-
sesson of the Unted States are ta abe, e cept shpments to possessons of
the Unted States (see artce 57) and saes to the Unted States for use as
fue suppes, shps stores, sea stores, or egtmate equpment on vesses of
war (see artce 57 ).
Secton 620 of the Revenue ct of 1932, as amended by secton 4(a) of the
ct of une 16, 1933 (Pubc, No. 73, Seventy-thrd Congress), provdes, effec-
tve uy 1, 1933, that under reguatons prescrbed by the Commssoner, wth
the approva of the Secretary, no ta under Tte I sha be mposed wth
respect to the manufacturer s sae of any artce for resae by hs vendee
drect to a State or potca subdvson thereof for use n the e ercse of an
essenta governmenta functon, f such artce s n cue course so resod.
In order to estabsh e empton from ta n accordance wth secton 620(3)
t s necessary that (1) the manufacturer obtan from hs vendee (herenafter
referred to as the deaer ), pror to or at the tme of sae, and retan n hs
possesson, a sworn statement showng that the artce s to be resod by the
deaer drect to a State or potca subdvson thereof for use n the e ercse
of an essenta governmenta functon, and (2) that the manufacturer obtan
from the deaer proof that the artce has been so resod by the deaer. Such
proof sha be ether (a) a certfcate n the form prescrbed beow e ecuted
by an authorzed offcer of the State or potca subdvson thereof, obtaned
by the deaer and forwarded to the manufacturer, or (ft) a sworn statement
by the deaer that he has n hs possesson such a certfcate. The statement
requred by cause (1) above e cuses the manufacturer for a perod of not
more than two months from the date when tte passes or the date of shpment
(whchever s pror) from payng ta on the artce sod. If wthn two
months the manufacturer has not receved the proof requred by cause (2)
above, then the temporary e empton ceases and the manufacturer sha ncude
the ta on the sae of such artce n hs return for the month n whch such
2-month perod e pres. If snch proof ater becomes avaabe, a cam for
refund of ta pad may be fed, or a credt taken upon a subsequent return,
wthn the 4-year perod of mtaton prescrbed by secton 3228 of the Revsed
Statutes, as amended.
The certfcate requred by ths artce must ncude an agreement that f
any of the artces covered thereby are used otherwse than n the e ercse
of an essenta governmenta functon, or f any of such artces are resod to
empoyees or others, the State or potca subdvson thereof w report such
fact to the vendor. If the vendor s a deaer, he sha n turn report such fact
to the manufacturer. The ta appcabe to such artces sha be Incuded by
the manufacturer n hs return for the month durng whch such report a
made to hm.
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620, Regs. 46, rt. 7. 334
The certfcate requred by ths artce sha be n substantay the foowng
form:
MPTION C RTI IC T .
( or Use by States or Potca Subdvsons.)
193-.
(Date.)
The undersgned hereby certfes that he s the of
(Tte of offcer.)
and that the artce or artces specfed n the accom-
(State, Cty, etc.)
panyng order are purchased for use by the n the e ercse
(Department.)
of essenta governmenta functons, namey:
It s understood that the e empton from ta n the case of saes of artces
to States or potca subdvsons thereof s mted to artces purchased for
use n the e ercse of essenta governmenta functons, and t s agreed that
where artces purchased ta -free under ths e empton certfcate are used for
purposes other than n the e ercse of essenta governmenta functons or are
sod to empoyees or others, the vendee w report such fact to the vendor.
(Sgnature.)
(Tte of Offcer.)
Where t s mpractcabe to furnsh a separate certfcate for each order, the
manufacturer or vendee may accept a snge certfcate coverng a orders
between gven dates such perod, however, not to e ceed one caendar month.
Guy T. everng,
Commssoner of Interna Revenue.
pproved October 25, 1933.
Dean cheson,
ctng Secretary of the Treasury.
Reguatons 46, rtce 7: Saes for further II-44 6485
manufacture. T.D.4398
T - R S L S.
Secton 020 of the Revenue ct of 1932, as amended by secton
4(a) of the ct of Congress approved une 10, 1933 (Pubc, No.
73, Seventy-thrd Congress). rtces 7 and IT, Reguatons 40,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 46, approved une 18, 1932, are amended by nsertng,
n eu of artce 7 and the captons and the quotaton of secton 620
of the Revenue ct of 1932 precedng such artce, the foowng:
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335
620, Regs. 46, rt. 7.
T - R S L S O URT R M NU CTUR .
Secton 620 or the Revenue ct op 1932, as mended ( ffecttvh
uy 1, 1933) by the ct of une 16,1933 (Pubc, No. 73, Seventy-
thbd Congress ).
Under reguatons prescrbed by the Commssoner wth the approva
of the Secretary, no ta under ths tte sha be mposed wth respect
to the sae of any artce
(1) for use by the vendee as matera n the manufacture or produc-
ton of, or as a component part of, an artce enumerated n ths tte
(2) for resae by the vendee for such use by hs vendee, f such
artce s n due course so resod

or the purposes of ths tte the manufacturer or producer to whom
an artce s sod under paragraph (1) or resod under paragraph (2)
sha be consdered the manufacturer or producer of such artce. The
provsons of paragraphs (1) and (2) sha not appy wth respect to
tres or nner tubes or artces enumerated n secton 604, reatng to
the ta on furs.
rt. 7. Tom-free saes. On and after uy 1, 1933, where manufacturers and
ther vendees compy wth these reguatons, no ta sha bo mposed under
Tte I on any artce, e cept tres and nner tubes and artces enumerated
n secton 604, reatng to the ta on furs, when sod
(1) for use by the vendee as matera n the manufacture or producton of,
or as a component part of, an artce enumerated n Tte I
(2) for resae by the vendee for such use by hs vendee f such artce s In
due course so resod.
Regstraton. On and after November 1, 1933, no ta abe artce may be
6od ta -free under paragraph (1) or (2) of secton 620, as amended, uness
the vendor and the vendee have each regstered wth the coector of nterna
revenue for the dstrct n whch s ocated hs prncpa pace of busness (or
f he has no prncpa pace of busness n the Unted States, wth the coector
of nterna revenue at atmore, Md.), and uness the e empton certfcate
herenafter prescrbed shows the regstraton number of the vendee.
very person quafyng as a manufacturer of artces ta abe under Tte
I , or as a vendee wth an estabshed pace of busness reseng drect to
manufacturers of ta abe artces, w be granted a regstraton certfcate on
orm 637, upon appcaton to the coector for hs dstrct, e cept manufac-
turers of tres or nner tubes or artces enumerated n secton 604, reatng
to the ta on furs.
Coectors of nterna revenue are hereby authorzed to assgn regstraton
numbers to a manufacturers ocated n ther dstrcts (e cept manufacturers
of tres or nner tubes or artces enumerated n secton 604, reatng to the
ta on furs) who have fed returns under the Revenue ct of 1932 coverng
artces sub|ect to ta under these reguatons.
obbers or deaers who are not manufacturng or producng ta abe artces
or seng ta abe artces drect to manufacturers for use n the manufacture
or producton of ta abe artces are not entted to purchase ta -free under
paragraph (1) or (2) of secton 620, as amended, and w not be granted a
regstraton certfcate.
The Commssoner s authorzed to cance the regstraton certfcate and to
deny the rght to se or purchase artces ta -free n any case where he s
satsfed that the regstrant s not a bona fde manufacturer of ta abe artces,
or a vendee reseng drect to manufacturers of such artces, or where ta -
free saes are beng made for purposes not warranted by the aw and these
reguatons.
rtces sod to a vendee for use hp hm m the manufacture or producton
of ta abe artces. The e empton s provded wth respect to ta abe artces
(other than tres or nner tubes or artces enumerated n secton 604, reatng
to the ta on furs) whch are sod for use by the purchaser as matera In
the manufacture or producton of a ta abe artce or as a component part of
a ta abe artce.
To secure e empton under secton 620(1) the manufacturer must obtan
from hs vendee, pror to or at the tme of sae, and retan n bs possesson,
a certfcate showng that the vendee s a manufacturer of artces ta abe
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620, Regs. 46, rt. 7.
336
under Tte I and that the artce purchased Is to be used by hm as matera
n the manufacture or producton of another ta abe artce or as a component
part thereof.
manufacturer who purchases an artce under an e empton certfcate for
use n the manufacture or producton of a ta abe artce sha, for the purposes
of Tte I , be consdered the manufacturer of the artce so purchased, and
s abe for ta on hs use or resae of the artce uness the e empt character
of the use or resae s estabshed.
rtces sod for resae for use n the manufacture or producton of ta abe
artces. The e empton s provded wth respect to ta abe artces (other than
tres or nner tubes or artces enumerated n secton G04, reatng to the ta on
furs) whch are sod by the manufacturer to any person (ether a deaer or
another manufacturer) for resae wthout change n form to a manufacturer for
use by hm as matera n the manufacture or producton of a ta abe artce
or as a component part thereof, provded the artce s n due course so resod.
In order to estabsh e empton from ta n accordance wth secton 020(2)
t s necessary that (1) the manufacturer obtan from hs vendee (herenafter
referred to as the deaer ), pror to or at the tme of sae, and retan n hs
possesson, a certfcate showng that the deaer s n the busness of seng
drect to manufacturers of ta abe artces and that the artce s to be resod
by hn ony for use by hs vendee as matera n the manufacture or producton
of a ta abe artce or as a component part thereof, and (2) that the manufac-
turer obtan from the deaer proof that the artce has been so resod by the
deaer. Such proof sha be ether (a) a certfcate obtaned by the deaer
from hs vendee showng that such vendee purchased the artces for use n
the manufacture or producton of a ta abe artce and not for resae, or (6)
a sworn statement by the deaer that he has obtaned from hs vendee, and
as n hs possesson, such a certfcate. The certfcate requred by cause
(1) above e cuses the manufacturer for a perod of not more than two months
from the date when tte passes or the date of shpment (whchever s pror)
from payng ta on the artce sod. If wthn two months the manufacturer
has not receved the proof requred by cause (2) above, then the temporary
e empton ceases and the manufacturer sha Incude the ta on the sae of
such artce n hs return for the month n whch such 2-mouth perod e pres.
If such proof ater becomes avaabe, a cam for refund of ta pad may be
fed, or a credt taken upon a subsequent return, wthn the 4-year perod
of mtaton prescrbed by secton 3228 of the Revsed Statutes, as amended.
oowng are forms of e empton certfcates whch w be accepted for pur-
poses of ths artce and whch must be adhered to n substance:
MPTION C TI IC T .
(Purchases for urther Manufacture under Secton G20().)
The undersgned hereby certfes that he s a manufacturer or producer of
artces ta abe under Tte I of the Revenue ct of 1932, as amended, and
hods certfcate of regstry No. , ssued by the coector of Interna revenue
at , and that the artce or artces specfed n the accompany-
ng order w be used by hm as matera n the manufacture or producton of,
or as a component part of, an artce or artces, to be manufactured or produced
by hm, enumerated n such Tte I .
It s understood that for a the purposes of such Tte I the undersgned
w be consdered the manufacturer or producer of the artces purchased here-
under, and (e cept as specfcay provded by aw) must pay ta on resae or
use, otherwse than as specfed above, of the artces purchased hereunder. It
s further understood that the frauduent use of ths certfcate to secure e emp
ton w sub|ect the guty partes to the penates provded by aw.
Name.
ddress.
MPTION C RTI IC T .
(Purchases for Resae under Secton 020(2).)
The undersgned hereby certfes that he s engaged n the busness of seng
drect to manufacturers or producers of artces ta abe under Tte I of
the Revenue ct of 1932, as amended, and hods certfcate of regstry
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337 620, Regs. 46, rt. 17.
No. , ssued by the coector of Interna revenue at , and
that the artce or artces specfed In the accompanyng order w be resod
by hm ony for use by hs vendee as matera n the manufacture or pro-
ducton of, or as a component part of, an artce or artces enumerated n
such Tte I .
It s understood that the frauduent use of ths certfcate to secure e emp-
ton w sub|ect the guty partes to the penates provded by aw.
Name.
ddress.
If It s mpractcabe to furnsh a separate e empton certfcate for each
order, a certfcate coverng a orders between gven dates (such perod not to
e ceed a caendar month) w be accepted.
Under the specfc provsons of secton 620, as amended, tres and nner
tubes and artces enumerated n secton 604, reatng to the ta on furs, may
not be sod ta -free for use as matera n the manufacture of, or as a com-
ponent part of, an artce or artces enumerated n Tte I . (See artces 26
and 40.)
Proper records, wth the supportng orders, nvoces, certfcates, and sworn
statements requred by these reguatons, must be mantaned wth respect to
e empt saes as provded n artce 69. If such evdence can not be produced
on demand of any nterna revenue offcer, ta w be assessed. If any such
documents are fase or frauduent, the guty partes are abe to the penates
provded by aw.
Where a manufacturer or a vendee makes a sae under e empton certfcate,
he must use reasonabe dgence to satsfy hmsef that the use of the cer-
tfcate Is warranted by the aw or reguatons. If the orgna vendor has
knowedge at the tme of hs sae that the artce sod by hm s not ntended
for use or resae by such vendee as specfed n the certfcate gven by the
vendee, the orgna vendor s abe for the ta and s not reeved of abty
by the e empton certfcate. Where any person attempts to defeat the ta
mposed under Tte I by frauduenty gvng an e empton certfcate, he Is
abe for the penates mposed by aw.
or reguatons as to other ta e emptons provded by aw, see artces 17
(as amended), 42. 59, 74 (as amended), 75 (as amended), 76, and 76 .

Reguatons 46, rtce 17: Saes to the II-44-6486
Unted States Government or to a State. T. D. 4398

Reguatons 46, approved une 18, 1932, are amended by nsertng
n eu of artce 17, as amended by Treasury Decson 4365, approved
pr 28,1933 C. . II-1, 417 , the foowng:
Secton 620 of the Revknue ct of 1932, as mended ( ffectve uy
1, 1933) by the ct of une 16, 1933 (Ptmuo, No. 73, Sevknty-
thkd Congress).
Under reguatons prescrbed by the Commssoner wth the approva
of the Secretary, no ta under ths tte sha be mposed wth respect
to the sae of any artce

(3) for resae by the vendee to a State or potca subdvson thereof
for use n the e ercse of an essenta governmenta functon, f such
artce s n due course so resod.

bt. 17. Saes to States or potca subdvsons thereof and to the Unted
States. No ta w attach to the drect sae of artces by the manufacturer
to States or potca subdvsons thereof for use In the e ercse of an essenta
governmenta functon, provded the e empt character of the sae s estabshed
by an e empton certfcate n the form prescrbed In ths artce.
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620, Regs. 46, rt. 17.
338
Saes to the Unted States, the Dstrct of Coumba, or a Terrtory or posses-
son of the Unted States are ta abe, e cept shpments to possessons of the
Unted States (see artce 76) and saes to the Unted States for use as fue
suppes, shps stores, sea stores, or egtmate equpment on vesses of war
(see artce 76 ).
Secton 620 of the Revenue ct of 1932. as amended by secton (4a) of the
ct of une 16, 1033 (Pubc, No. 73, Seventy-thrd Congress), provdes, effec-
tve uy 1, 1933, that under reguatons prescrbed by the Commssoner, wth
the approva of the Secretary, no ta under Tte I sha be mposed wth
respect to the manufacturer s sae of any artce for resae by hs vendee
drect to a State or potca subdvson thereof for use n the e ercse of an
essenta governmenta functon, f such artce s n due course so resod.
In order to estabsh e empton from ta n accordance wth secton 620(3)
t s necessary that (1) the manufacturer obtan from ns vendee (herenafter
referred to as the deaer ), pror to or at the tme of sae, and retan n hs
possesson, a sworn statement showng that the artce s to be resod by the
deaer drect to a State or potca subdvson thereof for use n the e ercse
of an essenta governmenta functon, and (2) that the manufacturer obtan
from the deaer proof that the artce as been so resod by the deaer. Such
proof sha he ether (a) a certfcate n the form prescrbed beow e ecuted by
an authorzed offcer of the State or potca subdvson thereof, obtaned by
the deaer and forwarded to the manufacturer, or (6) a sworn statement by
the deaer that he has n hs possesson such a certfcate. The statement
requred by cause (1) above e cuses the manufacturer for a perod of not
more than two months from the date when tte passes or the date of shpment
(whchever s pror) from payng ta on the artce sod. If wthn two months
the manufacturer as not receved the proof requred by cause (2) nbove,
then the temporary e empton ceases and the manufacturer sha ncude the
ta on the sae of such artce n hs return for the month n whch suc
2-nouth perod e pres. If such proof ater becomes avaabe, a cam for
refund of ta pad may be fed, or a credt taken upon a subsequent return,
wthn the 4-year perod of mtaton prescrbed by secton 3228 of the Revsed
Statutes, as amended.
The certfcate requred by ths artce must ncude an agreement that f
any of the artces covered thereby are used otherwse than n the e ercse of
an essenta governmenta functon, or f any of such artces are resod to
empoyees or others, the State or potca subdvson thereof w report such
fact to the vendor. If the vendor s a deaer, he sha n turn report such fact
to the manufacturer. The ta appcabe to such artces sha be ncuded by
the manufacturer n hs return for the month durng whch such report s
made to hm.
The certfcate requred by ths artce sha be n substantay the foowng
form:
MPTION C RTI IC T .
( or Use by States or Potca Subdvsons.)
The undersgned hereby certfes that he s the of
(Tte of Offcer.)
and that the artce or artces specfed n the accom-
(State, Cty, etc.)
panyng order are purchased for use by the In the e ercse
(Department.)
of essenta governmenta functons, namey:
It s understood that the e empton from ta n the case of saes of artces
to States or potca subdvsons thereof s mted to artces purchased for
use In the e ercse of essenta governmenta functons, and t s agreed that
where artces purchased ta -free under ths e empton certfcate arc used
for purposes other than n the e ercse of essenta governmenta functons or
are sod to empoyees or others, the vendee w report such fact to the vendor.
(Sgnature.)
(Tte of Offcer.)
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339 620, Regs 44 and 46, rt. 7
Where It Is Impractcabe to furnsh a separate certfcate for each order, the
manufacturer or vendee may accept a snge certfcate coverng a orders
between gven dates such perod, however, not to e ceed one caendar month.
Guy T. everno,
Commssoner of Interna Revenue.
pproved October 24, 1933.
Dean cheson,
ctng Secretary of the Treasury.
S CTION 620 O T R NU CT O 1932, S M ND D Y
S CTION 4(a) O T CT O UN 16, 1933.
Reguatons 44 and 46, rtce 7: Ta -free II-45-6500
saes. Mm. 4090
Ta -free saes Secton 620 of the Revenue ct of 1932, as
amended by secton 4(a) of the ct of une 16, 1933 (Pubc, No.
73, Seventy-thrd Congress).
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, October 27,1933.
Coectors of Interna Revenue and Others Concerned:
Reference s made to the foowng Treasury decsons amendng
artce 7 of Reguatons 44 and 46 to compy wth the requrements of
secton 4(a) of the ct of une 16, 1933 (Pubc, No. 73, Seventy-
thrd Congress):
Treasury Decson 4399, ta -free saes, Reguatons 44 page 330,
ths uetn .
Treasury Decson 4398, ta -free saes, Reguatons 46 page 334,
ths uetn .
In accordance wth the provsons of the above-mentoned Treasury
decsons, on and after November 1, 1933, no ta abe artces may
be sod ta -free for further manufacture uness the vendor and the
vendee have each regstered wth the coector of nterna revenue
for the respectve dstrct n whch s ocated hs prncpa pace
of busness and uness the vendee furnshes the vendor pror to or
at the tme of sae an e empton certfcate n the form prescrbed.
very person quafyng as a manufacturer of artces ta abe
under Tte I of the Revenue ct of 1932 (other than tres or nner
tubes or artces enumerated n secton 604, reatng to the ta on
furs) or as a vendee seng drect to manufacturers of ta abe
artces w be granted a regstraton certfcate. owever, regstra-
ton certfcates shoud be granted ony to those persons who have
estabshed paces of busness and who are actuay engaged n
the busness of manufacturng, producng, or mportng artces
ta abe under Tte I , or reseng such artces wthout change n
form to manufacturers of ta abe artces for further manufacturng
purposes.
The regstraton provsons of Treasury Decsons 4339 C. .
I-2, 446 and 4351 C. . I-2, 461 have been revoked and a
certfcates of regstry ssued n accordance wth the provsons of
such Treasury decsons shoud be canceed.
Certfcates of regstry shoud be granted mmedatey, and wth-
out appcaton, to a manufacturers, producers, or mporters who
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621, Regs. 44, rt. 52.
340
have been payng ta under Tte I of the evenue ct of 1932
and who n your |udgment are entted to purchase ta -free under
e empton certfcate. On and after November 1,1933, a certfcates
of regstry shoud be ssued on orm 637, e cept those certfcates
ssued to persons abe for the ta mposed on soft drnks and
ngredents thereof under secton 615 (a) of the Revenue ct of 1932.
Correspondence reatve to ths mmeograph shoud refer to the
number and the symbo MT: ST.
Gut T. everno,
Commssoner.
S CTION 621. CR DITS ND R UNDS.
Reguatons 44, rtce 52: Credts and II-50-6504
refunds. T. D. 4412
Credts and refunds Secton 621(a) of the Revenue ct of 1932,
as amended by secton 4(c) of the ct approved une 16, 1933
(Pubc, No. 73, Seventy-thrd Congress). rtce 52, Reguatons
44, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, 1). G.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 44, approved une 18, 1932, are amended as foows:
(a) In Chapter III, under the headng Credts and refunds, the capton
Secton 621 of the Revenue ct of 1932 s changed to Secton 621 of the
Revenue ct of 1932, as amended by secton 4(c) of the ct approved une 16,
1933 (Pubc, No. 73, Seventy-thrd Congress).
(b) The foowng, beng paragraph (3) added to subsecton (a) of secton
621 of the Revenue ct of 1932 by secton 4(c) of the ct of une 16, 1933
(Pubc, No. 73, Seventy-thrd Congress), s nserted In the quotaton from
secton 621, mmedatey precedng subsecton (b) :
(3) to a manufacturer, producer, or mporter n the amount of ta pad
by hm under ths tte wth respect to the sae of any artce to a deaer, f
the manufacturer, producer, or mporter has n hs possesson such evdence as
the reguatons may prescrbe that ( ) such artce has after the date ths
paragraph takes effect been devered by the deaer to a State or potca
subdvson thereof for use n the e ercse of an essenta governmenta func-
ton and ( ) the manufacturer, producer, or mporter has repad or agreed
to repay the amount of such ta to the deaer or has obtaned the consent
of the deaer to the aowance of the credt or refund. (Note. Paragraph
(3) of secton 621(a) as amended s effectve as of uy 1, 1933.)
(c) rtce 52. as amended by Treasury Decson 4357, approved November
4, 1932 C. . I-2, 515 , s further amended by addng thereto the foowng
paragraph:
Where artces ta abe under Tte I are sod by a manufacturer a -pad
to a deaer who reses and devers such artces drect to a State or potca
subdvson thereof after uy 1, 1933, for use n the e ercse of an essenta
governmenta functon, the manufacturer who pad the ta on such artces
may be aowed a refund or may take credt aganst the ta due upon any
subsequent monthy return, n the amount of ta pad by hm under ths tte
wth respect to the sae of any such artce to the deaer, provded the manu-
facturer has In hs possesson evdence showng that ( ) such artce has after
the date secton 621 (a)8 takes effect been devered by the deaer to a State
or potca subdvson thereof for use n the e ercse of an essenta govern-
menta functon and ( ) the manufacturer has repad or agreed to repay the
amount of such ta to the deaer or has obtaned the consent of the deaer to
the aowance of the credt or refund. The cam for refund or credt must be
supported by an affdavt of the manufacturer showng (1) the name and ad-
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341
621, Regs. 46, rt. 71
dress of each deaer (2) the amount of ta aowabe to each deaer (3) the
date the ta was pad to the Unted States In each case and (4) whether the
manufacturer has repad or agreed to repay the amount of such ta to the
deaer. The cam for refund or credt must aso be accompaned wth an
affdavt of each deaer nvoved, statng (a) whether the artces on whch the
ta was pad have been resod and devered after uy 1, 1033, by hm drect
to a State or a potca subdvson thereof for use n the e ercse of an
essenta governmenta functon (6) the State or potca subdvson thereof
to whch the saes were made (o) the nature of the governmenta functon,
1. e., the knd of actvtes for whch purchased and (d) that the deaer has
consented to the aowance of the credt or refund where the manufacturer has
nether repad nor agreed to repay the amount of such ta to the deaer.
Gt|y T. eyerng,
Commssoner of Interna Revenue.
pproved December 6, 1933.
. MoRG NT U, r.,
ctng Secretary of the Treasury.
Reguatons 46, kttce 71: Credts and refunds. 1I-28-6288
S. T.690
The term utmate purchaser defned.
dvce s requested concernng the meanng of the term utmate
purchaser as used n secton 621 (d)2 of the Revenue ct of 1932.
It s hed that the utmate purchaser s a person who pur-
chases an artce (1) for consumpton or (2) for use n the manu-
facture of other artces and not for resae n the form n whch
purchased.
In order to obtan ether a credt or refund of manufacturers e -
cse ta mposed under Tte I of the Revenue ct of 1932, the pro-
vsons of secton 621(d) of the Revenue ct of 1932 and artce 71 of
Reguatons 46, as amended by Treasury Decson 4358 (C. . I-2,
516), must be strcty comped wth. No cam for credt or refund
w be favoraby consdered whch does not ncude, among other
thngs, the sworn statement of the ta payer that he has ether repad
the amount of the ta to the utmate purchaser of the artce or
has secured the wrtten consent of such utmate purchaser to the
aowance of the credt or refund. In the atter case, the wrtten
consent of the utmate purchaser must accompany the sworn
statement.
Reguatons 46, rtce 71: Credts and II-50-6565
refunds. T. D. 4413
Credts and refunds Secton 621 of the Revenue ct of 1032, as
amended by secton 4(c) of the ct npproved une 16, 1933 (Pubc,
No. 73, Seventy-thrd Congress). rtce 71, Reguatons 46,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 46, approved une 18,1932, are amended as foows:
(a) In Chapter I , under the headng Credts and refunds, the capton
Secton 621 of the Revenue ct of 1932 s changed to Secton 621 of the
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622, Regs. 44, rt. 8.
342
Revenue ct of 1032, as amended by secton 4(c) of the ct approved ane
16, 1033 (Pubc, No. 73, Seventy-thrd Congress).
(b) the foowng, beng paragraph (3) added to subsecton (a) of secton
021 of the Revenue ct of 1032 by secton 4(c) of the ct of une 16, 1033
(Pubc, No. 73, Seventy-thrd Congress), s nserted n the quotaton from
secton 621, mmedatey precedng subsecton (b) :
(3) to a manufacturer, producer, or mporter n the amount of ta pad
by hm under ths tte wth respect to the sae of any artce to a deaer.
If the manufacturer, producer, or mporter has n hs possesson such ev-
dence as the reguatons may prescrbe that ( ) such artce has after the
date ths paragraph takes effect been devered by the deaer to a State or
potca subdvson thereof for use n the e ercse of an essenta govern-
menta functon and ( ) the manufacturer, producer, or Importer has repad
or agreed to repay the amount of such ta to the deaer or has obtaned the
consent of the deaer to the aowance of the credt or refund. (Note.
Paragraph (3) of secton 621(a) as amended s effectve as of uy 1, 1033.)
(c) rtce 71, as amended by Treasury Decson 4358, approved November
4, 1032 C. . I-2, 516 , Is further amended by addng thereto the foowng
paragraph:
Where artces ta abe under Tte I are sod by a manufacturer ta -pad
to a deaer who reses and devers such artces drect to a State or potca
subdvson thereof on or after uy 1, 1033, for use n the e ercse of an
essenta governmenta functon, the manufacturer who pad the ta on such
artces may be aowed a refund, or may take credt aganst the ta due upon
any subsequent monthy return, n the amount of ta pad by hm under ths
tte wth respect to the sae of any such artce to the deaer, provded the
manufacturer has n hs possesson evdence showng that ( ) such artce
has after the date secton 621(a)3 takes effect been devered by the deaer
to a State or potca subdvson thereof for use n the e ercse of an essenta
governmenta functon and ( ) the manufacturer has repad or agreed to
repay the amount of such ta to the deaer or has obtaned the consent of
the deaer to the aowance of the credt or refund. The cam for refund or
credt must be supported by an affdavt of the manufacturer showng (1) the
name and address of each deaer (2) the amount of ta aowabe to each
deaer (3) the date the ta was pad to the Unted States n each case and
(4) whether the manufacturer has repad or agreed to repay the amount of
such ta to the deaer. The cam for refund or credt must aso be accom-
paned wth an affdavt of each deaer nvoved, statng (a) whether the
artces on whch the ta was pad have been resod and devered after uy
1, 1933, by hn drect to a State or a potca subdvson thereof for use n
the e ercse of an essenta governmenta functon (6) the State or potca
subdvson thereof to whch the saes were made (c) the nature of the gov-
ernmenta functon, . e., the knd of actvtes for whch purchased and (d)
that the deaer has consented to the aowance of the credt or refund where
the manufacturer has nether repad nor agreed to repay the amount of such
ta to the deaer.
Gut T. everng,
Commssoner of Interna Revenue.
pproved December C, 1933.
. MO G NT U, r.,
ctng Secretary of the Treasury.
S CTION 622. US Y M NU CTUR R, PRO-
DUC R, OR IMPORT R.
Reguatons 44, rtce 8: Ta on use by II-31-6327
manufacturer, producer, or mporter. T. D. 4375
Use by manufacturer, producer, or mporter Secton 622, Reve-
nue ct of 1032. rtce 8, Reguatons 44: Ta on use by manu-
facturer, producer, or mporter.
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343
829, Regs. 44, rt. 2|
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
rtce 8 of Reguatons 44, approved une 18, 1932, s hereby
amended by addng a paragraph readng as foows:
The use by any person, In the operaton of a busness n whch he s en-
gaged, of any artce enumerated n Tte I whch has been manufactured,
produced or Imported by hm or hs agent, makes such person abe to ta under
secton 622 based on the far market prce of the artce. owever, the pro-
vsons of secton 622 w not be deemed to appy n cases where an ndvdua
ncdentay manufactures, produces or mports for hs persona use or causes
to be manufactured, produced or mported for hs persona use any of the art-
ces enumerated n Tte I of the ct.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 24, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
Reguatons 46, rtce 16: Ta on use by II-31-6328
manufacturer, producer, or mporter. T. D.4374
Use by manufacturer, producer, or mporter Secton 622, Reve-
nue ct of 1932. rtce 16, Reguatons 46: Ta on use by manu-
facturer, producer, or mporter.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 16 of Reguatons 46, approved une 18, 1932, s hereby
amended by addng a paragraph readng as foows:
The use by any person, n the operaton of a busness n whch he s en-
gaged, of any artce enumerated n Tte I whch has been manufactured,
produced or mported by hm or hs agent, makes such person abe to ta under
secton 622 based on the far market prce of the artce. owever, the pro-
vsons of secton 622 w not be deemed to appy n cases where an ndvdua
ncdentay manufactures, produces or mports for hs persona use or causes
to be manufactured, produced or mported for hs persona use any of the art-
ces enumerated n Tte I of the ct.
Guy T. everng,
Commssoner of Interna Revenue.
pproved uy 24, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
S CTION 629. CTI D T .
Reguatons 44, rtce 2: ffectve perod. II-34-6358
T. D.4381
cse ta es on saes by the manufacturer. Tte I of the Rev-
enue ct of 1932, amended by secton 212 of the Natona Indus-
tra Recovery ct, and secton 1 of the ct approved une 16,
1933 (Pubc, No. 73, Seventy-thrd Congress) rtce 2 of Regu-
atons 44, amended.
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629, Regs. 46, rt. 1.
344
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washnffton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Tte I of the Revenue ct of 1932 was amended by secton 212
of the Natona Industra Recovery ct (approved une 16, 1933),
whch reads, n part, as foows:
Sec. 212. Ttes I and of the Revenue ct of 1932 are amended by strkng
out 1934 wherever appearng theren and by nsertng n eu thereof
1935.
Secton 629 (Tte I ) of the Revenue ct of 1932 was amended
by secton 1 of the ct approved une 16, 1933 (Pubc, No. 73,
Seventy-thrd Congress), whch reads as foows:
That secton 029 of the Revenue ct of 1932 s amended by strkng out the
foowng: , or after .Tune 30, 1933, n the case of artces ta abe under
secton 617, reatng to the ta on gasone.
In conformty wth the provsons of aw quoted above, artce 2
of Reguatons 44, approved une 18, 1932, s amended to read as
foows:
rt. 2. ffectve perod. The ta mposed under Tte I of the Revenue ct
of 1932 Is on artces sod, eased, or used by the manufacturer, producer, or
mporter, and other persons specfed n certan sectons of the ct. on or after
une 21, 1932, and before uy 1, 1935, rrespectve of when manufactured,
produced, or mported.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ugust 9, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
Reguatons 46, rtce 1: ffectve perod. II-34 6359
T. D.4380
cse ta es on saes by the manufacturer. Tte I of the
Revenue ct of 1932, amended by secton 212 of the Natona
Industra Recovery ct. rtce 1 of Reguatons 46, amended.
Treasury Department.
Offce of Commssoner of Intern a Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Tte I of the Revenue ct of 1932 was amended by secton 212
of the Natona Industra Recovery ct (approved une 16, 1933),
whch reads, n part, as foows:
Sec. 212. Ttes I and of the Revenue ct of 1932 are amended by
strkng out 1934 wherever appearng theren and by nsertng n eu
thereof 1935.
In conformty wth the provsons of aw quoted above, the second
paragraph of artce 1 of Reguatons 46, approved une 18, 1932.
s amended to read as foows:
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345
630, Regs. 44, rt. 57tf.
No such sae, ease, or use after une 30, 1935 (or after uy 31, 1935, n
the ease of artces ta abe under sectons 602 and 606, reatng to the ta
on tres and Inner tubes and automobes, etc.), s ta abe under the tte.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ugust 9, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
S CTION 630. MPTION ROM T O C RT IN
SUPPLI S OR SS LS.
Reguatons 44, rtce 57 : empton of II-37-6404
certan suppes for vesses. T. D. 4388
empton from ta of certan suppes for vesses. Tte I of
the Revenue ct of 1932, as amended by secton 5 of the ct of une
16, 1933 (Pubc, No. 73, Seventy-thrd Congress) Reguatons 44,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
Secton 5 of the ct of une 16, 1933 (Pubc, No. 73, Seventy-
thrd Congress), amended Tte I of the Revenue ct of 1932 by
addng a new secton entted Sec. 630. empton from ta of
certan suppes for vesses. In conformty wth these provsons
of aw, Reguatons 44, approved une 18, 1932, are amended by
addng after artce 57 the foowng:
e empton from ta of certan suppes for vesses.
Secton 630 of the Revenue ct of 1932, as dded by Secton 5 of the ct
of dne 16, 1933 (Pubc, No. 73, Seventy-thrd Congress), ffectve 15
Days fter nactment of the ct of une 16, 1933.
Under reguatons prescrbed by the Commssoner, wth the approva of the
Secretary, no ta under ths tte sha be mposed upon any artce sod for
use as fue suppes, shps stores, sea stores, or egtmate equpment on
vesses of war of the Unted States or cf any foregn naton, vesses empoyed
n the fsheres or n the whang busness, or actuay engaged n foregn
trade or trade between the tantc and Pacfc ports of the Unted States or
between the Unted States and any of ts possessons. rtces manufactured
or produced wth the use of artces upon the mportaton of whch ta has
been pad under ths tte, f aden for use as suppes on such vesses, sha
be hed to be e ported for the purposes of secton 601(b).
rt. 57 . empton of certan suppes for vesses. On and
after uy 1, 1933, no ta w attach to artces enumerated n Tte
I when they are sod for use as fue suppes, shps stores, sea
stores, or egtmate equpment, on (1) vesses of war of the Unted
States or of any foregn naton, (2) vesses empoyed n the fsheres
or n the whang busness, (3) vesses actuay engaged n foregn
trade, (4) vesses actuay engaged n trade between the tantc
and Pacfc ports of the Unted States, or (5) vesses actuay engaged
n trade between the Unted States and any of ts possessons.
37408 34 23
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630, Regs. 44, rt. 57 -
346
Ta -free saes under secton 630 must be restrcted to such artces
specfed n Tte I as normay form a part of the suppes, stores,
or equpment for the knds of vesses enumerated. The e empton
does not appy to artces whch are to be resod to persons who
are not passengers or members of the crew, or to those artces whch
are to be transported for the use of others, or to those whch
are to be used n any manner other than as specfed n the ct.
rtces may not be sod ta -free drect to passengers or crew but
ony to the owner, master, or responsbe offcer of the vesse for
the use specfed.
The terms fue suppes, shps stores, and egtmate equp-
ment ncude a artces, materas, suppes, and equpment neces-
sary for the navgaton, propuson, and upkeep of vesses.
The term sea stores ncudes any artce purchased for use or
consumpton by the passengers and crew of a vesse upon ts voyage.
The term vesse ncudes everv descrpton of water craft or
other contrvance used, or capabe of beng used, as a means of trans-
portaton on water but does not ncude arcraft.
The term trade ncudes the transportaton of persons or prop-
erty for hre and the makng of the necessary preparatons for such
a voyage.
The e empton from ta granted under secton C30 s not appcabe
to vesses engaged n trade between domestc ports on the Pacfc
Ocean, or between domestc ports on the tantc Ocean and Guf
of Me co, or engaged n trade on the nand waterways of the Unted
States. Where a vesse s actuay engaged n a voyage from a port
n the Unted States to a foregn port or to a port n one of the
possessons of the Unted States, or between tantc and Pacfc
ports of the Unted States, the e empton from the ta s not
destroyed f the vesse stops at an ntermedate port of ca n the
Unted States as a part of that voyage to the utmate port of ca.
The e empton provded n the case of artces sod for the pre-
scrbed use on vesses empoyed n the fsheres or n the whang
busness s mted to artces sod for such use on vesses whe em-
poyed, and to the e tent empoyed, e cusvey n the fsheres or n
the whang busness.
No ta attaches to artces sod drect by the manufacturer thereof
for use on any vesse (other than a vesse of war) f the manufac-
turer has n hs possesson, pror to or at the tme of sae, a wrtten
order from, or a contract of sae wth, the owner or master of the
vesse (or authorzed offcer), together wth a statement by such
owner or master to the effect that the artces so purchased are for
use as fue suppes, shps stores, sea stores, or as egtmate equp-
ment for such vesse.
No ta attaches to artces sod by the manufacturer thereof to
a vendee for the purpose of resae for use as fue suppes, shps
stores, sea stores, or egtmate equpment for the knds of vesses
enumerated, where the vendee furnshes the manufacturer, pror to
or at tme of hs purchase, a sworn statement estabshng that the
artces ncuded n the order are to be sod for such use n fng
an order or orders then n the possesson of the vendee.
In the case of saes of artces for use by vesses of war of the
Unted States or of any foregn country, the e empton may be
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347
5630, Regs. 46, rt. 76
estabshed f a manufacturer obtans a statement, pror to or at the
tme of sae, from the commandng offcer or other authorzed offcer
of the vesse havng knowedge of the facts, to the effect that the
artces are purchased for use on such vesse as fue suppes, shps
stores, sea stores, or egtmate equpment. The statement shoud de-
scrbe the artces purchased, the proposed uses of such artces, the
name of the vesse, and the country of orgn of the vesse.
Where artces sub|ect to ta under Tte I are to be devered
to nava depots of the Unted States Navy nstead of drect to
desgnated vesses, e empton may be estabshed by the manufac-
turer securng a wrtten statement from an authorzed offcer of the
Unted States Navy to the effect that the desgnated artces are pur-
chased e cusvey for use on vesses of war of the Unted States.
ny manufacturer who cams e empton from ta on saes of
artces for use on vesses must mantan satsfactory records to sub-
stantate that cam, and these records must be ready accessbe for
nspecton at a tmes by nterna revenue offcers.
Guy T. eyerng,
Commssoner of Interna Revenue.
pproved September 2, 1933.
Dean cheson,
ctng Secretary of the Treasury.
Reguatons 46, rtce 7C : empton of II-37-6401
certan suppes for vesses T. D. 4387
emptons from ta of certan suppes for vesses. Tte I
of the Revenu9 ct of 1932, as amended by secton 5 of the ct of
une 16, 1033 (Pubc, No. 73, Seventy-thrd Congress) . Regua-
tons 46, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 5 of the ct of une 16, 1933 (Pubc, No. 73, Seventy-
thrd Congress), amended Tte I of the Revenue ct of 1932 by
addng a new secton entted Sec. 630. empton from ta of
certan suppes for vesses. In conformty wth these provsons
of aw, Reguatons 46, approved une 18, 1932, are amended by
addng after artce 76 the foowng:
e empton mom ta of certan suppes for vesses.
Secton 630 of the Revenue ct of 1932, as dded by Secton 5 of the ct
op une 16, 1033 (Puo, No. 73, Seventy-thrd Congress), ffectve 15
Days fter nactment of toe ct of une 16, 1933.
Under reguatons prescrbed by the Commssoner, wth the approva of
the Secretary, no ta under ths tte sha be mposed upon any artce sod
for use as fue suppes, shps stores, sea stores, or egtmate equpment on
vesses of war of the Unted States or of any foregn naton, vesses empoyed
In the fsheres or n the whang busness, or actuay engaged In foregn
trade or trade between the tantc and Pacfc ports of the Unted States or
between the Unted States and any of ts possessons. rtces manufactured
or produced wth the use of artces upon the mportaton of whch ta has been
pad under ths tte, f aden for use as suppes on such vesses, sha be hed
to be e ported for the purposes of secton 601(b).
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630, Regs. 46, rt. 76 -1
348
ut. 7G . empton of certan suppes for vesses. On and
after uy 1, 1933, no ta w attach to artces enumerated n Tte
I when they are sod for use as fue suppes, shps stores, sea
stores, or egtmate equpment, on (1) vesses of war of the Unted
States or of any foregn naton, (2) vesses empoyed n the fsheres
or n the whang busness, (3) vesses actuay engaged n foregn
trade, (4) vesses actuay engaged n trade between the tantc
and Pacfc ports of the Unted States, or (5) vesses actuay en-
gaged n trade between the Unted States and any of ts possessons.
Ta -free saes under secton 630 must be restrcted to such artces
specfed n Tte I as normay form a part of the suppes, stores,
or equpment for the knds of vesses enumerated. The e empton
does not appy to artces whch are to be resod to persons who are.
not passengers or members of the crew, or to those artces whch
are. to be transported for the use of others, or to those whch are to
be used n any manner other than as specfed n the ct. rtces
may not be sod ta -free drect to passengers or crew but ony to
the owner, master, or responsbe offcer of the vesse for the use
specfed.
The terms fue suppes, shps stores, and egtmate
equpment ncude a artces, materas, suppes, and equpment
necessary for the navgaton, propuson, and upkeep of vesses.
The term sea stores ncudes any artce purchased for use or
consumpton by the passengers and crew of a vesse upon ts voyage.
The term vesse ncudes every descrpton of watercraft or
other contrvance used, or capabe of beng used, as a means of trans-
portaton on water but does not ncude arcraft.
The term trade ncudes the transportaton of persons or prop-
erty for hre and the makng of the necessary preparatons for such
a voyage.
The e empton from ta granted under secton 630 s not app-
cabe to vesses engaged n trade between domestc ports on the
Pacfc Ocean, or between domestc ports on the tantc Ocean and
Guf of Me co, or engaged n trade on the nand waterways of the
Unted States. Where a vesse s actuay engaged n a voyage
from a port n the Unted States to a foregn port or to a port n
one of the possessons of the Unted States, or behveen tantc and
Pacfc ports of the Unted States, the e empton from the ta s not
destroyed f the vesse stops at an ntermedate port of ca n the
Unted States as a part of that voyage to the utmate port of ca.
The e empton provded n the case of artces sod for the pre-
scrbed use on vesses empoyed n the fsheres or n the whang
busness s mted to artces sod for such use on vesses whe em-
poyed, and to the e tent empoyed, e cusvey n the fsheres or n
the whang busness.
No ta attaches to artces sod drect by the manufacturer thereof
for use on any vesse (other than a vesse of war) f the manufac-
turer has n hs possesson, pror to or at the tme of sae, a wrtten
order from, or a contract of sae wth, the owner or master of the
vesse (or authorzed offcer), together wth a statement by such
owner or master to the effect that the artces so purchased are for
use as fue suppes, shps stores, sea stores, or as egtmate equp-
ment for such vesse.
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349
630, Regs. 44, rt. 57 .
No ta attaches to artces sod by the manufacturer thereof to a
vendee for the purpose of resae for use as fue suppes, shps
stores, sea stores, or egtmate equpment for the knds of vesses
enumerated, where the vendee furnshes the manufacturer, pror to
or at tme of hs purchase, a sworn statement estabshng that the
artces ncuded n the order are to be sod for such use n fng
an order or orders then n the possesson of the vendee.
In the case of saes of artces for use by vesses of war of the
Unted States or of any foregn country, the e empton may be
estabshed f a manufacturer obtans a statement, pror to or at the
tme of sae, from the commandng offcer or other authorzed offcer
of the vesse havng knowedge of the facts, to the effect that the
artces are purchased for use on such vesse as fue suppes, shps
stores, sea stores, or egtmate equpment. The statement shoud
descrbe the artces purchased, the proposed uses of such artces,
the name of the vesse, and the country of orgn of the vesse.
Where artces sub|ect to ta under Tte I are to be devered to
nava depots of the Unted States Navy nstead of drect to desg-
nated vesses, e empton may be estabshed by the manufacturer se-
curng a wrtten statement from an authorzed offcer of the Unted
States Navy to the effect that the desgnated artces are purchased
e cusvey for use on vesses of war of the Unted States.
ny manufacturer who cams e empton from ta on saes of
artces for use on vesses must mantan satsfactory records to sub-
stantate that cam, and these records must be ready accessbe for
nspecton at a tmes by nterna revenue offcers.
Guy T. everng,
Commssoner of Interna Revenue.
pproved September 2, 1933.
Dean cheson,
ctng Secretary of the Treasury.
TITL I . M NU CTUR RS CIS T S (1932), S M ND D
Y T CT O UN 16, 1933 (PU LIC, NO. 73, S NTY-T IRD
CONGR SS).
Reguatons 44, rtce 57 : empton of IL-44 6480
certan suppes for veases. S. T. 710
( so Reguatons 46, rtce 76y2.)
Ta abty of certan suppes for vesses.
ueston s presented whether saes of suppes by the manufac-
turer, producer, or mporter to be used for the purposes and by the
casses of vesses specfed n secton 630 of the Revenue ct of 1932,
as added by secton 5 of the ct of une 16, 1933 (Pubc, No. 73,
Seventy-thrd Congress), are e empt from ta where the purchaser
stores the suppes for future devery to vesses as and when
needed aso, whether the status of suppes on board a vesse s
affected by dverson of the vesse from one knd of trade to another.
The e empton provded by secton 630 of the Revenue ct of
1932, as added by the ct of une 16, 1933, supra, s appcabe to
ny artce sod for use as fue suppes, shps stores, sea stores, or egt-
mate equpment on vesses of war of the Unted States or of any foregn
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711, Regs. 43(1932), rt. 1.
350
naton, vesses empoyed In the fsheres or n the whang busness, or actuay
engaged In foregn trade or trade between the tantc and Pacfc ports of
the Unted States or between the Unted States and any of ts posses-
sons.
In order for saes to be e empt under the secton of the statute
quoted heren t must be defntey known at the tme of sae by the
manufacturer, producer, or mporter that the artces sod are to be
used for the purposes and by the casses of vesses specfed n the
statute. In the nstant case the suppes are stored by the purchaser
n varous ports for future devery to vesses as and when needed.
It s cear that at the tme of the sae of the suppes the partcuar
vesse or vesses to whch they w eventuay be devered (or the
nature of ther trade) s unknown. It s accordngy hed that saes
of suppes for vesses under such condtons are not e empt from
the manufacturers e cse ta es under secton 630, supra.
Under the provsons of that secton artces may be sod ta -free
by the manufacturer, producer, or mporter for use as fue suppes,
snps stores, sea stores, or egtmate equpment on a vesse actuay
engaged n foregn trade at the tme of the sae, even though n the
course of or at the end of the voyage the vesse may be dverted to
coastwse trade. On the other hand, where the vesse s engaged n
coastwse trade at the tme the suppes are sod for use thereon, the
saes are ta abe even though the vesse durng the course of the
voyage, or at the end thereof, may be dverted to any of the casses of
trade specfed n the statute. In such cases the nature of the trade n
whch the vesse s engaged at the tme the suppes are sod for use
thereon s controng n determnng whether the sae s e empt
under secton 630, supra.
TITL . MISC LL N OUS T S. (1932)
S CTION 711. DMISSIONS.
Reguatons 43(1932), rtce 1: ass, rate, II-27-6274
and computaton of ta . T. D. 4369
Ta on admssons Secton 500(a) 1 of the Revenue ct o 1926,
as amended by secton 411(a) of the Revenue ct of 1928 and by
secton 711(a) of the Revenue ct of 1932. rtces 1 and 45
of Reguatons 43, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The ast paragraph of artce 1 of Reguatons 43, approved une
14, 1932, s hereby amended to read as foows:
Newspaper reporters, photographers, teegraphers, rado announcers, and
persons of smar vocaton who are admtted free to any pace for the purpose
of performng speca dutes n connecton wth the event and whose speca
dutes are the soe reason for ther presence at the event and for free admsson
thereto, are not abe for any ta on admssons. ree admssons granted
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351
5711, Regs. 43, rt. |
to such persons who are not admtted soey for the purpose of performng
ther speca dutes n connecton wth the event are sub|ect to ta equvaent
to the ta on the admsson charge pad by other persons for the same or
smar accommodatons.

Reguatons 43, rtce 1: ass, rate, and II-34-6362
computaton of ta . T. D.4379
Ta on admssons. Secton 500(a )1 of the Revenue ct of
1026, as amended by secton 411(a) of the Revenue ct of 1928
and secton 711(a) of the Revenue ct of 1932, and further
amended by secton 219 of the Natona Industra Recovery ct.
Secton 711(c) of the Revenue ct of 1932, as amended by secton
212 of the Natona Industra Recovery ct. rtces 1 and 45
(as amended by Treasury Decson 4369, approved une 23, 1933
pages 350 and 352, ths uetn ) and artce 57 of Reguatons
No. 43, approved une 14, 1932, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 500 (a) 1 of the Revenue ct of 1926, as amended, was fur-
ther amended by secton 219 of the Natona Industra Recovery
ct (approved une 16,1933) to read as foows:
Sec. 500. (a) There sha be eved, assessed, coected, and pad
(1) ta of 1 cent for each 10 cents or fracton thereof of the amount pad
for admsson to any pace, ncudng admsson by season tcket or subscrp-
ton, to be pad by the person payng for such admsson e cept that n case the
amount pad for admsson s ess than 41 cents, no ta sha be mposed. In
the case of persons (e cept bona fde empoyees, muncpa offcers on offca
busness, and chdren under 12 years of age) admtted free or at reduced
rates to any pace at a tme when and under crcumstances under whch an
admsson charge s made to other persons, an equvaent ta sha be coected
based on the prce so charged to such other persons for the same or smar
accommodatons, to be pad by the person so admtted, e cept that no ta sha
be mposed n the case of persons admtted free to any spoken pay (not a
mechanca reproducton), whether or not set to musc or wth musca parts
or accompanments, whch s a consecutve narratve nterpreted by a snge
set of characters, a necessary to the deveopment of the pot, n two or mora
acts, the performance consumng more than 1 hour and 45 mnutes of tme.
mounts pad for admsson by season tcket or subscrpton sha be e empt
ony f the amount whch woud be charged to the hoder or subscrber for
a snge admsson s ess than 41 cents
In conformty wth the provsons of aw quoted above, Regua-
tons 43, approved une 14, 1932, are amended as foows:
The frst paragraph of artce 1 s amended to read:
ass, rate, and computaton of ta . cept as specfcay amended by the
Revenue ct of 1932 and secton 219 of the Natona Industra Recovery ct,
the provsons of the Revenue ct of 1926, as amended by the Revenue ct
of 1928, wth respect to the ta on admssons, are st n fu force and effect.
The amendment to secton 500(a) made by secton 711(a) of the Revenue
ct of 1932 was effectve une 21, 1932, and the amendment made by secton
219 of the Natona Industra Recovery ct was effectve une 16, 1933.
The seventh paragraph of artce 1 s amended to read:
In the case of any person (e cept a bona fde empoyee, a muncpa offcer
on offca busness, or a chd under 12 years of age) admtted free to any
pace (e cept a spoken pay as defned beow) or admtted at a reduced rate
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711, Regs. 43, rt. 45.
352
to any phce at a tme when and under crcumstances under whch an adms-
son charge s made to other persons, the person so admtted free or at a
reduced rate s abe to ta n an amount equvaent to the tar on the
amount pad by such other persons for the same or smar accommodatons.
If tckets or cards of admsson are ssued, the ta due shoud be coected
at the tme of the ssuance of such tckets or cards, whe f no tckets or cards
are used, ta shoud be coected when the persons are admtted. bona fde
empoyee of the management of the theater or other pace, a muncpa offcer
who s actng n hs offca capacty, or a chd under 12 years of age s not
abe to ta f admtted free and f admtted at a reduced rate s abe to ta
on the reduced prce, provded such prce s 41 cents or more. o ta
attaches to free admssons to a spoken pay (not a mechanca reproducton)
whether or not set to musc or wth musca parts or accompanments, wtveh
s a consecutve narratve nterpreted by a snge set of characters, a neces-
sary to the deveopment of the pot, n two or more acts, the performance con-
sumng more than 1 hour and 45 mnutes of tme.
The ast paragraph of artce 1, as amended by Treasury Decson
4369, s further amended to read:
Newspaper reporters, photographers, teegraphers, rado announcers, and
persons of smar vocaton who are admtted free to any pace for the purpose
of performng speca dutes n connecton wth the event and whose speca
dutes are the soe reason for ther presence at the event and for free admsson
thereto, are not abe for any ta on admssons. ree admssons granted
to such persons, e cept free admssons to a spoken pay as defned above, who
are not admtted soey for the purpose of performng ther speca dutes n
connecton wth the event are sub|ect to ta equvaent to the ta on the adms-
son charge pad by other persons for the same or smar accommodatons.

Reguatons 43(1932), rtce 45: Returns and II-27-6275
payments dmssons. T. D. 4369

rtce 45 of these reguatons s hereby amended by addng
thereto a thrd paragraph readng as foows:
orm 720 must aso be accompaned by an affdavt settng forth the names
and addresses of a persons to whom nonta abe free or compmentary
tckets or admssons were furnshed for the purpose of performng speca
dutes and the nature of the speca duty performed by each. Ths affdavt
shoud be prepared n trpcate. One copy shoud be retaned by the ta -
payer, and the other copes attached to the orgna and dupcate orm 729
forwarded to the coector.
Guy T. everng,
Commssoner of Interna Revenue.
pproved une 23, 1933.
Dean cheson,
ctng Secretary of the Treasury.
Reguatons 43, rtce 45: Returns and pay- TI-34-63G3
nent dmssons. T. D. 4379

The thrd paragraph of artce 45. whch was added by Treasury
Decson 43(59 above , approved une 23, 1933, s amended to read:
orm 729 must aso be accompaned by an affdavt settng forth the names
and addresses of a persons (e cept persons admtted free to a spoken pay
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353
711, Regs. 43, rt. 1.
as defned n artce 1) to whom nonta abe free or compmentary tckets or
admssons were furnshed for the purpose of performng speca dutes and
the nature of the speca duty perfonned by each. Ths affdavt shoud be pre-
pared n trpcate. One copy shoud be retaned by the ta payer, and the
other copes attached to the orgna and dupcate orm 729 forwarded to the
coector.

Reguatons 43, rtce 57: ffectve date of II-34-6364
change n e empton. T. D. 4379

Secton 711(e) of the Revenue ct of 1932 was amended by sec-
ton 212 of the Natona Industra Recovery ct by strkng out
1934 appearng theren and by nsertng n eu thereof 1935.
In conformty wth the amendment of secton 711(e) of the Rev-
enue ct of 1932 referred to above, artce 57 s amended to read as
foows:
rt. 57. ffectve date of change n e empton. The sums pad for admsson
whch are not sub|ect to ta under secton 500(a) of the Revenue ct of 1926,
as amended by secton 711(a) of the Revenue ct of 1932, are those whch are
ess than 41 cents. ffectve uy 1, 1935, any sum of 3 or ess pad for
admsson w not be ta abe. The tme of payment and not the tme of adms-
son w govern n determnng whch e empton s appcabe. Consequenty,
f a person shoud purchase a tcket of admsson for an amount n e cess of
40 cents where the payment was made before uy 1, 1935, for an admsson to
take pace after that date, the payment so made woud be sub|ect to ta .
Gt|t T. everng,
Commssoner of Interna Revenue.
pproved ugust 9, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
S CTION 500(a) O T R NU CT O 1926, S M ND D Y
S CTION 711(a) O T R NU CT O 1932.
Reguatons 43, rtce 1: ass, rate, and II-33-6347
computaton of ta . S. T. 097
ree or reduced admssons of ades to baseba games, hed
ta abe.
dvce s requested whether admssons of ades to baseba games
at free or reduced rates are ta abe under secton 711(a) of the
Revenue ct of 1932.
On certan days a secton n a baseba park, ess desrabe than
other sectons, s set asde for ades who are admtted free or at a
reduced rate through a separate gate. The ades so admtted must
reman n that secton. It s contended that such admssons are not
sub|ect to the ta mposed under secton 711(a).
The ureau has consstenty hed that the settng asde of a sec-
ton of a stand to whch a certan cass or group of persons s ad-
mtted free s not n tsef suffcent to e empt the free admssons
from ta . The facts that other persons are not admtted at a to
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731, Regs. 42, rt. 28.
354
that secton and that the persons admtted free are not aowed to st
n any other secton, do not e empt the free admssons from ta .
Under the aw, a persons admtted free or at a reduced rate at a
tme when and under crcumstances under whch an admsson charge
s made to other persons must pay an equvaent ta based on the
admsson charge, that s, on the estabshed prce of admsson to
other persons for the same or smar accommodatons. It s not
necessary that the accommodatons be dentca or n a respects as
good. If the accommodatons are smar the ta attaches.
The estabshed prce of admsson may vary n accordance wth
the accommodatons to whch admsson s granted wthout affectng
the queston of ta abty, but any scae of prces must be a reguar
scae based on a rea dfference n accommodatons. ny reducton
of estabshed prce must ncude a admssons of that partcuar
estabshed prce and must grant an equa reducton n the case of
a persons admtted to such accommodatons.
In the partcuar case presented for consderaton, t s evdent that
the free admsson of ades or ther admsson at a reduced rate, s
not n any sense an estabshed prce of admsson. Ths s true for
the reason that ades ony are admtted free that on other days the
same admsson charge s made to ths secton as to other sectons
that the dfference n the prce of admsson to the other sectons and
the free or reduced rate of admsson to ths secton s not measured
by any actua dfference n the accommodatons and that the reduc-
ton n the estabshed prce does not appy to a persons, but to
ades ony.
It s, therefore, hed that admssons of ades to baseba games
at free or reduced rates are sub|ect to ta under secton 711(a) of
the Revenue ct of 1932 based on the admsson charge to other
persons for smar accommodatons.
S CTION 731. TR NSPORT TION O OIL Y PIP LIN .
Reguatons 42, rtce 28: ar charge. II O-6434
T. D. 4394
Ta on transportaton of o by ppe ne Secton 731(b) of
the Revenue ct of 1932. rtce 28, Reguatons 42, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The second paragraph of artce 28 of Reguatons 42, approved
October 22, 1932, s amended to read as foows:
Where no tarffs have been pubshed, the far charge w be determned on
the bass of the ordnary or customary charge for ke or smar servces. If
no reasonabe bass of comparson can be found, a fu statement of the facts
surroundng the partcuar movement must be submtted to the Commssoner
for hs gudance and assstance n determnng a far charge. Such a statement
shoud contan fgures showng the orgna nvestment n the ppe-ne system,
addtons and betterments, deprecaton, obsoescence, snkng funds and reserves,
present worth, operatng e penses durng the ta abe perod, far ncome return.
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355 751, Regs. 42, rt. 36
and other nformaton whch may be of vaue, Incudng an estmate as to
the probabe fe of the fed and of the ppe ne.
Gut T. everno,
Commssoner of Interna Revenue.
pproved September 20, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
S CTION 751. C C S, TC.
Reguatons 42, rtce 36: Scope of ta . II-31-6324
S. T.694
Checks ssued by Cvan Conservaton Corps and charged aganst
company funds hed not ta abe.
dvce s requested whether the ta on checks mposed by secton
751 of the Revenue ct of 1932 s appcabe to checks ssued by
and charged aganst company funds of the Cvan Conservaton
Corps.
The Cvan Conservaton Corps was estabshed and s now
beng operated and reguated under and pursuant to the authorty
granted by an ct of Congress. It s cear that the corps s a gov-
ernmenta agency n so far as ts pubc and governmenta functons
are concerned.
Inasmuch as the accounts aganst whch these checks are charged
consst whoy of approprated moneys, and as they are drawn by
offcers of the Unted States n the dscharge of ther offca dutes,
t s hed that the checks are not sub|ect to the ta mposed by
secton 751 of the Revenue ct of 1932.
Reguatons 42, rtce 36: Scope of ta . II-42-6458
T. D. 4396
Ta on checks, etc. Secton 751(a), Revenue ct of 1932.
rtce 30, Reguatons 42, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
The eghth paragraph of artce 36 of Reguatons 42, approved
October 22,1932, s hereby amended to read as foows:
Checks, drafts, or orders drawn aganst pubc funds by offcers of the Unted
States are not sub|ect to the ta . Checks, drafts, or orders drawn aganst
pubc funds by offcers of a State or potca subdvson thereof are not sub|ect
to the ta where drawn n connecton wth the e ercse of an essenta govern-
menta functon. The term pubc funds as here used ncudes funds on
depost for the beneft of the pubc.
Guy T. everno,
Commssoner of Interna Revenue,
pproved October 9, 1933.
W. . Woodn,
Secretary of the Treasury.
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751, Regs. 42, rt. 37.
356
.Reguatons 42, ktce 36: Scope of ta . II-48-6539
S. T.713
Checks ssued by trustees, recevers, or referees n bankruptcy
hed ta abe.
The queston s presented whether checks ssued by trustees, re-
cevers, or referees n bankruptcy are sub|ect to the ta mposed by
secton 751 of the Revenue ct of 1932.
Under the provsons of artce 36 of Reguatons 42, as amended
by Treasury Decson 4396 (page 355, ths uetn), checks, drafts, or
orders drawn aganst pubc funds by offcers of the Unted States, or
checks, drafts, or orders drawn aganst pubc funds by offcers of a
State or potca subdvson thereof n connecton wth the e ercse
of an essenta governmenta functon are not sub|ect to the ta
mposed by secton 751(a) of the Revenue ct of 1932. The term
pubc funds as here used ncudes funds on depost for the
beneft of the pubc.
Where checks, drafts, or orders are drawn aganst pubc funds
by offcers comng wthn the scope of the reguatons, as amended,
the burden of the ta , f coected, woud fa upon the edera,
State, county, or muncpa government, and for that reason such
checks arc not ta abe. owever, the term pubc funds does
not ncude funds aganst whch checks are drawn by trustees, re-
cevers, or referees n bankruptcy, for the reason that such funds
are prmary for the beneft of credtors rather than for the beneft
of the pubc, as the term pubc s generay understood. If
the funds are not pubc funds. t foows that the burden of the
ta , f coected, woud not fa upon the edera, State, county, or
muncpa government, but upon the prvate partes n nterest.
It s hed that checks drawn by trustees, recevers, or referees n
bankruptcy n ther offca capacty are not drawn aganst pubc
funds, wthn the meanng of artce 36 of Reguatons 42, as amended
by Treasury Decson 4396, supra, and, accordngy, are sub|ect
to ta .
Reguatons 42. rtce 37: Labty. II-40-6435
S. T. 704
When nterest shoud be ncuded n proof of cam fed by a
coector of nterna revenue aganst banks n the hands of re-
cevers, conservators, or e amners, for the edera ta coected
by such banks on checks.
dvce s requested whether proofs of cams for edera ta es
coected by banks on checks, fed by a coector of nterna revenue
aganst banks n the hands of recevers, conservators, or e amners,
shoud ncude the statutory nterest charge.
The foregong nqury s answered as foows:
(a) Proof of cam aganst any Natona or State bank, whch s
n the hands of a recever, conservator, or e amner for reasons
other than actua nsovency, for edera ta es coected by the bank
on checks shoud ncude nterest.
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357
761, Regs. 72, rt. 2.
(b) Proof of cam aganst any State bank, even though t s n
the hands of a recever, conservator, or e amner on account of n-
sovency, for edera ta es coected by the bank on checks shoud
ncude nterest.
(c) Proof of cam aganst any natona bank, whch s n the
hands of a recever, conservator, or e amner because of actua n-
sovency, for edera ta es coected by the bank on checks shoud
not ncude nterest, e cept nterest whch accrued pror to such re-
cevershp or suspenson, uness the assets of the bank, together
wth the coectbe doube abty of ts stockhoders, are suffcent
to pay nterest on cams fed aganst t after ts suspenson, n
addton to the amount of the cams, wth nterest, to the date of
ts suspenson.
S CTION 761. T ON T US O O TS.
Reguatons 72, rtce 1: ffectve perod. II-34-6366
T. D.4384
Speca ta upon the use of boats. Secton 701 of Tte of
the Revenue ct of 1932, amended by secton 212 of the Natona
Industra Recovery ct. rtces 1 and 2 of Reguatons 72,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 761 of Tte of the evenue ct of 1932 was amended
by secton 212 of the Natona Industra Recovery ct (approved
une 16, 1933), whch reads as foows:
Sec. 212. Ttes I and of the Revenue ct of 1932 are amended by strk-
ng out 1934 wherever appearng theren and by nsertng n eu thereof
1935. Secton 761 of the Revenue ct of 1932 s further amended by strkng
out and on uy 1, 1933 and nsertng n eu thereof and on uy 1, 1933,
and on uy 1, 1934, .
In conformty wth the provsons of aw quoted above, artces 1
of Reguatons 72, approved ugust 15, 1932, are amended
to read as foows:
btce 1. ffectve perod. The ta attaches to the use of boats on and
after uy 1, 1932, and before uy 1, 1935.

