Internal Revenue Service Cumulative Bulletin 1953-1

Interna Revenue uetn
Cumuatve uetn 1953-1

NU RY- UN 1953
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INT RN L R NU
ULL TIN
CUMUL TI ULL TIN 195 -1
anuary- une 1953
n ths ssue page
Fndng Lst m-v
Introducton 1
Ta Court of the Unted States, The 3-7
Part I. Rungs and Decsons 9- 1
Part II. dmnstratve Matters 3-52
Part III. Msceaneous 529-532
Inde 533-5
UNIT D ST T S
GO RNM NT PRINTING OFFIC
W S INGTON : 1953
For sae by the Superntendent of Documents, U S. Government Prntng Offce
Washngton 25, DC. - Prce 1.00 Paper)
LI R RY
UNI RSITY OF C LIFORNI
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FINDING LIST
Pace
175 ..
173 _
...
10..
16.
1
II..
a..
3 ..
T__
0
as
IN
M
7

529
179

37

7
120
22
300
6

532
290
29
3
1 1
173
227
u
9
2.,
62

3
263
31
91
6
211
67
171
2a
266
267
360
9
2
M
16
7
52
m
63
0
IN
17
2 7
3U5
392
396
6
97
5
79
20
269
sua
25
53
6
6
17
71
Revenue Rungs Contnued
63
6
66...
67...,
6 ...
69...
70...
71...
72...
73...
71...
75...
76...,
77...,
7 ....
76..-,
0..
1...
2..
3..
..
5...
6..
7..,
eo..
91..
M..
3..
91..
96..
6.
97..
99. ,
100
101
102
103
10
105
106
107
10
109
110
I
112
113
11
115
116
117
11
Treasury Decsons:
695
6955
6956
6957
695
5959
6960
6961
6962
6963
696
6965
6966
6967
(m)
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Pape
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INTRODUCTION
The Interna Revenue uetn s the authortatve nstrument of the
Commssoner of Interna Revenue for the announcement of offca
Interna Revenue rungs, and for the pubcaton of Treasury Dec-
sons, ecutve orders, egsaton, and court decsons pertanng to
Interna Revenue matters.
It s the pocy of the Servce to pubsh n the uetn a sub-
stantve and procedura rungs of mportance or genera nterest, the
pubcaton of whch s consdered necessary to promote a unform
appcaton of the aws admnstered by the Servce. It s aso the
pocy to pubsh a rungs whch revoke, modfy, amend, or affect
any pubshed rung. Rungs reatng soey to matters of nterna
management are not pubshed. The rungs are prepared n the
varous dvsons of the Natona Offce, ncudng the Offce of the
Chef Counse for the Interna Revenue Servce. pubshed rungs
have receved the consderaton and approva of the Chef Counse.
Revenue Rungs reported n the uetn do not have the force and
effect of Treasury Department Reguatons (ncudng Treasury Dec-
sons), but are pubshed to provde precedents to be used n the ds-
poston of other cases, and may be cted and reed upon for ths
purpose. owever, snce each pubshed rung represents the con-
cuson of the Servce as to the appcaton of the aw to the entre
state of facts nvoved, Revenue offcers and others concerned are cau-
toned aganst reachng the same concuson n other cases uness the
facts and crcumstances are substantay the same. In appyng ru-
ngs pubshed n the uetn, personne of the Servce w, of course,
consder the effect of subsequent egsaton, reguatons, court dec-
sons, and rungs.
ach rung s desgnated as a Revenue Rung and shoud be
cted by reference to the uetn and page where reported. Thus,
Revenue Rung No. 1 shoud be cted as Rev. Ru. 1, C. . 1953-1,
36. Rungs are keyed to the appcabe sectons of the Interna
Revenue Code and reguatons.
Interna Revenue Cumuatve uetn 1953-1, contans a rungs,
decsons, and egsaton pertanng to Interna Revenue matters
pubshed n the bweeky Interna Revenue uetns 1 to 13, ncusve,
for the perod anuary 1 to une 30, 1953. It aso contans a cumua-
tve st of announcements reatng to decsons of The Ta Court of
the Unted States, pubshed n those uetns.
Ths Cumuatve uetn s prnted n three parts. The rungs
under the Interna Revenue Code are prnted as Part I, rungs per-
tanng to admnstratve matters are prnted as Part II, and msce-
aneous matters are prnted as Part III.
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2
R I TIONS
The foowng abbrevatons n current use and formery used w
appear n matera pubshed n the uetn:
, , C, etc. The names of ndvduas.
. T. coho and tobacco ta rung.
. T. . oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson.
D. C. Treasury Department crcuar.
. O. ecutve Order.
. T. state and gft ta rung.
m. T. mpoyment ta rung.
G. C. M. Chef Counse s memorandum (formery Genera Counse s memo-
randum).
I. R. . Interna Revenue Ruetn.
I. R. C. Interna Revenue Code.
IR-Mm. Pubshed IR-Mmeograph.
I. T. Income ta rung.
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses accordng
to conte t.
M. T. Msceaneous ta rung.
Mm. Pubshed Mmeograph.
P. L Pubc Law.
Rev. Ru. Revenue Rung.
. T. Saes ta rung.
T. C The Ta Court of the Unted States.
T. D. Treasury Decson.
and ;/ are used to represent certan numbers, and when used wth the word
doars represent sums of money.
NNOUNC M NT R L TING TO D CISIONS OF T T COURT OF T
UNIT D ST T S
It s the pocy of the Interna Revenue Servce to announce n the
Interna Revenue uetn at the earest practcabe date the deter-
mnaton of the Commssoner to acquesce or not to acquesce n a
decson of the Ta Court of the Unted States whch dsaows a de-
fcency n ta determned by the Commssoner to be due. Notce that
the Commssoner has acquesced or nonacquesced n a decson of the
Ta Court reates ony to the ssue or ssues decded adversey to the
Government. Decsons so acquesced n shoud be reed upon by
offcers and empoyees of the Interna Revenue Servce as precedents
n the dsposton of other cases. (No announcements are made n
the uetn wth respect to memorandum opnons of the Ta Court.)
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T T COURT OF T UNIT D ST T S
CUMUL TI LIST OF NNOUNC M NTS R L TING TO
D CISIONS OF T T COURT OF T UNIT D ST T S
PU LIS D IN T INT RN L R NU ULL TIN FROM
NU RY I, 1953, TO UN 30, 1953, INCLUSI
The Commssoner acquesces n the foowng decsons
dda, Fernand C. .
key Camera Instrument Corp. (formery key
Camera, Inc.)
twe, Laura urghcr 1
twe, Webster -
Pard-Parker Co., Inc -

oyt, . -- -
oyt, arbaradna
oyt, Dorothv F., ct a., admnstrators of estate of
Pau . oyt
oyt, zabeth M
oyt, . W -
oyt, Pau ., estate of
rown W amson Tobacco Corporaton 5
urton, . C. Company, et a
uter, Nchoas Murray, estate of
Caforna Casket Co.
Charotte Unon us Staton, Inc
Chase Natona ank of the Cty of New York, The,
e ecutor of the estate of Lous Sternberger 5
Chryste et a., T. Ludow, e ecutors of estate of
Nchoas Murray uter
Cark, Ws W.
Crowder, pha
Crowder, Ray
Docket No.
11170
1390
27597
29776
27596
29775
r -15
239 1
239 3
239 2
239
239 0
239 2
15020
1716
32 31
30 19
31330
313
32 31
136 6
30307
30306
oume
eport
Pare
10
1
17

IS
1
1
s
IS
1
s
16
s
IS
19
f
1
11
19
19
1 Nonacquescence pubshed In Cumuatve uetn 19 3-2, page S, wthdrawn.
Nonacquescence pubshed In Cumuatve uetn 1(152-2, pace , wthdrawn.
Nonacquescence pubshed n Cumuatve uetn 1C51-2, pace 6, wthdrawn.
state ta decson.
1 cquescence reates ony to the ssue of whether the amount pad for brokerage and ega fees Is an
aow a he estate ta deducton.
Nonacquescence pubshed In Cumuatve uetn 16 9-1, page 5, wthdrawn.
(3)
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cquescences Contnued
Ta payer
Denbgh, as ennedy, admnstrator c. t. a. of estate
of ohn aday Denbgh 1 2
Denbgh, ohn aday, estate of 12
denfed, Ray
dwards, dward W., et u
ot, Chares dward Murray, e ecutor of estate of
arcourt ohnstone 1
merson, Isaac
qutabe Lfe ssurance Socety of the Unted States,
The I
F
Fak, r., et a., Leon, e ecutors of the estate of Mau-
rce Fak -
Fak, Maurce, estate of1
Faucette Co., Inc. -
Fawn Lake Ranch Co1
Ferguson, nne ee
Ferguson, r., Water M. _
Forcum, ern - - -
Ford, Carence
Fo , eanor C
Fo , Water S
Graves rothers Co
Green, .
Green, Meare N
Greer, r., Wam Waace
r et u ., Chares S.
ae, dward
amton Natona ank of no ve, e ecutor and
trustee of estate of Nee . ennngs15
ance, ohn ., estate of 1
ance, Percy L., e ecutor of estate of ohn . ance
anch, Chares C, estate of
anch, aze M., e ecutr of estate of Chares C.
anch 1
ens ey, Inc
opag S. . odng de Partcpaton et de Geston
de revets Industres
owe, M. adden, estate of1
owe, Forence ., e ecutr of estate of M. adden
owe -
untngton Natona ank of Coumbus, Oho, The 1
Docket No.
317
317
23 01
2 55
33702
26760
16100
31 70
30311
30311
2 0 6
113 1
193 0
103 6
9393
9391
2 55
2 5
2 09
29 6
239 7
239 7
30 19
266
313 2
6 71
3 153
3 153
30093
30093
13993
17170
19 79
19 79
17736
1 state ta decson.
Nonacqucsceee pubshed n Cumuatve uetn 19 6-2, page 6, wthdrawn.
1 Nonacquescence pubshed n Cumuatve uetn 19 9-2. page , wthdrawn.
1 Nonacquescence pubshed n Cumuatve uetn 1950-2, page 5, wthdrawn.
Nonacquescence pubshed n Cumuatve uetn 19 -2, page S, wthdrawn.
Not appcabe to cases nvovng transfers after October 7, 19 9.
Nonacqucscence pubshed n Cumuatve uetn 1960-1, page 7, wthdrawn.
oume Page
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5
cqcescences Contnued
Ta payer
Docket No.
Rep-rt
oume
ennngs, Nee ., estate of .
ohnson, . R. Fenmore
ohnson, anet Darby
ohnstone, arcourt, estr.te of
eUy, dward . -
ng, r., Ws L., estate of1
en, arry
uckhohn et u ., Frank L
Latmer-Looney Chevroet, Inc.5
Leuthesser, dward G., aeged transferee of Natona
Meta Products Corp.
Leuthesser, r., Fred W., aeged transferee of Natona
Meta Products Corp.
Macfarane, ce M.7
Meon Natonn ank Trust Co., e ecutor of estate
of Ws L. ng, r.1
McGay, onne 1
McGay, . . ... - -
Moore, Madge M., e ecutr of estate of Wade .
Moore
Moore, Wade ., estate of
Munce, Curts II
N
New McDermott, Inc., The
Nchoson, G. .
Nchoson, Oma M. -
Phadepha Tte Insurance Co.
R
Rchards, r., rnest .
Rchards, Loretto Mc enna
Robert Doar Co., The (successor to dmra Orenta
6 71
2311
23115
26760
35676
30907
2 95
3 325
239 6
35 53
2 17
2 1
27259
30907
293 7
293 6
9392
9392
35 72
99360
293
293 5
259 2
239 5
239 5
25 3
25 37
25CC0
10
1 )
19
19
1 )
IS
1
1
1
19
1
IS
19
1
17
17
19
19
1

17
17
17
1
1
19
19
1
oard o. Ta ppeas.
state ta decson.
Norraequescence pu shed In Cumuatve uetn 19 -2, page 5, wthdrawn.
1 Gft ta decson.
1 Nonacquescence pubshed n Cumuatve uetn 1992-2, page 5, wthdrawn.
onacquescence pubshed on page 7, ths uetn, wthdrawn.
cquescence reates ony to ssue of whether pettoner s personay abe as fducary.
1 cquescence not appcabe to payments receved after December 31,1950.
onacquescence pubshed n Cumuatve uetn 19 1-2, page 22, wthdrawn.
onacquescence pubshed In Cumuatve uetn 1952-1, page 6, w thdrawn.
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cquescencbs Contnued
Ta payer
Docket No.
Report
oume Page
Saer, Patrca O Leary 1
Saer, Wm. .
Semnoe Rock and Sand Co
Sharp, Madeene N.
Shunk Late Products, Inc., L. . .
ot, ndrew P
Spanger, Chester
Spanger, Luce
Spencer, ohn unker
Spencer, Nta Murry
Sternberger, Lous, estate of
Streckfus Steamers, Inc
Theurkauf, dward .7
Thompson, Trust, eremah W.1
Thompson, III, Trust , oe Cark 1
Thompson, ohn P.1 --
Tramme, George Marsha, estate of --
Tramme, r., George M., admnstrator d. b. n. of
estate of George Marsha Tramme5
Trout-Ware, Inc. | ,
TwogoocL Frances F., e ecutr of estate of Frederck
ohn Twogood s --- -
Twogood, Frederck ohn, estate of 5 10 -
an ergh, Maurce . __
W
Wagner Manufacturng Cc, . It.12
Wang, ugh, et u
Wkns, rgna M
Wsconsn ectrc Power Co
Wodchouse, Peham G.
2977
32203
29777
32202
326 5
1 110 77
271 3
27163
2 52
2 603
32267
3226
313
33 19
25503
157 9
297 1
297 0
29779
27666
27666
1 910
2063
2063
33 3
2
30370
303 6
3127
32207
17
17
19
3
1
19
1
1
19
19
1
19
13
17
17
17
1
1
11
15
15
1
1
19
19
1
19
137
137
259
1062
9 0
1 3
976
976
727
727
36
529
137
137
137
662
662
505
9 9
9 9
51
657
3
752
0O
7
oard of Ta ppeas.
Nonacquescence pubshed In Cumuatve uetn 1552-2, page 6, wthdrawn.
Gft ta decson.
1 Nonacquescence pubshed n Cumuatve uetn 15 , page wthdrawn.
cquescence reates ony to the rate of amortzaton of mprovements.
state ta decson.
cquescence reates ony to the Issue of whether the amount pad for brokerage and ega fees Is an aow-
abe estate ta deducton.
; Nonacquescence pubshed In Cumuatve uetn 1950-1, page , wthdrawn.
Nonacquescence pubshed n Cumuatve uetn 19 9-1, page 6, wthdrawn.
Not appcabe to cases nvovng transfers after October 7, 19 9.
c Nonacquescence pubshed n Cumuatve uetn 1951-2. page 6. wthdrawn.
cquescence reates ony to tho ssue whether the pettoner was sub|ect to the 5-year statute of m-
tatons because of an omsson from grass ncome.
cquescence reates ony to the resut.
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The Commssoner does NOT acquesce n the foowng decsons:
Ta payer
Docket No.
Report
oume Page
mercan Meta Co.
Ltd., The.
eaver Trust Company, et a., e ecutors of estat of

Lauson Stone
1 et u ., Thomas
C
Natona ank of the Cty of New York, The,
e ecutor of estate of Lous Sternberger 1
Fortee Propertes, Inc.
Gcnshaw Gass Co
F
G
awkeye
II
Corporaton
Manufacturng Co., The

L
Latmer-Looney Chevroet, Inc
Leuthesser, dward G., aeged transferee of Natona
Meta Products Corp
I uthesscr, r., Fred W., aeged transferee of Natona
Meta Products Corp.
M
Macy, . Noe, et a.
Macy, r., aentne .
McCue ros. Drummond, Inc.
S
Shank Late Products, Inc., L. . _
Southwest poraton Co
Sternberger, Lous, estate of1
Stone, een D
Stone, Lauson, estate of
Sutan, dward D
Sutan, Oga L
an ergh, Maurce II.5.
315 7
32250
29391
29392
313-1
33973
30 21
30303
271
35 53
2 17
2 1
27153
27152
31 5
271 3
2 72
313
32250
32250
2 513
2 51
33 3
19
19
IS
1
n
1
1
IS
19
IS
1
19
19
IS
IS
IS
1.)
t
IS
IS
IS
1 state ta decson.
1 N ooacqnescence reates ony to the queston whether the present vaue of a contngent remander to
etarty can be fed where-thc factors to be consdered ncude the marrage o. decedent s daughter and her
reates ony to the Issue whether the provsons of secton 27G(b) or secton 37 0(c) of
Code appy to e tend the statuto of mtatons on assessment of ta for a year n whch
ft tentatve aowance resutng from a net operatng oss carryback has been made,
reates ony to the aocaton of partnershp ncome.
, reates ony to the ssue whether the pettoner was entted to a refund by reason of
net m carryback.
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P RT I. RULINGS ND D CISIONS
INT RN L R NU COD
C PT R 1. INCOM T
SU C PT R . G N R L PRO ISIONS
P RT I. R T S OF T
S CTION 12. SURT ON INDI IDU LS
Secton 29.12-2: Computaton of surta . T. D. 5993
( so Secton 29.12-5; Secton 25, Sec-
ton 29.25-3; Secton 51, Secton
29.51-2; Secton 02, Secton 29. 02-1.)
TITL 26 INT RN L R NU C PT R I, SU C PT R , P RT 29
INCOM T ; T L I RS GINNING FT D C M R 1, 1D 1
Reguatons 111 amended to conform to sectons 301 and 310
of the Revenue ct of 195L
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and
Others Concerned:
On November 15, 1952, notce of proposed rue makng was pub-
shed n the Federa Regster (17 F. R. 10 62) conformng Regua-
tons 111 26 CFR, part 29 to sectons 301 and 310 of the Revenue
ct of 1951, approved October 20, 1951. fter consderaton of a
such reevant matter as was presented by nterested persons reatng
to the rues proposed, the amendments to Reguatons 111 set forth
beow are hereby adopted.
Paragraph 1. There s nserted mmedatey precedng secton
29.12-1 26 CFR 29.12-1 the foowng:
S C. 301. T TR TM NT IN C S OF D OF OUS OLD
R NU CT OF 1951, PPRO D OCTO R 20, 1951 .
(a) Surta n Cask of ead of ousehod. Secton 12(c) Is
hereby amended to read as foows:
(c) Rates of Surta ead of ousehod.
(1) Ta abe years begnnng after octobeb s, 1951, and before
anuary , 195 . In the case of ta abe years begnnng after Octo-
ber 31, 1951, and before anuary 1, 195 , there sha be eved, co-
ected, and pad for each ta abe year upon the surta net ncome of
every ndvdua who s the head of a househod the surta shown n
the foowng tabe:
(9)
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.12-2. 10
If the surta net ncome s: The surta sha be:
Not over 2,000 19.2 of the surta net n-
come.
Over 2,000 but not over ,000 3 , pus 20. of e cess
over 2,000.
Over ,000 but not over 6,000 792, pus 2 of e cess over
,000.
Over 6,000 but not over S .000 1,272, pus 26 of e cess
over 6,000.
Over ,000 but not over 10,000... 1,792, pus 31 of e cess
over ,000.
Over 10,000 but not over 12,000.. 2, 12, pus 32 of e cess
over 10,000.
Over 12,000 but not over 1 ,000.. 3,052, pus 3 of e cess
over 12,000.
Over 1 ,000 but not over 16,000.. 3, 12, pus 1 of e cess
over 1 ,000.
Over 16,000 but not over 1 ,000.. ,632, pus of e cess
over 16,000.
Over 1 ,000 but not over 20,000.. 5,512, pus 5 of e cess
over 1 ,000.
Over 20,000 but not over 22,000.. 6, 12, pus 9 of e cess
over 20,000.
over 22,000.
Over 2 ,000 but not over 2 ,000.. , 12, pus 5 of e cess
over 2 ,000.
over 2 ,000.
Over 32,000 but not over 3 ,000.. 12, 52, pus 60 of e cess
over 32,000.
Over 3 ,000 but not over ,000.. 16, 52, pus 63 of e cess
over 3 ,000.
Over ,000 but not over 50,000.. 20,232, pus 6 of e cess
over 1 ,000.
Over 50,000 but not over 60,000.. 2 ,312, pus 69 of e cess
over 50,000.
Over 60,000 but not over 70,000.. 31,212, pus 70 of e cess
over 60,000.
Over 70,000 but not over 0,000.. 3 ,212, pus 7 of e cess
over 70,000.
over 0,000.
Over 90,000 but not over 100,000. 53,212, pus 7 of e cess
over 90,000.
over 100,000.
over 150,000.
Over 200,000 but not over 300,000. 1 ,512, pus of e cess
over 200,000.
Over 300,000 232,512, pus 9 of e cess
over 300,000.
(2) Ta abe tears n nNNNO after December s, 19 . In the
case of ta abe years begnnng after December 31, 1953, there sha
be eved, coected, and pad for each ta abe year upon the surta
net ncome of every Indvdua who s the head of a househod the
surta shown n the foowng tabe:
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11
15 29.12-2.
If the surta net ncome s:
Not over 2,000
The surta sha be:
17 of the surta net ncome.
Over 2,000 but not over ,000 3 0, pus 1 of e cess over
2,000.
Over ,000 but not over 6,000 700, pus 21 of e cess over
,000.
Over 6,000 but not over ,000 1,120, pus 23 of e cess
over 6,000.
Over ,000 but not over 10,000... 1,5 0, pus 27 of e cess
over ,000.
over 10,000.
over 12,000.
over 1 ,000.
Over 16,000 bu not over 1 ,000.. ,0 , pus 39 of e cess
over 16,000.
Over 1 ,000 but not over 20,000.. , 60, pus 0 of e cess
over 1 ,000.
Over 20,000 but not over 22,000.. 5,660, pus of e cess
over 20,000.
Over 22,000 but not over 2 ,000.. 6,5 0, pus 6 of e cess
over 22,000.
Over 2 ,000 but not over 2 ,000.. 7, 60, pus 9 of e cess
over 2 ,000.
Over 2 ,000 but not over 32,000.. 9, 20, pus 51 o e cess
over 2 ,000.
Over 32,000 but not over 3 ,000.. 11, 60, pus 55 of e cess
over 32,000.
Over 3 ,000 but not over ,000.. 1 ,760, pus 59 of e cess
over 3 ,000.
Over ,000 but not over 50,000.. 1 ,300, pus 63 of e cess
over ,000.
Over 50,000 but not over 60,000.. 22,0 0, pus 65 of e cess
over 50,000.
Over 60,000 but not over 70,000.. 2 ,5 0, pus 6 of e cess
over 60,000.
over 70,000.
Over 0,000 but not over 90,000.. 2, 0 pus 73 of e cess
over 0,000.
over 90,000.
Over 100,000 but not over 150,000. 57, 0, pus 0 of e cess
over 100,000.
Over 150,000 but not over 200,000. 97, 0, pus of e cess
over 150,000.
Over 200,000 but not over 300,000. 139, 0, pus 7 of e cess
over 200,000.
(3) Defnton or head or househod. For the purposes of ths
chapter, an ndvdua sha be consdered a head of a househod
f, and ony f, such ndvdua s not marred at the cose of hs
ta abe year and mantans as hs home a househod whch con-
sttutes for such ta abe year the prncpa pace of abode, as a
member of such househod, of:
( ) son, stepson, daughter, or stepdaughter of the ta -
payer, or a descendant of a son or daughter of the ta payer, but
If such son, stepson, daughter, stepdaughter, or descendant s
marred at the cose of the ta payer s ta abe year, ony f the
ta payer s entted to an e empton for the ta abe year for
such person under secton 25 (b) ; or
Over 300,000.
226, 0, pus of e cess
over 300,000.
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29.12-2.
12
( ) ny other person who s a dependent of the ta payer,
If the ta payer s entted to an e empton for the ta abe year
for such person under secton 25(b).
n ndvdua sha be consdered as mantanng a househod ony
f over haf of the cost of mantanng the househod durng the
ta abe year s furnshed by such ndvdua.
( ) Determnaton of status. For the purposes of ths sub-
secton
( ) a egay adopted chd of a person sha be consdered
a chd of such person by bood;
( ) an Indvdua who s egay separated from hs spouse
under a decree of dvorce or of separate mantenance sha not
be consdered as marred;
(C) a ta payer sha be consdered as not marred at the
cose of hs ta abe year f at any tme durng the ta abe year
hs spouse s a nonresdent aen; and
(D) a ta payer sha be consdered as marred at the cose of
hs ta abe year f hs spouse (other than a spouse descrbed
n subparagraph (C)) ded durng the ta abe year.
(5) Nonresdent aen. For the purposes o; ths chapter a ta -
payer sha n no case be consdered a head of a househod f at
any tme durng the ta abe year he s a nonresdent aen.

(c) ffectve Date. The amendments made by ths secton sha be
appcabe ony wth respect to ta abe years begnnng after October
31.1951.
Par. 2. Secton 29.12-2, as amended by Treasury Decson 59
C. . 1952-2, 7 , approved November 10, 1952 26 CFR 29.12-2 ,
s amended further by addng at the end thereof the foowng:
For ta treatment of head of househod for ta abe years begnnng after
October 31.1951, see secton 29.12-5.
Par. 3. There s nserted mmedatey after secton 29.12-
26 CFR 29.12- the foowng new secton:
Sec. 29.12-5. Surta n Case of ead of ousehod. (a) Genera rue.
For ta abe years begnnng after October 31, 1951, an ndvdua who s the
head of a househod under the rues prescrbed n secton 12(c) s sub|ect to
the surta mposed by that secton Instead of the surta Imposed by secton
12(b)(2) and secton 12(b) (3).
(6) Defnton of head of househod. (1) For the purpose of secton 12(c),
the ta payer sha be consdered the head of a househod f, and ony If, he s not
marred at the cose of hs ta abe year and mantans as hs home a househod
whch consttutes for such ta abe year the prncpa pace of abode, as a member
of such househod, of at east one of the Indvduas specfed n secton
12(c) (3) ( ) or provded for In secton 12(c) (3) ( ). Under no crcumstances
sha the same Indvdua be used to quafy more than one ta payer as the head
of a househod In the same ta abe year.
(2) Secton 12(c) (3) ( ) specfes that any of the foowng persons may be
nsed to quafy the ta payer as the head of a househod : a son, stepson, daughter,
stepdaughter, or a descendant of a son or daughter of the ta payer. If, however,
such person Is marred at the cose of the ta abe year of the ta payer, the ta -
payer may quafy as the head of a househod by reason of such person ony If
the ta payer s entted to an e empton for hs ta abe year under secton 25(b)
for such person, that Is, ony f such person has a gross ncome of ess than 000
for the caendar year In whch the ta abe year of the ta payer begns, If the
ta payer suppes more than one-haf of the support of such person for such
caendar year, and If such person does not make a |ont return wth hs spouse for
the ta abe year begnnng n such caendar year. For e ampe, If such person Is
an unmarred son of the ta payer, the ta payer s not deprved of hs status as
the head of a househod because the son has ncome n e cess of 600 for the
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13
29.12-2.
caendar year n whch the ta abe year of the ta payer begns; f, however, such
son s marred at the cose of the ta abe year of the ta payer, the ta payer st
may quafy as the head of a househod, but ony f the gross ncome of the
son s ess than 600 for the caendar year n whch the ta abe year of the ta -
payer begns and the other condtons for aowance of the dependency credt
under secton 25(b) are met.
(3) Secton 12(c)(3)( ) provdes that a person for whom the ta payer s
entted to an e empton under secton 25(b) for the ta abe year may be used
to quafy the ta payer as the head of a househod. Secton 25(b) provdes that
the ta payer may be entted to an e empton for any of the foowng persons:
() hs brother, sster, stepbrother, or stepsster;
() hs father or mother, or an ancestor of ether;
( ) hs stepfather or stepmother;
(v) a son or a (aughter of hs brother or sster;
(v) a brother or sster of hs father or mother; or
(v) hs son-n-aw, daughter-n-aw, mother-n-aw, father-n-aw, sster-
n-aw, or brother-n-aw;
If such person has a gross ncome of ess than 600 for the caendar year n
whch the ta abe year of the ta payer begns, f the ta payer suppes more than
one-haf of the support of such person for such caendar year and If such person
does not make a ont return wth hs spouse for the ta abe year begnnng In
such caendar year. For e ampe, an unmarred ta payer who mantans a home
for hmsef and hs wdowed mother may not quafy as the head of a househod
by reason of hs mantenance of a home for hs mother f hs mother has ncome of
600 or more n the caendar year n whch the ta abe year of the ta payer
begns, or f he does not furnsh more than one-haf of the support of hs mother
for such caendar year.
( ) For the purposes of ths secton, a ta payer sha be consdered as not
marred f at the cose of hs ta abe year he s egay separated from hs spouse
under a decree of dvorce or separate mantenance, or f at any tme durng the
ta abe year the spouse to whom the ta payer s marred at the cose of hs ta -
abe year was a nonresdent aen. ta payer sha be consdered marred at
the cose of hs ta abe year f hs spouse (other than a spouse who s a non-
resdent aen) des durng such year.
(c) ousehod. Secton 12(c) s appcabe ony where the househod actuay
consttutes the home of the ta payer for hs ta abe year and aso consttutes the
prncpa pace of abode of at east one other person specfed n secton
12(c)(3)( ) or provded for by secton 12(c)(3)( ) for such ta abe year,
wthout regard to the fact that the physca ocaton of such househod may have
changed durng such ta abe year. It s not suffcent that the ta payer mantan
the househod wthout beng Its occupant. The ta payer and such other person
must occupy the househod for the entre ta abe year of the ta payer. They
w be consdered as occupyng the househod for such entre ta abe year not-
wthstandng temporary absences from the househod due to speca crcum-
stances. nonpermanent faure to occupy the common abode by reason of
ness, educaton, busness, vacaton, mtary servce, or a custody agreement
under whch a chd or stepchd Is absent for ess than 6 months n the ta abe
year of the ta payer, sha be consdered a temporary absence due to speca
crcumstances. Such absence w not prevent the ta payer from quafyng
as the head of a househod f (1) t s reasonabe to assume that the ta payer
or such other person w return to the househod, and (2) the ta payer contnues
to mantan such househod or a substantay equvaent househod n antcpa-
ton of such return. The ta payer w not be deprved of the benefts of secton
12(c) because such other person des durng the ta abe year of the ta payer f
the househod consttutes the prncpa pace of abode of such other person durng
that part of such ta abe year precedng death.
(d) Cost of mantanng a househod. The ta payer sha be consdered as
mantanng a househod ony f he pays more than one-haf the cost thereof for
hs ta abe year. The cost of mantanng a househod sha be the e penses n-
curred for the mutua beneft of the occupants thereof by reason of ts operaton
as the prncpa pace of abode of such occupants for such ta abe year. Such
e penses ncude property ta es, mortgage nterest, rent, utty charges, upkeep
and repars, property nsurance, and food consumed on the premses. The cost
20335 53 2
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S 29.12-2.
1
of mantanng a househod sha not ncude e penses otherwse ncurred. Thus,
such cost does not ncude e penses ncurred for cothng, educaton, medca
treatment, vacatons, fe nsurance, and transportaton. In addton, the cost
of mantanng a househod sha not ncude any amount whch represents the
vaue of servces rendered In the househod by the ta payer or by a person spec-
fed n sectons 12(c) (3) ( ) or provded for by secton 12(c) (3) ( ).
Par. . There s nserted mmedatey precedng secton 29.25-1 26
CFR 29.25-1 the foowng:
S C. 310. GROSS INCOM OF D P ND NT OF T P Y R
( ) INCR S IN MOUNT OF GROSS INCOM P RMITT D. Secton
25(b)(1)(D) (reatng to e emptons for dependents of ta payer) s
hereby amended by strkng out 500 and nsertng n eu thereof
000 .
(b) ffectve Date. The amendment made by subsecton (a) sha
be appcabe ony wth respect to ta abe years begnnng after Decem-
ber 31, 1950.
Par. 5. Secton 29.25-3, as amended by Treasury Decson 5 93
C. . 1952-1, 126 , approved pr , 1952 26 CFR 29.25-3 , s
amended further as foows:
( ) y strkng as amended by the Revenue ct of 19 from the
frst sentence of paragraph (d) (1); and
( ) y strkng 500, from the frst sentence of paragraph
(d) (5), reatng to e empton for dependents whose gross ncome s
ess than a certan fgure, and nsertng n eu thereof the foowng:
600 ( 500 for a caendar year begnnng after December 31,19 7, and
before anuary 1, 1951), .
Par. 6. There s nserted mmedatey precedng secton 29.51-1
26 CFR 29.51-1 the foowng:
S C. 301. T TR TM NT IN C S OF D OF OUS OLD

(b) Computaton of Ta bt Coector.
(1) Secton 51(f)(1) (reatng to ta computed by coector n
case of wage earners) s hereby amended by addng at the end
thereof the foowng: In the case of a head of a househod eectng
the benefts of ths subsecton, the ta sha be computed by the co-
et-tor under Suppement T wthout regard to the ta payer s status
as Lead of a househod.

31, 1951.
Par. 7. Secton 29.51-2(c), as added by Treasury Decson 56 9
C. . 19 -2, 57 , approved ugust 25, 19 26 CFR 29.51-2(c) ,
s amended by addng mmedatey after subparagraph (3), thereof,
the foowng new subparagraph:
( ) ead of househod. In the case of a head of a househod eectng to make
hs return on Form 10 0 In accordance wth the rues prescrbed n ths sec-
ton, the ta fcha be computed under Suppement T wthout regard to the status
of the ta payer as the head of n househod.
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29.12- .
Par. . There s nserted mmedatey precedng secton 29. 02-1
26 CFR 29. 02-1 the foowng:
S C. 30L. T TR TM NT IN C S OF D OF OUS OLD

(b) Computaton of Ta by Coector

(2) Secton 02 (reatng to effect of eecton to pay the ta Im-
posed by Suppement T) Is hereby amended by addng at the end
thereof the foowng: In the case of a hend of a househod eectng
to have ts ta computed by the coector pursuant to the provsons
of secton 51(f), the ta mposed by secton 00 sha be computed
wthout regard to the status of the ta payer as a head of a house-
hod.
31, 1951.
Par. 9. Secton 29. 02-1, as amended by Treasury Decson 5905
page 60, ths uetn , approved December 22, 1952 26 CFR
29. 02-1 , s further amended by addng at the end of (b) thereof, the
foowng: In the case of a head of househod eectng to make hs
return on Form 10 0 , see secton 29.51-2 (c) ( ).
(Ths Treasury Decson s ssued under the authorty contaned n
secton 62 of the Interna Revenue Code (53 Stat. 32; 26 U. S. C. 62).)
ustn F. Wnke,
ctng Commssoner of Interna Revenue.
pproved February 1 ,1953.
bert P. Tutte,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster February 20, 11)53, : 5 a. m.)
Secton 29.12- : Combned norma ta and surta Rev. Ru. 1
n case of |ont return of husband and wfe for
ta abe years begnnng after December 31,19 7.
INT RN L R NU COD
Schedue for smpfed computaton of tota ta abty In the
case of marred persons tng a |ont return for the caendar year
1952.
There s set forth beow a schedue desgned to smpfy the com-
putaton of the ta abty, n the case of marred persons fng a
|ont ncome ta return (Form 10 0) for the caendar year 1952. Such
schedue emnates the necessty for computng the ta on one-haf
of the amount shown on ne 5, page 3, of the return and mutpyng
the resut by 2.
Ths tabe may not be used f ncome ncudes partay ta -e empt
nterest. In such cases the nstructons whch accompany the return
(Form 10 0) shoud be foowed.
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29.22(a)-.| 16
Ta ate Schedue fob Caendab Yeab 1952
Marred persons fng |ont return
If amount In ne 5, page 3,
Form 10 0 s
The amount of ta ne (c), page 3,
Form 10 0 Is
Ovcr
Not over
mount pus
Rate
On e cess
over
,000
,000
,000
12,000
16,000
20,000
2 ,000
2 ,000
32,000
36,000
0,000
,000
62,000
6 ,000
76,000
,000
100,000
120,000
1 0,000
160,000
1 0, 000
2011,000
300,000
00.000
600,000

1. 72
3,032
,302
6,912
7, 692
9, 612
11, 632
13, 72
16,232
1 , 712
23.992
32,032
0, 192
, 32
67, 32
73.232
9,232
105, S32
122, 32
1 0, 32
230, 32
321, 32
505, 32
22.2
2 .6
29
3
. 000
,000
12,000
16,000
20, ( I
2 ,000
2 , ( I
32,000
30, ( I
0,000
,000
52, 000
6 ,000
76,000
,000
100,000
120.000
1 0,000
100,000
1 0,000
200, ( )
300,000
00, ( )
1 000,000
,000
12,000
16,000
2 ,000
2 ,000
2 ,000
32,000
36,000
0,000
,000
62,000
6 , ( )
76,000
,000
100, ( I
12a 000
1 0, ( )
160,000
1 0,000
200.000
300,000
00,000
600,000
3
2

63
66
69
62
66
67
6
72
75
77
0
3
6

90
91
92
92
The fna ta hu not e ceed percent of not ncome on ne 3, page
3, Form 10 ).
P RT II. COMPUT TION OF N T INCOM
S CTION 22(a). GROSS INCOM : G N R L
D FINITION
Secton 29.22 (a)-1: What ncuded n gross Rev. Ru. 3
ncome.
( so Secton 112(f), Secton 29.112(f)-.)
INT RN L R NU COD
cquston by the Unted States Government, through condemna-
ton proceedngs, of the use of a ta payer s warehouse for 5 years
n consderaton of |ust compensaton, whether pad In a ump sum
or annua sums, consttutes the takng of a easehod nterest and
the compensaton Is rent, ta abe as ordnary ncome under secton
22(a) of the Interna Revenue Code.
dvce s requested, where the Unted States Government acqures,
through condemnaton proceedngs, the use of a ta payer s warehouse
for a term of 5 years n consderaton of |ust compensaton whch the
Government proposes to pay n annua amounts but whch the ta payer
requests be pad n a ump sum, whether such compensaton con-
sttutes rent, ta abe as ordnary ncome under secton 22(a) of the
Interna Revenue Code, or s an amount (or amounts) reazed upon
dsposton of property and sub|ect to the provsons of secton 112(f)
of the Code.
The ta payer owns n fee certan mproved rea property used as a
warehouse n the recuar course of hs busness. The Unted States
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29.22(a)- .
Government nsttuted condemnaton proceedngs to acqure the rght
to take mmedate possesson, occupy, use, and further mprove such
property for mtary and defense purposes for a term of 5 years n
consderaton of |ust compensaton. The ta payer, pursuant to a
court order, devered mmedate possesson, and the Government s
usng the property. The Government caused to be deposted n the
regster of the court a certan sum estmated to be |ust compensaton
for the use of the property for the frst year of the 5-year term, but
the ta payer has pettoned the court to requre the Government
presenty to pay a sum as |ust compensaton for the entre 5-year use.
Snce use of a warehouse s essenta n the ta payer s busness, he
w be obged to take steps toward obtanng the use of another
sutabe warehouse. e states that he can obtan such use ony by
purchasng another warehouse. Therefore, he contends that the tak-
ng by the Government of the use of hs present warehouse, through
nsttuton of condemnaton proceedngs, consttuted nvountary
converson of hs property wthn the meanng of secton 112(f),
supra, and that any gan reazed by hm from such dsposton shoud
be accorded nonrecognton f he repaces the converted property.
e asserts that the compensaton for the use of hs present warehouse
w be specfcay for hs oss of the use and occupancy thereof and
not for oss of profts.
It s we estabshed that the substance rather than the form of a
transacton s to be regarded for Federa ncome ta purposes. The
acquston by the Government through nsttuton of condemnaton
proceedngs of the use of the ta payers property s not, of tsef, de-
termnatve of whether compensaton receved therefor, n a ump
sum or n annua sums, consttute ordnary renta ncome or an
amount (or amounts) reazed upon dsposton of property and sub-
to the provsons of secton 112(f), supra. Whe t has not
determned whether such compensaton w be pad n one ump
sum or severa annua sums, t s cear that, n ether event, t w
represent remuneraton for the use for a certan perod of years of
property owned n fee by the ta payer and, hence, w consttute
ordnary renta ncome to hm. Manfesty, by such transacton, the
Government acqures merey a easehod nterest n the ta payer s
property for 5 years and ne dsposes of no property and reazes
no gan from ts nvountary converson wthn the meanng of secton
112(f), svpra.
In vew of the foregong, t s hed that the acquston by the
Unted States Government, through condemnaton proceedngs, of the
use of the ta payer s warehouse for 5 years n consderaton of |ust
compensaton, whether pad n a ump sum or annua sums, consttutes
the takng of a easehod nterest and the compensaton s rent, ta abe
as ordnary ncome under secton 22(a), supra.
Secton 29.22(a)-1: What ncuded n gross ev. Ru. 61
ncome,
INT RN L R NU COD
The fnder of treasure-trove s n recept of ta abe ncome, for
Federa ncome ta purposes, to the e tent of ts vaue n Unted
tates currency, for the ta abe year n whch t s reduced to
undsputed possesson.
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29.22 (a)-2.
IS
Secton 29.22(a)- : What ncuded n gross
ncome.
Rev. u. 7
( so Secton 23(m), Secton 29.23(m)-; Sec-
ton 11 , Secton 29.11 -1.)
INT RN L R NU COD
So n pace s a natura depost wthn the meanng of secton
23(m) of the Interna Revenue Code. If such so s severed and
sod by the andowner, the proceeds are ordnary ncome sub|ect to
a depeton aowance, computed n the manner set forth n secton
29.23(m)-2 of Reguatons 111.
In the case of a sae by one other than the hoder of the fee, see
secton 29.23(m)- of Reguatons 111.
Secton 29.22(a)- : What ncuded n gross
Dvdend payments to mnorty stockhoders, ma|orty stockhoder
havng waved dvdends for a certan perod of tme. (See Rev.
Ru. 5, page 17 .)
mounts pad for servces rendered are ta abe to the ndvdua
performng the servces, even though pad to an organzaton de-
scrbed n secton 2. (o) of the Cod| ether by agreement between
the ndvdua and the payor or by an antcpatory arrangement n
whch the ndvdua agrees wth the organzaton to render servces
to t and the organzaton n turn makes bs servces avaabe to
a thrd party. owever, f an ndvdua s under a contract of em-
poyment entered nto n good fath for purposes other than avod-
ng the percentage mtaton of secton 23(o) and hs empoyer
makes hs servces avaabe to a thrd party merey as an n-
cdent of hs norma dutes, and f the ndvdua does not partc-
pate drecty or ndrecty n the contract wth the thrd party and
has no rght to receve or drect the use or dsposton of any
amounts pad, such amounts are not ncudbe In the Income of the
ndvdua.
dvce has been requested reatve to crcumstances n whch the
second sentence of the ast paragraph of secton 29.22(a)-2 of Regu-
atons 111 w appy. The frst and second sentences of such para-
graph are as foows:
The vaue of servces need not be Incuded n gross ncome when rendered
drecty and gratutousy to an organzaton descrbed n secton 23(o). Where,
however, pursuant to an agreement or understandng servces are rendered to
a person for the beneft of an organzaton descrbed n secton 23(o) and as
amount for such servces s pad to such organzaton by the person to whom the
servces are rendered, the amount so pad consttutes ncome to the person per-
formng the servces even though at the tme of the agreement or understandng
the person makng the payment acknowedges hs abty to make payment to
such organzaton.
The typca case n whch the second sentence of the above para-
graph s appcabe s one n whch a rado sponsor or moton pcture
ncome.
INT RN L R NU COD
Secton 29.22 (a)-2: Compensaton for per-
sona servces.
INT RN L R NU COD
Rev. Ru. 71
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19
2 ).22(a)-2.
producer engages the servces of an artst and by agreement wth the
artst turns over the payment for those servces to a chartabe organ-
zaton desgnated by the artst.
Instances aso arse n whch an artst enters nto an agreement
wth a chartabe organzaton to render servces to t, and the chart-
abe organzaton n turn agrees wth a sponsor or producer to make
those servces avaabe to such sponsor or producer n consderaton
of a sum to be pad to the chartabe organzaton. Such an arrange-
ment often consttutes an attempt, by act of the partes, to channe
to an e empt organzaton ncome whch woud normay be that of
the ndvdua artst and thereby to avod the percentage mta-
ton on the deducton of chartabe contrbutons provded n secton
23(o) of the Code. In such stuaton the ta consequences w be the
same as those attendng the type of transacton descrbed n the pre-
cedng paragraph. The rue that ncome s ta abe to the one who
earns t cannot be avoded by such an antcpatory arrangement.
Thus, for e ampe, f an actor, whose contract wth the studo
reguary empoyng hm permts, enters nto a contract wth a un-
versty, under whch the actor may or may not have nomna dutes
at the unversty but n fact renders servces prncpay to a thrd
party, such as a rado sponsor or moton pcture producer, payment
for hs servces to be made to the unversty, such an arrangement
consttutes an attempt to do ndrecty the same thng that s done
n the typca case herenabove descrbed. ccordngy, t s hed
that n such crcumstances the sums pad to the chartabe organza-
ton are ncudbe n gross ncome of the ndvdua renderng the
servces.
There are nstances, however, n whch an ndvdua s under con-
tract of empoyment or other obgaton entered nto n good fath
for purposes other than avodance of the percentage mtaton m-
posed on the deducton of contrbutons by secton 23 (o) of the Code,
and, as an ncdent of hs norma dutes and obgatons, hs empoyer
or other superor makes hs servces avaabe to a thrd party, pay-
ment beng made to the empoyer or other superor. In such a case,
f the ndvdua does not partcpate drecty or ndrecty n the
contract pursuant to whch hs servces are made avaabe to the
thrd party and f he has no rght to receve, or drect the use or
dsposton of, the amounts so pad, such amounts are not ncudbe
n hs gross ncome. Ths concuson woud be the same whether
the empoyer or other superor havng contro of the servces s a
commerca organzaton or an organzaton descrbed n secton
23 (o) of the Code. owever, t must be ceary shown that the
reatonshp was entered nto n good fath for purposes other than
avodance of the percentage mtaton mposed by secton 23 (o) on
deducton of contrbutons, and that the organzaton s enttea, n
substance as we as form, to the servces whch t makes avaabe
to the thrd party. The e ecuton of a egay suffcent contract of
empoyment or other document purportng to estabsh the obgaton
contempated s a fact wth evdentary vaue, but s not necessary
dspostve of any case. Good fath and reaty are not ascertaned
by any mechanca or formastc test. The effect for ta purposes
of the contract of empoyment or other obgaton w be determned
by a consderaton of a the crcumstances.
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22(b).
20
Secton 29.22(a)-3: Compensaton pad other
than n cash.
INT RN L R NU COD
Costs attrbutabe to meas, odgng, and other persona accommoda-
tons of the resdent owner or managng partner of a hote busness.
(See Rev. Ru. 0, page 62.)
Secton 29.22(a)-5: Gross ncome from busness. Rev. Ru. 2
( so Secton 2 ; Secton 29.2 -1.)
nterna revenue code
merchant who wthdraws goods from hs stock for persona or
famy use and pays for them wth hs prvate funds n an amount
at east equa to ther cost, or ther then seng prce to customers f
ess than ther cost, s not requred to e cude ther cost from Schedue
C Proft (or Loss) From usness or Professon accompanyng hs
Federa ncome ta return Form 10 0. (See O. D. 99 , C. . 5, 6.)
merchant must keep a separate account for e amnaton by an
nterna revenue agent wth respect to any goods wthdrawn from hs
stock for hs persona or famy use.
Secton 29.22(a)-23: ocatons by cooperatve
assocatons; ta treatment as to patrons.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. G01 , page 110.)
S CTION 22(b).-GROSS INCOM : CLUSIONS
FROM GROSS INCOM
Rev. Ru. 103
INT RN L R NU COD
Payments, In e cess of workmen s compensaton under a pan
whch Is not n tsef a pan of accdent or heath nsurance wthn
the purvew of secton 22(b) (5) of the Interna Revenue Code and
whch are not made pursuant to a court-sanctoned agreement
whch, accordng to statute, s n eu of workmen s compensaton,
are ncudbe n the gross ncome of the recpent and are sub|ect
to wthhodng of ncome ta at the source on wa|;es under secton
1622 of the Code uness such payments are made by the empoyer
as damages for persona n|ures or sckness foowng a sut or an
agreement n satsfacton of a tort or tort type abty other than
a abty under a workmen s compensaton act
I. T. 3306, C. . 1039-2,1 9, revoked.
dvce s requested whether benefts receved by empoyees under a
pan estabshed by an empoyer, an abama corporaton, to provde
for the payment to ts empoyees of dsabty benefts n e cess of
workmen s compensaton, herenafter referred to as dfferenta pay-
ments, are e cudabe from gross ncome under secton 22(b) (5) of
the Interna Revenue Code.
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21
( 22(b).
In the nstant case the pan, whch s not n tsef a pan of accdent
or heath nsurance wthn the purvew of secton 22(b)(5) of the
Code, was estabshed by the empoyer to provde for payments of
amounts n addton to workmen s compensaton to empoyees on
weekv or monthy saary who ose tme because of compensabe acc-
dent. (See L T. 107, C. . 1952-2, 73.) The pan, revsed February
1 ,1952, provdes n part as foows:
L worker who chooses to take compensaton and such compensaton Is In
e cess of the amount of hs saary for the tme ost from hs |ob wU receve no
saary for such tme ost from the |ob.
2. worker who receves compensaton for a compensabe n|ury w be pad
the dfference between the amount of compensaton and hs saary for the perod
of hs ost tme up to one month. In speca cases the dfference between the
amount of compensaton and saary may be pad to hm for onger perods upon
approva by a ce-Presdent
Secton 22(b) (5) of the Code provdes n part as foows:
(b) cusons From Gboss Income. Th| foowng tems sha not be n-
cuded n gross ncome and sha be e empt from ta aton under ths chapter
chapter 1 of the Code :

(5) Compensaton fob n|ures ob sckness. cept In the case of
amounts attrbutabe to (and not n e cess of) deductons aowed under
secton 23( ) In any pror ta abe year, amounts receved, through accdent
or heath nsurance or under workmen s compensaton acts, as compensaton
for persona n|ures or sckness, pus the amount of any damages receved
chether by sut or agreement on account of such n|ures or sckness
Itacs supped.
The pertnent provsons of the abama Workmen s Compensaton
ct contaned n chapter 5, tte 26 of the Code of abama provde
n part as foows:
Sec 253. Ctbcumstances Undeb Whch Compensaton ecomes Due; De-
fenses; Wfu Neggence. When persona n|ury s caused to an
empoyee by an accdent arsng out of and n the course of hs empoyment, of
whch n|ury the actua or awfuy Imputed neggence of the empoyer s the
natura and pro mate cause, he sha receve compensaton by way of
damages therefor from the empoyer, provded the n|ury was not caused
by the wfu msconduct of the empoyee, or was not due to msconduct on hs
part,
Sec. 272. cudng Other Remedes. The rghts and remedes heren
granted to an empoyee sha e cude a other rghts and remedes of sad em-
poyee at common aw, by statute or otherwse on account of
n|ury, oss of servces no empoyer ncuded wthn the term of ths
chapter, sha be hed cvy abe for any persona n|ury to any work-
man due to accdent whe engaged n the servce or busness of the empoyer,
the cause of whch accdent orgnates In the empoyment;
Sec. 273. Presumpton as to cceptance of Provsons of rtce ; ecton
Not To ccept; Notce. very empoyer and every empoyee sha be
presumed to have accepted and come under ths artce and the provsons
thereof reatng to the payment and acceptance of compensaton, uness, pror
to the accdent resutng n persona n|ury he sha have gven notce,
of hs eecton not to accept or be bound by the provsons of sad artce.
Sec. 27 . Settements etween Partes. The Interested partes sha have
the rght to sette a matters of compensaton and a questons arsng here-
under between themseves; but a settements made hereunder must be n amount
substantay the same as the amounts or benefts stpuated In ths artce, uness
a |udge of the crcut court of the county where the cam for compensaton
under ths chapter s entted to be made, or upon the wrtten consent of the
partes, a |udge of the crcut court, or a udge of the probate court of any county
determnes that t s for the nterest of the empoyee to accept a esser sum and
approves such settement. ny settements hereunder may be vacated for fraud,
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22(b).
22
undue nfuence or coercon, upon appcaton made to the |udge approvng the
settement, at any tme not ater than s months after the date of the settement.
Upon such settements beng approved, udgment sha be rendered thereon and
duy entered on the records of sad court n the same manner and to have the
same effect as other |udgments or as an award f the settement Is not for a
ump sum. .
In the nstant case both the empoyer and the empoyee have ac-
cepted the e cusve remedes of the abama Workmen s Compensa-
ton ct. Therefore, the empoyees n|ured n the performance of
ther dutes do not possess ega rghts aganst the empoyer other
than the rghts granted by the workmen s compensaton act. The
empoyer does not make the dfferenta payments under ether the
compuson or the authorty of that statute. The facts aso ndcate
that the dfferenta payments do not consttute a or part of an
amount f ed by a court-sanctoned agreement n eu of a workmen s
compensaton award as permtted by the abama Workmen s Com-
pensaton ct.
In I. T. 33CG, C. . 1939-2, 1 9, t s hed that accdent dsabty
benefts receved under a pan whch e pressy provdes that the em-
poyee may eect to accept the benefts under the pan or to prosecute
such ega cams as he may have under appcabe State aw, consttute
damages receved by agreement wthn the contempaton of secton
22(b) (5) of the Revenue ct of 193 . In that case as n the nstant
case whatever ega rghts the emoyees possessed aganst ther em-
poyer were those rghts e cusvey granted by the terms of the app-
cabe workmen s compensaton act; moreover, the amounts receved
under the pan n that case were not receved pursuant to a court-
sanctoned agreement n eu of workmen s compensaton. though
the nstant empoyer s pan for dfferenta payments does not requre
an eecton between benefts under the pan and any other ega rghts,
whch n abama are mted to rghts under a workmen s compensa-
ton statute, the dfference s mmatera. The character of the pay-
ments s the same n ether case and the consequences are the same.
The assocaton of the word sut wth the word agreement n
secton 22(b)(5) of the Code ceary ndcates an ntent to e cude
from gross ncome amounts receved by way of a settement agreement
entered nto n eu of prosecuton of a sut or other cam whch the
n|ured party may have. The fact that pus prefaces the damage
cause n secton 22(b) (5) shows that the damages contempated are
the product of a sut or a settement agreement nvovng tort or tort
type rghts other than those afforded by workmen s compensaton
acts. ( Tort or tort type, as used n ths rung, refers to ega rghts
whch, f e ercsed, coud resut n an award whch s made to a
person by a competent |udca trbuna n a proceedng n aw or
equty because of a ega wrong done hm by another. Restatement
of the Law of Torts (1939), secton 902(a).) Ths nterpretaton s
buttressed by the use of the word damages nstead of compensa-
ton, whch s empoyed n the precedng part of secton 22(b) (5).
Furthermore, a contrary nterpretaton of damages for purposes of
secton 22(b) (5) woud aow, n the case of an occupatona n|ury
or sckness covered by a workmen s compensaton act, the e cuson
from gross ncome as damages receved through an agreement
of amounts whch e ceed the amounts that coud have been receved
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23
S 29.22(b)(1)- ,
and that woud have been e empt as workmen s compensaton n a
case where the ony ega rghts whch the empoyee possessed and
coud have surrendered or e ercsed were contaned n the workmen s
compensaton act.
In vew of the foregong, t s hed that payments, n e cess of
workmen s compensaton under a dfferenta payments pan whch s
not n tsef a pan of accdent or heath nsurance wthn the purvew
of secton 22(5) (5) of the Interna Revenue Code, and whch are not
pad pursuant to a court-sanctoned agreement whch, accordng to
state statute, s n eu of workmen s compensaton, are ncudbe n
the gross ncome of the recpent and are sub|ect to wthhodng of
ncome ta at the source on wages under secton 1622 of the Code
uness such payments are made by the empoyer as damages for per-
sona n|ures or sckness under an agreement n satsfacton of a
tort or tort type abty other than a abty under a workmen s
compensaton act. I. T. 3306, supra, s hereby revoked.
Pursuant to authorty contaned n secton 3791(b) of the Code, the
nstant rung w not be apped wth respect to benefts receved pror
to ugust 1,1953, under a dfferenta payments pan.
Secton 29.22(b) (1)-1: Lfe nsurance mounts Rev. u 72
pad by reason of the death of the nsured.
( so Secton 29.22(b) (2)-3; Secton 113(a) (13),
Secton 29.113(a) (13)-1.)
INT RN L R NU COD
mounts receved by a partnershp as benefcary under fe
Insurance poces whch have been transferred to the partnershp
as a part of the capta contrbutons of certan partners w be
e empt from Federa Income ta under secton 22(b) (1) of the
Interna Revenue Code.
dvce s requested whether the transfer of fe nsurance poces
owned by certan partners to the partnershp as a part of ther capta
contrbutons w sub|ect the proceeds thereof, payabe upon the
death of any of such partners, to Federa ncome ta under secton
22(b) (2) of the Interna Revenue Code.
In the nstant case, t was agreed that the partnershp woud ac-
qure and own fe nsurance n the same amount upon the fe of
each of ts partners, n order to retre the nterest of any partner
who mght de durng the e stence of the partnershp. Two of the
partners wshed to contrbute, as a part of tner capta contrbutons,
poces whch they owned, usng ther vaue for Federa gft ta
purposes as of pr 1, 1952, the date the partnershp was formed, to
determne the vaue of such contrbutons.
Secton 22(b) of the Interna Revenue Code provdes n part as
foows:
(b) cusons From Gross Income. The foowng tems sha not be In-
cuded n gross ncome and sha be e empt from ta aton under ths chapter
chapter 1 of the Code :
(1) Lte nsurance, etc. mounts receved
( ) under a fe Insurance contract, pnd by reason of the death of
the Insured ;
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29.22(b)(9)- .
2
(2) nnutes, etc.
( ) In Genera. In the case of a transfer for a vauabe
consderaton, by assgnment or otherwse, of a fe nsurance, endow-
ment, or annuty contract, or any nterest 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 precedng sentence sha
not appy n the case of such a transfer f such contract or Interest
theren has a bass for determnng gan or oss In the hands of a trans-
feree determned n whoe or In part by reference to such bass of such
contract or nterest theren n the hands of the transferor.
Secton 113(a) (13) of the Code provdes n part as foows:
(a) ass (Unad|usted) of Ptor TY. The bass of property sha be the
cost of such property ; e cept that

(13) Pabtneeshps. If the property was acqured, after Fehruary 2 ,
1913, by a partnershp and the bass Is not otherwse determned under
any other paragraph of ths subsecton, then the bass sha be the same as
t woud be n the hands o the transferor, ncreased n the amount of gan
or decreased n the amount of oss recognzed to the transferor upon such
transfer under (he aw appcabe to the year In whch the transfer was
made.
Thus under secton 113(a) (13) the bass of each nsurance
pocy contrbuted to the partnershp woud be the same as ts
bass n the hands of the transferor. See Reguatons 111, secton
29.113(a) (13)-1.
In vew of the foregong, t s mmatera whether or not such a
transfer consttutes a transfer for a vauabe consderaton wthn the
scope of secton 22(b)(2)( ). ccordngy, t s hed that any
amounts receved by the partnershp under the poces by reason of
the death of those nsured w be e empt from ncome ta .
Secton 29.22(b) ( )- : Interest upon Unted
States obgatons.
INT RN L R NU COD
Redempton of Seres F and G savngs bonds for acquston of 3
percent Treasury bonds of 197 - 3. (See Rev. Ru. 105, page 76.)
Secton 29.22(b) (9)-: Income from dscharge T. D. 6003
of ndebtedness.
( so Sectons 29.22(b) (9)-2, 29.22(b) (10)-1;
Secton 113(b), Sectons 29.113(b) (3)-,
29.113(b) (3)-2.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 29.
INCOM T ; T L 1 RS GINNING T R D C M R 31, 19 1
Reguatons 111 amended to conform to secton 30 of the Revenue
ct of 1951, reatng to Income from dscharge of ndebtedness.
Washngton 25, D. C.
To Offcers and mpoyees of the Interna Revenue Servce and Others
Concerned:
On December , 1952, notce of proposed ruemakng, regardng
amendments to conform Reguatons 111 26 CFR, part 29 to secton
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25
I 29.22(b)(9)- .
30 of the Revenue ct of 1951, approved October 20, 1951, was pub-
shed n the Federa Regster (17 F. R. 10969). fter consderaton
of a reevant matter presented by nterested persons regardng the
rues proposed, the amendments to Reguatons 111 set forth beow
are hereby adopted.
2922(b) (9)- 26 CFR 29.22(b) (9)- the foowng:
S C. 30 . INCOM FROM DISC RG OF IND T DN SS
(a) mendment of Secton 22(b)(9). ffectve wth respect to
dscharges of ndebtedness occurrng wthn ta abe years endng after
December 31, 1950, secton 22(b) (9) (reatng to ncome from dscharge
of ndebtedness) s hereby amended (1) by strkng out If the ta payer
makes and fes at the tme of fng the return, n such manner as the
Commssoner, wth the approva of the Secretary, by reguatons pre-
scrbes, ts consent and nsertng n eu thereof f the ta payer, at
such tme and n such manner as the Secretary by reguatons pre-
scrbes, makes and fes ts consent , and (2) by strkng out the ast
sentence thereof.

Par. 2. Secton 29.22(b) (9)-, as amended by Treasury De-
cson 5 39 C. . 1951-1, 7 , approved pr 17, 1951 26 CFR
29.22(b) (9)- s further amended as foows:
( ) y strkng from the frst paragraph and before anuary 1,
1952, and by strkng from the thrd paragraph and pror to anu-
ary 1,1952, .
( ) y strkng the second sentence of the frst paragraph and
nsertng n eu thereof the foowng:
To be entted to the benefts of the provsons of secton 22(b) (9) for years
begnnng after December 31, 19 1, a corporaton must fe wth ts return for
the ta abe year a consent to the provsons of the reguatons, n effect at the
tme of the fng of the return, prescrbed under secton 113(b)(3) (see
sectons 29.113(b) (3)-1 and 29.113(b) (3)-2, reatng to ad|ustments of bass).
owever, wth respect to dscharges of ndebtedness: occurrng wthn ta abe
years endng after December 31,1950, the consent may be fed wth an amended
return or cam for credt or refund, where the ta payer estabshes to the
satsfacton of the Commssoner reasonabe cause for faure to fe the consent
wth ts orgna return.
Par. 3. Secton 29.22(b) (9)-2 26 CFR 29.22(b) (9)-2 s amended
by addng at the end thereof the foowng:
In a case where a consent Is permtted (under secton 29.22(b) (9)-) after the
orgna return has been fed, the orgna and dupcate of Form 9 2 sha be
fed wth the amended return or cam for credt or refund, as the case may be,
and the consent sha be to the reguatons whch, at the tme of the fng of
the consent, are appcabe to the ta abe year for whch such consent s fed.
Par. . There s nserted mmedatey precedng secton 29.22(b)
(10)-1 26 CFR 29.22(b) (10)-1 the foowng:
S C. 30 . INCOM FROM DISC RG OF IND T DN SS
R NU CT OF 1951, PPRO D OCTO R 20,1951 .

(b) mendment op Secton 22(b) (10). Secton 22(b) (10) (re-
atng to Income from dscharge of ndebtedness of a raroad corpora-
ton) s hereby amended by strkng out December 31,1951 and nsert-
ng n eu thereof December 31, 195 .
Par. 5. Secton 29.22(b) (10)-1, as amended by Treasury Decson
5 39 26 CFR 29.22(b) (10)-1 , s further amended by strkng from
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29.22(b) (13)-2.
26
the frst sentence and from the ast sentence anuary 1,1952 and n-
sertng n eu thereof n each nstance anuary 1,1955 .
Par. 6. Secton 29.113(b) (3)- as amended by Treasury Decson
5 02 C. . 19 ,229 , approved September 5,19 , s further amended
by nsertng mmedatey foowng the paragraph thereof denom-
nated (F) 26 CFR 29.113(b) (3)-(e) (6) the foowng:
(G) ffectve wth respect to a dscharge of ndebtedness occurrng wthn a
ta abe year endng after December 31, 1950, e cept n the cose of a consent fed
pror to the effectve date of the Treasury Decson whch adds ths paragraph
(G) to the reguatons, any reducton n bass whch remans to be taken (by
reason of an e cuson from gross ncome under secton 22(b)(9)) after the
appcaton of (1) sha be apped frst aganst property of a character sub|ect
to the aowance for deprecaton under secton 23(1). property wth respect to
whch a deducton for amortzaton s aowabe under secton 23(t), and prop-
erty wth respect to whch a deducton for depeton s aowabe under secton
23(n) (but not ncudng property specfed n secton 11 (b) (2), (3), or ( )),
n the order n whch such property Is descrbed In (2) and (3), above. ny
further ad|ustment n bass requred to be made under secton 22(b)(9) sha
be apped aganst other property n the order prescrbed n (2), (3), and ( ),
above.
Par. 7. Secton 29.113(b) (3)-2 26 CFR 29.113(b) (3)-2 s
amended as foows:
( ) y nsertng mmedatey after the second sentence thereof
the foowng:
Such ad|ustment, however, sha be consstent wth the prncpes of secton
29.113(b) (3)-(G) where the dscharge of ndebtedness occurs wthn a ta -
abe year endng after December 31,1950.
( ) y strkng the frst sentence of the second paragraph and n-
sertng n eu thereof the foowng:
request for varatons from the genera rue prescrbed n secton 29.113(b)
(3)- sha be fed by the ta payer wh ts return for the ta abe year n whch
the dscharge of ndebtedness occurred uness a conseut s permtted (under sec-
ton 29.22(b) (9)-) after the orgna return has been fed, n whch case such
request sha be fed wth the amended return or cam for credt or refund, as
the case may be.
T. Coeman ndrews,
Commssoner of Interna Revenue.
pproved pr 2,1953.
M. . Fosom,
(Fed wth the Dvson of the Federa Regster pr 7, 1953, : 52 a. m.)
Secton 29.22(b) (13)-2: Compensaton of members of T. D. 5976
the rmed Forces of the Unted States for servce n
a combat zone after une 2 ,1950, and pror to anu-
ary 1, 195 , or for servce whe hosptazed as a
resut of such combat-zone servce.
( so Secton 15 , Secton 29.15 -1.)
INCOM T ; T L T RS GINNING FT R D C M R 31, 19 1
Reguatons 111 amended to conform to sectons 305 and 33 of
the Revenue ct of 1951, reatng to compensaton of certan mem-
bers of the rmed Forces, and to abatement of ncome ta for such
members upon death.
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27
29.22(b) (13)-2.
Washngton 25, D. 0.
Others Concerned:
On December 13, 1952, notce of proposed rue makng, regardng
amendments to the ncome ta reguatons made necessary by sectons
305 and 33 of the Revenue ct of 1951, approved October 20; 1951,
was pubshed n the Federa Regster (17 F. R. 113 0). No ob|ecton
to the rues proposed havng been receved, the amendments to Regu-
atons 111 26 CFR, part 29 set forth beow are hereby adopted:
29.22(b) (13)-1 26 CFR 29.22(b) (13)-1 the foowng:
S C. 305. COMP NS TION OF C RT IN M M RS OP T
RM D FORC S R NU CT OF 1951, PPRO D OC-
TO R 20, 1951 .
(a) mendment of Secton 22(b) (13). Secton 22(b) (13) (re-
atng to e cuson from gross ncome of compensaton of certan
members of the rmed Forces) s hereby amended by strkng out
subparagraphs ( ) and ( ) and nsertng n eu thereof the foow-
ng:
( ) nsted Personne. Compensaton receved for actve
servce as a member beow the grade of commssoned offcer
n the rmed Forces of the Unted States for any month durng
any part of whch such member
(1) served n a combat zone after une 2 , 1950, and
pror to anuary 1, 195 , or
() was hosptazed as a resut of wounds, dsease, or
n|ury ncurred whe servng n a combat zone pror to
anuary 1, 195 ; but ths cause ha not appy for any
month durng any part of whch there are no combatant
actvtes n any combat zone as determned under subpara-
graph (C) () of ths paragraph.
( ) Commssoned Offcers. So much of the compensaton
as does not e ceed 200 receved for actve servce as a com-
mssoned offcer n the rmed Forces of the Unted States for
any nonth durng any part of whch such offcer
() served n a combat zone after une 2 , 1050, and
pror to anuary 1, 105 , or
() was hosptazed as a resut of wounds, dsease,
or n|ury ncurred whe servng n a combat zone pror to
anuary 1, 19. : but ths cause sha not appy for any
mouth durng any part of whch there are no combatant
actvtes n any combat zone as determned under sub-
paragraph (C) () of ths paragraph.
(b) Defnton of Servce n Combat Zone. Cause ( ) of secton
22(b) (13) (C) s hereby amended by strkng out such zone; and and
nsertng n eu thereof such zone, e cept that une 25, 1050, sha be
consdered the (ate of the commencng of combatant actvtes n the
combat zone desgnated n ecutve Order 10195; and .

(d) ffectve Dates. The amendments made by subsectons (a)
and (b) sha be appcabe to ta abe years endng after une 2 ,
1050. .
Tar. 2. Secton 29.22(b) (13) -2, as added by Treasury Decson 5 32
C. . 1951-1, , approved March ,1951 L26 CFR 29.22(b) (13)-2 ,
s hereby amended as foows:
( ) y changng the headng and the frst two paragraphs thereof
to read as foows:
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29.22(b) (13)-2.
23
Compensaton of Members of the rmed Forces of the Unted States fob
Servce n a Combat Zone fter une 2 , 1950, and Pror to anuary 1, 195 ,
ob for Servce Whe osptazed as a Resut of Such Combat-Zone Servce.
In addton to the e emptons and credts otherwse appcabe, secton 22(b) (13)
provdes that there sha be e cuded from gross ncome:
(a) Compensaton receved for actve servce as a member beow the grade
of commssoned offcer n the rmed Forces of the Unted States for any month
durng any part of whch such member (1) served n a combat zone after une
2 , 1950, and pror to anuary 1, 195 , or (2) was hosptazed at any pace as a
resut of wounds, dsease, or n|ury ncurred whe so servng provded that dur-
ng a of such month there are combatant actvtes n some combat zone.
(b) In the case of compensaton receved for actve servce as a commssoned
offcer n the rmed Forces of the Unted States for any month durng any part
of whch such offcer (1) served n a combat zone after une 2 , 1950, and pror
to anuary 1, 195 , or (2) was hosptazed at any pace as a resut of wounds,
dsease, or n|ury ncurred whe so servng provded that durng a of such
month there are combatant actvtes n some combat zone, so much of such
compensaton as does not e ceed 200.
The e cusons under secton 22(b) (13) and ths secton are appcabe ony f
actve servce s performed In a combat zone after une 2 , 1950, and pror to
anuary 1, 195 . Compensaton s sub|ect to e cuson whether or not t s
receved outsde a combat zone or whe the recpent s hosptazed or n a year
(ncudng a year after 1953) dfferent from that n whch the servce was ren-
dered for whch the compensaton s pad 1 Servce s performed n a combat
zone ony f t s performed In an area whch the Presdent of the Unted States
has desgnated by ecutve order, for the purpose of secton 22(b) (13), as an
area n whch rmed Forces of the Unted States are or have (after une 2 ,
1950) engaged n combat, and ony f t s performed on or after the date desg-
nated by the Presdent by ecutve order as the date of the commencng of
combatant actvtes n such zone (e cept that the date une 25, 1950, n the
combat zone desgnated In ecutve Order 10195, sha be consdered the date
of the commencng of combatant actvtes n such zone) and on or before the
date desgnated by the Presdent by ecutve order as the date of the termna-
ton of combatant actvtes n such zone. If a member of the rmed Forces
serves n a combat zone or s hosptazed for any part of a month, he s entted
to the e cuson for such month to the same e tent as f he had served n such
zone, or had been hosptazed, for the entre month.
( ) y addng after the second paragraph thereof the foowng:
If an ndvdua Is hosptazed for a wound, dsease, or n|ury whe servng
n a combat zone, the wound, dsease, or In|ury w, uness the contrary ceary
appears, be presumed to have been ncurred whe servng n a combat zone. In
certan eases, however, a wound, dsease, or n|ury may have been ncurred whe
servng n a combat zone even though the ndvdua was not hosptazed for t
whe so servng. nd, n e ceptona cases, a wound, dsease, or In|ury w
not have been ncurred whe servng n a combat zone even though the ndvdua
was hosptazed for t whe so servng.
These prncpes may be ustrated by the foowng e ampes:
ampe (/). n ndvdua s hosptazed n a combat zone for a specfc
dsease after havng served n such zone for 3 weeks. The ncubaton perod of
such dsease Is from 2 to weeks. Such dsease was ncurred whe servng n
the combat zone.
ampe (2). The facts are the same as n e ampe (1) e cept that the ncu-
baton perod s 1 year. Such dsease was not Incurred whe servng n the com-
bat zone.
ampe (3). member of the r Force, statoned outsde the combat zone,
s shot whe partcpatng n an aera fght over the combat zone, but s not
hosptazed unt he returns to hs home base. Such n|ury was ncurred whe
servng n a combat zone.
ampe ( ). n ndvdua s hosptazed for a specfc dsease 3 weeks after
havng departed from a combat zone. The ncubaton perod of such dsease s
from 2 to weeks. Such dsease was ncurred whe servng n a combat zone.
n ndvdua s hosptazed ony unt such tme as hs status as a hospta
patent ceases by reason of hs dscharge from the hospta.
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29
5 29.22(b) (13)-2.
Pab. 3. There s nserted mmedatey foowng secton 29.153- ,
as added by Treasury Decson 5 3 C. . 1951-1,35 , approved pr
17,1951 26 CFR 29.153- , the foowng:
S C. 33 . T M NT OF INCOM T FOR C RT IN M M-
RS OF RM D FORC S UPON D T R NU CT OF
1951, PPRO D OCTO R 20, 1951 .
Suppement D of chapter 1 of the Interna Revenue Code (reatng to
returns and payment of ta ) Is hereby amended by addng at the end
thereof the foowng new secton :
S C. 15 . INCOM T S OF M M RS OF RM D FORC S
UPON D T .
In the case of any ndvdua who des after une 2 , 1950, and pror
to anuary 1, 195 , whe n actve servce as a member of the rmed
Forces of the Unted States, f such death occurred whe servng n a
combat zone (as determned under secton 22(b) (13)) or as a resut of
wounds, dsease, or n|ury ncurred whe so servng
(a) the ta mposed by ths chapter sha not appy wth respect
to the ta abe year In whch fas the date of hs death, or wth
respect to any pror ta abe year endng on or after the frst day
he so served In a combat zone after une 2 , 1950; and
(b) the ta under ths chapter and under the correspondng tte
of each pror revenue aw for ta abe years precedng those specfed
n cause (a) whch s unpad at the date of hs death (ncudng
Interest, addtons to the ta , and addtona amounts) sha not be
assessed, and f assessed the assessment sha be abated, and If co-
ected sha be credted or refunded as an overpayment.
Sec: 29.15 -1. batement op Income Ta es of Certan Members of the
med Forces of the Unted States Upon Death. (a) If an ndvdua des
fter une 2 , 1950, ana pror to anuary 1, 195 , whe n actve servce as a
member of the rmed Forces of the Unted States, and such death occurs whe
servng n a combat zone, as determned under secton 22(b) (13), or at any pace
as a resut of wounds, dsease, or n|ury ncurred whe so servng, then
(1) the ta abty of such ndvdua under chapter 1 for the ta abe
year endng on the date of hs death, or for any pror ta abe year endng on
or after the frst day he so served n a combat zone after une 2 , 1950, s
canceed and f the ta (ncudng nterest, addtons to the ta , and add-
tona amounts) s assessed, the assessment sha be abated, and f the
amount of such ta Is coected (regardess of the date of coecton) the
amount so coected sha be credted or refunded as an overpayment ; and
(2) that amount of ta of such ndvdua for ta abe years precedng
those specfed n (1) above under chapter 1, or correspondng provsons of
pror revenue aws, whch remans unpad as of the date of death sha not
be assessed, and f any such unpad ta (ncudng nterest, addtons to the
ra , and addtona amounts) has been assessed, such assessment sha be
abated, and f the amount of any such unpad ta s coected subsequent to
the date of death, the amount so coected sha be credted or refunded as
an overpayment.
tb) If such an ndvdua and hs spouse have for any such year fed a |ont
return, the ta abated, credted, or refunded pursuant to the provsons of sectou
15 for such year sha be an amount equa to that porton of the |out ta ab-
ty whch s the same percentage of such |ont ta abty as a ta computed
T|pon the separate ncome of such ndvdua s of the sum of the ta es computed
npon the separate ncome of such Indvdua and hs spouse, but wth respect to
t abe years endng pror to une 2 , 1950, and wth respect to ta abe years
endng pror to the frst day such ndvdua served n a combat zone, as deter-
mned under secton 22(b) (13), the amount so abated, credted, or refunded
sha not e ceed the amount unpad at the date of death. For such purpose, the
separate ta of each spouse sha be the ta computed under chpter 1 before the
appcaton of sectons 32, 35, and 322(a), but after the appcaton of secton 31,
as If such spouse were requred to make a separate return.
(e) If such an ndvdua and hs spouse fed a |ont decaraton of estmated
ta for the ta abe year endng wth the date of hs death, the estmated ta pad
0335 53 3
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29.22(b)(15)-
30
pursuant to such decaraton may be treated as the estmated ta of ether such
ndvdua or hs .spouse, or may be dvded between them, n such manner as hs
ega representatve and such spouse may agree. Shoud they agree to treat such
estmated ta , or any porton thereof, as the estmated ta of such ndvdua,
the estmated ta so pad sha be credted or refunded as an overpayment for the
ta abe year endng wth the date of hs death.
(d) For the purpose of determnng the ta whch s unpad at the date of
death, any amounts deducted and wthhed under subchapter D of chapter 9
consttute payment of a ta mposed under chapter 1.
(e) Ths secton sha have no appcaton whatsoever wth respect to the
abty of an ndvdua as a transferee of property of a ta payer where such
ubty reates to the ta mposed upon the ta payer by chapter 1.
(/) s to what consttutes actve servce as a member of the rmed Forces,
servce n a combat zone, and wounds, dsease, or n|ury ncurred whe servng
n a combat zone, see secton 29.22(b) (13)-2. s to who are members of the
rmed Forces, see secton 29.3797-11.
(Ths Treasury Decson s ssued under the authorty contaned
n sectons 62 and 3791 of the Interna evenue Code (53 Stat. 32,
67;26U.S.C.62,3791).)
ustn F. Wnke,
pproved anuary 2 ,1953.
M. . Fosom,
(Fed wth the Dvson of the Federa Regster February 3, 1953, : 52 a.m.)
Secton 29.22(b) (15)-1: Payments to encourage T. D. 6006
e poraton, deveopment, and mnng for defense
purposes.
( so Secton 22(a), Secton 29-22(a)-13; Secton
23(a), Secton 29.23(a)-; Secton 113(a), Sec-
ton 29.113(a)-: Secton 113(b), Secton 29.113-
(b)()-; Secton 33, Secton 0. 33 (a)-2,
Reguatons 130.)
TITL 20 INT RN L R NU . C PT R I, SU C PT R , P RT 29 ND
P RT 0
Reguatons 111 amended to conform to secton 306 of the cess
Profts Ta ct of 1950; and Reguatons 130 amended to conform
to secton 33(a) (1) (P) of the Interna Revenue Code, as added
by secton 101 of the cess Profts Ta ct of 1950.
Washngton 5, D. C.
Concerned:
On November 15, 1952, a notce of proposed ruemakng, regardng
amendments to conform Reguatons 111 26 CF R, part 29 to secton
306 of the cess Profts Ta ct of 1950, approved anuary 3,1951,
and to conform Reguatons 130 26 CFR, part 0 to secton 33(a)-
(1) (P) of the Interna Revenue Code, as added by secton 101 of the
cess Profts Ta ct of 1950, was pubshed n the Federa Regster
(17 F. R. 10 05). fter consderaton of a such reevant matter
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31
29.22(b)(15)-1.
as was presented by nterested persons regardng the rues proposed,
the amendments to Reguatons 111 and 130 set forth beow are hereby
adopted.
R GUL TIONS 111 26 CFR, P RT 20
Paragraph 1. There s nserted mmedatey after secton 29.22(b)-
f 1 ) 1, as added by Treasury Decson 5371 C. . 19 , 0 , approved
May 11, 19 , the foowng:
S C. 22. GROSS INCOM .
(b) cusons Fbom Gross Income. The foowng tems sha
not be ncuded n gross ncome and sha be e empt from ta aton
under ths chapter:
S C. 306. P YM NTS TO NCOUR G PLOR TION. D LOP-
M NT, ND MINING FOR D F NS PURPOS S C SS
PROFITS T CT OF 1950, PPRO D NU RY 3, 1951 .
ffectve wth respect to ta abe years begnnng after December
31, 1950, secton 22(b) of the Interna Revenue Code s amended by
addng the foowng new paragraph :
(15) Payments to encourage e poraton, deveopment, and
mnng for defense pukposes. n amount pad to a ta payer
by the Unted States (or any agency or Instrumentaty thereof),
whether by grant or oan, and whether or not repayabe, for the
encouragement of e poraton, deveopment or mnng of crtca
and strategc mneras or metas pursuant to or n connecton
wth any undertakng approved by the Unted States (or any
of ts agences or nstrumentates) and for whch an accountng
s made or requred to be made to an approprate governmenta
agency, and the forgveness or dscharge of any of such amount.
ny e pendtures (other than e pendtures made after the repay-
ment of such grant or oan) attrbutabe to such grant or oan
sha not be deductbe by the ta payer as an e pense nor ncrease
the bass of the ta payer s property ether for determnng gan
or oss on sae, e change, or other dsposton or for computng
depeton or deprecaton, but upon the repayment of any porton
of any such grant or oan whch has been e pended n accordance
wth the terms thereof such deductons and such ncrease n bass
sha to the e tent of such repayment be aowed as f made at the
tme of such repayment.
Sec. 29.22(b) (15)-1. Payments to ncourage poraton, Dkveopment,
and Mnng for Defense Purposes. (a) ppcabty of secton 22(6) (15).
Secton 22(b) (15) s appcabe ony to amounts (1) whch are pad to a
ta payer () by the Unted States or by an agency or nstrumentaty of the
Unted States; (t) as a grant, gft, bounty, bonus, premum, ncentve, subsdy,
oan, or advance; ( ) for the encouragement of e poraton for, or deveop-
ment or mnng of, a crtca and strategc mnera or meta; and (v) pursuant
to or In connecton wth an undertakng by the ta payer to e pore for, or
deveop or produce, such mnera or meta and to e pend or use any amounts
so receved for the purpose and n accordance wth the terms and condtons
upon whch such amounts are pad, whch undertakng has been approved
by the Unted States or by an agency or Instrumentaty of the Unted States;
and (2) for whch the ta payer has accounted, or Is requred to account, to
an approprate agency of the Unted States Government for the e pendture
or use thereof for the purpose and n accordance wth the terms and con-
dtons upon whch such amounts are pad. Secton 22(b) (15) s appcabe
ony to an amount whch meets each test or requrement set forth above.
The secton s appcabe whether or not the payee Is obgated to repay to
the Unted States any porton or a of the amount so receved. owever,
secton 22(b) (15) Is not appcabe to any oan or advance for the repayment
of whch the borrower s abty s uncondtona and egay enforceabe.
Nor s secton 22(b) (15) appcabe to any part of the purchase prce of
a crtca and strategc mnera or meta receved, whether before, on, or after
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29.22(b) (15)- .
32
devery, by the seer from the Unted States or any agency or nstrumentaty
thereof, Irrespectve of whether such purchase prce s beow, at, or above
the estabshed ceng or currenty prevang market prce. payment of
a separate and specfc amount for the encouragement of e poraton for, or
deveopment or mnng of, a crtca and strategc mnera or meta sha
not be consdered to be a part of the purchase prce of such mnera or meta
merey because such payment s added to, or Incuded wth, the payment of
such purchase prce. s used n secton 22(b) (15) and ths secton, the
term crtca and strategc mneras or metas means those mneras an
metas sted n secton 50(b), as we as such other mneras and metas
as are certfed pursuant to such secton as beng essenta to the defense
effort of the Unted States and as not havng been normay produced n
apprecabe quanttes wthn the Unted States, and such other mneras and
metas as are consdered by those departments, agences, and nstrumentates
of the Unted States charged wth the encouragement of e poraton for, and
deveopment and mnng of, crtca and strategc mneras and metas to
consttute crtca and strategc mneras and metas for that purpose. See,
for e ampe, secton 7 of Order-1 of the Defense Mneras poraton d-
mnstraton, March 7, 1952, 17 F. R. 2090.
(6) cuson from gross ncome. For any ta abe year begnnng after
December 31, 1950, any amount to whch secton 22(b) (15) s appcabe Is, by
the terms of such secton, e cuded from gross Income. Secton 22(b) (15) aso
e cudes from gross ncome for such ta abe year any ncome attrbutabe to the
forgveness or dscharge of any ndebtedness to whch such secton s appcabe.
(c pense deducton; bass for gan or oss, depeton, or deprecaton.
cept as herenafter provded, any e pendture attrbutabe to an amount re-
ceved by a ta payer to whch secton 22(b) (15) s appcabe sha not be
deductbe by the ta payer as an e pense under secton 23, nor sha any such
e pendture ncrease the bass under secton 113 of the ta payer s property ether
for determnng gan or oss on sae, e change, or other dsposton or for com-
putng depeton or deprecaton (ncudng amortzaton under secton 12 ).
Upon the repayment of any porton of any amount to whch secton 22(b) (15)
s appcabe and whch has been e pended for the purpose and In accordance
wth the terms and condtons upon whch It was pad to the ta payer, any
e pendtures attrbutabe to such amount made by the ta payer sha, as pro-
vded n secton 23, be aowed to the ta payer as a deducton, and any such
e pendtures sha, as provded n secton 113, Increase the bass of the ta payer s
property, to the e tent of such repayment as f such e pendtures had been made
nt the tme of such repayment. Such e pendtures sha to the e tent of the
repayment be e pensed or captazed, as the case may be, In the order In whch
they were actuay made, or In such other manner as may be adopted by the
ta payer wth the approva of the Commssoner. Ths paragraph sha be
appcabe ony wth respect to ta abe years begnnng after December 31, 1050.
Par. 2. Secton 29.22 (a)-13 (a) s amended by addng at the end
thereof the foowng:
For e cuson from gross Income of Income attrbutabe to the forgveness or
dscharge of a grant or oan made to a ta payer by the Unted States for the en-
couragement of e poraton for, or deveopment or mnng of, crtca and stra-
tegc mneras or metas, see secton 29.22 (b) (15)-1.
Par. 3. Secton 29.23 (a)-1 s amended by addng at the end thereof
the foowng:
s to the deductbty of e pendtures attrbutabe to a grant or oan made to a
ta payer by the Unted States for the encouragement of e poraton for, or
deveopment or mnng of, crtca and strategc mneras or metas, see secton
22(b) (15) and secton 29.22(b) (15)-1.
Par. . Secton 29.113(a)-, as amended by Treasury Decson 5911
C. . 1952-1, 76 , approved une 5, 1952, s further amended by
addng at the end thereof the foowng:
For speca rues for determnng the bass, both unad|usted and ad|usted, of
property acqured or mproved wth the proceeds of a grant or oan made to a
ta payer by the Unted States for the encouragement of e poraton for, or
deveopment or mnng of, crtca and strategc mneras or metas, see secton
22(b) (15) and secton 29.22(b) (15)-1.
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33
29.22(b) (15)-1.
5991 page 1 6, ths uetn , approved February 17,1953, s further
amended by addng at the end thereof the foowng:
For ad|ustment to bass on account of e pendtures attrbutabe to a grant or
oan made to a ta payer by the Unted States for the encouragement of e pora-
ton for, or deveopment or mnng of, crtca and strategc mneras or metas,
see secton 22(b) (15) and secton 29.22(b) (15)-1.
Pah. 6. Secton 0. 33(a)-2(p) s amended to read as foows:
(p) (1) Secton 33(a) (1)(P) s appcabe ony to amounts () whch are
pad to a ta payer (a) by the Unted States or by an agency or nstrumentaty
of the Unted States; (6) as a grant, gft, bounty, bonus, premum, ncentve,
subsdy, oan, or advance; (c) for the encouragement of e poraton for, or
deveopment or mnng of, a crtca and strategc mnera or meta; and (d)
pursuant to or n connecton wth an undertakng by the ta payer to e pore
for, or deveop or produce, such mnera or meta and to e pand or use any
amounts so receved for the purpose and n accordance wth the terms and
condtons npon whch such amounts are pad, whch undertakng has been
approved by the Unted States or by an agency or nstrumentaty of the Unted
States; and () for whch the ta payer has accounted, or s requred to account,
to an approprate agency of the Unted States Government for the e pendture
or use thereof for the purpose and n accordance wth the terms and condtons
upon whch such amounts are pad. Secton 33(a) (1)(P) s appcabe ony
to an amount whch meets each test or requrement set forth above. The secton
s appcabe whether or not the payee s obgated to repay to the Unted States
any porton or a of the amount so receved. owever, secton 33(a) (1) (P)
s not appcabe to any oan or advance for the repayment of whch the bor-
rower s abty s uncondtona and egay enforceabe. Nor s secton
33(a) (1) (P) appcabe to any part of the purchase prce of a crtca and
strategc mnera or meta receved, whether before, on, or after devery, by the
seer from the Unted States or any agency or nstrumentaty thereof, rrespec-
tve of whether such purchase prce s beow, at, or above the estabshed ceng
or currenty prevang market prce. payment of a separate and specfc
amount for the encouragement of e poraton for, or deveopment or mnng of,
a crtca and strategc mnera or meta sha not be consdered to be a part
of the purchase prce of such mnera or meta merey because such payment s
added to, or ncuded wth, the payment of such purchase prce. s used n
secton 33(a) (1) (P) and (p) of ths secton, the term crtca and strategc
mneras or metas means those mneras and metas sted n secton 50(b),
as we as such other mneras and metas as are certfed pursuant to such sec-
ton as beng essenta to the defense effort of the Unted States and as not
havng been normay produced n apprecabe quanttes wthn the Unted
States, and such other mneras and metas as are consdered by those depart-
ments, agences, and nstrumentates of the Unted States charged wth the
encouragement of e poraton for, and deveopment and mnng of, crtca and
strategc mneras and metas to consttute crtca and strategc mneras and
metas for that purpose. See, for e ampe, secton 7 of Order-1 of the Defense
Mneras poraton dmnstraton, March 7, 1952, 17 F. R. 2090.
(2) For any ta abe year begnnng before anuary 1, 1951, and endng after
une 30, 1950, any amount to whch secton 33(a) (1) (P) s appcabe Is, by
the terms of such secton, e cuded n determnng e cess profts net ncome.
Secton 33(a)(1)(F) aso e cudes n determnng e cess profts net ncome
for such ta abe year any ncome attrbutabe to the forgveness or dscharge of
any ndebtedness to whch such secton s appcabe. For smar provsons
wth respect to e cusons from gross ncome for ta abe years begnnng after
December 31, 1950, see secton 22(b) (15) and the reguatons thereunder.
(3) cept as herenafter provded, any e pendture attrbutabe to an amount
receved by a ta payer to whch secton 33(a) (1) (P) s appcabe sha not be
deductbe by the ta payer as an e pense under secton 23 n determnng norma-
ta net ncome for the purpose of computng e cess profts net ncome, nor sha
any such e pendture Increase the bass under secton 113 of the ta payer s
property for such purpose ether n determnng gan or oss on sae, e change,
or other dsposton or n computng depeton or deprecaton (ncudng amort-
zaton under secton 12 ). Upon the repayment of any porton of any amount
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29.22(d)- .
3
to whch secton 33(a) (1) (P) s appcabe and whch has been e pended for
the purpose and n accordance wth the terms and condtons upon whch t was
pad to the ta payer, any e pendtures attrbutabe to such amount made by the
ta payer sha, as provded n secton 23, be aowed to the ta payer as a de-
ducton n determnng norma-ta net Income for the purpose of computng
e cess profts net ncome, and any such e pendtures sha, as provded n secton
113, ncrease the bass of the ta payer s property for such purpose, to the e tent
of such repayment as If such e pendtures had been made at the tme of such
repayment. Such e pendtures sha to the e tent of the repayment be e -
pensed or captazed, as the case may be, n the order n whch they were ac-
tuay made, or n such other manner as may be adopted by the ta payer wth the
approva of the Commssoner. Ths subparagraph sha be appcabe ony wth
respect to ta abe years begnnng before anuary 1, 1951, and endng after
une 30, 1950. For smar provsons wth respect to deductons and bass n
determnng net Income for ta abe years begnnng after December 31, 1950,
see secton 22(b) (15) and the reguatons thereunder.
sectons 62 and 3791 of the Interna evenue Code (53 Stat. 32, 67;
26U.S.C.62,3791).)
T. Coeman ndrews,
pproved pr 10,1953.
M. . Fosom,
(Fed wth the Dvson of the Federa Regster pr 15, 1953, :53 a. m.)
S CTION 22(d). GROSS INCOM : IN NTORI S-
L CTI M T OD
Secton 29.22 (d) -1: Inventores under eectve Rev. Ru. 23
method.
INT RN L R ND COD
reta estabshment known In the trade as a specaty store
may, wthout further proof, quafy as a department store for
use of the department store nventory prce nde es pubshed by
the ureau of Labor Statstcs, under the eectve nventory method
prescrbed by secton 22(d) of the Interna Revenue Code, f t
empoys the reta nventory method and carres a varety and a
reasonaby fu ne of merchandse coverng a reasonabe fed of
the groups ncuded n such nde es.
In Mmeograph 62 , C. . 19 -1, 21, dated March 9, 19 , the
Commssoner accepted as appcabe for use, wthout supportng
evdence, by department stores empoyng the reta nventory and.
eectve nventory methods, under secton 22(d) of the Interna Rev-
enue Code, the department store nventory prce nde es comped and
pubshed semannuay by the Unted States ureau of Labor Sta-
tstcs. Reta stores other than department stores that have decded
to use these nde es as refectng prce changes for determnng ther
nventores under the eectve nventory method have been requred
to demonstrate that such nde es are actuay representatve of the
nventores carred by such stores. In connecton wth that requre-
ment, queston has arsen as to the meanng of the term department
6tore as used n the above-mentoned mmeograph.
reta store may quafy as a department store for the purposes
of such mmeograph f t has a reasonabe number and varety of
departments, though not necessary a of the departments of the
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35
29.22(d)- .
most eaborate department store, and f the goods carred n ts varous
departments are reasonaby smar to those carred n correspondng
departments by a typca department store n ts genera ocaty.
It s not ntended that an e tremey specazed store carryng a snge
ne of goods, such as a shoe store, a rado and teevson store, or an
eectrca appance store, whch woud use ony a snge group nde
as comped by the ureau of Labor Statstcs, coud use such a snge
nde wthout showng that such an nde s adequatey representa-
tve of ts whoe nventory. ut a reta estabshment known n the
trade as a specaty store, carryng a varety of ades wear and
accessores, or men s cothng and furnshngs, or a store carryng a
reasonabe fu ne of furnture and homefurnshngs, coverng a
reasonabe 6ed of the groups ncuded n the nde es pubshed by
the ureau of Labor Statstcs n ts seres of department store nven-
tory prce nde es, may quafy, f t empoys the reta nventory
method, for the use of these nde es under the eectve nventory
method of secton 22(d) of the Code wthout further proof f ts
departmenta nventores are reasonaby smar to those carred by
department stores. Facts of smarty w be consdered by the
e amnng agent upon audt of returns.
Secton 29.22(d)-1: Inventores under eectve Rev. u. 1
method.
INT RN L R NU COD
Prce Inde es for anuary 1053, pubshed by the ureau of Labor
Statstcs on March 3,1953, for use by department stores empoyng
the reta nventory and eectve nventory methods.
The foowng prce nde es for anuary 1953, pubshed by the
ureau of Labor Statstcs on March 3, 1953, for use by department
stores empoyng the reta nventory and eectve nventory methods,
are accepted by the ureau of Interna Revenue pursuant to Treasury
Decson 5605, C. . 19 -1, 16, approved March , 19 , and Mmeo-
graph 62 , C. . 19 -1, 21, dated March 9, 19 , for approprate
appcaton to nventores for ta abe years of 12 months ended on
December 31,1952, and anuary 31,1953.
ureau of Labor Statstcs, department store nventory prce nde es, by
department groups
anuary 19 1 100
anuary
1952
anuary
1953
Percent chanpe
Irom anuary
1952 to
anuary 1953
I Pece goods, domestcs, and draperes....
II. Shoes
m. Lades underwear
I . Lades outerwear and grs wear
. Men s and boys wear
L Furnture and beddng
IL omefurnshngs ..................
U. Ma|or appances and eectrca goods....
I . Notons and toet artces
. Lades accessores
Too, droops L PL III, I . I , and
Groups L II, and III
11.7
213. 7
177.3
ISO. 2
(17. 5
2 1 .
192. 2
ns. s
159.0
170.5
02.
211.2
173.9
179. 2
200. 9
2I . 1
193. 7
15S.
161.7
16 . 9
- . 2
-1.2
-1.9
-0.
-3.2
-1.1
0.
-2.7
1.7
-0.9
192.0
1 9. 5
191. 1
1S .
1 .
1 .6
-1.7
-0.
-1.3
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S 29.23(a)-. 36
S CTION 23(a). D DUCTIONS FROM GROSS
INCOM : P NS S
Secton 29.23 (a)-: usness e penses. Rev. Ru. 1
INT RN L ND COD
Lega e penses Incurred by a ta payer, both before and after beng
sworn n as a pubc offcer, to estabsh that he was fary eected
and entted to hod such offce are not deductbe under ether secton
23(a) (1) ( ) or secton 23(a) (2) of the Interna Revenue Code.
dvce s requested whether ega e penses ncurred by the ta payer,
both before and after he was nstaed as a pubc offcer, n a success-
fu defense of a contested eecton are deductbe, for Federa ncome
ta purposes, under ether secton 23(a) (1) ( ) or secton 23(a) (2)
of the Interna Revenue Code.
Secton 23(a) of the Code provdes n part that n computng net
ncome there sha be aowed as deductons:
(1) TR D O USIN SS P NS S.
( ) In genera. the ordnary and necessary e penses pad or
Incurred durng the ta abe year In carryng on any trade or bus-
ness .

(2) Non-trade or non-busness e penses. In the case of an Indvdua,
a the ordnary and necessary e penses pad or Incurred durng the ta abe
year for the producton or coecton of ncome, or for the management,
conservaton, or mantenance of property hed for the producton of ncome.
oth the courts and the ureau have consstenty hed that amounts
e pended by ta payers n seekng pubc offce are not deductbe for
Federa ncome ta purposes.
In Mchae F. McDonad v. Commssoner (323 U. S. 57, Ct. D. 1617,
C. . 19 , 9 ), the Supreme Court of the Unted States hed that e -
pendtures made by a |udge apponted to an nterm |udgeshp n
seekng eecton for a fu term were not deductbe under secton
23(a)(1)( ) of the Code snce such e pendtures were not ncurred
n carryng on the ta payer s busness of |udgng. The Court hed
further that such e pendtures were not deductbe under secton
23(a.) (2) of the Code. In revewng the egsatve hstory of secton
23(a) (2), the Court sad that ths secton merey enarged the cate-
gory of ncomes wth reference to whch e penses are deductbe, and
dd not enarge the range of aowabe deductons of busness e -
penses ; and that such provson n no wse affected the dsaowance
of campagn e penses as consstenty refected by egsatve hstory,
court decson, Treasury practce, and Treasury reguatons.
In O. D. 6 (C. . ,211 (1921)) t s hed that campagn e penses
defrayed by a Congressman are not ordnary and necessary e penses
ncurred n carryng on a trade or busness and are therefore not
deductbe. though secton (d) of the Interna Revenue Code
provdes that the term trade or busness , for Federa ncome ta
purposes, ncudes the performance of the functons of a pubc offce,
e pendtures made to obtan such offce are not to be consdered as
ncurred n the conduct of a trade or busness.
Secton 29.23(a)-15 of Reguatons 111, e pressy provdes that
campagn e penses of a canddate for pubc offce do not consttute
an aowabe deducton under secton 23(a) (2) of the Code.
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37
29.23(a)-15.
The ega e penses heren were ncurred by the ta payer n a
successfu defense of a contested eecton, whch was tgated n a
county court before he took offce and appeaed to a hgher court after
he took offce. Such e penses reate to the orgna contest n whch
he sought pubc offce and to hs efforts to estabsh hs rght to that
offce. They are not e penses reatng to the dscharge of the dutes
of such offce.
In vew of the foregong, t s hed that the ega e penses ncurred
by the ta payer, both before and after beng sworn n as a pubc
offcer, to estabsh that he was fary eected and entted to hod
such offce, are not deductbe n computng net ncome under ether
secton 23(a)(1)( ) or secton 23(a)(2) of the Interna Revenue
Code.
Secton 29.23 (a)-1: usness e penses.
INT RN L R NU COD
Premums pad by a member of a partnershp on fe nsurance
poces namng hs copartners as benefcares. (See Rev. Ru. 73,
page 63.)
Secton 29.23 (a)-15: Nontrade or nonbusness Rev. Ru. 3
e penses.
INT RN L R NU COD
Treatment for Federa Income ta purposes of custody and crea-
ton fees pad by subscrbers n a sponsored nvestment pan to the
custodan and sponsor of the pan for servces rendered n deveop-
ng the pan, makng nvestments, and keepng necessary records.
dvce s requested as to the deductbty, for Federa ncome ta
purposes, of custody and creaton fees pad by subscrbers n a spon-
sored nvestment pan to the custodan and sponsor of the pan for
servces rendered n deveopng the pan, makng nvestments, and
keepng necessary records.
The M Company s the custodan, and the N Company s the sponsor,
of an nvestment pan estabshed for the purpose of enabng nvestors
to acqure and accumuate common stock of the Corporaton. The
unt of nvestment s termed a depost and the pan contempates
that a partcpant w make 120 monthy deposts over a perod of
10 years. Deposts are pad drecty to the custodan whch, after
deductng both the creaton and custody fees, nvests the baance
n common stock of the Corporaton. The shares and decma
shares so acqured for each depostor s account are hed by the cus-
todan, whch coects a cash dvdends and renvests the same n
addtona stock. The custodan mantans ndvdua records and
mas each depostor detaed statements of hs account. For ts
servces the custodan retans the custody fee, consstng of a f ed
percentage of each depost. The creaton fee, aso deducted by
the custodan, s pad to the sponsor, N Company, for ts servces
n connecton wth the deveopment, sae, and admnstraton of the
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29.23(c)- .
pan. The sponsor, n turn, pays certan percentages of the creaton
fees as commssons to ts dstrbutors and other saesmen.
Secton 23(a) (2) of the Interna evenue Code provdes that n
computng net ncome there sha be aowed as deductons:
(a) penses.

(2) Non-trade or non-busness e penses. In the case of an ndvdua,
a the ordnary and necessary e penses pad or ncurred durng the ta abe
year for the producton or coecton of ncome, or for the management,
conservaton, or mantenance of property hed for the producton of ncome.
n anayss of the nvestment pan from a subscrber s pont of vew
ndcates that ts purpose s twofod: (1) the acquston of common
stock n a partcuar corporaton; and (2) the management of such
stock for the purpose of accumuatng the ma mum number of add-
tona shares over the fe of the pan.
The servces performed by the custodan n hodng the shares
acqured through the pan, coectng and renvestng cash dvdends,
etc., reate to the second purpose of the pan. ccordngy, t s
hed that the subscrber may deduct the custody fee as a nonbusness
e pense under secton 23(a) (2) of the Interna evenue Code. (See
secton 29.23(a)-15 of Reguatons 111.)
On the other hand, the domnant servce performed by the sponsor
n deveopng, seng, and admnsterng the nvestment pan s to
make possbe the acquston of shares of stock n the Corporaton
under the favorabe terms of the pan. In effect, a subscrber pays
the creaton fee for the prvege of acqurng stock through the
pan. Therefore, t s hed that the creaton fee does not consttute
a deductbe e pense under secton 23(a)(2) of the Code, but s a
capta e pendture whch must be added to the cost of the shares
acqured through the nvestment pan.
Skcton 29.23(a)-15: Nontrade or nonbusness
e penses.
INT RN L R NU COD
Lega e penses ncurred n obtanng a pubc offce. (See Rev.
Ru. 1, page 36.)
S CTION 23(c). D DUCTIONS FROM G OSS
INCOM : T S G N R LLY
Secton 29.23(c)-: Ta es.
INT RN L R NU COD
ccrua date of Mchgan property ta es, I. T. 2995, C. . -2,13
(1936), nappcabe after December 31, 19 9. (See Rev. Ru. 39,
page 79.)
Secton 29.23 (c)-: Ta es.
INT RN L R NU COD
ccrua date of Massachusetts corporate franchse ta . (See Rev
Ru. 7 , page 1.)
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39
29.23(e)- .
S CTION 23(d). D DUCTIONS FROM GROSS INCOM :
T S OF S R OLD R P ID Y CORPOR TION
Secton 29.23(d)-: Ta on bank or other stock. Rev. Ru. 92
( so Secton 3, Secton 29. 3-2.)
INT RN L R NU COD
Wth respect to corporatons on the accrua bass of accountng,
the ta on the shares of banks and certan other corporatons m-
posed by the Commonweath of Pennsyvana Is an aowabe deduc-
ton under secton 23(d) of the Interna Revenue Code n the year
for whch mposed even though pad n a ater year.
G. C. M. 21329, C. . 1939-2,179, revoked.
Reconsderaton has been gven to G. C. M. 21329, C. . 1939-2, 179,
n the ght of the decson n Phadepha Tte Insurance Co. v. Com-
mssoner, 17 T. C. 106 , acquescence, page 5, ths uetn.
In G. C. M. 21329, supra, t was hed that the ta on bank shares n
Pennsyvana under the State statute then appcabe was an aow-
abe deducton n the year n whch pad regardess of the bank s
method of accountng.
The Pennsyvana aw mposng the shares ta was amended on
May 22, 19 5. The pertnent provsons of aw, as amended (secton
21 2 of tte 72, Purdon s Pennsyvana Statutes nnotated), read
as foows:
It sha be the duty of every such company at Its opton to pay the
amount of sad ta to the State Treasurer, through the Department of Revenue
from ts genera fund, or, to coect the amount of sad ta from ts share-
hoders and pay the same to the State Treasurer, through the Department of
Revenue.
Under the present aw, t seems cear that the shares ta s a f ed a-
bty of the corporatons.
In the Phadepha Tte Insurance Co. case, the court hed that
the shares ta was accruabe as of the year for whch mposed. Ths
decson appears to be n ne wth genera prncpes of accrua and
the prncpes enuncated by the Supreme Court of the Unted States
n Unted States v. P. Chauncey nderson et a., 269 U. S. 22, T. D.
3 39, C. . -, 179, and D e Pne Products Co. v. Commssoner,
320 U. S. 516, Ct. D. 159 , C. . 19 , 509.
In vew of the foregong, t s hed that wth respect to corpora-
tons on the accrua bass of accountng, the ta on the shares of banks
and certan other corporatons mposed by the Commonweath of
Pennsyvana s an aowabe deducton under secton 23(d) of the
Interna Revenue Code n the year for whch mposed even though
pad n a ater year.
S CTION 23(e). D DUCTIONS FROM GROSS INCOM :
LOSS S Y INDI IDU LS
Secton 29.23(e)-: Losses by ndvduas. Ct. D. 175
( so Secton 23(f), Secton 29.23(f)-;
Secton 3, Secton 29. 3-2.)
INCOM T INT RN L R NU COD D CISION OF SUPR M COURT
Gkoss Income Deductons Losses From mbezzement.
Ta payers had money embezzed by trusted asents and empoyees.
The defacatons had been gong on for many years before they were
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29.23(e)- .
0
dscovered. In the son ease, the books reveaed the thef and the
precse amounts taken each year from 1031 to 19 0. In the Steven-
son-Chsett, Inc., case, nvestgaton faed to revea who took the
funds or the tme when the funds were taken. ach ta payer
camed a ta reducton for the year the osses were dscoversd and
ther amounts ascertaned. ed: Whether and when a deductbe
oss resuts from an embezzement s a factua queston, a practca
one to be decded accordng to surroundng crcumstances. The
speca factua crcumstances found by the dstrct courts n both
these cases |ustfy the aowance of deductons under secton 23 (e)
and (f) of the Interna Revenue Code and the ong-standng Treas-
ury reguatons appcabe to embezzement osses.
Supheae Court of the Unted States
Martha L. /son v. The Unted States of merca
and
The Unted States of merca v. Stevenson-Chsett, Inc.
On certfcate from the Unted States Court of ppeas for the Thrd Crcut
December , 1952
OPINION
Mr. ustce ack devered the opnon of the Court.
The questons n these two ncome ta cases are so much ake that they can be
treated n one opnon. oth ta payers had moneys embezzed by trusted agents
and empoyees. s usua, the defacatons had been gong on for many years
before they were dscovered. On dscovery, efforts were made mmedatey to
dentfy the takers and f the dates and amounts of the thefts. In the son
case, No. 79, the books reveaed the thef and the precse amounts taken each
year from 1931 to 19 0. In No. 0, Stevenson-Chsett, Inc., the cover-up had
been so successfu that panstakng nvestgaton faed to revea who took the
funds or the tme when the unascertaned person or persons took them. ach
ta payer camed a ta deducton for the year the osses were dscovered and
ther amounts ascertaned. The Government ob|ected, camng that the deduc-
ton shoud have been taken n each of the pror years durng whch the moneys
were beng surrepttousy taken. In the Stevenson-Chsett case, the dstrct
court hed that the uncertan crcumstances of the embezzement entted the
ta payer to take ts osses the year the oss was dscovered and the amount
ascertaned. 9 Fed. Snpp. 252. The dstrct |udge decded the other way n the
son case and dened her decaratons. 97 Fed. Supp. 959. s hodng, how-
ever, was not n accord wth bs own vews, but was compeed, he thought, by
the Thrd Crcut s decson n Frst Natona ank of Sharon, Pa. v. Uencr,
60 Fed. (2d) 925. The Court of ppeas for the Thrd Crcut certfed to ns the
queston of deductbty In both cases. Pursuant to 2 U. S. C. secton 125 (3),
we ordered the compete records sent up so that we mght decde the entre
matters n controversy.
Interna Revenue Code secton 23 (e) and (f) authorze deductons for
osses sustaned durng the ta abe year . The Government
reads ths secton as requrng a ta payer to take a deducton for oss from
embezzement In the year n whch the theft occurs, even though nabty to
dscover n tme mght competey deprve the ta payer of the beneft of ths
statutory deducton. Ony at the tme the money s stoen, so It s argued, Is a
oss sustaned. ut Treasury practce tsef bees ths rgd constructon.
For more than 30 years the reguatons have provded that oss from theft
or embezzement occurrng n one year and dscovered n another s ordnary
deductbe for the year In whch sustaned. 26 CFR secton 29. 3-2. ( mphass
supped.) Informaton contaned n a etter from the Commssoner attached
as an append to the Government s bref ctes many nstances n whch the
Treasury has aowed deductons for embezzement osses n years subsequent to
those n whch the thefts occurred. pparenty the Department has fet con-
straned to do ths n order to prevent hardshps and n|ustce. These have been
departures from the ordnary rue of attrbutng embezzement osses to the
year of theft.
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20 23(e)-.
Ths Treasury practce evdenty stems at east In part from the speca nnture
of the crme of embezzement. Its essence s secrecy. Ta payers are usuay
we aware of a the crcumstances of fnanca osses for whch ta deductons
are aowed. Not so when a trusted advser or empoyee steas. For years hs
crme may be known ony to hmsef. e may take money pannng to return
t and he may return t before there Is dscovery. Furthermore, the terms
(embezzement and oss are not synonymous. The theft occurs, but whether
there s a oss may reman uncertan. One whose funds have been embezzed may
pursue the wrongdoer and recover hs property whoy or In part. See Comms-
toner v. Wco , 327 U. S. 0 Ct. D. 166 , C. . 19 6-1, 0 . vents n the
son case show the practca vaue of ths rght of recovery. substanta
proporton of the embezzed funds was recovered n 19 1, 10 years after the frst
embezzement occurred. Ths recovery aone s ampe refutaton of the vew
that a oss s nevtaby sustaned at the very tme an embezzement s
commtted.
Whether and when a deductbe oss resuts from an embezzement s a factua
queston, a practca one to be decded accordng to surroundng crcumstances.
See oehm v. Commssoner, 326 U. S. 2 7 Ct. D. 1652, C. . 10 5, 353 . n
nfe be rue s not needed; the statute does not compe t. For years the
Treasury has admnstered the ta aw under reguatons sayng that deductons
sha ordnary be taken n the year of embezzement. Ordnary does not
Dean aways.
We hod that the speca factua crcumstances found by the dstrct courts In
both these cases ustfy deductons under I. R. C. secton 23 (e) and (f) and the
ong-standng Treasury reguatons appcabe to embezzement osses. See
oston Consodated Gas Co. v. Commssoner, 12 Fed. (2d) 73; wnn ros.
Co. v. Commssoner, 7 T. C. 320. ccordngy, the |udgment n No. 70 s
reversed and the |udgment In No. 0 Is affrmed.
It s so ordered.
Mr. ustce Dougas and Mr. ustce ubo dssent.
Secton 29.23(e)-: Losses by ndvduas. Rev. u. 79
INT RN L R NU COD
Losses sustaned because of hgh water or food damage to prop-
erty on the Great Lakes are deductbe for Federa ncome ta
purposes ony where such osses are drecty attrbutabe to damage
from storm or other casuaty. Damage or oss of vaue due to
gradua eroson or nundaton occurrng at st water eves s not
deductbe as a casuaty oss wthn the meanng of secton 23(e) (3)
of the Interna Revenue Code. mounts e pended for the con-
structon of protectve works or for movng homes to prevent prob-
abe osses from future storms are not aowabe deductons under
secton 2 (a) (2) of the Code.
dvce s requested whether osses from damage to property caused
by abnormay hgh water eves on the (reat Lakes and amounts e -
Cended for the constructon of protectve works or for movng homes
ack from ther orgna ocatons to prevent probabe osses from
future storms are aowabe deductons for Federa ncome ta
purposes.
Secton 23(e) of the Interna evenue Code provdes that n com-
putng net ncome there sha be aowed as deductons:
(e) Losses by Indvduas. In the case of an ndvdua, osses sustaned dur-
ng the ta abe year and not compensated for by nsurance or otherwse

(3) of property not connected wth the trade or busness, f the oss arses
from fres, storms, shpwreck, or other casuaty, or from theft.
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2
Secton 21(a) of the Code provdes that n computng net ncome
no deducton sha n any case be aowed n respect of
(1) Persona, vng, or famy e penses e cept e traordnary medca
e penses deductbe under secton 23( ) ;
(2) ny amount pad out for new budngs or for permanent Improve-
ments or betterments made to ncrease the vaue of any property or estate
e cept e pendtures for the deveopment of mnes or deposts deductbe
under secton 23 (cc) ;
(3) ny amount e pended In restorng property or In makng good the
e hauston thereof for whch an aowance Is or has been made.
The above and smar provsons have been n the Federa ncome
ta aws for many years. Court decsons and ureau rungs have
estabshed standards for ther appcaton and have deveoped the
overa concept that the term casuaty as used n such provsons
refers to an dentfabe event of a sudden, une pected, or unusua
nature and that damage or oss resutng from progressve deterora-
ton of property through a steady operatng cause woud not const-
tute a casuaty oss. (See ugh M. Matheson et a. v. Commssoner,
5 Fed. (2d) 537, Ct D. 510, C. . I-2, 392 (1932); Chares . Fay v.
everng, 120 Fed. (2d) 253; and Ray urden v. Commssoner,
3 T.C.I.)
In O. D. 69 , C. . 3,159 (1920), n a stuaton substantay sm-
ar to that nvoved n the present nqury, t s hed that a damages
drecty attrbutabe to a storm consttute a casuaty oss and are de-
ductbe for Federa ncome ta purposes, and that the e pense ncurred
n movng a structure, for the purpose of preventng probabe osses
from future storms, s to be regarded as a capta e pendture to be
added to the cost of the budng n computng proft or oss n the
event of sae, snce the remova to a safer ocaty presumaby n-
creased ts vaue.
ccordngy, osses due to physca damage to budngs, boathouses,
docks, seawas, etc., on the Great Lakes as a resut of ther beng
battered by wave acton and wnd durng a storm are deductbe as
casuaty osses under secton 23(e) (3) of the Code, supra. Lkewse,
the foodng of budngs and basements as a resut of storms and the
compete destructon of budngs, occurrng as a resut of storm
damage, w aso consttute deductbe casuaty osses.
owever, there are areas n whch some damage or e pendture may-
be ncurred due to hgh water on the Great Lakes whch may not be
consdered as casuaty osses under the Interna Revenue Code. One
stuaton s damage or oss of vaue due to gradua eroson or nunda-
ton occurrng at st water eves. The rse and fa of water eves
of the Great Lakes (and of other bodes of water) s a norma process,
and damage resutng from hgh water eves aone acks the char-
acterstcs of a casuaty oss under the Code. Thus, where the ta -
payer s oss was due to progressve deteroraton rather than some
sudden, une pected, or unusua cause, such oss does not consttute a
deductbe casuaty oss for Federa ncome ta purposes.
second stuaton nvoves e pendtures by ta payers for the con-
structon of protectve works or for movng ther homes back from
the orgna ocatons to prevent probabe osses from future storms.
In such cases the ureau s governed by secton 2 (a) (2) of the Code,
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29.23(1)-1.
whch provdes that no deducton sha n any case be aowed n
respect of any amount pad out for new budngs or for permanent
mprovements or betterments made to ncrease the vaue of any prop-
erty or estate.
Where a casuaty oss s aowed for the oss of property, the amount
of oss to be deducted s measured by the vaue of the property |ust
before the casuaty ess ts vaue mmedatey after the casuaty (but
not more than the cost or other ad|usted bass of the property),
reduced bv any nsurance or compensaton receved. (See 1. T. 032,
C. . 1950-2, 21.)
S CTION 23(f). D DUCTIONS FROM GROSS INCOM :
LOSS S Y CORPOR TIONS
Secton 29.23(f)-: Losses by corporatons.
INT RN L R NU COD
Loss of embezzed funds. (See Ct. D. 175 , page 39.)
S CTION 23 (I) .-D DUCTIONS FROM GROSS
INCOM : D PR CI TION
Secton 29.23(1)-1: Deprecaton. Rev. Ru. 90
INT RN L R NU COD
Pocy wth respect to deprecaton ad|ustments
1. The nterna revenue aws aow as a deducton n computng net
ncome a reasonabe aowance for deprecaton of property used n
trade or busness or of property hed for the producton of ncome.
The purpose of the deducton s to permt ta payers to recover through
annua deductons the cost (or other bass permtted by aw) of the
property over the usefu fe of the property. The determnaton of
the amount of the deducton s argey a matter about whch there
may be reasonabe dfferences of nformed |udgment, but the mpact
on the revenues resutng from these dfferences may be neggbe one
way or the other over the years nvoved.
2. ccordngy, effectve May 12,1953, and as respects a open years
for whch agreement as to the ta abty has not been reached at
any eve wthn the Interna Revenue Servce as of that date, t
sha be the pocy of the Servce generay not to dsturb deprecaton
deductons, and revenue empoyees sha propose ad|ustments n the
deprecaton deducton ony where there s a cear and convncng
bass for a change. Ths pocy sha be apped to gve effect to ts
prncpa purpose of reducng controverses wth respect to deprec-
aton.
Orgnay Issued as IR-Mmeograph 1 3. dated May 11, 1953.
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29.23(1)- .

Secton 29.23 (1)-1: Deprecaton. Rev. u. 91
INT RN L R NU COD
Instructons reatng to pocy wth respect to deprecaton
ad|ustments.
1. The purpose of ths Revenue Rung s to furnsh gudance wth
respect to the appcaton of Revenue Rung 90, page 3, whch sets
forth the pocy wth respect to deprecaton ad|ustments.
2. mong the factors whch shoud be gven carefu consderaton
n order to gve fu force and effect to the announced pocy are the
foowng:
(a) Whether deprecaton rates used by the ta payer are far
and reasonabe under the crcumstances;
(b) Whether the ta payer has foowed a consstent practce
n arrvng at the amount of deprecaton deductons;
(c) Whether n consderng a factors, ncudng reasonabe
toerances, any ad|ustments proposed are substanta.
3. In the estabshment of the deprecaton rates for a ta payer,
carefu consderaton sha be gven to facts and arguments presented
by the ta payer wth respect to obsoescence, as we as to the repar
and mantenance pocy of the ta payer.
. If the proposed deprecaton changes are matera and the revenue
empoyee and the ta payer cannot reach an agreement the ssue may
be referred, pror to the ssuance of a 30-day etter, to a vauaton
engneer, f avaabe, for consderaton; otherwse the ngneerng
and auaton ranch, Washngton, D. C, ttenton: T: S: :,
shoud be requested to furnsh the requred engneerng servce.
5. Responsbty for effectuatng the pocy announced n Revenue
Rung 90 w rest upon each dstrct commssoner, who sha take
a approprate steps necessary to nsure that there s a cear under-
standng of the pocy and the mportance whch s attached to ts
prompt effectuaton on the part of the assstant dstrct commssoners,
audt and appeate, and the drectors. In turn, each drector sha
communcate the pocy mmedatey to the heads of a audt dv-
sons, revewers, group chefs, and e amnng offcers, to the end that
appcaton of the pocy w be refected prompty n the e amnaton
and dsposton of cases. To the greatest e tent practcabe, ths
sha be accompshed by the heads of audt dvsons personay meet-
ng wth the revewers and group chefs for a dscusson of the pocy.
Group chefs, n turn, shoud arrange to conduct persona meetngs
wth ther e amnng offcers for such dscussons.
6. Dstrct commssoners are requested to advse ths offce (atten-
ton: O: ) at the earest practcabe date as to the steps that they
have taken to nsure that the pocy w be prompty adopted at a
eves of case e amnaton and settement n ther dstrcts.
Orgnay Issued as IR-Ccuar 1 , dated May 11, 1 53.
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29.23(m)-.
S CTION 23 (m). D DUCTIONS FROM GROSS
INCOM : D PL TION
Secton 29.23 (m)-: Depeton of mnes, o and T. D. 600
pas wes, other natura deposts, and tmber;
deprecaton of mprovements.
( so Secton 11 , Secton 29.11 -1; Secton 53,
Secton 0. 53-2, Reguatons 130.)
P RT 0
Reguatons 111 and Reguatons 130 amended to conform to secton
207 of the Revenue ct of 1050 and to secton 30 (d) of the cess
Profts Ta ct of 1050 whch sectons reate to the defnton of the
term mnng and to the computaton of gross ncome from mnng.
Washngton 25, D. C.
Concerned:
On November 15,1952, notce of proposed ruemakng wth respect
to amendments conformng the ncome ta and e cess profts ta
reguatons to secton 207 of the Revenue ct of 1950, approved Sep-
tember 23, 1950, and to secton 30 (d) of the cess Profts Ta ct
of 1950, approved anuary 3,1951, was pubshed n the Federa Reg-
ster (17 F. R. 10 67). fter consderaton of such reevant sugges-
tons as were presented by nterested persons regardng the proposas,
the foowng amendments to Reguatons 111 26 CFR, part 29 and
Reguatons 130 26 CFR, part 0 are hereby adopted:
R GUL TIONS 111
Paragraph 1. Secton 29.23 (m)-(/) of Reguatons 111, as
amended by Treasury Decson 5 61 C. . 19 5, 2 , approved
uy 9,19 5, s further amended as foows:
( ) y nsertng at the end of the thrd paragraph thereof (whch
paragraph begns wth the words In the case of a crude mnera
product ) the foowng:
For ta abe years begnnng after December 31,19 9, the term mnng as used
heren aso ncudes so much of the transportaton of ores or mneras (whether
or not by common carrer) from the pont of e tracton from the ground to the
pants or ms n whch the ordnary treatment processes are apped thereto as
s not In e cess of 50 mes, and, f the Commssoner fnds that both the physca
and other requrements are such that the ore or mnera must be transported a
greater dstance to such pants or ms, the transportaton over such greater
dstance. The ta payer sha fe an orgna and one copy of an appcaton for
the ncuson of such greater dstance n the computaton of hs gross ncome from
mnng wth the Commssoner of Interna Revenue, Washngton 25, D. C,
attenton of the Speca Technca Servces Dvson, ngneerng and auaton
ranch. The appcaton must Incude a statement settng forth n deta such
facts concernng the physca and other requrements for the constructon and
operaton of a treatment pant at a pace nearer to the pont of e tracton from
the ground as are suffcent to apprse the Commssoner of the e act bass of
26335 53
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29.23(m)-.
6
the appcaton. If the ta payer s return s fed pror to recept of notce of
the Commssoner s acton upon the appcaton, a copy of such appcaton sha
be attached to the return. If, after an appcaton s approved by the Com-
mssoner, there s a matera change n any of the facts reed upon n such ap-
pcaton, a new appcaton must be submtted by the ta payer.
( ) y nsertng n the fourth paragraph thereof, after the words
transportaton of such product n the frst sentence and after the
word transportaton n the second sentence, the foowng: (other
than transportaton treated, for the ta abe year, as mnng) , and
by nsertng at the end of such paragraph the foowng new sentence:
For a descrpton of transportaton whch s treated, for ta abe
years begnnng after December 31,19 9, as mnng, see the precedng
paragraph and secton 11 (b) ( ) ( ), as amended.
(C) y strkng the word In at the begnnng of the s th para-
graph, and by nsertng n eu thereof the foowng: For ta abe
years begnnng before anuary 1,1950, n .
(D) y nsertng mmedatey after the frst sentence of the s th
paragraph the foowng:
For ta abe years begnnng after December 31, 19 9, n determnng gross
ncome from the property , the sae prce of the product sha not be reduced by
the costs and proportonate profts attrbutabe to the transportaton whch a
treated for such ta abe year as mnng, that s, so much of the transportaton
of ores or mneras (whether or not by common carrer) from the pont of
e tracton from the ground to the pants or ms n whch the ordnary treat-
ment processes are apped thereto as s not n e cess of 50 mes (or, f the
Commssoner fnds that both the physca and other requrements are such that
te ore or mnera must be transported a greater dstance to such pants or ms,
such greater dstance). Where such pants or ms are n e cess of 50 mes
(or of such greater dstance) from the pont of e tracton from the ground, then
costs Incurred for transportaton n e cess of 50 mes (or of such greater
dstance) to the treatment pant and, f transported by the ta payer, the pro-
portonate profts attrbutabe to such e cess transportaton shoud be sub-
tracted from the sae prce of the product to determne gross ncome from the
property . In the absence of methods whch w ceary refect costs of the
varous phases of transportaton, the costs attrbutabe to such e cess trans-
portaton sha be an amount whch s n the same rato to the costs ncurred
for the tota transportaton to the treatment pant as the e cess transportaton
s to such tota transportaton.
Par. 2. There s nserted mmedatey before secton 29.11 -1 of such
reguatons the foowng:
S C. 207. P RC NT G D PL TION R NU CT OF 1950,
PPRO D S PT M R 23, 1950 .
(a) Tbanspobtaton From Mne. The second sentence of secton
11 (b) ( ) ( ) (reatng to the defnton of gross ncome from property)
s hereby amended to read as foows: The term mnng as used heren
sha be consdered to ncude not merey the e tracton of the ores or
mneras from the ground but aso the ordnary treatment processes
normay apped by mne owners or operators n order to obtan the
commercay marketabe mnera product or products, and so much of
the transportaton of ores or mneras (whether or not by common car-
rer ) from the pont of e tracton from the ground to the pants or ms
n whch the ordnary treatment processes are apped thereto as s not
n e cess of 50 mes uness the Secretary fnds that the physca and
other requrements are such tbat the ore or mnera must be transported
a greater dstance to such pants or ms.
be appcabe wth respect to ta abe years begnnng after Docember 31,
19 0.
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29.23(m)-.
S C. 30 . T C NIC L M NDM NTS C SS PROFITS T
CT OF 1950, PPRO D NU RY 3, 1951 .

(d) Secton 11 (b)( )( ) of such Code Interna Revenue Code
s hereby amended by strkng out 731 and 735 and nsertng In eu
thereof 50 and 53 .

(g) The amendments made by ths secton sha be appcabe wth
respect to ta abe, years endng after une 30, 1950.
R GUL TIONS 130
Par. 3. Secton 0. 53-2(|) (3) of Reguatons 130 s amended as
foows :
( ) y strkng the words ta payer estabshes to the satsfacton
of the Commssoner that n the second sentence of subdvson ()
and n the frst sentence of subdvson (v) and substtutng n eu
thereof the foowng: Commssoner fnds that both .
( ) y strkng the words ta payer fas to estabsh to the sats-
facton of the Commssoner that n the second sentence of subd-
vson (v) and substtutng n eu thereof the foowng: Comms-
soner does not fnd that both .
(C) y nsertng at the end of subdvson () of such secton the
foowng:
See secton 29.23 (m)-(/) of Reguatons 111 as to the appcaton to be fed
wth the Commssoner wth respect to transportaton n e cess of 50 mes.
(D) y nsertng n subdvson () thereof, after the words trans-
portaton of such product n the frst sentence and after the word
transportaton n the second sentence, the foowng: (other than
transportaton treated, for the ta abe year, as mnng) , and by n-
sertng at the end of such subdvson the foowng new sentence:
For a descrpton of transportaton whch s treated as mnng, see subdvsons
(), (v),and ( ) and secton 11 (b) ( ) ( ), as amended.
( ) y nsertng mmedatey precedng the ast sentence of sub-
dvson (v) of such secton the foowng:
See secton 29.23(m)-(/) of Reguatons 111 as to the appcaton to be fed
wth the Commssoner wth respect to transportaton n e cess of 50 mes. In
the absence of methods whch w ceary refect costs of the varous phases of
transportaton, the costs attrbutabe to such e cess transportaton sha be
an amount whch s n the same rato to the costs ncurred for the tota trans-
portaton to the treatment pant as the e cess transportaton s to such tota
transportaton.
(F) y nsertng mmedatey after subdvson (v) of sad
secton the foowng:
( ) The provsons of subdvsons (), (), and (v), above, wth respect
to transportaton of ores or mneras In determnng gross ncome from the
property sha not be appcabe n computng the ta for a ta abe year begn-
nng pror to anuary 1, 1950, and endng after une 30, 1950. In the case of
such a ta abe year, the provsons appcabe to transportaton of the ores or
mneras sha be those provded n secton 29.23(m)-(/) of Reguatons 111
for ta abe years begnnng before anuary 1, 1950.
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29.23(m)-.
S
sectons 23(m) and 62 of the Interna Revenue Code (53 Stat. 1 , 32;
26 U.S. C.23(m),62).)
T. Coeman ndrews,
pproved pr 2, 1953.
M. . Fosom,
(Fed wth the Dvson of the Federa Regster pr 7, 1053, :52 a. n.)
Secton 29.23(m)-: Depeton of mnes, o and Rev. Ru.
gas wes, other natura deposts, and tmber;
deprecaton of mprovements.
INT RN L R NU COD
Consstent wth the outstandng nonacquescence (C. . 19 1-1,
10) n ennedy mnng and Mng Co. v. ommttoner ( 3 . T. .
617, affrmed, 125 Fed. (2d) 39 )), depeton s not aowabe on
tangs pes, cum banks, or other mne dumps of waste matera.
dvce s requested as to the pocy of the ureau wth respect to
the aowance of depeton, under secton 23(m) of the Interna Reve-
nue Code, on tangs pes, cum banks, or other mne dumps of waste
matera.
It s the understandng of the ureau that tangs pes, cum banks,
and other mne dumps consst of deposts of refuse remanng after
some, but not a, of the mnera content has been removed. When the
prce of the mnera rses, or when through mproved processes t s
possbe to savage some of the remanng mnera, the refuse s re-
worked and the mnera from such pes or dumps s sod.
In ennedy Mnng and Mng Co. v. Commssoner ( 3 . T. .
617), the Unted States oard of Ta ppeas (now The Ta Court
of the Unted States) aowed percentage depeton to the mne owner-
operator measured by ncome receved from the sae of addtona mn-
eras e tracted by such owner-operator from tangs pes, consstng
of the resdue of ores prevousy mned and treated by hm for the
e tracton of mneras. The nonacquescence (C. . 19 1-1, 16) n
the ennedy Mnng and Mng Co. decson, was not wthdrawn
even though the Unted States Crcut Court of ppeas for the Nnth
Crcut affrmed (125 Fed. (2d) 399) the decson of the oard.
In dscussng the phosophy of the ennedy case, the Unted
States Crcut Court of ppeas for the Nnth Crcut (the same court
whch decded the ennedy case), n Consodated Choar Goud d
Savage Mnng Co. v. Commssoner (133 Fed. (2d) 0), sad (page
1):
There we hed the depeton deducton aowabe because the recov-
ery of mnera was from tangs of partay worked ore from a mne and m
owned by a ta payer, deposted on ta payer s and ad|acent to the mne and m
from whch they came, and hence the recovery was a mere contnuaton and
competon of the processng of mnera e tracton begun n the remova of
the deposted matera from the mne to the tang dump. We dstngushed
that case frun tas Mng Co. v. ones, 10 Cr., 115 F. 2d 61. There the
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29.23(m)-.
deducton was dsaowed. The ta payer e tractng the ore from the tangs dd
not own the mne from whch the tangs had come, and the tangs were hed
not a mne or other natura depost.
In Chcago Mnes Co. et a. v. Commssoner (16 Fed. (2d) 7 5,
certorar dened, 333 U. S. 1), the Unted States Crcut Court of
ppeas for the Tenth Crcut hed that the ta payer was not entted
to an aowance for depeton. There the ta payer camed contnuty
of ownershp from the tme of orgna e tracton of the mnera to
the tme of further e tracton from the mne dump. The court hed,
despte the ta payer s contenton regardng contnuty of ownershp,
that the dump tsef was not a mne and that the reworkng of tangs
n a dump, created wthout the accompanyng ntent to work t at
a future tme, dd not consttute an ntegrated step n the orgna
mnng operaton. In nterpretng the ennedy case, the court sad
(page 7 ):
Our anayss of these decsons ennedy and a ater decson by
the Nnth Crcut eads us to concude thnt t adheres to the prncpe that a
ta payer, workng a dump, may take depeton aowances ony n those cases
n whch the operaton s an ntegrated step n a mnng operaton, and whch s
the fna step n the process whch had ts begnnng when the ore was removed
from the orgna ren.
In the ennedy case, the ta payer constructed a dam n 191 on
ts property for the purpose of depostng behnd t the crushed rock
and resdue of ore materas, referred to as tangs, whch resuted
from ts mng operatons. Pror to budng the dam, the ta payer
had been dumpng ts tangs n a stream, and the dam was but pr-
mary to avod possbe abty to ower rparan owners for pou-
ton of the stream. though the owner knew that the tangs re-
taned a god content, such content was not consdered suffcent to be
e tracted proftaby. The e tractng process dd not occur unt 1935,
n whch year a cyande pant was constructed on the property for
the purpose of reworkng the tangs whch had been deposted snce
1915. From the facts of the case as reported, t does not appear that
the owner, at the tme of depostng ore, had any ntenton to rework
t. On the contrary, as stated above, the ta payer s ntenton from
the begnnng was to avod possbe abty to ower rparan owners
for pouton of the stream. Thus, t s dffcut to concude that the
reworkng many years ater consttuted an ntegrated step n the mn-
ng operaton.
In Chcago Mnes Co. et a. v. Commssoner, supra, the court stated
(page 7 7):
mne Is an e cavaton In the earth from whch mneras are removed by
dggng or other mnng processes. In ts broader sense, t Is understood to
mean the ven ode or depost of mneras. Ths seems to be the sense n whch
the term mne s used n secton 23(m). The anguage empoyed s Mnes,
o and gas wes, other natura deposts . Mnng thus connotes the
remova of mneras from a natura depost and does not Incude the reworkng
of mnera dumps from the surface of the earth artfcay created and resutng
from mnng operatons. Tangs from a mne, consstng of waste matera and
ow-grade ore paced upon the surface of and, become persona property, and
the dump n a true sense does not become a mne. We adhere to what we sad
n the tas case 115 F. 2d 63 that, The word mnes as used n paragraph
23 (m) s mted to natura deposts and does not ncude a tangs
dump deposted on the surface of and, consstng of the resdue of ore that has
been severed and med .
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5 29.23(m)-15.
50
(See aso ohnoor Coa Co. v. Commssoner, 171 Fed. (2d) 0, cer-
torar dened. 337 U. S. 92 .)
In vew of the foregong, t s hed that consstent wth the outstand-
ng nonacquescence (C. . 19 1-1,16) n ennedy Mnng and M-
ng Co. v. Commssoner, supra, depeton s not aowabe on tangs
pes, cum banks, or other mne dumps of waste matera.
Secton 29.23(m)-: Depeton of mnes,
o and gas wes, other natura deposts,
and tnber; deprecaton of mprove-
ments.
INT RN L R NU COD
d vaorem property ta es pad for essor by essee wth respect to
mnera-bearng ands. (See Rev. Ru. 16, page 173.)
Secton 29.23(m)-: Depeton of mnes,
o and gas wes, other natura deposts,
and tmber; deprecaton of mprove-
ments.
INT N L R NU COD
Percentage depeton n the case of pyrtes and smar ores contan-
ng two or more mneras. (See Rev. Ru. 70, page 176.)
Secton 29.23 (m) -1: Depeton of mnes, o
and gas wes, other natura deposts, and
tmber; deprecaton of mprovements.
INT RN L R NU COD
Depeton aowance wth respect to ncome receved from the sae
of top so. (See Rev. Ru. 7 , page 1 .)
Secton 29.23 (m) -15: owabe capta addtons Ct. D. 1753
n case of mnes.
INCOM T INT RN L R NU COD D CISION OF COURT
1. Gross Income Deductons Ohdnabt and Necessary usness
penses Capta pendtures Deprecaton Losses.
coa mng corporaton charged to e pense the costs of
budng a sate chute and of certan mnng machnery and equp-
ment such as conveyers, oaders, cuttng machnes, mne cars, and
eectrc mne |eeps purchased n 19 and 19 5, and camed n-
creased deprecaton deductons for the years 19 2 through 19 5
because of an ncrease n the hours of work and n the use of equp-
ment n ts mne. It aso camed a deductbe oss on the sae of
ts tppe track, essenta to the operaton of the mne, for a con-
sderaton of 1 upon an agreement that the purchaser mantan
t and that the corporaton contnue to have Its use.
ed: (1) The e pendtures for machnery and equpment were
n the nature of capta e pendtures, e cept the cost of so many of
the mne cars as were needed because of the greater hau necess-
tated by the recedng faces of the coa. The e pendtures were
necesstated not by the remova of the coa durng the years In
whch they were made, but by the thnness of one of the seams,
the radca changes In the nature of another, and the shortage of
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51
15 29.23 (m)-15.
avaabe manpower. Such e pendtures shoud be amortzed ke
other capta nvestments made In the nterest of economy and
effcency rather than charged off as e pense of a snge year.
Wth respect to the mne cars, ony the purchase prce of those the
purchase of whch was made necessary by the recesson of the
workng faces of the mne s aowabe as ordnary and necessary
e pense, wth no such aowance for those whose purchase was
necesstated by the greater productvty of the mechanzed equp-
ment.
(2) If a ta payer normay empoys the straght ne method of
computng deprecaton, as here, ncreased usage and other op-
eratng condtons do not warrant an aowance for abnorma or
acceerated deprecaton absent a showng that the usefu fe of
the deprecabe asset was, n fact, thereby shortened. The corpora-
ton has faed to make ths showng.
(3) The corporaton dd not sustan a deductbe oss on the
sae of ts tppe track. The soe effect of the transacton was the
transfer of ega tte to persona property whch had no use other
than to serve the mne. The corporaton has not shown that the
consderaton receved for such transfer was ess than ts ad|usted
bass or that any oss was actuay sustaned by t.
2. Decson ffrmed n Pabt and Reversed n Part.
Decson of The Ta Court of the Unted States (16 T. C. 5 7
(1951)) affrmed n part and reversed n part and remanded wth
drectons.
Unted States Court of ppeas for the Fourth Crcut
Commssoner of Interna Revenue, pettoner and cross-respondent, v. . S.
arman Coa Corporaton, respondent and cross-pettoner
On cross-pettons to revew the decson of The Tn Court of the Unted States
efore Parker, Chef udge, and Soper and Dobe, Crcut udges
September 17, 1952
opnon
Parker, Chef udge: These are cross pettons to revew a decson of the
Ta Court reported n 16 T. C. 7 1, where the facts are fuy stated. Ta payer
s a coa mnng corporaton operatng a mne at arman, rgna, and the case
reates to ncome and e cess profts ta es for the years 19 and 19 5. The
questons presented by the pettons are (1) whether the cost of certan mnng
machnery was deductbe as an ordnary and necessary busness e pense, (2)
whether e pendtures n budng a sate chute were so deductbe, (3) whether
ta payer was entted to ncrease deprecaton deducton because of Increased
operaton of ts mne, and ( ) whether ta payer sustaned a deductbe oss
on the sae of ts tppe tracks n 19 5. The Ta Court decded the frst queston
n favor of the ta payer and the others n favor of the Commssoner. We thnk
that there was error ony wth respect to the decson of the frst queston.
On the frst two questons, t appears that ta payer n ts returns for 19
and 19 5 charged to e pense the foowng tems:
Purchased n 19U
2 Goodman shaker conveyors 10, 99. 30
3 oy oaders 2 ,9 7. 32
Payments on sate chute n process of constructon 6, 63 .92
Tota 2,521.5
Purchased n 19 5
aance of cost of sate chute competed 13, 23. 9
Goodman short-wa cuttng machnes 23,29 . 5
10 Conveyors 15, 90. 0
1 Sabbng machne or arc-wa cuttng machne 7,139.00
50 Mne cars 17,101.06
2 ectrc mne eeps 2,0 0. CO
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29.23(m)-15.1
52
The Commssoner dsaowed the deducton of these Items as e pense but
treated teru as capta e pendtures and aowed deducton of deprecaton on
account thereof of 7,2 0.36. The Ta Court found that the e pendtures were
made because of shortage of manpower, need of equpment sutabe for mnng
thn seam coa and the radca change n the natura condton of the coa seam
n the sectons of the mne In whch operatons were then beng conducted .1
The court found, aso, that pror to 19 the mne had been deveoped to fu
capacty, that a of the mne equpment was purchased to mantan produc-
ton as the mne spread out and the workng faces of the mne receded , that
none of the equpment repaced other machnery or added to the vaue of the
mne and that, despte the best efforts of ta payer, the producton of the mne
had decreased and ts overa cost of producton per ton had ncreased every
year sn e 19 . It hed that the Commssoner bad propery treated the e pend-
tures for the sate chute as capta e pendtures on the ground that they con-
sttuted capta mprovements but aowed the deducton of the cost of the equp-
ment as ordnary and necessary busness e pense under Reguatons 111 secton
29.23(m)-15(6).
We thnk that the poston of the Commssoner shoud be sustaned wth re-
spect to a the tems nvoved, e cept the cost of so many of the mne cars as
may be found to have been necessary because of the greater hau necesstated by
the recedng faces of the coa. It s admtted that a of the tems had a fe of
more than 1 year; and ordnary tems of pant equpment, etc., whch have a
usefu fe e tendng substantay beyond the year shoud be charged to a
capta account and not to an e pense account . Reguatons 111 secton
29. 1-3(2). The genera rue, wth the e cepton aowed n the case of mnng
equpment propery chargeabe as current e pense of coa mned, s set forth
n Reguatons 111 29.23(m)-15(6), as foows:
1 The purpose of these e pendtures was correcty set forth by the Ta Court n Its
fndngs of fact as foows: The conveyors were used In con|uncton wth the shortwa
cuttng machnes by pettoner to mne a thn-seam of coa ess than 39 Inches hgh
whch seam was frst encountered In 10 In a arge area then beng deveoped. Pettoner s
reguary used equpment coud not be utzed n seams ess than 0 Inches hgh, and
pettoner s eases requred that a mneabe and merchantabe coa be mned.
The oy oaders were purchased because of a fhortage of manpower and because of the
Increased number of wdey separated sectons beng worked whch made addtona equp-
ment necessary In order to avod the uneconomc deay whch woud resut from the movng
of the equpment back and forth between workng paces a me or bo apart. Pettoner s
actua e perence wth ke oy oaders purchased by It In 1939 and 10 1 proved that the
use thereof resuted In substanta savngs n the producton cost of unts of coa produced
wth the ad of those machnes as compared wth hand oaded coa. The sabber machne,
or arc-wa cuttng machne. Is used In con|uncton wth two oy oadng machnes, and the
machne purchased In 10 5 was an addtona machne needed because of the e panson
of the mne.
The conveyors, shortwa cuttng machnes. oy oaders and arc-wa cuttng machnes,
are In the actve mnng area at a tmes. Thty are used In cose pro mty to the workng
pace In the mne, and are In use contnuousy. The cuttng machnes are used In the
process of preparng the coa for the bastng operaton. fter the coa Is shot down, the
conveyors n the ow seam area carry It out of the rooms to be oaded nto mne cars
for transportaton to the tppe. The oy oaders oad the coa drecty Into the mne
cars. s the workng face recedes, the cuttng machnes and oaders are moved wth t.
When a secton s competey worked out, the machnes are moved to a new secton whch
has been prevousy prepared, but whch may be some dstance away. s the sectons
beng worked spread out. more machnery, more ocomotves, more cars, more of other
equpment are needed. Insofar as the cuttng and oadng machnes (ncudng con-
veyors) are concerned. It makes no dfference how far the tppe s ocnted from the
workng pace In the mne. The dstance between two workng sectons s determnatve
of the number of cuttng and ondng machnes needed.
Constructon of the sate-bn, or sate-chute, was started In 10 and was competed
n 10 5. It s a part of the tppe, and It enabes pettoner to brng the sate and other
mne refuse out or the mne wth the reguar coa trans, thereby emnatng the need for
the storng thereof In mne cars, and makes such cars Immedatey avaabe for the haung
of more sate or for more productve use. .
The mne eeps acqured by pettoner In 19 5 ran on the tracks n the mne and were
powered by eectrcty taken by troey from the reguar eectrc nes n the mnes. These
eeps were used by pettoner s supervsory empoyees for the purpose of gettng to the
wdey separated sectons beng worked wthout the deay of watng for the reguar coa
trans to go to a partcuar ocaton.
The mne cars purchased In 19 5 were needed because of e tended haus, the necessty
for removng n greater amount of sate and other mne refuse caused by a change In the
natura character of the seam beng mned, as we as by the federa reguatons wth
respect to shte remova, and the requrement of addtona cars to serve each of the
workng paces beng worked In wdey separate areas of the mne.
The conveyors whch were purchased In 19 5 were needed to operate wth the short-
wa cuttng machnes and were used In the same ow ven of coa. It was practcay
Impossbe to empoy mners to do hand work n a seam as thn as that encountered by
pettoner In ths area, and pettoner was requred by Its enses to mne a the mneabe
and merchantabe coa. The sabber machne purchased In 19 5 was another arc-we
cuttng machne needed because of the e panson of the mne.
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53
29.23(m)-15.
(b) pendtures for pant am 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 repacements thereof, whch are necessary to mantan
the norma output soey because of the recesson of the workng faces of the
mne, and whch (1) do not 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 property 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. Itacs supped.
The reasonng underyng ths reguaton was e pressed by ths court n Marsh
Fork Coa Co. v. Lucas Cr. 2 Fed. (2d) 3, upon whch t s sad the
reguaton was based, n the foowng anguage:
Ordnary t s true that the purchase of machnery havng a fe greater
than one year s to be charged to capta and not to e pense, for ordnary
such machnery s purchased ether to ncrease producton or to decrease
cost and n ether event to add to the vaue of the property. pendtures
such as those here nvoved, however, are not made ether to Increase pro-
ducton or to decrease cost of operaton. They do not add to the vaue of
the property, and are not made for that purpose. They are made soey for
the purpose of mantanng the capacty of the mne as the workng faces
of the coa recede. They represent the cost, as It were, of brngng forward
the workng pant of the operator, whch s made necessary as the coa Is
removed from the mne and the tunnes ncrease n ength.
It s possbe, of course, to thnk of the ncreased trackage and the n-
creased number of mne cars and ocomotves made necessary by the ength-
enng tnnnes as an ncrease of the capta nvestment n the mne; but the
troube s that ths theory eads to the rdcuous resut that, wth the ncrease
of nvestment, the property becomes ess vauabe, and that, when the
nvestment s compete, the property s practcay worthess. It s much
more reasonabe, tee thnk, to consder e pendtures for trackage, cars, and
ocomotves to mantan norma output as beng an e pense necesstated by
the remova of the coa whch has engthened the tunnes, and an e pense
whch, n any far system of accountng, shoud be charged aganst the coa
so removed.
When an operator has removed suffcent coa to e tend hs tunnes so
that he cannot mantan producton wth the equpment whch he has, he
must as a matter of course ay down more track and put n more cars and
ocomotves. The queston s, sha the e pense thereby ncurred be charged
aganst the coa, the remova of whch necesstated the e pendture to
mantan norma operaton, or aganst the coa yet unmned We thnk t
s hut far to charge aganst the coa whch has been mned the e pense
whch ts remova has necesstated. We thnk, aso, that ths s the ony
practcabe method of accountng. To captaze the e pendtures made to
mantan norma output means that the cost of remova Is pyramded
aganst the coa farther back n the mne, wth the resut that the coa near-
est the head house w appear to have been mned at abnorma proft and
that farther back at a oss. Itacs supped.
It s cear that nether the anguage of the reguaton nor the reasonng of the
Marsh Pork case has appcaton to the e pendtures here Invoved. They have
been necesstated not by the remova of the coa durng the years n whch they
were made but by the thnness of one of the seams, the radca change In the
nature of another and the shortage of avaabe manpower. They were thus
e pendtures made n the nterest of economy and effcency and not soey be-
cause of the recesson of the workng faces of the mne . They unquestonaby
added to what the vaue of the mne woud have been wthout them and they
decreased the cost of producton of mnera unts wthn the meanng of the
reguaton. We thnk that t Is not ony requred by the reguaton but by prn-
cpes of sound accountng that they be captazed and ther cost spread over
the years of ther effectve fe rather than charged off as e pense of a snge year.
We do not thnk t determnatve that the mne had been deveoped to fu
capacty pror to 19 or that the equpment was purchased In an effort to man-
tan producton. The thn seam of coa, the greater amount of sate and other
refuse encountered as a resut of the change n the character of the seam beng
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29.23(m)-15.
5
mned and the Increasng dffcuty of obtanng manpower necesstated add-
tona capta nvestment as addtona mechanzaton was requred for the
proper workng of the mne; and there Is no reason why such nvestment shoud
be charged aganst the coa mned durng the current year nstead of beng
amortzed ke other capta nvestments made n the nterest of economy and
effcency.
Comng to the thrd queston, that of ncreased deprecaton, ta payer had
been camng norma deprecaton on the straght ne bass over the estmated
usefu fe of assets n terms of years. Pror to M Its operatons had been
on the bass of two shfts of 7 hours each. egnnng wth 19 1 t ncreased the
hours of work and use of equpment n ts mne and ts cam s that ts enttes
t to an ncreased aowance for deprecaton. It makes no addtona cam for
10 1 but asks ncreases of 33 percent for 19 2, 50 percent for 19 3 and 90 percent
for 19 and 1915. There s nothng n the evdence, however, to show that the
effectve fe of the equpment was decreased as a resut of ths ncreased use.
See Montgomery s Federa Ta es (1951-1952) vo. 1 pp. 91 -916. There was
evdence that t resuted n ncreased cost of repars, but these were admttedy
charged to ordnary and necessary e pense of the busness. Whe Ta payers
presdent testfed generay that the ncreased wear had shortened the fe of
the equpment, he admtted on cross e amnaton that ts overa fe woud not
be shortened and that t woud ast as ong as ta payer e pected to use It. Under
the crcumstances, we thnk that the Ta Court propery dened the ncreased
deprecaton and we approve what the court sad wth regard thereto, as foows:
Ths Court has hed n a number of cases that f a ta payer normay
empoys the straght ne method of computng deprecaton, as here, ev-
dence of ncreased usage and other operatng condtons do not warrant an
aowance for abnorma or acceerated deprecaton absent a showng that
the usefu fe of the deprecabe asset was, n fact, thereby shortened.
Pettoner has faed to make ths showng. It has shown n
genera terms that ts mne was operated at an e cessve pace and that
proper mantenance for Its equpment was not avaabe. These two fuctors,
however, do not prove that the remanng usefu fe of such equpment was
necessary shortened. To the contrary, there was no actua worthessne.ss
or abandonment of the property, nor s there evdence that any such eventu-
aty was key. ssumng that there was an e cessve amount of wear
and tear, the ndcatons were that ths woud be but temporary and pet-
toner so regarded It. We cannot appropratey fnd that the economc fe
of pettoner s equpment had been materay shortened or was n any
danger of beng e hausted. Itacs supped.
On the fourth queston, the deducton of aeged oss resutng from the sae
of tppe track, we thnk that the decson of the court was unquestonaby
correct. That track, whch was essenta to ta payer s operatons, had been but
by t at a cost of 29, 3 .21, and deprecaton had been taken on It n the sum
of 7,796.63. The cost of mantanng ths track rested on ta payer and t re-
ceved no beneft by way of freght reducton on account thereof. The track
was sod to the Norfok Western Raway Company for a consderaton of
1.00 upon an agreement that the raway company mantan It and ta payer
contnue to have ts use. In other words, as a resut of the sae, ta payer con-
tnued to en|oy the e cusve use of the track for Its mne |ust as when the
track beonged to t and was reeved of the cost of mantenance, whch was
nssumed by the raway company. It s cear that nstead of sustanng a oss
ta payer reazed a beneft as the resut of ths transacton. We agree wth
what was sad by the Ta Court n sustanng the Commssoner s dsaowance
of the oss camed, vz:
Consderaton of the suhstance of the transacton here n queston ds-
coses pettoner s benefca use of the tppe tracks was substantay the
same after the sae as t was before. The agreement of Norfok Western
to permt the use of such tracks to pettoner wthout the burden of man-
tanng them. If anythng, resuted n an mprovement of pettoner s eco-
nomc poston. ctuay, the soe effect of the transacton was the transfer
of ega tte to persona property whch had no use other than to serve
pettoner s mne. Pettoner has faed to show that Its economc poston
has been n any way adversey affected as a resut of ths transacton; The
record does not contan nformaton whch w enabe us to pace any evau-
aton upon the agreement of Norfok Western to mantan the tracks.
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5 29.23(q)-.
Therefore, pettoner has not shown that the consderaton receved by t
for the transfer of ega tte to the tracks was ess than ts ad|usted bass
and that any oss was actuay sustaned by t.
Ta payer argues that t s entted to the deducton because ts books show
the dsappearance of an asset upon whch t was entted to take deprecaton
durng the ensung years. The answer s obvous: entres n books shoud be
made to conform to economc reates; economc reates cannot be gnored
because of entres n books. Ta payer has secured a vauabe rght n the
nature of a ease of the tppe track for whch t has e changed the ownershp
of that property. Ths shoud be taken account of by proper entres and
deprecaton aowed under the rues appcabe In such a stuaton.
The decson of the Ta Court w be affrmed e cept wth respect to the
tems of equpment aowed as ordnary and necessary e pense. s to these
tems t w be reversed and the cause w be remanded to the Ta Court wth
drecton that none of them, wth the e cepton of the amounts pad for mne
cars, be aowed as ordnary and necessary e pense of the busness, and, as to
the mne cars, that ony the purchase prce of those the purchase of whch was
made necessary by the recesson of the workng faces of the mne be aowed as
ordnary and necessary e pense, wth no such aowance for those whose pur-
chase was necesstated by the greater productvty of the mechanzed equpment.
ffrmed n Part, Reversed n Part and Remanded wth Drectons.
S CTION 23(p). D DUCTIONS FROM GROSS INCOM :
CONTRI UTIONS OF N MPLOY R TO N M-
PLOY S TRUST OR NNUITY PL N ND COMP NS -
TION UND R D F RR D-P YM NT PL N
Secton 29.23(p)-2: Informaton to be furnshed
by empoyer camng deductons.
INT RN L R NU COD
Informaton requred for rungs. (See Rev. Ru. 32, page 265.)
S CTION 23(q). D DUCTIONS FROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS Y COR-
POR TIONS
Secton 29.23 (q) -1: Contrbutons or gfts by T. D. 5979
corporatons.
INCOM T ; T L Y RS GINNING FT R D C M R 31, 10 1
Reguatons 111 amended to provde that after nnuary 1, 1953,
a copy of the resouton of the board of drectors sha be submtted
as evdence of chartabe contrbuton camed as deducton n ta -
abe year precedng year of contrbuton.
Washngton 25, D. C.
Concerned:
On November 15, 1952, notce of proposed rue makng, regardng
amendments to Reguatons 111 (26 CFR, part 29), was pubshed n
the Federa Regster (17 F. R. 10 6 ). No ob|ecton to the rues
proposed havng been receved, the amendments set forth beow are
hereby adopted.
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29.23( )-.
5(3
Paragraph 1. Secton 29.23(q)- of Reguatons 111 as amended
by Treasury Decson 592 C. . 1952-2, 100 , approved ugust ,
1952 26 CFR 29.23(q)- , s further amended as foows:
( ) y nsertng n eu of the second and thrd sentences of the
ast paragraph thereof the foowng:
For ta abe years begnnng after December 31, 19 , such eecton sha be
made ony at the tme of the fng of the return for the ta abe year and sha
be sgnfed by reportng such contrbuton or gft on the return. There sha
be attached to such return a wrtten decaraton that the resouton authorz-
es the contrbuton or gft was adopted by the board of drectors durng the
ta abe year, and such decaraton sha be verfed by a statement sgned by
the presdent or other prncpa offcer of the corporaton that t Is made under
the penates of per|ury. Wth respect to contrbutons or gfts authorzed on
or after anuary 1, 1953, there sha be attached to the return, In addton to
the wrtten decaraton referred to In the precedng sentence, a copy of the
resouton of the board of drectors authorzng such contrbuton or gft.
( ) y nsertng n eu of the ffth and s th sentences of the ast
paragraph thereof the foowng:
For ta abe years begnnng after December 31, 12 2, and before anuary 1,
19 9, the eecton sha be sgnfed by a wrtten statement fed wth the con-
sent herenbefore descrbed n whch the contrbuton or gft sha be specfed
together wth a wrtten decaraton that the resouton authorzng the con-
trbuton or gft was adopted by the board of drectors durng the ta abe year
wth respect to whch the deducton s camed, and such decaraton sha be
verfed by a statement sgned by the presdent or other prncpa offcer of the
corporaton that It s made under the penates of per|ury.
sectons 62 and 3791 of the Interna Revenue Code (53 Stat. 32, 67;
26 U. S. C. 62, 3791).)
ustn F. Wnke,
pproved February 3, 1953.
bert P. Tutte,
(Fed wth the Dvson of the Federa Regster February 6, 1953, : 50 a. m.)
S CTION 23( ). D DUCTIONS FROM GROSS INCOM :
M DIC L, D NT L, TC., P NS S
Secton 29.23( )-: Medca, denta, etc., T. D. 59
e penses.
TITL 26 INT RN L R NC . C PT R I, SU C PT R , P RT 29.
ct of 1951, reatng to remova of the 5 percent mtaton n the
deducton of medca e penses for ta payers aged 05 or over.
Washngton 25, D. C.
Concerned:
amendments to conform Reguatons 111 (26 CFR, part 29) to secton.
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29.23( )-.
shed n the Federa Regster (17 F. R. 10S( 9). No ob|ecton to the
rues proposed havng been receved, the amendments to Reguatons
111 set forth beow are hereby adopted.
29.23 ( )- 26 CFR 29.23( )- the foowng:
S C. 307. M DIC L P NS S R NU CT OF 1051,
PPRO D OCTO R 20, 1051 .
(a) mendment of Secton 23( ). Secton 23( ) (reatng to med-
ca, denta, etc., e penses) Is hereby amended to read as foows:
( ) Medca, Denta, tc., penses. penses pad durng the
ta abe year, not compensated for by nsurance or otherwse, for medca
care of the ta payer, hs spouse, or a dependent specfed n secton
25(b)(3)
(1) If nether the ta payer nor hs spouse has attaned the age
of 65 before the cose of the ta abe year, to the e tent that such
e penses e ceed 5 per centum of the ad|usted gross Income; or
(2) If ether the ta payer or hs spouse has attaned the age of
65 before the cose of the ta abe year, ( ) the amount of such
e penses for the care of the ta payer and hs spouse, and ( ) the
amount by whch such e penses for the care of such dependents
e ceed 5 per centum of the ad|usted gross ncome.
The deducton under ths subsecton sha not be n e cess of 1,250
mutped by the number of e emptons aowed under secton 25(b)
for the ta abe year (e cusve of e emptons aowed under secton
25(b) (1) ( ) or (C), wth a ma mum deducton of 2,500, e cept that
the ma mum deducton sha be 5,000 In the case of a |ont return of
husband and wfe under secton 51(b). The term medca care , as
used In ths subsecton, sha ncude amounts pad for the dagnoss,
cure, mtgaton, treatment, or preventon of dsease, or for the purpose
of affectng any structure or functon of the body (ncudng amounts
pad for accdent or heath nsurance). The determnaton of whether
an ndvdua s marred at any tme durng the ta abe year sha be
made n accordance wth the provsons of secton 51 (b) (5).
(b) ffectve Date. The amendment made by ths secton sha be
appcabe wth respect to ta abe years begnnng after December 31,
1950.
Par. 2. Secton 29.23 ( )-, as amended by Treasury Decson 56 7
fC. . 19 9-1, 9 , approved February 16,19 9 26 CFR 29.23( )- ,
s further amended as foows:
( ) y strkng therefrom the thrd paragraph and nsertng n
eu thereof the foowng:
In the case of medca e penses for the care of a person who s the ta payer s
spouse or dependent, the deducton under secton 23( ) s aowabe f the status
of such person as spouse or dependent of the ta payer e sts ether at the
tme the e penses were ncurred or at the tme the payment of the e penses was
made. Thus, payments made n une 19 2, by , for medca servces rendered
, hs wfe, In 19 1 may be deducted by for 19 2 even though pror to payment
for that year ded or secured a dvorce; and payments made n uy 10 2, by
C for medca servces rendered D In 19 1 may be deducted by C for 19 2 even
though C and D were not marred unt une 19 2. owever, wth respect to
ta abe years begnnng after December 31, 1950, the status of a person as the
spouse of the ta payer must e st as of the cose of the ta abe year of the
ta payer n whch ether the e penses were Incurred or the payment was made,
or, n the case of the death of the spouse n ether such year, as of the tme
of such death. In determnng whether such status e sts a ta payer who s
egay separated from hs spouse under a decree of separate mantenance Is not
consdered as marred.
( ) y nsertng n the frst sentence of the ffth paragraph, m-
medatey foowng after December 31, 19 3, the foowng: and
before anuary 1,1951, ,
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29.23( )-|
5
(C) y strkng the ast sentence of the ffth paragraph and nsert-
ng n eu thereof the foowng new paragraphs:
For ta abe years begnnng after December 31, 1950, there s no 5 percent
mtaton on the deducton for medca e penses, not compensated for by
nsurance or otherwse, e pended for the care of ta payer or hs spouse, where
ether the ta payer or hs spouse has attaned the age of 65 before the cose of
the ta abe year. In such cases the ta payer may deduct (sub|ect to the ma -
r-um deducton aowabe as descrbed above for ta abe years begnnng after
December 31, 19 7) : (a) the amount of a payments for the medca care of
the ta payer and hs spouse; and (6) the amount by whch hs payments for
the medca care of hs dependents e ceeds 5 percent of hs ad|usted gross
ncome. In determnng the amount of medca e penses deductbe under (6)
(see secton 23( )(2)( )) the amount deductbe under (a) (see secton
23( )(2)( )) sha not be ncuded for the purpose of meetng the 5 percent
mtaton. (For computatons ustratng ths rue, see e ampes (6) and (7)
at the end of ths secton.) In determnng the age of an ndvdua for the
purposes of the unmted deducton of medca payments for od age, the ast
day of tbe ta abe year of the ta payer s the controng date. Thus, a ta -
payer who has not attaned the age of 05 at the end of the ta abe year may
not cam the unmted deducton wth respect to payments made for the
medca care of hmsef or hs spouse f the spouse des before attanng the age
of 5 even though such spouse woud have attaned the age of 05 before the
cose of the ta abe year of the ta payer.
The deducton for medca e penses sha not be deemed to have been aowed
for any ta abe year for whch the ta payer camed and was aowed the
standard deducton under secton 23(aa).
(D) y nsertng after e ampe 5 the foowng:
ampe (6). Ta payer , who attaned the age of 65 years on February 22,
19. , makes hs return on the bass of the caendar year. Durng the year 1951,
has ad|usted gross ncome of ,000, and pays the foowng medca bs: (a)
2 0 (3 percent of ad|usted gross ncome) for the medca care of hmsef and
hs spouse, and (6) 320 ( percent of ad|usted gross ncome) for the medca
care of hs dependent son. The aowabe deducton under secton 23( ) s
210. No deducton s aowabe for the amount of . 520 pad for medca care
of the dependent son snce the amount of such payment (determned wthout
regard to the payments for the care of the ta payer and hs spouse) does not
e ceed 5 percent of ad|usted gross ncome.
-rnmpe (7). and W make a |ont return for the caendar year 1951 on
whch four e emptons are aowed (e cusve of e emptons under secton
2.r (b) (1) ( ) or (C), one for each ta payer and two for ther dependent mnor
chdren. W became 65 years of age on ugust 15, 1951. The ad|usted gross
ncome of II and W n 1951 s 0,000 and they pay n such year the foowng
amounts for medca care: (a) 1,500 for the medca care of ; (6) 2,500
for the medca care of W; and (c) 3,500 for the medca care of the chdren.
The aowabe deducton under secton 23( ) for medca e penses pad n 1951
s 5,000 computed as foows:
Payment for medca care of and W n 1951 ,000
Payment for medca care of chdren n 1951 3, 500
Less 5 percent of 10,000 (ad|usted gross ncome) 2,000
1,500
5,500
Ma mum aowabe deducton n 1951 5,000
sectons C2 and 3791 of the Interna Revenue Code (53 Stat. 32, 67:
26 U. S. C. 62,3791).)
usTN F. Wnke,
bert P. Tutte,
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29.23( )-.
Secton 29.23( )- : Medca, denta, etc., Rev. Ru. 19
e penses.
INT RN L R NU COD
The amount of annua premum pad for accdent and heath n-
surance whch does not provde rembursement to the nsured for
medca e penses does not consttute a proper deducton under
secton 23 ( ) of the Interna Revenue Code.
dvce s requested whether a premum pad by a ta payer for
accdent and heath nsurance provdng benefts for (1) accdenta
oss of fe, (2) oss of eyes or mbs, and (3) oss of tme resutng
from ncapacty due to ness or accdent consttutes a deductbe
medca e pense wthn the meanng of secton 23( ) of the Interna
Revenue Code. The etter of nqury states that there s no premum
breakdown wth respect to the benefts obtanabe, a benefts beng
avaabe upon payment of a snge annua premum.
Secton 23( ) of the Interna Revenue Code provdes that n com-
putng net ncome there sha be aowed as deductons:
( ) Medca, Denta, tc., penses. penses pad durng the ta abe year,
not compensated for by nsurance or otherwse, for medca care of the ta payer,
hs spouse, or a dependent specfed n secton 25(b) (3)

The terra medca care, as used n ths subsecton, sha ncude
amounts pad for the dagnoss, cnre, mtgaton, treatment, or preventon of
dsease, or for the purpose of affectng any structure or functon of the body
(ncudng amounts pad for accdent or heath nsurance). Itacs
supped.
I. T. 3967 (C. . 19 9-2, 33) hods (n a case whch arose under
Caforna aw) that amounts contrbuted by empoyees to a fund
estabshed under a vountary pan for the payment of unempoyment
compensaton dsabty benefts to empoyees to compensate them
ony for oss of earnngs due to sckness or n|ury are not deductbe as
medca e penses under secton 23 ( ) of the Code, but are nondeduc-
tbe persona e penses under secton 2 (a)(1) of the Code. That
concuson was based on the premse that the ony premums for acc-
dent and heath nsurance wnch are deductbe under secton 23 ( )
of the Code are those pad for a type of nsurance the proceeds of
whch w remburse the nsured for medca e penses and thus reduce
hs otherwse aowabe deducton on account of the payments. In
Robert O. Demng, r., v. Commssoner (9 T. C. 3 3, acquescence,
C. . 19 -1, 1) t was hed that the amount pad to a ta payer under
an nsurance contract as parta rembursement for oss of earnngs
due to accdent or ness need not be apped as a reducton of the
amount camed as a medca e pense deducton.
ccordngy, t s hed that the amount of annua premum pad for
accdent and heath nsurance whch does not provde rembursement
to the nsured for medca e penses does not consttute a proper deduc-
ton under secton 23 ( ) of the Interna Revenue Code.
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29.23(aa)-.
G
S CTION 23 (aa).-D DUCTIONS FROM GROSS INCOM :
OPTION L ST ND RD D DUCTION FOR INDI ID-
U LS
Secton 29.23(aa)-: Standard deducton. T. D. 5965
ct of 1051, reatng to the standard deducton.
Washngton 25, D. C.
Concerned:
On October 29, 1952, notce of proposed rue makng, regardng
amendments to the ncome ta reguatons made necessary by secton.
30 of the Revenue ct of 1951, approved October 20,1951, was pub-
shed n the Federa Regster (17 F. R. 97 ). No ob|ecton to the
111 26 C FR, part 29 set forth beow are hereby adopted:
29.23(aa)- 26 CFR 29.23(aa)- the foowng:
S C. 30 . ST ND RD D DUCTION R NU CT OF 1951, P-
PRO D OCTO R 20, 1051 .
(a) Method of ecton. Subparagraphs ( ) and ( ) of secton
23(aa) (3) (reatng to optona standard deducton for Indvduas) are
hereby amended by strkng out the word ony ; and subparagraph (C)
of secton 23 (aa) (3) s hereby amended to read as foows:
(C) If the ta pnyer upon makng hs return fas to sgnfy,
n the manner provded by subparagraph ( ) or ( ), hs eec-
ton to take the standard deducton, such faure sha be con-
sdered hs eecton not to take the standard deducton.
(b) Change of ecton. Secton 23(aa) Is hereby amended by add-
ng at the end thereof the foowng new paragraph:
(7) Chanof. of eecton. Under reguatons prescrbed by the
Secretary, a change of an eecton to take, or not to take, the
standard deducton for any ta abe yenr may be made after the
fng of the return for such year. If the spouse of the ta payer fed
a separate return for any ta abe year correspondng, for the pur-
poses of paragraph ( ), to the ta abe year of the ta payer, the
change sha not be aowed uness, In accordance wth such regu-
atons
( ) the spouse makes a change of eecton wth respect to
the standard deducton for the ta abe year covered n such
separate return, consstent wth the change of eecton sought by
the ta payer, and
( ) te ta payer and hs spouse consent n wrtng to the
assessment, wthn such perod as may be agreed upon wth
the Secretary, of any defcency, to the e tent attrbutabe to
such change of eecton, even though at the tme of the fng
of such consent the assessment of such defcency woud other-
wse be prevented by the operaton of any aw or rue of aw.
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61
29.23(aa)-.
Ths paragraph sha not appy If the ta abty of the ta payer s
spouse, for the ta abe year correspondng (for the purposes of para-
graph ( )) to the ta abe year of the ta payer, has been compro-
msed under the provsons of secton 3761.
appcabe ony wth respect to ta abe years begnnng after December
31, 19 9.
Par. 2. Secton 29.23(aa)-, as amended by Treasury Decson 56 7
C. . 19 9-1, 9 , approved February 16,19 9 26 CFR 29.23(aa)- ,
s hereby amended as foows:
( ) y strkng out the word ony n the frst sentence of (b)(1)
thereof.
( ) y strkng out the fourth sentence of (b) (1) thereof.
(C) y strkng out the word rrevocabe n (b) (1) () thereof.
(D) y strkng out the word rrevocaby n (b) (1) () thereof.
( ) y strkng out the word ony n the frst sentence of (b) (2)
thereof.
(F) y addng at the end thereof the foowng:
d) Change of eecton to tac, or wt to take, the standard deductons. Wth
respect to ta abe years begnnng before anuary 1,1950, the eecton to take, or
not to take, the standard deducton for any ta abe year sha be rrevocabe after
the tme prescrbed for fng the return for the ta abe year. Wth respect to
ta abe years begnnng after December 31,19 9, a change of the eecton to take,
or not to take, the standard deducton for any ta abe year may be made before
or after the tme prescrbed for fng the return for the ta abe year. owever,
the perod of tme prescrbed n secton 322 wthn whch cam for credt or
refund of ta must e made s not e tended by the rght to effect a change o
eecton. (See secton 29.322-7.)
If the spouse of the ta payer ed a separate return for any ta abe year that
corresponds, for the purpose of secton 23 aa) ( ) (see (c) of ths secton), to
the ta abe year of the ta payer, a change of eecton may not be made by the
ta payer uness (1) the spouse makes a change of eecton n sfch separate
return wth respect to the standard deducton consstent wth the change of eec-
ton sou bt by the ta payer, and (2) the ta payer and hs spouse fe a consent
n wrtng to the assessment, wthn such perod of tme as may be agreed upon,
of any defcency of ether to the e tent attrbutabe to such change of eecton
even though at the tme of the fng of such consent the assessment of such
defcency woud otherwse be prevented by the operaton of any aw or rue
of aw.
change of eecton for any ta abe year sha not be permtted f the ta
abty of the ta payer for the ta abe year, or of the ta payer s spouse for the
ta abe year correspondng, for the purpose of secton 23(aa) ( ) (see (c) of ths
secton), to the ta abe year of the ta payer, has been compromsed under the
provsons of secton 3761.
Par. 3. Secton 29. 02-1, as amended by Treasury Decson 56S7,
approved February 16,19 9 26 CFR 29. 02-1 , s hereby amended by
changng the second paragraph of (b) thereof to read as foows:
Wth respect to ta abe years begnnng before anuary 1, 1950, an eecton
under Suppement T once made for the ta abe year may not be revoked by an
amended return or otherwse, but a new eecton s aowed for each subsequent
ta abe year; and, f for any ta abe year the ta payer makes a return wthout
regard to Suppement T, he may not thereafter eect to have hs ta computed
under such Suppement for that ta abe year. Wth respect to ta abe years
begnnng after December 31,19 9, an eecton under Suppement T, or the makng
of a return wthout regard to Suppement T, for any ta abe year may be changed
under the same crcumstances that an eecton to take, or not to take, the standard
deducton may be changed (see secton 29.23(aa)-(d)).
2 335 53 5
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29.2 -1. 62
sectons 62 and 3791 of the Interna Revenue Code (53 Stat 32, 67;
26 U. S. C. 62, 3791).)
ohn S. Graham,
pproved December 22, 1952.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster December 29,1952, :52 a, m.)
S CTION 23(cc). D DUCTIONS FROM GROSS INCOM :
D LOPM NT OF MIN S
INT RN L revenue code
pendtures n the deveopment of uranum mnes. (See Rev. Ru.
106, page 177.)
S CTION 23(ff). D DUCTIONS FROM GROSS INCOM :
D DUCTION OF PLOR TION P NDITUR S
INT RN L R NU COD
pendtures n the e poraton of uranum mnes. (See Rev. Ru.
106, page 177.)
S CTION 2 . IT MS NOT D DUCTI L
Secton 29.2 -1: Persona and famy e penses. Rev. Ru. 0
( so Secton 22(a), Sectons 29.22 (a)-3,
29.22(a)-5; Secton 1 3, Secton 29.1 3-1.)
INT RN L R NU COD
Where the owner of a hote busness ves on the premses, the costs
(ncudng cost of goods, wages, genera e penses, ta es, deprecaton,
etc.) attrbutabe to meas, odgng, and other persona or vng accom-
modatons of the owner and hs famy must be emnated, for Federa
ncome ta purposes, from the costs and e penses of operatng the
hote. (See O. D. 99 , C. . 5, 6 (1921); cf. Rev. Ru. 2 , page 20,
ths uetn.) Where a partnershp operates a hote and the manag-
ng partner ves on the premses, t s the poston of the ureau (n
ne wth the nonacquescence, C. . 1952-2,5, n the decson n George
. Papneau v. Commssoner, 16 T. C. 130) that not ony must the
costs attrbutabe to such accommodatons of the resdent partner
and hs famy be emnated from operatng costs and e penses, but
aso the resutng ncrease n partnershp ncome must be ncuded
n the resdent partner s share of the net profts of the hote busness.
For the above purposes, the ureau w accept a reasonabe appro -
maton of the costs attrbutabe to such persona tems.
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29.2 -3.
Secton 29.2 -1: Persona and famy e penses.
INT RN L R NU COD
Deductbty of goods wthdrawn from stock by a merchant for
famy of persona use. (See Rev. u. 2 , page 20.)
Secton 29.2 -2: Capta e pendtures.
INT RN L R NU COD
Creaton fees pad by subscrbers n a sponsored nvestment pan.
Secton 29.2 -2: Capta e pendtures.
INT RN L R NU COD
mounts e pended for constructon of protectve works or for mov-
ng homes safey back from orgna ocatons on the shores of Great
I-akes to prevent probabe osses from future storms. (See Rev. Ru.
79, page 1.)
Secton 29.2 -3: Premums on busness n- Rev. Ru. 73
sura nee.
( so Secton 29.2 -1; Secton 23(a), Sec-
ton 29.23 (a)-1.)
INT RN L R NU COD ND PRIOR R NU L WS
ta payer, the prncpa member of a partnershp, who purchases
nsurance poces on hs fe and Irrevocaby desgnates the copart-
ners as soe benefcares to nduce them to retan ther Investments
In the partnershp s a drect or ndrect benefcary under such
poces, wthn the meanng of secton 2 (a)( ) of the Interna
Revenue Code. Premums pad by the ta payer on such fe nsur-
ance poces are not deductbe under the provsons of secton
23(a)(1) of the Code.
I. T. 13 0, C. . 1-1,119 (1922), revoked.
dvce s requested reatve to the deductbty under secton
23(a) (1) of the Interna Revenue Code of premums pad on fe n-
surance poces coverng the fe of the ta payer, the prncpa mem-
ber of a partnershp, where such poces rrevocaby desgnate hs
copartners as soe benefcares to protect them aganst osses whch
mght occur n the event of the ta payer s death and to nduce them
to retan ther nterest n the partnershp.
In the nstant case, the ta payer s the prncpa member of a part-
nershp engaged n a venture n whch hs persona efforts and e per-
ence are many responsbe for the success of the busness. The
copartners have e pressed ntentons to wthdraw ther nvestments
from the busness uness some manner of protecton s provded aganst
osses whch woud nure to them n the event of the ta payer s death.
The ta payer s own nterest n the busness woud be |eopardzed
shoud the copartners wthdraw ther nvestments snce t appears
e tremey mprobabe that such wthdrawas coud be repaced by
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29.2 -3.
6
borrowng ke sums on favorabe terms wthout rskng hs entre
capta nterest n the event of defaut. In order to remove ths |eop-
ardy and to nduce the copartners to retan ther nvestments n the
busness the ta payer purchased nsurance poces on hs fe rrevoc-
aby namng hs copartners as soe benefcares and retaned no rghts
n the poces to hmsef or hs hers.
In connecton wth the nstant case reconsderaton has been gven
to I. T. 13 0, C. . 1-1, 119 (1922), whch hods that premums pad
by a ta payer on nsurance poces on hs own fe, payabe to each
of hs partners, are aowabe deductons as busness e penses, when
the poces were purchased at the nsstence of the partners to nduce
them to make nvestments n the busness.
Secton 2 (a) ( ) of the Code provdes that n computng net ncome
no deducton sha n any case be aowed n respect to premums pad
on any fe nsurance pocy coverng the fe of any offcer or em-
poyee, or of any person fnancay nterested n any trade or busness
carred on by the ta payer, when the ta payer s drecty or ndrecty
a benefcary under such pocy. In the case of /. . Parker v. Com-
mssoner, 13 . T. . 115, presentng a stuaton smar to that of
the nstant case, the term benefcary as used n secton 215(a) (
of the Revenue ct of 1921 (now secton 2 (a)( ) of the Interna
Revenue Code) was construed as not beng necessary confned to the
person named n the pocy, but that t coud ncude one whose nter-
ests are ndrecty favoraby affected thereby. In that case t was
hed that a ta payer was drecty or ndrecty a benefcary on a fe
nsurance pocy taken out by hm to protect hs credtors and avod
bankruptcy.
In rnest . eefe 15 T. C. 9 7, the court stated that secton 2
(a) ( ) of the Code does not speak of one who s drecty or ndrecty
the benefcary; t merey refers to one who s drecty or ndrecty a
benefcary under the pocy.
In the case heren consdered the premums pad by the ta payer
fa wthn the prohbton of secton 2 (a) ( ) of the Code, as that
secton was nterpreted n the Parker case, supra, snce the nsurance
poces were purchased, desgnatng the copartners as soe benefc-
ares thereunder, for the purpose of nducng them to retan ther n-
vestments n the partnershp. In accompshng ths purpose the
|eopardy to the ta payer s own capta nterest n the partnershp was
removed and hs nterest n the partnershp was favoraby affected
thereby. Moreover, the very reasons urged by the ta payer for the
appcabty of secton 23(a) of the Code moves the transacton n
the drecton of secton 2 (a) ( ) of the Code. See Semon ache tt
Co., 22 . T. . 200.
In vew of the foregong, t s hed that a ta payer, the prncpa
member of a partnershp, who purchases nsurance poces on hs fe
and rrevocaby desgnates the copartners as soe benefcares to n-
duce them to retan ther nvestments n the partnershp s a drect
or ndrect benefcary under such poces, wthn the meanng of
secton 2 (a) ( ) of the Interna Revenue Code. Premums pad by
the ta payer on such fe nsurance poces are not deductbe under
the provsons of secton 23(a) (1) of the Code. ccordngy, I. T.
13 0, supra, s hereby revoked.
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20.2 -10.
Secton 29.2 -10: Items attrbutabe to an unhar- T. D. 59 0
vested crop sod wth the and.
( so Secton 113(b), Secton 29.113(b) (1)-1;
Secton 117, Secton 29.117-7.)
TITL 2C INT RN L R NU . C PT R I. SU C PT R , P RT 29.
Refutatons 111 amended to conform to secton 323 of the Revenue
ct of 11)01, reatng to sae of and wth unharvested crop.
Washngton 25, D. C.
Concerned:
On December , 1952, notce of proposed rue makng, regardng
anendnents to the ncome ta reguatons made necessary by secton
shed n the Federa Regster (17 F. R. 10970). No ob|ecton to the
111 20 CFR, part 29 set forth beow are hereby adopted:
29.2 -1 26 CFR 29.2 -1 the foowng:
S C. 323. S L OF L ND WIT UN R ST D CROP R -
1 NU CT OF 1051, PPRO D OCTO R 20, 1051 ,

(b) Treatment of Deductons.
(1) mendment of skcton 2 . Secton 2 (reatng to tems
not deductbe s hereby amended by addng at the end thereof a new
subsecton to read as foows:
(f) Sae of Land Wth Unharvested Cbop. Where an unharvested
crop sod by the ta payer s consdered under the provsons of secton
117(|) (3) as property used In the trade or busness , n computng net
ncome no deducton (whether or not for the ta abe year of the sae
and whether for e penses, deprecaton, or otherwse) attrbutabe to
the producton of such crop sha be aowed.

(c) ffectve Date. The amendments made by subsectons
(b) sha be appcabe to any ta abe year for whch a deducton s ds-
aowed by reason of saes, e changes, or conversons to whch subsecton
(a) Is appcabe.
Par. 2. There s nserted mmedatey after secton 29.2 -9 26
CFR 29.2 -9 the foowng:
Sec. 29.2 -10. Items ttrbutabe to an Unhakvested Chop Sod Wth the
Land. In computng net ncome no deducton sha be aowed n respect of
tems attrbutabe to the producton of an unharvested crop whch s sod,
e changed, or nvountary converted n a ta abe year begnnng after Decem-
ber 31, 1050, wth the and and whch s consdered as property used n the
trade or busness under secton 117(|) (3). See secton 29.117-7. Such tems
sha be so treated whether or not the ta abe year nvoved s that of the sae,
e change, or converson of such crop and whether they are for e penses, depreca-
ton, or otherwse. If the ta abe year nvoved Is not that of the sae, e change,
or converson of such crop, a recomputaton of the ta abty for such year
sha be made; such recomputaton shoud be n the form of an amended return
f necessary. For the ad|ustments to bass as a resut of such dsaowance, see
secton 29.113(b)(1)- .
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5 29.2 -10.
66
Par. 3. There s nserted mmedatey precedng secton 29.113(b)
(1)-1 26 CFR 29.113(b) (1)-1 the foowng:
NU CT OF 1951, PPRO D OCTO R 20, 1951 .

(b) Treatment of Deductons.

(2) mendment op secton 113(b)(1). Secton 113(b)(1) re-
atng to ad|ustments to bass) Is hereby amended by addng at the
end thereof a new subparagraph to read as foows:
(L) for deductons to the e tent dsaowed under secton
2 (f), notwthstandng the provsons of any other subpara-
graph of ths paragraph.
(c) ffectve Date. The amendments made by subsecton
(b) sha be appcabe to any ta abe year for whch a deducton s
dsaowed by reason of saes, e changes, or conversons to whch sub-
secton (a) s appcabe.
Par. . Secton 29.113(b) (1)-1, as amended by Treasury Decson
5967 page 163, ths uetn , approved December 30, 1952 26 CFR
29.113(b) (1)-1 , s hereby amended by addng at the end thereof the
foowng:
In the case of an unharvested crop whch s sod, e changed, or nvountary
converted n a ta abe year begnnng after December 31, 1950, wth the aud
and whch s consdered as property used In the trade or busness under secton
117(|)(3), the bass of such crop sha be ncreased by the amount of the
tems whch are attrbutabe to the producton of such crop and whch are ds-
aowed, under sectons 2 (f) and 29.2 -10, as deductons n computng net ncome.
See sectons 2U.2 -10 and 29.117-7. The bass of any other property sha be
decreased by the amount of any such tems whch are attrbutabe to such other
property, notwthstandng any provson of secton 113(b) (1) or of ths secton
to the contrary. For e ampe, f the tems attrbutabe to the producton of an
unharvested crop consst ony of fertzer costng 100 and 50 deprecaton on
a tractor used ony to cutvate such crop and such tems are dsaowed under
sectons 2 (f) and 29.2 -10, the ad|ustments to the bass of such crop sha
ncude an ncrease of 150 for such tems and the ad|ustments to the bass
of the tractor sha ncude a reducton of 50 for the deprecaton on the tractor.
(a) Treatment of Gan ob Loss. Secton 117(|) (reatng to sae
or e change of property used n the trade or busness) s hereby
amended
(1) y nsertng mmedatey before the perod at the end of the
second sentence of paragraph (1) thereof the foowng: and un-
harvested crops to whch paragraph (3) s appcabe ; and
(2) y addng at the end thereof a new paragraph to read as
foows:
(3) Sae of and wth unharvf.sted crop. In the case of an
unharvested crop on and used In the trade or busness and hed for
more than f months, f the crop and the and are sod or e changed
(or compusory or nvountary converted as descrbed In para-
graph (2)) at the same tme and to the same person, the crop sha
be consdered as property used n the trade or busness .

(c) ffectve Date. The amendment made by subsecton (a) sha
be appcabe ony wth respect to saes, e changes, and conversons,
occurrng n ta abe years begnnng after December 31,1950.
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67
20.25-3.
Pak. 6. Secton 29.117-7, as amended by Treasury Decson 5070
page 1 3, ths uetn , approved anuary 6, 1953 26 CFR
29.117-7 , s hereby amended as foows:
( ) y addng at the end of (a)()(v) thereof the foowng:
(v) Gans and osses from the sae, e change, or nvountary converson n a
ta abe year begnnng after December 31, 1950, of an unharvested crop under
the condtons specfed n (d) hereof.
( ) y addng at the end thereof the foowng:
(d) Unharvested crops. The condtons referred to n (a)()(v) above
are: (1) the unharvested crop s on and whch s secton 117(|) property ,
as defned n (a)(3) above, and such and has been hed for more than s
months: (2) such crop and such and are sod, e changed, or converted at the
Fame tme and to the same person; and (3) no rght or opton s retaned by
the ta payer, at the tme of the sae, e change, or converson, to reacqure,
drecty or ndrecty, the and (other than one customary ncdent to a mort-
gage or other securty transacton). The ength of tme for whch the crop,
as dstngushed from the and, has been hed s mmatera. easehod or
estate for years s not and for the purpose of ths secton.
sectons f 2 and 3791 of the Interna Revenue Code (53 Stat. 32, 07;
26 U. S. C. 62,3791).)
ohn S. Graham,
bert P. Tutte,
S CTION1 25. CR DITS OF INDI IDU L
G INST N T INCOM
Secton 29.25-3: Persona e empton, surta Rev. Ru. 29
e emptons, and e emptons for both norma
ta and surta .
( so Secton 51, Secton 29.51-1.)
INT RN L R NU COD
wfe dvorced her husband n the State of abama. The dvorce
decree stpuated that there sha be a watng perod of 60 days before
ether party coud remarry e cept to each other. The State of New
York waved the 60-day watng perod and ssued a cense to the
wfe to remarry a thrd party pror to the e praton of such perod.
The State of New York recognzes the egaty of the marrage per-
formed under the cense whch t ssued. The partes to the second
marrage mantaned a marta status on the ast day of the ta abe
year. In the crcumstances stated the ureau recognzes the marta
status of the partes for Federa ncome ta purposes.
Secton 29.25-3: Persona e empton, surta
e emptons, and e emptons for both nor-
ma ta and surta .
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 5993, page 9.)
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29. 2-1.
6
S CTION 26. CR DITS OF CORPOR TIONS
Secton 29.26-6: Credt for dvdends receved. Rev. Ru. 10
INT RN L R NU COD
The credt for dvdends receved provded n secton 26(b) (1) of
the Interna Revenue Code s based upon the theory that a corporate
ta as aready been pad upon the earnngs out of whch the dvdends
are dstrbuted, and such a credt for dvdends receved s not app-
cabe n any case to dvdends whch are deductbe n computng the
net ncome of a dstrbutng corporaton under secton 23(r) of the
Code.
P RT I . CCOUNTING P RIODS ND M T ODS OF CCOUNTING
S CTION 2. P RIOD IN W IC IT MS OF
GROSS INCOM INCLUD D
Secton 29. 2-1: When ncuded n gross ncome. Ct. D. 1756
1. Gross Income Deductons Year for Whch Deducton
Taken Transferee Labty cessve Compensaton
Pad to Corporate Offcers.
Ta payers, who reported Income on cash recepts and dsburse-
ments bass, receved saares from cosey hed corporatons n
whch they were both offcers and stockhoders, and reported such
saares as ncome for the year receved. Subsequenty, the Com-
mssoner dsaowed deductons by the corporatons of parts of
the saares as e ceedng reasonabe compensaton, determned de-
fcences aganst the corporatons, and aso determned that the
offcers were abe as transferees under secton 311 of the Interna
Revenue Code for the corporate defcences. The recept of e ces-
sve saary was the transfer upon whch the transferee abty was
predcated. The determnaton of the amounts of corporate defcen-
ces and of transferee abtes of the offcers occurred after the
end of the year n whch the saares were receved and reported.
Ta payers contend that an ad|ustment shoud be made n the year
of orgna recept of the saary; the Government contends that on
ad|ustment shoud be made n the year of payment of the transferee
abty. ed: The saares were receved under a cam of nd-
vdua rght not under a cam of rght as trustees, and were there-
fore ta abe In the year receved. ach ta payer s entted t| a
deducton for a oss n the year of repayment of the amount earer
ncuded n ncome. It woud be dsruptve of an ordery coecton
of the revenue to rue that the countng of annua ncome must be
done over agan to refect events occurrng after the year for whch
the count s made, and woud voate the sprt of the annua ac-
countng system.
2. Decsons ffrmed and Reversed.
Decson of the Unted States Court of ppeas, 2d Crcut, 19
F. 2d 662 (1952) affrmed; decson of the Unted States Court of
ppeas, 6th Crcut, 10 F. 2d 536 (1952) reversed.
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G9
1 29. 2-1.
Supreme Cottbt of the T|Nr; D States
76. d cn . eay and Gordon W. artfed, pettoners, v. Commssoner of
Interna Revenue
On wrt of certorar to the Dnted States Court of ppeas for the Second Crcut
13 . Commssoner of Interna Revenue, pettoner, v. a C. Smth
On wrt of certorar to the Dnted States Court of ppeas for the S th Crcut
pr 6,1953
OPINION
Mr. Chef ustce nson devered the opnon of the Court.
The ncome ta abty of three ndvdua ta payers for a gven year s here
before te Court. Ony a snge queston, common to a the cases, s nvoved.
The Ta Court hed a vew favorabe to the ta payers.1 The Commssoner of
Interta Revenue sought revew before the approprate courts of appeas. s to
two of he ta payers, the Court of ppeas for the Second Crcut reversed,
whe the Court of ppeas for the S th Crcut took a contrary vew of the
aw. We granted certorar to resove the confct.
controng facts n the three stuatons are smar. ach ta payer re-
ports hs ncome on the cash recepts and dsbursements method. ach, n the
respectve years nvoved, receved a saary from a cosey hed corporaton n
whch he was both an offcer and a stockhoder. The fu amount of saary so
receved was reported as ncome for the year receved. Subsequenty, after audt
of the corporate returns, the Commssoner dsaowed the deducton by the cor-
poratons of parts of the saares as e ceedng reasonabe compensaton. s a
resut, defcences n ncome ta es were determned aganst the corporatons.
The Commssoner aso determned that the offcers were abe as transferees
nndeT secton 311 of the Interna Revenue Code for the corporate defcences.
The recept of e cessve saary was the transfer upon whch the transferee a-
bty was predcated. s a resut of ether tgaton or negotaton, varous
amounts became estabshed as defcences of the corporatons and as transferee
abtes of each of the three offcers. In each case, the entre process of deter-
mnng these amounts from the start of the audt by agents of the Commssoner
to the fna estabshment of the abtes occurred after the end of the year
n whch the saary was receved and reported.
The queston before the Court s whether part of the saary shoud be e cuded
from ta abe Income n the year of recept snce part was e cessve saary and
ed to transferee abty for the unpad ta es of the corporatons. The ta -
payers contend that an ad|ustment shoud be made n the year of orgna re-
cept of the saary; the Government that an ad|ustment shoud be made n the
year of payment of the transferee abty.
One of the basc aspects of the Federa ncome ta s that there be an annua
accountng of ncome. ach tem of ncome must be reported n the year n
whch t s propery reportabe and n no other. For a cash bass ta payer, as
these three are, the correct year s the year n whch receved.
Not nfrequenty, an adverse camant w contest the rght of the recpent
to retan money or property, ethpr n the year of recept or subsequenty. In
orth mercan O v. urnet, 2 6 U. S. 17 (1932) Ct. D. 99, C. . I-1,
203 (1932) , we consdered whether such uncertanty woud resut In an amount
otherwse ncudbe n ncome beng deferred as reportabe ncome beyond the
annua perod n whch receved. That decson estabshed the cam of rght
doctrne now deepy rooted n the Federa ta system. The usua statement
of the rue s that by Mr. ustce randes In the North mercan O opnon:
Gordon W. artfed and dwn . eay, 16 T. C. 200 (1951) (consodated pro-
eerdnzs) ; a C. Smth, 11 T. C. 17 (19 ).
Commtsoner v. artfed. 19 F 2d 662 (1952).
CommU oner T. Smth, 19 F. 2d 536 (1952).
3 T. S. 11, 13 (1952).
Chartc, e. Smth d Sons Co. v. Commttoner, 1 F. 2d 1011 (1950).
Reo Motor v. Commtsoner, 33 D. S. 2 (1950) Ct. D. 172 , C. . 1950-1, 59 ;
ener v. Meon. 30 . S. 271 (193 ) (Ct I). 13 5. C. . 193 -1. 3 01: urnet v.
fan|ord rooks Co., 2 2 . S. 359 (1931) Ct. D. 277, C. . -, 303 (1931) . See
L . C, sec. 1.
I. . C, sec. 2(a). Other permssve methods of accountng for ta purposes are the
wrus bass. I. R. C. sees. 1 and 2. and the nstament bass, I. . C, sec. .
Unted State v. Lews, 3 0 U. S. 590, 592 (1951).
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| 29. 2-1.
70
If a ta payer receves earnngs under a cam of rght and wthout restrcton
ns to ts dsposton, he has receved ncome whch he s requred to return, even
though t may st be camed that he s not entted to retan the money, and
even though he may st be ad|udged abe to restore ts equvaent 2 6
U. S., at 2 .
The phrase cam of rght s a term known of od to awyers. Its typca
use has been n rea property aw In deang wth tte by adverse possesson,
where the rue has been that tte can be acqured by adverse possesson ony f
the occupant cams that he has a rght to be n possesson as owner. The use
of the term n the fed of ncome ta aton s anaogous. There s a cam of
rght when funds are receved and treated by a ta payer as beongng to hm.
The fact that subsequenty the cam s found to be nvad by a court does not
change the fact that the cam dd e st. mstaken cam s nonetheess a
cam, Unted States v. Lews, 3 0 U. S. 590 (1951) Ct. D. 173 , C. . 1951-1, 21 .
owever, we are tod that the saares were not receved as beongng to the
ta payers, but rather they were receved by the ta payers as constructve
trustees for the beneft of the credtors of the corporaton. dmttedy, recepts
by a trustee e pressy for the beneft of another are not ncome to the trustee
n hs ndvdua capacty, for he has receved nothng for hs separate
use and beneft. sner v. Macomber, 252 U. S. 1 9, 211 (1920) T. D. 3010,
C. . 3, 25 (1920) .
We do not beeve that these ta payers were trustees n the sense that the
saares were not receved for ther separate use and beneft. Under the equtabe
doctrne that the funds of a corporaton are a trust fnnd for the beneft of
credtors, a stockhoder recevng funds wthout adequate consderaton from
an nsovent corporaton may be hed, n some |ursdctons, to hod the funds
as a constructve trustee.1 So t was that these ta payers were decared con-
structve trustees and were abe as transferees n equty. constructve
trust s a fcton mposed as an equtabe devce for achevng |ustce. It acks
the attrbutes of a true trust, and s not based on any ntenton of the partes.
ven though t has a retroactve e stence n ega fcton, fcton cannot change
the ready reazabe economc vaue and practca use and beneft
whch these ta payers en|oyed durng a pror annua accountng perod, ante-
cedent to the decaraton of the constructve trust.
We thnk t cear that the saares were receved under a cam of ndvdua
rght not under a cam of rght as a trustee. Indeed one of the partes con-
cedes, as s manfesty so, that the reportng of the saary on the ncome ta
returns ndcated that the ncome was hed under a cam of ndvdua rght.
The ta payers argue that the saary was sub|ect to a restrcton on ts use.
Snce a the facts whch utmatey gave rse to the transferee abty were n
e stence at the end of the ta abe year, we are tod those facts were a ega
restrcton on the use of the saary. ctuay t coud not have been sad at
the end of each of the years nvoved that the transferee abty woud matera-
ze. The Commssoner mght not have audted one or a of these partcuar
returns; the Commssoner mght not have gone through the correct procedure
or have produced enough admssbe evdence to meet hs burden of provng
transferee abty; or, through subsequent proftabe operatons, the corpora-
tons mght have been abe to have pad ther ta es obvatng the necessty of
resort to the transferees.
There s no need to attempt to st hypothetca stuatons not before us
whch put such restrctons on use as to prevent the recept under cam of
rght from gvng rse to ta abe ncome. ut a potenta or dormant restrcton,
such as here nvoved, whch depends upon the future appcaton of rues of aw
to present facts, s not a restrcton on use wtbn the meanng of North
mercan O v. urnet, supra.
Tffany. Rea Property, gee. 11 7.
10 15 Fetcher, Cycopeda Corwratons. sees. 7369-73R9.
11 3 Scott on Trusts, sec. 02.1; 3 ogert, Trusts and Trustees, sec. 71.
Rutkn v. Unted States, 3 3 U. S. 130, 137 (1952) Ct. D. 17 2, C. . 1952-1, 9).
sner T. acombcr, 252 U. S. ISO. 211 (1 )20).
3 The rue announced n orth mercan O v. Iurntt, supra, requres a recept wthout
restrcton on use as we as under a cam of rcht.
I. . C. sec. 1119 mposes upon the Commssoner the burden of provnp transferee
abty. Ths may be contrasted to the rue that normay the burden of proof Is on the
ta payer contestng the determnaton of the Commssoner. I. R. C, see. 1111; rue 32,
Ta Court of Unted States.
1,1 Transferee abty Is secondary to the prmary abty of the transferor. To sustan
transferee abty the Commssoner must prove that he Is nnnbo to coect the defcency
from the transferor. 9 Merteu , Law of Federa Income Ta aton, sec. 53.29.
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71
I 29. 2-1.
The Inequtes of treatng an amount ns ncome whch eventuay turns out
not to be Income are urged upon us. The Government concedes that each of these
ta payers s entted to a deducton for a oss n the year of repayment of the
amount earer ncuded n ncome. In some cases, ths treatment w beneft
the ta payer; n others t w not. Factors such as the ta rates n the years
nvoved and the brackets n whch the ncome of the ta payer fas w be
controng. rue whch requred that the ad|ustment be made n the earer
year of recept nstead of the ater year of repayment woud generay be un-
favorabe to ta payers, for the statute of mtatons woud frequenty bar any
ad|ustment of the ta abty for the earer year. Congress has enacted an
annua accountng system under whch ncome s counted up at the end of each
year. It woud be dsruptve of an ordery coecton of the revenue to rue
that the countng must be done over agan to refect events occurrng after the
year for whch the count s made, and woud voate the sprt of the annua
accountng system. Ths basc prncpe cannot be changed smpy because t s
of advantage to a ta payer or to the Government n a partcuar case that a
dfferent rue be foowed.
The |udgment of the Court of ppeas for the Second Crcut n No. 76, beng
consstent wth ths opnon, s affrmed, whe the contrary |udgment of the
Court of ppeas for the S th Crcut n No. 13 s reversed.
It s so ordered.
Mr. ustce Dougas dssents.
Secto 29. 2-1: When ncuded n gross ncome. ev. Ru. 62
INT RN L R NU COD
mounts credted, under secton 7(d) of the Federa Depost
Insurance ct, pro rata to nsured banks by the Federa Depost
Insurance Corporaton as of December 31,1950, and as of December
31, of each caendar year thereafter based upon CO percent of the
Corporaton s net assessment ncome for each such year, are n-
cudbe n the gross ncome of a bank, on the cash recepts and ds-
bursements bass, for ts ta abe year or years n whch and to the
e tent each such credt s appcabe toward payment of a depost-
nsurance assessment or assessments or s refundabe or assgnabe.
ach such credt, beng utmatey reazabe by the bank n fu,
s ncudbe n ts gross ncome, on the accrua bass, n entrety for
ts ta abe year n whch t s defntey advsed by the Corporaton
of the amount thereof.
dvce s requested reatve to when and how amounts credted,
under secton 7(d) of the Federa Depost Insurance ct, as of De-
cember 31, 1950 , by the Federa Depost Insurance Corporaton to
nsured banks are ncudbe n ther Federa ncome ta returns.
The Federa Depost Insurance Corporaton, the management of
whch s vested n a oard of Drectors composed of three members,
one of whom s the Comptroer of the Currency, was created une
16,1933, under secton of the ankng ct of 1933 (chapter 9,
Stat. 162, at 16 , 179; whch amended the Federa Reserve ct as
prevousy amended, by nsertng theren, nter aa, secton 12 ), to
purchase, hod, and qudate assets of certan cosed banks, and to
nsure temporary certan bank deposts, operatve anuary 1, 193 .
See I. T. 276 , C. . I1I-1, 5 (193 ). Secton 101 of the ankng
ct of 1935 (chapter 61 , 9 Stat. 6 , at 6 , amendng secton 12 ,
supra), effectve ugust 23, 1935, provded for permanent Federa
nsurance of certan bank deposts wth an assessment rate of one-
twefth of 1 per centum (secton 12 (h) (1)). See I. T. 29 0, C. .
17 G. C. M. 1 730 : C. . -1, 179 (1C36).
I. . C, sec 22(b). ee aso I. R. C, sees. 275 and 311 (b).
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29. 2-1.
72
I -2, 63 (1935). Secton 12 , as amended, supra, was wthdrawn
from the Federa Reserve ct and made the Federa Depost Insurance
ct, and further amended by Pubc Law 797, ghty-frst Congress,
chapter 967, second sesson, approved September 21, 1950, 6 Stat.
73. The depost-nsurance assessment rate was not changed n the
new ct, but secton 7(d) thereof (U. S. C, tte 12, secton 1 17(d)),
provdng as foows, was added:
s of December 31, 1950, and as of December 31, of each caendar year there-
after, the Corporaton sha transfer 0 per centum of ts net assessment ncome
to ts capta account and the baance of the net assessment ncome sha be
credted pro rata to the nsured banks based upon the assessments of each bank
becomng due durng sad caendar year. ach year such credt sha e apped
by the Corporaton toward the payment of the tota assessment becomng due
for the semannua assessment perod begnnng the nert ensung uy 1 and
any e cess credt sha be apped upon the assessment ne t becomng due. The
term net assessment ncome as used heren means the tota assessments whch
become due durng the caendar year ess (1) the operatng costs and e penses
of the Corporaton for the caendar year; (2) addtons to reserve to provde for
Insurance osses durng the caendar year, e cept that any ad|ustments to re-
serve whch resut n a reducton of such reserve sha be added; and (3) the
nsurance osses sustaned n sad caendar year pus osses from any precedng
years n e cess of such reserves. If the above deductons e ceed n amount the
tota assessments whch become due durng the caendar year, the amount of
such e cess sha be restored by deducton from tota assessments becomng due
n subsequent years. (Itacs supped.)
s provded n secton 3(h) of such ct, The term nsured bank
means any bank the deposts of whch are nsured n accordance wth
the provsons of ths ct .
ttenton has been nvted to secton 7(e) of such ct (U. S. C, tte
12, secton 1 17(c)) whch provdes that:
The Corporaton (1) may refund to an nsured bank any payment of assess-
ment n e cess of the amount due to the Corporaton or (2) may credt such
e cess toward the payment of the assessment ne t becomng due from such
bank and upon succeedng assessments unt the credt s e hausted.
owever, such provsons e pressy reate to refunds or credts by the
Corporaton of e cess payments (. e., overpayments) by nsured
banks of depost-nsurance assessments. so, t may be noted that
secton 12 (h) (5) of the Federa eserve ct, as prevousy amended
(U. S. C, tte 12, secton 26 (h) (5)), dscussed n I. T. 29 0, supra,
provded that:
ach bank whch sha be and contnue wthout appcaton or approva an
nsured bank In accordance wth the provsons of subsecton (e) or (f) of ths
secton, sha, n eu of a rght to refund (e cept as authorzed n paragraph
(3) of subsecton () of ths secton) be credted wth any baance to whch
such bank sha become entted upon the termnaton of the sad Temporary
Federa Depost Insurance Fund or the Fund for Mutuas. The credt sha
e apped by the Corporaton toward the payment of the assessment ne t be-
comng due from 6uch bank and upon succeedng assessments unt the credt s
e hausted.
Secton 7(a) of the Federa Depost Insurance ct (U. S. C., tte
12, secton 1 17(a)) provdes for semannua depost-nsurance assess-
ment of nsured banks, and prescrbes a base therefor of the average of
a bank s abty for certan defned deposts as of the cose of busness
on 2 specfed cays n each precedng semannua perod. Secton
12 (h)(1) of the Federa Reserve ct, as prevousy amended
(U. S. C., tte 12, secton 201(h) (1)), aso provded for semannua
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73
29. 2-1.
de| st-nsurance assessment of nsured banks on a prescrbed base.
Secton 7(b) of the Federa Depost Insurance ct (U. S. C, tte 12,
secton 1 17(b)) provdes that:
On or before the 15th day of uy of each year, each nsured bank sha fe
wth the Corporaton a certfed statement showng for the s months endng
on the precedng une 30 the amount of the assessment base and the amount of
the semannua assessment due to the Corporaton for the perod endng on the
foowng December 31, determned n accordance wth subsecton (a) of ths
secton, whch sha contan or be verfed by a wrtten decaraton that t s
made under the penates of per|ury. ach nsured bank sha pay to the
Corporaton the amount of the semannua assessment t s requred to certfy.
On or before the 15th day of anuary of each year, each nsured bank sha fe
wth the Corporaton a smar certfed statement for the s months endng on
the precedng December 31 and sha pay to the Corporaton the amount of te
semannua assessment for the perod endng on the foowng une 30 whch t
s requred to certfy.
Secton 12 (h)(2) of the Federa Reserve ct, as prevousy
amended (U. S. C., tte 12, secton 26 (h)(2)), contaned smar
provsons. Under secton 7(a), supra, The assessment payments
sha be made n such manner and at such tme or tmes as the
oard of Drectors sha prescrbe, not ater than 6 )
days after fng the certfed statement settng forth the amount of the
assessment . nd sectons 30 .01 and 327. of the Corporaton s
Reguatons (1951) prescrbe that the semannua assessments sha
be pad at the tme such semannua statements are requred to be ted,
under secton 7(b), svpra.
It s evdent that amounts credted, under secton 7(d), supra,
uas of December 31,1950, to nsured banks, and apped thereunder,
do not represent ad|ustments for overpayments of depost-nsurance
assessment.; for that year or pror years, nor specfc reductons of any
partcuar assessments, but rather are rembursements or recoveres,
m the nature of busness nsurance rebates, dependent upon the opera-
tons and net assessment ncome of the Federa Depost Insurance
Corporaton for that caendar year. Therefore, such credts, to the
e tent actuay or constructvey receved, or accrued, are propery
taken nto account, n computng net ncome for Federa ncome ta
purposes, as gross ncome rather than as ad|ustments or reductons of
deductons for depost-nsurance assessments. See, generay, G. C. M.
1079 , C. . I-2, 5 (1932); I. T. 26 6, C. . I-2, 59 (1932); I. T.
276 , supra; Wchta State ank rfe Trust Co. v. Commssoner,
C. C. .-5, 69 F. (2d) 595, Ct. D. 9 7, C. . III-2, 1 7 (193 ),
certorar dened 293 U. S. 563; I. T. 29 0, supra; and I. T. 3770, C. .
19 5, 13 .
Secton 2(a) of the Interna Revenue Code provdes, as a genera
rue, that The amount of a tems of gross ncome sha be ncuded
n the gross ncome for the ta abe year n whch receved by the
ta payer, uness, under methods of accountng permtted under secton
1, any such amounts are to be propery accounted for as of a dfferent
perod Secton 1 of the Code provdes, n part, for the computa-
ton of net ncome n accordance wth the method of account-
ng reguary empoyed n keepng the books of such ta payer . Un-
der sectons 29. 2-2 and 29. 2-3 of Interna Revenue Reguatons 111,
ncome credted to a ta payer s consdered receved by hm, wthn
the meanng of secton 2, when t s avaabe to hm for wthdrawa
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29. 2-1.
7
wthout any substanta condtons. Constructve recept by a ta -
payer of ncome aso occurs when t becomes avaabe for appcaton
to hs abty. See cer Reaty Co. v. Commssoner, C. C. .- ,132
F. (2d) 512, affrmng 5 . T. . 333. So too when an ncome credt
s transferabe. See I. T. 3 25, C. . 19 0-2, 39. In Commssoner v.
Securty Four Ms Co., 321 U. S. 2 1, Ct. D. 1603, C. . 19 , 526,
at 52 , the Court stated that under the accrua method ncome s not
propery returnabe for a year other than the year n whch the rght
to receve has become fna and defnte n amount.
The Federa Depost Insurance Corporaton has nformed the
ureau that t consders amounts credted to nsured banks, under
secton 7(d), supra, as of December 31,1950, and as of December 31,
of each caendar year thereafter to be appcabe thereunder and
avaabe to them ony toward payment of the ne t semannua depost-
nsurance assessment or assessments becomng due after une 30 of
each foowng year, unt e hausted, and not to be refundabe or wth-
drawabe, n whoe or n part, under secton 7(e), supra, or otherwse,
e cept that, upon termnaton of a bank s nsured status, any baance
of such a credt or credts to t remanng after payment of a assess-
ments due or to become due from t s refundabe to t or assgnabe
by t to another nsured bank whch has assumed ts depost abty.
ccordngy, an amount credted, under secton 7(d), supra, as of
December 31,1950, to a partcuar nsured bank was appcabe, wth-
out mt (unt e hausted), toward payment of (1) ts depost-
nsurance assessment for the 6-month perod begnnng uy 1 and
endng December 31,1951, whch was payabe (when t was requred
to fe ts certfed assessment-base statement for that perod) on or
before uy 15,1951, but after une 30, 1951; (2) ts depost-nsurance
assessment for the 6-month perod begnnng anuary 1 and endng
une 30,1952, whch was payabe (smary) on or before anuary 15,
1952, but after December 31, 1951; and (3) ts depost-nsurance
assessment for the 6-month perod begnnng uy 1 and endng
December 31, 1952, whch was payabe (smary) on or before uy
15, 1952, but after une 30, 1952; etc. The Corporaton aso has n-
formed the ureau that t dd not defntey advse the nsured banks
of the amounts credted to them under secton 7(d), supra, as of
December 31, 1950, unt une 1951, namey, by Credt Memoran-
dum readng as foows:
Tbe Federa Depost Insurance ct provdes that each nsured bank sha be
credted annuay wth ts pro-rata share of s ty percent of the Corporaton s
net assessment Income for the precedng caendar year. The credt due your
Insttuton thereunder s shown beow. Ths amount has been credted to your
account and s to be nserted as tem - on your certfed statement to be sub-
mtted on or before uy 15 and deducted from the assessment then due. If the
assessment due that date e ceeds the credt beow, remt the baance wth your
certfed statement. If the credt e ceeds the assessment due, the e cess w be
deductbe from the assessment due on or before the foowng anuary 15.
It s to be noted that n such credt notce t s stated The
ct provdes that each nsured bank sha be credted annuay wth
ts pro rata share of 60 percent of the Corporatons net assessment
ncome for the precedng caendar year . (Itacs supped.) In
other words, the amounts to be credted thereunder to nsured banks
as of December 31, 1950, and as of December 31, of each caendar
year thereafter are not to be actuay and defntey credted to them
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75
29. 2-1.
unt each foowng year; and the Corporaton s net assessment n-
come for each caendar year precedng that n whch 60 percent
thereof sha be credted pro rata to nsured banks s smpy a base
for measurng such credts. Such vew s consstent wth the foow-
ng statement n Senate Report No. 2679, ghty-frst Congress, sec-
ond sesson, C. . 1951-1,2 0, at 251, n connecton wth secton 33(b)
(13) of the Interna Revenue Code, added by the cess Profts Ta
ct of 1950:
PuMe Law 797 of the ghty-frst Congress, second sesson, made pro-
vson for a credt whch woud be counted aganst the gross assessments due n
ater years. Ths credt s computed by reference to the operatng e perence of
the FDIC n the precedng year.
It s aso noteworthy that secton 7(d), supra, specfcay provdes
that the amounts to be credted thereunder to nsured banks as of
December 31,1950, and as of December 31, of each caendar year there-
after are frst appcabe toward payment of the second semannua
depost-nsurance assessment becomng due n each foowng caen-
dar year, namey, after une 30 thereof (payabe, under the Corpora-
ton s Reguatons, on or before uy 15) rather than to the frst
semannua depost-nsurance assessment becomng due n such year
(payabe on or before anuary 15). Such provson pany nd-
cates that Congress deemed t mpractcabe for the Corporaton, even
after December 31 of each caendar year, to defntey determne the
amounts of the current annua credts and, thereupon, nform each
nsured bank of the credt n tme to permt appcaton thereof toward
payment of the frst semannua depost-nsurance assessment becomng
due n the foowng caendar year. Furthermore, t s manfest, from
the base provsons of secton 7(d), supra, that the amounts to be
credted thereunder to nsured banks as of December 31,1950, were
not determnabe by them wth a cose degree of accuracy unt after
that date nor unt the Corporaton, n the foowng year, had def-
ntey determned ts net assessment ncome for the caendar year
1950 and, thereupon, advsed each bank of the amount of ts credt.
Under such provsons, the caendar year net assessment ncome, 60
percent of whch s to be credted pro rata to nsured banks, s that of
the sad Corporaton after t has determned approprate addtons to
ts reserves for nsurance osses, wth certan ad|ustments, as we as
ts operatng costs and e penses and nsurance osses for the caendar
year. s aforendcated, Congress dd not e pect that the Corpora-
ton shoud hasty make such determnaton but provded a perod
therefor of neary 6 months after the date as of whch the credts
are based. The stuaton s dstngushabe from that where the
amount of an tem of gross ncome or deducton s based on the ta -
payer s own net ncome, such as a State ncome ta , or a muntons
ta based on certan net ncome of the ta payer, as n Unted States v.
P. Chauncey nderson et a, 269 U. S. 22, T. D. 3 39, C. . -,
179 (1926).
In vew of the foregong, for Federa ncome ta purposes, an
amount credted, under secton 7(d), supra, to an nsured bank
as of December 31, 1950, was n effect or constructvey receved as
ncome when and to the e tent t was appcabe toward payment of a
depost-nsurance assessment or assessments, or was refundabe or
assgnabe. ccordngy, a bank whch keeps ts accounts and fes
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7G
ts returns on the cash recepts and dsbursements method must take
the amount of such credt nto gross ncome at the tme and to the
e tent the credt s appcabe toward the payment of a depost-n-
surance assessment, or when t s assgnabe or refundabe.
n amount credted, under secton 7(d), supra, to an nsured
bank as of December 31, 1950, athough utmatey reazabe by t
n fu n money or the equvaent thereof, was not to be actuay and
defntey then credted to t and was not determnabe by t wth a
cose degree of accuracy unt after that date, nor unt the Federa
Depost Insurance Corporaton, n the foowng year, had defntey
determned ts net assessment ncome for the caendar year 1950
and, thereupon, advsed the bank of the amount of ts credt. c-
cordngy, the entre amount of the credt s ncudbe n the ncome of
a bank whch keeps ts accounts and fes ts returns on the accrua
method of accountng n the ta abe year n whch t s defntey
advsed by the Corporaton of the amount thereof. Such concuson
s not nconsstent wth that reached n I. T. 3770, supra, wth re-
spect to an accrua bass ta payer. That rung was premsed on the
fact that the credt, to whch the empoyer-ta payer there nvoved
was entted under New York State unempoyment nsurance aw,
was appcabe thereunder ony aganst contrbutons whch are
payabe on wages pad n four consecutve caendar quarters begnnng
on the effectve date ; and the rung hed, accordngy, that the credt
was accruabe, as ncome, ony to the e tent, and for the ta abe year
wheren, the credt was so appcabe.
Secton 29. 2-1: When ncuded n gross ncome. Rev. Ru. 105
( so Secton 29. 2-6; Secton 22(b), Secton
29.22(b) ( )- .)
INT RN L R NU COD
Proper treatment, for Federa ncome ta purposes, where matured
or maturng Unted States savngs bonds of Seres F or G are re-
deemed by the ssuance and acceptance of new, fuy marketabe,
3 percent Treasury bonds of 197 - 3 under a speca Treasury offer.
dvce s requested reatve to the proper treatment, for Federa
ncome ta purposes, where new, fuy marketabe, 3 percent Treas-
ury bonds of 197 - 3 were receved on May 1, 1953, n redempton of
matured or maturng Unted States savngs bonds of Seres F or G
under a speca Treasury offer.
The Seres F savngs bonds do not bear nterest, as such, but were
ssued on a dscount bass of 7 percent, and ncrease n redempton
vaues at the end of the frst year from ther ssue date and at the
end of each successve haf-year perod thereafter unt ther maturty
date (when ther maturty redempton vaues, face amount, becomes
payabe). They yed about 2.53 percent per annum compounded
semannuay f hed to maturty7, but ess f redeemed before then
because ther eary s -month ncrements n vaue are smaer than
ther ater ones. Secton 22(d) of the Second Lberty ond ct, as
amended by the Pubc Debt ct of 19 1 (C. . 19 1-1, 5 6, 5 7),
provdes, n part, that For the purposes of ta aton any ncrement
n vaue represented by the dfference between the prce pad and the
redempton vaue receved (whether at or before maturty) for savngs
G
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29. 2-1.
bonds sha be consdered as nterest. ccordngy, and
snce such bonds are never redeemabe at ess than ther purchase
prce, no gan or oss, ether ordnary or capta, s ever reazed or
sustaned, for Federa ncome ta purposes, upon ther redempton,
whether at or before maturty. For rungs reatve to when the
nterest (ncrement n vaue) on Unted States savngs bonds ssued at
a dscount, and non-nterest-bearng, s returnabe for Federa ncome
ta purposes, see G. C. M. 15 75 (C. . I -2, 100 (1935)); I. T.
295 (C. . -1, 120 (1936)); and Mmeograph 6327 (C. .
19 -2,12).
The Seres G savngs bonds were ssued at par (face amount) and
bear nterest at the rate of 2y2 percent per annum, payabe by check
semannuay, from ther ssue date. They are redeemabe at par
(purchase prce, face amount) but f redeemed before ther maturty
(e cept n certan cases upon death) the owner s requred under ther
terms to refund a certan porton of the nterest aready pad to hm
thereon and w receve ony the net proceeds (. e., the amount by
whch ther face amount e ceeds such nterest ad|ustment), termed
ther redempton vaue at the tme redeemed. Thus, a purchaser
thereof actuay recovers upon ther redempton, whether at or before
ther maturty, e acty ther cost (purchase prce, face amount).
See I. T. 350 (C. . 19 1-2,93).
The 31 percent Treasury bonds of 197 - 3 are dated May 1, 1953,
and were oTered n Department Crcuar No. 921, dated pr 13,
1053, for cash subscrpton at par and accrued nterest, and aso n
redempton of Unted States savngs bonds of Seres F and G matur-
ng n the months of May through December, 1953, at par wth nterest
ad|ustments f the savngs bonds had not matured on May 1, 1953,
and pus cash payment for any denomnaton dfference. Such nterest
ad|ustments conssted, n the case of the Seres F savngs bonds, of
the bondhoder beng charged an amount equvaent to nterest at 2.53
percent per annum on ther maturty redempton vaues from May 1,
1953, to ther maturty dates; and, n the case of the Seres G savngs
bonds, of the bondhoder beng pad nterest at 2y2 percent per annum
on ther face amount (purchase prce) from ther ast nterest-payment
date to May 1, 1953. Snce the Seres F and G savngs bonds were
nonmarketabe (nonnegotabe and nontransferabe) and recovery of
nvestment theren coud be obtaned ony by Treasury redempton,
197 - 3 were offered and ssued n redempton of such savngs bonds
and that the transactons dd not consttute e changes for Federa
ncome ta purposes.
1. Where Seres F savngs bonds whch matured on May 1, 1953,
were redeemed on that date by the ssuance and acceptance of new,
fuy marketabe, Treasury bonds of 197 - 3 of prncpa amounts
equa to the maturty redempton vaues (face amounts) of the
savngs bonds and dated May 1,1953, and bearng 3 percent nterest
therefrom, wthout any ad|ustment on account of ether nterest (n-
crement n vaue) on the savngs bonds redeemed or nterest on the
new Treasury bonds receved n redempton thereof, the new bonds
are regarded as havng been purchased by the nvestor at par (face
amounts) by the surrender of the savngs bonds for such redempton.
ccordngy, such amounts are the subsequent gan or oss bases of the
26335 53 6
t s manfest
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29. 2-1.)
7S
new Treasury bonds, and a nterest (ncrement n vaue) on the
savngs bonds as we as nterest on the new Treasury bonds s ta abe
ncome at the same tme as f the savngs bonds had been redeemed
n cash and the new bonds had been purchased for cash. Consstenty,
the nvestor s regarded as havng receved n redempton of hs savngs
bonds the amounts of ther maturty redempton vaues (face
amounts) and, thus havng recovered e acty ther cost (purchase
prce), besdes fu nterest (ncrement n vaue) thereon, he had no
gan or oss on ther dsposton.
2. Smary, where Seres G savngs bonds whch matured on May 1,
1953, were redeemed on that date by the ssuance and acceptance of
new, fuy marketabe, Treasury bonds of 197 - 3 of prncpa amounts
equa to the maturty redempton vaues (purchase prce, face
amounts) of the savngs bonds and dated on May 1, 1953, and bearng
31 percent nterest therefrom, wthout any ad|ustment on account
of nterest on ether the savngs bonds redeemed or the new Treasury
bonds receved n redempton thereof, t s consdered that the nvestor
recovered e acty the cost (purchase prce) of hs savngs bonds and
purchased the new bonds at par (face amounts), and a nterest
reazed by hm on the savngs bonds and on the new Treasury bonds
s ta abe ncome when receved or accrued (dependng on hs method
of accountng).
3. Where Seres F savngs bonds maturng after May 1, 1953, were
redeemed on May 1, 1953, by the ssuance and acceptance of new, fuy
marketabe, Treasury bonds of 197 - 3 of prncpa amounts equa to
the maturty redempton vaues (face amounts) of the savngs
bonds and dated May 1, 1953, and bearng 31 percent nterest from
that date, wth the nvestor beng requred to pay to the Treasury n
cash an amount equvaent to nterest at 2.53 percent per annum on
the maturty redempton vaues (face amounts) of the savngs bonds
from May 1, 1953, to ther maturty dates, the nvestor s consdered
to have recovered e acty the cost (purchase prce) of hs savngs
bonds, besdes nterest (ncrement n vaue) thereon to the date of ther
redempton, and to have purchased the new bonds at par (face
amounts) namey, by (a) surrender of the savngs bonds at ther net
redempton vaues as f ed by the speca Treasury offer and (b) pay-
ment of the cash dfferenta requred under the terms of such offer,
or an aggregate equa to the face amounts of the new bonds. The net
nterest (ncrement n vaue) reazed on the savngs bonds and aso
the. nterest on the new Treasury bonds s ta abe ncome when receved
or accrued (dependng upon the ta payer s method of accountng).
. Where Seres G savngs bonds maturng after May 1, 1953, were
redeemed on May 1,1953, by the ssuance and acceptance of new, fuy
marketabe, Treasury bonds of 197 - 3 of prncpa amounts equa to
the maturty redempton vaues (purchase prce, face amounts) of
the savngs bonds and dated May 1, 1953, and bearng 31 percent
nterest therefrom, wth the Treasury payng to the nvestor nterest
at 2y2 percent per annum on the face amount of the savngs bonds
from ther ast precedng nterest-payment date to May 1,1953, as the
fna nterest payment thereon, t s consdered that the nvestor re-
covered e acty the cost (purchase prce) of hs savngs bonds, besdes
2 2 percent nterest thereon from the ast prevous nterest-payment
date to the date of ther redempton, and that he purchased the new
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79
29. 3-2.
bonds at par (face amount). nterest reazed by hm on the sav-
ngs bonds and on tho new Treasury bonds s ta aoe ncome when
receved or accrued (dependng upon hs method of accountng).
Secton 29. 2-1: When ncuded n gross ncome.
INT RN L R NU COD
Reguatons 111 amended. (SeeT. D. 5971, page 303.)
S CTION 3. P RIOD FOR W IC D DUCTIONS
ND CR DITS T N
Secton 29. 3-2: When charges deductbe. Rev. Ru. 39
( so Secton 23(c), Secton 29.23(c)-.
INT RN L R NU COD
The accrua date for Federa ncome ta purposes of Mchgan
State rea and tangbe persona property ta es, commencng wth
such ta es assessed on the bass of ownershp of property on
anuary 1,1950, d anuary 1 of each year.
I. T. 291)5 (C. . -2, 137 (1936)) s nappcabe to such ta es
assessed upon the bass of ownershp of property on anuary 1,1950,
and thereafter.
dvce s requested wth respect to the proper accrua date, for
Federa ncome ta purposes, of rea property and persona property
ta es eved by the State of Mchgan.
L T. 2995 (C. . -2, 137 (1936)) hods, n genera, that ta -
tayers n Mchgan who keep ther books of account on the accrua
ass shoud accrue both persona and rea property ta es as of the
second Monday n pr for Federa ncome ta purposes, and that
ta payers n ctes whch operate under speca charters shoud accrue
ther property ta es as of the assessment day prescrbed by such
charters.
The pertnent provsons of the Mchgan State aws as amended
and now n effect are contaned n 1950 revsed voume 6 of the Mch-
gan Statutes nnotated, and provde, n part, as foows:
Secton 7.2. Rea Propebty; Defnton; Date of Determnaton of Ta a-
be Status, Ta Day ; Survey, amnaton ob Revew of Propertes.

The ta abe status of persons and rea property sha be determned as of the
frst day of anuary, whch sha be deemed the ta day. In the year 1950 and
thereafter the frst day of anuary sha be the ta day n a assessng dstrcts
ncudng ctes and vages, any provsons n the charter of any cty or vage
to the contrary notwthstandng: Provded, That no assessng offcer sha be
restrcted to any partcuar perod n the preparaton of the assessment ro
but may survey, e amne or revew propertes at any tme pror to or after sad
ta day.
Sec. 7.3. Same; Pastes ssessabe; Persons Treated as Owner; Property
op Deceased Persons. Sec. 3. Rea property sha be assessed n the townshp
or pace where stuated, to the owner f known, and aso to the occupant, f any;
f the owner be not known, and there be an occupant, then to such occupant, and
ether or both sha be abe for the ta es on sad property, and f there be no
owner or occupant known, then as unknown.

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I 29. 3-2.
0
Skc. 7.10. |rwu t ssessment. n assessment of a the property In the
State, abe to ta aton, sha be made annuay In the severa townshps, vages
and ctes thereof by the supervsors of the severa townshps and wards, or n
vages and ctes where provson s made n the acts of ncorporaton or
charter for some other assessng offcer, then by such assessng offcer, as
herenafter provded.

Sec. 7.13. Ta abe Stus of Persona Property ; Date of Determnaton of
Ta abe Status, Ta Day ; Sec. 13. persona property, e cept as
herenafter provded, sha be assessed n the townshp n whch the owner
resdes on the frst day of anuary, of the year for whch the assessment s made.
Te ta abe status of persons and |wrsona property sha be determned as of
the frst day of anuary, whch sha be deemed the ta day. In the year )
and thereafter the frst day of anuary sha be the ta day n a assessng ds-
trcts ncudng ctes and vages, any provsons n the charter of any cty
or vage to the contrary notwthstandng; .
The statutes provde further n sectons 7.2 and 7.29 that there
sha be boards of revew to whch the assessment ros are to be pre-
sented on the Tuesday ne t foowng the frst Monday n March; that
such boards are to e amne and revew the assessment ros. ow-
ever, t s specfcay provded n secton 7.29 of the statutes that the
ros sha be revewed accordng to the facts e stng on the ta da|
( anuary 1), and that the boards sha not add to the ros any prop
erty not sub|ect to ta aton on the ta day nor sha t remove fror
the ros any property sub|ect to ta aton on sad day regardess o
any change n the ta abe status of such property snce such day.
The genera rue of the ureau, based on Unted Stafes v. P
Chauncey nderson et a. (269 U. S. 22, T. D. 3 39, C. . M, 17
(1926)), has been that the event whch determnes the abty fo
property ta es s the ownershp of the property on the day as o
whch the assessment s made under the State aw.
The effect of the above-quoted Mchgan statute s to provde that
begnnng wth anuary 1, 1950, rea and tangbe persona propert;
ta es are assessed as of anuary 1 each year.
In vew of the foregong, t s hed that the accrua date for Federa
ncome ta purposes of Mchgan State rea and tangbe persona
property ta es, commencng wth such ta es assessed on the bass o
ownershp of property on anuary 1,1950, s anuary 1 of each yea
I. T. 2995, supra, s nappcabe to such ta es assessed upon the bas
of ownershp of property on anuary 1, 1950, and thereafter.
Secton 29. 3-2: When charges deductbe. Rev. Ru.
INT RN L R NU COD
In those cases where an empoyer was ready and wng to pay
retroactve wage ncreases and saary ad|ustments and had un
appcaton for approva of such ncreases and ad|ustments pendng
before a wage and saary contro agency at the tme of suspenson
of wage and saary contros, payments of the ncreased wages and
saary ad|ustments made subsequent to the suspenson of such con-
tros are deductbe for the year n whch the appcaton for ap-
prova was fed wth the agency, to the e tent that such payments re-
ate to servces rendered n the year of the appcaton or years pror
thereto.
dvce s requested reatve to the treatment by empoyers of d
ductons, for Federa ncome and e cess profts ta purposes, or pa
ments of retroactve wage ncreases and saary ad|ustments made 1
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29. 3-2.
empoyers to empoyees, subsequent to the suspenson of wage and
saary contros, n those cases where an appcaton for approva of
such ncreases and ad|ustments was pendng before wage and saary
contro agences at the tme of the suspenson of wage and saary
contros.
y ecutve Order 10 3 , 1 F. R 09, a reguatons and orders
ssued pursuant to the Defense Producton ct of 1950, 6 Stat 79 ,
as amended, stabzng wages, saares, and other compensaton, were
suspended. Such ecutve order specfcay provded that wage,
saary, and other compensaton ad|ustments proposed n pettons
pendng before wage and saary contro agences may be paced n
effect wthout, the approva of such agences, and to the e tent that
agreements nvoved n such pettons were condtoned upon approva
under tte I of the Defense Producton ct of 1950, sad ecutve
order sha be deemed such approva.
I. T. 3T16, C. . 19 5,1 0, hods that n a case n whch an empoyer
was ready and wng to pay retroactve wage ncreases requrng
the approva of the Natona War Labor oard, the amounts of such
ncreased wages a warded by the oard are deductbe for the year n
whch the empoyer fed an appcaton for such approva wth the
oard, to the e tent that such payments reate to servces rendered
n the year of the appcaton or years pror thereto. I. T. 3716 aso
hods that n a case n whch the empoyer contests the wage ncreases
or aowances and retroactve pay ncreases are ordered by the Na-
tona War Labor oard, the deducton therefor s aowabe ony
for the year n whch the controversy s setted. I. T. 3716 states that
ths prncpe s equay appcabe to wage and saary ad|ustments
under Pubc Law 729, 56 Stat. 765, approved October 2, 19 2, as
amended, whch ad|ustments are sub|ect to the approva of the Na-
tona War Labor oard, the Commssoner of Interna Revenue, or
the War Food dmnstrator.
I. T. 079, C, . 1952-1, 0, hods that the prncpes decared n
L T. 3716, supra, are appcabe to retroactve wage ncreases and
saary ad|ustments awarded by the Saary Stabzaton oard under
the provsons of the Defense Producton ct of 1950, supra, and
ecutve Order 10161,15 F. R. 6105.
ccordngy, t s hed that n those cases where an empoyer was
eady and wng to pay retroactve wage ncreases and saary ad-
|ustments and had an appcaton for approva of such ncreases and
ad|ustments pendng before a wage and saary contro agency at
the tme of the ssuance of ecutve Order 10 3 , supra, payments
of such ncreased wages and saary ad|ustments made subsequent to
the ssuance of such ecutve order are deductbe for the year n
whch the empoyer fed the appcaton for approva wth such wage
and saary contro agency, to the e tent that the payments reate to
servces rendered n the year of the appcaton or years pror thereto.
Sectkw 29. 3-2: When charges deductbe. Rev. Ru. 7
( so Secton 23(c), Secton 29.23 (c)-.)
INT RN L R NU COD
The annua ta mposed by secton 52 of chapter 63 of the Genera
Laws of Massachusetts on the corporate franchse of every utty
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29. -2.
S2
corporaton dong busness n the Commonweath of Massachusetts,
whch ta s due and payabe on or after une 30 of each year, de-
pendng upon the tme of ssuance of the notce of assessment, con-
sttutes an accrued abty, for Federa ncome ta purposes, on
December 31 of the precedng year where the corporaton fes ts
Federa ncome ta return on the caendar year bass, and on the ast
day of the precedng fsca year for whch the Federa ncome ta
return was due pror to pr 1 of the year n whch the ta s to be
assessed, where the corporaton fes ts Federa ncome ta return on
the fsca year bass.
Secton 20. 3-2: When charges deductbe.
INT RN L R NU COD
Loss of embezzed funds. (See Ct. D. 175 , page 39.)
INT RN L R NU COD
Repayment of ncome prevousy reported deductbe n year repad.
(See Ct.D. 1756, page 6 .)
Secton 29. 3 2: When charges deductbe.
INT RN L R NU COD
Ta on bank shares mposed by the Commonweath of Pennsy-
vana n the case of an accrua bass ta payer. (See Rev. Ru. 92,
page 39.)
INT RN L R NU COD
Determnaton of surpus and earnngs avaabe for dvdends.
(See Rev. Ru. 107, page 17 .)
S CTION INST LLM NT SIS
Secton 29. -2: Sae of rea property nvov- Rev. Ru. 93
ng deferred payments.
INT RN L R NU COD
n eecton to report a sae of property on the nstament bass,
under secton of the Interna Revenue Code, must be e ercsed n
a tmey fed Federa ncome ta return for the ta abe year n whch
such sae was made, otherwse the rght of such an eecton s for-
feted. (See Sarah rary et a. v. Commssoner, 29 13. T. . 256.)
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29. 7-1.
Secton 29. -3: Sae of rea property on Rev. Ru. 75
nstament pan.
( so Secton 112(n), Secton 29.112(n)-.)
INT RN L R NU COD
The gan recognzed under secton 112(n) of the Interna Revenue
Code from the sae by a ta payer of hs prncpa resdence may
be reported on the nstament bass, provded such sae otherwse
quates as an nstament sae under secton of the Code.
dvce s requested whether the gan recognzed under the prov-
sons of secton 112(n) of the Interna Revenue Code from the sae
of a ta payer s prncpa resdence may be reported on the nstament
bass, for Federa ncome ta purposes.
Under the provsons of secton 112(n) of the Code f property
used by the ta payer as hs prncpa resdence, herenafter referred
to as od resdence, s sod by hm and, wthn a perod begnnng
1 year pror to the date of such sae and endng 1 year after such date,
property s purchased and used by the ta payer as hs prncpa res-
dence, tte gan, f any, from such sae sha be recognzed ony to the
e tent that the ta payer s seng prce of the od resdence e ceeds
the ta payer s cost of purchasng the new resdence.
It s hed that f the sae by a ta payer of hs prncpa resdence
quafes as an nstament sae under secton of the Code the gan
recognzed under secton 112(n) from such sae may be apportoned
over the perod of the nstament transacton for Federa ncome ta
purposes. The amount of the recognzed gan to be ncuded n gross
ncome n each ta abe year n whch an nstament payment s re-
ceved s that proporton of the nstament payments actuay re-
ceved n that year whch the tota gan to be recognzed under secton
112(n) bears to the tota contract prce.
S CTION 5. LLOC TION OF INCOM ND
D DUCTIONS
Secton 29. 5-1: Determnaton of the ta abe net
ncome of a controed ta payer.
INT RN L R NU COD
Determnaton of ncome as between a parent company and a sub-
sdary whch quafes as a Western emsphere trade corporaton.
(See Rev. Ru. 15, page 1 1.)
S CTION 7. R TURNS FOR P RIOD OF L SS
T N TW L MONT S
Secton 29. 7-1: Returns for perods of ess
than 12 months.
INT RN L R NU COD
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29.53-2.

Secton 29. 7-2: Returns for a perod of ess Rev. Ru. 9
than 12 months on account of a change n
accountng perod.
INT RN L R NU COD
Where a Federa ncome ta return has been fed for a perod of
ess than 12 months because of a change n accountng perod, secton
7(c) of the Interna Revenue Code specfcay provdes for the pac-
ng of the net ncome on an annua bass and the computaton of the
ta on the annuazed ncome. owever, the provsons of that sec-
ton have no appcaton for purposes of computng the sef-empoy-
ment ta . The sef-empoyment ta shoud be computed on the actua
sef-empoyment ncome for the short perod and shoud not be pro-
rated for a fractona part of a 12-month perod.
P RT . R TURNS ND P YM NT OF T
S CTION 51. INDI IDU L R TURNS
Secton 29.51-1: Indvdua returns.
INT RN L R NU COD
Marta status n a case where a dvorcee remarres pror to the
e praton of the watng perod stpuated n the dvorce decree.
Secton 29.51-2: Form of return.
INT RN L R NU COD
S CTION 52. CORPOR TION R TURNS
Secton 29.52-1: Corporaton returns.
INT RN L R NU COD
Schedue PS (Form 1120) prepared for use by ta payers n 1951
w be utzed n the preparaton of returns for caendar year 1952
and fsca years endng n 1953. (See Rev. Ru. 6 , page 356.)
S CTION 53. TIM ND PL C FOR FILING R TURNS
Secton 29.53-2: tensons of tme for fng Rev. Ru. 22
returns.
INT RN L R NU COD
tenson of tme for fng corporaton ncome ta returns
1. The foowng nstructons are ssued (a) n order to permt
persons enroed to practce before the Treasury Department to request
Orgnay ssued as IR-Mmeograph 12 , dated February 9, 1953.
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5
29.53-2.
e tensons of tme for fng ncome ta returns of corporatons repre-
sented by them wthout the necessty of obtanng and fng forma
powers of attorney, and (b) n order to permt such persons or author-
zed offcers of the corporaton to sgn and fe statements n eu of
tentatve returns.
2. Drectors of nterna revenue are hereby authorzed to grant
e tensons of tme for fng corporate ncome ta returns pursuant
to requests for such e tensons whch are made by persons other than
the ta payer, whether or not such persons have fed powers of attor-
ney, provded that each such request contans representatons that the
person makng the request (a) s actng wth the knowedge and con-
sent of the ta payer, and (o) s currenty enroed to practce before
the Treasury Department. The requests for severa corporatons may
be ncuded n one etter.
3. ny such person may fe a Form 700 , Statement n Leu of
Tentatve Return of U. S. Corporaton Income Ta , n pace of the
tentatve return otherwse requred to be fed by the ta payer corpo-
raton on or before the statutory fng date. Offcers of the ta payer
corporaton who are authorzed to sgn the corporaton ncome ta
return may aso fe such statement n pace of the tentatve return
otherwse requred. In such case, the phrase n the decaraton on the
statement that the person sgnng the statement s duy enroed to
practce before the Treasury Department may be strcken from the
decaraton. If the e tenson of tme s granted, the ta payer s com-
peted return must be fed on or before the due date, as e tended, and
there shoud be attached to the competed return a copy of the state-
ment and a copy of the approved request for the e tenson of tme.
. It s e pected that a mted suppy of the statements, Form 700 ,
w be avaabe n the offces of drectors of nterna revenue. ny
person requrng a substanta number of these statements shoud
suppy hs own. Reproductons of the statements shoud be smar to
the Form 700 n sze and coor, and on paper of substanta weght
and good quaty. Typewrtten reproductons are permssbe.
5. Ths rung supersedes a pror nstructons to the e tent that t
reeves enroed persons from the necessty of fng powers of attorney
wth requests for e tensons of tme for fng ncome ta returns n
behaf of corporatons and aso to the e tent that t permts any such
person or corporate offcers to fe a Statement n Leu of Tentatve
Return of U. S. Corporaton Income Ta n pace of the tentatve
return otherwse requred. It does not modfy any other requrements
of e stng reguatons or nstructons, nor s t ntended to change
or restrct the grounds upon whch an e tenson w be granted.
returns.
( so Secton 101, Secton 29.101(12)-1;
Secton 56, Secton 29.56-2.)
INT RN L R NU COD
Tme e tended for fng empt Cooperatve ssocaton ncome
ta return, Form 090-C (for farmers cooperatve marketng and
purchasng assocaton under secton 101(12), Interna Revenue
Code).
Orgnay ssued as IR-Mmeograph 13a, dated February 12,1953.
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g 29.53-2.
6
1. Pursuant to the authorty contaned n secton 53(a) (2) of the
Interna Revenue Code, the tme for fng the empt Cooperatve
ssocaton Income Ta Return, Form 990-C, for a ta abe year
begnnng n 1952 by a farmers cooperatve marketng and purchas-
ng assocaton under secton 101(12) of the Interna Revenue Code
s hereby e tended to and ncudng the 15th day of the s th month
foowng the cose of such ta abe year.
2. Pursuant to the authorty contaned n secton 56(c) (1), the tme
for payment of any ta due from a farmers marketng and purchas-
ng assocaton sub|ect to ta under secton 101(12) ( ) for a ta abe
year begnnng n 1952 s hereby e tended to and ncudng the 15th
cay of the s th month foowng the cose of such ta abe year.
3. For the purpose of the computaton of nterest wth respect to
the payment of any ta due from farmers marketng and purchasng
assocatons fng Form 990-C pursuant to the e tenson granted
under paragraphs 1 and 2, such e tenson sha be deemed to have
been granted for such perod ony as may be necessary to make and
fe the requred return. ny assocaton desrng to avod the ac-
cumuaton of nterest charges on the amount of ncome ta es due
on returns to be fed under the e tenson granted may make an ad-
vance payment to the drector of nterna revenue for the dstrct n
whch such return w be fed, ceary dentfyng such payment n
order to ad the drector of nterna revenue n the proper appca-
ton of such payment and n computng nterest on deferred payments.
Interest on the dfference between the amount of ta shown to be due
on the return so made and fed and the amount of any advance pay-
ment w be computed at the rate of 6 percent ony from the orgna
cue date of such return to the date of payment.
. Correspondence regardng ths Revenue Rung shoud refer to
ts number and the symbos O: C: .
returns.
( so Secton 101. Secton 29.101(12)-1; Sec-
ton 56, Secton 29.56-2.)
INT RN L R NU COD
Tme further e tended for fng empt Cooperatve ssocaton
Income Ta eturn, Form 990-C (for farmers cooperatve mar-
ketng and purchasng assocaton under secton 101(12) of the
Interna Revenue Code).
1. Revenue Rung 27, page 5, ths uetn, provdes for the e -
tenson of tme for fng the empt Cooperatve ssocaton Income
Ta Return, Form 990-C, and the e tenson of tme for payment of the
ncome ta due for a ta abe year begnnng n 1952 by a farmers co-
operatve marketng and purchasng assocaton under secton 101 (12)
of the Interna Revenue Code to and ncudng the 15th day of the
s th month foowng the cose of such ta abe year.
2. Pursuant to authorty contaned n sectons 53(a)(2) and
56(c) (1) of the Interna Revenue Code, the tme for fng the empt
Cooperatve ssocaton Income Ta Return, Form 990-C, and the
Orgnay ssued as I Mmeograph 135, mendment 1, dated May 22,1 53.
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7
295 -1.
tme for payment of the ncome ta due for a ta abe year begnnng
n 1952 by a farmers cooperatve marketng and purchasng asso-
caton under secton 101(12) of the Interna Revenue Code s hereby
further e tended to and ncudng the 15th day of the nnth month
foowng the cose of such ta abe year.
3. Interest w be assessed and coected on the amount determned
as the ta , or any nstament thereof, from the orgna due date of
the return, the 15th day of the thrd month foowng the cose of the
ta abe year, unt the date t s pad. The payment of the ta , or any
nstament thereof, made n advance of the fng of the return w
stay the accumuaton of nterest on the amount of such payment
from the tme t s pad. ccordngy, any assocaton desrng to
mnmze the accumuaton of nterest on the amount of ncome ta es
due on returns to be fed under the e tenson granted may make such
an advance payment to the drector of nterna revenue for the dstrct
n whch such return w be fed, ceary dentfyng such payment
n order to ad the drector of nterna revenue n the proper appca-
ton of such payment and n computng nterest on deferred payments.
. Correspondence regardng ths Revenue Rung shoud refer to
ts number and the symbos O: C: .
S CTION 5 . R CORDS ND SP CI L R TURNS
Secton 29.5 -1: Records and ncome ta forms. Rev. Ru. 5
INT RN L R NU COD
Certan Federa ncome ta retnrn forms may bo reproduced and
used for fng purposes, n eu of the appcabe offca forms, sub-
|ect, however, to prescrbed condtons and requrements.
dvce s requested whether the ureau w accept reproductons of
the appcabe Federa ncome ta return forms and schedues, for
fng purposes, n eu of the foowng offca forms and schedues
prnted by the Government Prntng Offce:
U. S. Indvdua Income Ta Return, Form 10 0.
U. S. Indvdua Income Ta Return, Form 10 0 .
Proft (or Loss) from usness or Professon, Schedue C
(Form 10 0).
Gans and Losses from Saes or changes of Property, Sched-
ue D (Form 10 0).
Schedue of Farm Income and penses, Form 10 0F.
Decaraton of stmated Ta , Form 10 0- S.
U. S. Fducary Income Ta Return, Form 10 1.
U. S. Partnershp Return of Income, Form 10G5.
U. S. Corporaton Income Ta Return, Form 1120.
Schedue of Gans and Losses from Saes or changes of
Property, Schedue D (Form 1120).
Computaton of U. S. Corporaton cess Profts Ta , Sched-
ue P (Form 1120).
Sub|ect to the condtons and requrements set forth beow, the
ureau w accept, for fng purposes, reproductons of any of the
foregong offca forms and schedues, wth the e cepton of Schedue
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C (Form 10 0). Reproductons of that schedue woud be unsutabe
for certan processng operatons to whch t s sub|ected.
In order to be acceptabe for fng purposes, reproductons of such
forms must meet the foowng condtons and requrements:
1. Reproductons must be facsmes of the compete offca
form, produced by photo-offset, photoengravng, or other smar
photographc process. Reproductons by other than photographc
process are not acceptabe.
2. Reproductons must be prnted on paper of substantay the
same coor, weght, and te ture, and of quaty at east as good as
that used n the offca form.
3. Offca forms whch are prnted n back nk must be re-
produced n back nk, of substantay the same quaty. Repro-
ductons of offca forms prnted n other than back nk must be
prnted n nk of substantay the same coor and quaty as that
used on the offca forms.
. Reproductons must be of the same sze as that of the offca
form, both as to the over-a dmensons of the paper and the
mage reproduced thereon. The ureau does not undertake to ap-
prove or dsapprove the specfc equpment or process used n re-
producng offca forms, but requres ony that the reproduced
forms satsfy the stated condtons. It shoud be noted, however,
that photostats generay do not meet a of the above condtons.
Whe t s preferred that reproduced forms be prnted on both
sdes of the paper, resutng n the same page arrangement as that of
the offca form, the ureau w not ob|ect f ony one sde of the
paper contans prnted matter. Reproductons of forms may be made
after nserton of the ta computatons and other requred nforma-
ton. owever, a sgnatures on forms to be fed wth the drector
of nterna revenue must be orgna sgnatures, aff ed subsequent to
the reproducton process.
S CTION 55 PU LICITY OF R TURNS
T. D.5955
TITL 26 INT RN L R NU . Cn PT R I. SU C PT R , P RT 5 .
INSP CTION OF R TURNS
Treasury Decson 5 7 C. . 1952-1, 7 amended
Washngton So, D. C.
Others Concerned:
Paragraph 1. Pursuant to the provsons of sectons 55(a), 50 , 603,
729(a), and 120 of the Interna Revenue Code (53 Stat. 29, 111, 171,
5 Stat. 9 9, 100 , 55 Stat. 722; 26 U. S. C. 55(a), 50 , 603, 729(a),
and 120 ) and of the ecutve order of ths date ssued thereunder,
Treasury Decson 5 7 C. . 1952-1, 7 , approved on anuary 2 ,
1952 26 CFR 5 .310 s hereby amended by strkng out 1950 and
nsertng n eu thereof 1951 .
Par. 2. ecause of the necessty of the mmedate appcaton of the
afore-mentoned amendment, t s found that t s mpractcabe and
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contrary to the pubc nterest to ssue ths Treasury Decson wth
notce and pubc procedure thereon under secton (a) of the dmns-
tratve Procedure ct, approved une 11, 19 6, or sub|ect to the ef-
fectve date mtaton of secton (c) of sad ct.
Pah. 3. Ths Treasury Decson sha be effectve upon ts fng for
pubcaton n the Federa Regster.
ohn W. Snyder,
Secretary of the Treasury.
arry S. Truman,
The Whte ouse.
(Fed wth the Dvson of the Federa Regster December , 1952, 12:55 p. m.)
CUTI ORD R 10321 M ND D
v vrtue of the authorty vested n me by sectons 55(a), 50 , 603,
5 Stat. 9 9, 100 , 55 Stat. 722; 26 U. S. C. 55(a), 50 , 603, 729(a),
and 120 ). ecutve Order 10321 C. . 1952-1, , dated anuary
2 ,1952, s hereby amended by strkng out 1950 and nsertng n eu
thereof 1951 .
Ths ecutve order sha be effectve upon ts fng for pubcaton
n the Federa Regster.
arry S. Truman.
The Whte ouse,
December 6,1952.
( . 0.10 1 )
(Fed wth the Dvson of the Federa Regster December ,1052, 12:55 p. m.)
T. D. 59 1
TITL 20 INT RN L R NU . C PT R I, SU C PT R , P RT 5 .
Inspecton of Income, e cess-profts, decared vaue e cess-profts,
capta stock, estate, and gft ta returns by the Senate Commttee
on Government Operatons.
Washngton 25, D. C.
Concerned:
Sec. 5 .316. Inspecton of Returns by Senate Commttee on
Government Operatons Durng ghty-thrd Congress. (a)
Pursuant to the provsons of sectons 55(a), 50 , 603, 729(a), and
120 of the Interna Revenue Code (53 Stat. 29, 111, 171; 5 Stat. 9 9,
100 ; 55 Stat. 722; 26 U. S. C. 55(a), 50 , 603, 729(a), and 120 ), and
of the ecutve order ssued thereunder, any ncome, e cess-profts,
decared vaue e cess-profts, capta stock, estate, or gft ta retrn
for the years 19 5 to 1952, ncusve, sha, durng the ghty-thrd
Congress, be open to nspecton by the Senate Commttee on Govern-
ment Operatons or the duy authorzed subcommttee thereof, n
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DO
connecton wth ts studes of the operaton of Government actvtes
at a eves wth a vew to determnng ts economy and effcency.
The nspecton of returns heren authorzed may be made by the
commttee or such duy authorzed subcommttee thereof, actng d-
recty as a commttee or as a subcommttee, or by or through such
e amners or agents as the commttee or the subcommttee may desg-
nate or appont n ts wrtten request herenafter mentoned. Upon
wrtten request by the charman of the commttee or of the authorzed
subcommttee to the Secretary of the Treasury, gvng the names and
addresses of the ta payers whose returns t s necessary to nspect and
the ta abe perods covered by the returns, the Secretary and any
offcer or empoyee of the Treasury Department sha furnsh such
commttee or subcommttee wth any data reatng to or contaned n
any such return, or sha make such return avaabe for nspecton by
the commttee or the subcommttee or by such e amners or agents
as the commttee or the subcommttee may desgnate or appont, n
the offce of the Commssoner of Interna Revenue. ny nforma-
ton thus obtaned by the Commttee or the subcommttee thereof
sha be hed confdenta: Provded, however, That any porton or
portons thereof reevant or pertnent to the purpose of the nvest-
gaton may be submtted by the commttee to the Unted States Senate.
(b) ecause of the mmedate need of the sad commttee to n-
spect the ta returns heren mentoned, t s found that t s mpract-
cabe and contrary to the pubc nterest to ssue ths Treasury Decson
wth notce and pubc procedure thereon under secton (a) of the
dmnstratve Procedure ct, approved une 11, 1S) G, or sub|ect
to the effectve date mtaton of secton (c) of that ct.
(c) Ths Treasury Decson sha be effectve upon ts fng for
G. M. umphrey,
Dwght D. senhower,
The Whte ouse.
(Fed wth the Dvson of the Federa Regster February 6, 1053, 5:09 p. m.)
INSP CTION OF INCOM . C SS-PROFITS, D CL R D LU C SS-PROFITS.
C PIT L STOC . ST T , ND GIFT T R TURNS Y T S N T COM-
MITT ON GO RNM NT OP R TIONS
y vrtue of the authorty vested n me by sectons 55(a), 50 , 603,
729(a), and 120 of the Interna Revenue Code (53 Stat. 29, 111, 171;
5 Stat. 9 9, 100 ; 55 Stat. 722; 26 U. S. C. 55(a), 50 , 603, 729(a),
and 120 ), t s hereby ordered that any ncome, e cess-profts, de-
cared vaue e cess-profts, capta stock, estate, or gft ta return for
the years 19 5 to 1952, ncusve, sha durng the ghty-thrd Con-
gress, be open to nspecton by the Senate Commtte on Government
Operatons or the duy authorzed subcommttee thereof n connecton
wth ts studes of the operaton of Government actvtes at a eves
wth a vew to determnng ts economy and effcency, sub|ect to the
condtons stated n the Treasury Decson reatng to the nspecton
of such returns by that commttee, approved by me ths date.
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Dwgt D. senhower.
The Whte ouse,
February 6, 1953.
( . O. 10 35)
(Fed wth the Dvson of the Federa Regster February 6, 1053, 5:09 p. m.)
T. D.6001
TITL 26 INT RN L R NU . C PT R I. SU C PT R , P RT 5 .
Inspecton of ncome, e cess-profts, decared vaue e cess-profts,
capta stock, estate, and gft ta returns by the Senate Commttee
on Interstate and Foregn Commerce.
Washngton 25, D. C.
Others Concerned:
Sec. 5 .317. Inspecton of Returns by Senate Commttee on
Interstate and Foregn Commerce Durng ghty-thrd Con-
gress. (a) Pursuant to the provsons of sectons 55(a), 50 , 603,
5 Stat. 9 9. 100 ; 55 Stat. 722; 26 U. S. C. 55(a), 50 , 603, 729(a),
and 120 ), and of the ecutve order ssued thereunder, any n-
come, e cess-profts, decared vaue e cess-profts, capta stock, es-
tate, or gft ta return for any perod to and ncudng 1952 sha, dur-
ng the ghty-thrd Congress, be open to nspecton by the Senate
Commttee on Interstate and Foregn Commerce, or the duy author-
zed subcommttee thereof, for the purpose of carryng out the pro-
vsons of Senate Resouton 1 ( 3d Cong., 1st sess.), agreed to
anuary 30,1953.
commttee, or the duy authorzed subcommttee thereof, actng drect-
y as a commttee or as a subcommttee, or by or through such e am-
ners or agents as the commttee or the subcommttee may desgnate
or appont n ts wrtten request herenafter mentoned. Upon wrt-
ten request by the charman of the commttee or of the authorzed
addresses of the ta payers whose returns t s necessary to nspect
and the ta abe perods covered by the returns, the Secretary and any
commttee or subcommttee wth any data reatng to or contaned
n any such return, or sha make such return avaabe for nspecton
by the commttee or the subcommttee or by such e amners or agents
as the commttee or the subcommttee may desgnate or appont, n
the offce of the Commssoner of Interna Revenue. ny nforma-
ton thus obtaned by the commttee or the subcommttee thereof
sha be hed confdenta: Provded, however, That any porton or
portons thereof reevant or pertnent to the purpose of the nvestga-
ton may be submtted by the commttee to the Unted States Senate.
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(b) ecause of the mmedate need of the sad commttee to n-
spect the ta returns heren mentoned, t s found that t s mpract-
cabe and contrary to the pubc nterest to ssue ths Treasury De-
cson wth notce and pubc procedure thereon under secton (a) of
the dmnstratve Procedure ct, approved une 11, 19 6, or sub-
|ect to the effectve date mtaton of secton (c) of that act.
G. M. umphrey,
pproved March 31, 1953.
Dwgut D. senhower,
The Whte ouse.
(Fed wth the Dvson of the Federa Regster pr 1, 1953, 11:35 a. m.)
ecutve Order 10 2
nspecton of ncome, e cess-profts. decared vaue e cess-profts,
capta stock, estate. and gft ta returns by the senate com-
mttee on nterstate and foregn commerce
729(a), and 120 of the Interna Revenue Code (53 Stat. 29, 111,
171; 5 Stat. 9 9, 100 ; 55 Stat. 722; 26 U. S. C. 55(a), 506, 603,
729(a), and 120 ), t s hereby ordered that any ncome, e cess-profts,
decared vaue e cess-profts, capta stock, estate, or gft ta return
for any perod to and ncudng 1952 sha, durng the ghty-thrd
Congress, be open to nspecton by the Senate Commttee on Inter-
state and Foregn Commerce, or the duy authorzed subcommttee
thereof, for the purpose of carryng out the provsons of Senate Res-
outon 1 ( 3d Cong., 1st sess.), agreed to anuary 30, 1953, sub|ect
to the condtons stated n the Treasury Decson reatng to the n-
specton of such returns by that commttee, approved by me ths date.
Ths ecutve order sha be effectve upon ts fng for pubca-
ton n the Federa Regster.
Dwght D. senhower.
The Whte ouse,
March 31,1953.
T. D.600
TITL 26 INT RN L R NU . C PT R I, SU C PT R . P RT 5 .
Inspecton of returns by Senate Commttee on the udcary
Washngton 25, D. C.
Others Concerned:
Sec. 5 .31 . Inspecton ok Returns by Senate udcary Com-
mttee Reatng to amnaton of dmnstraton of Tradng
Wth the nemy ct. (a) Pursuant to the provsons of sectons
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55.
55(a), 50 , 603, 729(a), and 120 of the Interna Revenue Code (53
Stat. 29, 111, 171,5 Stat. 9 9,100 , 55 Stat. 722; 26 U. S. C. 55(a), 50 ,
603, 729(a), and 120 ) and of the ecutve order ssued thereunder,
any ncome, e cess-profts, decared vaue e cess-prots, capta stock,
estate, or gft ta return for the years 19 1 to 1952, ncusve, sha be
open to nspecton by the Senate Commttee on the udcary or any
duy authorzed subcommttee thereof for the purpose of carryng
out the provsons of Senate Resouton 2 5 ( 2d Cong. 2d sess.),
agreed to March 2 , 1952, as e tended by Senate Resouton 7 ( 3d
Cong., 1st sess.), reatng to an e amnaton and revew of the ad-
mnstraton of the Tradng wth the nemy ct.
commttee or a duy authorzed subcommttee thereof, actng drecty
as a commttee or as a subcommttee, or by or through such e amners
or agents as the commttee or subcommttee may desgnate or appont
n ts wrtten request herenafter mentoned. Upon wrtten request
by the charman of the commttee or of the authorzed subcommttee
to the Secretary of the Treasury, gvng the names and addresses of
the ta payers whose returns t s necessary to nspect and the ta abe
perods covered by the returns, the Secretary of the Treasury and any
offcer or empoyee of the Treasury Department, wth the approva
of the Secretary of the Treasury, may furnsh such commttee or
subcommttee wth any data reatng to or contaned n any such re-
turn, or may make such return avaabe for nspecton by the com-
mttee or subcommttee or by such e amners or agents as tfe commt-
tee or subcommttee may desgnate or appont, n the offce of the
Commssoner of Interna Revenue. ny nformaton thus obtaned
by the commttee or subcommttee thereof sha be hed confdenta:
Provded, however, That any porton thereof reevant or pertnent to
the purpose of the nvestgaton may be submtted by the commttee
to the Unted States Senate.
(b) ecause of the mmedate need of the sad Senate Commttee on
the udcary to nspect the returns heren mentoned, t s hereby
found that t s mpractcabe and contrary to the pubc nterest to
ssue ths Treasury Decson wth notce and pubc procedure thereon
under secton (a) of the dmnstratve Procedure ct, approved
une 11,19 6, or sub|ect to the effectve date mtaton of secton (c)
of sad act.
G. M. dmptret,
pproved pr 22,1953.
Dwoht D. senhower,
The Whte ouse.
(Fed wth the Dvson of the Federa Regster pr 22, 1953, 3 : 30 p. m.)
ecutve Order 10 7
nspecton of returns by senate commttee on tne |udcary
5 Stat. 9 9, 100 , 55 Stat. 722; 26 U. S. C. 55(a), 50 , 603, 729(a),
26335 53 7
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9
and 120 ), t s hereby ordered that any ncome, e cess-profts, de-
cared vaue e cess-profts, capta stock, estate, or gft ta return for
the years 19 1 to 1952, ncusve, sha be open to nspecton by the
Senate Commttee on the udcary or any duy authorzed subcom-
mttee thereof for the purpose of carryng out the provsons of Senate
Resouton 2 5 ( 2d Cong., 2d sess.), agreed to March 2 ,1952, as e -
tended by Senate Resouton 7 ( 3d Cong., 1st sess.), agreed to anu-
ary 30,1953, reatng to an e amnaton and revew of the admnstra-
ton of the Tradng wth the nemy ct, sub|ect to the condtons
tated n the Treasury Decson reatng to the nspecton of such re-
turns by that commttee, approved by me ths date.
DwaT D. senhower.
The Whte ottse,
pr 22,1953.
(Fed wth the Dvson of the Federa Regster pr 22, 1053, 3:39 p. m.)
T. D.6009
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 5S.
Inspecton of certan returns by the Commttee on the udcary,
ouse of Representatves.
Washngton 25, D. C.
Concerned:
Sec. 5 .319. Inspecton of Certan Returns by the Commttee
on the udcary, ouse of Representatves. (a) Pursuant to the
Srevsons of sectons 55(a), 50 , 603, 729(a), and 120 of the Interna
evenue Code (53 Stat. 29, 111, 171, 5 Stat. 9 9, 100 , 55 Stat. 722;
26 U. S. C. 55(a), 50 , 603, 729(a), and 120 ) and of the ecutve
order ssued thereunder, any ncome, e cess-profts, decared vaue e -
cess-profts, capta stock, estate, or gft ta return for any perod to
and ncudng 1952 sha be open to nspecton by the Commttee on
the udcary, ouse of Representatves, or any duy authorzed sub-
commttee thereof, n connecton wth the nqury authorzed by the
resouton of the commttee adopted anuary 27, 1953, wth reference
to the admnstraton of the Department of ustce and the offce of the
ttorney Genera of the Unted States.
(b) The nspecton of returns heren authorzed may be made by the
commttee or a duy authorzed subcommttee thereof, actng drecty
as a commttee or as a subcommttee, or by or through such e amners
or agents as the commttee or subcommttee may desgnate or appont
n ts wrtten request herenafter mentoned. Upon wrtten request
by the charman of the commttee or of the authorzed subcommttee to
the Secretary of the Treasury, gvng the names and addresses of the
ta payers whose returns t s necessary to nspect and the ta abe
perods covered by the returns, the Secretary and any offcer or em-
poyee of the Treasury Department sha furnsh such commttee or
subcommttee wth any data reatng to or contaned n any such return
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95
or sha make such return avaabe for nspecton by the commttee
or subcommttee or by such e amners or agents as the commttee or
subcommttee may desgnate or appont, n the offce of the Comms-
soner of Interna Revenue. ny nformaton thus obtaned by the
commttee or subcommttee thereof sha be hed confdenta: Pro-
vded, however, That any porton thereof reevant or pertnent to the
purpose of the nvestgaton may be submtted by the commttee to
the ouse of Representatves.
(c) ecause of the mmedate need of the Commttee on the ud-
cary, ouse of Representatves, to nspect the returns heren men-
toned, t s hereby found that t s mpractcabe and contrary to the
pubc nterest to ssue ths Treasury Decson wth notce and pubc
procedure thereon under secton (a) of the dmnstratve Procedure
ct, approved une 11,19 6, or sub|ect to the effectve date mtaton
of secton (c) of sad act.
M. . Fosom,
pproved pr 2 , 1953.
Dwght D. senhower,
The Whte ouse.
(Fed wth the Dvson of the Federa Regster pr 30, 1953, 10 : 0 a. m.)
ecutve Order 10 51
INSP CTION OF C RT IN R TURNS Y T COMMITT ON T UDICI RY,
OUS OF R PR S NT TI S
y vrtue of the authorty vested n me by sectons 55(a), 50 ,
603, 729(a), and 120 of the Interna Revenue Code (53 Stat. 29,
111, 171, 5 Stat. 9 9, 100 , 55 Stat. 722; 26 U. S. C. 55(a), 50 ,
603, 729(a), and 120 ), t s hereby ordered that any ncome, e cess-
profts, decared vaue e cess-profts, capta stock, estate, or gft ta
return for any perod to and ncudng 1952 sha be open to nspecton
by the Commttee on the udcary, ouse of Representatves, or any
duy authorzed subcommttee thereof, n connecton wth the nqury
authorzed by the resouton of the commttee adopted anuary 27,
1953, wth reference to the admnstraton of the Department of us-
tce and the offce of the ttorney Genera of the Unted States, sub-
|ect to the condtons stated n the Treasury Decson reatng to the
nspecton of such returns by that commttee, approved by me ths
date.
Dwoht D. senhower.
The Whte ouse,
pr 2 , 1953.
T. D. 6012
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 5 .
Inspecton of ncome, e cess-profts, decared vaue e cess-profts,
capta stock, estate, and gft ta returns by the Commttee on Gov-
ernment Operatons, ouse of Representatves.
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55.
96
Washngton 25, D. C.
Concerned:
Sec. 5 .320. Inspecton of eturns by the Commttee on Gov-
ernment Operatons, ouse op Representatves, Durng ghty-
thrd Congress. (a) Pursuant to the provsons of sectons 55(a),
50 , 603, 729(a), and 120 of the Interna Revenue Code (53 Stat. 29,
111, 171; 5 Stat. 9 9, 100 ; 55 Stat. 722; 26 U. S. C. 55(a), 50 , 603,
729(a), and 120 ), and of the ecutve order ssued thereunder, any
ncome, e cess-profts, decared vaue e cess-profts, capta stock,
estate, or gft ta return for any perod to and ncudng 1952, sha,
durng the ghty-thrd Congress, be open to nspecton by the Com-
mttee on Government Operatons, ouse of Representatves, or any
duy authorzed subcommttee thereof, n connecton wth ts studes
of the operaton of Government actvtes at a eves wth a vew to
determnng ts economy and effcency.
The nspecton of returns authorzed n ths secton may be made by
the commttee or such duy authorzed subcommttee thereof, actng
drecty as a commttee or as a subcommttee, or by or through such
e amners or agents as the commttee or the subcommttee may desg-
nate or appont n ts wrtten request herenafter mentoned. Upon
wrtten request by the charman of the commttee or of the authorzed
addresses of the ta payers whose returns t s necessary to nspect and
the ta abe perods covered by the returns, the Secretary and any
commttee or subcommttee wth any data reatng to or contaned n
any such return, or sha make such return avaabe for nspecton by
the commttee or the subcommttee or by such e amners or agents as
the commttee or the subcommttee may desgnate or appont, n the
offce of the Commssoner of Interna Revenue. ny nformaton
thus obtaned by the commttee or the subcommttee thereof sha be
hed confdenta: Provded, however, That any porton or portons
thereof reevant or pertnent to the purpose of the nvestgaton may
be submtted by the commttee to the ouse of Representatves.
(6) ecause of the mmedate need of the sad commttee to nspect
the ta returns heren mentoned, t s found that t s mpractcabe
and contrary to the pubc nterest to ssue ths Treasury Decson wth
notce and pubc procedure thereon under secton (a) of the dmn-
stratve Procedure ct, approved une 11, 19 6, or sub|ect to the
effectve date mtaton of secton (c) of that act.
G. M. umphrey,
pproved May 22,1953.
Dwght D. senhower,
The Whte ouse.
(Fed wth the Dvson of the Federa Regster May 25,1053, 9 : 57 a. m.)
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97
29.5 -2.
ecutve Obdeb 10-155
nspecton of ncome. e cess-profts, decared vaue e cess-profts,
C PIT L STOC , ST T , ND GIFT T R TURNS Y T COMMITT ON
GO RNM NT OP R TIONS, OUS OF R PR S NT TI S
y vrtue of the authorty vested n me bv sectons 55(a), 50 , 603,
5 Stat. 9 9,100 ; 55 Stat. 722; 26 U. S. C. 55(a), 50 ,603, 729(a), and
120 ), t s hereby ordered that any ncome, e cess-profts, decared
vaue e cess-profts, capta stock, estate, or gft ta return for any
rod to and ncudng 1952, sha, durng the ghty-thrd Congress,
open to nspecton hy the Commttee on Government Operatons,
ouse of Representatves, or any duy authorzed subcommttee thereof
n connecton wth ts studes of the operaton of Government actv-
tes at a eves wth a vew to determnng ts economy and effcency,
sub|ect to the condtons stated n the Treasury Decson reatng to
the nspecton of such returns by that commttee, approved by me
ths date.
Dwgt D. senhower.
The Whte ouse,
May 22,1953.
(Fed wth the Dvson of the Federa Regster May 25, 1903, 9:57 a. m.)
S CTION 56. P YM NT OF T
Secton 29.56-2: tenson of tme for payment
of the ta or nstament thereof.
INT RN L R NU COD
Tme e tended for fng e empt cooperatve assocaton ncome ta
return, Form 990-C. (See Rev. Ru. 27, page 5.)
Secton 29.56-2: tenson of tme for payment
of the ta or nstament thereof.
INT RN L R NU COD
Further e tenson of tme for fng e empt cooperatve assocaton
ncome ta return, Form 990-C. (See Rev. Ru. 102, page 6.)
S CTION 5 . D CL R TION OF STIM T D T Y
INDI IDU LS
Secton 29.5 -2: Decaratons of estmated ta . Rev. Ru. 11
INT RN L R NU COD
tenson of tme for fng of decaraton of estmated ta n
cases of certan aen resdents of the Unted States.
1. ny aen resdent of the Unted States requred under the pro-
vsons of secton 5 of the Interna Revenue Code to fe durng
Orgnay Issued as IR-Mmeograph 209, dated une 12, 1053.
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29.101(2)- .
OS
the year 1953 a decaraton of estmated ta or to amend such a
decaraton s hereby granted an e tenson of tme for the fng or
amendment of such decaraton provded that such decaraton or
amendment thereto s requred soey by reason of the operaton of
secton 2 7 of the Immgraton and Natonaty ct, Pubc Law 1 ,
ghty-second Congress, deang wth the status of certan aen res-
dents of the Unted States. The e tenson of tme heren granted
sha be for a perod of 6 months but n no event sha such e tenson
operate to e tend the date for such fng or amendment beyond Sep-
tember 15, 1953, or beyond the date prescrbed by aw for fng the
ncome ta return for the ta abe year. For the purpose of ths
evenue Rung the date prescrbed by aw for the fng of the ncome
ta return for the ta abe year sha be determned wthout regard
to any e tenson of tme granted the ta payer.
2. Correspondence regardng ths evenue Rung shoud refer to
ts number and the symbos T: R.
SU C PT R C SUPPL M NT L PRO ISIONS
SUPPL M NT . R T S OF T
S CTION 101. MPTIONS FROM T
ON CORPOR TIONS
Secton 29.101 (2)-: Mutua savngs banks. T. D. 595
TITL 26 INT RN L R NU . C PT R L SU C PT R . P RT 29 ND
P RT 0
Ta aton of mutua savngs banks, budng and oan assocatons,
and cooperatve banks for ta abe years begnnng after December
31, 1951.
Washngton 25, D. C.
Concerned:
On uy 1, 1952, notce of proposed rue makng was pubshed n
the Federa Regster (17 F. R. 5909) conformng Reguatons 111
26 CFR, part 29 to sectons 313 and 3 6 of the Revenue ct of 1951,
approved October 20,1951, and conformng Reguatons 130 26 CF ,
part 0 to secton 313 of the Revenue ct of 1951. fter consdera-
ton of a such reevant matter as was presented by nterested persons
reatng to the rues proposed, the amendments to Reguatons 111
and 130, set forth beow, are hereby adopted.
29.101 (2)- the foowng:
S C. 313. MUTU L S INGS N S. UILDING ND LO N S-
SOCI TIONS, COOP R TI N S R NU CT OF 1051,
PPRO D OCTO R 20,1951 .
(a) Mutua Savngs anks. Secton 101(2) (reatng to e emp-
ton from ta of mutua savngs banks) s bereby repeaed.
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99
29.101(2)- .
(|) ffectve Date. The amendments made by ths secton sha
be appcabe ony wth respect to ta abe years begnnng after
December 31, 1951.
Par. 2. Secton 29.101 (2)-1 s amended as foows:
( ) y changng the headng thereof to read as foows:
Mutua Savngs anks Ta abe Years egnnng Pror to
anuart 1, 1952.
( ) y nsertng mmedatey precedng the frst sentence thereof
the foowng new sentence:
The provsons of ths secton sha be appcabe ony to ta abe years begn-
nng pror to anuary 1, 1952. For ta abe years begnnng after December 31,
1951, see secton 29.101 (2) -2.
Par. 3. There s nserted mmedatey precedng secton 29.101
(3)- the foowng new secton:
Sec. 29.101 (2)-2. Mutua Savngs anks Ta abe Years egnnng fter
December 31, 1951. For tn nbe years begnnng after December 31, 1951, a
mutua savngs bank not havng capta stock represented by shares s sub|ect
to both norma ta and surta as n the case of other corporatons. Such a bank
s. however, not sub|ect to e cess profts ta . For speca rues governng the
ta aton of a mutua savngs bank conductng a fe nsurance busness, see
ed on 110 and the reguatons prescrbed thereunder.
Whe the genera prncpes for determnng the net ncome of a corporaon
are appcabe to a mutua savngs bank not havng capta stock represented by
shares, there are certan e ceptons and speca rues governng the computaton
n the case of such a bank. See secton 29.23(k)-5 for speca rues concernng
addtons to reserves for bad debts. See aso secton 29.23(r)-, reatng to
dvdends pad by bankng corporatons, for speca rues concernng deductons
for amounts pad to, or credted to the accounts of, depostors as dvdends. Fur-
thermore, n determnng the norma ta net Income of such a mutua savngs
bank, the credt for dvdends receved provded n secton 20(b) sha not be
appcabe to dvdends whch were deductbe n computng the net ncome of
the dstrbutng corporaton under secton 23(r).
The ta abe year (fsca year or caendar year, as the case may be) of a
mutua savngs bank not havng capta stock represented by shares sha be
determned wthout regard to the fact that the ta payer may have been e empt
from ta durng any pror perod. See sectons 1 and and the reguatons
thereunder. Smary, n computng net ncome, the determnaton of the ta -
abe year for whch an tem of ncome or e pense s taken nto account sha be
made under the provsons of sectons 1, 2, and . , and the reguatons there-
under, whether or not the tem arose durng a ta abe year begnnng before, on,
or after December 31, 1951. For the purpose of determnng the method of
accountng of the mutua savngs bank under secton 1, a method of accountng
recognzed under secton 1 and under the reguatons prescrbed thereunder,
and utzed n he return of such a bank fed for the frst ta abe year begn-
nng after December 31,1951, sha be deemed to consttute the method of account-
ng reguary empoyed by the mutua savngs bank. The method seected sha
be sub|ect to the approva of the Commssoner upon the e amnaton of the re-
turn. ny change n the method so seected and so approved may be made ony
f permsson Is obtaned from the Commssoner under secton 29. 1-2 to change
to another recognzed method. For the purpose of computng, under secton 122,
the net operatng oss deducton provded n secton 23(s), the terms precedng
ta abe year and precedng ta abe years , as used n secton 122, sha not
ncude any ta abe year for whch the mutua savngs bank was e empt from
ta . Thus, f the mutua savngs bank was e empt from ta for the mmedatey
precedng ta abe year, the net operatng oss s not a carry-back to any pre-
cedng ta abe year, and the net operatng oss carry-over to succeedng ta abe
years s not reduced by the net ncome for any precedng ta abe year. No net
operatng oss carry-back or carry-over sha be aowed from a ta abe year
begnnng pror to anuary 1, 1952.
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5 29.101(2)- .
100
Par. . There s nserted mmedatey precedng secton 29.101 ( ) -1
the foowng:
S C. 313. MUTU L S INGS N S, UILDING ND LO N SSO-
CI TIONS, COOP R TI N S R NU CT OP 1951,

(b) udng and Loan ssocatons and Cooperatve anks.
Secton 101( ) (reatng to e empton from ta of budng and oan
assocatons and cooperatve banks) s hereby amended to read as
foows:
( ) Credt unons wthout capta stock organzed and operated
for mutua purposes and wthout proft; and corporatons or assoca-
tons wthout capta stock organzed pror to September 1, 1951,
and operated for mutua purposes and wthout proft for the pur-
pose of provdng reserve funds for, and nsurance of, shares or
deposts n
( ) domestc budng and oan assocatons,
( ) cooperatve banks wthout capta stock organzed and
operated for mutua purposes and wthout proft, or
(C) mutua savngs banks not havng capta stock repre-
sented by shares; .

( ) ffectve Date. The amendments made by ths secton sha be
31, 1951.
Par. 5. Secton 29.101( )--1 s amended as foows:
( ) y changng the headng thereof to read as foows: udng
and Loan ssocatons and Cooperatve anks Ta abe Years
egnnng Pror to anuary 1, 1952.
the foowng:
The provsons of ths secton sha be appcabe ony to ta abe years begn-
nng pror to anuary 1, 1952. For ta abe years begnnng after December 31,
1951, see secton 29.101 ( )-2.
Par. 6. There s nserted mmedatey precedng secton 29.101 (5)-
the foowng:
Sec. 29.101( )-2. udno and Loan ssocatons and Cooperatve anks
Ta abe Years egnnng fter December 31, 1951. 1 or ta abe years begn-
nng after December 31, 1951, a budng and oan assocaton and a cooperatve
bank not havng capta stock represented by shares are sub|ect to both norma
ta and surta as n the case of other corporatons. Such nsttutons are, how-
ever, not sub|ect to e cess profts ta .
Whe the genera prncpes for determnng the net Income of a corporaton
are appcabe to a budng and oan assocaton and a cooperatve bank not
havng capta stock represented by shares, there are certan e ceptons and
speca rues governng the computaton n the case of such nsttutons. See
secton 29.23(k)-5 for speca rues concernng addtons to reserves for bad debts.
See aso secton 29.23(r)-, reatng to dvdends pad by bankng corporatons,
for speca rues concernng deductons for amounts pad to, or credted to the
accounts of, hoders of wthdrawabe accounts as dvdends. Furthermore, n
determnng the norma ta net ncome of a budng and oan assocaton and a
cooperatve bank, the credt for dvdends receved provded n secton 26(b)
sha not be appcabe to dvdends whch were deductbe n computng the
net ncome of the dstrbutng corporatons under secton 23(r).
The ta abe year (fsca year or caendar year, as the case may be) of a bud-
ng and oan assocaton and a cooperatve bank not havng capta stock repre-
sented by shares sha be determned wthout regard to the fact that the ta payer
may have been e empt from ta durng any pror perod. See sectons 1 and
and the reguatons thereunder. Smary, n computng net ncome, the deter-
mnaton of the ta abe year for whch an Item of ncome or e pense s taken
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101
26.101(2)- .
nto account sha be made under the provsons of secton 1, 2, and 3, and the
reguatons thereunder, whether or not the tem arose durng a ta abe year
begnnng before, on, or after December 31,1951. For the purpose of determnng
the method of accountng of the budng and oan assocaton or cooperatve
bank under secton 1, a method of accountng recognzed under secton 1 and
under the reguatons prescrbed thereunder and utzed n the return of such
Insttuton fed for the frst ta abe year begnnng after December 31, 1951,
sha be deemed to consttute the method of accountng reguary empoyed by
the nsttuton. The method seected sha be sub|ect to the approva of the
Commssoner upon the e amnaton of the return. ny change of the method
so seected and so approved may be made ony f permsson s obtaned from
the Commssoner to change to another recognzed bass n accordance wth sec-
ton 29. 1-2. For the purpose of computng, under secton 122, the net operat-
ns oss deducton provded n secton 23(s), the terms precedng ta abe year
and precedng ta abe years , as used n secton 122, sha not ncude any ta -
abe year for whch the budng and oan assocaton and cooperatve bank were
e empt from ta . Thus, f the budng and oan assocaton and cooperatve
bank were e empt from ta for the mmedatey precedng ta abe year, the net
operatng oss s not a carry-back to any precedng ta abe year, and the net
operatng oss carry-over to succeedng ta abe years s not reduced by the
net Income for any precedng ta abe year. No net operatng oss carry-back
or carry-over sha be aowed from a ta abe year begnnng pror to anuary
1, 1952.
Sec. 29.101( 1-3. Credt Unons and Mutua Insurance Funds. Credt
unons (other than Federa credt unons whch are e empt under secton
101(15)) wthout capta stock organzed and operated for mutua purposes
and wthout proft are e empt from ta under secton 101( ). Corporatons or
assocatons wthout capta stock organzed pror to September 1, 1951, and
operated for mutua purposes and wthout proft for the purpose of provdng
reserve funds for and nsurance of shares or deposts n
(a) Domestc budng and oan assocatons as defned In secton
3797(a) (19),
(6) Cooperatve banks wthout capta stock organzed and operated for
mutua purposes and wthout proft, or
(c) Mutua savngs banks not havng capta stock represented by shares,
are e empt from ta under secton 101( ).
Par. 7. There s nserted mmedatey precedng secton 29.23 (k)-,
the foowng:
S C. 313. MUTU L S INGS N S, UILDING ND LO N
SSOCI TIONS, COOP R TI N S R NU CT OF
1901, PPRO D OCTO R 20, 1951 .

(e) ad Debt Reserves. Secton 23(k)() (reatng to deducton
from gross ncome of bad debts) s hereby amended by addng at the end
thereof the foowng: In the case of a mutua savngs bank not havng
capta stock represented by shares, a domestc budng and oan as-
socaton, and a cooperatve bank wthout capta stock organzed and
operated.for mutua purposes and wthout proft, the reasonabe addton
to a reserve for bad debts sha be determned wth due regard to the
amount of the ta payer s surpus or bad debt reserves e stng at the
cose of December 31, 1951. In the case of a ta payer descrbed n the
precedng sentence, the reasonabe addton to a reserve for bad debts
for any ta abe year sha n no case be ess than the amount determned
by the ta payer as the reasonabe addton for such year; e cept that
the amount determned by the ta payer under ths sentence sha not
be greater than the esser of ( ) the amount of ts net ncome for the
ta abe year, computed wthout regard to ths subsecton, or ( ) the
amount by whch 12 per centum of the tota deposts or wthdrawabe
accounts of ts depostors at the cose of such year e ceeds the sum of ts
surpus, undvded profts, and reserves at the begnnng of the ta abe
year.