Reguatons 72, rtce 2: Ta abe perod. II-34-6367
T.D.4384

artces 2 of Reguatons 72, are
amended to read as foows:
bt. 2. Ta abe perod. The perods durng whch the use of boats s sub|ect
to the ta mposed under the ct are the fsca years uy 1, 1932, to une 30,
1933, uy 1, 1933, to une 30, 1934, and uy 1, 1934, to une 30, 1935. Where
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Regs. 71, rt. 2.
358
an orgna purchase by the user s made of a boat on any date other than
uy 1, the ta abe perod n such case begns wth the month n whch frst
used and e tends to the cose of that fsca year.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ugust 11, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
ST MP T S.
Reguatons 71, rtce 2: ffectve perod. II-34-6365
T. D. 4383
Stamp ta es on ssues and transfers of stocks and bonds, saes
of produce for future devery, and deeds of conveyance, under
Tte III of the Revenue ct of 1926, as amended by Tte II,
Part , of the Revenue ct of 1928 and Tte , Part III, of the
Revenue ct of 1932, and further amended by secton 212 of the
Natona Industra Recovery ct. rtce 2 of Reguatons 71,
amended.
Treasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Tte of the Revenue ct of 1932 was amended by secton 212
of the Natona Industra Recovery ct (approved une 16, 1933),
whch reads, n part, as foows:
Seo. 212. Ttes I and of the Revenue ct of 1932 are amended by strk-
ng out 1934 wherever appearng theren and by nsertng n eu thereof
1935.
In conformty wth the provsons of aw quoted above, artce
2 of Reguatons 71, approved uy 16, 1932, s amended to read as
foows:
rt. 2. ffectve perod. The stamp ta provsons of the Revenue ct of
1926, as amended by the Revenue ct of 1928, are st n fu force and effect,
e cept as amended by the Revenue ct of 1932. The amendments made by
the a.st-namod ct nre effectve on and after une 21, 1932. The ncreased
rates of ta , as we as the addtona ta es, effected by the amendments made
by the Revenue ct of 1932 to Schedue of Tte III of the Revenue ct
of 1926, as amended by the Revenue ct of 1928, are effectve ony to and
ncudng une 30, 1935.
In conformty wth the same provsons of aw, the date uy 1,
1934, wherever t appears n sectons 721(c), 722(c). 723(c), 726(c),
725 and 724(c) of the Revenue ct of 1932 at the begnnng of
Chapters I, II, III, I , III, and I , respectvey, shoud read
uy 1, 1935.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ugust 9, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
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359
Regs. 71, rt. 33|
SC DUL -3 O TITL m O T R NU CT O 1926, S
M ND D Y S CTION 723(a) O T R NU CT O 1932.
n e change of stock for stock s ta abe at the 4 cent rate.
n nterpretaton s requested concernng the provsons n Sched-
ue -3 of Tte III of the Revenue ct of 1926, as amended by
secton 723(a) of the Revenue ct of 1932, on the foowng ques-
ton :
corporaton offers to transfer to , a new corporaton, certfcates of
stock of varous corporatons n consderaton for the ssue of the entre cap-
ta stock of Corporaton. Does ths e change of stock nvove a sae wthn
the meanng of artce 32(c) of Reguatons 71, whch reads: owever, n
the case of a sae of stock, whether wth or wthout par or face vaue, when the
seng prce s 20 or more per share, the rate s 5 cents nstead of 4 cents
The aw mposes a ta upon saes and transfers of shares or cer-
tfcates of stock n a corporaton or other organzaton. It provdes
that the ta on saes or transfers sha be mposed at the rate of
4 cents on each 100 of par or face vaue or fracton thereof of the
certfcates of such corporaton or other organzaton and 4 cents on
each share or certfcate where they are wthout par or face vaue, but
wth the provso
That n case the seng prce, f any, s 20 or more per share the above rate
sha be 5 cents nstead of 4 cents.
The congressona conference report on the Revenue ct of 1932
(page 25, amendment No. 220) states:
Ths amendment emnates the provson of the ouse b makng the ta
on stock transfers not ess than one-fourth of 1 per cent of the seng prce.
The ouse recedes wth an amendment provdng that when stock s sod for
20 or more per share the rate sha be 5 cents nstead of 4 cents.
rtces 32(c) and 33(d) of Reguatons 71, approved uy 16,
1932, are n accord wth the statement n the conference report.
n e change of stock for other stock s unquestonaby a sae.
(Sectons 1(1) and 9(2), Unform Saes ct.) The fact that the
prce s payabe n persona property and not money s mmatera.
(Secton 170, Wston on Saes, second edton, voume 1, page 315.)
The fact that an e change of stock for stock s a sae, however, does
not dspose of the queston rased, because ony certan saes are
sub|ect to the ncreased rate. n e change of stock for stock comes
wthn the genera provsons of Schedue -3. The provso, how-
ever, s specfc egsaton rasng the rate of ta where the seng
prce, f any, s 20 or more per share, and s, therefore, to be
strcty construed. It s beeved that Congress had partcuary
n mnd such saes as are made on stock e changes and ntended to
enact a smpe test and to mt the provso to cases where the stock
was sod for a monetary consderaton of 20 or more a share. If t
had ntended otherwse t woud have provded that n case the
seng prce, f any, or the actua vaue, was 20 or more per share
the rate shoud be 5 cents nstead of 4 cents. The determnaton of
the actua vaue of stock woud present admnstratve dffcutes
n a arge number of cases, and s undoubtedy another reason why
the actua vaue of the stock was not ntended to be used as a measure
for ncreasng the rate of ta .
Reguatons 71, rtce 33: Computaton of
the ta .
II-30-6312
G. C. M. 12016
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Regs. 71, rt. 34.
360
It s accordngy the opnon of ths offce that the provso n
Schedue -3 of Tte III of the Revenue ct of 1926, as amended
by secton 723(a) of the Revenue ct of 1932, mposng an ncreased
rate of ta , does not appy to an e change of stock for stock.
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
Reguatons 71, rtce 34: Saes or trans- II-36-G391
fers sub|ect to ta . S. T. 699
( so rtce 35.)
Ta abty of certan transfers of securtes to a successor
trustee.
number of questons have been presented concernng the ta a-
bty under Schedue -3 of Tte III of the Revenue ct of 1926,
as amended by secton 723(a) of the Revenue ct of 1932. of trans-
fers of securtes hed n trust by the Trust Co. and the Y Trust
Co.. both n process of qudaton under the aws of Oho.
The trust companes are n the hands of the State superntendent
of banks for the purpose of qudaton. Under State aws the super-
ntendent has certan powers to contnue the admnstraton of trust
estates and to act as trustee thereunder.
The questons and answers are as foows:
ueston 1 (a). The Trust Co. was trustee under a testamentary
trust, the w makng no provson for the appontment of a suc-
cessor trustee. benefcary w make appcaton to the probate
court for the appontment of a successor trustee and a decree w
be entered removng the od trustee and appontng the Z ank as
successor trustee, vestng n the atter, as successor trustee, fu tte
to the trust assets, ncudng securtes, and authorzng and drectng
the State superntendent to e ecute and dever such forma transfers
as may be necessary for record purposes.
The proceedngs so taken w be governed by secton 10506-55 of
the Genera Code of Oho, whch provdes as foows:
acancy before termnaton of the trust accountng successor fducary.
If a soe fducary des, s dssoved, decnes to accept, resgns, s removed, or
becomes ncapactated or otherwse unabe to act, pror to the termnaton of
the trust, the probate court sha requre a fna account of a deangs of such
trust to be fed forthwth by such fducary f a vng person and abe to act
or f such fducary be a vng person but unabe to act, by hs guardan, f
any, or If there be no guardan, by some other sutabe person n hs behaf,
apponted or approved by the court or f such fducary be a deceased person,
by hs e ecutor or admnstrator or f such fducary be a dssoved corpora-
ton, by such person or persons as may be charged by aw wth wndng up
the affars of such corporaton. Thereupon the probate court sha cause such
proceedngs to be had as are provded by aw as to other accounts fed by
fducares.
Whenever such a vacancy occurs and such contngency s not otherwse pro-
vded for by aw, or by te nstrument creatng the trust, or whenever such
nstrument names no fducary whatever, the court sha, ether on ts own
moton or on the appcaton of any person benefcay nterested, appont and
ssue etters of appontment as fducary to some competent person or persons
who sha quafy accordng to aw and e ecute the trust to ts proper termna-
ton. Such vacancy, and e appontment of a successor fducary sha not
affect the abty of the former fducary, or hs suretes, prevousy ncurred.
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361
Regs. 71, rt. 34:
W the stamp ta attach to the transfer of securtes ncuded n
the trust property
nswer. The ta w not attach.
ueston 1(b). Woud t make any dfference f, under the. terms
of the testamentary trust, a benefcary (or a number of benefcares)
s gven authorty to and does nomnate a successor trustee whose
appontment s confrmed by the Probate Court of R County under
the above secton of the Genera Code of Oho n ke proceedngs
nswer. No.
ueston 2(a). The Trust Co. was actng as trustee under an
rrevocabe vng trust agreement contanng no specfc provson
reatng to the appontment of a successor trustee. If appcaton s
made by the benefcary of the trust to the Common Peas Court of
R County for the remova of the State superntendent as trustee, and
the appontment of a successor trustee (wth the consent of the State
superntendent), and the common peas court n the e ercse of ts
equty powers (there beng no specfc statute n the State of Oho
authorzng a partcuar court to appont a successor trustee for a
vng trust as dstngushed from a testamentary trust) enters a
decree namng the Z ank as successor trustee, vestng t wth fu
tte to the entre trust estate, and authorzng and drectng the State
superntendent to dever such forma transfers as may be necessary
for record purposes, w the stamp ta attach to the transfer of
securtes
nswer. No. See MS. 42 (C. . I -1 338).
ueston 2(b). Woud t make any dfference n the foregong
stuaton f the rrevocabe trust agreement provdes for the desgna-
ton or nomnaton of a successor trustee by one or more of the bene-
fcares (ether ncudng or not ncudng the orgna settor), and
such desgnaton or nomnaton s confrmed by the Common Peas
Court of R County n proceedngs smar to those above outned
nswer. No.
ueston 3(a). The Trust Co. was actng as trustee under a re-
vocabe vng trust agreement whch contans a provson permttng
the settor to revoke n whoe or n part, or modfy, ater, or amend
the trust agreement from tme to tme. If the settor revokes the
trust agreement n ts entrety and drects the State superntendent
of banks to convey the assets (ncudng securtes) of the trust estate
drecty to the Z ank to be hed by t as trustee under a new vng
trust agreement entered nto between that bank and the settor, does
more than one ta abe transfer occur
nswer. The transacton resuts n two ta abe transfers.
ueston 3(b). If the State superntendent of banks, the Z ank,
and the settor enter nto a modfcaton agreement wheren the Z
ank s substtuted as trustee n pace of the State superntendent
under the same trust agreement, and the agreement provdes that the
successor trustee sha be mmedatey vested wth fu tte to the
entre trust estate, and further contempates the devery of forma
transfers for record purposes to the Z ank as trustee, does the
stamp ta attach to such transfer
nswer. The transfer s sub|ect to ta .
37408 34 24
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Regs. 71, rt. 34.
362
ueston 4. The Trust Co. was actng as trustee under a revo-
cabe vng trust agreement whch provdes that the settor may at
any tme revoke n whoe or n part, or may ater, amend, or modfy
the trust agreement. The agreement aso provdes that n the event
the trustee named theren sha at any tme resgn, or become ds-
abed, or be removed, the Z ank sha mmedatey succeed as trustee
and be vested wth tte to the entre trust estate. If the State super-
ntendent n charge of the affars of the Trust Co. resgns and the
Z ank assumes ts dutes as trustee under the trust agreement, and
forma transfer s made to t of the assets of the trust estate by the
superntendent for record purposes, w the stamp ta attach to the
transfer of securtes, or s such transfer regarded as one by operaton
of aw under Reguatons 71, artce 35(h)
nswer. The ta w not attach. The provsons of artce
35(h) of Reguatons 71 contro.
ueston 5. The Trust Co. was actng as trustee under a revo-
cabe vng trust agreement wheren the settor reserved the rght
to revoke n whoe or n part at any tme, or to ater, amend, or
change the terms of the trust agreement. The trust agreement as
orgnay drawn contaned no provson for a successor trustee n
the event of the resgnaton, remova, or other dsabty of the
Trust Co. Severa years ago a modfcaton of the trust agreement
was made provdng that n the event of the resgnaton, remova, or
dsabty of the trustee named theren the Z ank sha mmedatey
succeed as trustee, and be vested wth tte to the entre trust estate,
and drectng the Trust Co. n such event to dever such forma
transfers as may be necessary for record purposes. If the State
superntendent resgns and the Z ank assumes ts dutes as suc-
cessor trustee under the terms of the trust agreement, w the stamp
ta attach to the transfer of securtes
nswer. The transfer s not sub|ect to ta .
ueston 6. The Trust Co. was actng as trustee under a revo-
cabe vng trust agreement, whch provdes that the settor may
at any tme revoke n whoe or n part, or modfy, ater, or amend
the trust agreement. The agreement contans no specfc provson
desgnatng a successor trustee n the event that the trustee named
theren resgns, s removed, or s dsabed from actng as trustee. If,
n the e ercse of the power to modfy the trust agreement, the settor
and the State superntendent enter nto a modfcaton agreement
provdng that upon resgnaton, remova, or dsabty of the State
superntendent the Z ank sha mmedatey succeed as trustee and
be vested wth tte to the entre trust estate, and provdng further
that n such event the State superntendent sha dever such forma
transfers as may be necessary for record purposes, w the stamp
ta attach to the transfer of securtes of the trust to the Z ank
as trustee n the event of the resgnaton, remova, or dsabty of
the State superntendent
nswer. The transfer s sub|ect to ta . The stuaton s not
materay dfferent from that presented n queston 3(b). The
transacton docs not have any of the attrbutes of a vad transfer by
operaton of aw.
ueston 7. The Trust Co. was actng as trustee under a revoca-
be vng trust agreement, whch provdes that the settor may at
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363
Regs. 71, rt. 34.
any tme revoke n whoe or n part, or modfy, ater, or amend the
trust agreement. The trust agreement contans no specfc provson
for a successor trustee and no modfcaton of the agreement has
been made. If appcaton s made to the Common Peas Court
of R County by the qudator of the Trust Co., the settor, or any
benefcary under the trust agreement whereby a successor trustee
s apponted by the common peas court n the e ercse of ts equty
powers (there beng no specfc statute n the State of Oho con-
ferrng authorty upon a partcuar court to appont a successor
trustee n the case of a vng trust), and a decree s entered remov-
ng the State superntendent and desgnatng the Z ank as succes-
sor trustee, vestng t wth fu ega tte to the entre trust estate
and drectng the State superntendent to dever such forma nstru-
ments of transfer as may be necessary for record purposes, w the
stamp ta attach to the transfer of securtes n such a transacton
nswer. The transfer s not sub|ect to ta .
ueston 8. Under the provsons of Reguatons 71, artce 35(k),
deveres or transfers from a fducary to a nomnee of such fdu-
cary, and from the nomnee to such fducary, are not sub|ect to
ta f such deveres or transfers are accompaned by a certfcate
settng forth the facts. If the State superntendent n charge of
the assets of the Trust Co. and of the trust estates hed by t
transfers the assets of a partcuar vng trust estate to a nomnee,
and thereafter and by agreement of the State qudator, the settor,
and the Z ank, the bank s substtuted as trustee, the nomnee agree-
ng to act as nomnee of the successor trustee, w the stamp ta
attach to the transfer of securtes n such a case
nswer. The transacton s sub|ect to ta . The provson n the
statute reatng to nomnees does not contempate a stuaton whch
resuts n a substtuton of fducares as we as nomnees.
ueston 9. The State superntendent of banks of Oho s an
admnstratve offcer of that State n charge of the qudaton of
cosed banks. If the State superntendent as qudator of the
Trust Co. transfers assets beongng to a trust estate of whch the
Trust Co. was trustee, does the edera stamp ta attach n any
event, the transfer beng by an admnstratve offcer of the State
of Oho n the performance of hs dutes
nswer. The transfer of securtes by the State superntendent
as qudator s not such a transfer as woud be e empt from the
ta . The mmunty from edera ta aton attaches ony n those
cases where the burden of the ta fas upon the State or ts agences
and not n a case where the ta s actuay pad out of the assets
of other partes.
ueston 10. If the State superntendent of banks, n charge of the
qudaton of the Trust Co., transfers to a successor trustee bonds
whch are obgatons of a State or a potca subdvson thereof,
and whch consttutes a part of the assets of a trust estate hed by
the Trust Co., are such transfers sub|ect to the stamp ta
nswer. The transfers referred to n ths queston are not sub|ect
to ta n vew of the provsons of secton 801 of the Revenue ct
of 1926, as amended by secton 441 of the Revenue ct of 1928.
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Regs. 42, rts. 1, 8, 25, 34.
364
SC DUL -8 OP T R NU CT O 1926, S DD D Y
S CTION 725 O T R NU CT O 1932. D DS O CON-
Y NC .
Reguatons 71, rtce 76: ctua vaue at II-27-6272
tme of conveyance the measures of the ta . S. T. 688
Ta abty of a deed of conveyance where the consderaton
conssts of annutes.
dvce s requested concernng the appcaton of the stamp ta
under secton 725 of the Revenue ct of 1932 to a deed of conveyance
of rea property e ecuted under the foowng crcumstances:
The consderaton rected n the deed s that the grantee sha
pay to the grantor the sum of per month for a perod of 40
years, but the grantee has the rght to have the present vaue of the
annuty determned and to pay t n fu at any tme. ddtona
consderatons provde for the payment of the sum of to
a desgnated party wthn fve years and an annuty of per
month to the wfe of the grantor for and durng the term of her
natura fe.
Where the consderaton for a conveyance of ands, tenements, or
other rea property s eft open, to be f ed by future contngences,
the actua vaue of the property at the tme of conveyance s the
measure of the ta upon the deed, nstrument, or wrtng whereby the
conveyance s made. Therefore, the deed requres documentary
stamps cacuated on the actua vaue of the property at the tme
conveyed.
TITL S I ND . M NU CTUR RS CIS ND
MISC LL N OUS T S. (1932)
Reguatons 42, rtces 1, 8, 25, 34: ffectve II-34-6361
perod. T. D. 4382
Ta on teegraph, teephone, rado and cabe factes trans-
portaton of n by ppe ne safe depost bo es checks and
eectrca energy. Ttes I and of the Revenue ct of 1932,
amended by secton 212 of the Natona Industra Recovery ct.
rtces 1, 8, 25, and 34 of Reguatons 42, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Ttes I and of the Revenue ct of 1932 were amended by
secton 212 of the Natona Industra Recovery ct (approved une
16. 1933), whch reads, n part, as foows:
Sec. 212. Ttes I and of the Revenue ct of 1932 are amended by
strkng out 1 )34 wherever appearng theren and by nsertng n eu
thereof 1935 .
In conformty wth the provsons of aw quoted above, Regua-
tons 42, approved October 22, 1932, are amended as foows:
rtce 1 s amended to read as foows:
rtct-e 1- ffectve perod. The ta s mposed upon payments for the
transmsson by teegraph, teephone, cabe, or rado of dspatches, messages.
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365
egs. 71, rt. 58.
and conversatons orgnatng n the Unted States on or aft r une 21, 1932,
and before uy 1, 1935, regardess of the date of payment.
rtce 8 s amended to read as foows:
rt. 8. ffectve perod. The ta mposed under secton 701 (a)2 attaches
to the amount pad on or after une 21, 1932, for any eased wre or takng
crcut speca servce furnshed on or after une 21, 1932, and before uy 1,
193 ). If the rendton of the servce occurs wthn the effectve perod of the
aw the tar attaches thereto even though the payment therefor s made on
or after uy 1, 1935.
rtce 25 s amended to read as foows:
rt. 25. ffectve perod.- The ta mposed under secton 731 appes to a
transportaton of crude petroeum and qud products thereof by ppe ne where
the movement begns on or after une 21, 1932, and before uy 1, 1935, e cept
that the ta under secton 731 (a) 1 Is mposed ony when payment for the
transportaton s made on or after une 21, 1932. In the case of any such
transportaton by ppe ne where the movement orgnates pror to uy 1,
1935, and ends on or after that date, the tu attaches to the entre amount
charged for the transportaton, athough pad on or after uy 1. 1935.
rtce 34 s amended to read as foows:
rt. 34. ffectve perod. The ta attaches to a nstruments specfed n
secton 751 when presented for payment to a bank, banker, or trust company
on or after une 21, 1932, and before uy 1, 1935.
Guy T. eveung,
Commssoner of Interna Revenue.
pproved ugust 9, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
TITL IL MISC LL N OUS T S. (1928)
SC DUL -5 O TITL III O T R NU CT O 1926, S
M ND D Y S CTION 442 O T R NU CT O 1928.
Reguatons 71, rtce 58: Passage tckets to II-41-6446
ports not n the Unted States, Canada, Me - S. T. 705
co, or Cuba.
Where a return or a round the word tcket s sod abroad wth-
out contanng data for passage from the Unted States, the entry
of such data n ths country consttutes the ssuance of a pas-
sage tcket n the Unted States.
dvce s requested whether any stamp ta s due where a return
or a round the word tcket s sod n a foregn country wthout
contanng data for passage from the Unted States, and s competed
n the Unted States by ndorsng thereon the name of the steamer,
sang date, etc.
It s hed that where a round trp or round the word passage
tcket sod abroad s ncompete, the name of the steamer and the
date of sang from the Unted States beng omtted, the entry of
such data by the steamshp company n ths country consttutes the
ssuance n the Unted States of a passage tcket, whch s ta abe
under Schedue -5 of Tte III of the Revenue ct of 1926, as
amended by secton 442 of the Revenue ct of 1928. The under-
yng reason for ths concuson s that before the entry of the data
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Regs. 43-11(1926), rt. 5.
366
n ths country the purchaser has no nstrument whch can be ac-
cepted for a contnuaton of the trp. The entry of the name of
the shp and the date of sang s requred before the tcket can
be used.
The devery of the tcket wth the compete data consttutes the
ssuance of a passage tcket, and thus brngs the transacton wthn
the provsons of the aw mposng the ta .
TITL . T ON DMISSIONS ND DU S. (1926)
dues ta revenue acts of 1921. 1024, and 1026 decson of court.
Soca Organzaton utomob|| Cub.
country cub organzed for the convenence and accommodaton
of motorsts, whch furnshes to ts members servces smar to
those rendered by the mercan utomobe ssocaton, and whch
owns and occupes property used as a cubhouse equpped for soca
and athetc actvtes, s a soca rather than a cvc organzaton,
and s propery sub|ect to the ta mposed by secton 801 of the
Revenue ct of 1921 and secton 501 of the Revenue cts of 1924
and 19-26.
Unted States Dstrct Couet, Western Dstrct of Mssour.
Southrdge Country Cub, a Corporaton, pantff, v. Noah Crooks, Coector of
Interna Revenue, defendant.
The Court. Gentemen, I wsh I had some tme to read the authortes so
that I coud more easy make references n decdng ths case, and by makng
such references support my vews wth ctatons of authortes. It s my opn-
on that ths statute evyng a ta upon cubs and the wordng of t ns we as
the reguatons that were promugated by the Commssoner of Interna Reve-
nue had n mnd the e empton of those cubs whch were n fact an ncdent
to some other prme busness, and as counse made ther arguments and cted
cases I had n mnd, for nstance partcuary dd I have n mnd the church as
an ustraton, for the reason that s referred to by the Commssoner n nter-
pretng hs reguatons. It Is not unusua fqr churches to have swmmng poos
and athetc equpment, athetc rooms, readng rooms and varous means of
entertanment and soca mprovement, a conducted as an ncdent to the
man ob|ect of the church. I have no doubt t was the ntenton of Congress to
e empt such soca features from ta aton. nd n dong that t was provded
that where the ob|ect was some other purpose, such as regon or cvc mat-
ters, and where but ncdenta and for the purpose of promotng the man
ob|ect, whether t be cvc or regous, Congress ntended to e cuse or e empt
such ncdenta organzatons from the ta otherwse mposed.
I was nterested n the case that I assume came from the Dstrct of Coum-
ba, and I ddn t understand t was before the Court of Cams yes, t was
before the Court of Cams and not n the Dstrct of Coumba t had to do
wth the bank organzatons.
Mr. Donney. Of Chcago.
The Court. It was Chcago was t (Contnung.) Where t was the cus-
tom of these men to meet for uncheon and there dscuss busness probems, and
then ncdentay there were some cub features and entertanment features.
pparenty from the court s decson the whoe organzaton was desgned to
dscuss busness probems and these probems were dscussed there. I can
ready see where the courts woud e empt a cub of that sort from ta aton
Reguatons 43-11(1926), rtce o: Soca
cubs.
II-50-6557
Ct. D. 762
une 25, 1933.
OPINION.
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367 Regs. 43-11(1926), rt. 5.
upon the ground that the predomnant and chef ob|ect of each day s meetng
was for the purpose of dscussng busness probems and that ncdentay for
the purpose of makng ther work more effectve and to factate ther work
they provded some soca features. These were but ncdenta, as hed by the
court.
The queston n ths case Is whether or not the utomobe Cub of ansas
Cty was e cusvey a cvc organzaton and whether the soca features attend-
ng t were but Incdenta. The testmony dscoses that the cubhouse and
grounds utzed by the utomobe Cub were some 16 mes from ansas
Cty, beautfuy ocated, and moreover that the cub was equpped wth ampe
and arge grounds and wth a commodous budng. The orgna budng had
been consumed by re and another budng was constructed n 1916, Is my
recoecton of the evdence. The prme queston woud be at the begnnng as to
whether or not the cubhouse thus stuated coud |usty have for ts ob|ect some
cvc purposes. n anayss mght brng out the queston as to whether or not
a cvc cub woud be organzed wth greater convenence to the mmedate
pubc so that Its contacts woud be greater and the ob|ects of ts organzaton
coud be made more effectve. In other words woud a cvc organzaton, hav-
ng n mnd some cvc beneft or purpose, or the promoton of the pubc good,
woud t organze and construct ts cubhouse and buy equpment some 16 mes
from the center of the cty wheren resded the greater number, probaby a,
of the cub members That presents a serous queston, that s on the queston
as to whether or not the soca features were a matera part of ths cub s
organzaton.
There was evdence that there were cvc features and that commttees were
apponted and that the funds of the cub were used for the purpose of markng
streets and hghways, od tras, acquantng the pubc wth the best means of
trave. There was evdence that they had a egsatve commttee, the ob|ect
of whch was to provde for mprovement of the hghways. Moreover that the
cub gave ts nfuence, whch must have been a very consderabe one, to the
promoton of bonds, both for the budng of hghways n Mssour and for the
purpose of provdng for ther retrement by the mposton of an approprate
ta upon gasone. No queston but that the cub partcpated n cvc enter-
prses. On the other hand, there was evdence that the cub mantaned cub
rooms, as I sad, some 16 mes from ansas Cty, rooms and a cubhouse that
woud be reached by persons who drove automobes that meas were served,
the cub members were accommodated by the convenence that was gven them
to have partes, dnner partes and dances provson was made for the payng
of gof, and aso for those members who desred to partcpate n trap shootng,
that ths convenence was aso provded for them, athough t appears that the
traps were rented nstead of beng bought outrght by the cub, yet the cub
furnshed much of the equpment used n carryng on ths partcuar dverson.
The ncome from the varous soca features of the cub was consderabe.
The facts are that the annua dues pad by the membershp when t reached
3,200, f upon the bass of 10 per member, as s contended, these 1ues woud
amount to appro matey . 30,000, whereas the soca features, that s the ncome
from other features, was greater than that. The cub grounds and equpment
for the accommodaton of the members had a vauaton n e cess of 50,000, as
I understood was carred upon the books of the cub.
The organzaton of the cub and ts assocaton wth the mercan uto-
mobe ssocaton I beeve s the name of the natona cub dd not wthn
tsef mark t as a cvc cub. The mercan utomobe ssocaton undoubt-
edy has some cvc features, but as I gathered from the testmony the forma-
ton of ths cub and ts assocaton wth the mercan utomobe Cubs had
for Its nn ob|ects the convenence and accommodaton of the members because
of the recproca courteses that coud be e tended.
I thnk ths s a feature of every soca enb n the Unted States. Most of
them are affated wth other cubs courteses are e tended to members of each
cub when such member happens to bo wthn the |ursdcton, or rather near
the assocaton s cnb and ts quarters. The very fact that the members dd
fnd t convenent to have somebody tow them n when ther automobe refused
to run was not a cvc matter. That was purey a matter of the membershp
and the soca beneft that came, or rather a busness beneft that came to them
by reason of tho fact that they were members of the same cub. The very fact
that the arrangement was made whereby the members en|oyed a reasonabe
degree of mmunty from arrest where they transgressed the ordnances of
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Regs. 43-11(1926), rt. 5.
368
the cty was not a cvc matter. On the other hand that was contrary to
cvc benefts. cub member who because of hs assocaton wth others and
through a commttee coud make an arrangement wth the poce department to
e cuse hm from voatng the traffc ordnances does not promote pubc
good on the contrary, that of course s more or ess sefsh. It was desgned
to gve members of the utomobe Cub speca mmunty from arrest, detan-
ment and detenton when they voated the aw. That was emphaszed as one
of the cvc vrtues of ths utomobe Cub.
The ony servces that I was abe to gather from the testmony that the
cub rendered n a cvc way was the fact that through some approprate com-
mttee t advocated mproved road systems, promoted the adopton of bonds,
the consttutona amendment provdng for bonds, and some other matters of
that sort. I thnk t s n matter of common knowedge that a cubs may be
caed upon at dfferent tmes to do that.
The crcumstance that the cubhouse was some 16 mes from ansas Cty
and desgned for the use and accommodaton of the members, he fact members
repared thereto for the purpose of entertanment, such as dnners, dauces,
gof, trap shootng, a woud negatve the thought t was engaged e cusvey
n cvc enterprses, but, on the contrary, t woud not be dened that these were
matera factors of the ck b. Moreover, as a practca proposton, what pos-
sbe servce coud 3,000 members render n promotng some cvc good by gong
out to a cubhouse 16 mes from the cty It dd not appear from the evdence
that they met there n conventon or n mass meetng of the cub members for
the purpose of adoptng resoutons or |onty advocatng the enactment of a aw.
The work that was done on cvc matters, ns I gathered from the testmony,
was done by commttees. Practcay a the actvtes about the cubhouse were
of a soca nature. There was evdence there was some actvtes there where a
few members of the cub woud meet, such as commttees, for the purpose of pro-
motng cvc matters, but, as I stated, these commttees apponted by the cub
for the purpose of promotng cvc matters were certan members of the cub
apponted on ths commttee, whch was one of many commttees. There were
other commttees apponted, apparenty, and equay actve, for the purpose of
promotng the entertanment of members.
I have stened, gentemen, to a the evdence n the case and t was my
opnon from ths evdence that whatever the orgna ob|ect of the cub,
whch t s sad here was for the purpose of debate, terature and the study of
mechancs, these are not cvc ony n so far as the mprovement of one n
debate and the study of terature or an acquantance wth mechancs woud
beneft the genera pubc. The genera wefare s aways promoted by terature,
art and a knowedge of mechancs, but that coud equay be sad of athetcs,
that t promotes the genera wefare because men and women who partcpate
n athetcs and make ther bodes strong are more hepfu to the pubc thau
those who go around wth weak bodes. So that anythng that promotes heath
and we-beng of the ndvdua contrbutes to the genera wefare. ut I am
very frank to say that the study of the testmony as t was admtted does
not convey to me very much n the actvtes of ths cub that pertans to cvc
matters. I am not sayng that t dd not have some of those features and n
sayng that I am not at a crtca of the thngs they dd, because I thnk
they were commendabe these peope formng an utomobe Cub where they
coud come together and have ther unches and mutuay hep each other out
of the mud when they got stuck, f I may use that e presson, are hepfu
to each other. That was an organzaton formed for mutua beneft, one to the
other. s the necessty for tow-n and for courteses dsappeared because of
the convenence that the whoe pubc has en|oyed, why, then the work of the
cub as a cub for each other n that regard dsappeared.
ut t appeared from the evdence that they had dancng and uncheon
arrangements there and provsons for gof and aso for trap shootng at the
tme that these ta es were frst assessed n 1923, athough the matter of gof dd
not become conspcuous unt probaby 1925.
It s my opnon upon a the evdence n the case that ths cub s not e empt
from the ta and t s proper for the Government to evy the ta , and that
the Government s entted to retan the ta that was pad. So that the ssues
In the case must be found for the Government.
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369
Regs. 47(1924), rt. 16,
SC DUL -7 O TITL III O T R NU CT O 1926.
ST MP T ON OR IGN INSUR NC POLICI S.
Reguatons 71, rtce 64: What nstruments II-27-6273
must bear a stamp. S. T. 689
Ta abty of a foregn nsurance pocy orgnay ssued for
one amount but subsequenty canceed and a new pocy ssued for
a ess amount.
dvce s requested whether the e ecuton of a foregn nsurance
poc 7 under the foowng crcumstances w ncur the ta mposed
by Schedue -7 of Tte III of the Revenue ct of 1926.
Certan underwrters of London. ngand, underwrote an nsur-
ance pocy n the amount of 20 doars for a perod of one year.
When the year was three-quarters past, the underwrters dd not care
to contnue the rsk and proposed to ether furnsh a new pocy or
amend the od one so as to show a rsk of 15a doars ony. Other
underwrters of London agreed to underwrte the remanng 5a
doars of the orgna 20 doars pocy, by ssung a new pocy n
the amount of 5 doars, whch w e pre smutaneousy wth the
orgna 20a doars pocy.
It s hed that the premum pad on the 5 doars pocy w ncur
the ta mposed by Schedue -7 of Tte III of the Revenue ct
of 1926. If the orgna poc 7 for 20 doars s canceed and a new
pocy wrtten n the amount of 15a doars and a premum s charged
on such amount, a stamp ta w aso be ncurred on the new pocy
for 15a doars. owever, f the orgna pocy s merey amended
so as to show a rsk of 15 doars ony and no premum s charged,
no stamp ta abty w be ncurred.
TITL I. CIS T S. (1924)
UTOMO IL P RTS ND CC SSORI S.
Reguatons 47(1924), rtce 16: Defnton II-27-6271
of parts and accessores. Ct. I). 696
CIS T S R NU CTS O 1921 ND 1924 D CISION O COURT.
1. utomobe ccessores Sae by Manufacturer.
Weed chans sod by a manufacturer to |obbers and dstrbu-
tors were prmary desgned and adapted for use and chefy used
upon motor vehces the sae of whch was ta abe under the prov-
sons of secton 900(3) of the Revenue ct of 1921 and secton
600(3) of the Revenue ct of 1924, and were propery ta ed as
accessores wthn the meanng of the sectons referred to, even
though they may have been actuay used for some other purpose.
2. Decson Reversed.
The decson of the dstrct court (58 ed. (2d), 248) reversed.
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Regs. 47(1924), rt. 16.
370
Unted States Crcut Court of ppeas for the Second Crcut.
Robert 0. aton, Coector of Interna Revenue of the Unted States for the
Dstrct of Connectcut, defendant-appeant, v. mercan Chan Co., a Corpora-
ton, pantff-appeee.
March 7, 1933.
OPINION.
ppea from the Dstrct Court for the Dstrct of Connectcut. ctons at
aw to recover ta es p:t under duress. udgments for pantff defendant
appeas. Reversed.
Manton, Crcut udge: These three consodated causes resuted beow n
|udgments for refunds of manufacturer s e cse ta es, amountng to 040,508.43,
pad on the manufacture and sae of Weed chans, a product of the appeee.
The ta was mposed under the terms of secton 900(3) of the Revenue ct
of 1921 and secton 000(3)- of the Revenue ct of 1924 for the perods of uy,
1922, to uy, 1924. The ta ng statute requres a monthy return. The 1921
ct provdes:
That from and after auary 1, 1922, there sha be eved, assessed, co-
ected, and pad upon the foowng artces sod or eased by the manufacturer,
producer, or mporter, a ta equvaent to the foowng percentages of the
prce for whch so sod or eased (1) utomobe trucks and automobe
wagons (2) Other automobes and motor cyces e cept
tractors, (3) Tres, nner tubes, parts, or accessores for any of
the artces enumerated n subdvson (1) or (2), sod to any person other than
a manufacturer or producer of any of the artces enumerated n subdvson
(1) or (2) .
The ct of 1924 reads:
On and after the e praton of 30 days after the enactment of ths ct
there sha be eved, assessed, coected, and pad upon the foowng nrtcea
sod or eased by the manufacturer, producer, or mporter, a ta equvaent
to the foowng percentage of the prce for whch so sod or eased (1)
utomobe truck chasss and automobe wagon chasss (2) Other
automobe chasss and bodes and motor cyces (3) Tres, nner
tubes, parts or accessores for any of the artces enumerated n subdvson
(1) or (2), sod to any person other than a manufacturer or producer of any
of the artces enumerated n subdvson (1) or (2). 2 per centum. Ths
subdvson sha not appy to chasss or bodes for automobe trucks, automobe
wagons, or other automobes .
ppeee manufactures Weed chans and the saes ta ed were made to
others than manufacturers of automobe trucks, automobes, and motor
cyces to |obbers and dstrbutors. The ta was mposed ony where the
purchaser dd not Indcate the purchase was beng made for a nonta abe
use and was mposed n conformty wth artces 15 and 16 of Reguatons 47
promugated by the Treasury Department. These reguatons, n substance,
defned accessores as artces desgned to be attached to and used n connec-
ton wth automotve vehces, referred to n subdvson (1) and (2) of each
ct, to add to ther utty or ornamentaton and whch arc prmary adapted
for use n connecton wth such vehces whether or not essenta to ther
operaton. The Weed chans were advertsed by the appeee to the pub
as adapted for and meetng the essenta requrements of every known make
of automobe and auto truck and the Commssoner found them to be acces-
sores. No ta was mposed by the |obber or dstrbutor when he sod to the
deaer who n turn sod to the user. The chans were patented and were
desgned and prmary adapted for automobe use. Later, when the auto-
mobe truck came nto use, they were redesgned and adapted for use on
trucks. ppeees have cassfed ther chans as truck chans, Weed
Reguars and Weed Reguar Cord Chans. Some chans were usabe by
tractors and fre trucks, but ther use was chefy for automobes and auto-
mobe trucks. The ta s mposed as a revenue-rasng measure.
It s true, f there s a doubt as to the ta payer s abty, t shoud be
resoved n hs favor mercan-La rance re ngne Co. v. Rordan, G ed.
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371
IRegs. 47(1924), rt, 16.
(2d), 964 (C. C. . 2) T. D. 3536, C. . II-2, 3031). St, the purpose of the
statutes must be gven fu effect, f possbe, and the cam of e empton from
ta aton must be cear enough. ( ank of Commerce v. Tennessee, 161 0. S
124.) The scheme of the statute seems cear. The 1921 ct and the 1924
ct both show an ntent by Congress to ta (frst) automobe trucks and
automobe wagons and accessores therefor, sod on or n connecton therewth
and wth the sae thereof at a f ed rate of 3 per cent (second) other auto-
mobes and motor cyces ncudng the accessores sod on or n connecton
therewth and wth the sae, e cept tractors. 5 per cent and (thrd) t m-
poses the ta when the parts and accessores are sod unattached, 5 per cent.
In each Instance the ta s mposed upon the manufacturer or the producer of
the artces enumerated. If the chans are accessores, t s cear that Congress
mposed a ta upon them when sod by ths manufacturer.
The patent rghts secured from the Unted States ceary specfy that the
chans were adaptabe for use on automobes to prevent skddng. They were
descrbed as prmary usefu for ths purpose. If Congress had ntended to
gve e empton to such an accessory to an automobe, t woud have so stated
as t dd n the case of tractors by reference n the statute, or t woud have
mted the anguage of the statute so as to afford ceary an e empton therefor,
but t used the word parts or accessores. The use of such generc words
ntended, we thnk, that they shoud be gven a broad sgnfcaton to effectuate
the purposes of the statute. (Worth ros. v. Lederer, 251 U. S., 507 orged
Stee Whee Co. v. Leweyn, 251 U. S., 511.) In Unversa attery Co. v. Unted
States (281 U. S., 580 Ct. D. 220, C. . I -2, 422)), speakng of the statute,
tbe court sad:
Thus the scheme of ta aton emboded n these provsons centers around
the motor vehces enumerated theren. Ther sae s the prncpa thng that
Is ta ed, and the sae of parts and accessores for such vehces s ta ed
because the parts and accessores are wthn the same fed wth the vehces
and used to the same ends.
The Supreme Court referred to Reguatons 47 of the Commssoner wth
approva, sayng:
The reguatons aso have construed the term accessory as meanng
any artce desgned to be used n connecton wth such vehce to add to
ts utty or ornamentaton and whch s prmary adapted for such use,
whether or not essenta to the operaton of the vehce. Ths constructon
of those terms has been adhered to n the Interna Revenue ureau for about
10 years and t ought not to be dsturbed now uness t be pany wrong. We
thnk t s not so. but t Is nn admssbe constructon . We thnk the
vew taken n the admnstratve reguatons s reasonabe and shoud he
uphod. It s that artces prmary adapted for use n motor vehces n e
to be regarded as parts or accessores of such vehces, even though there
has been some other use of the artce for whch they are not so we adapted.
It can not be serousy doubted that the Weed chans made under the cr-
cumstances descrbed were desgned and prmary adapted for use n auto-
mobe trucks, wagons, other automobes and motor cyces. The testmony
estabshes that the Weed chans were desgned, adapted and advertsed to meet
the essenta requrements of automotve power vehces and were necessary to
the accompshment of ther functons. In a f ed way, they are a part of
the machne and consequenty are accessory to the machne.
The court beow consdered 49 specfc szes of the appeee s producton of
the Weed chans and ther parts, and hed that ther saes are e empt from
the statute and that no ta shoud be pad. It was concuded beow that the
prmary adapton rue, referred to n Unversa attery Co. v. Unted States
(supra), as no appcaton to cases where the appeee, by evdence of subse-
quent unta ed resaes, shows two uses, one of whch s the admtted prncpa
use on automobes and the other s a possbe e empted use even though t
be a dverted use. We thnk such a concuson gnores the chef or prncpa
use as beng determnatve of the prmary adapton rue, referred to by the
Supreme Court, and t aso assumes evdence of unta ed resaes for possbe
dverted uses, suffcent to overrde the prmary adapton rue. In the absence
of evdence showng that such dverted uses requred an artce of the same
desgn and prmary adapton as s requred for the automobe truck and
other motor vehce uses, the appeee coud not succeed. No effort hns been
made to show that the tense strength, twstng strans or weght of the
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Itegs. 47(1924), rt. 21.
372
chans were dfferent from those used and usabe on automobe trucks or other
automobes. On the contrary, the evdence supports the cam of the appeant
that a chan desgned and prmary adapted for use on an automobe truck
may be apped and used on the whees of a tractor havng comparabe szed
rubber tres. Indeed, there s no evdence that the chans referred to by the
court beow had the same desgn or prmary adapton for use on tractors.
We therefore concude that the chans for whch the ta has been Imposed
were prmary adapted for use and chefy or prncpay used for motor
vehces, enumerated n the statute, whch were ta abe, and are to be
regarded as parts or accessores of such vehces even though there has be n
some other use of the artces for whch they are not so we adapted. (Un-
versa attery Co. v. Unted States, supra.)
Moreover, the burden of proof was upon the appeee to estabsh the nvad-
ty of the ta . (Unted States v. Mtche, 271 U. S., 12 T. D. 3805, C. . -,
233 Unted States v. nderson, 209 U. S., 444 T. D. 3839, C. . -, 179
Unon Co. v. Unted States, 40 ed. (2d), 717 (Ct. of Cams).) It was
Incumbent upon the appeee to estabsh that the Weed chans were not desgned
or prmary adapted to use on automobe trucks, automobe wagons, other
automobes and motor cyces. Ths burden requred a showng that the specfc
chans sod and for whch the ta was mposed were desgned and prmary
adapted for some other specfc use than that of automobes. It s not
enough to show that of the 49 specfc szes referred to beow, at east one
other vehce mght have used them. The appeee admts that the chans
nvoved were chefy used and adapted for use on the vehces referred to as
ta abe n the statute and seeks ts refund on the bass that such chans
were appcabe for performng certan dutes such as furnshng tracton ony
Wth respect to other vehces. Such assumpton dues not mean that the
chans were not desgned nor prmary adapted for use on automobe trucks
or other vehces referred to In the statute as ta abe. To succeed, th
appeee shoud have shown by evdence adaptaton for other uses. In the
absence of evdence of such a showng, t was erroneous to hod that chans
equay adapted for a varety of uses for tracton purposes ony and commony
put to such uses, one of whch s on automobes, can not be cassfed as parts
or accessores of such vehces. Ths does not mean that the chans nvoved
can be so cassfed ony where they are adapted soey for use on motor
vehces and are e cusvey so used. (Magone v. Wederer, 159 U. S., 555.1
ut where the chans were sod, and are predomnanty and chey used, aa
parts or accessores of such automobe trucks, other automobes and motor
cyces, the saes are ta abe n the absence of evdence showng the chans
nvoved were not desgned and prmary adapted for such use. The appeee
has faed to estabsh ts nonta abe saes.
It s an nsuffcent answer to say that the appeee dd not know and haa
no way of ascertanng the amount of the saes of chans for use on other
than automobe trucks, other automobes and motor cyces. (Perfecton Gear
Co. v. Unted States, 41 ed. (2d). 5G1 (Ct. of Cams) urnet v. ouston,
283 U. S., 223 Ct. D. 328, C. . -, 343 .)
We need not consder whether the cam that secton 424 of the Revenue ct of
1928 precudes a recovery because of the vew we take that the appeant
has faed to estabsh the rght to recover back the ta es pad.
udgments reversed.
Reguatons 47(1924), rtce 21: Con-operated II 4-6481
devces and machnes. Ct. D. 747
e cse ta revenue act of 1921 decson of court.
1. utomatc Payer Panos Oon-Operated Devces.
utomatc payer panos are sub|ect to ta as con-operated
devces, wthn the meanng of secton 000(8) of the Revenue ct
of 1924.
2. Case Dstngushed.
Sccburg Pano Co. v. Unted States (02 C. Cs., 281 T. D. 3893,
C. . -2, 225 ) dstngushed.
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373
IRegs. 47(1924), rt. 21.
Dstrct Court of the Unted States, Western Dstrct op New York.
Remngton-Rand, Ino., pantff, v. ert P. Gage, as Coector of Interna Reve-
nue, as mended, mecutor Unknown, of the state of Mrs. ert P. Gage,
Deceased, defendant.
uy 12, 1933.1
OPINION.
der, Dstrct udge: Ths s an acton brought by Remngton-Rand, Inc.,
for the recovery of manufacturers e cse ta pad by the Rand Co., Inc., for
the perod uy 3, 1924, to September 30, 1925, n the amount of 6,237.88, and
the sum of 2,312.38 pad by the Rand Carde Co., Inc., for the perod September
30, 1925, to ebruary, 1926, makng a tota amount assessed of 8,550.26,
together wth nterest thereon.
The prncpa queston nvoved n ths case s whether or not the automatc
payer pano sod by the Rand company s sub|ect to ta aton as a con-operated
devce under the provsons of secton 000 of the Revenue ct of 1924.
further queston nvoved s whether the Remngton-Rand, Inc., succeeded to
the cams of ts predecessor companes.
Recent cts of Congress provdng for e cse ta es appcabe to ths case
were passe n 1918, 1921, and 1924. The Revenue ct of 1918. secton 900,
provdes for a ta on (4) panos, organs (other than ppe organs), pano
payers, graphophones, phonographs, takng machnes, musc bo es, and records
used n connecton wth any musca nstruments, pano payers, graphophones,
phonographs, or takng machnes. Paragraph (16) provdes for a ta upon
automatc sot devce vendng machnes, etc. Ths ct of 1918 was superseded
by the Revenue ct of 1921, whch omtted paragraph (4) of the 1918 ct on
panos, etc., and retaned the ta on automatc sot devce vendng machnes
usng the same anguage n paragraph (11) of the 1921 ct as was used n
paragraph (16) of the 1918 ct. The Revenue ct of 1921 was n turn super-
seded by the Revenue ct of 1924, whch s n substantay the same anguage
as the ct of 1921 wth the snge e cepton that nstead of usng the words
automatc sot devce vendng machnes, the ct of 1924 has changed the
anguage to con operated devce, con operated machne, and devces and
machnes operated by any substute for a con. It s under the ct of 1924
that the ta was eved n ths case. The hstory of the egsaton s pertnent
n determnng whether the payer pano manufactured and sod by the pantff
s ta abe under the 1924 ct.
It s cear that t was the ntenton of Congress n passng the Revenue ct
of 1921 to remove from ta aton under that ct musca nstruments whch
were ta ed under paragraph (4) of the 1918 ct. Paragraph (4) of the
1918 ct made no reference to sot devces n connecton wth musca nstru-
ments. Paragraph (16) of the 1918 ct ta ng automatc sot devce vendng
machnes was retaned wth the same anguage n the 1921 ct.
The case of Seeburg Pano Co. v. Unted States, reported n 62 Court of
Cams Reports, page 281, was decded under the Revenue ct of 1921. It
was there hed that an eectrca pano operated upon the depost of a con
n a sot provded for that purpose s not a sot devce vendng machne wthn
the meanng of paragraph (11) of that ct. The opnon n that case, whe
t states that the repea of paragraph (4) of the ct of 1918 s sgnfcant, fnds
t necessary to dscuss the queston of whether the con devce on the pano
brngs t wthn the prngrnph evyng a ta upon automatc sot devce
vendng machnes, and concudes wth we do not treat the hearng of musc
as a sae of the same. y ths anguage the court n that case took the pos-
ton that operatng a pano by depostng a con dd not make t a vendng
machne. It s true that the opnon goes further and states the vew that
the repea of paragraph (4) of the 1918 ct dscoses an ntenton to reeve
a musc from ta aton however produced. I am not ncned to agree wth
ths concuson, especay n vew of the change n the aw made by the
ct of 1924.
In 1924 the anguage automatc sot devce vendng machnes was changed
to con operated devces, con operated machnes, and devces and machnes
operated by any substtute for a con. Ths anguage makes t unnecessary
to dscuss whether or not the pano n queston s a vendng machne. It seems
to me cear that f pantff s pano s a con operated devce or a con operated
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Regs. 47(1924), rt. 30.
374
machne, t comes wthn the anguage cf the thngs t was ntended to ta .
Whatever t was, t was a devce or a machne operated by a con or by a
substtute for a con. There was evdence at the tra that the pano coud
be payed from the keyboard wthout the use of the con operatng devce.
The statute, however, s not made to appy to e cusvey con operated devces
and the fact that the devce or machne coud be made to operate n some
other way than by the nserton of a con, woud not take t out of the statute.
Nor do I thnk that the fact that a comparatvey sma part of the cost of the
nstrument s chargeabe to the con operatng mechansm has weght n
determnng whether or not the nstrument s con operated.
The case of mercan hctcr Co. v. McCauahn (1 ed. Supp., 753), athough
recenty decded, arose under the evenue ct of 1921 and s not n pont.
Sy concuson s that the pantff s pano s a con operated devce wthn
the meanng of the ta ng statute.
The defendant contends that the pantff can not mantan ths acton for
the reason that t was not the party n nterest n ths transacton and pad
none of the ta es In queston, and that ths case s brought wthn the prov-
sons of secton 3477 of the Revsed Statutes. Whe I am ncned to the
opnon that secton 3477 does not appy n tts case, yet I fnd t unnecessary
to pass upon that queston n vew of my concuson that the ta pad has
been propery eved.
udgment may be entered accordngy.
Reguatons 47(1924), rtce 30: Credts and II-31-6325
refunds. Ct. D. 712
D R L T S R IS D ST TUT S D CISION OP COURT.
Sut Statute of Lmtatons Reopenng of Cam fob Refund.
When appcaton s made by a ta payer for reopenng and recon-
sderaton of a re|ected cam for refund, a ree amnaton by the
Commssoner of Interna Revenue of the fes of hs offce per-
tanng to the case for the purpose of determnng whether there
s any bass for ta payer s request and notfcaton to ta myer
of dena thereof can not be regarded as a reconsderaton of the
cam upon ts merts, and a sut fed more than two years after
re|ecton of the cam but wthn two years after dena of reopen-
ng s barred by the perod of mtaton prescrbed n secton 322(5
of the Revsed Statutes.
Coubt of Cams of the Unted States.
ord Motor Co., a Corporaton, to the use and beneft of ece Tea Co., /no,
a Corporaton, v. The Unted States,
May 8, 1933.
OPINION.
Wams, udge, devered the opnon of the court.
The Government nterposes two defenses to pantff s rght to recover, (1)
that the ta es nvoved were egay mposed and coected under the provsons
of secton 000 of the Revenue ct of 1921, and secton 600 of the Revenue ct
of 1924, and (2) that the sut was not nsttuted wthn the tme requred by
secton 3220 of the Revsed Statutes, as amended.
Snce we are of the opnon pantff s rght of acton was barred by the
statute of mtatons nt the tme of fng the petton, t s not necessary to
consder and determne the queston as to whether the pantff s otherwse
entted to recover.
The cam for refund was dsaowed by the Commssoner of Interna Reve-
nue on ugust 31, 1928. The sut was nsttuted on March 17, 193. More than
two years havng eapsed after dsaowance of the cam before sut was
brought, the acton s ceary barred uness the Commssoner thereafter, wthn
te tme he was by aw permtted to do so, reopened the case and reconsdered
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375
Regs. 47(1924), rt. 30.
hs former acton. It s the contenton of pantff that the Commssoner dd
ths, and that the 2-year mtaton on the rght to brng sut started to ru
from March 18, 1929, the date on whch t s contended the Commssoner fnay
acted on the cam for refund.
The statute makes no provson as to the reopenng and reconsderaton of a
cam for refund after t as been formay dsaowed by the Commssoner of
Interna Revenue, but hs rght to do so s recognzed In Treasury Decson
3240 C. . 5, 313 , effectve at the tme reconsderaton was requested by
pantff on September 17, 1928. The rght of the Commssoner of Interna
Revenue to reopen and reconsder a dsaowed cam for refund Is aso recog-
nzed by the courts. (Southwestern O d Gas Co. v. Unted State , 29 ed.
(2d), 404 Ct. D. 36, C. . III-1, 211 Mobe Drug Co. v. Unted States, 39
ed. (2d), 940 Mc esson d Robbns, Inc., v. dwards, 57 ed. (2d), 147.)
The rue estabshed by the decsons s that when the Commssoner, upon
appcaton made after a decson dsaowng a cam, agan enters upon a con-
sderaton of the merts of the case, and ater renders hs fna decson thereon,
the tu payer has two years thereafter under secton 3226 of the Revsed Statutes
wthn whch to brng sut. It must appear, however, that the Commssoner
as n fact reopened the case and reconsdered t upon the merts. Where, how-
ever, the Commssoner after the recept of a request from a ta payer to have
hs case reopened and reconsdered merey ree amnes the fes of hs own offce
and revews the papers n the case for the purpose of determnng whether there
s any bass for the ta payer s request to have hs case reopened, and ater
notfes the ta payer of hs refusa to reopen the case for further consderaton,
t can not be sad he reconsdered the case upon the merts. ( ckman v. Unted
States, 47 ed. (2d), 328 Ct. D. 299, C. . -, 332 .) Ths seems to be what
the Commssoner dd, and a he dd n the nstant case. Immedatey after
recept of notce of dsaowance of ts cam by the Commssoner on ugust
31, 1928, pantff through ts counse went to the offce of the Genera Counse
of Interna Revenue and ntervewed attorneys there and oray asked for a re-
consderaton of the case. Pantff s counse at that, tme protested the Com-
mssoner s rung and caed to the attenton of the attorneys wth whom he
taked a former rung of the ureau of the date of March 16, 1920, hodng that
the chasss n queston were ta abe at the 3 per cent rate on automobe trucks
or automobe wagons. Later, on October 1, 1928, pantffs counse caed
agan at the Genera Counse s offce and eft a copy of ths order. Subsequenty
on November 16, 1928, pantff s counse fed wth the ureau a forma wrtten
request for reconsderaton of the case, to whch request he attached a copy of
the rung of March 16, 1920, and aso a copy of the subsequent order of ugust
20, 1923, revokng and modfyng such order.
No further conferences were hed between pantffs counse and ureau
offcas, and no etters or communcatons were thereafter e changed between
them. The Commssoner thereafter, on March 18, 1929, wrote a etter to
pantff n whch t was stated, The ureau s therefore constraned
to adhere to ts prevous re|ecton of the cam n queston and must decne
to reopen the same for further consderaton. The pantff paces some m-
portance on the fact that the ureau copy of the Commssoner s etter decn-
ng to reopen the case s stamped Cosed. Ths ndorsement has no speca
sgnfcance. The pantff, as we have seen, had the rght at any tme wthn
the 2-year perod foowng dsaowance of the cam wthn whch sut coud
be nsttuted, to request the Commssoner to reopen the case and reconsder hs
acton. Pantff e ercsed that rght and had requested that the case be re-
opened and reconsdered. The Commssoner upon a consderaton of the re-
quest decned to reopen the case and consder t further. On hs decson not
to reopen the case t was cosed so far as further acton upon t by the Comms-
soner was concerned, and the word cosed was very propery, though not
necessary, stamped on the ureau copy of the etter notfyng pantff that
the case woud not be reopened.
The phntff was not msed, and had no reason to beeve the case had been
reopened and reconsdered by the Commssoner. It had been defntey and n
e pct anguage nformed by the Commssoner that he had decned to reopen
the case. More than 17 months then remaned of the 2-year perod wthn whch
sut coud be nsttuted under secton 3226 of the Revsed Statutes. The pan-
tff dd not nsttute sut wthn the tme provded, and ts present acton,
brought after the bar of the statute had faen, can not be mantaned.
The petton s therefore dsmssed. It s so ordered.
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Regs. 47(1921), rt. 23.
376
CT O M Y 12, 1900, S M ND D Y S CTION 1013(a)
O T R NU CT O 1924. R D MPTION
O ST MPS.
II-38-6412
S. T. 700
ed that no aowance may be made for quor stamps whch
are stoen.
dvce s requested whether any aowance may be made for fer-
mented mat quor stamps whch were stoen from the offce of the
rewng Co. and aeged to have been destroyed.
Pursuant to the ct of May 12, 1900, as amended by secton
1013(a) of the Revenue ct of 1924, the Commssoner of Interna
Revenue s authorzed to make aowance for or redempton of
stamps whch have been spoed, destroyed, or rendered useess or
unft for the purpose ntended, or for whch the owner may have no
use, or whch through mstake have been mpropery or unnecessary
used, or where the rates or dutes represented thereby have been
e cessve n amount, pad n error, or n any manner wrongfuy
coected.
The mere fact that stamps have been stoen does not warrant the
concuson that they have been destro| ed. To |ustfy aowance or
redempton on the ground that the stamps were destroyed the cam
must be supported by an affdavt of an eye-wtness estabshng that
destructon actuay took pace. Obvousy, the theft of stamps does
not render them useess or unft for the purpose ntended.
Congress has made no provson for any aowance for stamps
whch have been ost or stoen. In such cases the oss must fa on
the owner and not on the Government. In other words, the ureau
s wthout authorty to e tend any reef for the oss of fermented
mat quor stamps whch are stoen.
TITL I . CIS T S. (1921)
Reguatons 47 (1921), rtce 23: utomatc II-44-64S2
sot-devce machnes. Ct. D. 748
e cse ta es revenue acts of 1918 and 1921 decson of court.
1. Prepayment Gas Meteb utomatc Sot-Devce endng
Machne.
gas meter wth a sot devce attached as a means of reeasng
and deverng a certan amount of gas to the consumer upon the
depost of a con s an automatc sot-devce vendng machne
wthn the meanng of secton 900(16) of the Revenue ct of
1918 and secton 900(11) of the Revenue ct of 1921, and s there-
fore sub|ect to ta .
2. Decson Reversed.
The decson of the dstrct court (1 ed. Supp., 753) reversed.
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377
Regs. 47(1921), rt. 23.
Unted States Cecut Court of ppeas for the Thrd Crcut.
akcy D. SfcCauffhn, Coector of Interna Revenue, defendant-appeant, v.
mercan Meter Co., pantff-appeee.
ppea from the Dstrct Court of the Unted States for the astern Dstrct of
Pennsyvana.
ugust 7, 1933.
OPINION.
uffngton, .: The decsve queston n ths ta case s whether the ta -
payer s gas meter was, under the Revenue cts of 1918 and 1921, an automatc,
sot vendng machne.
The ta payer made a patented devce adapted to operate a reease when a
con s dropped n ts sot. The devce when sodered, as was ntended shoud
be done, to a gas meter, a quarter doar deposted n ts sot, reeased and
devered to the depostor of the con 250 feet of gas. To answer the ques-
ton whether such apparatus was an automatc, sot vendng machne, we
take these four words and ascertan ther common, everyday meanng. Is the
apparatus a machne ssuredy so, for the dctonary defnes a machne as
any combnaton of nanmate mechansm for utzng or appyng power.
In the use of the present devce we have two partes a seer and a buyer
the commodty, gas the quantty desred, 250 feet the prce, 25 cents. Wth-
out the agency of ether party, the devce automatcay receves the money from
the buyer and hods t for the seer, automatcay measures the product, auto-
matcay devers t to the buyer. The sae s effected by a sot whch receves
the con of the buyer by gravty takes t out of the contro of the buyer
and by gravty puts t n contro of the seer and at the same tme reeases
the barganed amount of gas and devers t to the buyer. The contract, sae,
devery and payment are a effected by mechansm, automatcay, and wthout
any workng human agency.
Such terms as sot machne as an agency for seng sma artces, ncke
n the sot were n common use and ceary defned In the pubc speech ths
type of seng agences. Presumaby Congress used these words and terms
n ther common everyday meanng and consequenty there s no uncertanty
n the statute. endng s a synonym for seng. It s a mere abstracton now
to say that the transacton here nvoved was a cense, a permt, a prvege
of usng gas and not a sae of a commodty. Where, as here, the words of
a statute are cear and unambguous, there s no ca for testmony or reasonng
to attrbute some magnary meanng to them. The facts show that the devce
n queston works automatcay, that t s a machne, that t s a seng
machne, a product devery machne and a prce coectng machne that t
does away wth human contro, agency, work and e ercse of w power.
What was meant and effected was a sot-made sae. We hod, therefore, that
t s an automatc, sot vendng machne and comes wthn the statutes n
queston. ccordngy the |udgment beow s reversed and the record remanded
for procedure n accord wth ths opnon.
37408 34 25
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MISC LL N OUS T RULINGS,
TITL I . T ON CIG RS, TO CCO, ND
M NU CTUR S T R O . (1926)
S CTION 317 (T RI CT O 1930). TO CCO, TC.,
OR S STOR S.
Reguatons 76(1931), rtce 11: ond. II-46-6516
T. D.4405
TO CCO S STOR S W R OUS OND.
Secton 317, Tarff ct of 1930. rtce 11, Reguatons 76,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The frst sentence of artce 11, Reguatons 76, approved uy 3,
1931, s hereby amended to read as foows:
rt. 11. ond. Upon approva of the appcaton to estabsh a bonded
warehouse, a bond must be e ecuted on orm 549- , n dupcate, n a pena
sum suffcent to cover the amount of ta whch may at any tme consttute
a charge aganst the bond and n no case ess than 1,000.
Guy T. everno,
Commssoner of Interna Revenue.
pproved November 7, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
Reguatons 76(1931), rtce 20: Credt for II-42-6460
shpment n account kept wth each bond. T. 2
Where tobacco products wthdrawn for use as sea stores arc
destroyed before devery to the vesses to whch consgned, the
manufacturer s abe for the ta thereon.
The queston s presented whether a manufacturer of tobacco
products (cgarettes) s abe for the ta on such products whch
were wthdrawn as sea stores wthout payment of the ta thereon,
but were destroyed by fre before devery to the vesses to whch
consgned.
Secton 317 of the Tarff ct of 1930 reads as foows:
The shpment or devery of manufactured tobacco, snuff, cgars, or cgarettes,
for consumpton beyond the |ursdcton of the nterna-revenue aws of the
Unted States, as defned by secton 3448 of the Revsed Statutes, sha be
deemed e portaton wthn the meanng of the customs and nterna-revenue
(378)
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379 Regs. 76(1931), rt. 20.
aws appcabe to the e portaton of such artces wthout payment of duty or
nterna-revenue ta .
Ths provson s desgned to permt the wthdrawa and shpment
of tobacco products wthout payment of ta for use as sea stores on
vesses beyond the 3-me mt (artce 1 of Reguatons 7G). The.
shpment of tobacco products for use as sea stores s not specfcay
e empted as such but the e empton s granted by the ndrect
method of decarng that such shpment sha be deemed e porta-
ton wthn the meanng of the customs and nterna-revenue aws
appcabe to the e portaton of such artces wthout payment of
duty or nterna-revenue ta . The aw here made appcabe to
the shpment n queston s secton 1 of the ct of ugust 4, 1880,
whch provdes:
That manufactured tobacco, snuff, and cgars may be removed for e port
to a foregn country wthout payment of ta , under such reguatons, and the
makng of such entres, and the fng of such bonds and bs of adng as the
Commssoner of Interna Revenue, wth the approva of the Secretary of the
Treasury, sha prescrbe.
The controng prncpe n the nstant case s dentca wth that
nvoved n the case of wthdrawas for e port. Secton 1 of the ct
of ugust 4, 1886, supra, authorzes the wthdrawa of tobacco
products for e port wthout payment of ta ony under the cond-
tons prescrbed by the reguatons. Such wthdrawas are gov-
erned by Reguatons 73, artce 3 of whch prescrbes the gvng
of a bond ( orm 549) so condtoned as to requre evdence of actua
e portaton. There s no provson of aw under whch tobacco
products wthdrawn for e port wthout payment of ta and not
e ported may be e empted from abty to the ta , snce e emp-
ton s granted not upon wthdrawa for e port but upon proof of
e portaton.
The same rue appes to cgarettes wthdrawn for use as sea
6tores and destroyed before devery to the vesses to whch consgned.
The ta on cgarettes s mposed by secton 400(a) of the Revenue
ct of 192G and s ad upon a cgarettes manufactured n or m-
ported nto the Unted States and sod or removed for consumpton
or sae. The ony authorty for ther wthdrawa for use as sea
stores wthout payment of ta s that conferred by secton 317 of
the Tarff ct of 1930, whch, through the appcaton of the e port
provsons of secton 1 of the ct of ugust 4, 1886, requres as a
condton precedent to the e empton, compance wth the requre-
ments of the reguatons made n pursuance thereof. Upon any
other theory tobacco products ntended for use as sea stores woud be
ta e empt upon wthdrawa whether or not they were used for the
purpose for whch wthdrawn, whch s obvousy not the ntent of
the statute. To gve the aw such an nterpretaton woud gnore
entrey ts specfc reference to the aws appcabe to e portaton
and render nugatory the requrement of the reguatons that a bond
be furnshed coverng the goods after ther wthdrawa.
Secton 317 of the Tarff ct of 1930 affords no authorty for the
wthdrawa of tobacco products for use as sea stores wthout payment
of ta , e cept where such products were aden on a vesse whch
ceared from the port of embarkaton. Inasmuch as the cgarettes
n queston were destroyed before devery to the vesse to whch
consgned, they are sub|ect to the ta .
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Regs. 8(1928), rt. 24. 380
TO CCO.
Reguatons 8(1928), rtce 76: Subdvson II 6-6515
packages. T. D. 4404
CIG R TT S ND SM LL CIG RS SU DI ISION P RC LS.
Subdvson of the statutory number of cgarettes or sma cgars
Into parces of not more than cgarettes or sma cgars, each,
authorzed. Secton 400(d), Revenue ct of 1026, artce 76, Regu-
atons No. 8, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 76 of Reguatons No. 8, approved pr 24, 1928, as
amended by Treasury Decson 4353, approved September 14, 1932
C. . I-2, 562 , s further amended to read as foows:
rt. 76. Subdvson parces. The statutory number of cgars and cgarettes
contaned n the bo or package may be subdvded by the use of paper or
rbbon bands, or separated nto parces, each contanng not more than 10
cgars weghng more than 3 pounds per thousand, or 5 cgarettes, or 5 cgars
weghng not more than 3 pounds per thousand, by Incosnre n fo, wa
paper, ceophane, or ghtweght cardboard wth cut-out wndows or open at
one end.
The cauton notce abe (artce 84), factory brand (artce 85), and cass-
fcaton abe (artce 86), must not appear on any subdvson or parce of a
statutory package, but must appear ony on the statutory package on whch the
requste stamp s aff ed.
Cgars and cgarettes so subdvded nto parces must reman In the stamped
statutory bo or package unt they are sod or devered drect to the con-
sumer, and the whoe number of cgars or cgarettes packed n each statutory
bo or package must correspond to the denomnaton of the stamp aff ed to
the bo or package.
Gut T. everng,
Commssoner of Interna Revenue.
pproved November 7, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
II-50-6563
T. D. 4411
Leaf tobacco Types to be reported. Deaers n eaf tobacco
requred to report types of eaf tobacco receved from farmers and
cooperatve assocatons. Reguatons No. 8, artce 24, amended
accordngy.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
Paragraphs (f) and (g), subdvson (4), artce 24 of Reguatons
No. 8, approved pr 24, 1928, are amended to read as foows:
(f) Recepts from farmers. Snce farmers are not requred to make reports
of ther transactons, orm 774, coverng tobacco receved from farmers, sha
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381
Regs. 8(1928), rt. 24.
be e ecuted by the deaers by whom the tobacco s receved. deaer w cover
the entre quantty of eaf tobacco receved on a gven day from farmers by the
e ecuton of a snge orm 774, n dupcate, provded he keeps an accurate
suppementary record showng the name and address of each farmer, the quan-
tty of tobacco receved from each, and the dates of recept. The words rom
farmers and the etter shoud be entered under the heads of Shpped or
devered by and us., respectvey, shown by the orm 774, n each such
case. The type number accordng to the offca cassfcaton of e:f tobacco by
the Unted States Department of grcuture, uetn S. R. . . . . No.
118, ssued November, 1029, shoud be entered under the head of Type n
every case where tobacco s receved from farmers by deaers. In the case of
recepts from farmers, the dupcate or yeow copy sha be pnned to the back
of the orgna or whte copy and both sha be treated as an orgna or whte
copy and handed as though receved from the persons from whom the tobacco
s obtaned.
(g) Recepts from tobacco growers cooperatve assocatons. deaer re-
cevng tobacco from a tobacco growers cooperatve assocaton, e empt from
regstry as a deaer n eaf tobacco, must e ecute orm 774 showng the quan-
tty of tobacco receved. The name and address of the assocaton from
whch receved and not receved from farmers shoud be entered under
the head of Shpped or devered by and etter under us., on orm
774, n each case. The type number shoud he entered, as n the case of
recepts from farmers, under the headng Type when a deaer receves
tobacco from a tobacco growers cooperatve assocaton e empt from regstry
as a deaer n eaf tobacco. s n the case of recepts from farmers, the
dupcate or yeow copy sha be pnned to the back of the orgna or whte
copy, and both sha be treated as an orgna or whte copy and handed as
though receved from the assocatons from whch the tobacco s obtaned.
Gut T. everng,
Commssoner of Interna Revenue.
pproved December 5, 1933.
. MORG NT T , r.,
ctng Secretary of the Treasury.
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MISC LL N OUS RULINGS.
N TION L INDUSTRI L R CO RY CT.
II-27-6277
. . 5755. PU LIC, NO. 67, S NTY-T IRD CONGR SS.
n ct To encourage natona ndustra recovery, to foster far
competton, and to provde for the constructon of certan usefu
pubc works, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembhd,