31,1951.
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29.101(2)- .
102
Par. . Secton 29.23(k)-5 s amended as foows:
( ) y changng the headng thereof to read as foows: Reserve
for ad Debts. (a) Ta payers other than mutua savngs banks,
budng and oan assocatons, and cooperatve banks.
( ) y nsertng at the end thereof the foowng:
(6) Mutua savngs banks, tudng -and oan assocatons, and cooperatve
banks. (1) In genera. For ta abe years begnnng after December 31, 1951,
a mutua savngs bank not havng capta stock represented by shares, a domestc
budng and oan assocaton, and a cooperatve bank wthout capta stock
organzed and operated for mutua purposes and wthout proft may, as an ater-
natve to a deducton from gross ncome for specfc debts whch become worth-
ess n whoe or n part, deduct amounts credted to a reserve for bad debts n
the manner and under the crcumstances prescrbed n ths secton. In the case of
such an nsttuton the seecton of ether of the aternatve methods for treatng
bad debts may be made by the ta payer n the return for ts frst ta abe year
begnnng after December 31, 1951. The method seected sha be sub|ect to the
approva of the Commssoner upon e amnaton of the return. ny change n
the method so seected and approved may be made ony If permsson s granted
as provded n secton 29.23(k)-(o).
(2) Defntons. When used n ths paragraph
() The term nsttuton means ether a mutua savngs bank not havng
capta stock represented by shares, a domestc budng and oan assoca-
ton as defned n secton 3797(a) (19), or a cooperatve bank wthout capta
stock organzed and operated for mutua purposes and wthout proft.
() Surpus, undvded profts, and reserves means the amount by whch
the tota assets of an Insttuton e ceed the amount of the tota abtes
of such an nsttuton. For ths purpose the term tota assets means
the sum of money, pus the aggregate of the ad|usted bass of the property
other than money hed by an nsttuton. Such ad|usted bass for any
asset s ts ad|usted bass for determnng gan upon sae or e change
for Federa ncome ta purposes. (See, In genera, secton 113 and the
reguatons prescrbed thereunder. For speca rues wth respect to ad|ust-
ments to bass for pror ta abe years durng whch the nsttuton was
e empt from ta , see secton 29.113(b) ()- .) The determnaton of the
tota assets of any ta payer sha conform to the method of accountng
empoyed by such ta payer n determnng net Income and to the rues
appcabe n determnng ts earnngs and profts. The term tota ab-
tes means a abtes of the ta payer, whch are f ed and determned,
absoute and not contngent, and ncudes those tems whch consttute
abtes n the sense of debts or obgatons. The tota deposts or wth-
drawabe accounts, as deued n subdvson (v) beow, sha be consdered
a abty. In the case of a budng and oan assocaton havng permanent
nonwthdrawabe capta stock represented by shares, the pad-n amount
of such stock sha aso be consdered a abty. Reserves for contngences
and other reserves, however, whch are mere appropratons of surpus are
not abtes.
( ) The term surpus or bad debt reserves e stng at the cose of
December 31, 1951 , means the amount of surpus, undvded profts, and
reserves accumuated by the nsttuton pror to anuary 1 , 1952, and n
e stence at the cose of December 31,1951.
(v) The term tota deposts or wthdrawabe accounts means the
aggregate of ( ) amounts paced wth an nsttuton for depost or nvest-
ment and ( ) earnngs outstandng on the books of account of the nsttu-
ton at the cose of the ta abe year whch have been credted as dvdends
upon such accounts pror to the cose of the ta abe year, e cept that n
the case of a budng and oan assocaton, such term does not ncude
permanent nonwthdrawabe capta stock represented by shares, or earnngs
credted thereon.
(3) Insttutons cth surpus, reserves, and undvded profts n an amount ess
than 12 percent of tota deposts or cthdracabe accounts. Where 12 percent
of the tota deposts or wthdrawabe accounts of an nsttuton at the cose of
the ta abe year e ceeds the sum of ts surpus, undvded profts, and reserves
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103 29.101 (2)-.
at the begnnng of the ta abe year, there Is aowabe as a deducton from
gross ncome as an addton to a reserve for bad debts any amount determned
by the ta payer not e ceedng the esser of:
(1) The amount of the net ncome of such nsttuton for the ta abe year
computed wthout regard to secton 23(k) (1) or,
() The amount by whch 12 percent of the tota deposts or wthdrawabe
accounts at the cose of the ta abe year e ceeds the sum of the nsttuton s
surpus, undvded profts, and reserves at the begnnng of the ta abe year.
I d debt osses sustaned durng the ta abe year sha be charged aganst
the bad debt reserve. Recoveres of debts charged aganst the bad debt
reserve durng a pror ta abe year n whch the Insttuton was sub|ect to
ta under ths chapter sha be credted to the bad debt reserve. The estabsh-
ment of such reserve and a ad|ustments made thereto must be refected
on the reguar books of account of the nsttuton at the cose of the ta abe
year, or as soon as practcabe thereafter. For the purpose of ths paragraph
mnmum amounts credted n compance wth Federa or State statutes,
reguatons, or supervsory orders, to reserve or smar accounts, or addtona
amounts credted to such reserve or smar accounts and permssve under
such statutes, reguatons, or orders, aganst whch charges may be made for the
purpose of absorbng osses sustaned by an nsttuton w be deemed to have
been credted to the had debt reserve authorzed under ths paragraph.
ampe (/). On anuary 1, 1952, and on December 31, 1952, Insttuton ,
whch keeps ts books on the bass of the caendar year, has tota deposts or
wthdrawabe accounts of 10,000,000, a of whch amount s nsured by an agency
of the Federa government. The surpus, reserves, and undvded profts of
Insttuton at the openng of busness on anuary 1, 1952, tota 00,000.
reguaton of a Federa agency requres that at the cose of the ta abe year
an amount equa to 0.3 percent of the vaue of the nsured accounts at the
begnnng of the year be credted by Insttuton to a Federa nsurance reserve
for the soe purpose of absorbng osses. statute of the State havng
ursdcton over Insttuton requres that not ess than 5 percent of the net
profts of Insttuton , computed before provsons for dvdends, be credted
at the cose of the year to a reserve fund for the purpose of absorbng osses.
The credt to such reserve fund of addtona amounts n e cess of 5 percent
of net profts s ermssve under such statute, provded that the tota amounts
credted do not e ceed 25 percent of net profts. It s assumed for the purpose of
determnng the amount to be credted to the State reserve fund that not ess
than 0 percent of the net profts of Insttuton , computed under State aw be-
fore provsons for dvdends for the ta abe year 1952 amounts to 17,500.
Pror to the ta abe year Insttuton dd not mantan a reserve for bad
debts. Durng 1952 Insttuton sustaned bad debt osses of 5,000. The
net Income of Insttuton for the ta abe year 1952, computed under chapter 1
after takng,nto account a appcabe deductons (ncudng the deducton for
dvdends provded n secton 23(r)(1)) e cept the deducton provded n secton
23fk) (1) Is 200,000.
The books of account of Insttuton show credts for the ta abe year 1052
to the foowng reserves:
Federa nsurance reserve 30, 000
State reserve fund 25,000
ad debt reserve 5,000
Msceaneous reserves 15,000
There s aowabe as a deducton under secton 23(k)() 100,000 ( 5,000
credted to the bad debt reserve, 30,000 credted to the Federa nsurance
reserve, and 25,000 representng a permssve amount ess than 25 percent of
net profts under the State statute, credted to the State reserve fund).
ssumng that Federa ncome ta es for 1952 amount to 0,500 on the net
Income of 100,000, the amount credted to the surpus account for 1952 w
be 3 ,500, that s, 53,500 ( 100,000 mnus 0,500) ess the 15,000 credted to
msceaneous reserves for whch no bad debt deducton s aowabe. Conse-
quenty, the surpus, undvded profts, and reserves of Insttuton , amountng
to 00,000 at the cose of December 31, 1951, as Increased by amounts credted
to these accounts for 1952 w tota 9 ,500 at the cose of December 31, 1952,
computed as foows:
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29.101(2)- .
10
Surpus, reserves, and undvded profts at cose of December 31,1S)51__ 00,000
mount credted to msceaneous reserve accounts for 1952 15,000
mount credted to State reserve fund for 1952 25,000
mount credted to Federa nsurance reserve for 1952 30,000
mount credted to surpus for 1952 ,500
ad debt reserve at cose of December 31, 1951 0
mount credted to reserve for bad debts for 1952 5,000
Less: ad debt osses sustaned durng 1952 5, 000
ad debt reserve at cose of December 31, 1952 0,000
Surpus, undvded profts and reserves e stng at cose of December 31,
1952 9 ,500
ampe (2). The net ncome of Insttuton for the ta abe year 1952,
computed under chapter 1 after a deductons ncudng the deducton for
dvdends, but before the deducton provded n secton 23(k) (1), s determned
to be. 250,000. Such 250,000 s credted by Insttuton to the bad debt reserve
as provded n secton 23(k) (1) and secton 29.23(k)-5(b) (3). The amount
by whch 12 percent of the tota deposts or wthdrawabe accounts of Inst-
tuton at the cose of the ta abe year e ceeds the sum of such nsttuton s
surpus, undvded profts and reserves at the begnnng of the ta abe year s
500,000.
Durng 195 , upon e amnaton of the return of ncome fed by Insttuton
for 1952, t s determned that the net ncome of such nsttuton, propery
computed, wthout regard to secton 23(k)() s 275,000. ssumng that
Insttuton credts the addtona 25,000 to ts bad debt reserve, there s
aowabe as a deducton from gross ncome for such nsttuton for the ta abe
year 1952, 275,000.
( ) Insttutons wth surpus, reserves, and undvded profts equa to or n
e cess of 12 percent of deposts or wthdrawabe accounts. Where 12 percent
of the tota deposts or wthdrawabe accounts of an nsttuton at the cose
of the ta abe year s equa to or ess than the sum of such nsttuton s surpus,
undvded profts and reserves at the begnnng of the ta abe year, there may
be aowabe as a deducton from gross ncome a reasonabe addton to the
reserve for bad debts determned under the genera provsons of (a) of ths
secton. In makng such determnaton there w be taken nto account (1)
surpus, or bad debt reserves e stng at the cose of December 31, 1951,
and () changes n the surpus, undvded profts, and reserves of the nst-
tuton from December 31, 1951, unt the begnnng of the ta abe year. Deduc-
tons for addtons to the reserve for bad debts, n addton to the deductons
aowed, f any, under (3), above, w be authorzed n those cases where the
nsttuton proves to the satsfacton of the Commssoner that the bad debt
e perence of the nsttuton warrants the mantenance of a bad debt reserve
n e cess of that provded n (3), above.
Par. 9. There s nserted mmedatey after secton 29.113(b) ()-3
the foowng:
Sec. 29.113(b) ()- . d|usted ass: Mutua Savngs anks, udng and
Loan ssocatons, and Cooperatve anks. The ad|ustments to the cost or
other bass of property provded n secton 113(b) and secton 29.113(b) (1) 1
to secton 29.113(b) ()-3, ncusve, are appcabe n the case of a mutua sav-
ngs bank not havng capta stock represented by shares, a domestc budng
and oan assocaton, and a cooperatve bank wthout capta stock organzed
and operated for mutua purposes and wthout proft, athough such nsttutons
were e empt from ta for ta abe years begnnng pror to anuary 1, 1952.
Proper ad|ustment must be made under secton 113(b) for the entre perod
snce the acquston of property. Thus, ad|ustment to bass must be made for
deprecaton aowabe for a pror ta abe years athough such nsttuton may
have been e empt from ta durng such perod. Smary, n the case of ta
e empt and partay ta abe bonds purchased at a premum and sub|ect to
amortzaton under secton 125, proper ad|ustment to bass must be made to
refect amortzaton wth respect to such premum from the date of acquston
of the bond.
ampe: On anuary 1, 1952, Z, a mutua savngs bank, whch keeps ts
books on a caendar year bass, owns a ta -e empt 1,000 noncaabe bond matur-
ng on anuary 1, 1962. Such bond was acqured by Z on anuary 1, 1932, for
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105
29.101(2)- .
1300. It was sod by Z on December 31, 1952, for 1,250. The yeary rate of
amortzaton of the premum, determned by dvdng the tota premum of
300 by the fe of the bond (30 years) s 10. Z reazes a gan of 00 from
such sae computed as foows:
(1) Cost of bond 1,300
(2) mount of bond premum attrbutabe to years 19 2 through
1951, durng whch was e empt from ta ( 10 tmes 10 years) _ 100
(3) mount of bond premum amortzed from anuary 1, 1952,
through December 31, 1952 ( 10 tmes 1 year) 10
( ) Tota amount of ad|ustments to bass (aggregate of (2) and (3)). 110
(5) d|usted bass of bond at cose of 1952 ((1) reduced by ( )) 1,190
(0) Gan reazed upon sae. cess of sae prce over ad|usted bass
( 1,250 mnus 1,190) 60
The bass of a fuy ta abe bond purchased at a premum sha be ad|usted
from the date of the eecton to amortze such premum n accordance wth the
provsons of secton 125, e cept that no ad|ustment sha be aowabe for such
porton of the premum, attrbutabe to the perod pror to the eecton.
In the case of a mortgage purchased, acqured, or orgnated at a premum,
where the prncpa of such mortgage s payabe n nstaments, ad|ustments
to the bass of the premum must be made for a ta abe years (whether or not
the Insttuton was e empt from ta (urng such years) n whch nstament
payments are receved. Such ad|ustments may he made on an ndvdua
mortgage bass or on a composte bass by reference to the average perod of
payments of the mortgage oans of such nsttuton. For the purpose of ths
ad|ustment, the term premum ncudes the e cess of the acquston vaue
of the mortgage over ts maturty vaue. The acquston vaue of the mortgage
g the cost ncudng buyng commssons, attorneys fees or brokerage fees,
but such vaue does not ncude amounts pad for accrued nterest.
Par. 10. There s nserted mmedatey after secton 20.23(q)- ns
amended by Treasury Decson 592 C. . 1952-2, 100 , approved
ugust , 1952, the foowng:
1951, PPRO D OCTO R 20, 1951 .

(f) Dvdends Pah to Depostors. Secton 23(r) (reatng to the
deducton from gross ncome of certan dvdends pad by bankng cor-
poratons) s hereby amended to read as foows:
(r) Dvdends Pad by ankng Corporatons.
(1) In the case of mutua savngs banks, cooperatve banks, and
domestc budng and oan assocatons, amounts pad to, or credted
to the accounts of, depostors or hoders of accounts as dvdends on
ther deposts or wthdrawabe accounts, f such amounts pad or
credted are wthdrawabe on demand sub|ect ony to customary
notce of Intenton to wthdraw.
(2) For deducton of dvdends pad by certan other bankng
corporatons, see secton 121.

(|) ffectve Date. The amendments made by ths secton sha be
31. 1051.
Sec. 29.23(r)-. Dvdends Pad by Mutua Savngs anks, udng and
Loan ssocatons, and Cooperatve anks. (a) In genera. mutua sav-
ngs bank not havng capta stock represented by shares, a domestc budng
and oan assocaton, and a cooperatve bank wthout capta stock organzed
and operated for mutua purposes and wthout proft may deduct from gross In-
come amounts whch durng the ta abe year are pad to or credted to the
accounts of depostors or hoders of accounts, as dvdends on ther deposts or
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23.101(2)- .
106
wthdrawabe accounts, f such amounts pad or credted are wthdrawabe on
demand sub|ect ony to customary notce of ntenton to wthdraw.
The deducton provded n secton 23(r) (1) s appcabe to the ta abe year n
whch amounts credted as dvdends become wthdrawabe by the depostor or
hoder of account sub|ect ony to customary notce of Intenton to wthdraw.
Thus, amounts credted as dvdends as of the ast day of the ta abe year whch
are not wthdrawabe by depostors or hoders of accounts unt the busness day
ne t succeedng are deductbe under ths secton In the year subsequent to
the ta abe year n whch they were credted. deducton under ths secton
w not be dened by reason of the fact that amounts credted as dvdends,
otherwse deductbe under ths secton, are sub|ect to the terms of a pedge
agreement between the Insttuton and the depostor or hoder of account. In
the case of a budng and oan assocaton havng nonwthdrawabe capta stock
represented by shares, no deducton s aowabe under ths secton for amounts
pad or credted as dvdends on such shares.
(6) Sera assocatons, bonus pans, etc. In the case of a budng and oan
assocaton whch operates In whoe or n part as a sera assocaton, whch
mantans a bonus pan, or whch ssues shares sub|ect to fues, penates, for-
fetures, or other wthdrawa fees, there Is deductbe under secton 23 (r) (1)
the tota amount credted as dvdends upon such shares, credted to a bonus
account for such shares, or aocated to a seres of shares for the ta abe year,
notwthstandng that as a customary condton of wthdrawa
(1) mounts nvested In, and earnngs credted to, seres shares must be
wthdrawn n mutpes of even shares, or
(2) Such assocaton has the rght, pursuant to by-aw, contract, or
otherwse, to retan or recover a porton of the tota amount nvested n,
or credted as earnngs upon, suet shares, such bonus account or seres of
shares, as a ne, penaty, forfeture, or other wthdrawa fee.
In any ta abe year n whch the rght referred to n subparagraph (2) above s
e ercsed, there s ncudbe n the gross ncome of such assocaton for such
ta abe year, amounts retaned or recovered by the assocaton pursuant to the
e ercses of such rght.
Sec. 29.23(r)-2. Dvdends Pad by Certan ankng Corporatons Other
Than Mutua Savngs anks, udng and Loan ssocatons, and Coopkra-
tve anks. For deducton of dvdends pad by certan bankng corporatons
other than mutua savngs banks, budng and oan assocatons, and coopera-
tve banks, see secton 121.
Par. 11. There s nserted mmedatey after secton 29.23(bb)-, as
added by Treasury Decson 5 73 C. . 1952-1,23|, approved Decem-
ber 7,1951, the foowng:
S C 313. MUTU L S INGS N S, UILDING ND LO N
SSOCI TIONS, COOP R TI N S R NU CT OP
1951, ITRO D OCTO R 20, 1051 .

(g) Deducton for Repayment of Certan Loans. Secton 23 (re-
atng to deductons from gross ncome) s hereby amended by addng at
the end thereof the foowng :
(dd) Repayment by Mutua Savngs anks, tc., of Certan
Loans. In the case of a mutua savngs bank not havng capta stock
represented by shares, a domestc budng and oan assocaton, or a
coo eratve bank wthout capta stock organzed and operated for
mutua purposes and wthout proft, amounts pad by the ta payer
durng the ta abe year n repayment of oans made pror to September
1, 1051, by (1) the Unted States or any agency or nstrumentaty
thereof whch s whoy owned by the Unted States, or (2) any mutua
fund estabshed under the authorty of the aws of any state.

(|) ffectve Date. The amendments made by ths secton sha
ber 31, 1 51.
Sec. 29.23 (dd)-. Repayment of Certan Loans by Mutua Savngs anks,
udng and Loan ssocatons, and Cooperatve anks. For ta abe years
begnnng after December 31, 1951, there sha be deductbe under secton
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107
29.101(2)- .
23(dd) from the gross Income of a mutua savngs bank not havng capta
stock represented by shares, a domestc budng and oan assocaton, or a
cooperatve bank wthout capta stock organzed and operated for mutua
purposes and wthout proft, amounts pad by such nsttutons durng the
ta abe year n repayment of oans made pror to September 1, 1951, by the
Unted States or any agency or nstrumentaty thereof whch Is whoy owned
by the Unted States, and amounts pad to a mutua fund estabshed under the
aathorty of the aws of any State. For e ampe, amounts pad by such nsttu-
ton n repayment of oans made by the Reconstructon Fnance Corporaton
pror to September 1, 1951, are deductbe under ths secton. Secton 23(dd)
s not appcabe, however, n the case of amounts pad to an agency or nstru-
mentaty not whoy owned by the Unted States.
Par. 12. There s nserted mmedatey precedng secton 29.10 -1
the foowng:
S C. 313. MUTU L S INGS N S, UILDING ND LO N S-
SOCI TIONS. COOP R TI N S R NU CT OF 1951,

(h) Defnton or ank. Secton 10 (a) (reatng to defnton of
bank) s hereby amended by nsertng at the end thereof the foowng:
Such term aso means a domestc budng and oan assocaton.

(| ffectve Date. The amendments made by ths secton sha be
31, 1951.
the foowng:
S C 313. MUTU L S INGS N S, UILDING ND LO N S-
SOCI TIONS, COOP R TI N S R NU CT OF 1951,

() Defnton of Domestc udng and Loan ssocaton. Sec-
ton 3797(a) (reatng to defntons for the purpose of the Interna
Revenue Code) s hereby amended by addng at the end thereof the fo-
owng new paragraph:
(19) Do estc udng, and Loan ssocaton. The term
domestc budng and oan assocaton means a domestc budng
and oan assocaton, a domestc savngs and oan assocaton, and
a Federa savngs and oan assocaton, substantay a the bus-
ness of whch s confned to makng oans to members.
(|) ffectve Date. The amendments made by ths secton sha be
31, 1951.
Par. 1 . There s nserted mmedatey precedng secton 111 the
foowng:
S C. 3 6. LIF INSUR NC D P RTM NTS OF MUTU L S -
INGS N S R NU CT OF 1951, PPRO D OCTO R
20, 1951 .
(a) Computaton of Ta . Suppement of chapter 1 s hereby
amended by addng at the end thereof the foowng new secton.
S C. 110. MUTU L S INGS N S CONDUCTING LIF IN-
SUR NC USIN SS.
(a) ternatve Ta . In the case of a mutua savngs bank not
havng capta stock represented by shares, authorzed under State aw
to engage n the busness of ssung fe nsurance contracts, and whch
conducts a fe Insurance busness n a separate department the accounts
of whch are mantaned separatey from the other accounts of the
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29.101(2)- .
10
mutua savngs bank, there sha be eved, coected, and pad, n eu of
the ta es mposed by sectons 13 and 15, or secton 117(c)(1), a ta
consstng of the sum of the parta ta es determned under paragraphs
(1) and (2):
(1) parta ta computed upon the net ncome determned
wthout regard to any tems of gross ncome or deductons propery
aocabe to the busness of the fe nsurance department, at the
rates and n the manner as f ths secton has not been enacted; and
(2) a parta ta computed upon the net ncome (as defned n
secton 201(c)(7)) of the fe nsurance department determned
wthout regard to any tems of gross ncome or deductons not
propery aocabe to such department, at the rates and n the
manner provded n Suppement G wth respect to fe nsurance
companes.
(b) Lmtatons of Secton. The provsons of subsecton (a) sha
be appcabe ony f the fe nsurance department woud, f t were
treated as a separate corporaton, quafy as a fe nsurance company
under secton 201(b).

31,1951.
Sec. 29.110-1. Mutua Savngs anks Conductng Lfe Insurance us-
ness. (a) Scope of appcaton Secton 110 s appcabe n the case of a
mutua savngs bank not havng capta stock represented by shares whch
conducts a fe Insurance busness, f
(1) The conduct of such busness s authorzed under State aw,
(2) The fe nsurance busness s carred on n a separate department
of the bank,
(3) The books of account of the fe nsurance busness are mantaned
separatey from other departments of the bank, and
( ) The fe nsurance department of the bank, were t separatey In-
corporated, woud quafy as a fe nsurance company under secton 201(b).
(6) Computaton of ta . In the case of a mutua savngs bank conductng a
fe nsurance busness to whch secton 110 s appcabe, the ta upon such
bank conssts of the sum of the foowng:
(1) parta ta computed under sectons 13 and 15 upon the net ncome
of the bank determned wthout regard to any tems of ncome or deducton
propery aocabe to the fe nsurance department.
(2) parta ta upon the net ncome of the fe nsurance department
determned wthout regard to any tems of ncome or deducton not propery
aocabe to such department at the rates and n the manner provded n
Suppement G wth respect to fe nsurance companes.
Par. 15. There s nserted mmedatey precedng secton 29.13-1,
the foowng:
S C. 3 6. LIF INSUR NC D P RTM NTS OF MUTU L S -
INGS N S R NU CT OF 1951, PPRO D OCTO R
20, 1951 .

(b) Technca mendments. Secton 13 (reatng to norma ta on
corporatons) s hereby amended by addng at the end thereof the fo-
owng new subsecton:
(f) Mutua Savngs anks Conductng Lfe Insurance us-
ness. For speca ta , n eu of the ta es mposed by ths secton see
secton 15, n the case of a mutua savngs bank conductng a fe nsur-
ance busness, see secton 110.
31, 1951.
Par. 16. Secton 29.22(b) ( )-2(a) s hereby amended as foows:
( ) y nsertng mmedatey foowng the second sentence thereof
whch sentence begns wth Secton 7 of the Federa eserve ct
the foowng:
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109
29.101(9)- .
Secton 13 of the Federa ome Loan ank ct ( 7 Stat. 725, 12 D. S. C. 19 6
ed., 1 33) provdes that the Federa ome Loan ank ncudng Its franchse,
ts capta, reserves, and surpus, ts advances, and ts ncome sha be e empt
from a ta aton e cept ta es upon rea estate.
( ) y nsertng n the fourth sentence thereof, after Federa and
banks, natona farm-oan assocatons the foowng: Federa home
oan banks ,
R GUL TIONS 130 26 CF , P RT 0
Par. 17. There s nserted mmedatey precedng secton 0. 5 -1
the foowng:
1951, PPRO D OCTO R 20,1951 .

(c) emptons From cess Profts Ta . Secton 5 (corpora-
tons e empted from the e cess profts ta ) s hereby amended by
(h) ny mutua savngs bank not havng capta stock represented
by shares, any domestc budng and oan assocaton (as defned n
secton 3797(a) (19)), and any cooperatve bank wthout capta stock
organzed and operated for mutua purposes and wthout proft.

31, 1951.
Par. 1 . Secton 0. 5 -1 s amended by strkng from the frst
sentence of subsecton (e) thereof the words or (g) and by nsertng
n eu thereof the words (g), or (h).
(Ths Treasury Decson s ssued under authorty contaned n
26 U. S.C. 62,3791).)
ohn S. Graham,
ctng Commssoner of Interned Revenue.
pproved December ,1952.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster December 10,1952, : 53 a. m.)
Secton 29.101 (9)-: Soca cubs. ev. Ru.
INT RN L R NU COD
soca cnb, otherwse entted to e empton from ta aton under
secton 101(9) of the Interna Revenue Code, shoud not be dened
such e empton because t derves ts prncpa ncome from the
operaton of a bar or restaurant, provded, among other thngs, that
ony members and ther guests are permtted the use of the cub s
factes.
dvce s requested whether a soca cub, otherwse entted to
e empton under secton 101(9) of the Interna Revenue Code, w be
recuded from quafyng for such e empton because t operates a
ar or restaurant from whch t derves ts prncpa ncome.
26333 53
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29.101(12)- .
110
Secton 101(9) of the Code e empts from ncome ta Cubs or-
ganzed and operated e cusvey for peasure, recreaton, and other
nonproftabe purposes, no part of the net earnngs of whch nures
to the beneft of any prvate sharehoder. Secton 29.101 (9)- of
Reguatons 111 provdes n part, that, The e empton granted by-
secton 101(9) appes to practcay a soca and recreaton cubs
whch are supported by membershp fees, dues and assessments. It
s the poston of the ureau that ths sentence s merey descrptve of
the type of cub usuay comng wthn ths secton, and does not,
standng aone, e cude a other cubs from the scope of ths secton.
It s apparent, therefore, that a cub, otherwse entted to e empton
under secton 101 (9) of the Code, shoud not be dened such e empton
merey because t adopts a method of rasng revenue from members
other than by fees, dues and assessments. empton has been granted
by the ureau to many cubs where consderabe revenue was derved
from the sae of merchandse and servces to members, but such e -
empton has been dened where substanta revenue was derved from
deangs wth nonmembers.
ccordngy, t s hed that a soca cub, otherwse entted to e -
empton from ta aton under secton 101(9) of the Interna Revenue
Code, shoud not be dened such e empton because ts prncpa n-
come s derved from the operaton of a bar or restaurant, provded,
among other thngs, that ony members and ther guests are permtted
the use of the cub s factes.
Secton 29.101 (12)-1: Farmers cooperatve T. D. 601
marketng and purchasng assocatons: Re-
qurements for e empton under secton
101(12) ( ).
( so Sectons 29.101 (12)-2, 29.101(12)-3,
29.101 (12)- ; Secton 22(a), Secton 29.22
(a)-23; Secton 1 , Secton 29.1 - .)
TITL 26 INT RN L R NU C PT R L SU C PT R . P RT 29
INCOM T ; T L T S GINNING tT D C M R 31, 19 1
Income ta treatment of e empt cooperatves for ta abe years
begnnng after December 31, 1951.
Washngton 25, D. C.
Concerned:
On November ,1952, notce of proposed ruemakng was pubshed
n the Federa Regster (17 F. R. 101 5) conformng Reguatons 111
26 CFR, part 29 to secton 31 (a), (b), and (d) of the Revenue
ct of 1951, approved October 20, 1951. fter consderaton of a
such reevant matter as was presented by nterested persons reatng
to the rues proposed, the amendments to Reguatons 111 set forth
beow, are hereby adopted.
29.101(12)- 26 CFR 29.101(12)- the foowng:
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I
29.101(12)- .
S C. 31 . INCOM T TR TM NT OF MPT COOP R TI S
(a) mendment of Secton 101(12). Secton 101(12) Is hereby
amended as foows:
(1) y nsertng after (12) the foowng:
( ) .
(2) y Insertng after such paragraph the foowng:
( ) n organzaton e empt from ta aton under the provsons
of subparagraph ( ) sha be sub|ect to the ta es mposed by sec-
tons 13 and 15, or secton 117(c)(1), e cept that n computng
the net ncome of such an organzaton there sha be aowed as
deductons from gross ncome (n addton to other deductons a-
owabe under secton 23)
() amounts pad as dvdends durng the ta abe year
upon ts capta stock, and
() amounts aocated durng the ta abe year to patrons
wth respect to ts ncome not derved from patronage (whether
or not such ncome was derved durng such ta abe year)
whether pad n cash, merchandse, capta stock, revovng
fund certfcates, retan certfcates, certfcates of ndebtedness,
etters of advce, or n some other manner that dscoses to
each patron the doar amount aocated to hm. ocatons
made after the cose of the ta abe year and on or before te
ffteenth day of the nnth month foowng the cose of such
year sha be consdered as made on the ast day of such ta -
abe year to the e tent the aocatons are attrbutabe to n-
come derved before the cose of such year.
Patronage dvdends, refunds, and rebates to patrons wth respect
to ther patronage n the same or precedng years (whether pad
n cash, merchandse, capta stock, revovng fund certfcates, re-
tan certfcates, certfcates of ndebtedness, etters of advce, or n
some other manner that dscoses to each patron the doar amount
of such dvdend, refund, or rebate) sha be taken nto account n
computng net ncome n the same manner as n the case of a co-
operatve organzaton not e empt under subparagraph ( ). Such
dvdends, refunds, and rebates made after the cose of the ta abe
year and on or before the 15th day of the nnth month foowng
the cose of such year sha be consdered as made on the ast day
of such ta abe year to the e tent the dvdends, refunds, or re-
bates, are attrbutabe to patronage occurrng before the cose of
such year.
(b) Technca mendments.
(1) Secton 101 s hereby amended by strkng out cept as
provded n suppement T and nsertng n eu thereof the foow-
ng: cept as provded n paragraph (12) ( ) and n suppement
U .
(2) The ast sentence of secton 101 s hereby amended by strk-
ng out Notwthstandng suppement U and nsertng n eu
thereof Notwthstandng paragraph (12) ( ) and suppement U .

(d) ffectve Date. The amendments made by subsectons (a) and
(b) of ths secton sha be appcabe ony wth respect to ta abe years
begnnng after December 31, 1951
Par. 2. Secton 29.101 (12) 1, as amended by Treasury Decson
5 5 C. . 19 5, 5 , approved une 15, 19 5, s amended by chang-
ng the headng thereof to read as foows:
Farmers Cooperatve Marketno and Purchasng ssocatons : Requre-
ments for empton T ndeb Secton 101(12) ( )
Par. 3. There s nserted mmedatey foowng secton 29.101(12)-
1 the foowng new secton:
Sec. 29.101(12)-2. Ta Treatment of Farmers Cooperatve Marketno and
Purchasng ssocatons empt T ndeb Secton 101(12) ( ) Fob Ta abe
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29.101(12)- .
112
Tears egnnng fter December 31, 1051. (a) In genera. For ta abe years
begnnng after December 31, 1951, secton 101(12) ( ) s appcabe to farmers ,
frut growers , or ke assocatons organzed and operated on a cooperatve
bass n te manner prescrbed n secton 101 (12) ( ). thougb such an assoca-
ton s sub|ect to both norma ta and surta , as n the case of corporatons
generay, certan speca rues for the computaton of net ncome are provded n
secton 101 (12) ( ) and secton 29.101(12)-3. For the purpose of any aw whch
refers to organzatons e empt from ncome ta es such an assocaton sha,
however, be consdered as an organzaton e empt under secton 101. Thus,
under secton 5 (a) such an assocaton s not sub|ect to the e cess-prots
ta . Smary, the provsons of secton 2G(b), provdng a credt for dvdends
receved from a domestc corporaton sub|ect to ta aton, are not appcabe
to dvdends receved from a cooperatve assocaton sub|ect to 101 (12) ( ). The
provsons of secton 1 1, reatng to consodated returns, are kewse not
appcabe.
ues governng the manner n whch amounts aocated as patronage dv-
dends, refunds, or rebates are to be taken nto account n computng the net
ncome of such an assocaton are set forth n secton 29.101 (12)- . For the
ta treatment, as to patrons, of amounts receved durng the ta abe year as
patronage dvdends, rebates, or refunds see secton 29.22(a)-23.
(6) Meanng of terms For purposes of sectons 29.101 (12)-2 to 29.101 (12)- ,
ncusve, secton 29.1 - (f), and secton 29.22(a)-23, the foowng terms
sha have the meanng ascrbed beow:
(1) Cooperatve assocaton. The term cooperatve assocaton n-
cudes any corporaton operatng on a cooperatve bass and aocatng
amounts to patrons on the bass of the busness done wth or for such patrons,
e cept that the terra does not ncude any cooperatve or nonproft corpora-
ton (ncudng any cooperatve or nonproft corporaton engaged n rura
eectrfcaton) e empt from ta aton under secton 101 (10) or (11) or
any corporaton sub|ect to a ta mposed by suppement G (reatng to n-
surance companes).
(2) Patron. The term patron ncudes any person wth whom or for
whom the cooperatve assocaton does busness on a cooperatve bass,
whether a member or a nonmember of the cooperatve assocaton, and
whether an ndvdua, a trust, estate, partnershp, company, corporaton,
or cooperatve assocaton.
(3) ocaton. The term aocaton ncudes dstrbutons made by a
cooperatve assocaton to a patron n cash, merchandse, capta stock, re-
vovng fund certfcates, retan certfcates, certfcates of ndebtedness,
etters of advce, smar documents, or n any other manner whereby ther
s dscosed to a patron the doar amount apportoned on the books of tht
assocaton for the account of such patron. Thus, a mere credt to the
account of a patron on the books of the cooperatve assocatons, wthou-
dscosure to the patron, s not an aocaton.
( ) Patronage dvdends, rebates, and refunds. The term patronage
dvdend, rebate, or refund ncudes any amount aocated by a coopera
the assocaton, to the account of a patron on the bass of the busness don
wth or for such patron. The foowng are not patronage dvdends, rebates
or refunds:
() mounts dstrbuted n redempton of capta stock, or n redemp
ton or satsfacton of certfcates of ndebtedness, revovng fund certf
cates, retan certfcates, etters of advce, or other smar documents
() mounts aocated (whether n cash, mevcand.se, capta stock
revovng fund certfcates, retan certfcates, certfcates of ndebtedness
etters of advce, or n some other manner that dscoses to each patro
the amount of such dvdend, refund, or rebate) by the assocaton fo
products of members or other patrons to the e tent such amounts ar
f ed wthout reference to the earnngs of the cooperatve assocatot
For ths purpose, the term earnngs ncudes the e cess of amount
retaned (or assessed) by the assocaton to cover e penses or othe
tems over the amount of such e penses or other tems.
(c) ampes -The appcaton of (6) above may be ustrated by th
foowng e ampes:
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113
I 29.101(12)- .
ampe 1. Cooperatve , a marketng assocaton operatng on a poong
bass, receves the products of patron W on anuary 5, 1952. On the same day
Cooperatve advances to W 5 cents per un t for the products so devered
and aocates to hm a retan certfcate havng a face vaue cacuated at the
rate of 5 cents per unt. Durng the operaton of the poo, and before sub-
stantay a the products n the poo are dsposed of, Cooperatve advances to
W an addtona 0 cents per unt, the amount beng determned by reference to
the market prce of the products sod and the antcpated prce of the unsod
products. t the cose of the poo on November 10, 1952, Cooperatve deter-
mnes the e cess of ts recepts over the sum of ts e penses and ts prevous
advances to patrons, and aocates to W an addtona 3 cents per unt and
shares of the capta stock of havng an aggregate of face vaue cacuated
at the rate of 2 cents per unt.
The amount of patronage dvdends, rebates, or refunds aocated to W durng
1952 amount to 5 cents per unt, consstng of the aggregate of the foowng
per-unt aocatons: th | amount of cash dstrbuton (3 cents), and the face
vaue of the capta stock of (2 cents), whch are f ed wth reference to the ,
earnngs of . The amount of the two dstrbutons n cash ( 5 cents) and the
face amount of the retan certfcate (5 cents), whch are f ed wthout
reference to the earnngs of , do not consttute patronage dvdends, rebates,
or refunds.
ampe 2. Cooperatve , a marketng assocaton operatng on a poong
bass, receves the products of patron on March 5, 1952. On the same day
Cooperatve pays to 1 per unt for such products, ths amount beng deter-
mned by reference to the market prce of the product when receved, and
ssues to hm a partcpaton certfcate havng no face vaue but whch
enttes on the cose of the poo to the proceeds derved from the sae of hs
products ess the prevous payment of 1 and the e penses and other charges
attrbutabe to such products. On March 5, 1955, Cooperatve , havng sod
the products n the poo, havng deducted the prevous payments for such
products, and havng determned the e penses and other charges of the poo,
redeems the partcpaton certfcate of n cash for 10 cents per unt. The
aocaton made to durng 1955, amountng to 10 cents per unt, s a patronage
dvdend, rebate, or refund. Nether the payment to n 1952 of 1 nor the
ssuance to hm of the partcpaton certfcate n that year consttutes a
patronage dvdend, rebate, or refund wthn the meanng of ths secton.
ampe . Cooperatve C, a purchasng assocaton, obtans suppes for
patron Y on May 1, 1952, and receves In return therefore 100. On February
1,1953, Cooperatve C, havng determned the e cess of ts recepts over ts cost
and e penses, aocates to Y a cash dstrbuton of 1 and a revovng fund cer-
tfcate of a face amount of 1. The amount of patronage dvdends, rebates, or
refunds aocated to Y for 1953 s 2, the aggregate of the cash dstrbuton of
1, and the face amount, 1, of the revovng fund certfcate.
ampe - Cooperatve D, a servce assocaton, ses the products of mem-
bers on a fee bass. It receves the products of patron Z under an agreement
not to poo hs products wth those of other members, to se hs products, and
to dever to hm the proceeds of the sae. Patron Z makes payments to Co-
operatve D durng 1952 aggregatng 75 for servce rendered hm by Coopera-
tve D durng that year. On May 15, 1953, Cooperatve D, havng determned
the e cess of ts recepts over ts costs and e penses, aocates to Z a cash ds-
trbuton of 2. Such amount s a patronage dvdend, rebate, or refund ao-
cated by Cooperatve D durng 1953.
Sec. 29.101 (12)-3. Manner of Ta aton op Cooperatve ssocatons Sub-
|ect to 101(12). (a) In genera. For ta abe years begnnng after December
31, 1951, farmers , frut growers , or ke assocatons, organzed and operated In
compance wth the requrements of secton 101(12) ( ) and secton 29.101(12)-1
sha be sub|ect to the ta es mposed by sectons 13 and 15 or secton 117(c) (1),
e cept that there sha be aowed as deductons from gross ncome, n addton
to the other deductons aowabe under secton 23, certan speca deductons
provded n secton 101(12) ( ) () and (c) of ths secton, and secton
101(12) ( )() and ( ) of ths secton. mounts aocated as patronage dv-
dends, refunds, or rebates, whether n cash, merchandse, capta stock, revovng
fund certfcates, retan certfcates, certfcates of ndebtedness, etters of advce,
or n some other manner that dscoses to each patron the doar amount ao-
cated, wth respect to patronage for the ta abe year or for precedng ta abe
years, sha be taken nto account In the manner provded n secton 101(12) ( )
and n secton 29.101(12)-
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29.101(12)- .
11
(6) Cooperatve assocatons e empt from ta oefore anuary 1, 1952. a
the case of a cooperatve assocaton e empt from ta for ta abe years begn-
nng pror to anuary 1, 1952, the ta abe year (fsca year or caendar year, as
the case may be) sha be determned wthout regard to the fact that such asso-
caton may have been e empt from ta and not sub|ect to the provsons of
secton 101(12) ( ) durng any pror perod. See sectons 1 and and the
reguatons thereunder. Smary n computng net ncome, the determnaton
of the ta abe year for whch an tem of ncome or e pense s taken nto account
sha be made under the provsons of sectons 1, 2, and 3 and the reguatons
prescrbed thereunder, whether or not the tem arose durng a ta abe year
begnnng before, on, or after December 31, 1951. For the purpose of deter-
mnng the method of accountng of the cooperatve assocaton under secton
1, a method of accountng recognzed under secton 1 and under the regua-
tons prescrbed thereunder and utzed n the return of such assocaton fed
for the frst ta abe year begnnng after December 31, 1951, sha be deemed
to consttute the method of accountng reguary empoyed by the cooperatve
assocaton. The method seected sha be sub|ect to the approva of the Com-
mssoner upon the e amnaton of the return. ny change of the method so
seected and so approved may be made ony f permsson s obtaned from the
Commssoner to change to another recognzed bass In accordance wth secton
29. 1-2.
In any case where nventores are an Income-producng factor see secton
22 (e) and (d) and the reguatons prescrbed thereunder. The eectve method
of nventoryng goods provded n secton 22(d) may be adopted by the co-
operatve assocaton for any ta abe year begnnng after December 31, 1951,
n accordance wth the requrements of secton 22(d) and the reguatons Issued
under that secton. In order to use such method for such a ta abe year, the
cooperatve assocaton must e ercse the eecton provded n sectons 22(d) (2)
and 29.22(d)-3 even though It may have utzed such method for accountng
purposes for ta abe years begnnng pror to anuary 1, 1952.
The foowng rues sha be appcabe n computng, under secton 122, the
net operatng oss deducton provded n secton 23(s) : No net operatng oss
carryback or carryover sha be aowed from a ta abe year begnnng pror to
anuary 1, 1952, for whch the cooperatve assocaton was e empt from ta
under secton 101(12). In the case of a ta abe year begnnng pror to anuary
1, 1952, for whch the assocaton was not e empt under secton 101(12), and
of a ta abe year begnnng after December 31, 1951, the amount of the net
operatng oss carryback or carryover from such year sha not be reduced by
reference to the ncome of any ta abe year begnnng pror to anuary 1, 1952,
for whch the assocaton was e empt from ta under secton 101(12). ow-
ever, n determnng precedng ta abe years and succeedng ta abe years under
secton 122(b), a ta abe year begnnng pror to anuary 1, 1952, for whch the
cooperatve assocaton was e empt from ta under secton 101(12) sha be
taken Into account and sha be consdered to be a precedng ta abe year or
a succeedng ta abe year, as the case may be.
The ad|ustments to the cost or other bass provded n secton 113(b) and
secton 29.113(b) (1)-1 to secton 29.113(b) (1)-3, ncusve, are appcabe for
the entre perod snce the acquston of the property. Thus, proper ad|ust-
ment to bass must be made under secton 113(b) for deprecaton, obsoescence,
amortzaton, and depeton for a ta abe years begnnng pror to anuary 1,
1952, athough the cooperatve assocaton was e empt from ta under secton
101(12) for such years. owever, the provsons of secton 11 (b) (reatng
to percentage and dscovery depeton) are appcabe ony for such years
durng whch the assocaton was not e empt from ta under secton 101(12).
The amendment to secton 113(b) (1) ( ) (mtng the ad|ustment to bass for
e cessve deprecaton, etc., whch dd not resut n a reducton of ta es) made
by ubc Law 539, ghty-second Congress, s aso appcabe for such years
where the assocaton has made a proper eecton n accordance wth secton
113(d) and the reguatons prescrbed thereunder. Smary, In the case of
ta -e empt and partay ta abe bonds purchased at a premum and sub|ect
to amortzaton under secton 125, proper ad|ustment to bass must be made
to refect amortzaton wth respect to such premum from the date of acquston
of the bond. (For prncpes governng the method of computaton, see the
e ampe n secton 29.113(b)- ( ) reatng to mutua savngs banks, budng
and oan assocatons, and cooperatve hanks.) The bass of a fuy ta abe
bond purchased at a premum sha be ad|usted from the date of the eecton
to amortze such premum n accordance wth the provsons of secton 125 e cept
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115
29.101(12)- .
that no ad|ustment shn be aowabe for such porton of the premum at-
trbutabe to the perod pror to the eecton.
In the case of a mortgage acqured at a premum where the prncpa of such
mortgage s payabe n Instaments, ad|ustments to the bass of the premum
must be made for a ta abe years (whether or not the assocaton was e empt
from ta under secton 101(12) durng such years) n whch nstament pay-
ments are receved. Such ad|ustments may be made on an ndvdua mortgage
bass or on a composte bass by reference to the average perod of payments of
the mortgage oans of such assocaton. For the purpose of ths ad|ustment, the
term premum ncudes the e cess of the acquston vaue of the mortgage over
ts maturty vaue. The acquston vaue of the mortgage s the cost ncudng
buyng commssons, attorneys fees, or brokerage fees, but such vaue does not
ncude amounts pad for accrued nterest.
The cooperatve assocaton may seect ether of the aternatve methods for
treatng bad debts provded In secton 29.23(k)-(a) n the return for ts frst
ta abe year begnnng after December 31, 1951. The method seected sha be
sub|ect to the approva of the Commssoner upon e amnaton of the return.
- ny change n the method so seected and approved may be made ony f per-
msson s granted as provded n secton 29.23(k)-(a).
(c) Deducton for dvdends pad. There s aowabe as a deducton from the
gross ncome of a cooperatve assocaton operated n compance wth the requre-
ments of secton 101 (12) ( ) and secton 29.101 (12)-, amounts pad as dvdends
durng the ta abe year upon the capta stock of the cooperatve assocaton.
For the purpose of the precedng sentence, the term capta stock ncudes com-
mon stock (whether votng or nonvotng), preferred stock, or any other form of
capta represented by capta retan certfcates, revovng fund certfcates,
etters of advce, or other evdence of a propretary nterest n a cooperatve
assocaton. Such deducton s appcabe ony to the ta abe year n whch the
dvdends are actuay or constructvey pad to the hoder of capta stock or
other propretary nterest of the cooperatve assocaton. If a dvdend s pad
by check and the check bearng a date wthn the ta abe year s deposted n the
ma, n a cover propery stamped and addressed to the sharehoder at hs ast
known address, at such tme that n the ordnary handng of the mas the check
woud be receved by such hoder wthn the ta abe year, a presumpton arses
that the dvdend was pad to such hoder n such year. The determnaton of
whether a dvdend has been pad to such hoder by the corporaton durng ts
ta abe year s n no way dependent upon the method of accountng reguary
empoyed by the corporaton n keepng ts books, or upon the method of account-
ng upon the bass of whch the net ncome of the corporaton s computed. For
further rues as to the determnaton of the rght to a deducton for dvdends
pad, under certan specfc crcumstances, see secton 29.27(b)-2.
(d) Deducton for amounts aocated from ncome not derved from patron-
age. There s aowabe as a deducton from the gross ncome of a cooperatve
assocaton operated n compance wth the requrements of secton 101(12) ( )
and secton 29.101 (12)-1 amounts aocated durng the ta abe year to patrons
wth respect to ts ncome not derved from patrouage (whether or not such
ncome was derved durng such ta abe year) whether such amounts are pad
n cash, merchandse, capta stock, revovng fund certfcates, retan certf-
cates, certfcates of ndebtedness, etters of advce, or n some other manner that
dscoses to each patron the doar amount aocated to hm. For ths purpose,
aocatons made after the cose of the ta abe year and on or before the 15th
day of the nnth month foowng the cose of the ta abe year sha be consdered
as made on the ast day of such ta abe year to the e tent that such aocatons
are attrbutabe to ncome derved durng the ta abe year or durng years
prbr to the ta abe year. s used n ths paragraph, the term ncome not
derved from patronage means ncdenta ncome derved from sources not
drecty reated to the marketng, purchasng, or servce actvtes of the
cooperatve assocaton. For e ampe, ncome derved from the ease of prem-
ses, from nvestment n securtes, from the sae or e change of capta assets,
consttutes ncome not derved from patronage. usness done wth the Unted
States sha consttute ncome not derved from patronage. In order that the
deducton for ncome not derved from patronage may be appcabe, t s
necessary that the amount sought to be deducted be aocated on a patronage
bass n proporton, nsofar as s practcabe, to the amount of busness done
by or for patrons durng the perod to whch such ncome s attrbutabe. Thus,
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29.101(12)- .
116
If capta gans are reazed from the ae or e change of capta assets acqured
and dsposed of durng the ta abe year, ncome reazed from such gans must
be aocated to patrons of such year n proporton to the amount of busness
done by such patrons durng the ta abe year. Smary, If capta gans are
reazed by the assocaton from the sae or e change of capta assets hed
for a perod of more than one ta abe year ncome reazed from suc gans
must be aocated, n proporton nsofar as s practcabe, to the patrons of the
ta abe years durng whch the asset was owned by the assocaton, and to the
amount of busness done by such patrons durng such ta abe years.
Sec. 29.101 (12)- . Patronage Dvdends, Rebates, or Refunds: Treatment
as to Cooperatve ssocatons ntted to Ta Treatment Under Secton
101(12) ( ). (a) Genera rue. For ta abe years begnnng after December
31, 1951, patronage dvdends, refunds, or rebates, aocated by a cooperatve
assocaton entted to ta treatment under secton 101(12) ( ) to a patron
sha be taken nto account n computng the gross ncome of such assocaton
for the ta abe year, as an ncrease n ts other cost of goods sod n the case of
an assocaton marketng products for patrons, or as a reducton n ts gross
recepts, n the case of an assocaton purchasng suppes and equpment or
performng servces for patrons, as the case may be, f
(I) The aocaton Is made n fufment and satsfacton of a vad
obgaton of such assocaton to the patron, whch obgaton was n e st-
ence pror to the recept by the cooperatve assocaton of the amount
aocated, and
() The aocaton s made on or before the 15th day of the nnth month
foowng the cose of the ta abe year n whch the amounts aocated were
receved by the cooperatve assocaton.
For the purpose of (1) above, amounts aocated by a cooperatve assocaton
entted to ta treatment under secton 101(12) ( ) w be deemed aocated
n fufment and satsfacton of a vad enforceabe obgaton, f made pursuant
to provsons of the byaws, artces of ncorporaton, or other contract, whereby
the assocaton s obgated to make such aocaton after the retenton of
reasonabe reserves and after payment of dvdends on capta stock or other
propretary capta nterests. Notwthstandng the provsons of () and ()
above, amounts aocated as patronage dvdends, refunds, or rebates durng
the ta abe year, or on or before the 15th day of the nnth month foowng the
cose of such year, wth respect to patronage for years precedng the ta abe
year, sha be taken nto account as an ncrease n ts other cost of goods sod,
or as a reducton In gross recepts, for the ta abe yenr, as the case may be,
where retenton as reasonabe reserves of the amounts so aocated beyond
the year n whch earned was proper n accordance wth the provsons of
secton 101(12) ( ) and where the aocaton s made to the patron on a patron-
age bass n proporton Insofar as Is practcabe, to the amount of busness done
by such patrons durng the ta abe year or years n whch the retaned amounts
were receved by the cooperatve assocaton.
(b) Iustratons:
ampe 1. , a cooperatve assocaton entted to ta treatment under sec-
ton 101(12) ( ), organzed wthout capta stock, s engaged n the busness o
marketng products for ts patrons on a nonpoo bass. The byaws of Coopera-
tve provde that there sha be aocated to patrons as patronage dvdends
wthn a reasonabe tme foowng the cose of the year a of the gross returns
from saes, ess e penses of operaton for the year and amounts retaned as
reasonabe reserves necessary to the operaton of Cooperatve . t the cose
of the ta abe year, 1952, t s determned that from the pross returns from saes
ess operatng e penses and a ta es for such year, 5,000 s to be retaned ns
reasonabe reserves for varous necessary purposes of Cooperatve . t :
assumed that the retenton of such amount s proper n accordance wth the pro
vsons of secton 101(12) ( ). Such 5,000 s apportoned on the books o
Cooperatve to patrons of 1952 on a patronage bass, or permanent records an
kept from whch an apportonment to such patrons can be made. On March 1
1953, pursuant to the terms of the byaws 200,000, the baance of the gros:
returns for the ta abe year s aocated to patrons of 19. 2 on the bass o
patronage. 100,000 of such 200,000 s aocated n cash. The remann;
100,000 s aocated n retan certfcates , bearng no nterest and redeenabb
n the dscreton of the oard of Drectors of Cooperatve .
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117
29.101(12)- .
There may be added to the cost of goods sod by Cooperatve for 1952,
1200,000 ( 100,000 In cash, 100,000 In retan certfcates), the tota amount ao-
cated as patronage dvdends, rebates, or refunds n fufment and satsfacton
of the obgaton of the byaws, on March 1,1953, before the 15th day of the nnth
month foowng the cose of 1952. There may not be added to the cost of goods
od by Cooperatve for 1952, 5,000, the amount retaned as reserves appor-
toned on the books, but not aocated as patronage dvdends, rebates, or refunds.
ampe . The facts are the same as ampe 1. It addtonay appearng
that at the cose of 1953 It Is determned by Cooperatve to aocate as cash
patronage dvdends, rebates, or refunds to patrons of 1952, 5,000, the amount
retaned as reasonabe reserves for 1952 n accordance wth the provsons of
secton 101 (12) ( ). On March 1,195 , such amount s aocated.
There may be added to the cost of goods sod by Cooperatve for 19. 3, 5,000,
the amount aocated wth respect to patronnge of a precedng year, 1952, propery
mantaned as a reserve under secton 101(12) ( ).
Par. . There s nserted mmedatey after secton 29.22(a)-22 the
foowng:
Sec. 29.22(a)-23. ocatons by Cooperatve ssocatons; Ta Treatment
as to Patrons. (a) In genera. mounts aocated on the bass of the busness
done wth or for a patron by a cooperatve assocaton, whether or not entted to
ta treatment under secton 101(12) ( ), n cash, merchandse, capta stock,
revovng fund certfcates, retan certfcates, certfcates of Indebtedness, etters
of advce, or n some other manner dscosng to the patron the doar amount
aocated sha be ncuded n the computaton of the gross ncome of such patron
for the ta abe year n whch receved to the e tent prescrbed n (6) of ths
secton, regardess of whether the amount aocated s deemed, for the purpose of
secton 101(12) ( ), to be made at the cose of a precedng ta abe year of the
cooperatve assocaton. The determnaton of the e tent of ta abty of such
amounts Is n no way dependent upon the method of accountng empoyed by the
patron or upon the bass, cash, accrua, or otherwse, upon whch the net ncome
of such patron s computed.
(6) tent of ta abty. (1) mounts aocated to a patron on a patronage
bass by a cooperatve assocaton wth respect to products marketed for such
patron, or wth respect to suppes, equpment, or servces the cost of whch
was deductbe by the patron under secton 23, sha be ncuded n the compu-
taton of the gross ncome of such patron to the foowng e tent:
() If the aocaton s n cash, n the amount of cash receved.
() If the aocaton s n merchandse, to the e tent of the far market
vaue of such merchandse at the tme of recept by the patron.
() If the aocaton s In the form of capta stock, revovng fund
certfcates, certfcates of ndebtedness, etters of advce, retan certfcates,
or smar documents
( ) To the e tent of the face amount of such documents, If the a-
ocaton was made n fufment and satsfacton of a vad obgaton
of such assocaton to the patron, whch obgaton was n e stence
pror to the recept by the cooperatve assocaton of the amount a-
ocated. For ths purpose, t s mmatera whether such aocaton
was made wthn the tme requred by secton 29.101(12)- (o) ().
( ) To the e tent of the face amount of such documents, f the a-
ocaton was made wth respect to patronage of a year precedng the
ta abe year from amounts retaned as reasonabe reserves under sec-
ton 29.101- (0).
(C) To the e tent of the cash or merchandse receved n redempton
or satsfacton of such documents (e cept those whch are negotabe
nstruments) at the tme of recept of such cash or merchandse by the
patron, where such aocaton was not made n pursuance of the vad
obgaton referred to n ( ), above, or from amounts retaned as
reasonabe reserves under secton 29.101 (12)- (a), referred to n
( ), above. Where, n such case, the documents aocated are negot-
abe nstruments, such documents sha be ncudbe n the ncome of
the patron to the e tent of ther far market vaue at the tme of ther
recept.
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29.101(12)- .
11
(2) mounts whch are aocated on a patronage bass by a cooperatve as-
socaton wth respect to suppes, equpment, or servces the cost of whch was
not deductbe by the patron under secton 23, are not ncudbe n the computa-
ton of the gross ncome of such patron; however, n the case of such amounts
whch are aocated wth respect to capta assets (as defned n secton
117(a)(1)) or property used n the trade or busness wthn the meanng of
secton 117(|), sha, to the e tent set forth n subdvsons (), (), and ()
of paragraph (1) of ths subsecton, be taken nto account n determnng under
secton 113 the cost or other bass of the assets or property purchased for the
patron.
Par. 5. Secton 29.1 - , as added by Treasury Decson 5907 C. .
1952-1,107 , approved May 29, 1952, s amended as foows:
( ) y changng the headng of subsecton (d) thereof to read as
foows: Defntons appcabe to dstrbutons for the caendar years
1951 and 1952. and by addng mmedatey after such headng the
foowng: In the case of dstrbutons for the caendar years 1951
and 1952, the foowng terms sha, for the purpose of ths secton,
have the meanng ascrbed beow:
( ) y strkng the words of ths secton n the sentence mme-
datey foowng the headng of subsecton (e) thereof, whch sen-
tence begns wth the words The appcaton of and nsertng n eu
thereof the foowng: of subsecton (d) above, appcabe to ds-
trbutons for the caendar years 1951 and 1952,
(C) y nsertng mmedatey after subsecton (e) thereof the
fo owng new subsecton:
(/) Defntons appcabe to dstrbutons for the caendar year 1953 and sub-
sequent caendar years. In the case of dstrbutons for the caendar year r 3,
and subsequent caendar years the terms Cooperatve assocaton, Patron,
Patronage dvdends, rebates, and refunds, and ocaton are defned for
the purpose of ths secton, n secton 29.101 (12)-2(6).
sectons 62 and 3791 of the Interna Revenue Code (53 Stat. 32, 67:
26 U.S. C. 62,3791).)
T. Coeman ndrews,
pproved May 29, 1953.
M. . Fosom,
(Fed wth the Dvson of the Federa Regster une 2,1953, : 53 a. m.)
Secton 29.101 (12)-1: Farmers cooperatve
marketng and purchasng assocatons.
INT RN L R NU COD
Tme e tended for fng e empt cooperatve assocaton ncome ta
return, Form 990-C. (See Rev. RuL 27, page 5.)
Secton 29.101 (12)-1: Farmers cooperatve
marketng and purchasng assocatons.
INT RN L R NU COD
Further e tenson of tme for fng e empt cooperatve assocaton
ncome ta return, Form 990-C. (See Rev. Ru. 102, page 6.)
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119
29.102- .
S CTION 102. SURT ON CORPOR TIONS IMPROP RLY
CCUMUL TING SURPLUS
Secton 29.102-1: Computaton of undstrb- T. D. 59 9
uted secton 102 net ncome.
INCOM T ; T L T RS GINNING FT R D C M R 31, 19 1
Reguatons I amended to conform to secton 315 of the Revenue
ct of 1951.
Offce of the Commssoner of Interna Revenue,
Washngton 25, D. C.
Concerned:
On December , 1952, notce of proposed rue makng conformng
Reguatons 111 26 CFR, part 29 to secton 315 of the Revenue ct
of 1951, approved October 20, 1951, was pubshed n the Federa
Regster (17 F. R. 10971). fter consderaton of a such reevant
matter as was presented by nterested persons regardng the rues
proposed, the amendments to Reguatons 111, set forth beow are
hereby adopted.
29.102-1 the foowng:
S C. 315. SURT ON CORPOR TIONS IMPROP RLY CCUMU-
L TING SURPLUS R NU CT OF 1051, PPRO D OCTO-
R 20, 1951 .
(a) Long-Term Capta Gans Secton 102(d)(1) (reatng to
defnton of secton 102 net ncome) s hereby amended by addng at
the end thereof the foowng new subparagraph:
(D) Long-Term Capta Gans. The e cess of the net ong-
term capta gan for the ta abe year over the net short-term
capta oss for snch year, mnus the ta es mposed by ths
chapter attrbutabe to such e cess. The ta es attrbutabe to
such e cess sha be an amount equa to the dfference between
() the ta es mposed by ths chapter (e cept the ta Imposed
by ths secton) for such year and () such ta es computed for
such year wthout ncudng such e cess n net ncome.
ber 31, 1950.
Par. 2. Secton 29.102- , as amended by Treasury Decson 5796
C. . 1950-2, 2 , approved uy 19, 1950, s further amended as
foows:
( ) y changng the perod at the end of the second sentence to a
semcoon and by addng at the end thereof the foowng:
(e) for ta abe years begnnng after December 31, 1050, the amount reman-
ng after deductng from the e cess of the net ong-term capta gan for the
ta abe year over the net short-term capta oss for such year (computed wth-
out regard to any capta oss carryover) the ta es attrbutabe to such e cess.
For purposes of (e) above, the ta es attrbutabe to such e cess sha be the
amount remanng after deductng from the ta es mposed by chapter 1 for such
year (determned wthout regard to the ta es mposed by secton 102) the ta es
smary mposed and determned for such year wthout ncudng the e cess of
net ong-term capta gan over the net short-term capta oss for such year n
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29.102- .
120
net ncome. For e ampe. If the ta payer pays the aternatve ta as computed
under secton 117(c) the ta attrbutabe to the e cess of the net ong-term capta
:an over the net short-term capta oss sha be the amount computed under
secton 117(e) (1) ( ).
( ) y changng the perod at the end of the ffth sentence to a
comma and by addng at the end thereof the foowng:
and. In addton, for ta abe years begnnng after December 31, 1950, the deduc-
ton enumerated n (e), above.
(C) y strkng the perod at the end of the s th sentence and
(ncudng, for ta abe years begnnng after December 31, 1950, the deducton
enumerated n (e), above).
secton G2 of the Interna evenue Code (53 Stat. 32; 26 U. S. C. 62).)
T. Coeman ndrews,
pproved February 16,1953.
bert P. Tutte,
Secton 29.102- : Computaton of undstrbuted Rev. Ru. 6
secton 102 net ncome.
INT RN L R NU COD
In determnng the secton 102 net ncome of a corporaton whch
keeps accounts and fes returns on the accrua bass, an ad|ustment
n Federa ncome ta abty for the ta abe year 1950 resutng
from a net operatng oss carry-back from the ta abe year 1951
shoud not be refected n the ta deducton provded by secton
102(d) (1) ( ) of the Interna Revenue Code.
dvce s requested whether, n determnng the net ncome under
secton 102 of the Interna evenue Code (reatng to surta on cor-
poratons mpropery accumuatng surpus) of a corporaton whch
keeps accounts and fes returns on the accrua bass, an ad|ustment n
Federa ncome ta abty for the ta abe year 1950 resutng from
a net operatng oss carry-back from the ta abe year 1951 shoud be
refected n the ta deducton provded by secton 102(d) (1) ( ) of
the Code.
Secton 102(d)(1)( ) of the Interna Revenue Code provdes n
part as foows:
(d) Defntons. s used n ths chapter
(1) Secton 102 nst ncome. The term secton 102 net ncome means
the net ncome computed wthout the net operatng oss deducton
provded n secton 23(s), mnus the sum of
( ) Ta es. Federa Income, war-profts, and e cess-profts ta es
pad or accrued durng the ta abe year, to the e tent not
aowed as a deducton by secton 23, but not ncudng the ta mposed
by ths secton or a correspondng secton of a pror ncome-ta aw.
It s the poston of the ureau that the term pad or accrued, as
used n secton 102(d) (1) ( ) of the Code, supra, must be construed
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121
29.102- .
accordng to the method of accountng used n computng the net n-
come of the ta payer. Therefore, a ta payer whch keeps ts accounts
and fes ts returns on the accrua bass must accrue ts Federa n-
come, war-profts, and e cess-profts ta es for the purpose of deter-
mnng ts deducton for ta es provded by secton 102(d) (1) ( ) of
the Code n computng ts secton 102 net ncome. (See secton
29. 3-1 of Reguatons 111.)
The Federa ncome ta abty for the ta abe year 1950 accrued
at the cose of such ta abe year. The ta payer was requred to com-
pute ts Federa ncome ta and fe ts return for such year wthout
regard to any net operatng oss carry-back. (See S. Rept. 1631,
77th Cong., 2d sess., C. . 19 2T2, 50 597.) The amount of the ta
so computed consttuted a deducton for ta es under secton
102(d) (1) ( ) of the Code, supra.
In Mmeograph 6 (C. . 19 9-2. 11), reatng to the treatment
for Federa ncome ta purposes of refunds of ta es,.the deducton of
whch n pror years resuted n ta benefts, t s stated: Snce the
decson n urnet v. Sanford dr rooks Co. (2 2 U. S. 359, Ct. D. 277,
C. . -, 363 (1931)), emphass has been gven to the pont that
ncome ta aton s on an annua bass. So ong as an tem of ncome
or e pense was propery accounted for n one perod, no change s
|ustfed under ths doctrne merey because events n a subsequent
perod mght materay change the treatment of the orgna tem.
If s concuded n Mmeograph 6 , from an anayss of the opnon
of the Supreme Court of the Unted States n Securty Four Ms
Co. v. Commssoner (321 U. S. 2 1, Ct. D. 1603, C. . 9 , 526), n
con|uncton wth earer cases ncudng Unted States v. nderson
(269 U. S. 22, T. D. 3 39, C. . -, 179 (1926)), D e Pne Prod-
ucts Co. v. Commssoner (320 U. S. 516, Ct. D. 159 , C. . 19 . 509),
and Fawcus Machne Co. v. Unted States (2 2 U. S. 375, Ct. D. 27 ,
C. . -, 2 (1931)), that each ta abe year s to be treated as a
separate unt.
In the nstant case, t s evdent that the event whch f ed the rght
of the ta payer to a reducton n ncome ta abty and a refund
of a porton of the ncome ta accrued and pad for the ta abe
year 1950 dd not occur unt the cose of the year 1951, when the
amount of the net operatng oss for such year (1951) became defnte
and certan. Snce the ta payer coud not reasonaby have antc-
ated a net operatng oss for the ta abe year 1951 whch woud ater
; avaabe to reduce the amount of ncome ta abty for 1950, t
coud not, at the cose of the ta abe year 1950, have determned the
amount of dvdends to be dstrbuted n order to obvate the appca-
ton of secton 102 of the Code to ts ncome for 1950.
ccordngy, t s hed that n determnng the secton 102 net
ncome of a corporaton whch keeps accounts and fes returns on the
accrua bass, an ad|ustment n Federa ncome ta abty for the
ta abe year 1950 resutng from a net operatng oss carry-back
from the ta abe year 1951 shoud not be refected n the ta deducton
provded by secton 102(d) (1) ( ) of the Interna Revenue Code.
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29.10 - .
122
S CTION 10 . FISC L Y R T P Y RS
Secton 29.10 - : Computaton of ta of nd- T. D. 59G0
yduas for ta abe years begnnng before
October 1,1950, and endng after September
30,1950 (other than the caendar year 1950k
( so Sectons 29.10 -5, 29.10 -6, 29.10 -7,
29.10 - , 29.10 -9; Secton 7, Secton
29. 7-1; Secton 30, Secton 0. 30-2,
Reguatons 130.)
T RT 0
-
ct of 1950, secton 203 of the cess Profts Ta ct of 1950, and
secton 131 (a) and (c) of the Revenue ct of 1951; and Reguatons
130 amended to conform to secton 131(b) of the Revenue ct of
1951.
Offce of the Commssoner of Interna Revenue,
Washngton 25, D. C.
Concerned:
On October 1 , 1952, notce of proposed rue makng, regardng
amendments to conform Reguatons 111 26 CFR, part 29 to secton
131 of the Revenue ct of 1950, approved September 23, 1950, secton
203 of the cess Profts Ta ct of 1950, approved anuary 3,
1951, and secton 131 (a) and (c) of the Revenue ct of 1951, approved
October 20, 1951, and to conform Reguatons 130 26 CFR, part 0
to secton 131(b) of the Revenue ct of 1951, was pubshed n the
Federa Regster (17 F. R. 9251). No ob|ecton to the rues proposed
havng been receved, the amendments to Reguatons 111 and 130
set forth beow are hereby adopted.
Paragraph 1. Secton 29. 7-1, as amended by Treasury Decson
5517 C. . 19 6-2, 6 , approved une 12, 19 6 26 CFR 29. 7-1 , s
further amended by addng at the end of the secton the foowng:
ny reference n the reguatons n ths part to a ta abe year whch s the
caendar year (see, for e ampe, the reguatons under sectons 11-15, ncusve,
and 10 ) means a ta abe year of 12 months begnnng on anuary 1 and endng
on December 31. The term does not ncude a ta abe year of ess than 12
months, even though the ta payer may have customary made hs returns on
the bass of a caendar year.
Par. 2. There s nserted mmedatey precedng secton 29.10 -1
26 CFR 29.10 -1 the foowng:
S C. 131. FISC L Y R T P Y RS R NU CT OF 1950,
PPRO D S PT M R 23, 1950 .
(a) mendment of Secton 10 . Secton 10 s hereby amended by
strkng out subsecton (e) and Insertng r eu thereof the foowng
new subsectons:
(e) Certan Ta abe Years of Indvduas egnnng efobe
October 1,1950, and ndng fter Skptember 30, 1950. In the case of a
ta abe year (other than one begnnng on anuary 1, 1950, and endng
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123
29.10 - .
on December 31, 1950) of a ta payer other than a corporaton begnnng
before October 1, 1950, and endng after September 30, 1950, the ta m-
posed by sectons 11,12, and 00 sha be an amount equa to the sum of
(1) that porton of a tentatve ta , computed under the prov-
sons of sectons 11(b), 12(b) (2), 12(c) (2), and 12(d , or tabe III
of secton 00, appcabe to such ta abe year, whch the number
of caendar months In such ta abe year pror to October 1, 1950,
bears to the tota number of caendar months n such ta abe year,
pus
(2) that porton of a tentatve ta , computed under the pro-
vsons of sectons 11(a), 12(b)(1), 12(d), and 12(f), or Tabe I
of secton 00, as f such provsons were appcabe to such ta abe
year, whch the number of caendar months n such ta abe year
after September 30, 1950, bears to the tota number of caendar
months n such ta abe year.
For the purposes of ths subsecton, a caendar month ony part of
whch fas wthn the ta abe year ( ) sha be dsregarded f ess
than 15 days of such month are ncuded n such ta abe year, and
( ) sha be ncuded as a caendar month wthn the ta abe year f
more than 1 days of such month fa wthn the ta abe year.
(f) Certan Ta abe Years of Corporatons egnnng efore
uy 1, 1950, and ndng fter une 30, 1950. In the case of a ta -
abe year (other than one begnnng on anuary 1, 1950, and endng on
December 31, 1950) of a corporaton begnnng before uy 1, 1950, and
endng after une 30,1950, the ta mposed by sectons 13,1 , and 15 sha
be an amount equa to the sum of
vsons of sectons 13(b) (3), 1 , and 15(b) (3), appcabe to such
ta abe year, whch the number of days n such ta abe year pror to
uy 1,1950, bears to the tota number of days In such ta abe year,
pus
sons of sectons 13(b) (1) and 15(b) (1), as f such provsons (and
the provsons of sectons 26(b)(2)( ), 26(h)(1)( ), and 26(1)
(1)) were appcabe to such ta abe year, whch the number of days
n such ta abe year after une 30,1950, bears to the tota number of
days n such ta abe year.
(g) Speca Casses of Ta payers. Ths secton sha not appy
to an nsurance company sub|ect to Suppement G or an nvestment
company sub|ect to Suppement .
(b) ffectve Date. The amendment made by subsecton (a) n
strkng out subsecton (e) of secton 10 of the Interna Revenue Code
sha not appy n the case of any ta abe year descrbed n subsectons
(a), (b), or (c) of such secton.
S C. 203. FISC L Y R T P Y RS C SS PROFITS T
CT OF 1950, PPRO D NU RY 3, 1951 .
Secton 10 (f)(2) of the Interna Revenue Code (reatng to com-
putaton of ta of a fsca year begnnng before uy 1, 1950, and endng
after une 30, 1950) s hereby amended by addng at the end thereof
the foowng new sentence: For the purposes of ths paragraph, the
provsons of sectons 15(b)(1), 26(h)(1), and 26() (1) sha be
apped wthout regard to the amendments made to such provsons by
Tte II sees. 201, 202, and 203 of the cess Profts Ta ct of 1950.
(a) mendment of Secton 10 . Secton 10 s hereby amended by
strkng out paragraph (2) of subsecton (f) and nsertng n eu
thereof the foowng:
(2) that porton of a tentatve ta consstng of
( ) tentatve norma ta of 25 per centum of the norma-
ta net ncome, pus
( ) a tentatve surta of 20 per centum of the surtn net
Income In e cess of 25,000,
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29.10 - .
12
whch the number of days n such ta abe year after une 30,
1950, and before pr 1, 1951, bears to the tota Dumber of days n
such ta abe year, pus (f the ta abe year ends after March 31,
.r))
(3) that porton of a tentatve ta consstng of
( ) a tentatve norma ta of 30 per centum of the norma-
ta net ncome pus,
( ) a tentatve surta of 20 per centum of the surta net
ncome n e cess of 25,000,
whch the number of days n such ta abe year after March 31, 1051,
bears to the tota number of days n such ta abe year.
In computng for the purposes of paragraph (2) the norma-ta net
ncome and the corporaton surta net ncome, the credts provded
n secton 26 appcabe to ta abe years begnnng on uy 1, 1950, sha
be aowed n the manner and to tho e tent provded n sectons 13 and
15 appcabe to years begnnng on such date, e cept that such credts
sha be apped wthout regard to the amendments made to secton 26
by tte II nc. see. 202 of the cess Profts Ta ct of 1950. In com-
putng for the purposes of paragraph (3) the norma-ta net ncome and
the corporaton surta net ncome, the credts provded n secton 26
appcabe to ta abe years begnnng on pr 1, 1951, sha be aowed
n the manner and to the e tent provded n sectons 13 and 15 appcabe
to years begnnng on such date.
(g) Certan Ta ab|: Years of Corporatons egnnng fter une
30, 1950, and efore pr 1,1951. In the case of a ta abe year (other
than one begnnng on anuary 1,1951, and endng on December 31,1951)
of a corporaton begnnng after une 30, 1950, and before pr 1, 1951,
and endng after March 31, 1951, the ta mposed by sectons 13 and 15
sha be an amount equa to the sum of
vsons of sectons 13 and 15 appcabe to such ta abe year,
whch the number of days n such ta abe year pror to pr 1,1951,
bears to the tota number of days n such ta abe year, pus
vsons of sectons 13 and 15 appcabe to years begnnng on pr
1, 1951, as f suh provsons were appcabe to such ta abe year,
whch the number of days n such ta abe year after March 31,
1951, bears to the tota number of days n such ta abe year.
(h) Certan Ta abe Years of Indvduas egnnng efore
November 1, 1951, and ndng fter October 31, 1951. In the case of a
ta abe year (other than one begnnng on anuary 1, 1951, and endng
on December 31,1951) of a ta payer, other than a corporaton, begnnng
before November 1, 1951, and endng after October 31, 1951, the ta
mposed by sectons 11 and 12, secton 00, or secton 21(h) (2), sha
be an amount equa to the sum of
vsons of sectons 11 and 12, secton ( ), or secton 21(a)(2),
appcabe to such year, whch the number of caendar months n
such ta abe year pror to November 1, 1951, bears to the tota
number of caendar months n such ta abe year, pus
sons of sectons 11 and 12, secton 00, or secton 21(a)(2),
appcabe to years begnnng on November 1, 1951, as f such pro-
vsons (other than the provsons reatng to head of househod)
were appcabe to such ta abe year, whch the number of caendar
months n such ta abe year after October 31,1951, bears to the tota
number of caendar months n such ta abe year.
Ths subsecton sha not appy n the case of a trust descrbed n secton
21(b) (2) f the ta abe year of such trust began before anuary 1,1951.
(I) Defnton of Caendar Month. For the purposes of ths sec-
ton, a caendar month ony part of whch fas wthn a ta abe year
(1) sha be dsregarded f ess than 15 days of such month are ncuded
n such ta abe year, and (2) sha be ncuded as a caendar month
wthn the ta abe year If more than 1 days of such month fa wthn
the ta abe year.
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125
( 29.10 - .
(|) Ta abe Years of Indvduas egnnng n 1953 and ndng
n 195 . In the case of a ta abe year of a ta payer, other than a
corporaton, begnnng before anuary 1,195 , and endng after December
31, 1953, the ta mposed by sectons 11 and 12, secton 00, or secton
21 (a) (2),sha be an amount equa to the sum of
appcabe to years begnnng on anuary 1, 1053, whch the number
of caendar months n such ta abe year pror to anuary 1, 195 ,
pns
appcabe to years begnnng on anuary 1, 195 , as f such prov-
sons were appcabe to such ta abe year, whch the number of
caendar months n such ta abe year after December 31, 1053,
(k) Ta abe Years of Corporatons egnnng efore t. 1,195 ,
and ndng fter March 31, 195 . In the case of a ta abe year of a
corporaton begnnng before pr 1, 195 , and endng after March 31,
195 . the ta mposed by sectons 13 and 15, or secton 21(a)(1),
sha he an amount equa to the sum of
vsons of sectons 13 and 15, or secton 21(a)(1), appcabe to
years begnnng on anuary 1, 1953, whch the number of days
n such ta abe year pror to pr 1, 195 , bears to the tota num-
ber of days n such ta abe year, pus
sons of sectons 13 and 15, or secton 21(a)(1), appcabe to
years begnnng on pr 1, 195 , as f such provsons were ap-
pcabe to such ta abe year, whch the number of days n such ta -
abe year after March 31, 195 , bears to the tota number of days
n such ta abe year.

(c) Technca mendments.
(1) Secton 10 (e)(2) s hereby amended by nsertng after
secton 00, the foowng: appcabe to years begnnng on
October 1, 1950. .
(2) Secton 10 (g) s hereby amended by strkng out (g)
and nsertng n eu thereof (1) .
Par. 3. There s nserted mmedatey after secton 29.10 -3, ns
added by Treasury Decson 56 7 fC. . 19 9-1, 9 , approved Febru-
ary 16, 19 9 26 CFR 29.10 -3 , the foowng new sectons:
Sec. 29.10 - . Computaton of Ta of Indvduas fob Ta abe Years e-
gnnng efore October 1, 1950, and ndno fter September 30, 1950 (Other
Than ns Caendar Year 1950). (a) Genera rue. For a ta abe year
begnnng before October 1. 1950, and endng after September 30, 1950 (other
tan fe caendar year 1950), the norma ta , surta , and optona ta m-
posed by sectons 11, 12. and 00 upon ta payers other than corporatons shr
be computed under secton 10 (e), as amended by the Revenue cts of 1950
and 1951. The ta sha be an amount equa to the sum of
(1) That porton of a tentatve ta under secton 10 (e)(1), com-
puted under the provsons of sectons 1 b), 12(b)(2), 12(c)(2), and
12(d). or tabe III of secton 00, appcabe to ta abe years begnnng
on September 1, 1950, whch the number of caendar months pror to
October 1, 1950, n the ta abe year of the ta payer bears to the tota
number of caendar months n such ta abe year, and
(2) That porton of a tentatve ta under secton 10S(e)(2), computed
under the provsons of sectons 11(a), 12(b)(1), 12(d), and 12(f), or
tabe I of secton 00, appcabe to ta abe years begnnng on October
1, 1950, whch the number of caendar months after September 30. 1950,
n the ta abe year of the ta payer bears to the tota number of caendar
months In such ta abe year.
20335 53 9
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29.10 - .
126
For the purpose of secton 10 (e) and ths secton, a caendar montb ony
part of whch fas wthn the ta abe year () sha be dsregarded f ess than
15 days of such month are ncuded n such ta abe year, and () sha be
ncuded as a caendar month wthn the ta abe year If more than 1 days of
such month fa wthn the ta abe year.
(6) states, trusts, and nonresdent aen ndvduas. The provsons of
secton 10S(e) appy to estates, trusts, and nonresdent aen ndvduas sub-
|ect to ta under sectons 11 and 12.
(c) Short ta abe years. The provsons of secton 10 (e) appy to a ta abe
year begnnng before October 1, 1950, and endng after September 30, 1950
(other than the caendar year 1950), whether or not such ta abe year s one
of ess than 12 months. In the case of a ta payer who s sub|ect to the provsons
of secton 10S(e) and who because of a change n accountng perod has a
ta abe year of ess than 12 months, the net ncome sha be paced on an
annua bass under the provsons of secton 7(c) (1) for the purpose of both
tentatve ta computatons under secton 10 (e), or sha be computed under the
e cepton n secton 7(c) (2) for the purpose of both such tentatve ta computa-
tons. Regardess of the method adopted, the amounts of the tentatve norma
ta and surta so computed upon the bass of 12 months ncome sha be
propery reduced under secton 7(c) n order to determne the tentatve ta es
under secton 10 (e). owever, n the case of a ta payer who s sub|ect to
the provsons of secton 10S(e) and who because of any reason other than
a change n accountng perod has a ta abe year of ess than 12 months, the
net ncome sha not be paced on an annua bass under secton 7(c)(1) and
sha not be computed under the e cepton n secton 7(c) (2).
(d) ternatve ta under secton 111(c). In any ense n whch a ta payer
sub|ect to the provsons of secton 10 (e) has an e cess of net ong-term capta
gans over net short-term capta osses, the aternatve ta under secton 117(c)
sha be an amount equa to the sum of the proper portons of the tentatve ta es
determned under secton 10 (e), by computng each such tentatve ta pur-
suant to tte aternatve ta computaton provded n secton 117(c), regardess
of whether ether tentatve ta so computed on the aternatve bass s arger
or smaer than the tentatve ta computed wthout regard to secton 117(c).
(e) Certan |ont returns. If a |ont return of a husband and wfe s fed
under the provsons of secton 51(b) (3), f the husband and wfe have dfferent
ta abe years soey because of the death of ether spouse, and f the ta abe
year of the survvng spouse covered by such |ont return s a perod whch
began before October 1, 1950, and ended after September 30, 1950 (other than
the caendar year 1050), the number of caendar months to be taken nto account
for the purpose of computng the portons of the tentatve ta under secton
30 (e) (1) and (2) sha be the number of caendar months pror to October 1,
1950, n the ta abe year of the survvng spouse, the number of caendar months
after September 30, 1950, n the ta abe year of the survvng spouse, and the
tota number of caendar months n the ta abe year of the survvng spouse.
(/) Credts aganst ta . In the case of a ta payer sub|ect to the provsons
of secton 10 (e), any credt aganst the ta otherwse mposed by sectons
11, 12t and 00, such as the credt for ta es pad to a foregn country or posses-
son of the Unted States under secton 131, sha be deducted from, and any
mtaton n such credt sha be based upon, the ta computed under secton
10 (e). owever, n those nstances n whch an ndvdua ta payer computes
a tentatve ta under secton 10 (e) by takng nto account the optona standard
deducton under secton 23(aa), the foowng credts sha not be aowed:
a cre dts under secton 131 wth respect to ta es of foregn countres and
possessons, and a credts wth respect to ta es wthhed at the source under
secton 1 3(a), reatng to nterest on ta -free covenant bonds.
Skc. 29.10 -5. Computaton op Ta of Corporatons for Ta abe Yeat;s
Rkonnno f.fore uy 1, 1950, and ndng ftkr unk 30, 1950 (Other Than
the Caendar Year 1950). (a) In genera. For a ta abe year begnnng before
uy 1, 1950, and endng after une 30, 1050 (other than the caendar year
195(1), the norma ta and surta mposed by sectons 13, 1 , and 15 upon cor-
poratons sha be computed under secton 10S(f), as added by the Revenue
ct of 1950 and as amended by the cess Profts Ta ct of 1950 and the
Revenue ct of 1951.
(6) Ta abe years begnnng before uy 1. 1050, and endng after une SO,
1950, and before pr 1, 1951. For a ta abe year begnnng before uy 1,1950,
and endng after une 30, 1950, and before pr 1, 1951 (other than the caeu-
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127
29.10 - .
dar year 1950), the norma ta and surta of a corporaton sha be an amount
equa to the sum of
(1) That porton of a tentatve ta under secton 10 (f)(1), computed
under the provsons of sectons 13(b)(3), 1 , and 15(h)(3), appcabe
to ta abe years begnng on une 1, 1950, (for appcabe rates, see (d)
of ths secton), whch the number of days pror to uy 1, 1950, n the
ta abe year of the ta payer bears to the tota number of days n such ta -
abe year, and
(2) That porton of a tentatve ta under secton 10 (f)(2) consstng
of
() a tentatve norma ta of 25 percent of the norma-ta net n-
come, pus
() a tentatve surta of 20 percent of the surta net ncome n
e cess of 25,000,
whch the number of days after une 30, 1950, n the ta abe year of the
ta payer bears to the tota number of days n such ta abe year.
(c) Tarahe years begnnng before uy 1, 1950, and endng after March SI,
1951. For a ta abe year begnnng before uy 1, 1950, and endng after March
31, 1951, the norma ta and surta of a corporaton sha be-an amount equa
to the sura of
(1) That porton of a tentatve ta under secton 10 (f)(1), computed
nnder the provsons of sectons 13(b)(3), 1 , and 15(b)(3), appcabe
to ta abe years begnnng on une 1, 1950 (for appcabe rates, see (d)
of ths secton), whch the number of days pror to uy 1, 1950. n the
ta abe year of the ta payer bears to the tota number of days n suc
ta abe year, and
(2) That porton of a tentatve ta under secton 10 (f)(2) consstng
of
(I) a tentatve norma ta of 25 percent of the norma-ta net
ncome, pus
(II) a tentatve surta of 20 percent of the surta net ncome n
e cess of 25,000,
whch the number of days after une 30, 1950, and before pr 1, 1951,
n the ta abe year of the ta payer bears to the tota number of days n
such ta abe year, and
(3) That porton of a tentatve ta under secton 10 (f) (3) consstng
of
(I) a tentatve norma ta of 30 percent of the norma-ta net
Income, pus
() a tentatve surta of 20 percent of the surta net ncome n
e cess of 25,000.
whch the number of days after March 31, 1951, n the ta abe year of
the ta payer bears to the tota number of days n such ta abe year.
(d) Rates appcabe under secton 10 (f) (/). (1) Norma ta . The tenta-
tve norma ta under secton 10 (f) (1) of a corporaton, other than a foregn
corporaton, s computed upon ts norma-ta net ncome at the rates prescrbed
by secton 13 or 1 , whch are as foows:
(I) f the norma-ta net ncome s not n e cess of 5,000, 15 percent of
the amount thereof;
() f the norma-ta net ncome s n e cess of 5,000 but not n e cess
of 20,000, 750 pus 17 percent of the amount of such ncome n e cess of
5,000;
() f the norma-ta net ncome Is n e cess of 20,000 but not n e cess
of 25,000, 3,300 pus 19 percent of such ncome n e cess of 20,000;
(v) f the norma-ta net ncome s n e cess of 25,000 but not n e cess
of 50,000, ,250 pus 31 percent of such ncome n e cess of 25,000; or
(v) f the norma-ta net Income s In e cess of 50,000, 2 percent of
the entre amount thereof.
The tentatve norma ta under secton 10 (f)(1) of a foregn corporaton
engaged n trade or busness wthn the Unted States s computed upon ts
norma-ta net ncome at the rate of 2 percent as prescrbed by secton 1 .
(2) Surta . The tentatve surta under secton 10 (f) (1) of a corporaton,
fther than a foregn corporaton, not engaged n trade or busness wthn the
I nted States, s computed upon ts corporaton surta net ncome at the rates
Prescrbed by secton 15, whch are as foows:
(1) If the corporaton surta net Income s not n e cess of 25,000,
6 percent of the amount thereof;
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29.10 - . 12
(II) If the corporaton surta net ncome s n e cess of 25,000 but
not n e cess of 50,000, 1,500 pus 22 percent of the amount of such
ncome n e cess of 25,000; or
() f the corporaton surta net ncome s n e cess of 50,000, 1
percent of the entre amount thereof,
(e) Computaton of norma-ta net ncome and corporaton surta net ncome
n speca cases. (1) In genera. In computng the tentatve ta es under secton
10 (f) (1), (2), and (3), the amount of the net ncome and the amount of the
ad|usted net ncome of the corporaton are not recomputed and reman unchanged.
owever, the credts provded n secton 26 (b), (h), and () may dffer
n computng the severa tentatve ta es. Thus, n the case of a Western
emsphere trade corporaton, or a pubc utty corporaton whch has pad
dvdends on ts preferred stock wth respect to whch the credt for dvdends
pad provded n secton 26(h) s aowabe, or any corporaton whch has
receved dvdends on the preferred stock of a domestc pubc utty corpora-
ton wth respect to whch the credt provded n secton 26(h) s aowabe to the
dstrbutng corporaton, the amount of the norma-ta net ncome and the
amount of the corporaton surta net ncome for one tentatve ta computaton
dffer from such amounts for any other tentatve ta computaton. Moreover,
n the case of any corporaton whch has a ta abe year endng after March
31, 1951, and whch has receved dvdends on the stock of a foregn corporaton
wth respect to whch the credt provded n secton 26(b)(3) Is aowabe,
the amount of the norma-ta net ncome and the amount of the corporaton
surta net ncome for the thrd tentatve ta computaton dffer from such
amounts for the frst and second tentatve ta computatons. See (2), (3),
( ), and (5), beow.
(2) Western emsphere trade corporatons. In the case of a Western
emsphere trade corporaton, ts tentatve ta under secton 10 (f)(1) s
computed ony on ts norma-ta net ncome, snce a Western emsphere trade
corporaton s not sub|ect to surta under the aw appcabe (wthout regard
to secton 10 ) to a ta abe year begnnng on une 1, 19. 0, and the credt
provded n secton 26() s not appcabe n determnng ts norma-ta net
ncome for the purpose of the computaton of the frst tentatve ta . The
norma-ta net ncome and corporaton surta net ncome of a Western em-
sphere trade corporaton are determned for the purpose of the tentatve ta
computaton under secton 10 (f)(2), wth the aowance of the 31 percent
credt provded n secton 26() appcabe to a ta abe year begnnng on
uy 1, 1950, wthout regard to the amendment of secton 26(1) made by the
cess Profts Ta ct of 1950, and, for the purpose of the tentatve ta
computaton under secton 10 (f)(3), wth the aowance of the 27 percent
credt provded n secton 26() appcabe to a ta abe year begnnng on pr
1, 1951.
(3) Pubc uttes payng dvdends on preferred stock. In the case of
a pubc utty corporaton whch has pad dvdends on ts preferred stock
wth respects to whch the credt for dvdends pad provded n secton 26(h)
s aowabe, ts norma-ta net ncome s determned, for the purpose of the
tentatve ta computaton under secton 10 (f) (1), wthout regard to the credt
provded n secton 26(h), and ts corporaton surta net ncome s determned,
for such purpose, wth the aowance of the credt provded n secton 26(h)
appcabe to a ta abe year begnnng on une 1, 1950. The norma-ta net
ncome and corporaton surta net ncome of such a pubc utty corporaton
are determned, for the purpose of the tentatve ta computaton under secton
10 (f) (2), wth the aowance of the 31 percent credt provded n secton 26(h)
appcabe to a ta abe year begnnng on uy 1, 1950, wthout regard to the
amendment of secton 26(h) made by the cess Profts Ta ct of 1950, and,
for the purpose of the tentatve ta computaton under secton 10 (f)(3),
wth the aowance of the 27 percent credt provded n secton 26(h) appcabe
to a ta abe year begnnng on pr 1, 1951.
( ) Corporatons recevng dvdends on preferred stock of pubc utty.
In the case of any corporaton whch has receved dvdends on the preferred
stock of a domestc pubc utty corporaton wth respect to whch the credt
provded n secton 26(h) s aowabe to the dstrbutng corporaton, ts
norma-ta net Income s determned, for the purpose of the tentatve ta com-
putaton under secton 10 (f)(1), wth the aowance of the 5 percent credt
provded n secton 20(b) wth respect to such dvdends receved, and ts
corporaton surta net ncome s determned, for such purpose, wthout regard
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129
29.10 - .
to any credt provded n secton 26(b) wth respect to such dvdends receved.
The norma-ta net ncome and corporaton surta nut ncome of sucb a corpora-
ton are determned for the purpose of the tentatve ta computaton under
secton 10 (f)(2), wth the aowance of the 09 percent credt provded u
secton 26(b)(2) wth respect to such dvdends receved, and, for the purpose
of the tentatve ta computaton under secton 10 (f)(3), wth the aowance
of the 62 percent credt provded n secton 20(b) (2) wth respect to such
dvdends receved.
5 Corporatons recevng dvdends from foregn corporaton. In the case
of any corporaton whch has a ta abe year endng after March 31, 1951, and
whch has receved dvdends on the stock of a foregn corporaton wth respect
to whch the credt provded In secton 26(b)(3) s aowabe, ts norma-ta
net ncome and corporaton surta net ncome are determned, for the purpose
of the tentatve ta computatons under secton 10 (f) (1) and (2), wthout
regard to the credt provded n secton 26(b)(3), and, for the purpose of the
tentatve ta computaton under secton 10 (f)(3), wth the aowance of
the credt provded n secton 26(b) (3).
(/) Casses of corporatons e cuded from operaton of secton 10 (f). The
provsons of secton 10 (f) do not appy to an nsurance company sub|ect to
suppement G, a reguated nvestment company sub|ect to suppement , or a
foregn corporaton not engaged n trade or busness wthn the Unted States.
(g) Short ta abe years. The provsons of secton 10 (f) appy to a ta abe
year begnnng before uy 1, 1950, and endng after une 30, 1950 (other than
the caendar year 1950), whether or not such ta abe year s one of ess than
12 months. In the case of a ta payer whch s sub|ect to the provsons of
secton 10 (f) and whch because of a change n accountng perod has a
ta abe year of ess than 12 months, the net ncome sha be paced on an annua
bass under the provsons of secton 7(c)(1) for the purpose of each tenta-
tve ta computaton under secton 10 (f), or sha be computed under the
e cepton n secton 7(c)(2) for the purpose of each such tentatve ta com-
putaton. Regardess of the method adopted, the amounts of the tentatve
norma ta and surta so computed upon the bass of 12 months ncome sha
be propery reduced under secton 7(c) n order to determne the tentatve ta es
under secton 10 (f). owever, n the case of a ta payer whch s sub|ect to
the provsons of secton 10 (f) and whch because of any reason other than
a change n accountng perod has a ta abe year of ess than 12 months, the
net ncome for the purpose of secton 10 (f) sha not be paced on an annua
bass under secton 7(c)(1) and sha not be computed under the e cepton
n secton 7(c) (2).
(h) ternatve ta tnder secton //7(c). In any case n whch a ta payer
sub|ect to the provsons of secton 10 (f) has an e cess of net ong-term capta
gans over net short-term capta osses, the aternatve ta under secton
117(c) sha be an amount equa to the sum of the proper portons of the
tentatve ta es determned under secton 10 (f), by computng each such tenta-
tve ta pursuant to the aternatve ta computaton provded n secton 117(c),
regardfess of whether any tentatve ta so computed on the aternatve bass
s arger or smaer than the tentatve ta computed wthout regard to
secton 117(c).
() Credts aganst ta . In the case of a ta payer sub|ect to the provsons
of secton 10 (f), any credt aganst the ta otherwse mposed by sectons
13, 1 . and 15, such as the credt for ta es pad to a foregn country or posses-
son of the Unted States under secton 131, sha be deducted from, and any
mtaton n such credt sha be based upon, the ta computed under secton
OStf).
(; ) ampes. Ths secton may be ustrated by the foowng e ampes:
ampe (1). The Corporaton, a domestc corporaton (whch s nether
a pubc utty referred to n secton 26(h) nor a Western emsphere trade
corporaton referred to n secton 20()), makes ts ncome ta returns on
the bass of a fsca year endng Say 31. For the fsca year whch began une
1. 1950, and ended May 31, 1951, the Corporaton had net ncome of 100,000,
whch dd not ncude any nterest on Unted States obgatons or dvdends on
tock of foregn corporatons. The net ncome ncudes cash dvdends receved
from a domestc corporaton other thnn a pubc utty (aowabe as a credt
under secton 26(b)(1)) n the amount of 10,000, and cash dvdends receved
from a domestc pubc utty corporaton on ts preferred stock (wth respect to
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29.10 - . 130
whch a credt Is aowabe to the pubc utty under secton 26(h)) n the amount
of 5,000. The norma ta and surta of the Corporaton for ts fsca year
ended May 31, 1951, are 22,771.50 and 12,713.21, respectvey, computed
as foows:
() Computaton of tentatve ta es provded n secton 10 (f) (/).
Norma Ta
1. Net ncome 100,000.00
2. Less credt under secton 20(b) (1) for dvdends receved from
domestc corporatons ( 5 percent of 15,000) 12, 750. 00
3. Norma-ta net ncome 7,250. 00
. Norma ta (2 percent of tem 3) 20,9 0. 00
Surta
5. Net ncome 100, 000. 00
6. Less credt under secton 26(b) (1) for dvdends receved from
domestc corporaton other than dvdends wth respect to
whch credt s aowabe under secton 26(h) ( 5 percent of
10,000) ,500.00
7. Corporaton surta net ncome 91, 500. 00
. Surta (1 percent of tem 7) 12, 10. 00
() Computaton of tentatve ta es provded n secton 10 (f)(2).
Norma Ta and Surta
9. Net ncome 100,000. 00
10. Less credt under secton 26(b)(1) for dvdends
receved from domestc corporaton other than dv-
dends wth respect to whch credt s aowabe
under secton 26(h) ( 5 percent of 10,000) ,500.00
11. Less credt under secton 26(b)(2) for dvdends re-
ceved wth respect to whch credt s aowabe
under secton 26(h) (59 percent of 5,000) 2,950.00
11, 50.00
12. Norma-ta net ncome and corporaton surta net ncome , 550. 00
13. Norma ta (25 percent of tem 12) 22,137. 50
1 . Surta (20 percent of 63,550, the e cess of ,550 over
25,000) 12.710.00
() Computaton of tentatve ta es provded n secton 1 0(f) (S). .
Norma Ta and Surta
15. Net ncome 100, 000. 00
16. Less credt under secton 26(b)(1) ( 5 percent
of 10,000) ,500.00
17. Less credt under secton 26(b)(2) (62 percent
of 5,000) 3,100.00
11,600.00
1 . Norma-ta net ncome and corporaton surta net ncome , 00. 00
19. Norma ta (30 percent of tem 1 ) 26,520.00
20. Surta (20 percent of 63, 00, the e cess of , 00 over 25,000) - 12, 6 0. 00
(v) Computaton of norma ta and surta for fsca year ended ay 31,1951.
21. Number of days n ta abe year pror to uy 1, 1950 30
22. Number of days n ta abe year after une 30, 1950, and before
pr 1, 1951 27
23. Number of days n ta abe year after March 31, 1951 61
2 . Tota number of days n ta abe year 365
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29.10 - .
Norma Ta
25. Tentatve norma ta computed In () 20,0 0.00
2f. 30/365ths of 20,9 0 1,721.10
27. Tentatve norma ta computed n () 22,137.50
2a 27 /365th of 22,137.50 16, 61 . 20
29. Tentatve norma ta computed n () 20,520.00
30. 61/365ths of 26,520 , 32.11
31. Tota norma ta 22,771.50
Surta
32. Tentatve surta computed In () 12, S10. 00
33. 30/365tbs of 12, 10 1,052.
3 . Tentatve surta computed n () 12,710.00
3T. 27 /3G5ths of 12,710 9, 3 1. 21
3ft Tentatve surta computed n () 12,0 0.00
37. 61/365ths of 12,6 0 2,119.12
3 . Tota surta 12, 713. 21
ampe (2). The facts are the same as n e ampe (1), above, e cept that
the ta abe year s the fsca year whch began pr 1, 1950, and ended March
31, 1951. The norma ta and surta of the Corporaton for such fsca year
are computed ony under paragraphs () and (2) of secton 10 (f), snce
paragraph (3) of such secton s not appcabe to a ta abe year whch ended
before pr 1, 1951. Its norma ta and surta for the fsca year ended March
31, 1951, are 21, 3 .95 and 12,73 .9 , respectvey. The tentatve norma ta
and tentatve surta under secton 10 (f) (1) and (2) are computed as set forth
n () and () of e ampe (1). The norma ta and surta of the Corporaton
are further computed as foows:
1. Number of days n ta abe year pror to uy 1, 1950 91
2. Number of days n ta abe year after une 30, 1950 27
3. Tota number of days n ta abe year 365
Norma Ta
1 Tentatve norma ta as computed n () of e -
ampe (1) 20,9 0.00
5. 91/3 5ths of 20.9 0 5,220. 66
6. Tentatve norma ta as computed n () of e -
ampe (1) 22,137.50
7. 27 /305ths of 22,137.50 16, 61 . 29
. Tota norma ta 21, 3 . 95
Surta
9. Tentatve surta as computed n () of e ampe (1) 12, 10. 00
10. 91/365ths of 12, 10 3,193. 73
11. Tentatve surta as computed n () of e -
ampe (1) 12,710.00
12. 27 /3G5ths of 12,710 9, 5 1. 21
13. Tota surta 12,73 . 9
Sec. 29.10 -6. Computaton of Ta of Corporatons for Ta abe Years e-
gnnng fter une 30, 1950, and efore pr 1, 1951, and ndng fter
March 31, 1951 (Other Than the Caendar Year 1951). (a) Genera rue.
For a ta abe year begnnng after une 30, 1950, and before pr 1, 1951, and
endng after March 31, 1951 (other than the caendar year 1951), the norma
ta and surta mposed by sectons 13 and 15 upon corporatons sha be com-
puted under secton 10 (0), as added by the Revenue ct of 1950 and as amended
by the Revenue ct of 1951. The ta sha be an amount equa to the sum of
(1) That porton of a tentatve ta under secton 10 (g)(1), computed
under the provsons of sectons 13(h)(1) and 15(b)(1), appcabe to
ta abe years begnnng on uy 1, 1050, whch the number of days pror
to pr 1, 1951, n the ta abe year of the ta payer bears to the tota
number of days n such ta abe year, and
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29.10 - .
132
(2) That porton of a tentatve ta under secton 10 (g)(2), computed
under the provsons of sectons 13(b) (2) and 15, appcabe to ta abe
years begnnng on pr 1, 1951, whch the number of days after March 31,
1951, n the ta abe year of the ta payer bears to the tota number of days
n such ta abe year.
The tentatve norma ta es under secton 10 (g) (1) and (2) of a corporaton
are computed upon ts norma-ta net ncome at the rates of 25 percent and
30 percent, respectvey. The tentatve surta es under secton 10 (g) (1)
and (2) of a corporaton are computed upon ts corporaton surta net ncome
n e cess of 25,000 at the rate of 22 percent. See, however, secton 15(c)
and secton 29.15-2 as to the crcumstances under whch the 25,000 e empton
from surta may be dsaowed, n whoe or In part, n the computaton of the
tentatve surta under secton 10 (g) (2).
(6) Computaton of norma-ta net ncome and corporaton surta net ncome
n speca cases. (1) In genera. In computng the tentatve ta es under sec-
ton 10 (g) (1) and (2), the amount of the net ncome and the amount of the ad-
|usted net ncome of the corporaton are not recomputed and reman unchanged.
owever, the credts provded n secton 26 (b), (h), and () may dffer n
computng the severa tentatve ta es. Thu|, n the case of a Western em-
sphere trade corporaton, or a pubc utty corporaton whch has pad dvdends
on ts preferred stock wth respect to whch the credt for dvdends pad
provded n secton 26(h) s aowabe, or any corporaton whch has receved
dvdends on the preferred stock of a domestc pubc utty corporaton wth
respect to whch the credt provded n secton 26(h) s aowabe to the dstrbu-
tng corporaton, or any corporaton whch has receved dvdends on the stock
of a foregn corporaton wth respect to whch the credt provded n secton
26(b) (3) s aowabe, the amount of the norma-ta net ncome and the amount
of the corporaton surta net ncome for the frst tentatve ta computaton
dffer from such amounts for the second tentatve ta computaton. See (2),
(3), ( ), and (5), beow.
(2) Western emsphere trade corporatons. In the case of a Western em-
sphere trade corporaton, ts norma-ta net ncome and corporaton surta net
ncome are determned, for the purpose of the tentatve ta computaton under
secton 10 (g)(1), wth the aowance of the 30 percent credt provded n
secton 26(1) appcabe to a ta abe year begnnng on uy 1, 1950, and, for
the purpose of the tentatve ta computaton under secton 10 (g)(2), wth
the aowance of the 27 percent credt provded n secton 26(1) appcabe to
a ta abe year begnnng on pr 1,1951.
(3) Pubc uttes payng dvdends on preferred stock. In the case of a
pubc utty corporaton whch has pad dvdends on ts preferred stock wth
respect to whch the credt for dvdends pad provded n secton 26(h) s
aowabe, ts norma-ta net ncome and corporaton surta net ncome are
determned, for the purpose of the tentatve ta computaton under secton
10 (g) (1), wth the aowance of the 30 percent credt provded n secton 26(h)
appcabe to a ta abe year begnnng on uy 1, 1950, and, for the purpose of
the tentatve ta computaton under secton 10 (g)(2), wth the aowance of
the 27 percent credt provded n secton 26(h) appcabe to a ta abe year
begnnng on pr 1,1951.
( ) Corporatons recevng dvdends on preferred stock of pubc utty. In
the case of any corporaton whch has receved dvdends on the preferred stock
of a domestc pubc utty corporaton wth respect to whch the credt pro-
vded n secton 26(h) s aowabe to the dstrbutng corporaton, ts norma-
ta net ncome and corporaton surta net ncome are determned, for the pur-
pose of the tentatve ta computaton under secton 10 (g) (1), wth the aow-
ance of the 59 percent credt provded n secton 26(b)(2) wth respect to
such dvdends receved, and, for the purpose of the tentatve ta computaton
under secton 10 (g) (2), wth the aowance of the 62 percent credt provded
n secton 26(b) (2) wth respect to snch dvdends receved.
(5) Corporatons recevng dvdends from foregn corporaton. In the case
of any corporaton whch has receved dvdends on the stock of a foregn
corporaton wth respect to whch the credt provded n secton 26(b) (3) s
aowabe, ts norma-ta net ncome and corporaton surta net ncome nre
10 (g)(1), wthout regard to the credt provded n secton 26(b)(3), and,
for the purpose of the tentatve ta computaton under secton 10 (g) (2), wth
the aowance of the credt provded n secton 26(b) (3).
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133 29.10 - .
(c) Casses of corporatons e cuded from operaton of secton 10 (g). The
provsons of secton 10 (g) do not appy to an nsurance company sub|ect to
Suppement G, a reguated nvestment company sub|ect to Suppement , or a
foregn corporaton not engaged n trade or busness wthn the Unted States.
(d) Short ta abe years. The provsons of secton 10 (g) appy to a ta abe
year begnnng after une 30, 1950, and before pr 1, 1951, and endng after
March 31, 1951 (other than the caendar year 1951), whether or not such
ta abe year s one of ess than 12 months. In the case of a ta payer whch
s sub|ect to the provsons of secton 10 (g) and whch because of a change
n accountng perod has a ta abe year of ess than 12 months, the net ncome
sha be paced on an annua bass under the provsons of secton 7(c)(1)
for tbe purpose of both tentatve ta computatons under secton 10 (g). or
sha be computed under the e cepton In secton 7(c)(2) for the purpose of
both such tentatve ta computatons. egardess of the method adopted, the
amounts of the tentatve norma ta and surta so computed upon the bass of
12 months ncome sha be propery reduced under secton 7(c) n order to
determne the tentatve ta es under secton 10 (g). owever, n the case of a
ta payer whch s sub|ect to the provsons of secton 10 (g) and whch because
of any reason other than a change n accountng perod has a ta abe year of
ess than 12 months, the net ncome for the purpose of secton 10 (g) sha
not be paced on an annua bass under secton 7(c)(1) and sha not be
computed under the e cepton In secton 7(c) (2).
(e) ternatve ta under secton 117(c). In any case n whch a ta payer
sub|ect to the provsons of secton 10S(g) has an e cess of net ong-term capta
sha be an amount equa to the sum of the proper portons of the tentatve
ta es determned under secton 10 (g), by computng each such tentatve ta
pursuant to the aternatve ta computaton provded n secton 117(c), regard-
ess of whether ether tentatve ta so computed on the aternatve bass s
arger or smaer than the tentatve ta computed wthout regard to secton
117(c).
of secton 10 (g), any credt aganst the ta otherwse mposed by sectons 13
and 15. such as the credt for ta es pad to a foregn country or possesson of
the Unted States oncer secton 131, sha be deducted from, and any mtaton
n such credt sha be based upon, the ta computed under secton 10 (g).
(17) ampe. Ths secton may be ustrated by the foowng e ampe:
sampe. The Corporaton, a domestc corporaton (whch s nether a
pubc utty referred to n secton 26(h) nor a Western emsphere trade
corporaton referred to n secton 26()). makes ts ncome ta returns on the
bass of a fsca year endng une 30. For the fsca year whch began uy 1,
r 0. and ended une 30, 1961, the Corporaton had net ncome of 100,000,
whch dd not ncude any nterest on Unted States obgatons or dvdends on
stock of foregn corporatons. The net ncome ncudes cash dvdends receved
from a domestc corporaton other than a pubc utty (aowabe as a credt
under secton 26(b) (1)) n the amount of 10,000, and cash dvdends receved
from a domestc pubc utty corporaton on ts preferred stock (wth respect
to whch a credt s aowabe to the pubc utty under secMon 20(h)) n the
amount of 5,000. The norma ta and surta of the Corporaton for ts fsca
year ended une 30.1951. are 23,230.13 and 13,972.7S, respectvey, computed as
foows:
() Computaton of tentatve ta es provded n secton 10S(g) (1).
Norma Ta and Sueta
1. Net ncome , 100,000.00
receved from domestc corporaton other than
dvdends wth respect to whch credt s aow-
abe under secton 26(h) ( 5 percent of 10,000)__ S, 500. 00
receved wth respect to whch credt s aow-
abe under secton 26(h) (59 percent of 5,000) 2. 050. 00 11, 50.00
. Norma-tar net ncome and corporaton surta net ncome , 550.00
5. Norma ta (25 percent of tem ) 22,137.50
6. Surta (22 percent of 63,550, the e cess of ,550 over
25,000) 13.0 1.00
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5 29.10 - .
13
() Computaton of tentatve ta es provded n secton 10 ( ) (2).
Norma Ta and Surta
7. Net ncome 100,000. 00
. Less credt under secton 26(b)(1) ( 5 percent
of 10.000) ,500.00
of 5,000) 3,100. 00 11, 600. 00
10. Norma-ta net ncome and corporaton surta net Income , 00. 00
11. Norma ta (30 percent of tem 10) 26,520. 00
12. Surta (22 percent of 03, 00, the e cess of , 00 over
25,000) 13,0 . 00
() Computaton of norma ta and surta for fsca year ended une SO,
m.
13. Number of days n ta abe year pror to pr 1, 1951 27
1 . Number of days n ta abe year after March 31,1051 1
15. Tota number of days In ta abe year . 3fo
Nobma Ta
16. Tentatve norma ta computed n (I) 22,137.50
17. 27 /3 5ths of 22,137.50 16,01 . 29
1 . Tentatve norma ta computed n () 26,520.00
19. 91/305ths of 26,520 S,G.
20. Tota norma ta 23,230.13
Surta
21. Tentatve surta computed n () 13,0 1.00
22. 27 /305ths of 13,9 1 10, 95. 33
23. Tentatve surta computed In () 13,9 .00
2 . 91/365ths of 13,9 3. 77. 5
25. Tota surta 13,972. 7
Sec. 29.10 -7. Computaton of Ta of Indvduas for Ta abe Years e-
gnnng efore November 1, 1951, and ndng fter October 31, 1951 (Othkr
Than the Caendar Year 1951). (a) Genera rue. For a ta abe year be-
gnnng before November 1, 1951, and endng after October 31, 1951 (other than
the caendar year 1951), the norma ta , surta , optona ta , and Suppement U
norma ta and surta mposed by sectons 11, 12, 00, and 21(a)(2) upon
ta payers other than corporatons sha be computed under secton 10 (b), us
added by the Revenue ct of 1051. The ta sha be an amount equa to the
sum of
(1) That porton of a tentatve ta under secton 10 (h)(1), computed
under the provsons of sectons 11 and 12. secton 00, or secton 21(a) (2),
appcabe to ta abe years begnnng on October 1, 1951. whch the number
of caendar months pror to November 1, 1951, n the ta abe year of the
ta payer bears to the tota number of caendar months n such ta abe year,
and
(2) That porton of a tentatve ta under secton 10 (h)(2), computed
under the provsons ot sectons 11 and 12, secton 00, or secton 21 (a)(2),
other than the provsons of such sectons reatng to a head of a househod,
appcabe to ta abe years begnnng on November 1,1951, whch the number
of caendar months after October 31, 1951, n the ta abe year of the ta -
payer bears to the tota number of caendar months n such ta abe year.
For the purpose of secton 10 (h) and ths secton, a caendar month ony part
of whch fas wthn the ta abe year () sha be dsregarded f ess than 15
days of such month are ncuded n such ta abe year, and () sha be ncuded
as a caendar month wthn the ta abe year f more than 1 days of such mouth
fa wthn the ta abe year.
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135
29.10 - .
secton 10 ( h) appy to estates, trusts, and nonresdent aen ndvduas sub|ect
to ta under sectons 11 and 12 and to trusts descrbed n secton 21(b)(2)
whch are sub|ect to ta under secton 21(a)(2). owever, the provsons
of secton 10 (h) do not appy to a trust descrbed n secton 21(b) (2) n the
case of a ta abe year of such trust whch began before anuary 1, 1051.
(c) Short ta abe years. The provsons of secton 10 (h) appy to a ta abe
year begnnng before November 1,1051, and endng after October 31,1051 (other
than the caendar year 1051), whether or not such ta abe year s one of ess
than 12 months. Id the case of a ta payer who s sub|ect to the provsons of
secton 10 (b and who because of a change n accountng perod has a ta abe
year of ess than 12 months, the net ncome sha be paced on an annua bass
under the provsons of secton 7(c) (1) for the purpose of both tentatve ta
computatons under secton 10 (h , or sha be computed under the e cepton
n secton 7(c)(2) for the purpose of both such tentatve ta computatons.
Regardess of the method adopted, the amounts of the tentatve norma ta and
surta so computed upon the bass of 12 months ncome sha be propery reduced
nnder secton 7(c) n order to determne the tentatve ta es under secton
103(h). owever, n the case of a ta payer who s sub|ect to the provsons of
secton 10 (h) and who because of any reason other than a change n account-
ng perod has a ta abe year of ess than 12 months, the net ncome sha nut
be paced on an annua bass under secton 7(c) (1) and sha not be computed
under the e cepton n secton 7(c) (2).
d) ternatve tan under secton //7(c). In any case n whch a ta payer
sub|ect to the provsons of secton 10 (h) has an e cess of net ong-term
capta gans over net short-term capta osses, the aternatve ta under secton
117(c) sha-be an amount equa to the sum of the proper portons of the tentatve
ta es determned under secton 10 (h), by computng each such tentatve tu
pursuant to the aternatve ta computaton provded n secton 117(c), re-
gardess of whether ether tentatve ta so computed on the aternatve bass
s arger or smaer than the tentatve ta computed wthout regard to secton
U7(c).
(e) Certan |ont returns. If a ont return of a husband and wfe Is fed
under the provsons of secton 51(b) (3), f the husband and wfe have dfferent
ta abe years soey because of the death of ether spouse, and f the ta abe
year of the survvng spouse covered by such |ont return s a perod whch
began before November 1, 1951, and ended after October 31, 1951 (other than
the caendar year 1951), the number of caendar months to be taken nto
account Cor the purpose of computng the portons of the tentatve ta under
pert on 10 (h) (1) and (2) sha be the number of caendar months pror to
November 1, 1951, In the ta abe year of the survvng spouse, the number
of caendar months after October 31, 1051, n the ta abe year of the survvng
spouse, and the tota number of caendar months n the ta abe year of the
survvng spouse.
(f) Credts aganst ta . In the case of a ta payer sub|ect to the prov-
sons of secton 10 (h), any credt aganst the ta otherwse mposed by sectons
11,12. 00, and 21(a) (2), such as the credt for ta es pad to a foregn country
or possesson of the Unted States under secton 131, sha be deducted from,
and any mtaton In such credt sha be based upon, the ta computed under
secton 10 (h). owever, n those nstances n whch an ndvdua ta payer
computes a tentatve ta under secton 10 (h) by takng nto account the
optona standard deducton under secton 23(aa), the foowng credts sha
not be aowed: a credts under secton 131 wth respect to ta es of foregn
countres and possessons, and a credts wth respect to ta es wthhed at
the source under secton 1 3(a), reatng to nterest on ta -free covenant bonds.
Sec. 29.10 - . Computaton of Ta or Indvduas for Ta abe Years
egnnng n 1953 and ndng n 195 . (a) Genera rue. For a ta abe
year begnnng n 1953 and endng n 195 , the norma ta , surta , optona
ta . and suppement D norma ta and surta , mposed by sectons 11, 12, 00,
and 21(a) (2) upon ta payers other than corporatons, sha he computed under
secton 10 (|), as added by the Revenue ct of 1951. The ta sha be an
amount equa to the sum of
(1) That porton of a tentatve ta under secton 10 (|)(), computed
under the provsons of sectons 11 and 12, secton 00, or secton 21(a) (2),
appcabe to ta abe years begnnng on anuary 1, 1053, whch the num-
ber of caendar months pror to anuary 1, 105 , n the ta abe year of
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29.10 - .
136
the ta payer bears to the tota number of caendar months In such ta abe
year, and
(2) That porton of a tentatve ta under secton 10 ( )(2), computed
under the provsons of sectons 11 and 12, secton 00, or secton 21(a) (2),
appcabe to ta abe years begnnng on anuary 1,195 , whch the number
of caendar months after December 31, 1953, n the ta abe year of the
ta payer bears to the tota number of caendar months n such ta abe year.
For the purpose of ecton 10 (|) and ths secton, a caendar month ony part
of whch fas wthn the ta abe year () sha be dsregarded f ess than
15 days of such month are Incuded n such ta abe year, and () sha be
Incuded as a caendar month wthn the ta abe year f more than 1 days of
such month fa wthn the ta abe year.
secton 10 (|) appy to estates, trusts, and nonresdent aen ndvduas sub|ect
to ta under sectons 11 and 12 and to trusts descrbed In secton 21(b)(2)
whch are sub|ect to ta under secton 21(a) (2).
(c) Short ta abe years. The provsons of secton 10 (|) appy to a ta abe
year begnnng n 1953 and endng In 195 , whether or not such ta abe year
s one of ess than 12 months. In the case of a ta payer who s sub|ect to
the provsons of secton 10 (|) and who because of a change n accountng
perod has a ta abe year of ess than 12 months, the net ncome sha be
paced on an annua bass under the provsons of secton 7(c)(1) for the
purpose of both tentatve ta computatons under secton 10 ( ), or,sha be
computed under the e cepton In secton 7(c) (2) for the purpose of both such
tentatve ta computatons. egardess of the method adopted, the amounts
of the tentatve norma ta and surta so computed upon the bass of 12
months Income sha be propery reduced under secton 7(c) In order to deter-
mne the tentatve ta es under secton 10 (|). owever, n the case of a ta -
payer who s sub|ect to the provsons of secton 10 (|) and who because of
any reason other than a change n accountng perod has a ta abe year of ess
than 12 months, the net ncome sha not be paced on an annua bass under
secton 7(c)(1) and sha not be computed under the e cepton In secton
7(c)(2).
(d) ternatve ta under secton 117(c). In any case In whch a ta payer
sub|ect to the provsons of secton 10 (|) has an e cess of net ong-term capta
sha be an amount equa to the sum of the proper portons of the tentatve
ta es determned under secton 10 (|), by computng each such tentatve ta
pursuant to the aternatve ta computaton provded In secton 117(c), regard-
ess of whether ether tentatve ta so computed on the aternatve bass Is
arger or smaer than the tentatve ta computed wthout regard to secton
117(c).
(e) Certan |ont returns. If a |ont return of a husband and wfe s fed
under the provsons of secton 51(b) (3), f the husband and wfe have dffer-
ent ta abe years soey because of the death of ether spouse, and If the ta abe
year of the survvng spouse covered by such |ont return Is a perod whch
begns In 1953 and ends In 195 , the number of caendar months to be taken
nto account for the purpose of computng the portons of the tentatve ta
under secton 10 (|) (1) and (2) sha be the number of caendar months pro
to anuary 1, 195 , In the ta abe year of the survvng spouse, the number o
caendar months after December 31, 1953, In the ta abe year of the survvng
spouse, and the tota number of caendar months In the ta abe year of the
survvng spouse.
(f) Credts aganst ta . In the case of a ta payer sub|ect to the provsons
of secton 10 (|), any credt aganst the ta otherwse mposed by sectons 11
12, 00, and 21(a ) (2), such as the credt for ta es pad to a foregn country
or possesson of the Unted States under secton 131, sha be deducted from,
and any mtaton n such credt sha be based upon, the ta computed unde
secton 10 ( ). owever, In those Instances n whch an ndvdua ta paye
computes a tentatve ta under secton 10 (|) by takng nto account the
optona standard deducton under secton 23(aa), the foowng credts sha
not be aowed: a credts under secton 131 wth respect to ta es of foregn
countres and possessons, and a credts wth respect to ta es wthhed at
the source under secton 1 3(a), reatng to nterest on ta -free covenant bonds
Sec. 29.10 -9. Computaton of Ta of Corporatons for Ta abe Years e-
gnnng efore pr 1, 195 , and ndng fter March 31, 195 . (o) enera
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1S7
29.10 - .
rue. For a ta abe year begnnng before pr 1, 195), and endng after March
31, 195 (ncudng the caendar year 195 ), the norma ta , surta , and suppe-
ment U norma ta and surta mposed by sectons 13, 15, and 21 (a)(1) upon
corporatons sha be computed under secton OSk), as added by the Revenue
ct of 1951. The ta sha he an amount equa to the sum of
(1) That porton of a tentatve ta under secton 10 (k)(), computed
under the provsons of secton 13(h) (2) and 15, or secton 1 21(a)(1),
appcabe to ta abe years begnnng on anuary 1, 1953, whch the number
f days pror to pr 1, 195 , n the ta abe year of the ta payer bears to
the tota number of days n such ta abe year, and
(2) That porton of a tentatve ta under secton 10 (k)(2), com-
puted under the provsons of sectons 13(b)(3) and 15(b), or secton
21(a)(1), appcabe to ta abe years begnnng on pr 1, 195 . whch
the number of days after Starch 31, 195 , n the ta abe year of the ta -
payer bears to the tota number of days n such ta abe year.
The tentatve norma ta es under secton 10 (k)() and (2) of a corporaton
are computed at the rates of 30 percent and 25 percent, respectvey, upon ts
norma-ta net ncome or upon ts suppement U net ncome, n the case of a
corporaton sub|ect to ta under suppement U. The tentatve surta es under
secton 10 (k) (1) and (2) of a corporaton are computed upon ts corporaton
surta -net ncome or suppement U net ncome, as the case may be, n e cess
of 25.000 at the rate of 22 percent. See. however, secton 15(c) and secton
29.15-2 as to the crcumstances under whch the 25,000 e empton from surta
may be dsaowed, n whoe or n part, n the computaton under secton
OS(k) (1) of the tentatve surta under secton 15 for a ta abe year begnnng
before uy 1, 1953.
(6) Computaton of Norma.-Ta Net Income and Corporaton Surta Net
Income n Speca Cases. (1) In genera. In computng the tentatve ta es
under secton 10S(k) (1) and (2), the amount of the net ncome and the
amount of the ad|usted net ncome of the corporaton are not recomputed and
reman unchanged. owever, the credts provded n secton 2(5 (b), (h), and
( ) may dffer n computng the severa tentatve ta es. Thus, n the case of a
Western emsphere trade corporaton, or a pubc utty corporaton whch
has pad dvdends on ts preferred stock wth respect to whch the credt for
dvdends pad provded n secton 26(h) Is aowabe, or any corporaton whch
has receved dvdends on the preferred stock of a domestc pubc utty cor-
poraton wth respect to whch the credt provded n secton 20(h) s aowabe
to the dstrbutng corporaton, the amount of the norma-ta net ncome and
the amount of the corporaton surta net ncome for the frst tentatve tar
computaton dffer from such amounts for the second tentatve ta computaton.
See (2), (3), and ( ), beow.
(2) Western emsphere trade corporatons. In the case of a Western em-
sphere trade corporaton, ts norma-ta net ncome and corporaton surta net
ncome are determned, for the purpose of the tentatve ta computaton under
secton 10 (k)(), wth the aowance of the 27 percent credt provded n
secton 260) appcabe to a ta abe year begnnng on anuary 1, 1953, and,
fur the purpose of the tentatve ta computaton under secton 10 (k) (2), wth
the aowance of the 30 percent credt provded n secton 20(1) appcabe to
a ta abe year begnnng on pr 1,195 .
(3) Pubc uttes payng dvdend on preferred stock. In the case of a
pubc utty corporaton whch has pad dvdends on Its preferred stock wt
respect to whch the credt for dvdends pad provded In secton 26(h) s
aowabe, ts norma-ta net ncome and corporaton surta net ncome are
10S(k)(), wth the aowance of the 27 percent credt provded n secton
26(h) appcabe to a ta abe year begnnng on anuary 1, 1953, and, for the
purpose of the tentatve ta computaton under secton 10 (k)(2), wth the
aowance of the 30 percent credt provded n secton 20(h) appcabe to a
ta abe year begnnng on pr 1, 195 .
( ) Corporatons recevng dvdends on preferred stock of pubc utty.
In the case of any corporaton whch has receved dvdends on the preferred
stock of a domestc pubc utty corporaton wth respect to whch the credt
provded n ecton 26(h) s aowabe to the dstrbutng corporaton, ts
norma-ta net ncome and corporaton surta net ncome are determned, for
the purpose of the tentatve ta computaton under secton 10 (k)(), wth
the aowance of the 02 percent credt provded n secton 26(b) (2) wth respect
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I 29.10 - .
13
to such dvdends receved, and, for the purpose of the tentatve ta computaton
under secton 10 (k)(2), wth the aowance of the 59 percent credt provded
n secton 20 (b)(2) wth respect to such dvdends receved.
(c) Casses of corporatons e cuded from operaton of secton 10 (k). The
provsons of secton 10 (k) do not appy to an Insurance company sub|ect to
suppement G, a reguated nvestment company sub|ect to suppement , or
a foregn corporaton not engaged n trade or busness wthn the Unted States
other than such a corporaton sub|ect to suppement U.
(d) Short ta abe years. The provsons of secton 10 (k) appy to a ta abe
year begnnng before pr 1, 195 , and endng after March 31, 195 , whether
or not such ta abe year s one of ess than 12 months. In the case of a ta -
payer whch s sub|ect to the provsons of secton 10 (k) and whch because
of a change n accountng perod has a ta abe year of ess than 12 months, the
net ncome sha be paced on an annua bass under the provsons of secton
7(c) (1) for the purpose of both tentatve ta computatons under secton 10 (k),
or sha be computed under the e cepton n secton 7(c)(2) for the purpose
of both such tentatve ta computatons. egardess of the method adopted,
the amounts of the tentatve norma ta and surta so computed upon the
bass of 12 months ncome sha be propery reduced under secton 7(c)
n order to determne the tentatve ta es under secton 10S(k). owever,
In the case of a ta payer whch s sub|ect to the provsons of secton 10S(k)
and whch because of any reason other than a change n accountng perod
has a ta abe year of ess than 12 months, the net ncome for the purpose of
secton 10 (k) sha not be paced on an annua bass under secton 7(c)(1)
and sha not be computed under the e cepton n secton 7(c) (2).
(c) ternatve ta under secton 117(c). In any case n whch a ta payer
sub|ect to the provsons of secton 10 (k) has an e cess of net ong-term
capta gans over net short-term capta osses, the aternatve ta under sec-
ton 117(c) sha be an amount equa to the sum of the proper portons of
the tentatve ta es determned under secton 10 (k), by computng each such
tentatve ta pursuant to the aternatve ta computaton provded n secton
117(c), regardess of whether ether tentatve ta so computed on the aternatve
bass s arger or smaer than the tentatve ta computed wthout regard to
secton 117(c).
of secton 10S(k), any credt aganst the ta otherwse mposed by sectons 13,
15, and 21(a)(1), such as the credt for ta es pad to a foregn country or
possesson of the Unted States under secton 131, sha be deducted from, and
any mtaton n such credt sha be based upon, the ta computed under
secton 10 (k).
(g) ampe. Ths secton may be ustrated hy the foowng e ampe:
ampe. The Corporaton, a domestc corporaton (whch s nether a
pubc utty referred to n secton 26(h) nor a Western emsphere trade cor-
poraton referred to n secton 20(), and whch s not sub|ect to ta under
suppement U), makes Its ncome ta returns on the bass of the caendar year.
For the caendar year 195 , the Corporaton has net ncome of 100,000,
whch does not ncude any Interest on Unted States obgatons or dvdends
on stock of foregn corporatons. The net ncome ncudes cash dvdends
receved from a domestc corporaton other than a pubc utty (aowabe
as a credt under secton 20(b) (1)) n the amount of , 10,000, and cash dvdends
receved from a domestc pubc utty corporaton on ts preferred stock (wth
respect to whch a credt s aowabe to the pubc utty under secton 20(h))
n the amount 5,000. The norma ta and surta of the Corporaton for
the caendar year 195 are 23,21 .12 and 13,972.S0, respectvey, computed
as foows:
() Computaton of tentatve ta es provded n secton 10 k)().
Norma Ta ano Surta
1. Net Income 100, OOt
2. Less credt under secton 26(b) (1) for dvdends
receved from domestc corporaton other than
dvdends wth respect to wch credt s aow-
abe under secton 26(h) ( 5 percent of 10,000). ,500
. Less credt under secton 20(b) (2) for dvdends
receved wth respect to whch credt s aow-
abe under secton 26(h) (02percent of 5,000) ,100 11,600
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139
29.10 - .
. Norma-ta net ncome and corporaton surta net ncome , 00. 00
5. Norma ta (30 percent of tem ) 20,520. 00
6. Surta (22 percent of 03, 00, the e cess of , 00 over
25,000) 13,9 .00
(11) Compuaton of tentatve ta es provded n secton 10 k) (2).
Norma Ta and Subta
7. Net ncome 10(1, 000 00
. Less credt under secton 26(b)(1) ( 5 percent
of 10,000) ,500.00
of 5,000) 2,950.00 11, 50.00
10. Norma-ta net ncome and corporaton surta net ncome ,550. 00
11. Norma ta (25 percent of tem 10) 22,137.50
12. Surta (22 percent of S3,5.r 0, the e cess of ,550 over
25,000) 13.9 1.00
() Computaton of norma ta and surta for caendar year 195 .
13. Number of days n ta abe year pror to pr 1,195 90
1 . Number of days n ta abe year after March 31, 195 275
15. Tota number of days n ta abe year 305
Norma Ta
16. Tentatve norma ta computed n (1) 26,520.00
17. 90/365ths of 20,520 6, 539.1
1 . Tentatve norma ta computed n () 22,137.50
19. 275/3C5ths of 22,137.59 16, 67 . 9
20. Tota norma ta 23,21 .12
Surta
21. Tentatve surta computed n () 13,9 .00
22. 90/365ths of 13,9 3, 39. 23
23. Tentatve surta computed n () 13,9 1.00
2 . 275/365ths of 13,9 1 10,533. 63
25. Tota surta 13.972. 6
Par. . There s nserted mmedatey precedng secton 0. 130-1

(b) Computaton of cess Profts Ta . Subsecton (b) of secton
30 (reatng to computaton of e cess profts ta n the ease of certan
ta abe years) s hereby amended to read as foows:
(b) Certan Ta abe Years egnnng efore 1951.
(1) Ta abe years endng before pr 1, 1951. In the case of
a ta abe year begnnng before uy 1, 1950, and endng after une
30, 1950, and before pr 1, 1951, the ta mposed by subsecton
(a) sha be an amount equa to that porton of a tentatve ta ,
computed under the provsons of subsecton (a) appcabe to ta -
abe years endng on December 31, 1950, whch the number of days
n such ta abe year after une 30, 1950, bears to the tota num-
ber of days n such ta abe year.
(2) Ta abe years endng after March 31, 1951. In the case of
a ta abe year (other than a ta abe year begnnng on anuary 1,
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5 29.10 - .
1 0
1951, and endng on December 31, 1951) begnnng before pr 1,
1951, and endng after March 31,1951, the ta mposed by subsecton
(a) sha be an amount equa to the sum of
( ) that porton of a tentatve ta , computed under the
provsons of subsecton (a) appcabe to ta abe years end-
ng on December 31, 1950, whch the number of days In such
ta abe year after une 30,1950, and before pr 1,1951, bears
to the tota number of days n such ta abe year, pus
( ) that porton of a tentatve ta , computed under the
provsons of subsecton (a) appcabe to ta abe years begn-
nng on pr 1,1951, whch the number of days n such ta abe
year after March 31, 1951, bears to the tota number of days n
such ta abe year.

Par. 5. Secton 0. 30-2 (b) 26 CFR 0. 30-2 (b) s amended to
read as foows:
(6) Ta abe years begnnng before pr 1, 1951 (other than the caendar
year 1951). (1) Ta abe years begnnng before uy 1, 1950, and endng after
une SO, 1950, and before pr 1, 1951. In the case of any ta nhe year whch
begns before uy 1, 1950, and ends after une 30, 1950, and beft.e pr 1, 1951
(ncudng the caendar year 1950), the e cess profts ta w be an amount
whch s proportonate to the part of the year fang after une 30, 1950. The
ta w be an amount equa to that porton of a tentatve ta , computed under
the provsons of secton 30(a) and (a) of ths secton appcabe to the ta abe
year, whch the number of days n the ta abe year after une 30, 1950, bears to
the tota number of days n such year. Thus, In the case of the caendar year
1950, the ta w be 1 /365ths of the tentatve ta computed under (a) (1) ()
and () and (a)(2) of ths secton. In computng the tentatve ta under
secton 30(b) (1) and ths paragraph for a ta abe year other than the caendar
year 1950, the ta whch woud be mposed under sectons 13, 1 , and 15 sha,
for purposes of secton 30(a)(2)( ) and of (a)(1)( ) of ths secton, be
determned sub|ect to the provsons of secton 10 (f) (1) and (2), reatng to
fsca year ta payers, and sub|ect to the provsons of secton 1 1(c), reatng
to consodated returns, f appcabe.
(2) Ta abe years begnnng before pr 1, 1951, and endng after March 31,
1951 (other than the caendar year 1951). In the case of any ta abe year
whch begns before pr 1, 1951, and ends after March 31, 1951 (other than
the caendar year 1951), the e cess profts ta w be an amount equa to the
sum of
(1) that porton of a tentatve ta , computed under the provsons of
secton 30(a) and (a) of ths secton appcabe to ta abe years endng
before pr 1, 1951, whch the number of days n the ta abe year after
une 30, 1950, and before pr 1, 1951, bears to the tota number of days
n such year, and
() that porton of a tentatve ta , computed under the provsons of
secton 30(a) and (a) of ths secton appcabe to ta abe years begnnng
on pr 1, 1951, whch the number of days n the ta abe year after March
31,1951, bears to the tota number of days n such year.
In computng the tentatve ta under secton 30(b) (2) ( ) and cause () of
ths paragraph, the ta whch woud be mposed under sectons 13, 1 , and 15
sha, for purposes of secton o0(a) (2) ( ) and of (a) (1) () of ths secton,
be determned sub|ect to the provsons of secton 10 (f) or (g), whchever Is
appcabe to the ta abe year, and sub|ect to the provsons of secton 1 1(c),
reatng to consodated returns, f appcabe.
sectons 62 and 3791 of the Interna Revenue Code (53 Stat, 32, 67;
26U. S. C. 62,3791).)
ons S. Geaham,
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster anuary 5,1953, : 5 a. m.)
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1 1
29.112(b)(7)- .
S CTION 109. W ST RN MISP R TR D
CORPOR TIONS
Secton 29.109-1: Western emsphere trade Rev. Ru. 15
corporatons.
INT RN L R NU COD
Where a subsdary company s organzed for the purpose of se-
curng the benefts derved from quafcaton as a Western em-
sphere trade corporaton under secton 109 of the Interna Revenue
Code, a transactons between the parent company and the sub-
sdary shoud be on an arm s ength bass, snce secton 5 of the
Code (pertanng to aocaton of ncome and deductons) may be
apped n such cases where necessary to prevent evason of ta es
or ceary to refect the ncome of ether o the separate companes.
In determnng whether the transactons n a partcuar case are
at arm s ength, consderaton w be gven to a the facts and
crcumstances nvoved.
SUPPL M NT . COMPUT TION OF N T INCOM
S CTION 112(a). R COGNITION OF G IN OR
LOSS: G N R L RUL
Secton 29.112(a)-: Saes or e changes.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 5990, page 1 2.)
Secton 29.112 (a) -1: Saes or e changes.
INT RN L R NU COD
Presentment of certan apanese prewar doar bonds to the apa-
nese Government for the purpose of overprntng an e tended matu-
rty date thereon. (See Rev. Ru. 5 , page 20 .)
S CTION 112(b). R COGNITION OF G IN OR LOSS:
C NG S SOL LY IN IND
Secton 29.112(b) (7)-: Corporate qudatons
n caendar month n 19 ,1951, or 1952.
INT RN L R NU COD
Treatment of bass of mortgaged property receved n compete
qudaton. (See Rev. Ru. 95, page 162.)
26335 53 10
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29.112(b)()-.
1 2
Secton 29.112(b) (11)-1: Certan dstrbutons T. D. 5990
of stock on reorganzaton.
( so Secton 29.112(b) ()-2; Secton 112(a),
Secton 29.112(a)-; Secton 112(g), Sectons
29.112(g)-, 29.112(g)-2, 29.112(g)-5; Sec-
ton 113(a), Sectons 29.113(a)-2, 29.113(a)-
(23)-.)
ct of 1051, reatng to certan dstrbutons of stock on reorganza-
ton.
Washngton 25, D. C.
Concerned:
On November 22,1952, notce of proposed rue makng wth respect
to reguatons under sectons 112(b) (11) and 113(a) (23) of the
Interna Revenue Code, as added by secton 317 of the Revenue ct
of 1951, approved October 20, 1951, reatng to certan dstrbutons
of stock on reorganzaton, was pubshed n the Federa Regster
(17 F. R. 106 7). fter consderaton of a reevant matter pre-
sented by nterested persons regardng the rues proposed, the amend-
ments to Reguatons 111 2G CFR, part 29 , set forth beow are hereby
adopted.
Paragraph 1. Secton 29.112 (a)-1, as amended by Treasury De-
cson 5 02 C. . 19 , 229 , approved September 5, 19 (26 CFR
29.112(a)- , s further amended by addng at the end thereof the
foowng:
See secton 112(b) (11), wth respect to nonrecognton of gan upon the dstr-
buton of stock (other than preferred) n a corporaton a party to a reorganza-
ton under certan crcumstances wthout the surrender of stock.
Par. 2. There s nserted mmedatey foowng secton
29.112(b) (10)-2 2G CFR 29.112(b) (10)-2 the foowng:
S C. 31T. C RT IN DISTRI UTIONS OF STOC ON R ORG NI-
Z TION R NU CT OF 1051, PPRO D OCTO R 20,
1051 .
(a) Dstrbutons Not n Lqudaton. Secton 112(b) (reatng to
nonrecognton of gan or oss n the case of certan e changes) s hereby
amended by addng at the end thereof the foowng new paragraph:
(11) Dstrbuton of stock not n qudaton. If there s
dstrbuted, n pursuance of a pan of reorganzaton, to a share-
hoder of a corporaton whch s a party to the reorganzaton, stock
(other than preferred stock) n another corporaton whch s a party
to the reorganzaton, wthout the surrender by such sharehoder of
stock, no gan to the dstrbutee from the recept of such stock sha
be recognzed uness t appears that ( ) any corporaton whch s
a party to such reorganzaton was not ntended to contnue the
actve conduct of a trade or busness after such reorganzaton, or
( ) the corporaton whose stock s dstrbuted was used prnc-
pay as a devce for the dstrbuton of earnngs and profts to the
sharehoders of any corporaton a party to the reorganzaton.

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1 3
29.112(b) ()-.
appcabe wth respect to ta abe years endng after the date of the
enactment of ths ct, but sha appy ony wth respect to dstrbutons
of stock made after such date.
Sec. 2tt.2(b) ()-. Certan Dstrbutons of Stock on Reorganzaton.
If there s dstrbuted after October 20, 1951, n pursuance of a pan of re-
organzaton, to a sharehoder of a corporaton whch s a party to ths
reorganzaton, stock (other than preferred stock) n another corporaton whch
s a party to the reorganzaton, wthout the surrender by such sharehoder of
stock, no gan to such sharehoder from the recept of such stock sha be
recognzed, uness t appears that
(1) any corporaton whch Is a party to such reorganzaton was not
ntended to contnue the actve conduct of a trade or busness after such
reorganzaton, or
(2) the corporaton whose stock s dstrbuted was used prncpay as a
devce for the dstrbuton of earnngs and prots to the sharehoders of
any corporaton a party to the reorganzaton.
For secton 112(b) (11) to be appcabe, there must be a reorganzaton as
defned n secton 112(g) (1) and a dstrbuton to sharehoders n pursuance
of the pan of reorganzaton. ccordngy, for the purpose of secton
112(b) (11), there must be compance wth the rues prescrbed n sectons
29.1I2(a)-, 29.112(g)- , and 29.112(g)-2, reatng to reorganzatons and to
e changes and dstrbutons. The dstrbutons under secton 112(b) (11) must
be of stock n a corporaton whch s a party to the reorganzaton, whch stock
was receved n the reorganzaton.
Secton 112(b) (11) nvoves cases n whch one corporaton, n a reorganza-
ton as defned n secton 112(g) (1) (D), transfers a part of ts assets to another
corporaton n e change for stock, and, In pursuance of the pan of reorganza-
ton, dstrbutes or causes to be dstrbuted on ts behaf to ts sharehoders,
wthout the surrender by them of stock n the transferor corporaton, stock (other
than preferred stock) receved n the reorganzaton. For mtatons specay
appcabe under secton 112(b) (11), see secton 29.112(b) ()-2. The ds-
trbuton of preferred stock or other property receved n the reorganzaton,
or of other property of the transferor corporaton, s not wthn the provsons
of secton 112(b) (11).
.Sec. 29.112(b) (11)-2. Lmtatons UroN the ppcaton of Secton
112(b) (11). The benefts of secton 112(b) (11) are mted to a reorganza-
ton n whch a of the corporatons, partes to the reorganzaton, are ntended
to contnue the actve conduct of a trade or busness after the reorganzaton,
and n whch the corporaton whose stock s dstrbuted s not used prncpay
as a devce for the dstrbuton of earnngs and profts to sharehoders of any
corporaton a party to the reorganzaton. The underyng assumpton of
secton 112(b) (11) and of the rues appcabe to reorganzatons s that the
reorganzaton and dstrbuton of stock must resut n a contnuaton of the
od busness aetvtfes and n a contnuaton of the Interests of the sharehoders
theren.
corporaton sha be consdered for the purpose of secton 112(b) (11) to be
engaged n the actve conduct of a trade or busness after the reorganzaton
ony f t drecty conducts such busness or ndrecty conducts the busness
through ownershp of stock n another corporaton actvey conductng the
busness, whch other corporaton s a subsdary (whether or not ma|orty-
owned ) of the corporaton, a party to the reorganzaton. For the purpose of the
precedng sentence, a corporaton s consdered a. subsdary of another cor-
poraton f a ma|orty of ts votng stock s owned by the other corporaton or
f a part of ts stock (whether or not a ma|orty of ts votng stock) s owned
by the other corporaton under such crcumstances that the poces of the frst
corporaton are drected by the second corporaton. The assets, f any, of a
corporaton used drecty n the conduct of a busness and stock, f any, hed
by a corporaton n a subsdary actvey conductng a busness must consttute
a substanta part of a of the assets of the corporaton.
Ordnary, the busness reasons (as dstngushed from any desre to make a
dstrbuton of earnngs and profts to the sharehoders) whch support the re-
organzaton and the dstrbuton of the stock w requre the dstrbuton of a
of the stock receved by the transferor corporaton n the reorganzaton.
ampe 1. Corporaton owns and operates severa mnes and n addton
owns 5 percent of the stock of Corporaton , 0 percent of the stock of
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29.112(b) (1
1
Corporaton Y, and 35 percent of the stock of Corporaton Z. Corporaton
s the argest snge sharehoder n each of these corporatons, and drects
ther poces n such manner that these corporatons are operated as sub-
sdares of Corporaton . Corporatons , Y, and Z are each drecty engaged
n the actve conduct of a trade or busness. Corporaton transfers a ts
stock n Corporatons , Y, and Z to newy organzed Corporaton n e change
for a of Corporaton s stock, whch stock s dstrbuted pro rata among the
sharehoders of Corporaton . Corporaton then drects the poces of
these corporatons n such manner that they are operated as subsdares of
Corporaton . There are no other reevant facts. The dstrbuton of the
stock (other than preferred stock) n Corporaton to the sharehoders of
Corporaton s wthn the terms of secton 112(b) (11).
ampe 2. Corporaton C owns and operates a department store. It decdes
to provde parkng factes for the customers of the store. In order to provde
such factes, Corporaton C enters nto a contract to purchase and ad|acent
to ts premses. The purchase prce of the and s 100,000 and t s estmated
that the cost of deveopng the parkng ot w be 50,000. In order to separate
the operatons of the parkng ot from those of the department store, Corporaton
C transfers to a newy formed Corporaton D 90,000 n cash and 90,000 n
bonds, together wth the contract for the purchase of the and, n e change
for a the stock of Corporaton D, whch stock s dstrbuted pro rata among
the sharehoders of Corporaton C. The purchase of the and s competed on
the date t ed n the contract, and the parkng factes are deveoped and
operated by Corporaton D. There are no other reevant facts. The transfer
of the cash, bonds, and contract to Corporaton D n e change for ts stock
s a reorganzaton under secton 112(g)(1) and the dstrbuton of stock
(other than preferred stock) n Corporaton D to the sharehoders of Corpora-
ton C s wthn the terms of secton 112(b) (11).
ampe S. Corporaton s engaged n a manufacturng busness. The
assets of Corporaton ncude 300,000 n cash and 600,000 n bonds n
addton to 50,000 n other assets used n the manufacturng busness. Corpora-
ton forms a new corporaton, F, to whch Corporaton transfers 200,000
n cash and the 000,000 n bonds n e change for a the stock of Corporaton
F, whch stock s dstrbuted among the sharehoders o Corporaton pro rata.
t the tme of the transacton there s no cear and defnte pan for the
acquston by Corporaton F of specfc busness assets. There are no other
reevant facts. The transfer of cash and bonds to Corporaton F s not a
reorganzaton under secton 112(g) (1) of the Code; therefore, the dstrbuton
of the stock of Corporaton F s ta abe as a dvdend to the e tent provded
n secton 115(a).
Par. 3. Secton 29.112(g)-, as amended by Treasury Decson
5 02 26 CFR 29.112(g)- , s further amended by nsertng m-
medatey precedng the ast sentence of the thrd paragraph thereof
the foowng:
The nonrecognton of gan or oss s aso prescrbed wth respect to the
dstrbuton occurrng after October 20,1951, n pursuance of a pan of reorganza-
ton, to a sharehoder of a corporaton whch s a party to the reorganzaton,
of stock (other than preferred stock) n another corporaton whch s a party
to the reorganzaton, where such sharehoder does not surrender any stock.
(See secton 112(b) (11) and the reguatons thereunder.)
Par. . Sec. 29.112(g)-2 26 CFR 29.112(g)-2 s amended by
strkng from the second paragraph from the end (whch paragraph
begns wth the words The term pan of reorganzaton ) the word
e changes wherever t appears and nsertng n each nstance n eu
thereof the words e changes or dstrbutons .
Par. 5. Secton 29.112(g)-5 26 CFR 29.112(g)-5 s amended by
See secton 29.112(b) ()- wth respect to the dstrbuton occurrng after Oc-
tober 20, 1951, to a sharehoder, n pursuance of a pan of reorganzaton of stock
(other than preferred stock) n another corporaton whch s a party to the reor-
ganzaton, wthout the surrender by such sharehoder of stock.
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1 5
29.112(b)()-.
Pah. 6. Secton 29.113(a)-2, as amended by Treasury Decson 5 02
26 CFR 29.113(a)-2 , s further amended by strkng from the second
sentence thereof the e presson 113(a) (22) and by nsertng n eu
thereof the e presson 113(a) (23)
Pah. 7. There s nserted mmedatey after secton 29.113(a) (22)-
26 CFR 29.113(a) (22)- the foowng:
S C. 317. C RT IN DISTRI UTIONS OF STOC ON R ORG NI-
Z TION R NU CT OF 1051, PPRO D OCTO R 20,
1951 .