R MPLOYM NT ND R LI T S.
Sec. 211. (a) ffectve as of the day foowng the date of the
enactment of ths ct, secton 617(a) of the Revenue ct of 1932
s amended by strkng out 1 cent and nsertng n eu thereof
y2 cents.
(b) ffectve as of the day foowng the date of the enactment
of ths ct, secton 617(c)(2) of such ct s amended by addng
at the end thereof a new sentence to read as foows: s used n
ths paragraph the term benzo does not ncude benzo sod for
use otherwse than as a fue for the propuson of motor vehces,
motor bouts, or arpanes, and otherwse than n the manufacture or
producton of such fue.
Sec. 212. Ttes I and of the Revenue ct of 1932 are amended
by strkng out 1934 wherever appearng theren and by nsertng
n eu thereof 1935. Secton 761 of the Revenue ct of 1932 s
further amended by strkng out and on uy 1.1933, and nsertng
n eu thereof and on uy 1, 1933, and on uy 1. 1934, .
Sec. 213. (a) There s hereby mposed upon the recept of dv-
dends (requred to be ncuded n the gross ncome of the recpent
under the provsons of the Revenue ct of 1932) by any person
other than a domestc corporaton, an e cse ta equa to 5 per centum
of the amount thereof, such ta to be deducted and wthhed from
such dvdends by the payor corporaton. The ta mposed by ths
secton sha not appy to dvdends decared before the date of
the enactment of ths ct.
(b) very corporaton requred to deduct and wthhod any ta
under ths secton sha, on or before the ast day of the month fo-
owng the payment of the dvdend, make return thereof and pay
the ta to the coector of the dstrct n whch ts prncpa pace
of busness s ocated, or, f t has no prncpa pace of busness
n the Unted States, to the coector at atmore, Md.
(382)
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(c) very such corporaton s hereby made abe for such ta
and s hereby ndemnfed aganst the cams and demands of any
person for the amount of any payment made n accordance wth the
provsons of ths secton.
(d) The provsons of sectons 115, 771 to 774, ncusve, and 1111
of the Revenue ct of 1032 sha be appcabe wth respect to the
ta mposed by ths secton.
(e) The ta es mposed by ths secton sha not appy to the dv-
dends of any corporaton enumerated n secton 103 of the Revenue
ct of 1932.
Sec. 214. Secton 104 of the Revenue ct of 1932 s amended by
strkng out the words the surta wherever occurrng n such
secton and nsertng n eu thereof any nterna-revenue ta .
The headng of such secton s amended by strkng out surta es
and nsertng n eu thereof nterna-revenue ta es. Secton
13(c) of such ct s amended by strkng out surta and
nsertng n eu thereof nterna-revenue ta .
Sec. 215. (a) or each year endng une 30 there s hereby m-
posed upon every domestc corporaton wth respect to carryng
on or dong busness for any part of such year an e cse ta of 1
for each 1,000 of the ad|usted decared vaue of ts capta stock.
(b) or each year endng une 30 there s hereby mposed upon
every foregn corporaton wth respect to carryng on or dong bus-
ness n the Unted States for any part of such year an e cse ta
equvaent to 1 for each 1,000 of the ad|usted decared vaue of
capta empoyed n the transacton of ts busness n the Unted
States.
(c) The ta es mposed by ths secton sha not appy
(1) to any corporaton enumerated n secton 103 of the Revenue
ct of 1932
(2) to any nsurance company sub|ect to the ta mposed by
secton 201 or 204 of such ct
(3) to any domestc corporaton n respect of the year endng
une 30, 1933, f t dd not carry on or do busness durng a part
of the perod from the date of the enactment of ths ct to une
30, 1933, both dates ncusve or
(4) to any foregn corporaton n respect of the year endng
une 30, 1933, f t dd not carry on or do busness n the Unted
States durng a part of the perod from the date of the enactment
of ths ct to une 30, 1933, both dates ncusve.
(d) very corporaton abe for ta under ths secton sha make
a return under oath wthn one month after the cose of the year
wth respect to whch such ta s mposed to the coector for the
dstrct n whch s ocated ts prncpa pace of busness or, f t
has no prncpa pace of busness n the Unted States, then to the
coector at atmore, Md. Such return sha contan such nforma-
ton and bo made n such manner as the Commssoner wth the
approva of the Secretary may by reguatons prescrbe. The ta
sha, wthout assessment by the Commssoner or notce from the
coector, be due and payabe to the coector before the e praton
of the perod for fng the return. If the ta s not pad when due,
there sha be added as part of the ta nterest at the rate of 1
per centum a month from the tme when the ta became due unt
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384
pad. provsons of aw (ncudng penates) appcabe n
respect of the ta es mposed by secton 600 of the Revenue ct of
1926 sha, n so far as not nconsstent wth ths secton, be appcabe
n respect of the ta es mposed by ths secton. The Commssoner
may e tend the tme for makng the returns and payng the ta es
mposed by ths secton, under such rues and reguatons as he may
prescrbe wth the approva of the Secretary, but no such e tenson
sha be for more than 60 days.
(e) Returns requred to be fed for the purpose of the ta mposed
by ths secton sha be open to nspecton n the same manner, to
the same e tent, and sub|ect to the same provsons of aw, ncudng
penates, as returns made under tte II of the Revenue ct of 1926.
(f) or the frst year endng une 30 n respect of whch a ta
s mposed by ths secton upon any corporaton, the ad|usted decared
vaue sha be the vaue, as decared by the corporaton n ts frst
return under ths secton (whch decaraton of vaue cannot be
amended), as of the cose of ts ast ncome-ta ta abe year endng
at or pror to the. cose of the year for whch the ta s mposed by
ths secton (or as of the date of organzaton n the case of a corpo-
raton havng no ncome-ta ta abe year endng at or pror to the
cose of the year for whch the ta s mposed by ths secton). or
any subsequent year endng une 30, the ad|usted decared vaue n
the case of a domestc corporaton sha be the orgna decared
vaue pus (1) the cash and far market vaue of property pad n
for stock or shares, (2) pad-n surpus and contrbutons to capta,
and (3) earnngs and profts, and mnus ( ) the vaue of property
dstrbuted n qudaton to sharehoders, ( ) dstrbutons of earn-
ngs and profts, and (C) defcts, whether operatng or nonoperat-
ng each ad|ustment beng made for the perod from the date as of
whch the orgna decared vaue was decared to the cose of ts
ast ncome-ta ta abe year endng at or pror to the cose of the
year for whch the ta s mposed by ths secton. or any subse-
quent year endng une 30, the ad|usted decared vaue n the case
of a foregn corporaton sha be the orgna decared vaue ad|usted,
n accordance wth reguatons prescrbed by the Commssoner wth
the approva of the Secretary, to refect ncreases or decreases (for
the perod specfed n the precedng sentence) n the capta empoyed
n the transacton of ts busness n the Unted States.
(g) The terms used n ths secton sha have the same meanng
as when used n the Revenue ct of 1932.
Sec. 210. (a) There s hereby mposed upon the net ncome of
every corporaton, for each ncome-ta ta abe year endng after
the cose of the frst year n respect of whch t s ta abe under
secton 215. an e cess-profts ta equvaent to 5 per centum of such
porton of ts net ncome for such ncome-ta ta abe year as s n
e cess of Y2y2 per centum of the ad|usted decared vaue of ts
capta stock (or n the case of a foregn corporaton the ad|usted
decared vaue of capta empoyed n the transacton of ts busness
n the Unted States) as of the cose of the precedng ncome-ta
ta abe year (or as of the date of organzaton f t had no precedng
ncome-ta ta abe year) determned as provded n secton 215.
The terms used n ths secton sha have the same meanng as when
used n the Revenue ct of 1932.
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(b) The ta mposed by ths secton sha be assessed, coected,
and pad n the same manner, and sha be sub|ect to the same prov-
sons of aw (ncudng penates), as the ta es mposed by tte I
of the Revenue ct of 1932.
Sec. 217. (a) The Presdent sha procam the date of
(1) The cose of the frst fsca year endng une 30 of any year
after the year 1933, durng whch the tota recepts of the Unted
States (e cudng pubc-debt recepts) e ceed ts tota e pendtures
(e cudng pubc-debt e pendtures other than those chargeabe
aganst such recepts), or
(2) the repea of the eghteenth amendment to the Consttuton,
whchever s the earer.
(b) ffectve as of the 1st day of the caendar year foowng the
date so procamed secton 017(a) of the Revenue ct of 1932, as
amended, s amended by strkng out cents and nsertng n
eu thereof 1 cent .
(c) The ta on dvdends mposed by secton 213 sha not appy
to any dvdends decared on or after the 1st day of the caendar
3 ear foowng the date so procamed.
(d) The capta-stock ta mposed by secton 213 sha not appy
to any ta payer n respect of an| year begnnng on or after the 1st
day of uy foowng the date so procamed.
(e) The e cess-profts ta mposed by secton 21G sha not appy
to any ta payer n respect of any ta abe year after ts ta abe year
durng whch the date so procamed occurs.
Sec. 218. (a) ffectve as of anuary 1, 1933, sectons 117, 23(),
169, 187, and 205 of the Revenue ct of 1932 are repeaed.
(b) ffectve as of anuary 1, 1933, secton 23 (r) (2) of the Reve-
nue ct of 1932 s repeaed.
(c) ffectve as of anuary 1. 1933, secton 23(r) (3) of the Reve-
nue ct of 1932 s amended by strkng out a after the word Ter-
rtory and nsertng a perod.
(d) ffectve as of anuary 1, 1933, secton 182(a) of the Revenue
ct of 1932 s amended by nsertng at the end thereof a new sentence
as foows: No part or any oss dsaowed to a partnershp as a
deducton b r secton 23 (r) sha be aowed as a deducton to a
member of such partnershp n computng net ncome.
(e) ffectve as of anuary 1, 1933, secton 141(c) of the Revenue
ct of 1932 s amended by strkng out e cept that for the ta abe
years 1932 and 1933 there sha be added to the rate of ta pre-
scrbed by sectons 13(a), 201(b), and 204(a), a rate of three fourths
of 1 per centum and nsertng n eu thereof the foowng: e cept
that for the ta abe years 1932 and 1933 there sha be added to the
rate of ta prescrbed by sectons 13(a), 201(b), and 204(a), a rate of
three fourths of 1 per centum and e cept that for the ta abe years
1934 and 193.) there sha be added to the rate of ta prescrbed by
sectons 13(a), 201(b), and 204(a), a rate of 1 per centum.
(f) No nterest sha be assessed or coected for any perod pror
to September 15, 1933, upon such porton of any amount determned
as a defcency n ncome ta es as s attrbutabe soey to the amend-
ments made to the Revenue ct of 1932 by ths secton.
(g) In cases where the effect of ths secton s to requre for a
ta abe year endng pror to une 30, 1933, the makng of an ncome-
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386
ta return not otherwse requred by aw, the tme for makng the
return and payng the ta sha be the same as f the return was for
a fsca year endng une 30, 1933.
(h) Secton 55 of the Revenue ct of 1932 s amended by nsertng
before the perod at the end thereof a semcoon and the foowng:
and a returns made under ths ct after the date of enactment
of the Natona Industra Recovery ct sha consttute pubc
records and sha be open to pubc e amnaton and nspecton to
such e tent as sha be authorzed n rues and reguatons promu-
gated by the Presdent.
Sec. 219. Secton 500(a)(1) of the Revenue ct of 1926, as
amended, s amended by strkng out the perod at the end of the
second sentence thereof and nsertng n eu thereof a comma and
the foowng: e cept that no ta sha be mposed n the case of
persons admtted free to any spoken pay (not a mechanca repro-
ducton), whether or not set to musc or wth musca parts or accom-
panments, whch s a consecutve narratve nterpreted by a snge
set of characters, a necessary to the deveopment of the pot, n
two or more acts, the performance consumng more than 1 hour and
45 mnutes of tme.

S ORT TITL .
Sec. 304. Ths ct may be cted as the Natona Industra
Recovery ct.
pproved, une 16, 1933, 11.55 a. m.
R MPLOYM NT ND R LI T S.
Secton 211.
Ta on gasone effectve anuary 1, 1934. (See Mm. 4116,
page 422.)
CIS T ON DI ID NDS.
Secton 213. II-27-6276
Mm. 4033
Wthhodng of e cse ta at source on dvdends.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, une 24,1933.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Dvdend-Payng Corporatons, and Others Concerned:
The Natona Industra Recovery ct (Pubc, No. 67, Seventy-
thrd Congress, . R. 5755), whch was approved by the Presdent
une 16, 1933, 11.55 a. m., eastern standard tme, contans the foow-
ng provsons requrng the wthhodng of ta at the source on
dvdends:
Sec. 213. (a) There s hereby mposed upon the recept of dvdends (requred
to be ncuded n the gross ncome of the recpent under the provsons of the
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Revenue ct of 1932) by any person other than a domestc corporaton, an
e cse ta equa to 5 per centum of the amount thereof, such ta to be deducted
and wthhed from such dvdends by the payor corporaton. The ta mposed
by ths secton sha not appy to dvdends decared before the date of the
enactment of ths ct.
(b) very corporaton requred to deduct and wthhod any ta under ths
secton sha, on or before the ast day of the month foowng the payment
of the dvdend, make return thereof and pay the ta to the coector of
the dstrct n whch ts prncpa pace of busness s ocated, or, f t has
no prncpa pace of busness n the Unted States, to the coector at
atmore, Md.
(c) very such corporaton s hereby made abe for such ta and s hereby
ndemnfed aganst the cams and demands of any person for the amount of
any payment made n accordance wth the provsons of ths secton.
(d) The provsons of sectons 115. 771 to 774, ncusve, and 1111 of the
Revenue ct of 1932 sha be appcabe wth respect to the ta mposed by
ths secton.
(e) The ta es mposed by ths secton sha not appy to the dvdends of
any corporaton enumerated n secton 103 of the Revenue ct of 1932.
It s to be observed that secton 213(a) of the ct e pressy
provdes that the ta mposed by secton 213 sha not appy to
dvdends decared before the date of the enactment of the ct, that
s, the ta does not appy to dvdends decared before mdnght of
une 15, 1933. It s aso to be observed that the frst wthhodng
return requred to be made under secton 213 s the wthhodng
return of the ta requred to be deducted and wthhed from the
dvdends pad durng une, 1933, whch were decared on or after
une 16, 1933, and that such wthhodng return need not be made
before uy 31, 1933.
The nstructons and return forms necessary for the admnstraton
of the above-quoted provsons of the ct are now beng prepared.
s soon as they are competed due pubcty w be gven to the
nstructons and forms through the usua channes. When the
nstructons and forms are avaabe for dstrbuton they may be
obtaned from coectors of nterna revenue.
Inqures and correspondence regardng ths mmeograph shoud
refer to the number and symbos IT: : RR.
Gut T. everng,
Commssoner.
Secton 213. II-30-G314
T. D.4372
Natona Industra Recovery ct. Wthhodng of e cse ta on
dvdends at source.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 213 of the Natona Industra Recovery ct (Pubc,
No. 67, Seventy-thrd Congress, . R. 5755), approved by the Pres-
dent une 16, 1933, provdes:
Sec. 213. (a) There s hereby mposed upon the recept of dvdends (re-
qured to be ncuded n the gross ncome of the recpent under the provsons
of the Revenue ct of 1932) by any person other than a domestc corpora-
ton, an e cse ta equa to 5 per centum of the amount thereof, such a to
be deducted and wthhed from such dvdends by the payor corporaton. The
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388
ta mposed by ths secton sha not appy to dvdends decared before the
date of the enactment of ths ct.
(b) very corporaton requred to deduct and wthhod any ta under ths
secton sha, on or before the ust day of the month foowng the payment
of the dvdend, make return thereof and pay the ta to the coector of the
dstrct n whch ts prncpa pace of busness s ocated, or, f t has no
prncpa pace of busness n the Unted States, to the coector at atmore,
d.
(c) very such corporaton s hereby made abe for such ta and s hereby
ndemnfed aganst the cams and demands of any person for the amount
of any payment made n accordance wth the provsons of ths secton.
(df The provsons of sectons 115, 771 to 774, ncusve, and 1111 of the
Revenue ct of 1932 sha be appcabe wth respect to the ta mposed by
ths secton.
(e) The ta es mposed by ths secton sha not appy to the dvdends of
any corporaton enumerated n secton 1U3 of the Revenue ct of 1932.
Secton 104 of the Revenue ct of 1932 as amended by secton
214 of the Natona Industra Recovery ct provdes:
Sec. 104. ccumuaton of surpus to evade nterna-revenue ta es.
(a) If any corporaton, however created or organzed, s formed or avaed
of for the purpose of preventng the mposton of any nterna-revenue ta
upon ts sharehoders through the medum of permttng ts gans and profts
to accumuate nstead of beng dvded or dstrbuted, there sha be eved,
coected, and pad for each ta abe year upon the net Income of such cor-
poraton a ta equa to 50 per centum of the amount thereof, whch sha
be n addton to the ta mposed by secton 13 and sha be computed, co-
ected, and pad upon the same bass and n the same manner and sub|ect
to the same provsons of aw, ncudng penates, as that ta .
(b) The fact that any corporaton s a mere hodng or nvestment company,
or that the gans or profts are permtted to accumuate beyond the reasonabe
needs of the busness, sha be prma face evdence of a purpose to escape
any nterna-revenue ta .
(c) s used n ths secton the term net ncome means the net ncome
as defned n secton 21. ncreased by the sum of the amount of the dvdend
deducton aowed under secton 23(p) and the amount of the nterest on
obgatons of the Unted States ssued after September 1, 1917. whch woud
be sub|ect to ta n whoe or n part n the hands of an ndvdua owner.
(d) The ta mposed by ths secton sha not appy f a the sharehoders
of the corporaton ncude (at the tme of fng ther returns) n ther gross
ncome ther entre dstrbutve shares, whether dstrbuted or not, of the net
ncome of the corporaton for such year. ny amount so ncuded n the gross
ncome of a sharehoder sha be treated as a dvdend receved. ny subse-
quent dstrbuton made by the corporaton out of the earnngs or profts for
such ta abe year sha, f dstrbuted to any sharehoder who has so ncuded
n hs gross ncome hs dstrbutve share, be e empt from ta n the amount
of the share so ncuded.
DI ID NDS TO W IC T IS PPLIC L .
Secton 213 mposes an e cse ta upon the recept of dvdends
(requred to be ncuded n the gross ncome of the recpent under
the provsons of the Revenue ct of 1932) by any person other than
a domestc corporaton. The ta s 5 per cent of the amount of the
dvdends and s requred to be deducted and wthhed from such
dvdends by the payor corporaton.
DI ID NDS TO W IC T IS NOT PPLIC L .
The ta mposed by secton 213 does not appy to
(a) Dvdends decared before mdnght une 15, 1933
(b) Dvdends receved from any corporaton enumerated n sec-
ton 103 of the Revenue ct of 1932 (reatng to organzatons e -
empt from ncome ta under Tte I of that ct) or
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(c) Dvdends not requred to be ncuded n the gross ncome of
the recpent under the provsons of the Revenue ct of 1932.
D INITIONS.
or the purposes of secton 213, the term dvdends has the
same meanng as the term dvdend as defned n secton 115 of the
Revenue ct of 1032, that s, a dstrbuton made by a corporaton
to ts sharehoders, whether n money or n other property, out of ts
earnngs or profts accumuated after ebruary 28, 1913. s used
n secton 213 the term corporaton ncudes assocatons, |ont
stock companes, and nsurance companes.
Where a corporaton has er.sed the property of another corpora-
ton, n consderaton thereof agreeng, nter aa, to pay as renta a
certan amount n perodca nstaments drecty to the essor s
sharehoders (ncudng cases where the payment of such amounts s
secured hy a guarantee of annua dvdends ndorsed by the essee
on the certfcates of stock of the essor, or otherwse), such payments
for the purpose of secton 213 consttute dvdends to the recpents
receved as from the essor corporaton. In such cases the essee
corporaton sha be regarded as the payor corporaton as that
term s used n secton 213(a) and must make the returns requred
by secton 213(b) and wthhod and pay the ta es shown thereon
to be due n respect of such dvdends.
Secton 213 mposes an e cse ta upon the recept of dvdends,
e cept those whch were vady decared before the date of the en-
actment of the ct. decaraton of dvdends payabe perodcay
n the future w b regarded as vod for the purposes of secton 213
uness the decarng corporaton at the tme had suffcent earnngs
and profts accumuated subsequent to ebruary 28, 1913, to enabe t
to pay a such future dvdends so decared. o attempt to bnd a
corporaton to pay future dvdends out of antcpated earnngs and
profts w be recognzed as a vad decaraton tor the purposes of
that secton.
R UIR M NT TO WIT OLD.
very corporaton (e cept corporatons whch are e empt from
ncome ta under secton 103 of the Revenue ct of 1932) makng
payment of dvdends to any person after the enactment of the Na-
tona Industra Recovery ct, sha deduct and wthhod the ta
mposed by secton 213 from such dvdends e cept as provded
n (1), (2), and (3), beow. Where a dvdend s pad by a cor-
poraton n securtes or other property (other than ts own stock),
the ta to be wthhed and pad under secton 213 s 5 per cent of the
far market vaue of such property when recevabe by the share-
hoders.
R LI ROM WIT OLDING.
(1) o wthhodng of ta under secton 213 s requred from
dvdends decared pror to une 16, 1933, f evdence that the dv-
dends were decared pror to that date s submtted wth the wth-
hodng return of the payor corporaton as herenafter provded.
(2) o wthhodng of ta under secton 213 need be made f at
a reasonabe tme before the payment of the dvdends (such tme to
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390
be determned by the payor corporaton) there s fed wth the payor
corporaton an e empton certfcate certfyng that the actua owner
of the shares of stock n respect of whch the dvdends are pad s
a domestc corporaton.
(3) No wthhodng of ta under secton 213 need be made f before
the payment of the dvdends t s estabshed to the satsfacton of
the Commssoner, and the Commssoner so notfes the payor cor-
poraton, that under the provsons of secton 119(a)2 ( ) or ( )
of the Revenue ct of 1 32 the dvdends are not to be treated as
ncome from sources wthn the Unted States, and there s fed
wth the payor corporaton, as n (2) above, an e empton certfcate
certfyng tat the actua owner of the shares of stock n respect of
whch the dvdends are pad s a nonresdent aen ndvdua or
a foregn corporaton.
If the e empton certfcates provded for n (2) and (3) above
are not fed pror to the payment of the dvdends but are fed
pror to the makng by the payor corporaton of the wthhodng
return, the ta deducted and wthhed may be reeased and pad over
by the payor corporaton to the recpent of the dvdends.
ORM O MPTION C RTI IC T S.
orm 1043 s prescrbed as the e empton certfcate for use n
compyng wth the provsons of (2) above. Such certfcate sha
be n substantay the foowng form:
orm 1043 .
empton Certfcate.
or use n dscosng actua ownershp of stock by domestc corporatons and
to estabsh nonabty to wthhodng tu at source on dvdends. (Secton
L 13. Natona ndustra Recovery ct.)
CO D OWN R.
Nnme
ddress
Number of shares : Common stock Preferred stock
Dvdends payabe , 103 ,
date
Payor corporaton
ddress
I I uy certfy that the actua owner of the stock descrbed above s the
domestc corporaton named above, and that such corporaton s entted to
receve the dvdends on such stock.
(Sgnature and tte of person au-
thorzed to gn for actua owner,
or sguuture of record owner.)
Date: 193
If n e ecutng orm 1043 the record owner of the shares of
stock who s not the actua owner of such shares, does not dscose to
the payor corporaton the name and address of the actua owner, the
record owner sha wrte n the space provded for such name and
address the foowng: ctua owner domestc corporaton, name
and address of whch furnshed Commssoner, and sha fe
drecty wth the Commssoner of Interna Revenue. Sortng Secton,
Washngton, D. C, a dupcate of the orm 1043 so e ecuted, e cept
CT L OWN R.
Name
ddress
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that the name and address of the actua owner must appear on the
orm 1043 fed wth the Commssoner. Such dupcate certfcate
sha be accompaned wth a statement showng that the orgna s
beng fed wth the payor corporaton as heren provded.
orm 1043 s prescrbed as the e empton certfcate for use n
compyng wth the provsons of (3) above. Such certfcate sha
be n substantay the foowng form:
orm 1043 .
empton Certfcate.
or use n dscosng actua ownershp of stock by nonresdent aens and
foregn corporatons and to estabsh nonabty to wthhodng ta at source
on dvdends. (Secton 213, Natona Industra Recovery ct.)
R CORD OWN R.
Name
ddress-
Name
ddress-
CTU L OWN R.
Number of shares: Common stock Treferred stock
Dvdends payabe , 193 ,
Payor corporaton
ddress
I ereby certfy that the actua owner of the stock descrbed above s wth
respect to the Unted States a nonresdent aen/foregn corporaton, entted
to receve dvdends on such stock.
(Sgnature of actua owner or sg-
nature and tte of the person
authorzed to sgn for actua owner,
or sgnature of record owner.)
Date: , 193 .
If n e ecutng orm 1043 the record owner of the shares of
stock who s not the actua owner of such shares, does not dscose to
the payor corporaton the name and address of the actua owner, the
record owner sha wrte n the space provded for such name and
address the foowng: ctua owner nonresdent aen ndvdua
or foregn corporaton, name and address of whch furnshed Com-
mssoner, and sha fe drecty wth the Commssoner of Interna
Revenue, Sortng Secton, Washngton, D. C, a dupcate of the
orm 1043 so e ecuted, e cept that the name and address of the
actua owner must appear on the orm 1043 fed wth the Com-
mssoner. Such dupcate certfcate sha be accompaned wth a
statement showng that the orgna s beng fed wth the payor
corporaton as heren provded.
e empton certfcates heren prescrbed sha be 3y2 nches
wde, sha not e ceed 8 nches n ength, and sha be prnted on
yeow paper. Persons desrng to prnt ther own e empton cer-
tfcates for use as heren provded may do so, but the certfcates so
prnted must be of the sze and coor heren prescrbed.
WIT OLDING R TURN.
very corporaton payng dvdends after the enactment of the
Natona Industra Recovery ct sha, on or before the ast day of
the month foowng the month n whch the dvdends were pad,
make a return thereof on orm 1043 to the coector of nterna
revenue of the dstrct n whch ts prncpa pace of busness s
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392
ocated, or, f t has no prncpa pace of busness n the Unted
States, to the coector of nterna revenue at atmore, Md., and
pay the ta shown thereon to be due. The return must be sworn to
before an offcer duy authorzed to admnster oaths.
The tota amount of the dvdends pad durng the month for whch
the return s made (or pad after the enactment of the ct, n the
case of a return made for dvdends pad durng une, 1933) sha
be reported on the return regardess of whether such dvdends were
decared on or after une 16,1933, or before that date. In computng
on the return the ta mposed by secton 213 there s to be deducted
from such tota amount of dvdends reported, the sum of (a) the
dvdends n respect of whch e empton certfcates arc fed as
heren provded and (b) the dvdends decared pror to une 16,
1933. The deducton for the dvdends decared pror to une 1C,
1933, must be substantated by a statement accompanyng the return
showng the date the dvdends were decared, the amount thereof,
the amount of the corporate earnngs or profts avaabe for dstr-
buton at the date of the decaraton, and a copy of the corporate
resouton decarng the dvdends. The return sha contan a the
other nformaton caed for by orm 1043. e empton certf-
cates (or where necessary, the evdence estabshng a vad decara-
ton pror to une 16, 1933), sha be forwarded by the payor cor-
poraton to the coector of nterna revenue wth the wthhodng
return on orm 1043 to whch they reate. owever, f the number
of e empton certfcates e ceeds 100, they may be forwarded drecty
to the Commssoner of Interna Revenue, Sortng Secton, Washng-
ton. D. C, n whch event they sha be accompaned by a etter of
transmtta statng the month covered by the return to whch they
reate. Where e empton certfcates are fed as provded n (3)
above, a copy of the etter of notfcaton from the Commssoner
referred to theren shoud aso accompany the wthhodng return.
PPLIC TION O DMINISTR TI PRO ISIONS O R NU CT O 1932.
The admnstratve provsons of sectons 771 to 774, ncusve, of
the Revenue ct of 1932 are appcabe to the ta mposed by secton
213. See aso, nter aa, sectons 3176 and 3184 of the Revsed
Statutes and secton 1114 of the Revenue ct of 1926.
In deductng and wthhodng the ta under secton 213, a frac-
tona part of a cent may be dsregarded uness t amounts to one-
haf cent or more, n whch case t sha be ncreased to 1 cent.
Credt or refund of any overpayment of the ta mposed by secton
213 and wthhed and pad by the payor corporaton to the Unted
States may be aowed to the payor corporaton f the payor corpora-
ton estabshes to the satsfacton of the Commssoner that the ta
was overpad and that t has repad the amount of the ta to the
person from whom wthhed or has obtaned the consent of such
person to the aowance of such credt or refund. The payor corpora-
ton so entted to the refund of ta wthhed and pad to the Unted
States may take credt therefor aganst the ta due upon any subse-
quent monthy return on orm 1043.
very corporaton requred by secton 213 and ths Treasury de-
cson to fe a return and wthhod and pay the ta mposed by
that secton sha keep on fe at ts prncpa pace of busness or
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393
Msc.
some other convenent or safe ocaton, records and accounts of
a dvdends pad after the enactment of the Natona Industra
Recovery ct. The records sha contan suffcent nformaton
reatng to the decaraton and payment of the dvdends to enabe
the Commssoner to determne whether the correct amount of the ta
has been pad. Such records sha at a tmes be open for nspecton
by nterna-revenue offcers, and sha be mantaned for a perod
of at east four years from the date the ta became due or, n the
case of dvdends from whch no ta was wthhed, for a perod of
at east four years from the ast day of the month foowng the
month n whch the dvdends were pad.
MISC LL N OUS.
payor corporaton may appont a duy authorzed agent to act
n ts behaf under the wthhodng provsons of secton 213 pro-
vded notce of such appontment s fed wth the Commssoner of
Interna Revenue, Sortng Secton, Washngton. D. C, gvng the
name and address of the agent.
The 50 per cent ta eved by secton 104 of the Revenue ct of
1932 as amended by secton 214 of the Natona Industra Recovery
ct appes to any corporaton formed or avaed of for the purpose
of defeatng the ta mposed by secton 213 through the medum of
permttng ts gans and profts to accumuate nstead of beng
dvded or dstrbuted.
ny person recevng dvdends requred to be ncuded n the
gross ncome of the recpent under the provsons of the Revenue
ct of 1932 must ncude the gross amount of such dvdends n gross
ncome n hs ncome ta return wthout reducton for the ta
wthhed under the provsons of secton 213. owever, such person
may deduct n hs ncome ta return the ta so wthhed, n the same
manner as other ta es aowed as a deducton by secton 23(c) of the
Revenue ct of 1932.
The determnaton, assessment, and coecton of the ta and the
e amnaton of returns and cams fed pursuant to secton 213 and
ths Treasury decson, w be made under such procedure as may
be prescrbed from tme to tme by the Commssoner.
Guy T. everno,
Commssoner of Interna Revenue.
pproved uy 14, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
Secton 213. II-32-6335
I. T. 2706
Dvdends receved on stock hed by a fducary requred to fe a
return as such are sub|ect to the ta mposed by secton 213 of the
Natona Industra Recovery ct. rrespectve of whether the ut-
mate benefcary s an organzaton e empt from ncome ta under
secton 103 of the Revenue ct of 1932.
87408 34 26
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394
Secton 213.
II-33-6348
I. T. 2707
No wthhodng of e cse ta s requred under secton 213 of the
Natona Industra Recovery ct on dvdends pad to organzatons
whch furnsh proof that they are hed by the ureau to be e empt
from ncome ta under secton 103 of the Revenue ct of 1932.
The e cse ta mposed by secton 213 of the Natona Industra
Recovery ct on the recept of dvdends shoud be wthhed by
the payor corporaton from a corporate trustee recevng dvdends
dstrbutabe to ndvdua benefcares. The trustee shoud report
the gross amount of dvdends n ts fducary return of ncome and
cam a deducton for the ta . The benefcares shoud report n
ther returns ony the net amounts of dvdends dstrbutabe to
them.
Secton 213. II-35-6380
corporaton dstrbutng dvdends of a foregn corporaton
to ctzens of the Unted States must wthhod and pay the e cse
ta mposed by secton 213 of the Natona Industra Recovery ct.
dvce s requested whether the e cse ta upon the recept of
dvdends mposed by secton 213 of the Natona Industra Re-
covery ct must be wthhed and pad by a corporaton dstrbutng
dvdends of a foregn corporaton to ctzens of the Unted States.
The e cse ta appes to dvdends of a foregn corporaton re-
ceved by ctzens of the Unted States. Treasury Decson 4372
(page 387, ths uetn) requres that every corporaton (e cept cor-
poratons whch are e empt from ncome ta under secton 103 of
the Revenue ct of 1932) makng payment of dvdends to any
person sha deduct and wthhod an e cse ta of 5 per centum of
the amount thereof. The term payor corporaton used n sec-
ton 213(a) of the Natona Industra Recovery ct means a corpo-
raton actng as payng or dstrbutng agent as we as a corpora-
ton whch tsef decares and pays a dvdend. ccordngy, a cor-
poraton dstrbutng dvdends of a foregn corporaton to ctzens
of the Unted States must wthhod and pay the e cse ta mposed
by secton 213 of the Natona Industra Recovery ct
of the stock of the M Company was deposted wth votng
trustees and votng trust certfcates were ssued aganst the stock.
Some of the votng trust certfcates are owned by domestc corpora-
tons to whch payment s made by the trustees of dvdends receved
on the stock represented by the certfcates.
Secton 213.
II-35-G379
I. T. 2713
I. T. 2714
Secton 213.
-35-6381
I. T. 2715
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395
Mso|
s the chef actvtes of the votng trustees consst of hodng
stock for votng and management purposes, the owners of the votng
trust certfcates are regarded as the actua owners of the stock. No
wthhodng of e cse ta under secton 213 of the Natona Indus-
tra Recovery ct s requred from dvdends on such stock actuay
owned by domestc corporatons where the trustees fe wth the
payor corporaton e empton certfcate orm 1043 .
Secton 213. II-39-6419
G. C. M. 12206
Where a corporaton pays the e cse ta on dvdends pad by
t to ts stockhoders, the amount of such ta consttutes an
addtona dvdend. The wthhodng abty of the payor cor-
poraton must be computed upon the dvdend pus such ta . The
stockhoders are requred to report the dvdend pus the ta n
gross ncome and may cam a deducton for the ta pad at the
source.
The M Company advsed the Commssoner that ts drectors de-
cared a dvdend on une 20, 1933, whch was payabe uy 1, 1933,
and nqured whether the corporaton coud pay the stockhoders the
fu amount of the dvdend and assume payment of the 5 per centum
e cse ta .
It s we estabshed that the payment of a ta by a person other
than the ta payer consttutes ncome to the ta payer n whose behaf
the ta s pad. In Od Coony Trust Co. et a. v. Commssoner
(279 U. S., 716,49 S. Ct., 499, Ct. D. 80, C. . III-2 222) the Unted
States Supreme Court decded that the payment by an empoyer
of ncome ta es assessed aganst an empoyee consttuted addtona
ncome to the empoyee, and numerous cases were cted n support
of the court s concuson. The same concuson was reached by the
Supreme Court n Unted /States v. oston ( Mane Raroad (279
U. S., 732. 49 S. Ct., 505, Ct. D. 73, C. . III-2. 315), wheren ncome
ta es pad by a essee raroad for and on behaf of ts essor were
hed to consttute addtona ncome to the essor.
It s hed, therefore, that f a corporaton pays the e cse ta on
dvdends pad by t to ts stockhoders, the amount of such ta
consttutes an addtona dvdend. ccordngy, the wthhodng
abty of the payor corporaton must be computed upon the dv-
dend pus such ta . Stockhoders are requred to ncude n gross
ncome (as dvdends) the amount of the dvdend pus the ta and
may cam a deducton for the ta pad at the source.
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
Secton 213. II-39-6420
I. T. 2718
Secton 213 of the Natona Industra Recovery ct, whch mposes
an e cse ta upon the recept of dvdends, s not appcabe to ds-
trbutons n compete qudaton. No abty for wthhodng
e cse ta attaches to the payor corporaton wth respect to such
dstrbutons.
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Secton 213. II-40-6437
Mn. 4070
amnaton of returns of ta on dvdends wthhed nt source
and determnaton of correct ta .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, September 21,1933.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others C oncerned:
1. Treasury Decson 4372 page 387 ths uetn , approved uy
14, 1933, provdes that the determnaton, assessment, and coecton
of the ta and the e amnaton of returns and cams fed pursuant
to secton 213 of the Natona Industra Recovery ct and that
Treasury decson, w be made under such procedure as may be
prescrbed from tme to tme by the Commssoner. ccordngy,
the foowng procedure s prescrbed:
O IC S O COLL CTORS O INT RN L R NU .
2. Returns, orms 1043, wth accompanyng remttances, e emp-
ton certfcates orms 1043- and 1043- , and other documents w
be handed accordng to nstructons heretofore gven to coectors.
Returns w be arranged and transmtted to the ureau n sub-
stantay- the same manner as provded for ncome ta returns. Due
to the sze of orms 1043, 1043- , and 1043- , sma quanttes of
these forms shoud be pany marked or ncosed n enveopes prop-
ery dentfed, when forwarded wth the assessment sts.
ncome ta unt.
PRO ING S CTION.
3. The Provng Secton w verfy the returns wth the assess-
ment sts n substantay the same manner as n the case of ncome
ta returns. The returns w then be forwarded to the Sortng
Secton.
SORTING S CTION.
4. The Sortng Secton w make such revew of the returns, both
ta abe and nonta abe, as may appear necessary before fng, whch
w ncude verfcaton of (a) the amount deducted (ne 2) as ev-
denced by accompanyng e empton certfcates (b) credt camed
for pror month (ne 5) and e amnaton of etters, copes of mn-
utes, etc., attached to returns. The Sortng Secton w take cogn-
zance of any genera nformaton wth respect to payments of dv-
dends whch w assst n a proper admnstraton of ths secton of
the aw. Such test comparson as may appear necessary for the
purpose of securng denquent returns w be made wth the corpo-
raton returns. orm 1120, at such tme and pace as w not nterfere
n any manner wth the movement of the corporaton returns.
5. Contact w be had wth the udt Revew Dvson, the aua-
ton Dvson, and the Rues and Reguatons Secton wth respect to
such questons as are consdered and determned by those offces.
G. Returns, e empton certfcates, and correspondence w be fed
accordng to coecton dstrcts.
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7. In the event t appears nformaton s needed whch may better
be secured by a fed nvestgaton, the returns, orms 1043, and
attached e empton certfcates, correspondence, etc., may be for-
warded to nterna revenue agents n charge wth the corporaton
return ( orm 1120) or separatey but agents w prepare a sepa-
rate report deang wth the abty on each return.
8. ny addtona ta w be assessed under authorty of secton
213 of the Natona Industra Recovery ct and secton 771 of the
Revenue ct of 1932.
9. Credts and refunds w be aowed n accordance wth secton
772 of the Revenue ct of 1932 and Treasury Decson 4372. When
credt s taken on any return for ta pad on a return for a pror
month, the credt camed must be accompaned by an affdavt e -
panng the bass of the cam and statng that any amount prev-
ousy wthhed n error has been or w be refunded to the
recpents of the dvdends, or that the payor corporaton has ob-
taned the consent of the recpents to the aowance of such credt.
10. Cams for refund sha be made on orm 843 and there must
be emboded theren or attached thereto an affdavt statng that
the e cess ta wthhed has been or w be refunded to the recpents
of the dvdends or that the payor corporaton has obtaned the
consent of the recpents to the aowance of such refund.
11. In cases where credt or a cam for refund s based on the
e empton of the recpents of the dvdends, the e empton certf-
cates. orms 1043- and 1043- , f propery e ecuted and fed wth
the orm 1043 on whch the credt s taken or wth the cam for
refund, w be accepted as the wrtten consents of such stockhoders
to the aowance of the credt or refund.
G N R L.
12. In the determnaton of questons of abty for ta the payor
corporaton, to the e tent that appears reasonabe and proper, w
be granted the prvege of a protest and/or a conference.
13. Correspondence and nqures regardng ths mmeograph w
refer to the number and the symbos IT: : CTR.
Gut T. everng,
Covm ssoner.
Secton 213. II-43-6470
I. T. 2728
Where dvdends are dstrbuted by the payng corporaton drect,
orm 1043, showng the amount of e cse ta requred to be wthhed
at the source on dvdends, shoud be e ecuted by a prncpa offcer
of the corporaton. If the dvdends are dstrbuted by a fsca agent,
the form may be e ecuted by such agent.
Secton 213. II-45-6496
I. T. 2730
The payor corporaton shoud not refran from wthhodng the
e cse ta on dvdends merey upon the bass of an e empton cer-
tfcate, orm 1043 , whch has been amended by changng the words
domestc corporaton to e empt organzaton.
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398
If an organzaton recevng dvdends s not a domestc corpora-
ton or assocaton but has been hed by the ureau to be an e empt
organzaton under secton 103 of the Revenue ct of 1932, t shoud
fe wth the payor corporaton a copy of the ureau etter hodng
t to be e empt. Thereafter the organzaton shoud fe wth the
payor corporaton, at a reasonabe tme before each dvdend-payng
date, orm 1013 , wth a notaton thereon readng substantay as
foows:
The above-named actua owner was hed by the ureau to be an e empt
organzaton n etter dated a copy of whch has prevousy been
fed wth you.
Secton 213. II-45-6497
G. C. M. 12393
True patronage dvdends pad by farmers cooperatve assoca-
tons are not sub|ect to the e cse ta on dvdends mposed by
secton 213 of the Natona Industra Recovery ct. owever, to
the e tent that such dstrbutons are made from profts on busness
transacted wth or for others than the dstrbutees, they are not
true patronage dvdends and are sub|ect to the e cse ta on
dvdends mposed by secton 213 of that ct.
n opnon s requested whether patronage dvdends pad by
farmers cooperatve assocatons are sub|ect to the e cse ta mposed
by secton 213 of the Natona Industra Recovery ct rrespectve
of saes to nonmembers.
I. T. 1499 (C. . 1-2, 189) reads, n part, as foows:
Ths offce has consstenty hed that, cooperatve assocatons, even
though not e empt from ta aton, may deduct from gross ncome for the years
1917, 1918, 1919, and 1920 the amounts returned to ther patrons, whether mem-
bers or nonmembers, upon the bass of the purchases or saes, or both, made by
or for them. Ths s upon the theory that a cooperatve assocaton s organzed
for the purpose of furnshng ts patrons goods at cost or for obtanng the
hghest market prce for the produce furnshed by them. In the case of pur-
chases, nstead of aowng a dscount at the tme of the purchase, the fu
prce s coected and the dscount s aowed by way of rebate. In the case of
saes of produce furnshed by patrons, the refunds based upon the quantty of
produce furnshed are n reaty ony part payment for the produce furnshed.
If the assocaton s organzed n accordance wth the aws governng farmers
and other cooperatve assocatons n the State n whch t operates and f ts
consttuton or by-aws provdes for refunds or rebates to ts patrons, whether
members or nonmembers, upon the bass of goods purchased or produce fur-
nshed, or f t actuay conducts ts busness upon such bass, the refunds or
rebates so made may be deducted by the assocaton n computng net ncome
under the Revenue cts of 1917 and 1918. It s to be understood, of course,
that any profts made on busness wth nonnembe s whch may be dstrbuted to
members n the guse of rebates are ta abe to the assocaton and the members.
To the same effect s Soctor s Memorandum 2595 (C. . II1-2,
238).
It s apparent, therefore, that true patronage dvdends are recog-
nzed by the ureau to be dscounts or rebates on purchases made
n the case of farmers cooperatve purchasng organzatons, or part
payment for produce furnshed n the case of farmers1 cooperatve
marketng organzatons, when pad wth respect to purchases or
saes made for the account of the dstrbutees. The fact that such
cooperatve organzatons transact busness wth nonmembers s m-
matera f nonmembers are deat wth as members n the dstrbuton
of patronage dvdends. owever, to the e tent that such dstrbu-
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399
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tons are made from profts on busness transacted wth or for others
than the dstrbutees, they are not true patronage dvdends and are
sub|ect to the e cse ta on dvdends mposed by secton 213 of the
Natona Industra Recovery ct.
. arrett Pretttman.
Genera Counse, ureau of Interna Revenue.
Secton 213. II-47-6523
Mm. 4102
Wthhodng of e cse ta from dvdends on stock of domestc
and foregn corporatons pad to nonresdent aen ndvduas and
foregn corporatons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, November 8, 1983.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Domestc and oregn Corporatons, and Others Concerned:
It has been brought to the attenton of the ureau that n severa
nstances coectors and corporatons have msnterpreted the prov-
sons of paragraph (3) under the headng Reef from wthhod-
ng n Treasury Decson 4372 (page 387, ths uetn), reatng to
the wthhodng of the 5 per cent e cse ta from dvdends by the
payor corporaton, under secton 213 of the Natona Industra
Recovery ct.
The paragraph under consderaton provdes:
No wthhodng of ta under secton 213 need be made f before the payment
of the dvdends t s estabshed to the satsfacton of the Commssoner, and
the Commssoner so notfes the payor corporaton, that under the provsons
of secton 119(a) (2) ( ) or ( ) of the Revenue ct of 1932 the dvdends are
not to be treated as ncome from sources wthn the Unted States, and there
s fed wth the payor corporaton, as n (2) above, an e empton certfcate
certfyng that the actua owner of the shares of stock n respect of whch the
dvdends are pad s a nonresdent aen ndvdua or a foregn corporaton.
Under these provsons of Treasury Decson 4372, there are two
condtons to be met before reef may be obtaned from the wth-
hodng of the ta from dvdends pad by domestc or foregn
corporatons to nonresdent aen ndvduas and foregn corpora-
tons. These condtons are as foows:
(1) The determnaton must be made by the Commssoner that
the dvdends pad on the stock of the payor corporaton are not to
be treated as ncome from sources wthn the Unted States, wthn
the meanng of secton 119(a)2 ( ) or ( ) of the Revenue ct of
1932, and the Commssoner must notfy the payor corporaton of
such determnaton and
(2) In cases where the Commssoner has notfed the payor cor-
poraton that the dvdends pad by t are not to be treated as ncome
from sources wthn the Unted States, there must be fed wth the
payor corporaton an e empton certfcate, orm 1043 , certfyng
that the actua owner of the shares of stock n respect of whch the
dvdends are pad s a nonresdent aen ndvdua or a foregn
corporaton.
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400
Secton 119 of the Revenue ct of 1932 provdes n part as foows:
(a) Gross ncome from sources n Unted States. The foowng Items of
gross ncome sha be treated as ncome from sources wthn the Unted States:

(2) Dvdends. The amount receved as dvdends
( ) from a domestc corporaton other than a corporaton entted to the
benefts of secton 251, and other than a corporaton ess than 20 per centum of
whose gross ncome s shown to the satsfacton of the Commssoner to have
been derved from sources wthn the Unted States, as determned under the
provsons of ths secton, for the three-year perod endng wth the cose of the
ta abe year of such corporaton precedng the decaraton of such dvdends
(or for such part of such perod as the corporaton has been n e stence), or
( ) from a foregn corporaton uness ess than 50 per centum of the gross
ncome of such foregn corporaton for the three-year perod endng wth the
cose of ts ta abe year precedng the decaraton of such dvdends (or fot
such part of such perod as the corporaton has been n e stence) was derved
from sources wthn the Unted States as determned under the provsons of
ths secton

Uness a corporaton has furnshed the Commssoner the facts and
fgures whch are essenta for the determnaton of the status of ts
dvdends and subsequent to the recept of such nformaton the Com-
mssoner has notfed the payor corporaton that the dvdends pad
by t are not to be treated as ncome from sources wthn the Unted
States, the e cse ta of 5 per cent must be wthhed from dvdends
pad on stock actuay owned by nonresdent aen ndvduas and
foregn corporatons as provded n Treasury Decson 4372, and the
use of orm 1043 s not permtted.
Correspondence and nqures regardng ths mmeograph shoud
refer to the number and to the symbos IT: : CTR.
Gur T. evekng,
Commssoner.
Secton 213. II-49-6548
I. T. 2739
The 5 per cent e cse ta mposed by secton 213 of the Natona
Industra Recovery ct upon the recept of dvdends by any per-
son other than a domestc corporaton shoud not be wthhed from
dvdends pad to an empoyees trust of the type specfed n secton
105 of the Revenue ct of 1932, provded e empton has been
propery estabshed.
dvce s requested whether the 5 per cent e cse ta mposed by
secton 213 of the Natona Industra Recovery ct shoud be wth-
hed from dvdends pad to an empoyees trust of the type specfed
n secton 165 of the Revenue ct of 1932.
Secton 213 of the Natona Industra Recovery ct reads n part
as foows:
(a) There s hereby mposed upon the recept of dvdends (requred to be
e cse ta equa to 5 per centum of the amount thereof, such ta to be deducted
by ths secton sha not appy to dvdends decared before the date of the
enactment of ths ct.
ncuded n the gross ncome of the recpent under the provsons of the
Revenue ct of 1032) by any person other than a domestc corporaton, an
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401
Msc.
The e cse ta mposed by secton 213 of the Natona Industra
Recovery ct shoud not be wthhed from dvdends pad to an em-
poyees trust whch s e empt from ncome ta under secton 165 of
the Revenue ct of 1932, even though the trust s not a corporaton
or assocaton wthn the meanng of secton 1111 of the Revenue ct
of 1932, provded (1) the e empt status of the trust s estabshed to
the satsfacton of the Commssoner, (2) the Commssoner notfes
the trust that t s e empt from ncome ta under secton 165 of the
Revenue ct of 1932, and (3) at a reasonabe tme before the pay-
ment of the dvdends (such tme to be determned by the payor
corporaton), the trust fes wth the payor corporaton a copy of the
etter of notfcaton from the Commssoner.
If the copy of the Commssoner s etter of notfcaton s not fed
pror to the payment of the dvdends, but s fed pror to the makng
by the payor corporaton of the wthhodng return requred under
secton 213 of the Natona Industra Recovery ct. the ta deducted
and wthhed from the dvdends may be reeased and pad over by
the payor corporaton to the recpent of the dvdends.
In the case of a stockhoder other than a domestc corporaton
the 5 per cent e cse ta mposed by secton 213 of the Natona
Industra Recovery ct shoud be wthhed by the payor corpo-
raton from dvdends pad on stocks deposted as coatera for
oans, and hed n the names of recevers of natona banks as
pedgees. Such recevers may fe orm 1043 wth the payor
corporatons where the debtor s a domestc corporaton.
rung s requested whether the 5 per cent e cse ta mposed
by secton 213 of the Natona Industra Recovery ct shoud be
wthhed from dvdends pad to recevers of nsovent natona
banks.
It s stated that recevers of many nsovent natona banks hod
The stocks have been paced n the names of the recevers as pedgees
n order that they may coect the dvdends and appy them aganst
the ndebtedness. It s further stated that where the coatera
securty for a oan, together wth the persona responsbty of the
debtor, s not suffcent to qudate the ndebtedness n fu, the pay-
ment of the 5 per cent e cse ta woud drecty reduce the amount
whch the recever can recover, and woud be a payment from the
assets n hs hands.
Secton 22 of the ct of March 1, 1879 (20 Stat., 351), provdes:
That whenever and after any bank has ceased to do busness by reason of
nsovency or bankruptcy, no ta sha be assessed or coected, or pad nto
the Treasury of the Unted States, on account of such bank, whch shaU dmn-
sh the assets thereof necessary for the fu payment of a ts depostors and
such ta sha be abated from such natona banks as are found by the Comp-
troer of the Currency to be nsovent and the Commssoner of Interna
Revenue, when the facts sha so appear to hm, s authorzed to remt so much
of sad ta aganst nsovent State and savngs banks as sha be found to affect
the cams of ther depostors.
Secton 213.
II-49-6549
I. T. 2740
stocks n corporatons as securty
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402
It s the opnon of ths offce that the provsons of secton 22 of
the ct of March 1, 1879, are not appcabe to the nstant case. The
ta n queston s mposed by secton 213 of the Natona Industra
Recovery ct upon the recept of dvdends by any person other than
a domestc corporaton. Where stock s pedged by a debtor as se-
curty for a oan the pedgee obtans ony a speca and mted n-
terest n such stock prmary, the pedgee as ony a rght to pos-
sesson and a rght to se upon defaut. (See, for e ampe, 21 R. C. L.,
Pedge, paragraphs 1, 2, 15, and 16, and cases cted.) Whe dv-
dends decared and pad durng the perod of the pedge are pay-
abe to the pedgee, such dvdends are requred to be credted n re-
ducton of the debtor s pedgor s abty. (See 21 R. C. L., Pedge,
paragraphs 28 and 29, and cases cted.) Under these crcumstances
dvdends pad on pedged stock represent ncome to the debtor for
ncome ta purposes that s, when the dvdends are pad to the re-
cever and credted to the debtor s account or apped n reducton of
hs ndebtedness, they are at the same tme reportabe as dvdends
constructvey receved by the debtor. The fact that the recever
s requred to appy the dvdends n reducton of the debtor s a-
bty shows that the dvdends as such are n substance receved by
the debtor and apped to hs use. The mposton of the ta docs
not dmnsh the assets of the bank necessary for payment of de-
postors, but reduces ony one of the assets (the dvdend tsef) of
the debtor appcabe n satsfacton of hs obgaton. Otherwse
stated, the wthhodng of the 5 per cent e cse ta on dvdends
smpy dmnshes the ncome of the debtor and to the same degree
dmnshes hs assets avaabe to pay hs oan. Thus the ta s not
assessed or coected, or pad nto the Treasury of the Unted
States, on account of such nsovent bank, but on account of the
debtor.
It s accordngy hed, n the case of a stockhoder other than a
domestc corporaton, that the 5 per cent e cse ta mposed by sec-
ton 213 of the Natona Industra Recover 7 ct shoud be wthhed
by the payor corporaton from dvdends pad on stocks deposted
as coatera for oans where such stocks are hed n the names of
recevers of nsovent natona banks as pedgees. owever, f any
debtors are domestc corporatons the recevers of the nsovent
natona banks may te e empton certfcates, orm 1043 , wth the
payor corporatons showng that the actua owners of the stock are
domestc corporatons, whch acton w reeve the payor corpora-
tons from wthhodng the e cse ta .
Secton 213. II-50-6359
I. T. 2744
In order for a dvdend to bo fuy decared wthn the mean-
ng of secton 213 of the Natona Industra Recovery ct the
acton taken by the board of drectors must be such as to create
the reatonshp of debtor nnd credtor between the corporaton
and the stockhoder, and the debt so created must be a ega and
enforceabe d bt whch s defnte, fna, and rrevocabe.
dvce s requested reatve to the appcabty of the e cse ta of
5 per cent mposed upon the recept of dvdends by secton 213 of
the Natona Industra Recovery ct wth respect to the dvdends
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403
Msc.
pad or to be pad by the M Company subsequent to une 15, 1933,
ursuant to the acton taken by the board of drectors at a meetng
ed on March , 1933. It s provded n the statute that the e cse
ta so mposed sha not appy to dvdends decared pror to the date
of enactment, une 16, 1933. The acton taken at the meetng of
the board of drectors, as recorded, s as foows:
On the moton of , seconded by , t was unanmousy decded to contnue
the present reguar dvdend of cents per share per month, payabe on the of each month unt further acton by the board.
oowng the estabshed rue of constructon, the e presson
dvdends decared as used n the statute s to be construed and
apped accordng to ts accepted ega meanng. Stated brefy,
the decaraton of a dvdend by the board of drectors of a corpora-
ton has the ega effect of creatng the reatonshp of debtor and
credtor between the corporaton and the stockhoder, and the rghts
of the stockhoder as such credtor become mmedatey vested re-
gardess of the fact that the dvdend may be payabe at some future
tme. In order for a dvdend to be fuy decared wthn the
meanng of the statute the acton taken by the board of drectors
must be such as to create the reatonshp of debtor and credtor be-
tween the corporaton and the stockhoder, and the debt so created
must be a ega and enforceabe debt whch s defnte, fna, and
rrevocabe. dvdend so decared of course effects an appropra-
ton of surpus to the payment of the debt thereby created.
In the nstant case, athough the acton taken at the meetng hed
on March , 1933, ndcated an ntenton to contnue to pay dv-
dends at the specfed rate, the corporaton was not bound thereby to
contnue such payments. Whe the corporaton had a substanta
surpus on hand at the tme, there s nothng n the acton taken at
such meetng to prevent t from dscontnung dvdend payments
at any tme n the future, thereby makng the surpus then on hand
avaabe for other purposes. Obvousy, the acton taken dd not
carry the fnaty necessary to create a debt payabe to the stock-
hoders. Inasmuch as there was no actua decaraton of dvdends
by the acton taken on March , 1933, t s hed that the dvdends
pad pursuant thereto on or after une 16, 1933, are sub|ect to the
e cse ta of 5 per cent mposed by secton 213 of the Natona Indus-
tra Recovery ct.
Secton 213.
Termnaton of e cse ta on dvdends. (See Mm.4116, page 422.)
C PIT L STOC T .
II-34-6368
S. T.698
Capta stock ta hed to be effectve at east for the year
ended une 30, 1933, and the year endng une 30, 1934.
There appears to be some msunderstandng as to the duraton of
the capta stock ta mposed by secton 215 of the Natona Indus-
tra Recovery ct.
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404
Secton 215 of the Natona Industra Recovery ct provdes as
foows:
I or each year endng une 30 there s hereby mposed upon every domestc
corporaton wth respect to carryng on or dong busness for any part of such
year an e cse ta of 1 for each 1,000 of the ad|usted decared vaue of ts
capta stock.
(b) or each year endng une 30 there s hereby mposed upon every
foregn corporaton wth respect to carryng on or dong busness n the
Unted States for any part of such year an e cse ta equvaent to 1 for each
1,000 of the ad|usted decared vaue of capta empoyed n the transacton
of ts busness n the Unted States.
Secton 217 of that ct contans the foowng provsons:
(a) The Presdent sha procam the date of
(1) The cose of the frst fsca year endng une 30 of any year after the
year 1033, durng whch the tota recepts of the Unted States (e cudng
pubc-debt recepts) e ceed ts tota e pendtures (e cudng pubc-debt
e pendtures other than those chargeabe aganst such recepts), or
(2) The repea of the eghteenth amendment to the Consttuton, whchever
s the earer.

(d) The capta-stock ta Imposed by secton 215 sha not appy to any ta -
payer n respect of any year begnnng on or after the 1st day of uy foowng
the date so procamed.
rom the foregong e tracts from the aw t w be seen that the
ta s mposed for eac year endng une 30. s the aw s effectve
from une 16,1933, the frst year endng une 30 s the one whch
termnated on une 30, 1933. The second year began uy 1, 1933,
and w termnate une 30, 1934. Secton 217 s prospectve. It
makes certan provsons concernng the ssuance by the Presdent
of a procamaton n futuro and provdes that, shoud such a proca-
maton be ssued, the capta stock ta sha not appy n respect of
any year begnnng on or after the 1st day of uy foowng the
date procamed. s the frst year ended une 30, 1933, has aready
e pred and the second year has aready begun, and as the aw term-
natng the ta s prospectve, t foows that the capta stock ta
w be n effect for at east two years, . e., the year ended une 30,
1933, and the year endng une 30, 1934 and that any procamaton
ssued by the Presdent under the terms of the aw w not affect any
perod pror to the year begnnng uy 1, 1934, and endng une
30. 1935.
Secton 215. II-35-6385
T. D.438G
Captn stock ta . Natona Industra Recovery ct. urther
e tenson of tme for fng returns and payng ta . rtce 55 of
Reguatons 64, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
orm 707 (Revsed) and orm 708 (Revsed) for the fng of
returns n respect of the capta stock ta mposed under secton 215
of the Natona Industra Recovery ct, approved une 16, 1933,
for the year ended une 30, 1933, are requred to be fed, and the
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405
Regs. 64, rt. 21.
ta pad, on or before uy 31, 1933, uness the tme for fng
returns and payng the ta s e tended under the provsons of
secton 215(d) of the ct. Under that secton no e tenson can
be granted for more than 60 days.
y Treasury Decson 4368 C. . II-1, 473 and the thrd
paragraph of artce 55 of Reguatons 64, promugated ugust 15,
1933, an e tenson to on or before ugust 31, 1933, was granted n
the case of returns requred to be fed n the contnenta Unted
States, and an e tenson to on or before September 20, 1933, was
granted n the case of returns requred to be fed wth the coectors
of nterna revenue for the Terrtores of aska and awa.
In accordance wth the provsons of secton 215(d) of the Na-
tona Industra Recovery ct, the tme durng whch a returns
n respect of the capta stock ta for the year ended une 30, 1933,
may be fed, and the ta pad, s hereby further e tended to on or
before September 29, 1933 and coectors of nterna revenue are
authorzed to accept returns wthout the asserton of penates for
denquency f the returns are fed, and the ta pad, on or before
that date.
The thrd paragraph of artce 55 of Reguatons 64, promugated
ugust 15, 1933, s hereby amended to read as foows:
The tme for fng a returns for the year ended une 30, 1933, s e tended
to on or before September 29, 1933.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ugust 24, 1933.
Dean cheson,
ctng Secretary of the Treasury.
Secton 215. II-39-6422
Reguatons 64, rtce 21: ppcaton of ta . S. T. 702
Corporatons n the hands of recevers and banks n the hands of
conservators are not abe for capta stock ta .
dvce s requested concernng the capta stock ta abty of
corporatons n the hands of recevers and banks n the hands of
conservators or offcers wth smar powers.
The capta stock ta mposed by secton 215 of the Natona Indus-
tra Recovery ct, approved une 16,1933 (Pubc, No. 67, Seventy-
thrd Congress), s a ta upon the dong of busness n a corporate
capacty. Where a corporaton s n the hands of a recever, the
recever and not the corporaton s carryng on the busness. Ths
s true wth respect to both operatng recevers and qudatng recev-
ers. ccordngy, where a corporaton s n the hands of a recever
apponted to qudate the busness and dstrbute the proceeds, the
corporaton s not carryng on or dong busness wthn the meanng
of secton 215 of the Natona Industra Recovery ct and s not
sub|ect to the capta stock ta mposed by that ct. The same s
true of a corporaton n the hands of a recever apponted to con-
serve the assets, rehabtate the busness, and turn the corporaton
back to ts owners as a gong concern.
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Regs. 64, rt. 31.
406
Natona bank n the hands of a conservator apponted by the
edera Government, or a State bank n the hands of a conservator
or offcer wth smar powers, apponted by the State, s not carryng
on or dong busness wthn the meanng of the aw.
Where a Natona bank or a State bank was n the hands of a con-
servator or offcer wth smar powers pror to uy 1, 1933, and a
pan was worked out and put nto effect before that date whereby a
porton of the assets of the bank was sod to a new bank whch was
organzed for that purpose and carred on the busness after une 15.
1933, and pror to uy 1, 1933, the new bank s sub|ect to the capta
stock ta for the perod ended une 30, 1933.
here a recever or conservator s n charge of the affars of a
corporaton durng a part of the ta abe year, and the corporaton
carres on ts busness durng any remanng porton of the year, the
capta stock ta s due and payabe for the entre year wthout any
aowance or deducton for the perod durng whch the corporate
affars were admnstered by a recever or conservator. owever,
the capta stock ta for the year ended une 30, 1933, w not attach
to any domestc corporaton whch was n the hands of a recever,
conservator, or offcer wth smar powders durng the entre perod
from une 10, 1933, to une 30, 1933, ncusve.
Whe some corporatons may not be sub|ect to the capta stock ta ,
every domestc corporaton w be requred to fe a capta stock
ta return on orm 707, wth the e cepton of nsurance companes
sub|ect to ncome ta under sectons 201 and 204 of the Revenue ct
of 1932. (See artce 42, Reguatons 64.) If e empton s camed,
the nformaton part of the return, namey, tems 1 to 8, ncusve,
shoud be competed n deta. Under tem 9 no vaue need be de-
cared, but a notaton e empton camed shoud be entered. The
return as thus prepared and duy e ecuted shoud be fed wth the
coector of nterna revenue accompaned by orm 717 whch shoud
ceary set forth the fact upon whch the cam for e empton s based.
When the return s receved by the ureau the cam for e empton
w be consdered and f sustaned the corporaton w not be re-
qured to fe a capta stock ta return for subsequent ta abe years,
provded ts status remans unchanged.
The above procedure shoud be foowed n the cases of a corpora-
tons n the hands of recevers or conservators.
Reoctatons C4, rtce 31: ppcaton of II-41-6447
ta . S. T. 700
Mere nvestments n the Unted States by a foregn corporaton
do not consttute carryng on or dong busness n the Unted
States.
ueston has been rased whether nvestments made n ths country
by a foregn corporaton consttute carryng on or dong busness
n the Unted States, for capta stock ta purposes.
The mere nvestment by a foregn corporaton of ts funds n
stocks and securtes n the Unted States, or n foregn securtes
payabe n the Unted States, does not consttute carryng on or
dong busness n the Unted States wthn the meanng of secton
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407
MsC
215(b) of the Natona Industra Recovery ct so as to ncur a-
bty to the capta stock ta . Such nvestments do not consttute
capta empoyed n the transacton of ts busness n the Unted
States uness made n connecton wth the conduct of a busness
carred on n ths country.
Secton 215.
Termnaton of capta stock ta . (See Mm. 4116, page 422.)
C SS PRO ITS T .
Secton 216. II-30-6313
Mm.4040
cess-profts ta mposed by secton 216 of the Natona
Industra Recovery ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, uy 1, 1933.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
The Natona Industra Recovery ct (Pubc, No. 67, Seventy-
thrd Congress, . R. 5755) was approved by the Presdent une 16,
1933, 11.55 a. m., eastern standard tme. Secton 216 of that ct
provdes:
(a) There s hereby mposed upon the net ncome of every corporaton, for
each ncome-ta ta abe year endng after the cose of the frst year n respect
of whch t s ta abe under secton 215, an e cess-profts ta equvaent to 5
per centum of such porton of ts net ncome for such ncome-ta ta abe year
as s n e cess of 12 per centum of the ad|usted decared vaue of s capta
stock (or n the case of a foregn corporaton the ad|usted decared vaue of
capta empoyed n the transacton of ts busness n the Unted States) as of
the cose of the precedng ncome-ta ta abe year (or as of the date of organ-
zaton f t had no precedng ncome-ta ta abe year) determned as provded
n secton 215. The terms used n ths secton sha have the same meanng as
when used n the Revenue ct of 1932.
(b) The ta mposed by ths secton sha be assessed, coected, and pad n
the same manner, and sha be sub|ect to the same provsons of aw (ncudng
penates), as the ta es mposed by tte I of the Revenue ct of 1932.
The secton of the ct referred to n secton 216 as secton 215
provdes:
(a) or each year endng une 30 there s hereby mposed upon every
domestc corporaton wth respect to carryng on or dong busness for any pnrt
of such year an e cse ta of 1 for each 1,000 of the ad|usted decared vaue
of ts capta stock.
(b) or each year endng une 30 there s hereby mposed upon every foregn
corporaton wth respect to carryng on or dong busness n the Unted States
for any part of such year an e cse ta equvaent to 1 for each 1,000 of the
ad|usted decared vaue of capta empoyed n the transacton of ts busness n
the Unted States.
(c) The ta es mposed by ths secton sha not appy
(1) to any corporaton enumerated n secton 103 of the Revenue ct of 1932
(2) to any nsurance company sub|ect to the ta mposed by secton 201 or
204 of such ct
(3) to any domestc corporaton n respect of the year endng une 30, 1933,
f t dd not carry on or do busness durng a part of the perod from the date of
the enactment of ths ct to une 30, 1933, both dates ncusve or
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Msc.
408
(4) to any foregn corporaton n respect of the year endng une 30, 1933,
f t dd not carry on or do busness n the Unted States durng a part of the
perod from the date of the enactment of ths ct to une 30, 1933, both dates
ncusve.
(d) very corporaton abe for ta under ths secton sha make a return
under oath wthn one month after the cose of the year wth respect to whch
such ta s mposed to the coector for the dstrct n whch s ocated ts
prncpa pace of busness or, f t has no prncpa pace of busness n the
Unted States, then to the coector at atmore, Md. Such return sha con-
tan such nformaton and be made n such manner as the Commssoner wth
the approva of the Secretary may by reguatons prescrbe. The ta sha,
wthout assessment by the Commssoner or notce from the coector, be due
and payabe to the coector before the e praton of the perod for tng the
return. If the ta s not pad when due, there sha be added as part of the
ta nterest at the rate of 1 per centum a mouth from the tme when the ta
became due unt pad. provsons of aw (ncudng penates) appcab e
n respect of the ta es mposed by secton 600 of the Revenue ct of 1926
sha, n so far as not nconsstent wth ths secton, be appcabe n respect
of the ta es mposed by ths secton. The Commssoner may e tend the tme
for makng the returns and payng the ta es mwsed by ths secton, under such
rues and reguatons as e may prescrbe wth the approva of the Secretary,
but no such e tenson sha be for more than 60 days.
(e) Returns requred to be fed for the purpose of the ta mposed by ths
secton sha be open to nspecton n the same manner, to the same e tent, and
sub|ect to the same provsons of aw, ncudng penates, as returns made
under Tte II of the Revenue ct of 1926.
(f) or the frst year endng une 30 n respect of whch a ta s mposed by
ths secton upon any corporaton, the ad|usted decared vaue sha be the
vaue, as decared by the corporaton n ts frst return under ths secton
(whch decaraton of vaue can not be amended), as of the cose of ts ast
ncome-ta ta abe year endng at or pror to the cose of the year for whch
the ta s mposed by ths secton (or as of the date of organzaton n the case
of a corporaton havng no ncome-ta ta abe year endng at or pror to the
cose of the year for whch the ta s mposed by ths secton). or any subse-
quent year endng une 30, the ad|usted decared vaue n the case of a domestc
corporaton sha be the orgna decared vaue pus (1) the cash and far
market vaue of property pad n for stock or shares, (2) pad-n surpus and
contrbutons to capta, and (3) earnngs and profts, and mnus ( ) the vaue
of property dstrbuted n qudaton to sharehoders, ( ) dstrbutons of earn-
ngs and profts, and (C) defcts, whether operatng or nonoperatng each
ad|ustment beng made for the perod from the date as of whch the orgna
decared vaue was decared to the cose of ts ast ncome-ta ta abe year end-
ng at or pror to the cose of the year or whch the ta s mposed by ths sec-
ton. or any subsequent year endng une 30, the ad|usted decared vaue n
the ease of a foregn corporaton sha be the orgna decared vaue ad|usted,
n accordance wth reguatons prescrbed by the Commssoner wth the ap-
prova of the Secretary, to refect ncreases or decreases (for the perod spec-
fed n the precedng sentence) n the capta empoyed n the transacton of ts
busness n the Unted States.
(g) The terms used n ths secton sha have the same meanng as when
used n the Revenue ct of 1932.
It s to be observed that the e cess-profts ta mposed by secton
21G s upon the net ncome of corporatons for each ncome-ta ta -
abe year endng after the cose of the frst year n respect of whch
they are ta abe under secton 215. The frst e cess-profts ta re-
turns requred to be made under secton 216 are the e cess-profts ta
returns of corporatons ta abe under secton 215 for the year endng
une 30, 1933, and havng an ncome-ta ta abe year whch s the
fsca year endng uy 31, 1933. Such e cess-profts ta returns for
the ncome-ta ta abe year endng uy 31, 1933, need not be made
before October 15, 1933.
The nstructons and return forms necessary for the admnstra-
ton of the above-quoted provsons of the ct are now beng pre-
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409
Mso|
pared. s soon as they are competed due pubcty w be gven to
the nstructons and forms through the usua channes. When the
nstructons and forms are avaabe for dstrbuton they may be
obtaned from coectors of nterna revenue.
Inqures and correspondence regardng ths mmeograph shoud
refer to the number and symbos IT: : RR.
P. R. adrdge,
ctng Commssoner.
Secton 216. II-36-6392
I. T. 2716
oregn ncome ta may not be credted aganst the e cess-profts
ta mposed by secton 216 of the Natona Industra Recovery ct.
Secton 216. II-39-6423
T. D.4390
C SS profts ta .
Secton 216 of the Natona Industra Recovery ct. approved
une 16, 1933 (Pubc, No. 67, Seventy-thrd Congress).
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 216 of the Natona Industra Recovery ct (Pubc, No.
67, Seventy-thrd Congress), approved by the Presdent une 16,
1933, provdes:
(a) There s hereby mposed upon the net ncome of every corporaton, for
each ncome-ta ta abe year endng after the cose of the frst year n respect of
whch t s ta abe under secton 215, an e cess-profts ta equvaent to 5
per centum of such porton of ts net ncome for such ncome-ta ta abe year
as s n e cess of 12 per centum of the ad|usted decared vaue of ts capta
stock (or n the case of a foregn corporaton the ad|usted decared vaue of
capta empoyed n the transacton of ts busness n the Unted States) as of
the cose of the precedng Income-ta ta abe year (or as of the date of
organzaton f t had no precedng ncome-ta ta abe year) determned as
provded n secton 215. The terms used n ths secton sha have the same
meanng as when used n the Revenue ct of 1932.
(b) The ta mposed by ths secton sha be assessed, coected, and pad
n the same manner, and sha be sub|ect to the same provsons of aw (ncud-
ng penates), as the ta es mposed by Tte I of the Revenue ct of 1932.
The secton of the ct referred to n secton 216 as secton 215
provdes:
(a) or each year endng une 30 there s hereby mposed upon every do-
mestc corporaton wth respect to carryng on or dong busness for any part
of such year an e cse ta of 1 for each 1,000 of the ad|usted decared vaue
of ts capta stock.
(b) or each year endng une 30 there Is hereby Imposed upon every foregn
corporaton wth respect to carryng on or dong busness n the Unted States
for any part of such year an e cse ta equvaent to 1 for each 1,000 of the
ad|usted decared vaue of capta empoyed In the transacton of Its busness
n the Unted States.
(c) The ta es Imposed by ths secton sha not appy
(1) to any corporaton enumerated n secton 103 of the Revenue ct of 1932 |
37408 34 27
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Msc.
410
(2) to any Insurance company sub|ect to the ta Imposed by secton 201 or
204 of such ct
(3) to any domestc corporaton n respect of the year endng une 30, 1933,
f t dd not carry on or do busness durng a part of the perod from the date
of the enactment of ths ct to une 30, 1933, both dates ncusve or
(4) to any foregn corporaton n respect of the year endng une 30, 1933,
f t dd not carry on or do busness n the Unted States durng a part of the
perod from the date of the enactment of ths- ct to une 30, 1933, both dates
ncusve.
(d) very corporaton abe for ta under ths secton sha make a return
under oat wthn one month after the cose of the year wth respect to whch
such ta s mposed to the coector for the dstrct n whch s ocated ts
prncpa pace of busness or, f t has no prncpa pace of busness n the
Unted States, then to the coector at atmore, Md. Such return sha con-
tan such nformaton and be made n such manner as the Commssoner wth
the approva of the Secretary may by reguatons prescrbe. The ta sha,
wthout assessment by the Commssoner or notce from the coector, be due
and payabe to the coector before the e praton of the perod for fng the
return. If the ta s not pad when due, there sha be added as part of the
ta nterest at the rate of 1 per centum a month from the tme when the ta
became due unt pad. provsons of aw (ncudng penates) appcabe
n respect of the ta es mposed by secton 600 of the Revenue ct of 1926 sha,
n so far as not nconsstent wth ths secton, be appcabe n respect of the
ta es mposed by ths secton. The Commssoner may e tend the tme for
makng the returns and payng the ta es mposed by ths secton, under such
rues and reguatons as he may prescrbe wth the approva of the Secretary,
but no such e tenson sha be for more than 60 days.
(e) Returns requred to be fed for the purpose of the ta mposed by ths
secton sha be open to nspecton n the same manner, to the same e tent, and
sub|ect to the same provsons of aw, ncudng penates, as returns made
under Tte II of the Revenue ct of 1926.
(f) or the frst year endng une 30 n respect of whch a ta s mposed
by ths secton upon any corporaton, the ad|usted decared vaue sha be the
vaue, as decared by the corporaton n ts frst return under ths secton
(whch decaraton of vaue can not be amended), as of the cose of ts ast
ncome-ta ta abe year endng at or pror to the cose of the year for whch
the ta s mposed by ths secton (or as of the date of organzaton n the
case of a corporaton havng no ncome-ta ta abe year endng at or pror to
the cose of the year for whch the ta s mposed by ths secton). or any
subsequent year endng une 30, the ad|usted decared vaue n the case of a
domestc corporaton sha be the orgna decared vaue pus (1) the cash and
far market vaue of property pad n for stock or shares, (2) pad-n surpus
and contrbutons to capta, and (3) earnngs and profts, and mnus ( ) the
vaue of property dstrbuted n qudaton to sharehoders, ( ) dstrbutons
of earnngs and profts, and (C) defcts, whether operatng or nonoperatng
each ad|ustment beng made for the perod from the date as of whch the
orgna decared vaue was decared to the cose of ts ast ncome-ta ta abe
year endng at or pror to the cose of the year for whch the ta s mposed
by ths secton. or any subsequent year endng une 30, the ad|usted decared
vaue n the case of a foregn corporaton sha be the orgna decared vaue
ad|usted, n accordance wth reguatons prescrbed by the Commssoner wth
the approva of the Secretary, to refect ncreases or decreases (for the perod
specfed n the precedng sentence) n the capta empoyed n the transacton
of ts busness n the Unted States.
(g) The terms used n ths secton sha have the same meanng as when
used n the Revenue ct of 1932.
Secton 218 of the Natona Industra Recovery ct, n so far as
t affects the computaton of the net ncome of corporatons for the
purposes of the e cess-profts ta mposed by secton 216 of that ct,
provdes:
Sec. 218. (a) ffectve as of anuary 1, 1933, sectons 117, 23(),
of the Revenue ct of 1932 are repeaed.
(b) ffectve as of anuary 1, 1933, secton 23(r)2 of the Revenue ct
of 1932 s repeaed.
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411 Msc.
LI ILITY OR ND COMPUT TION O C SS-PRO ITS T .
Secton 216 of the Natona Industra ecovery ct mposes an
e cess-profts ta upon the net ncome of every corporaton for
each ncome-ta ta abe year endng after the cose of the frst
year n respect of whch t s sub|ect to the capta stock ta mposed
by secton 215 of that ct. The e cess-profts ta s equvaent to
5 per centum of such porton of the corporaton s net ncome for such
ncome-ta ta abe year as s n e cess of 12 per centum of the
ad|usted decared vaue of ts capta stock (or n the case of a
foregn corporaton the ad|usted decared vaue of capta empoyed
n the transacton of ts busness n the Unted States) as of the
cose of the precedng ncome-ta ta abe year (or as of the date
of organzaton f t had no precedng ncome-ta ta abe year)
determned as provded n secton 215. No varaton between the
ad|usted decared vaue of capta stock set forth n the capta
stock ta return and the ad|usted decared vaue emboded n the
e cess-profts ta return s permssbe. s used n secton 210 of
the Natona Industra Recovery ct and ths Treasury decson the
term, ncome-ta ta abe year means the caendar year, or the
fsca year endng durng such caendar year, upon the bass of whch
the corporaton s net ncome s computed and ts ncome-ta returns
are made under the Revenue ct or 1932. The term, net ncome
and other terms used n secton 216 of the Natona Industra
Recovery ct have the same meanng as when used n the Revenue
ct of 1932. The appcaton of ths paragraph may be ustrated
by the foowng e ampes:
ampe (1) : The M Corporaton, the ncome-ta ta abe year of
whch s the caendar year, s sub|ect to the capta stock ta m-
posed by secton 215 for the year ended une 30, 1933. The vaue
decared n ts capta stock ta return for the year ended une 30,
1933, of ts capta stock as of the cose of ts precedng ncome-ta
ta abe year (the caendar year 1932) s 100,000. The net ncome
of the corporaton for the caendar year 1933 s 24,500. The
e cess-profts ta for the caendar year 1933 woud be 600, com-
puted as foows:
Net Income for caendar year 1933 24,500
Less:
12 per centum of the vaue decared In the capta stock ta
return for the year ended une 30, 1933, of the capta stock as
of December 31, 1932 (12 per centum of 100,000) 12,500
mount sub|ect to e cess-profts ta under secton 210 of the Natona
Industra Recovery ct 12,000
cess-profts ta , 5 per centum of 12,000 GOO
ampe (2): The O Corporaton, the ncome-ta ta abe year
of whch s the fsca year endng uy 31, s sub|ect to the capta
stock ta mposed by secton 215 for the year ended une 30, 1933.
The vaue decared n ts capta stock ta return for the year ended
une 30, 1933, of ts capta stock as of the cose of ts precedng
ncome-ta ta abe year (the fsca year ended uy 31, 1932) s
108,000. The net ncome of the corporaton for the fsca year
ended uy 31, 1933, computed both under the Revenue ct of 1932,
and under the Revenue ct of 1932 as amended by secton 218 of the
Natona Industra Recovery ct, s 24,500. The e cess-profts ta
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412
for the fsca year ended uy 81, 1933, woud be 550, computed
as foows:
Net ncome for fsca year ended uy 31, 1933 24, 500
Less:
12 per centum of the vaue decared n te capta stock ta re-
turn for the year ended une 30, 1933, of the capta stock as of
uy 31, 1932 (12 per centum of 108,000) 13, 500
mount sub|ect to e cess-profts ta under secton 216 of the Natona
Industra Recovery ct 11, 000
cess-profts ta , 5 per centum of 11,000 550
Where a corporaton havng an ncome-ta ta abe year whch s
a fsca year endng after une 30, s sub|ect to the capta stock ta
mposed by secton 215 for the year ended une 30, 1933, and the
net ncome of such corporaton for ts ncome-ta ta abe year end-
ng n 1933 computed under the Revenue ct of 1932 s dfferent from
such net ncome computed under the Revenue ct of 1932 as amended
by secton 218 of the Natona Industra Recovery ct, the net n-
come upon whch the e cess-profts ta s to be computed for such
ncome-ta ta abe year endng n 1933 s the sum of the foowng:
(a) The net ncome attrbutabe to the caendar year 1932, found
by computng the net ncome of the corporaton for the fsca year
under the provsons of the Revenue ct of 1932, and by takng the
proporton of such net ncome whch the porton of the fsca year
perod fang wthn the caendar year 1932 s of the entre fsca
year.
(b) The net ncome attrbutabe to the caendar year 1933, found
by computng the net ncome of the corporaton for the fsca year
under the provsons of the Revenue ct of 1932 as amended by
secton 218 of the Natona Industra Recovery ct, and by takng
the proporton of such net ncome whch the porton of the fsca year
fang wthn the caendar year 1933 s of the entre fsca year.
The appcaton of ths paragraph may be ustrated by the fo-
owng e ampe:
ampe: The P Corporaton, the ncome-ta ta abe year of
whch s the fsca year endng uy 31, s sub|ect to the capta stock
ta mposed by secton 215 for the year ended une 30, 1933. The
vaue decared n ts capta stock ta return for the year ended
une 30, 1933, of ts capta stock as of the cose of ts precedng
ncome-ta ta abe year (the fsca year ended uy 31, 1932) s
88,000. s computed both under secton 117 of the Revenue ct of
1928 and secton 117 of the Revenue ct of 1932, the corporaton had
a net oss of 12,000 for ts fsca year ended uy 31, 1932. Its net
ncome for the fsca year ended uy 31, 1933, computed both under
the Revenue ct of 1932 and under the Revenue ct of 1932 as
amended by secton 218 of the Natona Industra Recovery ct (but
wthout regard to the net oss of 12,000) s 24,000. Under the
Revenue ct of 1932, the net oss of 12,000 s an aowabe deducton
n computng the net ncome of the corporaton for the fsca year
ended uy 31, 1933. Such net oss s not an aowabe deducton n
computng the net ncome of the corporaton for the fsca year ended
uy 31, 1933, under the Revenue ct of 1932 as amended by secton
218 of the Natona Industra Recovery ct. The net ncome of
the corporaton for ts fsca year ended uy 31, 1933, upon whch
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413
Mso.
the e cess-profts ta s to be computed, woud be 19,000, such net
ncome beng computed as foows:
Net ncome for fsca year ended uy 31, 1933 (computed under the
Revenue ct of 1932), 24,000 12,000 12,000
Net ncome for fsca year ended uy 31, 1933 (computed under the
Revenue ct of 1932 as amended by secton 218 of the Natona In-
dustra Recovery ct) 24,000
Net ncome sub|ect to e cess-profts ta under secton 216 of the
Natonn Industra Recovery ct, 2 of 12,000 ( 5,000) pus fta
of 24,000 ( 14,000) 19,000
The e cess-profts ta on 19,000 woud be 400, computed as
foows:
Net ncome for fsca year ended uy 31, 1933 19,000
Less:
12 per centum of the vaue decared n the capta stock ta
return for the year ended une 30, 1933, of the capta stock as
of uy 31, 1932 (12 per centum of S8,000) 11,000
mount sub|ect to e cess-profts ta under secton 216 of the Natona
Industra Recovery ct 8, 000
cess-profts ta , 5 per centum of 8,000 400
C SS-PRO ITS T TO NS ND P YM NT O T .
very corporaton whch s sub|ect to the capta stock ta m-
posed by secton 215 of the Natona Industra Recovery ct sha
make an e cess-profts ta return for each ncome-ta ta abe year
endng after the cose of the frst year n respect of whch t s
sub|ect to the capta stock ta . The e cess-profts ta return for
such ncome-ta ta abe year s requred to be made wthn the tme
prescrbed by the Revenue ct of 1932 for makng the ncome ta
return of the corporaton for such ta abe year and sha be made
to the coector of nterna revenue to whom such ncome ta return
s requred to be made by that ct.
n affated group of corporatons as defned by secton 141 of
the Revenue ct or 1932, as amended by secton 218(e) of the
Natona Industra Recovery ct, whch pursuant to that secton
has the prvege of makng a consodated ncome-ta return, and
has e ercsed such prvege, sha make a consodated e cess profts
ta return. The e cess profts ta sba be computed on such porton
of the consodated net ncome for the ncome-ta ta abe year of
the affated group as s n e cess of 12 per centum of the com-
bned ad|usted decared vaue of the capta stock of the members of
the group as separatey returned under secton 215. In the case of
a corporaton whch s a member of an affated group for a frac-
tona part of the year, the consodated e cess profts ta return
sha ncude the ncome of such corporaton for such part of the
year as t s a member of the affated group, and a ke proportonate
part of the ad|usted decared vaue of the capta stock of such cor-
poraton sha be ncuded n the combned ad|usted decared vaue
of the capta stock of the affated group.
The e cess-profts ta mposed by secton 216 of the Natona In-
dustra Recovery ct for any ncome-ta ta abe year s requred to
be pad wthn the tme prescrbed by the Revenue ct of 1932 for
payng the ncome ta mposed by the Revenue ct of 1932 for
such ta abe year.
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414
The determnaton, assessment, and coecton of the e cess-profts
ta and the e amnaton of returns and cams fed pursuant to
secton 216 and ths Treasury decson w be made under such pro-
cedure as may be prescrbed from tme to tme by the Commssoner.
Gut T. everno,
Commssoner.
pproved September 16, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
Secton 216. II-39-6421
I. T. 2719
The Natona Industra Recovery ct, secton 216, mposes an
e cess profts ta upon the net ncome of every corporaton ta -
abe under secton 215 of that ct, and decares that the terms
used n secton 216 sha have the same meanng as when used n
the Revenue ct of 1932.
Net ncome s defned by secton 21 of the Revenue ct of 1932
as gross ncome computed under secton 22 ess the deductons
aowed by secton 23. mong the deductons aowed by secton 23
(paragraph (p) thereof) are certan dvdends receved by corpora-
tons. To the e tent therefore that a dvdend receved by a cor-
poraton s aowed as a deducton n computng net ncome as
defned by secton 21 of the Revenue ct of 1932, such dvdend s
not a part of the net ncome whch s sub|ect to the e cess profts
ta mposed by secton 216 of the Natona Industra Recovery ct.
Secton 216. II -6452
G. CM. 12357
s nterest on obgatons of the Unted States s e cuded
from the net ncome of a corporaton for ncome ta purposes
under the Revenue ct of 1932, t must aso be e cuded from
net ncome for e cess profts ta purposes under secton 216 of the
Natona Industra Recovery ct.
n opnon s requested whether nterest on obgatons of the
Unted States shoud be e cuded from the net ncome of a corpora-
ton for the purpose of e cess profts ta mposed by secton 216 of
the Natona Industra Recovery ct.
Secton 216 of the Natona Industra Recovery ct reads as
foows:
(a) There s hereby mposed upon the net ncome of every corporaton, for
each ncome-ta ta abe year endng after the cose of the frst year n
respect of whch t s ta abe under secton 215, an e cess-profts ta equvaent
to 5 per centum of such porton of ts net ncome for such ncome-ta ta abe
year as s n e cess of 12 per centum of the ad|usted decared vaue of
ts capta stock (or n the case of a foregn corporaton the ad|usted decared
vaue of capta empoyed n the transacton of ts busness n the Unted
States) as of the cose of the precedng ncome-ta ta abe year (or as of
the date of organzaton f t had no precedng ncome-ta ta abe year) deter-
mned as provded n secton 215. The terms used n ths secton sha have
the same meanng as when used n the Revenue ct of 1932.
(b) The ta mposed by ths secton sha be assessed, coected, and pad
n the same manner, and sha be sub|ect to the same provsons of aw (ncud-
ng penates), as the ta es mposed by Tte I of the Revenue ct of 1932.
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415
Msc|
Secton 21 of the Revenue ct of 1932 provdes as foows:
Net Income means the gross ncome computed under secton 22, ess the
deductons aowed by secton 23.
Secton 22(b) of the Revenue ct of 1932 provdes that the foow-
ng tems sha not be ncuded n gross ncome and sha be e empt
from ta aton under Tte I (ncome ta ) :
(4) Interest upon (C) the obgatons of the Unted
States or ts possessons. In the case of obgatons of the Unted
States ssued after September 1, 1917 (other than posta savngs certfcates of
depost), the nterest sha be e empt ony f and to the e tent provded n the
respectve cts authorzng the ssue thereof as amended and suppemented, and
sha be e cuded from gross ncome ony f and to the e tent t s whoy e empt
to the ta payer from the ta es mposed by ths tte. Itacs supped.
corporaton n reportng ts gross ncome for ncome ta pur-
poses, under the Revenue ct of 1932, shoud e cude nterest on
obgatons of the Unted States, as such nterest, n the case of a
corporaton, s whoy e empt from ncome ta mposed by Tte I of
the Revenue ct of 1932.
The term net ncome as used n secton 21 of the Revenue ct
of 1932 means the net ncome for the purpose of ncome ta . The
net ncome of a corporaton for the purpose of ncome ta s ts
gross ncome, ess the deductons aowed by secton 23 of the Revenuo
ct of 1932| as amended. Consequenty, any tem whch s e cuded
from gross ncome s kewse e cuded from net ncome.
Certan obgatons of the Unted States, for e ampe, the Lberty
4 per cent and 4 4 per cent bonds, are e empt both as to prncpa
and nterest from a ta aton mposed by the Unted States e cept
(a) estate or nhertance ta es, and (b) surta es and e cess-profts
and war-profts ta es, n effect at the tme of ssuance or thereafter
mposed. (See artce 87, Reguatons 77.) corporaton s not
sub|ect to the surta mposed by secton 12 of the Revenue ct of
1932, and that ct does not mpose an e cess-profts or war-profts
ta . It foows that n computng net ncome of a corporaton for
ncome ta purposes the nterest on obgatons of the Unted States
s e cuded. s such nterest s e cuded from net ncome of a cor-
poraton for ncome ta purposes, t must aso be e cuded from net
ncome for e cess profts ta purposes under secton 216 of the Na-
tona Industra Recovery ct, snce the term net ncome as used
n that secton has the same meanng as when used n the Revenue
ct of 1932.
. arrett Pretttman,
Genera Counse, ureau of Interna Revenue.
Secton 216. II-42-6459
I. T. 2724
Where a ta payer has eected to report ts entre profts from
ong-term contracts n the year n whch such contracts are com-
peted, the profts derved by t n the year of competon must be
ncuded n net ncome for that year and w be sub|ect to the
e cess profts ta provsons of secton 216 of the Natona Indus-
tra Recovery ct, as we as the ncome ta provsons of secton
13 of the Revenue ct of 1932.
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Msc.
416
dvce s requested n regard to reportng ncome from ong-term
contracts for e cess profts ta purposes under secton 216 of the
Natona Industra Recovery ct.
or many years the ta payer has been engaged n the contractng
and constructon busness, deang amost entrey wth muncpa-
tes. s a genera rue severa years are requred to compete a con-
tract. The ta payer reports the entre profts on each separate con-
tract n ts edera ncome ta return for the partcuar year n whch
the contract s competed. t the present tme the ta payer has but
one pro|ect outstandng covered by contracts wth the cty of R.
Under the eecton heretofore made by the ta payer of reportng n-
come on the competed contract bass, the entre profts from the con-
tracts w be reported for ncome ta purposes on ts ncome ta
return for the year n whch the contracts are competed n accord-
ance wth artce 334(b) of Reguatons 77.
The ta payer requests to be advsed whether for e cess profts ta
purposes t may report ts ncome from these contracts upon the
bass of percentage of competon as provded by artce 334(a) of
Reguatons 77, or whether t must report a such ncome for the
year of competon as provded by artce 334(b) of Reguatons 77,
m vew of ts eecton for ncome ta purposes.
Secton 42 of the Revenue ct of 1932, reatng to the perod n
whch tems of gross ncome sha be ncuded, provdes:
The amount of a Items of gross ncome sha be ncuded n the gross ncome
for the ta abe year n whch receved by the ta payer, uness, under methods
of accountng permtted under secton 41, any such amounts are to be propery
accounted for as of a dfferent perod.
rtce 334 of Reguatons 77 promugated thereunder reads as
foows:
Long-term contracts. Income from ong-term contracts Is ta abe for the
perod n whch the ncome s determned, such determnaton dependng upon
the nature and terms of the partcuar contract. s used heren the term
ong-term contracts means budng, nstaaton, or constructon contracts
coverng a perod n e cess of one year. Persons whose ncome s derved n
whoe or n part from such contracts may, as to such ncome, prepare ther
returns upon the foowng bases:
(a) Gross ncome derved from such contracts may be reported upon the
bass of percentage of competon. In such ease there shoud accompany the
return certfcates of archtects or engneers showng the percentage of com-
peton durng the ta abe year of the entre work to be performed under the
contract. There shoud be deducted from such gross ncome a e pendtures
made durng the ta abe year on account of the contract, account beng taken
of the matera and suppes on hand at the begnnng unc end of the ta abe
perod for use n connecton wth the work under the contract but not yet so
apped. If, upon competon of a contract, t s found that the ta abe net
ncome arsng thereunder has not been doury refected for any year or years,
the Commssoner may permt or requre an amended return.
(6) Gross ncome may be reported n the ta abe year In whch the contract
s fnay competed and accepted f the ta payer eects as a consstent practce
so to treat such ncome, provded such method ceary refects the net ncome. If
ths method s adopted there shoud be deducted from gross ncome a e pend-
tures durng the fe of the contract whch are propery aocated thereto,
takng nto consderaton any matera and suppes charged to the work under
the contract but remanng on hand at the tme of competon.
ta payer may change hs method of accountng to accord wth paragraphs
(a) and (6) of ths artce, ony after permsson s secured from the Com-
mssoner as provded n artce 322.
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417
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Secton 216 of the Natona Industra Recovery ct provdes:
(a) There s hereby mposed upon the net ncome of every corporaton,
for each ncome-ta ta abe year endng after the cose of the frst year n
respect of whch t s ta abe under secton 215, an e cess-profts ta equva-
ent to 5 per centum of such porton of ts net ncome for such ncome-ta
ta abe year as s n e cess of 12y2 per centum of the ad|usted decared
vaue of Its capta stock (or n the case of a foregn corporaton the ad-
|usted decared vaue of capta empoyed n the transacton of ts busness
n the Unted States) ns of the cose of the precedng ncome-ta ta abe
year (or as of the date of organzaton f t had no precedng ncome-ta ta -
abe year) determned as provded n secton 215. The terms used n ths
secton sha have the same meanng as when used n the Revenue ct of
1932.
(6) The ta mposed by ths secton sha be assessed, coected, and pad
n the same manner, and sha be sub|ect to the same provsons of aw
(ncudng penates), as the ta es mposed by Tte I of the Revenue ct of
1932.
It w be observed that secton 216(a), supra, specfcay pro-
vdes that The terms used n ths secton sha have the same
meanng as when used n the Revenue ct of 1932. In vew of the
provsons of secton 216 of the Natona Industra Recovery
ct, the ta payer must use the same method n reportng ts net
ncome for e cess profts ta purposes whch t has eected to use
n reportng ts net ncome for ncome ta purposes.
Inasmuch as the ta payer has eected under artce 334(b) of
Reguatons 77 to report ts entre profts from ts ong-term con-
tracts n the year n whch such contracts are competed, the profts
derved by t n the year of competon must be ncuded n net
ncome for that year and w be sub|ect to the e cess profts ta
provsons of secton 216 of the Natona Industra Recovery ct,
as we as the ncome ta provsons of secton 13 of the Revenue
ct of 1932.
Secton 216. II-43-6469
Mm. 4079
Coectors gven authorty to grant e tensons of tme for fng
e cess profts ta returns.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, October 11, 1933.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Secton 216(b) of the Natona Industra Recovery ct (Pubc,
No. 67, Seventy-thrd Congress), approved by the Presdent une
16, 1933, provdes that the e cess profts ta mposed by secton 216
sha be assessed, coected, and pad n the same manner and sha be
sub|ect to the same provsons of aw (ncudng penates) as the
ta es mposed by Tte I of the Revenue ct of 1932.
Treasury Decson 4390 (see on page 409, ths uetn), promu-
gated under secton 216 of the Natona Industra Recovery ct,
provdes n part that every corporaton whch s sub|ect to the capta
stock ta mposed by secton 215 of that ct sha make an
e cess profts ta return for each ncome-ta ta abe year endng
after the cose of the frst year n respect of whch t s sub|ect to
the capta stock ta that the e cess profts ta return for such
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Msc.
418
ncome-ta ta abe year s requred to be made wthn the tme pre-
scrbed by the Revenue ct of 1932 for makng the ncome ta
return of the corporaton for such ta abe year and that the e cess
profts ta return sha be made to the coector of nterna revenue
to whom such ncome ta return s requred to be made by the
Revenue ct of 1932.
Coectors of nterna revenue are hereby authorzed to grant e -
tensons of tme for makng e cess profts ta returns requred under
secton 216 of the Natona Industra Recovery ct and Treasury
Decson 4390. In grantng such e tensons of tme coectors w
(e cept as herenafter provded wth respect to the fsca year ended
uv 31, 1933) foow the nstructons n Mmeograph 3361 (C. .
I -2, 69) and Mmeograph 3759 (C. . III-2, 123), reatng to the
grantng of e tensons of tme for fng returns of ncome.
The frst e cess profts ta returns requred to be made under sec-
ton 216 of the Natona Industra Recovery ct and Treasury Dec-
son 4390 are the e cess profts ta returns of corporatons ta abe
under secton 215 of that ct for the year ended une 30, 1933, and
havng an ncome-ta ta abe year whch s the fsca year ended
uy 31, 1933. If no e tenson of tme were granted, such returns
woud be requred to be made on or before October 15, 1933. The
forms for use n makng e cess profts ta returns by corporatons for
ncome ta fsca years endng n 1933 after une 30, 1933, are now
n the course of preparaton. Such forms w not be avaabe n
the offces of coectors of nterna revenue n suffcent tme to enabe
returns for the fsca year ended uy 31, 1933, to be made on or
before October 15, 1933. owever, t s e pected that the forms
w be avaabe n suffcent tme for makng such returns on or
before November 15, 1933.
Under the crcumstances, requests for e tensons of tme for mak-
ng e cess profts ta returns for the fsca year ended uy 31, 1933,
w be granted to November 15, 1933, wthout requrng a tentatve
return and payment of one-fourth of the estmated ta , as provded
n paragraph numbered 4 of Mmeograph 3361. Where, for reasons
other than the nonavaabty of the forms, a corporaton requests
an e tenson for a perod e tendng beyond November 15, 1933, for
makng the e cess profts ta return for the fsca year ended uy 31,
1933, the e tenson shoud be granted upon condton that a tentatve
return be fed and one-fourth of the estmated ta be pad on or
before November 15, 1933.
Inqures regardng ths mmeograph shoud refer to the number
and symbos IT: : CTR.
Guy T. f|verng,
Commssoner.
Secton 216. II-44-6477
I. T. 2729
foregn corporaton engaged n transportaton servce between
ports n the Unted States and foregn ports s not sub|ect to the
e cess-profts ta on that porton of ts ncome whch conssts
e cusvey of earnngs derved from the operaton of shps docu-
mented under the aws of a foregn count) wth whch a recproca
e empton agreement as been concuded under secton 231(b) of
the Revenue ct of 1932.
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419
Msc.
rung s requested whether a foregn corporaton engaged n
transportaton servce between ports n the Unted States and foregn
ports s abe for e cess-profts ta under secton 216 of the Natona
Industra ecovery ct, wth respect to earnngs derved from the
operaton of shps documented under the aws of a foregn country
wth whch a recproca agreement has been concuded under secton
231(b) of the Revenue ct of 1932 e emptng such ncome from
ta aton.
Secton 216 of the Natona Industra Recovery ct reads as
foows:
(a) There s hereby mposed upon the net ncome of every corporaton, for
each ncome-ta ta abe year endng after the cose of the frst year n respect
of whch t s ta abe under secton 215, an e cess-profts ta equvaent to 5
per centum of such porton of ts net ncome for such ncome-ta ta abe year
as s n e cess of 12 per centum of the ad|usted decared vaue of ts capta
stock (or n the case of a foregn corporaton the ad|usted decared vaue of
capta empoyed n the transacton of ts busness n the Unted States) as of
the cose of the precedng ncome-ta ta abe year (or as of the date of organ-
zaton f t had no precedng ncome-ta ta abe year) determned as provded
n secton 215. The terms used n ths secton sha have the same meanng ns
when used n the Revenue ct of 1932.
(b) The ta mposed by ths secton sha be assessed, coected, and pad
n the same manner, and sha be sub|ect to the same provsons of aw
(ncudng penates), as the ta es mposed by tte I of the Revenue ct
of 1932.
The ast sentence of secton 216(a) of the Natona Industra
Recovery ct quoted above specfcay provdes that the terms used
n that secton sha have the same meanng as when used n the
Revenue ct of 1932. It foows that the e cess-profts ta equva-
ent to 5 per centum of such porton of the corporaton s net
ncome as s n e cess of 12y2 per centum of the ad|usted decared
vaue of ts capta stock has reference to net ncome as com-
puted for ncome ta purposes under Tte I of the Revenue ct
of 1932. Under secton 231(a) of the Revenue ct of 1932 t s
ncudes ony the gross ncome from sources wthn the Unted
States. The manner of computng the net ncome from sources
wthn the Unted States s prescrbed by secton 119(b) of the
Revenue ct of 1932, but that secton must be construed n con-
necton wth secton 231 (b) of that ct, whch reads as foows:
(b) Shps under foregn fag. The ncome of a foregn corporaton, whch
conssts e cusvey of earnngs derved from the operaton of a shp or shps
documented under the aws of a foregn country whch grants an equvaent
e empton to ctzens of the Unted States and to corporatons organzed n the
Unted States, sha not be ncuded n gross ncome and sha be e empt from
ta aton under ths tte.
Inasmuch as the net ncome for the purpose of e cess-profts ta
has the same meanng as t has for the purpose of ncome ta , t s
hed that a foregn corporaton engaged n transportaton servce
between ports n the Unted States and foregn ports s not sub|ect
to the e cess-profts ta on that porton of ts ncome whch conssts
e cusvey of earnngs derved from the operaton of shps docu-
mented under aws of a foregn country wth whch a recproca
e empton agreement has been concuded under secton 231 b) of the
Revenue ct of 1932. In other words, n those cases where the term
provded
foregn corporaton gross ncome
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Msc.
420
net ncome of a foregn corporaton does not, for ncome ta pur-
poses, ncude ncome derved from the operaton of shps by reason
of the provson of secton 231(b) of the Revenue ct of 1932, the
term kewse does not ncude such ncome for the purpose of the
e cess-profts ta mposed by secton 216 of the Natona Industra
Recovery ct.
Secton 216. II-5-6498
G. C. M. 12313
In determnng the net ncome of a corporaton for e cess-
profts ta purposes under secton 216 of the Natona Indus-
tra Recovery ct, the amount of ncome, war-profts, and e cess-
profts ta es pad to a foregn country or to a possesson of the
Unted States, whch was camed as a credt aganst ncome ta ,
may not be aowed as a deducton.
n opnon s requested whether n determnng the net ncome
of a corporaton for e cess-profts ta purposes under secton 216
of the Natona Industra Recovery ct, there may be aowed as a
deducton from gross ncome the amount of ncome, war-profts,
and e cess-profts ta es pad to a foregn country or to a possesson of
the Unted States, whch was camed as a credt aganst ncome ta .
Secton 216 of the Natona Industra Recovery ct mposes an
e cess profts ta on net ncome and provdes that the terms
used n that secton sha have the same meanng as when used n
the Revenue ct of 1932.
Secton 23 of the Revenue ct of 1932 provdes that n computng
net ncome there sha be aowed as deductons:
(c) Ta es generay. Ta es pad or accrued wthn the ta abe year,
e cept

(2) ncome, war-profts, and e cess-profts ta es mposed by the authorty of
any foregn country or possesson of the Unted States but ths deducton sha
be aowed n the case of a ta payer who does not sgnfy n hs return hs
desre to have to any e tent the benefts of secton 131 (reatng to credt for
ta es of foregn countres and possessons of the Unted States) .
Snce the Revenue ct of 1932 provdes that a deducton for ta es
pad to foregn countres and possessons of the Unted States s
aowabe ony where the ta payer does not sgnfy n hs return hs
desre to have to any e tent the benefts of secton 131, and as net
ncome for e cess profts ta purposes s computed n the same
manner as for ncome ta purposes, t foows that f the ta payer
has eected to cam such ta es as a credt aganst hs ncome ta they
may not be aowed as a deducton for e cess-profts ta purposes.
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
Secton 216. II-48-6540
I. T. 2738
Where any corporaton n an affated group s sub|ect to the
capta stock ta mposed by secton 215 of the Natona Industra
Recovery ct, a the other corporatons n the affated group
must be ncuded In a consodated e cess-profts ta return made
under Treasury Decson 4300 (page 400. ths uetn). The ncome
and osses of the corporatons not sub|ect to the capta stock ta
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421
(Mso.
are to be ncuded n computng the consodated net ncome for
e cess-profts ta purposes. The combned ad|usted decared vaue
of the capta stock n such a case s the combned ad|usted vaue
actuay decared by those corporatons n te affated group whch
are sub|ect to the capta stock ta mposed by secton 215 of the
Natona Industra Recovery ct.
certan group of affated corporatons has n the past made
and w contnue to make consodated edera ncome ta returns,
and severa members of the group w cam e empton from the
capta stock ta mposed by secton 215 of the Natona Industra
Recovery ct on the ground that they were not dong busness dur-
ng the perod une 16, 1933, to une 30, 1933, ncusve. rung
s requested whether the affated group s requred to make a con-
sodated e cess-profts ta return for the purpose of the e cess-
profts ta mposed by secton 216 of the ct and, f so, whether the
net ncome or net oss of the members of the group whch are e empt
from the capta stock ta s to be ncuded n such consodated
e cess-profts ta return. Inqury s aso made as to the bass to be
used n determnng the combned ad|usted decared vaue of the
capta stock for the purpose of computng the e cess-profts ta .
Treasury Decson 4390, supra, provdes n part:
n affated group of corporatons as defned by secton 141 of the Revenue
ct of 1932, as amended by secton 218(e) of the Natona Industra Recovery
ct, whch pursuant to that secton has the prvege of makng a consodated
ncome-ta return, and has e ercsed such prvege, sha make a consodated
e cess profts ta return. The e cess profts ta sha be computed on such
porton of the consodated net ncome for the ncome-ta ta abe year of the
affated group as s n e cess of 12 per centum of the combned ad|usted
decared vaue of te capta stock of the members of the group as separatey
returned under secton 215. In the case of a corporaton whch s a member
of an affated group for a fractona part of the year, the consodated e cess
profts ta return sha ncude the ncome of such corporaton for such part of
the year as t s a member of the affated group, and a ke proportonate part
of the ad|usted dec ared vaue of the capta stock of such corporaton sha
be ncuded n the combned ad|usted decared vaue of the capta stock of the
affated group.
It s hed that where any corporaton n an affated group s
sub|ect to the capta stock ta mposed by secton 215 of the Na-
tona Industra Recovery ct, a other corporatons n the affated
group must be ncuded n a consodated e cess-profts ta return
made under Treasury Decson 4390, supra. It s aso hed that the
ncome and osses of the corporatons not sub|ect to the capta stock
ta are to be ncuded n computng the consodated net ncome for
e cess-profts ta purposes. It s hed further that the combned
ad|usted decared vaue of the capta stock n such a case s the
combned ad|usted vaue actuay decared by those corporatons
n the affated group whch are sub|ect to the capta stock ta
mposed by secton 215 of the Natona Industra Recovery ct.
corporaton (a member of an affated group fng a consodated
ncome ta return) whch propery refraned from decarng a vaue
for capta stock ta purposes on the ground of e empton, may
not decare any such vaue for consodated e cess profts ta
purposes ony.
Secton 216.
Termnaton of e cess profts ta . (See Mm. 4116, page 422.)
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422
Secton 216. II-51-6572
I. T. 2746
Lfe nsurance companes, as defned n secton 201 of the
Revenue ct of 1932, are not sub|ect to the e cess-profts ta
mposed on corporatons by secton 216 of the Natona Industra
Recovery ct.
The queston s presented whether fe nsurance companes whch
are sub|ect to the ncome ta mposed by secton 201 of the Revenue
ct of 1932 are aso sub|ect to the e cess-profts ta mposed by
secton 21C of the Natona Industra Recovery ct, approved une
16, 1933.
The e cess-profts ta mposed by secton 216 of the Natona
Industra Recovery ct appes to every corporaton for each n-
come-ta ta abe year endng after the cose of the frst year n
respect of whch t s sub|ect to the capta stock ta mposed by
secton 215 of that ct. (T. D. 4390, page 409, ths uetn.) Under
the provsons Of secton 215(c)2 of the Natona Industra Recovery
ct, fe nsurance companes, as defned n secton 201(a) of the
Revenue ct of 1932, are not sub|ect to the capta stock ta mposed
by secton 215 of that ct. s such fe nsurance companes are
not sub|ect to the capta stock ta mposed by secton 215 of the
Natona Industra Recovery ct, t foows that they are not
sub|ect to the e cess-profts ta mposed by secton 216 of that ct.
R DUCTION OR T RMIN TION O C RT IN INT RN L R NU
T S.
Secton 217. II-51-6573
Mn. 4116
ffect of Presdent s procamaton of date of repea of eghteenth
amendment to the Consttuton on certan nterna revenue ta es
Imposed by the Natona Industra Recovery ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, December 7,1933.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Secton 217 of the Natona Industra Recovery ct provdes:
(a) The Presdent sha procam the date of
(1) the cosa of the frst fsca year endng une SO of any year after the
year 1933, durng whch the tota recepts of the Unted States (e cudng
pubc-debt recepts) e ceed Its tota e pendtures (e cudng pubc-debt e -
pendtures other than those chargeabe aganst such recepts), or
(2) the repea of the eghteenth amendment to the Consttuton,
whchever s the earer.
(b) ffectve as of the 1st day of the caendar year foowng the date so
procamed secton 617(a) of the Revenue ct of 1932, as amended, s amended
by strkng out h cents and nsertng n eu thereof 1 cent.
(c) The ta on dvdends mposed by secton 213 sha not appy to any
dvdends decared on or after the 1st day of the caendar year foowng the
date so procamed.
(d) The capta-stock ta mposed by secton 215 sha not appy to any ta -
payer n respect of any year begnnng on or after the 1st day of uy
foowng the date so procamed.
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Mso.
(e) The e cess-profts ta Imposed by secton 218 sha not appy to any
ta payer n respect of any ta abe year after ts ta abe year durng whch
the date so procamed occurs.
Pursuant to the provsons of secton 217(a) of the Natona
Industra Recovery ct, the Presdent on December 5, 1933, pro-
camed December 5, 1933, as the date of the repea of the eghteenth
amendment to the Consttuton. Under secton 217 of the Natona
Industra Recovery ct the procamaton of the Presdent affects
the appcaton of certan nterna revenue ta es as foows:
1. ffectve anuary 1, 1934, the ta on gasone mposed by sec-
ton 617(a) of the Revenue ct of 1932, as amended by secton 211(a)
of the Natona Industra Recover ct, w be at the rate of 1 cent
a gaon nstead of 1 4 cents a gaon.
2. The ta on dvdends mposed by secton 213 of the Natona
Industra Recovery ct w not appy to any dvdends decared
after December 31, 1933.
3. The capta-stock ta mposed by secton 215 of the Natona
Industra Recovery ct w not appy n respect of any year
begnnng on or after uy 1,1934.
4. The e cess-profts ta mposed by secton 216 of the Natona
Industra Recovery ct w not appy to any ta payer n respect
of the caendar year 1934 or any subsequent ncome-ta ta abe year
(caendar year or fsca year).
Inqures and correspondence regardng ths mmeograph shoud
refer to the number and the symbos IT: : CTR.
Gut T. e.verng,
Commss-oner.
MISC LL N OUS.
Sectons 214 and 218. II-29-6297
Mm.4035
mendments to and repea of certan ncome ta provsons of
the Revenue ct of 1932 by Natona Industra Recovery ct.
Tkeasdrt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, une 28, 1933.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
The Natona Industra Recovery ct (Pubc, No. 67, Seventy-
thrd Congress . R. 5755) was approved by the Presdent une 16,
1933,11.55 a. m., eastern standard tme. Sectons 214 and 218 of that
ct provde:
Sec. 214. Secton 104 of the Revenue ct of 1932 s amended by strkng
out the words the surta wherever occurrng n such secton and nsertng
n eu thereof any nterna-revenue ta . The headng of such secton
s amended by strkng out surta es and nsertng n eu thereof Interna-
revenue ta es. Secton 13(c) of such ct s amended by strkng out sur-
ta and nsertng n eu thereof nterna-revenue ta .
Sbc. 218. (a) ffectve as of anuary 1, 1933, sectons 117, 23(), 169, 187,
and 205 of the Revenue ct of 1932 are repeaed.
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(b) ffectve as of anuary 1, 1933, secton 23(r)2 of the Revenue ct at
1932 s repeaed.
(c) ffectve as of anuary 1, 1933, secton 23(r)8 of the Revenue ct of
1932 s amended by strkng out a after the word Terrtory and nsertng a
perod.
(d) ffectve as of anuary 1, 1933, secton 182(a) of the Revenue ct
of 1932 s amended by nsertng at the end thereof a new sentence as foows:
No part of any oss dsaowed to a partnershp as a deducton by secton 23(r)
sha be aowed as a deducton to a member of such partnershp n com-
putng net ncome.
(e) ffectve as of anuary 1, 1933, secton 141(c) of the Revenue ct of
1932 s amended by strkng out e cept that for the ta abe years 1932 and
1933 there sha be added to the rate of ta prescrbed by sectons 13(a),
201(b), and 204(a), a rate of three fourths of 1 per centum and Insertng n
eu thereof the foowng: e cept that for the ta abe years 1932 and 1933
there sha be added to the rate of ta prescrbed by sectons 13(a), 201(b),
and 204(a), a rate of three fourths of 1 per centum and e cept that for the
ta abe years 1934 and 1935 there sha be added to the rate of ta prescrbed
by sectons 13(a), 201(b), and 204(a), a rate of 1 per centum.
(f) No Interest sha be assessed or coected for any perod pror to Sep-
tember 15, 1933, upon such porton of any amount determned as a defcency n
ncome ta es as s attrbutabe soey to the amendments made to the Revenue
ft of 1932 by ths secton.
(g) In cases where the effect of ths secton s to requre for a ta abe year
endng pror to une 30, 1933, the makng of an ncome-ta return not otherwse
requred by aw, the tme for makng the return and payng the ta sha be
the same as If the return was for a fsca year endng une 30, 1933.
(h) Secton 55 of the Revenue ct of 1932 s amended by nsertng before
the perod at the end thereof a semcoon and the foowng: and a returns
made under ths ct after the date of enactment of the Natona Industra
Recovery ct sha consttute pubc records and sha be open to pubc
e amnaton and nspecton to such e tent as sha be authorzed In rues and
reguatons promugated by the Presdent.
The above-quoted provsons of the ct may be summarzed as
foows:
T ON UNR SON L SURPLUS CCUMUL TION S RO D N D.
Secton 214 amends secton 104 of the Revenue ct of 1932 bv
strkng out the words the surta wherever occurrng n such
secton and nsertng n eu thereof any nterna-revenue ta ,
the headng of secton 104 beng amended by strkng out surta es
and nsertng n eu thereof nterna-revenue ta es. Secton
13 (c of the Revenue ct of 1932 s amended by strkng out sur-
ta and nsertng n eu thereof nterna-revenue ta . In effect
these provsons amend secton 104 of the Revenue ct of 1932 whch
ta es accumuaton of earnngs to avod surta es so that accumua-
tons of earnngs to avod payment of the e cse ta on dvdends
w aso be sub|ect to ta under that secton.
R P L O N T LOSS PRO ISIONS.
Secton 218(a) repeas, effectve as of anuary 1. 1933, sectons
117, 23 (), 169, 187, and 205 of the Revenue ct of 1932. Ths re-
pea removes the prvege granted under the Revenue ct of 1932
to a ta payer of carryng over and deductng from hs net ncome
for the ta abe year, a net oss for the precedng ta abe year.
R P L O STOC -LOSS C RRYO R INTO SUCC DING Y R.
Secton 218(b) repeas, effectve as of anuary 1, 1933, secton
23(r)2 of the Revenue ct of 1932, whch permtted a ta payer
to carry over osses from the sae or e change of stocks and bonds
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425
MfO
whch are not capta assets (capta assets as defned n secton 101
beng n genera assets hed for more than two years) and appy
such osses aganst gans from smar transactons n the succeedng
ta abe year.
R P L O PRI T N MPTIONS ROM STOC -LOSS LIMIT TIONS.
Secton 218(c) amends, effectve as of anuary 1, 1933, secton
23(r)3 of the Revenue ct of 1932 by strkng out the foowng:
nor to persons carryng on the bankng busness (where the recept
of deposts consttutes a ma|or part of such busness) n respect of
transactons n the ordnary course of such bankng busness. Ths
amendment removes the e empton aowed to prvate banks from
the stock-oss mtaton provded under the Revenue ct of 1932.
Under ths mtaton, osses from the sae or e change of stocks
or bonds whch are not capta assets (as defned n secton 101)
can be apped ony aganst gans from smar transactons, and
can not be used to reduce ncome from other sources.
P RTN RS IP STOC LOSS LIMIT TIONS.
Secton 218(d) amends, effectve as of anuary 1, 1933, secton
182(a) of the Revenue ct of 1932 by nsertng at the end of that
secton a new sentence as foows: No part of any oss dsaowed
to a partnershp as a deducton by secton 23 (r) sha be aowed as
a deducton to a member of such partnershp n computng net n-
come. Secton 218(d) denes to the ndvdua members of a part-
nershp a deducton n ther ndvdua ncome ta returns for any
part of the osses sustaned by the partnershp from the sae or
e change of stocks and bonds whch are not capta assets and ds-
aowed as a deducton to the partnershp by secton 23 (r) of the
Revenue ct of 1932.
INCR S D INCOM T R T ON CONSOLID T D R TURNS.
Secton 218(e) amends secton 141(c) of the Revenue ct of
1932 by mposng an ncome ta of 14 per cent for the years 1934
and 1935 upon corporatons whch fe consodated returns for
such years. Such ncreased rate does not appy for the ta abe
years 1932 and 1933 and the rate of ta n the case of corporatons
fng consodated returns for such years remans at 14 2 per cent.
INT R ST ON T .
Secton 218(f) provdes that no nterest sha be assessed or co-
ected for any perod pror to September 15, 1933. upon such porton
of any amount determned as a defcency n ncome ta es as s
attrbutabe soey to the amendments made to the Revenue ct of
1932 by secton 218 of the Natona Industra Recovery ct.
TIM TO IL R TURNS.
Secton 218 (g) provdes that n cases where the effect of secton
218 of the Natona Industra Recovery ct s to requre for a
ta abe year endng pror to une 30, 1933, the makng of an ncome-
ta return not otherwse requred by aw, the tme for makng the
return and payng the ta sha be the same as f the return was
for a fsca year endng une 30, 1933.
37408 34 28
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426
R TURNS TO TU LIC R CORDS.
Secton 218(h) amends secton 55 of the Revenue ct of 1932 by
nsertng before the perod at the end thereof a semcoon and the
foowng: and a returns made under ths ct after the date of
enactment of the Natona Industra Recovery ct sha consttute
pubc records and sha be open to pubc e amnaton and nspecton
to such e tent as sha be authorzed n rues and reguatons pro-
mugated by the Presdent.
The nstructons and return forms necessary for the admns-
traton of the above-mentoned changes n the Revenue ct of 1932
are now beng prepared. s soon as they are competed due pub-
cty w be gven to such nstructons and forms through the
usua channes. When the nstructons and forms are avaabe for
dstrbuton they may be obtaned from coectors of nterna revenue.
Correspondence and nqures regardng ths mmeograph shoud
refer to the number and the symbos IT: : RR.
P. R. aordge,
ctng Conunssoner.
Secton 218. II 47-G524
T. D.4408
Natona Industra Recovery ct Income ta . Income ta
returns to be made for fsca years ended n 1933.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned .
Secton 218 of the Natona Industra Recovery ct, approved
une 16,1933, provdes n part:
Seo. 218. (a) ffectve as of anuary 1, 1933, sectons 117, 23(), 169, 187,
and 205 of the Revenue ct of 1932 are repeaed.
(b) ffectve as of anuary 1, 1933, secton 23(r) (2) of the Revenue ct of
1932 s repeaed.
(c) ffectve as of anuary 1, 1933, secton 23(r)(3) of the Revenue ct of
1932 s amended by strkng out a after the word Terrtory and nsertng a
perod.
(d) ffectve as of anuary 1, 1933, secton 182(a) of the Revenue ct of
1932 s amended by nsertng at the end thereof a new sentence as foows: No
part of any oss dsaowed to a partnershp as a deducton by secton 23(r)
sha be aowed as a deducton to a member of such partnershp n computng
net ncome.

(f) No nterest sha be assessed or coected for any perod pror to Septem-
ber 15, 1933, upon such porton of any amount determned as a defcency n
ncome ta es as s attrbutabe soey to the amendments made to the Revenue
ct of 1932 by ths secton.
(g) In cases where the effect of ths secton s to requre for a ta abe year
endng pror to une 30, 1933, the makng of an ncome-ta return not otherwse
requred by aw, the tme for makng the return and payng the ta sha be
the same as f the return was for a fsca year endng une 30, 1933.
Revsed forms prescrbed for use n makng returns of ncome
under the provsons of the Revenue ct of 1932 as amended by
secton 218 of the Natona Industra Recovery ct, are avaabe
n the offces of coectors of nterna revenue. Such forms are:
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427
Msc.
Indvdua ncome ta return orm 1040 Y.
Corporaton ncome ta return orm 1120 .
very ndvdua, estate or trust, or corporaton whch heretofore
made an ncome ta return for a fsca year ended n 1933 but n
dong so dd not gve effect to the amendments made to the Revenue
ct of 1932 by secton 218 of the Natona Industra Recovery ct,
sha make an amended ncome ta return for such fsca year on the
approprate revsed form. Such amended return sha be made on
or before November 15, 1933. ny e cess of ncome ta shown on
such amended return over the ncome ta shown on the orgna
return pus any amounts prevousy assessed (or coected wthout
assessment) and mnus any amounts prevousy abated, credted, re-
funded, or otherwse repad, w consttute a defcency however,
n the cases covered by ths paragraph no nterest sha be payabe
for any perod pror to September 15, 1933, upon that porton of
any defcency n ncome ta for such fsca year whch s attrbutabe
soey to the amendments made to the Revenue ct of 1932 by secton
218 of the Natona Industra Recovery ct. The ta payer may
at the tme of fng the amended return herewth requred pay the
entre defcency dscosed on such return wth nterest at 6 per cent
per annum (e cept n cases where nterest at the rate of 1 per cent
per month may be specfcay requred by aw) ether from the date
prescrbed for the payment of the ta shown to be due by the ta -
payer on the orgna return or from September 15, 1933, or both,
as crcumstances may requre, and such payment w consttute a
waver of a restrctons upon the assessment and coecton of such
defcency n ta . In case the ta payer pays the entre defcency
wth nterest at the tme of fng the amended return, no notce
of such defcency w be sent by the Commssoner to the ta payer
n a other cases the notce of defcency authorzed by secton 272
of the Revenue ct of 1932 w be maed to the ta payer.
very ndvdua, or estate or trust, havng as an annua account-
ng perod a fsca year endng n 1933 before une 30, 1933, whch
was not requred to make an ncome ta return for the fsca year
ended n 1933 under the provsons of the Revenue ct of 1932 pror
to ts amendment by secton 218 of the Natona Industra Re-
covery ct. but wThch s requred to do so by vrtue of the amend-
ments made by that secton, sha make such return on the appro-
prate revsed form on or before November 15, 1933. The fc shown
to be due by the ta payer on such return sha be pad at the tme
the return s requred to be made, uness the ta payer eects to pay
the ta n nstaments, n whch event a nstaments of the ta
for such fsca year due on or before November 15. 1933, sha be
pad on or before that date. In the cases covered by ths paragraph
nterest at the rate of 6 per cent per annum on the ta shown to
be due by the ta payer on the return w run from September 15,
1933, or, f the ta payer eects to pay the ta n nstaments, from
the dates prescrbed for payment of the nstaments. If the ta -
payer fas to pay the ta shown on the return, or the proper nsta-
on the entre amount of such ta or nstaments, pus nterest, at the
rate of 1 per cent per month from November 15, 1933, unt pad.
requred, nterest w be due
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Msc.
428
The ta on returns fed for fsca years ended n 1933 sha be
computed under secton 105 of the Revenue ct of 1932 and sha be
the sum of:
(a) The ta attrbutabe to the caendar year 1932, found by com-
putng the ta upon the ncome of the ta payer for the fsca year
under the provsons of the Revenue ct of 1932 pror to ther
amendment by secton 218 of the Natona Industra Recover - ct,
and by takng the proporton of such ta whch the porton of the
perod fang wthn the caendar | ear 1932 s of the entre perod
and
(b) The ta attrbutabe to the caendar year 1933, found by com-
putng the ta upon the ncome of the ta payer for the fsca Year
under the provsons of the Revenue ct of 1932 as amended by
secton 218 of the Natona Industra Recovery ct, and by takng
the proporton of such ta whch the porton of the perod fang
wthn the caendar year 1933 s of the entre perod.
Gut T. everng,
Commssoner of Interna Revenue.
pproved November 11, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
II-27-6278
. R. 5040. PU LIC, NO. 73, S NTY-T IRD CONGR SS.
n ct To e tend the gasone ta for one year, to modfy post-
age rates on ma matter, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 629
of the Revenue ct of 1932 s amended by strkng out the foow-
ng: , or after une 30, 1933, n the case of artces ta abe under
secton 617, reatng to the ta on gasone.