(b) ass of Stock. Secton 113(a) (reatng to unad|usted bass
for determnng gan or oss) s hereby amended by addng at the end
thereof the foowng new paragraph:
(23) Ta -free dstrbutons. If the property conssts of stock
dstrbuted after the date of the enactment of the Revenue ct of
1951 to a ta payer n connecton wth a transacton descrbed In
secton 112(b) (11) (herenafter n ths paragraph caed new
stock ), or conssts of stock n respect of whch such dstrbuton
was made (herenafter n ths paragraph caed od stock ), then the
bass of the new stock and of the od stock, respectvey, sha, In the
sharehoder s hands, be determned by aocatng between the od
stock and the new stock the ad|usted bass of the od stock; such
aocaton to be made under reguatons prescrbed by the Secre-
tary.
appcabe wth respect to ta abe years endng after the date of the
enactment of ths ct, but sha appy ony wth respect to dstrbutons
of stock made after such date.
Sec. 29.113(a) (23)-. ass of Stock on Certan Dstrbutons on Reorgan-
zaton. The dstrbuton, n pursuance of a pan of reorganzaton, to a share-
hoder of a corporaton (a party to the reorganzaton) of stock In another cor-
poraton (aso a party to the reorganzaton) may be wthn the provsons of
secton 112(g) of the Revenue ct of 1932, or the correspondng provsons of
pror revenue aws, f made before anuary 1,193 , or may be wthn the prov-
sons of secton 112(b) (11) If made after October 20,1951, and f the dstrbuton
conssts of stock other than preferred stock. Secton 112(g) of the Revenue ct
of 1932 and secton 112(b) (11) provde that no gan sha be recognzed to the
sharehoder n the case of such dstrbuton. The bass of the stock n respect
of whch the dstrbuton was made and of the stock dstrbuted to the sharehoder
s ascertaned n accordance wth the prncpes set forth n secton
29.113(a) (12)-1 n the case of such a dstrbuton made before anuary 1, 193 .
The same prncpes of secton 29.113(a) (12)-1 sha appy to the determnaton
of the bass of such stock n the case of a dstrbuton after October 20, 1951, to
whch secton 112(b) (11) s appcabe.
Par. . Secton 29.115-11 as amended by Treasury Decson 5 02
26 CFR 29.115-11 , s further amended by strkng subparagraph (1)
of the thrd undesgnated paragraph thereof 26 CFR
29.115-(c) (1) and nsertng n eu thereof the foowng:
(1) The dstrbuton, n pursuance of a pan of reorganzaton, by or on
behaf of a corporaton a party to the reorganzaton, to ts sharehoders
( ) of stock or securtes n such corporaton or In another corpo-
raton a party to the reorganzaton In any ta abe year begnnng be-
fore anuary 1, 193 , wthout the surrender by the dstrbutees of stock
or securtes n such corporaton (see secton 112(g) of the Revenue ct
of 1932) ; or
( ) of stock (other than preferred stock) In another corporaton
whch s a party to the reorganzaton wthout the surrender by the
dstrbutees of stock n the dstrbutng corporaton If the dstrbuton
occurs after October 20, 1951 (see secton 112(b) (11)); or
(C) of stock or securtes n such corporaton or n another corpora-
ton a party to the reorganzaton n any ta abe year (begnnng
before anuary 1, 1939, or on or after such date) n e change for ts
stock or securtes (see secton 112(b) (3))
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29.112(0-1. 1 6
f no gan to the dstrbutees from the recept of such stock or securtes was
recognzed by aw.
26 U. S. C. 62, 3791).)
T. Coeman ndrews,
bert P. Tutte,
(Ped wth the Dvson of the Federa Regster Februa-y 10, 10. . , : 52 a. m.)
S CTION 112(f). R COGNITION OF G IN OR LOSS:
IN OLUNT RY CON RSION
Secton 29.112(f )-: Invountary converson T. D. 5991
where dsposton of the converted property
occurred pror to anuary 1,1951.
( so Sectons 29.112(f)-2, 29.112(f)-3; Sec-
ton 112(n), Secton 29.112(n)-; Secton
113(a), Secton 29.113(a) (9)-; Secton
113(b), Secton 29.113(b) (1)-1; Secton
117, Secton 29.117-1; Secton 275, Secton
29.275-1.)
TITL 26 INT RN L R NU C PT R I, SU C PT R . P RT 29.
ct of 1951, to Pubc Law 251 ( 2d Cong.) C. . 1051-2,353 , and to
Pubc Law 567 ( 2d Cong.) C. . 1952-2, 300 .
Washngton 25, D. C.
Concerned:
amendments to the ncome ta reguatons made necessary by secton
31 of the Revenue ct of 1951, approved October 20, 1951, by Pubc
Law 251 ( 2d Cong.) C. . 1951-2, 353 approved October 31, 1951,
and by Pubc Law 567 ( 2d Cong.) C. . 1952-2, 360 , approved
uy 16,1952, was pubshed n the Federa Regster (17 F. R. 11657).
fter consderaton of a such reevant matter as was presented by
nterested persons regardng the rues proposed the amendments set
forth beow are hereby adopted. Such amendments are necessary n
order to conform Reguatons 111 26 CFR, part 29 to secton 31
of the Revenue ct of 1951, to Pubc Law 251 ( 2d Cong.), and to
Pubc Law 567 ( 2d Cong.).
29.112(f)-1 26 CFR 29.112(f)- the foowng:
S C. 31 . G IN FROM R L OR C NG OF T P Y R S
R SID NC R NU CT OF 1051, PPRO D OCTO R
20, 1051 .
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1 7
29.112(f)-.
(1) Secton 112(f) (reatng to nvountary conversons) s here-
by amended by addng at the end thereof the foowng: Ths sub-
secton sha not appy, n the case of property used by the ta -
payer as hs prncpa resdence, f the destructon, theft, sezure,
requston, or condemnaton of the resdence, or the sae or e -
change of suc resdence under threat or mmnence thereof, oc-
curred after December 31, 1050.

PU LIC L W 251, IG TY-S COND CONGR SS PP O D
OCTO R 1, 1051
e t enacted by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed. That (a) secton 112(f) of the
Interna Revenue Code (reatng to nvountary conversons) s hereby
amended to read as foows:
(f) Invountary Converson. If property (as a resut of ts de-
structon n whoe or n part, theft, sezure, or requston or condemna-
ton or threat or mmnence thereof) s compusory or nvountary
converted
(1) Converson nto smar property. Into property smar
or reated n servce or use to the property so converted, no gan
sha be recognzed.
(2) Converson nto money where dsposton occurred pror
to 5. Into money, and the dsposton of the converted property
occurred before anuary 1, 1951, no gan sha be recognzed f such
money s forthwth n good fath, under reguatons prescrbed by
te 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. If any part of the
money s not so e pended, the gan sha be recognzed to the e tent
of the money whch s not so e pended (regardess of whether such
money s receved In one or more ta abe years and regardess of
whether or not the money whch s not so e pended consttutes gan).
For the purposes of ths paragraph and paragraph (3), the terra
dsposton of the converted property means the destructon, theft,
sezure, requston, or condemnaton of the converted property, or
the sae or e change of such property under threat or mmnence
of requston or condemnaton.
(3) Converson nto money where dsposton occurred after
1 50. Into money or nto property not smar or reated n servce
or use to the converted property, and the dsposton of the converted
property (as defned n paragraph (2)) occurred after December 31,
1950, the gan (f any) sha be recognzed e cept to the e tent
herenafter provded n ths paragraph:
( ) Nonrecognton of Gan. If the ta payer durng the
perod specfed n subparagraph ( ), for the purpose of re-
pacng the property so converted, purchases other property
smar or reated n servce or use to the property so con-
verted, or purchases stock n the acquston of contro of a
corporaton ownng such other property, at the eecton of the
ta payer the gan sha be recognzed ony to the e tent that
the amount reazed upon such converson (regardess of
whether such amount s receved n one or more ta abe years)
e ceeds the cost of such other property or such stock. Such
eecton sha be made at such tme and In such manner as the
Secretary may by reguatons prescrbe. For the purposes
of ths paragraph
() no property or stock acqured before the dspos-
ton of the converted property sha be consdered to have
been acqured for the purpose of repacng such converted
property uness hed by the ta payer on the date of such
dsposton; and
() The ta payer sha be consdered to have pur-
chased property or stock ony f, but for the provsons
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5 29.112(f)- .
1
of secton 113(a) (0). the unad|usted bass of such property
or stock woud be ts cost wthn the meanng of secton
113(a).
( ) Perod Wthn Whch Property Must P.e Repaced.
The perod referred to n subparagraph ( ) sha be the perod
begnnng wth the date of the dsposton of the converted
property, or the earest date of the threat or mmnence of
requston or condemnaton of the converted property, whch-
ever s the earer, and endng
() one year after the cose of the frst ta abe year
n whch any part of the gan upon the converson s
reazed, or
() sub|ect to such terms and condtons as may be
specfed by the Secretary, at the cose of such ater date
as the Secretary may desgnate upon appcaton by the
ta payer. Such appcaton sha be made at such tme
and n such manner as the Secretary may by reguatons
prescrbe.
(C) Tme for ssessment of Defcency ttrbutabe to Gan
Upon Converson. If a ta payer has made the eecton pro-
vded n subparagraph ( ), then (1) the statutory perod for
the assessment of any defcency, for any ta abe year n whch
any part of the gan upon such converson s reazed, attrbut-
abe to such gan sha not e pre pror to the e praton of three
years from the date the Secretary s notfed by the ta payer
(n such manner as the Secretary may by reguatons prescrbe)
of the repacement of the converted propery or of an nten-
ton not to repace, and () such defcency may be assessed
pror to the e praton of such three-year perod notwthstand-
ng the provsons of secton 272(f) or the provsons of any
other aw or rue of aw whch woud otherwse prevent such
assessment.
(D) Tme for ssessment of Other Defcences ttrbut-
abe to ecton. If the eecton provded n subparagraph
( ) s made by the ta payer and such other property or such
stock was purchased pror to the begnnng of the ast ta abe
year n whch any part of the gan upon such converson s
reazed, any defcency, to the e tent resutng from such eec-
ton, for any ta abe year endng before such ast ta abe year
may be assessed (notwthstandng the provsons of secton
272(f) or 275 or the provsons of any other aw or rue of aw
whch woud otherwse prevent such assessment) at any tme
before the e praton of the perod wthn whch a defcency
for such ast ta abe year may be assessed.
Ths subsecton sha not appy, n the case of property used by
the ta payer as hs prncpa resdence, f the destructon, theft,
sezure, requston, or condemnaton of resdence, or the sae or
e change of such resdence under threat or mmnence thereof,
occurred after December 31, 1950.

Sec. 3. The amendments made by the frst two sectons of ths ct
sha be appcabe ony wth respect to ta abe years endng after De-
cember 31, 1050, e cept that the provsons of secton 112(f)(3), and
the provsons of secton 113(a) (0), of the Interna Revenue Code as
amended by ths ct sha aso be appcabe to any ta abe year endng
pror to anuary 1, 1951, n whch (a) any gan was reazed upon the
converson of property and the dsposton of such-converted property
occurred (wthn the meanng of such secton 112(f) (3)) after Decem-
ber 31, 1950, or (b) the bass of property s affected by an eecton made
under the provsons of secton 112(f)(3) of such Code.

Par. 2. Secton 29.112(f)- 26 CFR 29.112(f)- s hereby
amended as foows:
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29.112(f)- .
( ) y changng the headng thereof to read as foows: Invo-
untary Converson Where Dsposton of the Converted Property
Occurred Pror to anuary 1,1951.
( ) y nsertng mmedatey precedng the frst paragraph
thereof the foowng:
Ths secton appes ony wth respect to Invountary conversons where the ds-
poston of the converted property occurred pror to anuary 1, 1951. The term
dsposton of the converted property means the destructon, theft, sezure,
requston, or condemnaton of the converted property, or the sae or e change
of such property under threat or mmnence of requston or condemnaton.
See secton 29.112(f)-3 f the dsposton of the converted property occurred
after December 31, 1950.
Par. 3. Secton 29.112(f)-2 26 CFR 29.112(f)-2 s hereby
amended as foows:
( ) y changng the headng thereof to read as foows: Re-
pacement Funds Where Dsposton of the Converted Property
Occurred Pror to anuary 1,1951.
( ) y nsertng mmedatey precedng the frst paragraph
thereof the foowng:
Ths secton appes ony wth respect to nvountary conversons where the ds-
poston of the converted property (as defned n secton 29.112(f)-) occurred
pror to anuary 1, 1951. See secton 29.112(f)-3 f the dsposton of the
converted property occurred after December 31,1950.
Par. . There s nserted mmedatey after secton 29.112(f)-2
26 CFR 29.112(f)-2 the foowng:
Sec. 29.112(f)-3. Invountary Converson Where Dsposton of the Con-
verted Property Occurred fter December 31, 1950. ( ) In genera. Ths
secton appes ony wth respect to nvountary conversons where the dspos-
ton of the converted property (as defned n secton 29.112(f)-) occurred after
December 31, 1050. See secton 29.112(f)- and -2 f the dsposton of the
converted property occurred pror to anuary 1, 1951. Ths secton aso appes
ony wth res ect to gans; osses from nvountary conversons are recognzed or
not recognzed wthout regard to ths secton. Ths secton sha not appy n the
case of an nvountary converson of property used by the ta payer as hs prn-
cpa resdence; see secton 29.112(n)-. In the case of property used by the
ta payer partay as a prncpa resdence and partay for other purposes,
proper aocaton sha be made and ths secton sha appy ony wth respect to
the nvountary converson of the porton used for other purposes.
(b) Converson nto smar property. If property (as a resut of ts destruc-
ton n whoe or n part, theft, sezure, or requston or condemnaton or threat
or mmnence thereof) s compusory or nvountary converted ony nto
property smar or reated n servce or use to the property so converted, no
gan sha be recognzed. Such nonrecognton of gan s mandatory. If the
converson s, n whoe or n part, nto money or property not smar or reated
n servc e or use to the property so converted, see (c) beow.
(c) Converson nto money or nto dssmar propery. If property (as a
resut of ts destructon n whoe or n part, theft, sezure, or requston or
condemnaton or threat or mmnence thereof) s compusory or nvountary
converted nto money or nto property not smar or reated n servce or use
to the converted property, the gan, f any, sha be recognzed, at the eecton of
the ta payer, ony to the e tent that the amount reazed upon such converson
e ceeds the cost of other property purchased by the ta payer whch s smar
or reated n servce or use to the property so converted, or the cost of stock
of a corporaton ownng such other property whch s purchased by the ta payer
n the acquston of contro of such corporaton, f the ta payer purchased
such other property, or such stock, for the purpose of repacng the property so
converted and durng the perod specfed beow.
of the detas n connecton wth an nvountary converson of property at
a gan (ncudng those reatng to the repacement of the converted property,
r a decson not to repace, or the e praton of the perod for repacement)
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S 29.112(0-1.
150
sha be reported In the return for the ta aMe year or years n whch any of
such gan s reazed. n eecton to have such gan recognzed ony to the
e tent provded n the precedng paragraph sha be made by ncudng such
gan n gross ncome for such year or years ony to such e tent If, at the
tme of fng such a return, the perod wthn whch the converted property
must be repaced has e pred, or f such an eecton s not desred, the gan
shoud be ncuded n gross ncome for such year or years n the reguar manner.
faure to so ncude such gan n gross ncome n the reguar manner sha be
deemed to be an eecton by the ta payer to have such gan recognzed ony to the
e tent provded n the precedng paragraph even though the detas n connec-
ton wth the converson are not reported n such return. If, after havng mnde
an eecton under secton 112(f)(3), the converted property s not repaced
wthn the requred perod of tme, or repacement s made at a cost ower than
was antcpated at the tme of the eecton, or a decson s made not to repace,
the ta abty for the year or years for whch the eecton was made sha
be recomputed. Such recomputaton shoud be n the form of an amended
return . If a decson s made to make an eecton under secton 112(f)(3)
after the fng of the return and the payment of the ta for the year or yenrs
In whch any of the gan on an nvountary converson s reazed and before
the e praton of the perod wthn whch the converted property must be
repaced, a cam for credt or refund for such year or years shoud be fed.
If the repacement of the converted property occurs n a year or years n whch
none of the gan on the converson s reazed, a of the detas n connecton
wth such repacement sha be reported n the return for such year or years.
The perod referred to above s the perod of tme commencng wth the date
of the dsposton of the converted property, or the date of the begnnng of the
threat or mmnence of requston or condemnaton of the converted property,
whchever s earer, and endng 1 year after the cose of the frst ta abe year
n whch any part of the gan upon the converson s reazed, or at the cose of
such ater date as may be desgnated pursuant to an appcaton of the ta payer.
Such appcaton sha be made pror to the e praton of the 1 year after the
cose of the frst ta abe year n whch any part of the gan upon the converson
s reazed. Such appcaton sha be made to the Commssoner, or to such
person as he may desgnate, and sha contan a of the detas n connecton
wth the nvountary converson. No e tenson of tme sha be granted pur-
suant to such an appcaton uness the ta payer e ecutes a bond, wth such
surety as the Commssoner may requre, n an amount not n e cess of twce
the estmated addtona ncome ta es (ncudng nterest, penates, and add-
tons to the ta ) whch woud be payabe f an eecton were not made under
ths secton, and condtoned upon the repacement of the converted property
wthn the e tended perod of tme (ncudng any subsequent e tensons granted
by the Commssoner or such person as he may desgnate), or the payment of
the addtona ta attrbutabe to the gan on the converson (ncudng nterest,
penates, and addtons to the ta ). Ony surety companes hodng certfcates
of authorty from the Secretary of the Treasury as acceptabe suretes on Federa
bonds w be approved as suretes. See secton 29.112(f)-2 wth respect to the
depostng of bonds or notes of the Unted States n eu of suretes.
Property or stock purchased before the dsposton of the converted property
sha he consdered to have been purchased for the purpose of repacng the con-
verted property ony f such property or stock s hed by the ta payer on the
date of the dsposton of the converted property. Property or stock sha be
consdered to have been purchased ony f, but for the provsons of secton
113(a)(9), the unad|usted bass of such property or stock woud be ts cost
to the ta payer wthn the meanng of secton 113(a). If the ta payer s unad-
|usted bass of the repacement property woud be determned, n the absence
of secton 113(a)(9), under any of the other numbered paragraphs of secton
113(a), the unad|usted bass of the property woud not be ts cost wthn the
meanng of secton 113(a). For e ampe, f property smar or reated n
servce or use to the converted property s acqured by gft and ts bass s deter-
mned under secton 113(a) (2), such property w not quafy as a repacement
for the converted property.
If a ta payer makes an eecton under secton 112(f) (3), any defcency, for
any ta abe year n whch any part of the gan upon the converson s reazed,
whch s attrbutabe to such gan may be assessed at any tme pror to the
e praton of 3 yenrs from the date the offcer wth whom the return for such
year has been fed s notfed by the ta payer of the repacement of the con-
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151
29 112(0-1.
verted property or of an ntenton not to repace, or of a faure to repace,
wthn the requred perod, notwthstandng the provsons of secton 272(f)
or the provsons of any other aw or rue of aw whch woud otherwse prevent
such assessment If repacement has been made, such notfcaton sha contan
a of the detas n connecton wth such repacement. Such notfcaton shoud
be made n the return for the ta abe year or years n whch the repacement oc-
curs, or the ntenton not to repace s formed, or the perod for repacement
e pres, f ths return s fed wth such offcer. If ths return s not fed wth
such offcer, then such notfcaton sha be made to such offcer at the tme of
fng ths return. If the ta payer so desres, he may, n ether event, aso notfy
such offcer pror to the fng of such return.
If a ta payer makes an eecton under secton 112(f) (3) and the repacement
property or stock was purchased pror to the begnnng of the ast ta abe year
n whch any part of the gan upon the converson s reazed, any defcency, for
any ta abe year endng before such ast ta abe year, whch s attrbutabe to
such eecton may be assessed at any tme pror to the e praton of the perod
wthn whch a defcency for such ast ta abe year may bo assessed, notwth-
standng the provsons of secton 272(f) or 275 or the provsons of any aw
or rue of aw whch woud otherwse prevent such assessment.
If the ta payer makes an eecton under secton 112(f)(3), the gan upon
the converson sha be recognzed to the e tent that the amount reazed upon
such converson e ceeds the cost of the repacement property or stock, regardess
of whether such amount s reazed n one or more ta abe years.
See secton 29.112(f)- as to when property s smar or reated n servce or
nse to other property, and as to the treatment of proceeds of a use and occupancy
nsurance contract and of speca assessments.
Par. 5. There s nserted mmedatey after secton 29.112(m)- ,
as added bv Treasury Decson 537 C. . 191 , 213 , approved May
25,19 26 CFR 29.112(m)- , the foowng:
S C. 31 . G IN FROM S L OR C NG OF T P Y R S
20, 1951 .
(a) Non recognton of Gan n Certan Cases. Secton 112 (reatng
to recognton of gan or oss) s hereby amended by addng at the end
thereof the foowng new subsecton:
(n) Gan From Sae or change of Resdence.
(1) Nonrecognton of gan. If property (herenafter n ths
subsecton caed od resdence ) used by the ta payer as hs prn-
cpa resdence s sod by hm and, wthn a perod begnnng one
year pror to the date of such sae and endng one year after such
date, property (herenafter n ths subsecton caed new resdence )
s purchased and used by the ta payer as hs prncpa resdence,
gan (f any) from such sae sha be recognzed ony to the e tent
that the ta payer s seng prce of the od resdence e ceeds the
ta payer s cost of purchasng the new resdence.
(2) Rues for appcaton of subsecton. For the purposes
of ths subsecton :
( ) n e change by the ta payer of hs resdence for other
property sha be consdered as a sae of such resdence, and
the acquston of a resdence upon the e change of property
sha be consdered as a purchase of such resdence.
( ) If the ta payer s resdence (as a resut of ts destruc-
ton n whoe or n part, theft, or sezure) s compusory or
Invountary converted nto property or nto money, such de-
structon, theft, or sezure sha be consdered as a sae of the
resdence; and f the resdence s so converted nto property
whch s used by the ta payer as hs resdence, such converson
sha be consdered as a purchase of such property by the ta -
payer.
(C) In the case of an e change or converson descrbed n
subparagraph ( ) or ( ), n determnng the e tent to whch
the seng prce of the od resdence e ceeds the ta payer s cost
of purchasng the new resdence, the amount reazed by the

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29.112(f)- .
152
ta pnyer upon such e change or converson sha be consdered
the seng prce of the od resdence.
(D) resdence any part of whch was constructed or re-
constructed by the ta payer sha be consdered as purchased
by the ta payer. In determnng the ta payer s cost of purchas-
ng a resdence, there sha be ncuded ony so much of hs
cost as s attrbutabe to the acquston, constructon, recon-
structon, and mprovements made whch are propery charge-
abe to capta account, durng the perod specfed n paragraph
(D-
( ) If a resdence s purchased by the ta payer pror to
the date of hs sae of the od resdence, the purchased res-
dence sha nut he treated as hs new resdence f sod or other-
wse dsposed of by hm pror to the date of the sae of the
od resdence.
(F) If the ta payer, durng the perod descrbed n para-
graph (1) purchases more than one resdence whch s used
by hm as hs prncpa resdence at some tme wthn one year
after the date of the sae of the od resdence, ony the ast
of such resdences so used by hm after the date of such sae
sha consttute the new resdence. If wthn the one year
referred to n the precedng sentence property used by the ta -
payer as hs prncpa resdence s destroyed, stoen, sezed,
requstoned, or condemned, or s sod or e changed under
threat or mmnence thereof, then for the purposes of the pre-
cedng sentence such one year sha be consdered as endng
wth the date of such destructon, theft, sezure, requston,
condemnaton, sae, or e change.
(G) In the case of a new resdence the constructon of whch
was commenced by the ta payer pror to the e praton of one
year after the date of the sae of the od resdence, the perod
specfed n paragraph (1), and the one year referred to n
subparagraph (F) of ths paragraph, sha be consdered as
ncudng a perod of IS months begnnng wth the date of
the sae of the od resdence.
(3) Lmtaton. The provsons of paragraph (1) sha not be
appcabe wth respect to the sae of the ta payer s resdence f
wthn one year pror to the date of such sae the ta payer sod at
a gan other property used by hm as hs prncpa resdence, and
any part of such gan was not recognzed by reason of the provsons
of paragraph (1). For the purposes of ths paragraph, the destruc-
ton, theft, sezure, requston, or condemnaton of property or
the sae or e change of property under threat or mmnence thereof,
sha not be consdered as a sae of such property.
( ) ass of new resdence. Where the purchase of a new
resdence resuts, under paragraph (1), n the nonrecognton of
gan upon the sae of an od resdence, n determnng the ad|usted
bass of the new resdence as of any tme foowng the sae of
the od resdence, the ad|ustments to bass sha ncude a reducton
by an amount equa to the amount of the gan not so recognzed
upon the sae of the od resdence. For ths purpose, the amount
of the gan not so recognzed upon the sae of the od resdence
ncudes ony so much of such gan as s not recognzed by reason of
the cost, up to such tme, of purchasng the new resdence.
(5) Tenant-stockhoders n a cooperatve apartment cor-
poraton. For the purposes of ths subsecton, secton 113(b)(1)
( ), and secton 117(h)(7), references to proeperty u ed by the
ta payer as hs prncpa resdence, and references to the res-
dence of a ta payer, sha ncude stock hed by a tenant-stock-
hoder (as defned n secton 23(z)(2)) n a cooperatve apart-
ment (as defned n such secton) f
( ) n the case of stock sod, the apartment whch the
ta payer was entted to occupy as such stockhoder was used
by hm as hs prncpa resdence, and
( ) n the case of stock purchased, the ta payer used as
hs prncpa resdence the apartment whch he was entted
to occupy as such stockhoder.
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153
29.112(f)- .
(6) usband and wfe. If the ta payer and hs spouse, In ac-
cordance wth reguatons whch sha be prescrbed by the Secretary
pursuant to ths paragraph, consent to the appcaton of subpara-
graph ( ) of ths paragraph, then
( ) for the purposes of ths subsecton, the words ta -
payer s seng prce of the od resdence sha mean the seng
prce (of the ta payer, or of the ta payer and hs spouse) of
the od resdence, and the words ta payer s cost of purchasng
the new resdence sha mean the cost (to the ta payer, hs
spouse, or both) of purchasng the new resdence (whether
hed by the ta payer, hs spouse, or the ta payer and hs
spouse); and
( ) so much of the gan upon the sae of the od resdence
as Is not recognzed soey by reason of ths paragraph, and
so much of the ad|ustment under paragraph ( ) to the bass
of the new resdence as resuts soey from ths paragraph, sha
be aocated between the ta payer and hs spouse as provded n
such reguatons.
Ths paragraph sha appy ony f the od resdence and the new
resdence are each used by the ta payer and hs spouse as ther prn-
cpa resdence. In case the ta payer and hs spouse do not consent
to the appcaton of subparagraph ( ) of ths paragraph, then the
recognton of gan upon the sae of the od resdence sha be deter-
mned under ths subsecton wthout regard to the rues provded n
ths paragraph.
(7) Statute of mtatons. If the ta payer durng a ta abe
year ses at a gan property used by hm as hs prncpa resdence,
then
( ) the statutory perod for the assessment of any defcency
attrbutabe to any part of such gan sha not e pre pror to
the e praton of three years from the date the Secretary s
notfed by the ta payer (n such manner as the Secretary may
by reguatons prescrbe) of
() the ta payer s cost of purchasng the new resdence
whch the ta payer cams resuts n nonrecognton of any
part of such gan,
() the ta payer s Intenton not to purchase a new
resdence wthn the perod specfed n paragraph (1), or
() a faure to make such purchase wthn such
perod; and
( ) such defcency may be assessed pror to the e praton
of such three-year perod notwthstandng the provsons of any
other aw or rue of aw whch woud otherwse prevent such
assessment

appcabe to ta abe years endng after December 31, 1050, but the pro-
vsons of secton 112 (n) (1) and (6) of the Interna Revenue Code sha
appy ony wth respect to resdences sod (wthn the meanng of such
secton) after such date.
PU LIC L W 567. IG TY-S COND CONGR SS
PPRO D ULY 16, 1052
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 112(n)
of the Interna Revenue Code (reatng to nonrecognton of gan from
sae or e change of resdence) s hereby amended by addng at the end
( ) Members of rmed Forces. The runnng of any perod of
tme specfed n paragraph (1) or (2) (other than the one year re-
ferred to n paragraph (2) (F)) of ths subsecton sha be suspended
durng any tme that the ta payer (or hs spouse f the od resdence
and the new resdence are each used by the ta payer and hs spouse
as ther prncpa resdence) serves on e tended actve duty wth
the rmed Forces of the Unted States after the date of the sae
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29.112(0-1.
15
of the od resdence and before anuary 1,195 , e cept that any such
perod as so suspended sha not e tend beyond the date four years
after the date of the sae of the od resdence. For the purpose of
ths paragraph, the term e tended actve duty means any perod of
actve duty pursuant to a ca or order to such duty for a perod n
e cess of nnety days or for an ndefnte perod.
Sec. 2. The amendment made by the frst secton of ths ct sha be
appcabe to ta abe years endng after December 31,1950, wth respect
to resdences sod (wthn the meanng of secton 112(n) of the Interna
Revenue Code) after such date.

Sec. 29.112(n)-. Gan From Sae ob change of Resdence. (a) In gen-
era. Gan from a sae after December 31,1950, of property used by the ta payer
as hs prncpa resdence (referred to herenafter as the od resdence ) w
not be recognzed f the ta payer wthn a perod begnnng 1 year pror to the
date of such sae and endng 1 year after such date purchases property and uses
It as hs prncpa resdence (referred to herenafter as the new resdence )
e cept to the e tent that the ta payer s seng prce of the od resdence e ceeds
the ta payer s cost of purchasng the new resdence. In the case of a new res-
dence the constructon of whch was commenced by the ta payer at any tme
pror to the e praton of 1 year after the date of the sae of the od resdence,
the 1 year after the sae of the od resdence referred to n the precedng sentence
sha be consdered as ncudng a perod of 1 months begnnng wth the date
of the sae of the od resdence. Such nonreeognton of gan s mandatory.
Ths secton appes ony wth respect to gans; osses from saes of property
used by the ta payer as hs prncpa resdence are recognzed or not recognzed
wthout regard to ths secton.
(6) Rues for appcaton of secton. (1) Property used by the ta payer as hs
prncpa resdence. Whether or not property s used by the ta payer as hs
resdence, and whether or not property s used by the ta payer as hs prncpa
resdence (n the case of a ta payer usng more than one property as a res-
dence), depends upon a of the facts and crcumstances n each ndvdua case,
ncudng the bona fdes of the ta payer. The mere fact that property s, or has
been, rented s not determnatve that such property s not used by the ta payer
as hs prncpa resdence. For e ampe, f the ta payer purchases hs new
resdence before he ses hs od resdence, the fact that he temporary rents out
the new resdence durng the perod before he vacates the od resdence may not,
In the ght of a the facts and crcumstances n the case, prevent the new res-
dence from beng consdered as property used by the ta payer as hs prncpa
resdence. Property used by the ta payer as hs prncpa resdence may ncude
a houseboat, a house traer, or stock hed by a tenant-stockhoder n a cooperatve
apartment corporaton (as those terms are defned n secton 23(z)(2)), f the
apartment whch the ta payer s entted to occupy as such stockhoder s used
by hm as hs prncpa resdence. Property used by the ta payer as hs prn-
cpa resdence does not ncude persona property such as a pece of furnture, a
rado, etc., whch, In accordance wth the appcabe oca aw s not a f ture.
Where part of a property s used by the ta payer as hs prncpa resdence and
part s used for other purposes, an aocaton must be made to determne the
appcaton of ths secton. If the od resdence s used ony partay for resden-
ta purposes, ony that part of the gan aocabe to the resdenta porton may
be not recognzed under ths secton and ony an amount aocabe to the seng
prce of such porton need be renvested n the new resdence n order to have
the gan aocabe to such porton not recognzed under ths secton. If the new
resdence s used ony partay for resdenta purposes, ony so much of ts cost
as s aocabe to the resdenta porton may be counted as the cost of purchasng
the new resdence.
(2) Sae of resdence. For the purpose of ths secton, an e change by the
ta payer of hs resdence for other property sha be consdered as a sae of
such resdence. so, f the ta payer s resdence (as a resut of ts destructon
n whoe or n part, theft, sezure, requston or condemnaton) s compusory
or nvountary converted nto money or property, the destructon, theft, sezure,
requston or condemnaton sha be consdered as a sae of such resdence.
(3) Purchase of resdence. For the purpose of ths secton, the acquston
of a resdence upon the e change of property sha be consdered as a purchase
of such resdence. so, the acquston of a resdence upon the compusory or
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155
29.112(f)-.
Invountary converson of the ta payer s resdence as the resut of ts destruc-
ton n whoe or n part, theft, sezure, requston or condemnaton sha be
consdered to be a purchase of the resdence. resdence any part of whch
was constructed or reconstructed by the ta payer sha be consdered as pur-
chased by the ta payer, but the mere Improvement of a resdence, not amountng
to reconstructon, does not consttute a purchase of a resdence.
( ) Seng prce of od resdence. The ta payer s seng prce of the od
resdence ncudes the amount of any mortgage, trust deed, or other ndebtedness
to whch such property s sub|ect In the hands of the purchaser whether or not
the purchaser assumed such Indebtedness. Such seng prce aso ncudes the
face amount of any abtes of the purchaser whch are part of the consdera-
ton for the sae. Commssons and other seng e penses pad or ncurred by
the ta payer on the sae of the od resdence are not to be deducted or taken
nto accoun: In determnng such seng prce. In the case of an e change or
converson whch s consdered as a sae under ths secton, the amount reazed
by the ta payer upon such e change or converson sha be consdered to be the
ta payer s seng prce of the od resdence. s to what consttutes the amount
reazed, see secton 29.111-1.
(5) Cost of purchasng new resdence. The ta payer s cost of purchasng the
new resdence aso ncudes such ndebtedness to whch the property purchased
s sub|ect at the tme of purchase whether or not assumed by the ta payer (n-
cudng purchase-money mortgages, etc.) and the face amount of any abtes
of the ta payer whch are part of the consderaton for the purchase. Com-
mssons and other purchasng e penses pad or Incurred by the ta payer on
the purchase of the new resdence are to be ncuded n determnng such cost. In
the case of an acquston of a resdence upon an e change or converson whch
s consdered as a purchase under ths secton, the far market vaue of the new
resdence sha be consdered as the ta payer s cost of purchasng the new
resdence. The ta payer s cost of purchasng the new resdence ncudes ony
so much of such cost as Is attrbutabe to acquston, constructon, reconstruc-
ton, or mprovements made wthn the 2-year or 30 months perod of tme, as
the case may be, n whch the purchase and use of the new resdence must be
made n order to have gan on the sae of the od resdence not recognzed under
ths secton. Such cost aso ncudes ony such amounts as are propery
chargeabe to capta account rather than to the current e pense. s to what
consttutes capta e pendtures, see secton 29.2 -2. Where any part of the
new resdence s acqured by the ta payer other than by purchase, the vaue of
such part s not to be ncuded n determnng the ta payer s cost of the new
resdence. For e ampe, f the ta payer acqures a resdence by gft or n-
hertance, and spends 20,000 n reconstructng such resdence, ony such 20,000
may be treated as hs cost of purchasng the new resdence.
(6) Seng prce and cost of resdence n the case of husband and wfe.
If the ta payer and hs spouse fe the consent referred to beow, then the ta -
payer s seng prce of the od resdence sha mean the ta payer s or the
ta payer and hs spouse s seng prce of the od resdence, and the ta payer s
cost of purchasng the new resdence sha mean the cost to the ta payer, or to
hs spouse, or to hoth of them, of purchasng the new resdence, whether such
new resdence s hed by the ta payer, or hs spouse, or both. Such consent may
be red ony If the od resdence and the new resdence are each used by toe
ta payer and hs same spouse as ther prncpa resdence. If the ta payer and
hs spouse do not fe such a consent, the recognton of gan upon sae of the
od resdence sha be determned under ths secton wthout regard to the
foregong.
The consent referred to above s a consent by the ta payer and hs spouse
to have the bass of the Interest of ether of them n the new resdence reduced
from what t woud have been but for the fng of such consent by an amount
by whch the gan of ether of them on the sae of hs nterest n the od
resdence s not recognzed soey by reason of the fng of such consent. Such
reducton n bass s appcabe to the bass of the now resdence, whether
Fuch bass s that of the husband, of the wfe, or dvded between them.
If the bass s dvded between the husband and wfe, the reducton In bass
sha be dvded between them n the same proporton as the bass (determned
wthout regard to such reducton) s dvded between them. Such consent
Ma be fed wth the offcer wth whom the return for the ta abe year or years
n whch the gan from the sae of the od resdence s reazed has been fed.
The foowng e ampes w ustrate the appcaton of ths rue:
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29.112(0-1
150
ampe (/). ta payer, n 1951, ses for 10,000 the prncpa resdence
cf hmsef and hs wfe, whch he owns ndvduay and whch has an ad|usted
bass to hm of 5,000. Wthn a year after such sae he and hs wfe contrbute
5,000 each from ther separate funds for the purchase of ther new prncpa
resdence whch tey hod as tenants n common, each ownng an undvded one-
haf nterest theren. If the ta payer and hs wfe fe the requred consent,
the gan of 5,000 upon the sae of the od resdence w not be recognzed to
the ta payer, and the ad|usted bass of the ta payer s nterest n the new
resdence w be 2,500 and the ad|usted bass of the ta payer s wfe s nterest
n such property w be 2,500.
ampe (2). ta payer and hs wfe, n 1951, se for 10,000 ther prncpa
resdence, whch they own as |ont tenants and whch has an ad|usted bass of
2,500 to each of them ( 5,000 together). Wthn a year after such sae, the
wfe spends 10,000 of her own funds n the purchase of a prncpa resdence
for hersef and the ta payer and takes tte n her name ony. If the ta payer
and hs wfe te the requred consent, the ad|usted bass to the wfe of the
Dew resdence sha be 5,000, and the gan of the ta payer of 2,500 upon the
sae of the od resdence w not be recognzed. The wfe, as a ta payer
hersef, w have her gan of 2,500 on the sae of the od resdence not
recognzed under the genera rue.
(c) ass of new; resdence. Where the purchase of a new resdence resuts,
under ths secton, n the nonrecognton of any part of the gan reazed upon
the sae of an od resdence, then, n determnng the ad|usted bass of the
new resdence as of any tme foowng the sae of the od resdence, the
ad|ustments to bass sha ncude a reducton by an amount equa to the
amount of the gan whch was not recognzed upon the sae of the od resdence.
Such a reducton s not to be made for the purpose of determnng the ad|usted
bass of the new resdence as of any tme precedng the sae of the od resdence.
For the purpose of ths determnaton, the amount of the gan not recognzed
under ths secton upon the sae of the od resdence ncudes ony so much
of the gan as s not recognzed because of the ta payer s cost, up to the date
of the determnaton of the ad|usted bass, of purchasng the new resdence.
The foowng e ampe w ustrate ths rue:
ampe (3). On anuary 1, 1051, the ta payer buys a new resdence for
10,000. On March 1, 1951, he ses for 15,000 hs od resdence whch has
an ad|usted bass to hm of 5,000. Durng pr a wng s constructed on the
new house at a cost of 5,000 and n May he buds a garage at a cost of 2,000.
The ad|usted bass of the new resdence s 10,000 durng anuary and February,
5,000 durng March and pr, and 7,000 foowng the competon of the
constructon n May.
(d) Lmtatons on appcaton of secton. If a resdence s purchased by
the ta payer pror to the date of the sae of the od resdence, the purchased
resdence sha, n no event, be treated as a new resdence f such purchased
resdence s sod or otherwse dsposed of by hm pror to the date of the sae
of the od resdence. nd, f the ta payer, durng the perod wthn whch
the purchase and use of the new resdence must be made n order to have any
gan on the sae of the od resdence not recognzed under ths secton, purchases
more than one property whch Is used by hm as hs prncpa resdence durng
the 1 year (or 1 months n the case of the constructon of the new resdence)
succeedng the date of the sae of the od resdence, ony the ast of such propertes
sha be consdered a new resdence. owever, f the ta payer s new resdence s
destroyed, stoen, sezed, requstoned, condemned, or sod or e chnnged under
the threat or mmnence of requston or condemnaton wthn such year
(or IS months) succeedng the sae of the od resdence, then, for the purpose
cf the precedng sentence, such year (or 1 mouths) s deemed to end on the date
of the destructon, theft, sezure, requston, condemnaton, sae, or e change.
If wthn 1 year pror to the date of the sae of the od resdence, the ta -
payer sod other property used by hm as hs prncpa resdence at a gan, and
any part of such gan was not recognzed under ths secton, ths secton sha
not appy wth respect to the sae of the od resdence. For the purpose of the
precedng sentence, however, the destructon, theft, sezure, requston, con-
demnaton, or sae or e change under threat or mmnence of requston or con-
demnaton sha not be consdered as a sae. The foowng e ampe w ustrate
these rues:
ampe (//). ta payer ses hs od resdence on anuary 15, 1951, and
purchases a new resdence on February 15, 1951. On March 15, 1951, be ses
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29.112(f)- .
the new resdence and purchases a second new resdence on pr 15,1951. The
gan on the sae of the od resdence on anuary 15, 1951, w not be recognzed
e cept to the e tent to whch the ta payer s seng prce of the od resdence
e ceeds the cost of purchasng the second new resdence purchased on pr 15,
1951. Gan -on the sae of the frst new resdence on March 15, 1951, w be
recognzed. If, nstead of seng the frst new resdence on March 15, 1951, such
resdence had been destroyed by fre on that date and nsurance proceeds n cash
had been receved as a resut thereof, the gan on the sae of the od resdence
on anuary 15, 1951, w not be recognzed e cept to the e tent to whch the
ta payer s seng prce of the od resdence e ceeds hs cost of purchasng the
new resdence purchased on February 15, 1951. nd, the gan on the nvoun-
tary converson by fre of the frst new resdence on March 15, 1951, w not be
recognzed e cept to the e tent to whch the amount reazed from such con-
verson e ceeds the ta payer s cost of purchasng the second new resdence
parehased on pr 15,1951.
(e) Statute of mtatons. Whenever a ta payer ses property used as hs
prncpa resdence at a gan, the statutory perod prescrbed n secton 275 for
the assessment of any defcency attrbutabe to any part of such gan w not
e pre pror to the e praton of 3 years from the date of the offcer, wth whom
the return for the ta abe year or years n whch the gan from the sae of the
od resdence s reazed has been fed, s notfed by the ta payer (1) of the
cost of purchasng the new resdence whch the ta payer cams resuts In the
nonrecognton of any part of such gan, or (2) of the ta payer s ntenton not
to, or faure to, purchase a new resdence wthn the perod when such a purchase
w resut n the nonrecognton of any part of such gan. Such a defcency
may be assessed pror to the e praton of such 3-year perod notwthstandng
the provsons of any other aw or rue of aw whch mght otherwse bar such
assessment.
Such notfcaton sha be made n the return for the ta abe year or years In
whch the purchase of the new resdence occurs, or the ntenton not to make
pufh a purchase s formed, or the perod for the repacement e pres f ths
return s fed wth such offcer. If ths return Is not fed wth such offcer, then
such notfcaton sha be made to such offcer at the tme of fng ths return.
If the ta payer so desres, he may, n ether event, aso notfy such offcer pror
to the fng of ths return. Such notfcaton sha contan a of the detas n
connecton wth the sae of the resdence and, f appcabe, the purchase of the
new resdence. If an ntenton not to repace s formed, or f the perod for
repacement e pres, or f the cost of purchasng the new resdence Is ess than
the seng prce of the od resdence, the recognzabe gan sha be ncuded n
the gross ncome for the ta abe year or years n whch such gan was reazed;
a recomputaton n the form of an amended return shoud be made for ths
purpose t necessary.
(/) Members of rmed Forces. The runnng of the 1-year (or 1 months In
the case of the constructon of the new resdence) perod, specfed n (o) hereof,
after the sae of the od resdence wthn whch the purchase and use of a new
resdence may resut n the nonrecognton of gan on such sae sha be suspended
durng any tme that the ta payer serves on e tended actve duty n the rmed
Forces of the Unted States after the date of the sae of the od resdence and
before anuary 1, 195 . ny such perod as so suspended, however, sha not
e tend beyond the date years after the date of the sae of the od resdence.
For e ampe, f the ta payer s on e tended actve duty wth the army from
anuary 1. 1951, to December 31, 1953, and f he sod hs od resdence on an-
nary 1, 1951, the atest date on whch the ta payer may use a new resdence
constructed by hm and have any part of the gan on the sae of the od resdence
not recognzed under ths secton Is anuary 1, 1955, the date years after
the date of the sae of the od resdence.
Ths suspenson covers not ony the rmed Forces servce of the ta payer
bat f the ta payer and hs same spouse used both the od and the new resdences
as ther prncpa resdence, then the e tenson appes In ke manner to the
tme the ta payer s spouse s on e tended actve duty wth the rmed Forces of
the Unted States.
The tme durng whch the runnng of the perod s suspended Is part of such
perod. Thus, constructon costs durng such tme are ncudbe n the cost
of purchasng the new resdence under (b)(5) hereof.
The runnng of the 1-year (or 1 month) perods referred to In (d) hereof
Is not suspended, nor Is the runnng of the 1-year perod pror to the date of the
26335 53 11
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S 29.112(0-1.)
15
sae of the od resdence wthn whch the new resdence may be purchased In
order to have gan on the sae of the od resdence not recognzed under ths
secton.
The term e tended actve duty means any perod of actve duty whch s served
pursuant to a ca or order to such duty for a perod n e cess of 90 days or for an
ndefnte perod. If the ca or order s for a perod of more than 90 days, t s
mmatera that the tme served pursuant to such ca or order s ess than )
days, f the reason for such shorter perod of servce occurs after the begnnng
of such duty. s to what consttutes actve servce as a member of the rmed
Forces of the Unted States, see secton 29.22(b) (13)-2. s to who are mem-
bers of the rmed Forces, of the Unted States, see secton 29.3797-11.
Par. 6. There s nserted mmedatey precedng secton 29.113(a)
(9)- 26 CFR 29.113(a) (9)- the foowng:
R SID NC R NU CT OF 1951, PPRO D
OCTO R 20, 1951 .


(2) Secton 113(a) (9) (reatng to bass of property acqured as
a resut of nvountary conversons) s hereby amended by addng
at the end thereof the foowng: Ths paragraph sha not appy
n respect of property acqured as a resut of a compusory or nvo-
untary converson of property used hy the ta payer as hs prncpa
resdence f the destructon, theft, sezure, requston, or condem-
naton of such resdence, or the s|e or e change of such resdence
nnder threat or mmnence thereof, occurred after December 31,
1950.

PU LIC L W 251, IG TY-S COND CONGU SS
PPRO D OCTO R 31, 1951

Sec. 2. Paragraph (9) of secton 113(a) of the Interna Revenue Code
(reatng to unad|usted bass of property acqured as the resut of an
nvountary converson) s hereby amended by strkng out secton
112(f) and nsertng n eu thereof secton 112(f)(1) or (2) , and
by addng at the end of such paragraph the foowng new sentenoe: In
the case of property purchased by the ta payer whch resuted, under
the provsons of secton 112(f)(3), n the nonrecognton of any
part of the gan reazed as the resut of a compusory or nvountary
converson, the bass sha be the cost of such property decreased n the
amount of the gan not so recognzed ; and f the property purchased
conssts of more than one pece of property, the bass determned under
ths sentence sha be aocated to the purchased propertes n proporton
to ther respectve costs.
Sec. 3. The amendments made by the frst two sectons of ths ct
sha he appcabe ony wth respect to ta abe years endng after
December 31, 1950, e cept that the provsons of secton 112(f)(3),
and the provsons of secton 113(a) (9), of the Interna Revenue Code
as amended by ths ct sha aso be appcabe to any ta abe year
endng pror to anuary 1, 1951, n whch (a) any gan was reazed
upon the converson of property and the dsposton of such converted
property occurred (wthn the meanng of such secton 112(f)(3))
after December 31, 1950, or (h) the bass of property s affected by an
eecton made under the provsons of secton 112(f) (3) of such Code.

Par. 7. Secton 29.113(a) (9)- 26 CFR 29.113(a) (9)- s hereby
amended as foows:
( ) y nsertng mmedatey after the words The provsons of
theren the foowng the frst sentence of , and by nsertng after the
word ampe theren the foowng (1) .
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159
29.112(f)- .
The provsons of the ast sentence of secton 113(a)(9) may be ustrated
by the foowng e ampe:
ampe (2). ta payer reazes 22,000 from the nvountary converson
of hs barn; the ad|usted bass of the barn to hm was 10,000, and he spent
0,0u0 for a new barn whch resuted n the nonrecognton of 10,000 of the
12,000 san on the converson. The unad|usted bass of the new burn to the
ta payer woud be 10,000 the cost of the new barn ( 20,000) ess the amount
of the gan not recognzed on the converson ( 10,000). The unad|usted bass
of the new barn woud not be a substtuted bass n the hands of the ta payer
wthn the meanng of sectons 113(b)(2)( ) and 29.113(b) (2)-. If the re-
pacement of the converted barn had been made by the purchase of two smaer
barns whch, together, were smar or reated n servce or use to the converted
barn and whch cost ,000 and 12,000. respectvey, then the bass of the two
barns woud be ,000 and (.( ), respectvey, the cost of each barn ( ,000
and 12,000) ess n each case the proporton of the gan not recognzed on the
converson ( 10,000) that the cost of each barn bears to the cost of both burns
m ) and |,000 _
(20.000 20,000).
Par. . There s nserted mmedatey precedng secton 29.113(b)
(1)-1 26 CFR 29.113(b) (1)-1 the foowng:
S C. 31 . G IN FIIOM S L OR C NG OF T P Y R S
20, 1051 .


(3) Secton 11.1(b)(1) (reatng to ad|usted bass of property)
s hereby amended by addng at the end thereof the foowng new
subparagraph :
( ) n the case of a resdence the acquston of whch re-
suted, under the provsons of secton 112(n), n the nonrecog-
nton of any part of the gan reazed upon the sae, e change,
or nvountary converson of another resdence, to the e tent
provded n secton 112(n) ( ).

59 0 page 65, ths uetn , approved February 3, 1953 26 CFR
29.113(b) (1)-1 , s hereby amended by addng at the end thereof the
foowng:
For the ad|ustments to bass of a resdence because Its acquston resuted,
under the provsons of secton 112(d), n the nonrecognton of any part of the
pan reazed upon tbe sae, e change, or Invountary converson of another
resdence, see secton 29.112(n)-.
S C. 31 . C IN FROM S L OR C NG OF T P Y RS
20, 1951 .


( ) Secton 117(h) (reatng to determnaton of hodng perod)
paragraph:
(7) In determnng the perod for whch the ta payer has hed
a resdence, the acquston of whch resuted under secton 112(n)
In the nonrecognton of any part of the gan reazed on the sae,
e change, or nvountary converson of another resdence, there
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5 29.112(f)- .
160
sha be Incuded the perod for whch such other resdence had been
hed as of the date of such sae, e change, or Invountary con-
verson.

Par. 11. Secton 29.117- 26 CFR 29.117- s hereby amended
The perod for whch the ta payer has hed a resdence, the acquston of
whch resuted, under the provsons of secton 112(u), n the nonreeognton
of any part of the gan reazed on the sae, e change, or nvountary converson
of another resdence, sha ncude the perod for whch such other resdence
had been hed as of the date of such sae, e change, or nvountary converson.
See secton 29.112(n)-.
Par. 12. There s nserted mmedatey precedng secton 29.275 1
the foowng:
R SID NC R NU CT OF 1951, PPRO D OCTO-
R 20, 1951 .


(5) Secton 276 (reatng to perod of mtaton upon assessment
and coecton) s hereby amended by addng at the end thereof the
foowng:
(e) Gan Upon Sae or change of Resdence. In the case of a
defcency descrbed In secton 112(d)(7), such defcency may be as-
sessed at any tme pror to the e praton of the tme theren provded.

PU LIC L W 251, IG TY-S COND CONGR SS PPRO D
OCTO R 31, 1951

(b) Secton 276 of the Internn Revenue Code (reatng to perod of
mtaton upon assessment and coecton) s hereby amended by
(f) Invountary Converson. In the case of a defcency descrbed
In secton 112(f)(3) (C) or (D), such defcency may be assessed at
any tme pror to the e praton of the tme theren provded.

page 303, ths uetn , approved anuary ,1953 26 CFR 29.275-1 ,
s hereby amended by nsertng mmedatey precedng the ast para-
graph thereof the foowng:
(1 ) In the case of a defcency descrbed In secton 112(n)(7), such de-
fcency may be assessed at any tme pror to the e praton of the tme theren
provded. See secton 29.112(n)-.
(15) In the case of a defcency descrbed In secton 112(f)(3) (C) or (D),
such defcency may be assessed at any tme pror to the e praton of the tme
theren provded. See secton 29.112(f)-3.
sectons 62, 112(f), 112(n), and 3791 of the Interna Revenue Code
(53 Stat. 32, 65 Stat. 9 ,733, and 53 Stat. 67; 26 U. S. C. 62,112(f),
112(n),and 3791).)
ustn F. Wnke,
pproved February 17,1953,
bert P. Tt|tte,
med wth the Dvson of the Federa Regster February 20, 1953, : 50 a. m.)
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1G1
29.113(a)(9)- .
Secton 29.112(f)-: Invountary converson
where dsposton of the converted property
INT RN L R NU COD
mounts receved for the use of property acqured by the Unted
States Government through condemnaton proceedngs consttute
renta ncome where the nterest acqured by the Government s no
more than a easehod nterest. (See Rev. Ru. 3 , page 1G.)
S CTION 112(g). R COGNITION OF G IN OR LOSS:
D FINITION OF R ORG NIZ TION
Secton 29.112(g)-: Purpose and scope of e cep-
ton of reorganzaton e changes.
INT RN L R NU COD
S CTION 112(n). R COGNITION OF G IN OR LOSS:
G IN FROM S L OR C NG OF R SID NC
Secton 29.112(n)-: Gan from sae or e change
of resdence.
INT RN L R NU COD
Secton 29.112(n)-: Gan from sae or e change
of resdence.
INT RN L R NU COD
Gan from sae of od resdence n e cess of purchase prce of new
resdence. (See Rev. Ru. 75, page 3.)
S CTION 113(a). D UST D SIS FOR D T RMINING
G IN OR LOSS: SIS (UN D UST D) OF PROP RTY
Secton 29.113(a)-2: Genera rue.
INT RN L R NU COD
Secton 29.113(a) (9)-: Property acqured as a
resut of an nvountary converson.
INT RN L R NU COD
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29.113(a) (1S)-1.)
1G2
Secton 29.113(a) (13)-1: Property contrbuted
n knd by a partner to a partnershp.
INT RN L R NU COD
Lfe nsurance poces contrbuted to a partnershp. (See Rev.
RuL 72, page 23.)
Secton 29.113(a) (1 )-1: ass of property Rev. Ru. 95
receved n certan corporate qudatons.
( so Secton 112(b), Secton 29.112(b)
(7)-.)
INT RN L R NU COD
The bass for deprecaton and gan or oss upon the sae or other
dsposton of mortgaged property receved by stockhoders n a
compete corporate qudaton, pursuant to the provsons of secton
112(b) (7) of the Interna Revenue Code, shoud be determned by
addng the amount of the mortgage ndebtedness to the bass pre-
scrbed by secton 113(a) (1 ) of the Code. Ths resut foows
whether the mortgage ndebtedness s assumed by the stockhoders
or whether the property s taken sub|ect to the mortgage debt.
dvce s requested whether the bass of assets dstrbuted to stock-
hoders n a compete corporate qudaton, wth respect to whch the
provsons of secton 112(b) (7) of the Interna Revenue Code are ap-
pcabe, shoud be determned by addng the prncpa amount of
mortgage ndebtedness outstandng on such assets to the bass of the
stock canceed or redeemed n the qudaton.
Secton 112(b) (7) of the Code provdes n effect that sharehoders
n certan qudatng corporatons may postpone the recognton of
that porton of the gan on the qudaton whch woud otherwse be
recognzed and whch s attrbutabe to apprecaton n vaue of certan
corporate assets unreazed by the corporaton at the tme such assets
are dstrbuted n compete qudaton.
Secton 113(a) (1 ) of the Code provdes for the bass of property
receved n such qudatons and reads n part as foows:
(a) ass (Unad|usted) of Propery. The bass of property sha be the
cost of such property ; e cept that
(1 ) PROP RTY R C I D IN C RT IN CORPOR T LI UID TIONS. If the
property was acqured by a sharehoder In the qudaton of a corporaton
n canceaton or redempton of stock wth res|ect to whch gan was
reazed, but wth respect to whch, as the resut of an eecton made by hu
under paragraph ( ) of secton 112(b) of ths chapter chapter 1 ,
the e tent to whch gan was recognzed was determned under such para-
graph, then the bass sha be the same as the bass of such stock canceed
or redeemed n the qudaton, decreased n the amount of any money
receved by hm, and ncreased In the amount of gan recognzed to hm.
The above statute substtutes the sharehoder s stock bass, sub|ect to
specfed ad|ustments, for the assets or property receved. In some
cases, however, the outstandng stock hed by a sharehoder may con-
sttute ony a part of the consderaton gven by hm n e change for
the property receved. In such cases, to mt the bass of the property
receved for purposes of deprecaton, or gan or oss upon subsequent
dsposton, soey to the stock bass prescrbed n secton 113(a) (1 )
woud resut n a bass whch ncudes ony a porton of the consdera-
ton gven by the sharehoder to obtan the property.
It s the opnon of ths offce that secton 113(a) (1 ) of the Code,
supra, e cudes from the sharehoder s property bass ony the amount
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163
29.113(b)(1)- .
of gan reazed but not recognzed under the provsons of secton
112 (b) (7); t does not e cude from the property Dass of sharehoders
n such cases the addtona consderaton of the mortgage ndebted-
ness to whch the property mght be sub|ect. ccordngy, such
amount shoud be added to the stock bass prescrbed under secton
113(a) (1 ) of the Code as an addtona cost ncurred by the share-
hoders wthn the meanng of secton 113(a) of the Code. Whether
the mortgage ndebtedness s assumed by the sharehoders or the prop-
erty s taken sub|ect to the mortgage s mmatera. In ether case,
for purposes of deprecaton and gan or oss upon sae or other ds-
poston of the property, the mortgage ndebtedness s treated n the
same manner as cash pad. (See euah . Crane v. Commssoner,
S31U.S. ,Ct.D. 16 , C. . 19 7-1,97.)
In vew of the foregong, t s hed that, provded the requre-
ments of secton 112(b) (7) of the Interna Revenue Code are comped
wth, the bass of assets (other than money) acqured by the stock-
hoders of the company sha be the same as the bass of the shares of
Mock redeemed and canceed, decreased n the amount of any money
receved and ncreased n the amount of gan recognzed, n accordance
wth secton 113(a) (1 ) of the Code, to whch amount shoud be added
the amount of the unsecured abtes assumed by the stockhoders.
The amount thus arrved at shoud be aocated to the varous assets
receved on the bass of ther net far market vaues (the net far
market vaue of an asset s ts far market vaue ess any specfc
mortgage or pedge to whch t s sub|ect). To that porton of the
bass thus determned for each property aganst whch there s a en
shoud be added the amount of such en. Where more than one
property s covered by the same en, the amount of the en shoud be
dvded among the propertes, aocatng to each that proporton of
the en that the far market vaue of such propety bears to the tota
market vaue of the propertes covered by the same en.
S CTION 113(b). D UST D SIS FOR D T RMINING
G IN OR LOSS: D UST D SIS
Secton 29.113(b) (1)-1: d|usted bass: Genera T. D. 5967
rue.
( so Secton 29.113(d)-.)
TITL 2f 1NT .N L R NU . C PT R I. SU C PT R . P RT 29.
INCOM T ; T L Y RS GINNING FT R D C M R 1. 15 1
Reguatons 111 amended to conform to uc Law 539 (SIM
Cong.) C. . 1952-2, 35 , whch amends secton 113(b)(1)( )
of the Interna Revenue Code, reatng to the ad|ustment of the bass
of property for deprecaton, obsoescence, amort zuton, and
depeton.
Treasury Departm ent,
Washngton 25, I). C.
Concerned:
On November 26, 1952, notce of proposed rue makng was pub-
shed n the Federa Regster (17 F. R. 107 0) conformng Regua-
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I 29.113(b)(1)- .
16
tons 111 26 CFR, part 29 to Pubc Law 539 ( 2d Cong.) C. .
1952-2, 35 , approved uy 1 , 1952, whch amends secton
113(b) (1) ( ) of the Interna Revenue Code, reatng to the ad|ust-
ment of the bass of property for deprecaton, obsoescence, amortsa-
ton, and depeton. fter consderaton of a such reevant matter
as was presented by nterested persons reatng to the rues proposed,
the amendments to Reguatons 111, set forth beow, are hereby
adopted.
29.113(b) (1)-1 the foowng:
PU LIC L W 539 ( 2(1 CONG.) PPRO D ULY 1 ,1952
States of merca n Congress assembed, That so much of secton
113(b) (1) ( ) of the Interna Revenue Code (reatng to ad|ustments to
bass of property for deprecaton, etc.) as precedes the word Where s
hereby amended to rend as foows:
( ) n respect of any perod snce February 2 , 1913, for
e hauston, wear and tear, obsoescence, amortzaton, and de-
peton, to the e tent of the amount
() aowed as deductons n computng net ncome un-
der ths chapter or pror ncome ta aws, and
() resutng (by reason of the deductons so aowed)
n a reducton for any ta abe year of the ta payer s ta es
under ths chapter (other than subchapter ), subchapter
of chapter 2, or pror ncome, war-profts, or e cess-prof-
ts ta aws,
but not ess than the amount aowabe under ths chapter or
pror ncome ta aws. Cause () of ths subparagraph sha
not appy n respect of any perod snce February 2 , 1913, and
before anuary 1, 1952, uness an eecton has been made under
subsecton (d).

Sec. 3. The amendments made by ths ct sha appy n respect of ta -
abe years begnnng after December 31, 193 . Provsons havng the
effect of such amendments sha be deemed to have been ncuded n the
revenue aws respectvey appcabe to ta abe years endng after
December 31, 1931, and begnnng before anuary 1, 1939.
Par. 2. Secton 29.113(b) (1)-1 as amended by Treasury Decson
5 73 C. . 1952-1, 23 , approved December 7, 1951, s amended as
foows:
( ) y nsertng mmedatey precedng the second paragraph
thereof the foowng:
(a) Items propery chargeabe to capta account.
( ) y strkng the s th paragraph of such secton, whch para-
graph begns wth the words The cost or other bass , and
the seventh paragraph thereof, whch paragraph begns wth the
words The deprecaton aowed , and nsertng n eu
thereof the foowng:
(6) hauston, wear and tear, obsoescence, amortzaton, and depeton for
perods snce February 2 , 19 IS. (1) In Genera. The cost or other bass must
aso be decreased, to the e tent provded n paragraphs (2), (3), and ( ),
beow, by the amount of the deductons for e hauston, wear and tear, obsoes-
cence, amortzaton, and depeton. The ad|ustment requred for any ta abe
year or perod s the amount aowed (or the porton thereof referred to In
paragraph (2)() or paragraph ( )(), as the case may be) or the amount
aowabe for such year or perod under the aw appcabe thereto, whchever
s the greater amount. ta payer Is not permtted to take advantage In a
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1135
29 113(b)(1)- .
ater year of hs pror faure to take any deprecaton aowance or of hs
acton n takng an aowance pany nadequate under the known facts n pror
years. The determnaton of the amount propery aowabe sha, however, be
made on the bass of facts reasonaby known to e st at the end of such year
or perod. The aggregate sum of the greater of such annua amounts s the
amount by whch the cost or other bass of the property sha be ad|usted.
The deductons by whch the cost or other bass s to be decreased sha
ncude deductons aowed under secton 11 (b) (2), (3), and ( ) of the
Revenue ct of 1 )32. the Revenue ct of 193 , the Revenue ct of 1936, the
Revenue ct of 193 , and the Interna Revenue Code, for the ta abe year 1932
and subsequent ta abe years, but the amount of the dmnuton n respect of
depeton for ta abe years pror to 1932 sha not e ceed a depeton deducton
computed wthout reference to dscovery vaue n the case of mnes, or wthout
reference to dscovery vaue or a percentage of ncome n the case of o
and gas wes.
(2) d|ustment for perods begnnng on or after anuary 1, 1952. The de-
crease requred by paragraph (.1), above, for deductons n respect of any
per d begnnng on or after anuary 1, 1952, sha be whchever s the greater
of te foowng nmounts:
() The amount nowed as deductons n computng net ncome under
chapter 1 aud resutng (by reason of the deductons so aowed) n a
reducton for any ta abe year of the ta payer s ta es under chapter 1
(other than subchapter , reatng to the ta on sef-empoyment ncome) ;
() The amount propery aowabe as deductons n computng net
ncome under chapter 1 (whether or not the amount propery aowabe
woud have caused a reducton for any ta abe year of the ta payer s
ta es).
(3) d|ustment for perods snce February 2 , 1913, and before anuary 1,
103 . where no eecton made. cept where an eecton has been propery
made under secton 113(d) (see paragraph ( ), beow), the decrease requred
by paragraph (1) for deductons n respect of any perod snce February 2 ,
11)13, and before anuary 1, 1952, sha be whchever of the foowng amounts
s the greater :
() The amount aowed as deductons In computng net ncome under
chapter 1 or pror ncome ta aws;
() The amount propery aowabe In computng net Income under
chapter 1 or pror ncome ta aws.
For the purpose of determnng the decrease requred by ths paragraph It
s mmatera whether or not the amount under (1), above, or the amount under
(II), above, woud have resuted n a reducton for any ta abe year of the
ta payer s ta es.
( 1 d|ustment for perod snce February 2 ,1913, and before anuary 1, 1952,
rkrre eecton made under secton 113(d). If an eecton has been propery made
under secton 113(d) (see secton 29.113(d)-), the decrease requred by para-
graph (1) for deductons n respect of any perod snce February 2 , 1913, and
before anuary 1, 1952, sha be whchever s the greater of the foowng
amounts:
() The amount aowed as deductons n computng net ncome under
chapter 1 or pror Income ta aws and resutng (by reason of the deductons
so aowed) n a reducton for any ta abe year of the ta payer s ta es
under chapter 1 (other than subchapter , reatng to the ta on sef-
empoyment Income), subchapter of chapter 2, or pror ncome, war-profts,
or e cess-profts ta aws;
() The amount propery aowabe as deductons n computng net
Income under chapter 1 or pror ncome ta aws (whether or not the
amount propery aowabe woud have caused a reducton for any ta abe
year of the ta payer s ta es).
(5) Determnaton of amount aowed whch reduced ta payer s ta es. For
the purpose of determnng whether the amount aowed whch resuted In
s reducton for any ta abe year of the ta payer s ta es under chapter 1 of
the Interna Revenue Code (other than subchapter ), subchapter of chapter
2. or pror ncome, war-profts, or e cess-profts ta aws , whch amount s here-
nafter referred to as the ta -beneft amount aowed , e ceeded the amount
aowabe, a determnaton must be made of that porton of the e cess of the
amount aowed over the amount aowabe whch, f dsaowed, woud not have
resuted n an ncrease In any such ta prevousy determned. If the entre
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29.113(b)(1)- .
1G6
e cess of the amount aowed over the amount aowabe coud be dsaowed
wthout any such Increase In ta , the ta -beneft amount aowed sha not be
consdered to have e ceeded the amount aowabe. If ony part of such e cess
coud be dsaowed wthout any such Increase In ta , the ta -beneft amount
aowed sha be consdered to e ceed the amount aowabe to the e tent of
the remander of such e cess.
For ths purpose, the ta prevousy determned sha be determned under
the prncpes of secton 3 01(d), and the ony ad|ustments to be made In
determnng whether there woud be an ncrease n ta sha be those resutng
from the dsaowance of the amount aowed. The ta abe years for whch the
determnaton s made sha be the ta abe year for whch the deducton was
aowed and any other ta abe year whch woud be affected by the dsaowance
of such deducton. ampes of such other ta abe years are ta abe years to
whch there was a carry-over or carry-back of a net operatng oss or an unused
e cess-profts credt from the ta abe year for whch the deducton for depreca-
ton, etc., was aowed, and ta abe years for whch a computaton under secton
22(b) (12) or secton 127 was made by reference to the ta abe year for whch
the deducton was aowed. In determnng whether the dsaowance of any
part of the deducton for deprecaton, etc., woud not have resuted n an
ncrease n any ta prevousy determned, proper ad|ustment must be made
for prevous determnatons under sectons 52, 73 , or 3 01, and for any prevous
appcaton of secton 113(b) (1) ( ) ().
If a determnaton under secton 113(b) (1) ( ) () must be made wth respect
to severa propertes for each of whch the amount aowed for the ta abe
year e ceeded the amount aowabe, the ta -beneft amount aowed wth
respect to each of such propertes sha be an aocated porton of the ta -
beneft amount aowed determned by reference to the sum of the amounts
aowed and the sum of the amounts aowabe wth respect to such severa
propertes.
In the case of property he|d by a partnershp or trust, the computaton of the
ta -beneft amount aowed sha take nto account the ta beneft of the part-
ners or benefcares, as the case may be, from the deducton by the partnershp
or trust of the amount aowed to the partnershp or the trust. For ths purpose,
the determnaton of the amount aowed whch resuted n a ta beneft to the
partners or benefcares sha be made n the same manner as that provded
above wth respect to the ta es of the person hodng the property.
ta payer seekng to mt the ad|ustment to bass to the ta -beneft amount
aowed for any perod, n eu of the amount aowed, must estabsh the ta -
beneft amount aowed. faure of adequate proof as to the ta -beneft amount
aowed wth respect to one perod does not precude the ta payer from mtng
the ad|ustment to bass to the ta -beneft amount aowed wth respect to
another perod for wnch adequate proof s avaabe. For e ampe, a corpo-
rate transferee may have avaabe adequate records wth respect to the ta
effect of the deducton for the ta abe years 19 6 and 19 7 of erroneous de-
precaton, but may not have avaabe adequate records wth respect to the
deducton of e cessve deprecaton for a pror perod durng whch the prop-
erty was hed by ts transferor. In such case, assumng a proper eecton s
made under secton 113(d), the corporate transferee sha not be dened the
rght to appy ths secton wth respect to the erroneous deprecaton for the
perod for whch adequate proof s avaabe.
(6) Determnaton of amount aowabe n pror ta abe years. Under sec-
ton 113(b) (1) ( ), one of the factors nvoved n determnng the ad|ustment
to bass as of any date s the amount aowabe for perods pror to such date.
The amount aowabe for such pror perods s determned under the aw
appcabe to such pror perods; a ad|ustments requred by the aw appcabe
to such perods are made n determnng the ad|usted bass of the property
for the purpose of determnng the amount aowabe. Snce provsons corre-
spondng to the amendment to secton 113(b) (1) ( ) made by Pubc Law 539
( 2d Cong.) are deemed ncuded n a revenue aws appcabe to ta abe
years endng after December 31, 1931, the amount aowabe for any such
ta abe year must be computed wth the appcaton of such provsons. For
e ampe, If the ad|usted bass of property s determned as of anuary 1, 1952,
If an eecton was propery made under secton 113(d), and If the property
was hed snce anuary 1, 1930, then the amount aowabe whch s taken nto
account In computng the ad|usted bass as of anuary 1, 1952, sha be deter-
mned for a ta abe years endng after December 31,1931, wth the appcaton
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167
29.113(b)(1)- .
to each such ta abe year of the provsons of secton 113(b) (1) ( ) as amended
by Pubc Law 539. Pubc Law 539 mode no change n the aw appcabe n
determnng the amount aowabe for ta abe years endng before anuary 1,
1932. In any case n whch, pror to the enactment of Pubc Law 539 ( uy 1 ,
1952) there was a fna decson of a court determnng the amount aowabe
for a partcuar ta abe year, such determnaton (but ony for the purpose of
determnng the ad|ustment under secton 113(b)(1)( ) by reference to such
aowabe amount) must be ad|usted to the e tent necessary to refect the amend-
nent made by Pubc Law 539 to the aw appcabe to the ta abe year for whch
the amount was aowabe.
though Pubc Law 539 amends the aw appcabe to a ta abe years endng
after L ecember 31, 1931, the amendment does not open for refund, credt, or
assessment of a defcency any ta abe year for whch such refund, credt, or
assessment s burred by any aw or rue of aw.
(7) Property wth transferred bass. The foowng rues appy In the
determnaton of the ad|ustments to bass of property n the hands of a trans-
feree, donee, or grantee whch are requred by secton 113(b) (2) wth respect
to the perod the property was hed by the transferor, donor, or grantor:
() n eecton under secton 113(d) by a transferor, donor, or grantor
made after the date of the transfer, gft, or gant of the property sha not
affect the bass of such property n the hands of the transferee, donee, or
grantee. Such an eecton made before the date of the transfer must be
taken nto account n determnng under secton 113(b)(2) the ad|ust-
ments to bass us of the date of the transfer, gft, or grant, whether or not
an eecton under secton 113(d) was made by the transferee, donee, or
grantee.
() n eecton by the transferee, donee, or grantee sha be appcabe
In determnng the ad|ustments to bass for the perod durng whch the
property was hed by the transferor, donor, or grantor, whether or not
the transferor, donor, or grantor had made an eecton, provded that the
property was hed by the transferee, donee, or grantee at any tme on or
before the date on whch hs eecton was made.
( ) ampe (I). The case of Corporaton dscoses the foowng facts:
(1)
(2)
(3)
( )
(5)
6)
mount
aowed
whch
reduced
ta payer s
ta es
mount
aowabe
but not
ess than
amount
aowed
mount
aowabe
but not ess
than amount
aowed
whch re-
duced ta -
payer s ta es
Year
mount
aowed
mount
aowabe
1W
6,000
7, 000
6,000
15, 500
7,000
,000
5.000
6, 500
6,500
6,000
5, .500
7,000
6,500
19 0
7,000
6, .500
1 51
Tota 19 9-1551
19, 500
19,000
1 52
( , 500
5,000
,500
6, 500
.1100
,500
0, 000
, 00(1
6,000
6, 500
.000
6,000
1953
1951
Tota 1952-195
16,500
The cost or other bass s to be ad|usted by 16,500 wth respect to the years
52-19f . that s, by the amount aowabe but not ess than the amount aowed
whch reduced the ta payer s ta es. n ad|ustment must aso be made wth
respect to the years 19 9 1951, the amount of such ad|ustment dependng upon
whether an eecton was propery made under secton 113(d). If no such eec-
ton was made, the amount of the ad|ustment wth respect to the years 19 9-1951
Is 19,500, that Is, the amount aowed but not ess than the amount aowabe.
If an eecton was propery made, the amount of the ad|ustment wth respect to
the years 19 9-1951 s 19,000, that s, the amount aowabe but not ess than
the amount aowed whch reduced the ta payer s ta es.
ampe (2). Corporaton purchased a budng on anuary 1, 1050, at a
cost of 100,000. On the bass of the facts reasouaby known to e st at the end
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S 29.113(b)(1)- .
16
of 1950, a perod of 50 years shoud have been used as the correct usefu fe
of the budng; nevertheess, deprecaton was computed by Corporaton on
the bass of a usefu fe of 25 years, and was aowed for 1950 through 1953 as a
deducton n an annua amount of ,000. The budng was sod on anuary 1,
195 . Corporaton dd not make an eecton under secton 113(d). No part
of the amount aowed Corporaton for any of the years 1950 through 1953
resuted n a reducton of Corporaton s ta es. The ad|usted bass of the
budng as of anuary 1, 195 , s ,166, computed as foows:
Year
d|ustments to
bass as of
begnnng of
ta abe year
d|usted
bass
Reman-
ng fe
Depreca-
ton
aowabe
Depreca-
ton
aowed
I960
0
100,000
96,000
92,000
90,0 3
,166
50
9

7
2,000
1,959
1,917
1,917
1 ,000
.000
.000
,000
1951
; ,noo
1 52
,000
11153
o, an
195
11, 3
ampe (S). The facts are the same as n ampe (2), e cept that Corpora-
ton made a proper eecton under secton 113(d). In such case, the ad|usted
bass of the budng as of anuary 1, 195 , s 92,000, computed as foows:
Year
d|ustments o
bass as ot
begnnng of
ta abe year
d|usted
bass
Reman
nc fe
Depreca-
ton
aowabe
Depreca-
ton
aowed
1960
0
100,000
9 . 00(1
96,000
9 .000
92,000
50
9

7
2,000
2,000
2,000
2,000
,000
,000
,000
.000
1951
52,000
,000
6,1)00
,000
1953 _
195
ampe ( ). If t s assumed that n ampe (2), or n ampe (3), a of
the deducton aowed Corporaton for 1953 had resuted n a reducton of s
ta es, the ad|ustment to the bass of the budng for deprecaton for 1953 woud
refect the entre ,000 deducton. In such case, the ad|usted bass of the bud-
ng as of anuary 1, 195 , woud be 6,0 3 n ampe (2), and 90,000 In
ampe (3).
ampe (5). The facts are the same as In ampe (2) e cept that for the
yenr 1950 a of the ,000 amount aowed Corporaton as a deducton for
deprecaton for that year resuted n a reducton of s ta es. In such case,
the ad|ustments to the bass of the budng reman the same as those set forth
n ampe (2).
ampe (6). The facts are the same as n ampe (3) e cept that for
the year 1950 a of the ,000 amount aowed Corporaton as a deducton for
deprecaton resuted n a reducton of s ta es. In such case, the ad|usted
bass of the budng as of anuary 1, 195 , s 90,123, computed as foows:
Year
d|ustments to
bass as of
begnnng of
ta abe year
d|usted
bass
Reman
tag fe
Depreca-
ton
aowabe
Depreca-
ton
aowed
1C50
0
100,000
90.000
9 .0 1
92,0 2
90, 123
60
9

7
2,000
1,959
1,959
1,959
,000
.000
,000
.000
1051
S ,000
6,959
7,91
9, 77
1952
1953
195 ...
(C) y nsertng before the eghth paragraph thereof begnnng
wth the words The cost or other bass sha aso be de-
creased the foowng: (c) hauston, wear and tear,
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169
IS 29.113(b)(1)- .
obsoescence, amortsaton, and depeton perods pror to March 1,
1913.
(D) y nsertng mmedatey pror to the nnth paragraph
thereof, whch paragraph begns wth the words In the case of
( ) y nsertng mmedatey pror to the eeventh paragraph
thereof, whch paragraph begns wth the words In the case of stoc k
of Unted States sharehoders , the foowng: (e) Stock
of U nted Statese sharehoders of a foregn persona hodng company.
(F) y nsertng mmedatey pror to the twefth paragraph
thereof, whch paragraph begns wth the words d|ustments must
aways be made , the foowng: (/) Other appcabe
rues. 1 .
Par. 3. There s nserted mmedatey after secton 29.113(c)-1 the
foowng:
PU LIC L W 539 S2d CONG.) PPRO D ULY 1 ,19521

Sec. 2. Secton 113 of the Interna Revenue Code (reatng to bass of
property) s hereby amended by addng at the end thereof the foowng
new subsecton:
(d) ecton n Respfct of Deprecaton, tc., owkd efore
1952. ny person may eect to have cause () of subsecton (b)(1)( )
appy n respect of perods snce February 2 ,1913, and before anuary 1,
1952. Such an eecton sha be made n such manner as the Secretary
may by reguatons presene, sha be rrevocabe, and sha appy n
respect of a property hed by the person makng the eecton at any
tme on or before the date on whch the eecton was made and n respect
of a perods snce February 2 ,1913, and before anuary 1, 1952, durng
whch such person hed such property or for whch ad|ustments must be
made under subsecton (b) (2). n eecton by a transferor, donor, or
grantor made after the date of the transfer, gft, or grant of property
sha not affect the bass of such property n the hands of the transferee,
donee, or grantee. No such eecton may be made after December 31,
1952.
Sec. 3. The amendments made by ths ct sha appy In respect of
ta abe years begnnng after December 31,193 . Provsons havng the
effect of such amendments sha be deemed to have been ncuded n the
revenue aws respectvey appcabe to ta abe years endng after De-
cember 31, 1931, and begnnng before anuary 1,1939.
Sec. 29.113(d)-. ecton as to mounts owed n Respect of Depreca-
ton, tc., efore 1952. (a) In genera. ny person may eect to have the
ad|ustments to the cost or other bass of property under secton 113(b) (1) ( )
determned In accordance wth cause () of such secton, by fng wth the
drector or coector of nterna revenue, on or before December 31, 1952, the
wrtten statement of eecton provded n (b), beow. The statement must be
fed wth the coector or drector wth whom the return must be fed (deter-
mned under secton 53(b) as of December 31, 1952). Such eecton sha be
rrevocabe after December 31, 1952, and sha appy wth respect to a perods
snce February 2 , 1913, and before anuary 1, 1952. The eecton sha appy
to a propertes hed by the person makng the eecton at any tme on or before
the date of such eecton.
ta payer may ncude In an eecton fed before December 31, 1952, a
statement that the eecton sha take effect when fed, and n such case the
eecton sha be Irrevocabe on the date fed, and sha not appy to any property
acqured by the ta payer after such date. If an eecton s made before De-
cember 31, 1952, and does not contan such statement, the eecton may be
revoked by fng on or before December 31, 1952, n the same offce In whch
the eecton was fed, a statement of revocaton e ecuted n the same manner
as the eecton. Snch an eecton made before December 31, 1952, and not re-
voked on or before that date, sha be deemed made on December 31, 1952,
and sha appy to a property hed by the ta payer at any tme on or before
such date.
stock,
Certan stock dstrbutons.
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29 113(b)(1)- .
170
copy of the wrtten statement of eecton must be fed wth the frst Income
ta return, amended return, or cam for refund fed on or after the date on
whch the eecton Is made.
n eecton by a partner Is not an eecton by the partnershp of whch he
Is a member, but a separate eecton must be made by the partnershp. Sm-
ary, au eecton by the partnershp appes ony wth respect to the partnershp,
and s uot appcabe to the separate property of the partners. smar rue
appes wth respect to eectons by trusts and benefcares of snch trusts.
n eecton whch conforms n substance to the provsons of ths secton sha
not be deemed nvad soey because t was fed pror to the date on whch the
reguatons n ths secton were promugated.
(b) Rue appcabe to makng of eecton. The foowng rues are appcabe
to the makng of an eecton under secton 113(d) :
(1) Form of eecton. The eecton sha be n the form of a statement
n wrtng addressed to the coector or drector of Interna revenue wth
whom fed, sha state the name and address of the ta payer makng the
eecton, and sha contan a statement that such ta payer eects to have
the provsons of secton 113(b) (1) ( ) () appy n respect of a perods
snce February 2 , 11)13, and before anuary 1,1952.
(2) Sgnature. The statement sha be sgned by the ta payer makng
the eecton, f an ndvdua, or, f the ta payer makng the eecton s
not an ndvdua, the statement sha be e ecuted In the same manner as
s requred n the case of the ncome ta return of such ta payer.
( ) Fng. The wrtten statement must be fed n the offce of the co-
ector or drector of nterna revenue on or before December 31, 1952. n
eecton sha be consdered as tmey fed f t s paced n the ma on or
before mdnght of December 31, 1952, as shown by the postmark on the
enveope contanng the wrtten statement of eecton or as shown by other
avaabe evdence of the mang date.
The amendments to secton 29.113(b) (1)-1 of Reguatons 111,
coverng ta abe years begnnng after December 31, 19 1, set forth
n ths Treasury Decson, are hereby made appcabe to ta abe
years begnnng after December 31, 1931, and before anuary 1, 19 2
(such years beng covered by Reguatons 77, 6, 9 , 101, and 103).
n sectons 62 and 3791 of the Interna Revenue Code (53 Stat. 32,
67; 26 U. S. C. 62, 3791).)
ohn S. Graham,
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster December 30,1952,11:32 a. m.)
Secton 29.113(b) (1)-1: d|usted bass: Genera
rue.
INT N L R NU COD
Reguatons 111 amended. (See T. D. 59 0, page 65.)
Sectton 29.113(b) (1)-1: d|usted bass: Genera
rue.
nterna revenue code
Reguatons 111 amended. (See T. D. 5991, page 1 6.),
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171
29.113(d)- .
Secton 29.113(b) (1)-1: d|usted bass: Genera
rue.
INT RN L R NU COD
ectons fed by ta payers under secton 113(d) n respect of de
precaton, etc., aowed before 1952. (See Rev. Ru. 30, beow.)
Secton 29.113(b) (3)-1: d|usted bass: Ds-
charge of corporate ndebtedness: Genera
rue.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. C003, page 2 .)
S CTION 113(d). D UST D SIS FOR D T RMINING
G IN OR LOSS: L CTION IN R SP CT OF D PR CI -
TION, TC., LLOW D FOR 1952
Secton 29.113(d)-: ecton as to amounts Rev. Ru. 30
aowed n respect of deprecaton, etc., be-
fore 1952.
( so Secton 113(b), Secton 29.113(b) (1)-1.)
INT RN L R NU COD
Procedures reatng to the processng and e amnaton of eec-
tons, n respect of deprecaton, efc, aowed for any perod before
anuary 1, 1952, ted by ta payers pursuant to secton 113(d) of
the Interna Revenue Code, as added by Pubc Law 539 (S2d
Cong.), C. . 1952-2, 35 .
1. Pubc Law 539 ( 2d Cong.), C. . 1952-2, 35 , amended sec-
ton 113(b)(1)( ) of the Interna Revenue Code (reatng to the
ad|ustment of the bass of property for deprecaton, obsoescence,
amortzaton, and depeton) and added secton 113(d) thereto. In
accordance wth secton 113(d), any person may eect to have cause
() of secton 113(b) (1) ( ) appy and such eecton sha appy wth
respect to a perods after February 2 , 1913, and before anuary 1.
1952, durng whch such person hed the property and the perod, f
any, for whch ad|ustments must be made as provded n secton
113(b) (2) of the Code, reatng to substtuted bass.
2. Treasury Decson 5967, page 163, ths uetn, approved Decem-
ber 30, 1952, sets forth the amendments to Reguatons 111 by vrtue of
Pubc Law 539. Secton 29.113 (d) -1 of such reguatons, as amended,
prescrbes the manner n whch the ta payer may make an eecton as
to amounts aowed n respect of deprecaton, etc., for any perod be-
fore anuary 1, 1952. mong other thngs, the prescrbed form
of eecton s requred to be fed wth the approprate coector or
drector of nterna revenue on or before December 31, 1952, and s r-
revocabe after December 31, 1952.
3. eectons w be retaned n the audt dvsons of the drec-
tors offces for permanent, aphabetca fng. n e amnaton of the
Orgnay ssued as IR-Mmeograph 129, dated February 5, 1953.
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29.113(d)- .
172
eectons w be made to determne whether or not they have been
tmey fed and otherwse meet the requrements of the reguatons.
Many of the eectons w have been fed pror to pubcaton of the
reguatons, and t s probabe that there w be a number whch, a-
though cear as to ntent, do not conform precsey to the requrements.
In vew thereof, tmey fed statements whch reasonaby satsfy the
requrements of the reguatons and ceary sgnfy an ntenton on the
part of the ta payer to make an eecton, w be treated as such by
drectors even though, n mnor respects, they may not conform pre-
csey to the stated requrements.
. tmey fed eectons found to be acceptabe w be acknow-
edged by the drector s offce by etter whch, n addton to an acknow-
edgment of recept of the eecton, w contan the foowng state-
ments :
Your attenton s caed to Treasury Decson 5907, page 103, ths uetn,
nnendng Reguatons 111, whh-h provdes n secton 2 .113(d)-(a) that a copy
of the wrtten statement of eecton must be fed wth the frst ncome ta return,
amended return, or cam for refund fed on or after the date on whch eecton s
made: and whch provdes n secton ).113(b) (1)-1(6) (6) that athough Pubc
Law 53SI amends the aw appcabe to a ta abe years endng after December 31,
19 1, the amendment does not open for refund, credt, or assessment of a defcency
any ta abe year for whch such refund, credt, or assessment s barred by aw or
any rue of aw.
The aw tsef, or the fng of an eecton thereunder, nether provdes a bass
for automatc ad|ustment of any reported ta abty nor e tends the statutory
perod of mtaton for ad|ustment. ccordngy, t w be necessary for you
to fe a cam for refund or an amended return for any ta abe year for whch
the ta abty s to be ad|usted by reason of ad|ustment to the bass of
property attrbutabe to the eecton and for whch the statutory perod of
mtaton has not e pred.
5. ny eecton not tmey fed w be made the sub|ect of a etter
to the ta payer statng brefy that, snce the eecton was not fed on
or before December 31, 1952, n accordance wth the provson of the
aw and reguatons, such eecton s not vad and, therefore, the
Srevsons of cause () of secton 113(b)(1)( ) of the Interna
evenue Code do not appy n respect of any perod pror to anuary
1, 1952.
6. vad eecton w not of tsef requre an e amnaton of the
returns of the ta payer nvoved. Cams for refund or amended
returns fed by ta payers as a resut of makng an eecton w be
e amned n accordance wth estabshed procedures. Other returns
nvovng the provsons of secton 113(b) (1) ( ) () of the Code,
whether because of an eecton or otherwse, w be consdered for
e amnaton under reguar cassfcaton and. seecton procedures.
owever, the foregong s not ntended to precude a drector s offce
from makng an e amnaton of a ta payer s return on the bass of
the appcaton of secton 113(b) (1) ( ) (), otherwse than as here-
nbefore ndcated, f the crcumstances of the case warrant.
Secton 29.113(d)-: ecton as to amounts
aowed n respect of deprecaton, etc., be-
fore 1952.
INT RN L R NU COD
eguatons 111 amended. (See T. D. 5967,page 163.)
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173 29.11 -1.
S CTION 11 . SIS FOR D PR CI TION
ND D PL TION
Secton 29.11 -1: ass for aowance of depre- Rev. Ru. 16
caton and depeton.
( so Secton 23(m), Secton 29.23(m)-.)
INT RN L R NU COD
Where ad vnorem property ta es are mposed on mnera-bearng
ands and the essee pays the essor s share of such ta es pursuant
to the mnera ease on the and, such payments sha be treated as
addtona royates whch are e cudabe from the essee s gross
ncome and ncudbe n th- essor s depetabe gross ncome to the
e tent that there s suffcent gross ncome from mnera producton
to cover the ta . If there s nsuffcent gross Income from pro-
ducton to cover the ta , such payments sha be treated as deay
renta, a deductbe e pense of the essee and nondepetaMe Income
to the essor.
dvce s requested whether ad vaorem property ta es on mnera-
bearng ands are e cudabe from depetabe gross ncome of the essee,
under secton 11 (b) of the Interna Revenue Code, where, pursuant
to the terms of the mnera ease, the essee pays a such ta es whch
are mposed on the eased ands.
The typca ease n queston provdes that the essee sha pay to
the essor royaty payments based on the amount of ore mned durng
the year, sub|ect to mnmum annua payments; and that such mn-
mum payments, to the e tent that they e ceed the royates due wthn
the year, sha be credted aganst royates due n any future year.
It further provdes that the essee sha pay a ad vaorem property
ta es accrung on the property durng the perod the ease remans n
force.
In the nstant case, the ta b was addressed to the essee and the
assessment was for State, county, town and schoo ta es, whch were
based upon the assessed vauaton of the property, ncudng the vaue
of any mnera rghts contaned n the and. The abty for such
ta es s not confned to years n whch mnng operatons are con-
ducted, but may appy to years pror to the openng of a mne or to
years durng whch operatons are suspended. Under State aw, such
ta es are eved aganst the property tsef, enforceabe ony by an
n rem proceedng n whch no persona abty s created, athough
the essee s nterest n the property, together wth a mprovements
paced thereon by the essee woud be sub|ect to sezure to satsfy any
such ta aganst the property.
In G. C. M. 26526 (C. . 1950-2, 0), t was, n effect, concuded that
payments made, pursuant to ease terms, by a essee of o and gas
propertes of ad vaorem ta es assessed aganst a essor s nterest n
such propertes were n the nature of deay rentas n years pror to
producton, but were rent or royaty payments, under secton
111(b) (3) of the Interna Revenue Code, n years of producton to the
e tent that such payments of ta abty dd not e ceed the gross
ncome from producton from the propertes for the year. saoth
the essor and the essee n that case undoubtedy possessed depetabe
economc nterests n the eased property, the ony questons theren
presented were the e tent to whch the payment by the essee of the
26335 53 12
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29.11 -1.
17
essor s ad vaorem ta es represented depetabe ncome, and whether
the agreement by the essee to make such payment was a part of the
sharng arrangement between the partes to be taken nto account
n equtaby apportonng aowabe depeton between them.
It seems cear that royaty payments may be measured n varous
ways. For e ampe, had the ease provded for royaty payments
measured by a specfed share of the year s producton proceeds, pus
the essor s share of the ad vaorem ta es for the year, the tota not
to e ceed the ncome from producton for that year, there woud
seem to be no queston that producton ncome to that e tent woud
have been the essor s share of the ncome produced . e., a royaty
payment e cuded from gross ncome of the essee wthn the ambt of
the e press anguage of secton 11 (b) ( ) ( ) of the Interna Revenue
Code, e cudng from essee s gross ncome an amount equa to
any rents or royates pad or ncurred n respect of the
property.
It seems equay cear that deay renta payments may kewse be
measured n varous ways. ad the ease nvoved n the cted opn-
on provded for deay renta payments measured by doars per
acre per year for years pror to deveopment, pus essor s share of
the ad vaorem ta for such years, t woud seem pan that such deay
rentas woud have represented nether depetabe ncome to the essor
nor payments e cudabe from essee s ncome under the above-cted
statutory provson. Such payments are nondepetabe tems of n-
come to the essor, snce the requste dmnuton n the vaue of hs
capta nterest n the eased property, resutng from a converson
of capta nto ncome to gve the depeton provsons operatve
effect, dd not occur upon such payments. Certany, there was no
dmnuton n vaue attrbutabe to the e tracton and sae of the nat-
ura resource content of the and as occurs n the case of ordnary
producton royaty payment. Nor can such payments quafy as
advance royaty payments to estabsh the requste dmnuton n vaue
n the essors nterest resutng from such payments as n the case
of ether (1) a bonus payment upon the e ecuton of a ease (whch
presumptvey reduces future producton royaty payments to the
essor), or (2) royaty payments n advance of producton, such as
mnmum royaty payments whch may be credted as royaty payments
on producton n future years.
Nor are such deay renta payments gven mpct depeton sgnf-
cance by beng rents or royates e cudabe from gross ncome
of the essee under the above-quoted provson of secton 11 (b) ( ) ( )
of the Code. That provson, frst appearng n the Revenue ct of
1932, merey (1) codfed the then e stng rue that provsons for
royaty payments n mnera eases effected a sharng arrangement
between the partes, each such party beng requred to ncude n hs
gross ncome ony hs agreed share, thereby e cudng the gross ncome
attrbutabe to other shares, and (2) e tended such e cuson rue to
rents . (See IIeverng v. Twn e O Syndcate, 293 U. S. 312,
Ct. D. 905, C. . I -1, 253 (1935); G. C. M. 22730, C. . 19 1-1,
211 and cases cted theren.) The concept of e cudng the ncome
share of others from the ncome of one nomnay n the poston of
the payor necessary assumes that there s producton ncome to
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175
IS 29.11 -1.
dvde. Payments made n other crcumstances are essentay ether
capta e pendtures, as n the case of advance royaty payments, or
deductbe e penses as n the case of deay renta payments, and,
therefore, wthout the quoted e cuson provson. Such payments
are depetabe ncome to the payee ony t they are advance royates
attended by dmnuton n the vaue of the payee s capta nterest.
Payments of the essor s share of ad vaorem ta es, beng payabe
throughout the producton fe of the mnera property, are not ad-
vance payments n any sense; nor do they cause dmnuton n the
payee s capta nterest, e cept to the e tent payabe out of ncome
from the e tracton and sae of the mnera content of the and.
Thus, vewed reastcay, the essee s payments of the essor s share
of ad vaorem ta es s nondepetabe ncome to the essor (and de-
ductbe rather than e cudabe renta payments by the essee) e cept
to the e tent payabe out of producton ncome. Ths resut fows
from the appcaton to ths ssue of the basc reasonng of the con-
trong cases. The codfyng statute confrms ths vew, as the statute
seems nept e cept to the e tent there s suffcent producton ncome
to meet the payment, n whch event the pan anguage of the statute
requres t to be treated as a rent or royaty e cuson from essee
ncome for the reason that t represents gross ncome of the essor,
and, consequenty, depetabe gross ncome to hm.
ttempts to dstngush the nstant case from the case presented
n G. C. M. 26526, supra, are not persuasve. s the nstant payments
were to, or for the beneft of, the essor pursuant to the ease contract,
they seem to quafy as rent or royates as much n the one case as n
the other. s addtona royates they are dstngushabe from
other busness e penses of the essee ncurred by hm n transactons
wth thrd partes n the pursut of hs busness of e potng the mn-
era resources of the and.
The entre ad vaorem ta cannot be sad to be the ta abty of
the essee merey because hs entre essee nterest and hs other prop-
ertes thereon coud be sezed to satsfy the ta cam. The essor
coud say the same wth equa force for the same reason. ad the
partes not contracted as they dd, the ad vaorem ta woud doubtess
have been shared between them presumptvey n proporton to the
vaue of ther respectve nterests as the assessment s based on the
tota vaue of the property n whch ther nterests nhere. If, as
ndcated, the fact that the essee pad the entre ta eads ony to the
concuson that payment of the essor s share thereof was essentay
addtona renta payment for the account of the essor, t woud seem
to foow that the ease provsons gvng the essor a en to assure
such payment woud not change the character of the payment made
under the Interna Revenue Code.
If, as noted, the ease agreement between the essee and essor had
not provded for the payment of ad vaorem ta es on the eased prop-
erty by the essee, such ta es woud doubtess have been shared by
them. Therefore, n order to determne the amount of such ta es
pad by the essee for the account of the essor t s necessary to ascer-
tan the proportonate vaues of ther respectve nterests n the prop-
erty and to use such vaues as a bass for determnng a rato whch s
to be used to aocate the ta es between the partes. Ony reatve
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5 29.11 -.
170
vaues are requred. Therefore, t w not be necessary to reduce
tota profts to ther present worth. Resuts of operatons n a cur-
rent ta abe year shoud never be used as the soe crteron for deter-
mnng a rato. The rato may be determned by the ureau, n case
no agreement can be reached between the partes, or, f an agreement
thereon s reached between the partes whch s consdered reasonabe
by the ureau, such rato w be accepted. The rato, once estab-
shed, must reman undsturbed n future years as ong as there s
no matera change n the bases upon whch t was orgnay
estabshed.
ccordngy, t s hed that where ad vaorem property ta es are
mposed on mnera-bearng ands and the essee pays the essor s
share of such ta es pursuant to the mnera ease on the and, such
payments sha be treated as addtona royates whch are e cudabe
from the essee s gross ncome and ncudbe n the essor s depetabe
gross ncome to the e tent that there s suffcent gross ncome from
mnera producton to cover the ta . If there s nsuffcent gross n-
come from producton to cover the ta , such payments sha be treated
as deay renta, a deductbe e pense of the essee and nondepetabe
ncome to the essor.
Secton 29.11 1: ass for aowance of depre- Rev. Ru. 76
caton and depeton.
( so Secton 23(m), Secton 29.23 (m)-1.)
INT RN L R NU COD
Computaton of percentage depeton In the case of pyrtes and
smar ores contanng two or more mneras whch are granted
dfferent percentages of gross ncome under secton 11 (b)( )( )
of the Interna evenue Code.
dvce s requested as to the proper method of computng percentage
depeton n those cases where ores contanng two or more mneras,
such as pyrtes, sub|ect to dfferng rates of percentage depeton, are
produced.
In the ustratve case of pyrte, an ron sufde, the ore may be sod,
(a) for ts sufur content (rate 23 percent), or (6) for ts ron con-
tent (rate 15 percent), or both.
It s the poston of the ureau that pyrte s an ore of sufur and
ron, whch products are entted to dfferent rates of percentage de-
peton. In the case of pyrte, 23 percent of gross ncome from sufur
pus 15 percent of gross ncome from ron woud be the ma mum a-
owabe percentage depeton under secton 11 (b) ( ) ( ), but the
deducton woud be sub|ect to the mtaton provded for n that
secton, . e., 50 percent of net ncome from the property, the prop-
erty beng the ta payer s nterest n the mnera depost, and the net
ncome beng the overa net ncome resutng from the sae of a
ncuded commerca mneras.
The same probem e tends to cases where the property contans one
or more mneras entted to percentage depeton and one or more
addtona mneras whch are entted to cost depeton ony. In such
cases, depeton aowance s determned e acty as above and us-
trated s foows.
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177
29.11 -1.
ssume the addton of a thrd mnera, , n the pyrte ore, whch
s entted to cost depeton ony. Ma mum aowabe percentage de-
peton woud be 23 percent of gross ncome from sufur, pus 15
percent of gross ncome from ron, pus zero percent of gross ncome
from . The mtaton woud be 50 percent of net ncome resutng
from the sae of a three mneras. Cost depeton, whch s the
mnmum depeton aowabe, woud be computed on the ad|usted
bass of the entre property.
When a mneras n an ore are entted to depeton at the same
rate, the sum of the recepts becomes the bass.for computng statutory
gross ncome from the property for the snge computaton neces-
sary. When the mneras nvoved are entted to dfferent rates, the
amount receved n payment for each necessary becomes a fact ques-
ton. Normay ths fact queston can be resoved by an e amnaton
of the saes contracts.
Secton 29.11 -1: ass for aowance of Rev. Ru. 106
deprecaton and depeton.
( so Secton 23(cc); Secton 23(ff).)
INT RN L R NU COD
Percentage depeton aowabe to producers of uranum mneras,
such deposts beng cassfed as meta mnes. Sectons 23(ff)
and 23(ec) of the Interna Revenue Code appy to a types of mn-
ng operatons ncudng uranum mnes.
dvce s requested as to the cassfcaton for percentage depeton
purposes of a depost of mneras or ores used as a source of uranum;
aso as to the appcabty of sectons 23 (ff) and (cc) to uranum
mnes.
s uranum s a meta, any depost of mneras or ores used as a
source thereof s cassfed as a meta mne for percentage depeton
purposes under secton 11 (b) ( ) of the Interna Revenue Code.
It foows that, for years endng after December 31, 1950, sectons
23 (ff) and (cc) of the Code, both appcabe to meta mnes, appy
to e poraton and deveopment e pendtures.
Secton 29.11 -1: ass for aowance of depre-
caton and depeton.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 600 , page 5.)
Secton 29.11 -1: ass for aowance of depre-
caton and depeton.
INT RN L R NU COD
ass of determnng depeton aowances wth respect to ncome
receved, from the sae of top so. (See Rev. Ru. 7 , page 1 .)
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5 29.116-1.
17
S CTION 115. DISTRI UTIONS Y CO PO TIONS
Secton 29.115-1: Dvdends. Rev. Ru. 5
( so Secton 22(a), Secton 29.22(a)-.)
INT RN L R NU COD
ma|orty stockhoder waved a rght, tte, and nterest n future
undecared dvdends for a certan perod of tme n order to ncrease
the surpus of the corporaton to enabe t to meet certan ega requre-
ments regardng contempated busness. There was no famy, or
drect busness reatonshp, between the ma|orty and mnorty stock-
hoders. The decaraton and payment of any dvdend to the
mnorty stockhoders woud not ncrease the nterest of the wavng
stockhoder n the remanng or future surpus of the corporaton.
The arrangement was entered nto for bona fde busness reasons.
ed, any dvdend payments to mnorty stockhoders w not resut
n ncome to the wavng stockhoder and the corporaton w not
reaze ncome on account of the waver.
Secton 29.115-3: arnngs or profts. Rev. Ru. 107
INT RN L R NU COD
Fraud penates recommended aganst a ta payer shoud not be ac-
crued as abtes for the purpose of determnng the amount of sur-
pus and earnngs avaabe for dvdends, unt the abty therefor
has become fna and defnte n amount, ether by agreement or
otherwse.
Secton 29.115-7: Stock dvdends.
INT RN L R NU COD
Dstrbuton of prncpa cash to an ncome fe benefcary of a
trust n eu of a nonta abe stock dvdend whch was not permtted
to be dstrbuted under State aw. (See Rev. Ru. 2 , page 263.)
S CTION 116.- CLUSIONS FROM GROSS INCOM
Secton 29.116-1: arned ncome from sources
wthout the Unted States.
INT RN L R NU COD
Income of Unted States ctzens for servces performed on Guam.
(See Rev. Ru. , page300.)
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179
29.117-7.
S CTION 117. C PIT L G INS ND LOSS S
Secton 29.117- : Determnaton of perod
for whch capta assets are hed.
INT RN L R NU COD
Reguatons 111 amended. (SeeT. D. 5991, page 1 6.)
Secton 29.117-7: Gans and osses from nvoun- Ct. D. 1760
tary conversons and from the sae or e change
of certan property used n the trade or busness.
1. Gross Income Ordnary Income v. Capta Gan Sae of
Orange Grove, Incudng Unmatured Crop.
Where ta payer, encased In the busness of growng and seng
oranges, n ugust 19 , sod her nterest n the orange grove,
ncudng and, trees, unmatured crop, mprovements, etc., that
porton of the proceeds from the sae whch s attrbutabe to the
unmatured crop shoud be treated as ordnary ncome rather than
as capta gan.
2. Decson ffrmed.
Decson of the Unted States Court of ppeas, Nnth Crcut,
197 F. (2 ) 56 (1952), affrmng decson of the Ta Court of the
Unted States, 15T. C. 00 (1950), affrmed.
Supreme Court of the Unted States
rnest . Watson and M. Gadys Watson, pettoners, v. Commssoner of
Interna Revenue
On wrt of certorar to toe Unted States Court of ppeas for the Nnth Crcut
May 1 , 1953
OPINION
Mr. ustce urton devered the opnon of the Court.
Ths case reates to a ta payer who, for severa years, hed an undvded
nterest n an orange grove and engaged n the busness of growng and seng
the oranges t produced. In the mdst of the 19 growng season, she sod her
nterest n the grove, Incudng an unmatured crop then on the trees. The ques-
ton before us s whether, for Federa ncome ta purposes, she must treat that
part of her proft from the sae whch s attrbutabe to the unmatured crop as
ordnary ncome or as a capta gan. For the reasons hereafter stated, she
must treat t as ordnary ncome.
In 19 , Mrs. M. Gadys Watson, one of the pettoners here, and her two
brothers, each owned an undvded one-thrd nterest n a 110-acre nave orange
grove near eter, Tuare County, Caf. Its management had been supervsed
by her brothers snce 1912 and, snce 19 2, she and her brothers had operated
t as a partnershp. It was the odest and one of the best groves n the ocaty.
Its producton per acre was about twce the average of such producton In the
county. In each of the ast 5 years the vaue of Its crop had ncreased over
that of the year before. In 19 3 t produced 79, 51 oose bo es of oranges,
yedng a gross ncome of 136, 0 .71. fter deductng a e penses of cutva-
ton, operaton, pckng and haung, a net ncome of 92,153.05 was eft.1 n-
1 In 10 2 It yeded 6 ,939 bo es wth a gross Income of 2,521.17 and a net of
9,790.10. Its average annua yed from 1931 to 19 3 was 55,097 bo es wth a gross
Income of 6,512.6 and a net of 22,1 1. 2.
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I 29.117-7.)
1 0
tcpatng a heavy frost after November 19 , one of the brothers advocated
seng the grove before then. ccordngy, n May or une, t was offered for
197,100, compete, ncudng hnd, trees, unmatured crop, Improvements, equp-
ment and a 5-acre peach orchard. t about that tme the 19 orange crop
was n boom.
y uy the smner frut had dropped from the trees and the crop was set,
but not assured. purchaser became nterested but deayed hs decson so as
to determne more accuratey the probabe crop and to cause the seers to bear
more of the e pense of ts care. e e amned past producton records and,
by eary ugust, receved estmates that the 11) crop mght be from 70,000
to 0,000 bo es, whch, at current prces, woud brng hm 120,000 for the crop
above e penses. One of Mrs. Watson s brothers aso estmated the 19 crop
at 70,000 bo es f t matured. ugust 10, the saes prce of 197,100 was agreed
upon, payabe 10,000 n cash and the baance September 1. No aocaton of
the prce between the crop and the rest of the property was specfed but the
seer bore the e pense of carng for the crop up to September 1, amountng to
16,020.5 . The sae was carred through and there was no serous frost. The
crop fed 7 ,20 bo es. The purchaser sod them for 1 ,000, yedng hm
a net return of 120,000.
Mrs. Watson fed a |ont return wth her husband, takng fu deductons for
her one-thrd share of a of the busness e penses ncurred n the cutvaton
of the crop, but treatng her gan from the sae of the grove, ncudng the un-
matured crop, as a ong-term capta gan. On that bass, her net gan from the
sae of the grove was shown as , 19.32, but, treatng t as a ong-term capta
gan, ony 50 percent of t, or 2 , 09.91, was ncuded n her ta abe ncome.
The Commssoner of Interna Revenue assessed a defcency aganst pet-
toners, argey based on hs cam that whatever part of Mrs. Watson s ncome
was attrbutabe to the unmatured crop shoud be treated as ordnary ncome.
e aocated 122,500, out of the 197,100 receved for the grove, as attrbutabe
to the unmatured crop. On that premse, he assessed a defcency of 2 ,101.35
aganst pettoners on ther |ont return. On revew, the Ta Court, wth two
|udges dssentng, sustaned the Commssoner n prncpe hut reduced to 0,000
the porton of the proceeds attrbutabe to the crop. 15 T. C. 00. Wth other
ad|ustments, not matera here, the Ta Court reduced the defcency to 6,920.35.
The court of appeas affrmed. 197 F. 2d 50. In the meantme, the Ta Court
made comparabe decsons n McCoy v. Commssoner, 15 T. C. 2 , and Otcen v.
Commssoner, 19 P- 1950 Fed. Ta Serv. paragraph 50,300, each of whch
was reversed on appea, 192 F. 2d 6 (C. . 10th Cr.), and 192 F. 2d 1006
(C. . 5th Cr.). Shorty before the atter decsons, the Revenue ct of 1951
amended the statute n reaton to ta abe years begnnng after December 31,
19.10, to permt proceeds from certan saes of unhnrvested crops to be treated
as capta gans. We granted certorar n the nstant case to resove the above-
ndcated confct of statutory constructon st affectng many saes made before
1951. 3 U. S. 95.
The ssue before us turns upon the cts of Congress. In 1951, Congress, for the
frst tme, deat e pressy and specfcay wth ths sub|ect. Whe that acton
was prospectve ony, Its terms throw ght on the probems of pror years The
Sec. 117 (h) nnd (e)(2, I. R. C, as amended by sec. 50(c) of the Revenue ct of
19 2. c. 619, 56 Stat. 3- , 26 tT. S. C. ( .MO ed., Supp. ) sec. 117 (b) and (c)(2).
5 Stnt. Sm 5(11. 2( U. S C. (Supp. ) sees. 117(|). 2 (f). 113(b)(1).
The Revenue ct of 1951 added to sec. 117( ) of the Interna Revenue Code:
(3) Sae op and wth cnharvekteo crop. In the case of an unharvested crop on
and used In the trade or busness and hed for more than 6 months. If the crop and the
and are sod or e changed (or compusory or Invountary converted as descrbed In
paragraph (2)1 at the same tme and to the same person, the crop sha be consdered
as property used In the trade or busness. 65 Stat. 500, 26 U. S. C. (Supp. ) sec.
117( ) (3).
nd. equay Important, It added to sec. 2 of the Interna Revenue Code:
(f) Sae op Land Wth Unharvested Chop. Where an unharvested crop sod by
the ta payer Is consdered under the provsons of secton 117( )(3) as property used In
the trade or busness. In computng net ncome no deducton (whether or not for the
ta abe year of the sae and whether for e penses, deprecaton, or otherwse) attrbutabe
to the producton of such crop sha be aowed. Id., at 501, 26 U. S. C. (Supp. )
sec. 2 (f).
6 The purpose of Congress to make ths amendment prospectve, rather than retroactve.
Is emphaszed In the very ne t secton of the 1951 ct. That secton made retroactve
to 19 2 another amendment to sec. 117(|. It redefned capta gans so as to ncude
the proceeds of certan saes of vestock, provded such stock be hed for draft, breedng
or dary purposes. Stock so hed s comparabe to the orange trees rather than to the
orange crop In the nstant case.
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15 29.117-7.
adopton of that amendment emphaszed the pont that the queston was one of
Federa aw. Its adopton aso recognzed that, n order for such ncome to be a
capta gan, an affrmatve statement by Congress was needed. Fnay, t not
ony permtted proceeds of unharvested crops to be treated as capta gans under
certan crcumstances, but t provded that, under those crcumstances, the ta -
payer coud not deduct from hs ta abe ncome the e penses attrbutabe to the
producton of the unharvested crop. Those e penses thereafter must be treated
as capta Investments added to the bass of the property to whch they rente.
Ths emphaszes the mproprety of the nterpretaton advocated by Mrs. Watson
In the nstant case. She seeks to deduct her share of the crop cutvaton e -
penses at 100 percent up to the date of the sae. t the same tme, she cams
a rght to report ony 50 percent of her gan on the sae of those crops to whch
the cutvaton e penses reate.
In the nstant case, we are dependent upon sec. 117(|) of the Interna Revenue
Code, as n effect n 19 . The controng anguage n that subsecton then
requred that. In order for gans from the sae of property to be treated as capta
gans, the property sod must be used n the trade or busness of the ta payer,
hed for more than 6 months, and not hed by the ta payer prmary for sae
to customers n the ordnary course of hs trade or busness. In the nstant case,
the Commssoner contends that, whe the and and trees met these and a
other tests of the subsecton, the unmatured, unharvested crop of oranges met
none of the above three.
ach day brought the annua crop coser to ts avaabty for sae n the
ordnary course of that busness. Whe the uncertanty of ts condton at
maturty dscounted ts current vaue, nevertheess, ts preseuce contrbuted
substantay to the vaue of the grove. The Commssoner aocated to the un-
matured crop, as of September 1, a vaue of 122,500 out of the 107,100. The
Ta Court reduced ths to 0,000. We accept the atter amount now confrmed
by the court of appeas. It s obvous that the partes to ths sae (d n fact
attrbute substanta vaue to the unmatured crop. If, at any moment, the crop
had been strpped from the trees or destroyed by frost, there woud have
resuted at once a substanta reducton n the saes vaue of the grove.
ssumng 0,000 to be the vaue fary attrbutabe to the presence of the crop
n ugust and September 19 , t remans for the ta payer to demonstrate that
kc. 117( ) has authorzed that vaue, n addton to the vaue of the and, trees,
Improvements and equpment, to be treated as a capta gan.
In ths connecton, tbe Senate Commttee on Fnance, when reportng the proposed
amendment In 1951. sad:
Tour commttee beeves that saes of and together wth growng crops or frut are
not such transactons as occur In the ordnary course of busness ana shoud thus resut
In capta gans rather than n ordnary ncome. Sec. 323 of the b so provdes.
Yonr commttee recognzes, however, that when the ta payer keeps hs accounts and
makes hs returns on the ca h recepts and dsbursements bass, the e penses of growng
the unharvested crop or the unrpe frut w be deducted In fu from ordnary Income,
whe the entre proceeds from tbe sae of the crop, as such, w be vewed as a capta gan.
ctuay, of course, the true gan In such cases Is the dfference between that part of the
seng prce attrbutabe to the crop or frut and the e penses attrbutabe to Its produc-
ton. Therefore, your commttee s b provdes that no deducton shn be aowed whch
s attrbutabe to the producton of such crops or frut, but that the deductons so dsaowed
sha be ncuded n the bass of the property for the purpose of computng the capta gan.
The provsons of ths secton are appcabe to saes or other dspostons occurrng n
ta abe years begnnng after December 31, 11)50.
Tbe revenue oss under tbs provson Is e pected to be about 3 mon annuay.
. ept. No. 7 1. 2d Cong., 1st sess. 7- .
Interna Revenue Code, as amended. 56 Stat. 6 :
S C. 117. C PIT L G INS ND LOSS S.
( ) Gans and Losses Fbom the Sae ob change of Certan Pbopert
Cbed n the Tkaue ob usness.
(1) Defnton of pbopebtt used n the tbade ob bosness. For the purpose
0/ ths subsecton, the term property used n the trade or busness means property
nsed n the trade or busness, of a character whcb Is sub|ect to the aowance for
deprecaton provded n secton 23(1), hed for more than 6 months, and rea property
nsed In the trade or busness, hed for more than 6 months, whch s not ( ) property
of a knd whch woud propery be ncudbe In the Inventory of tbe ta payer f on
band at the cose of the ta abe year, or ( ) property hed by the ta payer prmary
for sae to customers n the ordnary course of hs trade or busness.
(2) Genera boe. If, durng tbe ta abe year, tbe recognzed gans upon saes
or e changes of property nsed In the trade or busness e ceed the recognzed
osses from such saes, e changes, and conversons, such gans and osses sha be
consdered as gans and osses from saes or e changes of capta assets hed for more
than 6 months. If such gans do not e ceed such osses, such gans and osses sha
not be consdered as gans and osses from saes or e changes of capta assets .
Utacs supped.) See 26 U. S. C. sec. 117( ).
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29.117-7.
1S2
Mrs. Watson and the Courts of ppeas for the Ffth and Tenth Crcuts have
paced emphass upon a cam that, under the aw of the state where the and s
stuated, an unmatured, unharvested crop, for many purposes, s treated as rea
property. We regard that as mmatera. Whether or not the crop be rea
property, the Federa ncome ta upon the gan resutng from ts sae s, n ts
nature, a sub|ect of Federa aw.
The Commssoner urges two grounds n support of hs poston that sec.
117(|) does not authorze the ta payer s treatment of the proceeds of the unma-
tured crop as a capta gan. The frst s that the proceeds fary attrbutabe
to the crop are derved from property hed by the ta payer prmary for sae
to customers n the ordnary course of the ta payer s trade or busness. We
agree wth that contenton. though the property was not severabe at the date
of ts sae, there s nothng n the ct requrng t to be severabe. Whe, n
prevous years, ke crops were hed for a sae that occurred after maturty, n
11) the date of that sae came September 1. There s nothng n the ct that
dstngushes between the ta abe character of a gan derved from a present
sae dscountng the hazards of the future, and one derved from a ater sae
when the hazards are past. fter the transfer of tte to the grove, the crop
on the trees retaned ts character and contnued to be hed for sae to customers
of the grove owner n the ordnary course of the owner s trade or busness.
The Commssoner s treatment of the proceeds of saes of unmatured crops as
ordnary ncome n the absence of a statutory requrement to the contrary s
consstent wth the pocy evdenced n Wamt v. rGouan, 152 F. 2d 570, 572,
whch estabshed n the Second Crcut, n 10 5, the doctrne that u on the sae
of a gong busness t 11e saes prce s to be commnuted nto ts fragments,
and these are to be separatey matched aganst the defnton n sec. 117(a) (1)
. It s consstent aso wth the pocy of the ureau of Interna evenue
and the Ta Court, datng, at east, from the statement made by the ureau n
1U I , that, under crcumstances comparabe to those before us, regardess of ther
stage of deveopment, any gan reazed from the sae of growng crops s ord-
nary ncome.
We do not have here the stuaton whch arses from the sae of and, n-
cudng coa or other mnera weath not separated from ts natura state aud not
n the course of annua growth eadng to n seasona separaton. See uet
Consodated Coa Co. v. Commssoner, 6 T. C. 1 3. The nstant case aso s ds-
tngushabe from that of gowng tmber whch s not n tsef an annua or short-
term product. See Carro v. Commssoner, 70 b . 2d SOU; Camp Manufacturng
Co v. Commssoner, 3 T. C. ( 7.
avng reached ths concuson, we fnd t unnecessary to pass upon the Com-
mssoner s second contenton that, because the crop dd not come nto e stence
before t was set n uy, or at h ast before t was n boom n May or .une, t
had not been hed by Mrs. Watson for more than t months at the tme of ts sae.
ccordngy, the |udgment of the court of appeas s
ffrmed.
Dssentng opnon by Mr. ustce Mnon, wth whom Mr. ustce Rbkd and
Mr. ustce Dougas |on.
The producton of frut from orchards or groves consttutes a busness, and secton
117( ) of the ( ode, supra. Is appcabe to the sae of un orchard or grove. The crops
e produced wth the prmary purtmsc of seng the fru to customers n Ihe ordnary
course of the busness. Therefore regardess of ther stage of deveopment, any gan
reazed from the sae of crowng crops s ordnary ncome.
In vew ot the foregong, t s hed that, for Federa ncome ta purposes, where ctrus
groves are sod wth frut on the trees, a porton of the seng prce must he aocated to
the frut and e baance to the and and trees. ( an from the sae of the frut w
consttute ordnary Income Gan from the sae of the and and trees may he treated as
capta gan under secton 117( of the Interna evenue Code, provded the recognsed
gans from a transactons comng wthn the purvew of that secton e ceed the
recognzed osses thereunder. C. 13 11) 6 2, 31.
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29.117-7.
Secton 29.117-7: Gans and osses from n- T. D. 5970
vountary conversons and from the sae or
e change of certan property used n the
trade or busness.
TITL 20 INT RN L R NU . C PT R L SU C PT R , P RT 29.
ct of 1951, reatng to saes of vestock.
Washngton 26, D. 0.
Concerned:
On May 16,1952, notce of proposed rue makng, regardng secton
shed n the Federa Regster (17 F. R. 9 ). fter consderaton
of a such reevant matter as was presented by nterested persons
regardng the rues proposed, the amendments set forth beow are
hereby adopted. Such amendments are necessary n order to conform
Reguatons 111 26 CFR, part 29 to secton 32 of the Revenue ct
of 1951.
29.117-1 26 CFR 29.117-1 the foowng:
S C. 32 . S L S OF LI STOC R NU CT OF 1951,
Secton 117(|) (1) s hereby amended by addng at the end thereof
the foowng new sentences: Such term aso ncudes vestock, re-
gardess of age, hed by the ta payer for draft, breedng, or dary
purposes, and hed by hm for 12 months or more from the date of
acquston. Such terra does not ncude poutry. The frst sentence
added to secton 117(|)() by the amendment made by ths secton
sha be appcabe wth respect to ta abe years begnnng after De-
cember 31, 19 1, e cept that the e tenson of the hodng perod from
6 to 12 months sha be appcabe ony wth respect to ta abe years
begnnng after December 31, 1950. The second sentence added to sec-
ton 117(|)() by the amendment made by ths secton sha be ap-
pcabe ony wth respect to ta abe years begnnng after Decem-
ber 31, 1950.
C. . 1952-2, 1 , approved December 2, 1952, 26 CFR 29.117-7 ,
( ) y changng the frst paragraph thereof to read as foows:
(o) In genera. (1) Secton 117( ) provdes that the recognzed gans and
osses descrbed beow sha be treated as gans and osses from the sae or
e change of capta assets hed for more than 6 mouths f the aggregate of
such gans e ceeds the aggregate of such osses. If the aggregate of such gans
does not e ceed the aggregate of such osses, such gans and osses sha not
be treated as gans and osses from the sae or e change of capta assets. The
gans and osses referred to above are the foowng:
(I) Gans and osses from the sae, e change, or nvountary converson
of secton 117(3) property , as defned beow, hed for more than 6
months.
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S 29.117-7.
1
() Gans and osses from the nvountary converson of capta assets
hed for more than 6 months.
() Gans and osses upon cuttng or dsposa of tmber to the e tent
provded n secton 29.117- .
(v) Gans and osses from the sae, e change, or nvountary converson
of vestock, regardess of age, hed by the ta payer for draft, breedng, or
dary purposes, and hed by hm for more than 6 months from the date of
acquston ( 2 months or more from the date of acquston n the case of
a ta abe year begnnng after December 31, 1950). (See (c) beow.)
(2) For the purpose of ths secton, the nvountary converson of property
s the converson of such property nto money or other property as a resut of
destructon n whoe or n part, theft or sezure, or an e ercse of the power of
requston or condemnaton or the threat or Immnence thereof. Losses upon
the destructon n whoe or n part, theft or sezure, requston or condemna-
ton of property are treated as osses upon an nvountary converson whether
or not there was a converson of the property nto money or other proterty.
For e ampe, f a capta asset hed for more than 6 months, wth an ad|usted
bass of 00, s stoen, and the oss from ths theft s not compensated for
by nsurance or otherwse, the 100 oss s ncuded n the computatons under
secton 117(1).
(3) For the purpose of ths secton, the term secton 117(|) property
means property used n the trade or busness of the ta payer at the tme of
ts sae, e change, or nvountary converson, whch s of a character sub|ect
to the aowance for deprecaton provded n secton 23(1) or whch s rea
property, e cept any such property whch s wthn one of the foowng
categores:
() Property of a knd whch woud propery be ncudbe n the
nventory of the ta payer f on hand at the cose of the ta abe year,
or whch Is hed by the ta payer prmary for sae to customers n the
ordnary course of trade or busness.
(U) In the case of ta abe years begnnng after September 23, 1950,
a copyrght, a terary, musca, or artstc composton, or smar property,
hed by a ta payer descrbed n secton 117(a) (1) (C).
() Lvestock hed for draft, breedng, or dary purposes. (See, however,
(1) (Iv above.)
(v) In the case of a ta abe year begnnng after December 31, 1950,
poutry.
(13) y strkng the frst two sentences of the second paragraph
thereof and by changng the thrd sentence of the second paragraph
thereof to read as foows:
(6) ppcaton of secton. In determnng whether the gans descrbed In
(a)(1) of ths secton e ceed the osses descrbed theren, such gans and
osses are taken nto account n fu, that s, 100 percent of such gans and
osses s taken nto account.
(C) y strkng out the fourth paragraph thereof,
(D) y addng at the end thereof the foowng:
(c) Lventock hed for draft, breedng, or dary purposes. For the purpose
of ths secton, the term vestock sha be gven n broad, rather than a narrow,
nterpretaton and ncudes catte, hogs, horses, mues, donkeys, sheep, goats,
fur-bearng anmas, and other mammas. It does not ncude chckens, turkeys,
pgeons, geese, other brds, fsh, frogs, reptes, etc.
The determnaton whether or not vestock s hed by the ta payer for a
draft, breedng, or dary purpose depends upon a of the facts and crcumstances
n each partcuar case. The purpose for whch the anma s hed s ordnary
shown by the ta payer s actua use of the anma. owever, a draft, breedng,
or dary purpose may be present n a case where the anma s dsposed of
wthn a reasonabe tme after Its ntended use for such purpose s prevented
by accdent, dsease, or other crcumstance. n anma hed for utmate
sae to customers n the ordnary course of the ta payer s trade or busness may,
dependng upon the crcumstances, be consdered hed for a draft, breedng, or
dary purpose. n anma Is not hed by the ta payer for a draft, breedng,
or dary purpose merey because t s sutabe for such purpose or because t 1
hed by the ta payer for sae to other persons for use by them for such purpose.
Furthermore, an anma hed by the ta payer for other purposes Is not con-
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29.117-7.
sdered to he hed for a draft, breedng, or dary purpose merey because of a
neggbe use of the anma for such purpose or because of the use of the anma
for such purpose as an ordnary or necessary ncdent to the purpose for whch
the anma s hed.
The.se prncpes may be Iustrated by the foowng e ampes:
ampe I. n anma ntended by the ta payer for use by hm for breedng
purposes s dscovered to be stere, and s dsposed of wthn a reasonabe
tme thereafter. Ths anma was hed for breedng purposes.
ampe 2. The ta payer retres from the breedng or dary busness and
ses hs entre herd, ncudng young anmas whch woud have been used by
hm for breedng or dary purposes f he had remaned n busness. These
young anmas were hed for breedng or dary pnrposes.
ampe 3. ta payer n the busness of rasng hops for saughter cus-
tomary breeds sows to obtan a snge tter to be rased by hm for sae, and
ses these brood sows after obtanng the tter. ven though these brood sows
are hed for utmate sae to customers n the ordnary course of the ta payer s
trade or busness, they are consdered to be hed for breedng purposes.
ampe . ta payer n the busness of rasng horses for sae to others
for use by them as draft horses uses such horses for draft purposes on hs own
farm n order to tran them. Ths use s an ordnary or necessary ncdent to
the purpose of seng such anmas, and, accordngy, these horses are not hed
for draft purposes.
ampe 5. The ta payer s n the busness of rasng regstered catte for
sae to others for use by them as breedng catte. It Is the busness practce
for the catte to be bred, pror to sae, n order to estabsh ther ftness for sae
as regstered breedng catte. In such case, those catte used by the ta payer
to produce caves whch caves are added to the ta payer s herd (whether or
not the breedng herd) are consdered to be hed for breedng purposes; the breed-
ng of other catte s an ordnary or necessary ncdent to the hodng of such
other catte for the pur se of seng them as regstered breedng catte, and
the breedng of such catte does not demonstrate that the ta payer s hodng the
catte for breedng purposes.
ampe 6. ta payer, engaged n the busness of buyng catte and fatten-
ng them for saughter, purchased cows wth caf. The caves were born whe
the cows were hed by the ta payer. These cows were not hed for breedng
purposes.
sectons 62 and 3791 of the Interna Revenue Code (53 Stat. 32, C7;
26 U. S. C. 62, 3791).)
ohn S. Graham,
pproved anuary 6,1953.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster anuary 9, 1953, : 51 a. m.)
Secton 29.117-7: Gans and osses from nvoun- Rev. Ru. 10
tary conversons and from the sae or e change
of certan property used n the trade or busness.
INT RN L R NU COD
ta payer who customary buys automobes at whoesae
prces or at feet dscounts and, after easng them for a perod
of substantay shorter duraton than ther norma usefu fe,
ses them at whoesae or reta prces, s n the busness of dea-
ng n automobes, as we as n the busness of easng them. Gans
/rom the sae of automobes, under such crcumstances, do not
quafy for treatment under secton 117( ) of the Interna Revenue
Code as gans from saes of capta assets hed for more than 0
months.
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29.117-7.
1 6
dvce s requested whether automobes purchased at whoesae
prces or at feet dscounts and sod after havng been eased for
perods substantay ess than ther norma usefu fe consttute
property used n the trade or busness wthn the meanng of sec-
ton 117 (|) of the Interna Revenue Code, saes of whch may be
treated as saes of capta assets hed for more than 6 months.
It appears that a number of ta payers n the busness of easng
automobes buy ther automobes n whoesae quanttes ether at
feet dscounts, at agents prces as deaers, or through affates, and
ease them for a perod of a year or ess, or for a stated number of
mes substantay ess than the norma me-fe of an automobe.
t the e praton of such ease the automobes are sod, ether at
whoesae or reta prces, thereby avang the ta payer of what
woud normay be consdered to be the deaer s profts. In the usua
case, the gans from such saes consttute a substanta porton of the
ta payer s ncome.
Secton 11T(|) of the Code provdes n part that, for the purposes
of that secton, the term property used n the trade or busness
means property used n the trade or busness, of a character whch
s sub|ect to the aowance for deprecaton provded n secton 23(1),
hed for more than 6 months, whch s not property of a knd whch
woud propery be ncudbe n the nventory of the ta payer f on
hand at the cose of the ta abe year, or property hed by the ta -
payer prmary for sae to customers n the ordnary course of hs
trade or busness.
stuaton smar to that under consderaton here s present n
the case of deaers who take cars from ther stock for use as demon-
strators and ater se them at reta. In I. T. 062, C. . 1051-2, 61,
t s hed that demonstrators are property hed for sae to customers
n the ordnary course of busness, and any gan on the sae thereof
may not be treated as capta gan under secton 117(|) of the Code.
That rung was based upon the decson n the case of W. R. Stephens
Co. v. Commssoner, Ta Court memorandum opnon dated ugust
. 1951, affrmed 199 Fed. (2d) 665. To the same effect s Rongwood
Corporaton et a. v. Commssoner, 190 Fed. (2d) 263.
It s the opnon of ths ureau that the custom of buyng cars at
whoesae prces, or at feet dscounts, and easng them for substan-
tay ess than ther norma usefu fe and seng them on the
whoesae or reta market, consttutes deang n automobes.
ta payer who customary engages n such operatons s n the busness
of deang n automobes as we as n the busness of easng them.
Under such crcumstances, the automobes consttute property hed
by the ta payer prmary for sae to customers n the ordnary course
of hs trade or busness wthn the meanng of secton 117(|) of
the Code, and any gan from the sae of such automobes may not be
treated as a capta gan under secton 117(|) of the Code.
It shoud be noted, wth respect to deprecaton, that the treatment
of eaned automobes dffers from that of demonstrators n that
deprecaton s aowabe on eased cars pror to ther converson to
property hed prmary for sae to customers n the ordnary course
of busness, whereas no deprecaton s aowabe on demonstrators.
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29.117-11.
Secton 29.117-7: Gans and osses from n-
vountary conversons and from the sae or
e change of certan property used n the
trade or busness.