Sec. 4. (a) ffectve 15 days after the date of the enactment of
ths ct, secton 620 of the Revenue ct of 1932 s amended to read
as foows:
Sec. 620. Ta - ree Saes.
Under reguatons prescrbed by the Commssoner wth the approva of the
Secretary, no ta under ths tte sha be mposed wth respect to the sae
of any artce
(1) for use by the vendee as matera n the manufacture or poducton
of, or as a component part of an artce enumerated n ths tte
(2) for resae by the vendee for such use by hs vendee, f such artce
s n due course so resod
(3) for resae by the vendee to a State or potca subdvson thereof
for use n the e ercse of an essenta governmenta functon, f such
artce s In due course so resod.
or the purposes of ths tte the manufacturer or producer to whom an artce
s sod under paragraph (1) or resod under paragraph (2) sha be con-
sdered the manufacturer or producer of such artce. The provsons of
paragraphs (1) and (2) sha not nppy wth respect to tres or nner tubes
or artces enumerated n secton 604, reatng to the ta on furs.
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429
(Msc.
(b) ffectve 15 days after the date of the enactment of ths ct,
secton GO(c) (1) of the Revenue ct of 1932 s amended by addng
at the end thereof the foowng:
Under reguatons prescrbed by the Commssoner wth the approva of
the Secretary, no ta sha be mposed under ths secton upon ubrcatng os
sod to a manufacturer or producer of ubrcatng os for resae by hm, but
for the purposes of ths tte such vendee sha be consdered the manufacturer
or producer of such ubrcatng os.
(c) ffectve 15 days after the date of the enactment of ths
ct, secton 621(a) of the Revenue ct of 1932 s amended by
nsertng after paragraph (2) thereof the foowng new paragraph:
(3) to a manufucturer, producer, or mporter n the amount of tu pad by
hm under ths tte wth respect to the sae of any artce to a deaer, f the
manufacturer, producer, or mporter has n hs possesson such evdence as the
reguatons may prescrbe that ( ) such artce has after the date ths para-
graph takes effect been devered by the deaer to a State or potca subdvson
thereof for use n the e ercse of an essenta governmenta functon and ( )
the manufacturer, producer, or mporter has repad or agreed to repay the
amount of such ta to the dener or has obtaned the consent of the deaer to
the aowance of the credt or refund.
Sec. 5. ffectve 15 days after the date of the enactment of ths
ct, Tte I of the Revenue ct of 1932 s amended by addng at the
end thereof a new secton to read as foows:
Sec. 030. empton from Ta of Certan Suppes for esses.
Under reguatons prescrbed by the Commssoner, wth the approva of the
Secretary, no ta under ths tte sha be mposed upon any artce sod for
use as fue suppes, shps1 stores, sea stores, or egtmate equpment on vesses
of war of the Unted States or of any foregn naton, vesses empoyed n
the fsheres or n the whang busness, or actuay engaged n foregn trade
or trade between the tantc and Pacfc ports of the Unted States or between
the Unted States and any of ts possessons. rtces manufactured or pro-
duced wth the use of artces upon the mportaton of whch ta has been pad
under ths tte, f aden for use as suppes on such vesses, sha be hed to
be e ported for the purposes of secton 601(b).
Sec. 6. (a) ffectve September 1, 1933, secton 616 of the Revenue
ct of 1932 s amended to read as foows:
Sec. 616. Ta on ectrca nergy for Domestc or Commerca Con-
sumpton.
(a) There s hereby mposed upon eectrca energy sod for domestc or
commerca consumpton and not for resae n ta equvaent to 3 per centum
of the prce for whch so sod, to be pad by the vendor under such rues and
reguatons as the Commssoner, wth the approva of the Secretary, sha
prescrbe. The sae of eectrca energy to an owner or essee of a budng,
who purchases such eectrca energy for resae to the tenants theren, sha
for the purposes of ths secton be consdered as a sae for consumpton and
not for resae, but the resae to the tenant sha not be consdered a sae for
consumpton.
(b) The provsons of sectons 619, 622, and 025 sha not be appcabe wth
respect to the ta mposed by ths secton.
(c) No ta sha be mposed under ths secton upon eectrca energy sod
to the Unted States or to any State or Terrtory, or potca subdvson
thereof, or the Dstrct of Coumba. None of the provsons of ths secton
sha appy to pubcy owned eectrc and power pants. The rght to e emp-
ton under ths subsecton sha be evdenced n such manner as the Comms-
soner, wth the approva of the Secretary, may, by reguaton, prescrbe.
(b) Despte the provsons of ths secton the ta mposed under
secton 616 of the Revenue ct of 1932 before ts amendment by
ths secton on eectrca energy furnshed before September 1, 1933,
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Rega. 81, rt. 7.
430
sha be mposed, coected, and pad n the same manner and sha
be sub|ect to the same provsons of aw (ncudng penates) as f
ths secton had not been enacted.
pproved, une 16, 1933, 1 p. m.
GRICULTUR L D USTM NT CT.
S CTION 9. PROC SSING T .
II-39-6426
T. D. 4392
Processng ta es under the grcutura d|ustment ct.
mendng artce 7, Reguatons 81, approved uy 12, 1933, reatve
to when ta attaches.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 7 of Reguatons 81, reatng to processng ta and com-
pensatng ta under the grcutura d|ustment ct (Tte I,
Pubc, No. 10, Seventy-thrd Congress), s hereby amended to read
as foows:
rt. 7. When ta attacc-s. The ta attaches at the begnnng of the frst
domestc processng of the commodty. When the frst domestc processng
begns before the effectve date, no ta attaches, athough It Is not competed
unt after the effectve date. When the frst domestc processng begns whe
the ta Is n effect, t s sub|ect to the processng ta , notwthstandng t s not
competed unt after the ta Is termnated.
Gut T. everng,
Commssoner of Interna Revenue.
pproved September 20, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
Reguatons 81, rtce 7: When ta attaches. II-45-6502
T. D. 4403
Processng ta es under the grcutura d|ustment ct. rt-
ces 7 and 11, Reguatons 81, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 7 of Reguatons 81 (as amended by Treasury Decson
4392, approved September 20, 1933 above ), reatng to processng
ta under the grcutura d|ustment ct, s further amended,
effectve uy 9, 1933, to read as foows:
bt. 7. When ta attaches. The ta s mposed upon the frst domestc
processng, and s measured by the amount of the commodty put nto such
processng. The ta attaches to a partcuar quantty of the commodty (1)
f t s u process on the effectve date, provded the frst domestc processng
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431
Regs. 81, rt. 9, 32.
has not been competed pror to that date, or (2) f the frst domestc processng
s begun durng the perod whe the ta s n effect, provded t Is competed
before the termnaton of the ta . Where the rst domestc processng of a
partcuar quantty of the commodty s competed pror to the effectve date,
but on the effectve date such quantty s n secondary processng, t Is sub-
|ect to the ta on foor stocks (.see Reguatons 82).

S CTION 15. MPTIONS ND COMP NS TING
T S.
Reguatons 81, rtce 9: emptons from L O-6436
processng ta . G. C. M. 12159
Reguatons 81, rtce 32: Refund of ta
pad on products devered for chartabe
dstrbuton or use.
Processng of wheat produced by a schoo for Its own use Is not
e empt from ta snce the schoo Is not an ndvdua producer.
Use of the product by the schoo s not chartabe dstrbuton
or use under secton 15(c) of the grcutura d|ustment ct.
dvce s requested whether a schoo whch operates 600 acres of
and, produces wheat thereon, devers the wheat to a m, and takes
four n e change, s a producer wthn the meanng of secton
15(b) of the grcutura d|ustment ct and artce 9(a) of
Reguatons 81 and whether, f the schoo s not a producer, there
was a chartabe dstrbuton or use of the four wthn the mean-
ng of secton 15(c) of that ct and artce 32 of Reguatons 81.
Secton 15(b) reads as foows:
(b) No ta sha be requred to be pad on the processng of any commodty
by or for the producer thereof for consumpton by hs own famy, empoyees,
or househod .
rtce 9(a) of Reguatons 81 reads as foows:
(1) or consumpton. No processng ta s requred to be pad on the proc-
essng of any commodty by or for an ndvdua producer thereof for consump-
ton by hm. hs own famy, hs own empoyees, or hs own househod.
Snce secton 15(b) of the grcutura d|ustment ct ceary
refers to an ndvdua producer, the schoo n queston can not be
consdered as a producer wthn the meanng of that secton so as to
e empt from ta aton the processng of a commodty for such schoo.
The second ssue reates to the refund permtted under the pro-
vsons of secton 15(c) of the grcutura d|ustment ct, whch
reads as foows:
(c) ny person deverng any product to any organzaton for chartabe
dstrbuton or use sha, f such product or the commodty from whch proc-
essed, s under ths tte sub|ect to ta , be entted to a refund of the amount
of any ta pad under ths tte wth respect to such product so devered.
rtce 32 of Reguatons 81 reads as foows:
If a product, or the processng of the commodty from whch processed, has
been ta ed under the provsons of the ct, and the owner of such product
devers t to an organzaton for chartabe dstrbuton or use (1. e., for ds-
trbuton or use e cusvey In the reef of the poor and ndgent), such person
sha be entted to a refund n the amount of ta whch has been pad wth
respect to such product or the commodty from whch processed.
The character of the dstrbuton or use, namey, to or by the poor and
ndgent, determnes the rght to refund, and not the character of the organ -
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Regs. 81, rt. 9.
432
zaton to whch the devery Is made. ven though the product be devered
to a chartabe organzaton, there s no rght to refund uness the dstrbuton
or use of the product devered s e cusvey n the reef of the poor and
Indgent.
In the nstant case t does not appear that the four, or the artces
made from the four, are dstrbuted or used e cusvey for the reef
of the poor and ndgent. pparenty the four s used by the nst-
tuton n conductng ts schoo actvtes. There s nothng to nd-
cate that payment for tuton s not receved from many of the pups,
or that much of the four s not used n feedng the empoyees of the
nsttuton, ncudng the nstructors, admnstratve ofcers, and serv-
ants. Under such crcumstances t must be hed that the four s not
devered by the processor to any organzaton for chartabe ds-
trbuton or use wthn the meanng of secton 15(c) of the grcu-
tura d|ustment ct.
. arrett Prettyman,
Genera Counse, ureau of Interna Revenue.
Reguatons 81, rtce 9: emptons from II-4G-6512
processng ta . P. T. 1
Wheat processed for consumpton by the producer s famy,
empoyees, or househod cams for e empton by the processor
penates for evason of the ta .
Under the provsons of secton 15(b) of the grcutura d|ust-
ment ct no processng ta s requred to be pad on the processng
of wheat by or for the producer thereof for consumpton by the
producer s own famy, empoyees, or househod.
In order to be entted to e empton from the ta upon the proc-
essng of such wheat the processor must procure from the producer
thereof the prescrbed form of affdavt or certfcate, as the case may
be, requred under artce 9 of Reguatons 81. Where the producer
devers a quantty of wheat to a processor to be processed for con-
sumpton by the producer s own famy, empoyees, or househod,
and on subsequent dates wthdraws four of the same knd or grade
as woud be processed from the wheat so devered, a separate affdavt
or certfcate for each wthdrawa of four must be procured from the
producer. The processor may not take credt n hs return wth
respect to wheat processed for the producer for consumpton by hs
famy, empoyees, or househod, e cept to the e tent of the four
actuay devered to the producer durng the perod for whch the
return s made and upon whch the credt s camed.
The affdavt or the certfcate sgned by the producer contans the
statement tat the four so receved by me from sad processor s
soey for consumpton by my own famy or my empoyees or my
househod and that no part thereof w be sod or used for any
other purpose.
The processor must bear n mnd that t s the processor and not
the producer who s e empted from the processng ta n such cases.
It s therefore ncumbent upon the processor, n order to be entted
to such e empton, to make sure that each e empton certfcate or
affdavt procured from the producer s n fact sgned by the actua
producer. The processor must aso ascertan how many peope con-
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433
Regs. 81, rt. 11.
sttute the famy, empoyees, or househod of the producer and must
assure hmsef that the amount of wheat processed for whch e -
empton s camed, s reasonaby requred for ther consumpton.
Uness these requrements are met the e empton w not be aowed.
The processor shoud aso, as a check, ascertan how much wheat was
processed for the producer n 1932, and how much wheat was proc-
essed esewhere for hm durng the current year for whch an e -
empton certfcate or affdavt was e ecuted.
Secton 19(b) of the grcutura d|ustment ct provdes n
part that:
provsons of aw, ncudng penates, appcabe wth respect to the
n e mposed by secton 600 of the Revenue ct of 1926, and the provsons of
secton 620 of the Revenue ct of 1932, sha, n so far ns appcabe and not
nconsstent wth the provsons of ths tte, be appcabe n respect of ta es
mposed by ths tte : .
Secton 1114(c) of the Revenue ct of 1926, whch s made app-
cabe by the provsons of secton 19(b), supra, reads as foows:
ny person who wfuy ads or asssts n, or procures, counses, or advses,
the preparaton or presentaton under, or n connecton wth any matter arsng
under, the nterna-revenue aws, of a fase or frauduent return, affdavt,
cam, or document, sha (whether or not such fasty or fraud s wth the
knowedge or consent of the person authorzed or requred to present such
return, affdavt, cam, or document) be guty of a feony and, upon convc-
ton thereof, be fned not more than 10,000, or mprsoned for not more than
fve years, or both, together wth the costs of prosecuton.
Secton 3451 of the Revsed Statute provdes:
very person who smuates or fasey or frauduenty e ecutes or sgns any
bond, permt, entry, or other document requred by the provsons of the n-
terna-revenue aws, or by any reguaton made n pursuance thereof, or who
procures the same to be fasey or frauduenty e ecuted, or who advses,
ads n, or connves at such e ecuton thereof, sha be mprsoned for a term
not ess than one year nor more than fve years and the property to whch
such fase or frauduent nstrument reates sha be forfeted.
ny person who wfuy makes or ads or asssts n the e ecuton
or procurement of a fase or frauduent e empton affdavt or cer-
tfcate, or of a fase or frauduent return, or cam for refund or
credt, voates the provsons of the statute above quoted and s sub-
|ect to the penates theren provded.
Reguatons 81, rtce 11: Return. I1-45-6503
T. D.4403

Paragraph (a) of artce 11 of Reguatons 81, reatng to process-
ng ta under the grcutura d|ustment ct, s amended, effectve
uy 9, 1933, to read as foows:
kt. 11. Return. (o) s of the ast day of the caendar month n whch the
effectve date fas a return sha be made by each processor showng (1) the
quantty of the commodty whch the processor has on the effectve date n the
frst domestc processng, and (2) the quantty of the commodty put n the
frst domestc processng by hm durng such caendar month begnnng wth the
effectve date. ke return sha be made as of the ast day of each subse-
quent caendar month showng the quantty of the commodty put n the frst
domestc processng by hm durng such caendar month. The return sha be
made on the prescrbed form, whch may be obtaned from any coector of
Interna revenue. dfferent form of return w be requred for each com-
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Regs. 81, rt. 11.
434
modty. The return sha be fed out n accordance wth the Instructons gven
on the form and n accordance wth these reguatons. separate return sha
be made for each separate pant, m, factory, or other pace where processng
s done. ach return sha be made n dupcate. oth the orgna and the
dupcate sha be sgned and sworn to, before any offcer authorzed to ad-
mnster oaths, by the processor, f an ndvdua, or, In other cases, by one of
the e ecutve offcers of the concern.
Guy T. everng,
Commssoner of Interna Revenue.
pproved November 2, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
II-50-6561
T. D. 4409
Processng ta es under the grcutura d|ustment ct. rt-
ce 11, Reguatons 81, amended.
Treasury Defartment,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph (a) of artce 11 of Reguatons 81, reatng to proc-
essng ta under the grcutura d|ustment ct (as amended
by Treasury Decson 4403, approved November 2,1933 page 433, ths
uetn ), s further amended to read as foows:
rt. 11. Returns. (a) cept as herenafter provded In the case of a par-
tcuar commodty, returns sha be made as foows: or the caendar month
n whch the effectve date fas, a return sha be made by each processor
showng (1) the quantty of the commodty whch the processor has on the
effectve date n the frst domestc processng, and (2) the quantty of the
commodty put n the frst domestc processng by hm durng such caendar
month, begnnng wth the effectve date. ke return sha be made for
each subsequent caendaT month showng the quantty of the commodty put
n the frst domestc processng by hm durng such caendar month.
In the case of returns wth respect to tobacco processed nto snuff. In vew
of the unusua ength of tme requred for such processng, a return sha be
made by each processor for the caendar month n whch the effectve date fas
and for each subsequent caendar month showng the quantty of such tobacco
wth respect to whch the frst domestc processng nto snuff Is competed
(on or after the effectve date) durng such caendar month.
The return sha be made on the prescrbed form, whch may be obtaned
from any coector of nterna revenue. dfferent form of return w be
requred for each commodty. The return sha be fed out n accordance wth
nstructons gven on the form and n accordance wth these reguatons. Ony
one return sha be made by each ta payer, but where the ta payer has more
than one m, factory, pant, or other pace of manufacture where processng
s done, there sha be attached to the return a separate schedut for each such
factory, m, pant, or other pace, gvng nformaton as requred above. ach
return sha be made n dupcate. oth the orgna and dupcate sha be
sgned and sworn to, before any offcer authorzed to admnster oaths, by the
processor, f an ndvdua, or, n other cases, by one of the e ecutve offcers of
the concern.
Guy T. everng,
Commssoner of Interna Revenue.
pproved December 4, 1933.
. Morgenthau, r.,
ctng Secretary of the Treasury.
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435
Msc.
COTTON.
II-32-6336
T. D.4377
Processng and other ta es wth respect to cotton under the
grcutura d|ustment ct
Processng ta , effectve ugust 1, 1933, on the frst domestc
processng of cotton, domestc or mported ta on foor stocks of
artces processed whoy or n chef vaue from cotton, hed on
ugust 1, 1933, for sae or other dsposton compensatng ta on
artces processed or manufactured whoy or n chef vaue from
cotton and mported on or after ugust 1, 1933.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 9(a), grcutura d|ustment ct, pro-
vdes, n part:
When the Secretary of grcuture determnes that renta or beneft payments
are to be made wth respect to any basc agrcutura commodty, he sha
procam such determnaton, and a processng ta sha be n effect wth
respect to such commodty from the begnnng of the marketng year therefor
ne t foowng the date of such procamaton.
Par. . The procamaton of the Secretary of grcuture, dated
uy 14, 1933, provdes:
I, enry . Waace, Secretary of grcuture of the Unted States of
merca, actng under and pursuant to an ct of Congress known as the
grcutura d|ustment ct, approved May 12, 1933, as amended, have deter-
mned and hereby procam that renta and/or beneft payments are to be made
wth respect to cotton, a basc agrcutura commodty.
Par. C. Secton 10(c), grcutura d|ustment ct, provdes:
The Secretary of grcuture s authorzed, wth the approva of the Pres-
dent, to make such reguatons wth the force and effect of aw as may be
necessary to carry out the powers vested n hm by ths tte, ncudng regu-
atons estabshng converson factors for any commodty and artce processed
therefrom to determne the amount of ta mposed or refunds to be made wth
respect thereto. ny voaton of any reguaton sha be sub|ect to such
penaty, not n e cess of 100, as may be provded theren.
Par. D. The reguatons, wth respect to the processng ta on
cotton, made by the Secretary of grcuture, wth the approva of
the Presdent, dated uy 14, 1933, provde:
I do hereby ascertan and prescrbe that for the purposes of sad ct the frst
marketng year for cotton sha begn ugust 1, 1933.
I do hereby determne as of ugust 1, 1933, that the processng ta on the
frst domestc processng of cotton sha be at the rate of 4.2 cents per pound
of nt cotton, net weght, whch rate equas the dfference between the current
average farm prce for cotton and the far e change vaue of cotton, whch
prce and vaue, both as defned In sad ct, have been ascertaned by me from
avaabe statstcs of the Department of grcuture.
I do hereby estabsh that the converson factor for artces (other than
nonspnnabe waste, hereby defned as Incudng ony opener, breaker and
fnsher pcker waste, card motes and fy, sweepngs, and cearer waste, and
the products thereof), processed from cotton, to determne the amount of ta
Imposed or refunds to be made wth respect thereto, s, per pound of cotton
content, 105.2 per centum of the per pound processng ta . The cotton content
of such artces sha be deemed to ncude the weght of cotton n the form
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Msc.
436
of yarn, fabrc, thread, twnes, rovng, sver, aps and a other forms. No
deducton sha be made from the weght of such artces for norma mosture
content, but reasonabe deductons sha be made for szng, buttons, and such
other noncotton materas.
Par. . The rate of ta governng the amount of ta mposed or
refund to be made wth respect to a artces processed whoy or
n chef vaue from cotton, as computed upon the bass of the deter-
mnaton by the Secretary of grcuture of a processng ta rate
of 4.2 cents per pound of nt cotton, net weght, and upon the bass
of hs prescrpton of a converson factor (per pound of cotton con-
tent) of 105.2 per centum of the per pound processng ta , s 4.4184
cents per pound of the cotton content of such artces.
Pak. . Secton 19(a), grcutura d|ustment ct, provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad nto the Treasury of the Unted States.
Par. G. Secton 10(d), grcutura d|ustment ct, provdes:
The Secretary of the Treasury s authorzed to make suc reguatons as may
be necessary to carry out the powers vested In hm by ths tte.
Par. . Secton 1101 of the Revenue ct of 1926, made appcabe
by secton 19(b) of the grcutura d|ustment ct, provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws, the foowng reguatons are hereby
prescrbed:
rtce 1. Genera. (o) y vrtue of the provsons of the grcutura
d|ustment ct and the procamaton and reguatons of the Secretary of gr-
cuture, a processng ta on the frst domestc processng of cotton becomes
effectve begnnng at the earest moment of ugust 1, 1933, at the rate of 4.2
cents per pound of nt cotton, net weght. t the same moment there becomes
effectve a compensatng ta on a artces processed or manufactured whoy
or n chef vaue from cotton and mported on or after ugust 1, 1933. t the
same moment there becomes effectve a ta on foor stocks of artces processed
whoy or n chef vaue from cotton, whch, on ugust 1, 1933, are hed for
sae or other dsposton. The rate of ta shown n paragraph sha be used
In computng such compensatng ta and such ta on foor stocks.
(6) or reguatons reatng generay to the processng ta and to the com-
pensatng ta , see Reguatons 81 for reguatons reatng generay to the ta
on foor stocks, see Reguatons 82 for reguatons reatng to e portaton, see
Reguatons 83. Reguatons 81, Reguatons S2, and Reguatons S3 are gen-
era n ther scope and appy to a commodtes wth respect to whch a ta s
n effect under the ct. y vrtue of the procamaton of the Secretary of
grcuture, set forth above, Reguatons 81, Reguatons 82, and Reguatons
83 become appcabe wth respect to cotton. These present reguatons appy
specfcay to cotton aone, and they suppement, but are not ntended to change,
modfy, or revoke, n any way, Reguatons 81, Reguatons 82, or Reguatons
83. These present reguatons appy, as respects cotton, to a the ta es the
processng ta , the compensatng ta , and the ta on foor stocks.
(c) Wth respect to cotton and artces or products processed or manufac-
tured whoy or n chef vaue from cotton, the date, ugust 1, 1933, s the
effectve date, as defned and used n Reguatons 81, Reguatons 82, and
Reguatons 83.
(d) The term cotton as used n the present reguatons means nt cotton
(that s, cotton whch has been gnned), of any knd, cassfcaton, type, or
grade.
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437
MsC
(e) The cotton content of an artce or product processed whoy or n chef
vaue from cotton sha be deemed to mean the weght of cotton, or of any
form of cotton (Incudng yarn, fabrc, thread, twnes, rovng, svers and aps),
n the artce or product. In ascertanng for ta purposes the cotton content of
any such artce or product, no deducton sha be made from the weght of such
artce or product for norma mosture content, but a reasonabe deducton s
aowabe for szng, buttons, or materas not made of or from cotton.
bt. 2. Processng ta . (a) The processng ta on the frst domestc process-
ng of cotton becomes effectve at the frst moment of ugust 1, 1933. The
rate, an shown above, s 4.2 cents per pound of nt cotton, net weght. The
net weght of the cotton sha be the net weght of the cotton n ts condton
at the moment of begnnng the processng of such cotton. or detaed genera
reguatons as to the ta on processng, see Reguatons 81. The form pre-
scrbed for return of processng ta s P. T. orm 2. The frst return of
processng ta sha embrace the perod ugust 1, 1 )33, to ugust 31. 1933,
both ncusve, and sha be fed on or before September 30, 3933. The ta
shown thereon must be pad at the tme when the return Is fed. See artce 6
for st of prescrbed forms.
( ) or the perod from ugust 1, 1933, to ugust 31, 1933, both ncusve,
and for each caendar month thereafter, each processor of cotton sha keep
a record of (1) the quantty of cotton on hand at the begnnng of the perod
(2) the quantty of cotton receved durng the perod (3) the quantty of cot-
ton shpped or devered durng the perod (4) the quantty of cotton sod or
otherwse dsposed of as waste durng the perod and (5) the quantty of
cotton on hand at the end of the perod. These quanttes must he ascertaned
by actua weghng on accurate scaes and not by estmaton.
rt. 3. oor stocks. On ugust 1, 1933, the ta on foor stocks becomes
effectve on certan stocks of artces processed whoy or n chef vaue from
cotton, whch on that date are hed for sae or other dsposton. The Secretary
ot grcuture has prescrbed a converson factor for such artces, as set forth
n paragraph D, above. The rate of ta appcabe to the cotton content of
such artces s gven n paragraph , above. or detaed reguatons as to
ta on foor stocks, see Reguatons 82. The form prescrbed for return of
foor ta on separate reta stocks s P. T. orm 42, oor ta nventory,
record and return (separate reta stocks). Ths return must be fed on or
before September 30, 1933. The ta shown thereon must be pad at the tme
when the return s fed. The form prescrbed for return of the foor ta on a
artces other than separate reta stocks s P. T. orm 32, oor ta nventory
and return (stocks other than separate reta stocks). Ths return must be
fed on or before ugust 31, 1933. The ta shown thereon must be pad at the
tme when the return s fed. See artce 6 for st of prescrbed forms.
bt. 4. Compensatng ta on mported artces. On and after ugust 1,
1933, a compensatng ta s n effect on a artces processed or manufactured
whoy or n chef vaue from cotton and mported nto the Unted States or
any possesson thereof to whch the ct appes, from any foregn country, or
from any possesson of the Unted States to whch the ct does not appy.
The Secretary of grcuture has prescrbed a converson factor for such
artces, as shown n paragraph D, above. The rate of ta appcabe to the
cotton content of such artces s gven n paragraph , above. or detaed
reguatons as to ths ta , see Reguatons 81. The form prescrbed for return
of the compensatng ta s P. T. orm 12. See artce 6 for st of prescrbed
forms.
bt. 5. stng contracts. or genera provsons reatng to e stng con-
tracts, see Reguatons 81, artces 27 and 28, and Reguatons 82, artce 7.
If a processor has such a contract for devery of an artce processed whoy
or n chef vaue from cotton on or after ugust 1, 1933, the ta on such process-
ng must be returned on the current monthy return and then pad. The rate
shown n paragraph shoud be used n determnng the amount of ta to be
coected from the vendee.
bt. 6. orms. To nsure the proper return of the ta es mposed by the
ct, and to factate the coecton and refund of ta es, certan forms have
been prescrbed for use by ta payers. The prescrbed form must be used as
requred by the appcabe provsons of Reguatons 81, Reguatons 82, or
Reguatons 83 and must be carefuy fed out n e act accordance wth the
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Msc.
438
appcabe provsons of the proper reguatons, and the nstructons contaned
on such form. The foowng forms wth respect to cotton are hereby prescrbed:
orm No.
Desgnaton.
Requred by
P. T. orm 2.
P. T. orm 12.
P. T. orm 24.
P. T. orm 32.
P. T. orm 42.
P. T. orm 28.
P. T. orm 52.
Processng ta return
Return of compensatng ta on
mports.
Cam for refund under grcu-
tura d|ustment ct.
oor ta nventory and return,
by a person other than one
engaged n reta trade, by a
person engaged n reta trade
f artces are hed by hm ese-
where than n hs reta stock.
oor ta nventory, record and
return, by a person engaged
n reta trade.
Cam for credt on monthy re-
turn.
Monthy statement of mporter
of cotton products.
Reguatons 81, artce 11.
Reguatons 81, artce 20.
Reguatons 81, artces 30,
31(a), 32.
Reguatons 82, artces 19,
20.
Reguatons 82, artce 11.
Reguatons 82, artce 16.
Reguatons 81, artce
31(b).
Reguatons 81, artce 21.
Gut T. eveknq,
Commssoner of Interna Revenue.
pproved uy 29, 1933.
Thomas IIewes,
ctng Secretary of the Treasury.
II-37-6405
T. D. 4389
Processng and other ta es wth respect to cotton under the
grcutura d|ustment ct.
Revokng Treasury Decson 4377, approved uy 29, 1933 page
435, ths uetn , and prescrbng reguatons n conformty wth
Cotton Reguatons, Seres 2, made by the Secretary of grcuture
and approved by the Presdent uy 14, 1933, as suppemented,
revsed, and, n part, superseded by Cotton Reguatons, Seres 2,
Suppement 1, made by the Secretary of grcuture and approved
by the Presdent uy 28. 1933.
Treasury Department,
Offce of Commssoner of Interna evenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 9(a), grcutura d|ustment ct, pro-
vdes, n part:
When the Secretary of grcuture determnes that renta or beneft pay-
ments are to be made wth respect to any basc agrcutura commodty, he
sha procam such determnaton, and a processng ta sha be n effect wth
respect to suc commodty from the begnnng of the marketng year therefor
ne t foowng the date of such procamaton.
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439
Msc.
Pah. . The procamaton of the Secretary of grcuture, dated
uy 14, 1933, provdes:
I, enry . Waace, Secretary of grcuture of the Unted States of
merca, actng under and pursuant to an ct of Congress known as the gr-
cutura d|ustment ct, approved May 12, 1933, as amended, have determned
and hereby procam that renta and/or beneft payments are to be made wth
respect to cotton, a basc agrcutura commodty.
Par. C. Secton 10(c), grcutura d|ustment ct, provdes:
The Secretary of grcuture s authorzed, wth the approva of the Pres-
dent, to make such reguatons wth the force and effect of aw as may be neces-
sary to carry out the powers vested n hm by ths tte, ncudng reguatons
estabshng converson factors for any commodty and artce processed there-
from to determne the amount of ta mposed or refunds to be made wth respect
thereto. ny voaton of any reguaton sha be sub|ect to such penaty, not
n e cess of 100, as may be provded theren.
Pak. D. The reguatons, wth respect to the processng ta on
cotton, made by the Secretary of grcuture, wth the approva of
the Presdent, dated uy 14, 1933, as suppemented, revsed and, n
part, superseded by reguatons made by the Secretary of grcuture,
wth the approva of the Presdent, dated uy 28,1933, provde:
1 do hereby ascertan and prescrbe that for the purposes of sad ct the frst
marketng year for cotton sha begn ugust 1, 1933.
I do hereby determne as of ugust 1, 1933, that the processng ta on the
frst domestc processng of cotton sha be at the rate of 4.2 cents per pound
of nt cotton, net weght, whch rate equas the dfference between the current
average farm prce for cotton and the far e change vaue of cotton, whch
prce and vaue, both as defned n sad ct, have been ascertaned by me from
avaabe statstcs of the Department of grcuture.
The net weght of nt cotton sub|ect to the processng ta sha be determned
by deductng the weght of tare (baggng, tes, and patches) from the gross
weght of the bae.
I do hereby estabsh that the converson factor for artces, processed from
cotton, to determne the amount of ta mposed or refunds to be made wth
respect thereto, s, per pound of cotton content, 105.2 per centum of the per
pound processng ta provded, however, that the converson factor sha be
zero for (a) motes and fy, fat strps, comber waste, sasher waste, cuttngs,
rags, and other waste (not ncudng substandard products and short ength
pece goods), ncdent to the processng, manufacturng, or fabrcatng of cotton
or of cotton products, (6) secondhand artces, and (o) such part of the content
of any artce or product as s made from any artce or combnaton of artces
descrbed n (a) or (6). No deducton sha be aowed from the weght of any
artce for norma mosture content, but a reasonabe deducton sha be aow-
abe for the szng, buttons, or other noncotton materas.
Par. . Secton 19(a), grcutura d|ustment ct, provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad nto the Treasury of the Unted States.
Par. . Secton 10(d), grcutura d|ustment ct, provdes:
The Secretary of the Treasury s authorzed to make such reguatons as
may be necessary to carry out the powers vested n hm by ths tte.
Par. G. Secton 1101, Revenue ct of 1926, made appcabe by
secton 19(b), grcutura d|ustment ct, provdes:
The Commssoner, wth the approva of the Secretary, sha proscrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
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Mso.
440
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws, the foowng reguatons, effectve as
of ugust 1, 1933, are hereby prescrbed:
rtce 1. Genera. (a) y vrtue of the provsons of tbe grcutura
d|ustment ct and the procamaton and reguatons of the Secretary of
grcuture, a processng ta on the frst domestc processng o cotton becomes
effectve begnnng at the earest moment of ugust 1, 1933, at the rate of
4.2 cents per pound of nt cotton, net weght. t the same moment there
becomes effectve a compensatng ta on a artces processed or manufactured
whoy or In chef vaue from cotton and mported on or after ugust 1, 1033.
t the same moment there becomes effectve a ta on foor stocks of artces
processed whoy or n chef vaue from cotton, whch, on ugust 1, 1933, are
hed for sae or other dsposton. The rate of ta shown n artce 2 of these
reguatons sha be used n computng such compensatng ta and such ta
on foor stocks.
(6) or reguatons reatng generay to the processng ta and to the
compensatng ta , see Reguatons 81 for reguatons reatng generay to the
ta on foor stocks, see Reguatons 82 for reguatons reatng to e portaton,
see Reguatons S3. Reguatons 81, Reguatons S2, and Reguatons 83 are
genera n ther scope and appy to a commodtes wth respect to whch a ta
s n effect under the ct. y vrtue of the procamaton of the Secretary of
grcuture, set forth above, Reguatons 81, Reguatons 82, and Reguatons 83
become appcabe wth respect to cotton. These reguatons appy specfcay
to cotton aone, and they suppement, but are not ntended to change, modfy,
or revoke, In any way, Reguatons 81, Reguatons 82, or Reguatons 83. These
reguatons appy, as respects cotton, to a the ta es the processng ta , the
compensatng ta , and the ta on foor stocks.
(c) Wth respect to cotton and artces or products processed or manu-
factured whoy or n chef vaue from cotton, the date, ugust 1, 1933, s the
effectve date, as defned and used n Reguatons 81, Reguatons 8 , and
Reguatons 83.
(d) The term cotton as used n these reguatons means nt cotton (that
Is, cotton whch has been gnned) of any knd, cassfcaton, type, or grade.
(e) The cotton content of an artce or product processed whoy or n chef
vaue from cotton sha be deemed to mean the weght of cotton or of any
form of cotton (ncudng yarn, fabrc, thread, twnes, rovng, sver, aps, and
any other product of the frst domestc processng) n the artce or product.
In ascertanng, for ta purposes, the cotton content of any such artce or
product, no deducton sha be made from the weght of such artce or product
for norma mosture content, but a reasonabe deducton s aowabe for szng,
buttons, or materas not made of or from cotton.
bt. 2. Converson factors Rate of ta . The converson factor, per pound
of cotton content, for a artces or products processed whoy or n chef vaue
from cotton s 105.2 per centum of the processng ta (e cept n so far as a zero
converson factor has been prescrbed for a or part of the cotton content,
as set forth n the foowng paragraph). Computed on the bass of 4.2 cents
per pound of nt cotton, the rate of ta governng the amount of ta to be
mposed or refund to be made wth respect to such artces s 4.4184 cents per
pound of the cotton content of such artce, e cept that to whch the zero
converson factor appes.
The converson factor s zero for the foowng, namey, (a) motes and fy,
fat strps, comber waste, sasher waste, cuttngs, rags, and other waste nc-
dent to the processng, manufacturng, or fabrcatng of cotton or of cotton
products, (6) secondhand artces, and (c) such part of the content of any
artce or product as s made from any artce or combnaton of artces
descrbed n (a) and (6). The term waste, as used n (a), does not ncude
any substandard products or short ength pece goods, both of whch have
a converson factor of 105.2. ased on a converson factor of zero the rate of
ta governng the amount of ta mposed or refund to be made wth respect to
(a) or ( ) or (c) Is, kewse, zero.
In determnng whether an artce Is processed whoy or In chef vaue from
cotton (for the purposes of the ta on foor stocks, the compensatng ta oa
mported artces, and the provsons of the ct wth respect to e portaton)
the combned vaues of the cotton and of every processed form of t used n
makng the artce (ncudng any processed form of cotton for whch the coo-
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441
Mso|
verson factor Is zero) sha be the vaue of the cotton as a component. In
determnng the amount of ta wth respect to an artce processed whoy or
n chef vaue from cotton, as thus determned, the weght of the content con-
sstng of any processed form of cotton for whch the converson factor s zero
may be dsregarded. The amount of the ta (n cents) s 4.4184 mutped by
the number of pounds of cotton content (e cusve of the number of pounds of
the content consstng of any processed form of cotton for whch the converson
factor s zero).
bt. 3. Processng ta . (a.) The processng ta on the frst domestc proc-
essng of cotton becomes effectve at the frst moment of ugust 1, 1933.
The rate s 4.2 cents per pound of nt cotton, net weght. The net weght of
nt cotton sub|ect to the processng ta sha be determned by deductng the
weght of tare (baggng, tes, and patches) from the gross weght of the bae.
or deted reguatons as to the ta on processng, see Reguatons 81. The
form prescrbed or return of processng ta s P. T. orm 2. The frst return
of processng ta sha embrace the perod ugust 1, 1933, to ugust 31, 1933,
both ncusve, and sha be fed on or before September 30, 1933. The ta
shown thereon must be pad at the tme when the return s fed, or, f the
tme for payment be postponed or e tended, then at the tme or tmes desgnated
for payment n such postponement or e tenson. See artce 7 for st of
prescrbed forms.
(6) or the perod from ugust 1, 1933, to ugust 31, 1933, both Incusve,
and for each caendar month thereafter, each processor of cotton sha keep
a record of (1) the quantty of cotton on hand at the begnnng of the perod,
(2) the quantty of cotton receved durng the perod, (3) the quantty of cot-
ton shpped or devered durng the perod, (4) the quantty of cotton sod or
otherwse dsposed of as waste durng the perod, and (5) the quantty of cotton
on hand at the end of the perod. These quanttes must be ascertaned by
actua weghng on accurate scaes and not by estmaton.
rt. 4. oor stocks. On ugust 1, 1933, the ta on foor stocks becomes
effectve on certan stocks of artces processed whoy or In chef vaue from
cotton, whch on that date are hed for sae or other dsposton. The Secre-
tary of grcuture has prescrbed a converson factor for such artces, as set
forth n paragraph D, above. The rate of ta appcabe to the cotton content
of such artces s gven n artce 2 of these reguatons. or detaed regu-
atons as to ta on foor stocks, see Reguatons 82. The form prescrbed for
return of foor ta on separate reta stocks s P. T. orm 42, oor ta nventory,
record and return (separate reta stocks). Ths return must be fed on or
before September 30, 1933. The ta shown thereon must be pad at the tme
when the return Is fed, or, f the tme for payment be postponed or e tended,
then at the tme or tmes desgnated for payment n such postponement or
e tenson. The form prescrbed for return of the foor ta on a artces other
than separate reta stocks s P. T. orm 32, oor ta nventory and return
(stocks other than separate reta stocks). Ths return must be fed on or
before ugust 31, 1933. The ta shown thereon must be pad at the tme when
the return s fed, or, f the tme for payment be postponed or e tended, then
at the tme or tmes desgnated for payment In such postponement or e tenson.
See artce 7 for st of prescrbed forms.
rt. 5. Compensatng ta on mported artces. On and after ugust 1, 1933,
a compensatng ta s n effect on a artces processed or manufactured whoy
or n chef vaue from cotton and mported nto the Unted States or any pos-
sesson thereof to whch the ct appes, from any foregn country or from any
possesson of the Unted States to whch the ct does not appy. The Secretary
of grcuture has prescrbed a converson factor for such artces, as shown n
paragraph D, above. The rate of ta appcabe to the cotton content of such
artces s gven n artce 2 of those reguatons. or detaed reguatons as
to ths ta , see Reguatons 81. The form prescrbed for return of the com-
pensatng ta s P. T. orm 12. See artce 7 for st of prescrbed forms.
rt. G. stng contracts.- or genera provsons reatng to e stng con-
tracts, see Reguatons 81, artces 27 and 28, and Reguatons 82, artce 7.
If a processor has such a contract for devery of an artce processed whoy
or n chef vaue from cotton on or after ugust 1, 1933, the ta on such
processng must be returned on the current monthy return and then pad.
The rate shown n artce 2 of these reguatons shoud be used n determnng
the amount of ta to be coected from the vendee.
37OS 34 29
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Reg. 81, rt. 12.
442
rt. 7. orms. To Insure the proper return cf the ta es mposed by the
ct, and to factate the coecton and refund of ta es, certan forms have
been prescrbed for use by ta payers. The prescrbed form must be used as
requred by the appcabe provsons of Reguatons 81, Reguatons 82, or
Reguatons 83 and must be carefuy fed out n e act accordance wth the
appcabe provsons of the proper reguatons and the nstructons contaned
on such form. The foowng forms wth .respect to cotton are hereby pre-
scrbed :
orm No.
Desgnaton.
Requred by
P. T. orm 2
Processng ta return
Reguatons 81, artce 11.
Reguatons 81, artce 20.
P. T. orm 12
Return of compensatng ta on
P. T. orm 24
mports.
Cam for refund under gr-
cutura d|ustment ct.
Reg atons 81, artces 30,
31(a), 32.
Reguatons 82, artces 19,
20.
P. T. orm 28
Cam for credt on monthy
return.
Reguatons 81, artce
31(b).
P. T. orm 32
oor ta nventory and return,
by a person other than one
engaged n reta trade, by a
person engaged n reta trade
f artces are hed by hm
esewhere than n hs reta
stock.
Reguatons 82, artce 11.
P. T. orm 42
oor ta nventory, record and
return, by a person engaged
n reta trade.
Reguatons 82, artce 16.
Reguatons 81, artce 21.
P. T. orm 52
Monthy statement of mporter
of cotton products.
rt. 8. Treasury Decson 4377, approved uy 29. 1933 page 435, ths ue-
tn , Is hereby revoked.
Gut T. everng,
Commssoner of Interna Revenue.
pproved September 6, 1933.
Dean cheson,
ctng Secretary of the Treasury.
Reguatons 81, rtce 12: Payment of proc- II-34-6369
easng ta . T. D. 4385
Postponement of payment of processng ta and foor ta wth
respect to cotton.
Payment of processng ta wth respect to cotton authorzed to
be made n nstaments of one-thrd of the amount due on each
return for the frst s months on or before the due date for
fng such return one-thrd not ater than 30 days after the due
date, and one-thrd not ater than 60 days after the due date.
Payment of ta on foor stocks of cotton products authorzed to be
made n nstaments of one-fourth of the amount due on each
return on or before the due date for fng each such return one-
fourth not ater than 30 days after the due date one-fourth not
ater than 60 d:ys after the due date, and one-fourth not ater than
90 days after the due date.
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Reg. 82, rt. 17.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Payment of processng ta wth respect to cotton under the prov-
sons of Treasury Decson 4377, approved uy 29, 1933 page 435,
ths uetn , and the provsons of artce 12 of Reguatons 81
reatng to processng ta under the grcutura d|ustment ct,
s hereby authorzed to be made as foows:
One-thrd of the amount of the ta must be pad on or before the
due date for fng each return for the frst s months, one-thrd
not ater than 30 days after the due date, and one-thrd not ater
than 60 days after the due date. Payment of each nstament of
one-thrd of the amount of the ta shown on each month s return w
be due as foows:
Return.
ufrust,
1933.
Septem-
ber, 1933.
October,
1933.
Novem-
ber, 1933.
Decem-
ber 1933.
anuary,
1934.
One-thrd, due date
Sept. 30
Oct. 30
Nov. 29
Oct. 31
Nov. 30
Dec. 30
Nov. 30
Dec. 30
an. 29
Dec. 31
an. 30
Mar. 1
1934
an. 31
Mar. 2
pr. 1
eb. 23
Mar. 30
pr. 29
One-thrd, 30 days after due date
One-tbrd, 60 days after due date

Reguatons 82, rtce 17: Payment of ta II-34-6370
postponement of payment oans of money to T. D. 4385
pay ta .