INT RN L R NU COD
egnatons 111 amended. (See T. D. 59 0, page 65.)
Secton 29.117-11: Coapsbe corporatons. T. D. 5999
ct of 1050 and to secton 326 of the Revenue ct of 1051.
Offce of Commssoner of Interna evende,
Washngton 25, D. C.
Concerned :
On October 9, 1952, notce of proposed ruemakng, regardng sec-
ton 212 of the Revenue ct of 1950, approved September 23,1950, and
secton .326 of the Revenue ct of 1951, approved October 20, 1951,
was pubshed n the Federa Regster (17 F. R. 901 ). fter con-
sderaton of a such reevant matter as was presented by nterested
persons regardng the rues proposed, the amendments set forth beow
are hereby adopted. Such amendments are necessary n order to con-
form Reguatons 111 26 CFR, part 29 to secton 212 of the Revenue
ct of 1950 and to secton 326 of the Revenue ct of 1951.
Paragraph 1. There s nserted mmedatey after secton 29.117-10,
as added by Treasury Decson 5 1 C. . 1952-1, 56 , approved
February 11,1952 26 CFR 29.117-10 , the foowng:
S C. 212. TR TM NT OF G IN TO S R OLD RS OF COL-
L PSI L CORPOR TIONS R NU CT OF 1050, P-
PRO D S PT M R 23,1950 .
(a) Coapsbe Corporatons. Secton 117 (reatng to capta
gans or osses) s hereby amended by addng after subsecton (1)
(added by secton 211(a) of ths ct) the foowng new subsecton:
(n) Coapsbe Corporatons.
(1) Treatment of gan to sharehoders. Gan from the sae
or e change (whether n qudaton or otherwse) of stock of a co-
apsbe corporaton, to the e tent that t woud be consdered (but
for the provsons of ths subsecton) as gan from the sae or e -
change of a capta asset hed for more than 6 months, sha, e cept
as provded n paragraph (3), be consdered as gan from the sae
or e change of property whch s not a capta asset.
(2) Defntons.
( ) For the purposes of ths subsecton, the term coapsbe
corporaton means a corporaton formed or avaed of prn-
cpay for the manufacture, constructon, or producton of
property, or for the hodng of stock n a corporaton so formed
or avaed of, wth a vew to
() the sae or e change of stock by ts sharehoders
(whether n qndaton or otherwse), or a dstrbuton to
ts sharehoders, pror to the reazaton by the corporaton
manufacturng, constructng, or producng the property of
a substanta part of the net ncome to be derved from such
property, and
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29.117-11.1
1SS
() the reazaton by such sharehoders of gan at-
trbutabe to such property.
( ) For the purposes of subparagraph ( ), a corporaton
sha be deemed to have manufactured, constructed, or pro-
duced property, f t
() t engaged n the manufacture, constructon, or pro-
ducton of such property to any e tent,
() t hods property havng a bass determned, n
whoe or n part, by reference to the cost of such property
n the hands of a person who manufactured, constructed, or
produced the property, or
whoe or n part, by reference to the cost of property manu-
factured, constructed, or produced by the corporaton.
(3) Lmtatons on appcaton of subsecton. In the case
of gan reazed by a sharehoder upon hs stock n a coapsbe
corporaton
( ) ths subsecton sha not appy uness, at any tme after
the commencement of the manufacture, constructon, or pro-
ducton of the property, such sharehoder () owned (or was
consdered as ownng) more than 10 per centum n vaue of the
outstandng stock of the corporaton, or () owned stock whch
was consdered as owned at such tme by another sharehoder
who then owned (or was consdered as ownng) more than 10
per centum In vaue of the outstandng stock of the corporaton ;
( ) ths subsecton sha not appy to the gan recognzed
durng a ta abe year uness more than 70 per centum of such
gan s attrbutabe to the property so manufactured, con-
structed, or produced; and
(C) ths subsecton sha not appy to gan reazed after the
e praton of three years foowng the competon of such
manufacture, constructon, or producton.
For purposes of subparagraph ( ), the ownershp of stock sha be
determned n accordance wth the rues prescrbed by paragraphs
(1), (2), (3), (5), and (6) of secton 503 (a), e cept that, n addton
to the persons prescrbed by paragraph (2) of that secton, the
famy of an ndvdua sha ncude the spouses of that ndvdua s
brothers and ssters (whether by the whoe or haf bood) and the
spouses of that ndvdua s nea descendants.
appcabe to ta abe years endng after December 31, 19 9, but sha
appy ony wth respect to gan reazed after such date. The determna-
ton of the ta treatment of gans reazed pror to anuary 1, 1950, sha
be made as f ths secton had not been enacted and wthout nferences
drawn from the fact that the amendment made by ths secton s not
e pressy made appcabe to gans reazed pror to such date and wth-
out nferences drawn from the mtatons contaned n secton 117(m),
added to the Interna Revenue Code by ths secton.
S C. 326. COLL PSI L CORFOIt TIONS R NU CT OF
1951, PPRO D OCTO R 20,1951 .
(a) Defntons Wth Respect to Co- psbt.e Corporatons. Sec-
ton 117(m) (2) (reatng to defntons wth respect to coapsbe cor-
poratons) s hereby amended to read as foows:
(2) Defntons.
( ) For the purposes of ths subsecton, the term coapsbe
corporaton means a corporaton formed or avaed of prnc-
pay for the manufacture, constructon, or producton of prop-
erty, for the purchase of property whch (n the hands of the
corporaton) s property descrbed n subsecton (a)(1)( ),
or for the hodng of stock n a corporaton so formed or avaed
of, wth a vew to
(1) the sae or e change of stock by ts sharehoders
(whether n qudaton or otherwse), or a dstrbuton to
ts sharehoders, pror to the reazaton by the corporaton
manufacturng, constructng, producng, or purchasng the
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1 9
29.117-11.
property of a substanta part of the net ncome to be de-
rved from such property, and
() the reazaton by such sharehoders of gan attrbu-
tabe to such property.
( ) For the purposes of subparagraph ( ), a corporaton
sha be deemed to have manufactured, constructed, produced,
or purchased property, If
(1) t engaged n the manufacture, constructon, or
producton of such property to any e tent,
whoe or n part, by reference to the cost of such property
n the hands of a person who manufactured, constructed,
produced, or purchased the property, or
whoe or n part, by reference to the cost of property
manufactured, constructed, produced, or purchased by the
corporaton.
(b) Lmtatons on ppcaton of Secton 117(m). Subparagraphs
( ), ( ), and (C) of secton 117(m) (3) (reatng to the mtatons on
the appcaton of secton 117(m)) are hereby amended to read as
foows:
( ) ths subsecton sha not appy uness, at any tme after
the commencement of the manufacture, constructon, or pro-
ducton of the property, or at the tme of the purchase of the
property descrbed n subsecton (a)(1)( ) or at any tme
thereafter, such sharehoder () owned (or was consdered as
ownng) more than 10 per centum n vaue of the outstandng
stock of the corporaton, or () owned stock whch was con-
sdered as owned at such tme by another sharehoder who
then owned (or was consdered as ownng) more than 10 per
centum n vaue of the outstandng stock of the corporaton;
( ) ths subsecton sha not appy to the gan recognzed
durng a ta abe year uness more than 70 per centum of such
gan s attrbutabe to the property so manufactured, con-
structed, produced, or purchased; and
(C) ths subsecton sha not appy to gan reazed after
the e praton of three years foowng the competon of such
manufacture, constructon, producton, or purchase.
appcabe to ta abe years endng after ugust 31, 1951, but sha be
appcabe ony wth respect to gans reazed after such date. The
determnaton of the ta treatment of gans reazed pror to September
1,1951, sha be made as If ths secton had not been enacted and wthout
nferences drawn from the fact that the amendments to secton 117(m)
made by ths secton are not e pressy made appcabe to gans reazed
pror to September 1, 1951, and wthout nferences drawn from the
mtatons contaned n secton 117(m), as amended by ths secton.
Skc. 29.117-11. Coapsbe Corporatons. (a) In genera. Wth respect to
ta abe years endng after December 31, 19 9, but ony wth respect to gan
reazed after such date, and sub|ect to the mtatons contaned n (c) hereof,
the entre gan from (1) the actua sae or e change of stock of a coapsbe cor-
poraton, (2) amounts dstrbuted n compete or parta qudaton of a co-
apsbe corporaton whch are treated, under secton 115(c), as payment n e -
change for stock, and (3) a dstrbuton made by a coapsbe corporaton whch,
under secton 115(d), s treated, to the e tent t e ceeds the bass of the stock,
n the same manner as a gan from the sae or e change of property, sha he
consdered as gan from the sae or e change of property whch s not a capta
asset.
(b) Determnaton of coapsbe corporaton. Wth respect to ta abe years
endng after December 31, 19 9, but ony wth respect to gan reazed after such
date, a coapsbe corporaton s denned by secton 117(m) (2) ( ) to be a cor-
poraton formed or avaed of prncpay for the manufacture, constructon, or
producton of property, or for the hodng of stock n a corporaton so formed or
avaed of, wth a vew to (1) the sae or e change of stock by ts sharehoders
(whether n qudaton or otherwse), or a dstrbuton to ts sharehoders, pror
to the reazaton by the corporaton manufacturng, constructng, or producng
26335 63 13
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5 29.117-11.
190
the property of a substanta part of the net Income to be derved from such
property, and (2) the reazaton by such sharehoders of gan attrbutabe to
such property. Wth respect to ta abe years endng after ugust 31, 1951, but
ony wth respect to gan reazed after such date, the defnton of a coapsbe
corporaton under secton 117(m)(2)( ) Is e panded to ncude a corporaton
formed or avaed of prncpay for the purchase of property whch (n the
hands of the corporaton) s property descrbed n secton 117(a) (1) ( ), or for
the hodng of stock n a corporaton so formed or avaed of, wth a vew to
(1) the sae or e change of stock by ts sharehoders (whether n qudaton
or otherwse), or a dstrbuton to ts sharehoders, pror to the reazaton by
the corporaton purchasng the property of a substanta part of the net ncome
to be derved from such property, and (2) the reazaton by such sharehoders
of gan attrbutabe to such property.
See (d) of ths secton for a descrpton of the facts whch w ordnary be
consdered suffcent to estabsh whether or not a corporaton s a coapsbe
corporaton under the rues of ths secton. See (c) of ths secton for e -
ampes of the appcaton of secton 117 (m).
Under secton 117(m) (2) ( ), the corporaton must be formed or avaed of
wth a vew to the acton theren descrbed, that s, the sae or e change of ts
stock by ts sharehoders, or a dstrbuton to them, pror to the reazaton by
the corporaton manufacturng, constructng, producng, or purchasng the prop-
erty of a substanta part of the net ncome to be derved from such property,
and the reazaton by the sharehoders of gan attrbutabe to such property.
Ths requrement s satsfed n any case n whch such acton was contempated
by those persons n a poston to determne the poces of the corporaton,
whether by reason of ther ownng a ma|orty of the votng stock of the corpora-
ton or otherwse. The requrement s satsfed whether such acton was con-
tempated uncondtonay, condtonay, or as a recognzed possbty. If the
corporaton was so formed or avaed of, t s mmatera that a partcuar share-
hoder was not a sharehoder at the tme of the manufacture, constructon,
producton, or purchase of the property, or f a sharehoder at such tme, dd
not share n such vew, and any gan of such sharehoder on hs stock n the
corporaton sha be treated n the same manner as gan of a sharehoder who
dd share n such vew. See, however, the mtaton contaned n (c) (2) hereof.
The e stence of a bona fde busness reason for dong busness n the corporate
form does not, by tsef, negate the fact that the corporaton may aso have been
formed or avaed of wth a vew to the acton descrbed n secton 117(m)
(2) ( ).
corporaton s formed or avaed of wth a vew to the acton descrbed n
secton 117(n) (2) ( ) f the requste vew e sted at any tme durng the
manufacture, producton, constructon, or purchase referred to n that secton.
Thus, f the sae, e change, or dstrbuton s attrbutabe soey to crcumstances
whch arose after the manufacture, constructon, producton, or purchase (other
than crcumstances whch reasonaby coud be antcpated at the tme of such
manufacture, constructon, producton, or purchase), the corporaton sha, n
the absence of compeng facts to the contrary, be consdered not to have been
so formed or avaed of. owever, f the sae, e change, or dstrbuton s at-
trbutabe to crcumstances present at the tme of the manufacture, constructon,
producton, or purchase, the corporaton sha, n the absence of compeng
facts to the contrary, be consdered to have been so formed or avaed of.
The property referred to n secton 117(m) (2) ( ) s that property or the
aggregate of those propertes wth respect to whch the requste vew e sted.
In order to ascertan the property or propertes as to whch the requste vew
e sted, reference sha be made to each property as to whch, at the tme of the
sae, e change, or dstrbuton referred to n secton 117(m) (2) ( ), there has
not been a reazaton by the corporaton manufacturng, constructng, produc-
ng, or purchasng the property of a substanta part of the net ncome to be
derved from such property. owever, where any such property s a unt of an
ntegrated pro|ect nvovng severa propertes smar n knd, the determnaton
whether the requste vew e sted sha be made ony f a substanta part of
the net ncome to be derved from the pro|ect has not been reazed at the tme
of the sae, e change, or dstrbuton, and n such case the determnaton sha
be made by reference to the aggregate of the propertes consttutng the snge
pro|ect.
corporaton sha be deemed to have manufactured, constructed, produced,
or purchased property f t (1) engaged n the manufacture, constructon, or
producton of property to any e tent, or (2) hods property havng a bass deter-
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29.117-11.
mned, n whoe or n part, by reference to the cost of such property n the hands
of a person who manufactured, constructed, produced, or purchased the property,
or (3) hods property havng a bass determned, n whoe or n part, by refer-
ence to the cost of property manufactured, constructed, produced, or purchased
by the corporaton. Thus, under (1), for e ampe, a corporaton need not have
orgnated nor have competed ths manufacture, constructon, or producton of
the property. Under (2), for e ampe, f an ndvdua were to transfer property
constructed by hm to a corporaton n e change for a of the capta stock of
such corporaton, and such transfer quafes under secton 112(b) (5), then the
corporaton woud be deemed to have constructed the property, snce the bass
of the property n the hands of the corporaton woud, under secton 113(a) ( ),
be determned by reference to the bass of the property n the hands of the
ndvdua. Under (3), for e ampe, f a corporaton were to e change property
constructed by t for property of ke knd constructed by another person, and
euch e change quafes under secton 112(b) (1), ten the corporaton woud be
deemed to have constructed the property receved by t n the e change, snce
the bass of the property receved by t n the e change woud, under secton
113(a) (6), be determned by reference to the bass of the property constructed
by the corporaton.
In determnng whether a corporaton Is a coapsbe cerporaton by reason
of the purchase of property, t s mmatera whether the property s purchased
from the sharehoders of the corporaton or from persons other than such share-
hoders. The property, however, must be property whch, n the hands of the
corporaton, s property of a knd descrbed n secton 117(a) (1) ( ). Secton
117(a) (1) ( ) descrbes the foowng property: stock n trade of the ta payer
or other property of a knd whch woud propery be ncuded n the nventory
of the ta payer f on hand at the cose of the ta abe year, or property hed
by the ta payer prmary for sae to customers n the ordnary course of ts
trade or busness. The determnaton whether property s of a knd descrbed
n secton 117(a)(1)( ) sha be made wthout regard to the fact that the
corporaton s formed or avaed of wth a vew to the acton descrbed n secton
117(m) (2) ( ).
Secton 117(m) s appcabe whether the sharehoder s an ndvdua, a trust,
an estate, a partnershp, a company, or a corporaton.
(c) Lmtatons on appcaton of secton. (1) Genera. Ths secton sha
appy ony to the e tent that the recognzed gan of a sharehoder upon hs stock
n a coapsbe corporaton woud be consdered, but for the provsons of ths
secton, as gan from the sae or e change of a capta asset hed for more than
6 months. Thus, f a ta payer ses at a gan stock of a coapsbe corporaton
whch he has hed for 6 months or ess, ths secton woud not, n any event,
appy to such gan. so, f t s determned, under provsons of aw other than
secton 117(m), that a sae or e change at a gan of stock of a coapsbe cor-
poraton whch has been hed for more than 6 months resuts n ordnary ncome
rather than ong-term capta gan, then ths secton (ncudng the mtatons
contaned heren) has no appcaton whatsoever to such gan.
(2) Stock ocnershp rues. Ths secton sha appy n the case of gan
reazed by a sharehoder upon hs stock n a coapsbe corporaton ony f the
sharehoder, at any tme after the actua commencement of the manufacture,
constructon, or producton of the property, or at the tme of the purchase of
the property descrbed n secton 117(a)(1)( ) or at any tme thereafter, ()
owned, or was consdered as ownng, more than 10 percent n vaue of the
outstandng stock of the corporaton, or () owned s ck whch was consdered
as owned at such tme by another sharehoder who then owned, or was con-
sdered as ownng, more than 10 percent n vaue of the outstandng stock of
the corporaton.
The ownershp of stock sha be determned n accordance wth the rues pre-
scrbed by secton 503(a) (1), (2), (3), (5), and (6), e cept that, n addton
to the persons prescrbed by secton 503(a)(2), the famy of an ndvdua
sha ncude the spouses of that ndvdua s brothers and ssters, whether such
brothers and ssters are by the whoe or the haf bood, and the spouses of that
ndvdua s nea descendants.
For the purpose of ths mtaton, treasury stock sha not be consdered as
outstandng stock.
It s possbe, under ths mtaton, that a sharehoder n a coapsbe
corporaton may have gan upon hs stock n that corporaton treated dfferenty
from the gan of another sharehoder n the same coapsbe corporaton.
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29.117-11.
192
(3) Seventy-percent rue. Ths secton sha appy to the gan recognzed
darng a ta abe year upon the stock n a coapsbe corporaton ony f more
than 70 percent of such gan s attrbutabe to the property referred to n
secton 117(m) (2) ( ). If more than 70 percent of such gan s so attrbutabe,
then a of such gan s sub|ect to ths secton, and, f 70 percent or ess of
such gan s so attrbutabe, then none of such gan s sub|ect to ths secton.
For the purpose of ths mtaton, the gan attrbutabe to the property
referred to n secton 117(m) (2) ( ) s the e cess of the recognzed gan of the
sharehoder durng the ta abe year upon hs stock n the coapsbe corporaton
over the recognzed gan whch the sharehoder woud have f the property had
not been manufactured, constructed, produced, or purchased. In the case of
gan on a dstrbuton n parta qudaton or a dstrbuton descrbed n secton
115(d), the gan attrbutabe to the property sha not be ess than an amount
whch bears the same rato to the gan on such dstrbuton as the gan whch
woud be attrbutabe to the property f there had been a compete qudaton at
the tme of such dstrbuton bears to the tota gan whch woud have resuted
from such compete qudaton.
Gan may be attrbutabe to the property referred to n secton 117(m) (2) ( )
even though such gan s represented by an apprecaton n the vaue of property
other than that manufactured, constructed, produced, or purchased. Where, for
e ampe, a corporaton owns a tract of and and the deveopment of one-haf
of the tract ncreases the vaue of the other haf, the gan attrbutabe to the
deveoped haf of the tract ncudes the ncrease n the vaue of the other haf.
( ) Three-year rue. Ths secton sha not appy to that porton of the gan
of a sharehoder that s reazed more than 3 years after the actua competon
of the manufacture, constructon, producton, or purchase of the property to
whch such porton s attrbutabe.
(d) ppcaton of secton. (1) Whether or not a corporaton s a coapsbe
corporaton sha be determned under the rues of (6) of ths secton on the bass
of a the facts and crcumstances n each partcuar case. The foowng para-
graphs set forth those facts whch w ordnary be consdered suffcent to
estabsh that a corporaton s or s not a coapsbe corporaton. The facts
set forth n the foowng paragraphs are not e cusve of other facts whch may
be controng n any partcuar case. For e ampe, f the facts n paragraph (2),
but not the facts n paragraph (3), are present, the corporaton may nevertheess
not be a coapsbe corporaton f there are other facts whch ceary estabsh
that the rues of (6) of ths secton are not satsfed. Smary, f the facts n
paragraph (3) are present, the corporaton may nevertheess be a coapsbe
corporaton If there are other facts whch ceary estabsh that the corporaton
was formed or avaed of n the manner descrbed n (6) of ths secton, or f
the facts n paragraph (3) are not sgnfcant by reason of other facts, such
as the fact that the corporaton s sub|ect to the contro of persons other than
those who were n contro mmedatey pror to the manufacture, constructon,
producton, or purchase of the property.
See (c) of ths secton for provsons whch make secton 117(m) nappcabe
to certan sharehoders of coapsbe corporatons.
(2) The foowng facts w ordnary be consdered suffcent (e cept as
otherwse provded n paragraph (1), above, and paragraph (3), beow) to
estabsh that a corporaton s a coapsbe corporaton:
() sharehoder of the corporaton ses or-e changes hs stock, or
receves a qudatng dstrbuton, or a dstrbuton descrbed In secton
115(d),
() Upon such sae, e change, or dstrbuton, such sharehoder reazes
gan attrbutabe to the property descrbed beow, and
() t the tme of the manufacture, constructon, producton, or pur-
chase of the property descrbed beow, such actvty was substanta In re-
aton to the other actvtes of the corporaton whch manufactured, con-
structed, produced, or purchased such property.
The property referred to above Is that property or the aggregate of those proper-
tes whch meet the foowng two requrements:
(v) The property s manufactured, constructed, or produced by the cor-
poraton or by another corporaton stock of whch s hed by the corporaton,
or s property purchased by the corporaton or by such other corporaton
whch (n the hands of the corporaton hodng such property) s property
descrbed n secton 117(a) (1) ( ) (reatng to stock n trade, nventores,
and property hed prmary for sae to customers), and
(v) t the tme of the sae, e change, or dstrbuton descrbed n (I)
above, the corporaton whch manufactured, constructed, produced, or pur-
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193
( 29.117-11.
chased such property has not reazed a substanta part of the net ncome to
be derved from such property.
In the case of property whch Is a unt of an ntegrated pro|ect nvovng severa
propertes smar n knd, the rues of ths paragraph sha be apped to the
aggregate of the propertes consttutng the snge pro|ect rather than separatey
to such unt. Under the rues of ths paragraph, a corporaton sha be con-
sdered a coapsbe corporaton by reason of hodng stock n other corporatons
whch manufactured, constructed, produced, or purchased the property ony f
the actvty of the, corporaton n hodng stock n such other corporatons s
substanta n reaton to the other actvtes of the corporaton.
(3) The absence of any of the facts set forth n paragraph (2) or the presence
of the foowng facts w ordnary be consdered suffcent (e cept as other-
wse provded n paragraph (1), above) to estabsh that a corporaton s not a
coapsbe corporaton:
(1) In the case of a corporaton sub|ect to the rues of paragraph (2) ony
by reason of the manufacture, constructon, producton, or purchase (ether
by the corporaton or by another corporaton the stock of whch s hed
by the corporaton) of property whch Is property descrbed n secton
117(a)(1)( ), the amount (both n quantty and vaue) of such property
Is not n e cess of the amount whch s norma
( ) For the purpose of the busness actvtes of the corporaton
whch manufactured, constructed, produced, or purchased the property
If such corporaton has a substanta pror busness hstory nvovng
the use of such property and contnues n busness, or
( ) For the purpose of an ordery qudaton of the busness f the
corporaton whch manufactured, constructed, produced, or purchased
such property has a substanta pror busness hstory nvovng the use
of such property and s n the process of qudaton.
() In the case of a corporaton sub|ect to the rues of paragraph (2)
wth respect to the manufacture, constructon, or producton ether by the
corporaton or by another corporaton the stock of whch s hed by the
corporaton) of property, the amount of the unreazed net ncome from such
property s not substanta n reaton to the amount of the net ncome
reazed (after the competon of a matera part of such manufacture,
constructon, or producton, and pror to the sae, e change, or dstrbuton
referred to n paragraph (2) ()) from such property and from other prop-
erty manufactured, constructed, or produced by the corporaton.
(r) ampes. The foowng e ampes w ustrate the appcaton of ts
secton:
ampe (1). On anuary 2, 1051, formed the W Corporaton and con-
trbuted 50,000 cash n e change for a of the stock thereof. The W Corpora-
ton borrowed 900,000 from a bank, the oan beng nsured by the Federa ous-
ng uthorty, and used 00,000 of such sum n the constructon of an apartment
house on and whch t purchased for 50,000. The apartment house was com-
peted on December 1, 1951. On December 31, 1951, the corporaton, havng
determned that the far market vaue of the apartment house, separate and
apart from the and, was 900,000, made a dstrbuton (permtted under the
appcabe state aw) to of 100,000. t ths tme, the far market vaue of
the and was 50,000. s of December 31, 1951, the corporaton has not reazed
any earnngs and profts. In 1952, the corporaton began the operaton of the
apartment house and receved rentas therefrom. The corporaton has snce
contnued to own and operate the budng. The corporaton reported on the
bass of the caendar year and cash recepts and dsbursements.
Snce receved a dstrbuton and reazed a gan attrbutabe to the budng
constructed by the corporaton, snce, at the tme of such dstrbuton, the cor-
poraton has not reazed a substanta part of the net ncome to be derved
from such budng, and s ce the constructon of the budng was a substanta
actvty of the corporaton, the W Corporaton Is consdered a coapsbe cor-
poraton under (d) (2) of ths secton. The provsons of secton 117 (m) (3) do
not prohbt the appcaton of secton 117(m) (1) to . Therefore, the dstr-
buton, f and to the e tent that t may be consdered ong-term capta gan
rather than ordnary ncome wthout regard to secton 117(m), w be con-
sdered ordnary ncome under secton 117(m) (1).
In the event of the e stence of addtona facts and crcumstances n the
above case, the corporaton, notwthstandng the above facts, mght not be
consdered a coapsbe corporaton. See (6) and (d)(1) of ths secton.
ampe (2). On anuary 2, 1950, formed the Corporaton and became
the soe sharehoder thereof. Ths corporaton competed the constructon of an
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29.117-11.
19
offce budng n 1950. Immedatey after the competon of the budng, the
corporaton sod ths budng at a gan of 50,000, ncuded ths entre gan n ts
return for 1950, and dstrbuted ths entre gan (ess ta es) to . The cor-
poraton competed the constructon of a second offce budng n une 1951. In
ugust 1951, sod the entre stock of the Corporaton at a gan of 12,000,
whch gan s attrbutabe to the second budng. In vew of the fact that sod
stock of the Corporaton and reazed a gan attrbutabe to the second offce
budng, that, at the tme of such sae, the corporaton had not reazed a sub-
stanta part of the net ncome to be derved from such budng, and that the
constructon of such budng durng the tme of such constructon was a sub-
stanta actvty of the corporaton, the Corporaton s consdered a coap-
sbe corporaton under (d)(2) of ths secton. Snce the provsons of secton
117(m) (3) do not prohbt the appcaton of secton 117(m) (1) to , the gan
of 12,000 to s, accordngy, consdered ordnary ncome.
ampe (3). The facts n ths e ampe ace the same as In e ampe (2),
e cept that the foowng facts are shown: was the presdent of the Cor-
poraton and actve n the conduct of ts busness. The second budng was
constructed as the frst step n a pro|ect of the Corporaton for the deveop-
ment for renta purposes of a arge suburban center nvovng the constructon
of severa budngs by the corporaton. The sae of the stock by was caused
by hs retrng from a busness actvty as a resut of ness arsng after the
second budng was constructed. Under these addtona facts, the corporaton
s not consdered a coapsbe corporaton. See (6) and (d) (1) of ths secton.
ampe ( ). On anuary 2, 19 7, C formed the Y Corporaton and became
the soe sharehoder thereof. The Y Corporaton has been engaged soey n
the busness of producng moton pctures and censng ther e hbton. On
anuary 2, 1952, C sod a of the stock of the Y Corporaton at a gan. The
Y Corporaton has produced one moton pcture each year snce ts organza-
ton and pror to anuary 2, 1952, t has reazed a substanta part of the net
ncome to be derved from each of ts moton pctures e cept the ast one made
n 1951. Tfts ast moton pcture was competed September 1, 1951. s of
anuary 2, 1952, no cense had been made for ts e hbton. The far market
vaue on anuary 2, 1952, of ths ast moton pcture e ceeds the cost of ts
producton by 50,000. matera part of the producton of ths ast pcture was
competed on anuary 1, 1951, and between that date and anuary 2, 1952, the
corporaton had reazed net ncome of 500,000 from other moton pctures pro-
duced by t. The corporaton has consstenty dstrbuted to ts sharehoder ts
net ncome when receved (after ad|ustment for ta es).
though the corporaton s wthn (d) (2) of ths secton wth respect to the
producton of property, the amount of the unreazed net ncome from such
property ( 50,000) s not substanta n reaton to the amount of the net
ncome reazed, after the competon of a matera part of the producton of
such property and pror to sae of the stock, from such property and other
property produced by the corporaton ( 500,000). ccordngy, the Y Corpora-
ton s wthn (d) (3) () of ths secton, and s not consdered a coapsbe
corporaton.
ampe (5). The facts are the same as n e ampe ( ) e cept that C sod
a of hs stock to D on February 1, 1951. On anuary 2, 1952, D sod a of the
Y Corporaton stock at a gan, the gan beng attrbutabe to the pcture com-
peted September 1, 1951, and not reeased by the corporaton for e hbton. In
vew of the change of contro of the corporaton, the provsons of (d) (3) (t)
are not sgnfcant at the tme of the sae by D, and the Y Corporaton woud be
consdered a coapsbe corporaton on anuary 2, 1952. See (6) and (d) (1)
of ths secton.
26U. S. C. 62,3791).)
ustn F. Wnke,
M. . Fosom,
(Fed wth the Dvson of the Federa Regster pr 1, 1953, : 51 a. m.)
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195
29.117-12.
Secton 29.117-12: Deaers n securtes. T. D. 6013
( so Secton 29.117-1.)
TITL 26 INT RN L R NU . C PT R I. SU C PT R , P RT 29.
ct of 1051.
Washngton 25, D. .
Concerned:
On October 22, 1952, there was pubshed n the Federa Regster
(17 F. R. 95 ) a notce of proposed ruemakng to conform Regua-
tons 111 26 CFR, part 29 to secton 327 of the Revenue ct of 1951,
reatng to capta gans and ordnary osses of deaers n securtes,
approved October 20, 1951. No ob|ectons to the rues proposed hav-
ng been receved, the amendments set forth beow are hereby adopted:
29.117-1 26 CFR 29.117-1 the foowng:
S C. 327. D L RS IN S CURITI S C PIT L C INS ND OR-
DIN RY LOSS S R NU CT OF 1951, PPRO D
OCTO R 20, 1951 .
ffectve wth respect to saes or e changes made after the e praton
of the thrteth day after the date of the enactment of ths act, secton
117 s hereby amended hy addng at the end thereof the foowng new
subsecton:
(n) Deaers n Securtes.
(1) Capta gans. ( an hy a deaer n securtes from the sae
1 or e change of any securty sha n no event he consdered as gan
from the sae or e change of a capta asset uness
( ) the securty was, pror to the e praton of the thrteth
day after the date of ts acquston or after the date of the en-
actment of the Revenue ct of 1951 (whchever s the ater) ,
ceary dentfed n the deaer s records as a securty hed for
nvestment; and
( ) the securty was not, at any tme after the e praton of
such thrteth day, hed by such deaer prmary for sae to
customers n the ordnary course of hs trade or busness.
(2) Ordnary osses. Loss by a deaer n securtes from the
sae or e change of any securty sha, e cept as otherwse provded
n subsecton () (reatng to bond, etc., osses of banks), n no event
be consdered as oss from the sae or e change of property whch s
not a capta asset f at any tme after the thrteth day foowng the
date of the enactment of the Revenue ct of 1951 the securty was
ceary dentfed n the deaer s records as a securty hed for
Investment.
(3) Defnton of securty. For the purposes of ths subsec-
ton the term securty means any share of stock n any corporaton,
certfcate of stock or nterest n any corporaton, note, bond, deben-
ture, or evdence of ndebtedness, or any evdence of an nterest n
or rght to subscrbe to or purchase any of the foregong.
C. . 1952-2, 1 , approved December 2,1952 26 CFR 29.117-1 , s
further amended by addng at the end of the ne t to the ast para-
graph, whch commences wth the words See secton 23 (g) and
(k) the foowng new sentence:
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29.117-12.
196
See aso secton 117 (n) and secton 29.117-12 for the determnaton of whether
or not gans from the sae or e change of securtes by a deaer In securtes
sha be treated as capta gans, or whether osses from such saes or e changes
sha be treated as ordnary osses.
Par. 3. There s nserted mmedatey after secton 29.117-11, as
added by Treasury Decson 5999 page 1 7, ths uetn , approved
March 26, 1953 26 CFR 29.117-11 , the foowng new secton:
Sec. 29.117-12. Deaers n Securtes. (a) Capta gan. ffectve wth re-
spect to saes or e changes made on or after November 20,1951, gan by a deaer
n securtes from the sae or e change of a securty sha In no event be consdered
to be gan from the sae or e change of a capta asset uness
(1) the securty Is, pror to the e praton of the 30th day after the date
of ts acquston or of the 30th day after October 20,1951, whchever s ater,
ceary dentfed n the deaer s records as a securty hed for nvestment;
and
(2) the securty s not, at any tme after the e praton of such 30th day,
hed by the deaer prmary for sae to customers n the ordnary course of
hs trade or busness.
Ts provson s appcabe ony In the case where gan fr,om the sae or
e change of a securty woud, but for such provson, be consdered capta gan.
Thus, If the sae of a securty by a deaer woud, but for secton 117(n) (1), be
consdered to consttute the sae of a securty hed for Investment, gan from such
sae w n no event be consdered to be capta gan uness the securty has been
propery dentfed wthn the 30-day perod n the deaer s records as beng hed
for nvestment and such securty s not at any tme after the e praton of the
30-day perod hed by the deaer prmary for sae to customers n the ordnary
course of hs trade or busness. owever, the mere fact that a securty whch
s actuay hed by a deaer for sae to customers n the ordnary course of hs
trade or busness Is dentfed as a securty hed for nvestment w not In and
of tsef cause the gan from the sae of the securty to be treated as capta gan
whether the securty Is sod wthn the 30-day perod or after such perod.
(6) Ordnary oss. ffectve wth respect to saes or e changes made on or
after November 20,1951, oss by a deaer n securtes from the sae or e change
of a securty sha n no event be consdered to be oss from the sae or e change
of property whch s not a capta asset f at any tme after November 19, 1951,
the securty has been ceary dentfed n the deaer s records as a securty hed
for nvestment. Once a securty has been dentfed after November 19, 1951,
as beng hed for nvestment, a oss on the subsequent dsposton of such securty
sha n no event be consdered an ordnary oss but sha be consdered as one
arsng from the sae or e change of a capta asset.
Nothng n ths paragraph sha be taken to restrct or prohbt the appcaton
of secton 117(), wthout regard to the manner In whch the securtes descrbed
theren have been dentfed n the records, to the net capta osses of a bank from
saes or e changes of bonds and certan other securtes.
(c) Genera. For the purpose of ths secton the term securty means any
share of stock n any corporaton, any certfcate of stock or nterest n any
corporaton, any note, bond, debenture, or other evdence of ndebtedness, or any
evdence of an nterest n, or rght to subscrbe to or purchase, any of the
foregong.
securty Is ceary dentfed n the deaer s records as a securty hed for
nvestment when there Is an accountng separaton of such securty from other
securtes. ccountng separaton w be satsfed by (1) makng approprate
entres n the deaer s books of account to dstngush the securty from Inventores
and to carry t as an nvestment and (2) Indcatng wth such entres, to the
e tent feasbe, the Indvdua sera number of, or other characterstc symbo
mprnted upon, the ndvdua securty.
In computng the 30-day perod wthn whch the securty must be ceary
dentfed, and after whch such securty may not be hed prmary for sae
to customers n the ordnary course of the trade or busness, the frst day of
such perod s the day foowng the date of acquston. Thus, n the case
of a securty acqured on March 1 ,1952, the 30-day perod e pres at mdnght
on pr 17,1952.
For a defnton of a deaer n securtes, see secton 29.22(c)-5.
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197 29.122-1..
n sectons 62 and 3791 (53 Stat. 32, 67; 2G U. S. C. 62, 3791) of the
Interna Revenue Code.)
T. Coeman ndrews,
M. I . Fosom,
(Fed wth the Dvson of the Federa Regster May 2 , 1003, :50 n. m.)
S CTION 122.-N T OP R TING LOSS D DUCTION
Secton 29.122-1: Net operatng oss deducton. T. D. 59G3
( so Sectons 29.122-2,29.122-3,29.122- .)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , T RT 29.
INCOM T ; T L Y RS GINNING T R D C M R 31, U
ct of 1950, secton 30 (e) of the cess Profts Ta ct of 1050, and
sectons 330 and 3-1 o the Revenue ct of 1051.
Washngton 25, D. C.
Others Concerned:
On October 1 ,1952, a notce of proposed rue makng was pubshed
n the Federa Regster (17 F. R. 92 9) to conform Reguatons 111
26 CFR, part 29) to secton 215 of the Revenue ct of 1950, approved
September 23, 1950, secton 30 (e) of the cess Profts Ta ct of
1950, approved anuary 3, 1951, and sectons 330 and 3 of the
Revenue ct of 1951, approved October 20, 1951. No ob|ectons to the
rues proposed havng been receved wthn the 30 days foowng such
pubcaton, the amendments set forth beow are hereby adopted:
29.122-1 26 CFR 29.122-1 the foowng:
S C. 215. N T OP R TING LOSS D DUCTIONS R NU CT
OF 1 )50, PPRO D S PT M R 23, 1U50 .
(a) owancf of ve-Year Carbt-Over. Secton 122(h) (reatng
to the amount of carry-backs and carry-overs) s hereby amended to read
as foows:
(b) mount op Carry-Rack and Cabry-Over.
(1) Net operatng oss carry-back.
( ) Loss for Ta abe Year egnnng Refore 1950. If for
any ta abe year begnnng after December 31, 19 1, and before
anuary 1, 1050, the ta payer has a net operatng oss, such net
operatng oss sha he a net operatng oss curry-back for each
of the two precedng ta abe years, e cept that the carry-back
In the case of the frst precedng ta abe year sha be the e cess,
If any, of the amount of such net operatng oss over the net
ncome for the second precedng ta abe year computed
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29.122-1.
19
() wth the e ceptons, addtons, and mtatons pro- .
Tded n subsecton (d) (1), (2), ( ), and (6), and
() by determnng the net operatng oss deducton for
such second precedng ta abe year wthout regard to. such
net operatng oss and wthout regard to any reducton
specfed n subsecton (c).
( ) Loss for Ta abe Year egnnng fter 19 9. If for any
ta abe year begnnng after December 31, 19 9, the ta payer
has a net operatng oss, such net operatng oss sha be a net
operatng oss carry-back for the precedng ta abe year.
(2) Net operatng oss carry-over.
( ) Loss for Ta abe Year egnnng efore 1950. If for
any ta abe year begnnng before anuary 1, 1950, the ta payer
operatng oss carry-over for each of the two succeedng ta abe
years, e cept that the carry-over n the cnse of the second suc-
ceedng ta abe year sha be the e cess, f any, of the amount
of such net operatng oss over the net ncome for the ntervenng
ta abe year computed
() wth the e ceptons, addtons, and mtatons pro-
vded n subsecton (d) (1), (2), ( ),and (6), and
such ntervenng ta abe year wthout regard to such net
operatng oss, wthout regard to any net operatng oss
carry-back, and wthout regard to any reducton specfed n
subsecton (c).
For the purposes of the precedng sentence, the net operatng
oss for any ta abe year begnnng after December 31, 19 1,
sha be reduced by the sum of the net ncome for each of the
two precedng ta abe years computed
() wth the e ceptons, addtons, and mtatons pro--
vded n subsecton (d) (1), (2), ( ), and (6), and
(v) by determnng the net operatng oss deducton
wthout regard to such net operatng oss or to the net oper-
atng oss for the succeedng ta abe year, and wthout
regard to any reducton specfed n subsecton (c).
( ) Loss for Ta abe Year egnnng fter 19 9 If for
any ta abe year begnnng after December 31,19 9, the ta payer
operatng oss carry-over for each of the fve succeedng ta abe
years, e cept that the carry-over n the case of each such succeed-
ng ta abe year (other than the frst succeedng ta abe year)
sha be the e cess, If any, of the amount of such net operatng
oss over the sum of the net ncome for each of the ntervenng
years computed
(I) wth the e ceptons, addtons, and mtatons pro-
vded n subsecton (d) (1), (2), ( ),and ((),and
each ntervenng ta abe year, wthout regard to such net
operatng oss or to the net operatng oss for any succeedng
ta abe year and wthout regard to any reducton specfed
n subsecton (c).
For the purpose of the precedng sentence, the net operatng
oss for any ta abe year begnnng nfter December 31, 19 9,
sha be reduced by the amount, f any, of the net ncome for the
precedng ta abe year computed
() wth the e ceptons, addtons, and mtatons pro-
vded n subsecton (d) (1), (2), ( ), and (6), and
such precedng ta abe year wthout regard to such net
operatng oss and wthout regard to any reducton spec-
fed n subsecton (c).
(b) ffectve Date of Subsecton, (a). The amendment made by
subsecton (a) sha be appcabe n computng the net operatng oss
deducton for ta abe years begnnng after December 31,19 7.
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199
29.122-1.
S C. 30 . T C NIC L M NDM NTS C SS PROFITS T
CT Of 1050, PPRO D NU RY 3, 1051 .

(e) Secton 122(d)(6) of such Interna Revenue Code (reatng
to the computaton of the net operatng oss deducton) sha not appy
wth restect to any ta abe year endng after une 30, 1050.

(g) The amendments made by ths secton sha be appcabe wth
respect to ta abe years endng after une 30, 1050.
S C. 3.W N T OP R TING LOSS C RRY O R R NU CT
OF 1051, PPRO D OCTO R 20,
(a) Loss eou Ta abe Year egnnng efore 10 S. So much of sub-
paragraph ( ) of secton 122(b) (2) (reatng to the amount of carry-
overs) as precedes the ta payer s hereby amended to read as foows:
( ) Loss for Ta abe Year egnnng efore 10 . cept
as provded n subparagraph (D), f for any ta abe year
begnnng before anuary 1, 19 S, .
(b) owance or Three-Year Loss Carry-Over From Ta ae
Yeaks 19 -19 9. Secton 122(h (2) (reatng to the amount of cany-
over) s hereby amended by addng after subparagraph ( ) the fo-
owng new subparagraphs:
(C) Loss for Ta abe Year egnnng fter December 31,
10 7, and efore anuary 1, 1050. If for any ta abe year
begnng after December 31, 10 7, and before anuary 1, 1050,
the ta payer has a net operatng oss, such net o eratng oss
sha e a net operatng oss carry-over for each of the three
succeedng ta abe years, e cept that the carry over n the case
of each su - succeedng ta abe year (other than the frst suc-
ceedng ta abe year) sha be the e cess, f any, of the amount
of such net operatng oss over the sum of the net ncome for
each of the ntervenng years computed
(1) wth the e ceptons, addtons, and mtatons
provded n subsecton (d) (1), (2), ( ), and ((5), and
() by determnng the net operatng oss deducton
for each ntervenng ta abe year wthout regard to such net
operatng oss or to the net operatng oss for any suc-
ceedng tn ahe year and wthout regard to any reducton
specfed In subsecton (c).
and before anuary 1, 1050, sha be reduced by the sum of the
net ncome for each of the two precedng ta abe years
computed
() wth the e ceptons, addtons, and mtatons
provded n subsecton (d) (1), (2), ( ), and (0), and
wthout regard to such net operatng oss or to the net
operatng oss for the succeedng ta abe year, and wth-
out regard to any reducton specfed n subsecton (c).
(D) Loss for Ta abe Year egnnng fter December 31,
10 (5, and efore anuary 1, 10 , n the Case of a Corporaton
Whch Commenced usness fter December 31, 10 5. If
for any ta abe year begnnng after December 31, 19 0, and
before anuary 1, 10 , a corporaton whch commenced bus-
ness after December 31, 10 5, has a net operatng oss, such
net operatng oss sha be a net operatng oss carry-over for
each of the three succeedng ta abe years, e cept that the
carry-over n the case of each such succeedng ta abe year
(other than the f st succeedng ta abe year) sha be the
e cess, If any, of the amount of such net operatng oss over
the sum of the net ncome for each of the ntervenng years
computed
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29.122-1.
200
() by determnng the net operatng oss deducton
for each ntervenng ta abe year wthout regard to such net
operatng oss or to the net operatng oss for any suc-
ceedng ta abe year and wthout regard to any reducton
specfed n subsecton (c).
sha be reduced by the sum of the net ncome for each of
the two precedng ta abe years computed
wthout regard to such net operatng oss or to the net
operatng oss for the succeedng ta abe year, and wth-
out regard to any reducton specfed n subsecton (c).
appcabe n computng the net operatng oss deducton for ta abe
years begnnng after December 31, 19 .
S C. 3 . NON USIN SS C SU LTY LOSS S R NU CT OF
1951, PPRO D OCTO R 20, 1951 .
(a) Remova of Lmtaton. Secton 122(d)(5) (reatng to net
operatng oss deducton) s hereby amended by nsertng at the end
thereof the foowng new sentence: Ths paragraph sha not appy
wth respect to deductons aowabe for osses sustaned after Decem-
ber 31, 1950, n respect of property, f the osses arse from fre, storm,
shpwreck, or other casuaty, or from theft.
appcabe In computng the net operatng oss deducton for ta abe
years endng after December 31, 19 .
Par. 2. Secton 29.122-1 (a) 26 CFR 29.122-1 (a) s amended as
foows:
( ) y strkng the second and thrd sentences of the second para-
graph and nsertng n eu thereof the foowng new sentence:
See secton 29.122- for the ta abe years from whch a net operatng oss may
be carred over or carred baek to the current ta abe year.
( ) y strkng the ast two sentences of the second paragraph
thereof, whch read as foows:
Therefore, the net operatng oss carry-overs to a ta abe year begnnng on or
after anuary 1, 19 2, are the net operatng oss for the frst precedng ta abe
year and so much of the net operatng oss for the second precedng ta abe
year as has not been absorbed by the net ncome (computed under secton 122),
f any, for the frst precedng ta abe year, and the net operatng oss carry-
backs to such a ta abe year are the net operatng oss for the second succeedng
ta abe year and so much of the net operatng oss for the frst succeedng ta -
abe year as has not been absorbed by the net ncome (computed under secton
122), f any, for the frst precedng ta abe year. If ether of he ta abe years
precedng the ta abe year for whch the deducton s aowed began on or after
anuary 1, 19 2, the net operatng oss for such precedng ta abe year Is frst
reduced to the e tent t has been absorbed by the net ncome (computed under
secton 122), f any, for the ta abe years to whch such oss has been carred
back.
(C) y strkng the thrd paragraph and nsertng n eu thereof
the foowng new paragraph:
fractona part of a year whch s a ta abe year under secton (a) s a
precedng or a succeedng ta abe year for the purpose of determnng under
secton 122 the frst, second, etc., precedng or succeedng ta abe year.
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201
29.122-1.
Par. 3. Secton 29.122-1 (b) 26 CFR 29.122-1 (b) s amended by
strkng the second sentence and nsertng n eu thereof the foowng
new sentence:
The frst step s the computaton of the net operatng oss, f any, for any pre-
cedng or succeedng ta abe year from whch a net operatng oss may be currt d
forward or carred back to the current ta abe year.
Par. . Secton 29.122-2 26 CFR 29.122-2 s amended by nsertng
at the end of paragraph (5) thereof, whch paragraph begns (5) For
ta abe years begnnng after December 31, 19 1 , the foowng new
sentence:
Ths deducton s not aowed for any ta abe year endng after une 30, 1950;
for e ampe, the deducton s not aowed for any ta abe year endng after une
30, 1950, n the case of a ta payer whch makes ts return on the bass of cash
recepts and dsbursements and whch pays such e cess profts ta durng such
ta abe year.
Par. 5. Secton 29.122-3(a) 26 CFR 29.122-3(a) s amended by
addng at the end of paragraph (7) thereof the foowng new
sentence:
For the purpose of computng t e net operatng oss deducton for any ta abe
year endng after December 31,19 , any deducton aowabe for a oss sustaned
after December 31,1950, n respect of property, f the oss arses from fre, storm,
shpwreck, or other casuaty, or from theft, sha not be consdered to be an
ordnary nonbusness deducton but sha be treated as a deducton attrbutabe
to the operaton of a trade or busness reguary carred on by the ta payer.
Par. 6. Secton 29.122- (a) 26 CFR 29.122 (a) s amended to
read as foows:
(a) In genera. The aggregate of any net operatng oss carry-overs and any
net operatng oss carry-backs to a ta abe year sha be the bass of the net
operatng oss deducton. In order to compute such deducton the ta payer
mnst frst determne the part of any net operatng osses for any precedng or
succeedng ta abe years whch are carry-overs or carry-backs to the current
ta abe year.
The number of ta abe years to whch a net operatng oss may be carred back
and carred over are as foows (sub|ect to the two e ceptons set forth beow) :
Net operatng oss for s ta abe year begnnng:
fter and efore
Dee. 31,1 3S an. 1,19 2
Dec. 31, 19 1 nn. 1, 19
c. 31,19 7 an. 1, 1950
Dec 31,19 9
May be car-
red b:ck to I
the foowng I
precedng
ta abe years
None
2

1
The frst e cepton referred to above s that a net operatng oss may not he
carred back to any ta abe year begnnng pror to anuary 1, 19 1. The
second e cepton referred to above s that n the case of a corporaton whch
commenced busness after December 31, 19 the net operatng oss for any
ta abe year begnnng after December 31, 19 6, and before anuary 1, 19 ,
may be carred over to the three succeedng ta abe years n eu of the two
succeedng ta abe years shown above. The date the corporaton commenced
busness sha be determned for the purpose of ths e cepton under the
rues provded n the reguatons promugated under secton 5, reatng to
the computaton of the average base perod net ncome n the case of new
corporatons. See secton 0. 5-1 of Iteguatons 130.
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29.122-1.
202
The amount whch Is carred back or carred over to any ta abe year s
the net operatng oss to the e tent t was not absorbed n the computaton
of the net ncome for other ta abe years, precedng such ta abe year, to whch
t was carred back or carred over. For the purpose of determnng the net
ncome for a ta abe year whch so absorbs the net operatng oss that s carred
back or carred over, the varous net operatng oss carry-overs and carry-backs
to such ta abe year are consdered to be apped n reducton of the net
ncome for such ta abe year In the order of the ta abe years from whch
such osses are carred over or carred back, begnnng wth the oss for the
earest ta abe year.
Par. 7. Secton 29.122- (b) 26 CFR 29.122- (b) s amended to
read as foows:
(6) Porton of net operatng oss whch s a carry-over or a carry-hack to
the current ta abe year. net operatng oss must frst be carred to the
earest of the severa ta abe years to whch such oss s aowabe as a carry-
back or a carry-over, and Is then to be carred to the ne t earest of such
severa ta abe years, etc. See (a) of ths secton for the ta abe years to
whch a net operatng oss ncurred n any partcuar ta abe year may be
carred back or carred over. The entre net operatng oss may be carred o
such earest year. The porton of the oss whch may be carred to any
ta abe year subsequent to such earest year s the e ceso of such net operatng
oss over the aggregate of the net ncome, f any (computed as provded n
(c) of ths secton), for those of such severa ta abe years whch precede the
ta abe year to whch such net operatng oss s aowabe as a carry-back or
a carry-over.
ampe. ta payer on the caendar year bass has net operatng osses for
19 0 and 19 . The entre net operatng oss for 19 0 may be carred over
to 19 1, and the amount of the carry-over to 19 2 s the e cess of that oss
over the net ncome (computed as provded n (c) of ths secton) for 19 1.
Smary, the entre net operatng oss for 19 may be carred back to 19 6,
the amount of the carry-back to 19 7 s the e cess of that oss over the net
ncome (computed as provded n (c) of ths secton) for 19 6, and the amount
of the carry-over to 19 9, 1950, and 1951, s the e cess of that oss over the
aggregate of the net ncome (computed as provded n (c) of ths secton)
for 19 0 and 19 7, for 19 0, 19 7, and 19 9, and for 19 0, 19 7, 19 9, and
1950, respectvey.
Par. . Secton 29.122- (c), as amended by Treasury Decson 5600
C. . 19 -1, 6 , approved February 2, 19 26 CFR 29.122- (c) ,
s further amended by strkng the second, thrd, and fourth para-
graphs and nsertng n eu thereof the foowng new paragraphs:
(1) The net operatng oss deducton for such ta abe year s computed ()
by takng nto account ony such net operatng osses otherwse aowabe as
carry-overs or carry-backs to such ta abe year as were sustaned n ta abe
years precedng the ta abe year n whch the ta payer sustaned the net
operatng oss from whch the net ncome s to be deducted, and () f the
ta abe year to whch the net operatng oss s to be carred begns after
December 31, 19 7, by dsregardng the ad|ustment provded n secton 122(c)
and secton 29.122-5 (reatng to the converson of the aggregate of the net
operatng oss carry-overs and carry-backs to the ta abe year nto the net
operatng oss deducton).
ampe. The ta payer fes ts ncome ta returns on the bass of the
caendar year. In computng the net operatng oss deducton for 19 5, the
ta payer has a carry-over from 19 3 of 9,000, a carry-over from 19 of
6,000, a carry-back from 19 6 of 1 ,000, and a carry-back from 19 7 of 1 ,000,
or an aggregate of 7,000 n carry-overs and carry-backs whch s the bass
for the deducton. The ad|ustment under secton 122(c) for the purpose of
computng the net operatng oss deducton for 19 5 s 2,500. In computng the
net ncome for 19 5 whch Is deducted from the net operatng oss for 19 0
or 19 7, as the case may be, for the purpose of determnng the amount of
such oss whch may be carred back or carred over, the net operatng oss
deducton for 19 5 s computed as foows:
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203
29.122-
For the purpose o| deermmmg the
carry-orer or carry-back; The net ncome for h computed trth the foou ng net opera.ny
|Fy |, To osa deducton
19 6 19 7 12,500, that s, the segregate of the 9,000 carry-over
from 19 3 and the 6,000 carry-over from 19 ,
ess the 2,500 ad|ustment requred by secton
122(c).
19 6 19 15,000, that s, the aggregate of the 9,000 carry over
from 19 3 and the 6,000 carry-over from 19 .
The ad|ustment requred by secton 122(c) s ds-
regarded snce the ta abe year, 19 , to whch the
net operatng oss s to be carred begns after
December 31,19 7.
19 7 19 6... 30,500, that s, the 9,000 carry-over from 19 3. the
6,000 carry-over from 19 . and the 1 ,000 carry-
back from 19 6, ess the 2,500 ad|ustment requred
by secton 122(c).
19 7 19 or 1C 9 33,000, that s. the aggregate of the 9,000 carry-over
from 19 3, the 6,000 carry-over from 19 , and the
1 ,000 carry-back from 19 6. The ad|ustment
requred by secton 122(d) s dsregarded.
ohn S. Graham,
pproved December 16,1952.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster December 19,1952, :57 a. m.)
Secton 29.122-2: Computaton of net operatng
oss n case of corporaton.
INT RN L R NU COD
Secton 29.122-3: Computaton of net operatng
oss n case of a ta payer other than a cor-
poraton.
INT RN L R NU COD
Secton 29.122- : Computaton of net operatng
oss carry-overs and net operatng oss carry-
backs.
INT RN L R NU COD
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5 29.127(c)- .
20
S CTION 127(c). W R LOSS S: CO I S
Secton 29.127 (c)-1: Recoveres n respect of Rev. Ru. 5
war osses.
( so Secton 112(a), Secton 29.112(a)-.)
INT RN L NU COD
Recovery of war osses sustaned by hoders of certan apanese
prewar doar bonds, for the purposes of secton 127(c) of the In-
terna Revenue Code, occurred on November 11, 1950, the date the
Securtes and change Commsson removed the restrctons
aganst tradng In such bonds.
Presentment of such bonds to the apanese Government for the
purpose of overprntng an e tended maturty date thereon does not
consttute an e change of property whch resuts n gan or oss rec-
ognzabe under secton 112 of the Code.
dvce s requested reatve to the date on whch war osses sustaned
by hoders of certan prewar doar bonds of the apanese Govern-
ment and of apanese pubc and prvate corporate bodes are con-
sdered to be recovered for the purposes of secton 127(c) of the
Interna Revenue Code. dvce s aso requested whether present-
ment of such bonds for the purpose of overprntng the e tended
maturty date thereon, pursuant to the terms of an offer of settement
by the government of apan, consttutes an e change of property
whch resuts n gan or oss recognzabe under secton 112 of the
Code.
The bonds here under consderaton are as foows:
Impera apanese Government terna Loan of 192 Thrty Year Snkng
Fund 6 Percent God ond.
Impera apanese Government terna Loan of 1930 Thrty-fve Tear
Snkng Fund 5 Percent God ond.
Cty of Yokohama terna Loan of 1926 Snkng Fund 6 Percent God ond.
Cty of Tokyo terna Loan of 1927 Snkng Fund 5 Percent God ond.
The Orenta Deveopment Company, Lmted (Toyo Takushoku abushk
asha) terna Loan Thrty Year 6 Percent God Debenture ond.
The Orenta Deveopment Company, Lmted (Toyo Takushoku abushk
asha) terna Loan Thrty Year 5 Percent God Debenture ond.
Tawan ectrc Power Company, Lmted (Tawan Denryoku abushk
asha) Forty Year Snkng Fund 5 Percent God onds.
Great Consodated ectrc Power Company, Lmted (Dado Denryoku
abushk asha) Frst Mortgage 7 Percent Snkng Fund God ond,
Seres .
Toho ectrc Power Company, Lmted (Toho Denryoku abushk asha)
Frst Mortgage ( ansa Dvson) Snkng Fund 7 Percent God ond,
Seres .
U|gawa ectrc Power Company, Lmted (U|gawa Denk abushk
asa) Frst Mortgage 7 Percent Snkng Fund God ond.
Great Consodated ectrc Power Company, Lmted (Dado Denryoku
abushk asha) Frst and Genera Mortgage 6 Percent Snkng Fund
God ond.
Shnyetsu ectrc Power Company, Lmted (Shnyetsu Denryoku abushk
asha) Frst Mortgage Percent Snkng Fund ond.
Nppon ectrc Power Company, Lmted (Nppon Denryoku abushk
asha) Frst Mortgage 6 / Percent God ond.
Tokyo ectrc Lght Company, Lmted (Tokyo Dento abushk asha)
Frst Mortgage God onds, 6 Percent Doar Seres.
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205
29.127(c)- .
Servce on the above bond ssues was suspended on December ,
19 1. On December 11, 19 1, the Securtes and change Comms-
son advsed stock and bond e changes and securty deaers throughout
the Unted States to cease handng a transactons n apanese bonds.
The restrctons were removed by the Securtes and change Com-
msson pursuant to Reease No. 51 dated November 11,1950. There
was no market for the bonds n the Unted States durng the perod
the restrctons were n effect, and there were no quotatons on the
bonds durng such perod.
The abtes for the apanese Government and muncpa bonds are
the drect and soe obgaton of the Government, and the obgatons
of the pubc and prvate corporate bodes were assumed by the
apanese Government n 19 3 pursuant to apanese Law No. 60 of 19 3,
reatng to the treatment of foregn currency bonds. The apanese
Government resumed servce on December 22,1952, on those bonds the
hoders of whch accept the offer of settement.
Under the terms of the offer of settement the maturty date of the
bonds sha be e tended for the e act perod of 10 years. owever,
the apanese Government reserves the rght to redeem, at any tme
pror to the new maturty dates, a or part of any of the bonds n
accordance wth the provsons n the orgna contract of, and/or
ndenture for, the respectve bonds. onds, the hoders of whch
accept the offer of settement, w be overprnted wth approprate
egends showng the e tenson of the maturty dates thereof and the
acceptance of the offer. The snkng fund operatons sha be resumed
n the way stpuated n the orgna contracts and/or ndentures as
from the year 1953 wth certan ad|ustments to gve effect to the re-
duced amount of outstandng bonds whch has been produced by
mandatory converson of doar bonds nto yen obgatons.
For the e tended perods after orgna maturty dates, the bonds
sha bear nterest at the same rate and wth the same semannua pay-
ment dates of each e tended year as specfed n the orgna contracts
and/or ndentures. The apanese Government w endeavor to ar-
range that, about 1 month pror to the frst semannua nterest pay-
ment date n the frst such e tended year, or as soon as possbe n the
case of bonds aready matured, new coupon sheets correspondng to
such e tended perods sha be attached to the respectve Donds. In
cases where new coupon sheets are not ready by the date of actua
payment, scrp or other certfcates may be devered so as to serve the
purpose of the nterest payment.
In the case of the Great Consodated ectrc Power Company,
Lmted, Frst Mortgage 7 percent Snkng Fund God ond, Seres
, and U|gawa ectrc Power Company, Lmted, Frst Mortgage 7
percent Snkng Fund God ond, new prnted coupon sheets coverng
the perod from and ncudng 19 3 to the e tended maturty date ot
such bonds w be prepared and the engraved coupons aready at-
tached to the bonds maturng; n or after 19 3 w be detached and
canceed. In the case of the Great Consodated ectrc Power Com-
pany, Lmted, Frst and Genera Mortgage y2 percent Snkng Fund
God ond, the coupon due anuary 1,1953, w be n prnted form.
The coupons bearng payment dates pror to December 22, 19 2,
sha be payabe on December 22, 1952. The payment dates of the
coupons bearng payment dates on or after December 22, 19 2, and
26335 53 1
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29.127(c)- .
20G
pror to September 26, 1952, sha be e tended n each case for the
e act perod of 10 years, and payment sha be made on the new dates.
Coupons overprnted wth new payment dates sha be detached from
the bonds so that such bonds may be transferred or devered separate
and apart from such coupons, scrp, or other certfcates so overprnted
wth new payment dates. Such coupons, scrp, or other certfcates,
so overprnted wth new pa| ment dates, sha contnue to be payabe
on the new payment dates overprnted thereon, notwthstandng the
pror maturty or redempton of the bonds to whch they orgnay
appertaned, and the accrued nterest represented thereby w not be
deemed to be accrued nterest for the purpose of determnng the
redempton prce of bonds or the ma mum prce at whch bonds may
be purchased wth moneys n a snkng fund therefor.
The terms and condtons under the orgna contracts and/or nden-
tures for the bonds concerned sha be mantaned e cept those artces,
causes, and phrases whch are specfcay repaced or emnated by
the terms of the offer, or are nconsstent wth the amendments set
forth theren. The offer of settement does not affect the e stng
rghts of hoders of bonds or coupons who do not accept the offer.
owever, no payment on the bonds or coupons concerned w be made
e cept wth respect to bonds or coupons the hoders of whch accept
the offer n the prescrbed manner.
It s hed that recovery of war osses sustaned by hoders of the
foregong apanese bonds, for the purposes of secton 127(c) of the
Interna Revenue Code, occurred on November 11, 1950, the date the
Securtes and change Commsson removed the restrctons aganst
tradng n such bonds. It s further hed that acceptance of the offer
of settement and presentment of the bonds to the apanese Govern-
ment for the purpose of overprntng the e tended maturty date
thereon, pursuant to the offer of settement, does not consttute an
e change of property whch resuts n gan or oss recognzabe under
secton 112 of the Code.
Secton 29.127(c)-1: Recoveres n respect of T. D. 596
war osses.
( so Secton 29.127(d)-, 29.127(f)-; Secton
131, Secton 29.131-1; Secton 275, Secton
29.275-1; Secton 322, Secton 29.322-7.)
TITL 20 INT RN L R NU C PT R I, SU C PT R , P RT 29.
INCOM T ; T L Y RS G1NN1NU FT R D C M R 31, 19 1
Reguatons 111 amended to conform to secton 3 1 of the Revenue
ct of 1951, reatng to war osses.
Washngton 25, D. C.
Concerned:
On November 22, 1952, notce of proposed rue makng wth respect
to amendments to conform Reguatons 111 to secton 3 1 of the Reve-
nue ct of 1951 (P. L. 1 3, 2d Cong., 1st sess.), approved October
20,1951, reatng to war osses, was pubshed n the Federa Regster
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207
29.127(c)-.
(17 F. R. 106 9). fter consderaton of such reevant suggestons
as were presented by nterested persons regardng the proposas, the
amendments to Reguatons 111 26 CFR, part 29 set forth beow are
hereby adopted:
29.127(c)- 26 CFR 29.127(c)- the foowng:
S C. 3 1. W R LOSS S R NU CT OF 1951, PPRO D
OCTO R 20, 1951 .
(a) Ta Upon Wae Loss Recovery. Secton 127(c) (reatng to
recoveres ncuded n gross ncome) s hereby amended to read as
foows:
(c) Recoveres.
(1) Genera rue. Upon the recovery n the ta abe year of
any money or property In respect of property consdered under sub-
secton (a) as destroyed or sezed n any pror ta abe year, the
amount of such recovery sha be ncuded n gross ncome to the
e tent provded n paragraph (2), uness the provsons of para-
graph (3) are appcabe to the ta abe year pursuant to an eecton
made by the ta payer under the provsons of paragraph (5).
(2) Incuson n gross ncome.
( ) mount of Recovery. The amount of the recovery of
any money or property n respect of property consdered under
subsecton (a) as destroyed or sezed n any pror ta abe year
sha be an amount equa to the aggregate of such money and
the far market vaue of such property, determned as of the
date of the recovery.
( ) mount of Gan Incudbe. To the e tent that the
amount of the recovery pus the aggregate of the amounts of
prevous such recoveres do not e ceed that part of the aggre-
gate of the aowabe deductons n pror ta abe years on
account of the destructon or sezure of property descrbed n
subsecton (a) whch dd not resut n a reducton of any ta
of the ta payer under ths chapter or chapter 2, such amount
sha not be ncudbe n gross ncome and sha not be deemed
gan upon the nvountary converson of property as a resut
of ts destructon or sezure. To the, e tent that such amount
pus the aggregate of the amounts of prevous such recoveres
e ceed that part of the aggregate of such deductons, whch dd
not resut n a reducton of any ta of the ta payer under ths
chapter or chapter 2 and do not e ceed that part of the aggre-
gate of such deductons whch dd resut n a reducton of any
ta of the ta payer under ths chapter or chapter 2, such
amount sha be ncuded n gross ncome but sha not be
deemed a gan upon the nvountary converson of property as a
resut of ts destructon or sezure. To the e tent that such
amount pus the aggregate of the amounts of prevous such
recoveres e ceed the aggregate of the aowabe deductons
In pror ta abe years on account of the destructon or sezure
of property descrbed n subsecton (a), such amount sha be
consdered a gan upon the Invountary converson of property
as a resut of ts destructon or sezure and sha be recognzed
or not recognzed as provded n secton 112(f). If for any
prevous ta abe year the ta payer chooses under subsecton
(b) to treat any obgatons and abtes as dscharged or
satsfed out of the property or nterest descrbed n subsecton
(a), and f such obgatons and abtes were not so ds-
charged or satsfed, the amount of such obgatons and a-
btes treated as dscharged or satsfed under subsecton (b)
sha be consdered for the purposes of ths secton as a deduc-
ton by reason of ths secton whch dd not resut n a reducton
of any ta of the ta payer under ths chapter or chapter 2.
For the purposes of ths paragraph an aowabe deducton for
any ta abe year on account of the destructon or sezure of
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I 29.127(c)- .
203
property descrbed n subsecton (a) shn, to the e tent not
aowed n computng the ta of the ta payer for such ta abe
year, be consdered an aowabe deducton whch dd not re-
sut n a reducton of any ta for the ta payer under ths
chapter or chapter 2.
(3) Ta ad|ustment measured by pbob benefts. If the pro-
vsons of ths paragraph are appcabe to the ta abe year pursuant
to an eecton made by the ta payer under the provsons of para-
graph (5)
( ) mount of Recovery. The amount of the recovery n
the ta abe year of any money or property n respect of property
consdered under subsecton (a) as destroyed or sezed n any
pror ta abe year sha be an amount equa to the aggregate
of such money and the far market vaue of such property,
determned as of the date of the recovery. For the purpose of
ths paragraph, n the case of the recovery o the same property
or nterest consdered under subsecton (a) as destroyed or
sezed, the far market vaue cf such property or nterest sha,
at the opton of the ta payer, be consdered an amount equa
to the ad|usted bass (for determnng oss) of such property or
nterest n the hands of the ta payer on the date such property
or nterest was consdered under subsecton (a) as destroyed
or sezed. The amount of the recovery determned under ths
subparagraph sha he reduced for the purposes of subpara-
graphs ( ) and (C) by the amount of the obgatons or ab-
tes wth respect to the property consdered order subsecton
(a) as destroyed or sezed n respect of whch the recovery
was receved, f the ta payer for any prevous ta abe year
chose under subsecton (b (2) to treat such obgatons or a-
btes as dscharged or satsfed out of such property, and such
obgatons or abtes w re not so dscharged or satsfed pror
to the date of the recovery.
( ) |ust. ent for Pror Ta enefts. That part of the
amount of the recovery, n respect of any property consdered
under subsecton (a) as destroyed or sezed, whch s not n
e cess of the aowabe deductons n pror ta abe years on
account of such destructon or sezure of the property (the
amount of such aowabe deductons beng frst reduced by the
aggregate amount of any pror recoveres n respect of the
same property) sha be e cuded from gross ncome for the
ta abe year of the recovery for the purpose of computng the
ta under ths chapter and chapter 2; but there sha be added
to, and assessed and coected as a part of, the ta under ths
chapter for the ta abe year of the recovery the tota ncrease
n the ta under ths chapter and charter 2 for a ta abe
years whch woud resut by decreasng, n an amount equa to
such part of the recovery so e cuded, such deductons aowabe
n the pror ta abe years wth respect to the destructon or
sezure of the property. Such ncrease n the ta for each such
year so resutng sha be computed n accordance wth regua-
tons prescrbed by the Secretary. Such reguatons sha gve
effect to prevous recoveres of any knd (ncudng recoveres
descrb--1. n secton 22(b) (12)) wth respect to any pror year,
and shn provde for the case where there was no ta for the
pror year, but sha otherwse treat the ta prevousy deter-
mned for any year n accordance wth the prncpes set forth
n secton 3 01(d). credts aowabe aganst the ta for
any year and a carry-overs and carry-backs affected by so
decreasng the aowabe deductons sha be taken nto account
n computng the ncrease n the ta , e cept that the computa-
ton of the e cess profts credt under chapter 2 for any ta -
abe year shn not be affected.
(C) Gan Upon Recovery. The amount of any recovery
or part thereof, n respect of property consdered under subsec-
ton (a) as destroyed or sezed, whch s not e cuded from gross
ncome under the provsons of subparagraph ( ) sha be
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209
29.127(c)- .
consdered for the ta abe year of the recovery as gan on the
Invountary converson of property as a resut of ts destructon
or sezure and sha be recognzed or not recognzed as provded
n secton 112(f).
(D) Recoveres Treated as Gross Income for Certan Pur-
poses. For the purposes of sectons 51, 52, and 3 01 (b) the re-
covery n the ta abe year of any money or property n respect
of property consdered under subsecton (a) as destroyed or
sezed n any pror ta abe year sha be deemed to be an tem
ncudbe n gross ncome for the ta abe year In whch the
recovery s made.
( ) Restoraton op vate of nvestments referae to de-
stroyed or sezed property. For the purpose of ths subsecton the
restoraton n whoe or n part of the vaue of any nterest descrbed
n subsecton (a) (3) by reason of any recovery of money or property
n respect of property to whch such nterest reated and whch was
consdered under subsecton (a) (1) or (2) as destroyed or sezed
sha be deemed a recovery of property In respect of property con-
sdered under subsecton (a) as destroyed or sezed. In appyng
paragraph (3) of ths subsecton such restoraton sha be treated
as the recovery of the same nterest consdered under subsecton
(a) as destroyed or sezed.
(5) ecton by ta payer for appcaton of paragraph
(3). ISthe ta payer eects to have the provsons of paragraph (3)
appcabe to any ta abe year n whch he recovered any money or
property n respect of property consdered under subsecton (a)
as destroyed or sezed, the provsons of paragraph (3) sha be
appcabe to a ta abe years of the ta payer begnnng after
December 31,19 1, and such eecton, once made, sha be rrevocabe.
The eecton sha be made n such manner and at such tme as
the Secretary may by reguatons prescrbe, e cept that no eecton
under ths paragraph may be made after December 31, 1952, uness
the ta payer recovers money or property (In respect of property
consdered under subsecton (a) as destroyed or sezed) durng
a ta abe year endng after the date of the enactment of the Reve-
nue ct of 1951. If pursuant to such eecton the provsons of
paragraph (3) are appcabe to any ta abe year
( ) the perod of mtatons provded n sectons 275 and
276 on the makng of assessments and the begnnng of ds-
trant or a proceedng n court for coecton sha not, wth
respect to
(I) the amount to be added to the ta for such ta abe
year under the provsons of paragraph (3), and
() any defcency for such ta abe year or for any
other ta abe year, to the e tent attrbutabe to the bass
of the recovered property beng determned under the
provsons of subsecton (d) (2).
e pre pror to the e praton of two years foowng the date
of the makng of such eecton, and such amount and such
defcency may be assessed at any tme pror to the e praton
of such perod notwthstandng any aw or rue of aw whch
woud otherwse prevent such assessment and coecton, and
( ) n case refund or credt of any overpayment resutng
from the appcaton of the provsons of paragraph (3) to such
ta abe year Is prevented on the date of the makng of such
eecton, or wthn one year from such date, by the operaton
of any aw or rue of aw (other than secton 3761, reatng
to compromses), refund or credt of such overpayment may,
nevertheess, be made or aowed If cam therefor s fed wthn
one year from such date.
In the case of any ta abe year endng before the date of the mak-
ng by the ta payer of an eecton under ths paragraph, no nterest
sha be pad on any overpayment resutng from the appcaton of
the provsons of paragraph (3) to such ta abe year, and no nterest
sha be assessed or coected wth respect to any amount or any
defcency specfed n cause ( ), for any perod pror to the
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5 29.127(c)- .
210
e praton of s months foowng the date of the makng of such
eecton by the ta payer.

(d) ffectve Dates. The amendments made by ths secton sha
be appcabe to ta abe years begnnng after December 31, 10 1.
Tar. 2. Secton 29.127(c)-, as amended by Treasury Decson 5 5
C. . 19 5, 6 , approved May 10, 19 5 26 CFR 29.127(c)- , s
further amended to read as foows:
Sec. 29.127(c)-1. Recoveres n Respect of War Losses. (a) Oencra.
(1) Upon the recovery by the ta payer n the ta abe year of any money or
property n respect of property consdered under secton 127(a) as destroyed
or sezed n any pror ta abe year, the amount of suc recovery must be
ncuded n gross ncome to the e tent provded n secton 127(c) (2), uness
pursuant to the ta payer s eecton the provsons of secton 127(c)(3) are
appcabe to such recovery. For the treatment of war oss recoveres under
such provsons, and the manner of makng such eecton, see paragraphs (c)
and ( /) hereof.
(2) cept as provded n secton 127(c)(3)( ) and n ths paragraph, the
amount of the recovery n respect of a war oss n a prevous ta abe year s
determned n the same manner for the purpose of secton 127(c) (2) or (3).
The amount of the recovery of any money or property n respect of any war
oss s the aggregate of the amount of such money and of the far market vaue
cf such property, both determned as of the date of the recovery. If pursuant
to the ta payer s eecton under secton 127(c)(5) the provsons of secton
127(c)(3) are appcabe to any ta abe year n whch he recovers the same
property or nterest consdered unde| secton 127(a) as destroyed or sezed In a
prevous ta abe year, the far market vaue of such property or nterest sha,
nt the opton of the ta payer, be consdered an amount equa to the ad|usted
bass (for determnng oss) of such property or uterest n the hands of the
ta payer on the date such property or nterest was consdered as destroyed or
sezed. Ths opton s e ercsabe by the ta payer wth respect to each separate
property or nterest consdered under secton 127(a) as destroyed or sezed n a
prevous ta abe year. so, f the provsons of secton 127(c)(3) are app-
cabe pursuant to the ta payer s eecton, the amount of the recovery of any
money or property n respect of property consdered under secton 127(a) as
destroyed or sezed n nny pror ta abe year sha be reduced for the purpose of
secton 127(c)(3) ( ) and (C) by the amount of the obgatons or abtes
wth respect to such property, f the ta payer for n-ny prevous ta abe year
chose under secton 127(b)(2) to treat such obgatons or abtes as ds-
charged or satsfed out of such property, and such obgatons or abtes
were not so dscharged or satsfed pror to the date of the recovery. See secton
29.127(b)-. The recoveres n respect of any war oss Incude the recovery
of the property or nterest treated as destroyed or sezed under secton 127 and
the recovery of any money or property n eu of such property or nterest or on
account of the destructon or sezure of such property or nterest. For e ampe,
there s a recovery upon the return to the ta payer after the termnaton of the
war of hs property whch was treated as resutng n a war oss because t was
ocated n a country at war wth the 1 nted Stntes. n award by a government
on account of the sezure of the ta payer s property by an enemy country s
a recovery under secton 127(c). The amount obtaned upon the sae or other
transfer by the ta payer of hs rght to any property treated as resutng n a
war oss s aso a recovery for the purpose of secton 127(c). Smary, f a
ta payer who sustaned a war oss under secton 127(c) upon the qudaton
of a corporaton has receved the rghts to any property of the corporaton whch
was treated as destroyed or sezed under secton 127(a) (1) or (2), any recovery
by the ta payer wth respect to such rghts s a recovery by hm for the purposes
of secton 127(c). Furthermore, f any nterest of the ta payer n or wth
respect to property was determned to be worthess and was treated as a war
oss under secton 127(a)(3) (see secton 29.127(a)- ), or If the ta payer
retaned an nterest n a corporaton wth respect to whch he sustaned n war
oss under secton 127(e), and f the nterest n the hands of the ta payer s
restored n vaue, n whoe or n part, by reason of a recovery wth respect to the
underyng assets treated as destroyed or sezed under secton 127, then such
restoraton In vaue s a recovery by the ta payer for the purposes of secton
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211
29.127(c)- .
127(c). In the appcaton of secton 127(c) (3) such restoraton sha be treated
as a recovery of the same nterest consdered ns destroyed or sezed. Property
consdered as destroyed or sezed under secton 127(a) s consdered as not
beng n e stence from the date of the oss to the date of ts recovery.
(3) For the purpose of secton 127(c), the recoveres consdered are ony
those wth respect to war osses sustaned n pror ta abe years. Smary,
the ony deductons consdered are those aowabe for pror ta abe years, and
any aowabe deductons for the year of the recovery are gnored for the pur-
poses of appyng such secton to the recovery. If property Is treated as de-
stroyed or sezed under secton 127, and f n the same ta abe year there s
aso a recovery wth respect to such property, such recovery Is not wthn the
provsons of secton 127(c) but s taken nto account under secton 127(b) n
determnng the amount of the oss, f any, on the destructon or sezure. See
secton 127(b)-. n aowabe deducton wth respect to a war oss s any
deducton to whch the ta payer s entted on account of any property or nterest
beng treated as destroyed or sezed under secton 127, regardess of whether or
not such deducton was camed by the ta payer or otherwse aowed n com-
putng hs ta . If a deducton was camed by a ta payer In computng hs
ta for any ta abe year, and f such deducton was dsaowed, such deducton
w not be consdered an aowabe deducton for such ta abe year snce the
prevous determnaton w not be reconsdered.
(6) Genera rue Incuson of recovery n gross ncome. (1) ta payer
who has sustaned a war oss descrbed n secton 127 and who has not eected
to have the provsons of secton 127(c) (3) appy to any ta abe year In
whch he recovered any money or property n respect of a war oss n any
prevous ta abe year must ncude n hs gross ncome for each ta abe year,
to the e tent provded n secton 127(c)(2), the amount of hs recoveres of
money and property for such ta abe year n respect of any war oss n a pre-
vous ta abe year. Secton 127(c)(2) provdes that such recoveres for any
ta abe year are not ncudbe n ncome unt the ta payer has recovered an
amount equa to hs aowabe deductons n pror ta abe years on account of
snch war osses whch dd not resut In a reducton of any ta under chapter 1
of the Interna Revenue Code, that s, of any ncome ta of the ta payer, or
chapter 2, ncudng the e cess profts ta mposed by subchapter thereof.
War oss recoveres are consdered as made frst on account of war osses aow-
abe but not actuay aowed as a deducton, and second on account of war
osses aowed as a deducton but whch dd not resut n a reducton of ta
under chapter 1 or chapter 2. If there were deductons aowed on account
of war osses for two or more ta abe years whch dd not resut n a reduc-
ton of any ta under chapter 1 or chapter 2, a recovery on account of such
osses s consdered as made on account of such osses n the order of the
ta abe years for whch they were aowed, begnnng wth the atest. See
secton 29.127(f)- for the determnaton of the amount of such deductons.
Recoveres n e cess of such amount are treated as ordnary ncome unt such
e cess equas the amount of the ta payer s aowabe deductons n pror ta -
abe years on account of war osses whch dd resut n a reducton of any such
ta under chapter 1 or chapter 2. ny further recoveres n e cess of a the
ta payer s aowabe deductons n pror ta abe years for war osses are treated
as gan on an nvountary converson of property as a resut of Its destruc-
ton or sezure, and such gan s recognzed or not recognzed under the prov-
sons of secton 112(f). See secton 29.112(f)-. Such gan, f recognzed, s
ncuded n gross ncome as ordnary ncome uness secton 117(|) appes to
cause such gan to be treated as gan from the sae or e change of a capta
asset hed for more than 6 months. See secton 29.117-7.
(2) The determnaton as to whether and to what e tent any recoveres
are to be Incuded n gross ncome s made upon the bass of the amount of a
the recoveres for each day upon whch there are any such recoveres, as
foows:
() The amount of the recoveres for any day Is not Incuded n gross
Income, and Is not consdered gan on an nvountary converson, to the
e tent, f any, that the aggregate of the aowabe deductons n pror
ta abe years on account of war osses whch dd not resut In a reducton
of any ta of the ta payer under chapter 1 or chapter 2 of the Interna
Revenue Code, as determned under secton 29.127(f)-, e ceeds the amount
of a prevous recoveres In the same and pror ta abe years.
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29.127(c)- .
212
() The amount of the recoveres for any day whch Is not e cuded
from gross ncome under () s ncuded n gross ncome as ordnary ncome,
and s not consdered gan on an nvountary converson, to the e tent,
f any, that the aggregate of a the aowabe deductons n pror ta abe
years on account of war osses (both those whch resuted n a reducton
of a ta of the ta payer and those whch dd not) e ceeds the sum of the
amount of a prevous recoveres n the same and pror ta abe years
and of that porton, f any, of the amount of the recoveres for such day
whch s not ncuded n gross ncome under ().
() The amount of the recoveres for any day whch s not e cuded
from gross ncome under () and s not ncuded n gross ncome as ordnary
ncome under () s consdered gan on an nvountary converson of
property as a resut of ts destructon or sezure. The foowng provsons
then appy to ths gan :
( ) Such gan s recognzed or not recognzed under the provsons
of secton 112(f), reatng to gan upon such converson of property.
For the purpose of appyng secton 112(f), such gan for any day s
deemed to be e pended n I e manner provded n secton 112(f) to the
eNtent the recovery for such day s so e pended.
( ) If such gan s recognzed t s ncuded n gross ncome as
ordnary ncome or, If the provsons of secton I17(|) appy and requre
such treatment, as gan on the sae or e change of a capta asset
hed for more than 0 months. For the purpose of appyng secton
117(.1), such recognzed gan for any day s deemed to be derved
from property descrbed n that secton to the e tent of the recovery
for such day wth respect to such property, e cept such porton of
such recovery as s attrbutabe to the nonrecognzed gan for such
day.
(C) Secton 127(d) provdes that In determnng the unad|usted
bass of recovered property, the tota gan and the recognzed gan wth
respect to such property must be determned. For such purpose, the
recognzed gan deemed to be derved from propertes descrbed n
secton 117(|) may he aocated among such propertes n the proporton
of the recoveres wth respect to such propertes, reduced for each
property by the porton of the recovery attrbutabe to the nonrecognzed.
g:n for such day, and the recoveres wth respect to propertes not
descrbed n secton 117(|) may be smary aocated. The tota
gan derved from any recovered property s the sum of the nonrecognzed
gan attrbutabe to the recovery of such property and of the recognzed
gan aocabe to such property.
(3) The foregong provsons may be ustrated by the foowng e ampes:
ampe (/). The ta payer sustaned war osses of 3,000 on account of
propertes , 15, 0, and D. Of ths amount, 1,000 dd not resut n a reducton
of any ncome ta of the ta payer, as determned under the provsons of
secton 29.127(f)- . In a subsequent ta abe year, he receved an award of
00 from the Government on account of property . Ths s not ncuded n
ncome snce t s ess than the amount by whch hs aowabe deductons for
pror ta abe years on account of war osses whch dd not resut n any ta
beneft, 1,000, e ceed 0, the sum of a hs prevous recoveres. On a ater
date the ta payer recovers property It, whch s worth 1,500 on the date of
recovery. Ths recovery s not ncuded n gross Income to the e tent of 200,
the amount by whch the aowabe deductons for pror ta abe years on account
of war osses whch dd not resut n any ta beneft, of 1,000, e ceed the sum
of a prevous recoveres, or SII0. of the remanng 1,300 of the recov-
ery s ncuded n gross ncome as ordnary ncome, and s not consdered gan
on the nvountary converson of property, snce t s ess than the amount by
whch the aggregate of a the aowabe deductons n pror ta abe years on
account of war osses, or 3,000, e ceeds 1,000, the sum of the 00 of prevous
recoveres and of the 200 porton of the recovery wth respect to whch s
not ncuded n gross ncome. On a st ater date the ta payer ses for 2,500
hs rghts to recover C. Snce the aowabe deductons for pror ta abe years
on account of war osses whch dd not resut n any ta beneft -( 1,000) do not
e ceed the prevous recoveres by the ta payer ( S()0 and 1,500, or 2,300),
none of the recovery on account of C Is e cuded from gross ncome. Ths
recovery s ncuded n gross ncome as ordnary ncome, and s Dot consdered
gan on the nvountary converson of property, to the e tent of 700, the amount
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213
29.127(c)- .
by whch the aggregate of a the aowabe deductons for pror ta abe years
on account of war osses ( 3,000) e ceeds 2,300, the sum of the 2,300 of pre-
vous recoveres and of the 0 porton of the recovery on account of C whch s
not Incuded n gross ncome. The remanng 1, 00 of the recovery s consd-
ered gan on an nvountary converson of property on account of ts destructon
or sezure, and s not recognzed f forthwth e pended n the manner provded
to secton 112(f). Thus, t s not recognzed f t s forthwth e pended for
the acquston of property reatng n servce or use to C. On a ater date the
ta payer recovers D, whch has a far market vaue of 00 at the tme of the
recovery. Snce the aggregate of a the aowabe deductons for pror ta abe
years on account of war osses ( 3,000) does not e ceed the prevous recoveres
by the ta payer ( 00 1,600 2,500, or , 00), a of the recovery wth respect
to D s consdered gan on an nvountary converson of property as a resut of
ts destructon or sezure. Under the provsons of secton 112(f), ths gan
s not recognzed f D s used for the same purposes for whch t was used
before t was deemed destroyed or sezed under secton 127.
ampe (2). The ta payer on one day recovers 3,000 for property and
7,000 for property , both of whch were treated under secton 127 as destroyed
or sezed n a pror ta abe year, and ,000 of such 10,000 recoveres s con-
sdered gan on the nvountary converson of property as a resut of ts de-
structon or sezure. The ta payer forthwt e pends 5,000 n the acquston
of property smar n use to . Therefore, 5,000 of the ,000 gan s not
recognzed under secton 112(f),eavng 3,000 of recognzed gan. Property
s wthn the provsons of secton 117(|), reatng to gans and osses on the
nvountary converson of certan descrbed property, but property s not.
Therefore, the provsons of secton 117(|) appy to 2,000 of the 3,000 gan,
that Is, the amount of the recovery wth respect to whch s not attrbutabe
to the nonrecognzed gan for such day ( 7,000 mnus 5,000). If the ta payer
forthwth e pended ,000 or more for the acquston of property smar n use
to , none of the gan woud be recognzed. If the ta payer forthwth e pended
the 5,000 to acqure property reated n use to , the 3,000 recognzed gan
woud be consdered derved from to the e tent of the recovery wth respect
to ( 7,000), not reduced by any nonrecognzed gan snce none of such recovery
s attrbutabe to such nonrecognzed gan, and therefore a of the 3,000 recog-
nzed gan woud be sub|ect to the provsons of secton 117(|).
(e) ectve method Tag ad|ustment measured 6y pror benefts. (1) If
the ta payer eects pursuant to secton 127(c)(5) and n accordance wth the
provsons of these reguatons to have the provsons of secton 127(c) (3) appy
to any ta abe year n whch he recovers any money or property n respect of
property consdered under secton 127(a) as destroyed or sezed n any prevous
ta abe year, the amount of the recovery n respect of such property for any
ta abe year sha not be ncuded n ncome unt the ta payer has recovered
an amount equa to hs aowabe deductons n pror ta abe years on account
of the destructon or sezure of such property, whether or not such aowabe
deductons resuted n a reducton of any ta under chapter 1 or chapter 2 of
the Interna Revenue Code. owever, for the purposes of secton 51, reatng
to the requrement of ndvdua returns, secton 52, reatng to the requrement
of corporaton returns, and secton 3 01(b), reatng to the mtgaton of the
effect of the statute of mtatons, the entre amount of the recovery sha be
deemed to be an tem ncudbe n gross ncome for the ta abe year n whch
the recovery s made. In eu of ncudng such amount n gross ncome, there
sha be added to, and assessed and coected as a part of, the ta mposed under
chapter 1 for the ta abe year of the recovery an ad|ustment on account of any
ta benefts n a pror ta abe years resutng drecty or ndrecty from the
fact that the oss from the destructon or sezure of such property was an aow-
abe dedncton. The amount of such ad|ustment sha be the tota ncrease n
the ta under chapter 1 of the Code, that s, any ncome ta of the ta payer,
and under chapter 2 ncudng the e cess profts ta mposed by subchapter
thereof, for a ta abe years whch woud resut by decreasng such aowabe
deductons wth respect to the destructon or sezure of such property by an
amount equa to that porton of the amount of the recovery whch s not n-
cuded n gross ncome for the ta abe year of the recovery. The porton of
the amount of the recovery whch s n e cess of such aowabe deductons s
ncuded n gross ncome for the ta abe year of the recovery as gan on the
Invountary converson of property as a resut of ts destructon or sezure and
to recognzed or not recognzed as provded In secton 112(f). See secton
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29.127(c)- .
21
29.112(f)-. Such gan, If recognzed, s ncuded n gross ncome as ordnary
ncome uness secton 117(|) appes to cause such gan to be treated as gan
on the sae or e change of capta assets hed for more than 6 months. See
secton 29.117-7.
(2) The determnaton as to whether and to what e tent the amount of the
recovery Is to be e cuded from gross ncome s to be made upon the bass of
the tota amount of the recoveres n each ta abe year n respect of the same
property consdered under secton 127(a) as destroyed or sezed n any prevous
ta abe year, as foows:
() The amount of the recovery In any ta abe year Is e cuded from the
gross ncome of such year and s not consdered gan on an Invountary
converson to the e tent that such amount does not e ceed the aggregate
of the aowabe deductons n pror ta abe years on account of the destruc-
ton or sezure of such property (whether or not such deductons resuted
n a reducton of a ta of the ta payer) reduced by the aggregate amount
of any recoveres n ntervenng ta abe years n respect of the same property.
() The amount of the recovery n any ta abe year whch s not e -
cuded from gross ncome under () s ncuded n gross ncome and s con-
sdered gan on an nvountary converson of property as a resut of ts
destructon or sezure. The foowng provsons appy to ths gan:
( ) Such gan s recognzed or not recognzed under the provsons
of secton 112(f) reatng to gan upon such converson of propery.
For the purposs of appyng secton 112(f), such gan for any ta abe
year s deemed to be e pended n the manner provded n secton 112(f)
to the e tent the recovery n such ta abe year s so e pended.
( ) If such gan s recognzed t s ncuded n gross ncome as ord-
nary ncome or, f the provsons of secton 117 (|) appy and requre such
treatment, as gan on the sae or e change of a capta asset hed for
more than 6 months. In the case of the recovery of the same property
or nterest consdered under secton 127(a) as destroyed or sezed, any
gan w not be deemed to be recognzed under the provsons of secton
112(f) f such property s used for the same purpose for whch t was
used before t was deemed destroyed or sezed under secton 127(a).
(3) The determnaton of the tota ncrease n the ta under chapters
1 and 2 of the Code for a ta abe years whch woud resut by de-
creasng the deductons aowabe n any pror ta abe years wth respect to the
destructon or sezure of the property n respect of whch the ta payer has made
a recovery by an amount equa to the part of such recovery not Incuded n gross
ncome for the ta abe year of such recovery sha be made as provded n ths
subparagraph. Such tota ncrease sha ncude the ncreases descrbed n (1),
(), (), and (v) of ths subparagraph, and sha be added to, and assessed
and coected as a part of, the ta under chapter 1 for the ta abe year of the
recovery. Proper ad|ustment of such ncreases sha be made on account of the
appcaton of the provsons of ths subparagraph to ntervenng ta abe years.
Proper ad|ustment sha aso be made n the determnaton of such ncreases
n the case of a ta payer who has made a vad eecton under secton 113(d),
reatng to the ad|ustment of bass of property for deprecaton, obsoescence,
amortzaton, and depeton. The term ta prevousy determned as used n
ths subparagraph sha have the same meanng as used n secton 3 01(d) of the
Code and sha ncude any ta under chapter 1 or chapter 2 of the Code. In
computng the amount of the ncrease n the ta prevousy determned under
chapter 1 or chapter 2 for any ta abe year, the prncpes of secton 3 01(d)
sha be appcabe. See secton 29.3S01 (d)-. owever, the computaton of the
e cess profts credt under chapter 2 for any ta abe year sha not be affected
by the ad|ustment provded n ths subparagraph. credts aowabe aganst
the ta for any year sha be taken nto account n computng the ncrease n the
ta prevousy determned. The ncreases referred to above ncude the foowng:
() The ncrease, f any, n the ta prevousy determned for each pror
ta abe year n whch a deducton was aowabe on account of the destruc-
ton or sezure of the property In respect of whch there s a recovery n
the ta abe year. fter the ta prevousy determned has been ascertaned,
such ta sha be recomputed by dsregardng such aowabe deducton
(to the e tent that It does not e ceed the sum of the amount of such recovery
not ncuded n gross ncome for the ta abe year of such recovery, pus
the aggregate amount of any recoveres n ntervenng ta abe years n
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215
29.127(c)- .
respect of the same property) and any other deductons aowabe on
account of other war osses or any other osses, e pendtures or accruas
n such pror ta abe year n respect of whch, and to the e tent that,
recoveres n ntervenng ta abe years have been e cuded from gross ncome
under secton 127(c)(3), secton 22(b) (12), or otherwse. The dfference
between the ta prevousy determned and the ta as recomputed w be
the ncrease n the ta prevousy determned for the ta abe year.
(U) The ncrease, f any, n the ta prevousy determned for any ta -
abe year (ncudng the ta abe year of the recovery) n whch a net
operatng oss deducton was aowabe, If a or a part of such deducton
was attrbutabe to the carry-over or carry-back to such ta abe year of
a net operatng oss from another ta abe year n whch a deducton was
aowabe on account of the destructon or sezure of the property n
respect of whch there Is a recovery In the ta abe year to whch such
ncrease Is to be added. fter the ta prevousy determned has been
ascertaned, such ta sha be recomputed by redetermnng such net oper-
atng oss deducton. In the determnaton of such net operatng oss
deducton the net operaton oss sha be recomputed by dsregardng the
deducton aowabe on account of the war oss n respect of whch there s
a recovery n the ta abe year to whch such ncrease s to be added (to
the e tent that such deducton does not e ceed the sum of the amount
of such recovery not Incuded n gross ncome for the ta abe year of
such recovery, pus the aggregate amount of any recoveres n ntervenng
ta abe years In respect of the same property) and by dsregardng any
other deductons aowabe on account of other war osses or any other
osses, e pendtures, or accruas In the ta abe year n respect of whch,
and to the e tent that, recoveres n ntervenng ta abe years have been
e cuded from gross ncome under secton 127(c)(3), secton 22(b) (12),
or otherwse. The dfference between the ta prevousy determned and
the ta as recomputed w be the ncrease n the ta prevousy determned
for the ta abe year.
() The ncrease, f any, n the ta prevousy determned for any
ta abe year (ncudng the ta abe year of recovery) n whch an unused
e cess profts credt was avaed of n computng the unused e cess profts
credt ad|ustment for such ta abe year, If a or a part of such ad|ustment
was attrbutabe to the carry-over or carry-back to such ta abe year of
an unused e cess profts credt from another ta abe year n whch a deduc-
ton was aowabe on account of the destructon or sezure of the property n
respect of whch there s a recovery n the ta abe year to whch such n-
crease s to be added. fter the ta prevousy determned has been ascer-
taned, such ta sha be recomputed by redetermnng such unused e cess
profts credt carry-over or carry-back. In the recomputaton such carry-
over or carry-back sha be redetermned by dsregardng such aowabe
war oss deducton (to the e tent that such deducton does not e ceed the
sum of the amount of the recovery not ncuded n gross ncome for the
ta abe year of such recovery, pus the aggregate amount of any recoveres
n Intervenng ta abe years n respect of the same property) and by dsre-
gardng any other deductons aowabe on account of other war osses or
any other osses, e pendtures, or accruas In the ta abe year n respect of
whch, and to the e tend that, recoveres n ntervenng ta abe years have
been e cuded from gross ncome under secton 127(c) (3), secton 22(b) (12),
or otherwse. The dfference between the ta prevousy determned and the
ta as recomputed w be the Increase In the ta prevousy determned for
the ta abe year. In case there Is an Increase n the e cess profts ta
under chapter 2 for the ta abe year n whch an unused e cess profts
credt was avaed of n computng the unused e cess profts credt ad|ust-
ment, and a decrease In the Income ta under chapter 1 for such ta abe
year, the ncrease In the ta prevousy determned sha be consdered to be
an amount equa to the e cess of the ncrease n the e cess profts ta over
the decrease n the ncome ta .
(v) Th Increase, If any, In the ta prevousy determned for any ta abe
year (ncudng the ta abe year of the recovery) n whch an unused e cess
profts credt was avaed of n computng the unused e cess profts credt
ad|ustment for such ta abe year, f.a or a part of such ad|ustment was
attrbutabe to the carry-over or carry-back to such ta abe year of an
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5 29.127(c)- .
216
unused e cess profts credt from another ta abe year n whch there was
aowabe a net operatng oss deducton attrbutabe to the carry-over or
carry-back to such other ta abe year of a net operatng oss, and such net
operatng oss resuted n whoe or n part from the deducton aowabe on
account of the destructon or sezure of the property n respect of whch
there s a recovery n the ta abe year to whch such ncrease s to be added.
fter the ta prevousy determned has been ascertaned, such ta sha be
recomputed by redetermnng such net operatng oss deducton and such
unused e cess profts credt carry-over or carry-back. In the redetermna-
ton of such net operatng oss deducton the net operatng oss carry-over
or carry-back sha be recomputed by dsregardng such aowabe war oss
deducton (to the e tent that such deducton does not e ceed the sum of
the amount of such recovery not ncuded n gross ncome for the ta abe
year of such recovery, pus the aggregate amount of any recoveres n nter-
venng ta abe years n respect of the same property) and by dsregardng
any other deductons aowabe on account of other war osses or any other
osses, e pendtures, or accruas n the ta abe year n respect of whch, and
to the e tent that, recoveres n ntervenng ta abe years have been e -
cuded from gross ncome under secton 127(c)(3), secton 22(b) (12), or
otherwse. The unused e cess profts credt carry-over or carry-back sha
then be recomputed to conform to the redetermnaton of the net operatng
oss deducton for the ta abe year from whch the unused credt s carred
over or carred back. The dfference between the ta prevousy determned
and the ta as recomputed w be the ncrease n the ta prevousy deter-
mned for the ta abe year. In case there s an ncrease n the e cess profts
ta under chapter 2 for the ta abe year n whch an unused e cess profts
credt was avaed of n computng the unused e cess profts credt ad|ust-
ment, and a decrease n the ncome ta under chapter 1 for such ta abe
year, the ncrease n the ta prevousy determned sha be consdered to be
an amount equa to the e cess of the ncrease In the e cess profts ta over
the decrease n the Income ta .
(d) ectve method Tme and manner of makng eecton and effect
thereof. (1) If the ta payer eects to have the provsons of secton 127(c) (3)
appcabe to any ta abe year n whch any money or property s recovered n
respect of property consdered under secton 127(a) as destroyed or sezed,
secton 127(c)(3) w be appcabe by vrtue of that eecton to a ta abe
years of the ta payer begnnng after December 31, 19 1. Thus, the ta payer
need not make an eecton wth respect to each separate ta abe year n whch
he had a recovery. n eecton for any ta abe year n whch the ta payer had
a recovery n respect of a pror war oss s suffcent to make the provsons of
secton 127(c)(3) appcabe not ony to war oss recoveres receved by the
ta payer n any past ta abe year begnnng after December 1, 19 1, but to
any recoveres whch may be receved by the ta payer n any future ta abe
year. Such eecton once made sha be rrevocabe.
(2) The eecton of the ta payer to have the provsons of secton 127(c) (3)
appcabe to any ta abe year n whch any money or property s recovered n
respect of property consdered under secton 127(a) as destroyed or sezed must
be made not ater than December 31, 1952, uness the ta payer recovers money
or property (n respect of a pror war oss) durng a ta abe year endng after
the date of the enactment of the Revenue ct of 1951 (October 20. 1951). If the
ta payer has a recovery durng any ta abe year endng after the date of the
enactment of the Revenue ct of 1951, uness such ta abe year s a ta abe
year endng on or before March 31, 1953, such eecton must be made by the
ta payer not ater than the e praton of 6 months from the ast day prescrbed
by aw for the fng of hs ncome ta return for such ta abe year. owever,
f the ta payer recovers any money or property (n respect of a pror war oss)
durng a ta abe year endng after the date of the enactment of the Revenue ct
of 1951 and on or before March 31, 1953, such eecton must be made not ater
than December 31, 1953. In a cases the eecton sha be made by a wrtten
statement that the ta payer eects to have the provsons of secton 127(c) (3)
appy to any ta abe year n whch any money or property s recovered n re-
spect of property consdered under secton 127(a) as destroyed or sezed, whch
statement sha be made n (or attached to)
() the return or amended return fed for such ta abe year;
() a cam for refund or credt fed for such ta abe year for an over-
payment resutng from the appcaton of such provsons;
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217 29.127(c)- .
( ) a tmey petton or amended petton to The Ta Court of the
Doted States for a redetermnaton of any defcency for such ta abe
year;
(v) a etter addressed to the drector of nterna revenue for the ds-
trct n whch the return for such ta abe year was requred to be fed;
If the wrtten statement of eecton s made n a etter, t sha be sgned by
the ta payer makng the eecton f an ndvdua or, f the ta payer s not an
odvdua, the etter must be e ecuted In the same manner as requred n the
case of the ncome ta return of such ta payer. The date of the makng of the
eecton sha be the date the return, amended return, cam for refund or
credt, petton or amended petton, or etter s fed n the offce of the d-
rector of nterna revenue. In case the eecton s made In a return fed before
the ast day prescrbed by aw for the fng thereof (ncudng any e tenson
of tme for such fng), such eecton sha not be consdered made unt such
ast day. In case the eecton s made n a etter addressed to the drector of
nterna revenue, such eecton w be consdered as tmey fed f t s paced
n the ma on or before mdnght of the ast day prescrbed by ths paragraph
for the makng of the eecton, as shown by the postmark on the enveope con-
tanng the etter or as shown by other avaabe evdence of the mang date.
(3) If the provsons of secton 127(c) (3) are appcabe to any ta abe year
pursuant to an eecton made by the ta payer n accordance wth the prov-
sons of subparagraph (1), the perod of mtatons provded n sectons 275
and 276 of the Code on the makng of assessments and the begnnng of ds-
trant or a proceedng n court for coecton wth respect to (1) the amount to
be added to the ta for such ta abe year under the provsons of secton
127(c) (3) and () any defcency for such ta abe year or for any other ta abe
year to the e tent attrbutabe to the bass of the recovered property beng
determned under the provsons of secton 127(d) (2), sha not e pre pror to
the e praton of two years foowng the date of the makng of such eecton.
Such amount or such defcency may be assessed at any tme pror to the e -
praton of such perod, notwthstandng any aw or rue of aw whch woud
otherwse prevent such assessment and coecton. No nterest sha be assessed
or coected wth respect to any such amount or any such defcency for any
perod pror to the e praton of 6 months foowng the date of the makng of
the eecton by the ta payer.
( ) If the provsons of secton 127(c) (3) are appcabe to any ta abe year
pursuant to an eecton made by the ta payer In accordance wth the prov-
sons of subparagraph (1), and refund or credt of any overpayment resutng
from the appcaton of such provsons to such ta abe year s prevented
on the date of the makng of such eecton, or wthn one year from such date,
by the operaton of any aw or rue of aw (other than secton 3761 reatng to
compromses), refund or credt of such overpayment may nevertheess be made
or aowed, provded cam therefor s fed wthn one year from such date.
Thus, the amount of such overpayment whch may be refunded or credted s not
sub|ect to the mtatons contaned n secton 322 (b) or (d). No nterest
sha be pad on any overpayment resutng from the appcaton of the pro-
vsons of secton 127(c) (3) to any ta abe year endng before the date of the
makng of the eecton by the ta payer.
Par. 3. There s nserted mmedatey precedng secton 29.127-
(d)- 26 CFR 29.127(d)- the foowng:
OCTO R 20, 1951 .

(b) ass of Recovered Property. Secton 127(d) (reatng to bass
of recovered property) s hereby amended to read as foows:
(d) ass of Recovered Property.
(1) In genera. The unad|usted bass of property recovered
In respect of property consdered as destroyed or sezed under
subsecton (a) sha be determned under ths subsecton. Such
hass sha be an amount equa to the far market vaue of such
property, determned as of the date of the recovery, reduced by an
amount equa to the e cess of the aggregate of such far market
vaue and the amounts of prevous recoveres of money or property
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29.127(c)- .
21
n respect of property consdered under subsecton (n) as destroyed
or sezed over the aggregate of the aowabe deductons n pror
ta abe years on account of the destructon or sezure of property
descrbed n subsecton (a), and ncreased by that porton of the
amount of the recovery whch under subsecton (c) Is treated as
a recognzed gan from the nvountary converson of property.
Upon appcaton of the ta payer, the aggregate of the bases (de-
termned under the precedng sentence) of any propertes recovered
n respect of propertes consdered under subsecton (a) as de-
stroyed or sezed may be aocated among the propertes so recovered
n such manner as the Secretary may determne under reguatons
prescrbed by bm, and the amounts so aocated to any such prop-
erty so recovered sha be the unad|usted bass of such property
In eu of the unad|usted bass of such propery determned under
the precedng sentence.
(2) I hO TY CO D IN T L T R TO W IC SU S CTION
(c) (S) s appcabe. In the case of a ta payer who has made an
eecton under the provsons of subsecton (c)(5), the bass of
property recovered sha be an amount equa to the vaue at whch
such property Is ncuded n the amount of the recovery under sub-
secton (c) (3) ( ) (determned wthout regard to the ast sentence
thereof), reduced by such part of the gan under subsecton
(c)(3)(C) whch s not recognzed as provded n secton 112(f).

(d) ffectve Datks. The amendments made by ths secton sha
be appcabe to ta abe years begnnng after December 31, 10 1.
Par. . Secton 29.127(d)- 26 CFR 29.127(d)- s amended as
foows:
the foowng: (a) Genera rue.
( ) y strkng secton 127(d) n each pace where such term
appears theren and nsertng n eu thereof n each pace the fo-
owng: secton 127(d)(1) .
(C) y strkng secton 29.127(c)- n each pace where such
term appears theren and nsertng n eu thereof the foowng:
secton 29.127(c)-(5) .
(D) y addng at the end thereof the foowng:
(6) Property recovered, n ta abe year to ahch secton 127(c)( ) s ap-
pcabe. If, pursuant to an eecton made by the ta payer under secton
127(c)(5) and secton 29.127(c)-1(d) of these reguatons, the provsons of
secton 127(c)(3) are appcabe to any ta abe year n whch the ta payer
recovered property In respect of a war oss under secton 127, the unad|usted
bass of such property sha be the far market vaue of such property deter-
mned as of the date of the recovery, reduced by the amount of nonrecognzed
gan attrbutabe to such recovery under the provsons of secton 29.127(c)- (c).
owever, f the property recovered s the same property or nterest consdered
under secton 127(a) as destroyed or sezed, and f the ta payer under secton
127(c) (3) ( ) ncudes such property or nterest n the amount of the recovery
at ts ad|usted bass (for determng oss) n hs hands on the date such property
or nterest was consdered under secton 127(a) as destroyed or sezed, the
unad|usted bass of such property sha be such ad|usted bass, reduced by
the amount of nonrecognzed gan attrbutabe to such recovery under the
provsons of secton 29.127(c)-1(c). The far market vaue of any property
recovered, or the ad|usted bass (for determnng oss) of such property or
nterest f the same property or nterest treated as a war oss under secton 127
s recovered, sha not be reduced n determnng the unad|usted bass of such
property or nterest by the amount of the obgatons or abtes wth respect
to the property treated as a war oss under secton 127 n respect of whch the
recovery was receved, f the ta payer for any prevous ta abe year chose
under secton 127(b)(2) to treat such obgatons or abtes as dscharged
or satsfed out of such property but such obgatons or abtes were not O
dscharged or satsfed pror to the date of the recovery.
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219
29.127(c)- .
Par. 5. Secton 29.127(f)-, as amended by Treasury Decson 5 5 ,
approved May 10, 19 5 26 CFR 29.127(f)- , s further amended
as foows:
( ) y nsertng mmedatey after the term chapter 1 n each
pace where such term appears theren the foowng: or chapter 2 .
( ) y nsertng mmedatey after the words or of any ta m-
posed n eu of such ta es n the frst sentence of the frst paragraph
thereof the foowng: or of any ta mposed by chapter 2 of the
Interna Revenue Code .
OCTO R 20, 1951 .

(c) Cbedt fob Foregn Ta es. Secton 131(a) (reatng to aow-
ance of credt for ta es of foregn countres and possessons of the
Unted States) Is hereby amended by nsertng after secton 102 the
foowng: and e cept the addtona ta mposed for the ta abe
year under the provsons of secton 127(c) (3) .
(d) ffectve Dates. The amendments mnde by ths secton sha be
appcabe to ta abe years begnnng after December 31, 19 1.
C. . 1952-1, 126 , approved pr , 1952 26 CFR 29.131-1 , s
further amended by strkng the ffth undesgnated paragraph thereof
and nsertng n eu thereof the foowng:
For ta abe years begnnng before anuary 1, 19 3, no credt for ta es sha
be aowed aganst the ta mposed under secton 102, reatng to surta on cor-
poratons mpropery accumuatng surpus, and for ta abe years begnnng
after December 31, 19 2, no credt for ta es sha be aowed aganst the ta
mposed under secton 102, reatng to surta on corporatons mpropery ac-
cumuatng surpus, aganst the addtona ta mposed under the provsons
of secton 127(c) (3), reatng to war oss recoveres, or aganst the vctory ta
mposed under secton 50. No credt for ta es sha be aowed aganst the
ta on sef-empoyment ncome mposed by secton 0.
P r. . Secton 29.275-1, as amended by Treasury Decson 59 2
C. . 1952-2, 122 , approved October 2 , 1952 26 CFR 29.275-1 ,
s further amended by addng at the end thereof the foowng:
For the perod of mtaton for assessng amounts determned under secton
127(c)(3) (reatng to war oss recoveres) or any defcency attrbutnbe to
the bass of recovered property beng determned under secton 127(d)(2), see
secton 127(c) (5) and the reguatons thereunder.
Par. 9. Secton 29.322-7 as amended by Treasury Decson 59 2,
approved October 2 , 1952 26 CFR 29.322-7 , s further amended
as foows:
( ) y addng at the end of (a) thereof the foowng:
For speca provsons n the case of an overpayment resutng from the
appcaton of secton 127(c) (3) (reatng to war oss recoveres), see secton
127(e) (5) and the reguatons thereunder.
( ) y addng at the end of (d) thereof the foowng:
For speca provsons n the case of an overpayment resutng from the
appcaton of Secton 127(c)(3) (reatng to war oss recoveres), see secton
(c)(5) and the reguatons thereunder.
n sectons 62 and 3791 of the Interna Revenue Code (53 Stat. 32,
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29.131-1.
220
67; 26 U. S. C. 62, 3791) and n secton 127(c) of the Interna Reve-
nue Code (65 Stat. 511; 26 U. S. C. 127(c)).)
ohn S. Graham,
Thomas . Lynch,
- (Fed wth the Dvson of the Federa Regster December 30, 1952, 11:32 a. m.)
SUPPL M NT C CR DITS G INST T
S CTION 131. T S OF FOR IGN COUNTRI S ND
POSS SSIONS OF UNIT D ST T S
Secton 29.131-1: nayss of credt for - T. D. 5975
ta es.
( so Sectons 29.131- , 29.131- ,
29.131-10.)
Reguatons 111 amended to conform to secton 302 of the cess
Profts Ta ct of 1950 and secton 311 (c) and (d) of the Revenue
ct of 1951.
Washngton 25, D. C.
Concerned:
On November 25,1952, there was pubshed n the Federa Regster
(17 F. R. 10705) a notce of proposed rue makng to conform Regu-
atons 111 26 CFR, part 29 to secton 302 of the cess Profts
Ta ct of 1950, reatng to the foregn ta credt, approved anuary
3, 1951. No ob|ecton to the rues proposed havng been receved, the
amendments set forth beow, ncudng a suppementa amendment
(to conform secton 29.131- of Reguatons 111 to secton 3 1 (c)
and (d) of the Revenue ct of 1951) whch was not pubshed wth
the above notce, are hereby adopted.
29.131-1 26 CFR 29.131-1 the foowng:
S C. 302. FOR IGN T CR DIT C SS PROFITS T CT
OF 1950, PPRO D NU RY 3, 1951 .
(a) That porton of secton 131(a) of the Interna Revenue Code
whch precedes paragraph (1) thereof s hereby amended by nsertng
after subchapter the foowng: and e cept, wth respect to the
ta mposed under subchapter D, ony to the e tent provded n sub-
secton (|) .
(b) Secton 131 of such Code Is hereby amended by addng at the
end thereof the foowng new subsecton:
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221
29.131-1.
(|) Ta Imposed by Subchapter D. Ths secton shn be appcabe
for purposes of the ta mposed by subchapter D, but the ta pad or
accrued to any country sha be deemed to be the amount of such ta
reduced by the amount of the credt aowed under ths secton wth
respect to such ta aganst the ta mposed by ths chapter wthout
regard to subchapter D. The amount of the credt taken under ths sub-
secton sha be sub|ect to each of the foowng condtons:
(1) The amount of the credt n respect of the ta pad or accrued
to any country sha not e ceed the same proporton of the ta
aganst whch such credt s taken, whch the ta payer s e cess
profts net ncome from sources wthn such country bears to ts
entre e cess profts net ncome for the same ta abe year; and
(2) The tota amount of the credt sha not e ceed the same
proporton of the ta aganst whch sueh credt s taken, whch the
ta payer s e cess profts net ncome from sources wthout the Unted
States bears to ts entre e cess profts net ncome for the same
ta abe year.
Par. 2. Secton 29.131-1, as amended bv Treasury Decson 590
page 206, ths uetn , approved December 30, 1952 26 CF
29.131-1 , s further amended by addng at the end of the ffth para-
graph thereof the foowng sentence:
For ta abe years endng after une 30, 19. 0, credt for ta es sha be aowed
aganst the e cess profts ta mposed by subchapter D of chapter 1, but ony
to the e tent provded In secton 131 (|) and secton 29.131-10.
Par. 3. Secton 29.13 , as amended by Treasury Decson 5 12
C. . 1950-2, 55 , approved October 6, 1950 26 CFR 29.131- , s
further amended by deetng ncome7 from the second sentence of
(a) thereof, so that such sentence w read as foows:
The Commssoner w thereupon redetermne the amount of the ta of such
ta payer for the year or years for whch such ncorrect credt was granted.
Par. . Secton 29.131- , as amended by Treasury Decson 5 55
C. . 1951-2,1 1 , approved September 13,1951 20 CFR 29.131- ,
( ) y nsertng for purpose of the ncome ta n that part of
the frst sentence of the frst paragraph thereof whch reads s the
tentatve credt n respect of.the ta es pad or accrued to such coun-
try or possesson. , mmedatey after tentatve credt , so that such
part w read as foows:
s the tentatve credt for purpose of the ncome ta In respect of the ta es pad
or accrued to such country or possesson.
( ) y strkng out that part of the frst paragraph thereof whch
foows the words pad or accrued to foregn countres or possessons
of the Unted States. and nsertng n eu thereof the foowng:
In computng the ta aganst whch the credt Is taken there must, for ta abe
years begnnng before anuary 1, 19-13, be e cuded the ta , f any. mposed
by secton 102; and, for any of such ta abe years as begn after December
31,19 1, there must aso be e cuded the addtona ta , f any, mposed for the
.ta abe year under the provsons of secton 127(c)(3). For ta abe years be-
gnnng after December 31, 19 2, there must be e cuded, n computng the ta
aganst whch the credt s taken, the ta mposed by secton 102, the add-
tona ta mposed for the ta abe year under the provsons of secton 127(c)
(3t, the ta mposed by secton 50 (pror to Its repea by secton 6(a) of the
Indvdna Income Ta ct of 19 ), and aso for ta abe yenrs begnnng after
I|wmber 31, 1950, the ta mposed by secton 0; and. for ta abe years endng
after une 30, 1950, there must aso be e cuded, e cept to the e tent provded n
vton 131 (|) and secton 29.131-10, the e cess profts ta mposed by subchap-
ter D of chapter 1.
2C335 53 I
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29.131-1.
222
(C) y addng at the end of the seventh paragraph thereof, whch
paragraph precedes e ampe ( ) and begns wth the words s to the
aowance of credt , the foowng new sentence:
s to the aowance of credt for such ta es aganst the e cess profts ta m-
posed by subchapter D of chapter 1, see secton 131 ( ) and secton 29.131-10.
Par. 5. There s nserted mmedatey after secton 29.131-9 2G
CFR 29.131-9 the foowng new secton:
Sec. 29.131-10. Credt ganst cess Profts Ta Imposed hy Subchapter
D. For ta abe years endng after une 30, 1950, a domestc corporaton s
aowed a credt aganst the e cess profts ta mposed by subchapter D of
chapter 1 for the amount of any ncome, war profts, and e cess profts ta es
pad or accrued durng the ta abe year to any foregn country or to any pos-
sesson of the Unted States. To the e tent pertnent, the provsons of secton
LSI and sectons 29.131-1 through 29.131-9 are appcabe for the purpose of
camng credt for ta es under ths secton, e cept that for such purpose the
amount of ncome and profts ta es pad or accrued durng the ta abe year to
any foregn country or possesson sha be deemed to be the amount of such
ta es actuay pad or accrued reduced by the amount of such ta es aowed as
a credt under secton 131 aganst the ta mposed by chapter 1 wthout regard
to the e cess profts ta mposed by subchapter U. See secton,29.131-S as to
the amount of such credt aowabe and as to the computaton of the ta
aganst whch such credt may be taken.
The amount of the ncome and profts ta es pad or accrued (ncudng the
ta es whch, n accordance wth the provsons of secton 131(f), are deemed
to have been pad) durng the ta abe year to each foregn country or possesson
of the Unted States, mted under secton 131 ( ) (1) so as not to e ceed that
proporton of the e cess profts ta whch the ta payer s e cess profts net
ncome from sources wthn such country or possesson bears to ts entre e cess
profts net ncome for the same ta abe year, s the tentatve credt for the pur-
pose of ths secton n respect of the ta es pad or accrued to such country or
possesson. The sum of these tentatve credts, mted under stecton 131 ( ) (2)
so as not to e ceed that proporton of the e cess profts ta whch the ta payer s
e cess profts net ncome from sources wthout the Unted States bears to ts
entre e cess profts net ncome for the same ta abe year, s the amount aow-
abe as a credt aganst the e cess profts ta for ncome or profts ta es pad
or accrued to foregn countres or possessons of the Unted States. Por the
determnaton of the e cess profts net ncome, see sectons 0. 33(a )- and
0. 33(a)-2 of Reguatons 130. For the determnaton of the source of such
net ncome, see secton 119 and the reguatons thereunder.
The appcaton of ths secton may be ustrated by the foowng e ampes
nvovng the caendar year 1951.
ampe (1). In ths e ampe t s assumed that the ta payer has no ncome
or oss from any foregn country other than Country . ccordngy, the m-
taton under secton 131 (|) (-) w not change the credt determned after
appyng secton 131 (|) (1).
( ) Norma ta net ncome from a sources 100,000
( ) Tota norma ta and surta (before secton 131 credt) 5, 250
(C) Norma ta net ncome from foregn Country 90, 000
(D) Foregn ta pad on Country ncome 9,500
( ) Lmtaton on foregn ta under secton 131(b) (1) and (2) to
determne secton 131(a) credt aowabe aganst norma ta
and surta :
(F) Foregn ta credt aowabe aganst norma ta and surta (for-
egn ta , but not n e cess of above mtaton of 0,725) 0, 725
(G) cess profts net ncome from a sources 0, 000
( ) cess profts net ncome from foregn Country 75, 000
(I) cess profts credt 60,000
( ) cess profts ta (before secton 131 credt) 6,000
( ) Foregn ta pad on Country ncome for the purpose of sec-
ton 131(|) :
9,500 0,725 , 773
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223 29.131-1.
(L) Lmtaton on foregn ta under secton 131(|) (1) and (2) to
determne secton 131 (|) credt aowabe aganst e cess profts
ta :
g g 6,000 ,5,625
(M) Foregn ta credt aowabe aganst e cess profts ta (foregn ta
for purpose of secton 131(|), but not n e cess of above mta-
ton of 5,625) 5, G23
( ) Tota ncome and e cess profts ta (before secton 131 credt) :
5,250 pus 6,000 51, 250
(0) Tota credt under secton 131:
0,725 pus 5,625 6, 350
(P) Tota ncome and e cess profts ta after credt under secton 131:
51,250 - 6,350 ,900
ampe (2). The facts are assumed to be the same as those under e ampe
(1) . e cept that there s a net oss of 10,000 aocabe to foregn Country Y,
whch net oss was taken nto account n determnng the norma ta net ncome
from a sources of 100,000 (tem ( ), e ampe (1)) and the e cess profts net
ncome from a sources of SO,000 (tem (G), e ampe (1)). The tota ncome
and e cess profts ta after credt under secton 131 s computed as foows:
( ) Tentatve foregn ta credt under secton 131(b)(1) aowabe
aganst norma ta and surta (foregn ta pad on Country
ncome, but not n e cess of mtaton under secton
131(b)(1)) :
00,000
Wo;ooo 5 250 w 72a
( ) Lmtaton on foregn ta under secton 131(b)(2) to determne
secton 131(a) credt aowabe aganst norma ta and surta :
IS 5-250- G-2o
(C) Foregn ta credt aowabe aganst norma ta and surta (ten-
tatve credt under secton 131(b) (1), but not n e cess of 36,200,
mtaton under secton 131(b) (2)) 36,200
(D) Foregn ta pad for the purpose of secton 131 (|) :
9,500 - 36,200 13, 300
( ) Tentatve foregn ta credt under secton 131 ( ) (1) aowabe
aganst e cess profts ta (foregn ta for purpose of secton
131(|), but not n e cess of mtaton under secton 131 (|) (1)) :
6,000 5,625
(F) Lmtaton on foregn ta under secton 131(|)(2) to determne
secton 131 ( ) credt aowabe aganst e cess profts ta :
(G) Foregn ta credt aowabe aganst e cess profts ta (tentatve
credt under secton 131 ( ) (1), but not n e cess of , 75, m-
taton under secton 131 (|) (2)) , 75
( ) Tota ncome and e cess profts ta (before secton 131 credt) :
5,250 pus 6,000 51,250
(I) Tota credt under secton 131:
36,200 pus , 75 1,075
( ) Tota ncome and e cess profts ta after credt under secton 131:
51,250- 1,075 10,175
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29.131-1.
22
n sectons 62 and 3791 (53 Stat. 32, 67; 26 U. S. C. 62, 3791) of
the Interna Revenue Code.)
ohn S. Graham,
pproved anuary 2 , 1953.
M. . Fosom,
Secton 29.131-1: nayss of credt for Rev. Ru. 7
ta es.
INT RN L R NU COD
The ta mposed under secton 22(6) of the Natona Interna
Revenue Code of the Repubc of the Phppnes, upon the net ncome
of nonresdent aen ndvduas not engaged n trade or busness
wthn the Phppnes or not havng an offce or pace of busness
theren, fas wthn the Unted States concept of an ncome ta and
s aowabe as a credt aganst Unted States ncome ta to the
e tent provded by secton 131 of the Interna Revenue Code.
dvce s requested whether the ta mposed under secton 22(6)
of the Natona Interna Revenue Code of the Repubc of the
Phppnes, upon the net ncome of nonresdent aen ndvduas not
engaged n trade or busness wthn the Phppnes or not havng an
offce or pace of busness theren, quafes as an ncome ta whch
may be aowed as a credt aganst Unted States ncome ta .
Secton 22(b) of the Natona Interna Revenue Code of the Repub-
c of the Phppnes reads as foows:
(6) Nonresdent aen not engaged n trade or busness wthn the Phppnes
or not havng an offce or pace of busness theren. There sha be eved,
assessed, coected, and pad for each ta abe year upon the entre net ncome
receved from a sources wthn the Phppnes by every nonresdent aen
ndvdua not engaged n trade or busness wthn the Phppnes or cot havng
an offce or pace of busness theren a ta equa to s teen per centum thereof:
Provded, That If the tota net-ncome of such nonresdent aen ndvdua from
a sources wthn the Phppnes e ceeds fourteen thousand seven hundred and
ffty pesos, the rates estabshed n secton twenty-one sha appy.
Secton 21 of the Phppne Natona Interna Revenue Code pre-
scrbes the rates of ta appcabe to net ncomes of ctzens or resdents
of the Repubc of the Phppnes. The provsons of the Phppne
Code defnng gross ncome and aowng the deducton of certan
e penses n computng net ncome are anaogous to the correspondng
provsons of the Unted States Interna Revenue Code.
Secton 131 of the Unted States Interna Revenue Code provdes n
part as foows:
(a) owance of Credt. If the ta payer chooses to have the benefts of
ths secton, the ta mposed by ths chapter chapter 1 of the Code
sha be credted wth :
(1) Ctzens and domestc corporatons. In the case of a ctzen of
the Unted States the amount of any ncome ta es pad
or accrued durng the ta abe year to any foregn country
In construng the provsons of the Federa nterna revenue aws
reatve to credts for foregn ncome ta es, the ureau has hed that
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225
29 131-1.
n order for a ta to be aowabe as a credt under secton 131, the
ta mposed by the foregn country must be a ta on ncome wthn
the meanng of that term as used and understood for Federa ncome
ta purposes. (See G. C. M. 1 1 2, C. . 1937-1, 1 9.)
It s hed that the ta mposed under secton 22(6) of the Natona
Interna Revenue Code of the Repubc of the Phppnes, upon the
net ncome of nonresdent aen ndvduas not engaged n trade or
busness wthn the Phppnes or not havng an offce or pace of
busness theren, fas wthn the Unted States concept of an ncome
ta and s aowabe as a credt aganst Unted States ncome ta to
the e tent provded by secton 131 of the Interna Revenue Code.
Secton 29.131-1: nayss of credt for Rev. Ru. 31
ta es.
INT RN L R NU COD
The ta es Imposed by chapter I of Cuban Law No. 7, approved
pr 5, 19 3, as amended by artce 25, chapter I of Cuban Law
No. 2, approved May 22, 1931, do not consttute ncome ta es or
ta es n eu of ncome ta es, for whch a credt s aowabe ngnnst
Unted States ncome ta under secton 131 of the Interna Revenue
Code.
dvce s requested whether the ta es mposed by chapter I of
Cuban Law No. 7, approved pr 5, 19 3, as amended by artce 25,
chanter I of Cuban Law No. 2, approved May 22, 1951, fa wthn
the Unted States concept of an ncome ta for whch a credt aganst
Unted States ncome ta s aowabe under secton 131 of the Interna
Revenue Code.
The pertnent provsons of chapter I of Cuban Law No. 7, as
amended, read as foows:
rtce 1 . ta of four pesos ( .00) s hereby eved on each one thousand
pesos or fracton thereof, on the capta, estmated at ts rea worth, wth whch
every partnershp or company of any sort or descrpton, whether cv or
mercante, natona or foregn, may be operatng n Cuba.
rtce 15. Wthout pre|udce to the ta on profts, referred to n the Law
of anuary 29, 1931, and ts modfcatons, whch w contnue to be pad as
heretofore, a ta s estabshed of ffteen per centum (15 ) addtona on any
profts n e cess of ten per centum of the capta ta ed n the manner specfed n
the precedng rtce.
Secton 131 of the Interna Revenue Code provdes n part as
foows:
(a) owance of Credt. If the ta payer chooses to have the benefts of
ths secton, the ta Imposed by ths chapter chapter 1 of the Code
sha be credted wth :
(1) Ctzens and domestc corporatons. In the case of a ctzen of
the Unted States and of a domestc corporaton, the amount of any ncome,
war-profts, and e cess-profts ta es pad or accrued durng the ta abe year
to any foregn country or to any possesson of the Unted States; and

fh) Credt for Ta es n Led of Income, tc., Ta es. For the purposes of
ths secton and secton 2.3(c)(1), the term ncome, war-profts, and e cess-
profts ta es sha ncude a ta pad n eu of a ta upon ncome, war-profts,
or e cess-profts otherwse generay mposed by any foregn country or by any
possesson of the Unted States.
In order for a ta pad to a foregn country to be aowabe as a
credt aganst Unted States ncome ta under secton 131 of the Code
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29.131-1.
226
t must be shown that the ta mposed by the foregn country s an
ncome ta as that term s used and understood for Unted States n-
come ta purposes, or s a ta n eu of an ncome ta . (See G. C. M.
1 1 2 (C. . 1937-1,1 9) and I. T. 065 (C. . 1951-2, 7 ).)
The Cuban ta referred to above conssts of two eves: (1) a ta
of pesos on each one thousand pesos or fracton thereof on the capta
wth whch a ta payer may be operatng n Cuba (artce 1 as
amended, supra), and (2) a ta of 15 per centum on profts n
e cess of 10 per centum of the capta decared for the purposes of
artce 1 (artce 15, supra). The frst evy s comparabe n nature
to the Capta Stock Ta mposed by secton 105 of the Unted States
Revenue ct of 1935 ( 9 Stat. 101 , C. . I -2, 556, 559 (1935))
and the second evy s comparabe n nature to the cess Profts Ta
mposed by secton 106 of the same act.
In determnng whether the ta mposed by secton 106 of the Reve-
nue ct of 1935, supra, quafed as an ncome ta the Unted States
Crcut Court of ppeas, n Superheater Co. v. Commssoner (125
Fed. (2d) 51 ), stated n part as foows:
Congress dd not have n mnd merey addtona ncome ta es m-
posed n speca rates appcabe to specfc ncome but ts am was
much broader. These e cess profts ta es are cosey reated n purpose to mak-
ng workabe the capta stock ta provsons of secton 105 of the Revenue ct
of 1935. They are ad n secton 106 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 105. Under the
atter secton an e cse ta was mposed on each one thousand do-
ars of the ad|usted decared vaue of the capta stock of every domestc corpora-
ton carryng on busness for any part of a ta abe year. Ths decared vaue was
whatever the corporaton chose to make ft. nd so to make t worth whe for
the corporaton to put the decared vaue n proper reaton to the actua vaue
the e cess profts ta here nvoved was ad n secton 106 on the e cess of the
corporaton s net ncome over a stated percentage of the ad|usted decared
vaue of ts capta stock. It s more of a check upon the e ercse
of dscreton than anythng ese. nd t s nterestng
to note n ths connecton that when the e cess profts ta n the Second Revenue
ct of 19 0 was enacted, c. 757, 5 Stat. 97 , the e cess profts ta here nvoved
was referred to n secton 506 of the 19 0 ct as the de-
cared vaue e cess-profts ta .
Whe t cannot be gansad that ths ta s ad on specfc ncome and In
that sense s reated to the ordnary ncome ta whch s, ndeed, computed under
a formua whch has as one factor the deducton of any such e cess profts ta ,
ts coser knshp s to the capta stock ta whch obvousy s not an ncome ta
at a.
The ta mposed by artce 1 , supra, s ceary a evy on the capta
wth whch an organzaton s operatng n Cuba. The ta mposed by
artce 15, supra, s, by Unted States standards, a decared vaue
e cess profts ta . ccordngy, t s hed that such ta es do not con-
sttute ncome ta es or ta es n eu of ncome ta es for whch a credt,
s aowabe aganst Unted States ncome ta under secton 131 of the
Secton 29.131-1: nayss of credt for
ta es.
INT RN L R NU COD
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227
2 .11,Regs. 129.
Secton 29.131-1: nayss of credt for
ta es.
INT RN L R NU COD
Guamanan ncome ta wth respect to compensaton receved by
Unted States ctzens for servces performed on Guam. (See Rev.
u. , page 300.)
SUPPL M NT D. R TURNS ND P YM NT OF T
S CTION 1 1. CONSOLID T D R TURNS
Secton 2 .11, Reguatons 129: Consodated Rev. Ru. 17
returns for subsequent years.
INT RN L R NU COD
Fng of consodated Federa ncome ta returns for the caendar
year 1052 and for fsca years endnp n 1953 by affated
corporatons.
Secton 1 1(a) of the Interna Revenue Code provdes n part that
(e makng of a consodated return sha be upon the condton that
a corporatons whch were members of the affated group consent
to a the consodated return reguatons prescrbed under secton
1 1(b) pror to the ast day prescrbed by aw for the fng of such
returns.
Secton 2 .11(a) of Reguatons 129 provdes that f a consodated
return s made for any ta abe year, a consodated return must be
made for each subsequent ta abe year durng whch the affated
group remans n e stence uness certan condtons are met. One
such condton set forth n cause (2) s that, subsequent to the e ercse
of the eecton to make consodated returns, chapter 1 of the Interna
Revenue Code to the e tent appcabe to corporatons, or the conso-
dated return reguatons whch have been consented to, have been
so amended as to make ess advantageous to affated groups as a
cass the contnued fng of consodated returns, regardess of the
effectve date of such amendment.
Nether the provsons of the Interna Revenue Code nor the con-
sodated return reguatons (as amended by Treasury Decson 5915,
C. . 1952-2, 1 ) whch were appcabe to the fng of consodated
returns for. the caendar year 1951 and fsca years endng n 1952
hare been further amended so as to make ess advantageous to affated
groups as a cass the contnued fng of consodated returns for
subsequent years. ccordngy, an affated group of corporatons
whch fed a consodated Federa ncome ta return for the caendar
year 1951 or for a fsca year endng n 1952 must fe a consodated
Federa ncome ta return for the caendar year 1952 or for the fsca
year endng n 1953, whchever s appcabe, uness a change of the
type whch w gve rse to a new eecton s made n the Interna
Revenue Code, or the consodated return reguatons, pror to the
ast day prescrbed by aw for the fng of such return, or uness a
new eecton s avaabe to the affated group by reason of the pro-
vsons of secton 2 .11(a) (1) or secton 2 .11(a)(3) of Reguatons
129.
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5 29.1 3-1.
22
S CTION 1 3. WIT OLDING OF T T SOU C
Secton 29.1 3-1: Wthhodng ta at source. T. D. 5956
TITL 20 INT RN L R NU . C PT R I. SU C PT R . P RT 7.
T TION PURSU NT TO TR TI S. SU P RT NORW Y, R GUL TIONS
FF CTI NU RY 1. 1052
Reease or refund of e cess ta wthhed, and e empton from
wthhodng under sectons 1 3 and 1 of the Interna Revenue
Code n the case of resdents of Norway and of Norwegan corpora-
tons, as affected by the recproca ncome ta conventon between
the Unted States and the ngdom of Norway procamed by the
Presdent of the Unted States on December 13, 1051.
Washngton 25, D. C.
Concerned:
Tabe of Contents
Secton
7.100. Introductory.
7.101. Interest.
7.102. Dvdends.
7.103. Patent and copyrght royates and fm rentas.
7.10 . Natura resource royates and rea property rentas.
7.105. Pensons and fe annutes.
7.106. Reease of e cess ta wthhed at source.
7.107. Informaton to be furnshed In ordnary course.
7.10 . enefcares of a domestc estate or trust.
7.100. Refund of e cess ta wthhed durng 1051.
Secton 7.100. Introductory. The ncome ta conventon between
the Unted States and the ngdom of Norway, sgned une 13, 19 9,
procamed by the Presdent of the Unted States on December 13,
1951, and effectve for ta abe years begnnng on or after anuary 1,
1951, herenafter referred to as the conventon, provdes n part as
foows:
rtce I

(1) The ta es referred to n ths conventon are:
(a| In the case of the Unted States of merca: The Federa ncome
ta , Incudng surta es.
(b) In the case of Norway: The natona and the communa ncome ta es,
Incudng the od age penson ta , the war penson ta , the ta on bank
deposts, and the seamen s ta .
(2) The present conventon sha aso appy to any other ncome ta es of
a substantay smar character mposed by ether contractng state subse-
quenty to the date of sgnature of the present conventon.
ffee II
( ) s used n ths conventon:
(a) The term Unted States means the Unted States of merca, and
when used In a geographca sense ncudes ony the States, the Terrtores
of aska and awa, and the Dstrct of Coumba.
(b) The term Norway means the ngdom of Norway; the provsons
of the conventon sha not, however, e tend to Svnbard and an Mayen,
nor do they appy to the Norwegan dependences outsde urope.
(c) The term permanent estabshment means a branch offce, factory,
workshop, warehouse, or other f ed pace of busness, but does not ncude
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229
29.1 3-1.
the casua and temporary use of merey storage factes, nor does t n-
cude an agency uness the agent has and e ercses a genera authorty
to negotate nnd concude contracts on bemf of an enterprse or as a
stock of merchandse from whch he reguary fs orders on ts hehaf.
n enterprse of one of the contractng states sha not be deemed to have
a permanent estabshment n the other state merey because t carres on
busness deangs n such other state through a bona fde commsson agent,
broker, or custodan actng n the ordnary course of hs busness as such.
The fact that an enterprse of one of the contractng states mantans n
the other state a f ed pace of busness e cusvey for the purchase of
goods or merchandse sha not of tsef consttute such t d pace of bus-
ness a permanent estabshment of such enterprse. The fact that a corpo-
raton of one contractng state has a subsdary corporaton whch s a
corporaton of the other state or whch s engaged In trade or busness
n the other state sha not of tsef consttute that subsdary corporaton
a permanent estabshment vt ts parent corporaton.
(d) The term enterprse of one of the contractng states means, as
the case may be, Unted States enterprse or Norwegan enterprse .
(e) The term enterprse ncudes every form of undertakng whether
carred on by an ndvdua, partnershp, corporaton, or any other entty.
(f) The term Unted States enterprse means an enterprse carred on
n the Unted States by a resdent of the Unted States or by a Unted
States corporaton or other entty; the term Unted States corporaton
or other entty means a partnershp, corporaton or other entty created
or organzed n the Unted States or under the aw of the Unted States
or of any State or Terrtory of the Unted States.
(g) The term Norwegan enterprse means an enterprse carred on
n Norway by a resdent of Norway or by a Norwegan corporaton or
other entty; the term Norwegan corporaton or other entty means a
partnershp, corporaton, or other entty created or organzed n Norway
or under Norwegan aws.
(h) The term competent authortes means, n the case of the Unted
States, the Commssoner of Interna Revenue or hs authorzed represent-
atve; and n the case of Norway, the Mnstry of Fnance and Customs.
(2) In the appcaton of the provsons of the present conventon by one of
the contractng states any term not otherwse defned sha, uness the con-
te t otherwse requres, have the meanng whch such term has under ts own
ta aws.

rtce I
Interest on bonds, securtes, notes, debentures, or on any other form of
ndebtedness derved from sources wthn one of the contractng states by a
resdent or corporaton or other entty of the other contractng state not havng
a permanent estabshment n the former state sha be e empt from ta aton
n such former state.
rtce II
Royates and other amounts derved, as consderaton for the rght to use
copyrghts, artutc and scentfc works, patents, desgns, secret processes nnd
formuas, trade-marks and other ke property (ncudng rentas and ke pay-
ments n respect of moton pcture fms), from sources wthn one of the con-
tractng states by a resdent or corporaton or other entty of the other
contractng state not havng a permanent estabshment n the former state
sha be e empt from ta aton n such former state: Provded, That each of the
contractng states reserves the rght accordng to the prncpes of rtce I
to deny a deducton to the payor thereof for such royaty or any porton thereof
as s not consdered by the revenue authortes of such state to be reasonabe
consderaton for the rght to use the property referred to n ths rtce.
btce III
(1) Income from rea property (not ncudng nterest derved from mort-
gages and bonds secured by rea property) and royates n respect of the opera-
ton of mnes, quarres, or other natura resources, sha be ta abe ony u the
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29.1 3-1.
230
contractng state n whch such property, mnes, quarres, or other natura re-
sources are stuated.
(2) resdent or corporaton of one of the contractng states dervng any
such ncome from sources wthn the other contractng state may, for any ta abe
year, eect to be sub|ect to the ta of such other contractng state, on a net bass,
as f such resdent or corporaton were engaged n trade or busness wthn such
other contractng state through a permanent estabshment theren durng such
ta abe year.

rtce I

(2) Prvate pensons and fe annutes derved from wthn one of the con-
tractng states and pad to ndvduas resdng n the other contractng state
sha be e empt from ta aton n the former state.
(3) The term pensons , as used n ths rtce, means perodc payments
made n consderaton for servces rendered or by way of compensaton for
n|ures receved.
( ) The term fe annutes as used n ths rtce means a stated snm
payabe perodcay at stated tmes durng fe, or durng a specfed number of
years, under an obgaton to make the payments n return for adequate and
fu consderaton n money or money s worth.
,
rtce
Wth a vew to the more effectve mposton of the ta es to whch the present
conventon reates, each of the contractng states undertakes, sub|ect to rec-
procty, to furnsh such nformaton n the matter of ta aton, whch the author-
tes of the state concerned have at ther dsposa or are n a poston to obtan
under ther own aw, as may be of use to the authortes of the other state n
the assessment of the ta es n queston and to end assstance n the servce of
documents n connecton therewth. ny nformaton so e changed sha be
treated as secret and sha ony be dscosed to persons (ncudng a court) con-
cerned wth the assessment, determnaton, and coecton of the ta es whch
are the sub|ect of the present conventon, or the determnaton of appeas n
reaton thereto. No nformaton sha be e changed whch woud dscose a
trade, busness, ndustra, or professona secret. Informaton and correspond-
ence reatng to the sub|ect matter of ths rtce sha be e changed between
the competent authortes of the contractng states n Lhe ordnary course or on
request.
ktce I
In accordance wth the precedng rtce and nsofar as may be found to be
practcabe, the competent authortes of each contractng state sha forward to
the competent authortes of the other contractng state as soon as practcabe
after the cose of each caendar year the foowng nformaton reatng to such
caendar year:
The names and addresses of a addressees wthn such other State derv-
ng from sources wthn the former State dvdends, Interest, royates, pen-
sons, annutes, wages, saares, rents, or other f ed or determnabe annua
or perodca Income, showng the amount of such ncome wth respect to
each addressee.

rtce III
The state to whch appcaton s made for nformaton or assstance sha
compy as soon as possbe wth the request addressed to t e cept that such state
may refuse to compy wth the request for reasons of pubc pocy or f comp-
ance woud nvove voaton of a trade, busness, ndustra, or professona
secret.

rtce
(1) The provsons of ths conventon sha not be construed to deny or affect
n any manner the rght of dpomatc and consuar offcers to other or addtona
e emptons now en|oyed or whch may hereafter be granted to such offcers.
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231
29.1 3-1.
(2) The provsons of the present conventon sha not be construed to re-
strct .n any manner any e empton, deducton, credt, or other aowance now
or hereafter accorded by the aws of one of the contractng states n the determ-
naton of the ta mposed by such state.
(3) Shoud any dffcuty or doubt arse as to the nterpretaton or appcaton
of the present conventon, or s reatonshp to conventons between one of the
contractng states and any other state, the competent authortes of the contract-
ng states may sette the queston by mutua agreement.
btce I
(1) The competent authortes of the two contractng states may prescrbe
reguatons necessary to carry nto effect the present conventon wthn the
respectve states. Wth respect to the provsons of ths conventon reatng
to e change of nformaton, servce of documents, and mutua assstance n the
coecton of ta es, such authortes may. by common agreement, prescrbe rues
concernng matters of procedure, forms of appcaton and repes thereto, con-
verson of currency, dsposton of amounts coected, costs of coecton, mn-
mum amounts sub|ect to coecton, am reated matters.
(2) The competent authortes of the two contractng states may commun-
cate wth each other drecty for the purpose of gvng effect to the provsons
ef ths conventon.
rtce II
(11 The present conventon sha be ratfed and the Instruments of ratfcaton
sha be e changed st Washngton as soon as possbe. It sha have effect for the
ta abe years begnnng on or after the 1st day of anuary of the year n whch
such e ehange takes pace.
(2) The present conventon sha contnue efectve for a perod of 5 years
fnd ndefntey after that perod, but may be termnated by ether of the con-
tractng sates at the end of the 5 year perod or at any tme thereafter, provded
that at east R months pror notce of termnaton has been gven and, n such
event, the present conventon sha cease to be effectve for the ta abe years
begnnng on or after the 1st day of anuary ne t foowng the e praton of
the 6 month perod.

s used n ths Treasury Decson, any term defned n the above
artces of the conventon sha have (he meanng so assgned to t;
any term not so defned sha, uness the conte t otherwse requres,
have the meanng whch such term has under the Interna Revenue
Code.
Sec. 7.101. Inteest. (a) fenera. Interest on bonds, securtes,
notes, debentures, or on any other form of ndebtedness, ncudng
nterest on obgatons of the Unted States, obgatons of nstrumen-
tates of the Unted States, and mortgages and bonds secured by
rea property, derved from sources wthn the Unted States and
receved n ta abe years begnnng on or after anuary 1, 1951, by a
nonresdent aen (ncudng a nonresdent aen ndvdua, fducary,
and partnershp) who s a resdent of Norway, or by a Norwegan
corporaton or other entty, s e empt from Unted States ta under
the provsons of rtce I of the conventon f such aen, corpora-
ton, or other entty at no tme durng the ta abe year had a perma-
nent estabshment n the Unted States. Such nterest s, therefore,
not sub|ect to the wthhodng provsons of the Interna Revenue
Tode. s to what consttutes a permanent estabshment, see rtce
11(1) (c) of the conventon.
(6) ppcaton of e empton from wthhodng. To stop wth-
hodng at the source n te case of coupon bond nterest the nonres-
dent aen resdent n Norway, or the Norwegan corporaton or other
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29.1 3-1.
232
entty, sha for each ssue of bonds submt Form 1001-NO n dup-
cate to the payng agent wth each presentaton of nterest coupons.
Such form sha De sgned by the owner of the nterest, trustee, or
agent and sha show the name and address of the obgor, the name
and address of the owner of such nterest, and the amount of such
nterest. Such form sha contan a statement that the owner (1) s
a resdent of Norway, or s a Norwegan corporaton or other entty,
and (2) has no permanent estabshment n the Unted States.
The e empton from Unted States ta contempated by rtce I
of the conventon, nsofar as t concerns coupon bond nterest, s app-
cabe ony to the owner of such nterest. The person presentng such
coupon, or on whose behaf t s presented, sha for the purpose of
the e empton from ta be deemed to be the owner of the nterest ony
f he s, at the tme the coupon s presented for payment, the owner
of the bond from whch the coupon has been detached. If the person
presentng the coupon s not the owner of the bond, Form 1001, and
not Form 1001-NO, sha be e ecuted.
The orgna and dupcate ownershp certfcates, Form 1001-NO,
sha be forwarded to the Commssoner of Interna Revenue by the
wthhodng agent wth the quartery return on Form 1012, as pro-
vded n e stng reguatons wth respect to Form 1001. See secton
29.1 3-7 of ths chapter Reguatons 111 . Form 1001-NO need not
be sted on Form 1012.
For genera provsons pertanng to the use, wthout reference to
the provsons of the conventon, of ownershp certfcate. Form 1001,
by nonresdent aens and nonresdent foregn corporatons, see secton
29.1 3- and secton 29.1 3-6 of ths chapter.
To stop wthhodng at the source n the case of nterest, other than
nterest payabe by means of coupons, the nonresdent aen resdent
n Norway, or the Norwegan corporaton or other entty, sha notfy
the wthhodng agent by etter n dupcate that such ncome s e empt
from Unted States ta under the provsons of rtce I of the
conventon. The etter of notfcaton sha be sgned by the owner
of the nterest, trustee, or agent and sha show the name and address
of the obgor and the name and address of the owner of such nterest.
It sha aso contan a statement that the owner s (1) nether a ctzen
nor a resdent of the Unted States but s a resdent of Norway or (2)
a Norwegan corporaton or other entty and that such owner has at
no tme durng the current ta abe year had a permanent estabsh-
ment n the Unted States. In addton, t sha contan a decaraton
that t s made under the penates of per|ury, such decaraton to con-
sst of a statement smar to the foowng: I decare under the pena-
tes of per|ury that ths etter has been e amned by me and to the
best of my knowedge and beef s true and correct .
Ths etter of notfcaton, whch sha consttute authorzaton for
the payment of such nterest wthout wthhodng of Unted States
ta at source, sha be fed wth the wthhodng agent for each suc-
cessve three-caendar-year perod durng whch such ncome s pad.
For ths purpose, the frst such perod sha commence wth the begn-
nng of the caendar year n whch such ncome s frst pad on or after
anuary 1, 1952. ach such etter fed wth any wthhodng agent
sha be fed not ater than 20 days precedng the date of the frst pay-
ment wthn each successve perod; or, f such frst payment frst
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233
29.1 3-1.
occurs n the caendar year 1952, not ater than 5 days foowng the
date of approva of ths Treasury Decson.
If such etter s aso to be used as authorzaton for the reease,
pursuant to secton 7.106(a), of e cess ta wthhed from nterest,
other than nterest payabe by means of coupons, t sha aso contan a
statement that the owner was, at the tme when the nterest was de-
rved from whch the e cess ta was wthhed, (1) nether a ctzen
nor a resdent of the Unted States but was a resdent of Norway, or
(2) a Norwegan corporaton or other entty, and that such owner
at no tme durng the ta abe year n whch the nterest was derved
had a permanent estabshment n the Unted States.
Once a etter has been fed n respect of any three-caendar-year
perod, no addtona etter need be fed n respect thereto uness the
Commssoner of Interna Revenue notfes the wthhodng agent that
an addtona etter sha be fed by the ta payer. If, after fng a
etter of notfcaton, the ta payer ceases to be egbe for the e emp-
ton from Unted States ta provded by the conventon n respect to
such ncome, he sha prompty notfy the wthhodng agent by etter
n dupcate. When any change occurs n the ownershp of the nterest
as recorded on the books of the payer, ;he e empton from Unted
States ta w no onger appy uness a etter of notfcaton s duy
e ecuted and fed wth the wthhodng agent by the new owner of
record of such nterest.
ach etter of notfcaton, or the dupcate thereof, sha be m-
medatey forwarded by the wthhodng agent to the Commssoner
of Interna Revenue, Unform udt ranch, en Returns Secton,
Washngton 25, D. C.
Sec. 7.102. Dvdends. The conventon does not change the rate of
ta mposed by sectons 211(a) and 231(a) of the Interna Revenue
Code upon dvdends. The wthhodng of the ta wth respect to such
ncome derved from sources wthn the Unted States by nonresdent
aens who are resdents of Norway, or by Norwegan corporatons or
other enttes, s not affected by the conventon. See sectons 1 3(b)
and 1 of the Interna Revenue Code.
Sec. 7.103. Patent and Copyrght Royates and Fm Rentas.
(a) Genera. Royates and other amounts (ncudng rentas and ke
payments for the use of, or for the rght to use, moton pcture fms)
derved from sources wthn the Unted States and receved n ta -
abe years begnnng on or after anuary 1, 1951, by a nonresdent
aen (ncudng a nonresdent aen ndvdua, fducary, and partner-
shp) who s a resdent of Norway, or by a Norwegan corporaton,
or other entty, as consderaton for the rght to use copyrghts, artstc
and scentfc works, patents, desgns, secret processes and formuas,
trade-marks, and other ke property, are e empt from Unted States
ta under the provsons of rtce II of the conventon f such aen,
corporaton, or other entty at no tme durng the ta abe year had
a permanent estabshment n the Unted States. Such tems of ncome
are, therefore, not sub|ect to the wthhodng provsons of the Inter-
na Revenue Code. s to what consttutes a permanent estabshment,
see rtce II (1) (c) of the conventon.
(b) ppcaton of e empton from wthhodng. To stop wth-
hodng at the source n the case of the tems of ncome descrbed n
(a) of ths secton, the nonresdent aen resdent n Norway, or the
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29.1 3-1.
23
Norwegan corporaton or other entty, sha notfy the wthhodng
agent by etter n dupcate that such ncome s e empt from Unted
States ta under the provsons of rtce II of the conventon. The
provsons of secton 7.101(6) of these reguatons reatng to the
e ecuton, fng, and effectve perod of the etter of notfcaton pre-
scrbed theren wth respect to nterest (other than coupon bond
nterest), ncudng ts use for the reease of e cess ta wthhed, are
equay appcabe wth respect to the ncome fang wthn the scope
of ths secton.
ach etter of notfcaton, or the dupcate thereof, sha be mmed-
atey forwarded by the wthhodng agent to the Commssoner of
Interna Revenue, Unform udt ranch, en Returns Secton,
Washngton 25, D. C.
Sec. 7.10 . Natura Resource Royates and Rea Property
Rentas. The conventon does not change the rate of ta mposed by
sectons 211 (a) and 231 (a) of the Interna Revenue Code upon natura
resource royates and rea property rentas. The wthhodng of the
ta wth respect to such tems derved from sources wthn the Unted
States by nonresdent aens who are resdents of Norway, or by Nor-
wegan corporatons or other enttes, s not affected by the con-
venton. See sectons 1 3(b) and 1 of the Interna Revenue Code
and rtce III of the conventon.
Sec. 7.105. Pensons and Lfe nnutes. (a) Genera. Prvate
pensons and fe annutes, as defned n rtce I (3) and ( ) of the
conventon, derved from sources wthn the Unted States and pad n
ta abe years begnnng on or after anuary 1,1951, to a nonresdent
aen ndvdua who s a resdent of Norway are e empt from Unted
States ta under the provsons of rtce I (2) of the conventon.
Such tems of ncome are, therefore, not sub|ect to the wthhodng
provsons of the Interna Revenue Code.
hodng at the source n the case of the tems of ncome descrbed n
(a) of ths secton, the nonresdent aen ndvdua who s a resdent
of Norway sha notfy the wthhodng agent by etter n dupcate
that such ncome s e empt from Unted States ta under the pro-
vsons of rtce I of the conventon. The etter of notfcaton
sha show the name and address of both the payer and the owner of
the ncome and sha contan a statement that the owner, an ndvdua,
s nether a ctzen nor a resdent of the Unted States but s a resdent
of Norway. In addton, t sha be sgned by the owner and sha
contan a wrtten decaraton that t s made under the penates of
per|ury, such decaraton to consst of a statement smar to the fo-
owng: I decare under the penates of per|ury that ths etter has
been e amned by me and to the best of my knowedge and beef s
true and correct .
If such etter s aso to be used as authorzaton for the reease,
pursuant to secton 7.106(a), of e cess ta wthhed from such tems
of ncome, t sha aso contan a statement that the owner was, at the
tme when the ncome was pad from whch the e cess ta was wth-
hed, nether a ctzen nor a resdent of the Unted States but was an
ndvdua resdent of Norway.
Ths etter sha consttute authorzaton for the payment of such
tems of ncome wthout wthhodng of Unted States ta at source
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235
29.1 3-1.
uness the Commssoner of Interna Revenue subsequenty notfes
the wthhodng agent that the ta sha be wthhed wth respect to
payments of such tems of ncome made after recept of such notce.
If, after fng a etter of notfcaton, the owner of the ncome ceases
to be egbe for the e empton from Unted States ta provded by the
conventon n respect to such ncome, he sha prompty notfy the
wthhodng agent by etter n dupcate. When any change occurs
n the ownershp of such ncome as recorded on the books of the payer,
the e empton from Unted States ta w no onger appy uness
a etter of notfcaton s duy e ecuted and fed wth the wthhodng
agent by the new owner of record of such ncome.
Washngton 25, D. C.
Genera. In order to brng the conventon nto force and effect at
the earest practcabe date, the e empton from ta otherwse wth-
hed at the source from nterest, patent royates, copyrght royates,
fm rentas, and the ke, and from prvate pensons and fe annutes
s hereby made effectve begnnng anuary 1, 1952, contngent upon
compance wth the provsons of sectons 7.101, 7.103, and 7.105.
In the case of every ta payer whose address at the tme of payment
was n Norway and who furnshes to the wthhodng agent the etter
of notfcaton prescrbed n secton 7.101(6), secton 7.103(6), or
secton 7.105(6) as authorzaton for the reease of e cess ta wthhed,
where Unted States ta at the statutory rate (30 percent as of the date
of approva of ths Treasury Decson) has been wthhed on or after
anuary 1, 1952, from nterest (other than coupon bond nterest),
patent royates, copyrght royates, fm rentas, and the ke, and
from prvate pensons and fe annutes, there sha be reeased by the
wthhodng agent and pad over to the person from whom t was
wthhed an amount equa to the ta so wthhed.
In the case of every owner, trustee, or agent whose address at the
tme of payment was n Norway and who furnshes to the wthhodng
agent Form 1001-NO ceary marked Substtute , where Unted
States ta at the statutory rate (2 percent or 30 percent, as the case
may be, as of the date of approva of ths Treasury Decson) has been
wthhed on or after anuary 1, 1952, from coupon bond nterest,
there sha be reeased by the wthhodng agent and pad over to the
person from whom t was wthhed an amount equa to the ta so
wthhed, f such ta payer aso attaches to the orgna copy ony of
such form a etter sgned by the owner, trustee, or agent and contan-
ng the foowng:
(1) The name and address of the obgor;
(2) The name and address of the owner of the coupon bond
nterest from whch the e cess ta was wthhed (See secton
7.101 (b) as to who sha be deemed to be the owner.);
(3) The amount of the nterest from whch the e cess ta was
wthhed, and, f possbe, the date of payment;
( ) statement that the owner was, at the tme when the n-
terest was derved from whch the e cess ta was wthhed, ()
nether a ctzen nor a resdent of the Unted States but was a res-
WT II LD T SOURC . (a)
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29.1 3-1;
236
dent of Norway, or () a Norwegan corporaton or other entty;
(5) statement that the owner at no tme durng the ta abe
year n whch such nterest was derved had a permanent estab-
shment n the Unted States; and
(6) wrtten decaraton that the etter s made under the
penates of per|ury, such decaraton to consst of a statement
smar to the foowng: I decare under the penates of per|ury
that ths etter has been e amned by me and to the best of my
knowedge and beef s true and correct .
One such substtute form sha be fed n dupcate (but wth one
copy ony of the etter) wth respect to each ssue of bonds and w
serve wth respect to that ssue to repace a Forms 1001 prevousy
fed by the ta payer n the caendar year n whch the e cess ta was
wthhed and wth respect to whch such e cess s reeased.
The orgna (wth attachment) and dupcate of substtute Form
1001-NO sha be forwarded to the Commssoner of Interna Revenue
by the wthhodng agent wth the quartery return on Form 1012,
as provded n e stng reguatons wth respect to Form 1001. See
secton 29.1 3-7 of ths chapter Reguatons 111 . Substtute Form
1001-NO need not be sted on Form 1012.
(b) mounts wthhed durng 1951. For provsons respectng the
refund of e cess ta wthhed durng the caendar year 1951, see sec-
ton 7.109.
Sec. 7.107. Informaton To e Furnshed n Ordnary Course.
In compance wth the provsons of rtces , I, and III
of the conventon the Commssoner of Interna Revenue w trans-
mt to the Norwegan Mnstry of Fnance and Customs, as soon as
practcabe after the cose of the caendar year 1952 and of each sub-
sequent caendar year durng whch the conventon s n effect, the
foowng nformaton reatng to such precedng caendar year:
(a) The name and address of each person whose address as
dscosed on each avaabe Form 1012 and Form 10 2 s n Nor-
way dervng from sources wthn the Unted States dvdends,
nterest, rent, royates, saares, wages, pensons, annutes, and
other f ed or determnabe annua or perodca ncome; and the
amount of such ncome as dscosed on such form wth respect to
each such person.
(b) The dupcate copy of each avaabe ownershp certfcate,
Form 1001-NO, fed pursuant to secton 7.101(6), and substtute
Form 1001-NO, fed pursuant to secton 7.106(a), n connecton
wth coupon bond nterest.
To factate compance wth the above rtces of the conventon,
every wthhodng agent sha report on Form 10 2 for the caendar
year 1952 and each subsequent caendar year, n addton to the tems
of ncome upon whch Unted States ta s requred to be wthhed at
source, those tems of ncome pad to a nonresdent aen (ncudng
a nonresdent aen ndvdua, fducary, and partnershp) who s a
resdent of Norway, and to a nonresdent Norwegan corporaton or
other entty, upon whch Unted States ta s not requred to be wth-
hed at the source. Such return sha show the same nformaton wth
respect to such tems of ncome upon whch ta s not requred to be
wthhed at the source as s shown wth respect to tems of ncome
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237
29.1 3-1.
upon whch the ta s requred to be wthhed at the source. For
provsons pertanng to the return on Form 10 2, see secton 29.1 3-7
of ths chapter.
Sec. 7.10 . enefcares of a Domestc state ok Tkust. non-
resdent aen who s a resdent of Norway and who s a benefcary of
a domestc estate or trust sha be entted to the e empton from
Unted States ta provded n rtces I and II of the conventon
wth respect to nterest, royates, and other ke amounts to the e tent
such tem or tems are ncuded n hs share of the dstrbuted or ds-
trbutabe ncome of such estate or- trust. In order to be entted n
such nstance to the e empton from wthhodng of Unted States
ta . such benefcary must otherwse satsfy the requrements of these
respectve rtces of the conventon and must e ecute and submt to
the fducary of such estate or trust n the Unted States the appropr-
ate etter of notfcaton prescrbed n secton 7.101(6) and secton
7.103(6).
Sec. 7.109. Refund of cess Ta Wthhed Durng 1951. If
Unted States ta wthhed at the source durng the caendar year
1951 from nterest, royates, pensons, or fe annutes s n e cess of
the ta mposed by chapter 1 (reatng to the ncome ta ) of the
Interna Revenue Code, as modfed by the conventon, a cam by the
ta payer for the refund of any overpayment sha be made under sec-
ton 322 of the Interna Revenue Code by fng Form 3 together
wth Form 10 0N , Form 10 0N -a, Form 10 0 , or Form 1120N ,
whchever s appcabe, or wth an amended return.
The ta payer s tota gross ncome from sources wthn the Unted
States, ncudng every tem of capta gan sub|ect to ta under the
provsons of secton 211(a) (1) ( ) or 211(c) of the Interna Revenue
Code, sha be dscosed on the return. In the event that securtes are
hed n the name of a person other than the actua or benefca owner,
the name and address of such person sha be furnshed wth the
cam. There sha aso be ncuded n such cam for refund a
statement:
(a) That the ta payer was, at the tme when the tem or tems
of ncome were derved (or pad , n the case of prvate pensons
and fe annutes) from whch the e cess ta was wthhed,
(1) a nonresdent aen (ncudng a nonresdent aen ndvdua,
fducary, or partnershp) who at such tme was a resdent of
Norway, or (2) a Norwegan corporaton or other entty; and
(b) That the ta payer at no tme durng the ta abe year n
whch such tem or tems of ncome were derved had a permanent
estabshment n the Unted States.
If, however, the ta payer s an ndvdua who durng the ta abe
year was pad from sources wthn the Unted States ncome whch
conssts e cusvey of pensons or fe annutes entted to the beneft
of rtce I of the conventon, the statement specfed n (b) above
sha not be requred.
ecause t s necessary to brng nto effect at the earest practcabe
date the rues of ths Treasury Decson respectng e emptons from
ta and the rues respectng reease or refund of amounts wthhed
wth respect to e empt ncome, t s hereby found that t s mpract-
26335 53 16
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29.1 3-1.
23S
cabe to ssue ths Treasury Decson wth notce and pubc procedure
thereon under secton (a) of the dmnstratve Procedure ct,
approved une 11, 19 6, or sub|ect to the effectve date mtaton of
secton (c) of that act.
sectons 62 and 3791 (53 Stat. 32, 67; 26 U. S. C. 62, 3791) of the
Interna Revenue Code and n rtce I of the conventon.)
ohn S. Graham,
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster December 12, 1952, :51 a. m.)
Secton.29.1 3-1: Wthhodng ta at source. T. D. 5957
TITL 20 INT RN L R NU C PT R I, U C PT R , P RT 7.
T TION PURSU NT TO TR TI S. SU P RT N W Z L ND, R GUL -
TIONS FF CTI NU RY 1, 1952
Reease or refund of e cess ta wthhed, and e empton from, or
reducton n rate of, wthhodng under sectons 1-13 and 1 of the
Interna Revenue Code n tte case of resdents of New Zeaand, of
foregn corporatons managed and controed n New Zeaand, and
of corporatons ncorporated under the aws of New Zeaand, as
affected by the recproca ncome ta conventon between the Unted
States and New Zeaand procamed by the Presdent of the Unted
States on December 20, 1951.
Washngton 25, D. C.
Concerned:
Tabe of Contents
Secton
7.600. Introductory.
7.001. Dvdends.
7.002. Interest.
7.003. Patent and copyrght royates, mutua resource royates, and rea
property rentas.
7.60 . Fm rentas.
7 005. Pensons and fe annutes.
7.000. eease of e cess ta wthhed at source.
7.607. ddressee not actua owner.
7.60 . Informaton to be furnshed n ordnary course.
7.609. enefcares of a domestc estate or trust.
7.010. Refund of e cess ta wthhed durng 1951.
Secton 7.600. Introductory. The ncome ta conventon between
the Unted States and New Zeaand, sgned March 16, 19 , pro-
camed by the Presdent of the Unted States on December 20, 1951,
and effectve as respects the Unted States ta for ta abe years be-
gnnng on or after anuary 1, 1951, herenafter referred to as the
conventon, provdes n part as foows:
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239
29.1 3-1.
rtce I
(1) The ta es whch are the sub|ect of the present conventon are
(a) In New Zeaand:
The ncome ta and soca securty charge (herenafter referred to as
New Zeaand ta ).
(b) In the Unted States of merca:
The Federa ncome ta es, ncudng surta es (herenafter referred to
as Unted States ta ).
(2) The present conventon sha aso appy to any other ta es of a substan-
tay smar character mposed by ether contractng government subsequenty
to the date of sgnature of the present conventon or by the government of any
terrtory to whch the present conventon s e tended und r rtce .
rtce II
(1) Iu the present conventon, uness the conte t otherwse requres
(a) The term Unted States means the Unted States of merca, and
when used n a geographca sense means the States, the Terrtores of
aska and of awa, and the Dstrct of Coumba.
(b) For the purposes of ths conventon New Zeaand ncudes a sands
and terrtores wthn the mts thereof for the tme beng ncudng the
Cook Isands.
(c) The terms terrtory of one of the contractng governments and
terrtory of the other contractng government mean the Unted States or
New Zeaand, as the conte t requres.
(d) The term ta means Unted States ta or New Zeaand ta , as
the conte t requres.
(e) The term person ncudes any body of persons, corporate or not
corporate.
(f) The term company means any body corporate.
(g) The term Unted States corporaton means a corporaton, assoc-
aton or other ke entty created or organzed n, or under the aws of, the
Unted States.
(h) The term New Zeaand corporaton means any knd of |urdca
person created under the aws of New Zeaand.
() The terms corporaton of one Contractng Government and cor-
poraton of the other Contractng Government mean a Unted States
corporaton, or a New Zeaand corporaton, as the conte t requres.
(|) The term resdent of New Zeaand means any person (other than a
ctzen of the Unted States or a Unted States corporaton) who s resdent
n New Zeaand for the purposes of New Zeaand ta and not resdent n
the Unted States for the purposes of Unted States ta . corporaton s
to be regarded as resdent n New Zeaand f t s ncorporated under the
aws of, or f ts busness s managed and controed n, New Zeaand.
(k) The term resdent of the Unted States means any ndvdua who
s resdent n the Unted States for the purposes of Unted States ta and
not resdent n New Zeaand for the purposes of New Zeaand ta , and
any Unted States corporaton and any partnershp created or organzed
n. or under the aws of, the Unted States, beng a corporaton or partner-
shp whch s not resdent n New Zeaand for the purposes of New Zeaand
ta .
(1) The terms resdent of the terrtory of one of the contractng govern-
ments and resdent of the terrtory of the other contractng government
mean a resdent of the Unted States or a resdent of New Zeaand, as the
conte t requres.
(ra) The terms Unted States enterprse and New Zeaand enterprse
mean, respectvey, an ndustra or commerca enterprse or undertakng
carred on by a resdent of the Unted States and an ndustra or com-
merca enterprse or undertakng carred on by a resdent of New Zeaand;
and the terms entepprse of one of the contractng governments and
enterprse of the other contractng government mean a Unted States en-
terprse or a New Zeaand enterprse, as the conte t requres.
(n) The term ndustra or commerca profts ncudes manufacturng,
mercante, mnng, fnanca and farmng profts, but does not ncude ncome
n the form of dvdends, nterest, rents or royates, nsurance premums,
management charges, or remuneraton for persona servces.
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29.1 3-1.
210
(o) The term permanent estabshment , when used wth respect to an
enterprse of one of the contractng governments, means a branch, manage-
ment, factory, mne, farm, or other t e pace of busness, hut does not
ncude an agency uness the agent has, and habtuay e ercses, a genera
authorty to negotate and concude contracts on behaf of such enterprse
or reguary fs orders on ts behaf from a stock of goods or merchandse.
n enterprse of one of the contractng governments sha not he deemed
to have a permanent estabshment n the terrtory of the other contractng
government merey berause t carres on busness deangs n that terrtory
through a bona fde broker or genera commsson agent actng n the ord-
nary course of hs busness as such.
The fact that an enterprse of one of the contractng governments man-
tans a f ed pace of busness e cusvey for the purchase of goods or
merchandse sha not of tsef consttute that f ed pace of busness a
permanent estabshment of the enterprse.
The fact that a corporaton of one contractng government has a sub-
sdary corporaton whch s a corporaton of the other contractng govern-
ment or whch s engaged n trade or busness n the terrtory of such ottur
contractng government (whether through a permanent estabshment or
otherwse) sha not of tsef consttute that subsdary corporaton a per-
manent estabshment of ts parent corporaton. The mantenance wthn
the terrtory of one of the contractng governments by an enterprse of the
other contractng government of a warehouse for convenence of devery
and not for purposes of dspay sha not of tsef consttute a permanent
estabshment wthn that terrtory even though offers of purchase have
been obtaned by an agent of the enterprse n that terrtory and transmtted
by hm to the enterprse for acceptance.
(2) In the appcaton of the provsons of the present conventon by one of
the contractng governments any term not otherwse defned sha, uness the
conte t otherwse requres, have the meanng whch t has under the aws of
that contractng government reatng to the ta es whch are the sub|ect of the
present conventon.

rtce I
(1) The rate of Unted States ta on dvdends derved from sources wthn
the Unted States by a resdent of New Zeaand not engaged n trade or busness
wthn the Unted States through a permanent estabshment theren sha not
e ceed 15 percent: Provded that such rate of ta sha not e ceed 5 percent f
such resdent s a corporaton controng, drecty or ndrecty, at east S 5
percent of the entre votng power n the corporaton payng the dvdend, and
not more than 25 percent of the gross ncome of such payng corporaton s de-
rved from nterest and dvdends, other than nterest and dvdends receved
from ts own subsdary corporatons. Such reducton of the rate to 5 percent
sha not appy f the reatonshp of the two corporatons has been arranged or
s mantaned prmary wth the ntenton of securng such reduced rate.
(2) In the event that New Zeaand shoud mpose at any tme ta on dvdends
derved from sources wthn New Zeaand by a nonresdent thereof, ncudng
a resdent of the Unted States, not engaged n trade or busness wthn New
Zeaand through a permanent estabshment theren at a rate n e cess of 15
percent (or 5 percent n cases correspondng, to those wthn the scope of the
provso n paragraph (1) of ths rtce), ether of the contractng governments
may termnate ths rtce provded that notce of termnaton s gven n wrtng,
and, n such event, ths rtce sha cease to be effectve as respects Unted
States ta for the ta abe years begnnng on or after the 1st day of anuary
ne t foowng the date on whch such notce s gven.
rtce II
(1) resdent of the terrtory of one of the contractng governments dervng
from sources wthn the terrtory of the other contractng government
(a) royates n respect of the operaton of mnes, quarres or natura
resources, or
(b) rentah from rea property, or
(c) royates or other amounts pad as consderaton for the use of, or
for the prvege of usng, any copyrght, patent, desgn, secret process or
formua, trade-mark or other ke property,
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29.1 3-1.
may eect for any ta abe year to be sub|ect to the ta of such other contractng
government, on a net bass, as If such resdent were engaged n trade or busness
wthn the terrtory of such other contractng government through a permanent
estabshment theren durng such ta abe year.
(2) The provsons of ths rtce sha not appy to ncome fang wthn the
scope of rtce III of the present conventon.
rtce III
(1) Rentas n respect of moton pcture fms derved from sources wthn
the terrtory of one of the contractng governments by a resdent of the terrtory
of the other contractng government who s not engaged n trade or busness
throu h a permanent estabshment n the former terrtory sha be e empt from
ta by the former government.
(2) The provsons of ths rtce sha not be construed to affect the New
Zeaand fm hre ta or the ncome ta mposed by New Zeaand on ncome whch
s ta abe under New Zeaand aw and whch s derved by any person from the
busness of rentng moton pcture fms.

rtce II
(1) Dvdends pad by a New Zeaand corporaton sha be e empt from Unted
States ta e cept where the recpent Is a ctzen of, or resdent n, the Unted
States or a Unted States corporaton.
(2) Dvdends pad by a Unted States corporaton sha be e empt from New
Zeaand ta e cept where the recpent Is resdent n New Zeaand.

btc e I
(1) The ta aton authortes of the contractng governments sha e change
such nformaton (beng Informaton avaabe under the respectve ta aton
nws of the contractng governments) as Is necessary for carryng out the prov-
sons of the present conventon or for the preventon of fraud or for the admn-
straton of statutory provsons aganst ega avodance n reaton to the ta es
whch are the sub|ect of the present conventon. ny nformaton so e changed
sha be treated as secret and sha not be dscosed to any person other than
- persons (Incudng a court) concerned wth the assessment or coecton of the
ta es whch are the sub|ect of the present conventon or the determnaton of
appeas n reaton thereto. No nformaton sha be e changed whch woud
dscose any trade secret or trade process.
(2) The term ta aton authortes means, In the case of New Zeaand, the
Commssoner of Ta es or hs authorzed representatve; n the case of the
Unted States, the Commssoner of Interna Revenue or hs authorzed repre-
sentatve.
rtce II
ach of the contractng governments may coect such ta mposed by the
other contractng government as w ensure that the e empton or reduced rate
of ta granted under the present conventon by such other government sm
not be en|oyed by persons not entted to such benefts.
rtce III

(2) The ta aton authortes of the two contractng governments may pre-
scrbe reguatons to carry nto effect the present conventon wthn the respec-
tve states and rues wth respect to the e change of nformaton.
(3) The ta aton authortes of the two contractng governments may com-
muncate wth each other drecty for the purpose of gvng effect to the prov-
sons of the present conventon.
rtce I
The provsons of the present conventon sha not be construed to restrct n
any manner any e empton, deducton, credt or other aowance accorded by
the aws of one of the contractng governments n the determnaton of the ta
mposed by such government.