Payment of the ta on foor stocks of artces processed whoy
or n chef vaue from cotton under the provsons of the Treasury
decson above named, and artce 17 of Reguatons 82 reatng
to ta on foor stocks, s hereby e tended as foows:
Wth respect to the amount of ta due on return on P. T. orm
32, one-fourth must be pad on or before the due date for fng
returns, ugust 31, 1933, one-fourth not ater than 30 days after
the due date, or September 30, 1933, one-fourth not ater than 60
days after the due date, or October 30, 1933, and one-fourth not
ater than 90 days after the due date, or November 29, 1933. Wth
respect to the amount of ta due on return P. T. orm 42, one-
fourth must be pad on or before the due date for fng returns,
September 30, 1933, one-fourth not ater than 30 days after the due
date, or October 30, 1933, one-fourth not ater than 60 days after
the due date, or November 29, 1933, and one-fourth not ater than
90 days after the due date, or December 29,1933.
These e tensons appy ony to payment of the ta and not to the
tme for fng each return.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ugust 17, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
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444
Reguatons 81, rtce 12: Payment of proc- II-45-6495
essng ta . T. D. 4402
Postponement of payment of processng ta wth respect to
cotton.
Tme for payment of processng ta wth respect to cotton,
shown by processng ta returns for ebruary, 1934, and subse-
quent months, postponed to the ast day of the caendar month
foowng the tme f ed for fng the processng ta return.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C.
To Coectors of Interna Revenue and Others Concerned:
The tme for payment of the processng ta wth respect to cot-
ton shown to be due by each return coverng the caendar month
of ebruary, 1934, or any subsequent caendar month, requred under
the provsons of Treasury Decson 4389, approved September 6,
1933 page 438. ths uetn , and the provsons of artce 11 of
Reguatons 81, reatng to the processng ta under the grcutura
d|ustment ct, s hereby postponed to the ast day of the caendar
month ne t foowng the tme f ed for fng such processng ta
return.
These postponements appy ony to the payment of the ta es and
not to the tme for fng the processng ta returns.
Gut T. everng,
Commssoner of Interna Revenue.
pproved November 2, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
I LD CORN.
II 47-6526
T. D. 4407
Processng and other ta es wth respect to fed corn under the
grcutura d|ustment ct.
Processng ta , effectve November 5, 1933, on the frst domestc
processng of fed corn, domestc or mported ta on foor stocks
of artces processed whoy or n chef vaue from fed corn hed
on November 5, 1933, for sae or other dsposton compensatng
ta on artces processed or manufactured whoy or n chef vaue
from fed corn and mported on or after November 5, 1933.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 9(a), grcutura d|ustment ct, pro-
vdes, n part:
When the Secretary of grcuture determnes that renta or beneft pay-
ments are to be made wth respect to any basc agrcutura commodty, he sha
procam such determnaton, and a processng ta sha be n effect wth respect
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Msc.
to such commodty from the begnnng of the marketng year therefor ne t
foowng the date of such procamaton.
Pah. . The procamaton of the Secretary of grcuture, dated
October 12, 1933, provdes:
I, enry . Waace, Secretary of grcuture of the Unted States of
merca, actng under and pursuant to an ct of Congress known as the gr-
cutura d|ustment ct, approved May 12, 1933, as amended, have determned
and hereby procam that renta and/or beneft payments are to be made wth
respect to fed corn, a basc agrcutura commodty.
Par. C. Secton 10(c), grcutura d|ustment ct, provdes:
The Secretary of grcuture s authorzed, wth the approva of the Pres-
dent, to make such reguatons wth the force and effect of aw as may be neces-
sary to carry out the powers vested n hm by ths tte, ncudng reguatons
estabshng converson factors for any commodty and artce processed there-
from to determne the amount of ta mposed or refunds to be made wth respect
thereto. ny voaton of any reguaton sha be sub|ect to such penaty, not n
e cess of 100, as may be provded theren.
Par. D. The reguatons wth respect to fed corn, made by the
Secretary of grcuture, wth the approva of the Presdent, dated
October 23, 1933, as suppemented, revsed, and, n part, superseded
by reguatons made by the Secretary of grcuture, wth the
approva of the Presdent, dated November 4, 1933, provde:
I do hereby ascertan and prescrbe that for the purposes of sad ct the
frst marketng year for fed corn sha begn November 5, 1933.
I do hereby fnd, after nvestgaton and due notce and opportunty for
hearng to nterested partes and due consderaton havng been gven to a of
the facts, that the rate of ta as of November 5, 1933, whch equas the dfference
between the current average farm prce for fed corn and the far e change
vaue of fed corn, whch prce and vaue both as defned n sad ct, have been
ascertaned by me from avaabe statstcs of the Department of grcuture,
w cause such reducton n the quantty of fed corn, or products thereof,
domestcay consumed as to resut n the accumuaton of surpus stocks of fed
corn, or products thereof, or n the depresson of the farm prce of fed corn.
I do hereby, accordngy, determne: s of November 5, 1933, that the rate of
the processng ta on the frst domestc processng of fed corn sha be fve (5)
cents per bushe of ffty-s (50) pounds and that, as of December 1, 1933, the
ate of the processng ta on the frst domestc processng of fed corn sha be
twenty (20) cents per bushe of ffty-s (56) pounds, whch rate, as of the
effectve date thereof, w prevent such accumuaton of surpus stocks and
depresson of the farm prce of fed corn.
I. Defntons.
The foowng terms, as used In these reguatons, sha have the meanngs
hereby assgned to them:
rst domestc processyg. The frst domestc processng of fed corn s the
mng or other processng of fed corn for market (e cept ceanng and dry-
ng), ncudng cuttng, grndng, crackng, breakng, by mechanca or other
means, and custom mng for to as we as commerca mng, but does not
ncude cuttng, grndng, crackng or breakng, not n the form of four, for
feed purposes ony.
Cracked corn, com chop, or ground corn. Cracked corn, corn chop, or ground
corn s the entre product made by cuttng, grndng, crackng or breakng corn.
Screened cracked corn, screened corn chop, or screened ground corn. Screened
cracked com, screened corn chop, or screened ground corn s the coarse porton
of the corn chop, ground corn, or cracked corn from whch most of the fne
partces have been removed.
Corn bran or hus. Corn bran or hus s the outer coatng of the corn
kernes, wth tte or none of the starchy part or germ.
Corn feed mea. Corn feed mea Is the fne sftngs obtaned n the manu-
facture of screened corn chop, screened ground corn or screened cracked corn,
wth or wthout ts aspraton products added.
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446
otng. otng Is the sftng of any mea through wre screens or coths.
Corn mea, maze mea, or Indan-corn mea. Corn mea, maze mea, or
Indan-corn mea s mea made by grndng corn, wth or wthout botng, or
wth or wthout the e tracton of the corn germ.
Degermed and nondegermed corn meas. Corn mea, maze mea or Indan-
corn mea may be cassfed accordng to the process of manufacture as de-
germed or nondegermed meas.
(a) Degermed corn mea: Degermed corn mea s boted or unboted corn
mea from whch the corn germ has been removed In whoe or n part by a
degcrmng process, and s sometmes branded for sae as cream mea, standard
mea or t ear mea. Degermed mea contans not more than y per cent of fat,
by ether e tracton.
(6) Nondegermed corn mea: Nondegermed corn mea s boted or unboted
corn mea from whch the corn germ as not been removed. Nondegermed mea
may be treated by a bast of ar to remove chaff nnd/or bran, and s sometmes
branded for sae as od-fashoned mea, water-ground mea or stone-ground mea.
Nondegermed mea contans more than I | per cent of fat, by ether e tracton.
omny grts, corn grts, or brewers grts. omny grts, corn grts, or
brewers grts are the hard, nty portons of the corn kernes, contanng tte
or none of the bran or the germ. omny grts, corn grts, or brewers grts
may be cassfed as coarse, medum, or fne. The granuar partces of fne grts
average arger than those of coarse corn mea.
Corn four or brewers four. Corn four or brewers four s the resdue from
the manufacture of corn grts and/or corn mea. To be so cassfed, t must
be of a te ture fue enough so that not ess than 75 per cent w sft through
No. 9 botng sk and the baance sft through a No. 72 grts gauze.
Whte homny feed, whte homny mea, or whte homny chop. Whte
homny feed, whte homny mea, or whte homny chop s the kn-dred m -
ture of the m-run bran coatng, the m-run germ, wth or wthout a parta
e tracton of the o, and a part of the starchy porton of the whte corn
kerne obtaned n the manufacture of homny, homny grts, and corn mea
by the degermng process.
Yeow homny feed, yeow homny mea, or yeow homny chop. Yeow
homny feed, yeow homny mea, or yeow homny chop s the kn-dred
m ture of the m-run bran coatng, the m-run germ, wth or wthout a
parta e tracton of the o, and a part of the starch porton of the yeow corn
kerne obtaned n the manufacture of yeow homny grts and yeow corn
mea by the degermng process.
rewers corn fakes. rewers corn fakes are fakes produced by passng
corn grts through ros.
Corn fakes (breakfast food type). Corn fakes of the breakfast food type
are corn grts whch have been treated wth mat and/or sugar, srups, and
sat, and subsequenty faked by ros. The fakes are then dred and toasted.
Pear or tabe homny. Pear or tabe homny Is degermed hued corn.
Pastes, adhesves, or bnders. Pastes, adhesves, or bnders are four, starches,
or other starchy materas that have been partay geatnzed and/or de -
trnzed so as to ncrease ther power of absorpton and/or adhesveness
wthout further treatment.
Cornstarch (not modfed). Cornstarch (not modfed) s the whte, odor-
ess, tasteess, carbohydrate obtaned from corn after the bran, guten, and
germ have been separated from soaked and cracked corn, and ncudes prod-
ucts, commercay known as pear, powdered, crysta, and ump cornstarch.
Corn guten. Corn guten s that porton of the endosperm of the corn
kerne whch can be separated from cornstarch and other soube matter n a
current of water.
Com germ.- Corn germ s the embryo of the corn kerne. The commerca
product contans some bran and endosperm.
Cornstarch (modfed). Cornstarch (modfed) s cornstarch the fudty of
whch has been ncreased by treatment wth heat and/or chemcas, and n-
cudes products commercay known as thn bong starches.
De trne. De trne s a powdery product formed by treatng cornstarch
wth he:t and/or chemcas. De trnes wth water form a vscous gum havng
adhesve propertes.
Oucosc, m ng gucose, confectoners gucose or srup. Gucose, m ng
gucose, confectoners gucose or srup Is a thck, vscous, cooress product
made by ncompetey hydroyzng cornstarch, and decoorzng and evaporat-
ng the product.
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Corn sugar, crude, 70. Corn sugar, crude, 70 Is hydrous starch
sugar contanng between 68 and 72 per cent of de trose.
Corn sugar, crude, 80. Corn sugar, crude, 80 s hydrous starch sugar
contanng between 79 and 81 per cent of de trose.
De trose. De trose s the product chefy made by the hydroyss of corn-
starch foowed by refnng and crystazaton. De trose s known commer-
cay as refned corn sugar.
nhydrous de trose. nhydrous de trose s de trose contanng not ess
than 99.5 per cent of de trose and not more than 0.5 per cent of mosture.
ydratcd de trose. ydrated de trose s de trose contanng not ess than
92 per cent of de trose and not more than 8 per cent of mosture, ncudng
water of crystazaton.
Corn moasses or hydro. Corn moasses or hydro s a by-product n the
manufacture of de trose from cornstarch.
Corn o, crude. Corn o, crude, s the o obtaned from the pressng of corn
germs.
Corn o, refned. Corn o, refned, s the o resutng from the purfcaton
of the crude corn o.
Soap stock or foots. Soap stock or foots s the resdue resutng from the
purfcaton of crude corn o.
Corn o cake. Corn o cake conssts of the corn germ from whch part of
the o has been removed.
Corn o-cake mea. Corn o-cake mea s ground corn o cake.
Corn germ cake. Corn germ cake conssts of the corn germ wth other parts
of the corn kerne from whch part of the o has been removed.
Corn germ mea. Corn germ mea s ground corn germ cuke.
Corn guten feed. Corn guten feed s that part of the corn kerne that
remans after the separaton of the arger part of the starch and the o. It
may or may not contan corn soubes and the germ.
Corn guten mea Corn guten mea s that part of the corn kerne that re-
mans after the separaton of the arger part of the starch, o, and bran. It
may or may not contan corn soubes and the germ.
Dsters dred grans. Dsters dred grans are the dred resdue ob-
taned n the manufacture of acoho and other dsted sprts from corn.
Dsters corn soubes. Dsters corn soubes s a by-product from the
manufacture of acoho from corn sods obtaned by the evaporaton of the
mash quor after the remova of the acoho and wet grans.
Mash. Mash s materas, of whch corn s the product of chef vaue, as-
sembed and combned n such manner as to produce dsted sprts.
Dsted sprts. Dsted sprts are acohoc quors made by the dsta-
ton of mash, and nc ude acoho and whsky.
II. Converson actohs.
I do hereby estabsh that the converson factors for artces processed
whoy or n chef va .ue from corn, to determne the amount of ta mposed
or refunds to be made wth respect thereto, are as foows:
The foowng tabes of converson factors f the percentage of the per bushe
processng ta on corn wth respect to 100 pounds, net weght, or proof gaon of
the foowng artces processed from corn:
rtce.
Unt.
Converson
factor.
Cracked corn, corn chop, or ground corn (e cept for
feed )
Screened cracked corn, screened corn chop, or screened
ground corn (e cept for feed )
Corn bran or hus
Corn feed mea
Corn mea, maze mea, or Indan-corn mea:
Degermed
Nondegermed
omny grts, corn grts or brewers grts (coarse, me-
dum and/or fne)
Pounds.
Per cent.
100
178. 57
100
185. 19
100
0
100
0
100
300. 00
100
200. 00
100
300. 00
1 To be e empt from the foor stocks ta , cracked corn, corn chop, or ground corn, screened or not screened,
must be the product of fed corn processed for feed purposes ony.
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448
rtce.
Corn four or brewers four
omny feed, whte or yeow, resutng from manufac-
ture of homny, homny grts, or corn mea by the de-
germng process
rewers corn fakes
Corn fakes (breakfast food type)
Pear or tabe homny
Pastes, adhesvcs, or bnders
Cornstarch (not modfed):
Cornstarch, standard powdered (ess than 11 per
cent mosture)
Cornstarch, standard pear (11 per cent to 13 per
cent mosture)
Cornstarch, ump (more than 13 per cent mosture)
Cornstarch used as brewers materas
Cornstarch (modfed):
Starch, aundry
De trnes (4 per cent or ess mosture)
De trnes (more than 4 per cent mosture)
Gucose, m ng gucose, confectoners gucose, or srup
and 6ugars:
Srup or gucose 41 Raume
Srup or gucose 42 Raum6
Srup or gucose 43 aume
Srup or gucose 44 aum6
Srup or gucose 45 aume
Sugar, crude, 70
Sugar, crude, 80 --
De trose, anhydrous
De trose, hydrous
Corn moasses, hydro
Corn o:
Crude
Refned
Soap stock or foots
Corn o cake or corn o-cake mea
Corn germ cake or corn germ mea
Corn guten feed
Corn guten mea
Corn n secondary processng, ncud mash
Dsted sprts 2
Dsters dred grans
Dsters corn soubes
Canned fed corn
Canned homny
Unt.
C)
nd.
Per cent.
100
300. 00
100
0
100
325. 00
100
350. 00
100
300. 00
100
350. 00
100
281. 39
100
275. 11
100
265. 80
100
275. 11
100
281. 39
100
300. 19
100
29 S7
100
237. 50
100
243. 60
100
249. 05
100
253. 84
100
258. 68
100
233. 01
100
260. 46
100
28a 11
100
313. 16
100
0
100
311.52
100
331. 61
100
0
100
0
100
0
100
0
100
0
100
17a 57
20. 00
100
0
100
0
100
2a oo
100
60.00
1 The above converson factors for mnsb and dsted sprts are based upon a mash contanng ony corn.
The converson factors for mash and dsted sprts, n chef vaue of fed corn, sha be the proporton of
the above converson factor whch the weght of the fed corn n the mash bears to the tota weght of grans
and gran products n the mash.
1 Per gaon 100 proof.
ed-corn products for whch no specfc converson factor Is prescrbed In
these reguatons are not e cuded from the payment of the compensatng or
foor stocks ta es.
s to any artce for whch no converson factor s specfcay assgned,
I hereby estabsh (1) that f such artce s made, drecty or ndrecty. Id
some part from another artce to whch a converson factor s assgned, then
as to each 100 pounds of such part the converson factor sha be the conver-
son factor for such other artce, and (2) f such artce s made, drecty or
Indrecty, n some part from fed corn but not (as to such part) from
another artce to whch a converson factor s assgned, then as to each
100 pounds of such part the converson factor sha be 178.57 per cent of the
per bushe processng ta on fed corn.
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449
Msc.
Par. . Secton 19(a), grcutura d|ustment ct, provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad Into the Treasury of the Unted States.
Par. . Secton 10(d), grcutura d|ustment ct, provdes:
The Secretary of the Treasury s authorzed to make such reguatons as
may be necessary to carry out the powers vested In hm by ths tte.
Par. G. Secton 1101, Revenue ct of 192C, made appcabe by
secton 19(b), grcutura d|ustment ct, provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
Par. . Secton 1119, Revenue ct of 1926, made appcabe by
secton 19(b), grcutura d|ustment ct, provdes:
Whether or not the method of coectng any ta mposed by Ttes I , ,
I, or II s specfcay provded theren, any such ta may, under regua-
tons prescrbed by the Commssoner wth the approva of the Secretary, be
coected by stamp, coupon, sera-numbered tcket, cr such other reasonabe
devce or method as may be necessary or hepfu n securng a compete and
prompt coecton of the ta . admnstratve and penaty provsons of
Tte III, n so far as appcabe , sha appy to the coecton of any ta
whch the Commssoner determnes or prescrbes sha be coected n such
manner.
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws the foowng reguatons are hereby
prescrbed:
rtce 1. Genera. (a) y vrtue of the provsons of the grcutura
d|ustment ct and the procamatons and reguatons of the Secretary of
grcuture, a processng ta on the frst domestc processng of fed corn
becomes effectve at the earest moment of November 5, 1933. t the same
moment there becomes effectve a compensatng ta on a artces processed or
manufactured whoy or n chef vaue from fed corn, and mported on or
after November 5, 1933. t the same moment there becomes effectve a tu
on foor stocks of artces processed whoy or n chef vaue from fed corn
whch, on November 5, 1933, are hed for sae or other dsposton.
The rate of processng ta s gven n artce 2 of these reguatons. The
rates of compensatng ta and ta on foor stocks are gven n artce 3 of these
reguatons .
(6) y vrtue of the procamaton of the Secretary of grcuture, set
forth n paragraph , above, Reguatons 81, reatng to the processng ta and
compensatng ta Reguatons 82, reatng to the ta on foor stocks and
Reguatons 83, reatng to e portaton, whch are genera reguatons under
the grcutura d|ustment ct, become appcabe to fed corn. These regu-
atons suppement, but are not ntended to change or revoke n any wav, Regu-
atons 81, Reguatons 82, or Reguatons 83.
(c) Wth respect to artces or products processed ot manufactured whoy
or n chef vaue from fed corn, the date, November 5, 1933, s the effectve
date, as defned and used n Reguatons 81, Reguatons 82, and Reguatons 83.
(d) The varous defntons set forth n the reguatons of the Secretary of
grcuture n paragraph , above, are hereby adopted as part of these regu-
atons.
rt. 2. Processng ta . (a) The processng ta on the frst domestc proc-
essng of fed corn, becomes effectve at the frst moment of November 5, 1903.
or detaed reguatons as to the ta on processng, see Reguatons 81. The
form prescrbed for return of processng ta s P. T. orm 3. The frst return
of processng ta sha embrace the perod November 5, 1933, to November 30,
1933, both ncusve, and sha be fed on or before December 31, 1933. The ta
shown thereon must be pad at the tme when the return s fed, or, f the tme
for payment be postponed or e tended, then at the tme or tmes desgnated for
payment n such postponement or e tenson. See artce 7 for st of prescrbed
forms.
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450
(6) In accordance wth the reguatons of the Secretary of grcuture, the
rates of ta appcabe to the frst domestc processng of fed corn are: s of
November 5, 1933, 5 cents per bushe of 56 pounds, and as of December 1, 1933,
20 cents per bushe of 56 pounds..
The weght of fed corn sub|ect to the processng ta sha be the weght of
cean fed corn not artfcay dred.
(o) or the perod from November 5, 1933, to November 30, 1933, both
ncusve, and for each caendar month thereafter, each processor of ed corn
sha keep a record of (1) the quantty of fed corn on hand at the begnnng
of the perod, (2) the quantty of fed corn receved durng the perod, (3) the
quantty of fed corn shpped or devered durng the perod, (4) the quantty of
fed corn sod or otherwse dsposed of durng the perod, (5) the quantty
ground for feed durng the perod, and (6) the quantty on hand at the end of
the perod. These quanttes on each such record and report sha be shown
In accordance wth the eevator scae weghts after deductng the dockage
aowance ndcated by the censed nspector s certfcate. Where eevator
scae weghts are not obtanabe, the most reabe weght shoud be used
where there s no censed nspector s certfcate avaabe, the dockage actuay
cacuated shoud be used.
d) The processng of fed corn by or for the producer thereof for con-
sumpton by hs own famy or empoyees or househod s e empt from the
processng ta . Ths appes to what s known as custom mng (for to or
for money), but not to cases such as, for e ampe, where a producer devers
fed corn to an eevator or store n e change for corn mea and/or other corn
product. Nor s there any e empton where a producer who has hs fed corn
processed receves a knd or grade of product other than that whc coud
have been processed from the fed corn devered by such producer.
et. 3. Rates of ta . (a) The amounts of ta mposed wth respect to cer-
tan artces processed whoy or n chef vaue from fed corn, as determned
upon the bass of the determnaton by the Secretary of grcuture of proc-
essng ta rates gven n artce 2 and of hs prescrpton of converson factors
n hs reguatons set forth u paragraph D, above, are as foows:
Rates of ta on fow stocks of artces or products processed whoy or n chef
vaue from fed corn hed for sae or other dsposton o November 5, 1933,
and rates of compensatng ta m such artces or products, effectve from
November 5, 1933, to November SO, 1933, both ncusve, and on and after
December 1. 1933.
rtce.
Cents per b.
Cents per b.
Cracked corn, corn chop, or ground corn (e cept for
feed )
Screened cracked corn, screened corn chop, or screened
ground corn (e cept for feed )
Corn mea, maze mea or Indan-corn mea:
Degenned
Nondegermed
omny grts, corn grts or brewers grts (coarse, me-
dum and/or fne)
Corn four or brewers four
rewers corn fakes
Corn fakes (breakfast food type)
Pear or tabe homny
Pastes, adhesves or bnders
Cornstarch (not modfed):
Standard powdered (ess than 11 percent mosture)
Standard pear (11 per cent to 13 per cent mosture).
Lump (more than 13 per cent mosture)
Cornstarch used as brewers materas
Cornstarch (modfed), auud
1 To be e empt from the foor stocks ta , cracked corn, corn chop or ground corn,
screened or not screened, mut|t be the product of fed corn processed for reed purposes
ony.
Rates of ta effectve
Nov. 6,1933. Dec. 1, 1933.
0. 089
0. 357
. 092
.37
. 15
.6
. 1
. 4
. 15
.6
. 15
.6
. 162
. 6
. 175
. 7
. 15
. 6
. 175
.7
. 14
. 562
. 137
. 55
. 132
. 531
. 137
. 14
. 55
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451
Mso
Rates of ta on foor stocks of artces or products processed whoy or n chef
vaue from fed corn hed for sae or other dsposton on November 5, 1SSS,
and rates of compensatng ta on such artces or products, effedtve from
November 5, 93S, to November SO, 193S, both ncusve, and on and after
December 1, 19SS Contnued.
rtco.
Rates of ta effectve
Nov. 5, 1933.
Dec. 1, 1933.
Cents per b.
Cents per b.
0. 15
0. 6
. 140
. 587
. 118
. 475
. 121
. 487
. 124
. 498
. 126
. 507
. 129
. 517
. 116
. 466
. 13
. 52
. 144
. 576
. 156
. 626
. 155
. 623
. 165
. 663
.089
.357
Cents per gaon, 100 proof.
1. 00
4. 00
Cents per b.
Cents per b.
0. 011
0. 040
.03
. 12
De trnes (4 per cent or ess mosture)
De trnes (more than 4 per cent mosture)
Gucose, m ng gucose, confectoners gucose or srup
and sugars:
Srup or gucose 41 aum6
Srup or gucose 42 aum6
Srup or gucose 43 aum6
Srup or gucose 44 aum6
Srup or gucose 45 aum6
Sugar, crude, 70
Sugar, crude, 80
De trose, anhydrous
De trose, hydrous
Corn o, crude
Corn o, refned
Corn n secondary processng, ncudng mash 2
Dsted sprts
Canned fed corn
Canned homny
The above rates of ta for mash and dsted sprts are based upon a mash contanng
ony corn. The rates of ta for mash and dsted sprts n chef vaue of corn, sha be
the proporton of the above rates whch the weght of the fed corn u the mash bears to
the tota weght of grans and gran products n the mash.
(6) In the case of any artce processed whoy or n chef vaue from fed
corn (but not named n the st set forth n paragraph (a) of ths artce of
these reguatons), whch s made, drecty or ndrecty, n some part from an
artce desgnated n such st, the rate of ta for such part of the artce s
the same as for the sted artce from whch the ta abe artce was made.
(c) If part of an artce processed whoy or n chef vaue from fed corn
s made drecty or ndrecty from fed corn (but s not made, drecty or
Indrecty, from an artce sted n paragraph (a) of ths artce of these regu-
atons), the rate of ta per pound of fed corn content of such part of the
artce s 0.089 of a cent.
( ) In determnng whether an artce s processed whoy or n chef vaua
from fed corn, the combned vaues of every processed form of fed corn
used n makng the artce (ncudng any processed form of fed corn for
whch the converson factor s zero) sha be the vaue of the fed corn as a
component. In determnng the amount of ta wth respect to an artce
processed whoy or n chef vaue from fed corn as thus determned, so much
of the fed corn content as conssts of any processed form of fed corn for
whch the converson factor s zero may be dsregarded.
rt. 4. oor stocks. (a) On November 5, 1933, the ta on foor stocks
becomes effectve on certan artces, processed whoy or In chef vaue from
fed corn, whch on that date are hed for sae or other dsposton. The
respectve rates of ta appcabe to such artces are gven n artce 3 of these
reguatons. or detaed reguatons as to ta on foor stocks, see Regu-
atons 82.
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452
The form prescrbed for return of the foor ta on a artces other than
separate reta stocks s P. T. orm 33, oor ta nventory and return (stocks
other than separate reta stocks). Ths return must be fed on or before
December 5, 1933. The ta shown thereon must be pad at the tme when the
return s fed, or, f the tme for payment be postponed or e tended, then at
the tme or tmes desgnated for payment n such postponement or e tenson.
The form prescrbed for return of ta on foor stocks (separate reta stocks)
Is P. T. orm 43, oor ta nventory, record and return. Ths return must be
fed on or before anuary 4. 1034. The t shown thereon must be pad at the
tme when the return s fed, or, f the tme for payment be postponed or
e tended, then at the tme or tmes desgnated for payment n such postponement
or e tenson.
See artce 7 for st of prescrbed forms.
(b) very person who, on November 5, 1933, owns a warehouse recept for
products processed whoy or n chef vnue from fed corn, sha ndorse pany
on such recept a statement showng hs name and address and that he owned
suc recept on the frst moment of November 5, 1933, and s responsbe for
payment of the foor ta on the products represented by the recept.
If, on the sad date, any such recept Is n the possesson of any person other
than the owner, such person sha ndorse such statement for the owner of the
recept, together wth such person s name and offca tte, f any.
If, on or after November 5, 1933, any person buys for hmsef or as agent for
hs prncpa any such products, and n such sae devery of the products s made
ether n whoe or n part by a warehouse recept ssued pror to such date, such
person sha not accept as vad devery any such recept uness the statement
requred above s ndorsed on the recept, or uness there s attached thereto
the owner s recept on orm 1, showng payment of the ta on foor stocks on
the products represented by such warehouse recept.
When any such recept (ssued before November 5. 1933) s presented to the
warehouse, ether for the purpose of wthdrawng a or part of the products
represented thereby, or for the purpose of surrenderng the recept and recevng
n new recept or new recepts coverng the same products or any part thereof,
the warehouseman, before deverng such products or any part thereof, or such
new recept or new recepts, sha requre that the recept so presented or sur-
rendered has attached thereto a recept from the coector of Interna revenue
for the dstrct, on orm 1, showng that the foor ta has been pad on the
products represented by the recept so presented or surrendered, or sha forth-
wth notfy the coector that a recept has been presented or surrendered wth-
out there beng attached thereto orm 1. The notce to the coector sha gve
the date and sera number of the recept, the knd and quantty of products cov-
ered thereby, the name of the person to whom the recept was ssued, and the
name or names of a persons who have ndorsed such recept, and the name and
address of the person who presents or surrenders such recept.
ach person who, on November |, 1933, owns such products n a warehouse,
for whch a warehouse recept has been ssued before that date, sha, before
such recept s presented or surrendered to the warehouse (as set forth above),
and n any event not ater than December 5, 1933, fe wth the coector of
nterna revenue for the dstrct, an nventory and return on P. T. orm 33
n accordance wth the provsons of artce 11 of Reguatons 82. The payment
of the ta shown on any such return may be postponed to December 5, 1933,
e cept that the ta on any product n a warehouse, for whch a warehouse
recept has been ssued pror to November 5, 1933, must be pad on or before
the presentaton or surrender of suc warehouse recept to the warehouse, but
not ater than December 5, 1933.
(o) ach person who, on the effectve date, hods for sae or other dsposton
artces of any knd made from fed corn, sha make a true and correct
Inventory thereof, as of the earest moment of that date, and sha preserve
such nventory, together wth a record of a facts necessary to the determna-
ton of the correctness of such nventory. Such record sha be preserved and
kept open for nspecton and sub|ect to a the requrements reatve to records
set forth In Reguatons 82, artce 21.
rt. 5. Compensatng ta on mported artces. On and after November 5,
1933, a compensatng ta s n effect on a artces processed or manufactured
whoy or n chef vaue from fed corn, and mported nto the Unted States
or any possesson thereof to whch the ct appes, from any foregn country
or from any pos sson of the Unted States to whch the ct does not appy.
The respectve rates of ta appcabe to such artces are gven n artce 3
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453
Mso.
(a), (6), and (c) of these reguatons. or detaed reguatons as to ths ta ,
see Reguatons 81. The form prescrbed for return of the compensatng ta
s P. T. orm 13. See artce 7 for st of prescrbed forms.
m. 6. stng contracts. or genera provsons reatng to e stng con-
tracts, see Reguatons 81, artces 27 and 28, and Reguatons 82, artce 7.
If a processor has such a contract for devery on or after November 5, 1933,
of an artce processed whoy or n chef vaue from fed corn, the ta on such
processng (f done on or after November 5, 1933) must be returned on the
current monthy return and then pad. The rate shown n artce 3 of these
reguatons shoud be used n determnng the amount of ta to be coected
from the vendee.
bt. 7. orms. To nsure the proper return of the ta es mposed by the
ct, and to factate the coecton and refund of ta es, certan forms have
been prescrbed for use by ta payers. The prescrbed form must be used as
requred by the appcabe provsons of Reguatons 81, Reguatons 82, or
Reguatons 83, and must be carefuy fed out n e act accordance wth the
appcabe provsons of the proper reguatons and the nstructons contaned
on such form. The foowng forms wth respect to fed corn are hereby
prescrbed:
orm No.
Desgnaton.
Requred by-
P. T. orm 3
P. T. orm 13...
P. T. orm 24...
P. T. orm 28...
P. T. orm 33...
P. T. orm 43...
P. T. orm 51,
revsed.
Processng ta return
Return of compensatng ta on
mports.
Cam for refund under grcu-
tura d|ustment ct.
Cam for credt on monthy re-
turn.
oor ta nventory and return,
by a person other than one
engaged n reta trade, by a
person engaged n reta trade
f artces are hed by hm
esewhere than n hs reta
stock.
oor ta nventory, record, and
return, by a person engaged
n reta trade.
Monthy statement of mporter..
Reguatons 81, artce 11.
Reguatons 81, artce 20,
Reguatons 81, artces 30,
31(a), 32.
Reguatons 81, artce
31(b).
Reguatons 82, artce 11.
Reguatons 82, artce 16.
Reguatons 81, artce 21,
Guy T. everno,
Commssoner of Interna Revenue.
pproved November 11, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
OGS.
II-47-6525
T. D.4406
Processng and other ta es wth respect to hogs under the gr-
cutura d|ustment ct.
Processng ta , effectve November 5, 1933, on the frst domestc
processng of hogs domestc or mported ta on foor stocks
of artces processed whoy or n chef vaue from hogs hed
on November 5, 1933, for sae or other dsposton compensatng
ta on artces processed or manufactured whoy or n chef vaue
from hogs and mported on or after November 5, 1933.
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454
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 9(a), grcutura d|ustment ct, pro-
vdes, n part:
When the Secretary of grcuture determnes that renta or beneft pay-
ments are to be made wth respect to any basc agrcutura commodty, he sha
procam such determnaton, and a processng ta sha be n effect wth
respect to such commodty from the begnnng of the marketng year therefor
ne t foowng the date of such procamaton.
Par. . The procamaton of the Secretary of grcuture, dated
ugust 17, 1933, provdes:
I, enry . Waace. Secretary of grcuture of the Unted States of
merca, actng under and pursuant to an ct of Congress known as the
grcutura d|ustment ct, approved May 12, 1933, have determned and
hereby procam that beneft payments are to be made wth respect to hogs,
a basc agrcutura commodty.
Par. C. Secton 10(c), grcutura d|ustment ct, provdes:
The Secretary of grcuture s authorzed, wth the approva of the Pres-
dent, to make such reguatons wth the force and effect of aw as may be
necessary to carry out the powers vested n hm by ths tte, ncudng regu-
atons estabshng converson factors for any commodty and artce processed
therefrom to determne the amount of ta mposed or refunds to be made wth
respect thereto. ny voaton of any reguaton sha be sub|ect to such
penaty, not n e cess of 100, as may be provded theren.
Par. D. The reguatons, wth respect to hogs, made by the Secre-
tary of grcuture, wth the approva of the Presdent, dated Octo-
ber 18, 1933, provde:
I do hereby ascertan and prescrbe that for the purposes of sad ct the
frst marketng year for hogs sha begn November 5, 1933.
1 do hereby fnd that the rate of tu as of November 5, 1933, whch equas
te dfference between the current average farm prce for hogs and the far
e change vaue of hogs, whch prce and vaue, both as denned n sad ct, have
been ascertaned by ne from avaabe statstcs of the Department of gr-
cuture, w cause such reducton n the quantty of hogs, or products thereof,
domestcay consumed as to resut n the accumuaton of surpus stot s or
hogs, or products thereof, or n the depresson of the farm prce of hogs. I do
accordngy hereby determne: s of November 5, 1933, that the rate of the
processng ta on the frst domestc processng of hogs sha be ffty (50) cents
per hundred (100) weght, ve weght as of December 1, 1933, that the rate
of the processng ta on the frst domestc processng of hogs sha be one (1)
doar per hundred (100) weght, ve weght as of anuary 1, 1934, that te
rate of the processng ta on the frst domestc processng of hogs sha be one
(I) doar ffty (50) cents per hundred (100) weght, ve weght as of ebru-
ary 1. 1934, that the rate of the processng ta on the frst domestc processng of
hogs sha be two (2) doars per hundred (100) weght, ve weght, whch
rate, as of the effectve date thereof, w prevent such accumuaton of surpus
stocks and depresson of the farm prce of hogs.
I. Defntons.
The foowng terms, as used n these reguatons, sha have the meanngs
hereby assgned to them :
rst domestc processng. The frst domestc processng s the saughterng
of hogs for market
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455
IMsc|
Saughterng. Saughterng s the actua kng of hogs. ogs condemned
by an authorzed edera, State, county or muncpa nspector as beng totay
unft for human food sha not be consdered hogs saughtered for market
wthn the meanng of these reguatons.
Lve weght. Lve weght s the weght of the ve anma at the tme of
saughter. owever, the actua weght at the tme of purchase may be used as
ve weght n the meanng of these reguatons, provded the hogs are shpped
drect to the saughterhouse for mmedate saughter wthn three (3) days
after purchase s made.
Carcass. Carcass s the anma body after the bood, har, toes, and vscera
have been removed.
Wtshre. Wtshre s haf of a hog carcass wth head, feet and part of
|ow removed, consstng of the ham, sde, and shouder n one pece.
Cumberand. Cumberand s smar to a Wtshre e cept that the ham s
removed.
Cuts. Cuts are the varous parts nto whch the hog carcass s dvded n
the operaton of convertng the carcass nto products whch go nto commerca
trade.
am. ham s that part of the hog carcass whch conssts of the hnd eg
e tendng from the foot to the backbone (not ncusve). It may ncude part
or a of the hock and part or a of the pevc bone.
Reguar ham. reguar ham s a ham, ether ong-cut or short-cut, from
whch skn has not been removed. Ths cassfcaton ncudes such styes aa
mercan, ngsh, Itaan and a other varetes of unsknned hams.
Sknned ham. sknned ham s a ham, ether ong-cut or short-cut, of any
descrpton from whch a or part of the skn has been removed.
oneess ham. boneess ham s a ham of any descrpton from whch a
of the bono has been removed.
Rough shouder. rough shouder s that part of the hog carcass e tendng
from near the thrd rb to but not ncudng the |ow, wth the foot removed.
Reguar shouder. reguar shouder s a rough shouder wth neck and rb
bones removed. Ths cassfcaton ncudes such styes as ngsh, New York,
New Oreans, and a other varetes of unsknned shouders.
Sknned shouder. sknned shouder s a reguar shouder from whch
part or a of the skn has been removed.
Pcnc. pcnc s a cut comprsng about the ower two-thrds of tho
shouder. Ths cassfcaton ncudes reguar shank, short shank, shankess and
sknned or unsknned pcncs and aso shanks (sometmes caed hocks) whch
may have been prevousy separated.
oneess pcnc. boneess pcnc s a pcnc of uny descrpton from whch
a of the bone has been removed.
Shouder butt. shouder butt s the top porton of the shouder whch s
removed from the shouder n makng a pcnc.
utt. The butt s the porton of the shouder butt after remova of pate.
Ths cassfcaton ncudes such styes as oston, Mwaukee, uffao, and a
other types of butts e cepts boneess butts.
oneess butt. boneess butt s a oston or other stye butt wth bone
removed.
Pate. pate s the fat porton of the shouder butt.
Rough short rbs. Rough short rbs are the mdde porton of the hog carcass
after remova of the hams and shouders.
Short rbs. Short rbs are the rough short rbs wth the backbone and ten-
deron removed.
tra short rbs. tra short rbs are the rough short rbs wth the on
removed.
Short cears. Short cears are the rough short rbs wth the backbone, spare-
rbs, and tenderon removed.
tra short cears. tra short cears are the rough short rbs wth the on
and sparerbs removed.
Rb back. The rb back s the upper haf of the rough sde wth the tenderon
removed.
Pork on. Pork on s that porton of the sde of the carcass from whch the
bey and fat back have been removed t usuay contans the backbone, back
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45G
rbs, and tenderon fnd as but a sma amount of fat on the outsde. Ths
cassfcaton however ncudes badeess on, tenderon, and boneess on,
ether domestc trm or Canadan stye.
at back. at back s that porton of the sde whch remans after remova
of the pork on and bey. Ths cassfcaton ncudes sknned, unsknned, and
ong-cut and short-cut fat hacks.
Sparerbs. Sparerbs are the meaty rbs taken from the sde n haf or whoe
sheets.
ey (when cured and smoked, commony known as bacon).
Dry sat trm (commony known as bey D. S. trm ) : The roughy trmmed
porton of the rough sde remanng after remova of on and fat backs and
ncudng or e cudng sparerbs, whether or not put down n dry sat.
Pcke trm (commony known as bey S. P. trm ) : Same as above e cept
trmmed reasonaby square. Ths cassfcaton ncudes ngsh stye bees
and a bey cuts not otherwse descrbed, ncudng fancy trmmed bees and
brskets.
rskets. rskets are peces removed from the shouder ends of bees.
ow. |ow s the cheek and part of the neck. Ths cassfcaton ncudes
tw butts and bacon squares.
ead.- The head s the hog sku and |awbones wth attached organs and
feshy coverng, e cept the ows.
Trmmngs. The trmmngs are the boneess meat of a degrees of ean and
fat derved from any porton of the hog carcass whch has ost ts dentty aa a
ma|or cut.
oot. The foot s that part of the front or hnd eg from appro matey the
knee |ont downward.
Neck bones. Neck bones are bones of the neck wth adherng fesh after re-
mova from the rough shouder.
Cheek meat and tempe meat. Cheek meat and tempe meat consst of the
feshy coverng of the upper |awbone and fore part of sku.
Lard. Lard s edbe hog fat after renderng. Ths Incudes refned and
unrefned ard, neutra ard, and eaf ard. Unrendered fats shoud be converted
to a ard yed bass.
scera. scera are the ntestnes, wth ther contents, and vta organs
of the body cavtes, wth ther attached fats.
dbe offa. dbe offa are the varous edbe products obtaned from
hog vscera and hog heads aso the hog feet and tas.
Inedbe offa. Inedbe offa are the varous nedbe products obtaned n
the saughter of hogs, consstng argey of bood, har, brstes, parts of the
vscera and ther contents, and skn.
Tankage. Tankage s the resdue from renderng or cookng operatons n
the producton of ard or grease from hog products.
resh, ched, or green meat. resh, ched, or green meat s meat whch
has not been sub|ected to any preservatve treatment, such as cookng, dryng,
freezng, or the use of curng agents.
rozen meat. rozen meat s fresh meat hed beow the freezng temperature
of such meat.
In cure. In cure (usuay caed by the trade n process of cure ) s meat
under treatment of curng or preservatve agents. Ths ncudes a meat
packed as barreed pork.
Cured meat. Cured meut s meat whch has gone through a compete curng
or preservatve process.
Put do|en or pack. To pace meat n cure.
Smoked meat. Smoked meat s meat e posed to a smokng treatment.
Cooked meat. Cooked meat s meat e posed to a cookng treatment.
Canned meat. Canned meat s meat cooked and packed n hermetcay seaed
meta or gass contaners.
Dred meat. Dred meat s meat preserved by a dryng treatment.
Oenera. arreed pork s to be cassfed accordng to the cut from whch
derved, and reported on bass of put-down green weght.
Sausage. Sausage s chopped or ground meat composed whoy or n chef
vaue from pork and seasoned. It may be n buk, or stuffed n anma casngs,
or packed n other contaners.
resh sausage. resh sausage s sausage made of fresh or frozen meat
and not sub|ected to a treatment of smokng, cookng or dryng.
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MIso
Smoked and/or cooked sausage. Smoked and/or cooked sausage Is sausage
made from fresh, frozen or cured meat and further treated by smokng or
cookng, or both, but not treated by dryng.
Dred sausage. Dred sausage s sausage made from fresh, frozen or cured
meat and further treated by dryng. It may be further treated by smokng
or cookng, or both. It ncudes a eerveats, saamg and mettwursts of
Itaan, German, Posh or other styes.
Luncheon meats. Luncheon meats are m tures prepared for eatng wthout
further cookng and ncude such artces as pork oaf, sandwch meat, head
cheese, souse and smar combnatons. Ths cassfcaton does not ncude
canned ons or canned tongue whoe or part peces of canned ham, whch
are derved from hams canned deved ham, canned spced ham and canned
spced uncheon meats whch are derved from trmmngs. They are to be
consdered as cooked products of the cuts from whch derved and are sub|ect
to the converson factor prescrbed therefor.
II. Converson actors.
I do hereby estabsh the foowng converson factors for artces processed
from hogs, to determne the amount of ta mposed or refunds to be made
wth respect thereto.
The foowng tabe of converson factors f es the percentage of the per
pound processng ta on hogs wth respect to a pound of the foowng artces
processed whoy or n chef vaue from hogs:
rtce.
Converson
factor.
Carcass:
ead and eaf ncuded
ead ncuded, eaf removed
ead removed, eaf ncuded
ead and eaf removed
Wtshre sde
Cumberand sde
Per cent.
rtce.
Reguar ham
Sknned ham
oneess ham
Rough shouder
Reguar shouder
Sknned shouder
Pcnc
oneess pcnc
Shouder butt and butt
oneess butt
Pate
Rough short rbs, short rbs, e -
tra short rbs, short cears,
e tra short cears, rb back_.-
Pork on
at back
Spare rbs
87408 84 80
Converson factor.
resh,
frozen,
n cure,
or barreed
pork.
Per cent.
194
219
252
85
89
94
76
99
123
179
80
135
216
87
66
Cured.
Dry sat.
Per cent.
194
219
252
85
89
94
76
99
123
179
80
135
216
87
66
Pcke.
Per cent.
184
205
239
81
86
N
72
95
116
170
76
129
205
83
63
Smoked.
Per cent.
206
229
267
90
94
100
81
105
130
190
85
143
229
92
70
132
134
138
139
145
132
Cooked,
dred, or
canned.
Per cent.
242
292
340
115
120
127
103
129
166
242
108
182
292
117
89
S
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458

Converson factor.
rtce.
resh,
frozen,
n cure,
or barreed
pork.
Cured.
Smoked.
Cooked,
dred, or
Dry sat.
Pcko.
Per cent.
Per cent.
Per cent.
Per cent.
Per cent.
ey D. S. trm
124
124
118
131
167
ey a P. trm, brskets
180
180
171
191
243
ow
80
80
76
85
108
ead
60
60
58
63
81
Trmmngs
80
80
76
85
108
Neck bones
19
19
18
20
26
eet
19
19
18
20
26
Tas
44
44
42
47
69
Lvers, hearts, and kdnevs
44
44
42
47
59
Snouts, ears, ps, and mscea-
neous edbe offa
22
22
21
23
30
Cheek meat
88
88
84
94
118
rans
44
44
42
47
59
Tongues
166
166
157
176
224
Lard
110
Pork sausage
80
80
76
85
112
Dred sausage (ncudng cerve-
ats and saams) - _
60
60
57
63. 75
84
Luncheon meats (ncudng pork
oaf, head cheese, souse, and
sandwch meat)
76
76
72. 20
81. 75
106. 40
Inedbe offa
0
0
0
0
0
In the event that any ta payer or person entted to a refund estabshes that
any or a of the types of sausages, processed whoy or In chef vaue from hogs,
on whch a ta s mposed, or whch may be the sub|ect of a cam for refund,
whch are ncuded n the above st, contan more or ess pork, green weght,
than represented by the sted converson factor, then the converson factor, for
each pound of pork, green weght, whch sad sausages are estabshed to con-
tan, sha be the foowng percentage of the per pound processng ta on hogs:
(a) If fresh meat, 80 per cent.
(6) If cured, dry sat meat, 80 per cent.
(c) If cured, sweet pcke ment, 76 per cent.
(d) If smoked meat, 85 per cent.
(e) If cooked, dred or canned meat, 112 per cent.
dbe products, whoy or n chef vaue of pork, for whch no specfc con-
verson factor s prescrbed n these reguatons are not e cuded from the pay-
ment of the compensatng or foor stocks ta es. They sha be sub|ect, wth
respect to the amount of ther pork content, to the converson factor prescrbed
for the cut from whch they are derved n whoe or n chef part.
Par. . Secton 19(a), grcutura d|ustment ct, provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es sha
be pad nto the Treasury of the Unted States.
Par. . Secton 10(d), grcutura d|ustment ct, provdes:
The Secretary of the Treasury s authorzed to make such reguatons as ruay
be necessary to carry out the powers vested n hm by ths tte.
Par. G. Secton 1101, Revenue ct of 1926, made appcabe by
secton 19(b), grcutura d|ustment ct, provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
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Msc.
Par. . Secton 1119, Revenue ct of 1926, made appcabe by
secton 19(b), grcutura d|ustment ct, provdes:
Whether or not the method of coectng any ta mposed by Ttes I , , I,
or II s specfcay provded theren, any such ta may, under reguatons
prescrbed by the Commssoner wth the approva of the Secretary, be coected
by stamp, coupon, sera-numbered tcket, or such other reasonabe devce or
method as may be necessary or hepfu n securng a compete and prompt co-
ecton of the ta . admnstratve and penaty provsons of Tte III, n
so far as appcabe, sha appy to the coecton of any ta whch the Comms-
soner determnes or prescrbes sha be coected n such manner.
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws the foowng reguatons are hereby
prescrbed :
rtce 1. Genera. (a) y vrtue of the provsons of the grcutura
d|ustment ct and the procamaton and reguatons of the Secretary of gr-
cuture, a processng ta on the frst domestc processng of hogs becomes
effectve at the earest moment of November 5, 1933. t the same moment
there becomes effectve a compensatng ta on a artces processed or manu-
factured whoy or n chef vaue from hogs, and mported on or after November
5, 1933. t the same moment there becomes effectve a ta on foor stocks of
artces processed whoy or n chef vaue from hogs whch, on November 5,
1933, are hed for sae or other dsposton.
The rates of processng ta are gven n artce 2 of these reguatons. The
rates of compensatng ta and ta on foor stocks are gven n artce 3 of
these reguatons.
(6) y vrtue of the procamaton of the Secretary of grcuture, set forth
n paragraph , above, Reguatons 81, reatng to the processng ta and com-
pensatng ta Reguatons 82, reatng to the ta on foor stocks and Regua-
tons 83, reatng to e portaton, whch are genera reguatons under the gr-
cutura d|ustment ct, become appcabe to hogs. These reguatons suppe-
ment, but are not ntended to change or revoke n any way, Reguatons 81,
Reguatons 82, or Reguatons 83.
(c) Wth respect to products processed or manufactured whoy or n chef
vaue from hogs, the date, November 5, 1933, s the effectve date as defned
and used n Reguatons 81, Reguatons 82, and Reguatons 83, that s, the
date when the processng ta on hogs frst takes effect. See artce 2( ) for the
dates subsequent to November 5, 1933, when ncreased rates of processng ta
become effectve.
(d) Te varous defntons set forth n the reguatons of the Secretary of
grcuture n paragraph D, above, are hereby adopted as part of these
reguatons.
bt. 2. Processng ta . (a) The processng ta on the frst domestc process-
ng of hogs becomes effectve at the frst moment of November 5, 1933. or
detaed reguatons as to the ta on processng, sec Reguatons 81. The form
prescrbed for return of processng ta s P. T. orm 4. The frst return of
processng ta sha embrace the perod November 5, 1933. to November 0,
1933, both ncusve, and sha be fed on or before December 31, 1933. The ta
shown thereon must be pad at the tme when the return s fed, or, f the
tme for payment be postponed or e tended, then at the tme or tmes desgnated
for payment n such postponement or e tenson. See artce 7 for st of
prescrbed forms.
( ) In accordance wth the reguatons of the Secretary of grcuture, the
rates of ta appcabe to the frst domestc processng of hogs are: s of
November 5, 1933, 50 cents per hundredweght, ve weght as of December 1,
1933, 1 per hundredweght, ve weght as of anuary 1, 1934, 1.50 per
hundredweght, ve weght as of ebruary 1, 1934, 2 per hundredweght,
ve weght.
(c) or the perod from November 5, 1933, to November 30, 1933. both ncu-
sve, and for each caendar month thereafter, each processor of hogs sha keep
a record of (1) the number and weght of hogs on hand at the begnnng of
the perod, (2) the number and weght of hogs receved durng the perod,
(3) the number and weght of hogs shpped or devered durng the perod, (4)
the number and weght of hogs on hand at the end of the perod. The number
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Msc.
460
and weght must be ascertaned by actua count and weght and not by
estmaton.
rt. 3. Rates of ta . (a) The amounts of ta mposed wth respect to cer-
tan artces processed whoy or n chef vaue from hogs, as determned upon
the bass of the determnaton by the Secretary of grcuture of processng ta
rates gven n artce 2 and of hs prescrpton of converson factors n hs
reguatons 9et forth n paragraph D, above, are as foows:
Rates of tu on foor stocks of artces or products processed whoy or n chef
vaue from hogs hed for sae or other dsposton November 5, 1933, and rates
of compensatng ta on such artces or products effectve from November 5,
1933, to November 30, 1933, both ncusve.
Rates of ta shown are cents per pound.
rtce.
ead and
eaf In-
cuded.
ead In-
cuded, eaf
removed.
ead re-
moved, eaf
ncuded.
ead and
oaf re-
moved.
Wtshre
sde.
Cumber-
and sde.
Carcass
. 66
. 67
. 69
. 69
.72
.66
rtces.
resh, fro-
zen, n cure,
or barreed
pork.
Cured.
Smoked.
Cooked,
dred, or
Dry sat.
Pcke.
c mud.
. 97
1. 09
1. 26
. 42
. 44
. 47
. 38
. 49
. 61
. 89
. 97
1. 09
1. 26
. 42
. 44
. 47
. 38
. 49
. 61
. 89
. 92
1. 02
1. 19
. 4
. 43
. 44
. 36
. 47
. 58
. 85
1. 03
1. 14
1. 33
. 45
. 47
. 5
. 4
. 52
. 65
. 95
1. 21
1. 46
Reguar shouder ._
1. 7
. 57
.6
. 63
. 51
. 64
. 83
Sknned shouder
Pcnc
Shouder butt and butt
oneess butt. _ -
1. 21
Rough short rbs, short rbs,
e tra short rbs, short cears,
e tra short cears, rb back
. 67
1. 08
. 43
. 33
. 62
. 9
. 4
. 3
. 09
. 67
1. 08
. 43
. 33
. 62
. 9
. 4
. 3
. 09
. 64
1. 02
. 41
.31
. 59
. 85
. 38
. 29
. 09
. 71
1. 14
. 46
. 35
. 65
. 95
. 42
. 31
. 1
. 91
1. 46
. 58
. 44
.83
1. 21
. 54
. 4
. 13
Pork on .
ey D. S. trm
ey S. P. trm and brskets
ead..
Neck bones and feet..
Tas, vers, hearts, kdneys,
22
. 22
. 21
. 23
.29
Snouts, ears, ps, and msce-
aneous edbe offa
. 11
. 44
. 11
. 44
. 1
. 42
. 78
. 11
. 47
. 15
. 59
1. 12
Cheek meat. _
. 83
. 55
. 4
. 83
.88
Lard..
Pork sausage
. 4
. 38
. 28
. 42
. 31
.56
.42
Dred sausage (ncudng cerve-
ats and saams) . _
. 3
. 3
Luncheon meats (ncudng pork
oaf, head cheese, souse, and
sandwch meat)
. 38
. 4
. 38
. 4
.36
. 38