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2 2
rtc.k I
(1) The presrnt conventon sha be ratfed and the Instruments of ratfca-
ton sh be e changed at Washngton as soon as possbe.
(2) Upon e change of nstruments of ratfcaton, the present conventon sha
have effect
(a) as respects Unted States ta , for the ta abe years begnnng on or
after the 1st day of anuary In the caendar year n whch occurs the e -
change of the nstruments of ratfcaton,
(b) as respects New Zeaand ta , for the year of assessment begnnng on
the 1st day of pr ne t foowng the caendar year n whch occurs tte
e change of the nstruments of ratfcaton.
rtce II
The present conventon sha contnue effectve for a perod of 2 years and
Indefntey after that perod, but may be termnated by ether contractng gov-
ernment at the end of such perod or at any tme thereafter, provded that at
east ( months pror notce of termnaton has been gven In wrtng and, n
such event, the present conventon sha cense to he effectve
(a) as respects Unted States a , for the ta abe years begnnng on or
after the 1st day of anuary ne t foowng the e praton of the 6 month
perod,
(h as respects New Zeaand ta , for the years of assessment begnnng
on or after the 1st day of pr n the second year foowng the e praton,
of the 0 month perod.

s used n ths Treasury Decson, any term defned n the prov-
sons of the conventon sha have the meanng so assgned to t; any
term not so defned sha, uness the conte t otherwse requres, have
the meanng whch such term has under the Interna Revenue Code.
Sec. 7.601. Dvdends. (a) Genera. Under rtce I of the
conventon the rate of ta mposed wth respect to dvdends by secton
211(a) of the Interna Revenue Code (reatng to nonresdent aen
ndvduas not engaged n trade or busness wthn the Unted States)
and by secton 231(a) of the Interna Revenue Code (reatng to for-
egn corporatons not engaged n trade or busness wthn the Unted
States) s reduced to 15 percent n the case of dvdends derved rora
sources wthn the Unted States and receved n ta abe years begn-
nng on or after anuary 1, 1951, by a nonresdent aen (ncudng a
nonresdent aen ndvdua, fducary, and partnershp) who s res-
dent n .New Zeaand for the purposes of New Zeaand ta , or by a
foregn corporaton (whether or not created or organzed n or under
the aws of New Zeaand) whose busness s managed and controed,
n New Zeaand, or by a corporaton ncorporated under the aws of
New Zeaand, f such aen or corporaton at no tme durng the ta abe
year was engaged n trade or busness wthn the Unted States
through a permanent estabshment stuated theren. s to what con-
sttutes a permanent estabshment, see rtce 11(1) (o) of the
conventon.
Thus, f a nonresdent aen ndvdua who s resdent n New Zea-
and for the purposes of New Zeaand ta performs persona servces
wthn the Unted States durng the ta abe year, but has at no tme
durng such year a permanent estabshment wthn the Unted States,
he s entted to the reduced rate of ta wth respect to dvdends de-
rved n that year from Unted States sources, as provded n rtce
I of the conventon, even though under the provsons of secton
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29.1 3-1.
211 (b) of the Interna Revenue Code he has engaged n trade or bus-
ness wthn the Unted States durng such year by reason of hs havng
rendered persona servces theren.
In the case of dvdends pad on or after anuary 1,1951, by a New
Zeaand corporaton, as denned n rtce 11(1) (h) of the conventon,
no wthhodng of Unted States ta s requred. See rtce II (1)
of the conventon.
(b) Dvdends pad by reated corporaton. Under the provso of
rtce I (1) o the conventon, dvdends derved from sources
wthn the Unted States by a foregn corporaton whose busness s
managed and controed n New Zeaand, or by a corporaton ncor-
porated under the aws of New Zeaand, whch contros drecty or
mdrecty at the tme the dvdend s pad 95 percent or more of the
entre votng power n the corporaton payng the dvdend are, when
receved n ta abe years begnnng on or after anuary 1, 1951, sub-
|ect to Unted States ta at the rate of ony 5 percent, f (1) not
more than 25 percent of the gross ncome of the payng corporaton
for the 3-year perod mmedatey precedng the ta abe year n whch
the dvdend s pad conssts of dvdends and nterest (other than
dvdends and nterest receved by such payng corporaton from ts
own subsdary corporatons, f any), (2) the reatonshp between the
payng corporaton and the foregn corporaton, or between the pay-
ng corporaton and the corporaton ncorporated under the aws of
New Zeaand, has not been arranged or mantaned prmary wth
the ntenton of securng the reduced rate of 5 percent, and (3) the
foregn corporaton, or the corporaton ncorporated under the aws
of New Zeaand, at no tme durng the ta abe year was engaged n
trade or busness wthn the Unted States through a permanent
estabshment stuated theren.
ny corporaton (herenafter referred to as the camant) whch
cams or contempates camng that dvdends pad or to be pad by t
are sub|ect ony to the 5 percent rate sha fe the foowng nforma-
ton wth the Commssoner of Interna Revenue as soon as pract-
cabe: (1) the date and pace of ts organzaton; (2) the number
of outstandng shares of stock of the camant havng votng power
and the votng power thereof; (3) the person or persons benefcay
ownng such stock of the camant and ther reatonshp to the
foregn corporaton, or to the corporaton ncorporated under the
aws of New Zeaand; ( ) the ocaton, where appcabe, of the
management and contro of the foregn corporaton; (5) the amount
of the gross ncome by years of the camant for the 3-year perod
mmedatey precedng the ta abe year n whch the dvdend s pad;
(6) the amount of nterest and dvdends by years ncuded n the
gross ncome of the camant, and the amount of nterest and dv-
dends by years receved by the camant from ts own subsdary
corporatons, f any; and (7) the reatonshp between the camant
and the foregn corporaton, or between the camant and the corpora-
ton ncorporated under the aws of New Zeaand, dervng the
dvdend from sources wthn the Unted States.
s soon as practcabe after such nformaton s fed, the Com-
mssoner w determne whether the dvdends concerned fa wthn
the scope of the provso of rtce I (1) of the conventon and may
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29.1 3-1.
2
authorze the reease or refund of e cess ta wthhed wth respect
to dvdends whch come wthn such provso. For addtona re-
qurements respectng the refund of e cess ta wthhed durng 1951,
see secton 7.610.
In any case n whch the Commssoner has notfed the camant
that the dvdends fa wthn the scope of the provso of rtce I (1)
of the conventon the reduced wthhodng rate of 5 percent, to the
e tent wthhodng of Unted States ta s requred, w appy to
any dvdends subsequenty pad by the camant and derved by the
foregn corporaton, or by the corporaton ncorporated under the
aws of New Zeaand, uness the stock ownershp of the camant, or
the character of ts ncome, or, where appcabe, the pace of manage-
ment and conto of the foregn corporaton dervng the dvdend
materay changes; or uness the Commssoner determnes that the
reatonshp between the two corporatons concerned s beng man-
taned prmary wth the ntenton of securng the reduced rate of
ta . In such nstance, f such change n stock ownershp, character
of ncome, or pace of management and contro occurs, the camant
sha prompty notfy the Commssoner of the then e stng facts
wth respect thereto. The contnued appcaton of the reduced
rate of 5 percent s aso dependent upon the contnued fufment
of condton (3) of the frst paragraph of (b) of ths secton.
(c) ffect of address n New Zeaand on wthhodng n case of
dvdends. For the purpose of wthhodng of Unted States ta n
the case of dvdends every nonresdent aen (ncudng a non-
resdent aen ndvdua, fducary, and partnershp) whose address s
n New Zeaand sha be deemed by Unted States wthhodng agents
to be a nonresdent aen who s (1) resdent n New Zeaand for the
purposes of New Zeaand ta and (2) not engaged n trade or bus-
ness wthn the Unted States through a permanent estabshment
stuated theren; and every foregn corporaton whose address s n
New Zeaand sha be deemed by such wthhodng agents to be ether
a foregn corporaton whose busness s managed and controed n
New Zeaand or a corporaton ncorporated under the aws of New
Zeaand, nether engaged n trade nor busness wthn the Unted
States through a permanent estabshment stuated theren.
(d) ate of wthhodng. Wthhodng at source n the case of
dvdends derved from sources wthn the Unted States and pad
on or after anuary 1,1052. to nonresdent aens (ncudng a nonres-
dent aen ndvdua, fducary, and partnershp) and to foregn cor-
poratons, whose addresses are n New Zeaand, sha be at the rate
of 15 percent n every case e cept that n whch, pror to the date of
payment of such dvdends, the Commssoner of Interna Revenue has
(1) pursuant to (b) of ths secton notfed the camant that such
dvdends fa wthn the scope of the provso of rtce I (1) of the
conventon or (2) notfed the wthhodng agent that the reduced
rate of wthhodng sha not appy.
The precedng provsons respectng the appcaton of the reduced
wthhodng rate n the case of dvdends pad to nonresdent aens
and foregn corporatons wth addresses n New Zeaand are based
upon the assumpton that the payee of the dvdend s the actua
owner of the capta stock from whch the dvdend s derved and
consequenty s the person abe to Unted States ta upon such
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29.1 3-1.
dvdend. s to acton by the recpent who s not the owner of the
dvdend, see secton 7.607.
The rate at whch Unted States ta has been wthhed from any
dvdend pad at any tme after the e praton of the 30th day after
the date on whch ths Treasury Decson s pubshed n the federa
Regster to any person whose address s n New Zeaand at the tme
the dvdend s pad sha be shown ether n wrtng or by appro-
prate stamp on the check, draft, or other evdence of payment, or
on an accompan3rng statement.
Sec. 7.602. Interest. The conventon does not change the rate
of ta mposed by sectons 211 (a) and 231 (a) of the Interna Revenue
Code upon nterest. The wthhodng of the ta wth respect to such
ncome derved from sources wthn the Unted States by a non-
resdent aen who s resdent n New Zeaand for the purposes of
New Zeaand ta , by a foregn corporaton whose busness s man-
aged and controed n New Zeaand, or by a corporaton ncorporated
under the aws of New Zeaand, s not affected by the conventon. See
sectons 1 3 and 1 of the Interna Revenue Code.
Sec. 7.603. Patent and Copyrght Royates, Natura Resource
Royates, and Rea Property Rentas. The conventon does not
change the rate of ta mposed by sectons 211(a) and 231(a) of the
Interna Revenue Code upon royates and ke amounts (other than
fm rentas). The wthhodng of the ta wth respect to such n-
come derved from sources wthn the Unted States by a nonresdent
aen who s resdent n New Zeaand for the purposes of New Zea-
and ta , by a foregn corporaton whose busness s managed and
controed n New Zeaand, or by a corporaton ncorporated under
the aws of New Zeaand, s not affected by the conventon. See sec-
tons 1 3(b) and 1 of the Interna Revenue Code and rtce II
of the conventon. For speca provsons reatng to moton pcture
fm rentas, see secton 7.60 .
Sec. 7.60 . Fm rentas. (a) Genera. Rentas derved from
sources wthn the Unted States as consderaton for the use of, or
for the rght to use, moton pcture fms and receved n ta abe years
begnnng on or after anuary 1,1951, by a nonresdent aen (ncud-
ng a nonresdent aen ndvdua, fducary, and partnershp) who
s resdent n New Zeaand for the purposes of New Zeaand ta , or by
a foregn corporaton (whether or not created or organzed n or
under the aws of New Zeaand) whose busness s managed and con-
troed n New Zeaand, or by a corporaton ncorporated under the
aws of New Zeaand, are e empt from Unted States ta under the
provsons of rtce III of the conventon f such aen or corpora-
ton at no tme durng the ta abe year was engaged n trade or bus-
ness wthn the Unted States through a permanent estabshment
stuated theren. Such rentas are, therefore, not sub|ect to the wth-
hodng provsons of the Interna Revenue Code. s to what
consttutes a permanent estabshment, see rtce II (1) (o) of the
conventon.
hodng at the source n the case of the rentas descrbed n (a) of ths
secton, the nonresdent aen resdent n New Zeaand for the purposes
of New Zeaand ta , the foregn corporaton whose busness s man-
aged and controed n New Zeaand, or the corporaton ncorporated
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29.1 3-1.
2 6
under the aws of New Zeaand sha notfy the wthhodng agent by
etter n dupcate that such ncome s e empt from Unted States ta
under the provsons of rtce III of the conventon. The etter of
notfcaton sha be sgned by the owner of the rentas, trustee, or agent
and sha show the name and address of the obgor and the name
and address of the owner of such rentas. It sha aso contan a
statement that the owner s (1) nether a ctzen nor a resdent of the
Unted States but s resdent n New Zeaand for the purposes of New
Zeaand ta , or (2) a foregn corporaton whose busness s managed
and controed n New Zeaand, or (3) a corporaton ncorporated
under the aws of New Zeaand, and that such owner has at no tme
durng the current ta abe year been engaged n trade or busness
wthn the Unted States through a permanent estabshment stu-
ated theren. In addton, t sha contan a decaraton that t s
made under the penates of per|ury, such decaraton to consst of
a statement smar to the foowng: I decare under the penates of
per|ury that ths etter has been e amned by me and to the best of
my knowedge and beef s true and correct .
Ths etter of notfcaton, whch sha consttute authorzaton for
the payment of such rentas wthout wthhodng of Unted States
ta at source, sha be fed wth the wthhodng agent for each suc-
cessve three-caendar-year perod durng whch such ncome s pad.
For ths purpose, the frst such perod sha commence wth the begn-
nng of the caendar year n whch such ncome s frst pad on or after
anuary 1, 1952. ach such etter fed wth any wthhodng agent
sha be fed not ater than 20 days precedng the date of the frst pay-
ment wthn each successve perod, or, f that s not possbe because of
speca crcumstances, as soon as possbe after such frst payment.
If such etter s aso to be used as authorzaton for the reease, pur-
suant to secton 7.006(a), of e cess ta wthhed from such rentas,
t sha aso contan the foowng:
(1) The amount of the fm rentas from whch the e cess ta
was wthhed, and, f possbe, the date of payment;
(2) statement that the owner was, at the tme when the
rentas were derved from whch the e cess ta was wthhed, ()
nether a ctzen nor a resdent of the Unted States but was res-
dent n New Zeaand for the purposes of New Zeaand ta , or
() a foregn corporaton whose busness at such tme was man-
aged and controed n New Zeaand, or () a corporaton
ncorporated under the aws of New Zeaand; and
(3) statement that the owner at no tme durng the ta abe
year n whch such fm rentas were derved was engaged n trade
or busness wthn the Unted States through a permanent
estabshment stuated theren.
Once a etter has been fed n respect of any three-caendar-year
perod, no addtona etter need be fed n respect thereto uness
the Commssoner of Interna Revenue notfes the wthhodng agent
that an addtona etter sha be fed by the ta payer. If, after fng
a etter of notfcaton, the ta payer ceases to be egbe for the e emp-
ton from Unted States ta provded by the conventon n respect to
such rentas, he sha prompty notfy the wthhodng agent by etter
n dupcate. When any change occurs n the ownershp of the rentas
as recorded on the books of the payer, the e empton from wth-
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2 7
29.1 3-1.
hodng of Unted States ta sha no onger appy uness a etter of
notfcaton s duy e ecuted and fed wth the wthhodng agent by
the new owner of record of such rentas.
Washngton 25, D. C.
Sec. 7.605. Pensons and Lte nnutes. The conventon does
not change the rate of ta mposed by secton 211 (a) of the Interna
Revenue Code upon prvate pensons and fe annutes. The wth-
hodng of the ta wth respect to such tems of ncome derved from
sources wthn the Unted States by a nonresdent aen ndvdua
who s resdent n New Zeaand for the purposes of New Zeaand ta
s not affected by the conventon. See secton 1 3(b) of the Interna
Revenue Code.
Sec. 7.606. Reease of cess Ta Wthhed at Source. (a)
Genera. In order to brng the conventon nto force and effect at the
earest practcabe date, the reduced rate of ta of 15 percent to be
wthhed at the source from dvdends and the e empton from ta
otherwse wthhed at the source from fm rentas are hereby made
effectve begnnng anuary 1,1952, contngent upon compance wth
the provsons of sectons 7.601 and 7.60 .
In the case of dvdends derved from sources wthn the Unted
States and pad to a nonresdent aen (ncudng a nonresdent aen
ndvdua, fducary, and partnershp) or to a foregn corporaton,
whose address at the tme of payment was n New Zeaand, where
Unted States ta at the statutory rate (30 percent as of the date of
approva of ths Treasury Decson) has been wthhed from such
dvdends on or after anuary 1, 1952, there sha be reeased (e cept
as provded n (b) of ths secton) by the wthhodng agent and pad
over to the person from whom t was wthhed an amount whch s
equa to the amount obtaned by subtractng 15 percent of such dv-
dends from the ta so wthhed.
In the case of every ta payer whose address at the tme of payment
was n New Zeaand and who furnshes to the wthhodng agent the
etter of notfcaton prescrbed n secton 7.60 ( ) as authorzaton
for the reease of e cess ta wthhed, where Unted States ta at the
statutory rate (30 percent as of the date of approva of ths Treasury
Decson) has been wthhed from moton pcture fm rentas on or
after anuary 1, 1952, there sha be reeased by the wthhhodng
agent and pad over to the person from whom t was wthhed an
amount equa to the ta so wthhed.
(b) Dvdends pad by reated corporaton. In the case of every
corporaton recevng notfcator from the Commssoner of Interna
Revenue under the provsons of secton 7.601(6) that dvdends pad
or to be pad by t fa wthn the scope of the provso of rtce I (1)
of the conventon, where Unted States ta n e cess of the appcabe
rate of 5 percent has been wthhed on or after anuary 1, 1952, from
dvdends whch come wthn the scope of such provso, the wthhod-
ng agent sha, f so authorzed n such notfcaton, reease and pay
over to the corporaton from whch t was wthhed the e cess ta
wthhed wth respect to such dvdends.
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29.1 3-1.
2 S
(c) mounts wthhed durng 1951. For provsons respectng
the refund of e cess ta wthhed durng the caendar year 1951, see
secton 7.610.
Skc. 7.607. ddressee Not ctua Owner. If the recpent n
New Zeaand of any dvdend from sources wthn the Unted States,
wth respect to whch Unted States ta at the reduced rate of 15 per-
cent has been wthhed at source pursuant to secton 7.601 (d), s a
nomnee or representatve through whom such dvdend fows to a
person other than one descrbed n secton 7.601 (a) as beng entted
to such reduced rate, such recpent n New Zeaand sha wthhod
an addtona amount of Unted States ta equvaent to the Unted
States ta whch woud have been wthhed f the conventon had not
been n effect (30 percent of such dvdend as of the date of approva
of ths Treasury Decson) mnus the 15 percent whch has been wth-
hed at the source.
In any case n whch a fducary or partnershp wth an address n
New Zeaand receves, otherwse than as a nomnee or representatve,
a dvdend from sources wthn the Unted States wth respect to
whch Unted States ta at the reduced rate of 15 percent has been
wthhed at source pursuant to secton 7.601 (d), f a benefcary of such
fducary or a partner n such partnershp s not entted to the re-
duced rate of ta provded n rtce I (1) of the conventon, the
fducary or partnershp sha wthhod an addtona amount of
Unted States ta wth respect to the porton of such dvdend n-
cuded n such benefcary s share of the dstrbuted or dstrbutabe
ncome, or n such partner s dstrbutve share of the ncome, of such
fducary or partnershp, as the case may be. The amount of the
addtona ta s to be cacuated n the same manner as under the
mmedatey precedng paragraph.
If any amount of Unted States ta s reeased pursuant to secton
7.606 ( ) by the wthhodng agent n the Unted States wth respect
to a dvdend receved by such a person wth an address n New
Zeaand, the atter sha aso wthhod from such reeased amount
any addtona amount of Unted States ta , otherwse requred to be
wthhed by the precedng provsons of ths secton n respect of such
dvdend, n the same manner as f at the tme of payment of such
dvdend Unted States ta at the rate of ony 15 percent had been
wthhed at source therefrom.
The amounts so wthhed by such wthhodng agents n New
Zeaand sha be deposted, wthout convertng such amounts nto
Unted States doars, wth the New Zeaand Commssoner of Ta es
on or before the 15th day after the cose of the quarter of the caendar
year n whch such wthhodng n New Zeaand occurs. ach wth-
hodng agent makng such depost sha render therewth the appro-
prate New Zeaand form as prescrbed n reguatons ssued by the
Commssoner of Ta es. The Commssoner of Ta es has arranged
that the amounts so deposted w be remtted by draft n Unted States
doars to the Drector of Interna Revenue, atmore, Maryand,
U. S. ., on or before the end of the caendar month n whch the
deposts are made, such draft to be accompaned by the New Zeaand
form rendered by the wthhodng agents n New Zeaand n connec-
ton wth such deposts.
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29. 3-1.
Sec. 7.60 . Informaton To e Furnshed n Ordnary Course.
In compance wth the provsons of rtce I of the conventon
the Commssoner of Interna Revenue w transmt to the New
Zeaand Commssoner of Ta es, as soon as practcabe after the cose
of the caendar year 1952 and of each subsequent caendar year durng
whch the conventon s n effect, the foowng nformaton reatng to
such precedng caendar year:
The name and address of each person, whose address as ds-
cosed on each avaabe Form 1012 and Form 10 2 s n New
Zeaand, dervng from sources wthn the Unted States dv-
dends, nterest, rent, royates, saares, wages, pensons, annutes,
and other f ed or determnabe annua or perodca ncome; and
the amount of such ncome as dscosed on such form wth respect
to each such person.
To factate compance wth the above rtce of the conventon,
every wthhodng agent sha report on Form 10 2 for the caendar
year 1952 and each subsequent caendar year, n addton to the tems
of ncome upon whch Unted States ta s requred to be wthhed
at source, those tems of ncome pad to a nonresdent aen (ncudng
a nonresdent aen ndvdua, fducary, and partnershp) who s
resdent n New Zeaand for the purposes of New Zeaand ta , or to
a nonresdent foregn corporaton whose busness s managed and
controed n New Zeaand, or to a nonresdent corporaton ncorpo-
rated under the aws of New Zeaand, upon whch Unted States ta
s not requred to be wthhed at the source. Such return sha show
the same nformaton wth respect to such tems of ncome upon whch
ta s not requred to be wthhed at the source as s shown wth re-
spect to tems of ncome upon whch the ta s requred to be wthhed
at the source. For provsons pertanng to the return on Form 10 2,
see secton 29.1 3-7 of ths chapter.
Sec. 7.609. enefcares of a Domestc state or Trust.
nonresdent aen who s resdent n New Zeaand for the purposes of
New Zeaand ta and who s a benefcary of a domestc estate or
trust sha be entted to the e empton from, or reducton n the rate
of, Unted States ta provded n rtces I, III, and II of the
conventon wth respect to dvdends and fm rentas to the e tent
such tem or tems are ncuded n hs share of the dstrbuted or
dstrbutabe ncome of such estate or trust. In order to be entted
n such nstance to the e empton from, or reducton n the rate of,
wthhodng of Unted States ta such benefcary must otherwse
satsfy the requrements of these respectve rtces of the conventon
and must, where appcabe, e ecute and submt to the fducary of
such estate or trust n the Unted States the etter of notfcaton pre-
scrbed n secton 7.G0 (b).
Sec. 7.610. Refund of cess Ta Wthhed Durng 1951.
If Unted States ta wthhed at the source durng the caendar year
1951 from dvdends or fm rentas s n e cess of the ta mposed
by chapter 1 (reatng to tfe ncome ta ) of the Interna Revenue
Code, as modfed by tne conventon, a cam by the ta payer for the
refund of any overpayment sha be made under secton 322 of the
Interna Revenue Code by fng Form 3 together wth Form
10 0N , Form 10 0N -a, Form 10 0 , or Fonn 1120N , whchever
s appcabe, or wth an amended return.
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29.1 -1.
250
The ta payer s tota gross ncome from sources wthn the Unted
States, ncudng every tem of capta gan sub|ect to ta under the
provsons of secton 211(a) (1) ( ) or 211(c) of the Interna Revenue
Code, sha be dscosed on the return. In the event that securtes are
hed n the name of a person other than the actua or benefca
owner, the name and address of such person sha be furnshed wth
the cam. There sha aso be ncuded n such cam for refund a
statement:
(a) That the ta payer was, at the tme when the tem or tems
of ncome were derved, (1) a nonresdent aen as to the Unted
States (ncudng a nonresdent aen ndvdua, fducary, or
partnershp) who at such tme was resdent n New Zeaand for
the purposes of New Zeaand ta , (2) a foregn corporaton whose
busness at such tme was managed and controed n New Zeaand,
or (3) a corporaton ncorporated under the aws of New Zeaand;
and
(b) That the ta payer at no tme durng the ta abe year n
whch the ncome was derved was engaged n trade or busness
wthn the Unted States through a permanent estabshment
stuated theren.
s to addtona nformaton requred n the case of a foregn cor-
poraton, or of a corporaton ncorporated under the aws of New
Zeaand, camng the beneft of the 5 percent rate on dvdends pad
by a reated corporaton, see secton 7.601 (b).
ecause t s necessary to brng nto effect at the earest practcabe
date the rues of ths Treasury Decson respectng reduced rates of,
or e emptons from, ta and the rues respectng reease or refund of
amounts wthhed n e cess of such reduced rates, or wth respect to
e empt ncome, t s hereby found that t s mpractcabe to ssue tbs
Treasury Decson wth notce and pubc procedure thereon under
secton (a) of the dmnstratve Procedure ct, approved une 11,
1916, or sub|ect to the effectve date mtaton of secton (c) of that
ct.
sectons G2 and 3791 (53 Stat. 32, 67 ; 26 U. S. C. 62, 3791) of the
Interna Revenue Code and n rtce I1I(2) of the conventon.)
ohn S. Graham,
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster December 12, 1952, : 55 a. m.)
S CTION 11 . P YM NT OF CORPOR TION INCOM
T T SOURC
Secton 29.1 1-1: Wthhodng n the case of
nonresdent foregn corporatons.
INT RN L R NU COD
Reease or refund of e cess ta wthhed, and e empton from,
wthhodng n case of Norwegan corporatons, as affected by the
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29.1 7-1.
recproca ncome ta conventon between the Unted States and the
ngdom of Norway. (See T. D. 5956, page 22 .)
Secton 20.1 -1: Wthhodng n the case of
nonresdent foregn corporatons.
INT RN L R NU COD
Reease or refund of e cess ta wthhed, and e empton from, or
reducton n rate of, wthhodng n the case of New Zeaand corpora-
tons, as affected v the recproca ncome ta conventon between the
Unted States and New Zeaand. (See T. D. 5957, page 23 .)
S CTION 1 7. INFORM TION T SOURC
Secton 29.1 7-1: Return of nformaton as to pay- Ct. D. 175
ment of 600 ( 500 for years pror to 19 ).
Penates Informaton etdbns Fa u:e To Fe Returns.
n ndctment aganst ta payer contaned 101 counts. ach count
aeges that appeee made payment of a sum n e cess of 600 a
year to a named ndvdua. The offense charged as to each such
payment s wfu faure to make a return on Form 10 )9, n voa-
ton of secton 1 5(a) of the Interna Revenue Code, as amended.
Form 10119 s caed an Informaton Return to be forwarded wth
Form 109 3, and contans no forma decaraton by the payor nor any
sgnature by hm. Form 10CC s caed an nnua Informaton Re-
turn. whch must be sgned by the payor wth a statement of the
number of reports on Form 1099 whch are attached. ed: The ds-
trct court reached the correct resut In rung that the return
specf.d n secton 1 5(a) was that provded n Form 1090, and
that snce the ony offenses charged n the counts were faures to
te Form 1099, the ndctment shoud he dsmssed.
Supreme Court of te Unted States
The Unted States of merea, appeant, v. ames . Carro
ppea from the Unted States Dstrct Court for the Western Dstrct of Mssour
pr 27, 1953
OPINION
Mr. ustce Dougas devered the opnon of the Court.
Ths s an appea under the Crmna ppeas ct, 1 U. S. C. secton 3731,
from an order of the dstrct court dsmssng an ndctment. The ndctment
contans 101 counts. ach count aeges that appeee made payment of a sum
n e cess of 600 a year to a named ndvdua some n 19 , some n 19 9, and
the rest n 1950. The offense charged as to each such payment s a wfu faure
to make a return on Treasury Form 1099 n voaton of secton 1 5(a) of the
Interna Revenue Code, as amended, secton 5(c), Current Ta Payment ct of
19 3. 57 Stat. 126, 26 U. S. C. secton 1 5(a).
Secton 1 7 of the ct, as amended by secton 202(c) (3) of the Revenue ct of
19 , 62 Stat. 110, provdes that any person makng a payment to another of
00 or more n any caendar year sha render a true and accurate return
to the Commssoner, under such reguatons and n such form and manner and
to such e tent as may be prescrbed by hm wth the approva of the Secretary.
Treasury Reguatons 111, secton 29.1 7-1, as amended T. D. 5313, C. . 19 ,
30 , T. D. 56 7, C. . 19 9-1, 9, provdes that a persons makng any such pay-
ment n any caendar year (wth e ceptons not reevant here) sha make a
return on Form 1099, accompaned by transmtta Form 1096 showng the
number of returns fed. Form 1099 s requred to be prepared and fed for
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S 29.1 - .
252
each payee, showng the nnme and address of the payee, the knd and amount
of ncome pn. and the name and address of the person makng the payment.
Form 1099 on ts face s caed an Informaton Return ; and ts nstructons
say that t s to be forwarded wth return Form 1096. Form 1099 contans no
forma decaraton by the payor nor any sgnature by hm. Those are provded
n Form 1096.
Form 1090 s caed nnua Informaton Return. It must be sgned by the
payor wth a statement of the number of reports on Form 1099 whch are at-
tached. It contans a decaraton that to the best of my knowedge and beef
the accompanyng reports on Form 1099 consttute a true and compete return
of payments of the prescrbed character made durng the specfed caendar year.
Secton 1 5(a) of the act provdes that any person requred by aw or regua-
tons to make a return for the purposes of the computaton, assessment,
or coecton of any estmated ta or ta mposed by ths chapter, who wfuy
fas to make such return sha be guty of a msdemeanor and on con-
vcton he fned not more than 10,000 or mprsoned for not more than 1 year,
or both.
The dstrct court rued that the return specfed n secton 1 5(a) was that
provded n Form 1096, not the one provded n Form 1099 and that snce the
ony offenses charged n the 101 counts were faures to fe Form 1099 the ndct-
ment shoud be dsmssed.1
The queston s not wthout dffcuty. ut we concude that the dstrct court
reached the correct resut.
The return requred by secton 1 7(a) s to be made n such form and man-
ner as are prescrbed n the reguatons. The reguatons provde n secton
29.1 7-1, as we have noted, that a return sha be made n each case on Form
1099, accompaned by transmtta Form 1096 showng the number of returns
fed. The form and manner prescrbed therefore seem to consst of the ver-
fed Form 1096 together wth the Forms 1099. of them together apparenty
consttute the return referred to n secton 1 7(a). The varous Forms 1099
seem to have the same reaton to Form 1096 as schedues have to an ordnary
ncome ta return. Form 1099 suppes the detas whch undery Form 1096.
That concuson s supported by the fact that Form 1096 s the ony one whch s
sgned and verfed.
We hestate to concude that a faure to fe a unverfed schedue s gven the
same dgnty as the faure to fe the verfed return. We are deang wth crm-
na sanctons n the compcated, technca fed of the revenue aw. The Code
and the reguatons must be construed n ght of the purpose to ocate and check
upon recpents of ncome and the amounts they receve. See S. Rept. No. 103,
65th Cong., 1st sess. 20. ut at the same tme every ctzen s entted to far
warnng of the traps whch the crmna aw ays. Where the return prescrbed,
s a verfed Form 1096 together wth a the unverfed Forms 1099 t does not
seem far warnng to charge a person for more than the faure to make that
return. To mutpy the crmes by the number of Forms 1099 requred to be fed
s to revse the reguatory scheme. So far as these nformaton returns are
concerned, the purpose of secton 1 5(a) seems to us to he fufed when the
sancton s apped ony to a faure to fe Form 1096.
ffrmed.
S CTION 1 . INFORM TION Y CORPOR TIONS
Secton 29.1 - : Returns of nformaton as to
patronage dvdends, rebates, or refunds.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. G01 , page 110.)
1 We postponed the queston of |ursdcton to a henrn|r on the merts In vew of
appeee s contenton In hs statement opposng |ursdcton that the dsmssa was based
not ony upon the constructon of the statute wthn the meanng of the Crmna ppeas
ct, 1 U. S. C. sec. 3731, but aso, as respects the frst 5 counts, on a queston of venue.
We do not rend the ora opnon of the dstrct court that wy. We thnk the dstrct
court rested Its decson ns respects a 101 counts on the constructon of the statute.
Whether there are other ob|ectons to the ndctment whch mght aso ead to dsmssa
are therefore not propery here on ths appea. See Unted tatet v. urden Co., 30
U. S. 1 , 103.
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29.153-2.
S CTION 153. INFORM TION R UIR D FROM C RT IN
T - MPT ORG NIZ TIONS ND C RT IN TRUSTS
Secton 29.153-2: Informaton requred of trusts T. D. 59
camng chartabe or other deductons under
secton 162(a).
( so Secton 162, Sectons 29.162-1, 29.162-3.)
P RT 601
Reguatons 111 amended to conform to part II of tte III of the
Revenue ct of 1050, and to Pubc Law 35 ( 2d Cong.) C. .
1051-1, 1 .
Washngton 25, D. C.
Concerned:
On October 1, 1952, notce of proposed rue makng to conform
Reguatons 111 to part II of tte III of the Revenue ct of 1950,
approved September 23, 1950, and to Pubc Law 35, ghty-second
Congress C . 1951-1, 1 , approved May 17, 1951, to provde for
a technca amendment made to 26 CFR 601.17(a), respectng forms
requred of trusts camng deductons under secton 162(a) of the
Interna Revenue Code, was pubshed n the Federa Regster (17
F. R. 70 ). No ob|ecton to the rues proposed havng been receved,
the amendments of Reguatons 111 and the technca amendment
made to 26 CFR 601.17(a) set forth beow are hereby adopted.
Paragraph 1. There s nserted mmmedatey precedng secton
29.153-1, as added by Treasury Decson 5 3 C. . 1951-1, 35 ,
approved pr 17, 1951 26 CFR 29.153-1 , the foowng:
PU LIC L W 35, IG TY-S COND CONGR SS, PPRO D M Y
17, 1051
States of merca n Congress assembed, That, effectve wth respect to
ta abe years begnnng after December 31, 10 0, secton 153(b) of the
Interna Revenue Code (reatng to speca returns requred from
trusts camng chartabe, etc., deductons under secton 162(a) of such
Code) s hereby amended by addng at the end thereof the foowng:
Ths subsecton sha not appy In the case of a ta abe year f a
the net ncome for such year, determned under the appcabe prnc-
pes of the aw of trusts, s requred to be dstrbuted currenty to the
benefcares.
Par. 2. Secton 29.153-2, as added by Treasury Decson 5 3 26
CFR 29.153-2 , s hereby amended as foows:
( ) y changng the headng and the frst sentence thereof to
read as foows:
Sec. 29.153-2. Informaton Requred of Certan Trusts Camng Char-
tabe or Other Deductons Under Secton 162(a). (a) In genera. For ta -
abe years begnnng after December 31, 19 9, every trust (other than a trust
es T ed n (6) of ths secton) camng a chartabe or other deducton under
wton 162(a) sha fe, wth-respect to the ta abe year for whch such de-
ducton s camed, a return of nformaton on Form 10 1- .
2C335 03 17
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29.153-2.
25
(6) cepton. The provsons of (a) of ths secton wth respect to the
fng of nformaton returns sha not be appcabe to the ta abe year of a
trust f the trustee s bound by the Instrument creatng the trust to dstrbute
each year to the benefcares a the net ncome of the trust (such net ncome
beng determned under the appcabe prncpes of the aw of trusts).
26 CF 29.162-1 the foowng:
S C. 321. C RIT L , TC., D DUCTIONS OF TRUSTS
R NU CT OF 1950, PPRO D S PT M R 23, 1050 .
(a) mendment of Secton 162. Secton 162 s hereby amended
(g) Rues fob ppcaton of Subsecton (a) n the Case of
Trusts.
(1) Trade or busness ncome. In computng the deducton
aowabe under subsecton (a) to a trust for any ta abe year be-
gnnng after December 31, 1950, no amount otherwse aowabe
under subsecton (a) as a deducton sha be aowed as a deducton
wth respect to ncome of the ta abe year whch s aocabe to ts
Suppement U busness ncome for such year. s used n ths
paragraph the term Suppement U busness ncome means an
amount equa to the amount whch, f such trusts were e empt
under secton 101(6) from ta aton, woud be computed as ts un-
reated busness net ncome under secton 22 (reatng to ncome
derved from certan busness actvtes and from certan eases).
(2) Operatons of trusts.
( ) Lmtaton on Chartabe, tc., Deducton. The
amount otherwse aowabe under subsecton (a) as a deduc-
ton sha not e ceed 15 per centum of the net ncome of the
trust (computed wthout the beneft of subsecton (a)) f the
trust has engaged n a prohbted transacton, as defned n
subparagraph ( ) of ths paragraph.
( ) Prohbted Transactons. For the purposes of ths
paragraph the term prohbted transacton means any trans-
acton after uy 1, 1950, n whch any trust whe hodng
ncome or corpus whch has been permanenty set asde or s
to be used e cusvey for chartabe or other purposes descrbed
n subsecton (a)
() ends any part of such ncome or corpus, wthout
recept of adequate securty and a reasonabe rate of
nterest, to;
() pays any compensaton from such ncome or corpus.
In e cess of a reasonabe aowance for saares or other
compensaton for persona servces actuay rendered, to;
() makes any part of ts servces avaabe on a pref-
erenta bass to;
(v) uses such Income or corpus to make any substan-
ta purchase of securtes or any other property, for more
than an adequate consderaton n money or money s worth,
from;
(v) ses any substanta part of the securtes or other
property comprsng such ncome or corpus, for ess than
an adequate consderaton n money or money s worth, to;
or
(v) engages n any other transacton whch resuts n
a substanta dverson of such ncome or corpus to;
the creator of such trust; any person who has made a substan-
ta contrbuton to such trust; a member of the famy (as de-
fned n secton 2 (b)(2)(D)) of an ndvdua who s the
creator of the trust or who has made a substanta contrbuton
to the trust; or a corporaton controed by any such creator
or person through the ownershp, drecty or ndrecty, of 50
per centum or more of the tota combned votng power of a
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255
29.153-2.
casses of stock entted to vote or 50 per centum or more of the
tota vaue of shares of a casses of stock of the corporaton.
(C) Ta abe Years ffected. The amount otherwse a-
owabe under subsecton (a) as a deducton sha be mted
as provded n subparagraph ( ) ony for ta abe years subse-
quent to the ta abe year durng whch the trust s notfed
by the Secretary that t has engaged n such transacton, uness
such trust entered nto such prohbted transacton wth the
purpose of dvertng such corpus or ncome from the purposes
descrbed n subsecton (a), and such transacton nvoved a
substanta part of such corpus or ncome.
(D) Future Chartabe, tc., Deductons of Trusts Dened
Deducton Under Subparagraph (C). If the deducton of any
trust under subsecton (a) has been mted as provded n
ths paragraph, such trust, wth respect to any ta abe year
foowng the ta abe year n whch notce s receved of mta-
ton of deducton under subsecton (a), may, under reguatons
prescrbed by the Secretary, fe cam for the aowance of the
unmted deducton under subsecton (a), and f the Secretary,
pursuant to such reguatons, s satsfed that such trust w not
knowngy agan engage n a prohbted transacton, the mta-
ton provded n subparagraph ( ) sha not be appcabe
wth respect to ta abe years subsequent to the year n whch
such cam s fed.
( ) Dsaowance of Certan Chartabe, tc., Deduc-
tons. No gft or bequest for regous, chartabe, scentfc,
terary, or educatona purposes (Incudng the encourage-
ment of art and the preventon of cruety to chdren or an-
mas), otherwse aowabe as a deducton under secton
23(0) (2), 23(q)(2), 102(a), 505(a)(2), sha be
aowed as a deducton f made n trust and, n the ta abe year
of the trust n whch the gft or bequest s made, the deduc-
ton aowed the trust under subsecton (a) s mted by sub-
paragraph ( ). Wth respect to any ta abe year of a trust n
whch such deducton has been so mted by reason of enter-
ng nto a prohbted transacton wth the purpose of dvertng
such corpus or ncome from the purposes descrbed n subsec-
ton (a), and such transacton nvoved a sustanta part of
such ncome or corpus, and whch ta abe year s the same, or
pror to the, ta abe year of the trust n whch such prohbted
transacton occurred, such deducton sha be dsaowed the
donor ony f such donor or (f such donor s an ndvdua) any
member of hs famy (as defned In secton 2 (b)(2)(D)
was a party to such prohbted transacton.
(F) Defnton. For the purposes of ths paragraph the
term gft or bequest means any gft, contrbuton, bequest,
devse, egacy, or transfer.
(3) Cross reference. For dsaowance of certan chartabe,
etc., deductons otherwse aowabe under subsecton (a), see
secton 3 13.
( ) ccumuated ncome. If the amounts permanenty set
asde, or to be used e cusvey, for the chartabe and other pur-
poses descrbed n subsecton (a) durng the ta abe year or any
pror ta abe year and not actuay pad out by the end of the ta -
abe year
( ) are unreasonabe In amount or duraton n order to
carry out such purposes of the trust; or
( ) are used to a substanta degree for purposes other
than those descrbed n subsecton (a) ; or
(C) are nvested n such a manner as to |eopardze the n-
terests of the regous, chartabe, scentfc, etc., benefcares,
amount otherwse aowabe under subsecton (a) as a deducton
sha be mted to the amount actuay pad out durng the
ta abe year and sha not e ceed 15 per centum of the net
Income of the trust (computed wthout the beneft of sub-
secton (a)).
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29.153-2.
256
(b) Technca mendment. Secton 162(a) s hereby amended by
strkng out There sha be aowed as a deducton and nsertng n
eu thereof Sub|ect to the provsons of subsecton (g), there sha be
aowed as a deducton .
S C. 322. FF CTI D T OF P RT II R NU CT OF 1950,
PPRO D S PT M R 23, 1950 .
The amendments made by ths part sectons 321 and 322 of the
Revenue ct of 1950 sha be appcabe ony wth respect to ta abe
years begnnng after December 31, 1950, e cept that subsecton
(g) (2) ( ) of secton 162 of the Interna Revenue Code, added by sec-
ton 321 (a) of ths ct, sha appy ony wth respect to gfts or bequests
(as denned n secton 162(g)(2)(F) of the Interna Revenue Code)
made on or after anuary 1,1951.
Par. . Secton 29.162-1, as amended by Treasury Decson 5962
page 261, ths uetn , approved December 16, 1952 16 CFR
29.162-1 , s further amended as foows:
( ) y addng mmedatey after the ffth sentence n the frst
paragraph thereof the foowng:
For mtatons on the deducton otherwse aowabe under secton 162(a), see
secton 3 13. See aso (a), beow, and sectons 29.162-3 and 29.162- .
( ) y strkng therefrom the ast sentence of (a) (whch sentence
begns See secton 29.153-2 ) and nsertng n eu thereof the
foowng:
In the case of a trust, the deducton otherwse aowabe under secton 162(a)
for any ta abe year begnnng after December 31,1950, s sub|ect to the mta-
tons of secton 162(g). See sectons 29.162-3 and 29.162- . See secton 29.153-2
reatng to the annua nformaton return that must be fed for any ta abe
year begnnng after December 31, 19 9, by certan trusts camng chartabe,
etc., deductons under secton 162(a) for the ta abe year.
Par. 5. There s added mmedatey after secton 29.162-2 26
CFR 29.162-2 the foowng:
Sec. 29.162-3 Rues fob the ppcaton of Secton 162(a) n the Case of
Tbusts. (o) Lmtaton on chartabe, etc., deducton of trusts th trade or
busness ncome. In computng the deducton aowabe under secton 162(a) to
a trust for any ta abe year begnnng after December 31, 1950, no amount
otherwse aowabe under secton 162(a) as a deducton sha be aowed as a
deducton wth respect to ncome of the ta abe year whch s aocabe to the
trust s Suppement U busness ncome for such year. For the purpose of ths
secton, the term Suppement U busness ncome means an amount equa to
the amount whch, f such trust were e empt from ta aton under secton 101(6),
woud be computed as ts unreated busness net ncome under secton 22 and
the reenatons thereunder. For the purpose of s ueh computaton under secton
22, the term unreated trade or busness ncudes any trade or busness regu-
ary carred on by such a trust, or by a partnershp of whch t s a member.
Uness the facts ceary ndcate the contrary, the deducton otherwse a-
owabe under secton 162(a) s aocabe to the Suppement U busness Income
on the bass of the rato whch the Suppement U busness ncome bears to the
net ncome of the trust computed wthout any deducton under secton 162.
ampe (1). The trust has net ncome of 50,000 computed wthout any
deducton under secton 162. There s ncuded n ths amount a net proft of
30,000 from the operaton of a trade or busness. The trustee s requred to pay
one-haf of the net ncome to , an Indvdua, and the baance of the net ncome
to the Y charty, an organzaton descrbed n secton 23(o) (2). The trustee
pays each benefcary 25,000. Under these facts, the Suppement U busness
ncome of the trust (computed after the deducton aowabe under secton
22(a)(9) for chartabe contrbutons) s 25,500. The deducton otherwse
aowabe under secton 162(a) Is 25,000, the amount pad to the Y charty. The
porton thereof aocabe to the Suppement U busness ncome and therefore
dsaowed as a deducton s 12,750, that s, an amount whch bears the same
rato to 25,000 as 25,500 bears to 50,000.
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257
( 29.153-2.
ampe (2). ssume the same facts as n e ampe (1), above e cept that the
trustee has dscreton as to the porton of the net ncome to be pad to each
benefcary, and the trustee pays 0,000 to and 10,000 to the Y charty. The
deducton otherwse aowabe under secton 162(a) s 10,000. The porton
thereof aocabe to the Suppement U busness ncome and therefore dsaowed
as a deducton Is 5,100, that s, an amount whch bears the same rato to 10,000
as 25,500 bears to 50,000.
ampe (S). ssume the same facts as n e ampe (1), above, e cept that
the terms of the trust Instrument requre the trustee to pay to the Y charty the
net ncome, f any, derved from the trade or busness, and to pay to a the
net ncome derved from other sources. The trustee pays 30,000 to the Y charty
and 20,000 to . The deducton otherwse aowabe under secton 2(a) s
30,000. Under the facts n ths case. 25,500 of the amount pad to the Y charty
s aocabe to the Suppement U busness ncome and s therefore dsaowed as
a deducton.
(b) Lmtaton on chartabe, etc., deducton of trusts engaged n prohbted
transactons. In the case of a trust whch has engaged In any prohbted trans-
acton (as descrbed n secton 162(g)(2)( )) after uy 1, 1950, the amount
otherwse aowabe under secton 102(a) as a deducton sha not e ceed 15 per-
cent of the net ncome of such trust (computed wthout the beneft of secton
162(a)) for any ta abe year subsequent to the ta abe year n whch there s
maed to t a notce n wrtng by the Commssoner that It has engaged n such
prohbted transacton. Such notfcaton by the Commssoner sha be by reg-
stered ma to the ast known address of the fducary. owever, notwth-
standng the requrement of notfcaton by the Commssoner, such mtaton
(on the amount otherwse aowabe under secton 162(a) as a deducton) sha
appy wth respect to any ta abe year begnnng after December 31,1950, f such
trust durng or pror to such ta abe year commenced the prohbted transacton
wth the purpose of dvertng such ncome or corpus from the purposes descrbed
n secton 162(a) and such transacton nvoved a substanta part of .such In-
come or corpus. See e ampes under sectons 29.162- and 29.3 13-1.
trust whose deducton under secton 162(a) has been mted by reason of
the provsons of secton 102(g)(2)( ) may fe, n any ta abe year foowng
the ta abe year n whch notce of mtaton of deducton was ssued, a cam
for aowance of unmted deducton under secton 162(a). Ths cam sha
be fed wth the drector for the dstrct In whch the fducary resdes or
has hs prncpa pace of busness. The cam must contan or have attached
to t an affdavt by the fducary that the trust w not knowngy agan engage
n a prohbted transacton.
If the Commssoner Is satsfed that the trust w not knowngy agan engage
n a prohbted transacton, he sha so notfy the trust n wrtng. In such
case the trust w be aowed unmted deducton under secton 162(a) (sub|ect
to the provsons of secton 162(g)) wth respect to ta abe years subsequent
to the ta abe year n whch such cam s fed. Secton 162(g)(2)(C) con-
tempates that a trust whose chartabe, etc., deducton has been mted ns
prescrbed theren sha be sub|ect to such mtaton for at east 1 fu ta abe
year.
(c) Lmtaton on chartabe, etc., deducton of trusts accumuatng ncome.
For any ta abe year begnnng after December 31, 1950, the amount otherwse
aowabe under secton 162(a) as a deducton sha be mted to the amount
actuay pad out durng the ta abe year and sha not e ceed 15 percent of
the net Income of the trust (computed wthout the beneft of secton 162(a)), f
the amounts permanenty set asde, or to be used e cusvey, for the chartabe
and other purposes descrbed n secton 162(a) durng the ta abe year or
any pror ta abe year (ncudng ta abe years begnnng pror to anuary
1,1951) and not actuay pad out by the end of the ta abe year are unreasonabe.
mounts accumuated out of Income for purposes descrbed n secton 102(a)
become unreasonabe when more ncome s accumuated than s needed, or
when the duraton of the accumuaton s onger than s needed, n order to
carry out the chartabe or other purpose descrbed n secton 102(a) for whch
such amounts were set asde. Furthermore, such mtaton on the deducton
otherwse aowabe under secton 162(a) sha appy f amounts accumuated
cut of ncome for purposes descrbed In secton 162(a) are used to a substanta
degree for purposes other than those descrbed n secton 162(a), or If such
amounts are Invested In such a manner as to |eopardze the nterests of the
regous, chartabe, scentfc, etc., benefcares.
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I 29.153-2.
25
For the purpose of secton 162(g) ( ), the term Income means gans, profts,
an Income determned under the prncpes appcabe n determnng the earnngs
or profts of a corporaton. The amount accumuated out of ncome durng
the ta abe year or any pror ta abe year sha be determned under the
prncpes appcabe In determnng the accumuated earnngs or profts of a
corporaton. In determnng the reasonabeness of an accumuaton out of
ncome there w be dsregarded the foowng: (1) The accumuaton of gan
upon the sae or e change of a donated asset to the e tent that such gan
represents the e cess of the far market vaue of such asset when acqured
by the trust over ts substtuted bass n the hands of the organzaton; (2) the
accumuaton of gan upon the sae or e change of property hed for the
producton of nvestment ncome, such as dvdends, nterest, and rents, where
the proceeds of such sae or e change are wthn a reasonabe tme renvested
n property acqured and hed In good fath for the producton of nvestment
ncome.
Whether the condtons specfed n subparagraphs ( ), ( ), and (C) of
secton 162(g) ( ) are present n any case must be determned from a the
facts. The condtons specfed n secton 162(g)( ) ( ), ( ), and (C) may
resut from the use of ony one trust or of a chan of two or more organzatons.
trust whose deducton under secton 162(a) has been mted by reason of
the provsons of secton 162(g) ( ) may fe a cam for aowance of unmted
deducton under secton 162(a). Ths cam sha be fed wth the drector for
the dstrct n whch the fducary resdes or has hs prncpa pace of busness.
The cam must contan or be accompaned by nformaton or evdence showng
that the crcumstances that caused the mtaton on deducton prescrbed under
secton 162(g)( ) no onger e st, and an affdavt by the fducary that the
trust w not knowngy agan voate the terms of such secton. Secton 102(g)
( ) contempates that a trust whose chartabe, etc., deducton has been mted
as prescrbed theren sha be sub|ect to such mtaton for at east 1 fu
ta abe year.
In the case of a trust the deducton under secton 162(a) of whch has been
mted soey by reason of the provsons of secton 162(g)( ), deductons
otherwse aowabe under secton 23(o)(2), 23(q)(2), 162(a), or 505(a)(2),
for gfts or contrbutons made to such a trust n trust for chartabe, etc.,
purposes, sha not be dsaowed.
Sec. 20.162- . Dsaowance to Donors of Certan Chartabe, tc., Deduc-
tons for Gfts Made n Trust. No gft or contrbuton made on or after
anuary 1, 1051, whch woud otherwse be aowabe as a chartabe or other
deducton under secton 23(o)(2), 23(q)(2), 162(a), or 505(a)(2), sha be
aowed as a deducton f made n trust and, In the ta abe year of the trust n
whch the gft or contrbuton s made, the deducton aowed the trust under
secton 162(a) s mted by reason of the provsons of secton 162(g) (2) ( ).
The prohbted transactons enumerated n secton 162(g)(2)( ) are n ad-
dton to and not n mtaton of the restrctons contaned n secton 23(o) (2),
23(q)(2), 162(a), or 505(a)(2). deducton may not be aowed n vew of
the genera provsons of those sectons, even though the trust has not engaged
n any of the prohbted transactons referred to n secton 162(g)(2)( ).
Thus, f the donor or the fducary of the trust enters nto a transacton wth the
trust, such transacton w be cosey scrutnzed to ascertan whether the con-
trbuton s n fact made for the stated e empt purposes.
If a trust, whch receves a gft or contrbuton for chartabe, etc., purposes
after December 1, 1050, s not entted to the unmted deducton under secton
162(a) because It engaged n a prohbted transacton wth the purpose of
dvertng ts ncome or corpus from the purposes descrbed n secton 162(a), and
such transacton nvoved a substanta part of such ncome or corpus, and f
the ta abe year of the trust durng whch such gft or contrbuton s made
begns after December 31, 1050, and s the same as, or s pror to, the ta abe
year of the trust n whch such transacton occurred, then a deducton by the
donor wth respect to the gft or contrbuton sha not be dsaowed under the
frst paragraph of ths secton uness the donor (or any member of hs famy
f the donor s an ndvdua) s a party to such prohbted transacton. For
the purpose of the preceedng sentence, the members of an ndvdua donor s
famy ncude ony hs brothers and ssters, whether by whoe or haf bood,
spouse, ancestors, and nea descendants. See secton 20.3 13-3 for dsaow-
ance of certan chartabe, etc., deductons otherwse aowabe under secton
102(a).
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239
29.15 -1.
ampe. Under the terms of an Irrevocabe trust estabshed by n 10 0,
the trustees were to pay one-haf of the ncome of the trust to s wfe for fe,
and the trustees were gven dscreton ether to accumuate or dstrbute the
remanng one-haf of the Income to a specfed chartabe benefcary. Upon
the death of the wfe, the entre corpus was to be pad to the named charty.
The trust makes ts ncome ta returns on the bass of the caendar year. For
19 9, takes a chartabe deducton for the amount of the gft n trust to the
charty. In 1952, 1953, 195 , and 1955, makes further contrbutons to the
trust and takes chartabe deductons for such years under secton 23(o) (2).
In 1953, 195 , and 1955, (not a member of s famy) makes contrbutons
to the trust for ts desgnated chartabe purpose and takes chartabe deduc-
tons for such years. In 1953, the trust commences purposey to dvert ncome
and corpus whch had been set asde for ts chartabe purpose and to turn such
ncome and corpus over to , the creator of the trust, and a substanta amount
of such ncome and corpus s so dverted by the cose of the ta abe year 19. .
For 1953 and subsequent ta abe years, the deducton aowed the trust under
secton 162(a) s mted by reason of the provsons of secton 162( ) (2) ( ).
oth and are dsaowed any chartabe deducton for ther chartabe contr-
butons made durng 1955 to the trust. Moreover, the chartabe deducton taken
by for contrbutons to the trust n the years 1953 and 195 woud aso be ds-
aowed snce was a party to the prohbted transacton. If the facts and
surroundng crcumstances ndcate that the contrbuton n 1952 by was for
the purpose of the prohbted transacton, then the chartabe deducton for the
year 1952 sha aso be dsaowed wth respect to , snce the prohbted trans-
acton woud then have commenced wth the makng of such contrbuton and
the deducton aowed the trust under secton 162(a) woud then be mted for
1952 by reason of the provsons of secton 162(g) (2) ( ).
Par. 6. The Statement of Procedure contaned n F. R. Doc. 6-
15357, appearng at page 177 -22, part II secton 1, of the ssue
for September 11, 19 6, as amended (26 CFR, part 601; 1 F. R.
2063; 15 F. R. 6 : 17 F. R. 69 ), s hereby further amended by
changng the part of secton 601.17 Forms (a) Descrpton reatng
to Form 10 .1 to read as foows:
Form 10 |t- . Fducary Informaton return requred of trusts camng char-
tabe or other deductons under secton 162(a), I. R. C. for ta abe years begn-
nng after December 31,19 9.
secton 62 of the Interna Revenue Code (53 Stat. 32; 26 U. S. C, 62).)
ustn F. Wnke,
bert P. Totte,
(Fed wth the Dvson of the Federa .Regster February 19, 1953, : 5 a. m.)
S CTION 15 . INCOM T S OF M M RS OF
RM D FORC S UPON D T
Secton 29.15 -1: batement of ncome ta es of Rev. Ru. 55
certan members of the rmed Forces of the
Unted States upon death.
INT RN L R NU COD
The canceaton, pursuant to secton 15 of the Interna Revenue
Code, of the abty for Federa ta es mposed under chapter 1 of
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29.15 -.
260
the Code, of an Indvdua ked In acton after une 2 , 1950, and
pror to anuary 1, 195 , whe servng wth the rmed Forces of
the Unted States n a combat zone, does not emnate the ncome
on whch such abty was based. refund of sef-empoyment
ta es made n accordance wth ths secton of the Code, does not
change the amount of sef-empoyment ncome prevousy reported
and does not necesstate a correcton of the records prevousy for-
warded by the offce of the drector of nterna revenue to the Soca
Securty dmnstraton.
dvce s requested whether the canceaton of the abty for the
Federa ta es mposed under chapter 1 of the Interna Revenue Code,
of an ndvdua ked n acton after une 2 ,1950, and pror to anu-
ary 1,195 , whe servng wth the rmed Forces of the Unted States
n a combat zone, emnates the ncome on whch such abty s based,
thereby necesstatng a correcton of the records forwarded by the
offce of a drector of nterna revenue to the Soca Securty dmn-
straton.
In the nstant case, an ndvdua was ked n acton on February 1,
1952, whe servng wth the Unted States r Force n a combat zone
as desgnated n . 0.10195, C. . 1951-1,6. Subsequent to hs death,
dstrbuton of the net ncome of a partnershp of whch he was a mem-
ber was made, and sef-empoyment ta based on hs dstrbutve share
was assessed and pad.
Secton 15 of the Interna Revenue Code, added by the Revenue
ct of 1951, provdes as foows:
In the case of any ndvdua who des after une 2 ,1950, and pror to anuary
1,195 , whe n actve servce as a member of the rmed Forces of the Unted
States, If such death occurred whe servng n a combat zone (as determned
under secton 22(b) (13) or as a resut of wounds, dsease, or n|ury ncurred
whe so servng
(a) the ta mposed by ths chapter sha not appy wth respect to the
ta abe year n whch fas the date of hs death, or wth respect to any
pror ta abe year endng on or after the frst day he so served n a combat
zone after une 2 ,1950; and
(b) the ta under ths chapter and under the correspondng tte of each
pror revenue aw for ta abe years precedng those specfed n cause (a)
whch s unpad at the date of hs death (ncudng nterest, addtons to the
ta , and addtona amounts ) sha not be assessed, and f assessed the
assessment sha be abated, and f coected sha be credted or refunded
as an overpayment.
It s the poston of the ureau that, snce secton 15 of the Code,
quoted above, provdes specfcay for the canceaton of ta abty
and contans no specfc provson wth respect to the ncome on whch
such abty s based, the ndvdua s ncome remans unchanged.
ccordngy, t s hed that the canceaton, pursuant to secton
15 of the Interna Revenue Code, of the abty for the Federa ta es
mposed under chapter 1 of the Code, of an ndvdua ked n acton
after une 2 , 1950, and pror to anuary 1, 195 , whe servng wth
the rmed Forces of the Unted States n a combat zone, does not
emnate the ncome on whch such abty was based. refund of
sef-empoyment ta es made n accordance wth ths secton of the
Code, does not change the amount of sef-empoyment ncome prev-
ousy reported and does not necesstate a correcton of the records
prevousy forwarded by the offce of the drector of nterna revenue
to the Soca Securty dmnstraton.
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261 ( 29.162-1.
Secton 29.15 -1: batement of ncome ta es of
certan members of the rmed Fortes of the
Unted States upon death.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 5976, page 2C.)
SUPPL M NT ST T S ND TRUSTS
S CTION 162. N T INCOM
Secton 29.162-1: Income of estates and T. D. 5962
trusts.
TITL 2G INT RN L R NU C PT R I, SU C PT R , P RT 20.
INCOM T ; T L Y RS GINNING FT R D C M R 31, 1U 1
Reguatons 111 amended to conform to secton 3 5 of the Revenue
ct of 1061, reatng to abatement of ta on certan trusts for mem-
bers of rmed Forces dyng n servce.
Washngton 25, D. C.
Concerned :
On October 25, 1952, notce of proposed rue makng, regardng
amendments to the ncome ta reguatons made necessary by secton
3 5 of the Revenue ct of 1951, approved October 20, 1951, was
pubshed n the Federa Regster (17 F. R. 9669). No ob|ecton to
the rues proposed havng been receved, the amendments to Regua-
tons 111 26 CFR, part 29 set forth beow are hereby adopted:
Paragraph 1. Secton 29.162-1, as amended bv Treasury Decson
5951 C. . 1952-2, 1 , approved December 2, 1952 26 CFR
29.162-1 , s further amended by addng after (c) of the second para-
(d) For the deducton aowed a trust whch accumuated Income for a
benefcary who ded on or after December 7, 10 1, and before anuary 1,
19 , whe n actve servce as a member of the mtary or nava forces of
the Unted States or of any of the other Unted Natons, see secton 29. 21-1.
Par. 2. There s nserted mmedatey precedng secton 29. 21-1
S C. 3 5. T M NT OF T ON C RT IN TRUSTS FOR M M-
RS OF M D FORC S DYING IN S R IC IR NU
CT OF 1931, PPRO D OCTO R 20, 1951 .
In the ease of a trust whch accumuated Income for a benefcary who
ded on or after December 7, 19 1, and before anuary 1, 19 , whe
n actve servce as a member of the mtary or nava forces of the
Unted States or of any of the other Untted Natons, there sha be
aowed as a deducton n computng the net ncome of such trust
(n addton to other deductons aowabe under sectons 23 and 162 of
the Interna Revenue Code) ncome of the trust for any ta abe year
(before dmnuton for ncome ta ) whch was accumuated for such
benefcary f
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S 29.162-1.1
262
(1) the ncome accmuRted was for a ta abe year of the trust
whch ended wth or wthn a ta abe year (endng on or after
December 7, 19 1) of such benefcary durng any part of whch he
was a member of such mtary or nava forces, or, n the case of the
ta abe year of the trust durng whch such benefcary ded, the
ncome accumuated was for the perod n such ta abe year pror
to the death of such benefcary ; and
(2) the amount of such accumuated ncome was, wthout regard
to ths secton, ta abe to the trust, and
(3) the ncome for such ta abe year accumuated for the bene-
fcary, f not dstrbuted to hm pror to hs death, was payabe by
the trust at or after hs death ony to hs estate, spouse, or nea
ancestors or descendants.
Par. 3. Secton 29. 21-1, as amended by Treasury Decson 56 5
C. . 19 -2, 1 , approved uy 20, 19 26 CFR 29. 21-1 , s
hereby amended by nsertng after the thrd paragraph thereof the
foowng:
In the case of a trust whch accumuated ncome for a benefcary who ded
on or after December 7, 19 1, and before anuary 1, 19 , whe n actve servce
as a member of the mtary or nava forces of the Unted States or of any of the
other Unted Natons, there sha be aowed as a deducton n computng the
net ncome of the trust for any ta abe year the ncome of the trust for such
ta abe year, before dmnuton for ncome ta es wth respect thereto, whch
was, or woud have been but for such dmnuton, accumuated for such benef-
cary. Ths deducton sha be aowed, however, ony f (1) the ncome accumu-
ated wr.s for a ta abe year of the trust whch ended wth or wthn a ta abe
year (endng on or after December 7, 19 1) of such benefcary durng any part
of whch he was a member of such mtary or nava forces, or, n the case of
the ta abe year of the trust durng whch such benefcary ded, the ncome
accumuated was for the perod n such ta abe year pror to the death of
such benefcary, and (2) the amount of such accumuated ncome was, wthout
regard to ths paragraph, ta abe to the trust, and (3) the ncome for such
ta abe year accumuated for the benefcary, f not dstrbuted to hm pror to
hs death, was payabe by the trust at or after hs death ony to hs estate,
spouse, or nea ancestors or descendants.
The amendments to sectons 29.162-1 and 29. 21-1 of Reguatons
111, coverng ta abe years begnnng after December 31,19 1, set forth
n ths Treasury Decson, are hereby made appcabe to any ta abe
year affected whch s covered by Reguatons 103.
sectons 62 and 3791 of the Interna Revenue Code (53 Stat. 3 2, 67;
26U. S. C. 62, 3791).)
ohn S. Graham,
Thokas . Lynch,
Secton 29.162-1: Income of estates and trusts.
INT RN L R NU COD
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263
29 162-2.
Secton 29.162-2: ocaton of estate and trust Rev. Ru. 2
ncome to egatees and benefcares.
INT RN L R NU COD
The dstrbuton of prncpa cash to an Income fe benefcary
of a trust In eu of a nonta abe stock dvdend whch was not
permtted to be dstrbuted under State aw, does not resut n ta -
abe ncome to the fe benefcary e cept to the e tent that ncome
was reazed by the trust upon converson of the dvdend stock to
cash and was propery dstrbuted wth the prncpa.
dvce s requested whether ta abe ncome s reazed by a benef-
cary of a trust who s entted to the trust ncome for fe, where,
accordng to State aw the trust s not permtted to dstrbute a non-
ta abe stock dvdend receved by t and n eu thereof dstrbutes
cash from the prncpa.
In the nstant case, the ta payer s husband ded, and under hs
w he bequeathed and devsed a of hs persona property and rea
estate n trust wth the entre net ncome therefrom payabe to hs
wfe as ong as she remaned hs wdow. Durng the ta abe year,
the trustees receved a nonta abe stock dvdend wth respect to cer-
tan stock hed n trust. In accordance wth the oca apportonment
aws the trustees retaned the stock dvdend n the prncpa account
and dstrbuted cash to the wdow to the e tent that such stock dv-
dend represented earnngs accumuated subsequent to the husband s
death and captazed upon ssuance of the dvdend shares. The
cash was derved from prncpa cash on hand as we as from the
sae of a porton of the stock receved as a dvdend by the trust.
Under the apportonment aws of the State n whch the trust was
created, the trustees were not permtted to dstrbute the actua stock
dvdend to the wdow, but ony prncpa cash whch mght be on
hand or obtaned from the sae of such stock.
In Theodore . Punkett v. Commssoner, 11 Fed. (2d) G , where
certan securtes hed by a testamentary trust were sod and the pro-
ceeds mpropery nvested n unproductve securtes, the probate court
nstructed the trustees to substtute cash for the securtes whch were
sod and to transfer from the prncpa account and dstrbute to the
ncome benefcary a porton of such cash whch represented the n-
come he woud have receved had the funds been propery nvested.
The dstrbuton was hed to be ta abe to the ncome benefcary as
ordnary ncome. In Robert W. ohnston et a. v. Commssoner, 1 1
Fed. (2d) 20 , certorar dened, 323 U. S. 715, where certan rea
estate, whch had been acqured through forecosure, was sod by the
trust at a oss and a porton of the proceeds was dstrbuted to the n-
come benefcary to compensate hm for the nterest whch he woud
have receved had there been no defaut n the mortgage, t was hed
that the dstrbuton was ta abe ncome to the benefcary athough
the trust had no ncome from whch dstrbuton coud be made.
The nstant case s dstngushabe on ts facts from the Punkett
and ohnston cases, n that t, unke those cases, nvoves the treat-
ment of prncpa cash dstrbuted by a trust to the fe ncome benef-
cary n eu of a nonta abe stock dvdend receved by the trust.
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29.162-3.
26
In a Park McOuough v. Commssoner, 153 Fed. (2d) 3 5, the
court reyng upon the decsons n the Punkett and ohnston cases,
hed that athough dvdend shares were not ta abe ncome when
receved by the e ecutors of an estate under the rue estabshed n the
case of Mark sner v. Myrte . Macomber, 252 U. S. 1 9, T. D. 3010,
C. . 3,25 (1920), t dd not precude the hoder of the fe estate from
recevng ta abe ncome n satsfacton of a rght to receve ncome.
The ureau has for many years foowed ts poston n I. T. 1622,
C. . II-, 135 (1923), that ncome of a trust retans n the hands
of the benefcary the same character whch t possessed n the hands
of the trustee, and notwthstandng the McCuough case, has de-
cded to mantan such poston. The fact that under State aw a
stock dvdend receved by a trust may not be dstrbuted n knd
and that cash from the prncpa of the trust s dstrbuted to the
benefcary n eu thereof does not n tsef serve to ater the character
of such dstrbuton n the hands of the benefcary. If capta gan
ncome resuted from the sae of the dvdend stock by the trustee
and such ncome was propery dstrbuted to the benefcary t s ta -
abe to the benefcary at capta gan rates provded n secton 117 of
the Interna Revenue Code.
In vew of the foregong, t s hed that the dstrbuton of prncpa
cash to an ncome fe benefcary of a trust n eu of a nonta abe
stock dvdend whch was not permtted to be dstrbuted under State
aw, does not resut n ta abe ncome to the fe benefcary e cept to
the e tent that ncome was reazed by the trust upon converson of
the dvdend stock to cash and was propery dstrbuted wth the
prncpa.
Secton 29.162-3: Rues for the appcaton Rev. Ru. 96
of secton 162(a) n the case of trusts.
( so Secton 3 13, Secton 29.3 13-1.)
INT RN L R NU COD
trust whch quafes for e empton from Federa ncome ta
under secton 101(6) of the Interna Revenue Code or a trust whch
has pad or permanenty set asde contrbutons durng a ta abe year
for purposes descrbed n secton 162(a) of the Code w not be con-
sdered to be engagng n any prohbted transacton referred to n
secton 3 13(b) or 162(g) (2) ( ) of the Code by reason of dstrbu-
tons made by t to pubc organzatons whch are chartabe and/or
educatona, regardess of the fact that ndrect benefts may nure
to members of fames of empoyees of a corporaton whch s the
creator of the trust. Thus, where t s evdent from a the facts n
any case that the organzaton to whch a trust dstrbutes ts funds
s a pubc organzaton whch s chartabe and/or educatona, such
as a Parent-Teachers ssocaton, the trust w not be. consdered to
be engagng n a prohbted transacton wthn the meanng of the
statute even though some of the students at the oca pubc schoo who
may beneft from the dstrbutons made to such pubc organzaton
by the trust are chdren of empoyees of the creator corporaton.
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265
( 29.165-1.
S CTION 165.- MPLOY S TRUSTS
Secton 29.165-1: mpoyees trusts. Rev. Ru. 32
( so Secton 23(p), Secton 29.23(p)-2.)
INT RN L R NU COD
Procedures appcabe to the Issuance of advance rungs wth
respect to the quafcaton of pe.son, annuty, proft-sharng, and
stock bonus pans under secton 105(a) of the Interna Itevenue
code.
1. dvance rungs as to the quafcaton of penson, annuty,
proft-sharng, and stock bonus pans under secton 165(a) of the
Interna Revenue Code, as amended, are not requred under the Code
or correspondng reguatons as a condton precedent for obtanng
anv of the ta benefts pertanng to quafed pans. Such advance
rungs, however, are ssued f requested by ta payers. The proce-
dure heren set forth s ntended to factate the processng of such
rungs and to provde for unform treatment throughout the respec-
tve hed offces.
2. The advance rungs heren contempated are ssued wth re-
spect to consummated or proposed transactons reatng to:
(a) The nta quafcaton of a pan and, f trusteed, the status
for e empton of the trust formng a part thereof;
(6) mendments to pans and trusts;
(c) Curtaments-of pans;
(d) Termnatons of pans; and
(e) The effect on quafcaton of the pan of an nvestment
of trust funds n the stock or securtes of the empoyer.
3. requests for rungs wthn the purvew of paragraph 2
hereof are to be fed n the offce of the drector of nterna revenue
havng |ursdcton n the area prescrbed as foows:
(a) In the case of a pan of a snge empoyer, where the
prncpa pace of busness of such empoyer s ocated;
(b) In the case of a pan of a parent and subsdary companes,
where the prncpa pace of busness of the parent company s
stuated regardess of whether consodated returns are fed;
(c) In the case of an ndustry-wde pan (a pan estabshed
n a partcuar ndustry by a subscrbng empoyers, some of
whom are ocated n areas wthn the |ursdcton of more than
one drector s offce), where the trustee s prncpa pace of bus-
ness s ocated or, f more than one trustee, where the usua pace
of meetng of the trustees s hed, and
(d) In the case of a pan of mutpe empoyers not provded
for n the categores set forth n subparagraphs (b) and (c) hereof,
where the trustee s prncpa pace of busness s ocated or, f
more than one trustee or f nontrusteed, where the usua pace
of meetng of the trustees or pan supervsors s hed.
. requests for rungs are to be accompaned by nformaton
n dupcate, to the e tent pertnent, as foows:
(a) For nta quafcaton of a pan, the nformaton caed
for under secton 29.23(p)-2 of Reguatons 111 and, f trusteed,
the nformaton under secton 29.165-1 (c) of Reguatons 111,
wthout dupcatng the secton 29.23(p)-2 nformaton;
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29.165-1.
266
(6) For a rung on an amendment, a copy of the amendment
wthout the nformaton under sectons 29.23(p)-2 and 29.165
1(c), uness requested;
(c) For a rung on a curtament or termnaton, the nforma-
ton caed for n hbt hereof; and
(d) For a rung as to the effect on quafcaton of the pan
of an nvestment of trust funds n the stock or securtes of the
empoyer, the nformaton caed for n hbt hereof. (It
shoud be noted, however, that even f such a rung s not re-
uested, secton 29.165-1 (a) of Reguatons 111 requres that the
Commssoner be notfed f nvestment n the empoyer s stock
or securtes s made. The notfcaton s to consst of the n-
formaton set forth n hbt and s to be fed wth the
approprate Drector, as provded for n paragraph 3 hereof.)
5. The drector of nterna revenue s responsbe for the ssuance
of rungs wthn the contempaton of paragraph 2 hereof. Such
rungs are mted to the status of pans and trusts under secton
165(a) of the Interna Revenue Code. dvance rungs and opn-
ons under paragraphs (b), (c), and (d) of secton 165, and sectons
22(b)(2)( ) and 23(p) of the Interna Revenue Code, are ssued
by the ureau n Washngton. Requests therefor shoud be addressed
to the Commssoner, marked for the attenton of T: S: P.
POST R I W
6. Rungs ssued by a drector are sub|ect to post revew n Wash-
ngton under procedures estabshed for such purposes, wth the e -
cepton that such post revew w be made by the ssstant Comms-
soner (Technca).
R U STS FOR D IC FROM FI LD OFFIC S
7. Requests for advce from fed offces concernng matters wthn
the contempaton of paragraph 2 above w be made and processed
pursuant to estabshed procedure for requestng advce from Wash-
ngton, e cept that such requests shoud be addressed to the ssstant
Commssoner (Technca), ttenton: Penson Trust ranch, Speca
Technca Servces Dvson.
. The provsons of ths Revenue Rung sha take effect on the
31st day foowng March 16, 1953, and are to be apped n a
cases specfed.
I IT
Informaton to be fed wth appcaton for rung n connecton wth termnaton
or curtament of empoyees pans and trusts
1. The date as of whch the pan (s proposed to be) termnated.
2. statement settng forth the reasons and crcumstances reatve to the
(proposed) termnaton.
3. tabuaton n coumnar form showng the nformaton specfed beow wth
respect to each of the 25 hghest pad empoyees, sted n the order of ther
compensaton, and for a other empoyees as a group (showng the number n
such group), covered by the pan:
(a) Name.
(6) Whether an offcer.
(c) Percentage of each cass of stock owned drecty or ndrecty by the
empoyee or members of hs famy.
(d) Data, separatey for each year of the pan s operaton, wth respect to:
() Tota compensaton, other than deferred compensaton.
() mpoyer s contrbuton.
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29.165-1.
() mpoyee s share In forfetures,
(v) mpoyee s contrbutons,
(e) Totas for each of the coumns under (d) above, for each year.
(/) Summary coumns showng n aggregate (totaed horzontay) for
a years, wth respect to each of the empoyees sted and a others, data
smar to the tems caed for under (d) above.
(g) fna coumn showng the tota vaue of benefts dstrbuted or to
be dstrbuted to each of the 25 hghest pad empoyees and to a others.
. schedue, showng for each of the years of the pan s operaton:
(a) The number of partcpants at the begnnng of the perod.
( )) The number added.
(c) The number who dropped out.
(rf) The number remanng at the end of the perod.
5. statement as to whether any of the funds under the pan w revert to
or become avaabe to the empoyer; f so, detas are to be furnshed.
6. statement wth fu partcuars as to any funds under the pan whch at
any tme were contrbuted n the form of or nvested n obgatons or property
of the empoyer or reated companes.
I IT
Informaton to be fed wth appcaton for rung and by way of notfcaton
wth respect to nvestment of trust funds n the stock or securtes of the
empoyer
L aance sheets of the empoyer as at the cose of the ast accountng perod
and for the ta abe year ended pror thereto;
2. Comparatve statements of ncome and proft and oss for the ast and the
pror ta abe years;
3. n anayss of the surpus account for the ast 5 years and specfcay
showng the amount and rate of dvdends pad on each cass of stock;
. statement accountng for a matera changes from the atest dates of
the aforesad statements to the date of fng the nformaton ;
5. schedue showng the nature and amounts of the varous assets n the
trust fund;
6. statement settng forth the amount to be nvested n the stock or securtes
of the empoyer, the nature of the nvestment, the present rate of return, and the
reasons for the nvestment.
( so Sectons 29.165-2,29.165-3, and
29.165- .)
INT RN L ND COD
Compaton of gudes appcabe to the quafcaton of stock bonus,
penson, proft-sharng, and annuty pans under secton 165(a)
of the Interna Revenue Code, as amended by the Revenue ct of
1 2.
SUMM RY
P RT 1 : INTRODUCTION.
(a) Purpose,
(ft) References.
Pabt 2: mpoyees Tbusts n Geneba.
(a) Stock onus, Penson, or Proft-Sharng Pan.
(6) cusve eneft of mpoyees or Ther enefcares.
(1) Partners.
(2) ttorney Partcpants.
(3) Insurance gents.
(c) Desgnaton of enefcares.
d) Feeder Pan.
(e) Permanency.
(/) Wrtten Documents.
( ) Stockhoder Partcpaton.
(ft) Communcaton to mpoyees.
( ) Investment of Trust Funds.
(/) auaton of Securtes on Inventory Date.
(fc) ocaton of Stock onus and Proft-Sharng Funds.
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29.165.1.
26
Impossbty of Dverson Undeb the Trurt Instrument.
Trust Instrument Must Make Prohbted Dverson Impossbe.
rroneous ctuara Computaton.
No Reverson In Proft-Sharng or Stock onus Pans.
ppcaton of Dvdends and other Credts under Group nnuty
Contracts.
(1) Restrcton on Payment of Credts or Returns to mpoyer.
(2) ppcaton of Dvdends or Other Returns or Credts.
(3) Surrender or Canceaton Credts fter Dscontnuance of Pan.
( ) Dvdends or perence Credts fter Dscontnuance of Con-
trbutons.
Part : Requrements as to Coverage.
(a) Pan Must eneft mpoyees In Genera.
(6) Percentage Coverage Requrements,
(c) Cassfcaton of mpoyees.
Id) Dfferent gbty Requrements for Present and Future mpoyees,
(e) urdensome Contrbutons.
(/) Cassfcaton Wthn Purvew of Statute but Dscrmnatory In
Operaton,
(|) Integraton.
(1) Integraton Rues.
(2) Death enefts Invoved n Integraton Under Mmeograph 5539.
(3) Death enefts Under Mmeograph 66 1 and Integraton of Proft-
Sharng Pans.
(h) Coverage Requrements Must be Met on at Least 1 Day n ach uarter.
() Dena of Partcpaton for Faure to nter Pan Upon ecomng
gbe.
(/) Reentry nto Pan after Dscontnuance of Partcpaton.
(k) Deay n Purchasng Insurance Contracts.
(I) Contnung Partcpaton In the vent of Leave of bsence.
Part 5: Dscrmnaton as to Contrbutons or enefts.
(a) Nondscrmnatory Contrbutons or enefts.
(1) ppcaton of Forfetures.
(2) aratons n Contrbutons or enefts.
(6) ested Rghts n mpoyer s Contrbutons.
(1) Determnaton as to Provson for estng.
(2) Requrement for Utmate estng,
(c) Topheavness.
d) Termnaton Rue.
(e) Norma Retrement ge. ,
(/) Optona Retrement Pror to Norma Retrement ge.
g) Partcpaton fter Norma Retrement ge.
(1) ddtona enefts for Servce fter Norma Retrement ge.
(2) Contnued Partcpaton Under a Proft-Sharng or Stock onus
Pan.
(h) ass of Compensaton on Whch enefts are Computed.
() d|ustment of enefts due to Increases or Decreases n Compensaton.
U) Dscreton as to Payment of enefts Under asc Optons.
(k) Provsons for Dsabty and ardshp Cases.
(I) Provson that enefts be ased on Cash Surrender aue n Insured
Pans,
(m) Loan Prveges.
(u) Past Servce enefts n Pans Whch Contan a Mnmum ge or Servce
Requrement for gbty,
(o) R|;ht of Trustee to orrow on Insurance Contracts.
(P) Dstrbuton of Funds upon Termnaton.
g) armarked Investments Under a Proft-Sharng Pan.
Part 1: Introducton
(a) Purpose. empton from ncome ta s granted to an em-
poyees trust whch s part of a stock bonus, penson, or proft-sharng
pan meetng the requrements set forth n paragraphs (1) through (6)
of secton 165 (a) of the Interna Revenue Code. Nontrusteed annuty
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29.165-1.
pans wth respect to whch deductons for contrbutons thereto are
camed under secton 23(p) (1) ( ) of the Code must, as part of the
requrements of such secton, aso meet the requrements of para-
graphs (3) through (6) of secton 165(a) of the Code. Numerous
ssues reatve to quafcaton have arsen and have been determned
snce secton 165(a) of the Code was amended by secton 162(a) of
the Revenue ct of 19 2. It s the purpose of ths reease to set forth
the rues whch have been deveoped as a resut of such determnatons
and to codfy varous ndvdua reeases, e cept n cases where to do
so woud merey be repettous or cumuatve and, n such cases, refer-
ence w be made to the specfc reease n pont. The ssues heren
dscussed are not a ncusve but are those whch have been found
to be most commony present n many pans. s new ssues of genera
mport arse suppementa reeases w be ssued.
(b) References. Certan pocy ssues are common to a types of
pans; others to penson and annuty pans, or proft-sharng and stock
bonus pans. ccordngy, the varous groups w be dscussed n
ther approprate paces and reference made to the appcabe sectons
of the Code and Reguatons 111. Rungs sted n the append are
ncorporated by reference and made a part hereof. Interna Revenue
uetn ctatons are furnshed wth respect to pubshed matera.
P. S. Rungs have aso been made pubc athough not pubshed n
the uetn. Copes are avaabe n the respectve offces of drectors
of nterna revenue and the ureau n Washngton. The omsson
of certan rungs from the append s not to be construed as a rescs-
son or modfcaton of any such rungs. Ony those rungs whch
are approprate to the partcuar te tua matera are referred to.
Part 2: mpoyees Trusts n Genera
secton 165(a) of the nterna revenue code
secton 29.165-1 (a) of reguatons 111
(a) Stock bonus, penson, or proft-sharng pan. trust, to be
e empt under secton 165 (a) of the Code, must be part of a stock bonus,
penson, or proft-sharng pan estabshed by an empoyer for hs
empoyees. For a defnton of each such type of pan, see the second
paragraph of secton 29.165-1 (a) of Reguatons 111, as amended by
T. D. 5 22, C. . 19 ,31 . From the ast sentence of such paragraph,
t w be noted aso that secton 165(a) of the Code does not appy to
a pan whch s prmary a dsmssa wage pan.
(b) cusve beneft of empoyees or ther benefcares. The pan
must be for the e cusve beneft of empoyees or ther benefcares,
(1) Partners. Partners are empoyers and, as such, are not
egbe to partcpate n the pan. See I. T. 3350, C. . 19 0-1,
6 , and P. S. No. 23. Nether are they to be credted for servces
as partners pror to becomng empoyees n a successor
corporaton.
(2) ttorney partcpants. n attorney, or other professona
person, may be a bona fde empoyee and, as such, egbe to par-
tcpate n the pan. The mere fact that such practtoner aso
has an ndependent ncome from the practce of hs professon
w not necessary precude hm from partcpatng n the pan.
26335 53 1
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29.165-1.1
270
e must, however, be an empoyee for a purposes, ncudng cov-
erage as an empoyee for soca securty or smar pubc pro-
gram, f appcabe to other empoyees, and for ncome ta
wthhodng purposes. Thus, f hs actua empoyment for such
purposes commences as of a certan date he s not entted to credt
for servces pror thereto, such as, for e ampe, for the purpose of
meetng the years of servce requrement to be egbe to partc-
pate n the pan or to be entted to past servce credts.
(3) Insurance agents. Secton 3797(a) of the Interna Rev-
enue Code has been amended by secton 3 3 of the Revenue ct
of 19511 add a new paragraph (20) provdng that, wth respect
to stock bonus, penso| proft-sharng, and annuty pans, the
term empoyee sha ncude a fu-tme fe nsurance saes-
man who s consdered an empoyee for the purpose of subchapter
of chapter 9, or, n the case of servces performed before anu-
ary 1, 1951, who woud be consdered an empoyee f hs servces
were performed durng 1951. Ths amendment s appcabe
wth respect to ta abe years begnnng after December 31, 193 .
fu-tme fe nsurance saesman s ncuded n the term m-
poyee under secton 1 26(d) (3) ( ) of the Code for od-age
and survvors nsurance ta purposes. Thus, the same rues
appy wth respect to treatng fe nsurance saesmen as em-
poyees for ncuson n a pan under secton 165(a) of the Code
as for ta abty for od-age and survvors nsurance purposes.
Ths ncuson does not, however, e tend to nsurance brokers
and others who are not fu-tme fe nsurance agents wthn the
purvew of secton 1 26(d) (3) ( ).
(c) Desgnaton of benefcares. mpoyees must have the rght
to desgnate ther own benefcares. Secton 29.165-1 (a) of Regu-
atons 111 ncudes as benefcares entted to benefts under a qua-
fed pan (concudng sentence of paragraph precedng the ast)
any persons desgnated by the empoyee to share n the bene-
fts of the pan after the death of the empoyee. Thus, a restrcton
n the pan to a prescrbed group deprves the empoyee of freedom of
choce n desgnatng any persons and s contrary to the provson
quoted above. The pan, however, may provde that, n the absence
of a desgnaton by the empoyee, payment n the event of death w
be made to certan stated benefcares, n order of prorty, such as,
spouse, chdren, parents, brothers and ssters, or to the estate of the
deceased. pan under whch an advsory commttee, or other ad-
mnstratve body, desgnates empoyees benefcares after consuta-
ton wth such empoyees, or under whch the commttee desgnates
benefcares from fsts restrcted to a specfed group submtted by em-
poyees, s not for the e cusve beneft of empoyees or ther bene-
fcares. pan, however, may provde that amounts aocated to
an empoyee and standng to hs credt at the tme of hs death sha
be pad to hs estate. In such case the rght of desgnaton of a
benefcary s reserved to the empoyee snce he can name a benefcary
by w wth respect to such credt.
(d) Feeder pan. stock bonus or proft-sharng pan whch pro-
vdes that the funds theren may be used to meet the costs of a penson
or annuty pan operated concurrenty and coverng the same em-
poyees, f and when the empoyer suspends contrbutons to such
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271
29.165-1.
atter pan, s a feeder pan snce t reeves the empoyer from con-
trbutng to the penson or annuty pan and s therefore not for the
e cusve beneft of empoyees or ther benefcares. n empoyee
who has a vested rght under a proft-sharng or stock bonus pan
may, however, f the pan so provdes, authorze a transfer of a or
part of hs vested nterest to make up for a defcency n the empoy-
er s contrbuton under a penson or annuty pan. In such case he
w be ta abe on the transfer as though a dstrbuton of such n-
terest had been made. See P. S. No. 37.
(e) Permanency. pan wthn the meanng of secton 165(a) of
the Code s a permanent and contnung program. pan whch s
set up durng years of hgh ta rates and s abandoned wthout a vad
busness reason when profts fa off s not wthn the ntent of such sec-
ton. so, especay n the case of a penson pan under whch
benefts are funded at a hgher rate for empoyees n whose favor ds-
crmnaton s prohbted than for other empoyees, f the pan s ds-
contnued before ampe provson for comparabe benefts s made for
such other empoyees t w be deemed, from ts ncepton, not to have
been a bona fde program for the e cusve beneft of empoyees n
genera. For a more detaed dscusson of the appcabe prncpes
and ustratve cases, see Mmeograph 6136, C. . 19 7-1,5 . See aso
P. S. No. 60 for the nformaton to be fed for a rung as to the effect
of a termnaton or curtament of a pan on ts pror quafcaton,
P. S. No. 56 as to notce by the trustee of the termnaton of a pan, and
P. S. No. 57 as to the effect of a suspenson of contrbutons.
(/) Wrtten documents. The pan must be a defnte wrtten pro-
gram settng forth a provsons essenta to quafcaton. See secton
29.165-1 (a) of Reguatons 111, frst paragraph. In the case of a
trusteed pan, the trust must be evdenced by an e ecuted wrtten
document settng forth the terms thereof. See Mmeograph 639 ,
C. . 19 9-1,11 . In the case of a nontrusteed annuty pan whch s
evdenced by nsurance contracts, the pan s not n effect unt
such contracts are e ecuted and ssued. See Mmeograph 6020, C. .
19 6-1, 7 .
(g) Stockhoder partcpaton. Stockhoders who are bona fde
empoyees of a corporaton may partcpate n the corporaton s pan
to the same e tent as other empoyees. If, however, the pan s de-
sgned as a subterfuge for the dstrbuton of profts to stockhoders,
even f t ncudes other empoyees who are not stockhoders, t w
not quafy as a pan for the e cusve beneft of empoyees. The pan
must not be weghted n favor of stockhoder-e|npoyees ether wth
respect to the requrements for partcpaton or for contrbutons and
benefts. See I. T. 020, C. . 1950-2, 61, for further detas.
ft) Communcaton to empoyees. mpoyees are to be apprsed
of the estabshment of a pan and the saent provsons thereof. The
most effectve way of dong so s to furnsh each empoyee wth a copy
of the pan. To do so, however, may not be feasbe n a cases.
arous substtutes, therefore, may be used. For e ampe, t w be
suffcent that a booket summarzng the pan n a ts essenta fea-
tures be furnshed the empoyees, or that a notce be posted on the
company s buetn board, whch must be n conspcuous vew, that a
pan has been estabshed, settng forth the type thereof, the egbty
requrements, a synopss of a benefts provded thereunder, whether
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29.165-1.
272
empoyees are to contrbute and, f so, the amount of contrbutons,
vestng provsons, and, f a proft-sharng or stock bonus pan, the
empoyer contrbuton commtment, and a statement that a copy of
the compete pan may be nspected at a desgnated pace on the
company s premses durng specfed tmes.
() Investment of trust funds. Trust nvestments must be for the
e cusve beneft of empoyees or ther benefcares. Whe an nc-
denta beneft may aso nure to others the prmary purpose of beneft-
ng empoyees or ther benefcares must be mantaned. For e ampe,
a sae of securtes co the trust may beneft the vendor n that t may
have resuted n a proft to hm, but essentay the purchase by the
trustee must have been for the best nterests of the trust; . e. the cost
must not e ceed far market vaue at tme of purchase, a far return
commensurate wth the prevang rate shoud be provded, suffcent
qudty shoud be mantaned so as to permt dstrbutons n ac-
cordance wth the terms of the pan, and the safeguards that a prudent
nvestor woud ook to shoud e st. These essentas are equay
appcabe to the stock or securtes of the emp oyer. If the trust
nstrument and oca aw permt such nvestments tney are not other-
wse precuded for the purposes of secton 165(a) of the Code. The
Commssoner, however, shoud be notfed f stock or securtes of the
empoyer are purchased by the trust so that a determnaton may be
made whether the trust serves any purpose other than consttutng
part of a pan for the e cusve beneft of empoyees. The notfcaton
sha ncude nformaton certfed to by the accountng or other
responsbe offcer as foows:
1. aance sheets of the empoyer as at the cose of the ast
accountng perod and for the ta abe year ended pror thereto.
2. Comparatve statements of ncome and proft and oss for
the ast and pror ta abe years.
3. n anayss of the surpus account for the ast 5 years, spe-
cfcay showng the amount and rate of dvdends pad on each
cass of stock.
. statement accountng for a matera changes from the
atest dates of the aforesad statements to the date of fng the
nformaton.
5. schedue showng the nature and amounts of the varous
assets n the trust fund.
6. statement settng forth the amount nvested, the nature
of the nvestment, the present rate of return and the reasons for
the nvestment.
(|) auaton of securtes on nventory date. ny type of qua-
fed pan whch provdes for dstrbutons n accordance wth amounts,
stated or ascertanabe, credted to partcpants (. e., proft-sharng,
stock bonus, and some sef-admnstered trusteed money purchase
penson pans) must provde for a vauaton of securtes hed by the
trust, at east once a year, on a specfed nventory date, n accordance
wth a method consstenty foowed and unformy apped. For
such purpose, far market vaue on the nventory date s generay
acceptabe. The respectve accounts of partcpants are then to be
ad|usted n accordance wth the vauaton. For e ampe, f as a resut
of an nventory on December 31r 1951, ohn Doe s account, whch
theretofore showed a baance of 1,000 s to be ncreased by one-tenth
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273
29.165-1.
of 1 percent of the ncrease n the vaue of the trust securtes, and such
ncrease s 50,000, hs nterest s to be ncreased by 50.
(k) ocaton of stock bonus and proft-sharng funds.
funds n an e empt proft-sharng or stock bonus trust must be ao-
cated to partcpants n accordance wth a defnte formua. Thus,
no reserves are to be provded for by wthhodng aocatons from
partcpants. If suspense accounts are mantaned, provsons shoud
be made for ascertanng the respectve shares of partcpants n such
accounts and such shares are to be ncuded n any dstrbutons.
Part 3: Impossbty of Dverson Under the Trust Instrument
secton 165(a)(2) of the nterna revenue code
secton 29.165-2 of reguatons 111
(a) Trust nstrument must make prohbted dverson mpossbe.
The trust nstrument must make t mpossbe, at any
tme pror to the satsfacton of a abtes wth respect to empoyees
and ther benefcares under the trust, for any part of the corpus or
ncome to be (wthn the ta abe year or thereafter) used for, or
dverted to, purposes other than for the e cusve beneft of hs em-
poyees or ther benefcares . The term trust nstrument
means a wrtten agreement. though an ora trust may be effectve
wthn the purvew of the appcabe oca aw, for the purposes of
paragraph (2) of secton 165(a) of the Code, there must be a wrtten
trust nstrument. It must aso consttute a vad trust under the aw
prevang n the |ursdcton to whch t s sub|ect. In addton, t
must defntey and afrmatvey make t mpossbe for the none empt
dverson or use to occur. See Mmeograph 59 5, C. . 19 6-1, 72, as
to the requstes for the e stence of a vad trust and a pan n effect
and, aso Mmeograph 639 , C. . 19 9-1, 11 , as to the requrements
for compance wth the provsons of secton 165(a) (2) of the Code.
(b) rroneous actuara computaton. Trust funds must not be
used for purposes other than for the e cusve beneft of empoyees or
ther benefcares pror to the termnaton of the trust and the sats-
facton of a abtes wth respect to empoyees and ther benefc-
ares under the trust, and then recovery may be had ony to the e tent
of any surpus e stng because of an actuara error. In determnng
whether any surpus e sts on termnaton of a trust, and the amount
thereof, a abtes, contngent as we as f ed, wth respect to em-
poyees and ther benefcares under the trust must be taken nto
account. F ed abtes are the benefts payabe to those who have
become entted to them. Contngent abtes are the beneft credts
accrued up to the tme of termnaton of the trust for empoyees (and
ther benefcares) who mght have become entted to benefts f the
trust had been contnued ndefntey. If such abtes are to be ds-
charged by commutng the payments (other than through the pur-
chase of nsurance company contracts), the vaues thereof at the tme
of termnaton of the trust must be determned for ths purpose by
use of assumptons no ess conservatve n any respect than were used
n determnng costs durng the prevous fe of the trust, and no
dscount for severances other than death may be assumed
(c) No reverson n proft-sharng or stock bonus pans. oca-
tons under proft-sharng and stock bonus pans are not predcated
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29.16S-1.
27
upon amounts actuaray necessary to provde stpuated retrement
benefts. See I. T. 3660, C. . 19 ,136. See aso secton 29.165-1 (a )
of Reguatons 111 to the effect that a pan desgned to provde bene-
fts for empoyees or ther benefcares to be pad upon retrement
or over a perod of years after retrement w, for the purposes of
secton 165(a) of the Code, be consdered a penson pan f under the
pan ether the benefts payabe to the empoyee or the requred con-
trbutons by the empoyer can be determned actuaray. Conse-
quenty, n proft-sharng and stock bonus pans there can be no rever-
son of any knd snce such pans do not provde benefts whch are
predcated on actuara assumptons or computatons.
(d) ppcaton of dvdends and other credts under group annuty
contracts. provson anaogous to that set forth n secton
165(a) (2) of the Code, prohbtng dverson of funds from e empt
trusts, s contaned n secton 23(p)()( ) of the Code reatng to
deductons of contrbutons under nontrusteed annuty pans. The
atter secton requres that, where retrement annutes are purchased,
refunds of premums, f any, must be apped wthn the current ta a-
be year or ne t succeedng ta abe year towards the purchase of such
retrement annutes. To satsfy such requrement, there must be a
defnte wrtten arrangement between the empoyer and the nsurer,
ether as part of the annuty contract or by separate wrtten drecton
from the empoyer to the nsurer, or party n one form and party n
the other, provdng that:
(1) No credts or returns, other than those arsng from cor-
rectons of errors n records or computatons, such as msstated
ages or smar correctons, may be pad to the empoyer pror to
permanent dscontnuance of contrbutons.
(2) dvdends, e perence ratng credts, or empoyer sur-
render or canceaton credts ascertaned pror to permanent ds-
contnuance of contrbutons are to be apped reguary as they
are determned toward the premums ne t due for purchase of
annutes under the pan before any further empoyer contrbu-
tons are so apped.
(3) If surrender or canceaton credts may be made after ds-
contnuance of the pan but before a retrement annutes wth
respect to servce pror to dscontnuance of the pan have been
purchased, such credts w be apped reguary as they are de-
termned to purchase such retrement annutes by a procedure
whch does not contravene the condtons of secton 165(a) ( ) of
the Code.
( ) ny dvdends or e perence credts smar to dvdends
made after permanent dscontnuance of contrbutons or any
surrender or canceaton credts made after permanent dscon-
tnuance of contrbutons and after a retrement annutes wth
respect to servce pror to dscontnuance of the pan have been
purchased may be pad to the empoyer provded they are pad
as neary as practcabe as they are determned so that no sub-
stanta accumuaton resuts. (It may be noted that ths poss-
bty of return to the empoyer after dscontnuance s anaogous
to the provson permttng return to the empoyer, on termnaton
of an e empt trust, of any surpus arsng from erroneous actu-
ara computatons.)
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275
29.165 1.
Part : Requrements as to Coverage
secton 165(a)(3) (a) and (b), (6), and (6) of the nterna revenue code
secton 29.165-3 op reguatons 111
(a) Pan must beneft empoyees n genera. Secton 165(a) (3) of
the Code permts an empoyer to desgnate severa penson, stock
bonus, proft-sharng, and annuty pans as consttutng parts of a pan
whch he ntends to quafy under such secton. If a of the pans so
desgnated cover a suffcent porton of a empoyees, there s no
requrement that a defnte proporton of the empoyees be ncuded
n any one pan. The pan, or pans, must beneft empoyees n genera
and, towards ths end, must cover ether a number whch s at east
equa to that determned under the percentage provsons of secton
165(a)(3)( ) of the Code, or such empoyees as quafy under a
nondscrmnatory cassfcaton wthn the purvew of secton
165(a)(3)( ) of the Code.
(o) Percentage coverage requrements. The percentage coverage
requrements of secton 165(a)(3)( ) of the Code may be met by
ncudng n the pan a number of empoyees at east equa to that
determned by appyng ether of the aternatve percentage prov-
sons. The percentages are apped after e cudng certan short
servce, seasona, and part-tme empoyees. For e ampe, f out of a
tota of 1,200 empoyees, 100 have ess than 3 years of servce (the
mnmum perod prescrbed by the pan), 25 do not customary work
for more than 20 hours n any 1 week, and 75 are empoyees whose
customary empoyment s for not more than 5 months n any caendar
year, the percentages are apped to the baance of 1,000. The aterna-
tve percentage provsons are:
1. Seventy percent or more of a empoyees (70 of 1,000 n
the above e ampe) must be covered under the pan.
2. Seventy percent or more of a empoyees (70 of 1,000 n
the above e ampe) must be egbe to beneft under the pan, and,
f so, at east 0 percent of a egbe empoyees must actuay
be covered.
Under the frst aternatve, on the bass of the fgures used, f at east
700 empoyees are covered, the requrements of secton 165(a) (3) ( )
of the Code are satsfed. Under the second aternatve, on the same
bass, 700 or more empoyees must be egbe to partcpate and at
east 0 percent of these egbe must actuay partcpate. For e -
ampe, f empoyees are aso requred to contrbute 5 percent of com-
pensaton n order to partcpate, and, say, 750 of them are egbe to
do so, then f at east 600 actuay do contrbute and are covered under
the pan, the requrements of secton 165(a) (3) ( ) of the Code are
aso met.
(c) Cassfcaton of empoyees. In eu of meetng the percentage
requrements of secton 165(a) (3) ( ) of the Code, an empoyer may
set up a cassfcaton of empoyees whch, f found by the Comms-
soner not to dscrmnate n favor of offcers, sharehoders, super-
vsors, or hghy compensated empoyees, w satsfy the requrements
of secton 165(a)(3)( ) of the Code. Under such provson pans
may quafy whch are mted to empoyees who are wthn a pre-
scrbed age group, have been empoyed for a stated number of years,
have been empoyed n certan desgnated departments, or are n
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29.165-1.
276
other cassfcatons, provded that the effect of coverng ony such
empoyees does not dscrmnate n favor of empoyees wthn the enu-
meratons wth respect to whch dscrmnaton s prohbted.
(d) Dfferent egbty requrements for present and future em-
poyees. provson for dfferent egbty requrements for present
and future empoyees s not necessary dscrmnatory wthn the
purvew of secton 165(a) (3) ( ) of the Code. If present empoyees
who are offcers, sharehoders, supervsors, or hghy compensated can
meet the requrements for new empoyees there s no ob|ecton to the
dua requrements. For e ampe, f a present empoyees regardess
of age are egbe and ony those new empoyees who are at east 30
years od may partcpate, but a present empoyees who fa wthn
one or more of the categores enumerated n secton 165(a) (3) ( ) of
the Code are at east 30 years of age, the egbty provson s not
ob|ectonabe, even though there are other present empoyees who are
under 30 years of age. Smary, f a present empoyees are egbe
regardess of years of servce but ony those future empoyees who w
compete 5 years of servce w be egbe, but a present empoyees
who are offcers, sharehoders, supervsors, and hghy compensated
have at east 5 years of servce, athough there are other present em-
poyees who have ess than 5 years, the egbty provson s accept-
abe. If, however, n the above ustratons, there are empoyees wth-
n the enumerated categores who are under 30 years of age or have ess
than 5 years of servce, the prohbted dscrmnaton s key to arse
n operaton when new empoyees are added, and, therefore, n such a
case such a provson woud not be acceptabe as a bass for a favorabe
advance rung.
(e) urdensome contrbutons. Secton 29.165-3 of Reguatons 111
provdes n part: If a contrbutory pan s offered to a of the em-
poyees, but the requrement of contrbuton by the empoyee partc-
fants s so burdensome as to make the pan acceptabe ony to the
ghy pad empoyees, the cassfcaton w be consdered dscrm-
natory n favor of such hghy pad empoyees. For e ampe, f the
pan requres empoyee contrbutons of 10 percent of compensaton, t
w be necessary to determne whether ower pad empoyees are kept
out of the pan because of such requrement. If t s found that ower
pad empoyees are not partcpatng because of the contrbuton re-
qurement, the cassfcaton may be hed to dscrmnate n favor of a
group enumerated n secton 165(a) (3) ( ) and ( ) of the Code. s
a genera rue, however, empoyee contrbutons of 6 percent or ess are
not deemed to be burdensome. In cases where the pan provdes for
optona rates of contrbuton by empoyees, and empoyer contrbu-
tons or the benefts are geared to the empoyee contrbutons n such a
way that a hgher rate of empoyee contrbutons w resut n arger
benefts from empoyer contrbutons, the empoyee contrbutons may
smary be found to be burdensome and resut n dscrmnaton n
contrbutons and benefts n contraventon of secton 165(a) ( )of the
Code, but generay ony f the hghest rate of empoyee contrbuton
permtted s n e cess of 6 percent of compensaton. The test s
whether the contrbuton provsons operate to deprve ower pad em-
poyees of benefts at east as hgh n proporton to compensaton as are
provded for hgher pad empoyees, after takng nto account dffer-
entas permtted under the requrements for ntegraton wth soca
securty benefts. See paragraph g) beow.
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277
29.165-1.
(/) Cassfcaton wthn purvew of statute but dscrmnatory n
operaton. cassfcaton may appear to be satsfactory on paper
but f n actua operaton of the pan t dscrmnates n favor of
empoyees who are hghy compensated, etc., the pan w fa of
quafcaton. For e ampe, a pan ostensby covers a empoyees
regardess of servce but nonforfetabe rghts are provded ony for
those who have at east 15 years of servce and stay on unt norma
retrement age 65. cept tor a handfu of e ecutves who are share-
hoders and offcers, empoyees are mgratory workers who stay on a
|ob for a reatvey short tme and then move esewhere. though
the coverage provsons on paper seem satsfactory, n actua opera-
ton ony the e ecutve empoyees w beneft. ccordngy, both
paragraphs(3) ( ) and ( ) of secton 165(a) of the Code are con-
sdered together n determnng whether the requrements of each are
met. It s possbe n the ustraton used that the pan may quafy
f satsfactory provsons for vestng are ncorporated theren. See
part 5(6) hereof.
(g) Integraton. Pans whch e cude empoyees who earn ess
than a specfed amount or provde proportonatey esser benefts for
such empoyees may quafy f the Denefts under the pan ntegrate
wth those provded under the soca securty or smar (e. g., Ra-
road Retrement ct) program. The tota benefts, ncusve of those
under the soca securty or smar program, are used for comparatve
purposes. If such tota benefts are proportonatey no greater for
empoyees earnng above a specfed amount than for those earnng
beow such amount, consderng empoyees e cuded from the pan on
account of a mnmum saary requrement as we as those ncuded,
the nondscrmnaton requrements of secton 165(a) (3)( ) and
( ) of the Code are satsfed.
(1) Integraton rues. The rues for ntegratng benefts under
a pan wth those provded under the Soca Securty ct, pror
to the 1950 amendments, are set forth n Commssoner s Mmeo-
graph 5539, C. . 19 3, 99. Supportng rungs under that
mmeograph are contaned n I. T/s 3613, 361 , and 3615, C. .
19 3, 75, 76, and 77, respectvey, and n P. S. Nos. 5,13, and
30. Rues as to ntegraton of deferred beneft pans of empoy-
ers wth the od-age and survvors nsurance benefts provded
by the Soca Securty ct mendments of 1950 are contaned
n Mmeograph 66 1, C. . 1951-1, 1, and the modfcaton
effected as a resut of amendments to the Soca Securty ct by
Pubc Law 590, ghty-second Congress, second sesson, ap-
proved uy 1 , 1952, are set forth n IR-Mmeograph 97, pro-
mugated anuary 5, 1953, Rev. Ru. 13, page 29 , ths uetn.
P. S. No. 3 sets forth the rues appcabe to ntegratng benefts
under a pan wth those under the Raroad Retrement ct, as n
effect as of September 23,19 , and IR-Mmeograph 96, promu-
gated anuary 5, 1953 Rev. Ru. 12, page 290, ths uetn, pre-
scrbed the appcabe ntegraton rues as effected by amendments
to the Raroad Retrement ct through October 1951.
(2) Death benefts nvoved n ntegraton under Mmeograph
5539. In appyng ntegraton tests under Mmeograph 5539,
any benefts payabe n the event an empoyee des before re-
trement (or before norma retrement age) may be dsregarded
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5 29.165-1.
27
to the e tent that such benefts do not e ceed the reserve or the
. accumuated pror contrbutons. In the event empoyees con-
trbute under a pan, the ncrease n mts provded by para-
graph 9 of Mmeograph 5539, supra, appes ony to empoyee
contrbutons whch are e cusve of those appcabe to the cur-
rent cost of nsurance or death benefts n e cess of the reserve
or cash vaue. Where ntegraton s requred and the norma
form of benefts begnnng at retrement (or at norma retre-
ment age) ncude death benefts provded by empoyer contr-
butons and payabe on behaf of the empoyee whch are more
vauabe than a fe annuty wth a 10 year certan provson, t
must be shown that the equvaent benefts on a fe annuty 10
year certan bass satsfy the ntegraton requrements. For the
purpose of demonstratng such equvaence there may be used the
factors n the nsurance or annuty contract nvoved or, where
norma retrement age s 65 and the norma form of beneft s one
of those ndcated beow, there may be used the correspondng
factor shown:
Reducton factor to 6 ts of
Norma form of beneft fe annuty 10 ycart certan
Lfe annuty, 15 years certan 90 percent.
Lfe annuty, 20 years certan 0 percent.
Instament refund fe annuty 90 percent.
Cash refund fe annuty 3 percent
Thus, for e ampe, f n a partcuar case ntegraton requres
that benefts be not more than 25 percent of average saary n
e cess of 3,000 a year and the norma form of retrement bene-
fts s a cash refund fe annuty at age 65, ncome benefts of
21 percent of average saary n e cess of 3,000 a year woud
be acceptabe. These forms of benefts are commony found n
pans nsured by ndvdua nsurance or annuty contracts but
are not often used as the norma form. Optona forms of ncome
other than the norma form whch determnes the actua vaue of
the benefts shoud be dsregarded for the purposes hereof.
(3) Death benefts wthn the purvew of Mmeograph 66 1,
supra, and ntegraton of proft-snarng pans are dscussed n
such mmeograph.
(h) Coverage requrements must be met on at east 1 day n each
quarter. The coverage requrements of secton 165(a)(3 of the Code,
ether on the percentage bass under subparagraph ( ) or on the
bass of a nondscrmnatory cassfcaton under subparagraph ( ),
may be satsfed f such requrements are met on at east 1 day n
each quarter of the ta abe year. For e ampe, assumng that the
ta abe year concdes wth the caendar year, f the percentage bass
s appcabe and on the frst day of the ta abe year 1,000 empoyees
have at east the mnmum servce requrements prescrbed by sub-
paragraph ( ), t s suffcent f not ess than 700 empoyees are
egbe to partcpate and not ess than 0 percent of those egbe
are actuay partcpatng on that day even though empoyee turnover
changes the percentages to ess than 70 and 0 on a other days pror
to pr 1 of the same year. The percentage requrements w agan
have to be met on at east 1 day durng the quartet commencng wth
pr 1, and so on for the other quarters durng the year.
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29.165-1.
() Dena of partcpaton for faure to enter pan upon becomng
egbe. Pans may provde for dena of partcpaton for faure
to enter pan upon becomng egbe provded that partcpaton
requres somethng substantay more than mere consent on the part
of the empoyee. For e ampe, under an empoyee contrbutory pan,
f the empoyee refuses to sgn a prescrbed form for partcpaton
authorzng saary deductons n accordance wth the pan, the
pan may provde for the dena of partcpaton at any other tme
cr for a mted tme. Smary, under an nsured pan whch re-
qures a physca e amnaton and nformaton as to condton of
heath, the pan may provde that refusa to take the e amnaton
or furnsh the nformaton w bar the empoyee from partcpaton.
dequate notce, however, must be gven the empoyee and the con-
sequences of hs faure to compy must be ceary presented to
hm after whch, f he refuses to |on, the e cuson provsons
of the pan become operatve as to such empoyee. Such prov-
sons must be unformy apped so as not to resut n the prohbted
dscrmnaton.
(|) Reentry nto pan after dscontnuance of partcpaton. Pans
may provde for reentry after dscontnuance of orgna partcpaton
upon severance of empoyment or for other reasons, such as faure
to contnue contrbutons on the part of the empoyee. Such prov-
sons, however, must be unformy apped and n no event shoud they
permt a dupcaton of benefts.
(k) Deay n purchasng nsurance contracts. Generay, a state-
ment n a pan e oneratng the trustee from abty n the event of
a reasonabe deay n the purchase of nsurance contracts for partc-
pants w not adversey affect the quafcaton of the pan, provded,
however, that the benefts are cacuated from the effectve date of
partcpaton.
(I) Contnung partcpaton n the event of eave of absence.
Pans may provde for contnued partcpaton n the event of eave of
absence for a specfed purpose, such as servce n the rmed Forces,
sckness, or dsabty. partcpants under smar crcumstances,
however, must be treated ake.
Part 5: Dscrmnaton as to Contrbutons or enefts
secton 165(a) ( ) of the nterna revenue code
secton 29.165- of reguatons 111
(a) Nondscrmnatory contrbutons or benefts. Under a pan
whch s ntended to quafy under secton 165(a) of the Code there
must be no dscrmnaton n contrbutons or benefts n favor of
offcers, sharehoders, supervsors, orrhghy compensated empoyees
as aganst other empoyees ether wthn or wthout the pan. Thus,
for e ampe, a proft-sharng pan whch provdes empoyer aoca-
tons of 20 percent of compensaton for partcpants who are wthn a
group n wnose favor dscrmnaton s prohbted| and ony 10 per-
cent for a other partcpants, fas to meet the requrements of secton
165(a) ( ) of the Code. See I. T. 367 , C. . 19 , 321. Smar con-
sderatons appy to contrbutons and benefts n a penson or annuty
pan, e cept that certan dfferences n favor of hgher pad empoyees
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29.165-1.
2S0
may be acceptabe f ntegraton rues are satsfed. See part (g)
hereof.
(/) ppcaton of forfetures. Funds under a quafed pan
arsng from forfetures because of termnaton of servce, or other
reason, must not be aocated to the remanng partcpants n a
manner that w effect the prohbted dscrmnaton. In a pen-
son pan, ths requrement s met by compyng wth the rue
regardng defntey determnabe benefts, to wt: enefts are
not defntey determnabe f funds arsng from forfetures on
termnaton of servce, or other reason, may be used to provde
ncreased benefts for the remanng partcpants nstead of beng
used to reduce the amount of contrbutons by the empoyer.
Smary, n a stock bonus or proft-sharng pan the contrbuton
formua may provde that forfetures be used to reduce the em-
poyer contrbutons whch woud otherwse be requred by the
formua, but such appcaton of forfetures s not mandatory n
such pans. Nevertheess, t shoud be observed that whatever
provson s made for absorbng forfetures under a stock bonus
or proft-sharng pan the prohbted dscrmnaton must not
resut.
(2) aratons n contrbutons or benefts. Contrbutons or
benefts for the respectve partcpants may vary provded that
the pan n ts over-a operatons does not dscrmnate n favor
of offcers, etc. In some cases, benefts n a proft-sharng pan
may vary by reason of a dstrbuton formua whch takes nto
consderaton years of servce. See I. T s 36 5 and 36 6, C. 13.
19 , 32 and 326, respectvey, and P. S. No. 2 . Whe the case
covered n I. T. 36 5, supra, ustrates the resut, n that case, of
the addton of unts of compensaton and unts of servce as not
creatng the prohbted dscrmnaton and the case mentoned
n I. T. 36 6, supra, ustrates the resut, n that case, of the
mutpcaton of unts of compensaton by unts of servce as
creatng such dscrmnaton, t was not ntended to mpy, by
the promugaton of those rungs, that any formua usng the
method shown n I. T. 36 a, supra, woud be acceptabe and any
formua usng the method shown n I. T. 36 6, supra, woud not
be acceptabe. The resut of the operaton of such formua s
controng n each case. If the appcaton of ether type of
formua s found to resut n the prohbted dscrmnaton, as
measured by rato of benefts to compensaton, then such formua
s ob|ectonabe.
(b) ested rghts n empoyer s contrbutons. The Code does not
requre that an empoyee be granted mmedate vested rghts n hs
empoyer s contrbutons as a condton for quafcaton of a pan.
arous provsons for vestng are n use, rangng from compete and
mmedate vestng through dfferent forms of graduated vestng, upon
competon of stated servce or partcpaton requrements, to no vest-
ng unt attanment of norma or stated retrement age.
(1) Determnaton as to provson for vestng. determna-
ton as to satsfactory vestng provsons w of necessty depend
on the facts n the partcuar case nvoved. For e ampe, a
company whch ordnary empoys few peope obtans a defense
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29.165-1.
contract, engages a arger number of empoyees to work on such
contract, estabshes a pan under whch a empoyees are egbe
to partcpate, makes contrbutons on the bass of a empoyees,
but vested rghts are not granted unt norma retrement age,
and t has no need for the addtona empoyees e cept for work
on the defense contract. It s apparent that upon termnaton of
the defense contract, f another contract s not obtaned, the add-
tona empoyees w be reeased and whatever credts may have
nured to them under the pan w be forfeted. favorabe
rung on such a pan s not warranted uness satsfactory prov-
son s made for effectuatng benefts to a covered empoyees.
Ths may be accompshed, for e ampe, by grantng fuy vested
rghts after a reasonabe watng perod. See P. S. No. 22.
(2) Requrement for utmate vestng. pan w not be
acceptabe as to quafcaton uness an empoyee whp has reached
the norma retrement age (n a penson or annuty pan) or the
stated age (or other defntey determnabe event has transpred,
n a proft-sharng or stock bonus pan), and has satsfed any
reasonabe and unformy appcabe requrements as to engtn
of servce or partcpaton, s permtted to receve the benefts
under the pan wthout the consent of the empoyer. Ths, how-
ever, does not precude a provson for dscontnuance of benefts
to a retred empoyee for cause, whch must be dstncty specfed,
such as, for e ampe, takng a poston wth a compettor of the
empoyer or dvugng the empoyer s trade secrets to compettors.
Smary, provson may be made for the grantng of ess bera
rghts under such crcumstances. Provsons for the vestng of
rghts n empoyees, however, must not dscrmnate n favor of of-
fcers, sharehoders, supervsors, or hghy compensated empoyees.
(c) 7 of heavness. Paragraph (5) of secton 165(a) of the Code
provdes n part that a pan sha not be consdered dscrmnatory
wthn the meanng of paragraphs (3) ( ) or ( ) of such secton
merey because the contrbutons or benefts of or on behaf of the
empoyees under the pan bear a unform reatonshp to the tota
compensaton, or the basc or reguar rate of compensaton, of such
empoyees. owever, n the case of penson and annuty pans whch
are based on a saary cassfcaton, . e., e cuson of empoyees earn-
ng ess than a specfed amount, such as 3,000 or 3,600 per annum,
the benefts under the pan must ntegrate wth those provded
under the Soca Securty ct or smar pubc retrement pan.. See
part (g) hereof. If under the beneft formua of a penson or an-
nuty pan benefts are provded whch bear a unform reatonshp
to compensaton or whch do not dscrmnate n favor of the group
wth respect to whch dscrmnaton s prohbted when soca
securty or smar Federa or State retrement benefts are taken nto
account, the benefts and contrbutons are not dscrmnatory pro-
vded the pan contans adequate safeguards aganst dscrmnaton
n the event of termnaton of the pan or faure to meet the current
costs durng the frst 10 years. See part 5(d) hereof. penson
or annuty pan whch s not n conformance wth the aforesad does
not compy wth the requrements of paragraph ( ) of secton 165(a)
of the Code, wth respect to nondscrmnaton as to contrbutons or
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5 29.165-1.
2S2
benefts. ceng or smar mtaton on the amount of benefts s
not requred n vew of the provsons of secton C5(a) (5) of the
Code, but a pan under whch benefts are mted may satsfy the
appcabe requrements whereas otherwse certan essenta requre-
ments may not be fuy met.
(d) Termnaton rue. If benefts for empoyees who are offcers,
etc., are funded, or substantay so, because of ther nearness to re-
trement, and benefts for other empoyees are not smary funded
pror to termnaton of the pan, the prohbted dscrmnaton w
resut. Consequenty, under the appcabe crcumstances, an advance
favorabe rung as to the quafcaton of a penson or annuty pan
w not be ssued uness the pan contans satsfactory provsons
mtng the benefts for offcers, etc., n the event of eary termnaton
of the pan. The rues for ths purpose are set forth n Mmeograph
5717, C. . 19 , 321. panatory reeases consst of P. S. Nos. ,
25, 29. 31, 3 , 2, 50, and 52. Smar rues are not appcabe to
stock bonus and proft-sharng pans snce acceptabe aocaton for-
muae under such pans are desgned to precude the prohbted ds-
crmnaton under comparabe crcumstances. The requrements per-
tanng to permanency, however, are appcabe to a types of pans.
See Part 2(e) hereof.
(e) Norma retrement age. The norma retrement age n a pen-
son or annuty pan s the owest age specfed n the pan at whch the
empoyee has the rght to retre wthout the consent of the empoyer
and receve retrement benefts based on servce to date of retrement at
the fu rate set forth n the pan (. e., wthout actuara or smar re-
ducton because of retrement before some ater specfed age). Ord-
nary, the norma retrement age under penson and annuty pans s
65, the same as the retrement age n the od-age and survvors nsur-
ance provsons of the Soca Securty ct. dfferent age may be
specfed, provded that f t s ower than 65 t represents the age at
whch empoyees customary retre n the partcuar company or
ndustry and s not a devce to acceerate fundng. In proft-sharng
or stock bonus pans, where there s a stated retrement age t s merey
one of severa events whch may be desgnated as f ng the tme for
makng dstrbutons. Snce the amount of the dstrbutons s de-
pendent upon profts, there s no defntey stated rate of benefts pay-
abe at such age. Consequenty, the stated retrement age n a proft-
sharng or stock bonus pan does not have the same meanng as norma
retrement age n a penson pan.
(/) Optona retrement pror to norma retrement age. ny rea-
sonabe optona eary retrement ages w generay be acceptabe
whether or not the consent of the empoyer s requred for retrement
at such ages or for payment of benefts begnnng upon retrement at
such ages.
If the optona eary retrement age s earer than 65 for maes or
60 for femaes and ether:
(1) the empoyer s consent s requred for such eary retrement
benefts, or
(2) there s a mnmum saary requred for partcpaton or the
-beneft formua nvoves a step-up n the rate for saares n e cess
of a specfed amount so that ntegraton requrements must be
satsfed,
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t 29.165-1.
then the amount of benefts payabe upon eary retrement must be such
that they meet the approprate mt ndcated beow:
a. In a unt beneft pan the actuara vaue of benefts payabe
upon such retrement must not substantay e ceed the actuara
vaue at that tme of the benefts whch woud be payabe be-
gnnng at norma retrement age on the bass of servce credts ac-
crued to the tme of actua retrement.
b. In a f ed beneft pan the amount of benefts payabe upon
eary retrement must not substantay e ceed the actuara vaue
at that tme of the norma retrement benefts mutped by the
rato that the actua number of years of servce of the empoyee
at retrement bears to the tota number of years of servce he woud
have had f he had remaned n servce unt norma retrement
age. Ths requrement s assumed to be met when the benefts
provded upon such eary retrement are those obtaned by app-
caton of the then cash vaue of an nsurance or annuty pocy
cang for eve premums to norma retrement age.
c. In a money purchase pan the amount of benefts payabe
upon eary retrement must not e ceed those purchasabe by
the contrbutons based on compensaton receved up to the tme
of actua retrement.
Where the benefts payabe upon such eary retrement meet the
above condtons they w be acceptabe even f no benefts woud
be vested f the empoyee s servce were termnated at that tme for
other reasons, uness t appears from the facts n a partcuar case
that the prohbted dscrmnaton s key to resut Decause of the
provson for eary retrement.
(g) Partcpaton after norma retrement age. The norma retre-
ment age s the tme from whch defntey determnabe benefts under
a penson pan become f ed and payabe. ccordngy, an empoyee
who has reached such age and has fufed the servce requrement
and other unformy appcabe provsons of the pan must be per-
mtted to retre and to commence recevng the benefts payabe there-
under. rrangements, however, may be mutuay made for contnued
empoyment beyond norma retrement age. In such event provson
may be made wth respect to the treatment of the penson benefts
such as, for e ampe, payment as though the empoyee had actuay
retred, deferment to actua retrement wthout ncrement for the
nterva between norma retrement date and actua retrement, or
actuara equvaent on actua retrement of the beneft at norma
retrement age. Whatever provsons are made, however, must be
unformy apped to a partcpants.
(1) ddtona benefts for servce after norma retrement
age. Provson may be made for addtona benefts on account
of servce after norma retrement age provded such provson
s unformy appcabe and does not resut n the prohbted
dscrmnaton. In a unt beneft pan, the unts may be con-
tnued durng the tme of the e tended servce and the tota com-
puted to the tme of actua retrement. Under a money purchase
pan, the reguar rate of contrbutons may contnue to actua
retrement. Under a f ed beneft pan the benefts payabe at
actua retrement may be the actuara equvaent of those payabe
at norma retrement age.
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29.165-1.
2
(2) Contnued partcpaton under a proft-sharng or stock
bonus pan. provson for contnued partcpaton under a
proft-sharng or stock bonus pan and for contrbutons to pro-
vde addtona benefts for empoyees who reman n empoy-
ment beyond the stage age does not adversey affect the
quafcaton of the pan, provded, however, that such provson
s unformy apped and does not resut n the prohbted
dscrmnaton.
(h) ass of compensaton on whch benefts are computed. Sec-
ton 165(a) (5) of the Code provdes n part: Nether sha a pan
be consdered dscrmnatory merey because the contr-
butons or benefts of or on behaf of the empoyees under the pan
bear a unform reatonshp to the tota compensaton, or.the basc or
reguar rate of compensaton, of such empoyees . Itacs
supped. Thus, tota compensaton (whch may ncude bonuses,
commssons, or overtme pay), basc compensaton, or reguar rate of
compensaton may be used, provded that whatever s used s con-
sstenty and unformy appcabe to a partcpants. In ths respect,
attenton s nvted to secton 29.165-1 (a) of Reguatons 111 whch
provdes n part: a pan s not for the e cusve beneft of
empoyees n genera f t dscrmnates ether n egbty requre-
ments, contrbutons, or benefts by any devce whatever n favor of
empoyees who are offcers, sharehoders, persons whose prncpa
dutes consst n supervsng the work of other empoyees, or the
hghy compensated empoyees. See secton 165(a) (3), ( ), and
(5). Thus, benefts computed at a unform rate of compensaton for
a partcpants may be nondscrmnatory secton 165(a)(5) but
f compensaton s ad|usted to favor one or a seect few the pan may
become dscrmnatory n operaton. For e ampe, under a 50 percent
f ed beneft pan, a 10,000 a year offcer who fufs a requre-
ments for retrement woud be entted to an annuty of 5,000. but
f shorty before retrement hs compensaton s ncreased to 20,000
per annum hs retrement annuty computed on fna saary woud be
10,000, or 100 percent of compensaton before the ncrease, whereas
others woud ony be recevng 50 percent. Secton 29.165-1 (a) of
Reguatons 111 aso ponts out: The aw s concerned not so much
wth the form of any pan as t s wth ts effects n operaton. For e -
ampe, n secton 165(a) (5) the aw specfes certan provsons, whch
of themseves are not dscrmnatory, but ths does not mean that a
pan contanng these provsons may not be dscrmnatory n actua
operaton. ccordngy, provson s generay made that ncreases
n compensaton durng the ast 5 years of empoyment are not to be
consdered for the purpose of computng benefts. Provson s aso
generay made that past servce credts be computed on the average
compensaton for the 5-year perod mmedatey precedng the estab-
shment of the pan. If n a partcuar case, however, t can be demon-
strated that the use of compensaton for some other perod does not
resut n the prohbted dscrmnaton, compensaton for such other
perod may be used.
() d|ustment of benefts due to ncreases or decreases n compen-
saton. Consstent and unform bases of compensaton for determn-
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29.165-1.
ng benefts under a pan are essenta n order to precude the pro-
hbted dscrmnaton from materazng. If benefts are based on
compensaton at the tme the pan s estabshed, and f certan hghy
compensated empoyees are wthn a few years of retrement, ther
benefts w be based on the hghest, or neary the hghest, compensa-
ton, whe ower pad empoyees who entered the servce of the em-
poyer shorty before the pan was estabshed w receve benefts
based on the owest, or neary the owest, compensaton. To emnate
dscrmnaton a consstent and unform appcaton shoud preva
as between both groups, e. g., where compensaton wthn a few years
before retrement, whch ncudes saary ncrements snce orgna
empoyment, s used for the hghy compensated empoyees, smar
compensaton shoud be used for the ower pad empoyees. There-
fore, provson w have to be made for ncreases n benefts when com-
pensaton on whch benefts are computed s ncreased. (See
Mmeograph 5G77, C. . 19 , 320.) Pans may aso provde for de-
creases n benefts because of decreases n compensaton but snce the
aforesad reason s not appcabe such provson s not requred.
(|) Dscreton as to payment of benefts under basc optons. Pans
may ncude varous modes of settement for payment of benefts under
the pan f, n determnng the mode used n any partcuar case, a
more favorabe treatment s not provded for empoyees who are
offcers, etc., than for other empoyees, and further, f, upon retre-
ment (or event cang for a dstrbuton n a proft-sharng pan) each
partcpant s entted to a fuy vested rght n the amount whch has
been accumuated for hs beneft. In an nsured pan, any type of
beneft whch s provded under the optons contaned n the nsurance
contract s the actuara equvaent of any other opton. Consequenty,
dscreton n the trustee to determne under whch opton benefts w
be pad does not resut n the prohbted dscrmnaton. Smar ds-
creton may be provded for n a proft-sharng pan whch, for e -
ampe, permts the trustee to determne whether ump-sum or perodc
dstrbutons are to be made n partcuar cases. The tota dstrbut-
abe must be fuy vested n the empoyee n ether stuaton, and, f
perodc dstrbutons are to be made to some as aganst ump-sum pay-
ments to others, the present vaue of a such perodc amounts payabe
to any empoyee shoud be equa to the mmedate ump-sum otherwse
dstrbutabe to hm.
(k) Provsons for dsabty and hardshp cases. Pans may
contan provsons for eary retrement because of dsabty provded
that the term dsabty s defned and the rues wth respect thereto
are unformy and consstenty apped to a empoyees n smar
crcumstances. Provsons may aso be made n stock bonus and
proft-sharng pans for acceerated dstrbutons because of hardshp
provded that the term hardshp s defned, the rues wth respect
thereto are unformy and consstenty apped, and the dstrbutabe
porton does not e ceed the empoyee s vested nterest.
(I) Provson that benefts be based on cash surrender vaue n
nsured pans. If an nsured pan provdes that benefts sha be
based on cash surrender vaues, a contracts purchased must provde
unform cash surrender vaues wth respect to a empoyees under
smar crcumstances.
26335 63 19
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29.165-1.
2 6
(to) Loan prveges. Provson may be made for the grantng
of oans to partcpants up to the e tent of ther vested nterests sub-
|ect to the appcaton of specfed unform rues consstenty foowed.
(It shoud be noted that so-caed oans may consttute dstrbu-
tons f there s tact understandng between the partes that coec-
ton s not ntended.)
(n) Past servce benefts n pans whch contan a mnmum age
or servce requrement for egbty. pan whch contans a mn-
mum age or servce requrement for egbty and provdes for past
servce credts for a pror servce of orgna, but not subsequent,
partcpants w generay be consdered ob|ectonabe wthn the
purvew of secton 165(a) (3) ( ) and ( ) of the Code uness t can
be demonstrated that such credts do not resut n the prohbted ds-
crmnaton. (Where the dfference s ony 1 year, however, e. g., f
there s a 1-year watng perod for egbty, but orgna partc-
pants are gven credt for a pror servce, ncudng the 1-year
watng perod, and new partcpants do not receve credt based on
the 1 year, such a provson may be acceptabe.) Provson may, how-
ever be made for credts on account of past servces rendered after
attanment of a specfed age or competon of mnmum servce, f
apped to orgna as we as subsequent partcpants.
(o) Rght of trustee to borrow on nsurance contracts. Prov-
son may be made grantng the trustee the rght to borrow aganst
the oan vaues of nsurance contracts provded that n dong so the
remanng nterest of empoyees who are offcers, etc., s proporton-
atey no greater than the nterest of other empoyees.
(p) Dstrbuton of funds upon termnaton. Pans are to con-
tan provson for dstrbuton of funds upon termnaton. t such
tme the rghts of a partcpants shoud be fuy vested. ny prov-
son for dstrbuton w be acceptabe f t specfes the method of
dstrbuton and cannot confct wth the restrctons set forth n
Mmeograph 5717, supra, and cannot otherwse dscrmnate n favor
of empoyees who are offcers, etc. The dstrbuton of unaocated
funds may be n cash or n the form of other benefts provded under
the pan. The dstrbuton among empoyees other than those whose
benefts have been restrcted n accordance wth Mmeograph 5717
need not necessary beneft a such other empoyees. For e ampe,
a dstrbuton whch benefts ony the empoyees then over age 50, or
ony those who then have at east 10 years of servce, or ony those
who meet both such age and servce requrements may be acceptabe
f there s no possbty of dscrmnaton n favor of empoyees who
are hghy compensated, etc. Such a stuaton may e st n a pan
coverng ony wage and houry rated empoyees. Upon termnaton,
the funds may be used frst to contnue benefts to retred empoyees,
then for empoyees who have met the requrements for retrement but
have not actuay retred, then for empoyees over age 60, and so on
unt the funds are fuy e hausted.
(q) armarked nvestments under a proft-sharng pan. Where
amounts to be dstrbuted to partcpants under a proft-sharng pan
are measured by earmarked nvestments (such as annuty and fe
nsurance contracts), the trustee must nvest each partcpant s nterest
under the pan proportonatey uness a partcpants have the rght
to drect the trustee as to such nvestments.
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29.165-1
PP NDI
Rungs Incorporated by Reference
TR SURY D CISIONS
Samba Reference
5 22 C. . 19 , 31
COMMISSION R S MIM O R P S
5539 C. . 19 3, 99
5677.. C. . 19 , 320
5717 C. . 19 , 321
59 5 - C. . 19 6-1, 72
6020 C. . 19 6-1, 7
6136 C. . 19 7-1, 5
639 . C. . 19 9-1, 11
66 1 C. . 1951-1, 1
I. R. MIM O R P S
96 (Pubshed as Rev. Ru. 12) I. R. . 1953-3, 50
97 (Pubshed as Rev. Ru. 13) I. R. . 1953-3, 5
I. T. RU LINOS
3350. C. . 19 0-1, 6
3613. C. . 10 3, 75
361 C. . 10 3, 76
3615 ( . . 10 3, 77
3660 C. . 19 , 136
367 C. . 19 , 321
36 5 C. . 19 , 32
36 6 C. . 19 , 320
020 C. . 1950-2, 61
P. S. RULINOS
5
13
22
23
25
2
31
3
37
3
2
50
52
56
57
60
Secton 29.165-1: mpoyees trusts. ev. fu. 6
INT RN L R NU COD
Factors to be consdered In determnng the quafcaton of a stock
bonus, penson, or proft-sharng trust under secton 105(a) of the
Interna Revenue Code where the trust: (1) borrows capta, (2)
Invests n the securtes of or enters nto transactons wth the
empoyer by whch t was estabshed and from whch t has re-
ceved or does receve contrbutons, or wth an entty cosey re-
ated to that empoyer.
dvce s requested reatve to the factors to be consdered n deter-
mnng the quafcaton of a stock bonus, penson, or proft-sharng
Dated
uv 29, 19
ugust , 19
ugust 2 , 19
September 2, 19
September 2, 19
September 2, 19
September 2, 19
September 16, 19
September 16, 19
September 16, 191
September 23, 19
October 7, 19
October 7, 19
November 11, 19
uy 12, 19 5
ugust. 9, 19 5
une 27, 19 6
ugust 5, 19 6
une 19, 19 7
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29.165-1.
2 3
trust under secton 165(a) of the Interna Revenue Code where the
trust: (1) borrows capta, (2) nvests n the securtes of or enters
nto transactons wth the empoyer by whch t was estabshed and
from whch t has receved or does receve contrbutons, or wth an
entty cosey reated to that empoyer.
Secton 165(a) of the Interna Revenue Code provdes n part that
a trust formng part of a stock bonus, penson, or proft-sharng pan
of an empoyer for the e cusve beneft of hs empoyees or ther
benefcares sha not be ta abe. There s no prohbton n the Code
or n the reguatons promugated thereunder aganst such a trust
borrowng funds to purchase nvestments. ccordngy, t s hed
that the borrowng of funds by a trust woud not serve to dsquafy
a pan as one for the e cusve beneft of the empoyees uness t s
shown that the borrowng s undertaken for the purpose of beneftng
the empoyer as, for e ampe, borrowng n order to furnsh capta
or property for use n the empoyer s busness at a tme when the em-
poyer s fnanca condton s such that t s unabe to borrow money.
Wth respect to nvestments n the securtes of or transactons wth
an empoyer by whch a trust was estabshed and from whch t has
receved or does receve contrbutons, or wth an entty cosey reated
to that empoyer, whch nvestments or transactons yed returns
to the trust ngher than normay e pected and resut, n effect, n con-
trbutons to the trust n e cess of the appcabe mtatons mposed
under secton 23(p) of the Interna Revenue Code, t s hed that
nether the pan nor the trust s dsquafed for that reason under sec-
ton 165(a) of the Code. owever, amounts pad to a trust, wth
respect to such nvestments or transactons by an empoyer or an
entty cosey reated to that empoyer, to the e tent that they e ceed
the appcabe mtatons mposed by secton 23 (p) of the Code, shoud
be dsaowed as deductons under other sectons of the Code f they
are found not to be bona fde but to be part of a scheme or devce to
crcumvent the mtatons mposed by secton 23 (p) of the Code.
INT RN L NU COD
penson pan whch otherwse meets the requrements of secton.
165(a) of the Interna Revenue Code, w not fa to quafy as a pan
estabshed and mantaned by an empoyer prmary to provde sys-
tematcay for the payment of defntey determnabe benefts
wthn the meanng of secton 29.165-1 (a) of Reguatons 111 merey
because t provdes that penson benefts sha be suspended for any
perod of tme durng whch prmary nsurance payments under the
Federa Soca Securty ct sha be dscontnued because of empoy-
ment after retrement data.
( so Secton 29.165- .)
So-caed money purchase penson pans n whch funds arsng
from forfetures are used to provde ncreased benefts for the re-
manng partcpants n the pan nstead of beng apped aganst
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29.165-3.
subsequent contrbutons requred to he made by the empoyer, do
not meet the requrements of secton 103(a) of the Interna Ieveuue
Code.
dvce s requested whether under a so-caed money purchase
penson pan forfetures whch occur due to the severance of empoy-
ment may be utzed to ncrease the benefts of remanng partcpants
n the pan nstead of beng apped aganst subsequent contrbutons
requred to be made by the empoyer.
penson pan wthn the meanng of secton 165(a) of the Interna
Revenue Code s ceary defned n secton 29.165-1 (a) of Reguatons
111 as a pan estabshed and mantaned by an empoyer prmary to
Crovde systematcay for the payment of defntey determnabe
nefts to hs empoyees over a perod of years, usuay for fe, after
retrement. That secton further provdes that benefts are not def-
ntey determnabe f funds arsng from forfetures on termnaton
of servce, or other reason, may be used to provde ncreased benefts
for the remanng partcpants nstead of beng used to reduce the
amount of contrbutons fr the empoyer. The aforementoned sec-
ton of the reguatons, as amended by T. D. 5 22, C. . 19 , 31 ,
makes no dstncton as to appcaton of forfetures under any type
of penson pan.
In vew of the foregong, t s hed that n so-caed money
purchase penson pans n whch funds arsng from forfetures are
used to provde ncreased benefts for the remanng partcpants n
the pan nstead of beng apped aganst subsequent contrbutons re-
qured to be made by the empoyer, do not meet the requrements of
secton 165(a) of the Code..
Secton 29.165-3: Requrements as to coverage. T. D. 6011
( so Secton 29.165- .)
Reguatons 111 amended to refect the ncrease, from 3,000 to
3,600, In the mtaton on wages provded for by the Soca Securty
ct mendments of 1950.
Washngton 25, D. C.
Concerned:
_ In order that Reguatons 111 26 CF , part 29 w refect the
ncrease, from 3,000 to 3,600, n the mtaton on wages provded
for bv the Soca Securty ct mendments of 1950, Pubc Law
T3 ( 1st Cong.) C. . 1950-2, 217 , approved ugust 2 , 1950, such
reguatons are hereby amended as foows:
Paragraph 1. Secton 29.165-3 s amended as foows:
( ) y strkng out n the frst sentence of the s th paragraph
3,000 and nsertng n eu thereof 3,600 (or, pror to 1951,
3,000) .
( ) y strkng out n the seventh sentence of the s th paragraph
earnng 3,000 per annum and nsertng n eu thereof whose an-
nua remuneraton s 3,600 (or, pror to 1951, 3,000) .
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29.165-3.
290
Par. 2. Secton 29.165- , as amended by Treasury Decson 5 22
C. . 19 , 31 , approved December 13,19 , s further amended by
strkng the s th sentence whch begns Thus, a pan and substtut-
ng n eu thereof the foowng sentence:
Thus, a pan w not be consdered dscrmnatory merey because the contrbu-
tons or benefts bear a unform reatonshp to tota compensaton, or to the basc
or reguar rate of compensaton, or merey because the contrbutons or benefts
based on the frst 3,600 (or, pror to 1951, the frst 3,000) of annua compensaton
of empoyees sub|ect to the Federa Insurance Contrbutons ct dffer from the
contrbutons or benefts based on the e cess of such annua compensaton over
3,600 (or, pror to 1951, over 3,000).
ecause ths Treasury Decson s merey to conform the reguatons
to the ncrease n the mtaton on wages provded for by the Soca
Securty ct mendments of 1950, t s unnecessary to ssue the Treas-
ury Decson wth notce and pubc procedure thereon under secton
(a) of the dmnstratve Procedure ct, approved une 11, 19 6,
or sub|ect to the effectve date mtaton of secton (c) of sad act.
26 U. S. C. 62,3791).)
O. Gordon Dek,
pproved May 21,1953.
M. . Fosom,
(Ped wth the Dvson of the Federa Regster May 26,1953, : 9 a. m.)
Secton 29.165-3: Requrements as to coverage. Rev. RuL 12
INT RN L R NU COD
Integraton of penson and annuty pans of raroad empoyers
wth the benefts of the Raroad Retrement ct as amended
through October 1951.
1. Introducton. Secton 29.165-3 of Reguatons 111 provdes that
a cassfcaton of empoyees under any pan whch resuts n reatvey
or proportonatey greater benefts for empoyees earnng above any
specfed saary amount or rate than for those beow such saary
amount or rate may be found to be dscrmnatory wthn the meanng
of secton 165(a) (3) ( ) of the Interna Revenue Code uness such
reatve or proportonate dfferences n benefts as between empoyees
resutng from such cassfcaton are appro matey offset by the
retrement benefts provded by the Soca Securty ct. It s further
provded that smar consderatons, to the e tent appcabe n any
case, w govern cassfcatons under pans suppementng the bene-
fts provded by other Federa or State aws. See aso the second
paragraph of secton 29.165- of Reguatons 111 as to dfferences n
proportonate benefts or contrbutons whch may be consdered non-
dscrmnatory wthn the meanng of secton 165(a) ( ) of the Code
because of ntegratng wth benefts provded under State or Federa
aw.
Orgnay Issued as I -Mraeograph 96, dated anuary 5, 195 .
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291
29.165-3.
Integraton rues for determnng whether a pan s ntegrated
wth the benefts provded under the Raroad Retrement ct as
amended through October 1951 are set forth beow.
2. Defntons. Where used heren certan terms w have the
meanng ndcated beow:
(a) The term pan means a penson pan as defned n secton
29.165-(a) of Reguatons 111, or an annuty pan as defned
n secton 29.23(p)- of Reguatons 111, and n whch benefts
are reated to servce for an empoyer as defned n part I secton
1 of the Raroad Retrement ct.
(6) The term servce refers tc servce for the empoyer pro-
vdng the pan, and may ncude servce for assocated empoyers
whose empoyees are covered by the same pan.
(c) The term ntegrated, as apped to a pan or benefts
under a pan, means that dfferences n proportonate benefts
favorng empoyees earnng above any specfed rate of compen-
saton, as compared wth those earnng beow such rate, resut-
ng from a cassfcaton and/or dfference n beneft rates under
such pan w be consdered appro matey offset by the Raroad
Retrement ct benefts, so that the pan s not consdered ds-
crmnatory under the provsons of the reguatons referred to n
paragraph 1 by reason of such dfferences.
( ) The term 3,600 e cess pan means a pan under whch
empoyees earnng ess than 3,600 a year are e cuded from bene-
fts, ether by an egbty requrement or by a beneft formua
basng benefts ony on compensaton n e cess of 3,600 a year.
3. arc rue for pans meetng certan condtons. 3,600 e cess
pan s ntegrated f the rate of norma annua retrement beneft for
each year of credted servce cannot e ceed 1.6 percent of annua com-
pensaton n e cess of 3,600, provded that the pan conforms to a
of the foowng condtons:
(a) The rate of norma retrement beneft for each year of
credted servce s apped to the actua compensaton (or some
ower amount) n e cess of 3,600 for each year of such servce,
past or future. (For other cases, see paragraph .)
(b) There are no benefts payabe n case of death before re-
trement. (For other cases, see paragraph 5.)
(c) The norma form of retrement beneft s a straght fe
annuty, and f there are optona forms the beneft payments are
ad|usted so that the tota vaue of the optona form s the same
as the vaue of the norma form of retrement beneft. (For other
cases, see paragraph 6.)
(d) Norma retrement age s not ower than age 65 for men
and not ower than age 60 for women, and f benefts of any knd
are payabe n case of retrement or severance of empoyment be-
fore norma retrement age such benefts are appropratey ad-
|usted n accordance wth paragraph 7.
(e) The empoyees do not contrbute. (For other cases, see
paragraphs.)
. enefts based on compensaton, other than actua compensaton,
n e cess of 3.(100. 3,600 e cess pan whch conforms to a the
condtons of paragraph 3, e cept that benefts are based on compensa-
ton other than actua compensaton n each year of credted servce, a
ntegrated:
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5 29.165-3.
292
(a) If the rate of norma retrement beneft for each year of
credted servce does not e ceed 1.25 percent of the annua com-
pensaton n e cess of 3,600 averaged over a defnte perod of at
east 10 consecutve years; (f the tota perod of servce of an
servce must be used for such empoyee).
(b) If the rate of norma retrement beneft for each year of
credted future servce does not e ceed 1.6 percent of the actua
compensaton n e cess of 3,600 n each year of credted future
servce and the rate of norma retrement beneft for each year
of credted pror servce does not e ceed
() 1.25 percent of the annua compensaton n e cess of
3,600 averaged over a defnte perod of at east 10 consecu-
tve years pror to the date on whch an empoyee becomes
egbe for membershp n the pan or
() 1 percent of the annua compensaton n e cess of 3,600
as of the date on whch an empoyee becomes egbe for
membershp n the pan, or as of some earer date.
For the purpose of paragraph t s not acceptabe to defne the
10 year perod as the perod whch w produce the hghest average.
owever, for the purpose of paragraph (a) the 10 year perod end-
ng at actua retrement, or at the earer of actua retrement or
norma retrement age, or at the age 5 years before norma retre-
ment age s acceptabe.
5. enefts n case of death before retrement. 3,600 e cess pan
whch conforms to the condtons of paragraph 3, (a), or (6), e -
cept that t provdes benefts n case of death before retrement not
e ceedng the hgher of the reserve or the tota pror contrbutons
on a typca ndvdua eve annua premum fundng method (and
no other death benefts or fe nsurance e cept those for whch the
current cost s ncuded n the ncome of the empoyee) s ntegrated
f the rate of norma retrement beneft for any empoyee does not
e ceed /9 of the rate or rates specfed n whchever of such para-
graphs s appcabe.
6. Norma form of retrement beneft an annuty for 10 years cer-
tan and fe thereafter. 3,600 e cess pan whch conforms to the
condtons of paragraph 3, (a), ( ), or 5, e cept that the norma
form of retrement beneft s an annuty for 10 years certan and fe
thereafter, s ntegrated f the rate of norma annua retrement bene-
ft for each year of credted servce does not e ceed 90 percent of the
rate or rates determned from whchever of such paragraphs s
appcabe.
7. Retrement or severance benefts begnnng before age 65 (60
for women). If a 3,600 e cess pan provdes benefts attrbutabe
to empoyer contrbutons n case of retrement or severance of em-
poyment before age 65 for men or 60 for women, and f such retre-
ment or severance benefts are pad n the form of an annuty begn-
nng at any tme before age 65 (60 for women), then n order for
such pan to be ntegrated, such retrement or severance benefts can-
not e ceed the ma mum benefts accrued to the tme of such retre-
ment or severance, determned n accordance wth paragraphs 3
through 6, reduced by one-ffteenth thereof for each year that the age
of the empoyee at the tme such benefts begn s ess than age 65
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293
29.165-3.
(60 for women). In a pan provdng for a norma retrement age
cot ower than 65 for men and not ower than 60 for women, ths
requrement w be consdered satsfed f the benefts on such eary
retrement or severance are actuaray equvaent to the norma re-
trement benefts accrued to the tme of such eary retrement or sev-
erance, or are equa n vaue to the reserve for norma retrement bene-
fts accumuated under a typca eve premum fundng method or
unt credt cost method.
. Increase for empoyee contrbutons. contrbutory 15,000 e -
cess pan s ntegrated f the annua retrement beneft of any em-
poyee whose benefts do not commence before age 65 (60 for women)
cannot e ceed the appcabe amount determned n accordance wth
the above rues, ncrease by one-tenth of hs aggregate contrbutons
e cusve of those appcabe to the current cost of nsurance or death
beneft n e cess of the reserve or cash vaue. If the benefts com-
mence before age 65 (60 for women) such ncrease must be reduced
by one-ffteenth for each year that the age of the empoyee at the tme
of commencement of such benefts s ess than 65 (60 for women).
Such ncreases are appcabe regardess of the form of retrement
beneft or provson for death benefts. It shoud be noted that where
the pan provdes for return of ony empoyee contrbutons and nter-
est thereon n case of death before or after retrement, such as when
the retrement benefts are on a modfed cash refund form, a reduc-
ton n otherwse aowabe mts on account of such death benefts
s not requred. It shoud further be noted that f the ncrease for
empoyee contrbutons s e pressed n the form of a percentage of
compensaton, such percentage must be apped to the same compen-
saton as such contrbutons were, even though compensaton aver-
aged over a shorter perod s used as the bass for benefts attrbutabe
to empoyer contrbutons.
9. Money purchase pans. 3,600 e cess pan whch provdes ben-
efts wth respect to servce after the ncepton of the pan from em-
poyer contrbutons of a f ed amount or f ed percentage of each
empoyee s compensaton after the effectve date of the pan s nte-
grated f (a) the rate of empoyer contrbutons used for the beneft
of any empoyee cannot e ceed n any year 12 percent of such em-
poyee s actua compensaton n e cess of 3,600 n that year, and (b)
the benefts for pror servce of any empoyee do not e ceed the
amounts acceptabe for pror servce credts, as set forth n paragraphs
3 through 7.
10. Of set pans. The term offset pan means a pan n whch no
empoyee and no porton of compensaton s e pcty e cuded by
reason of a mnmum compensaton requrement, and n whch a the
provsons ncudng the beneft rates appy unformy to a covered
empoyees regardess of compensaton, e cept that the benefts other-
wse provded by the pan formua are reduced or offset by a percent-
age of the empoyee s retrement annuty under the Raroad Retre-
ment ct. n offset pan whch conforms to condtons (b), (c), and
(e) sted n paragraph 3 s ntegrated f the offset does not e ceed
5 percent of the retrement annuty for whch the empoyee s mme-
datey egbe. If the pan s as descrbed n the precedng sentence
e cept that t provdes for death benefts of the form descrbed n
paragraph 5, the offset must not e ceed 75.5 percent of such retre-
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29.165-3.
29
ment annuty. If the pan s as descrbed above e cept that the nor-
ma form of retrement beneft s an annuty for 10 years certan and
fe thereafter, the offset must not e ceed 76.5 percent f the pan does
not ncude death benefts of the form descrbed n paragraph 5, or
6 percent f the pan does ncude such death benefts.
11. Permssbe mnmum benefts. pan s ntegrated f t con-
forms to the rues set forth n paragraphs 3 through 10 e cept that
t provdes a mnmum retrement beneft not n e cess of 2 0 a year,
or a year per year of servce, pus ncrease for empoyee contrbu-
tons as set forth n paragraph , or for mnmum empoyer contrbu-
tons wth respect to any empoyee of 60 a year. owever, such mn-
mum s not to be used as a toerance and may not be taken nto account
n determnng whether hgher benefts conform to the above rues.
12. Correspondence reatng to ths rung shoud refer to ts num-
ber and to the symbos T: S: P.
Secton 29.165-3: Requrements as to coverage. Rev. Ru. 13
INT RN L R NU COD
Integraton of deferred beneft pans of empoyers wth the od-
age and survvors Insurance benefts provded by the Soca Securty
ct, as amended by Pubc Law 590, ghty-second Congress, second
sesson, approved uy 1 , 1952.
1. Mmeograph 66 1 (C. . 1951-1, 1), dated May 3, 1951, sets
forth certan rues for determnng whether a penson or proft-sharng
pan s so ntegrated wth the benefts provded by the Soca Securty
ct mendments of 1950 that the pan w not be consdered dscrm-
natory n favor of offcers, sharehoders, supervsors or hghy com-
pensated empoyees under the provsons of secton 165(a) (3) ( ),
( ), and (5) of the Interna Revenue Code and sectons 29.165-3 and
of Reguatons 111. In vew of the amendments to the Soca Se-
curty ct effected by Pubc Law 590, ghty-second Congress, sec-
ond sesson, approved uy 1 , 1952, consderaton has been gven to
the rues n Mmeograph 66 1, supra, (sometmes referred to heren-
after as the basc mmeograph) for the purpose of makng such mod-
fcatons as are warranted.
2. Under the amended od-age and survvors nsurance provsons,
the monthy od-age nsurance benefts under the new start formua,
whch w appy n most cases of retrement of nsured ndvduas at
or after reachng age 65 n the future, w be equa to 55 percent of
the frst 100 of average monthy wage pus 15 percent of the ne t 200
of average monthy wage. The ma mum monthy od-age nsurance
beneft, payabe n the case of an egbe retred worker whose average
monthy wage s 300, w be 5 a month, or 2 percent of hs
average monthy wage. s ndcated n the basc mmeograph, the
tota Soca Securty benefts wth respect to an empoyee may be con-
sdered for ntegraton purposes as equa n vaue to 150 percent of
hs od-age nsurance benefts. Thus, the tota Soca Securty bene-
fts wth respect to an empoyee whose average monthy wage s 300
Orgnay Issued as IR-Mmeograph 97, dated anuary 5, 105S.
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29.165-3.
may be consdered as equvaent to a straght fe annuty begnnng
at age 65 or ater retrement of 2y2 percent of average monthy wage.
s ponted out n the basc mmeograph, empoyees covered under
the od-age and survvors nsurance provsons must contrbute
under theFedera Insurance Contrbutons ct, and the cost estmates
ndcate that n the ong run empoyees n the aggregate w pay
appro matey haf the cost of ther benefts. It was recognzed n
the basc mmeograph, however, that empoyees retrng n the near
future woud contrbute much ess than haf the cost of ther benefts,
and, n deveopng the ntegraton rues, a reatvey sma ad|ustment
was made on account of the requred empoyee contrbutons. Fur-
ther consderaton has ed to the concuson that a arger ad|ustment
s |ustfed at the present tme.
Consequenty, t has been determned that no ncrease shoud be
made n the basc ntegraton mts for e cess pans wth a mnmum
compensaton eve of 3,600 a year. owever, because of the heaver
weght gven n the new formua to the frst 100 of average monthy
wage, some ncrease appears warranted n the mts for e cess pans
wth a mnmum compensaton eve between 1,200 and 3,600 a year.
so, because of the greater recognton gven to the requred empoyee
contrbutons, changes are requred n the rues for ntegratng offset
pans.
3. The defntons n paragraph and the rues n paragraphs 5
through 10 of Mmeograph 66 1, supra, reman unchanged.
. Paragraph 11 of Mmeograph 66 1, supra, s amended to read
as foows:
11. cess pans tcth mnmum compensaton eve between 1,200 and 3,000
a year. noncontrbutory e cess pan n whch the mnmum nnnun compensa-
ton eve s ower thnn 3,600 but not ower than 1,200 s ntegrated f the annua
retrement beneUts tor any empoyee cannot e ceed an amount determned as
fuuws:
(a) Dvde 720 by the mnmum annua compensaton eve. The fracton
thus obtaned shoud then be mutped by /9 f the pan provdes
benefts n case of death before retrement as descrbed n paragraph 6,
and shoud aso be appropratey ad|usted n the manner provded n para-
graphs 7 and 10 where the pan contans provsons descrbed n those
paragraphs. The resutng percentage s the ma mum rate whch may
be apped to the porton of average annua compensaton n e ess of the
mnmum compensaton eve but not n e cess of 3,600.
(6) Compute the actua norma annua beneft (but not n e cess of the
amount produced by appyng the ma mum rate determned In (a)) pro-
vded by the pan on the porton of average annua compensaton between
the mnmum annua compensaton eve and 3,600. Dvde ths amount by
3,WO. dd the percentage thus obtaned to the approprate percentage set
fort or determned n accordance wth paragraphs 5, 6, 7, or 10. The resut-
ng percentage s the ma mum rate whch may be apped to the average
annua compensaton n e cess of 3,600.
(c) The sum of the amounts determned n accordance wth subpara-
graphs (a) and (6) shoud then be ad|usted for cases of norma retrement
wth ess than 15 years of servce or eary retrement or severance In the
manner set forth n paragraphs and 9.
ampe: noncontrbutory e cess pan In whch the mnmum compensaton
eve s 3,000 a year provdes norma annua retrement benefts upon retre-
ment at age 65 wth at east 15 years of servce of 1 percent of average annua
compensaton n e cess of 3,000 but not n e cess of 3,600 pus 33 percent of
average annua compensaton n e cess of 3,600, on a 10 years certan and
fe form. In case of death or severance of empoyment for other reason before
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29.165-3.
296
norma retrement, benefts equa to the reserve accumuated on a typca eve
fundng method are pad. Such pan s ntegrated; ths Is determned as
foows:
(a) Step (1): 720 dvded by 3,000 equas 0.2
(2) : 0.2 /9 90 equa 19.2
Thus, the 1 percent rate provded by the pan does not e ceed the ma mum
permssbe rate.
(6) Step (1): 1 of 000 equas 10
(2) : 10 dvded by 3,600 equas 3
(3) : 3 pus 30 equas 33
Thus the 33 percent rate provded by the pan does not e ceed the ma mum per-
mssbe rate.
(c) The benefts determned by appcaton of the above percentages are
appropratey ad|usted n cases of severance of empoyment before norma
retrement.
5. Paragraphs 12, 13, 1 , 16, 17, 1 , and 19 of Mmeograph 66 1,
supra, reman unchanged e cept that any references to paragraph 11
contaned theren sha refer to paragraph 11 as amended n paragraph
of ths suppement.
6. Offset pans. pan n whch no empoyee and no porton of
compensaton s e pcty e cuded by reason of a mnmum compen-
saton requrement, and n whch a the provsons ncudng the
beneft rates appy unformy to a covered empoyees regardess of
compensaton, e cept that the benefts otherwse provded by the
pan formua are reduced or offset by a percentage of the empoyee s
od-age nsurance benefts, s often referred to as an offset pan . In
order for such a pan to be ntegrated:
(a) If the offset s apped to a percentage of the empoyee s
od-age nsurance beneft as computed under the formua n the
Soca Securty ct mendments of 1950 pror to the amendments
effected by Pubc Law 590, ghty-second Congress, second ses-
son, approved uy 1 ,1952, such percentage may not e ceed the
approprate percentage set forth n or computed n accordance
wth paragraph 15 of the basc mmeograph.
(6) If the offset s apped to a percentage of the empoyee s
od-age nsurance beneft as computed under the formua con-
taned n Pubc Law 590, ghty-second Congress, second ses-
son, approved uy 1 , 1952, such offset may not e ceed 130 per-
cent of such od-age nsurance benefts n a pan whch conforms
to condtons (a), (6), and (e) sted n paragraph 5 of the basc
mmeograph. If the pan s as descrbed n the precedng sen-
tence e cept that t provdes for death benefts of the form de-
scrbed n paragraph 6 of the basc mmeograph, the offset may
not e ceed 115 percent of such od-age nsurance benefts. If
the pan s as descrbed n ether of the two precedng sentences
e cept that the norma form of retrement benefts s one of those
sted n paragraph 7 of the basc mmeograph, the offset must
not e ceed such 130 percent or 115 percent, whchever s appc-
abe, mutped by the approprate percentage set forth n such
paragraph 7, of such od-age nsurance benefts.
The acceptabe methods of appyng the offset n cases where bene-
ft payments under the pan can commence before age 65, as set forth
n paragraph 15 of the oasc mmeograph, reman appcabe.
ampe: pan coverng a empoyees regardess of earnngs
provdes norma annua retrement benefts at age 65, on a 10 year
certan and fe form, of 0 percent of annua compensaton as denned
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297
29.201-1.
n the pan ess 100 percent of the od age nsurance beneft to whch the
empoyee s, or woud on tng appcaton be, entted. In case of
death before retrement, there s a beneft equa to the reserve or the
tota pror contrbutons, whchever s greater. Mo other benetts
are payabe before age 65. Such pan s ntegrated because the offset
of 100 percent of od-age nsurance benetts does not e ceed the ma -
mum offset permssbe n a pan of ths type. Such ma mum offset
for ths type of pan s determned as foows:
90 115 103.5
Note that f the pan had been dentca wth that descrbed n the
e ampe e cept that the retrement benefts were on an nstament
refund or more e pensve form, the pan woud not be ntegrated,
snce the 100 percent offset woua be more than the ma mum perms-
sbe, determned as foows n the case of an nstament refund form:
0 115 92
SUPPL M NT F. P RTN RS IPS
S CTION 1 3. COMPUT TION OF P RTN RS IP
INCOM
Secton 29.1 3-1: Computaton of partnershp
ncome.
INT RN L R NU COD
Costs attrbutabe to meas, odgng, and other persona accommoda-
tons of the managng partner of a hote busness. (See Rev. Ru. 0,
page 62.)
SUPPL M NT G. INSUR NC COMP NI S
S CTION 201. LIF INSUR NC COMP NI S
Secton 29.201-1: Ta on fe nsurance com- T. D. 5992
panes.
( so Sectons 29.201-5, 29.201-6; Secton
202, Secton 29.202-2; Secton 203 , Sec-
tons 29.203 -1, 29.203 -2; Secton 33,
Secton 0. 33(a)-2, Reguatons 130.)
TITL 26 INT RN L R NU C PT R I, SU C PT R , P RT 29 ND
P RT 0
Reguatons 111 and 130 amended to conform to Pubc Law 0
( 2d Cong.) C. . 1952-2, 357 , approved uy , 1952, reatng to
ta abty of fe Insurance companes.
Washngton 25, D. C.
Concerned:
In order to conform Reguatons 111 26 CFR, part 29 and Regu-
atons 130 26 CFR, part 0 to Pubc Law 6 , ghty-second
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29.201-1. 29
Congress C. . 1952-2, 357 , approved uy , 1952, reatng to
ta abty of fe nsurance companes, such reguatons are amended
as foows:
R GUL TIONS 111 26 CF , P RT 29
Paragraph 1. There s nserted mmedatey before secton 29.201-1
the foowng:
PU LIC L W GS, IG TY-S COND CONGR SS, PPRO D
ULY , 1952
States of merca n Congress assembed, That secton 201(a) (1) (re-
atng to Imposton of ta on fe-nsurance companes) of the Interna
Revenue Code s hereby amended by addng after 1951 wherever t ap-
pears, and 1952 .