1
Sausage, pork content (see note 1).
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Msc|
(6) Rates of compensatng taw on artces or products processed whoy or n
chef vaue from hogs effectve from December 1, 1933, to December 31, 1933,
both ncusve.
Rates of ta shown are cents per pound.
rtce.
ead and
eaf In-
cuded.
ead In-
cuded, eaf
removed.
ead re-
moved, eaf
Incuded.
ead and
eaf re-
moved.
Wtshre
sde.
Cumber-
and sde.
Carcass _
1.32
1. 34
1.38
1.39
1. 45
1. 32
rtces.
resh, fro-
zen, n cure,
or barreed
pork.
Cured.
Dry sat. Pcke.
Reguar ham
Sknned ham
oneess ham
Rough shouder
Reguar shouder
Sknned shouder
Pcnc
oneess pcnc
Shouder butt and butt
oneess butt -
Rough short rbs, short rbs,
e tra short rbs, short cears,
e tra short cears, rb back
Pork on
at back
Sparerbs
ey D. S. trm
ey S. P. trm and brskets
Pate, |ow, and trmmngs
ead
Neck bones and feet
Tas, vers, hearts, kdneys, and
brans
Snouts, cars, ps, and msce-
aneous edbe offa
Cheek meat
Tongues
Lard
Pork sausage
Dred sausage (ncudng cerve-
ats and saams)
Luncheon meats (ncudng pork
oaf, head cheese, souse, and
sandwch meat)
Sausage, pork content (see note
D
1. 94
2. 19
2. 52
. 85
. 89
.94
. 76
. 99
1. 23
1. 79
1. 35
2. 16
. 87
. 66
1. 24
1. 8
. 8
. 6
. 19
. 44
.22
. 88
1. 66
1. 1
.8
. 6
.76
. 8
1. 94
2. 19
2. 52
. 85
. 89
. 94
. 76
. 99
1. 23
1. 79
1. 35
2. 16
. 87
. 66
1. 24
1. 8
. 8
.6
. 19
. 44
. 22
. 88
1. 66
8
6
76
.8
1. 84
2. 05
2. 39
. 81
. 86
. 89
. 72
. 95
1. 16
1. 7
1. 29
2. 05
. 83
. 63
1. 18
1. 71
. 76
. 68
. 18
.42
.21
. 84
1. 57
. 76
. 57
.72
.76
2. 06
2. 29
2. 67
. 9
. 94
1.
. 81
1. 05
1. 3
1. 9
1. 43
2. 29
. 92
. 7
1. 31
1. 91
. 85
. 63
.2
.47
.23
. 94
1. 76
. 85
63
.81
.86
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Msc.
462
(c) Rates of compensatng ta on artces or products processed wh-oy or n
chef vaue from hogs, effectve from anuary 1, 1934, to anuary SI, 1984,
both ncusve.
Rates of ta shown are cents per pound.
rtce.
ead and
eaf n-
cuded.
ead n-
cuded, eaf
removed.
ead re-
moved, eaf
Incuded.
ead and
eaf re-
moved.
Wtshre
sde.
Cumber-
and sde.
1. 98
2.01
2.07
2. 08
2. 17
1. 98
rtces.
Reguar ham
Sknned ham
oneess ham
Rough shouder
Reguar shouder
Sknned shouder
Pcnc
oneess pcnc
Shouder butt and butt
oneess butt
Rough short rbs, short rbs, e -
tra short rbs, short cears,
e tra short cears, rb back.-
Pork on
at back
Sparerbs
ey D. S. trm
ey S. P. trm and brskets. --
Pate, |ow, and trmmngs
ead
Neck bones and feet
Tas, vers, hearts, kdneys,
and brans
Snouts, ears, ps, and mscea-
neous edbe offa
Cheek meat
Tongues
Lard
Pork sausage
Dred sausage (ncudng eerve-
ats and saams)
Luncheon meats (ncudng pork
oaf, head cheese, souse, and
sandwch meat)
Sausage, pork content (see
note 1)
resh, fro-
zen, n cure,
or barre
pork.
2. 91
3. 28
3. 78
1. 27
1. 33
1. 41
1. 14
1. 48
1. 84
2. 68
2. 02
3. 24
1. 3
. 99
1. 86
2. 7
1. 2
. 9
. 28
.66
.33
1. 32
2. 49
1. 65
1. 2
.9
1. 14
1. 2
Cured.
Dry sat. Pcke
2. 91
3. 28
3. 78
1. 27
1. 33
1. 41
1. 14
1. 48
1. 84
2. 68
2. 02
3. 24
1. 3
. 99
1. 86
2. 7
1. 2
. 9
.28
.66
.33
1. 32
2. 49
1. 2
.9
1. 14
1. 2
2. 76
3. 07
3. 58
1. 21
1. 29
1. 33
1. 08
1. 42
1. 74
2. 55
1. 93
3. 07
1. 24
. 94
1. 77
2. 56
1. 14
. 87
. 27
.63
. 31
1. 26
2. 35
1. 14
. 85
1. 08
1. 14
Smoked.
3.09
3. 43
4.
1. 35
1. 41
1. 5
1. 21
1. 57
1. 95
2. 85
2. 14
3. 43
1. 38
1. 05
1. 96
2. 86
1. 27
. 94
.3
.34
1. 41
2. 64
1. 27
. 95
1. 22
1. 27
Cooked,
dred,or
3. 63
4. 38
5. 1
1. 72
1. 8
1. 9
1. 54
1.93
2. 49
3. 63
2. 73
4. 38
1. 75
1. 33
2. 5
3. 64
1. 62
1. 21
. 39
. 88
. 45
1. 77
3. 36
1. 68
1. 26
1. 59
1. 68
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463 Msc.
(d) Rates of compensatng ta on artces or products processed whoy or n chef
vaue from hogs, effectve on and after ebruary 1,
Rates of ta shown are cents per pound.)
rtce.
ead and
eaf n-
cuded.
ead n-
cuded, eaf
removed.
ead re-
moved, eaf
ncuded.
ead and
eaf re-
moved.
Wtshre
sde.
Cumber-
and sde.
2. 64
2.68
2. 76
2. 78
2. 9
2. 64
rtce.
resh, fro-
zen, n cure,
or barreed
pork.
Cm
Dry sat.
od.
Pcke.
Smoked.
Cooked,
dred,or
canned.
3. 88
3. 88
3. 68
4. 12
4. 84
Sknned ham
4. 38
4. 38
4. 1
4. 78
1. 62
1. 72
1. 78
1. 44
4. 68
5. 84
Sknned shouder
5. 04
1. 7
1. 78
1. 88
1. 52
5. 04
1. 7
1. 78
1. 88
1. 52
5. 34
1. 8
1. 88
2.
6. 8
2.
2. 4
2. 54
2. 06
1. 62
oneess pcnc
1. 98
1. 98
1. 9
2. 1
2. 6
3.8
2. 58
Shouder butt and butt
2. 46
2. 46
2. 32
3. 32
oneess butt
3. 58
3. 58
3. 4
4. 84
Rough short rbs, short rbs,
e tra short rbs, short cears,
e tra short cears, rb back
2. 7
2. 7
2. 58
2. 86
4. 58
1. 84
3. 64
4. 32
1. 74
4. 32
1. 74
4. 1
1. 66
5. 84
2. 34
1. 32
1. 32
1. 26
1. 4
1. 78
ey D. S. trm
2. 48
2. 48
2. 36
2. 62
3. 34
ey S. P. trm and brskets
3. 6
1. 6
1. 2
3. 6
1. 6
1. 2
3. 42
1. 52
1. 16
3. 82
1. 7
1. 26
4. 86
Pate, |ow, and trmmngs
2. 16
1. 62
ead
Neck bones and feet
.38
. 38
. 36
. 4
. 52
Tas, vers, hearts, kdneys, and
. 88
.88
. 84
. 94
1. 18
Snouts, ears, ps, and msce-
aneous edbe offa
. 44
. 44
1. 76
3. 32
. 42
1. 68
3. 14
. 46
1. 88
. 6
Cheek meat
1. 76
3. 32
3. 52
2. 36
4. 48
Dred sausage (ncudng cerve-
ats and saams)
2. 2
1. 6
1. 6
1. 2
1. 52
1. 14
1. 7
1. 27
2. 24
Luncheon meats (ncudng pork
oaf, head cheese, souse, and
sandwch meat).
1. 2
1. 68
Sausage, pork content (see note
1)
1. 52
1. 6
1. 52
1. 6
1. 44
1. 52
1. 63
1. 7
2. 12
2.24
Note. (1) In the event that thp ta payer can estabsh that any or a of the types of
sausages processed whoy or n chef vaue from hogs sted above contan more or ess
pork, green weght, than that represented by the rate sted, then for each pound of pork,
green weght, whch sad sausages are estabshed to contan, the rate of ta appcabe n
such case sha be as shown n the schedue above. The whoe (actua) weght as we as
the tota pork content sna be reported.
(2) dbe products whoy or n chef vaue of pork, whch are not specfcay sted,
are sub|ect, wth respect to the amount of ther pork content, to ta at the rate sted for
the cut from whch they are derved n whoe or In chef part. ach product sha be de-
scrbed, and the cut from whch t was derved In whoe or n chef part sha be shown.
Wth respect to each descrbed product there sha be entered on the return (a) the whoe
(actua) weght, (6) the pork content, and (c) the rate of ta , correspondng wth that
shown for the cut In the schedue above.
(3) stabshment of the pork content of products, as provded n (1) and (2), sha
be substantated by authentc records or other satsfactory proof.
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464
rt. 4. oor stocks. (a) On November 5, 1933, the ta on foor stocks
becomes effectve on certan artces, processed whoy or n chef vaue from
ho||s, whch on that date are hed for sae or other dsposton. The respectve
rates of ta appcabe to such artces are gven n artce 3(a) of these regua-
tons. or detaed reguatons as to ta on foor stocks, see Reguatons 82.
The form prescrbed for return of the foor ta on a artces other than
separate reta stocks a P. T. orm 34, oor ta Inventory and return
(stocks other than separate reta stocks). Ths return must be fed on or
before December 5, 1933. The ta shown thereon must be pad at the tme
when the return s fed, or, f the tme for payment be postponed or e tended,
then at the tme or tmes desgnated for payment n such postponement or
e tenson.
The form prescrbed for return of ta on foor stocks (separate reta stocks)
s P. T. orm 44, oor ta nventory, record and return. Ths return must be
fed on or before anuary 4, 1934. The ta shown thereon must be pad at the
tme when the return s fed, or, f the tme for payment be postponed or
e tended, then at the tme or tmes desgnated for payment n such postponement
or e tenson.
See artce 7 for st of prescrbed forms.
(6) very person who, on November 5, 1933, owns a warehouse recept for
products processed whoy or n chef vaue from hogs, sha ndorse pany
on such recept a statement showng hs name and address and that he owned
such recept on the frst moment of November 5, 1933, and s responsbe for
payment of the foor ta on the products represented by the recept.
If, on sad date, any such recept s In the possesson of any person other
than the owner, such person sha ndorse such statement for the owner on
the recept, together wth such person s name and offca tte, f any.
If on or after November 5, 1933, any person buys for hmsef or as agent
for hs prncpa any such products, and n such sae devery of the products
s made ether n whoe or n part by a warehouse recept ssued pror to sad
date, such person sha not accept as vad devery any such recept uness
the statement requred above Is ndorsed on the recept, or uness there s
attached thereto the owner s recept on orm 1, showng payment of the ta
on foor stocks on the products represented by such warehouse recept.
When any such recept (ssued before November 5, 1933) s presented to
the warehouse, ether for the purpose of wthdrawng a or part of the
products represented thereby, or for the purpose of surrenderng the recept
and recevng a new recept or new recepts coverng the same products or
any part thereof, the warehouseman, before deverng such products or any
part thereof, or such new recept or new recepts, sha requre that the recept
so presented or surrendered has attached thereto a recept from the coector
of Interna revenue for the dstrct, on orm 1, showng that the foor ta
has been pad on the products represented by the recept so presented or
surrendered, or sha forthwth notfy the coector that a recept has been
presented or surrendered wthout there beng attached thereto orm 1. The
notce to the coector sha gve the date and sera number of the recept,
the knd and quantty of products covered thereby, the name of the persou to
whom the recept was ssued, and the name or names of a persons who have
Indorsed such recept, and the name and address of the person who presents
or surrenders such recept.
ach person who, on November 5, 1933, owns such products n a warehouse,
for whch a warehouse recept has been ssued before that date, sha, before
such recept s presented or surrendered to the warehouse (as set forth
above), and n any event not ater than December 5, 1933, re wth the co-
ector of nterna revenue for the dstrct, an nventory and return on P. T.
orm 34 n accordance wth the provsons of artce 11 of Reguatons 82.
The payment of the ta shown on any such return may be postponed to Decem-
ber 5, 1933, e cept that the ta on any product n a warehouse, for whch a
warehouse recept has been ssued pror to November 5, 1933, must be pa
on or before the presentaton or surrender of such warehouse recept to the
warehouse, but not ater than December 5, 1933. ( or further postponement
n the case of certan e stng contracts, see artce G(b).)
(c) ach person who, on the effectve date, hods for sae or other dspos-
ton any hog products, sha make a true and correct nventory thereof, as of
the earest moment of that date, and sha preserve a copy of such nventory,
together wth a record of a facts necessary to the determnaton of the cor-
rectness of such Inventory. Such copy of Inventory record sha be preserved
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465
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and kept open for Inspecton and sub|ect to a the requrements reatve to
records set forth In Reguatons 82, artce 21.
rt. 5. Compensatng ta on mported artces. On and after November 5,
1933, a compensatng ta s In effect on a artces processed or manufactured
whoy or n chef vaue from hogs, and mported nto the Unted States or any
possesson thereof to whch the ct appes, from any foregn country or
from any possesson of the Unted States to whch the ct does not appy.
The respectve rates of ta appcabe to such products are gven n artce 3
of these reguatons. or detaed reguatons as to ths ta , see Reguatons
81. The form prescrbed for return of the compensatng ta s P. T. orm 14.
See artce 7 for st of prescrbed forms.
rt. 6. stng contracts. (a) or genera provsons reatng to e stng
contracts, see Reguatons 81, artces 27 and 28, and Reguatons 82, artce 7.
If a processor has such a contract for devery on or after November 5, 1933,
of an artce processed whoy or n chef vaue from hogs, the ta on such
processng (f done on or after November 5, 1933) must be returned on the
current monthy return and then pad. The rate shown n artce 3 of these
reguatons shoud be used n determnng the amount of ta to be coected
from the vendee.
The vendee under such a contract s entted, where optona rates may be
appcabe, to e ercse such opton.
(ft) If a processor, |obber, or whoesaer has such a contract, made before
November 5, 1933, cang for devery on or after that date of products proc-
essed whoy or n chef vaue from hogs, whch products are on November
5, 1933, n a pubc warehouse and a recept therefor has been ssued and the
recept for such products s not presented to the warehouse before December
5, 1933, payment of the foor ta on such products may be postponed unt such
recept s so presented, but n any event not ater than ebruary 3, 1934. The
coector s recept on orm 1 must be attached to such recept when presented.
rt. 7. orms. To nsure the proper return of the ta es mposed by the ct,
and to factate the coecton and refund of ta es, certan forms have been
prescrbed for use by ta payers. The prescrbed form must be used as requred
by the appcabe provsons of Reguatons 81, Reguatons 82. or Reguatons
83, and must be carefuy fed out n e act accordance wth the appcabe
provsons of the proper reguatons and the nstructons contaned on such
form. The foowng forms wth respect to hogs are hereby prescrbed:
orm No.
Desgnaton.
Requred by
P. T. orm 4
Processng ta return _ _.
Reguatons 81, artce 11.
Reguatons 81, artce 20.
P. T. orm 14
Return of compensatng ta on
mports.
P. T. orm 24
Cam for refund under grcu-
tura d|ustment ct.
Reguatons 81, artces
P. T. orm 28
Cam for credt on monthy re-
turn.
30, 31(a), 32.
Reguatons 81, artce
31(b).
P. T. orm 34
oor ta nventory and return,
by a person other than one
engaged n reta trade, by a
person engaged n reta trade
f artces are hed by hm ese-
where than n hs reta stock.
Reguatons 82, artce 11.
P. T. orm 44
oor ta nventory, record and
return, by a person engaged n
reta trade.
Reguatons 82, artce 16.
Reguatons 81, artce 21.
P. T. orm 61,
revsed.
Monthy statement of mporter. .
Gt|y T. eveeno,
Commssoner of Interna Revenue.
pproved November 11, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
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466
TO CCO.
II-41-6451
T. D. 4395
Processng and other ta es wth respect to tobacco under the
grcutura d|ustment ct.
Processng ta , effectve October 1, 1933, on the frst domestc
processng of cgar-eaf tobacco, domestc or mported, and on the
frst domestc processng of Maryand, urey, fue-cured, fre-
cured, and dark ar-cured tobacco, domestc or mported ta
on foor stocks of artces processed whoy or n chef vaue from
any such tobacco hed on October 1, 1933, for sae or other dspo-
ston compensatng ta on artces processed or manufactured
whoy or n chef vaue from any such tobacco and mported on
or after October 1, 1933.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue a d Others Concerned:
Paragraph . Secton 9(a), grcutura d|ustment ct, pro-
vdes, n part:
When the Secretary of grcuture determnes that renta or beneft pay-
ments are to be made wth respect to any basc agrcutura commodty, he
sha procam such determnaton, and a processng ta sha be n effect
wth respect to such commodty from the begnnng of the marketng year
therefor ne t foowng the date of such procamaton.
Par. . procamaton of the Secretary of grcuture, dated
ugust 10, 1933, provdes:
I, Re ford G. Tug we, ctng Secretary of grcuture of the Unted States
of merca, actng under and pursuant to an ct of Congress known as the
grcutura d|ustment ct, approved May 12, 1933, as amended, have deter-
mned and hereby procam that renta and/or beneft payments are to be made
wth respect to cgar-eaf tobacco, a market cassfcaton of tobacco hereby
determned to be a basc agrcutura commodty wthn the meanng of the
above ct.
procamaton of the Secretary of grcuture, dated September
5, 1933, provdes:
I, enry . Waace, Secretary of grcuture of the Unted States of
merca, actng under and pursuant to an ct of Congress known as the gr-
cutura d|ustment ct, approved May 12, 1933, as amended, have determned
and hereby procam that renta and/or beneft payments are to be made wth
respect to Maryand tobacco, a market cassfcaton of tobacco hereby deter-
mned to be a basc agrcutura commodty wthn the meanng of the above
ct.
procamaton of the Secretary of grcuture, dated September
5, 1933, provdes:
I, enry . Waace, Secretary of grcuture of the Unted States of
merca, actng under and pursuant to an ct of Congress known as the gr-
cutura d|ustment ct, approved May 12, 1933, as amended, have determned
and hereby procam that renta and/or beneft payments are to be made wth
respect to urey tobacco, a market cassfcaton of tobacco hereby determned
to be a basc agrcutura commodty wthn the meanng of the above ct.
procamaton of the Secretary of grcuture, dated September
5, 1933, provdes:
I, enry . Waace, Secretary of grcuture of the Unted States of
merca, actng under and pursuant to an ct of Congress known as the
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467
Msc.
grcutura d|ustment ct, approved May 12, 1933, as amended, have deter-
mned and hereby procam that renta and/or beneft payments are to be
made wth respect to fue-cured tobacco, a market cassfcaton of tobacco
hereby determned to be a basc agrcutura commodty wthn the meanng
of the above ct.
procamaton of the Secretary of grcuture, dated September
5, 1933, provdes:
I, ekky . Waace, Secretary of grcuture of the Unted States of
merca, actng under and pursuant to an ct of Congress known as the
grcutura d|ustment ct, approved May 12, 1933, as amended, have deter-
mned and hereby procam that renta and/or beneft payments t re to be
made wth respect to fre-cured tobacco, a market cassfcaton of tobacco
hereby determned to be a basc agrcutura commodty wthn the moanng
of the above ct.
procamaton of the Secretary of grcuture, dated September
5, 1933, provdes:
I, enby . Waace, Secretary of grcuture of the Unted States of
merc, actng under and pursuant to an ct of Congress known as the
grcutura d|ustment ct, approved May 12, 1933, as amended, have deter-
mned and hereby procam that renta and/or beneft payments are to be
made wth respect to dark ar-cured tobacco, a market cassfcaton of tobacco
hereby determned to be a basc agrcutura commodty wthn the meanng of
the above ct.
Par. C. Secton 10(c), grcutura d|ustment ct, provdes:
The Secretary of grcuture s authorzed, wth the approva of the Pres-
dent, to make such reguatons wth the force and effect of aw as may be
necessary to carry out the powers vested n hm by ths tte, ncudng regua-
tons estabshng converson factors for any commodty and artce processed
therefrom to determne the amount of ta mposed or refunds to be made wth
respect thereto. ny voaton of any reguatons sha be sub|ect to such
penaty, not n e cess of 100, as may be provded theren.
Par. D. The reguatons, wth respect to cgar-eaf tobacco, made
by the Secretary of grcuture, wth the approva of the Presdent,
dated September 14, 1933, provde:
I do hereby ascertan and prescrbe that for the purposes of sad ct the
frst marketng year for cgar-eaf tobacco sha begn October 1, 1933.
I do hereby fnd that the rate of ta as of October 1, 1933, whch equas the
dfference between the current average farm prce for cgar-eaf tobacco, farm
saes weght, and the far e change vaue of cgar-eaf tobacco, farm saes
weght, whch prce and vaue, both as defned n sad ct, have been ascer-
taned by me from avaabe statstcs of the Department of grcuture, w
cause such reducton n the quantty of cgar-eaf tobacco, or products thereof,
domestcay consumed as to resut n the accumuaton of surpus stocks of
cgar-eaf tobacco, or products thereof, or n the depresson of the farm prce
of cgar-eaf tobacco. I do accordngy hereby determne, as of October 1,
1933, that the rate of the processng ta on the frst domestc processng of cgar-
eaf tobacco sha be three (3) cents per pound, unsweated, farm saes weght,
whch rate w prevent such accumuaton of surpus stocks and depresson of
the farm prce of cgar-eaf tobacco. Whenever sweated cgar-eaf tobacco from
whch stem has not been removed s processed, the measure of ta to be pad
by the processor n respect of each pound of such tobacco processed sha be
three and seventy-fve hundredths (3.75) cents whenever sweated cgar-eaf
tobacco from whch stem has been removed Is processed, the measure of ta
to be pad by the processor n respect of each pound of such tobacco processed
sha be fve (5) cents these amounts beng n accordance wth the respectve
weght reatonshps determned to e st between cgar-eaf tobacco n such
States and the farm saes weght of unsweated cgar-eaf tobacco.
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468
I. Defntons.
The foowng terms, as used n these reguatons, sha have the meanngs
hereby assgned to them:
rst domestc processng. The frst domestc processng of cgar-eaf
tobacco s the fabrcatng of the product to be used by the consumer. The acts
of stemmng, sweatng or fermentng and condtonng sha not be deemed
processng.
(o) In the case of cgars, stoges, cheroots or sma cgars, t s the fabr-
catng of cgar-eaf tobacco Into the form to whch no tobacco s added and
from whch no tobacco s subtracted a scrap, cuttngs and cppngs not eft
n such products sha be deemed not to have been processed.
(6) In the case of scrap chewng and/or smokng tobacco, t s the preparng
of any form of cgar-eaf tobacco for consumpton as scrap chewng and/ur
smokng tobacco.
Leaf tobacco. Leaf tobacco s tobacco In the forms n whch t appears
between the tme t s strpped from the stak, or prmed and cured, and the
tme t enters nto a manufacturng process.
Cgar-eaf tobacco. C gar-eaf tobacco s eaf tobacco, cassfed n the
Unted States Department of grcuture, ureau of grcuture conomcs,
Servce and Reguatory nnouncements No. 118 n casses 4, 5, 6, and 8 and
other types and/or grades of eaf tobacco, when used n the fabrcaton of
cgars, stoges, cheroots, sma cgars, or scrap chewng and/or smokng tobacco.
Cgar-eaf tobacco from whch stem has not been removed:
Unstenned: Unstemmed cgar-eaf tobacco s cgar-eaf tobacco from
whch stem or md-rb has not been removed, ncudng both whoe eaf and
eaf scrap.
Leaf scrap: Leaf scrap s cgar-eaf tobacco consstng of oose and
tanged whoe and/or broken eaves.
Cgar-eaf tobacco from whch stem has been removed:
Stemmed or strps: Stemmed or strps are cgnr-eaf tobacco from whch
stem or md-rb has been removed.
Strp scrap: Strp scrap s cgar-eaf tobacco consstng of oose and
tanged portons of stemmed or strps.
Shredded fer: Shredded fer s eaf tobacco commony known as such
and usuay consstng of strp scrap of two or more types of tobacco.
Cuttngs: Cuttngs are portons of cgar wrapper and/or cgar bnder
strps.
Cppngs: Cppngs are sma portons of strps, frequenty ncudng
sma portons of wrapper, bnder, and fer strps.
y-products:
Sttngs: Sftngs are partces of eaf tobacco savaged from resdue of
tobacco after processng.
Dust: Dust s the resdue of tobacco resutng from processng, after
sftngs have been savaged.
Sweatng: Sweatng s the handng of cgar-eaf tobacco as t passes
through one or more fermentatons.
Sweated: Sweated s the condton of cgar-eaf tobacco whch has passed
through one or more seasona fermentatons or whch has reached a corre-
spondng degree of fermentaton.
ermentng: See Sweatng.
Condtonng: Condtonng s the preparng of cgar-eaf tcbacco for
storage.
Unsweated: Unswoated s the condton of unfermented cgar-eaf tobacco.
Order: Order s the state of tobacco, wth respect to ts mosture content.
Cgars Stoges -r Cheroots : Cgars, stcges and cheroots are ros of
tobacco wrapped wth tobacco.
Sma cgars: Sma cgars are cgars weghng not more than three (3)
pounds per thousand (1.000).
arm saes weght: The farm saes weght of cgar-eaf tobacco s the
weght of such tobacco n ts unstemmed form, unsweated, and n the order
n whch t s usuay devered by the grower.
II. Converson actors.
I do hereby estabsh the foowng converson factors for artces processed
from cgar-eaf tobacco, to determne the amount of ta mposed or refunds to
be made wth respect thereto.
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469
Msc.
The foowng tabe of converson factors f es the percentage of the per
pound processng ta on cgar-eaf tobacco wth respect to a pound of the fo-
owng artces processed whoy or n chef vaue from cgar-eaf tobacco:
Cgars, stoges, cheroots, sma cgars
Scrap chewng and/or smokng tobacco.
Sftngs and/or dust
167
110
0
In the computaton cf the weght of cgars, stoges, cheroots, or sma cgars
for the purposes of the appcaton of the above tabe of converson factors, n
order to compute the ta ad|ustment on foor stocks, 1,000 cgars, stoges, or
cheroots sha be deemed to wegh seventeen and one-haf (17 ) pounds, f the
ta payer so eects, and 1,000 sma cgars sha be deemed to wegh two and
seventy-fve hundredths (2.75) pounds, If the ta payer so eects.
Par. . The reguatons, wth respect to Maryand, urey, fue-
cured, fre-cured, and dark ar-cured tobacco, made by the Secretary
of grcuture, wth the approva of the Presdent, dated September
14, 1933, provde:
I. Marketng Year.
I do hereby ascertan and prescrbe that for the purposes of sad ct the
frst marketng year for Maryand, urey, fue-cured, fre-cured, and dark
ar-cured tobacco sha begn October 1, 1 33.
II. Rates.
I do hereby determne as of October 1, 1933:
. That the processng ta on the frst domestc processng of Maryand
tobacco sha be at the rate of one and seven-tenths (1.7) cents per pound,
farm saes weght, whch rate equas the dfference between the current average
farm prce for Maryand tobacco and the far e change vaue of Maryand
tobacco, whch prce and vaue, both as defned n sad ct, have been ascer-
taned by me from avaabe statstcs of the Department of grcuture.
Whenever Maryand tobacco n processng order from whch stem has not
been removed s processed, the measure of ta sha be one and eght-tenths
(1.8) cents per pound of such tobacco whenever Maryand tobacco n proc-
essng order from whch stem has been removed s processed the measure of
ta sha be two and four-tenths (2.4) cents per pound of such tobacco
these amounts beng n accordance wth the respectve weght reatonshps
determned to e st between Maryand tobacco n such states and the farm
saes weght of Maryand tobacco.
. That the processng ta on the frst domestc processng of urey to-
bacco sha be at the rate of two (2) cents per pound, farm saes weght,
whch rate equas the dfference between the current average farm prce for
urey tobacco and the far e change vaue of urey tobacco, whch prce
and vaue, both as defned n sad ct, have been ascertaned by me from
avaabe statstcs of the Department of grcuture. Whenever urey to-
bacco n processng order from whch stem has not been removed s processed,
the measure of ta sha be two and three-tenths (2.3) cents per pound of
such tobacco whenever urey tobacco n processng order from whch stem
has been removed s processed, the measure of ta sha be three and one-
tenth (3.1) cents per pound of such tobacco these amounts beng n accord-
ance wth the respectve weght reatonshps determned to e st between
urey tobacco n such states and the farm saes weght of urey tobacco.
C. That the processng ta on the frst domestc processng of fue-cured to-
bacco sha be at the rate of four and two-tenths (4.2) cents per pound, farm
saes weght, whch rate equas the dfference between the current average
farm prce for fue-cured tobacco and the far e change vaue of fue-cured
tobacco, whch prce and vaue, both as defned n sad ct, have been ascer-
taned by me from avaabe statstcs of the Department of grcuture.
Whenever fue-cured tobacco n processng order from whch stem has not
been removed s processed, the measure of ta sha be four and seven-tenths
(4.7) cents per pound of such tobacco whenever fue-cured tobacco n process-
ng order from whch stem has been removed s processed, the measure of
ta sha be s and one-tenth (6.1) cents per pound of such tobacco these
amounts beng n accordance wth the respectve weght reatonshps deter-
mned to e st between fue-cured tobacco In such states and the farm saes
weght of fue-cured tobacco.
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470
D. That the processng ta on the frst domestc processng of fre-cured
tobacco sha be at the rate of two and nne-tenths (2.9) cents per pound,
farm saes weght, whch rate equas the dfference between the current aver-
age farm prce for fre-cured tobacco and the far e change vaue of fre-cured
tobacco, whch prce and vaue, both as defned In sad ct, have been ascer-
taned by me from avaabe statstcs of the Department of grcuture.
Whenever fre-cured tobacco n processng order from whch stem has not
been removed s processed, the measure of ta sha be three and two-tenths
(3.2) cents per pound of such tobacco whenever fre-cured tobacco n proces-
sng order from whch stem has been removed s processed, the measure of ta
sha be four and one-tenth (4.1) cents per pound of such tobacco these
amounts beng n accordance wth the respectve weght reatonshps deter-
mned to e st between fre-cured tobacco n such states and the farm saes
weght of fre-cured tobacco.
. That the processng ta on the frst domestc processng of dark ar-
cured tobacco sha be at the rate of three and three-tenths (3.3) cents per
pound, farm saes weght, whch rate equas the dfference between the cur-
rent average farm prce for dark ar-cured tobacco and the far e change
vaue of dark ar-cured tobacco, whch prce and vaue, both as defned n
srd ct, have been ascertaned by me from avaabe statstcs of the De-
partment of grcuture. Whenever dark ar-cured tobacco n processng order
from vhch stem has not been removed s processed, the measure of ta
sha be three and eght-tenths (3.8) cents per pound of such tobacco when-
ever dark ar-cured tobacco n processng order from whch stem has been re-
moved s processed, the measure of ta sha be fve and one-tenth (5.1) cents
per pound of such tobacco these nmounts beng n accordance wth the re-
spectve weght reatonshps determned to e st between dark ar-cured
tobacco n such states and the farm saes weght of dark ar-cured tobacco.
III. Defntons.
The foowng terms, as used In these reguatons, sha have the meanngs
hereby ass gned to them :
Maryand: Maryand tobacco s the knd of ar-cured tobacco cassfed
as type 32 In the Unted States Department of grcuture, ureau of gr-
cutura conomcs, Servce and Reguatory nnouncements No. 118. It sha
be deemed to ncude aso a the other domestc ght ar-cured tobacco e cept-
ng urey when processed n the manufacture of cgarettes, smokng tobacco,
chewng tobacco and/or snuff.
urey: urey tobacco s the knd of ar-cured tobacco cassfed as type
31. n the Unted States Department of grcuture, ureau of grcutura
conomcs, Servce and Reguatory nnouncements No. 118.
ue-cured: ue-cured tobacco s the knd of tobacco cassfed as types
11. 12. 13, 14, and 90 n the Unted States Department of grcuture, ureau
of grcutura conomcs, Servce nnd Reguatory nnouncements No. 118.
It sha be deemed to ncude aso a other fue-cured tobacco when processed
n the manufacture of cgarettes, smokng tobacco, chewng tobacco, and/or
snuff.
re-cured: re-cured tobacco s the knd of tobacco cassfed as types
21. 22, 23. and 24, n the Unted States Department of grcuture, ureau of
grcutura conomcs, Servce and Reguatory nnouncements No. 118. It
sha be deemed to ncude aso a other domestc fre-cured tobacco when
processed In the manufacture of cgarettes, smokng tobacco, chewng tobacco,
and/or snuff.
Dark ar-cured: Dark ar-cured tobacco s the knd of tobacco cassfed
ns types 35 , 36, and 37, n the Unted States Department of grcuture, ureau
of grcutura conomcs, Servce and Reguatory nnouncements No. 118.
It sha be deemed to ncude aso a other domestc dark ar-cured tobacco
when processed n the manufacture of cgarettes, smokng tobacco, chewng
tobacco, and/or snuff.
Cgar-eaf tobacco: When any of the above knds of tobacco s used n the
manufacture of cgars, stoges, cheroots, sma cgars, or scrap chewng and/or
smokng tobacco, that part so used sha be deemed not to be ncuded n the
above commodtes. Such tobacco when so used s defned as cgar-eaf tobacco
by Tobacco Reguatons, Seres 1.
rst domestc processng: The frst domestc prooessng of Maryand,
urey, ue-cured, fre-cured, or dark ar-cured tobacco Is the fabrcatng of
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471
Msc.
the product to be used by the consumer. In the case of cgarettes, smokng
tobacco, chewng tobacco, and snuff, t s the fabrcatng of any one or more
of the above knds of tobacco nto the artces to be consumed.
Processng order: Processng order s the state of Maryand, urey, fue-
cured, fre-cured and/or dark ar-cured tobacco at the tme of processng thereof.
Cgarettes: Cgarettes are ros of tobacco wrapped n paper.
Snuff: Snuff Is tobacco that has been cut, ground, or puverzed Into
sma partces for use n snffng, dppng, or chewng.
Smokng tobacco: Smokng tobacco s tobacco of dfferent knds prepared
for use prncpay for smokng purposes.
(a) Granuated smokng tobacco: Granuated smokng tobacco s tobacco
that s cut, threshed, or broken nto sma partces sutabe partcuary tor
ppe smokng or hand roed cgarettes.
(6) Other smokng tobacco: Other smokng tobacco s tobacco not gran-
uated whch Is prepared for use prncpay for ppe smokng.
Chewng tobacco: Chewng tobacco s tobacco of dfferent knds prepared
for use prncpay for chewng purposes.
(a) Pug: Pug tobacco s tobacco whch s manufactured and pressed
Into fat cakes.
(6) Other chewng tobacco: Other chewng tobacco Is tobacco prepared
for use prncpay for chewng.
Leaf tobacco: Leaf tobacco s tobacco n the forms n whch t appears
between the tme It Is strpped from the stak, or prmed and cured, and the
tme t enters nto a manufacturng process.
Leaf tobacco from whch stem has not been removed:
T nstemmed: Unstemmed eaf tobacco s eaf tobacco from whch stem
or md-rb has not been removed. Incudng both whoe eaf and eaf-scrap.
Leaf-scrap: Leaf-scrap s eaf tobacco consstng of oose and tanged
whoe and/or broken eaves.
Leaf tobacco from whch stem has been removed:
Stemmed or strps: Stemmed or strps are eaf tobacco from whch stem
or md-rb has been removed.
Strp-scrap: Strp-scrap s eaf tobacco consstng of oose and tanged
portons of stemmed or strps.
y-products:
Sttngs: Sftngs are partces of eaf tobacco savaged from the resdue
of tobacco after processng.
Dust: Dust s the resdue of tobacco resutng from processng, after
sftngs have been savaged.
Sweatng: Sweatng s the handng of eaf tobacco as It passes through
one or more fermentatons.
Order: Order Is the state of tobacco wth respect to Its mosture content.
arm saes weght: The farm saes weght of eaf tobacco s the weght
of eaf tobacco In Its unstemmed form and In the order t s usuay devered by
the grower.
I . Converson actors.
I do hereby estabsh the foowng converson factors for artces processed
from Maryand, urey, fue-cured, fre-cured, and/or dark ar-cured tobacco
to determne the amount of ta Imposed or refunds to be made wth respect
thereto:
rtce.
Unt.
Converson factor.
Cgarettes.
Smokng tobacco:
(1) Gran uated smok ng tobac-
co.
(2) Smokng tobacco other than
granuated.
1,000
Pound
Pound
183 per centum of the per pound
processng ta on fue-cured
tobacco.
88 per centum of the per pound
processng ta on fue-cured
tobacco.
59 per centum of the per pound
processng ta on urey to-
bacco.
s
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472
rtce.
Chewng tobacco:
(1) Pug chewng tobacco.
(2) Chewng tobacco other than
pug.
Snuff
Sttngs and dust
Unt.
Pound
Pound
Pound
Pound
Converson factor.
45 per centum of the
processng ta on urey to-
bacco.
81 per centum of the
processng ta on
cured tobacco.
102 per centum of the
processng ta on
tobacco.
per pound
ur
per pound
dark ar-
per pound
fre-cured
In the event that any ta payer or any person entted to a refund estab-
shes that any artce, processed whoy or n chef vaue from Maryand,
urey, fue-cured, fre-cured, or dark ar-cured tobacco, on whch a ta s
mposed or whch may be the sub|ect of a cam for refund, whch Is ncuded
n the above st s processed whoy or n chef vaue from a knd of tobacco
other than that sted above for such artce, or contans more or ess of the
knd of tobacco so sted than represented by the sted converson factor,
the converson factor for such artce sha be:
(a) If processed whoy or n chef vaue from Maryand tobacco, 144 per
centum of the per pound processng ta on Maryand tobacco for each pound
of Maryand tobacco sad artce s estabshed to contan.
(6) If processed whoy or In chef vaue from urey tobacco, 155 per centum
of the per pound processng ta on urey tobacco for each pound of urey
tobacco sad artce s estabshed to contan.
(c) If processed whoy or n chef vaue from fue-cured tobacco, 145 per
centum of the per pound processng ta on fue-cured tobacco for each pound
of fue-cured tobacco whch sad artce Is estabshed to contan.
(d) If processed whoy or In chef vaue from fre-cured tobacco, 143 per
centum of the per pound processng ta on fre-cured tobacco, for each pound of
fre-cured tobacco whch sad artce s estabshed to contan.
(e) If processed whoy or n chef vaue from dark ar-cured tobacco, 156
per centum of the per pound processng ta on dark ar-cured tobacco whch
sad artce s estabshed to contan.
Par. . Secton 19(a), grcutura d|ustment ct, provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad nto the Treasury of the Unted States.
Par. G. Secton 10(d), grcutura d|ustment ct, provdes:
The Secretary of the Treasury s authorzed to make such reguatons as
may be necessary to carry out the powers vested n hm by ths tte.
Par. . Secton 1101, Revenue ct of 1926, made appcabe by
secton 19(b), grcutura d|ustment ct, provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws the foowng reguatons are hereby
prescrbed :
rtce: 1. Genera. (a) y vrtue of the provsons of the grcutura
d|ustment ct and the procamatons and reguatons of the Secretary of
grcuture, a processng ta on the frst domestc processng of cgar-eaf
tobacco, Maryand tobacco, urey tobacco, fue-cured tobacco, fre-cured to-
bacco, and dark ar-cured tobacco becomes effectve at the earest moment ot
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October 1, 1933. t the same moment there becomes effectve a compensatng
ta on a artces processed or manufactured whoy or n chef vaue from any
type or knd of tobacco enumerated n ths paragraph, and mported on or
after October 1, 1033. t the same moment there becomes effectve a ta on
foor stocks of artces processed whoy or n chef vaue from any such type
or knd of tobacco whch, on October 1, 1933, are hed for sae or other
dsposton.
The rates of processng ta are gven n artce 2 of these reguatons. The
rates of compensatng ta and ta on foor stocks are gven n artce 3 of
these reguatons.
(6) y vrtue of the procamatons of the Secretary of grcuture, set forth
n paragraph , above, Reguatons 81, reatng to the processng ta and
compensatng ta Reguatons 82, reatng to the ta on foor stocks and
Reguatons 83, reatng to e portaton, whch are genera reguatons under
the grcutura d|ustment ct, become appcabe to the types and knds of
tobacco referred to n such procamatons. These reguatons suppement, but
are not ntended to change or revoke n any way, Reguatons 81, Reguatons
82, or Reguatons 83.
(c) Wth respect to the above types or knds of tobacco and artces or prod-
ucts processed or manufactured whoy or n chef vaue therefrom, the date,
October 1, 1933, s the effectve date, as defned and used n Reguatons 81,
Reguatons 82, and Reguatons 83.
(tf) The varous defntons set forth n the reguatons of the Secretary of
grcuture n paragraph D and paragraph , above, are hereby adopted as
part of these reguatons.
bt. 2. Processng ta . (a) The processng ta on the frst domestc proc-
essng of any type or knd of tobacco mentoned n paragraph D and para-
graph , above, becomes effectve at the frst moment of October 1, 1933. or
detaed reguatons as to the ta on processng, see Reguatons 81. The
form prescrbed for return of processng ta s P. T. orm G. The frst return
of processng ta sha embrace the perod October 1, 1933, to October 31, 1933,
both ncusve, and sha be fed on or before November 30, 1933. The ta
shown thereon must be pad at the tme when the return s fed, or, f the
tme for payment be postponed or e tended, then at the tme or tmes desg-
nated for payment n such postponement or e tenson. See artce 7 for st
of prescrbed forms.
(6) In accordance wth the reguatons of the Secretary of grcuture,
based upon the foowng rates per pound, farm saes weght, of unsweated,
unstemmed tobacco: cgar-eaf tobacco, 3 cents Maryand, 1.7 cents urey,
2 cents fue-cured, 4.2 cents fre-cured, 2.9 cents dark ar-cured, 3.3 cents,
the foowng rates of ta are appcabe to the frst domestc processng:
Rates of ta per pound-
Stem not re-
Stem re-
moved.
moved.
Cgar-eaf tobacco, sweated _
0. 0375
0. 05
Maryand tobacco, n processng order .
. 018
. 024
urey tobacco, n processng order
. 023
. 031
. 047
. 061
re-cured tobacco, n processng order
.032
.041
Dark ar-cured tobacco, n processng order .
. 038
.051
(c) or the perod from October 1, 1933, to October 31, 1933, both ncusve,
and for each caendar month thereafter, each processor of the types or knds
of tobacco covered by these reguatons sha keep a record (by type or knd)
of (1) the quantty of tobacco on hand at the begnnng of the perod, (2) the
quantty of tobacco receved durng the perod, (3) the quantty of tobacco
shpped or devered durng the perod, (4) the quantty of tobacco sod or
37408 34 31
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474
otherwse dsposed of as waste durng the perod, and (5) the quantty ot
tobacco on hand at the end of the perod. These quanttes must be ascertaned
by actua weghng on accurate scaes and not by estmaton.
d) The processng of tobacco n the producton of nsectcdes or fertzers
Is e empt from the ta .
bt. 3. Rates of compensatng ta and ta on foor stocks.
(a) rtces processed from cgar-eaf tobacco. The respectve rates of ta
on foor stocks of, or of compensatng tu wth respect to, artces or products
processed whoy or In chef vaue from cgar-eaf tobacco, are as foows:
Cgars, stoges, cheroots per pound 0. 0501
Sma cgars do .0501
Scrap chewng or smokng tobacco do .033
In computng the ta on foor stocks of cgars, stoges, cheroots, or sma
cgars, f the ta payer eects to pay by count nstead of by weght, 1,000 cgars,
stoges, or cheroots sha be deemed to wegh seventeen and one-haf (17 )
pounds, and 1,000 sma cgars sha be deemed to wegh two and seventy-fve
hundredths (2.75) pounds. The eecton must bo made at the tme the return
Is fed, and must embrace the ta payer s entre stock of cgars, stoges, cheroots,
and sma cgars, and not a porton of such stock. If the ta payer eects to pay
by count, the rates sha be as foows:
Cgars, stoges, cheroots per thousand 0. 87675
Sma cgars do . 137775
In the nventory and return of foor stocks as requred by Reguatons 82, the
number of cgars and stoges and cheroots and sma cgars must, n any event,
be gven, whether the ta payer eects to pay the foor ta by weght or by count
( ) rtces processed from Maryand, urey, fue-cured, fre-cured, and dark
ar-cured tobacco. The rates of ta governng the amount of ta on foor stocks
of, or of compensatng ta wth respect to, artces or products processed whoy
or n chef vaue from Maryand, urey, fue-cured, fre-cured, or dark ar-cured
tobacco are as foows:
Cgarettes per,000__ 0.07686
Smokng tobacco, granuated per pound . 036P6
Smokng tobacco, other than granuated, e cept scrap do . 0118
Chewng tobacco, pug do . 009
Chewng tobacco, other than pug, e cept scrap do . 02673
Snuff do . 02958
If the ta payer can show the type or knd of tobacco from whch an artce
Is processed whoy or n chef vaue, and the actua amount of that type or
knd of tobacco contaned n the artce, and eects to pay the ta on the bass
of such actua content, the rates of ta gven beow sha be used. The eecton
must be made at the tme the return s fed, and the return must show: (1)
the type or knd of tobacco from whch the artce has been processed whoy
or n chef vaue, and (2) the actua amount of that type or knd of tobacco
contaned In the artce. The appcabe rates of ta are:
Type or knd of tobacco consttutng whoe or chef vaue.
Rate per pound
of content of
ucb tobacco.
0. 0244S
Maryand.
urey
ue-cured
re-cured
Dark ar-cured
bt. 4. oor stocks. (a) On October 1, 1933, the ta on foor stocks becomes
effectve on certan stocks of artces, processed whoy or n chef vaue from
any type or knd of tobacco wth respect to whch a processng ta s In
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475
MsC
effect, whch on that date are hed for sae or other dsposton. The respec-
tve rates of ta appcabe to such artces are gven n artce 3 (a) and (6)
of these reguatons. or detaed reguatons as to ta on foor stocks, see
Reguatons 82.
The form prescrbed for return of the foor ta on a artces other than
separate reta stocks s P. T. orm 36, oor ta Inventory and return (stocks
other than separate reta stocks). Ths return must be fed on or before
October 31, 1933. The ta shown thereon must be pad at the tme when the
return s fed, or, f the tme for payment be postponed or e tended, then at the
tme or tmes desgnated for payment n such postponement or e tenson.
The form prescrbed for return of ta on foor stocks (separate reta stocks)
s P. T. orm 40, oor ta nventory, record and return. Ths return must ba
fed on or before November 30, 1933. The ta shown thereon must be pad at
the tme when the return s fed, or, f the tme for payment be postponed or
e tended, then at the tme or tmes desgnated for payment n such postponement
or e tenson.
See artce 7 for st of prescrbed forms.
(b) ach person who, on the effectve date, hods for sae or other dsposton
artces of any knd made from any type or knd of tobacco, sha make a true
and correct nventory thereof, as of the earest moment of that date, and sha
preserve such nventory, together wth a record of a facts necessary to the
determnaton of the correctness of such nventory. Such record sha ba
preserved and kept open for nspecton and sub|ect to a the requrements
reatve to records set forth n Reguatons 82, artce 21.
kt. 5. Compensatng ta on mported artoes. On and after October 1, 1933,
a compensatng ta s n effect on a artces processed or manufactured
whoy or n chef vaue from any type or knd of tobacco wth respect to whch
a processng ta s n effect, and mported nto the Unted States or any posses-
son thereof to whch the ct appes, from any foregn country or from any
possesson of the Unted States to whch the ct does not appy. The respectve
rates of ta appcabe to such artces are gven n artce 3 (a) and (6) of
these reguatons. or detaed reguatons as to ths ta , see Reguatons 81.
The form prescrbed for return of the compensatng ta s P. T. orm 10.
See artce 7 for st of prescrbed forms.
rt. 6. stng contracts. or genera provsons reatng to e stng con-
tracts, see Reguatons 81, artces 27 and 28, and Reguatons 82, artce 7.
If a processor has such a contract for devery on or after October 1, 1933,
of an artce processed whoy or n chef vaue from any type or knd of tobacco)
mentoned above, the ta on such processng (f done on or after October 1,
1933) must be returned on the current monthy return and then pad. The
rate shown n artce 3 of these reguatons shoud be used n determnng the
amount of ta to be coected from the vendee.
The vendee under such a contract s entted, where two or more optona
rates may be appcabe, to e ercse such opton.
bt. 7. orms. To nsure the proper return of the ta es mposed by the
ct, and to factate the coecton and refund of ta es, certan forms have
been prescrbed for use by ta payers. The prescrbed form must be used as
requred by the appcabe provsons of Reguatons 81, Reguatons 82, or
Reguatons 83, and must be carefuy fed out n e act accordance wth the
appcabe provsons of the proper reguatons and the Instructons contaned on
such form. The foowng forms wth respect to tobacco are hereby prescrbed:
orm No.
Desgnaton.
Requred by-
P. T. orm 6
Processng ta return
Reguatons 81, artce 11.
Reguatons 81, artce 20.
P. T. orm 16
Return of compensatng ta on
mports.
P. T. orm 24
Cam for refund under grcu-
tura d|ustment ct.
Reguatons 81, artces 30,
P. T. orm 28
Cam for credt on monthy re-
turn.
31(a), 32.
Reguatons 81, artce
31(b).
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476
orm No.
Desgnaton.
Requred by
P. T. orm 36
oor ta nventory and return,
by a person other than one en-
gaged n reta trade, by a per-
son engaged n reta trade f
artces are hed by hm ese-
where than n hs reta stock.
Reguatons 82, artce 11.
P. T. orm 46
oor ta nventory, record, and
return, by a person engaged n
reta trade.
Reguatons 82, artce 16.
Reguatons 81, artce 21.
P.T. orm 51, re-
vsed.
Monthy statement of mporter.
Gut T. everng,
Commssoner of Interna Revenue.
pproved September 30,1933.
Dean cheson,
ctng Secretary of the Treasury.
W T.
II-29-6301
T. D.4371
Processng and other ta es wth respect to wheat under the gr-
cutura d|ustment ct.
Processng ta , effectve uy 0, 1933, on the frst domestc proc-
essng of wheat, domestc or mported ta on foor stocks of ar-
tces processed whoy or n chef vaue from wheat, hed on uy
9, 1933, for sae or other dsposton compensatng ta on artces
processed or manufactured whoy or n chef vaue from wheat and
mported on or after uy 9, 1933.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 9(a), grcutura d|ustment ct, pro-
vdes, n part:
When the Secretary of grcuture determnes that renta or beneft pay-
ments are to be made wth respect to any basc agrcutura commodty, be
sha procam such determnaton, and a processng ta sha be n effect wth
respect to such commodty from the begnnng of the marketng year therefor
ne t foowng the date of such procamaton.
Par. . The procamaton of the Secretary of grcuture dated
une 20, 1933, provdes:
I, enry . Waace. Secretary of grcuture of the Unted States of
merca, actng under and pursuant to an ct of Congress known as the
grcutura d|ustment ct, approved May 12, 1933, have determned and
hereby procam that renta and/or beneft payments are to be made wth
respect to wheat, a basc agrcutura commodty.
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Par. C. Secton 10(c), grcutura d|ustment ct, provdes:
The Secretary of grcuture s authorzed, wth the approva of the
Presdent, to make such reguatons wth the force and effect of aw as may be.
necessary to carry out the powers vested n hm by ths tte, ncudng regu-
atons estabshng converson factors for any commodty and artce proc-
essed therefrom to determne the amount of ta mposed or refunds to bo
made wth respect thereto. ny voaton of any reguatons sha be sub|ect
to such penaty, not n e cess of 103, as may be provded theren.
Par. D. The reguatons made by the Secretary of grcuture,
wth the approva of the Presdent, dated une 26, 1933, provde:
I do hereby ascertan and prescrbe that for the purposes of sad ct the frst
marketng year for wheat sha begn uy 9, 1933.
I do hereby determne as of uy 9, 1933, that the processng ta on the
frst domestc processng of wheat sha be at the rate of 30 cents per bushe
of 00 pounds, whch rate equas the dfference between the current average
farm prce for wheat and the far e change vaue of wheat, whch prce
and vaue, both as defned n sad ct, have been ascertaned by me from
avaabe statstcs of the Department of grcuture.
I do hereby estabsh the foowng converson factors for artces processed
from wheat to determne the amount of ta mposed or refunds to be made
wth respect thereto:
T L O CON RSION CTORS.
Ths tabe of converson factors f es the percentage of the per bushe
processng ta on wheat wth respect to 100 pounds of the foowng artces
processed from wheat. These percentages are based upon a basc converson
factor of 4.6 bushes of wheat as equang 190 pounds of the four desgnated
In tem 1(b) beow.
rtces processed from wheat.
Products of frst domestc processng: Converson
1. our factors.
(a) Whoe wheat and graham 100.07
(6) four e cept whoe wheat and graham 234.7
(c) Semona and farna 234.7
2. Prepared four
(a) Doughnut 133. 8
(o) scut 223.0
(o) Pancake- 104.3
(d) Pe crust 140.8
3. Cerea preparatons made chefy from wheat
(a) Whoe-wheat type, ncudng those consstng chefy of
whoe wheat 100.07
(6) others e cept those consstng chefy of bran 234.7
Products of secondary processng:
4. read
(a) bread e cept rye 101
(b) Rye 120
(c) Zweback . 154
(d) Ros (a types) and coffee cake 101
5. Crackers 230
0. Pretzes 244
7. (a) Macaron and spaghett, e cept canned 250
(t) Canned macaron and spaghett 02.5
8. Noodes 238
9. Paste 185.8
10. oundry modng materas 132.0
Par. . The amounts of ta mposed or refund to be made wth
respect to certan artces processed whoy or n chef vaue from
wheat, as determned upon the bass of the determnaton by the
Secretary of grcuture of a processng ta rate of 30 cents per
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478
bushe of CO pounds and of hs prescrpton of converson factors
n hs reguatons set forth n paragraph D above, are as foows:
rtces processed from wheat.
Products of frst domestc processng: Rates of ta .
1. our (Cent per pound.)
(a) Whoe wheat and graham ( cent) .500
(6) four e cept whoe wheat and graham .704
(c) Semona and farna .704
2. Prepared four
(a) Doughnut .401
(6) scut .669
(c) Pancake .493
(d) Pe crust .422
8. Cerea preparatons made chefy from wheat
(a) Whoe-wheat type, ncudng those consstng chefy of
whoe wheat 500
(6) others e cept those consstng chefy of brun .704
Products of secondary processng:
4. read
(a) bread e cept rye .483
(6) Rye .360
(c) Zweback .462
( f) Ros (a types) and coffee cake .483
5. Crackers .690
6. Pretzes .732
7. (a) Macaron and spaghett, e cept canned .750
(6) Canned macaron and spaghett .183
8. Noodes -714
9. Paste .557
10. oundry modng materas . 398
Par. . Secton 19(a), grcutura d|ustment ct, provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad nto the Treasury of the Unted States.
Par. G. Secton 10(d), grcutura d|ustment ct, provdes:
The Secretary of the Treasury s authorzed to make such reguatons as
may be necessary to carry out the powers vested n hm by ths tte.
Par. . Secton 1101 of the Re venue ct of 1926, made appcabe
by secton 19(b) of the grcutura d|ustment ct, provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws, the foowng reguatons are hereby
prescrbed:
etc|c 1. Genera. (o) y vrtue of the provsons of the grcutura
d|ustment ct and the procamaton and reguatons of the Secretary of gr-
cuture, a processng ta on the frst domestc processng of wheat becomes
effectve begnnng at the earest moment of uy 9, 1933, at the rate of 30 cents
per bushe of 60 pounds. t the same moment there becomes effectve a com-
pensatng ta on a artces processed or manufactured whoy or n chef
vaue from wheat and mported on or after uy 9, 1933. t the same moment
there becomes effectve a ta on Door stocks of artces processed whoy or n
chef vaue from wheat hed on uy 9, 1933, for sae or other dsposton. The
rates shown n paragraph for the artces there fted sha be used n com-
putng the compensatng ta and the ta on foor stocks.
(6) or reguatons reatng to the processug ta and the compensatng
ta , see Reguatons 81 for reguatons reatng to the foor ta , see Regua-
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479
Mso|
tons 82 for reguatons reatng to e portaton, see Reguatons 83. Regu-
atons 81, Reguatons 82, and Reguatons 83 are genera n ther scope and
appy to a commodtes wth respect to whch a ta s n effect under the
ct. y vrtue of the procamaton of the Secretary of grcuture, set forth
above, Reguatons 81, Reguatons 82, and Reguatons 83 become appcabe
wth respect to wheat These reguatons appy specfcay wth respect to
wheat aone, and they suppement, but are not ntended to change, modfy,
or revoke, n any way, Reguatons 81, Reguatons 82, or Reguatons 83. These
reguatons appy, as respects wheat, to a the ta es the processng ta , the
compensatng ta , and the ta on foor stocks.
(c) Wth respect to wheat and artces or products processed or manufac-
tured whoy or n chef vaue from wheat, the date, uy 9, 1933, s the effec-
tve date, as defned and used n Reguatons 81, Reguatons 82, and
Reguatons 83.
kt. 2. Processng ta . (a) The processng ta on the frst domestc proc-
essng of wheat becomes effectve at the frst moment of uy 9, 1933. The
rate, as shown above, s 30 cents per bushe of CO pounds. The number of
bushes sha be determned on the bass of the weght of the wheat n ts
condton at the moment of begnnng the processng of such wheat. The term
wheat as used n these reguatons means wheat of any knd, cassfcaton,
type or grade. or detaed reguatons as to the ta on processng, see
Reguatons 81. The form prescrbed for return of processng ta s orm
P. T. 1. The frst return of processng ta sha embrace the perod uy 9,
1933, to uy 81, 1933, both ncusve, and sha be fed on or before ugust
31, 1933. The ta shown thereon must be pad at the tme return s fed. See
artce t for st of prescrbed forms.
(6) s respects the perod from uy 9, 1933, to uy 31, 1933, both ncusve,
and as respects each caendar month thereafter, each processor of wheat sha
keep a record and make a report n the monthy return on P. T. orm 1, of
(1) the quantty of wheat on hand at the begnnng of the perod (2) the
quantty of wheat receved durng the perod (3) the quantty shpped or de-
vered durng the perod (4) the quantty ground for feed durng the perod
(5) the quantty on hand at the end of the perod. Those quanttes on each
such record and report sha be shown n accordance wth the eevator scae
weghts after deductng the dockage aowance ndcated by the censed n-
spector s certfcate. Where eevator scae weghts are not obtanabe, the
most reabe weght shoud be used where there s no censed nspector s
certfcate obtanabe, the dockage actuay cacuated shoud be used.
(c) The processng of wheat by or for the producer thereof for consumpton
by hs own famy or empoyees or househod s e empt from the processng
ta . There s no e empton from the processng ta n a case where a pro-
ducer devers wheat to an eevator or store n e change for four. Nor s
there any e empton where a producer who has hs wheat processed nto four
receves a knd or grade of four other than that whch coud have been proc-
essed from the wheat devered by suc producer.
rt. 3. oor stocks. On uy 9, 1933, the ta on foor stocks becomes effec-
tve on certan stocks of artces processed whoy or n chef vaue from wheat
and hed on uy 9, 1933, for sae or other dsposton. The Secretary of
grcuture has prescrbed converson factors for certan artces. st
of such artces wth the respectve rate of ta appcabe to each artce s gven
above n paragraph . or detaed reguatons as to ths ta , see Regua-
tons 82. The form prescrbed for return of the foor ta on separate reta
stocks s orm P. T. 41, oor ta nventory, Record and return (Separate reta
stocks). The return must be fed on or before September 7, 1933. The ta
shown thereon must be pad at the tme the return s fed. The form prescrbed
for return of the foor ta on a artces other than separate reta stocks
s orm P. T. 31, oor ta nventory and return (Stocks other than separate
reta stocks). The return must be fed on or before ugust 8, 1933. The
ta shown thereon must be pad at the tme the return s fed. See artce
0 for st of prescrbed forms.
rt. 4. Compensatng ta on mported artces. On and after uy 9, 1933, a
compensatng ta s n effect on a artces processed or manufactured whoy or
n chef vaue from wheat and mported nto the Unted States or any posses-
son thereof to whch the ct appes, from any foregn country or from any
possesson of the Unted States to whch the ct does not appy. The Secre-
tary of grcuture has prescrbed converson factors for certan artces.
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480
st of such artces wth the respectve rate of ta appcabe to each
artce s Rven above n paragraph . or detaed reguatons reatve to ths
ta , sec Reguatons 81. The form prescrbed for return of the compensatng
ta s orm P. T. 11. See artce (5 for st of prescrbed forms.
rt. 5. stny contracts. or genera provsons respectng e stng con-
tracts, see Reguatons 81, artces 27 and 28, and Reguatons 82, artce 7.
Where a processor has such a contract for devery of an artce processed
whoy or n chef vaue from wheat, and devers n fufment of such
contract such an artce whch was processed on or after uy 9, 1933, he must
coect the ta from the vendee and return the ta on the current monthy
return. The rates shown n paragraph . shoud be used n determnng the
amount to be coected from the vendee.
rt. C. orms. To nsure the proper return of the ta es mposed by the
ct, and to factate the coecton and refund of ta es, certan forms have been
prescrbed for use by ta payers. The prescrbed form must b used as requred
by the appcabe provson of Reguatons 81, Reguatons 82, or Reguatons
83 and must be carefuy fed out n e act accordance wth the nstructons
prnted thereon and wth the appcabe provsons of the proper reguatons.
The foowng forms wth respect to wheat are hereby prescrbed :
orm No.
P. T. orm 1..
P.T. orm 11.
P.T. orm 24
P. T. orm 31.
P. T. orm 41
P. T. orm 28
P. T. orm 51
Desgnaton.
Processng ta return
Return of compensatng ta on
mports.
Cam for refund under grcu-
tura d|ustment ct.
oor ta nventory and return,
by a person other than one
engaged n reta trade, by a
person engaged n reta trade
f artces are hed by hm ese-
where than n hs reta stock.
oor ta nventory, record and
return, by a person engaged
n reta trade.
Cam for credt on monthy
return.
Monthy statement of mporter
of wheat products.
Requred by-
Reguatons 81, artce 11.
Reguatons 81, artce 20.
Reguatons 81, artces 30,
31(a), 32.
Reguatons 82, artces 19,
20.
Reguatons 82, artce 11.
Reguatons 82, artce 16.
Reguatons 81, artce 31
(b).
Reguatons 81, artce 21.
Gt|y T. everno,
Comm doner of Interna Revenue.
pproved uy 10, 1933.
Dean cheson,
ctng Secretary of the Treasury.
II-39-6425
T. D.4391
Processng and other ta es wth respect to wheat under the
grcutura d|ustment ct.
Revokng Treasury Decson 4371, approved uy 10, 1033 page
470, ts uetn , and prescrbng reguatons n conformty wth
Wheat Reguatons, Seres 1, made by the Secretary of grcuture
and approved by the Presdent une 26, 1933, as suppemented,
revsed, and, n part, superseded by Wheat Reguatons, Seres 1,
Suppement 1, made by the Secretary of grcuture and approved
by the Presdent ugust 11, 1933.
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Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 9(a), grcutura d|ustment ct, pro-
vdes, n part:
When the Secretary of grcuture determnes that renta or beneft payments
are to be made wth respect to any basc agrcutura commodty, he sha pro-
cam such determnaton, and a processng ta sha be n effect wth respect
to such commodty from the begnnng of the marketng year therefor nest fo-
owng the date of such procamaton.
Par. . The procamaton of the Secretary of grcuture dated
une 20, 1933, provdes:
I, enby . Waace, Secretary of grcuture of the Unted States ot
merca, actng under and pursuant to an ct of Congress known as the gr-
cutura d|ustment ct, approved May 12. 1933, have determned and hereby
procam that renta and/or beneft payments are to be made wth respect to
wheat, a basc agrcutura commodty.
Par. C. Secton 10(c), grcutura d|ustment ct, provdes:
The Secretary of grcuture s authorzed, wth the approva of the Pres-
dent, to make such reguatons wth the force and effect of aw as may be
necessary to carry out the powers vested n hm by ths tte, ncudng regua-
tons estabshng converson factors for any commodty and artce processed
therefrom to determne the amount of ta mposed or refunds to be made wth
respect thereto. ny voaton of any reguatons sha be sub|ect to such
penaty, not n e cess of 100, as may be provded theren.
Par. D. The reguatons wth respect to wheat, made by the Secre-
tary of grcuture, wth the approva of the Presdent, dated une
26,1933, as suppemented, revsed, and, n part, superseded by regua-
tons made by the Secretary of grcuture, wth the approva of
the Presdent, dated ugust 11, 1933, provde:
I do hereby ascertan and prescrbe that for the purposes of sad ct the
frst marketng year for wheat sha begn uy 9, 1933.
I do hereby determne as of uy 9. 1933, that the processng ta on the frst
domestc processng of wheat sha be at the rate of 30 cents per bushe of 60
pounds, whch rate equas the dfference between the current average farm
prce for wheat and the far e change vaue of wheat, whch prce and vaue,
both as defned n sad ct, have been ascertaned by me from avaabe
statstcs of the Department of grcuture.
The weght of wheat sub|ect to the processng ta shaU be the weght of cean
wheat not artfcay dred.
I. Defntons.
The foowng terms as used n these reguatons have reference to artces
processed whoy or n chef vaue from wheat and for a the purposes of sad
reguatons sha have the meanngs hereby assgned to them :
Whoe wheat and graham four s any four contanng n ther appro -
mate natura proportons substantay a of the consttuents of ceaned wheat.
four e cept whoe wheat and graham s any four (e cept whoe wheat,
graham, semona and farna) obtaned n the commerca mng of wheat,
consstng essentay of the starch and guten of the endosperm, whch contans
not more than 1 per cent of ash (n the case of durum four not more than 1.2
per cent of ash).
Semona s the granuar product obtaned n the commerca process of
mng durum wheat, and s that porton of the endosperm retaned on 10
sk botng coth.
arna s the same as samona e cept that t s made from hard wheat
other than durum.
Prepared doughnut four s a commerca preparaton (consstng of four,
shortenng, and other ngredents) commony used n the preparaton of cruers
(I. e., doughnuts other than rased doughnuts) and fred cakes.
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482
Prepared bscut four s a commerca preparaton (consstng of four,
shortenng, and other ngredents) commony used n the preparaton of short bread.
Prepared pancake four s a commerca preparaton (consstng of at east
50 per cent of wheat four and varyng amounts of other four, e. g., corn, rce,
rye, and buckwheat) commony used u the preparaton of pancakes, grdde-
cakes, or waffes.
Prepared pecrust four s a commerca preparaton (consstng of four,
shortenng, and other ngredents) commony used n the preparaton of pe-
crusts or shes.
bread e cept rye Incudes any type of bread e cept (a) rye as heren
defned, (6) zweback, and (c) ros (a types), and coffee cake.
Rye bread s the bread obtaned by bakng a dough whch dffers from
wheat bread dough n that not ess than one-thrd ( ) of the four ngredent
has been repaced by rye four.
Zweback s a commercay toasted bread.
Ros (a types) and coffee cake Incude any product commony caed
a ro or coffee cake, the four content of whch conssts of at east 95 per cent
of wheat four.
Crackers Incude artces commony known as bscuts.
Pretzes are made from a yeast rased dough, submerged or precooked
Id a caustc souton.
Macaron and spaghett are pan amentary pastes, ncudng verm-
ce, prepared and shaped from the dry doughs made from semona, farna,
wheat four, or from a m ture of any two or a of these fours, and wth one
or more other ngredents.
Canned macaron and spaghett conssts of a m ture of cooked macaron
or spaghett, as defned heren, m ed wth cheese or other products and
hermetcay seaed.
Noodes are a form of egg amentary paste.
Guten s the product made from wheat four by the amost compete re-
mova of starch, and conssts prmary of proten.
Wheat starch s a product of wheat four resutng from the remova from
ch four of practcay a of the proten, mnera, and fbrous matera.
II. Converson actors.
I do hereby estabsh the foowng converson factors for artces processed
from wheat to determne the amount of ta mposed or refunds to be made
wth respect thereto.
The foowng tabe of converson factors f es the percentage of the per
bushe processng ta on wheat wth respect to 100 pounds of the foowng
artces processed whoy or n chef vaue from wheat. These percentages are
based upon a basc converson factor of 4.6 bushes of wheat as equang 196
pounds of the four desgnated n tem 1(b) beow.
rtces processed whoy or In chef vaue from wheat.
Products of frst domestc processng:
1. our
(a) Whoe wheat and graham
(6) four e cept whoe wheat and graham
(c) Semona and farna
(d) ran, shorts, mddngs, red dog, and a of the product of
wheat (other than whoe wheat and graham four)
resutng from the commerca mng thereof whch
contans more than 1 per cent of ash (n the case of such
product of durum wheat, more than 1.2 per cent of ash).
2. Prepared four
(a) Doughnut
(6) scut
(c) Pancake
(d) Pecrust
8. Cerea preparatons made chefy from wheat
(a) Whoe wheat type, ncudng those consstng chefy of
whoe wheat
(6) others e cept those consstng chefy of bran.
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Mso|
rtces processed whoy or n chef vaue from wheat.
Converson
factors.
Products of secondary processng:
4. read
(a) bread e cept rye
(6) Rye
(c) Zweback
(d) Ros (a types) and coffee cake
5. Crackers
6. Pretzes
7. (a) Macaron and spaghett, e cept canned.
(6) Canned macaron and spaghett
8. Noodes
9. Guten -
10. Wheat starch
101
120
154
161
230
244
250
31. 2
238
1, 173. 5
0. 0
The artces to whch converson factors are specfcay assgned above are
hereby defned, for the purposes of these reguatons, as factored artces.
s to a artces not hereby specfcay assgned converson factors whch
are made, drecty or ndrecty, In some part from a factored artce, I do
hereby estabsh that as to each 100 pounds of such part the converson factor
s the converson factor hereby specfcay assgned for such factored artce.
s to a artces not hereby specfcay assgned converson factors and
whch n some part are made, drecty or ndrecty, from wheat but not (as to
such part) from a factored artce, I do hereby estabsh that as to each 100
pounds of such part the converson factor s 106.07 per cent of the per bushe
processng ta on wheat.
Par. . Secton 19(a), grcutura d|ustment ct, provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad nto the Treasury of the Unted States.
Par. . Secton 10(d), grcutura d|ustment ct, provdes:
The Secretary of the Treasury s authorzed to make such reguatons as may
be necessary to carry out the powers vested n hm by ths tte.
Par. G. Secton 1101, Revenue ct of 1926, made appcabe by
secton 19(b), grcutura d|ustment ct, provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws, the foowng reguatons, effectve as
of uy 9, 1933, are hereby prescrbed:
rtce 1. Genera. (a) y vrtue of the provsons of the grcutura
d|ustment ct and the procamaton and reguatons of the Secretary of gr-
cuture, a processng ta on the frst domestc processng of wheat becomes
effectve begnnng at the earest moment of uy 0, 1933, at the rate of 30
cents per bushe of GO pounds. t the same moment there becomes effectve
a compensatng ta on a artces processed or manufactured whoy or n
chef vaue from wheat and mported on or after uy 9, 1933. t the same
moment there becomes effectve a ta on foor stocks of artces processed
whoy or n chef vaue from wheat hed on uy 9, 1933, for sae or other
dsposton. The rates shown n artce 2 of these reguatons sha be used
n computng the compensatng ta and the ta on foor stocks.
(6) or reguatons reatng to the processng ta and the compensatng ta ,
see Reguatons 81 for reguatons reatng to the foor ta , see Reguatons
82 for reguatons reatng to e portaton, see Reguatons 83. Reguatons
81, Reguatons 82, and Reguatons 83 are genera n ther scope and appy
to a commodtes wth respect to whch a ta s n effect under the ct. y
vrtue of the procamaton of the Secretary of grcuture, set forth above,
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484
Reguatons 81, Reguatons 82, and Reguatons 83 become appcabe wth
respect to wheat. These reguatons appy specfcay wth respect to wheat
aone, and they suppement, but are not ntended to change, modfy, or revoke, n
any way, Reguatons 81, Reguatons 82, or Reguatons 83. These reguatons
appy, as respects wheat, o a the ta es the processng ta , the compensatng
ta , and Ihe ta on foor stocks.
(c) Wth respect to wheat and artces or products processed or manufac-
tured whoy or n chef vaue from wheat, the date, uy 9, 1933, s the effec-
tve date, as defned and used n Reguatons 81, Reguatons 82, and
Reguatons 83.
(d) The terra wheat, as used In these reguatons, means wheat of any
knd, cassfcaton, type, or grade.
bt. 2. Rates of ta . (o) The amounts of ta mposed or refund to be made
wth respect to certan artces processed whoy or n chef vaue from wheat,
as determned upon the bass of the determnaton by the Secretary of gr-
cuture of a processng ta rate of 30 cents per bushe of 60 pounds and of hs
prescrpton of converson factors n hs reguatons set forth n paragraph D,
above, are as foows:
rtces processed whoy or n chef vaue from wheat.
Rates of ta
(cents per
poun|
(500-
Products of frst processng:
1. our-
fa) Whoe wheat and graham
(6) four e cept whoe wheat and graham
(c) Semona and farna
(d) ran, shorts, mddngs, red dog, and a of the product
of wheat (other than whoe wheat and graham four)
resutng from the commerca mng thereof whch
contans more than 1 per cent of ash (n the case
of such product of durum wheat, more than 1.2 per oeut
of ash).
2. Prepared four
(a) Doughnut _ .,
(6) scut
(c) Pancake
(d) Pecrust
3. Cerea preparatons made chefy from wheat
(a) Whoe wheat type, ncudng those consstng chefy of
whoe wheat .
(6) others e cept those consstng chefy of bran.- .a .
Products of secondary processng:
4. read-
fa) bread e cept rye
(6) Rye
(c) Zweback .
(d) Ros (a types) and coffee cake . - L
6. Crackers -w- w
6. Pretzes
0. 500
. 704
. 704
8.
9.
10.
fa) Macaron and spaghett, e cept canned.
fa)
Canned macaron and spaghett
Noodes
Guten
Wheat starch
. 401
669
. 493
. 500
. 704
. 732
. 750
. 094
3. 521
0. 0
(6) In the case of any artce processed whoy or n chef vaue from wheat
(but not named n the st set forth n paragraph (a) of ths artce of these
reguatons), whch Is made, drecty or ndrecty, n some part from an artce
desgnated n such st, the converson factor for such part of the artce s the
same factor as that for the sted artce from whch such part has been made,
and the rate of ta for such part of the artce, computed from such conversoa
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485
Msc.
factor, s the same as for the sted artce from whch the ta abe artce was
made.
(c) If part of an artce processed whoy or n chef vaue from wheat Is
made from wheat (but Is not made, drecty or ndrecty, from an artce sted
n paragraph (a) of ths artce of these reguatons), a converson factor of
166.67 per centum of the per bushe processng ta has been assgned to such
part of the artce, and, computed on the bass of such converson factor, tho
rate of ta , per pound of wheat content of such part of the artce, s one-haf
of 1 cent.
(d) In determnng whether an artce s processed whoy or n chef vaue
from wheat, the combned vaues of every processed form of wheat used n
makng the artce (ncudng any processed form of wheat for whch the con-
verson factor s zero) sha be the vaue of the wheat as a component In
determnng the amount of ta wth respect to an artce processed whoy or n
chef vaue from wheat, as thus determned, so much of the wheat content as
conssts of any processed form of wheat for whch the converson factor s zero
may be dsregarded.
|st. 3. Processng ta . (o) The processng ta on the frst domestc proc-
essng of wheat becomes effectve at the frst moment of uy 9, 1933. Tha
ate, as shown above, s 30 cents per bushe of 60 pounds. The number of
bushes sha be determned on the bass of the weght of the wheat at the
moment of begnnng the processng of such wheat. The weght of wheat sub-
|ect to the processng ta sha be the weght of cean wheat not artfcay
dred. or detaed reguatons as to the ta on processng, see Reguatons 81,
The form prescrbed for return of processng ta s P. T. orm 1. The frst
return of processng ta sha embrace the perod uy 9, 1933, to uy 31, 1933,
both ncusve, and sha be fed on or before ugust 31, 1933. The ta shown
thereon must be pad at the tme the return s fed, or, f the tme for payment
be postponed or e tended, then on or before the date or dates desgnated for
payment n such postponement or e tenson. See artce 7 for st of prescrbed
forms.
(6) s respects the perod from uy 9, 1933, to uy 31, 1933, both ncusve,
and as respects each caendar month thereafter, each processor of wheat sha
keep a record and make such report thereof as may be requred, as to (1) the
quantty of wheat on hand at the begnnng of the perod, (2) the quantty of
wheat receved durng the perod, (3) the quantty shpped or devered durng
the perod, (4) the quantty ground for feed durng the perod, (5) the quantty
on hand at the end of the perod. These quanttes on each such record and
report sha be shown In accordance wth the eevator scae weghts after
deductng the dockage aowance Indcated by the censed nspector s certfcate.
Where eevator scae weghts are not obtanabe, the most reabe weght shoud
be used where there s no censed nspector s certfcate avaabe, the dockage
actuay cacuated shoud be used.
(o) The processng of wheat by or for the producer thereof for consumpton
by hs own famy or empoyees or househod s e empt from the processng ta .1
Ths appes to what s known as custom mng (for to or for money), but
not to cases such as, for e ampe, where a producer devers wheat to an ee-
vator or store n e change for four. Nor s there any e empton where a
producer who has hs wheat processed nto four receves a knd or grade of
four other than that whch coud have been processed from the wheat devered
by such producer.
et. 4. oor stocks. On uy 9, 1933, the ta on foor stocks becomes ef-
fectve on certan stocks of artces processed whoy or n chef vaue from
wheat and hed on uy 9, 1933, for sae or other dsposton. The Secretary
of grcuture has prescrbed converson factors for certan artces. The
rates of ta for such artces are gven n artce 2 of these reguatons. or
detaed reguatons as to ths ta , see Reguatons 82. The form prescrbed for
return of the foor ta on separate reta stocks s P. T. orm 41, oor ta
nventory, record and return (separate reta stocks). The return must be
fed on or before September 7, 1933. The ta shown thereon must be pad
at the tme the return s fed, or, f the tme for payment be postponed or
e tended, then on or before the date or dates desgnated for payment n such
postponement or e tenson. The form prescrbed for return of the foor ta
on a artces other than separate reta stocks s P. T. orm 31, oor ta
nventory and return (stocks other than separate reta stocks). The return
must be fed on or before ugust 8, 1933 The ta shown thereon must be pad
at the tme the return s fed, or, f the tme for payment be postponed or
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486
e tended, then on or before the date or dates desgnated for payment n such
postponement or e tenson. See artce 7 for st of prescrbed forms.
rt. 5. Compensatng taa on mported artces. On and after uy 9, 1933,
a compensatng ta s n effect on a artces processed or manufactured whoy
or n chef vaue from wheat and mported nto the Unted States or any
possesson thereof to whch the ct appes, from any foregn country or from
any possesson of the Unted States to whch the ct does not appy. The
Secretary of grcuture has prescrbed converson factors for certan artces.
The rates of ta for such artces are gven n artce 2 of these reguatons.
or detaed reguatons reatve to ths ta , see Reguatons 81. The form
prescrbed for return of the compensatng ta s P. T. orm 11. See artce
7 for st of prescrbed forms.
rt. 8. stng contracts.- or genera provsons respectng e stng con-
tracts, see Reguatons 81, artces 27 and 28, and Reguatons 82, artce 7.
Where a processor has such a contract for devery of an artce processed
whoy or n chef vaue from wheat, and devers n fufment of such con-
tract such an artce whch was processed on or after uy 9, 1933, he must
coect the ta from the vendee and return the ta on the current monthy
return. The rates of ta gven n artce 2 of these reguatons shoud be
used n determnng the amount to be coected from the vendee.
rt. 7. orms. To nsure the proper return of the ta es mposed by the
ct, and to factate the coecton and refund of ta es, certan forms have
been prescrbed for use by ta payers. The prescrbed form must be used
as requred by the appcabe provson of Reguatons 81, Reguatons 82, or
Reguatons 83 and must be carefuy fed out n e act accordance wth the
nstructons prnted thereon and wth the appcabe provsons of the proper
reguatons. The foowng forms (No. 11 beng revsed) are hereby prescrbed
wth respect to wheat:
orm No.
Desgnaton.
Requred by
P. T. orm 1..
P. T. orm 11.
P. T. orm 24.
P. T. orm 28.
P. T. orm 29.
P. T. orm 31.
P. T. orm 41.
P. T. orm 51.
Processng ta return
Return of compensatng ta on
mports.
Cam for refund under grcu-
tura d|ustment ct.
Cam for credt on monthy re-
turn.
Producer s affdavt or certfcate-
oor ta nventory and return,
by a person other than one en-
gaged n reta trade, by a per-
son engaged n reta trade f
artces are hed by hm ese-
where than n hs reta stock.
oor ta nventory, record and
return, by a person engaged n
reta trade.
Monthy statement of mporter
of Wheat products.
Reguatons 81, artce 11.
Reguatons 81, artce 20.
Reguatons 81, artces 30,
31(a), 32.
Reguatons 82, artces
19, 20.
Reguatons 81, artce
31(b).
Reguatons 81, artce
9(a).
Reguatons 82, artce 11.
Reguatons 82, artce 16.
Reguatons 81, artce 21.
rt. 8. Treasury Decson 4371, approved uy 10. 1933 page 476, ths ue-
tn , s hereby revoked.
Guy T. everng,
Commssoner of Interna Revenue.
pproved September 18, 1933.
Thomas ewes,
ctng Secretary of the Treasury.
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OL OM RG RIN .
II-28-6290
MS. 140
Schedue of oeomargarne produced and materas used durng the vonh of May,
1933, as compared wth May, 1932.
Tota producton of uncoored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue (or uncoored oeomargarne:
utter
Cocoanut o -
Corn o --
Cottonseed o
Dervatve of gycerne
Lecthn
Mk
Neutra ard --.
Oeoo
Oeo stcarne
Oeo stock _ -.
Pam o
Peanut o
Sat
Soda (benoate of)
Soya bean o - --.
Sugar
Tota.
Tota producton of coored oeomargarne.
Tota wthdrawn ta|-pad
Ingredent schedue for coored oeomargarne:
Cocoanut o --- --
Coor
Corn o
Cottonseed o
Dervatve of gycerne
Mk
Neutra ard
Oeo o..
Oeo stoarno
Oeo stock -
Pam o _
Peanut o
Sat
Soda (benzoate of) -
Soya bean o
Sugar
May, 1933. May, 1932.
Pounds. Pounds.
19, 689, 009 14,019, 070
18,961,291 14.013.8W
Tota.
390
1,178
12, 172, 625
8,403,799
11,443
5,508
1, 435. 290
1,081,365
35,794
21.613
132
261
4, 711,188
3, 422. 197
719, 318
007.828
1, O, 658
877, 705
296.3 5
321,862
40, 578
16.615
41, 253
3,325
179,061
197,958
1, 111,571
871.622
8,236
4.823
7,632
210
21.815.513
15,840,897
312,424
321,718
41.460
84.930
98.974
93.408
299
192
12
55,880
52,715
71
63
102, 711
89,565
25. 783
25, 164
56,023
55,118
5,788
10,239
I S, 087
2,935
19,900
19,819
2,444
2,586
26, S92
28,317
17
78
7
11
412,932
380, 208
Of the amount produced, 21,170 pounds were reworked.
1 Of the amount produced, 1S,SS7 pounds were reworked.
1 Of the amount produced, 413 pounds were reworked.
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Msc.
488
II-33-6349
MS. 141
Schedue of oeomargarne produced and materas used durng the month of
tunc, 1 S3. as compared rth une, 1932.
une, 1933.
Tota producton of uncoored oeomargarne-
Tota wthdrawn ta-pad
Ingredent schedue for uncoored oeomargarne:
utte ...
Cocoanut o
Corn o
Cottonseed o -
Dervatve of gycerne
Lecthn
Mk
Neutra ard...
Oeoo
Oeo stearno.
Oeo stock
Pam o__ -
Peanut o
Sat
Soda (benoateof)...
Soya bean o -
Sugar
Poundt.
16,367,048
15,577,478
8.677, 792
41,633
1,361,828
28.281 ,
244
3,722,605
680,684
1,041,549
235,220
109.597
34,188
207,712
St ,4. 638
6,282
Tota..
Tota producton of coored oeomargarne..
Tota wthdrawn ta-pad
Ingredent schedue for coored oeomargarne:
utter
Cocoanut o-_
Coor -
Cottonseed o - -
Dervatve of gycerne
Mk
Neutra ard
Oeo o
Oeo stearno
Oeo stock
Pam o -
Peanut o.
Sat.... -
Soda (benzoateof)
Sugar
Tota...
17,018,970
163,228
31,952
37,605
162
16,936
112
60,048
13.882
43, 167
1,147
18.858
3,030
2,000
10,936
10
18
197,911
1 Of the amount produced, 38,233 pouDds were reworked.
1 Of the amount produced, 16,016 pounds were reworked.
1 Of the amount produced, 806 pounds were reworked.
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489
Msc|
II-37-6400
MS. 142
Schedue of oeomargarne produced and materas used durng the month of
uy, 1933, as compared wth uy, 1932.
Tota producton of uncoored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue for uncoored oeomargarne:
utter
Cocoanut o
Com o _
Cottonseed o
Dervatve of gycerne
Lecthn.. _ ._
Mk
Neutra ard _._ _
Oeo o.
Oeo stearne.
Oeo stock
Pam o
Peanut o
Sat
Soda (benzoate of).
Soya bean o
Sugar
Tota.
Tota producton of coored oeomargarne-
Tota wthdrawn ta -pad.. ._.
Ingredent schedue for coored oeomargarne:
Cocoanut o
Coor
Cottonseed o --
Dervatve of gycerne
Mk
Neutra ard
Oeo o
Oeo stearne -
Oeo stock _ _
Pam o
Peanut o
Sat....
Soda (benzoate of)
Sugar
Tota .
Of the amount produced, 22,898 pounds were reworked.
Of the amount produced, 14,129 pounds were reworked.
Of the amount produced, 64 pounds were reworked.
Of the amount produced, 874 pounds were reworked.
uy, 1933.
Pound .
18, 269, 947
18, 638, 770
uy, 1931
Pound .
11,223,272
200
10, 699,968
69,338
1,259,152
43,156
312
4,382,335
865,049
1,370,812
250, 128
153, 876
50,608
223.241
1,037, 385
7,780
8,256
20, 421, 594
136, 104
40, 166
50,044
169
14, 372
51
43, 471
9,638
28,805
1,868
3,185
3,600
2,075
10,308
15
12
167, 593
37408 34-
-32
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Msc.
490
II-41-6449
MS. 143
Schedue of oeomargarne produced and materas used durng the month of
ugust, 1933, as compared wth ugust, 1932.
1933.
Tota producton of uncoored oeomargarne
Tota wthdrawn ta-pad..
Ingredent schedue for uncoored oeomargarne
utter _
Coeoanut o
Corn o...
Cottonseed o .
Dervatve of gycerne
Lecthn. . .
Mk..
Neutra ard _
Oeo o _
Oeo stearne
Oeo stock
Pam o.. __
Peanut o.. _
Sat
Soda (benzoate of)
Sugar...
Tota.
Tota producton of coored oeomargarne
Tota wthdrawn ta -pad
Ingredent schedue for coored oeomargarne:
Coeoanut o
Coor.
Cottonseed o _
Dervatve of gycerne _
Mk
Neutra ard.. _
Oeo o
Oeo stearne
Oeo stock
Pam o
Peanut o
Sat
Soda (benzoate of). _
Sugar.._ _
Tota
Pounds.
I 20. 705. 445
20. 072, 875
12. 606. 558
1, 312.020
50.031
4.997.716 I
708,835
1. 359.007
262.820
136.858 I
40,111
274.399 I
1. 197.271
9.111
7.815 I
23. 040.066
153.056
35,704
52,922
480
20. 394
77
45.983
14. 118
29,410
2.150
1.026
8.700
1.795
12. 295
7
IS
139. 352
Of the amount produced. 10,112 pounds were reworked.
Of the amount produced, 17.538 pounds were reworked.
Of the amount produced, 212 pounds were reworked.
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491
Msc.
II-46-6513
MS. 144
Schedue of oeomargarne produced and materas used durng the month of
September, 193S, as compared cth September, 1932.
Tota producton of uneoored oeomargarne..
Tota wthdrawn ta -pad
Ingredent schedue for uncoored oeomargarne:
utter
Coeoanut o
Corn o
Cottonseed o
Dervatve of gycerne
hn
Lecth
Mk
Neutra ard
Oeo o
Oeo stearne.
Oeo stock._
Pam o. _.
Peanut o
Sat
8oda (benzoate of) -
Sugar
Tota-
Tota producton of coored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue for coored oeomargarne:
Coeoanut o
Coor
Cottonseed o
Dervatve of gycerne. -
Mk
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Pam o
Peanut o
Sat..
Soda (benzoate of)
Sugar
Tota .
1 Of the amount produced, 10,360 pounds were reworked.
1 Of the amount produced, 7,0 3 pounds were reworked.
Of the amount produced, 88 pounds were reworked.
September,
1933.
Pounds.
21,424,870
2,978
199,298
38.930
475. 605
34,732
264
184, 713
677,260
318.343
270,044
120,881
35,809
221,928
253,058
10,842
23, 871, 647
128, 474
40,262
September,
1932.
Pounds.
16.918,812
52,000
155
13,589
120
34,891
9,416
24, 493
1,808
956
4,000
1.580
10,618
12
22
153,659
225
10,345,092
13,997
1,265,694
24.P63
124
3,993,078
789,044
1,049, 776
328,559
47,614
6,391
178,152
988, 926
6,704
19,030,239
43,094
80,103
283
26,806
S
60,708
20,657
37,014
2,841
60S
8,250
2,109
17,056
15
255,451
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492
II-49-6550
MS. 145
Schedue of oeomargarne produced and materas used durng the month of
October, 1933, as compared wth October, 1032.
October, October
Tota producton of uncoored oeomargarne.
Tota wthdrawn ta -pad
Pounds.
I 23, 513, 349
22,559,587
Ingredent schedue for uncoored oeomargarne:
utter
Cocoanut o
Corn o..
Cottonseed o
Dervatve of gycerne.
Lecthn
Mk
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Pan o.
Peanut o
at
Soda (benoate of)
Sugar
Tota.
Tota producton of coored oeomargarne..
Tota wthdrawn ta -pad
Ingredent schedue for coored oeomargarne:
utter
Cocoanut o -
Coor
Cottonseed o.
Dervatve of gycerne
Mk
Neutra ard..
Oeo o
Oeo stearne
Oeo stock
Pam o
Peanut o
Sat
Soda (benzoate of)
Sugar
Tota.
Of the amount produced, 10,772 pounds were reworked.
1 Of the amount produced, 9,942 pounds were reworked.
Of the amount produced, 228 pounds wore reworked.
476
14,844, 748
32.594
1,759,543
64,514
304
5, 297,695
782,200
1,626,201
291,153
46,219
38,181
00,681
1,360.886
8,485
8,906
28,162, 784
151.101
42.676
74
42,239
194
17,032
160
46,069
12,437
43,863
1,450
733
4,000
2,208
19,131
8
16
189, 614
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493
Msc.
MISC LL N OUS.
II-37-6402
Supp. to D. C. 230 (Revsed)
Laws and Reguatons Govebnno the Recognton of ttorneys, gents,
and otheb persons representng camants and others before thh
Treasury Department and Offces Thereof.
1033. rst Suppement to Department Crcuar No. 230 (Revsed) of uy 1, 1927.
Commttee on nroment and Dsbarment.
Treasury Department,
Offce of the Secretaet,
Washngton, ugust 8, 1933.
Treasury Department Crcuar No. 230 (Revsed), dated uy 1,
1927, prescrbng rues and reguatons governng the recognton o
attorneys and agents and other persons representng camants before
the Treasury Department and offces thereof, s hereby amended by
strkng out the thrd and fourth paragraphs of secton 1, prescrb-
ng the dutes of the secretary of the commttee and the attorney for
the commttee, and nsertng n eu thereof the foowng:
The Secretary of the Treasury sha appont an attorney for the commttee
who sha not be a member of the commttee. Such attorney sha be the ega
advser of the commttee, present a forma compants aganst enroed at-
torneys or agents, and represent the Government n a proceedngs before the
commttee. Such attorney sha aso be the secretary of the commttee and
sha keep and mantan ts records and sha have the custody of a of ts
papers, records, ros, etc.
Thomas ewes,
ctng Secretary of the Treasury.
II-41-6450
Mm. 4071
Symbos for use n correspondence.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, September 21, 1933.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Deputy Commssoners, and Other Offcers and mpoyees Con-
cerned :
The foowng drectons supersede those contaned n Mmeograph
3893 C. . -2, 464 and a other nstructons n confct therewth.
so secton 66, Part I, of the Interna evenue Manua s amended
to conform to the foowng:
very etter prepared n the ureau n Washngton w bear n
the upper eft-hand corner of the frst page, and mmedatey beow
the nstructons ddress repy to, etc., a symbo that w ndcate
the offce of orgn: Provded, That ths practce w not appy to
congressona correspondence, nor to etters prepared for sgnature
by other than offcas of ths ureau.
very etter addressed to the ureau by a fed offce, f t s n
repy to a communcaton from the ureau, w bear, mmedatey
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494
above the body of the etter and near the center of the sheet, the
symbos that appear n the communcaton that s beng answered
thus: ttenton: IT: R: 3: ST . If the etter s not n repy to
a ureau communcaton, the symbo of the unt, dvson, or secton
n the ureau concerned w be ndcated n the same manner, pro-
vded there s no queston as to the proper symbo f any doubt
e sts, no symbo whatever w be used.
Where a fed offce uses a system of symbos n conductng ts
correspondence, the symbo used n ths connecton w be paced n
the upper eft-hand corner of the frst sheet of each etter addressed
to the ureau |ust beow the nstructons In repy refer to. The
ureau etter, f any, repyng to such communcaton w show the
fed offce symbos above the body of the etter n the same manner
as s prescrbed n the ne t precedng paragraph.
nveopes wth prnted or typewrtten address w be used by
fed offces n transmttng ma to the ureau, rather than wndow
enveopes. so, every such enveope or wrapper w bear, n the
ower eft-hand corner of the face thereof, the same symbo that s
quoted n the communcaton whch t ncoses. There s no ob|ec-
ton to forwardng n one enveope a number of communcatons
ntended for the same unt or dvson of the ureau n fact, ths
s desrabe. Under no crcumstances, however, shoud correspond-
ence pertanng to the work of one unt be ncosed n an enveope
addressed to another unt.
Informaton whch w assst the fed offcer n determnng the
destnaton of correspondence that s not n repy to ureau etters
may bo obtaned by drectng an nqury to the dmnstratve
Dvson, Communcaton Secton.
Ony one sub|ect w be treated n any one etter.
The foowng represents the organzaton and symbos used:
Offce of the Commssoned
d dmnstratve Dvson.
d: C Communcaton Secton.
d : P Prntng and ndng Secton.
d : SL Space and Lease Secton.
d: S Suppes and qupment Secton.
P Personne Dvson.
Pub. Re. Pubc Reatons Dvson.
S Speca dvsory Commttee.
SD Speca Deputy Commssoner.
SD: Tn Tranng Dvson.
ccounts and Coectons Unt.
C : DC Deputy Commssoner.
C : D ssstant Deputy Commssoner.
C: D Dsbursement ccountng Dvson.
C : Co Coecton ccountng Dvson.
C: P S Personne, qupment, and Space Dvson.
Offce of the Genera Counse.
GC: I Interpretatve Dvson.
GC : P Pena Dvson.
GC: ppeas Dvson.
GC : R Revew Dvson.
GC : C Cv Dvson.
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495
Msc.
GC: dm dmnstratve Dvson.
Ma and Records Secton.
Lbrary and Manuscrpt Secton.
GC: dm: C Compromse Secton.
Incomb Ta Unt.
IT: Deputy Commssoner.
ssstant Deputy Commssoner.
IT: : | Speca d|ustment Secton.
IT: : C Conference Secton.
IT : : RR Rues and Reguatons Secton.
IT: : Sr Servce Secton.
IT: : ed Procedure Dvson.
UDIT R I W DI ISION.
IT: R ead of Dvson.
IT: R: Secton .
IT: R: Secton .
IT: R: C Secton C.
IT: R: D Secto
IT: R: Sect
CL RING DI ISION.
IT: C ead of Dvson.
IT: C: CC Cams Contro Secton.
IT: C: P Provng Secton.
IT: C: St Statstca Secton.
R CORDS DI ISION.
IT: R ead of Dvson.
IT: R: es Secton.
IT: R : S Sortng Secton.
LU TION DI ISION.
IT: ead of Dvson.
IT: : p pprasa Secton.
IT: : M Mnng Secton.
IT: : OG O and Gas Secton.
IT: : Se Securtes Secton.
IT: : T Tmber Secton.
Integence Unt.
SI Chef, Integence Unt.
Msceaneous Ta Unt.
MT: DC Deputy Commssoner.
MT: T state Ta Dvson.
MT: PT Processng Ta Dvson.
MT: ST Saes Ta Dvson.
MT: T Tobacco Dvson.
Gt|t T. evehno,
G ommssoner.
II-47-6527
The Unted States oard of Ta ppeas has ssued a new edton
of rues of practce before the oard, revsed to November 1, 1933.
These revsed rues w not be pubshed n the Interna Revenue
uetn, but copes may be obtaned from the Superntendent of
Documents, Washngton, D. C, prce 5 cents.
I
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496
II-47-6529
Mm. 4100
The Technca Stuff.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, November 7,1933.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Offcas and mpoyees of the ureau of Interna Revenue, and
Others Concerned:
In order to factate and e pedte the settement wthout forma
tra of ta dsputes arsng out of the mang of defcency notces
under the varous Revenue cts, the foowng changes n the organ-
zaton of the ureau are hereby made, effectve as of November 16,
1933:
(1 The Speca dvsory Commttee w be aboshed.
(2) Technca Staff w be attached to the offce of the Com-
mssoner and assgned to the dutes heretofore performed by the
Speca dvsory Commttee.
(3) The Technca Staff w consder and act upon, sub|ect to the
approva of the Commssoner, the foowng matters and casses
of cases:
(a) uestons nvovng determnatons of ureau pocy, specfc
cases, and other matters assgned or submtted to t by the Comms-
soner and
( ) Proposas submtted for the settement wthout tgaton of
ncome, profts, estate and gft ta es, asserted n defcency notces
maed under the varous Revenue cts.
(4) Compete records sha be mantaned by the Technca Staff
of ts acton on cases. The Technca Staff sha not reconsder any
case on whch the revew dvson of the Genera Counse s offce took
acton pror to uy 1, 1930, or on whch the Speca dvsory Com-
mttee has taken acton pror to November 16, 1933, n the absence
of newy dscovered evdence, recent decsons by the courts or by
the Unted States oard of Ta ppeas n whch the ureau has
acquesced, or changes n the aw and reguatons.
Gut T. everno, Co mssoner.
II- 7-6530
Mm. 4101
Treasury Department,
Offce of Commsson of Interna Revenue,
Washngton, D. C, November 8, 1933.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Offcas and mpoyees of the ureau of Interna Revenue, and
Others Concerned:
In conformty wth Mmeograph 4100 see above , dated Novem-
ber 7,1933, aboshng the Speca dvsory Commttee of the ureau
of Interna Revenue as of November 16, 1933, and creatng n eu
thereof a Technca Staff n the offce of the Commssoner of Interna
Revenue, the foowng-named persons have been seected for the
poston of senor technca advsor, Technca Staff:
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497
Msc.
Pau . Can, Mton . Carter, rank T. ddngfed, Lese
Gs, Grover C. ammond, ubrey R. Marrs, Leonard C. Mtche,
oseph . Moyer, rthur . Murray, Crag L. Reddsh, red O.
Repfoge, Perey . Rose, Wam . Stener, enry L. Young.
ubrey R. Marrs s desgnated ead, Technca Staff.
Genera correspondence reatng to the work of the Technca Staff
sha be addressed to the Commssoner of Interna Revenue for the
attenton of the ead, Technca Staff. Correspondence w contan
the usua reference symbos dentfyng partcuar cases.
Guy T. everng, Commssoner.
II-50-6562
T. D.44101
Order of the Secretary of the Treasury amendng Treasury
Decson No. 1 Prohbton , of pr 1, 1927 O. . I-1, 350 ,
ssued pursuant to the ct of March 3, 1927.
Treasury Department,
December , 1933.
To the Commssoner of Industra coho, The Commssoner of
Interna Revenue, and a Offcas and mpoyees of the Treasury
Department Concerned:
1. Treasury Decson No. 1 ( ureau of Prohbton) of pr 1,
1927, and any decson or order suppementary thereto or amenda-
tory thereof are hereby amended as foows:
2. There are hereby transferred to, conferred and mposed upon
the Commssoner of Interna Revenue sub|ect to the genera super-
vson and drecton of the Secretary of the Treasury a rghts,
prveges, powers and dutes conferred or mposed upon the Secre-
tary of the Treasury by secton 4 of the ct of March 3, 1927, and
whch have been heretofore by the sad Treasury Decson No. 1 and/or
any other orders conferred or mposed upon the Commssoner of
Prohbton (now the Commssoner of Industra coho), and any
other offcer or empoyee of the ureau of Industra coho, e -
cept such rghts, prveges, powers and dutes as were transferred
to or conferred or mposed upon the ttorney Genera by the ct
of May 27, 1930, and e cept such other rghts, prveges, powers and
dutes as may have been heretofore wthdrawn from the Secretary
of the Treasury or the Commssoner of Prohbton (now the Com-
mssoner of Industra coho).
3. cept as may hereafter be otherwse provded a reguatons
prescrbed, a orders and nstructons ssued and a forms adopted
for the enforcement of the aws admnstered by the ureau of Indus-
tra coho, Treasury Department, remanng n effect after repea
of the eghteenth amendment, are hereby contnued n effect as regu-
atons, orders, nstructons and forms of the ureau of Interna
Revenue, Treasury Department.
4. The personne of the ureau of Industra coho sha per-
form such dutes as the Secretary of the Treasury or the Comms-
soner of Interna Revenue may prescrbe.
1 Treasury Decson 4410, Interna Revenue, s aso ureau o Industra coho
Treasury Decson 23.
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498
5. cept as heren provded nothng n ths order sha be con-
strued to affect the vadty of any act done, power e ercsed, or order,
decson, or fndng made, or to reeve any person from any abty
ncurred pror to the effectve date of ths order.
G. Ths order sha take effect at 12.01 a. m., December G, 1933. The
rght to amend or suppement ths order or any provsons thereof
from tme to tme or to revoke ths order or any provson thereof at
any tme s hereby reserved.
enry Moruenthau, r.,
ctng Secretary of the Treasury.
CT PPRO D M RC 22, 1933, TO PRO ID R NU
Y T TION O C RT IN NONINTO IC TING
LI UOR, ND OR OT R PURPOS S.
II-29-6299
S. T.692
Labty of deaers n fermented mat quors to speca ta .
There appears to be consderabe msunderstandng upon the part
of deaers n mat quors, wnes, and fermented frut |uces as to
ther abty for speca ta requred by aw to enabe them to
carry on ther busness as such. In order to remove any msunder-
standng n regard to the matter, the foowng statement s ssued
for the nformaton of a concerned:
Purchasers of speca ta stamps, at the rate of 20 per year,
bearng the tte Reta Deaer n ermented Lquors, may egay
engage ony n the sae, n ess quanttes than 5 gaons at one tme,
of fermented (mat) quors of 3.2 per cent acohoc content by
weght.
very person who ses or offers for sae fermented mat quors
n quanttes of not ess than 5 gaons at one tme, but who does
not dea n wnes and fermented frut |uces, s consdered a whoe-
sae deaer n mat quor and, as such, s requred to purchase a
speca ta stamp at the rate of 50 per year.
Purchasers of speca ta stamps, at the rate of 25 per year,
bearng the tte Reta Lquor Deaer, may be engaged not ony
n the sae of fermented (mat) quors but aso n the sae of 3.2
per cent wnes and fermented frut |uces, n ess quanttes than 5
gaons at one tme, wthout ncurrng addtona abty.
whoesae quor deaer sha pay 100 per year. Such deaers
may not ony se wnes and fermented frut |uces contanng not
more than 3.2 per cent of acoho by weght, but may kewse se
fermented mat quors of ke acohoc strength n quanttes of
not ess than 5 gaons at one tme, wthout ncurrng addtona
speca ta abty.
person who s duy quafed as a whoesae deaer n mat quor
and one who has quafed as a whoesae quor deaer can not se n
quanttes of ess than 5 gaons wthout ncurrng addtona speca
ta abty as a reta deaer, nor can a person who has quafed
as a reta deaer n mat quor, or as a reta quor deaer, se n
quanttes of 5 gaons or more at one tme wthout ncurrng add-
tona speca ta abty as a whoesae deaer.
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499
Msc.
Speca ta es are payabe on a fsca year bass begnnng uy
1 of each year, and every deaer n mat quors or wnes and fer-
mented frut |uces s requred to purchase a new speca ta stamp
effectve uy 1, 1933. person who commences busness as a deaer
after uy 1,1933, must purchase a speca ta stamp and pay speca
ta from the 1st day of the month n whch he commences busness
unt the 1st day of uy foowng.
The purchase of a speca ta stamp as reta or whoesae deaer
n mat quors or wnes and fermented frut |uces does not authorze
the purchaser thereof to transact such busness n confct wth State
aws or authorze the sae of sprtuous quors for beverage purposes.
SP CI L T S ON D L RS IN RM NT D LI UORS.
II-41-6448
S. T.707
fermented mat quor deaer removng hs busness to a oca-
ton other than that specfed n hs speca ta stamp must ether
regster the change of ocaton or pay another ta .
dvce s requested whether a deaer n fermented mat quors
hodng a speca ta stamp may se mat quors at ocatons other
than those specfed n the stamp.
Secton 3235, Revsed Statutes, provdes that the payment of the
speca ta mposed by aw sha not e empt from an addtona spe-
ca ta the person carryng on a trade or busness n any other pace
than that stated n the coector s regster and on the speca ta
stamp.
Whenever a speca-ta payer desres to remove hs busness to a
ocaton other than the one specfed n hs atest return on orm 11
and as recorded n hs speca ta stamp, he shoud, not ater than
the end of the month n whch the remova occurs, regster the change
of ocaton wth the coector of the dstrct wthn whch the od
pace of busness s ocated, by fng an addtona orm 11, e ecuted
under oath and desgnated remova regstry, settng forth when
and where he ntends to engage n the busness descrbed.
If a quafed deaer n mat quor desres to transfer hs stamp
temporary, for e ampe, whe a county far s n progress, from
hs reguar pace of busness to a stand ocated on the far grounds,
n order to se beer at that pace, he may do so wthout payng
another speca ta by foowng the procedure outned heren, pro-
vded a new return on orm 11 s fed, and the stamp transferred,
pror to the commencement of busness at the new ocaton. Snce
the speca ta stamp s ssued to cover a busness carred on at a
specfed address, t w be necessary that the busness be dscon-
tnued at the od address mmedatey upon the transfer of the stamp.
Otherwse, addtona speca ta abty w be ncurred. fter
the concuson of the far t w be necessary for the ta payer
havng ony one speca ta stamp to fe another return on orm 11
transferrng the stamp back to the orgna address. No saes at
the orgna address may be made unt ths transfer s regstered
wth the coector.
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Msc.
500
deaer s prohbted from conductng the sae of beer at more
than one far at the same tme wthout quafyng at each pace
where such quor s sod. In the event that one person has the
e cusve prvege of seng mat quor at a partcuar far, one
speca ta stamp w cover the sae of beer from any number of
stands ocated on the grounds.
ny speca-ta payer whose busness s such as to requre hm to
trave from pace to pace n dfferent States of the Unted States
may procure a speca ta stamp t arge coverng hs actvtes
throughout the Unted States wth the payment of but one speca
ta .
MISC LL N OUS.
II-43-6471
Mn. 4077
Provsons of aw reatng to nterna revenue ta es and dutes
at present n effect and contnung wth the repea of the eghteenth
amendment unt otherwse changed by egsaton, n respect to
dsted sprts, wnes, fermented mat quors, and speca ta es.
Treasury Department,
Offce of Commsson er of Interna Revenue,
Washngton, D. C, October , 1933.
Coectors of Interna Revenue and Others Concerned:
There are a number of nterna revenue ta es and dutes mposed
upon domestc and mported dsted sprts, wnes, and fermented
quors, as we as the speca ta es mposed upon the severa occupa-
tons reated thereto, whch are at present n effect and whch w
contnue f and when the eghteenth amendment s repeaed. In
vew of the number of nqures concernng ths matter, the foowng
data has been comped reatve to the varous sectons of the Reve-
nue cts, Revsed Statutes, and the Tarff ct of 1930, whch rates
are appcabe unt otherwse changed:
DISTILL D SPIRITS.
ct of ebruary 4, 1909 (35 Stat., 594 secton 1150(5), tte 26,
U. S. O). Imposes a ta of 1.10 a proof gaon on bay rum, or any
artce contanng acoho, brought from Puerto Rco nto the Unted
States for consumpton.
Revenue ct of 1918 (40 Stat., 1108). Secton 605 mposes a ta
of 30 cents a proof gaon on a rectfed sprts, n addton to the
ta mposed by the Revenue ct of 1926 (44 Stat., 104).
Revenue ct of 1918 (40 Stat., 1106). Secton 600(c) mposes a
ta of 1.10 a proof gaon on a perfumes mported nto the Unted
States contanng dsted sprts.
Revenue ct of 1926 (44 Stat, 104) . Secton 900 mposes a ta of
1.10 a proof gaon on a dsted sprts produced n or mported
nto the Unted States.
Revenue ct of 1928 (amends secton 612, Revenue ct of 1918).
Secton 452 mposes a ta of 10 cents a proof gaon on grape brandy
or wne sprts used n fortfcaton of wnes.
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501
Mso,
WIN S.
Revenue ct of 1918 (40 Stat., 1111) (as amended by Revenue ct
of 1928). Secton 451 amended secton 611 of the Revenue ct of
1918, whch at present mposes a ta on domestc and mported st
wnes, ncudng vermuth, and a artfca or mtaton wnes as
foows:
Wne gaon.
Contanng not more than 14 per centum acoho by voume 0. 04
Contanng more than 14 per centum and not e ceedng 21 per centum
acoho . 10
Contanng more than 21 per centum and not e ceedng 24 per centum
acoho , . 25
Contanng more than 24 per centum acoho 1.10
Revenue ct of 1918 (40 Stat., 1110). Secton 613 mposes a ta
on domestc and mported champagne, sparkng wnes, and cordas
as foows:
ach haf pnt or
fracton thereof.
On each botte of champagne or sparkng wne 0.12
On each botte of artfcay carbonated wne . 0G
On each botte or other contaner of queurs, cordas, or smar com-
pounds, contanng sweet wne fortfed wth grape brandy . 06
ct of March 22, 1933. Secton 1 mposes a ta of 5 per barre
of 31 gaons on a wnes, and at a ke rate on a fractona part of
a barre, when acohoc content s one-haf of 1 per centum or more
by voume, and not more than 3.2 per centum by weght.
RM NT D LI UORS.
Revenue ct of 1918 (40 Stat,, 1109). Secton 608 mposes a ta
of 6 per barre of 31 gaons on a fermented quors, and at a ke
rate on a fractona part of a barre, contanng one-haf of 1 per
centum of acoho by voume or more.
ct of March 22, 1933. Secton 1 mposes a ta of 5 per barre
of 31 gaons on a fermented mat quors, and at a ke rate on a
fractona part of a barre, where acohoc content s one-haf of
1 per centum or more by voume, and not more than 3.2 per centum
by weght.
SP CI L T S.
Secton 321 , Revsed Statutes.
Second. Manufacturers of sts sha each pay 50 a year and 20
for each st or worm for dstng made by hm.
Thrd. Rectfers of dsted sprts manufacturng 500 barres or
more a year sha pay 200 a year.
Rectfers of dsted sprts manufacturng ess than 500 barres
a year sha pay 100 a year.
ourth. Secton 18, ct of ebruary 8, 1875 (18 Stat.. 311), as
amended by secton 4, ct of March 1, 1879 (20 Stat., 334). Reta
deaers n quors sha pay 25 a year. Whoesae deaers n quors
sha pay 100 a year.
Note. Ths ncudes the sae of dsted sprts, wnes, and mat quors.
fth. ct of ebruary 8, 1875 (18 Stat,, 311), as amended by
secton 4, ct of March 1, 1879 (20 Stat,, 333). Reta deaers n
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502
mat quors ony sha pay 20 a year. Whoesae deaers n mat
quors ony sha pay 50 a year.
Secton 3244, Revsed Statutes (as amended by the ct of March
22, 1933).
rst. brewers requred to pay ta of 1,000 a year.
DUTI S R L TING TO SPIRITS, WIN S. ND OT R R G S.
Tarff ct of 1930 (Schedue 8, Tte I).
Par. 801. (a) Nothng n ths schedue sha be construed as n any manner
mtng or restrctng the provsons of Tte II or III of the Natona Prohb-
ton ct, as amended.
(b) The dutes prescrbed n Schedue 8 and mposed by Tte I sha be n
addton to the Interna revenue ta es mposed under e stng aw, or any
subsequent ct.
Par. 802. randy and other sprts manufactured or dsted from gran or
other materas, cordas, queurs, arrack, absnthe, krschwasser, ratafa, and
btters of a knds contanng sprts, and compounds and preparatons of
whch dsted sprts are the component matera of chef vaue and not
specay provded for, 5 per proof gaon.
Par. 803. Champagne and a other sparkng wnes, 6 per gaon.
Par. 804. St wnes, Incudng gnger wne or gnger corda, vermuth,
and rce wne or sake, and smar beverages not specay provded for, 1.25
per gaon: Provded., That any of the foregong artces specfed n ths para-
graph when mported contanng more than 24 per centum of acoho sha be
cassed as sprts and pay duty accordngy.
Par. 805. e, porter, stout, beer, and fud mat e tract, 1 per gaon mat
e tract, sod or condensed, 60 per centum ad vaorem.
Gut T. evebng,
Commssoner.
II-32-6337
S. 1580. PU LIC, NO. 68, S NTY-T IRD CONGR SS.
n ct to reeve the e stng natona emergency n reaton to
Interstate raroad transportaton, and to amend sectons 5, 15a,
and 19a of the Interstate Commerce ct, as amended.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That ths ct may
be cted as the mergency aroad Transportaton ct, 1933.