Sec. 2. The provsons of secton 201 (f) and sectons 201(a) (1)
of the Interna Revenue Code as amended by ths ct sha be ap-
pcabe to ta abe years begnnng n 1952.
C. . 1952-1,121 , approved February 21,1952, s further amended
as foows:
( ) y nsertng n the frst sentence after the words wth respect
to ta abe years begnnng n 1951 the words and 1952 .
( ) y changng the ast sentence of the second paragraph thereof
to read as foows:
For computaton of 1951 or 1952 ad|usted norma-ta net Income from the norma-
ta net ncome for such year, see sectons 29.203 -1 and 29.203 -2.
Par. 3. Secton 29.201-5, as amended by Treasury Decson 5 5, s
further amended by changng n the second sentence thereof the words
n the case of ta abe years begnnng n 1951 to read as foows: n
the case of a ta abe year begnnng n 1951 or 1952 .
Par. . Secton 29.201-6, as amended by Treasury Decson 5 5, s
further amended by nsertng n the frst sentence n eu of the words
for ta abe years begnnng n 1951 the words n the case of a ta -
abe year begnnng n 1951 or 1952 .
Par. 5. Secton 29.202-2, as amended by Treasury Decson 5 5, s
further amended by changng the ast paragraph thereof to read as
foows:
In the case of a ta abe year begnnng In 1951 or 1952, an amount equa to
eght tmes the amount of the appcabe ad|ustment provded In the precedng
paragraph must be added to norma-ta net ncome for such year as a factor n
determnng 1951 or 1952 ad|usted norma-ta net ncome.
Par. 6. There s nserted mmedatey precedng secton 29.203 -1,
as added by Treasury Decson 5 5, the foowng:
PU LIC L W 6 , IG TY-S COND CONGR SS, PPRO D
ULY , 1952

(b) Secton 203 (reatng to ad|usted norma-ta net ncome of fe-
nsurance companes) of the Interna Revenue Code s hereby amended
by addng after 1951 , wherever t appears, and 1952 .
Seo. 2. The provsons of secton 203 of the Interna
Revenue Code as amended by ths ct sha be appcabe to ta abe
years begnnng n 1952.
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299
29.201-1.
Par. 7. Secton 29.203 -1, as added by Treasury Decson 5 5,
s amended to read as foows:
Ta Lfe Insurance Companes n the Case of a Ta abe Tear egnnng
n 1951 or 1952. Secton 201(a), as amended by secton 336 of the Revenue
ct of 1951 and Pubc Law 0 ( 2d Cong.), provdes that In the case of a
ta abe year begnnng In 1951 or 1952, the ta Imposed on a fe Insurance
company for such year sha consst of a ta upon the 1951 ad|usted norma-ta
net ncome or the 1952 ad|usted norma-ta net Income of the company equa
to 3 percent of the amount of such Income not In e cess of 200,000, pus
6 percent of the amount of such Income In e cess of 200,000. The terms
1951 ad|usted norma-ta net Income and 1952 ad|usted norma-ta net
ncome mean the norma-ta net Income (consstng of net Income computed as
provded n secton 29.201-7 ess the credt for partay ta -e empt Interest
aowed under secton 26(a) and ess the credt for dvdends receved aowed
under secton 26(b)) for the ta abe year begnnng n 1951 or 1952, as the case
may be, pus eght tmes the amount of the ad|ustment for certan reserves
computed as provded n secton 202(c) (see secton 29.202-2), and mnus the
reserve nterest credt, f any, provded In secton 203 (b) (see secton
29.203 -2). The reserve and other pocy abty credt s not aowed for
purposes of the computaton of 1951 ad|usted norma-ta net Income or 1952
ad|usted norma-ta net Income.
The ta mposed upon 1951 ad|usted norma-ta net Income or upon 1952
ad|usted norma-ta net ncome, as the case may be, by secton 201(a) Is In
en of the ta on ad|usted norma-ta net ncome and the ta on ad|usted
surta net ncome mposed by secton 201(a) for ta abe years other than
ta abe years begnnng n 1951 and 1952.
Par. . Secton 29.203 -2, as added by Treasury Decson 5 5,
s amended by nsertng after 1951 n the frst sentence thereof the
words or 1952 .
Par. 9. There s nserted mmedatey precedng secton 0. 33(a)-1
the foowng:
I U LIC L W 6 , IG TY-S COND CONGR SS, PPRO D
ULY , 1952

(c) Secton 33(a)(1)( ) (reatng to e cess profts net ncome
of fe-nsurance companes) of the Interna Revenue Code s hereby
amended by addng after 1951 , wherever t appears, and 1952 .
Sec. 2. The provsons of secton 33(a)(1)( ) of the
Interna Revenue Code as amended by ths ct sha be appcabe to
ta abe years begnnng n 1952.
Par. 10. Secton 0. 33(a)-2(h), as amended by Treasury Decson
5 5, s further amended as foows:
( ) y nsertng n the parenthetca phrase n the frst sentence
thereof after 1951 the foowng: or 1952 .
( ) y nsertng n the parenthetca cause n the second sentence
thereof after 1951 the foowng: or 1952 .
Par. 11. ecause ths Treasury Decson merey makes appcabe
for ta abe years begnnng n 1952 the same rues as are appcabe
for ta abe years begnnng n 1951 for determnng the ncome and
e cess profts ta abty of fe nsurance companes t s hereby found
to be unnecessary to ssue ths Treasury Decson wth notce and pubc
procedure thereon under secton (a) of the dmnstratve Procedure
ct, approved une 11,19 G, or sub|ect to the effectve date mtaton
of secton (c) of that act.
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29.251-1. 300
sectons 62 and 3791 of the Interna Revenue Code (53 Stat 32, 67;
26 D. S. C. 62,3791).)
T. Coeman ndrews,
bert P. Tutte,
(Fed wth the Dvson of the Federa egster February 20,1953, : 50 a. m.)
S CTION 202. D UST D NORM L-T
N T INCOM
Secton 29.202-2: d|ustment for certan reserves.
INT RN L R NU COD
S CTION 203 . 1951 ND 1952 D UST D NORM L-T
N T INCOM
Secton 29.203 -1: Ta on fe nsurance com-
panes n the case of a ta abe year begnnng
n 1951 or 1952.
INT RN L R NU COD
SUPPL M NT . POSS SSIONS OF T UNIT D ST T S
S CTION 251. INCOM FROM SOURC S WIT IN
POSS SSIONS OF UNIT D ST T S
Secton 29.251-1: Ctzens of the Unted States and Rev. Ru.
domestc corporatons dervng ncome from sources
wthn a possesson of the Unted States.
( so Secton 116, Secton 29.116-1; Secton 131, Sec-
ton 29.131-1; Secton 1621, Reguatons 116, Sec-
ton 05.102.)
INT RN L R NU COD
ppcabty of ncome ta and ncome ta wthhodng to earned
ncome derved by Unted States ctzens for servces performed on
Guam.
1. The purpose of ths Revenue Rung s to outne, n response to
many nqures, the basc prncpes, under the Organc ct of Guam
(6 Sat. 3 ; C. . 1950-2, 21 ), approved ugust 1, 1950, and the
Orgnay Issued as IR-Mmeograph 73, dated December 2, 1952.
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301
29.251-1.
amendments to the Interna Revenue Code effected by the Revenue
ct of 1950 and ater aws, for determnng the abty ncurred (a)
by a ctzen of the Unted States for reportng and payng ncome ta
n respect to earned ncome derved from the performance of persona
servces on Guam, and (b) by an empoyer for wthhodng, pursuant
to Code secton 1C22, ncome ta upon wages pad Unted States ct-
zens for empoyee servces performed on Guam.
2. Secton 31 of the Organc ct of Guam whch was paced n
operaton as of anuary 1, 1951, by ecutve Order 10211 (C. .
1951-1, 155), provdes: The ncome ta aws n force n the Unted
States of merca and those whch may hereafter be enacted sha be
hed to be kewse n force n Guam. The system of ncome ta aton
thus created has been hed to be oca n ts nature and separate from
the Federa ncome ta system. Thus, as e paned n I. T. 0 6
(C. . 1951-1, 57), there are two separate ta systems, each arsng
from an dentca statute, the one sub|ect to admnstraton by the
Government of Guam and the other by the Unted States. In con-
strung the Guamanan ncome ta aw, t s necessary n some n-
stances to substtute the word Guam for the e presson Unted
States where t occurs n the appcabe statute, and to make such
other substtutons as are ndcated n order to gve proper effect to
the Guamanan system.
3. ctzen of the Unted States who s a resdent of Guam s abe
to Guam for ta on hs ncome from whatever source derved, e cept
such as may be e empf from the ta by statutory provsons. ctzen
of the Unted States who s not a resdent of Guam ncurs ncome ta
abty to Guam ony as to ncome derved from sources wthn Guam.
Compensaton for persona servces rendered n Guam by a Unted
States ctzen who s not a resdent of Guam s, for Guamanan ta
purposes, deemed by aw not to be ncome derved from sources wthn
Guam where t reates ony to mtary or nava servce. owever,
the government of Guam has nformed the ureau that t w not
requre any ctzen of the Unted States, whether mtary or cvan,
and whether resdent or nonresdent as to Guam, to report and pay to
Guam ncome ta upon remuneraton derved for servces performed
on Guam n the empoy of the Unted States or any agency thereof.
The prmary reason for ths s that satsfactory arrangements have
een made to have the varous Federa agences wth empoyees on
Guam report to the Commssoner of Interna Revenue the amount of
ncome ta wthhed from the saares and wages of such empoyees.
quvaent amounts are then transferred to the Treasury of Guam.
Insurmountabe admnstratve burdens prevent the use of smar
procedures wth respect to the Unted States ctzens who are empoyees
of prvate empoyers.
. ctzen of the Unted States, wherever resdent, s abe to
the Unted States for ta on hs ncome from whatever source derved,
e cept such as may be e empt from the ta by statutory provsons.
In the computaton of ta due under the Federa ncome ta system,
remuneraton derved by a ctzen of the Unted States for servces
performed on Guam n the empoy of the Unted States or any agency
thereof may not be e cuded from the recpent s gross ncome for
ta abe years begnnng after 1950 under the provsons of sectons
20335 53 20
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29.251-1.
302
116(a) or 251 of the Interna Revenue Code. In genera, no e cuson
w otherwse be found n the Code n respect of such ncome, whch
must, f ta abe, be reported to the Unted States and the approprate
ncome ta pad wth respect thereto. ctzen of the Unted States
who s empoyed on Guam by an empoyer other than the Unted
States or an agency thereof s entted to the benefts of secton 251
of the Code, provded the requrements of that secton are met. n
ndvdua who s egbe for and eects to cam the benefts provded
by secton 251 s requred to report to the Unted States ony such
ncome as s derved by hm from sources wthn the Unted States
or whch s receved wthn the Unted States. Such an ndvdua
must report such ncome, f any, on Form 10 0; must fe wth such
return a propery e ecuted schedue on Form 10 0 ; may cam ony
one e empton under secton 25(b) of the Interna Revenue Code;
may not cam the standard deducton or compute hs ta by the use
of the ta tabe prnted on page of Form 10 0; and may not cam
the credt provded n secton 131 of the Code for ta es pad or
accrued to a foregn country or possesson. If such ndvdua s
not egbe, or, beng egbe, does not eect to cam, for purposes
of computng tne ncome ta due the Unted States, the benefts pro-
vded n secton 251, hs remuneraton derved from servces per-
formed on Guam must be reported to the Unted States and the ta
duo the Unted States must be computed upon the tota ncome
dscosed n hs return.
5. In any case where a ctzen of the Unted States ncurs abty
both to Guam and to the Unted States for ta upon the same ncome,
he may cam a credt for the ta pad to Guam, under the provsons
of secton 131 of the Interna Revenue Code, sub|ect to the condtons
and mtatons of that secton, provded that he does not aso cam
the benefts of secton 251 of the Code and nether cams the standard
deducton nor computes hs ta by the use of the ta tabe prnted on
page of Form 10 0.
6. The wthhodng of Unted States ncome ta from remunera-
ton pad on or afte/ anuary 1, 1951, by an empoyer to ctzens of
the Unted States for servces performed on Guam s controed by
secton 1621 (a) ( ) ( ) of the Interna Revenue Code. Ths secton
e cepts from wages sub|ect to such wthhodng remuneraton pad
for servces for an empoyer (other than the Unted States or any
agency thereof) performed wthn a possesson of the Unted States
f t s reasonabe to beeve that at east 0 percent of the remunera-
ton to be pad to the empoyee by such empoyer durng the caendar
0 percent test stated n secton 1621(a) ( ) ( ) and, where such test
s not met, shoud wthhod and pay to the Unted States ncome ta
upon the wages pad ctzens of the Unted States for empoyee
servces performed on Guam. Where that test s met, ncome ta
s not requred to be wthhed for the Unted States.
7. Federa ta forms, bearng a Government of Guam overstamp
or otherwse sutaby dentfed, are presenty prescrbed by the Gov-
ernment of Guam for use by ndvdua ta payers n the reportng
and payng of Guamanan ncome ta and by empoyers n the report-
ng and payng of Guamanan ncome ta wthhed. ny ta wth-
hed and pad or payabe to the Government of Guam s, under secton
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303
29.275-1.
35 of the Code wth respect to ta wthhed at the source, aowabe
as a credt ony aganst the Guamanan ta abty, and s not aow-
abe as a credt on page 1 of the Federa ncome ta return.
. It shoud be partcuary noted that the requrements and e cep-
tons as to wthhodng are not concusve as to the ncudbty of
remuneraton n the gross ncome to be reported by a ctzen of the
Unted States on a return of ncome fed wth the Unted States or
wth Guam.
9. Guamanan ncome ta abty, and the credtng or refundng
of ncome ta wthhed and pad or payabe to Guam, are matters
wthn the |ursdcton of the Commssoner of Ta es, Government
of Guam, gana, Guam, from whom ta payers concerned may obtan
nformaton.
10. Correspondence n regard to paragraphs 3, , and 5 of ths
Revenue Rung shoud refer to the symbos T: R: I. Correspondence
n regard to paragraph 6 shoud refer to T: R: .
S CTION 252. CITIZ NS OF POSS SSIONS
OF UNIT D ST T S
Secton 29.252-1: Status of ctzens of Unted Rev. Ru. 56
States possesson.
INT RN L R NU COD
The ta payer, a ctzen of Guam, who s a ctzen of the Unted
States ony by vrtue of coectve naturazaton under the Organc
ct of Guam, 6 Stat 3 , C. . 1950-2,21 , s a ctzen of a possesson
of the Unted States for the purposes of secton 252 of the Interna
Revenue Code and s sub|ect to Federa ncome ta ony upon ncome
derved from sources wthn the Unted States. Such ta payer s aso
sub|ect to ncome ta mposed by the government of Guam by reason
of the dua system of ta aton created by the Organc ct of Guam.
(See L T. 0 6, C. . 1951-1,57.)
SUPPL M NT L. SS SSM NT ND COLL CTION OF D FICI NCI S
S CTION 275. P RIOD OF LIMIT TION UPON SS SS-
M NT ND COLL CTION
Secton 29.275-1: Perod of mtaton upon T. D. 5971
assessment of ta .
INCOM T ; T L I RS GINNING FT R D C M R 1, 19 1
ct of 1061, reatng to Income pursuant to award of Interstate Com-
merce Commsson.
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29.275-1.
30
Washngton 25, D. C.
Concerned:
On November 15,1952, a notce of proposed rue makng w as pub-
shed n the Federa Regster 17 F. R. 10 6 to conform Reguatons
111 26 CFR, part 29 to secton 611 of the Revenue ct of 1951, ap-
roved October 20,1951. No ob|ectons to the rues proposed havng
een receved wthn the 30 days foowng such pubcaton, the
amendments set forth beow are hereby adopted.
29. 2-1 26 CFR 29. 2-1 the foowng:
S C. 611. INCOM PURSU NT TO W D OF INT RST T
COMM RC COMMISSION R NU CT OF 1051. P-
PRO D OCTO R 20,1961 .
(a) Notwthstandng secton 2 of the Interna Revenue Code,
amounts receved, pursuant to an award under the order ssued under
the Raway Ma Pay ct of 1916 by the Interstate Commerce Comms-
son on December ,1930, as compensaton for the transportaton of ma
durng 1950 and pror years sha be deemed to be ncome whch accrued
n the ta abe years n whch the servces to whch such compensaton
reates were rendered. Notwthstandng secton 292 of such Code, no
nterest sha be assessed or coected for any perod pror to uy 1,1951,
wth respect to that part of any defcency whch the Secretary deter-
mnes to be attrbutabe to the ncuson of ncome n a ta abe year by
reason of the appcaton of ths secton. ny defcency attrbutabe to
the ncuson of ncome n any ta abe year by reason of the appcaton
of ths secton may be assessed at any tme pror to the e praton of
the perod for assessment wth respect to the ta abe year of the ta -
payer whch Incudes December , 1050. notwthstandng the provsons
of secton 275 of the Interna Revenue Code or any other provson of
aw or rue of aw whch woud otherwse prevent such assessment.

Par. 2. Secton 29. 2-1 (a), as amended by Treasury Decson 5 05
C. . 19 ,15 , approved September 22,19 26 CFR 29. 2-1 (a) ,
s further amended by addng at the end thereof the foowng new
sentence:
s to amounts receved, pursuant to an award under the order ssued on Decem-
ber ,1950, under the Raway Ma Pay ct of 1916 by the Interstate Commerce
Commsson, as compensaton for the transportaton of ma durng 1950 and
pror years, see secton 611 (a) of the Revenue ct of 1951.
C. . 19 6-1, 159 . approved October 2 , 1952 26 CFR 29.275-1 ,
s further amended by nsertng mmedatey precedng the ast para-
(13) ny defcency attrbutabe to the Incuson of ncome n any ta abe
year by reason of the appcaton of secton 611(a) of the Revenue ct of 1951
(whch quafes secton 2 wth respect to the ta abe year n whch amounts
receved, pursuant to an award under the order ssued on December , 1950,
under the Raway Ma Pay ct of 1916 by the Interstate Commerce Comms-
son, as compensaton for the transportaton of ma durng 1950 and pror
years are to be ncuded n ncome) may be assessed at any tme pror to the
e praton of the perod for assessment wth respect to the ta abe year of the
ta payer whch Incudes December . 1950, notwthstandng the provsons of
secton 275 or of any other provson of aw or rue of aw, such as the provsons
of secton 3700 or the doctrne of res |udcata, whch woud otherwse prevent
such assessment.
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305
292.
Par. . There s nserted mmedatey precedng secton 293 the
foowng:
S C. 611. INCOM PURSU NT TO W RD OF INT RST T
COMM RC COMMISSION R NU CT O 1 1051, P-
PRO D OCTO R 20,1951 .

(b) Secton 292 (reatng to nterest on defcences) s hereby
amended by addng at the end thereof the foowng new subsecton:
(d) Wth respect to any corporaton entted to receve payment for
the transportaton of Unted States ma, If an award s retroactvey
receved for the transportaton of Unted States ma, and f such award
s requred to be treated as ncome n the year or years n whch the
ma was carred, then, notwthstandng the provsons of subsecton
(a) of ths secton, no nterest sha be due, wth respect to any perod
pror to thrty days after such award s granted, for ta defcences
resutng from the ncuson of such addtona ma payments
retroactvey.
Ths Treasury Decson s ssued under the authorty contaned n
26 U. S. C. 62, 3791).)
ohn S. Graham,
pproved anuary , 1953.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster anuary 12, 1053, : a. m.)
Secton 29.275-1: Perod of mtaton upon
assessment of ta .
INT RN L R NU COD
Secton 29.275-1: Perod of mtaton upon
assessment of ta .
INT RN L R NU COD
SUPPL M NT M. INT R ST ND DDITIONS TO T T
S CTION 292. INT R ST ON D FICI NCI S
Rev. Ru. 7
INT RN L R NU COD
Waver of Restrcton on ssessment and Coecton of Defcency
n Ta and cceptance of Overassessment, Form 70, was fed by a
ta payer pursuant to the provsons of secton 272(d) of the Interna
Revenue Code. The waver provdes for the mmedate assessment
of addtona ta n the amount of 3a| doars. Subsequent to the
fng of such waver, and pror to assessment of the addtona ta ,
the ta payer fed a second waver provdng for the mmedate assess-
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29.322-3.
306
ment of addtona ta n the amount of 5 doars. The second waver
bore the notaton that t superseded the waver prevousy fed n
the net amount of 3 doars. The defcency was not assessed pror
to e praton of the thrteth day after the fng of the second waver.
ed, for the purposes of secton 292(a) of the Code, reatng to nter-
est on defcences, nterest shoud be assessed on Z doars to the
thrteth day after the fng 0f the frst waver and on 2 doars to
the thrteth day after the fng of the second waver.
SUPPL M NT O. O RP YM NTS
S CTION 322. R FUNDS ND CR DITS
Secton 29.322-3: Cams for refund by Rev. Ru. 110
ta payers.
INT RN L R NU COD
Where cams for refund of Federa Income ta were maed In
ampe tme to have been receved n the offces of coectors of nterna
revenue n the ordnary course of the mas on or before March 15,
1052, but such cams were not receved on that date because of out-
standng nstructons to the Post Offce Department to the effect that
coectors offces woud not be open to receve ma on Saturday,
March 15, 1952, such cams w be consdered to have been receved
on March 15, 1952, f they were n fact receved by March 17, 1952.
dvce s requested whether cams for refund whch were maed
n ampe tme to have been receved n the offces of coectors of nter-
na revenue n the ordnary course of the mas on March 15,1952, but
due to unusua crcumstances were not receved unt March 17, 1952,
may be consdered to be tmey fed.
The cams for refund of ncome ta n queston were maed durng
March 1952 n tme to have been devered to the offces of the coectors
(now drectors of nterna revenue) n the ordnary course of the mas
on Saturday, March 15, 1952. owever, due to outstandng nstruc-
tons to the Post Offce Department to the effect that the coectors
offces woud not be open to receve ma on Saturday, these cams were
not devered to the coectors offces unt Monday, March 17, 1952,
at whch tme the cams were stamped as receved. The coectors
offces were n fact open on March 15, 1952, and wde pubcty was
gven to the fact that ther offces woud be open for the purpose of
the ta payer assstance program. Income ta returns, payments, and
cams for refund whch were physcay presented were stamped as
receved on March 15, 1952. ad the Post Offce Department been so
nstructed, the cams n queston woud aso have been devered and
stamped as receved on that date.
Ordnary t s the poston of the ureau that a cam must be
actuay receved pror to the e praton of the statute of mtatons
under secton 322(b) of the Interna Revenue Code and that the fact
that t was paced n the mas n ampe tme to reach the offce of the
coector or the Commssoner by the e praton of the statutory
perod s not suffcent to consttute a fng wthn the meanng of
secton 322(b). (Cf. I. T. 1921, C. . III-, 315 (192 ); Peasant
aey Wne Co., 1 T. C. 519; Frank . Gray, 1C T. C. 262, 260.)
owever, here t appears that ta payers may have been msed nto
beevng that ma woud be devered to the offces of the coectors on
Saturday, March 15, 1952, by the above-mentoned pubcty.
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307
( 29.361-1.
ccordngy, t s hed that where cams for refund of Federa
ncome ta were maed n ampe tme to have been receved n the
offces of coectors of nterna revenue n the ordnary course of the
mas on or before March 15, 1952; but such cams were not receved
on that date because of outstandng nstructons to the Post Offce
Department to the effect that coectors offces woud not be open to
receve ma on Saturday, March 15, 1952, such cams w be con-
sdered to have been receved on March 15, 1952, f they were n fact
receved on March 17, 1952.
Secton 29.322-7: Lmtaton upon the credtng
and refundng of ta es pad.
INT RN L R NU COD
SUPPL M NT . R GUL T D IN STM NT COMP NI S
S CTION 361. D FINITION
Secton 29.361-1: Defnton of a reguated T. D. 6000
nvestment company.
Refatons 111 amended to conform to secton 337 of the Revenue
ct of 1951.
Washngton 25, D. O.
Concerned:
On December , 1952, notce of proposed ruemakng wth respect
to secton 337 of the Revenue ct of 1951, approved October 20, 1951,
was pubshed n the Federa Regster (17 F. R. 10972). fter con-
persons regardng the rues proposed, the amendments to Reguatons
111 26 CFR, part 29 set forth beow are hereby adopted.
29.361-1 26 CFR 29.361-1 the foowng:
S C. 337. T TR TM NT OP C RT IN IN STM NT COM-
P NI S R NU CT OF 1951, PPRO D OCTO R 20,
1951 .
(a) Incuson of Certan Regstered Management Companes n
the Defnton of Reguated Investment Company. Secton 3 1 (re-
atng to defnton of reguated nvestment companes) s hereby
amended by addng at the end thereof the foowng new subsecton:
(c) Certan Investment Companes. If the Securtes and -
change Commsson determnes n accordance wth reguatons ssued by
It, and certfes to the Secretary not more than CO days pror to the cose
of the ta abe year of a regstered management Investment company,
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5 29.361-1.
30
that such nvestment company s prncpay engaged n the furnshng
of capta to other corporatons whch are prncpay engaged n the
deveopment or e potaton of nventons, technoogca mprovements,
new processes, or products not prevousy generay avaabe, such n-
vestment company may, n the computaton of 50 per centum of the
vaue of ts assets under subparagraph ( ) of subsecton (b) (3) for any
quarter of such ta abe year, ncude the vaue of any securtes of an
ssuer, notwthstandng the fact that such nvestment company hods
more than 10 per centum of the outstandng votng securtes of such
ssuer, but ony f the nvestment company has not contnuousy hed
any securty of such ssuer (or of any predecessor company of such
ssuer as determned under reguatons prescrbed by the Secretary)
for 10 or more years precedng such quarter of such ta abe year. The
provsons of ths subsecton sha not appy at the cose of any quarter
of a ta abe year to an nvestment company f at the cose of such quar-
ter more than 25 per centum of the vaue of ts tota assets s represented
by securtes of ssuers wth respect to each of whch the nvestment
company hods more than 10 per centum of the outstandng votng
securtes of such ssuer and n respect of each of whch or any predeces-
sor thereof the nvestment company has contnuousy hed any securty
for 10 or more years precedng such quarter uness the vaue of ts tota
assets so represented s reduced to 25 per centum or ess wthn 30 days
after the cose of such quarter. The terms used n ths subsecton sha
have the same meanng as n subsecton (b) (3) of ths secton. For the
purposes of ths subsecton, uness the Securtes and change Comms-
son determnes otherwse, a corporaton sha be consdered to be prn-
cpay engaged In the deveopment or e potaton of Inventons, techno-
ogca mprovements, new processes, or products not prevousy gener-
ay avaabe, for at east 10 years after the date of the frst acquston
of any securty n such corporaton or any predecessor thereof by such
nvestment company f at the date of such acquston the corporaton
or ts predecessor was prncpay so engaged, and an nvestment com-
pany sha be consdered at any date to be furnshng capta to any
company whose securtes t hods f wthn 10 years pror to such date t
has acqured any of such securtes, or any securtes surrendered n
e change therefor, from such other company or predecessor thereof.
For the purposes of the certfcaton hereunder, the Securtes and -
change Commsson sha have authorty to ssue such rues, reguatons
and orders, and to conduct such nvestgatons and hearngs, ether
pubc or prvate, as t may deem approprate.
(b) Technca mendment. Secton 361(b) (3) ( ) s hereby
amended by nsertng after the tota assets of the ta payer and the
foowng: , e cept and to the e tent provded n subsecton (c), .
Tab. 2. Secton 29.301-1 26 CFR 29.301-1 s amended as foows:
( ) y strkng out the perod and dash n the headng of (b) of
the secton and nsertng n eu thereof the foowng: (1) In
genera.
( ) y nsertng n the second sentence of (b) of the secton, m-
medatey after 5 percent of the vaue of the tota assets of the cor-
, e cept and to the e tent provded n secton 361(c) n the case of certan ven-
ture capta regstered management nvestment companes quafyng thereunder,
(C) y addng at the end of (b) of the secton the foowng:
(2) enture capta regstered management nvestment companes. Secton
361(c) provdes, for ta abe years begnnng after December 31, 1 )50, that under
certnn condtons set forth beow a regstered management nvestment company
whch as been certfed by the Securtes and change Commsson for the
ta abe year may, n the computaton of 50 percent of the vaue of ts assets
31, 1950.
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309
29.361-1.
under cause ( ) of secton 361(b)(3) for any quarter of such ta abe year,
ncude, wth respect to securtes other than Government securtes or securtes
of other reguated nvestment companes, the vaue of any securtes of an ssuer,
notwthstandng the fact that such regstered management nvestment company
hods more than 10 percent of the outstandng votng securtes o such ssuer,
but ony f the nvestment company has not contnuousy hed any securty of
such ssuer or of any predecessor company of such Issuer for 10 or more years
precedng such quarter of such ta abe year. other provsons and requre-
ments of secton 361 and the reguatons thereunder are appcabe n determn-
ng whether such regstered management Investment company quafes as a
reguated nvestment company wthn the meanng of such secton.
The provsons of secton 361(c) are appcabe ony to a regstered manage-
ment nvestment company whch the Securtes and change Commsson has
determned, In accordance wth reguatons ssued by t, and has certfed to
the Secretary, not more than 60 days pror to the cose of the ta abe year of
such nvestment company, to be prncpay engaged n the furnshng of capta
to other corporatons whch are prncpay engaged n the deveopment or
e potaton of nventons, technoogca mprovements, new processes, or prod-
ucts not prevousy generay avaabe. For the purpose of the aforementoned
determnaton and certfcaton, uness the Securtes and change Commsson
determnes otherwse, a corporaton sha be consdered to be prncpay en-
gaged n the deveopment or e potaton of Inventons, technoogca mprove-
ments, new processes, or products not prevousy generay avaabe, for at
east 10 years after the date of the frst acquston of any securty In such
corporaton or any predecessor thereof by such Investment company f at the
date of such acquston the corporaton or Its predecessor was prncpay so
engaged, and an nvestment company sha be consdered at any date to be fur-
nshng capta to any company whose securtes t hods f wthn 10 years pror
to such date t has acqured any of such securtes, or any securtes surrendered
n e change therefor, from such other company or ts predecessor.
Secton 361(c) does not appy n the quartery computaton of 50 percent of
the vaue of the assets of an nvestment company under cause ( ) of secton
361(b) (3) for any ta abe year f at the cose of any quarter of such ta abe
year more than 25 percent of the vaue of ts tota assets (Incudng the 50
percent or more mentoned n such cause ( )) Is represented by securtes
(other than Government securtes or the securtes of other reguated Invest-
ment companes) of ssuers as to each of whch (1) such Investment company
hods more than 10 percent of the outstandng votng securtes of such Issuer
and () such nvestment company has contnuousy hed any securty of such
ssuer (or any securty of a predecessor of such ssuer) for 10 or more years
precedng such quarter, uness the vaue of Its tota assets so represented s
reduced to 25 percent or ess wthn 30 days after the cose of such quarter.
s used In secton 361(c) and ths paragraph (b) (2), the term predecessor
company means any corporaton the bass of whose securtes n the hands of
the nvestment company was, under the provsons of secton 113, the same n
whoe or n part as the bass of any of the securtes of the Issuer, and any
corporaton wth respect to whose securtes any of the securtes of the ssuer
were receved drecty or ndrecty by the Investment company n a transacton
or seres of transactons nvovng nonrecognton of gan or oss, n whoe or n
part. The other terms used n ths paragraph (b) (2) have the same meanng
as when used n secton 361(b) (3) (see paragraph (b) (1), above).
sectons 62 and 3791 of the Interna evenue Code (53 Stat. 32, 67;
26U. S. C. 62,3791).)
T. Coeman ndrews,
pproved March 26,1953.
M. . Fosom,
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29.373-1. 310
SUPPL M NT R. C NG S ND DISTRI UTIONS IN O DI NC TO
ORD RS OF S CURITI S ND C NG COMMISSION
S CTION 373.-D FINITIONS
Secton 29.373-1: Defntons. T. D. 50 5
INCOM T ; T L Y RS FF CT D Y N C NG OR DISTRI U-
TION M D FT R D C M R 31, 19 1
ct of 1951.
Washngton 26, D. C.
Concerned:
On November 11,1952, notce of proposed rue makng wth respect
to e changes or dstrbutons n obedence to orders of the Securtes
and change Commsson was pubshed n the Federa Regster
(17 F. R. 10263). No ob|ectons to the proposed rues havng been
receved, Reguatons 111 26 CFR, part 29 are amended as foows:
29.373-1 26 CFR 29.373-1 the foowng:
S C. 33 . C NG S ND DISTRI UTIONS IN O DI NC
TO ORD RS OF S CURITI S ND C NG COMMISSION
R NU CT OF 1951, PPRO D OCTO R 20,1951 .
(a) Defnton of System Group. Secton 373(d)(1) (reatng to
the defnton of the term system group ) s hereby amended to read as
foows:
(1) t east 90 per centum of each cass of the stock (other than
( ) stock whch s preferred as to both dvdends and assets, and
( ) stock whch s mted and preferred as to dvdends but whch
s not preferred as to assets but ony f the tota vaue of such
stock s ess than 1 per centum of the aggregate vaue of a casses
of stock whch are not preferred as to both dvdends and assets) of
each of the corporatons (e cept the common parent corporaton) s
owned drecty by one or more of the other corporatons; and .
be appcabe wth respect to ta abe years affected by an e change or
dstrbuton made after December 31, 19 7.
Par. 2. Secton 29.373-1 (d) 26 CFR 29.373-1 (d) s amended as
foows:
( ) y amendng the headng thereof to read as foows:
System Group (1) Ta abe years affected by an e change or dstrbuton
made before anuary 1, 19 .
( ) y strkng from the frst sentence thereof The term system
group s denned and nsertng n eu thereof the foowng:
For ta abe years affected by an e change or dstrbuton made before anu-
ary 1,19 , the term system group s defned
(C) y addng at the end thereof the foowng:
(2) Ta abe years affected by an e change or dstrbuton made after De-
cember 31, 19 7 Yor ta abe years affected by an e change or dstrbuton
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311
29. 02-1.
made after December 31, 10 7, the term system group s defned n secton
373(d) to mean one or more chans of corporatons connected through stock own-
ershp wth a common parent corporaton, f at east 9 ) percent of each cass
of stock (other than ( ) stock whch s preferred as to both dvdends and assets,
and ( ) stock whch s mted and preferred as to dvdends but whch s not
preferred as to assets but ony If the tota vaue of such stock s ess than 1 per-
cent of the aggregate vaue of a casses of stock whch are not preferred as
to both dvdends and assets) of each of the corporatons (e cept the common
parent corporaton) s owned drecty by one or more of the other corporatons,
and f the common parent corporaton owns drecty at east 00 percent of each
cass of stock (other than stock preferred as to both dvdends and assets) of
at east one of the other corporatons; but no corporaton s a member of a
system group uness t s ether a regstered hodng company or a ma|orty-
owned subsdary company. Whe the type of stock whch must, for the purpose
of ths defnton, be at east 90 percent owned may be dfferent from the votng
stock whch must be more than 50 percent owned for the purpose of the def-
nton of a ma|orty-owned subsdary company under secton 373(c), as a gen-
era rue both types of ownershp tests must be met under secton 373(d), snce
a corporaton, n order to be a member of a system group, must aso be a
regstered hodng company or a ma|orty-owned subsdary company.
ustn F. Wnke,
bert P. Tt|tte,
SUPPL M NT T. INDI IDU LS WIT D UST D GROSS INCOM OF L SS
T N 15,000
S CTION 02. M NN R ND FF CT OF L CTION
Secton 29. 02-1: Manner of eecton to compute
ta under suppement T.
INT RN L R NU COD
Secton 29. 02-1: Manner of eecton to compute
ta under suppement T.
INT RN L R NU COD
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0. 30-2, Regs. 130. 312
SU C PT R D.- C SS PROFITS T
P RT I. R T ND COMPUT TION OF T
S CTION 30.-IMPOSITION OF T
Secton 0. 30-2, Reguatons 130: Rate of ta . T. D. 5997
TITL 26 INT RN L R NU . C PT R I. SU C PT R , P RT 0.
C SS PROFITS T ; 1 L 1 S NDING FT R UN 30. ItoO
ct of 1951, reatng to ma mum ta for new corporatons.
Offce of Commssoner of Interna Revenue.
Waskngton 25, D. G.
Concerned:
On December 13, 1952. a notce of proposed rue makng was pub-
shed n the Federa Regster 17 F. R, 113 3 to conform Regua-
approved October 20, 1951. fter consderaton of such reevant
suggestons as were presented regardng the proposas, the amend-
ments set forth beow are hereby adopted.
0. 30-1 26 CFR 0. 30-1 the foowng:
S C 501. M IMUM T FOR N W CORPOR TIONS R NU
CT OF 1051, PPRO D OCTO R 20,1051 .
Secton 30 (reatng to mposton of ta ) s hereby amended as
foows:
(1) y addng at the end of subsecton (a) thereof, as amended
by secton 121 of ths ct, the foowng:
(3) n the case of a corporaton for whch an amount s de-
termned for the ta abe year under subsecton (e), the amount
determned under such subsecton.
(2) y redesgnatng subsecton (e) as subsecton (f) ; and
(3) y nsertng after subsecton (d) the foowng new
subsecton:
(e) .New Corporatons.
(1) .tehnatve amount. In the case of a ta payer whch
commenced busness after uy 1,10 5, and whose ffth ta abe year
ends after une 30, 1050, the amount referred to n subsecton
(a) (3) sha be
( ) If the ta abe year s the frst or second ta abe year
of the ta payer, an amount equa to 5 per centum of the e cess
profts net ncome for the ta abe year, e cept that f the e cess
profts net ncome e ceeds 300,000, the amount sha be the sum
of 15,000 pus the amount determned under subparagraph ( )
of ths paragraph.
(15) If the ta abe year s the thrd ta abe year of the ta -
payer, an amount equa to per centum of the e cess profts
net ncome for the ta abe year, e cept that f the e cess profts
net ncome e ceeds 300,000, the amount sha be the sum of
2 ,000 pus the amount determned under subparagraph ( ) of
ts paragraph.
(C) If the ta abe year Is the fourth ta abe year of the
ta payer, an amount equa to 11 per centum of the e cess profts
net ncome for the ta abe year, e cept that f the e cess
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313
0. 30-2, Regs. 130.
profts net ncome e ceeds 300,000, the amount sha be the
sum of 33,000 pus the amount determned under subparagraph
( ) of ths paragraph.
(D) If the ta abe year s the ffth ta abe year of the ta -
payer, an amount equa to 1 per centum of the e cess profts
net ncome for the ta abe year, e cept that f the e cess prots
net ncome e ceeds 300,000, the amount sha be the sum of
2,000 pus the amount determned under subparagraph ( )
of ths paragraph.
( ) The amount determned under ths subparagraph
sha be
(1) f the ta abe year ends before pr 1, 1951, an
amount equa to 15 per centum of the e cess of the e cess
profts net ncome for the ta abe year over 300,000.
(11) If the ta abe year begns on anuary 1, 1951, and
ends on December 31, 1951, an amount equa to 17 per
centum of the e cess of the e cess profts net Income for the
ta abe year over 300,000.
( ) f the ta abe year (other than a ta abe year
descrbed In cause (11)) ends after March 31, 1951, an
amount equa to 1 per centum of the e cess of the e cess
profts net ncome for the ta abe year over 300,000.
(2) Fbst vvb ta abe Y , For the purpose of ths sub-
secton
( ) The ta abe year In whch the ta payer commenced bus-
ness and the frst, second, thrd, and fourth succeedng ta abe
years sha be consdered ts frst, second, thrd, fourth, and
ffth ta abe years, respectvey.
( ) The ta payer sha be consdered to have been n e st-
ence and to have had ta abe years for any perod durng whch
t or any corporaton descrbed n any cause of ths subpara-
graph was n e stence, and the ta payer sha be consdered to
have commenced busness on the earest date on whch t or
any such corporaton commenced busness:
() ny corporaton whch durng or pror to the ta abe
year was a party wth the ta payer to a transacton de-
scrbed n secton 5(g) (2) ( ), ( ),or (C), determned
as If the date uy 1, 19 5 were substtuted for the date
December 1,1950 n secton 5(g) (2) (C).
(11) ny corporaton f a group of not more than four
persons who contro the ta payer at any tme durng the
ta abe year aso controed such corporaton at any tme
durng the perod begnnng tweve months precedng ther
acquston of contro of the ta payer and endng wth the
cose of the ta abe year; but ony If at any tme durng
such perod (and whe such persons controed such corpo-
raton) such corporaton was engaged n a trade or busness
substantay smar to the trade or busness of the ta payer
durng the ta abe year. For the purpose of ths cause,
the term contro means the ownershp of more than 50
per centum of the tota combned votng power of a casses
of stock entted to vote, or more than 50 per centum of
the tota vaue of shares of a casses of stock. person
sha not be consdered a member of the group referred to
n ths cause uness durng the perod referred to n ths
cause he owns stock n such corporaton at a tme when
the members of the group contro such corporaton and he
owns stock n the ta payer at a tme when the members
of the group contro the ta payer. For the purpose of ths
canse, the ownershp of stock sha be determned n
accordance wth the provsons of secton 503, e cept that
constructve ownershp under secton 503(a)(2) sha be
determned ony wth respect to the ndvdua s spouse and
mnor chdren.
() In case the ta payer durng or pror to the ta abe
year was a purchasng corporaton (as defned n part I ),
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0. 30-2, Regs. 130.
31
the seng corporaton (as defned n such part) whose
propertes were acqured n the part I transacton; but
ts cause sha not appy uness for the ta abe year or
for any precedng ta abe year the condtons of para-
graphs (1), (2), and (3) of secton 7 (c) were satsfed
wth respect to such transacton.
(v) ny corporaton whch, under reguatons pre-
scrbed by the Secretary, s determned by one or more
addtona appcatons of causes (1) to () to stand nd-
recty n the same reaton to the ta payer as though such
corporaton were descrbed n any such cause.
If as of the begnnng of December 1, 1950, the ad|usted bass
for determnng gan upon sae or e change of the aggregate
assets theretofore acqured by the ta payer n transactons
descrbed n causes () and () (or acqured n the ordnary
course of busness n repacement of such assets) and hed by
t at such tme consttuted ess than 20 per centum of the
ad|usted bass for determnng gan upon sae or e change of
ts tota assets hed at such tme, then transactons descrbed
n such causes occurrng pror to such date sha be dsregarded
n determnng the date as of whch the ta payer sha be
consdered to have commenced busness.
(3) Lmtaton. The provsons of paragraph (1) of ths sub-
secton sha not appy to a ta payer whch derves more than 50 per
centum of ts gross ncome (determned wthout regard to dvdends
and wthout regard to gans from saes or e changes of capta
assets) for the ta abe year from contracts and subcontracts to
whch the provsons of tte I of the Renegotaton ct of 1951 (or
the provsons of any pror renegotaton act) are appcabe.
S C. 523. FF CTI D T OF TITL R NU CT OF 1951,
cept as otherwse provded n secton 506(d), the amendments made
by ths tte ncudng sec. 501 sha be appcabe ony wth respect to
ta abe years endng after une 30, 1950.
page 122, ths uetn , approved December 29, 1952 26
CFR 0. 30-2 , s further amended as foows:
( ) y strkng the perod at the end of cause (v) of (a) (1) of
the secton and nsertng n eu thereof , or , and by addng after
such cause (v) the foowng new cause:
(v) n the case of a new corporaton for whch an amount s determned for
the ta abe year under secton 30(e), the amount determned under such secton
and under (e) of ths secton.
( ) y redesgnatng the present (e) of the secton as (f) of the
secton.
(C) y nsertng mmedatey foowng (d) of the secton the
foowng:
(e) Netc corporaton . (1) Secton 30(e), together wth secton 30(a) (3),
provdes, n the case of any corporaton whch commenced busness after uy 1,
1915, for a ma mum e cess profts ta for any of Its frst fve ta abe years
whch ends after une 30, 1950. The determnaton of such ma mum e cess
profts ta , whch s the amount referred to n secton 30(a)(3) and n (a)
(1) (v) of ths secton, depends upon the amount of the e cess profts net ncome
and upon whether the ta abe year s the frst, second, thrd, fourth, or ffth
ta abe year of the ta payer. If the e cess profts net ncome for the ta abe
year does not e ceed 300,000, the ma mum e cess profts ta w be an amount
equa to 5 percent of the e cess profts net ncome for the ta abe year If such
tn nbe year s the frst or second ta abe year of the ta payer; an amount
equa to percent of the e cess profts net ncome f the ta abe year s the
thrd ta abe year of the ta payer; an amount equa to 11 percent of the e cess
profts net ncome f the ta abe year s the fourth ta abe year of the ta -
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0. 30-2, Regs. 130.
payer; and an amount equa to 1 percent of the e cess profts net ncome f
the ta abe year s the ffth ta abe year of the ta payer. If the e cess profts
net ncome for the ta abe year e ceeds 300,000, the ma mum e cess profts
ta w be nn amount equa to the sum of 15,000, f the ta abe year s the
frst or second ta abe year of the ta payer, 2 ,000, f the ta abe year s the
thrd ta abe year of the ta payer, 33,000, f the ta abe year s the fourth
ta abe year of the ta payer, and 2,000, f the ta abe year s the ffth ta -
abe year of the ta payer, pus, n each case, an amount equa to () 15 percent
o the amount by whch the e cess profts net ncome for such ta abe year
e ceeds 300,000 f the ta abe year ends before pr 1, 1951, or () per-
cent of such e cess f the ta abe year begns on anuary 1, 1951, and ends on
December 31, 1951 (the caendar year 1951), or ( ) 1 percent of such e cess
f the ta abe year ends after March 31, 1951, but s not the caendar year 1951.
(2) The determnaton of the ma mum e cess profts ta , as descrbed n
(1) above, s shown n the foowng chart:
C
D
If the e cess profts
ta ta abe year of
the ta payer s
If e cess profts net In-
come for the ta abe
year does not e ceed
300,000, the ma -
mum e cess profts ta
s
If e cess profts net In-
come for the ta abe
year e ceeds 300,0 0,
the ma mum e cess
profts ta a
mount to be added to coumn
C where e cess profts net
ncome e ceeds 300,000
The frst or second
ta abe year.
5 percent of e cess prof-
Its net tnoome.
15,000 pus the amount
specfed n coumn D.
(I) If the ta abe year ends
before pr I, 1 51, 15 per-
cent of the amount by whch
the e cess profts net ncome
for such ta abe year e ceeds
300,000: or
The thrd ta abe
percent of e cess prof-
ts net ncome.
2 ,000 pus the amount
specfed n coumn D.
() If the ta abe year begns
on anuary 1, 1051, and ends
on December 31, 1951 (the
caendar year 1951), 17M per-
cent of such e cess; or
The fourth ta abe
year.
ts net Income.
specfed n coumn D.
() If the ta abe year ends
after March 31, 1 61 (e cept
the caendar year 1 61), 1
percent of such e cess.
The ffth ta abe
year.
ts net ncome.
specfed In coumn D.
(3) The date the corporaton commenced busness sha be determned for
purposes of secton 30(e) and of (e) of ths secton under the rues provded
n the reguatons promugated under secton 5, reatng to the computaton
of average base perod net ncome n the case of new corporatons. See secton
0. 5-1 (a) (2). The ta abe year n whch the ta payer commenced busness,
uness th2 ta payer s consdered to have had an earer constructve e stence,
sha be consdered ts frst ta abe year and the ne t succeedng ta abe years
sha be consdered ts second, thrd, fourth, and ffth ta abe years, respectvey.
The ta payer, however, sha be consdered to have been n e stence and to have
had ta abe years for any perod durng whch any corporaton descrbed n sec-
ton 30(e)(2)( ) (1), (), (), or (v), and In (5) through ( ) beow, was
n e stence, and the ta payer sha be consdered to have commenced busness
on the earest date on whch t or any such corporaton commenced busness.
See ( ) beow for the determnaton of constructve ta abe years of the ta -
payer where such other corporaton came nto e stence pror to the date the
ta payer came nto e stence.
( ) If the ta payer s deemed under the provsons of secton 30(e) (2) ( )
and of (e) of ths secton to have been n e stence pror to the date on whch t n
fact came nto e stence and to have had ta abe years pror to such date, ts
frst 5 ta abe years for purposes of secton 30(e) and of (e) of ths secton
sha be determned by reference to the annua accountng perod frst estabshed
by the ta payer. ny 12-month perod endng wth the day on whch such
annua accountng perod frst estabshed by the ta payer ends and durng a or
part of whch the ta payer or any corporaton descrbed n secton 30(e) (2) ( )
()-(v) and n (5) through ( ) beow was In e stence sha be consdered a
ta abe year of the ta payer for the purpose of determnng ts frst 5 ta abe
years. If both the ta payer and any other such corporaton were In e stence
durng a or part of any such 12-month perod, such perod sha nevertheess be
consdered to be ony 1 ta abe year of the ta payer. ny such 12-month perod,
however, sha be consdered a ta abe year of the ta payer f any such other
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5 0. 30-2, Regs. 130.
316
corporaton was In e stence durng a or part of such perod, even though such
perod, or the part thereof n whch such other corporaton was n e stence, dd
not consttute a ta abe year of such other corporaton. The rue set forth above
may be ustrated by the foowng e ampes:
ampe (I). Corporaton came nto e stence and commenced busness on
pr 1, 11) 7. It adopted the caendar year as ts annua accountng perod and
ted ncome ta returns for the perod pr 1, 19 7, through December 31, 19 7,
and for the caendar year 19 . Corporaton was dssoved on une 30, 19 9,
and an ncome ta return was fed for the perod anuary 1, 19 9, through une
30, 19 9. Corporaton came nto e stence and commenced busness on uy 1,
19 ). Corporaton kewse adopted the caendar year as ts annua accountng
perod and ted ncome ta returns for the perod uy 1,19 9, through December
31. 19 9, and aso for the caendar year 1950 and subsequent caendar years. y
reason of a transacton descrbed n secton 30(e)(2)( ), Corporaton s
deemed for purposes of secton 30(e) and of (e) of ths secton to have commenced
busness on pr 1, 19 7, the date Corporaton commenced busness, and to
have been n e stence and to have had ta abe years snce that date. Snce
Corporaon frst adopted the caendar year as ts annua accountng perod,
any 12-monh perod endng on December 31 durng whch ether Corporaton
or Corporaton was n e stence w consttute a ta abe year of Corporaton .
Snce Corporaton came nto e stence on pr 1, 19 7, t was n e stence
durng part of the 12-month perod anuary 1, 1917, through December 31, 19 7,
and such 12-month perod w be deemed to be the frst ta abe year of Corpora-
ton for purposes of secton 30(e) and of (e) of ths secton. Corporaton
was n e stence durng the whoe 12-month perod anuary 1, 15) , through
December 31, 19 , and such perod w be deemed to be the second ta abe year
of Corporaton . Corporaton was n e stence durng part of the 12-month
perod anuary 1, 19 9, through December 31, 19 9, and Corporaton aso was
n e stence durng part of such perod. The 12-month perod anuary 1, 19 9,
through December 31, 19 9, accordngy w be consdered to be a ta abe year
of Corporaton and w be ts thrd ta abe year for purposes of secton 30(e)
and of (e) of ths secton. The caendar years 1950 and 1951 w be the fourth
and ffth ta abe years, respectvey, of Corporaton . It s to be noted that
the 12-month perod anuary 1, 19 9, through December 31, 19 9, s deemed
to be 1 ta abe year of Corporaton even though both Corporaton and
Corporaton were n e stence durng part of such perod and even though
Corporaton fed an ncome ta return for the perod anuary 1,19 9, through
une 30. 1919. and Corporaton fed an ncome ta return for te perod uy
1,19 9, through December 31,19 9. It s to be further noted that n ths e ampe
t.e 12-month perod anuary 1, 19 9, through December 31, 1919, woud con-
sttute 1 ta abe year of Corporaton even though Corporaton had not been
dssoved on une 30, 1919, but had contnued n e stence unt after December
31, 19 9.
ampe (2). ssume In the above e ampe that when Corporaton came
nto e stence and commenced busness on pr 1, 19 7, t adopted the fsca
year endng March 31 as ts annua accountng perod and fed Income ta
returns for the fsca years pr 1, 19 7, through March 31, 19 , and pr 1,
19 , through March 31, 19 9, and aso an ncome ta return for the perod pr
1, 19 9, through une 30. 19 9. Snce Corporaton frst adopted the caendar
year as ts annua accountng perod, Corporaton s frst 5 ta abe years must
be determned by reference to the 12-month perods endng on December 31.
Corporaton came nto e stence on pr 1, 19 7, and accordngy was n
e stence durng part of the 12-month perod anuary 1, 19 7, through December
31, 19 7. Such 12-month perod anuary 1, 19 7, through December 31, 19 7,
accordngy w be deemed to be the frst ta abe year of Corporaton for
purposes of secton 30(e) and of (e) of ths secton even though the perod
pr 1, 1I 7, through December 31, 19 7, dd not consttute a ta abe year of
Corporaton . Smary, the 12-month perod anuary 1, 19 , through Decem-
ber 31, 19 , w be deemed to be the second ta abe year of Corporaton even
though such 12-month perod dd not consttute n ta abe year of Corporaton
. The 12-month perods anuary 1, 19 9, througU December 31, 19 9, anuary
1. 1950, through December 31, 1950, and anuary 1, 1951, through December 31,
1951, w be deemed to be Corporaon s thrd, fourth, and ffth ta abe
years, respectvey.
(5) (1) If any corporaton durng or pror to the ta abe year for whch the
e cess profts ta s beng determned was a party wth the ta payer to a trans-
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0. 30-2, Regs. 130.
acton descrbed n secton 5(g)(2) ( ), ( ), or (C), determned as f the
date uy 1, 10 5 were substtuted for tbe date December 1, 1050 n secton
5(g) (2) (C), and f such other corporaton ad commenced busness pror to the
date on whch the ta payer commenced busness, then the ta payer, under the
provsons of secton 30(e) (2) ( ) (), sha be deemed to have commenced
busness on the date such other corporaton commenced busness. The ta -
payer sha aso be consdered to have been n e stence durng the whoe perod
such other corporaton was n e stence and to have had ta abe years durng
such perod as determned under the provsons of ( ) above. For mtaton
on the appcaton of secton 30(e) (2) ( ) () n certan cases, see (9) beow.
() The provsons of secton 30(e) (2) ( ) () and of (5)(1) above are
appcabe ony f the party to the transacton wth the ta payer was a cor-
poraton. They do not appy, for e ampe, where such party was an Indvdua
or a partnershp. Thus, f an ndvdua who as been operatng a certan bus-
ness as a soe propretorshp ncorporates such busness and transfers a the
assets of the busness to a newy formed corporaton n a transacton whch
quates as a secton 112(b)(5) transacton, the newy formed corporaton w
not be deemed to have been n e stence durng the pror perod when the nd-
vdua was conductng the busness as a soe propretorshp nor w the corpora-
ton be deemed to have had ta abe years durng such pror perod.
(0) () If a group of not more than four persons contro the ta payer at
any tme durng the ta abe year for whch the e cess profts ta s beng
determned and f ths same group of not more than four persons at any tme
durng the perod begnnng 12 months pror to Its acquston of contro of the
ta payer and endng wth the cose of such ta abe year aso controed a second
corporaton whch at some tme durng such perod (and whe the group con-
troed such second corporaton) was engaged n a trade or busness substan-
tay smar to the trade or busness carred on by the ta payer durng such
ta abe year, then under the provsons of secton 30(e) (2) ( ) () the ta payer
w be deemed to have commenced busness on the date on whch t tsef
commenced busness or on the date on whch such second corporaton commenced
busness, whchever s the earer. If the second corporaton commenced bus-
ness on a date pror to that on whch the ta payer commenced busness, the ta -
payer for purposes of secton 30(e) and of (e) of ths secton w aso
be deemed to have been n e stence for the entre perod durng whch such
second corporaton was n e stence and to have had ta abe years durng such
perod as determned under the provsons of ( ) above.
() For purposes of secton 30(e) (2) ( ) () and of (6)() above a
group of not more than four persons w be deemed to contro the ta payer or
any other corporaton f, and ony f, the tota stock ownershp of such persons
n the ta payer or such other corporaton represents more than 50 percent of
the tota combned votng power of a casses of stock entted to vote or more
than 50 pecent of the tota vaue of the shares of a casses of stock. For
purposes of secton 30(e) (2) ( ) (11) and of ths provson the ownershp of
stock sha be determned n accordance wth the provsons of secton 503, e cept
that constructve ownershp under secton 503(a)(2) sha be determned ony
wth respect to the ndvdua s spouse and mnor chdren. person w
not be consdered to be a member of the group of not more than four persons
whch contros the ta payer at some tme durng the ta abe year and whch
aso controed a second corporaton at some tme durng the perod referred to
n secton 30(e) (2) ( ) () and n (6)(1) above uness such person owned
stock n the ta payer at the tme the group controed the ta payer durng
the ta abe year and aso owned stock n the second corporaton at the tme
the group controed such second corporaton durng the prescrbed perod.
The ndvdua does not have to own the same percentage of stock In tbe ta -
payer as n the second corporaton, but the ndvdua must own some stock n
the corporaton at the tme the group contros such corporaton. It s not
necessary for the group to contro the ta payer and second corporaton at the
same tme. If the group controed tbe ta payer at any tme durng tbe ta abe
year for whch the e cess profts ta s beng determned and f the same group
aso controed the second corporaton at some tme durng tbe prescrbed perod,
then the reoureme:,ts of contro provded n secton 30(e) (2) ( ) (11) w
bf met wthout regard to whether tbe group controed the two corporatons at
the same tme or at dfferent tmes.
() Whether or not the second corporaton, at the tme t was controed
by the group, was engaged n a trad,- or busness substantay smar to the
2G335 53 21
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0. 30-2, Regs. 130.
31
trade or busness carred on by the ta payer durng the ta abe year s a ques-
ton of fact whch must be determned n each partcuar case n the ght of
a the crcumstances of that case.
(7) (1) If durng or pror to the ta abe year for whch the e cess profts
ta s beng determned the ta payer was a purchasng corporaton n a part I
transacton and f the seng corporaton n such part I transacton had com-
menced busness on a date pror to that on whch the ta payer commenced
busness, then the ta payer, under the provsons of secton 30(e) (2) ( ) (111),
sha be deemed to have commenced busness on the date such seng corporaton
commenced busness. The ta payer sha aso be consdered to have been n
e stence durng the whoe perod such seng corporaton was n e stence
and to have had ta abe years durng such perod as determned under the
provsons of ( ) above. Secton 30(e) (2) ( ) () and ths provson sha
not be appcabe, however, uness for the ta abe year or any precedng ta -
abe year the condtons of paragraphs (1), (2), and (3) of secton 7 (c)
were satsfed wth respect to the part I transacton. For mtaton on the
appcaton of secton 30(e) (2) ( ) () In certan cases, see (9) beow.
() The terms purchasng corporaton and seng corporaton have the
same meanng for purposes of secton 30(e) (2) ( ) () as for purposes of
part I . Snce an ndvdua operatng a busness as a soe propretorshp or
a partnershp, under certan crcumstances, can be a seng corporaton under
part I , such an ndvdua or partnershp, unke the stuaton wth respect
to a transacton descrbed n secton 30(e) (2) ( ) (), can kewse be con-
sdered to be a corporaton for purposes of secton 30(e) (2) ( ) (). If the
ta payer acqures assets from a soe propretorshp or from a partnershp n a
part I transacton and f the soe propretorshp or the partnershp consttutes
a seng corporaton under part I , then the ta payer w be deemed to have
commenced busness on the date the soe propretorshp or partnershp commenced
busness, provded such date s pror to that on whch the ta payer tsef com-
menced busness, and to have been n e stence and to have had ta abe years,
as determned under ( ) above, durng a such pror perod.
( ) Secton 30(e) (2) ( ) (v) provdes that the three causes n secton
30(e) (2) ( ) (), (), and () may be apped severa tmes to determne when
the ta payer commenced busness and what are ts frst 5 ta abe years.
Thus, f the ta payer under secton 30(e) (2) ( ) (), for e ampe, s deemed
to have commenced busness on the date Corporaton commenced busness
and to have been n e stence and to have bad ta abe years durng the perod
Corporaton was n e stence, and f Corporaton under secton 30(e)
(2) ( ) () n turn woud be deemed to have commenced busness on the date
Corporaton had commenced busness and to have been n e stence and to
have had ta abe years durng the perod Corporaton was n e stence, then
the ta payer, for purposes of secton 30(e) and of (e) of ths secton,
sha be deemed to have commenced busness on the date Corporaton com-
menced busness and to have been n e stence and to have had ta abe years
durng the entre perod begnnng wth the date Corporaton came nto e st-
ence. The ta payer s frst 5 ta abe years accordngy w be determned, under
the provsons of ( ) above, by reference to the date on whch Corporaton
came nto e stence. It s mmatera that the ta payer had no drect rea-
tonshp wth Corporaton . It s suffcent that Corporaton stands nd-
recty n the same reatonshp to the ta payer as f t were a corporaton
descrbed n one of the three causes In secton 30(e)(2)( ) (), (), or
(). It s mmatera whch of the causes n secton 30(e) (2) ( ) (1), (),
and () are to be apped, or how many tmes they are to be apped, or n
what order. The ta payer sha be consdered to have commenced busness
and ts frst 5 ta abe years w be determned by reference to that corpora-
ton whch frst cume nto e stence and commenced busness and wth whch
the ta payer drecty or ndrecty stands n a reatonshp descrbed n any
of the three causes n secton 30(e)(2)( ) (), (),or ().
(9) If as of the begnnng of December 1, 1050, the ad|usted bass for de-
termnng gan upon the sae or e change of the aggregate assets whch had been
acqured pror to that date by the ta payer n 1 or more transactons de-
scrbed n secton 30(e) (2) ( ) () or n secton 30(e) (2) ( () (or acqured
n the ordnary course of busness n repacement of such assets) and whch
were hed by t at such tme consttuted ess than 20 percent of the ad|usted
bass for determnng gan upon sae or e change of a the assets hed by the
ta payer at such tme, then such transactons sha be dsregarded n determu-
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319
( 0. 30-2, Regs. 130.
ng the date as of whch the ta payer sha be consdered to have commenced
busness and aso n determnng the frst 5 ta abe years of the ta payer. The
provsons of the precedng sentence are appcabe ony to transactons whch
occurred pror to December 1, 1950, but have no appcaton to any transacton
whch occurred on or after December 1, 1950.
(10) The ma mum e cess profts ta provded n secton 30(e)(1) and n
(e) of ths secton sha not be avaabe to a ta payer whch derves more
than 50 percent of ts gross ncome (determned wthout regard to dvdends
and wthout regard to gans from saes or e changes of capta assets) for the
ta abe year for whch the e cess profts ta s beng determned from contracts
or subcontracts to whch the provsons of tte I of the Renegotaton ct of
1931 (or the provsons of any pror renegotaton act) are appcabe. In
determnng whether the ta payer has derved more than 50 percent of ts gross
ncome n any ta abe year from contracts or subcontracts whch are sub|ect
to renegotaton, a ncome from contracts or subcontracts whch are sub|ect
to renegotaton under the appcabe renegotaton act and the reguatons
promugated thereunder wth respect to such year must he taken nto account
wthout regard to whether a partcuar contract or subcontract s n fact
renegotated. The determnaton whether a ta payer has derved more than
50 percent of ts gross ncome n any ta abe year from contracts and subcon-
tracts whch are sub|ect to renegotaton, however, sha be made wthout regard
to the provsons of the Renegotaton ct of 1951 whch provde that recepts
and accruas of 250,000 or ess n any ta abe year sha not be renegotated.
If a ta payer, for e ampe, had gross ncome for the ta abe year of 200,000 of
whch 150,000 was derved from a contract of a type whch s sub|ect to re-
negotaton under tte I of the Renegotaton ct of 1951 (assumng that the
recepts and accruas n respect of whch such 150,000 was derved were 250,-
000 or ess), such ta payer woud not be egbe for such ta abe year for the
benefts of the ma mum e cess profts ta provded n secton 30(e)(1) snce
75 percent of ts gross ncome for such ta abe year was derved from a contract
of a type that s sub|ect to renegotaton under tte I of the Renegotaton ct
of 1951 even though the recepts and accruas from such contract n fact are
not renegotated under the provsons of such ct. In determnng whether the
ta payer has derved more than 50 percent of ts gross ncome In any ta abe
year from contracts or subcontracts whch are sub|ect to renegotaton, the
ta payer s tota gross ncome for the ta abe year and aso ts ncome from
contracts or subcontracts whch are sub|ect to renegotaton sha each be
computed after takng nto account the effect of any renegotaton prevousy
effected wth respect to such year. In fng ts return, however, the ta payer
sha make such determnaton wthout regard to any renegotaton not pre-
vousy effected wth respect to such year. If a subsequent renegotaton wth
respect to such year makes the ta payer egbe for the benefts of the ma -
mum e cess profts ta provded n secton 30(e)(1), t may wthn the ap-
pcabe perod of mtatons fe a cam for credt or refund of the overpayment,
f any, resutng from the appcaton of such ma mum e cess profts ta
provsons.
T. Coeman ndrews,
pproved March 1G, 1953.
M. . Fosom,
(Fed wth the Dvson of the Federa Regster March 19,1953, : 51 a. m.)
Secton 0. 30-2, Reguatons 130: Rate of ta .
INT RN L R NU COD
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0. 33(a)-2, Regs. 130. 320
S CTION 33. C SS PROFITS N T INCOM
Secton 0. 33 (a)-2, Reguatons 130: Compu- T. D. 595
taton of e cess profts net ncome for the
ta abe year.
C SS PROFITS T S; T L Y RS NDING FT R UN 30, 1950
Secton 0. 33(a)-2(|) (3) of Reguatons 130 amended
Washngton 25, D. C.
Concerned:
On October 1,1952, a notce of proposed rue makng was pubshed
n the Federa Regster (17 F. R. 691) to conform Reguatons 130
26 CFR, part 0 to secton 122(b) of the Interna Revenue Code,
as amended by secton 330(b) of the Revenue ct of 1951, approved
October 20, 1951. No ob|ectons to the rues proposed havng been
receved wthn the 30 days foowng pubcaton, secton 0. 33(a)-
2(|) (3) of such reguatons s amended by strkng 1950 and 1951
from the thrd sentence from the end and by nsertng n eu thereof
1950, 1951, and 1952 , and by nsertng and any subsequent ta abe
year mmedatey after for 1950 n the second sentence from the end,
so that such sentences as so amended w read as foows:
If the e cess profts credt for 1950 s determned under secton 35 or under
secton 30(a) by the use of secton 5 , the 5,000 so computed may, at
the eecton of the ta payer made on ts return for 1950, be treated as a net
operatng oss carry-over from 19 9, and the 5,000 carry-over w, sub|ect to
the provsons of secton 122(b)(2), be a carry-over to the years 1950, 1951,
and 1952. The net operatng oss deducton for 1950 and any subsequent
ta abe year s determned wthout regard to any other carry-over from a
ta abe year endng before une 30, 1950, for e ampe the oss for 19 , f
such oss e ceeded the net ncome for 19 9, and the net operatng oss deducton
for any subsequent ta abe year for whch the e cess profts credt s computed
under nether secton 35 nor secton 5 s determned wthout regard to the
5,000 carry-over from the base perod.
ohn S. Graham,
Thomas . Lynch,
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321 0. 33(a)-2, Regs. 130.
Secton 0. 33(a)-2, Reguatons 130: Compu- T. D. 5973
ta abe year.
C SS PROFITS T ; T L Y RS NDING FT R UN 30, 1950
mendment of part I of Reguatons 130 to conform to sectons 32.1,
502 through 50 (a), 505 through 512, 520, 522, and 002 of the Revenue
ct of 1951.
Washngton 25, D. C.
Concerned:
On October 1 , 1952, notce of proposed rue makng, regardng
amendments to Reguatons 130 (26 CFR, part 0) made necessary
by sectons 325, 502 through 50 (a), 505 through 512, 520, 522, and
shed n the Federa Regster (17 F. R. 9259). No ob|ecton to the
rues proposed havng been receved, the amendments set forth beow
are hereby adopted.
0. 33(a)- 26 CFR 0. 33(a)- the foowng:
S C. 502. P YM NTS FROM FOR IGN SOURC S FOR T C NIC L
SSIST NC , TC. TITL , R NU CT OF 1 51, P-
PRO D OCTO R 20, 1951 .
(a) mendment of Secton 33(a) (1). Secton 33(a)(1) (reat-
ng to e cess profts net ncome for ta abe years endng after une 30,
1950) s hereby amended by addng at the end thereof the foowng new
subparagraph :
(R) Payments From Foregn Sources for Technca ssst-
ance, tc. In the case of a domestc corporaton whch renders
to a reated foregn corporaton technca assstance, engneer-
ng servces, scentfc assstance, or smar servces (such
servces or assstance beng reated to the producton or m-
provement of products of the type manufactured by such domes-
tc corporaton), there sha be e cuded the remuneraton for
such servces or assstance If such remuneraton consttutes
ncome derved from sources wthout the Unted States. ny
deductons In connecton wth or propery aocabe to the ren-
derng of such servces or assstance sha not be aowed. For
the purpose of ths subparagraph, a foregn corporaton sha
be consdered to be a reated foregn corporaton f the domestc
corporaton at the tme t renders such servces or assstance
owns 10 per centum or more of the outstandng stock of such
fore|n corporaton.

S C. 50 . L CTION WIT R SP CT TO C RT IN IN DMIS-
SI L SS TS TITL , R NU CT OF 1951, PPRO D
OCTO R 20, 1951 .

(b) mendment or Secton 33(a)(1). Secton 33(a) (reat-
ng to ad|ustments n e cess profts net ncome for the ta abe year) s
hereby amended by addng the foowng new subparagraph at the end
thereof:
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0. 33(a)-2, Regs. 130.
322
(S) Interest on Certan Government Obgatons. For ad-
|ustment n the ease of a ta payer makng an eecton pro-
vded n secton 0(e), reatng to deaers In certan Govern-
ment obgatons, see secton 0(c).

S C. 523. FF CTI D T OF TITL TITL , R NU
CT OF 1951, PPRO D OCTO R 20, 1951 .
the amendments made by ths tte ncudng sectons 502
and 50 sha be appcabe ony wth respect to ta abe years endng
after une 30,1950.
Par. 2. Secton 0. 33(a)-2, as amended by Treasury Decson
595 page 320, ths uetn , approved December 16, 1952 26
CFR 0. 3(a)-2 , s further amended by addng at the end thereof
the foowng:
(r) (1) Secton 33(a)(1) (It) provdes that there sha be e cuded. In
computng e cess profts net Income, any ncome accrued or receved by a do-
mestc corporaton whch consttutes remuneraton to such domestc corpora-
ton for the renderng of technca assstance, engneerng servces, scentfc
assstance, or smar servces to a reated foregn corporaton. The servces or
assstance rendered by the domestc corporaton must be reated to the pro-
ducton or mprovement of products of the type manufactured by the domestc
corporaton. The remuneraton, n addton, must consttute ncome from
sources wthout the Unted States. ny deductons whch are connected wth
or propery aocabe to the renderng of such servces or assstance sha not
be aowed n computng e cess profts net ncome.
(2) ny remuneraton accrued or receved by a domestc corporaton sha
not be e cuded, however, n the case of a domestc corporaton whose prncpa
busness conssts of the furnshng of technca assstance or servces. The term
reated foregn corporaton , for the purpose of secton 33(a)(1)(R) and of
(1), above, means a foregn corporaton 10 percent or more n vaue of the
outstandng stock of whch s owned by the domestc corporaton at the tme
the domestc corporaton renders snch servces or assstance. The determna-
ton whether any remuneraton consttutes ncome derved from sources wthout
the Unted States sha be made n accordance wth the provsons and prncpes
of secton 119 and the reguatons thereunder.
(3) There sha not be e cuded under secton 33(a) (1) (R) and (1), above,
any Income whch n substance represents payments for the use of assets, roya-
tes for the use of patents, fees for the use of copyrghts or other censes, or
other smar payments. The Income to be e cuded sha be the ncome derved
from mpartng technca or management knowedge or sk for the producton
or Improvement of certan products, but sha not ncude any Income derved
from the cense or sae of the rght to produce a product or to use a certan
method of producton. Thus, there may be e cuded remuneraton receved by
the domestc corporaton for the servces of an engneer to nstruct the personne
of the reated foregn corporaton or to estabsh or Improve producton tech-
nques, and for the equpment used by such engneer n connecton wth the ren-
derng of such servces, but there sha not be e cuded any ncome receved for
the use of equpment to produce the products of the reated foregn corporaton.
If the remuneraton of the domestc corporaton conssts of eements of more than
one type of Income, ony that part of the remuneraton whch Is ceary den-
tfed as beng attrbutabe to the actvtes descrbed n secton 33(a)(1)( )
sha be e cuded n computng e cess profts net ncome.
(s) For ad|ustment n the case of a ta payer makng the eecton provded n
secton 0(c), reatng to deaers n certan Government obgatons, see secton
0(c) and secton 0. 0-(g) (2).
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323 0. 33(a)-2, Regs. 130.
Par. 3. There s nserted mmedatey precedng secton 0. 33 (b)-
26 CFR 0. 33 (b) -1 the foowng:
S C. 325. T TR TM NT OF CO L ROY LTI S R NU
CT OF 1951, PPRO D OCTO R 20, 1951 .

(e) Conformng mendments.
(1) Secton 33 (reatng to computaton of e cess profts net
ncome) s hereby amended by nsertng at the end thereof the fo-
owng new subsecton:
d Gan ob Loss Upon Certan Dsposas of Coa n ase Pe-
rod. For the purpose of subsecton (b), the e cess profts net ncome
sha be computed as f the provsons of secton 117 (|) and (k)(2)
whch reate to dsposas of coa were a part of the aw appcabe to the
ta abe year for whch e cess profts net ncome s computed.

(3) The amendments made by ths subsecton sha he appcabe
n computng the ta under subchapter D of chapter 1 for ta abe
years endng after December 31, 1950.

S C. .r 02. P YM NTS FROM FOR IGN SOURC S FOR T C -
NIC L SSIST NC . TC. TITL , R NU CT OF
1951, PPRO D OCTO R 20, 1951 .

(b) mendment of Secton 33(b). Secton 33(b) (reatng to
ta abe years n base perod) s hereby amended by addng at the end
(16) Payments from foregn sources for technca assst-
ance, etc. In the case of a domestc corporaton whch rendered
to a reated foregn corporaton technca assstance, engneerng
servces, scentfc assstance, or smar servces (such servces or
assstance beng reated to the producton or mprovement of prod-
ucts of The type manufactured by such domestc corporaton), there
sha be e cuded the remuneraton for such servces or assstance
If such remuneraton consttuted ncome derved from sources wth-
out the Unted States. ny deductons n connecton wth or prop-
ery aocabe to the renderng of such servces or assstance sha
not be aowed. For the purpose of ths paragraph, a foregn cor-
poraton sha be consdered to be a reated foregn corporaton
f the domestc corporaton at the tme It rendered such servces or
assstance owned 10 per centum or more of the outstandng stock of
such foregn corporaton.
S C. 50 . L CTION WIT R SP CT TO C RT IN IN DMIS-
SI L SS TS TITL , R NU CT OF 1951, PPRO D
OCTO R 20, 1951 .

(c) mendment of Secton 33(b). Secton 33(b) (reatng to
ad|ustments n e cess profts net ncome for ta abe years n base perod)
paragraph:
(17) Interest on certan government obgatons. For ad-
|ustment n the case of a ta payer makng on eecton provded n
secton 0(c), reatng to deaers n certan Government obga-
tons, see secton 0(c).
CT OF 1051, PPRO D OCTO R 20, 1951 .
after ane 30, 1950.
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0. 33(a)-2, Regs. 130.
32
Par. . Secton 0. 33(b)-2 26 CF 0. 33(b)-2 s amended by
strkng from the second sentence of (a) of such secton and ( ) the
ad|ustment to ncome n the case of fe nsurance companes. and by
( ) the ad|ustment to ncome n the case of fe nsurance companes, (9) the
ad|ustment for payments from foregn sources for technca assstance, etc., and
(10) the ad|ustment for nterest on certan Government obgatons (see secton
0. 0-(g) (2)). For the purpose of computng the ta for ta abe years
endng after December 31, 1950, e cess profts net ncome sha be computed
as f the provsons of secton 117 (|) and (k) (2) whch reate to dsposas of
coa were a part of the aw appcabe to the ta abe year for whch the e cess
profts net ncome s beng computed.
S C. 503. R G S P RIOD N T INCOM IN C S OF C R-
T IN FISC L Y R T P Y RS TITL , R NU CT OF
1951, PPRO D OCTO R 20, 1951 .
Secton 35(d) (reatng to the genera average method for the computa-
ton of average base perod net ncome) s hereby amended by addng at
the end thereof the foowng: For the purpose of the computatons under
ths subsecton n the case of a ta payer whose frst ta abe year under ths
subchapter s a ta abe year whch ether began before anuary 1, 1950, or
was preceded by a ta abe year begnnng before anuary 1, 1950, and
endng after March 31, 1950, there sha be substtuted for the base perod
of the ta payer the perod of consecutve months endng March 31, 1950,
f such substtuton produces a esser ta under ths subchapter for the
ta abe year for whch the ta s beng computed. In computng the average
base perod net ncome for such substtuted perod, the e cess profts net
Income for anuary, February, and March of 1950 sha be computed by
use of the weghted e cess profts net ncome , as defned n secton
35(e) (2) ( ), for the ta abe year n whch such months fa.
S C. 50 . R G S P RIOD N T INCOM LT RN TI
S D ON GROWT IN C S OF N W CORPOR TIONS TITL
, R NU CT OF 1951, PPRO D OCTO R 20,1951 .
(a) Gknera Rue. Secton 35(e) (1) (reatng to the aternatve based
on growth) s hereby amended by strkng out the phrase the begnnng of
ts base perod and nsertng n eu thereof the foowng: the end of Its
base perod.

S C. 505. R G S P RIOD N T INCOM LT RN TI
S D ON GROWT TITL , R NU CT OF 1051, PPRO D
OCTO R 20, 1951 .
Secton 35(e)(2)(G) (reatng to the aternatve based on growth) Is
hereby amended by strkng out the word ony .
S C. 506. D USTM NTS FOR C NG S IN IN DMISSI L SS TS
IN C S OF N S TITL , R NU CT OF 1951, PPRO D
OCTO R 20, 1951 .
(a) mendment of Secton 35(g). Secton 35(g) (reatng to net
capta addton or reducton) s hereby amended by redesgnatng para-
graph ( ) as paragraph (11) and by addng after paragraph (7) the foow-
ng new paragraph:
( ) d|ustments for chances n nadmssbe assets n case of
banks. In the case of a bank (as defned n secton 10 )
( ) If the ncrease n tota assets for the ta abe year e ceeds
the net capta addton computed wthout regard to the ad|ustment
under paragraph (1) for an ncrease n nadmssbe assets, then the
net capta addton for the ta abe year sha not be ess than the
e cess of
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325
II 0. 33(a)-2, Regs. 130.
() the amount determned under the frst sentence of para-
graph (1) over
() an amount whch bears the same rato to the ncrease
n nadmssbe assets for the ta abe year, determned under
paragraph (5), as the amount computed under such frst sen-
tence bears to the ncrease n tota assets for the ta abe year.
( ) If the decrease n tota assets for the ta abe year e ceeds
the net capta reducton computed wthout regard to the ad|ust-
ment under paragraph (2) for a decrease n nadmssbe assets,
then the net capta reducton for the ta abe year sha not be ess
than the e cess of
() the amount determned under the frst sentence of
paragraph (2) over
() an amount whch bears the same rato to the de-
crease n nadmssbe assets for the ta abe year, deter-
mned under paragraph (5), as the amount computed under
such frst sentence bears to the decrease n tota assets
for the ta abe year.
For the purpose of ths paragraph, the ncrease or decrease n tota
assets for the ta abe year sha be computed In the same manner
as the ncrease or decrease n nadmssbe assets for the ta abe
year s computed under paragraph (5), e cept that such computa-
tons sha be made wth respect to a assets, whether admssbe
or nadmssbe assets as defned n secton 0.

(c) mendment op Secton 35(f). Secton 35(f) (reatng to
capta addtons n base perod) s hereby amended as foows:
(1) y nsertng mmedatey after the word reduced n para-
graph (1) thereof the foowng: (but not beow zero) .
(2) y addng at the end of paragraph (1) thereof the foowng:
For speca rue n the case of banks, see paragraph (6).
(3) y renumberng paragraph (6) as paragraph (7), and by
addng mmedatey after paragraph (5) the foowng new para-
graph :
(6) Yeary base pebod capta of banks. In the case of a
bank (as defned n secton 10 ), the yeary base perod capta for
any ta abe year sha be determned as foows:
( ) tentatve yeary base perod capta sha be com-
puted under paragraph (1) wthout regard to paragraph
(1)( ).
( ) The tentatve yeary base perod capta so determned
sha be reduced by the amount determned under secton
0(b) (reatng to nadmssbe assets). For the purpose of
ths subparagraph, the computaton under secton 0(b) sha
ncude ony the day amounts (descrbed n such secton) for
the frst day of such ta abe year.
(d) ffectve Date of Subsecton (c)(3). The amendment made
by subsecton (c)(3) (addng a new paragraph (6) to secton 35(f))
sha be appcabe wth respect to ta abe years begnnng on or after
the date of the enactment of ths ct, and, at the eecton of the ta -
payer made n accordance wth reguatons prescrbed by the Secretary,
sha be appcabe to a ta abe years endng after une 30, 1950.
S C. 507. D CR S IN IN DMISSI L SS TS TITL ,
Secton 35(g) (reatng to net capta addton or reducton) s
hereby amended as foows:
(a) y addng at the end of paragraph (1) thereof the foowng:
For further ad|ustment wth respect to the amount determned
under the precedng provsons of ths paragraph, see paragraph
(9).
(b) y addng Immedatey after paragraph ( ), as added by secton
606 of ths ct, the foowng new paragraphs:
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0. 33(a)-2, Regs. 130.
326
(9) Deceease n nadmssbe assets.
( ) cept as otherwse provded In subparagraph ( ) (re-
atng to banks), the e cess of the amount computed under
paragraph (2) ( ) or ( ), whchever s appcabe to the ta -
payer (whether or not any amount s determned under the
frst sentence of paragraph (2)), over the amount, f any, com-
puted under the frst sentence of paragraph (2) sha be con-
sdered the net capta addton for the ta abe year or sha
be added to the net capta addton otherwse determned under
paragraph (1), as the case may be. The amount of the e cess
so determned sha be sub|ect to the e ceptons and mtatons
provded n paragraph (10).
( ) In the case of a bank (as defned n secton 10 ), the
computaton under subparagraph ( ) sha be made by subst-
tutng for the amount computed under paragraph (2) ( ) or
( ) whchever of the foowng amounts s the esser:
() n amount whch bears the same rato to the de-
crease n nadmssbe assets as the sum of the equty cap-
ta (as defned n secton 37(c)) and the day borrowed
capta (as defned n secton 39(b)), each determned as
of the frst day of the frst ta abe year endng after une
30, 1950, bears to the tota assets as of the begnnng of
such day;
() If paragraph ( ) ( ) s appcabe, the amount
computed under paragraph ( ) ( ) ().
(10) ceptons and mtatons foe the purpose of para-
graph (9). For the purpose of paragraph (9)
( ) The ad|ustment to the decrease n nadmssbe assets
requred under subparagraph ( ) of paragraph (2) sha not
be greater than 25 per centum of the e cess of the net capta
reducton computed under the frst sentence of paragraph (2)
(and computed wthout regard to the percentage mtatons
n paragraph ( ) (C) and ( )) over the net capta reducton
computed under such sentence wthout regard to paragraph ( )
(C) and ( ).
( ) The amount determned under paragraph (9) sha not
be greater than the e cess of the ncrease n operatng assets
for the ta abe year over the net capta addton (deter-
mned wthout regard to paragraph (9) and determned wthout
regard to the mtaton to 75 per centum provded n paragraph
(3) (C) and paragraph ( ) (C) and ( )). For the purpose of
the precedng sentence, the ncrease n operatng assets for the
ta abe year sha be determned n the same manner as the n-
crease n nadmssbe assets for the ta abe year s determned
under paragraph (5). For the purpose of such determnaton,
the term operatng assets means
() property used n the ta payer s trade or busness
wthn the meanng of secton 117( ) (1) e cept that such
property need not be hed more than s months, and
(II) stock n trade or other property of a knd whch
woud propery be ncudbe n the nventory of the ta -
payer f owned at the cose of the ta abe year, and prop-
erty hed by the ta payer prmary for sae to customers
In the ordnary course of the ta payer s trade or busness,
e cept any such assets whch consttute nadmssbe assets,
stock, securtes, or ntangbe property (such Intangbe prop-
erty not beng mted to the property descrbed n secton
1(1)).
(C) The amount determned under paragraph (9) sha be
sub|ect to reducton to the e tent that the Secretary determnes
that the ncrease n operatng assets Is a resut, drecty or n-
drecty, of an ncrease n ndebtedness of the ta payer (other
than ndebtedness whch consttutes borrowed capta).
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327 0. 33(a)-2, Regs. 130.
S C. 509. LT RN TI R G S P RIOD N T INCOM
TITL , R NU CT OF 1051, PPRO D OCTO R
20, 1951 .

(1) Secton 35(f)(3) (reatng to capta addton n the base
perod) s hereby amended by nsertng mmedatey after the words
under secton 2(c) (1) , wherever appearng theren, the foow-
ng: or under secton 2(h) .

CT OF 1951, PPRO D OCTO R 20, 1951 .
by ths tte sectons 501 through 52: sha be appcabe ony wth
respect to ta abe years endng after une 30, O.
S C. O02. C SS PROFITS CR DIT S D ON INCOM R -
(a) Percentage of verage ase Perod Net Income Taken Into
ccount.
(1) In genera. Paragraph (1) ( ), and paragraph (2), of sec-
ton 35(a) (reatng to e cess profts credt based on Income) are
each amended by strkng out 5 per centum and nsertng n eu
thereof 3 per centum.
(2) Ta abe years begnnng before ut 1, 1051, and endng
after une 30, 1051. Secton 35(a) s hereby amended by addng
at the end thereof the foowng new paragraphs:
( ) Caendar tear 1051. In the case of a ta abe year begn-
nng on anuary 1, 1951, and endng on December 31, 1951, there
sha be used, for the purposes of paragraph (1) ( ) and paragraph
(2), n eu of 5 per centum of the average base perod net nrome,
an amount equa to per centum of the average base perod net
ncome.
(5) Ta abe tkars (other than caendar tear 1051) begn-
nng before uy 1, 1051, and endng after une 30, 1051. In the
case of any ta abe year (other than a ta abe year descrbed n
paragraph ( )) begnnng before uy 1, 1051, and endng after
une 30, 1951, there sha be used, for the purposes of paragraph
(1) ( ) and paragraph (2), n eu of 5 per centum of the average
base perod net ncome, an amount equa to the sum of
( ) that porton of an amount equa to 5 per centum of the
average base perod net Income whch the number of days n
such ta abe year pror to uy 1, 1P51, bears to the tota num-
ber of days n such ta abe year, pus
( ) that porton of an amount equa to 3 per centum of the
average base perod net ncome whch the number of days n
such ta abe year after une 30, 1051, bears to the tota number
of days n such ta abe year.
(b) ffectve Date. The amendments made by subsecton (a) sha
be appcabe ony wth respect to ta abe years endng after une 30,
1051.
Par. 6. Secton 0. 35-1 26 CFR 0. 35-1 s amended as foows:
( ) y changng (a) of such secton to read as foows:
(a) Introductory. (1) In order for a corporaton to determne for any par-
tcuar ta abe yenr the amount of ts e cess profts credt based on ncome, t s
necessary frst to compute the amount of the average base perod net ncome.
The frst tem n determnng the e cess profts credt based on ncome s an
amount equa to a percentage of such average base perod net ncome. See (2),
beow, and secton 35(a) for the percentage appcabe to the ta abe year for
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0. 33(a)-2, Regs. 130.
32
whch the credt s beng computed. Two methods are provded In secton
35 for determnng the average base perod net ncome: () the genera average
method set forth n secton 35(d) and n (d) of ths secton, and () the ater-
natve method set forth n secton 35(e) appcabe to certan ta payers whose
growt enttes them to the benefts of a method provded n such secton, If such
method resuts n a esser e cess profts ta .
(2) Wth respect to the partcuar ta abe years Indcated, the foowng
percentages of average base perod net ncome sha be taken nto account as the
frst tem n determnng the amount of the e cess profts credt based on ncome:
(I) 5 percent n the case of a ta abe year endng after une 30, 1050,
and not endng after une 0, 1951.
(II) percent In the case of a ta abe year whch s the caendar
year 1951.
() 3 percent n the case of a ta abe year begnnng after une 30,1951.
(v) In the case of any ta abe year (other than a ta abe year whch
s the caendar year 1951) begnnng before uy 1, 1951, and endng after
une 30, 1951, there sha be used an amount equa to the sum of
( ) that porton of an amount equa to 5 percent of the average
base perod net ncome whch the number of days n such ta abe year
pror to uy 1, 1951, bears to the tota number of days n such ta abe
year, pus
( ) that porton of an amount equa to 3 percent of the average
base perod net Income whch the number of days In such ta abe year
after une 30, 1951, bears to the tota number of days n such ta abe
year.
( ) y changng (d) of such secton to read as foows:
(d) Computaton under genera average method. (1) The foowng steps
are requred for the computaton of the average base perod net ncome under
the genera average method:
(I) The e cess profts net ncome Is determned for each month durng
whch the ta payer was n e stence durng the base perod. Ths amount
s determned for any month durng any part of whch the ta payer was n
e stence by dvdng the e cess profts net ncome (computed n accordance
wth the provsons of secton 33(b)) for the ta abe year n whch such
month fas by the number of fu caendar months n such ta abe year.
In no case sha the e cess profts net ncome for any month be ess than
zero. The e cess profts net ncome for any mouth durng no part of whch
the ta payer was In e stence sha be zero.
(II) The 30 months whch produce the hghest aggregate e cess profts
net ncome are seected under ether of two methods: ( ) the 12 consecu-
tve months havng the owest aggregate e cess profts net Income may be
emnated; or ( ) the 30 consecutve months havng the hghest aggregate
e cess profts net Income may be retaned.
() The e cess profts net ncome for each of the 36 months seected
under () Is aggregated.
(v) The aggregate amount computed under () Is dvded by 3.
(2) ta payer whch had a ta abe year begnnng n 19 9 and endng after
March 31, 1950, may compute an average base perod net Income under the
genera average method descrbed n (1), above, ether for ts base perod as
defned n secton 35(b) and n (b) of ths secton or for a substtuted perod
consstng of consecutve months endng March 31, 1950, whchever perod
produces the esser e cess profts ta for the ta abe year. In computng the
average base perod net ncome for such substtuted perod, the e cess profts
net ncome for anuary, February, and March of 1950 sha be a weghted e cess
profts net ncome , as defned n secton 35(e) (2) ( ) and n secton 0. 35-
5(b), for the ta abe year In whch such months fa.
(3) ta payer havng a ta abe year begnnng n 19 9 and endng after
March 31, 1950, sha ndcate on Schedue I -2 (Form 1120) whch perod s
used In the computaton of ts average base perod net ncome. ta payer
may use the substtuted -month perod for the purpose of determnng Its
unused e cess profts credt ad|ustment as defned n secton 32(b) but sha
use te base perod as defned n secton 35(b) and n (b) of ths secton for
the purpose of any other computaton under subchapter D of chapter 1. For
e ampe, the base perod and not the substtuted -month perod sha be used
for the purpose of any reference n secton 2 to 35(d).
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329
0. 33(a)-2, Regs. 130.
Par. 7. Secton 0. 35- 26 CFR 0. 35- s amended as foows:
( ) y strkng out the phrase the begnnng of ts base perod
wherever appearng theren (such phrase appearng n the frst sen-
tence of (a), (b),and (c) of such secton) and nsertng n eu thereof
the foowng: the end of ts base perod .
( ) y nsertng at the end of such secton the foowng:
(d) Corporatons commencng busness durng base perod. In the case of a
corporaton whch commenced busness durng Its base perod, tota payro, gross
recepts, net saes, and e cess profts net Income, for any porton of ts base
perod durng whch t was not n e stence, w be taken nto account under
secton 35(e) at zero. corporaton not n e stence on the frst day of Its
base perod woud, uness t s a member of an affated group for ts frst ta abe
year endng after une 30, 1950, automatcay satsfy the tota assets requre-
ment of secton 35(e) (1) ( ) (1) and of (b) of ths secton snce ts tota
assets as of the 1st day of ts base perod woud be zero.
Par. . Secton 0. 35-5 26 CFR 0. 35-5 s amended by strkng
from (a) (7) thereof the phrase and does not quafy under the
genera requrements for the aternatve based on growth (see secton
0. 35- (b)) .
( ) y addng at the end of (a) of such secton the foowng:
(5) For speca rues appcabe n the cane of a bank, see (e) of ths secton
and secton 35(f) (0).
( ) y nsertng n the thrd sentence of (b) (1) of such secton
mmedatey after the words Such sum sha be reduced the foow-
ng : (but not beow zero) .
(C) y nsertng at the end of (d) of such secton the foowng:
(3) If the ta payer computes an average base perod net Income by reference
to secton 2(h), the rues stated In (I) through () of (2), above, wthout
regard to the 110 percent quafcaton theren, sha be appcabe n determnng
the base perod capta addton.
(e) Yeary base perod capta of banks. (1) For the purpose of computng
the ta for ta abe years begnnng on or after October 20, 1951, the ad|ustment
to the yeary base perod capta for nadmssbe assets n the case of a batk,
as defned n secton 10 , must be made under secton 35(f) (6) whch provdes
a proportonate ad|ustment wth respect to such assets. The yeary base perod
capta sha be determned under such secton ns foows:
() tentatve yeary base perod capta sha be computed under sec-
, ton 35(f)(1), wthout any reducton under secton 35(f)(1)( ) for
I nadmssbe assets.
() The amount determned under () sha be reduced by an amount
whch bears the same rato to the amount determned under () as the
rato whch the tota of the nadmssbe assets bears to the tota of ad-
mssbe and nadmssbe assets, each such tota beng determned ony by
reference to the day amounts of admssbe and nadmssbe assets for
the frst day of the ta abe year for whch yeary base perod capta s
determned. See secton 0(b) and secton 0. 0-1.
(2) ta payer usng the ad|ustment for nadmssbe assets provded n sec-
ton 35(f)(6) sha so ndcate on Schedue P-2( ) (Form 1120) and sha
fe wth, and as a part of, ts return a schedue showng the computaton of ts
base perod capta addton pursuant to such secton. In the case of a ta payer
makng the eecton descrbed n (3), beow, such schedue sha be fed for a
ta abe years begnnng before October 20, 1951, and sha be fed wth the
eecton.
(3) If the ta payer eects by a statement attached to ts return for a ta abe
year begnnng before October 20, 1951, the ad|ustment for nadmssbe assets
under secton 35(f) ((1) sha be appcabe n the computaton of ts e cess
profts ta for a ta abe years begnnng before October 20, 1951. In the case
of a ta payer eectng to use such ad|ustment for a ta abe year begnnng be-
fore October 20, 1951, for whch a return has been fed, such eecton sha be
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0. 33(a)-2, Regs. 130.
330
made In wrtng and sha be fed wth and as a part of an amended return, or,
f made n connecton wth a cam for credt or refund, wth and as a part of
such cam. n eecton once made sha be rrevocabe and sha appy to the
computaton of the ta for a ta abe years begnnng before October 20, 1961.
In such case, secton 35(f) (6) s appcabe n computng the yeary base perod
capta of each ta abe year nvoved In determnng the base perod capta
addton.
( ) y redesgnatng (5) n (a) of such secton as (6) and by
addng after ( ) thereof the foowng:
(5) For speca rues for changes n nadmssbe assets n the case of banks,
see secton 35(g) ( ) aud (f) of ths secton.
( ) y nsertng at the end of (b) of such secton the foowng:
( ) For further ad|ustment wth respect to the amount of the net capta
addton, as determned above, by reason of a decrease In nadmssbe assets,
see secton 33(g) (9) and (g) of ths secton.
(C) y addng at the end of such secton the foowng:
(f) d|ustment for changes n nadmssbe assets n the case of tanks. (1)
In the case of a bank, as defned n secton 10 , a mtaton on the ad|ustment
to the net capta addton for an ncrease n nadmssbe assets s requred
under secton 35(g)( )( ). Ths mtaton sha be appcabe where the
ncrease n tota assets for the ta abe year (as determned under (3), beow)
e ceeds the net capta addton computed wthout regard to any ad|ustments
for an ncrease n nadmssbe assets. In such a case, the amount of the ad|ust-
ment for Inadmssbe assets sha not be greater than an amount whch bears
the same rato to the ncrease n nadmssbe assets for the ta abe year as the
amount of the net capta addton, computed wthout ad|ustment for such n-
crease, bears to the ncrease a tota assets for the ta abe year.
(2) In the case of a bank, a mtaton on the net capta reducton for a
decrease n nadmssbe assets s requred under secton 35(g) ( ) ( ). Ths
mtaton sha be appcabe where the decrease n tota assets for the ta abe
year (as determned under (3), beow) e ceeds the net capta reducton for
such year computed wthout regard to any ad|ustments for a decrease n Inadms-
sbe assets. Iu such a case, the amount of the ad|ustment for nadmssbe
assets sha not be greater than an amount whch bears the same rato to the
decrease n nadmssbe assets for the ta abe year as the amount of the net
capta reducton, computed wthout ad|ustment for such decrease, bears to the
decrease n tota assets for the ta abe year.
(3) For the purpose of (1) and (2), above, tota assets sha ncude a
assets, whether admssbe or nadmssbe assets as defned n secton 0, and
tota assets as of any tme sha be determned n accordance wth the rues for
determnng assets set forth n secton 0. 37-5(b). n ncrease or decrease n
nadmssbe assets for the ta abe year sha be determned under secton
35(g) (5). See (d) and (e) of ths secton. n ncrease or decrease In tota
assets sha aso be determned under secton 35(g) (5) as f that secton had
reference to a assets hed by the ta payer, whether admssbe or nadmssbe
assets as defned n secton 0.
( ) ta payer requred to appy the mtaton on the ad|ustment for changes
n nadmssbe assets provded n secton 35(g) ( ) sha so ndcate on Sched-
ue P-2( ) (Form 1120) and sha attach thereto a separate schedue showng
the computatons under such secton.
(g) Decrease n nadmssbe assets. (1) In genera. net capta addton
for the ta abe year may be aowed, or the amount otherwse determned under
secton 35(g)(1) and under (d) of ths secton may be Increased, n certan
cases descrbed n secton 35(g) (9) where a decrease n Inadmssbe assets (n
e cess of the net capta reducton, f any) s accompaned by a correspondng
ncrease n operatng assets. For ths purpose, an ncrease In operatng assets
s taken nto account ony to the e tent that t e ceeds the net capta addton
as ad|usted under secton 35(g) (10) ( ). The term operatng assets means
() property used n the ta payer s trade or busness wthn the meanng of sec-
ton 117(3) (1) determned wthout regard to any hodng perod specfed n
such secton, and () stock n trade or other property of a knd whch woud
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331
0. 33(a)-2, Regs. 130.
propery De Incudbe In the nventory of the ta payer f owned at the cose of
the ta abe year, and property hed by the ta payer prmary for sae to cus-
tomers In the ordnary course of the ta payer s trade or busness. Such term
does not ncude cash, nadmssbe assets, stork, securtes, or ntangbe prop-
erty, whether or not such ntangbe property Is descrbed n secton 1(1).
Secton 35(g) (9) sets forth two rues for the computaton of the addton to
the ncome credt under such secton, one of whch Is appcabe n the case of a
ta payer other than a bank, as defned n secton 10 , and the other of whch
s appcabe n the case of such a bank.
(2) Ta payers other than batks. In the cnse of a ta payer other than a
bank (as defned n secton 10 ), the foowng steps are requred under sec-
ton 35(g)(9) and (10) n order to determne the amount of the net capta
addton for the ta abe year, or the amount to e added to the net capta add-
ton determned under secton 351 g) (1), as the case may be:
() There s determned the e cess of the tota of the nadmssbe assets,
as defned n secton 0(b), for the frst day of the ta payer s rst ta abe
year endng after une 30, 1000, over the tota of the day amounts attrbut-
abe to the nadmssbe assets for the ta abe year, dvded by the number
of days n such year.
() There s determned the e cess, If any, dvded by the number of days
n the ta abe year, of the aggregate of the day capta reducton for each
day of the ta abe yenr over the aggregate of the day capta addton for
each day of the ta abe year. See (b) and (c) of ths secton.
() The e cess of the amount computed under () over the amount, f
any, computed under () s determned. Where the amount computed under
(t) e ceeds the amount, f any, computed under () wthout regard to sec-
ton 35(g) ( ) (C) and ( ), reatng to a decrease n borrowed capta and
to an ncrease n oans to members of a controed group of corporatons of
whch the ta payer s a member, the amount computed under () may e
reduced. In such a case the amount computed under () sha be reduced
by 25 percent of the e cess, f any, of
( ) an amount computed under () by usng 100 percent, n eu of
75 percent, of the amounts determned under secton :5(g)( ) (C)
and ( ),over
( ) an amount computed under () wthout regard to secton
35(g)( ) (C) or ( ).
(v) There s determned the e cess of the tota of the day amounts
attrbutabe to operatng assets for the ta abe year, dvded by the number
of days n such year, over the tota amount of such assets for the frst day
of the ta payer s rst ta abe year endng after une 30, 11)50. For ths
purpose the ad|usted bass of such assets for determnng gan upon sae
or e change sha be used.
(v) The net capta addton, f any, under secton 35(g)(1) Is recom-
puted wthout regard to the percentage mtatons under secton
35(g) (3) (C), reatng to an ncrease n borrowed capta, and under secton
35(g) ( ) (C) and ( ), reatng to a decrease n borrowed capta and to
an ncrease n oans to members of a controed group of corporatons of
whch the ta payer s a member.
v) The amount to be added to the net capta addton, or the amount
whch sha be consdered the net capta addton, as the case may be, a
whchever of the foowng amounts s the esser
( ) the amount determned under (),or
( ) the e cess of the amount determned under (v) over the amount
determned under (v).
(3) Speca rue n the case of a bank. In (he case of a bank (as defned n
secton 10 ), the ad|ustment for a decrease n nadmssbe assets sha be
determned as provded n (2), above, e cept that n eu of the amount com-
puted under (2) () there sha be substtuted whchever of the foowng amounts
s the esser (and such amounts sha not be ad|usted under the second and
thrd sentences of (2) (), above) :
() n amount whch bears the same rato to the amount determned
under (2) (), above, as the sum of the equty capta, as defned n secton
37(c), and the day borrowed capta, as defned n secton 30(b), each
determned as of the 1st day of the frst ta abe year endng afer une 30,
1950, bears to the tota assets (determned as provded n secton 35(g) ( ))
as of the begnnng of such day, or
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I 0. 33(a)-2, Regs. 130. 332
() If the decrease n tota assets for the ta abe year e ceeds the net
capta reducton, computed wthout regard to ad|ustments for a de-
crease n nadmssbe assets, the amount computed under secton
35(g) ( ) ( ) (). See (f) (2) of ths secton.
( ) Speca rues appcabe to the secton 35(g)(9) ad|ustment. The ad-
|ustment to the net capta addton for a decrease n nadmssbe assets
provded n secton 35(g) (9) sha be sub|ect to reducton n any case n whch
the Commssoner determnes that the ncrease n operatng assets s the drect
or ndrect resut of an ncrease n ndebtedness of the ta payer, other than
ndebtedness whch consttutes borrowed capta as defned n secton 39(b).
Ths mtaton may be apped, for e ampe, n a case where the addton to
operatng assets s accompaned by ncreased open account ndebtedness to a
member of a controed group, as defned n secton 35(g)(6). ta payer
computng a net capta addton by reference to secton 35(g) ( ) sha attach
to Schedue P-2( ) (Form 112(1) a schedue showng the computaton under
such secton and sha ncude a statement of ts operatng assets.
Par. 11. There s nserted mmedatey precedng secton 0. 3 -1
26 CF 0. 3 -1 the foowng:
S O. 500. D USTM NTS FOR C NG S I IN DMISSI L
SS TS IN C S OF N S TITL , R NU CT OF
1051, PPRO D OCTO R 20, 1 51 .

(b) mendment of Secton 3 . Secton 3 (reatng to new capta
credt changes) s hereby amended by addng after subsecton (f) the
foowng new subsecton:
(g) d|ustments for Inadmssbe ssets n Cask of anks. In
the case of a bank (as defned n secton 10 ), f the ncrease n tota
assets for the ta abe year (determned n the manner provded n the
ast sentence of secton 35(g) ( )) e ceeds the net new capta addton
computed wthout regard to the ad|ustment under subsecton (b) for an
ncrease n nadmssbe assets, then the net new capta addton for
the ta abe year sha not be ess than the e cess of the amount deter-
mned under the frst sentence of subsecton (b) over an amount whch
bears the same rato to the ncrease n nadmssbe assets for the ta -
abe year, determned under secton 35(g) (5), as the amount computed
under such frst sentence bears to such ncrease n tota assets for the
ta abe year.

CT OF 1951, PPRO D OCTO R 20, 1051 .
the amendments made by thstte ncudng secton 506(b)
sha be appcabe ony wth respect to ta abe years endng after une
30, 1950.
Par. 12. Secton 0. 3 - 26 CFR 0. 3 - s amended as foows:
( ) y addng at the end of (a) of such secton the foowng:
For speca rues for changes n nadmssbe assets n the case of banks, see
secton 3 (g) and (c) of ths secton.
( ) y addng at the end of such secton the foowng:
(c) d|ustments for nadmssbe assets n the case of bunks. (1) In the case
of a bank, as defned n secton 10 , a mtaton on the ad|ustment to the net
new capta addton for an ncrease n nadmssbe assets s requred under
secton 3 (g). Ths mtaton sha be appcabe where the ncrease n tota
assets (as determned under (2), beow) for the ta abe year e ceeds the net
new capta addton for such year computed wthout regard to ad|ustments for
an ncrease n Inadmssbe assets. In such a case, the amount of the ad|ust-
ment for nadmssbe assets sha not be greater than an amount whch bears
the same rato to the ncrease n nadmssbe assets for the ta abe year as the
amount of the net new capta addton, computed wthout regard to any ad|ust-
ment for nadmssbe assets, bears to the ncrease n tota assets for the ta abe
year.
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333 0. 33(a)-2, Regs. 130.
(2) For the purpose of (1), above, tota assets sha Incude a assets, whether
admssbe or Inadmssbe assets as defned In secton 0, and tota assets as
of any tme sha be determned n accordance wth the rues for determnng
assets set forth n secton 0. 37-5 (b). n ncrease or decrease n nadmssbe
assets for the ta abe year sbn be determned under secton 35(g) (5). See
(d) and (e) of secton 0. 35-7. n ncrease or decrease n tota assets sha
aso be determned under secton 35(g) (5) as f that secton had reference to
a assets hed by the ta payer, whether admssbe or Inadmssbe assets as
defned n secton 0.
(3) ta payer requred to appy the mtaton on the ad|ustment for changes
n nadmssbe assets provded n secton 3 (g) sha so ndcate on Schedue
P- (Form 1120) and sha attach thereto a separate schedue showng the
computatons under such secton.
S C. 325. T TR TM NT OF CO L ROY LTI S R NU
CT OF 1951, PPRO D OCTO R 20, 1051 .

(e) Conformng mendments.

(2) Secton 0(a)(1) (reatng to defnton of Inadmssbe
assets ) s hereby amended by strkng out and at the end of
subparagraph ( ) ; by strkng out the perod at the end of
subparagraph ( t and nsertns n eu thereof ; and ; and by
addng at the end thereof the foowng new subparagraph:
(C) The economc nterest referred to n the provsons
of secton 117(k)(2) reatng to coa f the ta payer s sub-
|ect to such provsons wth respect to the ncome from such .
coa.
(3) The amendments made by ths subsecton sha be appca-
be n computng the ta under subchapter D of chapter 1 for ta -
abe years endng after December 31, 1950.