TITL II M NDM NTS TO INT RST T
COMM RC CT.

Sec. 206. (a) moneys whch were recoverabe by and payabe
to the Interstate Commerce Commsson, under paragraph (6) of
secton 15a of the Interstate Commerce ct, as n force pror to the
enactment of ths tte, sha cease to be so recoverabe and payabe
and a proceedngs pendng for the recovery of any such monevs
sha be termnated. The genera raroad contngent fund estab-
shed under such secton sha be qudated and the Secretary of
the Treasury sha dstrbute the moneys n such fund among the
carrers whch have made payments under such secton, so that each
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503
Msc.
such carrer sha receve an amount bearng the same rato to the
tota amount n such fund that the tota of amounts pad under
such secton by such carrer bears to the tota of amounts pad
under such secton by a carrers e cept that f the tota amount
n such fund e ceeds the tota of amounts pad under such secton
by a carrers such e cess sha be dstrbuted among such carrers
upon the bass of the average rate of earnngs (as determned by the
Secretary of the Treasury) on the nvestment of the moneys n such
fund and dfferences n dates of payments by such carrers.
(b) The ncome, war-profts, and e cess-profts ta abtes for
any ta abe perod endng after ebruary 28, 1920, of the carrers
and corporatons whose ncome, war-profts, or e cess-profts ta
abtes were affected by secton 15a of the Interstate Commerce
ct, as n force pror to the enactment of ths ct, sha be com-
puted as f such secton had never been enacted, e cept that, n the
case of carrers or corporatons whch have made payments under
paragraph (6) of such secton an amount equa to such payments
sha be e cuded from gross ncome for the ta abe perods wth
respect to whch they were made. dstrbutons made to car-
rers n accordance wth subdvson (a) of ths secton sha be
ncuded n the gross ncome of the carrers for the ta abe perod
n whch ths ct s enacted. The provsons of ths subdvson
sha not be hed to affect (1) the statutes of mtatons wth respect
to the assessment, coecton, refund, or credt of ncome, war-profts
or e cess-profts ta es or (2) the abtes for such ta es of any
carrers or corporatons f such abtes were determned pror to
the enactment of ths ct n accordance wth secton 1106(b) of the
Revenue ct of 1926 or secton 606 of the Revenue ct of 1928, or
n accordance wth a fna |udgment of a court, an order of the oard
of Ta ppeas whch had become fna, or an offer n compromse
duy accepted n accordance wth aw.

pproved une 16, 1933, 12.05 p. m.
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504
1 II-52-6580
Dsbarments and suspensons from practce before Treasury Department of
attorneys and agents
DIS RM NTS.
The Secretary of the Treasury, after due notce and opportunty
for hearng, has ordered the dsbarment from further practce be-
fore the Treasury Department of the foowng-named attorneys and
agents:
Name.
ddress.
Date of
dsbarment.
Cause.
nse, .
acchus, Robert R_.
arnett, Lews...
ea, enry W...
ormery ous- une 30,1933 Charged wth embezzng funds of an empoyer,
ton, Te ., now Charges found proven.
Pontac, Mch.
Sprngfed, 111 Mar. 1,1933 Charged wth knowngy preparng fase n-
come ta returns for 2 ta payers. Charges
found proven.
Now York, N.Y... an. 4, 1033 Charged wth attemptng to e tort money
from a cent to sette an aeged defcency In
ncome ta . Charges found proven.
oston, Mass Sept. 29,1932 Charged wth havng been dsbarred by the
Superor Court of Suffok County, Mass.,
for msappropraton of cent s funds.
Charges found proven.
Detrot, Mch Dec. 5,1932 Charged wth havng been dsbarred from
practce as an attorney n courts of Mchgan.
Charges found proven.
Orange, Caf une 30,1933 Charged wth theft of funds and convcton for
such offense n State court. Charges found
proven.
Modesto, Caf une 30,1933 Charged wth embezzng funds of a ta payer,
pad to respondent to be devered to coector
of nterna revenue. Charges found proven.
Denver, Coo une 28,1933 Charged wth havng been convcted for con-
spracy to defraud, n State court. Char gee
found proven.
ort Smth, rk.. une 30,1933 Charged wth preparng fase ncome ta
returns, and frauduenty procurng a cosng
agreement n two ta cases. Charges found
troven.
arped wth preparng fase artces of copart-
owa. nershp showng 5 partners when there were
but 2 and preparng fase returns for such
ta payers. Charges found proven.
ormery ados- Oct. 27 1932 Charged wth defraudng numerous persona
ta, Ga., ater Or- by ssung worthess checks and drafts,
ando, a. Charges found proven.
Chcago, 111 eb. 23,1933 Charged wth havng been dsbarred by the
Supremo Court of the State of Inos.
Charges found proven.
Detrot, Mch ug. 2,1933 Charged wth havng been dsbarred from
practce as an attorney n the edera court
of the eastern dstrct of Mchgan. Charges
found proven.
Newark, N. une 30,1933 Charged wth havng been dsbarred by the
Supreme Court of New ersey. Charges
found proven.
Indanapos, Ind.. une 30,1933 Charged wth embezzng funds pad to re-
spondent to be devered to the coector of
nterna revenue. Charges found proven.
Los ngees, Caf. eb. 2.1933 Charged wth havng been convcted and
sentenced n a crmna case n a State court.
Charges found proven.
atmore, Md uy 20,1933 Charged wth havng been dsbarred from
practce as an attorney before the courts of
atmore, Md. Charges found proven.
Ths rung (6580) ncudes aso rungs Nos. 6279. 6280, 0302, 6315, 6328, 6339, 6350, 6352, 6384, 6393, 6401,
6413, 6424, 6439, 6453. 6461. 6473. 64S3, 6501, 0514, 6528, 6541, 6552, 0560, and 6569. Those rungs have been
thus consodated because pubcaton of each one separatey woud be argey dupcaton.
1 Ths st ncudes n attorneys and agents whose dsbarment from practce before the Treasury Depart-
ment was pubshed durng the 12-month perod ended December 31, 1933, and a suspensons n etect
durng the 6-month perod uy 1-Decomher 31, 1933, ncusve. It does not ncude those barred from
practce by reason of dsapprova of ther appcaton for enroment.
ehrendt, nenry ..
Cark, Pau
Carke, orrest S.
Crane, Rchard M...
Davs, ames C...
s, . L
verett, S.
Gorman, ohn ..
crehy, Catherne
.
ndenang, Theo-
dore .
ames, Davd
eer, . S
Lchtenberg, oseph
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505
MsC
Name.
Moore, . dward...
Moss, Car D.
Neey, Robert .
Pckett, Thomas Y.
Ransom, Don
Sander, vn M...
, bner.
Stone, Raph W.
ddress.
an Rper, arod..
Wenstock, Leonard
.
Woford, . C
New edford,
Mass.
Pttsburgh, Pa...
Chcago, 111.
Daas, Te .
ormery Wch-
ta, ans., ater
ort Worth,
Te .
ormery Tan pa,
a.
ormery Wash-
ngton, D.C.
ormery Ch-
cago, 111., now
M ddetown,
111.
ormery New
York, N.Y.
St. Pau, Mnn...
re, Pa
Date of
dsbarment.
Sept. 29,1932
Dec. 30,1932
ug. 3,1933
eb. 23,1933
Sept. 28,1932
Dec. , 1932
une 30,1933
Nov. 2,1932
Nov. 30,1932
une 30,1933
eb. 24,1933
Cause.
Charged wth havng unawfuy attempted to
e tort a arge fee from a cent by threats of
dscosure. Charges found proven.
Charged wth proposng to edera prohbton
agents that such agents furnsh the respond-
ent confdenta nformaton reatve to com-
pants receved n the edera prohbton
enforcement offce aganst cents of the re-
spondent, for whch such cents woud pay
a reasonabe sum of money through the
respondent to such agents. Charges found
proven.
Charged wth handng a ta case n whch
respondent ganed knowedge of the facts and
ssues nvoved whe empoyed as actng co-
ector of Interna revenue, and wth retanng
funds of the ta payer after demand made
therefor by the ta payer, sad funds havng
been receved n trust and ntended for pay-
ment to the coector of nterna revenue.
Charges found proven.
Charged wth havng been convcted and sen-
tenced n a crmna case n the Unted States
dstrct court. Charges found proven.
Charged wth knowngy preparng a fase offer
of compromse n a ta matter. Charges
found proven.
Charged wth havng been convoted of a
crmna offense n Unted States dstrct
court and dsbarred as an attorney by such
court. Charges found proven.
Charged wth havng been convcted of crme,
and dsbarred as attorney by the 8upreme
Court of the Dstrct of Coumba. Charges
found proven.
Charged. wth gvng money to prohbton
offcers to procure the approva of appca-
tons for permts for wthdrawa of wne.
Charges found proven.
Charged wth convcton n a crmna case n
the Unted States dstrct court. Charges
found proven.
Charged wth fng fase Income ta returns for
hmsef. Charges found proven.
Charged wth havng been convcted and sen-
tenced n a crmna case n the Unted States
dstrct court. Charges found proven.
DIS RM NT MODI I D TO SUSP NSION.
The ctng Secretary of the Treasury has ordered that the order
of dsbarment entered aganst the foowng-named person on eb-
ruary 11, 1928, be modfed as ndcated beow:
Name.
ddress.
Remarks.
New York, N.Y____
Dsbarment modfed on uy 12, 1933, to a suspen-
son from practce before the Treasury Depart-
ment from ebruary 11, 1928, to uy 15,1933.
3740S0 34 33
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Msc.
506
SUSP NSION S.
The Secretary of the Treasury, after due notce and opportunty
for hearng, has ordered the suspenson from practce before the
Treasury Department for the perod stated n each case of the
foowng-named attorneys and agents:
Nome.
ddress.
Perod of
suspenson.
Cause.
ocombe, . LeRoy.
ormery Macon,
Ga., ater t-
anta, Oa.
1 yoar, from
Dec. 30,1932.
Charged wth soctng empoyment n
edera ncome ta matters. Charges
Love, arod R
Mnneapos,
Mnn.
3 months, from
uy 25, 1933.
found proven.
Charged wth ssung worthess checks, and
wth unethca advertsng. Charges found
Phps, Martn
Sackman, arry
New York, N.Y-._
1 year, from
une 30,1933.
Charged wth fng fase ncome ta returns
for hmsef. Charges found proven.
proven.
ormery New
York, N.Y., at-
er Seatte,
Wash., now San
rancsco,
Caf.
30 days, from
uy 20, 1933.
Charged wth havng socted empoyment
n edera ta matters and fasey adver-
tsng hmsef as a certfed pubc account-
ant, when he dd not bod a certfcate of
certfed pubc accountant from any
egay consttuted board authorzed by
aw to ssue such certfcates. Charges
found proven.
R SIGN TION ROM NROLLM NT TO PR CTIC OR T TR S1TRY
D P RTM NT.
The foowng-named person has tendered hs resgnaton from
enroment to practce before the Treasury Department. y drecton
of the Secretary of the Treasury hs resgnaton was accepted and
hs name ordered strcken from the ro of attorneys and agents
enroed to practce before the Treasury Department. e s there-
fore no onger entted to practce before the Treasury Department.
Name.
ddress.
Desgnaton.
Date of
acceptance.
Pttsburgh, Pa
gent
une 29, 1933
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IND .
batement, cams for. (See Cams.)
dmssons. (See Msceaneous ta es.)
ffated corporatons:
Insurance and nonnsurance companes
Net oss deducton, consodated and separate returns
Returns. ( See Returns: Consodated.)
coho, ureau of Industra, order transferrng to ureau of
Interna Revenue, effectve date December 6, 1933
mendments:
Interstate Commerce ct, sectons 5, 15a, and 19a
Reguatons 8
rtce 24
rtce 76
Reguatons 42
rtce 1
rtce 8
rtce 25
rtce 28
rtce 34
rtce 36
Chapter
Reguatons 43
rtce 1
rtce 45
rtce 57
Reguatons 44
rtce 2
rtce 7
rtce 8
rtce 9
rtce 11
rtce 44
rtce 45
rtce 47
rtce 47
rtce 52
rtce 57M (added)
Reguatons 46
rtce 1
rtce 7
rtce 16
rtce 17
rtce 28
rtce 71
rtce 76 o (added)
Reguatons 64, artce 55
Reguatons 69-
rtce 222
rtce 1561
Rung
No.
Page.
6355
217
6306
159
6562
497
6337
502
6563
380
6515
380
6361
364
6361
364
6361
364
6434
354
6361
304
6458
355
6438
322
(6274
350
(6362
351
(6275
352
6363
352
6364
353
6358
343
6487
330
6327
342
6488
333
6490
307
6189
327
6581
329
6564
340
0404
348
6359
344
6485
334
6328
343
6486
337
0316
313
6565
341
6401
347
6385
404
6331
117
6331
117
(507)
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508
Rung
No.
mendments Contnued.
Reguatons 71, artce 2
Reguatons 72
rtce 1
rtce 2
Reguatons 74
rtce 242
rtce 561
Reguatons 70, artce 11__
Reguatons 77, artce 813.
Reguatons 81
rtce 7
rtce 11.
rtce 12
Revenue ct of 1932-
Secton 13(c)
Secton 23(r)3--_
Secton 55
Secton 104_
Secton 141(c)
Secton 182(a)
Secton 601
Secton 616
Secton 620
Secton 621
Secton 629
Secton 030 (added)
Treasury Decsons
1 (Pro.) (C. . I-1, 350).
4359 (Co. . I-2, 305)--.
4378 (see on page 219)
mortzaton, vauaton reducton, reasonabe aowance
ssgnments, proceeds of contract
ttorneys and agents:
Dsbarments and suspensons
Reguatons governng recognton by Treasury Department,
amended
uctoneers, stock saes, nformaton returns
utomatc sot-devce vendng machnes. (See Manufacturers
e cse ta es.)
utomobe cub, e empton
wards, condemnaton proceedngs, nterest e empton
6365
6366
6367
6331
0331
Co 10
6300
/6426
6502
/6503
6561
6495
6297
0297
0297
1/6297
6314
6297
6297
6278
6278
6278
6278
6278
6278
6562
I/035G
0484
6484
6494
6354
65S0
6402
6507
.
ad debts, yeary advances
ank acceptances sgned by Secretary of grcuture, dscount
on purchase and sae
ank deposts renqushed to provde bank s surpus, ncome
ank stock ta , corporaton s payments for sharehoders, deduc-
ton
ankruptcy after sae does not affect saes ta abty. (See
Manufacturers e cse ta es.)
ankruptcy, checks ssued by trustees, recevers, or referees.
(See Msceaneous ta es.)
anks, qudatng, trustees handng assets for, returns
onds:
batement cam, sut on
Lberty, e changed for Treasury bonds, gan or oss
Warehouse. (See Msceaneous ta es.)
6557
6415
6376
6463
6567
6293
6330
6284
6532
G
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#
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509
Rung
No.
onuses:
Capta stock ncrease, Pennsyvana, deducton.
Compensaton for persona servces, ncome
rewer s wort. (See Manufacturers e cse ta es.)
rokers, nformaton returns. (See Returns.)
udng and oan assocatons:
empton
Interest and dvdend payments, nformaton returns
Wthdrawa n e cess of amounts pad n, dvdends
ureau of Industra coho transfer to ureau of Interna Reve-
urcau of Interna Revenue:
Correspondence symbos
Speca dvsory Commttee, aboshed
Technca Staff-
Organzaton
Personne
usness e penses:
ttorneys fees
ankrupt corporaton s debts pad by ndvdua
Cerca servces, dsbursement of ward s ncome
I ega e pense
Spur track costs
Traveng e penses, members of N. R. . Recovery oard-
Caforna:
Reta saes ta
State tdeands, eases, ncome e empton
Capta e pendtures:
ankrupt corporaton s debts pad by ndvdua
Spur track, cost of
Capta gans and osses:
owance of net oss where no capta gan
Land and budngs
O and gas ease royates
Partnershp, fsca year
Stock, effectve date of stock rghts
Capta stock ta :
ccrua of
ppcaton of ta
anks n hands of conservators
Corporatons n hands of recevers
Carryng on or dong busness n Unted States
ffectve perod under Natona Industra Recovery ct-
Payment of ta . (See tenson of tme.)
Returns, e tenson of tme. (See tenson of tme.)
Termnaton of
Carbonc acd gas. (See Manufacturers e cse ta es.)
Carryng charges, unproductve property, deducton
Chartabe contrbutons. (See Contrbutons.)
Checks. (See Msceaneous ta es.)
Cgarettes and cgars. (See Msceaneous ta es.)
Ctzens, nonresdent, earned ncome e empton
Cams:
batement
Coecton stayed, mtaton
Payment of ta by transferee
Suffcency
Refund, and amendments to
Cosng agreement, approva, absence of consderaton
6409
6267
6282
6568
6465
6478
6562
6450
6529
6529
6530
6268
6533
6455
6374
6396
6441
6518
6508
6533
6396
6321
6535
6395
6457
6388
6464
6422
6422
6447
6368
6573
6266
6408
6494
6579
6342
6520
6305
G
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510
Con-operated devces. . (See Manufacturers e cse ta es.)
Communty property, New Me co, sae by survvng spouse, gan
or oss
Compensatng ta , deducton for ncome ta purposes
Compensaton:
ddtona
onuses
Post aowances, etc., oregn Servce empoyees
edera empoyees
oregn Servce, post aowances, etc
Resdent n Puerto Rco, ta abty
Persona servces, e ecutor s fees, when reported
Return n part as saary reducton, ncome
State offcers and empoyees. (See State.)
Consodated returns. (See Returns.)
Constructve recept:
ecutor s fees
uture ncome, assgnment of
Interest on unco ected coupons
Contracts:
ssgnment of proceeds, ncome
Long-term, e cess profts ta
Contrbutons, chartabe, Savaton rmy and branches
Corporatons:
ffated. (See ffated corporatons see aso Returns:
Consodated.)
cess profts ta
empton. (See empt corporatons.)
oregn, agent and pace of busness n Unted States, returns..
Sae of assets by qudatng agent
Correspondence symbos, ureau of Interna Revenue
Cotton ( grcutura d|ustment ct). (See Processng ta es.)
Court decsons:
mercan Chan Co.: aton v
mercan Meter Co. McCaughn v
nderson Unted Sates Trust Co. of New York v
y /er ct a. v. Commssoner
atmore qutabe Socety v. Unted Sates
ass v. awey
ecker Mafftt e a. v
ecker Scott v__
eresen v. Whte
ourne v. Commssoner
owers amson e a. v
roadway endng Corporaton v. Sugden
rown Pennsyvana Company for Insurances on Lves and
Grantng nnutes e a. v
ryant Paper Co. v. oden
urnet Dungan v
urnet aussermann v
urnet awk Sugar Co. Ltd., v
urnet v. Le ngton Ice Coa Co
urnet: Sacks v
urnet Sanderson v
urnet e a. Unted States e re. I. G. arbenndustre kten-
gcseschaft v
urr Creamery Corporaton v. Commssoner
Cataract endng Corporaton v. Sugden
Cncnnat Underwrters gency Co. v. Commssoner
Commssoner ycr et a. v
Commssoner ourne v
Commssoner urr Creamery Corporaton v
6554
6543
6267
6575
6575
6292
G309
6555
6309
6354
6466
6354
6459
6576
6313
6341
6310
6450
6271
6482
6415
6357
6319
6267
6456
6287
6509
6522
6376
6269
6556
6378
6535
6294
6306
6310
6578
6268
6332
6344
6269
6355
6357
6522
6344
G
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a
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d

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3
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s
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#
p
d
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e
511
Court decsons Contnued.
Commssoner Cncnnat Underwrters gency Co. v
Commssoner Crppe Creek Coa Co. v
Commssoner Dougherty v
Commssoner Duram udng Corporaton v
Commssoner mer v
Commssoner awsett v
Commssoner Ives Dary, Inc.,
Commssoner ackson v
Commssoner: Laty v
Commssoner Lebes v
Commssoner Lndey v
Commssoner v. Nchos Co Lumber Co .-
Commssoner Pagrove Co. v
Commssoner Second Natona ank Trust Co. et a. v_
Commssoner Sommers v
Commssoner Unted Gas Improvement Co. v
Commssoner v. Ward Sons
Commssoner Wear et a. v
Commssoner Weer et a. v
Commssoner Westfedt v
Commssoner Wckham v
Commssoner Worm v
Contnenta Inos ank Trust Co. v. Unted States
Contnenta Inos ank Trust Co. Unted States v
Corwn Robertson v
Crppe Creek Coa Co. v. Commssoner
Crooks Southrdge Country Cub v
Dougherty v. Commssoner
Dean v. Unted Staes
Dungan v. urnet
Duram udng Corporaton v. Commssoner
are v. Unted Sates
aton v. mercan Chan Co
ckes Co. v. Unted States
dwards amson e a. v
mer v. Commssoner
awsett v. Commssoner
erguson v. Unted Staes
ord Motor Co. e a. v. Unted States
reeman v. Unted Sates
Gage Remngton-Rand, Inc., v
Grswod e a. v. everng
ausscrmann v. urnet
awey: ass v
Iener Mc eesport Tn Pate Co. v
everng Grswod et a. v
everng Wech v
obtzee v. Unted Sta.es
oden ryant Paper Co. v 1
7 es Dary, Inc., v. Commssoner
ackson v. Commssoner
amson et a. v. owers
amson e a. v. dwards
amson et a. v. Loue
awk Sugar Co., Ltd., v. urnet
Laty v. Commssoner
Lesenrng et a. v. Unted Staes
Le ngton Ice Coa Co. urnet v
Lebes v. Commssoner
Lndey v. Commssoner
Loose v. Unted Sates
Rung
No.
Page.
6355
217
6396
192
6354
180
6546
174
6545
172
6521
178
6547
240
6397
202
6345
293
6389
275
6374
108
6571
246
6377
218
6390
292
638S
155
6409
207
6478
153
6510
272
6410
284
6457
161
6432
241
6333
187
6411
286
6411
286
6455
110
6396
192
6557
366
6354
180
6411
286
6535
162
6546
174
6444
262
6271
369
6342
149
6376
196
6545
172
6521
178
6334
259
6325
374
6309
176
6481
372
6538
305
6294
221
6267
169
6494
209
6538
305
6S33
112
6322
268
6378
261
6547
240
6397
202
6376
196
6376
196
6376
196
6306
159
6345
293
6145
264
6310
234
638 )
275
6374
108
0466
182
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#
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e
512
Court decsons Contnued.
Lowe amson et a. v
Mafftt et a. v. ecker
Marand v. Unted States
McCaughn v. mercan Meter Co
Mc eesport Tn Pate Co. v. ener
Mc eesport Tn Pate Co. v. Unted States
McLaughn Rosenberg et a. v
Mur v. Unted Staes
Myers v. Unted States
rep ngand urnture Carpet Co. v. Unted Staes
Nchos Co Lumber Co. Commssoner v
Northern Trust Co. e a. v. Unted Staes
Page Perry et a.
Pagrove Co. v. Commssoner
Pennsyvana Company for Insurances on Lves and Grantng
nnutes et a. v. rown
Perry et a. v. Page
Pfaffnger Unted States v
Phadepha re Marne Insurance Co. v. Unted Staes..
Pper v. Wcuts
Remngton-Rand, Inc., v. Cage
Rce O Co. v. Unted Staes
Robertson v. Cor wn
Root and dety Depost Co. of Maryand Unted States v..
Rosenberg et a. v. McLaughn
Rouzahn Smmons Manufacturng Co. v
Sacks v. urnet
Sanderson v. urnet
Scott v. ecker
Second Natona ank Trust Co. et a. v. Commssoner..
Smmons Manufacturng Co. v. Rouzahn
Sommers v. Commssoner
Southrdge Country Cub v. Crooks
Stearns Co. v. Un ed Sates
Sugden roadway endng Corporaton v
Sugden Cataract endng Corporaton v
Unted Gas Improvement Co. v. Commssoner
Unted States: atmore qutabe Socety v
Unted Sates e re. I. G. arbenndustrc UengeseUschof v
urnet e a _
Unted States v. Contnenta Inos ank Trust Co
Unted States Contnenta Inos ank Trust Co v
Unted States Dean v
Unted States are v
Unted Sates ckes Co. v
Unted States erguson v
Unted States ord Motor Co. e a. v
Unted States reeman v
Unted States obtzce v
Unted Sates Lesenrng e a. v
Unted Sates Loose v
Unted Sates Marand v
Unted States Mc eesport Tn Pate Co. v
Unted States Mur v
Unted Staes Myers v
Unted States New ngand urnture cfc Carpet Co. v
Unted States Northern Trust Co. et a. v
Unted States v. Pfaffnger
Unted Staes Phadepha re Marne Insurance Co. v
Unted States Rce O Co. v
Rung
No.
Page.
6376
196
6456
139
6431
184
6482
376
6494
209
6494
209
6467
281
6416
229
6398
298
6296
255
6571
246
6411
286
6305
143
6377
218
6556
296
6305
143
6579
24S
6343
158
6321
164
6481
372
6570
130
6455
110
6284
224
6467
281
6286
251
6578
194
6268
190
6287
290
6390
292
6286
251
6388
155
6557
366
6285
230
6269
309
6269
309
6409
207
6319
121
6332
150
6411
286
6411
286
6411
286
6444
262
6342
149
6334
259
6325
374
6309
176
6322
26S
6445
264
6466
182
6431
184
6494
209
6416
229
6398
29S
6296
255
6411
286
6579
248
6343
158
6570
130
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513
Rung
No.
Page.
Court decs:ons Contnued.
Unted States v. Root and dety Depost Co. of Maryand..
Unted Sates Stearns Co. v
Unted States Trust Co. of New York v. nderson
Unted States: Warner Coeres Co. v
Unted States Wooner Dstng Co. v
Ward Sons Commssoner v
Warner Coeres Co. v. Unted Staes
Wear et a. v. Commssoner
Weer et a. v. Commssoner
Wech v. everng
Westfed v. Commssoner
Whe eresen v
Wckham . Commssoner
Weuts: Pper v
Wooner Dstng Co. v. UnUd States
Worm v. Commssoner
Courts, |ursdcton. See ursdcton.)
Credt or refund:
Cams
Prerequste., sut for recovery of ta es
Refund and amendments to
Coecton stayed by abatement cam. (-See Cams: bate-
ment.)
Deducton from refund of ta es for other years, duty of
Government and ta payer
Manufacturer. (.See Manufacturers e cse ta as.)
Overpayment credted aganst defcency of another
Suts. (See Suts: Recovery of ta .)
D.
Depeton:
O and gas wes
Charges to capta and e pense, reguatons amended
Lessee s deducton
Deprecaton, eased property, essor s and essee s deducton
Dsbarments. (-See ttorneys and agents.)
Dscount, purchase and sae of bank acceptances sgned by Secre-
tary of grcuture
Dsted sprts, wnes, etc., provsons of aw reatng to. (-See
Msceaneous ta es.)
Dstrant, estate ta . (-See state ta .)
Dvdends:
udng and oan assocatons
Informaton returns ..-
Wthdrawa n e cess of amounts pad n
Deducton, net ncome computaton, e cess profts ta
cse ta on
Corporate trustee, ndvdua benefcares
Decared dvdends, determnaton of
Dstrbutons n compete qudaton
mpoyees trust
6284
6285
6415
6295
6283
6478
6295
6510
6410
6533
6457
6509
6432
6321
6283
6333
/6334
6378
6520
6283
6416
6331
6443
0281
6463
empt organzaton
ducary recevng dvdends for ta -e empt benefcary
oregn corporatons dstrbuton by domestc company..
orm 1043, e ecuton of
Patronage dvdends, farmers cooperatve assocatons..
Payment by payor corporaton, stockhoders ncome
Recevers of nsovent natona banks
6465
6478
6421
6379
6559
6420
6548
/6348
6496
6335
/6380
6381
6470
6497
6419
6549
224
230
104
227
146
153
227
272
284
112
101
212
241
355
I
187
259
261
96
146
229
117
198
52
29
55
153
414
394
402
395
400
394
397
393
394
394
397
398
395
401
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514
Dvdends Contnued.
cse ta on Contnued.
Termnaton of
Wthhodng requrements
Income from sources wthn Unted States possessons.
Ta -e empt, gross ncome ncuson, net oss computaton
Dues and fees. (See Msceaneous ta es.)
.
arned ncome, nonresdent ctzens, e empton
ectrca energy. (See Manufacturers e cse ta es.)
mergency Raroad Transportaton ct, 1933
mpoyees benefcary assocaton, e empton
state ta :
oard s |ursdcton to redetermne greater defcency, pror
assessment -
Defcency subsequent to estate dstrbuton, dstrant to en-
force en, n|uncton
Dstrant
Gross estate -
Chartabe deducton
Deductons
Cams aganst the estate
Prevousy ta ed property
Insurance pocy proceeds
ont tenances, acquston before any estate ta ct
Property passng under power of appontment
Rea estate ocated n Inos
Statutory nterest n eu of dower
Suts, refund amendment
Transferee abty
Trust en|oyment sub|ect to change
Transfers
or pubc, chartabe, regous, etc., uses
In contempaton of death
Power to ater or amend trust nstrument
To take effect at death, contngent remander
states and trusts, wdow s e empton, prorty over edera
ta , Pennsyvana
stoppe, transferee, waver and petton under name and sea of
transferor
cess profts ta :
ffated corporatons, consodated returns...
oregn corporatons, ncome from shp operatons
oregn ncome ta credt
Interest, Unted States obgatons
Labty for and computaton of
Lfe nsurance companes
Long-term contracts
Net ncome computaton
Dvdend deducton
oregn ta deducton
Returns, e tenson of tme for fng
Termnaton of
changes, Lberty bonds for Treasury bonds, gan or oss
cse ta on dvdends. (See Dvdends.)
Rung
No.
G573
|(6276
6314
: 6437
I 6523
6294
6306
6408
6337
6318
6410
2S4
6467
281
6467
281
6399
280
6556
296
6345
293
6390
292
6389
275
6538
305
6510
272
6411
286
6287
290
6411
286
6467
281
6383
270
6417
229
6398
298
6322
268
6322
268
6375
138
6295
227
6540
420
6477
418
6392
409
6452
414
6423
409
6572
422
6159
415
6421
414
6498
420
6469
417
6573
422
6532
73
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515
ng
No.
Page.
empt corporatons:
udng and oan assocatons
mpoyees benefcary assocaton.
anners cooperatve assocaton. _
Mutua fre nsurance assocaton
Savaton nny and branches
empt ncome:
ccrua pror to March 1, 1913
arnngs of shps documented under foregn aws, e cess
profts ta
Interest
ward n condemnaton proceedngs
Purchase and resae agreement, ta -e empt securtes
Leases of Caforna tdeands
Nonresdent ctzens, earned ncome
Post aowances, etc., oregn Servce empoyees
Sae of o and gas eases, schoo ands
Montana
Okahoma
State. (See State.)
tenson of tme:
ng of returns
Capta stock ta
cess profts ta
Informaton, banks, trust companes and affates
Payment of capta stock ta
Processng ta . (See Processng ta es.)
.
armers cooperatve assocaton, e empton. (.Sec empt cor-
poratons.)
edera empoyees, resdent n Puerto Rco, ta abty of saares..
ttorneys , busness e pense deducton
ecutor s, constructve recept
ermented quors. (.See Msceaneous ta es.)
ed corn ( grcutura d|ustment ct). (See Processng ta es.)
sca year ended n 1033, revsed ncome ta forms
oor stock ta , deducton for ncome ta purposes
oregn corporatons, shp earnngs, e cess profts ta abty
oregn Servce empoyees, post aowances, etc., e empton
orms, ncome ta , revsed, fsca year 1933
urs. (See Manufacturers e cse ta es.)
Gan or oss:
changes, Lberty bonds for Treasury bonds
Invountary converson of property
Saes
Communty property, New Me co, sae by survvng
spouse
Property acqured by transfer n trust
Rea estate, contngent abty
Gasone. ( S ee Manufacturers e cse ta es.)
ogs ( grcutura d|ustment ct). (See Processng ta es.)
/6282
6568
6318
6344
6428
6577
6319
6576
6333
6477
6415
6493
6508
0408
6575
6570
6431
6385
6469
6519
6385
6292
6268
6309
652
6543
6477
6575
6524
6532
6265
6554
6476
6521
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516
I.
Inos rea estate ta es
Income from sources wthn Unted States possessons:
Dvdends :
Rentas and royates, author s works used n Unted States.
Rtnc
No.
6351
6294
6534
6536
.6537
6292
Unted States empoyee n Puerto Rco
Informaton returns. (See Returns.)
In|uncton, manufacturers e cse ta es. (Sec Manufacturers
e cse ta es.)
Inspecton of returns, reguatons governng
Instament saes:
utomobe and fnance companes, saes and oans dstn-
gushed
Losses, when deductbe
Rea estate
Inta payments
Lmtaton --
endor s subsequent dssouton, purchase money
notes satsfyng debts
Repossesson, gan or oss bass
Insurance companes:
Informaton returns, agents commssons
Consodated returns, affaton wth nonnsurance companes.
Lfe-
cess profts ta abty
Interest on guaranteed premum reducton poces, de-
ducton
Interest:
udng and oan assocatons, ta abty, nformaton returns
Lfe nsurance companes, guaranteed premum reducton
poces, deducton
Purchase and resae agreement, ta -e empt securtes, ta -
abty
Refunds, settement of War Cams ct
State obgatons
ward n condemnaton proceedngs
Purchase and resae agreement, e empton
Ta rf empt, net oss computaton, ncuson 6343
Uncoected coupons, constructve recept 6466
Unted States obgatons, e cess-profts ta : 6452
When ncuded n proof of cam aganst banks In recever-
shp, etc 6435
Interstate Commerce ct, amendments | 6337
Inventores, oyster propagaton and cuture busness (5308
Invountary converson of property, funds used for mortgage re-
ducton, gan or oss 6265
Iowa, State bankng department, empoyees compensaton, ta -
abty --- --- 6353
/6356
6484
6545
6578
6387
6546
6373
6300
6355
6572
6407
6465
6407
6493
6332
6415
6493
ewery. (See Manufacturers e cse ta es.)
ursdcton:
oard s, redetermnaton of greater defcency
Courts
Dstrct, sut n equty after termnaton of acton at aw.
Revew of oard s decson
63S9
6296
/6310
6357
356
502
168
169
73
79
275
255
234
23
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517
Rung
No.
Page.
Land, surface, ncreased cost to mnng company, avodance of
tgaton, oss deducton
Leases:
Caforna tdcands, ncome e empton
Montana schoo ands, o and gas ease, essee s ncome, e -
empton
O and gas, depeton, essee s deducton
Okahoma schoo ands, o and gas ease, essee s ncome, e -
empton
Lberty bonds e changed for Treasury bonds, gan or oss
Len, estate ta . (See. state ta .)
Lmtaton perod:
ssessment of ta es, request for prompt assessment by
e ecutor
Credt or refund, coecton stayed by abatement cam
Suts for recovery of ta es
ccount stated
ond gven after e praton of coecton perod
Reopenng of re|ected refund cam
Wavers
Commssoner s sgnature after mtaton perod, vadty.
Successor corporaton, estoppe
Transferee, waver under name and sea of transferor,
estoppe
Losses:
Corporaton organzed and fnanced by partnershp, partner s
deducton
Increased cost of mnng surface and, etc., avodance of t-
gaton
Instament saes, when deductbe
6430
0508
6570
6443
6431
6532
6456
6579
/6444
0445
6286
0325
6285
6571
6295
6376
6430
/6373
6578
a sae, property acqured by muncpaty 1 6372
Lubrcatng o. (Sec Manufacturers e cse ta es.)
M.
Manufacturers e cse ta es:
mendments to Revenue ct of 1932 by ct of une 16,1933.-1 0278
utomatc sot-devce vendng machnes, prepayment gas
meter . 6482
utomobe and truck chasss, hearse chasss I 6360
utomobes, parts or accessores
tra tres and nner tubes dstngushed 6270
Refund cams re|ected, reopenng, mtaton 6325
Tre covers, cotton processng ta ncuson 6433
Weed chans 6271
rewer s wort, sut n equty, n|uncton to restran ta co
ecton I 6269
Con-operated devces, automatc payer panos | 6481
Credts and refunds, evdence supportng cams, reguatons /G5G4
amended 11.6565
16358
6359
perod, Natona Industra Recovery ct, rcgua-
amended
ffectv
atom
urs, ambskn and sheepskn
Gasone
ffectve anuary 1, 1934
tenson of ta for one year.
Reguatons 44, amended
6361
6479
6573
6278
/6489
6581
115
128
130
198
184
73
139
248
262
264
251
374
230
246
227
196
115
60
194
51
428
376
314
315
374
314
369
309
71
340
341
343
344
364
312
422
428
327
329
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#
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e
518
Manufacturers e cse ta es Contnued.
ewery, etc., reguatons amended
Lubrcatng o
mendment of secton 601, Revenue ct of 1932
empton certfcate
Nonfud, sae or use of, ta computaton bass
Saes to State or potca subdvson, e empton certfcate..
Soft drnks-
Carbonc acd gas for pressure purposes
Soda fountan operated by State educatona nsttuton..
Sportng goods
ankrupt purchaser
Tenns racket manufacturer and producer
Ta -free saes, secton 620, Revenue ct of 1932, amended..
Ta -free saes for further manufacture
empton certfcate Reguatons 44 and 46, amended-.
Regstraton requrements, etc
Reguatons amended
Toet preparatons, etc., baby powder
Utmate purchaser defned
Use by manufacturer, producer, or mporter, reguatons
amended
esses, certan suppes
empton, reguatons amended
Ta abty
Merchant Marne ct, deductons aowed n computng net ncome.
Mchgan reta saes ta
Mnes, ncreased cost of surface and, etc., purchased to avod t-
gaton, oss deducton
Msceaneous ta es:
dmssons
aseba, free to ades
Newspaper reporters, photographers, teegraphers, rado
announcers, and smar persons admtted free (T. D.
4369)
Rung
No.
Reguatons amended (T. D. 4379).
Speca dutes, performance of, affdavt necessary
oats, effectve perod, reguatons amended
onds. See Stamp ta es, ths headng.)
Checks-
Cvan Conservaton Corps
Drawn aganst pubc funds, reguatons amended (T. D.
4396) .
Interest, proofs of cams aganst banks
Issued by trustees, recevers, or referees n bankruptcy..
Dues and fees, soca cub (Southrdge Country Cub v. Crooks).
ffectve perod, Natona Industra Recovery ct, regua-
tons amended
ectrca energy
mendment of secton 010, Revenue ct of 1932
Credts for ta pad by power company for energy fur-
nshed pror to September 1, 1933
Domestc or commerca consumpton, reguatons
amended
armers, frut growers, and for rrgaton purposes
6316
6278
6490
6511
16486
6488
6311
6558
6298
6346
63S2
6278
/6485
6487
6500
6278
6323
6288
/6327
6328
/6401
6404
6480
6509
6506
6430
6347
6274
6362
6363
6364
6275
/6366
6367
6324
355
6458
355
6435
350
6539
356
6557
366
6361
364
6278
42S
6499
326
643S
322
6338
324
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#
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e
519
Msceaneous ta es Contnued.
ectr ca energy Contnued.
Invocng before and after September 1, 1933
When ta attaches
Stamp ta es
onds, tobacco sea stores warehouse
Cgarettes and sma cgars, subdvson parces regua-
tons amended
Deed of conveyance, consderaton conssts of annutes-_
Dsted sprts, wnes, etc., provsons effectve and con-
tnung wth repea of eghteenth amendment
ffectve perod, Natona Industra Recovery ct, regu-
atons amended
change of stock for stock, ta abe rate
ermented quors, aws reatng to
oregn nsurance pocy ressued at dfferent amount
Passage tckets, round the word tcket, ncompete sae
n foregn country
Speca ta es
ermented quor deaers
Lquor deaer removng busness to dfferent ocaton.
Stamps, aowance for stoen quor stamps
Tobacco
onds, sea stores warehouse
Destructon before devery to vesse as sea stores,
ta abty
Leaf, types to be reported, reguatons amended
Processng ta , reguatons governng
Sea stores warehouse bond, reguatons amended
Transfer of securtes to buccrssor trustee
Wnes, etc., aws reatng to
Transportaton of o by ppe ne, reguatons amended
Montana:
Gasone ta
Schoo ands o and gas eases, essee s ncome e empton
Mutua fre nsurance assocatons, e empton
N.
Natona Industra Recovery ct:
mendment and repea, certan provsons of 1932 ct
cess profts ta on corporatons
cse ta on dvdends
Net ncome:
ass of computaton, oyster propagaton and cuture busness
Steamshp companes, deducton under Merchant Marne ct.
Net osses:
ffated corporatons, consodated and separate returns
Computaton, gross ncome ncuson, ta -e empt nterest
New ersey, ta sae, property acqured by muncpaty, oss de-
ducton
New Me co, communty property, sae by survvng spouse, gan
or oss
Nonresdent aens, author s works used n Unted States, rents and
royates from
O.
O and gas:
Depeton. (See Depeton.)
Leases, depeton, essee s deducton
Royates. ( S ee Royates.)
Rung
Page.
No.
6418
325
6468
325
6516
378
65 5
380
6272
364
6471
500
6365
358
6312
359
6471
500
6273
369
6446
365
6299
498
6448
399
6412
376
6516
378
6460
378
6563
380
6451
466
6516
378
6391
360
6471
500
6434
354
6304
39
6570
130
6319
121
6297
423
6313
407
6314
387
/6307
168
0308
169
6509
212
6306
159
6343
158
6372
51
655
77
T6534
131
16536
190
6537
199
6443
198
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520
Okahoma:
Saes ta
Schoo ands, o and gas eases, essee s ncome, e empton.
Oeomargarne:
Schedue of producton and materas used
Mav, 1933 and 1932
Rung
No.
6505
6431
0290
une, 1933 and 1932 6349
6400
6449
6513
6550
/6307
630S
uy, 1933 and 1932.
ugust, 1933 and 1932
September, 1933 and 1932
October, 1933 and 1932
Oyster propagaton and cuture busness, net ncome computaton,
use of nventores
P.
Partnershps:
Capta net oss, fsca year
Dstrbutve shares, members ta abty, porton retaned
by partners
Pennsyvana:
onus on capta stock ncrease, deducton
Wdow s e empton, ta prorty
Persona e penses:
ttorneys fees
Lega e pense
Medca and hospta e penses
Post aowances, oregn Servce empoyees, e empton
Practce requrements, oard of Ta ppeas, revsed to Novem-
ber 1, 1933 ,
Prorty of edera ta es, wdow s e empton, Pennsyvana
Processng ta es:
Cotton ( grcutura d|ustment ct)
oor ta , postponement of payment
Processng ta -
Postponement of payment
Page.
6457
6522
6409
6375
6268
6374
6522
6575
6527
6375
6370
/6369
6495
/6336
6405
6433
6543
6526
6525
/6503
6561
6451
Reguatons governng
Used n tre covers
Deducton for ncome ta purposes
ed corn, reguatons governng
ogs, reguatons governng
Returns, reguatons amended
Tobacco, reguatons governng
Wheat
Consumpton by producer, e empton cams and pena-
tes
Produced by schoo for own use, e empton
Reguatons governng
mended (T. D. 4371, page 476, revoked)
When ta attaches, reguatons amended (f5502
Prohbton, Treasury Decson 1 (Pro.) (C. . I-1, 350),
amended
Proof of cam, when nterest s ncuded. (See Interest.)
Property ta es. (See Ta es.)
R.
Rea estate, saes. (See Saes.)
Rea property, unproductve, carryng charges, deducton
Reempoyment and reef ta es, Natona Industra Recovery
ct
6512
6436
G301
6425
/6420
6562
6266
6277
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521
Refunds. (See Credt or refund.)
Reguatons:
mendments. (See mendments: Reguatons.)
Governng recognton of attorneys, agents, and others by
Treasury Department, amended
Inspecton of returns-
Repea, 1932 ct, sectons 23(), 23(r)2, 117, 169, 187, and 205-_
Reta saes ta , Caforna, deducton
Returns:
Consodated
ffaton, ownershp of stock
Domestc subsdares, foregn corporaton common
parent
Insurance and nonnsurance companes
Subsdary n bankruptcy or recevershp
Trustee for bankrupt parent, and subsdares
Corporatons
Consodated. (See Returns: Consodated.)
oregn, agent and pace of busness n Unted States,
vadty
tenson for fng. (See tenson of tme.)
sca year 1933, revsed forms
Informaton
uctoneers engaged n seng stock
rokers
re nsurance companes, agents commssons
Insurance companes
Interest and dvdend payments by budng and oan
assocatons
Inspecton of, reguatons governng
Processng ta . (See Processng ta es.)
Recevers, trustees handng assets for qudatng bank.
Revenue ct of 1932, amendments. (See mendments.)
Royates:
oregn author, ncome from Unted States sources
O and gas ease, sae of, capta gan
Rues of practce, oard of Ta ppeas, revsed
S.
Saes:
Communty property, New Me co, sae by survvng spouse-.
Corporaton assets, by qudatng agent
change of stock for stock, ta abe rate
Gan or oss
Property acqured before March 1, 1913
Stock acqured for cash
Ta sae, property acqured by muncpaty
Instament. (See Instament saes.)
Rea estate
dvance payment, ncome ncuson
Gan or oss, contngent abty
Instament. (See Instament saes.)
Rghts to subscrbe to stock
Stock, acqured for cash, gan or oss bass
Savaton rmy and branches, e empton
Schoo, processng of wheat produced by t for own use
Rung
No.
6402
/6356
6484
6297
6518
6377
6320
6355
6492
6442
6341
6524
6507
16474
6519
6300
6544
6465
/6356
6484
6330
T6534
6536
6537
6395
6527
6554
6310
6312
6333
6388
6372
6522
6521
6264
6388
6576
6436
37408 34-
34
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522
Soft drnks. (See Manufacturers e cse ta es.)
Speca dvsory Commttee, aboshed
Speca ta es, aws reat ng to rectfers of dsted sprts, etc
Sportng goods. (.See Manufacturers e cse ta es.)
Stamp ta es. (See Msceaneous ta es.)
State:
Lease of State ands, essee s ncome, e empton
Obgatons, nterest
ward n condemnaton proceedngs, e empton
cess profts ta
Purchase and resae agreement, e empton
Offcers and empoyees, compensaton
State bankng department, Iowa
Teachers, vocatona, prvate nsttuton
Ta es. (See Ta es.)
Steamshp companes, net ncome computaton, deducton under
Merchant Marne ct
Stock:
Sae of, gan or oss
Ta on, corporaton s payments for sharehoders, deducton.
Stock rghts, sae of
Suts:
Coecton of ta es, bond gven wth abatement cam
Lmtaton perod. (See Lmtaton perod.)
Recovery of money pad by mstake
Recovery of ta es
ccount stated
ond gven after e praton of coecton perod
Cam for refund, prerequste, suffcency of cam
Cosng agreement, effect of
Refund cam re|ected, reopenng, mtaton
Sut n equty after termnaton of acton at aw, dstrct
court s |ursdcton
Suspensons. (See ttorneys and agents.)
Symbos, correspondence, ureau of Interna Revenue
T.
Ta es:
grcutura d|ustment ct, deductbty for ncome ta
purposes
ssessment, mtaton perod. (See Lmtaton perod.)
ank and other stock, deducton .
onus, capta stock ncrease, Pennsyvana, deducton
Capta stock, accrua of
Defcency, nformaty of assessment, coecton by credt.-
cess profts. (See cess profts ta .)
cse, on dvdends. (See Dvdends.)
na determnaton and assessment, cosng agreement
oor ta . (See Processng ta es.)
oregn-
Deducton, net ncome computaton, e cess profts ta
Income ta , credt aganst e cess profts
Motor vehce fue, Montana
Prorty, wdow s e empton, Pennsyvana
Processng. (See Processng ta es.)
Property, Inos reta saes ta
Reempoyment and reef, Natona Industra Recovery ct
Rung
No.
Page.
6529
496
6471
500
( 6431
184
6508
128
6570
130
6415
104
6452
414
6493
100
6353
79
6429
81
6509
212
6388
155
6293
212
6264
31
6284
224
6283
146
/6444
262
6445
264
6286
251
f6334
259
6378
261
16494
209
6305
143
6325
374
6296
255
6450
493
6543
50
6293
212
6409
207
6464
42
6416
229
6305
143
6498
420
6392
409
6304
39
6375
138
6351
40
6277
3S2
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523
Ta es Contnued.
Saes
Caforna
Mchgan
Okahoma
Wthhodng. (See Wthhodng ta at source.)
Ta -free saes. (See Manufacturers e cse ta es.)
Teachers, vocatona, prvate nsttuton, compensaton
Technca Staff:
Organzaton
Personne
Tobacco. (See Msceaneous ta es.)
Toet goods. (See Manufacturers e cse ta es.)
Transfer to avod ncome ta , transfer agent, statements
Transferred assets, waver and petton by transferee under name
and ea of transferor, estoppe
Traveng e penses, N. R. . Recovery oard member
Trusts, revocabe, ncompete gft, grantor s abty
U.
Unted States oard of Ta ppeas:
Decsons of
Lst of acquescences and nonacquescences
Revew of, |ursdcton of court
ndngs of fact, revew
Rues of practce, revsed to November 1, 1933
.
enue, revew of oard s decson
esses, suppes for. (See Manufacturers e cse ta es.)
W.
Wavers of statute of mtaton. (See Lmtaton perod: Wav-
ers.)
War cams, nterest on refunds under Settement of War Cams
ct
Wheat ( grcutura d|ustment ct). (See Processng ta es.)
Wdow s e empton, Pennsyvana, prorty over edera ta es
Wnes, etc. (See Msceaneous ta es.)
Wsconsn, ncome ta , deducton
Wthhodng ta at source, e cse ta on dvdends. (See Dv-
dends.)
Wyomng, budng and oan assocatons, e empton
Run
No.
6518
6506
0505
6429
6529
6530
6472
6295
6441
6397
6574
/6310
6357
f6432
6522
6547
6527
6357
6332
6375
6551
6282
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