S C. 50 . L CTION WIT R SP CT TO C RT IN IN DMISSI-
L SS TS TITL , R NU CT OF 1051, PPRO D
OCTO R 20, 1051 .
(a) mendment of Secton 0. Secton 0 (reatng to admss-
be and nadmssbe assets) s hereby amended by addng at the end
thereof the foowng new subsecton :
(C) TR TM NT O GO RNM NT O LIG TIONS S DMISSI L
ssets. If the ta payer eects for any ta abe year, n accordance
wth reguatons prescrbed by the Secretary, to ncrease ts e cess
profts net ncome by an amount equa to the amount by whch the n-
terest receved or accrued durng the ta abe year on Government ob-
gatons e ceeds the sum of
(1) the amount of nterest pad or accrued durng such year
whch s not aowed as a deducton under secton 23 (b), and
(2) the amount of the ad|ustments requred for the ta abe
year under secton 22(o) (reatng to ad|ustment for certan bond
premums), but not n e cess of the amount of nterest receved or
accrued durng the ta abe year on Government obgatons to
whch such secton s appcabe,
then for the ta abe year for whch the eecton Is made the term
admssbe assets sha Incude Government obgatons, and the term
Inadmssbe assets sha not ncude Government obgatons. For the
purpose of appyng secton 35 to the ta abe year for whch the eecton
s made, Government obgatons sha not be consdered Inadmssbe
assets n determnng orgna nadmssbe assets or yeary base
perod capta. s used n ths subsecton the term Government ob-
gatons means obgatons descrbed n secton 22(b) ( ) any part of the
nterest from whch s e cudbe from gross Income or aowabe as a
credt aganst net ncome; but such term sha ncude ony such ob-
26335 63 22
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0. 33 (a)-2, Regs. 130. 33
gatons as n the bands of the ta payer are property descrbed n sec-
ton 117(a) (1) ( ). For the purpose of determnng the e cess profts
credt for a ta abe year for whch the eecton s made, the e cess
profts net ncome under secton 33(b) for any ta abe year sha In-
cude the amount by whch the nterest receved or accrued durng such
ta abe year on Government obgatons e ceeds the amount of Interest
pad or accrued durng such year whch s not aowed as a deducton
under secton 23(b) and, f the ta abe year ends after une 30, 1950,
the amount wth respect to such year descrbed In paragraph (2).

CT OF 1951, PPRO D OCTO 20, 1951 .
the amendments made by ths tte ncudng secton 50S
sha be appcabe ony wth respect to ta abe years endng after une
30, 1950.
Par. 1 . Secton 0. 0-1 26 CFR 0. 0-1 s amended as foows:
( ) y nsertng at the end of (a) of such secton the foowng:
For the eecton n certan cases to treat Government obgatons as admssbe
assets, see secton 0(c) and (g) of ths secton.
( ) y strkng the frst sentence from (b) of such secton and by
Te term nadmssbe assets means (1) stock n a corporatons, domestc
or foregn, e cept stock n a foregn persona hodng company, and e cept stock
whch s not a capta asset (such as stock hed prmary for sae to customers by
a deaer n securtes), (2) a obgatons descrbed n secton 22(b)( ), any
part of the nterest from whch s e cudabe from gross ncome or aowabe
as a credt aganst net ncome, and (3t for the purpose of computng the ta
for ta abe years endng after December 31, 1950, the economc nterest referred
to n secton 117(k) (2), reatng to coa, f the ta payer s sub|ect to the pro-
vsons of such secton wth respect to the ncome from such coa.
(C) y strkng from (c) of such secton secton 36(a) (1) and
secton (b)(3) and by nsertng n eu thereof the foowng:
secton 35(f) (6), secton 36(a) (1), and secton (b) (3) .
(D) y strkng the ast sentence of (f) of such secton and nsertng
n eu thereof the foowng:
The amount so determned s the amount of the reducton referred to n secton
30(a) (1) or secton (b) (3). as the case may be. Secton 0(b) smary
appes n determnng the amount of the reducton referred to n secton
35(f)(6), e cept that for such purpose ony the day amounts of admssbe
and nadmssbe assets for the frst day of the ta abe year are used.
( ) y addng at the end of such secton the foowng:
(g) (1) Secton 0(c) provdes that, f the ta payer makes the eecton
descrbed n that secton, ts Government obgatons descrbed n secton
22(b) ( ) to whch the eecton s appcabe, any part of the nterest from whch
s e cudabe from gross ncome or aowabe as a credt aganst net ncome,
sha be treated as admssbe assets. The eecton under secton 0(c) s
appcabe to such Government obgatons as are not capta assets n the ta -
payer s hands and as are stock In trade or other property of a knd whch woud
propery be ncuded n the nventory of the ta payer f on hand at the cose
of the ta abe year, or property hed by the ta payer prmary for sae to
customers n the ordnary course of ts trade or busness. In the case of such
eecton, tbe term admssbe assets sha ncude such Government obgatons
and the term nadmssbe assets sha not ncude such obgatons. For
ths purpose, the term obgatons descrbed n secton 22(b)( ) ncudes
obgatons, the dscount on whch, f ssued at a dscount, woud e treated as
Interest descrbed n secton 22(b)( ). n eecton under secton 0(c) sha
be made n the manner descrbed n ( ), beow.
(2) In the case of a ta payer makng the eecton under secton 0(c) for
any ta abe year, the e cess profts net ncome sha be ncreased by an amount
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335 0. 33 (a)-2, Regs. 130.
equa to the amount by whch the nterest receved or accrued durng the ta -
abe year on the Government obgatons to whch the eecton s appcabe
(see (1), above) e ceeds the sum of
() the amount of Interest pad or accrued durng such year whch s
not aowed as a deducton under secton 23(b) and whch s propery a-
ocabe to the Government obgatons to whch the eecton s appcabe,
and
() the amount of the ad|ustments requred for the ta abe year under
secton 22(o) (reatng to ad|ustment for certan bond premums) wth re-
spect to the Government obgatons to whch the eecton s appcabe, but
not In e cess of the amount of nterest receved or accrued durng the ta abe
year on such Government obgatons.
(3) For the purpose of appyng secton 35 to the ta abe year for whch
the eecton s made, the Government obgatons to whch such eecton s ap-
pcabe sha not be consdered nadmssbe assets n determnng yeary base
perod capta under secton 35(f)(1) or In determnng orgna nadmssbe
assets under secton 35(g)(5). See sectons 0. 35-6 and 0. 35-7. For the
purpose of determnng the e cess profts credt for a ta abe year for whch the
eecton under secton 0(c) s made, the e cess profts net Income computed
under secton 33(b) for any ta abe year sha be ncreased by the e cess of the
amount of nterest receved or accrued on such obgatons (urng such ta abe
year reduced (but not beow zero) by the amount of nterest pad or accrued dur-
ng such ta abe year whch s not aowed as a deducton under secton 23(b)
and whch s propery aocabe to such obgatons. In the case of a ta abe
year endng after une 30, 1950. such nterest sha further be reduced by the
amount of the ad|ustment requred under secton 22(o) (reatng to the ad-
|ustment for certan bond premums wth respect to such obgatons), but not
by an amount greater than the amount of nterest receved or accrued durng
the ta abe year on such obgatons. For the purpose of determnng the
amount of nterest receved or accrued wth respect to any ta abe year, the
term nterest ncudes, n the case of obgatons ssued at a dscount, so much
of such dscount as (for the purpose of determnng gan upon sae or dspos-
ton) s treated as nterest n the bands of the ta payer for the ta abe year.
( ) The eecton pursuant to secton 0(c) sha be made n a statement at-
tached to Schedue P (Form 11-20) accompanyng the ncome ta return for
such year or by the use of fgures on such schedue whch ceary refect the eec-
ton. Such eecton must be made for each ta abe year for whch the benefts
of secton 0(c) are camed. If the ta payer has faed so to eect or desres
to change ts eecton, such eecton or change n eecton may, sub|ect to the
approva of the Commssoner, be made by the ta payer fng wth the Com-
mssoner of Interna Revenue, Washngton 25, D. C, wthn the perod of m-
tatons for the fng of cams for credt or refund wth respect to the year or
years nvoved, a notce of ts eecton or change n eecton accompaned by a
recomputaton of ts e cess profts ta for such year. If the recomputaton re-
suts n an overpayment for such year, the ta payer shoud fe a cam for credt
or refund on Form 3 n accordance wth the provsons of secton 322.
S G 509. LT RN TI R G S P RIOD N T INCOM
TITL , R NU CT OF 1951, PPRO D OCTO R 20,
1951 .
(a) mendment of Secton 2. Secton 2 (reatng to ab-
normates durng the base perod) s hereby amended as foows:
(1) y nsertng at the end of subsecton (a) thereof the foow-
ng:
If such ta payer s aso entted to the benefts of subsecton (h), the
ta payer s average base perod net ncome determned under ths secton
sha be the amount computed under subsecton (c) or (d), whchever s
appcabe to the ta payer, or the amount computed under subsecton
(h), whchever resuts n the esser ta under ths subchapter for the
ta abe year. In the case of any other ta payer entted to the benefts
of subsecton (h), the ta payer s average base perod net ncome deter-
mned under ths secton sha be the amount computed under subsecton
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0. 33(a)-2, Regs. 130.
336
(2) y strkng out determned under ths secton n subsec-
tons (c) and (d) thereof each pace t occurs and nsertng n eu
thereof the foowng: computed under ths subsecton .
(3) y nsertng after subsecton (c) (2) n subsecton (e) (1)
thereof the foowng: and subsecton (h) .
( ) y redesgnatng subsectons (h) and () thereof as ()
and (|), respectvey, and by nsertng after subsecton (g) thereof
the foowng new subsecton:
() ternatve verage ase Perod Net Income.
(1) gbty bkquhf.ments. ta payer whch commenced
busness on or before the frst day of ts base perod sha be en-
tted to the benefts of ths subsecton f
( ) the aggregate e cess profts net ncome (f any) for
the 12 months seected under paragraph (2)( ) s ess than
35 per centum of one-haf of the aggregate e cess profts net n-
come for the 2 months remanng under such paragraph; and
( ) norma producton, output, or operaton was nter-
rupted or dmnshed because of the occurrence, wthn 12
months precedng (1) the frst day of the 12-month perod se-
ected under paragraph (2) ( ) (), or () the frst day of any
perod of s or more consecutve mouths seected under para-
graph (2) ( ) (), of events unusua or pecuar n the e per-
ence of such ta payer.
Ths subsecton sha have no appcaton uness the ta payer has
an aggregate e cess profts net ncome for the 2 months remanng
under paragraph (2)( ).
(2) Computaton. If the ta payer s entted to the benefts of
ths subsecton, ts average base perod net ncome corputed under
ths subsecton sha be computed as foows:
( ) y determnng under subsecton (b) the perod sub-
|ect to ad|ustment under ths secton. For the purposes of
subparagraph ( ) but not for the purposes of paragraph
(1) ( ) such perod sha be consdered a perod of 36 consecu-
tve months.
( ) y seectng from such perod whchever of the fo-
owng 12 months resuts n the hgher remanng aggregate
e cess profts net ncome
() the 12 consecutve months the emnaton of whch
produces the hghest remanng aggregate e cess profts
net ncome, or
() the 12 months whch reman after retanng the 2
consecutve months whch produce the hghest remanng
aggregate e cess profts net ncome.
(C) y computng for each of the 12 months seected under
subparagraph ( ) a substtute e cess profts net ncome com-
puted under subsecton (e).
(D) y computng the sum of
() the aggregate of the substtute e cess profts net
ncome, as determned under subparagraph (C), for the
12 months seected under subparagraph ( ), but the amount
computed under ths cause sha not e ceed one-haf of the
aggregate e cess profts net ncome for the 2 months re-
manng under subparagraph ( ), aud
() the aggregate of the e cess profts net ncome for
each of the 2 mouths remanng under subparagraph ( ),
computed n the manner provded by the second sentence
of secton 35(d) (1).
( ) y dvdng by throe the amount ascertaned under sub-
paragraph (D).
(3) ggregate e cess PROFITS net ncome. The aggregate e -
cess profts net ncome for any perod sha be computed for the
purposes of ths subsecton n the same manner as under subsec-
ton (b).

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337 0. 33(a)-2, Regs. 130.
S C. 510. D FINITION OF TOT L SS TS FO PURPOS S OF
S CTIONS 2- 6 TITL , R NU CT OF 1951, P-
PRO D OCTO R 20, 1951 .
Tbe frst sentence of secton 2(f) (reatng to defnton of tota
assets) s hereby amended to read as foows: For the purposes of ths
secton, the ta payer s tota assets for any day sha be determned as of
the end of such day and sha be an amount equa to the e cess of
(1) the sum of the cash and the property (other than cash,
nadmssbe assets, and oans to members of a controed group as
defned In secton 35(f)( )) hed by the ta payer n good fath
for the purposes of the busness, over
(2) the amount of any ndebtedness (other than borrowed
capta as defned n secton 39(b) (1)) to a member of a controed
group (as defned n secton 35(g)(6)) whch ncudes the ta -
payer.
CT OF 1951, PPRO D OCTO R 20, 1951 .
after une 30, 1950.
Pah. 16. Secton 0. 2-1 26 CFR 0. 2-1 s amended to read as
foows:
Sec. 0. 2-1. Genera Rue. If a ta payer whch commenced busness on
or before the frst day of ts base perod estabshes that It e perenced certan
abnormates (descrbed n secton 0. 2-2, beow), then such ta payer may be
entted to use the average base perod net ncome computed under secton
2(c) or secton 2(d), whchever Is appcabe. If the ta payer Is aso
entted to the benefts of secton 2(h), the ta payer s average base perod net
ncome determned under secton 2 sha be the amount computed under
subsecton (c) or (d) of such secton, whchever s appcabe to the ta payer,
or the amount computed under subsecton (h) of such secton, whchever resuts
In the owest e cess profts ta for the ta abe year. In the case of any other
ta payer entted to the benefts of secton 2(h), the ta payer s average base
perod net Income determned under secton 2 sha be the amount computed
under subsecton (h) of such secton. See sectons 0. 2-3 and 0. 2- ,
beow, for methods of computaton. Secton 2 Is appcabe ony f the ta -
payer makes appcaton therefor In accordance wth secton 7(e). For rues
governng the appcaton of secton 2 n the case of an acqurng corporaton,
see secton 62(d), and n the case of a component corporaton, see secton
61(c).
Par. 17. Secton 0. 2-3 26 CFR 0. 2-3 s amended by chang-
ng the frst sentence of (d) (1) thereof to read as foows:
(1) The term tota assets for any day means the e cess, determned as of
the end of such day, of
() the sum of the cash and other property (other than nadmssbe
assets, as defned In secton 0(a) (1), and other than oans to members of
a controed group, as defned n secton 35(f)( )) hed by the ta payer
n good fath for purposes of the busness, over
() the amount of any ndebtedness (other than borrowed capta, as
defned In secton 39(b)(1)) to a member of a controed group, as
defned n secton 35 (g) (0), whch ncudes the ta payer.
Pah. 1 . There s nserted mmedatey after secton 0. 2-3 26
CFR 0. 2-3 the foowng:
Sec. 0. 2- . ternatve verage ase Perod Net Income. (a) In gen-
era. Secton 2(h) provdes that a ta payer whch commenced busness on
or before the frst day of ts base perod may use a substtute e cess profts net
ncome for 12 months (as seected under (1), beow) of the perod sub|ect
to ad|ustment determned under secton 0. 2-3, that s, the 36 months n the
base perod seected as havng the hghest aggregate e cess profts net ncome
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I 0. 33(a)-2, Regs. 130. 33
or the owest aggregate defct n e cess profts net ncome. In order to deter-
mne ts egbty for the benefts of secton 2(h), a ta payer must frst
seect a perod of 12 months, as shown n (1), beow, and then ascertan whether
the requrements set forth n (2), (3), and ( ), beow, are met.
(1) fter determnng under secton 2(b) and secton 0. 2-3(a) the
36-month perod sub|ect to ad|ustment, the 12-month perod s seected by deter-
mnng ether () the 12 consecutve months the emnaton of whch produces
the hghest aggregate e cess profts net ncome or the owest aggregate defct n
e cess profts net ncome for the remanng 2 months, or () the 12 months whch
reman after emnatng the 2 consecutve months whch produce the hghest
aggregate e cess pofts not ncome or the owest aggregate defct n e cess
profts net ncome. For the purpose of makng ths seecton, the 36 months
prevousy determned under secton 2(h) and secton 0. 2-3(a) sha be
consdered a perod of 36 consecutve months.
(2) The aggregate e cess profts net ncome, f any. computed as provded n
secton 0. 2 3(a) (1) for the 12 months seected under (1), must he ess than
3.r percent of one-haf of the aggregate e cess profts net Income so computed for
the 2 months remanng after such seecton.
(3) There must not be an aggregate defct n e cess profts net ncome for
the 2 months remanng n (1).
( ) The ta payer must show that norma producton, output, or operaton
was nterrupted or dmnshed because of the occurrence of events unusua or
pecuar n the e perence of the ta payer (see secton 0. 2- 2(a)), wthn 12
months precedng ether
() the frst day of the 12-month perod seected under (1), If 12 consecu-
tve months are seected under (1), or
() f the 12 months seected under (1) are not consecutve, the frst day
of any perod of s or more consecutve months n such 12 months.
(b) Computaton. If the ta payer s entted to the benefts of Secton 2(h)
under the rues of (a), above, ts average base perod net ncome uuder secton
2(h) sha be computed ns foows:
(1) substtute e cess profts net ncome Is determned for each of the 12
months seected under (a) (1), above. Such substtute e cess profts net ncome
s computed under secton 2(e) for each such month by determnng the ta -
payer s tota assets (determned uuder secton 2(f) and under secton 0. 2-
3(d)) for the ast day of the ta abe year n whch such month fas, or for
the ast day of the ta payer s ast ta abe year endng before uy 1, )oO,
whchever day s earer, and by mutpyng such tota assets by the approprate
ndustry base perod yeary rate of return determned under secton 7 for the
base perod year n whch such mouth fas. See secton 2(e)(2) for speca
rues n case of fsca years. Under secton 2(g), the approprate ndustry
cassfcaton under secton 7 s the cassfcaton to whch s attrbutabe the
argest amount of the ta payer s gross recepts for the ta abe year wthn whch
fas the ast month for whch a substtute e cess profts net Income s determned.
(2) The amount determned under (1) s reduced by the tota nterest pad
or ncurred by the ta payer for the 12 months begnnng wth the frst day of the
ta abe year wthn whch such month fas.
(3) The amount determned under (1) and reduced under (2) s dvded by
12. Te amount so computed s the substtute e cess profts net ncome for the
month.
( ) The sum of the foowng amounts s computed
(I) te aggregate of the amounts determned under (3), hut such ag-
gregate sha not e ceed one-haf of the aggregate e cess profts net ncome
computed n the manner provded n secton 0. 2-3 (a) (1) for the 2
months remanng n (a) (1), above, nnd
() the aggregate of the e cess profts net ncome for each of the 2
months remanng n (a)(1), r.bove, but computed by dvdng the e cess
profts net ncome for the ta abe year n whch each such month fas by
the number of fu caendar months n such ta abe year, and rasng any
defcts n e cess profts net ncome to zero.
(5) The amount determned under ( ) s dvded by 3.
(c) For speca rues appcabe to secton 2(h) and to ths secton, see
secton 0. 2-3 (d) and (e).
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339
IS 0. 33(a) 2, Regs. 130.
Pak. 19. There s nserted mmedatey precedng secton 0. 3-1
26 CF 0. 3-1 the foowng:
S C. 511. R G S P RIOD N T INCOM C NG IN
PRODUCTS OR S R IC S TITL , R NU CT OF 1951,
Secton 3(f) (reatng to change n products or servces) s hereby
(f) Rues fob ppcaton of Secton.
(1) The benefts of ths secton sha not be aowed nness the
ta payer makes appcaton therefor n accordance wth secton
7(e).
(2) If after the end of the base perod of the ta payer there
was a substanta chnnge n the products produced by the ta payer,
such change sha, for the purpose of subsecton (a)(1), be con-
sdered to have occurred on the ast day of ts base perod f the
ta payer pror to uy 1, 1950, commenced the constructon of
the factes for the producton of such new products, and f such
constructon and the producton of such new product s n further-
ance of a course of acton to whch the ta payer (or a corporaton
wth whch the ta payer has the prvege under secton 1 1 of fng
a consodated return for ts frst ta abe year under ths subchap-
ter) was commtted pror to the cose of the base perod by contract
wth another person, whch contract granted a cense, franchse,
or smar rght essenta for the producton of such new product.
CT OF 1951, PPRO D OCTO R 20, 1951 .
the amendments made by ths tte ncudng secton 511
sha be appcabe ony wth respect to ta abe years endng after
une 30, 1950.
Par. 20. Secton 0. 3-2 26 CFR 0. 3-2 s amended by addng
at the end thereof the foowng:
(d) Commtment rue. (1) If after the base perod of the ta payer there
was a substanta change n the products produced by the ta payer, such change
sha, for the purpose of secton 3(a)(1) and secton 0. 3-1 (a) (1), be
consdered to have occurred on the ast day of ts base perod f
() the ta payer pror to uy 1, 1950, commenced constructon of
the factes for the producton of such new product, and
() such constructon and the producton of such new product s n fur-
therance of a course of acton to whch the ta payer (or a corporaton wth
whch the ta payer has the prvege under secton 1 1 of fng a conso-
dated return for ts frst ta abe year endng after une 30, 1950) was
commtted pror to the cose of the base perod by contract wth another
person, whch contract granted a cense, franchse, or smar rght essen-
ta for the producton of such new product.
(2) The contract referred to n (1) (), above, must be In wrtng. It must
have been e ecuted pror to the end of the base perod of the corporaton to
whch the cense, franchse, or smar rght essenta for the producton of the
new product were by ts terms granted. The corporaton granted such cense,
franchse, or smar rght to produce the new product may have been ether
the ta payer or any corporaton wth whch the ta payer has the prvege of
Sng a consodated return for the ta payer s frst ta abe year endng after
une 30, 1950.
Par. 21. There s nserted mmedatey precedng secton 0. -1
26 CFR 0. -1 the foowng:
S C. 520. INCR S IN C P CITY FOR PRODUCTION OR OP-
R TION TITL , R NU CT OF 1951, PPRO D
OCTO R 20, 1951 .
Secton (f) (reatng to ncrease In capacty for producton or
operaton) Is hereby amended to read as foows:
(f) Rues for ppcaton of Secton.
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0. 33(a)-2, Regs. 130.1 3 0
(1) The benefts of ths secton sha not be aowed uness the
the ta payer makes appcaton therefor n accordance wth secton
7(e).
(2) If, durng ts frst ta abe year endng after une 30, 1950,
the ta payer competed constructon of (ncudng the nstaaton
of the machnery or equpment for use In) a factory budng or
other manufacturng estabshment, such factory budng or other
manufacturng estabshment and such machnery or equpment
sha, for the purpose of determnng whether there s an ncrease n
capacty under the provsons of subsecton (b), be consdered to
have been added to ts tota factes on the ast day of ts base
perod f
( ) the ta payer, pror to the end of ts base perod, had
competed constructon work representng more than 0 per
centum of the tota cost of constructon of such factory bud-
ng or other manufacturng estabshment, and
( ) the competon of such factory budng or other manu-
facturng estabshment was n pursuance of a pan to whch the
ta payer was commtted pror to the end of ts base perod.
Ths paragraph sha not appy n determnng the amount of the
ta payer s tota assets for the purpose of subsecton (c).
CT OF 1951, PPRO D OCTO R 20, 1951 .
sha e appcabe ony wth respect to ta abe years endng after une
30, 1950.
Par. 22. Secton 0. -2 2(5 CFR 0. -2 s amended by add-
ng at the end thereof the foowng:
(c) Commtment rae. (1) If durng ts frst ta abe year endng after une
30, 19. )0, the ta payer competed constructon of (ncudng nstaaton of the
machnery or equpment for use n) a factory budng or other manufacturng
estabshment, then secton (b)(2) provdes that such factory budng or
other manufacturng estabshment and such machnery or equpment sha, for
the purpose of determnng whether there s an ncrease In capacty under the
provsons of secton (b) and ths secton be consdered to have been added to
ts tota factes on the ast day of ts base perod f
() the ta payer, pror to the end of ts base perod, had competed con-
structon work representng more than 0 percent of the tota cost of con-
structon of such factory budng or other manufacturng estabshment,
and
() the competon of such factory budng or other manufacturng es-
tabshment was n pursuance of a pan to whch the ta payer was com-
mtted pror to the end of ts base perod.
(2) Secton (f) (2) does not appy n determnng the amount of the ta -
payer s tota assets for the purpose of secton (c) and secton 0. -3.
(3) Secton (f) (2) s appcabe ony n the case of a separate manufac-
turng pant, the constructon of whch (ncudng nstaaton of machnery
and equpment for use theren) s competed by the ta payer durng ts frst
ta abe year endng after une 30, 1950. The secton s not appcabe, for
e ampe, to: addtons made to pants n e stence at the end of the ta payer s
base perod; a factory or other manufacturng estabshment acqured other
than through constructon, such as through purchase; machnery and equpment
nstaed n a factory budng or manufacturng estabshment e stng at the
end of the ta payer s base perod.
( ) egay bndng form of commtment s not requred; any substanta
change n poston pror to the end of the ta payer s base perod unequvocay
estabshng the ntent of the ta payer to compete the constructon of such
factory budng or other manufacturng estabshment after the end of ts
base perod, w be taken as suffcent proof that the actua competon of the
constructon of such factory or other manufacturng estabshment durng the
ta payer s frst ta abe year endng after une 30, 1950, was n pursuance of
a pan to whch the ta payer was commtted pror to the end of ts base perod.
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3 1
0. 33(a)-2, Regs. 130.
(5) For the purpose of secton (f)(2), the term other manufacturng
estabshment means a producton structure, other than a factory budng, such
as an o refnery.
S C. 512. R G S P RIOD N T INCOM N W COR-
POR TION TITL , R NU CT OF 1951, PPRO D
OCTO R 20,1951 .
Secton 5(c) (reatng to tota assets for frst three years of new
corporaton) s hereby amended by addng at the end thereof the
foowng new sentence: For the purpose of ths subsecton, the net
capta addton or reducton sha be computed wthout regard to the
mtaton to 75 per centum provded n secton 35(g) (3) (C) and sec-
ton 35(g) ( ) (C) and( ).
CT OF 195L PPRO D OCTO R 20, 1951 .
une 30,1950.
Par. 2 . Secton 0. 5-2 26 CFR 0. 5-2 s amended by n-
sertng at the end of (d)(1) thereof the foowng:
For the purpose of ths paragraph, the net capta addton or reducton sha be
computed wthout regard to the mtaton to 75 percent provded n secton
35(g) (3) (C), reatng to an ncrease n borrowed capta, and secton 35(g) ( )
(C) and ( ), reatng to n decrease n borrowed capta and an ncrease n
oans to members of a controed group of corporatons of whch the ta payer
s a member.
S C. 522. STR T GIC MIN R LS TITL , R NU CT
OF 1951, PPRO D OCTO R 20, 1951 .
Secton 50(b)(1) (reatng to corporatons engaged In mnng of
strategc mneras) s hereby amended by nsertng after chromte,
the foowng: bau te, .
CT OF 1951, PPRO D OCTO R 20, 1951 .
une 30,1950.
C. . 1952-2, 20 , approved December 2, 1952 26 CFR 0. 53-2 ,
( ) y strkng the second sentence from (c) (5) of such secton
and by nsertng n eu thereof the foowng:
The mnera unts or tmber unts of a essor for the ta abe year sha be com-
puted n the same manner as n the case of a producer, e cept that
() n the case of a essor of a tmber bock, and
() n computng nonta abe ncome from e empt e cess output for
ta abe years endng after December 31,1950, n the ease of a essor of a coa
property,
there sha not be ncuded n the tmber or coa unts for such year any tmber
or coa whch has been dsposed of by the essor and whch Is consdered to have
been sod under the provsons of secton 117(k) (2).
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0. 33(a)-2, Regs. 130.
3 2
( ) y addng at the end of (k) (1) of such secton the foowng:
In computng nonta abe ncome from e empt e cess output for ta abe years
endng after December 31, 1950, n tbe case of a essor of a coa property the
estmated recoverabe unts sha be determned wthout regard to coa whch
has been dsposed of by the essor and whch s consdered to have been sod
under the provsons of secton 117(k) (2).
(C) y addng at the end of (m) (1 ) of such secton the foowng:
In the case of a essor of a tmber bock, and for ta abe years endng after
December 31, 1950, n the case of a essor of a coa mnng property, there sha
not be ncuded n the tmber unts or coa unts to be used n the computaton
of unt net ncome any tmber or coa whch has been dsposed of by the essor
and whch s consdered to have been sod under the provsons of secton
117(k)(2).
secton G2 of the Interna Revenue Code (53 Stat. 32; 26 U. S. C. 62).)
ohn S. Graham,
pproved anuary 16, 1953.
Thomas . Lynch,
(Fed wth the Dvson of the Federa egster anuary 21, 1053, :5 a. m.)
Secton 0. 33(a)-2, Rf.c.uatons 130: Compu- T. D. 50P6
ta abe year.
TITL CO INT RN L R NU . C TT R I. SU C PT R . P RT 0.
C SS PROFITS T ; T L Y ItS NDING FT R UN SO. 1950
Reguatons 130, secton 0. 33(a)-2(m) (reatng to e cuson
from e cess profts net ncome of certan ncome derved from
foregn sources) amended.
Washngton 25, D. C.
Concerned:
On December 16,1952, notce of proposed rue makng wth respect
to amendments of Reguatons 130, secton 0. 33(a)-2(m), reatng
to the e cuson from e cess profts net ncome of certan ncome de-
rved from foregn sources, was pubshed n the Federa Regster
(17 F. R. 11366). fter consderaton of such reevant suggestons
as were presented by nterested persons regardng the proposas, the
amendments to Reguatons 130 26 CFR, part 0 set forth beow
are hereby adopted:
Paragraph 1. Secton 0. 33(a)-2, as amended by Treasury De-
cson 5973 page 321, ths uetn , approved anuary 16,1953, s fur-
ther amended by strkng out a of paragraph (m) and substtutng
n eu thereof the foowng:
(m) (1) I nder secton 33(a) (1)(M) there sha be e cuded ncome de-
rved from sources wthn any foregn country to the e tent that such ncome,
() but for monetary, e change, or other restrctons mposed by uch
foregn country, or
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I 0. 33(a)-2, Regs. 130.
() bnt for the ta payer s eecton to defer the reportng of such ncome
under a method of accountng, approved by the Commssoner, appcabe
to ncome whch coud not be ready converted nto Unted States doars
or nto other money or property ready convertbe nto Unted States
doars,
woud have been ncudbe In the gross ncome of the ta payer for any ta -
abe year whch preceded ts frst ta abe year ended after une 30, 1950. If
such ncome s ncudbe n the gross ncome of the ta payer for a ta abe year
succeedng the frst ta abe year ended after une 30, 1950, and, but for such
restrctons or such eecton, woud have been ncudbe n the gross ncome
of the ta payer for ts frst ta abe year ended after une 30, 1950, and f such
frst ta abe year began pror to uy 1, 1950, such ncome sha be e cuded
n an amount whch s the same proporton of such ncome as the number of
days pror to uy 1, 1950, n such frst ta abe year s of the tota number of
days n such frst ta abe year. Deductons propery chargeabe and aocabe
to the ncome e cuded under secton 33(a) (1) (M) sha not be aowed.
(2) For the purpose of ths paragraph
() The term bocked foregn ncome means ncome derved from
sources wthn any foregn country durng any ta abe year whch woud,
but for the restrctons or the eecton descrbed n (1) above, have been
ncudbe n the gross ncome of the ta payer for such ta abe year.
) The term unbocked foregn ncome means ncome whch was
bocked foregn ncome durng the ta abe year n whch t was derved
from sources wthn any foregn country, but whch becomes ncudbe n
the gross ncome of the ta payer for any subsequent ta abe year, whether
as a resut of the remova of such restrctons, or of such ncome becomng
ready convertbe nto Unted States doars or Into other money or prop-
erty ready convertbe Into Unted States doars, or for other reasons.
(3) In cases where unbocked foregn ncome cannot be specfcay dent-
fed as the bocked foregn ncome or porton thereof of a partcuar ta abe
year, the determnaton whether unbocked foregn ncome from sources wthn
any foregn country has become ncudbe n the gross ncome of the ta payer
for a ta abe year endng after une 30, 1950, and the determnaton of the
ta abe year n whch any such unbocked foregn ncome woud have been
Incudbe but for the restrctons or the eecton, sha be made In accordance
wth the foowng rues:
(I) The aggregate amount ncudbe n gross ncome for the ta abe year
In respect to ncome derved from sources wthn such foregn country
sha frst be deemed attrbutabe to the ncome derved from sources wthn
such foregn country durng such ta abe year. To the e tent that such
unbocked foregn ncome Is attrbutabe to Income so derved durng the
ta abe year, such unbocked foregn ncome sha not be e cuded under
secton 33(a) (1) (M).
() The amount of such unbocked foregn Income In e cess of the por-
ton thereof attrbutabe to ncome derved from sources wthn such foregn
country durng such ta abe year under the rue stated In () above sha
be deemed to be attrbutabe to the earest bocked foregn ncome derved
from sources wthn such foregn country, whch bocked foregn ncome
has not been prevousy deemed unbocked n a pror ta abe year. Such
e cess sha be e cuded under secton 33(a) (1) (M) ony to the e tent of
the aggregate of the bocked foregn ncome derved from sources wthn such
foregn country n a ta abe years begnnng pror to uy 1, 1950, but
such aggregate sha be reduced by the proporton of the bocked foregn
ncome derved from sources wthn such foregn country durng the ta -
payer s frst ta abe year endng after une 30, 1950, f such ta abe year
began pror to uy 1, 1950, as the number of days after une 30, 1950, In
such frst ta abe year Is of the tota number of days n such frst ta abe
year.
In determnng whether unbocked foregn Income whch becomes ncudbe n
the gross ncome of the ta payer for a ta abe year endng after une 30, 1950,
can be specfcay Identfed as attrbutabe to the bocked foregn ncome or
porton thereof derved from sources wthn such foregn country n a partcuar
ta abe year, effect sha be gven to the prevous appcaton of the rues n
() and () above to unbocked foregn ncome derved from sources wthn
such foregn country whch became ncudbe n gross ncome of the ta payer
for a pror ta abe year endng after une 30, 1950.
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5 0. 33(b)-2, Regs. 130. 31
n sectons 62, 33(a) (1) (M), and 3791 of the Interna Revenue Code
(53 Stat. 32, 6 Stat. 11 2, 53 Stat. 67; 26 U. S. C. 62, 33(a) (1) (M),
3791).)
ustn F. Wnke,
bert P. Tut e,
(Fed wth the Dvson of the Federa Regster February 13, 1953, :5 a. m.)
Secton 0. 33(a)-2, Reguatons 130: Compu-
ta abe year.
nterna revenue code
Secton 0. 33(a)-2, Reguatons 130: Compu-
ta abe year.
nterna revenue code
Secton 0. 33(b)-2, Reguatons 130: Compu- T. D. 59 2
taton of e cess profts net ncome.
TITL 26 INT RN L R NU C PT R I. SU C PT R , P RT 0
Secton 0. 33(b)-2(a) of oguutons 130 amended
Washngton 25, D. C.
Concerned:
On November 15, 1952, a notce of proposed rue makng was pub-
shed n the Federa Regster 17 F. R. 10 6 to amend Reguatons
130 26 CFR, part 0 . No ob|ectons to the rues proposed havng
been receved wthn the 30 days foowng such pubcaton, such
reguatons are hereby amended by addng at the end of secton
0. 33(b)-2(a), as amended by Treasury Decson 5973 page 321, ths
uetn , approved anuary 16, 1953, the foowng new sentence:
In makng the ad|ustment requred by secton 33(b) (0) for dvdends receved,
the mtaton provded n secton 20(b) wth respect to dvdends n knd sha
be appcabe ony f the dvdend was receved after ugust 31, 1U50.
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3 5 0. 35-1, Regs. 130.
Secton 62 of the Interna Revenue Code (53 Stat. 32; 26 U. S. C. 62).)
ustn F. Wnke,
bert P. Tutte,
(Fed wth the Dvson of the Federa Regster February 12, 1953, : a. m.)
S CTION 35. C SS PROFITS CR DIT-
S D ON INCOM
Secton 0. 35-1, Reguatons 130: cess prof- T. D. 59 7
ts credt based on ncome Determnaton of
average base perod net ncome.
( so Secton 59, Secton 0. 59(a)-.)
ct of 1951, reatng to transton from war producton and ncrease
n peacetme capacty.
Washngton 25, D. C.
Concerned:
shed n the Federa Regster 17 F. R. 10 6 to conform Regua-
approved October 20,1951. No ob|ectons to the rues proposed hav-
ng been receved wthn the 30 days foowng such pubcaton, the
amendments set forth beow are hereby adopted.
Paragraph 1. There s nserted mmedatey after secton 509(b) of
the Revenue ct of 1951, whch precedes secton 0. 35-1 26 CFR
0. 35-1 , the foowng:
S C. 516. TR NSITION FROM W R PRODUCTION ND IN-
CR S IN P C TIM C P CITY R NU CT OF
1951, PPRO D OCTO R 20, 1951 .

(b) Technca mendments. Secton 35(c) (reatng to determ-
naton of average base perod net ncome) s hereby amended as foows:
(1) y nsertng mmedatey after 5 or 0, the foowng:
or any subsecton of secton 59, .
(2) y Insertng mmedatey after or under such secton
the foowng: or subsecton .
Par. 2. Secton 0. 35-1 (c) 26 CFR 0. 35-1 (c) s amended by
nsertng or any subsecton of secton 59, mmedatey after or
6, and by nsertng or subsecton mmedatey after under whch-
ever secton n such secton, so that such secton 0. 35-1 (c) as so
amended w read as foows:
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S 0. 35-1, Regs. 130.
3 6
(c) verage base perod net ncome Determnaton. The average base
perod net ncome s the amount determned under secton 35(d) (for compu-
taton, see (d) of ths secton), uness the ta payer s entted, to the benefts
of secton 35(e), 2, 3, , 5, or 6, or any subsecton of secton 59,
n whch case the average base perod net ncome sha be the amount deter-
mned under whchever secton or subsecton, appcabe to the ta payer, resuts
n the owest e cess profts ta for the ta abe year.
Par. 3. There s nserted mmedatey after secton 0. 5 - 26 CF
0. 5 - the foowng:
S C. 516. TR NSITION FROM W R PRODUCTION ND IN-
CR S IN P C TIM C P CITY R NU CT OF
1951, PPRO D OCTO R 20, 1951 .
(a) In Genera. Part I of subchapter D of chapter 1 Is hereby
amended by addng at the end thereof a new secton to read as foows :
S C. 59. MISC LL N OUS PRO ISIONS.
(a) verage ase Peroo Net Income Transton From War
Producton anu Incbease n Peacetme Capacty. In the case of a
ta payer whch commenced busness before anuary 1, 19 0, and snce
such date as engaged prmary n manufacturng, the ta payer s aver-
age base perod net ncome determned under ths subsecton sha
be the amount computed under secton 35(e)(2)(G) (1) and () f
(1) The ad|usted bass of the ta payer s tota factes (as
defned n secton (d)) as of the begnnng of ts base perod
(when added to the tota factes at such tme of a corporatons
wth whch the ta payer has the prvege under secton 1 1 of fng
a consodated return for ts frst ta abe year under ths sub-
chapter) dd not e ceed 10,000,000;
(2) The bass (unad|usted) of the ta payer s tota factes
(as defned n secton (d)) at the cose of ts base perod was
250 per centum or more of the bass (unad|usted) of ts tota
factes at the begnnng of ts base perod;
(3) The percentage of the ta payer s aggregate gross ncome
whch was from contracts wth the Unted States and reated
subcontracts was ( ) at east 70 per centum for the perod com-
prsng a ta abe years begnnng after December 31, 19 1, and
endng before anuary 1, 19 6, ( ) ess than 20 per centum for the
perod comprsng a ta abe years endng after December 31,
19 5, and before anuary 1, 1950, and (C) ess than 20 per centum
for the perod comprsng a ta abe years endng after December 31,
19 9, and begnnng before uy 1,1950; and
( ) The average monthy e cess profts net Income of the ta -
payer (computed n the manner provded n secton 3(e)) for
( ) the perod comprsng a ta abe years endng wth or
wthn the ast 2 mouths of ts base perod, and
( ) the ast ta abe year endng before the frst day of
ts base perod,
are each 300 per centum or more of the average monthy e cess
profts net ncome (so computed) of the ta payer for the perod
comprsng a ta abe years endng wth or wthn the frst 2
months of ts base perod.

PPRO D OCTO R 20,1951 .
ta abe years endng after une 30,1050.
Sec 0. 59(a)-. Transton From War Producton and Increase n
Peacetme Capacty. (a) corporaton whch commenced busness before
anuary 1, 19 0, whch has been engaged prmary In manufacturng snce
anuary 1, 19 0, and whch satsfes a the requrements provded n para-
graphs (1) through ( ) of secton 59(a) may compute ts nverage base perod
net ncome under secton 59(a), for the purpose of computng ts e cess profts
ta for any ta abe year endng after une 30, 1950, nstead of under any
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3 7
0. 35-6, Regs. 130.
other appcabe provson of the Code. The average base perod net Income
computed under secton 59(a) sha be the amount computed under secton
35(e)(2)(G) (1) and () and under sectons 0. 35-5(a) (7) (1) and (11)
and 0. 35-5(b). If the ta payer computes ts average base perod net ncome
under secton 59(a), the base perod capta addton provded n secton 35(f)
sha not be aowed n computng Its e cess profts credt.
(b) The date the corporaton commenced busness sha be determned
for the purpose of secton 59(a) under the rues provded In the reguatons
promugated under secton 5, reatng to the computaton of average base
perod net Income In the case of new corporatons. See secton 0. 5-(a) (2).
n secton 62 of the Interna Revenue Code (53 Stat. 32; 26 U. S. C.
62).)
T. Coeman ndrews,
bert P. Tutte,
Fed wth the Dvson of the Federa Regster February 16,1953, : 52 a. m.)
Secton 0. 35-1, Reguatons 130: cess prof-
ts credt based on ncome Determnaton of
average base perod net ncome.
INT RN L R NU COD
Secton 0. 35-6, Reguatons 130: Capta T. D. 6010
addtons n base perod.
( so Secton 2, Secton 0. 2-3, Regu-
atons 130.)
TITL 2 INT RN L R NU C PT R I. SU C PT R , P RT 0.
C SS-PROFITS T ; T L S NDING FT R UN 0, 1050
Reguatons 130 amended to carfy effect on the e cess-profts
credt of oans to a foregn subsdary corporaton.
Washngton 25, D. C.
Others Concerned:
On uy 10,1952, notce of proposed ruemakng, regardng amend-
ments to Reguatons 130 26 CFR, part 0 wth respect to the effect
on the e cess-profts credt based on ncome of oans by a member of
a controed group of corporatons to another member of the same
group, was pubshed n the Federa Regster (17 F. R. 6201). fter
consderaton of a such reevant matter as was presented by n-
terested persons regardng the rues proposed, the amendments to
Reguatons 130 set forth beow are hereby adopted.
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0. 39-1, Regs. 130.
313
Paragraph 1. There s nserted mmedatey precedng the ast
sentence of secton 0. 35-6(b) (5) 26 CF 0. 35-6(b) (5) the
foowng:
The reducton under secton 35(f) (1) ( ) s requred whether or not such other
member of the controed group s sub|ect to the e cess profts ta , for e ampe,
n a case n whch such other member s a foregn corporaton not engaged In
trade or busness wthn the Unted States.
Par. 2. There s nserted at the end of secton 0. 35-7(c) (5) 2G
CFR 0. 35-7(c) (5) the foowng:
The ad|ustment under secton 35(g)(7) s requred whether or not such
other corporaton s sub|ect to the e cess profts ta , for e ampe, n a case
n whch such other corporaton s a foregn corporaton not engaged n trade
or busness wthn the Unted States.
Par. 3. Secton 0. 2-3(d) (1), as amended by Treasury Decson
5073 page. 321, ths uetn , approved anuary 16, 1953 26 CFR
0. 22-3(d) (1) , s further amended by nsertng after the thrd
sentence thereof the foowng:
The e cuson from tota assets of oans to a member of a controed group
of corporatons of whch the ta payer Is a member s requred whether or
not such other member of the controed group s sub|ect to the e cess profts
ta , for e ampe, n a case n whch such other member s a foregn cor-
poraton not engaged n trade or busness wthn the Unted States.
26 U. S. C. 62, 3791).)
T. Coeman ndrews,
Commssoner of nterna Revenue.
pproved May 7,1953.
M. . Fosom,
(Fed wth the Dvson of the Federa Regster May 12, 1953, : 5 a. m.)
S CTION 3 . N W C PIT L CR DIT C NG S
Secton 0. 3 - , Reguatons 130: Computa-
ton of net new capta addton.
nterna revenue code
Reguatons 130 amended. (SeeT. D. 5973, page321.)
S CTION 39. ORROW D C PIT L
Secton 0. 39-1, Reguatons 130: orrowed Rev. Ru. 1
capta.
nterna revenue code
In determnng the day borrowed capta of an nsurance com-
pany (e cept a mutua nsurance company other than fe or ma-
rne) as of anuary 1, 1950, the frst day of the ta payer s frst
ta abe year for e cess profts ta purposes, secton 39(b) (2) of
the Interna Revenue Code requres that the amount of ts un-
earned premums for such day sha be the mean of the amount
of su|h premums determned at the begnnng and end of 11)50.
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3 9 ( -10. 2-3, Regs. 130
dvce s requested reatve to the nterpretaton of secton
39(b) (2) of the Interna Revenue Code wth respect to the manner
of computng the amount of the unearned premums of an nsurance
company (e cept a mutua nsurance company other than fe or
marne) to be used n determnng the day borrowed capta for
anuary 1,1950, the frst day of ts frst ta abe year for e cess profts
ta purposes.
Secton 39(b) of the Interna Revenue Code provdes n part as
foows:
(b) Dah.t orrowed Capta. For the purposes of ths subchapter sub-
chapter 1), chapter 1, of the Code , the day borrowed capta for any day of
any ta abe year sha he determned as of the begnnng of such day and
sha be the sum of the foowng:

(2) In the case of an nsurance company, an amount equa to ff 2/3 per
centum of the mean of the amount of the pro rata unearned premums
determned at the begnnng and end of the ta abe year
The reference to any day n secton 39(b) of the Code s ap-
pcabe to the frst day of any ta abe year as we as to any other day
durng the year. It s cear from the tera anguage of the statute
that an averagng method was ntended to be used n the determna-
ton of borrowed capta for nsurance companes.
ccordngy, t s hed that n determnng the day borrowed
capta of an nsurance company (e cept a mutua nsurance company
other than fe or marne) as of anuary 1, 1950, the frst day ot the
ta payer s frst ta abe year for e cess profts ta purposes, secton
39(b) (2) of the Interna Revenue Code requres that the amount of
ts unearned premums for such day sha be the mean of the amount
of such premums determned at the begnnng and end of 1950.
S CTION 0. DMISSI L ND IN DMISSI L
SS TS
Secton 0. 0-1, Reguatons 130: dmssbe
and nadmssbe assets.
INT RN L R NU COD
S CTION 2. R G S P RIOD N T INCOM -
NORM LITI S DURING S P RIOD
Secton 0. 2-1, Reguatons 130: Genera
rue.
INT RN L R NU COD
Secton 0. 2-3, Reguatons 130: Compu-
taton of average base perod net ncome.
INT RN L R NU COD
20335 53 23
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0. -2, Regs. 130. 350
S CTION 3. R G S P RIOD N T INCOM -
C NG IN PRODUCTS OR S R IC S
Secton 0. 3-2, Reguatons 130: Requre-
ments as to change n products or servces.
INT RN L R NU COD
S CTION . R G S P RIOD N T INCOM
INCR S IN C P CITY FOR PRODUCTION OR
OP R TION
Secton 0. -2, Reguatons 130: Requre- Rev. Ru. 3
ments as to ncrease n capacty for produc-
ton or operaton.
nterna revenue code
For the purposes of secton (b) (2) ( ) of the Interna Reve-
nue Code, factes hed under ease by the parent company of an
affated group as of the day pror to the begnnng of the ast 36
months of the consodated base perod consttute factes hed by
the ta payer, wthn the meanng of secton (d) of the Code, and
no ncrease n capacty for producton, under the provsons of sec-
ton (b) (2) ( ) of the Code, resuts to the affated group upon
the acquston, by purchase, of such factes by a subsdary com-
pany pror to the cose of the consodated base perod.
dvce s requested whether, for the purposes of secton
(b)(2)( ) of the Interna Revenue Code, factes hed under
ease by the parent company of an affated group as of the day pror
to the begnnng of the ast 36 months of the consodated base perod
consttute factes hed by the ta payer, wthn the meanng of secton
(d) of the Interna Revenue Code, or f an ncrease n capacty for
producton, for the purposes of secton (b) (2) ( ) of the Code,
resuts to the affated group upon the acquston, by purchase, of
such factes by a subsdary company pror to the cose of the con-
sodated base perod.
In the nstant case the P Company, the common parent of an aff-
ated group, eased and operated certan pant factes for a perod be-
gnnng pror to the begnnng of the ast 30 months of the consodated
base perod. The easng arrangement contnued n effect unt the
eased factes were purchased from the owner thereof by C Company,
a subsdary of the affated group. The acquston by purchase of
these factes by C Company occurred durng the ast 36 months of the
consodated base perod. To meet the requrements for an ncrease
n capacty for producton or operaton under secton (b) (2) ( )
of the Code, t woud be necessary for the affated group to e cude
from capacty for producton of the group the capacty attrbutabe
to the pant factes hed under ease by the P Company as of the
day pror to the begnnng of the ast 36 months of the consodated
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351
5 0. -2, Regs. 130.
base perod, and to ncude, as of the ast day of the base perod, the
capacty attrbutabe to the same factes whch n the meantme were
acqured by C Company.
Secton of the Interna Revenue Code provdes n part as
foows:
(a) In Genera. If a ta payer whch commenced busness on or before the
frst day of ts base perod estabshes that, durng the 3 -month perod endng
on the ast day of ts base perod, there was an Increase, as defned In subsecton
(b), n ts capacty for producton or operaton, the ta payer s average base
perod net ncome determned under ths secton sha be the amount computed
under subsecton (c).
(b) Increase n Capacty. n ncrease n capacty for producton or opera-
ton sha be deemed to have occurred, for the purposes of ths secton, If the
ta payer estabshes that t made an addton or addtons to ts factes (as de-
fned n subsecton (d)) or repaced a or a part of Its e stng factes, and
that:

(2) ( ) as a resut of such addtons or repacements, ts capacty for
producton or operaton on the ast day of ts base perod was 150 per centum
or more of ts capacty for producton or operaton on the day pror to the
egnnng of such . (-month perod, and ( ) the ad|usted bass for deter-
mnng gan upon sae or e change of Its tota factes on the Inst day of ts
Imse perod was 150 er centum or more of the ad|usted bass for determn-
ng gan upon sae or e change of Its tota factes on the day pror to te
begnnng of such 36 month perod

(d) Factes. For the purposes of ths secton, the term factes means
rea property and deprecabe tangbe property, hed by the ta payer n good fath
for the purposes of the busness.
The term capacty for producton or operaton , as defned n sec-
ton 0. -2 of Reguatons 130. means the capacty to produce or to
operate rather than the eve of producton or operaton actuay
acheved. Thus, the contnued or addtona utzaton of e stng
factes does not consttute an ncrease n capacty. In the nstant
case the eased factes were utzed by the affated group durng the
base perod and shoud be ncuded n the measurement of capacty for
producton as of the day pror to the begnnng of the ast 3G months
of the base perod.
In vew of the foregong, t s hed that for the purposes of secton
(b) (2) ( ) factes hed under ease by the parent company of an
affated group as of the day pror to the begnnng of the ast 36
months of the consodated base perod consttute factes hed by the
ta payer, wthn the meanng of secton (d) of the Interna
Revenue Code, and no ncrease n capacty for producton under the
provsons of secton (b)(2) of the Code, resuts to the affated
group upon the acquston, by purchase, of such factes by a subsd-
ary company pror to the cose of the consodated base perod.
Secton 0. -2, Reguatons 130: Requrements
as to ncrease n capacty for producton or oper-
aton.
nterna revenue code
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0. -1. 352
S CTION 5.- R G S P RIOD N T INCOM -
N W CORPOR TION
Secton 0. 5-2. Reguatons 130: Computatons.
INT RN L R NU COD
S CTION . C SS PROFITS CR DIT-R GUL T D
PU LIC UTILITI S
Secton 0. -1: cess profts credt of T. D. 59 3
reguated pubc uttes entted to bene-
fts of secton .
( so Sectons 0. -2, 0. -3.)
TITL 26 INT RN L R NU C PT R I, SU C PT R . P RT 0.
C SS PROFITS T ; T SL Y RS NDING FT R UN 30, 1950
cess profts credt of reguated pubc uttes entted to bene-
fts of secton of the Interna Revenue Code.
Washngton 25, D. O.
Concerned:
On une 27, 1952, a notce of proposed rue makng was pubshed
n the Federa Regster (17 F. R. 5772) to conform Reguatons 130
26 CFR, part 0 to sectons 513 and 51 of the Revenue ct of 1951,
approved October 20,1951, and to e press n greater deta the regua-
tons under secton of the Interna Revenue Code, reatng to the
e cess profts credt of reguated pubc uttes. fter consdera-
ton of a reevant matter presented by nterested persons regardng
the rues proposed, the amendments to Reguatons 130 set forth beow
are hereby adopted.
0. -1 26 CFR 0. -1 the foowng:
S C. 513. C SS PROFITS CR DIT R GUL T D PU LIC
UTILITI S R NU CT OF 1951, PPRO D OCTO R 20,
1051 .
Secton (c)(3) (reatng to reguated pubc uttes) s hereby
(3) 6 per centum n the casa of a corporaton engaged as a com-
mon carrer ( ) n the furnshng or sae of transportaton by ra-
road, f sub|ect to the |ursdcton of the Interstate Commerce
Commsson, or ( ) In the furnshng or sae of transportaton of
o or other petroeum products (ncudng shae o) by ppe ne,
f sub|ect to the |ursdcton of the Interstate Commerce Commsson
or the rates for such furnshng or sae are sub|ect to the |ursdc-
ton of a pubc servce or pubc utty commsson or other smar
body of the Dstrct of Coumba or of any State.
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353
U. eS-
S C. 51 . CONSOLID T D R TURNS OF R GUL T D PU LIC
UTILITI S R NU CT OF 1051, PPRO D OCTO R 20,
1951 .
Secton (e) (reatng to consodated returns of reguated pubc
ottes) s hereby amended by addng at the end thereof the foowng
new sentence:
For purposes of fng a consodated return wth ts raroad essee
eon oraton, a raroad essor corporaton descrbed n secton 3 (d)
(wthout regard to the requrement of payment of the essor s ta es by
the essee) sha be consdered a corporaton descrbed In subsecton
(c)(3).
S C. 523. FF CTI D T OF TITL R NU CT OF
1951, PPRO D OCTO R 20, 1051 .
after une 30. 1 )50.
Pae. 2. Secton 0 -1 2G CFR 0. -1 s amended by addng
at the end thereof the foowng:
For rues appcabe to consodated returns of afnted corporatons whch n-
cude reguated pubc uttes, see secton 29.1 1-1 of Reguatons 111 am see
Reguatons 129.
Pak. 3. Secton 0. -2 26 CFR 0. -2 s amended as foows:
( ) y strkng paragraph (a)(3) and nsertng n eu thereof
the foowng:
(3) corporaton engaged as a common carrer () n the furnshng
or sae of transportaton by raroad, f sub|ect to the |ursdcton of the
Interstate Commerce Commsson, or () In the furnshng or sae of trans-
portaton of o or other petroeum products (ncudng shae o) by ppe-
ne, f sub|ect to the |ursdcton of the Interstate Commerce Commsson
or f the rates for such furnshng or sae are sub|ect to the |ursdcton
of a pubc servce or pubc utty commsson or other smar body of
the Dstrct of Coumba or of any State.
( ) y redesgnatng (b), (e), and (d) thereof as (d), (e), and
(f), respectvey.
(C) y strkng the ast sentence of (a) and nsertng n eu there-
of the foowng:
For the purpose of ths secton the term a corporaton engaged In the furnsh-
ng or sae ncudes a corporaton () whose operatons are an ntegra part
of the furnshng or sae of a product or servce descrbed n secton (c)
and ths secton by an nterconnected and coordnated pubc utty system
or systems, and (11) whose rates for furnshng products or servces to the sys-
tem or systems are estabshed or approved by a reguatory body descrbed n
ths paragraph under the same type of reguaton appcabe to the system or
systems for the products or servces descrbed n secton (e) and ths secton.
(b) ates. (1) If a schedue of rates has been ted wth any reguatory body
descrbed n (a) of ths secton havng the power to dsapprove such raes,
then such rates sha be consdered as estabshed or approved rates for the
purpose of (a) of ths secton even though such body has taken no acton on
tht fed schedue.
(2) Rates f ed by contract between the pubc utty and the purchaser,
e cept where the purchaser s the Unted States, a State, the Dstrct of Coum-
ba, or an agency or potca subdvson of the Unted Sates, a Sate, or the
Dstrct of Coumba, sha not be consdered as estabshed or approved rates
for the purpose of (a) of ths secton n those cases where they are not sub|ect
to drect contro, or where no ma mum rate for such contract rates has been
estabshed, by the Unted States, a State, the Dstrct of Coumba, or by any
agency or potca dvson thereof. ut see paragraph (3).
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0. -1.
351
( ) If the ta payer estabshes to the satsfacton of the Commssoner that
tb revenue from regeated rates descrbed n paragraph (1) or ( ) of (a) of
ths secton and from unreguated rates are derved from ts operaton of a
snge nterconnected and coordnated system or from ts operaton of more
than one such system, and that an unreguated rate appcabe In the operaton
of such system or systems has been and s substantay as favorabe to users
and consumers as a comparabe reguated rate appcabe n the operaton of such
system or systems, the revenue from such unreguated rate sha be consdered,
for the purpose of (a) of ths secton, as ncome derved from sources descrbed
In paragraph (1) or ( ) of (a) of ths secton. For the purpose of determnng
whether or not an unreguated rate has been and s substantay as favorabe
to users and consumers as a comparabe reguated rate, due consderaton sha
be gven to the factors recognzed by the reguatory body descrbed n (a) of
ths sucton under whose ursdcton the comparabe reguated rate s estab-
shed or approved.
(c) U/trodvcts and resdua products. If byproducts or resdua products
are a drect and necessnry Incdent to the furnshng of products or servces
descrbed n secton (c), and f the revenue from such byproducts or resdua
products s apped n reducton of the cost of furnshng the products or servces
descrbed n secton (c) or s otherwse refected n the rates estabshed or
approved by the reguatory body for such products or servces, then the revenue
from such byproducts or resdua products sha be consdered as derved from
sources descrbed n secton (c).
(D) y strkng subparagraph (2) of (e) thereof (as redesgnated
by subparagraph ( ) above), and by substtutng therefor the
foowng:
(2) In the case of a corporaton descrbed In (a) (1) () or (11), (2) or
( ) of ths secton, If the corporate books of account are mantaned n
accordance wth systems of accounts prescrbed by an approprate reguatory
body (or, f not so prescrbed, are mantaned In accordance wth the un-
form systems of accounts prescrbed by the Federa Power Commsson or
the Natona ssocaton of Raway and Utty Commssoners), the ad-
|usted Invested cnpta for such ta abe year sha be the sum of the average
outstandng common and preferred capta stock accounts for the ta abe
year and the average capta and earned surpus accounts for the ta abe
year, as propery recorded on the corporate books of account The fo-
owng rues sha appy for the purpose of ths paragraph :
(1) Te determnaton of the ad|usted Invested capta for any ta abe
year sha be made wthout regard to the profts or oss for such ta abe
year computed n accordance wth such system of accounts and wth-
out regard to dstrbutons out of the profts for such ta abe year so
computed. In determnng whether a dstrbuton s out of the profts
for the ta abe year, such profts sha be computed as of the cose of
such ta abe year wthout dmnuton by reason of any dstrbuton
made durng such ta abe year or by reason of the ncome and e cess
profts ta for such ta abe year and the determnaton sha be made
wthout regard to the amount of the profts at the tme the dstrbuton
was made.
() The term an approprate reguatory body as used In ths sec-
ton menus a reguatory body descrbed In secton (c)(1) and In
(a)(1) of ths secton, under whose |ursdcton the corporaton
operates.
() The average of any account (such as the common stock account
or the cnpta -surpus account) sha be the sum. dvded by the number
of days n the ta abe year, of the amount of such account as of the
begnnng of each day of the ta abe year.
(v) If the ad|usted nvested capta for any ta abe year Is com-
puted by the method prescrbed by ths paragraph, the ta payer must
attach a statement to ts return for such ta abe year settng forth
a the facts whch requre the use of such method.
Par. . Secton 0. -3 26 CFR 0. -3 s amended as foows:
( ) y changng the cross reference n (a) thereof from secton
0. -2(c) to secton 0. -2(e) , by changng the cross reference
n (c) thereof from secton 0. -2(d) to secton 0. -2(f) ,
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355
0. -2(e).
and by changng the cross reference n (d) thereof from secton
0. S-2(b) to secton 0. -2(d) .
( ) y addng at the end of (a) thereof the foowng:
In case the corporaton Is descrbed n secton 0. -2(a) (1), (2), (3), or (6),
and s aso descrbed n secton 0. -2(a) ( ) or (5), the computaton under
the precedng sentence sha be as foows:
(1) frst amount sha be computed by appyng a 6 percent rate to the
sum of the tems specfed n the precedng sentence;
(2) second amount sha be computed by appyng a 1 percent rate
to the sum of the tems specfed n the precedng sentence;
(3) There sha be added to the frst amount so much of the second
amount as the rato of the gross Income from the operatons descrbed n
secton 0. -2(a) ( ) and (5) bears to the tota gross ncome from the
operatons descrbed n secton 0. -2(a).
For the purpose of ths paragraph gross Income sha be computed wthout re-
gard to dvdends and capta gans and osses.
26 U. S. C. 62, 3791).)
ustn F. Wnke,
bert P. Tutte,
(Fed wth the Dvson of the Federa Regster February 13,1953, at : 53 a. m.)
Secton 0. -2(e) : d|usted nvested capta. Rev. Ru. 63
INT RN L R NU COD
In connecton wth the computaton of the e cess profts credt for
reguated pubc uttes, the phrase as propery recorded on the
corporate books of account , as t s used n secton 0. 2(e) (2)
of Reguatons 130, refers to entres n the corporate books of ac-
count, ncudng a ad|ustments thereto, whch have been made n
conformty wth the rues and system of accounts prescrbed by the
approprate reguatory body, and sub|ect to the mtatons set forth
n secton 0. 2(e) (2) () of the reguatons.
dvce s requested reatve to the correct nterpretaton of the
phrase as propery recorded as t s used n secton 0. -2(e) (2)
of Reguatons 130 wth respect to the computaton of ad|usted n-
vested capta of a reguated pubc utty for purposes of determn-
ng the e cess profts credt under secton (b) of the Interna
Revenue Code n a case where such reguated pubc utty man-
tans ts books of account n accordance wth a system of accounts
prescrbed by an approprate reguatory body, or f not so prescrbed,
are mantaned n accordance wth the unform system of accounts
prescrbed by the Federa Power Commsson or the Natona sso-
caton of Raway and Utty Commssoners.
Secton of the Interna Revenue Code provdes a speca aterna-
tve method for the computaton of e cess profts credt to certan
corporatons whch quafy as reguated pubc uttes.
Secton 0. -2(e) (2) of Reguatons 130, promugated pursuant
to secton of the Code, provdes n part as foows:
(2) In the case of a corporaton descrbed n (a) (1) (I) or (II), (2) or ( )
of ths secton, If the corporate books of account are mantaned n accordance
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0. 9-3, Regs. 130.
35G
wth systems of accounts prescrbed by an approprate reguatory body ,
the ad|usted nvested capta for such ta abe year sha be the sum of the
average outstandng common and preferred capta stock accounts for the ta -
abe year and the average capta and earned surpus accounts for the ta abe
year, as property recorded on the corporate books of account. . Itacs
supped.
In the Senate Fnance Commttee Report on the cess Profts Ta
ct of 1950, C. . 1951-1, 260, 261, t s stated that n the case of cer-
tan reguated ndustres recevng the benefts of ths provson where
the corporate books of account are mantaned n accordance wth the
unform systems prescrbed by a reguatory body, the equty capta
and retaned earnngs are the sum of the average outstandng common
and preferred stock accounts and the capta surpus and earned sur-
pus accounts as shown on the corporaton s books. It s further
stated theren that such reguated uttes may compute ther equty
capta and retaned earnngs n the manner provded by ther regu-
atng bodes rather than by the means provded for ordnary cor-
poratons usng the nvested capta bass. Ths method was per-
mtted to aow these reguated pubc uttes to compute the ee-
ments of ther ad|usted nvested capta by use of the same eements
that are empoyed n the determnaton of the base upon whch ther
rate of return s computed for reguatory purposes of other govern-
menta bodes.
It s accordngy hed, n connecton wth the computaton of the
e cess profts credt for reguated pubc uttes, that the phrase as
propery recorded on the corporate books of account , as t s used n
secton 0. -2(e) (2) of Reguatons 130, refers to entres n the cor-
porate books of account, ncudng a ad|ustments thereto, whch have
been made n conformty wth the rues and system of accounts
prescrbed by the approprate reguatory body, and sub|ect to the
mtatons set forth n secton 0. -2 (e) (2) () of the reguatons.
S CTION 9. P RSON L S R IC CORPOR TIONS
Secton 0. 9-1, Reguatons 130: Ta aton of Rev. Ru. 6
persona servce corporatons.
INT RN L R NU COD
Ta payers desrng to use Schedue PS (Form 1120), Computaton
of Unted States Persona Servce Corporaton Income, n fng re-
turns for the caendar year 1952 or for a fsca year endng n 1953
shoud utze Schedue PS (Form 1120) for 1951 and shoud make the
approprate changes n the dates prnted on such form.
Secton 0. 9-3, Reguatons 130: ecton T. D. 5961
as to ta abty.
( so Secton 5 , Secton 0. 5 -1.)
C SS PROFITS T ; T L Y RS NDING FT R UN 30. I960
Reguatons 130 amended to make technca correctons and to pro-
vde rue for determnng the e cess profts ta n the case of certan
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357
0. 9-3, Regs. 130.
corporatons not sub|ect to the e cess profts ta for a ta abe
years endng after une 30, 1050.
Washngton 25, D. G.
Concerned:
On September 13,1952, notce of proposed rue makng wth respect
to determnng e cess profts ta of certan corporatons not sub|ect
to the e cess profts ta for a ta abe years endng after une 30,
1950, was pubshed n the Federa Regster 17 F. R. 276 . fter
consderaton of a such reevant matter as was presented by nter-
ested persons regardng the rues proposed, the amendments to Regua-
tons 130, set forth beow are hereby adopted.
Paragraph 1. Secton 0. 9-3 26 CFR 0. 9 3 , whch secton
reates to eecton as to ta abty under subchapter D of chanter 1
n the case of a persona servce corporaton, s amended as foows:
( ) y correctng n the second sentence of such secton the typo-
graphca error be be to read as foows: to be ; and
( ) y addng at the end of such secton the foowng new
sentences:
For the purpose of determnng the e cess profts ta for any ta abe year for
whch the corporaton does not make an eecton under see on ), the frst
ta abe year of the corporaton endng after une 30, 1950, s consdered ts
frst ta abe year under subchapter D of chapter 1, whether or not t made
an eecton under secton 9 for such ta abe year. Smary, the second
and subsequent ta abe years under subchapter D of chapter 1 are determned
wthout regard to any eecton under secton 9.
Par. 2. Secton 0. 5 -1 26 CFR 0. 5 -1 , whch secton reates
to e empt corporatons, s amended as foows:
( ) y strkng from (b) of such secton the word paragraph
and by nsertng n eu thereof the foowng: subsecton ; and
( ) y addng at the end of such secton the foowng new
paragraph:
(f) For the purpose of determnng the e cess profts ta for any ta abe year
for whch the corporaton Is not e empt under secton 5 , the frst ta abe year
of the corporaton endng after une 30, 1950, Is consdered ts frst ta abe year
nnder sun-hapter D of chapter 1, whether or not t was e empt under secton
5 for such ta abe year. Smary, the second and subsequent ta abe years
under subchapter D of chapter 1 are determned wthout regard to any e emp-
ton under secton 5 .
26 U. S. C. 62, 3791).)
ohn S. Graham,
Thomas . Lynch,
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0. 55-2, Regs. 130. 35
S CTION 53. NONT L INCOM FROM C RT IN
MINING ND TIM R OP R TIONS, ND FROM N T-
UR L G S PROP RTI S
Secton 0. 53-2, Reguatons 130: Defntons.
INT RN L R NU COD
Secton 0. 53-2, Reguatons 130: Defntons.
INT RN L R NU COD
S CTION 5 . MPT CORPOR TIONS
Secton 0. 5 -1, Reguatons 130: empt
corporatons.
nterna revenue code
Reguatons 130 amended: (See T. D. 5961, page 356.)
S CTION 55. R LI F FOR INST LLM NT SIS T -
P Y RS ND T P Y RS WIT INCOM FROM LONG-
T RM CONTR CTS
Secton 0. 55-2, Reguatons 130: Computaton T. D. 5972
of ncome on accrua method.
Secton 0. .r u-2(b) of Reguatons 130 amended
Washngton 25, D. C.
Concerned:
shed n the Federa Regster (17 F. R. 10706) to amend Reguatons
130 26 CFR, part 0|. No ob|ectons to the -ues pubshed havng
been receved wthn the 30 days foowng pubcaton, such regua-
tons are hereby amended by strkng from secton 0. 55-2(b) thereof
the second, thrd, fourth, and ffth sentences, whch read as foows:
The deducton for bad debts under secton 23(k) sha be aowed ony wth
respect to debts whch become worthess wthn the ta abe year. No reserve
for bad debts arsng from Instament accounts recevabe may be set up for
e cess profts ta purposes ony, and no bad debt deducton sha be aowed
for any addtons to such a reserve. Ony those debts whch have become worth-
ess wthn the ta abe year and whch are aowed as a deducton n the compu-
taton of net ncome for the purposes of the norma ta and surta for the ta -
abe year sha be aowed n the determnaton of the bad debt deducton for
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359
0. 59(b)- , Regs. 130.
e cess profts ta purposes under secton 55(a). If a debt refected In Insta-
ment accounts recevabe was created n a pror ta abe year, and f the tota
amount of the proft represented by such nstament accounts recevabe s n-
cudbe n gross ncome for such year under the accrua method of accountng,
the amount of the deducton for the bad debt sha be computed upon the accrua
method and sha not be mted to the unrecovered cost of the goods or artces
od n consderaton of such debt
and nsertng n eu thereof the foowng sentences:
No reserve for bad debts arsng from accounts recevabe from Instament saes
or nstament saes obgatons may be set up for e cess profts ta purposes
uness a reserve has been estabshed for Income ta purposes. If a debt re-
fected n Instament accounts recevabe was created n a pror ta abe year, and
f the tota amount of the proft represented by such nstament accounts re-
cevabe s ncudbe n gross ncome for such year under the accrun method of
accountng, the amount of the deducton for bad debts, n the case of a ta payer
whch bases Its deducton for bad debts on the debts whch become worthess
wthn the ta abe year, sha be computed upon the accrua method and sha
not be mted to the unrecovered cost of the goods or artces sod n consdera-
ton of such debt. The same prncpe sha be appcabe In determnng the
amount whch may be deducted as a reasonabe addton to a reserve for bad
debts n the case of a ta payer propery on the reserve method.
ohn S. Graham,
ctng Commssoner of Interna Revenue,
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster anuary 21, 1953, : 5 a. m.)
S CTION 59. MISC LL N OUS PRO ISIONS
Secton 0. 59(a)-, Reguatons 130: Trans-
ton from war producton and ncrease n
peacetme capacty.
Reguatons 130 amended. (See T. D. 59 7, page 3 5.)
Secton 0. 59 (b)-, Reguatons 130: ase T. D. 59G6
perod catastrophe.
TITL 26 INT RN L R NU C TT R I, SU C PT R , P RT 0.
C SS PROFITS T ; T L Y RS NDING FT R UN 30, 1 50
ct of 1951, reatng to base perod catastrophe.
Washngton 5, D. C.
Concerned:
shed n the Federa Regster (17 F. R. 99 ) to conform Reguatons
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0. 59(b)- , Regs. 130. 360
130 26 CFR, part 0 to secton 517 of the Revenue ct of 1951, ap-
roved October 20,1951. No ob|ectons to the rues proposed havng
een receved wthn the 30 days foowng such pubcaton, sucn
reguatons are amended by nsertng mmedatey after secton
0. 5 - 26 CFR 0. 5 - the foowng:
S C. 517. S P RIOD C T STROP R NU CT OF 1951,
Secton 59, as added by secton 516 of ths ct, s hereby amended by
addng after subsecton (a) thereof the foowng new subsecton:
(b) ase Perod Catastrophe.
(1) gbty requrements. ta payer sha be entted to
the benefts of ths subsecton ony f t was engaged throughout ts
base perod prmary n manufacturng and f
( ) the ta payer suffered durng the ast thrty-s months
of ts base perod a catastrophe by fre, storm, e poson, or other
casuaty whch destroyed or rendered noperatve a producton
facty consttutng a compete pant or pants havng n the
hands of the ta payer mmedatey pror to the catastrophe an
ad|usted bass equa to 15 per centum or more of the ad|usted
bass of a the ta payer s producton factes at such tme;
( ) as a resut of such catastrophe the ta payer s norma
producton or operaton was substantay nterrupted for a
perod of more than tweve consecutve months; and
(C) the ta payer, pror to the end of ts base perod, repaced
such producton facty wth a producton facty whch at the
end of ts base perod had n ts hands an ad|usted bass not esa
than the ad|usted bass Immedatey pror to the catastrophe
of the producton facty destroyed or rendered noperatve.
(2) Computaton. The ta payer s base perod net ncome deter-
mned under ths subsecton sha be the amount computed under
subparagraph ( ) or the amount computed under subparagraph
( ), whchever resuts n the esser ta under ths subchapter for
the ta abe year for whch the ta s beng computed:
( ) The amount computed under secton 35(d) by subst-
tutng for the e cess profts net ncome for each month n the
ta abe year n whch the catastrophe descrbed n paragraph
(1) occurred an amount equa to the aggregate, dvded by Ue
number of months n the base perod precedng such ta abe year,
of the e cess profts net ncome for each month (computed under
secton .35(d)(1)) n the base perod precedng such ta abe
year. The average base perod net ncome computed under ths
subparagraph sha, for the purpose of secton 35(a)(1)( ),
be consdered an average base perod net Income determned
under secton 35(d).
( ) The amount computed under secton 35(e) (2) (G) ()
and ().
ta abe years endng after une 30,1950.
Sec. 0. 59(b)-. ase Perod Catastrophe. (a) In genera. corporaton
whch was engaged throughout ts base perod prmary n manufacturng, whch
suffered a catastrophe by fre, storm, e poson, or other casuaty durng the ast
3U months of ts base perod, and whch satsfes a the requrements provded
n subparagraphs ( ), ( ), and (C) of secton 59(b)(1) may compute ts
average base perod net ncome, for the purpose of computng ts e cess profts
ta for any ta abe year endng after une SO, 1950, under the provsons of
secton 59(b)(2) and of paragraph (b) of ths secton Instead of under any
other appcabe provsons of the Code and reguatons.
(b) Computaton of average base perod net ncome under secton 59(6). If
a ta payer may compute ts average base perod net ncome under secton 59(b),
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301 0. 59(c)- , Regs. 130.
Its average base perod net ncome as computed under secton .r )(b)(2) sha
be whchever of the foowng two amounts resuts n the esser e cess profts
ta for the ta abe year for whch such ta s beng computed:
(1) The amount computed under secton 35(d) and secton 0. 35-(d)
determned by substtutng for the e cess profts net ncome for each month
n the ta abe year n whch the catastrophe descrbed n secton 59(b) (1)
occurred an amount equa to the aggregate of the e cess profts net ncome
for each month (computed under secton 35(d)(1) and secton
0. 35-1 (d)(1)) n the base perod precedng such ta abe year dvded
by the number of months n the base perod precedng such ta abe year.
(2) The amount computed under secton 35(e) (2) (G) () and ()
and under sectons 0. 35 5(a) (7) () and () and 0. 35 5(b).
n average base perod net ncome computed under secton 50(b) ( -) ( ) and
under subparagraph (1) of ths paragraph sha be consdered, for the purpose
of secton 35(a)(1)( ), to e an average base perod net ncome determned
under secton 35(d). If the average base perod net ncome s computed under
secton 59(b) (2) ( ) and under subparagraph (1) of ths paragraph for the
purpose of determnng the e cess profts ta for any ta abe year, the base
perod capta addton, provded n secton 35(f), w be aowed n computng
the e cess profts ta for such ta abe year. If, n determnng the e cess profts
ta for any ta abe year, the average base perod net ncome s computed under
sncton 59(b)(2)( ) and under subparagraph (2) of ths paragraph, however,
the base perod capta addton w not be aowed n computng the e cess
profts ta for such ta abe year snce such average base perod net ncome s
not consdered to be an average base perod net ncome computed under ether
secton 35(d) or under secton 2. The amount computed under secton
5 )(b) (2) ( ) and subparagraph (1) of ths paragraph or the amount computed
under secton 59(b) (2) ( ) and subparagraph (2) of ths paragraph, dependng
on whch resuts n the esser e cess profts ta for the ta abe year, s to be the
average base perod net ncome computed under secton 59(b).
n secton 62 of the Interna Revenue Code (53 Stat. 32; 2C U. S. C.
62).)
ohn S. Graham,
Thomas . Lynch,
Secton 0. 50(c)-1, Reguatons 130: Conso- T. D. 597
daton of newspapers.
TITL 2 INT RN L R NU . C PT R I, SU C PT R , T RT 0.
C SS PROFITS T ; T L Y RS NDING FT R UN 30. 1950
ct of 1951, reatng to consodaton of newspapers.
Washngton 25, D. C.
Concerned:
On December , 1952, a notce of proposed rue makng was pub-
shed n the Federa Regster (17 F. R. 10973) to amend Reguatons
130 26 CFR, part 0 . No ob|ectons to the rues proposed havng
been receved wthn the 30 days foowng pubcaton, such regua-
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0. 59(0)- , egs. 130.
3G2
ons are hereby amended by nsertng mmedatey after secton
0. 5U(b)-(b) 26 CF 0. 59(b)-(b) the foowng:
S C. 51 . CONSOLID TION OF N WSP P RS R NU CT OF
11)51, PPRO D OCTO R 20, 1951 .
Secton 59, aa added by sectons 510 and 517 of ths ct, s hereby
amended by addng after subsecton (b) thereof the foowng new
subsecton:
(c) Consodaton of Newspaper Operatons. In the case of a
ta payer engaged prmary n the newspaper pubshng busness In ts
ast ta abe year endng before uy 1,1950, f
(1) fter the cose of the frst haf of the base perod of the
ta payer and pror to uy 1, 1950, the ta payer consodated ts
mechanca, crcuaton, advertsng, and accountng operatons n
connecton wth ts newspaper pubshng busness wth such opera-
tons of another corporaton engaged n the newspaper pubshng
busness n the same area ; and
(2) The ta payer estabshes to the satsfacton of the Secretary
that, durng the perod begnnng wth the consodaton and endng
wth the cose of the frst ta abe year begnnng after the con-
sodaton, such consodaton resuted n substanta reductons
n the amounts whch woud otherwse have been pad or ncurred
as e penses n the conduct of the operatons descrbed n paragraph
(1) ; and ether
(3) The tota deductons of the ta payer under secton 23,
computed wthout regard to secton 23 (s) and (bb), for the frst
ta abe year begnnng after such consodaton were not n e cess
of 0 per centum of the average of such deductons for the two
ta abe years of the ta payer ne t precedng the ta abe year In
whch such operatons were consodated; or
( ) The e cess profts net Income of the ta payer, computed
as provded n secton 33(b), for the frst ta abe year of the ta -
payer begnnng after such consodaton was 125 per centum or
more of the amount determned under secton 35(d) ( ) ;
the ta payer s average base perod net ncome determned under ths
subsecton sha be an amount computed under secton 35(d) pus an
amount equa to the e cess of the average of the amounts pad or
ncurred as e penses n the conduct of the operatons descrbed n
paragraph (1) durng the two ta abe years of the ta payer ne t pre-
cedng the ta abe year n whch such operatons were consodated
over such amounts pad or ncurred durng the frst ta abe year of the
ta payer begnnng after such consodaton. In determnng such e cess
amount proper ad|ustment sha be made for ncrease n abor costs
and newsprnt foowng such consodaton. Proper ad|ustment sha
aso be made for any case n whch a ta abe year referred to n ths
subsecton s a perod of ess than tweve months. Ths subsecton sha
not be appcabe to any ta abe year of the ta payer uness the con-
sodaton descrbed n paragraph (1) was contnued throughout such
ta abe year.
1951, PPRO D OCTO R 20, 1951 .
cept as otherwse provded n secton 50G(d), the amendments
made by ths tte ncudng sec. 51S sha be appcabe ony wth
Sec. 0. f 9(c)-. Consodaton of Newspapers. (a) ta payer whch was
engaged prmary n the newspaper pubshng busness n ts ast ta abe year
endng before uy 1, 1950, whch after the cose of the frst haf of ts base
perod and before uy 1, 1950, consodated certan of ts operatons wth those
of another corporaton engaged n the same busness n the same area, and
whch satsfes a the requrements set forth n paragraphs (1) and (2) and n
ether paragraph (3) or paragraph ( ) of secton 59(c) may compute ts aver-
age base perod net ncome, for the purpose of computng ts e cess profts ta
for any ta abe year endng after une 30, 1950, under the provsons of secton
59(c) nstead of under any other appcabe provson of the Code. The average
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363 0. 59(c)- , Regs. 130.
base perod net Income may be computed under secton 50(c) n determnng
the e cess profts tn for any ta abe year, however, ony f the consodaton
descrbed n paragraph (1) of secton 50(c) was contnued throughout such
ta abe year. The average base perod net ncome computed under secton
59(c) sha be used n computng the ta payer s e cess profts ta for any
ta abe year f, and ony f, the use of such average base perod net ncome
computed under secton 50(c) resuts n a esser e cess profts ta than woud
resut from any other aowabe computaton of such ta .
(b) If the ta payer s to compute ts average base perod net ncome under
secton 50(c), t must estabsh to the satsfacton of the Commssoner, under
the provsons of paragraph (2) of secton 50(c), that the consodaton referred
to n paragraph (1) of secton 50(c) resuted n substanta reductons n the
amounts whch otherwse woud have been pad or ncurred as e penses (wthn
the meanng of secton 23(a) (1) ( )) n the conduct of the operatons descrbed
n paragraph (1) of secton 50(c) durng the perod begnnng wth such con-
sodaton and endng wth the cose of the frst ta abe year begnnng after
such consodaton. If the ta payer frst cams the benefts of secton 50(c)
on ts return or on an amended return or In a cam for refund, t must attach
a statement to such return or amended return or cam for refund contanng
suffcent nformaton to enabe the Commssoner to determne whether the
requste substanta reductons n e penses occnrred.
(e) The ta payer must satsfy the condtons of ether paragraph (3) or
paragraph ( ) of secton 50(c) n order to be aowed to compute ts average
base perod net ncome under secton 50(c). Under the provsons of para-
graph ( ), the e cess profts net ncome of the ta payer, computed as provded
n secton 33(b), for ts frst ta abe year begnnng after the consodaton
descrbed n paragraph (1) of secton 50(c) must be 125 percent or more of the
amount determned under secton ;5(d) ( ), whch reates to the computaton of
the average base perod net ncome under the genera average method. Secton
33(b) provdes for the computaton of e cess profts net ncome for ta abe
years n the base perod for the purpose of computng average base perod net
ncome. For the purpose of the test set forth n paragraph ( ) of secton
59(c), however, the e cess profts net ncome for the frst ta abe year of
the ta payer begnnng after the consodaton sha be computed n the manner
provded In secton 33(h) wthout regard to whether or not such frst ta abe
year s a ta abe year n the base perod.
(d) (1) The average base perod net ncome computed under secton 50(c)
sha be the sum of the foowng two amounts:
() The amount computed under secton 35(d) (reatng to the computa-
ton of average base perod net ncome under the genera average method) ;
and
(f) n amount equa to the amount by whch the average of the amounts
pad or ncurred as e penses n the conduct of the operatons descrbed
n paragraph (1) of secton 50(c) durng the two ta abe years of the
ta payer mmedatey precedng the ta abe year n whch the consodaton
descrbed n paragraph (1) of secton 50(c) occurred e ceeded such
amounts pad or ncurred durng the frst ta abe year of the ta payer
begnnng after such consodaton.
(2) In determnng the e cess amount descrbed n () of subparagraph (1)
of ths paragraph, proper ad|ustment sha be made for any Increase In the cost
per unt of abor or newsprnt, due to wage or prce ncreases, foowng such
consodaton. If the ta payer can show by reevant data and under generay
accepted prncpes of accountng that ts average unt costs of abor or news-
prnt n ts frst ta abe year begnnng after the consodaton were hgher, due
to wage or prce ncreases, than ts average unt costs of abor or newsprnt n ts
two ta abe years mmedatey precedng the ta abe year n whch the consoda-
ton took pace, then the amount specfed n () of subparagraph (1) of ths para-
graph sha be determned by substtutng for the costs of abor or newsprnt n
such frst ta abe year amounts determned on the bass of ts average unt costs
of abor or newsprnt n such two ta abe years mmedatey precedng the ta -
abe year In whch the consodaton occurred.
(3) If the frst ta abe year begnnng after the consodaton descrbed In
secton 50(c)(1) or f ether of the two ta abe years mmedatey precedng
the ta abe year n whch such consodaton occurred s a ta abe year of ess
than 12 months, then, n determnng the amount specfed n () of subpara-
graph (1) of ths paragraph, the amounts pad or ncurred as e penses n such
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5 0. 61-7, Regs. 130.
3G
ta abe year n the conduct of the operatons descrbed In paragraph (1) of
secton 59(c) sha be such amounts as woud be refected n a computaton on
an annuazed bass under the method set forth n secton 33(a)(2)( ).
Smary, f the frst ta abe year begnnng after the consodaton or ether
of the two ta abe years mmedatey precedng the ta abe year n whch the
consodaton occurred was a ta abe year of ess than 12 months, then n deter-
mnng whether the ta payer meets the requrement set forth n paragraph (3)
of secton 59(c) the tota deductons of the ta payer referred to n such para-
graph (3) for such short ta abe year sha be the amount whch woud be
refected In a computaton on an annuazed bass under the method set forth
In secton 33(a) (2) ( ). If the frst ta abe year begnnng after the conso-
daton was a ta abe year of ess than 12 months, the e cess profts net Income
for such short ta abe year sha aso be annuazed under the method set forth
In secton 33(a)(2)( ). In each case proper ad|ustment sha be made to
prevent dstorton wth respect to nonrecurrng tems.
( ) If the average base perod net ncome s computed under secton 59(c)
and ths secton for the purpose of determnng the e cess profts ta for any
ta abe year, the base perod capta addton provded n secton 35(f) sha
not be aowed n determnng such ta for such year.
ohn S. Graham,
pproved anuary 29,1953.
M. . Fosom,
(Fed wth the Dvson of the Federa Regster February 3, 1953, :53 a. m.)
P RT II. C SS-PROFITS CR DIT S D ON INCOM IN CONN CTION WIT
C RT IN C NG S
S CTION 61. D FINITIONS
Secton 0. 61-7, Reguatons 130: Provsons T. D. 6017
generay appcabe under Part II.
( so Sectons 0. 61-6, 0. 61- ; Secton 62,
Sectons 0. 62-2, 0. 62- , 0. 62-9, 0. 62-
15; Secton 63, Secton 0. 63-1; Secton 6 ,
Secton 0. 6 -1.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 0
C SS PROFITS T ; T L Y RS NDING FT R UN 30. 1U50
cess-profts credt based on ncome n connecton wth part II
transactons.
Washngton 5, D. G.
Concerned:
On November 26, 1952, notce of proposed ruemakng, regardng
amendments to part II of Reguatons 130 26 CFR, part 0 , reatng
to the e cess-profts credt based on ncome n connecton wth certan
e changes, to conform such part to tte of the Revenue ct of 1951
(other than secton 521 of that act), approved October 20, 1951,
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3G5
5 0. 61-7, Regs. 130.
was pubshed n the Federa Regster (17 F. R. 107 3). fter con-
persons reatng to the rues proposed, the amendments to Reguatons
130 set forth beow are hereby adopted.
521(b) (2) of the Revenue ct of 1951, whch precedes secton 0. 61-1
126 CFR 0. 61-1 , the foowng:
S C. 509. LT RN TI R G S P RIOD N T INCOM
R NU CT OF 1901, PPRO D OCTO R 20, RU).


(2) Secton 01 (reatng to defntons for purposes of part II)
Is hereby amended by Insertng at the end thereof the foowng new
subsecton:
(g) ppcaton or Secton 2(h). For the purpose of ths prt,
the reference to secton 2(c) In any secton In ths part sha be deemed
a reference to secton 2 (c) or (h).
C. 619. T L ISION RO DC STING COMP NI S IR -
Secton 59, as added by sectons 516 to 51 of ths ct, s hereby
amended by addng after subsecton (c) thereof the foowng new
subsectons:
(d) Teevson roadcastng Companes.

(6) ppcaton of pabt n. The Secretary sha prescrbe
reguatons for the appcaton of Part II for the purpose of ths sub-
secton n the case of an acqurng corporaton or a component cor-
poraton n a transacton descrbed In secton 01 (a) whch

Par. 2. Secton 0. 61-6, as added by Treasury Decson 5 65 C. .
1951-2, 97 , approved November 13, 1951 26 CFR 0. 61-6 , s
amended by changng the phrase secton 2(c) n (b) (1) thereof
to read as foows: secton 2 (c) or (h) .
Par. 3. Secton 0. 61-7, as added by Treasury Decson 5 65 26
CFR 0. 61-7 , s hereby amended by addng at the end thereof the
foowng:
(d) verage base perod net ncome determned wth parta reference to
secton 35(d). The ast two sentences of secton 35(d) as added by secton
503 of the Revenue ct of 1951 (reatng to a substtute -mouth perod n eu
of the base perod) are nappcabe for the purpose of any computatons other
than the determnaton of the average base perod net ncome under the genera
average method of secton 35(d). Thus, n determnng an aternatve average
base perod net ncome under secton 2(c), 2(h), or 59(d), wth respect
to a part II transacton, the base perod of the ta payer and not the substtute
-month perod sha be used n computng the e cess-profts net Income of such
ta payer.
(e) Nonavaabty of part 11 n the case of an aternatve average base perod
net ncome computed under any subsecton of secton 59 other than subsecton
(d) of such secton. n acqurng corporaton whch s quafed to compute
ts average base perod net ncome under any subsecton of secton 59 other
than snhsecton (d) of such secton, and whch was a party to a part II trans-
acton at any tme durng or after ts base perod, sha be entted to determne
ts e cess-profts credt for any ta abe year endng after the date of the part II
transacton, under part II or under the appcabe subsecton of secton 59,
whchever produces the esser e cess-profts ta for the ta abe year, but sha
not be entted to appy the provsons of both part II and the appcabe sub-
2G335 03 2
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0. 61-7, Regs. 130.
3G6
secton of secton 59. The same rue Is appcabe to a component corporaton
n a part II transacton, e cept that the provsons of secton 61(c) must be
apped whether or not the e cess-profts credt Is determned wth reference to
secton 50.
(f) ppcaton of part II n the case of an aternatve average oase perod net
ncome computed under secton 59(d). corporaton whch s quafed to
compute ts average base perod net ncome under secton 59(d) and whch was
a party to a part II transacton sha determne such average base perod net
ncome wth reference to part II f the part II transacton occurred pror to
anuary 1, 1951. For computatons under secton 59(d) wth reference to part
II, see secton 0. 61- . In the case of a part II transacton occurrng on or
after anuary 1, 1951, the rues stated n (e), above, are appcabe (e cept
that the provsons of ths paragraph sha contnue appcabe wth respect to
any prevous part II transacton occurrng before anuary 1, 1951).
Par. . There s added mmedatey after secton 0. 61-7, as
amended by paragraph 3 of ths Treasury Decson 26 CFR 0. 61-7|,
the foowng:
Sec. 0. 61- . Rues for ppcaton of Secton 59(d) Under Part II.
very corporaton engaged n the busness of teevsou broadcastng throughout
a perod begnnng before anuary 1, 1951, and endng wth the cose of the
ta abe year, whch s a party to a part II transacton occurrng before anuary
1, 1951, whether as an acqurng corporaton or as a component corporaton, may
compute ts e cess-profts credt based on ncome wth reference to secton 59(d)
and to secton 0. 02-15. The provsons of the reguatons under part II
appcabe n the case of a ta payer computng ts e cess-profts credt wth
reference to secton 35(d) (the genera average method for determnng average
base perod net ncome) sha aso be appcabe to a ta payer computng ts
e cess-profts credt under part II wth reference to secton 59(d), e cept as
otherwse specfcay provded n secton 0. 62-15, secton 0. 63-(g), and
secton 0. 0 -1 (f).
Par. 5. There s nserted mmedatey precedng secton 521(b) (3)
and ( ) of the Revenue ct of 1951, whch precedes secton 0. 62-1
20 CFR 0. 62-1 , the foowng:
S C. 50 . R G S P RIOD N T INCOM LT RN -
TI S D ON GROWT IN C S OF N W CORPOR -
TIONS R NU CT OF 1951, PPRO D OCTO R 20,
1951 .

(b) mendment of Part II. Secton 62(c) (reatng to the use
by an acqurng corporaton n a part II transacton of an aternatve
average base perod net ncome based on growth) s hereby amended as
foows:
(1) y amendng paragraph (1) thereof to read as foows:
(1) In the case of a transacton descrbed n secton 61(a),
other than a transacton descrbed In secton 61(a)(1)( ),
( ) The acqurng corporaton sha not be dened the rght
to determne whether t s egbe for the benefts of secton
5(e) wthout reference to the recomputaton of ts e cess
profts net ncome provded for n secton 62(b) where the
transacton occurred on or after uy 1, 1950, but t sha be
dened such rght where the transacton occurred pror to
uy 1. 1950.
( ) Where. Immedatey pror to the date of the transac-
ton, the acqurng corporaton and a the component corpora-
tons (other than a corporaton created ncdent to such trans-
acton) met the requrements of secton 5(e) (1) ( ) () and,
In ease the transacton occurred on or after uy 1, 1950. had
commenced busness pror to the begnnng of ts base perod
(determned wthout reference to secton 61(d)), the acqur-
ng corporaton sha he entted to compute Its average base
perod net ncome under secton 35(e) wth reference to the
recomputaton of ts e cess profts net ncome provded for n
secton 62(b) If the tests of secton 35(e) are satsfed. For
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L 10. 01-7, egs. 130.
that purpose, the acqurng corporaton sha combne wth ts
tota payro and ts tota gross recepts for that porton of
Its base perod whch preceded such transacton the tota pay-
ro and tota gross recepts of such component corporatons for
that porton of such perod and t sha combne wth ts net
saes for that porton of the perod pror to anuary 1, 1051,
whch preceded such transacton the net saes of such compo-
nent corporatons for that porton of such perod. The aocaton
of payro and gross recepts amounts of a component cor-
poraton to any such porton of such perod sha be made n
accordance wth the rues provded n secton 35(e)( ) and
(5). For purposes of quafyng under secton 35(e)(1)-
( ) (1) (reatng to tota assets of the ta payer), such acqur-
ng corporaton sha combne ts tota assets on the date specfed
In secton 35(e) (1) ( ) () wth the tota assets of each com-
ponent corporaton on such date. The Secretary sha prescrbe
by reguatons such rues as may be nt-cessary to nsure that
such combned tota gross recepts do not refect a dupcaton
for purposes of ths secton.
(C) Where, mmedatey pror to the date of the transacton,
ether the acqurng corporaton or one or more component cor-
poratons (other than a corporaton created ncdent to such
transacton) dd not meet the requrements of secton 35(e)
(1) ( )(1), or, n case the transacton occurred on or after
uy 1, 1950, had not commenced busness pror to the begn-
nng of ts base perod (determned wthout reference to sec-
ton 61(d)), the acqurng corporaton sha not be entted to
compute ts average base perod net Income under secton
35(e) wth reference to the recomputaton of ts e cess profts
net ncome provded for n secton 62(b). In any such case,
where the transacton occurred on or after uy 1, 1050, the
monthy e cess profts net ncome of the corporaton entted to
the benefts of secton 35(e) for any month of the acqurng
corporaton s base perod sha be, for purposes of the recom-
putaton provded for n secton 62(b), one-twefth of the
average base perod net ncome to whch such corporaton was
entted under secton 35(e), and such monthy e cess profts
net ncome sha be n eu of the monthy e cess profts net
ncome determned under paragraphs (1) and (2) of secton
62(b).
(2) y strkng from the second sentence of paragraph (2)
thereof the words: had commenced busness pror to the begnnng
of ts base perod (determned wthout reference to secton 61 (d))
and .
(3) y strkng from paragraph (3) thereof the words whch
had commenced busness pror to the begnnng of ts base perod
and by nsertng n eu thereof the foowng: whch had com-
menced busness pror to the end of ts base perod .
page372, ths uetn , approved March 2 ,1953 26 CFR 0. 62-1 ,
( ) y changng the thrd sentence of (a) (1) to read as foows:
If computed wth reference to secton 62(b), the e cess-profts net Income of the
acqurng corporaton sha be the e cess-profts net ncome or defct n e cess-
profts net Income for each month of the acqurng corporaton s base perod as
defned n secton 35(b) (or the -month perod prescrbed n secton 35(d),
If such perod s avaabe to the acqurng corporaton), ncreased or decreased,
as the case may be, by the addton or reducton resutng from ncudng the
e cess-profts net ncome or defct In e cess-profts net ncome for that month of
a component corporatons n the manner provded n secton 62(b).
( ) y changng the phrase computed under secton 2 (c) and
(d) n (a)(3) thereof to read as foows: computed under sec-
ton 2 (c), (d),or (h) .
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5 0. 61-7, Regs. 130.
3GS
(C) y nsertng n the frst sentence of (b) (1) () after the words
n the base perod of the acqurng corporaton the foowng: (or
the month perod prescrbed n secton 35(d), f appcabe) .
(D) y nsertng n the frst sentence of (b) (1) () after the words
the acqurng corporaton s base-perod the foowng: (or the
-month perod prescrbed n secton 35(d), f appcabe) .
ar. 7. Secton 0. 62-2, as added by Treasury Decson 5 65 26
CFR 0. 62-2 , s amended as foows:
( ) y amendng (b) (1) () ( ) thereof to read as foows:
(13) (aa) If the part II transacton occurs before uy 1, 1950, If the
acqurng corporaton recomputes ts e cess-profts net ncome under sec-
ton 02(b), and f the acqurng corporaton quafes under the rues of
se on 5(e) (1) ( ) after appyng the rues set forth n (), beow; or
(bb) If the part II transacton occurs after une 30, 1950, f the acqurng
corporaton (other than a corporaton created ncdent to such transacton)
and a the component corporatons actuay commenced busness pror to
the begnnng of the acqurng corporaton s base perod, f the acqurng
corporaton recomputes ts e cess-profts net ncome under secton 2(b),
and f the acqurng corporaton quafes under the rues of secton
35(e) (1) ( ) after appyng the rues set forth n (), beow.
( ) y amendng (b) (2) () ( ) and (C) thereof by strkng from
the phrase and a component corporatons actuay commenced bus-
ness pror to the begnnng of the acqurng corporaton s base perod
the word begnnng and substtutng n eu thereof the word end .
(C) y amendng (c) (1) () ( ) thereof by strkng therefrom the
foowng: f the component corporaton actuay commenced bus-
ness pror to the begnnng of ts base perod, .
(D) y amendng (c) (2) () ( ) thereof by strkng therefrom the
foowng: f the component corporaton actuay commenced bus-
ness pror to the begnnng of ts base perod, .
Par. . Secton 0. 62- , as added by Treasury Decson 5 65 26
CFR 0. 62- |, s amended as foows:
( ) y amendng (a)(1) by changng the phrase under secton
2 (c) or (d) n tne ntroductory porton thereof precedng cause
() to read as foows: under secton 2 (c), (d), or (h) , and by
strkng from such porton the word ether .
( ) y amendng (a) (1) () thereof by changng the phrase for
the purpose of secton 2 (c) or (d) to read as foows: for the
purpose of secton 2 (c), (d), or (n) .
(C) y amendng (a) (1) () thereof by changng the phrase under
secton 2 (a) or (h) .
(D) y amendng (a) (2) by changng the phrase under secton
2(c) or under secton 2(d) n the ntroductory porton thereof
precedng cause () to read as foows: under secton 2 (c) or (h)
or under secton 2(d) .
( ) y amendng (a) (2) () thereof by nsertng theren the phrase
or under secton 2(h) (2) ( ) (to the e tent made avaabe under
secton 2(h) (2) (D)) and the phrase or (h), respectvey, so that
as amended such provson w read as foows:
(1) The substtute e cess-profts net ncome for any month Identfed under
secton 2(c) (1) and (3) or under sect on 2(h)(2)( ) (to the e tent
made avaabe under secton 2(h) (2) (D)) of any corporaton entted to
the benefts of secton 2 (c) or (h), respectvey, mmedatey pror to
the transacton sha be consdered the e cess-profts net ncome of that
corporaton for such month;
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5 0. 61-7, Regs. 130.
(F) y amendng (b)(1) thereof by changng the phrase under
secton 2 (c) or (d) n the frst sentence thereof to read as foows:
under secton 2 (c), (d), or (h) , and by strkng therefrom the
word ether .
(G) y amendng (b) (2) thereof by changng the phrase under
secton 2(c) or under secton 2(d) to read as foows: under
secton 2 (c) or (h) or under secton 2(d) .
Par. 9. Secton 0. 62-9(a) (1), as added by Treasury Decson 5 65
26 CFR 0. 62-9 (a) (1) , s amended by changng the phrase or
substtute e cess-profts net ncome f computed under secton 2(c)
n the second sentence thereof to read as foows: or substtute e cess-
profts net ncome f computed under secton 2 (c) or (h) .
Par. 10. There s added mmedatey after secton 0. 62-1 , as
added by Treasury Decson 5 65 26 CFR 0.162-1 , the foowng:
Sec. 0. 02-15. ternatve verage ase Perod Net Income Under Secton
59(d). (a) Port // transacton other than a transacton descrbed n secton
S(a) 1) (S). In the case of a part II transacton occurrng before anuary 1,
1951, other than a transacton descrbed n secton 61(a) (1) ( ), the acqurng
corporaton sha e entted to determne Its average base perod net ncome
under secton 59(d) n the manner provded theren, after the appcaton of
the rues provded beow, f the requrements of secton 59(d) are satsfed
after the appcaton of such rues. The rues referred to above are as foows:
(1) For ths purpose, the base perod e perence of the component corpo-
raton pror to the date of the transacton sha be attrbuted to the acqurng
corporaton as f the busness, cr busnesses, the assets, and the other tems
of the component corporaton durng the perod pror to the transacton
were those of the acqurng corporaton.
(2) In appyng the foregong rue, proper ad|ustment as to each Item
sha be made to prevent dupcaton, ncudng the mnaton of such por-
ton of any tem wth respect to the co-nponent corporaton or the acqurng
corporaton as s attrbutabe to transactons betveen ether such component
corporaton and the acqurng corporaton or such component corporaton
and another component corporaton.
(3) In determnng under the foregong rues the tota assets for any day
pror to the date of the part II transacton, the provsons of secton 7 )
sha be appcabe wth respect to the assets of the component corporaton
If such secton s appcabe to the part II transacton.
( ) The prncpes of secton 0. 61-3(c) sha be appcabe not ony wth
respect to e cess-profts net Income but aso wth respect to a other factors
nvoved n the computaton.
(b) Part II transactons descrbed n secton 61(a) (I) ( 7). In the case of
a part II transacton descrbed In secton 61(a) (1) ( ) whch occurred pror
to anuary 1, 1951, the provsons of (a) of ths secton sha be appcabe
sub|ect to the foowng rues:
(1) For the p..rpose of secton 59(d) (2) ( ), there sha be avaabe to
the acqurng corporaton ony such porton of each tem of the component
corporaton s base perod e perence pror to the transacton as s aocabe
to the oropertes of such component corporaton transferred to the acqurng
corporaton, determned under secton 62(1) wthovt regard to any Items
attrbutabe to the teevson propertes.
(2) For the purpose of secton 59(d) (2) ( ), the base perod e perence
or the porton of the average base perod net ncome, as the case may be,
attrbutabe to the teevson propertes sha be aocated on the bass of
such propertes transferred or retaned.
(3) The speca rues of secton 0. 61-7(b) are appcabe In the case of a
transfer to an acqurng corporaton not created ncdent to the part II
transacton or n the case of a transfer by more than one component corpo-
raton to an acqurng corporaton.
(c) Other appcabe rues. (1) If the stock n the component corporaton s
acqured by the acqurng corporaton under crcumstances requrng an ad|ust-
ment under the prncpes of secton 62( ) (1) and secton 0. 62-10, the foow-
ng rues sha appy sub|ect to the prncpes of such sectons:
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370
(I) The base perod e perence of the component corporaton sha, for the
purpose of the determnaton under secton 59(d)(2)( ), be e cuded to
the e tent attrbutabe to such stock.
(II) For the purpose of the determnaton of the ndvdua rate of re-
turn under secton 59(d) ( ), the base perod e perence of the component
corporaton attrbutabe to the busness of rado broadcastng (ncudng
tota assets so attrbutabe) sha be e cuded for the perod pror to the
acquston of such stock to the e tent attrbutabe to such stock.
() If the acquston of the stock occurs after the date as of whch the
rato specfed n secton 59(d) (5) s determned, then, such rato sha, to
the e tent the assets used n the teevson broadcastng busness are at-
trbutabe to such stock, be determned and be apped as of the date of the
acquston of the stock. See aso (2), beow.
(2) For the purpose of the determnaton under secton 59(d) (2) ( ), the pro-
vsons of secton 59(d)(5) sha (sub|ect to the rue of ()() above, f
appcabe) be apped to the combned base perod e perence of the acqurng
corporaton and the component corporaton, that s, the rato under secton
59(d) (5) sha be determned (whether for a date pror to or after the part I
transacton) on the bass of the tota assets of both corporatons, and the rato
sha be apped to the e cess-profts net Income of the acqurng corporaton
as determned under ths secton wth reference to the component corporaton.
See (a) (1) and (3), above.
(3) If the part II transacton occurred n a ta abe year of the acqurng cor-
poraton endng after une 30, 1950, proper ad|ustment sha be made, under
the prncpes of secton 0. (12-11, n determnng the e cess-profts credt for
such ta abe year so that the beneft to the acqurng corporaton from the app-
caton of secton 59(d) wth respect to the component corporaton sha be
reduced to an amount whch s such porton thereof as the number of days n
the ta abe year after the transacton s of the tota number of days n such
ta abe year.
( ) For other appcabe rues, see, n genera, secton 0. 61- .
Par. 11. Secton 0. 63-1, as added by Treasury Decson 5 65
26 CFR 0. 63-1 , s amended as foows:
( ) y addng after paragraph (b) ( ) the foowng:
(9) For the purpose of secton 35(g)( ) (reatng to ad|ustments for
changes n nadmssbe assets n case of banks), the orgna tota assets,
the average tota assets, and the ncrease or decrease In tota assets of the
ta payer sha be determned under the rues provded n ths secton for
the determnaton of orgna nadmssbe assets, average nadmssbe
assets, and the ncrease or decrease n nadmssbe assets, as f the rues
bad reference to a assets, whether admssbe or nadmssbe assets as
defned n secton 0.
(10) For the purpose of secton 35(g) (10), the determnaton of an
Increase n operatng assets sha be made under the rues provded In tha
secton for the determnaton of an ncrease n nadmssbe assets.
( ) y addng after the second sentence of (d) (2) the foowng:
In the computaton for ths purpose, secton 5(c) provdes that the net capta
addton or reducton sha be computed wthout regard to the mtaton to 75
percent provded n secton 35(g) (3) (C) and secton 35(g) ( ) (C) and ( ) ;
(C) y strkng the words and ( ) n paragraph (f) (1) () and
nsertng n eu thereof the foowng: ( ), (9), and (10).
(D) y nsertng at the end thereof the foowng:
(g) ppcaton of secton 59(d). If the average base perod net ncome
Is computed wth reference to secton 59(d), the net capta addton or reduc-
ton computed under ths secton sha be ad|usted n the manner requred by
secton 59(d) and the reguatons thereunder. For the purpose of such ad|ust-
ment, the prncpes of secton 0. G2-15(a) (1) sha be appcabe.
Par. 12. Secton 0. 6 -1, as added by Treasury Decson 5 65
26 CFR 0. 6 -1 , s amended as foows:
( ) y amendng the phrase appearng n the second sentence of
(a)(1) thereof and readng under secton 2(c) wth reference to
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371
10. 03-1, Regs. 130.
secton 62(d) to read as foows: under secton 2 (c) or (h) wth
reference to secton 62(d) .
( ) y addng mmedatey after the thrd sentence of (a)(1)
thereof the foowng:
No base perod capta addton sha be aowed the acqurng corporaton wth
respect to any corporaton a party to the part II transacton (whether the
acqurng or component corporaton) the monthy e cess-prots net ncome of
whch s computed under secton 35(e) and secton 02(c) (1) (C) (see secton
0. 62-2(b) (1) () and secton 0. 02-2(b) (2) ()) ; or, e cept to the e tent
provded by secton 35(f)(3), f the monthy e cess-profts net ncome of the
corporaton s computed under secton 2 (c), (d), or (h) and secton
62(d)(2)( ) (see secton 0. 02- (a) (2) and secton 0. 02- (b) (2)).
(C) y nsertng at the end thereof the foowng:
(f) ppcaton of secton 59(d). If the average base perod net ncome s
computed wth reference to secton 59(d), the base perod capta addton
computed under ths secton sha be ad|usted n the manner requred by secton
59(d) and the reguatons thereunder. For the purpose of such ad|ustment,
the prncpes of secton 0. 02-15(a) (1) sha be appcabe.
n secton 62of the Interna Revenue Code (53 Stat. 32; 26 U. S. C. 62).)
T. Coeman ndkews,
M. . Fosom,
(Fed wth the Dvson of the Federa Regster une 3, 1053, : 0 a. m.)
S CTION 62. R G S P RIOD
N T IN COM D T RMIN TI ON
Secton 0. 62-1, Reguatons 130: Genera rues for
determnng average base perod net ncome of an ac-
qurng corporaton.
nterna revenue code
Reguatons 130 amended. (SeeT. D. 599 , page372.)
Secton 0. 62-15, Reguatons 130: terna-
tve average base perod net ncome under
secton 59(d).
INT RN L NU COD
Reguatons 130 amended. (See T. D. 6017, page 36 .)
S CTION 63. C PIT L C NG S
Secton 0. 63-1, Reguatons 130: Net capta
addton or reducton under Part II.
nterna revenue code
Reguatons 130 amended. (SeeT. D. 6017, page 36 .)
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0. 7 -1, Regs. 130. 372
Secton 0. G3-3, Reguatons 130: Capta changes n
case of part II transacton foowng part I trans-
acton.
INT RN L R NU COD
Reguatons 130 amended. (See T. D. 599 , beow.)
S CTION 6 . C PIT L C NG S DURING S P RIOD
Secton 0. 6 -1, Reguatons 130: ase perod
capta addtons under Part II.
nterna revenue code
Reguatons 130 amended. (SeeT. D. 6017, page 36 .)
Secton 0. 6 -3, Reguatons 130: ase perod capta
addton n case of part. transacton foowng part
I transacton.
INT RN L R NU COD
Reguaton 130 amended. (See T. D. beow.)
P RT I . C SS PROFITS CR DIT S D ON INCOM IN CONN CTION WIT
C RT IN T L C UISITIONS OCCURRING PRIOR TO D C M R 1, 1950
S CTION 7 . C SS PROFITS CR DIT S D ON
INCOM C RT IN T L C UISITIONS
Secton 0. 7 -1, Reguatons 130: Purpose T. D. 599
and scope of part I .
( so Sectons 0. 7 -2, 0. 7 -3, 0. 7 - ,
0. 7 -5, 0. 7 -6; Secton 62, Sectons
0. 02- 1, 0. 02-9; Secton 03, Secton
0. 03- 3; Secton 0 , Secton 0. 0 -3,
Reguatons 130.)
TITL 26 INT RN L R NU C PT R I. SU C PT R , P RT 0.
Reguatons 130 amended to conform to secton 521 of the Reve-
nue ct of 1951, reatng to e cess profts credt based on ncome
In connecton wth certan ta abe acqustons (part I ).
Washngton 25, D. C.
Concerned:
On December 2, 1952, notce of proposed ruemakng wth respect
to amendments to conform Reguatons 130 to secton 521 of the
Revenue ct of 1951 (Pubc Law 1 3, 2d Cong., 1st sess.), approved
October 20, 1951, reatng to e cess profts credt based on ncome n
connecton wth certan ta abe acqustons (part I ), was pub-
shed n the Federa Regster (17 F. R. 10 7 ). fter consderaton
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373
0. 7 -1, Regs. 130.
of such reevant suggestons as were presented by nterested persons
regardng the proposas, the amendments to Reguatons 130 26
CFR, part 0 set forth beow are hereby adopted:
Paragraph 1. There s nserted mmedatey precedng secton 523
of the Revenue ct of 1951, whch precedes secton 0. 35-1 26 CFR
0 35-1 , the foowng:
S C. 521. C SS PROFITS CR DIT S D ON INCOM IN
CONN CTION WIT C RT IN T L C UISITIONS
R NU CT OF 1951, r RO D OCTO R 20, 1951 .

(1) Secton 35(a)(3) (reatng to amount of e cess profts
credt) s hereby amended by nsertng before the perod at the
end thereof the foowng: , and n the case of certan ta abe
acqustons, see part I of ths subchapter .

Par. 2. There s nserted mmedatev precedng secton 0. 61-1,
as added bv Treasury Decson 5 65 C. . 1951-2, 97 , approved
November 13,1951 26 CFR 0. 61-1 , the foowng:
S C. 521. C SS PROFITS CR DIT S D ON INCOM IN CON-
N CTION WIT C RT IN T L C UISITIONS R -


(2) Secton f (reatng to defntons under part 11) Is
amended by nsertng at the end thereof the foowng new sub-
sectons :
(g) Component Corporaton Whch Was a Purchasng Cor-
poraton n a Prevous Transacton. See secton (12(b)( ) for
rues appcabe If the component corporaton was a purchasng corpora-
ton (as defned n part I ) n a prevous part I transacton, or f
(as an acqurng corporaton n a prevous part II transacton) It was
sub|ect to the provsons of secton 02(b)( ).
(h) Defnton ov Part II Transacton. For the purpose of ths
subchapter, the term part II transacton means a transacton de-
scrbed n secton 61(a).

C 523. FF CTI D T OF TITL R NU CT OF 1951,
by ths tte sectons 501 through 5231 sha be appcabe ony wth
Par. 3. There s nserted mmedatey precedng secton 0. 62-1,
as added by Treasury Decson 5 65 26 CFR 0. 62-1 , the foowng:
S C. 521. C SS PROF T9 CR DIT S D ON INCOM IN


(3) Secton 62(b) (reatng to the method of recomputng the
e cess profts net ncome of an acqurng corporaton under part
II) Is hereby amended by addng at the end thereof the foowng
new paragraph:
( ) If the average base perod net ncome of the acqurng cor-
poraton s determned under secton 35(d) wth reference to ths
subsecton, and If the provsons of secton 7 (b) (reatng to the
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0. 7 -1, Regs. 130.
37
computaton of e cess profts net ncome n the case of certan
purchasng corporatons) were appcabe to the component cor-
poraton mmedatey pror to the part II transacton (or woud
have been appcabe, f such part II transacton had occurred n a
ta abe year of the component corporaton endng after une 30,
1 )50), then the e cess profts net ncome (or defct theren) of the
component corporaton sha, for the purpose of ths subsecton, be
determned wth the appcaton of the provsons of secton 7 (b).
For the purpose of ths paragraph, f a component corporaton was
an acqurng corporaton n a prevous part II transacton and,
mmedatey pror to the ater part II transacton, the provsons of
ths paragraph were appcabe to such component corporaton,
ts e cess profts net ncome (or defct theren) sha be determned
wth the appcaton of the provsons of the precedng sentence.
Ths paragraph sha be appcabe to an acqurng corporaton ony
( ) the propertes acqured by the acqurng corporaton
from the component corporaton ncude substantay a of the
propertes (oher than cash), or propertes acqured n the
ordnary course of busness n the repacement of propertes,
whch the component corporaton acqured ether from the se-
ng corporaton n the part I transacton or from a prevous
component corporaton sub|ect (mmedatey pror to such acqu-
ston) to the provsons of ths paragraph;
( ) the busness or busnesses acqured by the acqurng cor-
poraton were operated by the acqurng corporaton from the
date of such transacton to the end of the ta abe year or were
transferred durng the ta abe year by the acqurng corpora-
ton n a part II transacton to whch the provsons of ths
paragraph are appcabe; and
(C) n the event that the part II transacton s one de-
scrbed n secton 01(a)(1)( ), the provsons of secton
62(1) (6) are satsfed.
( ) S crtoN 02(1) (6) (reatng to aocaton rues n the case
of transactons descrbed n secton 01(a)(1)( )) s hereby
amended by addng at the end thereof the foowng: Notwthstand-
ng the provsons of paragraph (1), f an acqurng corporaton n a
transacton descrbed n secton 01(a)(1)( ) determnes Its aver-
age base perod net ncome under secton 35(d) by recomputng ts
e cess profts net ncome under the provsons of secton 02(b) ( ),
the amount of the component corporaton s e cess profts net ncome
for any month whch sha be taken Into account by the acqurng
corporaton sha be such porton of the component corporaton s
e cess profts net ncome for such month as s determned on the
bass of the earnngs e perence of the assets transferred and the
assets retaned by the component corporaton.
S C. 523. FF CTI P T OF TITL R NU CT OF
1951, PPRO D OCTO R 20, 1951 .
cept as otherwse provded In secton 500(d), the amendments
made by ths tte sectons 501 through 523 sha be appcabe ony
wth respect to ta abe years endng after une 30, 1 150.
Par. . Secton 0. 62-1, as added .by Treasury Decson 5 65
20 C 0. G2-1 , s amended by addng at the end thereof the
foowng:
(d) RecomputaUon of e cess profts net ncome of acqurng corporaton tcth
reference to that of a component corporaton whch was a purchasng corpo-
raton n a part I transacton. (1) Ths paragraph s appcabe where a
purchasng corporaton n a part I transacton becomes a component cor-
poraton n a ater part II transacton and mmedatey pror to the part II
transacton the provsons of secton 7 (b) were appcabe n computng the
average base perod net ncome of the component corporaton (or such pro-
vsons woud have been appcabe to the component If the part II transacton
f
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375
0. 7 -1, Regs. 130.
had occurred n a ta abe year of the component corporaton endng after une
30, 11150). In such case f the average base perod net ncome of the acqurng
corporaton n the part II transacton s determned under the genera aver-
age method of secton 35(d) by recomputng the e cess profts net ncome
wth reference to secton 02(b), n appyng paragraphs (b) and (c) of ths
secton to the acqurng corporaton the e cess profts net ncome (or defct
theren) of the component corporaton must be determned wth the appca-
ton of the provsons of secton 7 (b), whether or not the component cor-
poraton computed ts average base perod net ncome wth the appcaton
of secton 7 (b). For the appcaton of the provsons of secton 7 (b) to
a purchasng corporaton In a part I transacton, see sectons 0. 7 -1 and
0. 7 -2. Ths paragraph sha not be appcabe to the acqurng corporatoc
uness each of the foowng condtons s met:
() The propertes acqured by the acqurng corporaton from the com-
ponent corporaton must ncude substantay a the propertes (other
than cash), or propertes acqured n the ordnary course of busness r.
the repacement of propertes, whch such component corporaton acqured
from the seng corporaton n the part I transacton or from a prevous
component corporaton to whch the provsons of secton 02(b)( ) and
of ths paragraph were appcabe;
() The busness or busnesses acqured by the acqurng corporaton
must have been operated by the acqurng corporaton from the date of
the part II transacton to the end of the ta abe year, uness such busness
or busnesses were transferred durng the ta abe year by the acqurng
corporaton n a subsequent part II transacton to whch the provsons
of secton 62(b)( ) and of ths paragraph are appcabe; and
() In the event the part II transacton s a transacton descrbed In
secton 61(a)(1)( ) the provsons of secton 62(1) (0), reatng to the
aocaton of base perod e perence, must be satsfed. See secton
0. 62-0 (c).
(2) Smary, In the case of successve part II transactons, (1) above s
aso appcabe f a purchasng corporaton n a part I transacton becomes
a component corporaton n a part II transacton and thereafter Its acqurng
corporaton becomes a component corporaton n a ater part II transacton,
and f mmedatey pror to the ater part II transacton the provsons of
secton 62(b)( ) and of (d) of ths secton were appcabe n computng
the average base perod net ncome of the prevous acqurng corporaton (or
such provsons woud have been appcabe to the prevous acqurng corpora-
ton f the ater part II transacton had occurred In a ta abe year of the
prevous acqurng corporaton endng after une 30, 1950). In such case, f
the ater acqurng corporaton determnes ts average base perod net ncome
under the genera average method of secton 35(d) by recomputng the e cess
profts net ncome wth reference to secton 62(b), In appyng paragraphs
(b) and (c) of ths secton to such ater acqurng corporaton the e cess
profts net ncome (or defct theren) of ts component corporaton (that s,
the prevous acqurng corporaton) sha be determned wth the appcaton
of the provsons of secton 7 , whether or not the component corporaton
determned ts average base perod net ncome by recomputng Its e cess profts
net ncome wth reference to secton 62(b). s n the case of the frst ac-
qurng corporaton, ths paragraph s appcabe to the second acqurng cor-
poraton ony If the condtons set forth n subparagraph (1) (1), (), and
( ) above are met n the case of the second acqurng corporaton.
Par. 5. Secton 0. 62-9, as added by Treasury Decson 5 65 26
CFR 0. 62-9 , s amended by addng at the end thereof the foowng:
(c) Part II transacton foowng part I transacton. If an acqurng cor-
poraton n a transacton descrbed n secton 61(a)(1)( ) determnes ts
average base perod net Income under the genera average method of secton
35(d), If the component corporaton In such transacton was a purchasng
corporaton n a prevous part I transacton (or was an acqurng corporaton
from such a purchasng corporaton), and f the acqurng corporaton recomputes
ts e cess profts net Income wth the appcaton of the provsons of secton
62(b) ( ). the aocaton of the base perod e perence of the component
corporaton sha be made on the bass of the speca rue provded In secton
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0. 7 -1, Regs. 130
376
02(1) (6) In eu of the aocaton provded In paragraph (a) or (b) of ths
secton. The speca rue provded n secton 02()(G) requres that the
aocaton be made as foows:
(1) for the perod pror to the date of the part I transacton, the e cess
profts net ncome or defct (or porton thereof) propery attrbutabe to
the busness or busnesses nvoved n the part I transacton and acqured
by the acqurng corporaton n the part II transacton sha he the amounts
whch, wth respect to such busness or busnesses, were avaabe under
part I to the purchasng corporaton In the part I transacton (or woud
have been avaabe f the part I transacton had occurred n a ta abe
year of the purchasng corporaton endng after une 30, 1950).
(2) For the perod after the date of the part I transacton, the e cess
profts net ncome or defct (or porton thereof) propery attrbutabe to
such busness or busnesses sha be determned under the prncpes of (b)
of ths secton but wthout regard to the requrement of a wrtten agreement
for te appcaton of such prncpes.
(3) If the acqurng corporaton acqures, n the part II transacton,
propertes of the component corporaton not used n such busness or bus-
nesses, the e cess profts net ncome or defct propery attrbutabe to such
propertes sha be determned under (b) of ths secton wthout regard to
the requrement for a wrtten agreement as to such aocaton.
Par. 6. There s nserted mmedatey precedng secton 0. 63-1, as
added by Treasury Decson 5 65 26 CFR 0. 63-1 , the foowng:
S C. 521. C SS PROFITS CR DIT S D ON INCOM IN CON-
N CTION WIT C RT IN T 1SI. C UISITIONS R -
NU CT OF 1951, ITRO D OCTO R 20, 1951 ,


(5) Secton 03 (reatng to capta changes) s amended by
Insertng at the end thereof the foowng new subsecton :
(c) Component Corporaton Whch Was a Purchasng Corpo-
raton n a Prevous Transacton. The Secretary sha provde by
reguatons for the appcaton of ths secton n cases to whch secton
02(b)( ) s appcabe.

1951, PPRO D OCTO R 20, 1951 .
by ths tte nc. sec. 521 sha be appcabe ony wth respect to
ta abe years endng after une 30.1050.
Par. 7. There s nserted mmedatey after secton 0. 63-2, as
added by Treasury Decson 5S65 26 CFR 0. 63-2 , the foowng:
Sec. 0. 03-3. Capta Changes n Case of Part II Transacton Foowng
Part I Transacton. In the case of an acqurng corporaton n a part II
transacton to whch the provsons of secton 02(b)( ) (reatng to the
determnaton of the e cess profts net ncome or defct wth the appcaton
of the provsons of secton 7 (b) n the case of a component corporaton whch
was a purchasng corporaton n a prevous part I transacton) are appcabe,
the net capta addton or reducton of the acqurng corporaton sha be deter-
mned under secton 0. 03-1 by recomputng the tems of transferred capta
addton and reducton of the component corporaton wth the appcaton of
the provsons of secton 0. 7 -5. Such ad|ustment sha be made whether or
not the component corporaton computed ts e cess profts credt wth the
appcaton of the provsons of part I . The ad|ustment provded In ths secton
sha aso be made n the case of a component corporaton whch was an
acqurng corporaton n a prevous part II transacton to whch the provsons
of secton 02(b)( ) were appcabe or woud have been appcabe f such
prevous part II transacton had occurred n a ta abe year of the component
corporaton endng after une 30, 1050. In such case the ad|ustment sha be
made wth respect to the ater acqurng corporaton whether or not the prevous
acqurng corporaton computed ts e cess profts credt by appcaton of part IL
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377
0. 7 -1, Regs. 130.
Pah. . There s nserted mmedatey precedng secton 0. 6 -1,
as added by Treasury Decson 5 65 26 CFR 0. 6 -1 , the foowng:
R NU CT OP 1951, PPRO D OCTO R 20, 1951 .


(6) Secton 0 (reatng to capta changes durng the base
perod) s amended by nsertng at the end thereof the foowng
new subsecton:
(c) The Secretary sha provde by reguatons for the appcaton
of ths secton n cases to whch secton 62(b) ( ) s appcabe.
by ths tte nc. sec. 521 sha be appcabe ony wth respect to ta abe
Pab. 9. There s nserted mmedatey after secton 0. 6 -2, as
added by Treasury Decson 5 65 26 CFR 0. 6 -2 , the foowng:
Sec. 0. 6 -3. ase Perod Capta ddton n Case of Pabt II Transacton
Foowng Pabt I Transacton. In the case of an acqurng corporaton In a
part II transacton to whch the provsons of secton 62(b) ( ) (reatng to the
determnaton of the e cess profts net ncome or defct wth the appcaton
of the provsons of secton 7 (b) In the case of a component corporaton whch
was a purchasng corporaton n a prevous part I transacton) are appcabe,
the base perod capta addton of the acqurng corporaton sha be deter-
mned under secton 0. 6 -1 by computng the component corporaton s yeary
base perod capta and ts base perod capta addton (whchever Is avaabe
to the acqurng corporaton) wth the appcaton of the provsons of secton
0. 7 -6. Such ad|ustment sha be made whether or not the component corpo-
raton computed ts e cess profts credt wth the appcaton of the provsons
of part I . The ad|ustment provded n ths secton sha aso be made In the
case of a component corporaton whch was an acqurng corporaton n a pre-
vous part II transacton to whch the provsons of secton 62(b) ( ) were ap-
pcabe (or woud have been appcabe f the prevous part II transacton had
occurred In a ta abe year of the component corporaton endng after une 30,
1950). In such case the ad|ustment sha be made wth respect to the ater
acqurng corporaton whether or not the prevous acqurng corporaton com-
puted ts e cess profts credt by appcaton of part II.
Par. 10. There s added mmedatey after secton 0. 72- 26 CFR
0. 72- the foowng:
CONN CTION WIT C RT IN T L C UISITIOWS
R NU CT of 1951, PPRO D OCTO R 20, 1951 .
(a) Genera Roe. Subchapter D (reatng to the e cess profts
ta ) of chapter 1 s hereby amended by nsertng mmedatey foow-
ng secton 72 the foowng new part:
P RT I C SS PROFITS CR DIT S D O.N INCOM IN
CONN CTION WIT C RT IN T L C UISITIONS OC-
CURRING PRIOR TO D C M R 1,1950
S C. 7 . C SS PROFITS CR DIT S D ON INCOM -
C RT IN T L C UISITIONS.
(a) Defntons. For the purpose of ths part
(1) Purchasno corporaton. The term purchasng corpora-
ton means a corporaton whch, before December 1, 1950,
acqured
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0. 7 -1, Regs. 130.
37
( ) In a transacton other tan a transacton descrbed n
secton (a), substantay a of the propertes (other than
cash) of another corporaton, of a partnershp, or of a busness
owned by a soe propretorshp; or
(11) Propertes of another corporaton or of a partnershp
If () such propertes consttuted, mmedatey pror to the ac-
quston, substantay a of the propertes (other than cash)
of one or more separate busnesses of such other corporaton
or such partnershp, () such other corporaton or such partner-
shp was engaged n one or more separate busnesses other
than those descrbed n cause (), and () substantay a
of the propertes (other than cash) of such other corporaton
or such partnershp were acqured, n furtherance of a snge
pan of compete qudaton for such other corporaton or such
partnershp, by the purchasng corporaton, and by one or more
other persons, n transactons other than transactons descrbed
n secton t (a).
(2) Seng corporaton. The term seng corporaton means
a corporaton, a partnershp, or a busness owned by a soe pro-
pretorshp, as the case may be, propertes of whch were acqured
by a purchasng corporaton n a transacton descrbed n para-
graph (1).
(3) Part rv transacton. The term part I transacton
means a transacton descrbed n paragraph (1).
(b) verage ase Perod et Income of Purchasng Corpora-
ton. The average base perod net ncome of a purchasng corporaton,
f computed wth reference to ths part, sha be determned under
secton 35(d). The average base perod net ncome under secton
35(d) of a purchasng corporaton sha be determned by computng
ts e cess profts net ncome ether wth or wthout reference to ths
part, whchever produces the esser ta under ths subchapter for the
ta abe year for whch The ta s beng computed. If computed wsh
reference to ths part, the e cess profts net ncome of a purchasng
corporaton for any month of ts base perod sha be ts e cess profts
net Income (or defct theren), computed wthout reference to ths part,
and ncreased or decreased, as the case may be, by the addton or re-
ducton resutng from Incudng
(1) In the case of a transacton descrbed n subsecton
(a)(1)( ), the e cess profts net ncome (or defct theren) for
such month of the seng corporaton, or
(2) In the case of a transacton descrbed n subsecton
(a)(1)( ), the e cess profts net ncome (or defct theren) for
such mouth of the seng corporaton pro| ery attrbutabe to the
busness or busnesses acqured by the purchasng corporaton and
pro ry aocabe to such purchasng corporaton.
The e cess profts net Income of a purchasng corporaton for any month,
recomputed as provded In the prevous sentence, sha not be ess than
zero.
(c) Lmtatons. Ths part sha appy ony f each of the foowng
condtons s satsfed:
(1) The seng corporaton ( ) dd not, after the part I
transacton (or the ast transacton descrbed n subsecton(a) (1)
( )), contnue any busness actvtes other than those ncent to
ts compete qudaton, and (15) wthn a reasonabe tme after
ceasng busness actvtes, competey qudated n a transacton
other than a transacton descrbed n secton ((a), and ceased
e stence.
(2) Durng so much of the base perod of the purchasng cor-
poraton and of the perod thereafter as preceded the part I
transacton, the propertes acqured n the part I transacton
wre substantay a of the propertes (other than cash) whch
were used, or whch n the ordnary course of busness repaced
propertes used, by the seng corporaton (or by a component cor-
poraton, as defned n secton (1b), of such seng corporaton)
n the producton of the e cess profts net ncome (or defct theren)
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379
0. 71-1, Regs. 130.
whch under subsecton (b) ncreases or decreases the e cess profts
net ncome of the purchasng corporaton. For the purpose of ths
paragraph, f a busness n the hands of both the seng corporaton ,
and the purchasng corporaton was operated under a substantay
dentca franchse or cense, granted by the same person, such
franchse or cense sha be deemed acqured by the purchasng
corporaton from the seng corporaton.
(3) The busness or busnesses acqured n the part I trans-
acton (ncudng the propertes so acqured or propertes n re-
pacement thereof) were operated by the purchasng corporaton
from the date of such transacton to the end of the ta abe year or
were transferred (urng the ta abe year by the purchasng cor-
poraton In a part II transacton to whch the provsons of secton
62(b) ( ) are appcabe.
;d) Speca Rues.
(1) For the purpose of subsecton (a) (1), the propertes of a
seng corporaton sha be consdered to have been acqured by a
purchasng corporaton ony f acqured from
( ) such seng corporaton, or
( ) persona who receved the propertes upon the quda-
ton of such seng corporaton and who forthwth transferred
such propertes to the purchasng corporaton n a transacton
other than a transacton descrbed n secton 61(a).
(2) The computatons requred by ths part n the case of a se-
ng corporaton whch s a partnershp or a busness owned by a
soe propretorshp sha be made, under reguatons prescrbed by
the Secretary, as f such partnershp or such busness owned by a
soe propretorshp had been a corporaton.
(3) In no case sha more than 100 per centum of the e cess
profts net ncome (or defct theren) for any month of a seng
corporaton be aocated to the purchasng corporaton or, n the
case of transactons descrbed n subsecton (a) (1) ( ), to the sev-
era persons (or to any one or more of such persons) recevng the
propertes of such seng corporaton n such transactons.
(e) Successve Transactons.
(1) Part v transacton foowng part v transacton.
In the case of a seng corporaton whch was a purchasng corpo-
raton n a prevous part I transacton, or whch acqured proper-
tes of a purchasng corporaton n a transacton to whch secton
62(b)( ) s appcabe, the computatons under ths part wth re-
spect to the seng corporaton sha be made wthout regard to the
prevous part I transacton.
(2) Part v transacton foowng part transacton.
Sub|ect to the provsons of paragraph (1), n the case of a seng
corporaton whch was an acqurng corporaton as defned n secton
61(a) In a prevous transacton, ts e cess profts net ncome (or
defct theren) whch ncreases or decreases the e cess profts net
ncome (or defct theren) of the purchasng corporaton under
subsecton (b) (1) or (2), and ts capta changes whch are taken
nto account under ths part In determnng the capta changes of
the purchasng corporaton, sha be determned wth the appcaton
of the rues of part II to such seng corporaton wth respect to the
part II transacton.
(3) Part transacton foowng part v transacton.
For rues appcabe n the case of a part II transacton foowng
a part I transacton, see sectons 62(b)( ), 3(c), and 6 (c).
(f) Reguatons. The Secretary sha by reguatons prescrbe
rues for the appcaton of ths part. Such reguatons sha ncude
the foowng rues:
(1) ase perod capta addton. Rues (consstent wth the
prncpes of secton 6 ) for the determnaton of the base perod
capta addton of the purchasng corporaton by reference to the
capta changes of the seng corporaton and of the purchasng
corporaton.
(2) Net catta addton ob reducton. Rues (consstent wth
the prncpes of secton 63) for the determnaton of the net capta
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0. 7 -1, Regs. 130.
3S0
addton or reducton of tte purchasng corporaton by reference to
the capta changes of the seng corporaton and of the purchasng
corporaton.
(3) cess proftc net ncome. Rues (consstent wth the
prncpes of secton 62()) for the determnaton of the amount
of e cess profts net ncome (or defct theren) of the seng corpo-
raton attrbutabe to the busness or busnesses acqured by a
purchasng corporaton n a transacton descrbed n subsecton
(a)(1)( ) and propery aocabe to such purchasng corporaton.
( ) Dupcaton. Rues for the appcaton under ths part
of the prncpes of secton - 012(|) (1) and the other provsons of
part II reatng to the preventon of dupcaton.
(5) cess profts credt. In the event that the part I trans-
acton occurred n a ta abe year of the purchasng corporaton
whch ended after une 30, 1950, rues (consstent wth the prn-
cpes of secton t 2(|)(2)) for the determnaton of the e cess
profts credt of such corporaton for the year n whch the transac-
ton occurred.
Such rues sha not ncude the prncpes of secton 01(c) (reatng to
the e cess profts credt of the component corporaton), of secton
G2(b) (2) (reatng to constructve e cess profts net ncome for months
durng whch a corporaton was not n e stence), of secton 62(1) (re-
atng to mnmum average base perod net ncome n the case of certan
acqurng corporatons), or of such other provsons of part II as reate
to sectons 35(e), 2, 3, , 5, or 0/
by ths tte nc. sec. 521 sha be appcabe ony wth respect to ta abe
Sec. 0. 7 -1. Purpose and Scope of Part v. (a) Genera purpose. The
term part I when used n these reguatons means secton 7 . Part I
provdes rues under whch a purchasng corporaton , sub|ect to the cond-
tons and mtatons contaned theren, may utze the earnngs e perence
of a seng corporaton n computng the purchasng corporaton s e cess
profts credt based on ncome. The terra purchasng corporaton means a
corporaton whch, before December 1, 1950, acqured propertes from a seng
corporaton n a transacton meetng the requrements set forth n secton
7 . See paragraph (b) beow. seng corporaton may be a corpora-
ton, a partnershp, or a busness owned by a soe propretorshp. The e cess
profts credt of the seng corporaton s not determned under part I .
foregn corporaton cannot be a purchasng corporaton and nether a foregn
corporaton, a foregn partnershp, nor a foregn soe propretorshp can be
a seng corporaton. The average base perod net ncome of a purchasng
corporaton may be determned by computng ts e cess profts net ncome ether
wth or wthout reference to part I , whchever produces the esser ta . ow-
ever, f the average base perod net ncome of the purchasng corporaton s
computed wth reference to part I , such average base perod net ncome must
be determned under the genera average method of secton 35(d). If the
average base perod net ncome of the purchasng corporaton s computed under
the growth aternatve of secton 35(e) or under an aternatve method
provded n secton 2, 3, , 5, 0, or any subsecton of secton 59,
the e cess profts net ncome of the purchasng corporaton may not be computed
wth reference to part I .
(b) Part I transactons. The term part I transacton means one of the
transactons descrbed n secton 7 (a)(1). Such transactons do not ncude
any acquston of property n a transacton descrbed n secton 61(a). The
foowng transactons are part I transactons:
(1) The acquston, before December 1, 1950. by a purchasng corpora-
ton, n a transacton other than a transacton descrbed n secton 611a),
of substantay a the propertes (other than cash) of another corporaton,
of a partnershp, or of a busness owned by a soe propretorshp: or
(2) The acquston, before December 1, 1950, by a purchasng corporaton,
In a transacton other than a transacton descrbed n secton 01(a), ot
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3S1
0. 7 -1, Regs. 130.
part, as dstngushed from substantay n, of the propertes of another
corporaton or of a partnershp, f the foowng condtons are met:
(1) Such propertes consttuted mmedatey pror to such acquston
substantay a the propertes (other than cash) of one or more
separate busnesses of the other corporaton or the partnershp;
() The other corporaton or the partnershp was engaged n one
or more separate busnesses other than those descrbed n () above; and
( I) Substantay a the propertes (other than cash) of the other
corporaton or the partnershp, ncudng the propertes acqured by
the purchasng corporaton, were acqured, n furtherance of a snge
pan of compete qudaton of the other corporaton or the partnershp,
by the purchasng corporaton and by one or more other persons, whether
or not the acquston by any of such other persons consttuted a part I
transacton but ony f the acquston by any of such other persons
was not a transacton descrbed n secton 61 (a).
In determnng whether the propertes acqured by the purchasng corpora-
ton n a part I transacton consttuted substantay a the propertes of
the transferor, or of a separate busness of the transferor, as the case may
be, proper regard must be had to any prevous dspostons of property by
the seng corporaton. Propertes w be consdered to have been acqured
In a part I transacton ony If such propertes were acqured from the
eng corporaton or from sharehoders of the seng corporaton who
receved such propertes upon the compete qudaton of such corporaton
and who forthwth transferred them to the purchasng corporaton In a
transacton other than a transacton descrbed n secton 01(a). In deter-
mnng whether the transacton s a transacton descrbed n (2), above,
the propertes acqured by the purchasng corporaton sha be consdered
to have consttuted the propertes of a separate busness of the seng
corporaton ony f such busness was a gong busness unt for whch
adequate and separate records were mantaned. Smary, n the case of
a transacton descrbed n (1), above, a busness owned by a soe propr-
etorshp means a gong busness unt for whch adequate and separate
records w-ere mantaned,
(c) Lmtatons on appcaton of part I . purchasng corporaton may
compute ts average base perod net Income under secton 35(d) wth reference
to part I ony f each of the foowng condtons s satsfed:
(1) fter the part I transacton descrbed n paragraph (b)(1) above,
or the ast transacton descrbed In paragraph (b)(2) above, the seng
corporaton dd not engage n any busness actvtes other than those
Incdent to ts compete qudaton and, wthn a reasonabe tme after
ceasng busness actvtes, the seng corporaton was competey qudated
n a transacton other than a transacton descrbed In secton 01(a), and
ts e stence termnated.
(2) Durng so much of the base perod of the purchasng corporaton
and of the perod thereafter as preceded the part I transacton, the prop-
ertes acqured by the purchasng corporaton n such transacton were
substantay a the propertes (other than cash) whch were used (or
whch In the ordnary course of busness repaced propertes used) by the
seng corporaton (or by a component corporaton of such seng corpora-
ton n case the atter was an acqurng corporaton n a prevous part II
transacton) n the producton of the e cess profts net Income or defct
theren whch under secton 7 (b) ncreases or decreases the e cess profts
net ncome of the purchasng corporaton. See secton 0. 7 -2. Thus, for
e ampe. If the seng corporaton durng the base perod of the purchas-
ng corporaton and pror to the part I transacton dsposed of propertes
used n the busness acqured by the purchasng corporaton, so that the
purchasng corporaton dd not acqure substantay a the propertes
used n such busness, part I s not appcabe. Smary, n the case
of a transacton descrbed n secton 7 (a)(1)( ), f the seng cor-
poraton durng the base perod of the purchasng corporaton dsposed
of the propertes used In one busness and acqured propertes for another
busness, the propertes used In the atter busness beng acqured by the
purchasng corporaton, part I Is not appcabe. If the seng corpo-
raton descrbed n the precedng sentence had aso owned throughout the
base perod pror to the part I transacton a second busness, and f the
acquston by the purchasng corporaton of the busness referred to n
26335 53 25
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0. 7 -1, Regs. 130.
3 2
the precedng sentence was a transacton descrbed n secton 7 (a) (1) ( ),
part I s not appcabe f the e cess profts net ncome of the se ag
corporaton avaabe to the purchasng corporaton under secton 7 (b) (2)
ncudes e cess profts net ncome for months pror to the date the busness
acqured by the purchasng corporaton was owned by the seng corpora-
ton. If a busness was operated by the seng corporaton pror to the
part I transacton under a franchse or cense granted by any person,
for e ampe, a franchse or cense not transferabe by the seng corpora-
ton, and f after such transacton the purchasng corporaton operated
the same busness under a substantay dentca franchse or cense
granted by the same person, such franchse or cense w be consdered
to have been acqured by the purchasng corporaton from the seng
corporaton.
(3) The busness or busnesses transferred to the purchasng corpora
ton n the part I transacton (ncudng the propertes actuay trans-
ferred or propertes acqured n repacement thereof) were operated by
the purchasng corporaton from the date of such transacton to the end
of the ta abe year of the purchasng corporaton for whch the e cess
profts credt s computed, uness durng the ta abe year such busness
or busnesses were transferred by the purchasng corporaton n a part II
transacton to whch the provsons of secton 62(b)( ) are appcabe.
See secton 0. 02-1 (d).
Sec. 0. 7 -2. Rues fob Determnng verage ase Pebod Net Income of
a Purchasng Corporaton. (a) In genera. The average base perod net
ncome of a purchasng corporaton, for the purpose of the e cess profts credt
based on ncome and computed under the genera average method (secton
35(d)), may be determned by computng ts e cess profts net ncome wth
or wthout reference to part I , whchever resuts n the esser e cess profts
ta . If computed wthout reference to part I , the e cess profts net ncome
of the purchasng corporaton s computed wth reference to ts base perod
e perence, but wthout reference to te base perod e perence of the seng
corporaton. The e cess profts net ncome of the purchasng corporaton, f
computed wth reference to part I , sha be ts e cess profts net Income or
defct n e cess profts net ncome for each month of ts base perod (as de-
fned n secton 35(b)) or each month of the substtute perod provded n
secton 35(d), whchever s appcabe, ncreased or decreased by the addton
or reducton resutng from ncudng the e cess profts net Income or defct
for that month of the seng corporaton to the e tent provded In secton
7 (b). In appyng the provsons of secton 7 (b) to a purchasng cor-
poraton whch acqured propertes n two or more part I transactons, a
seng corporatons n such transactons must be taken nto account. The
e cess profts net ncome of the purchasng corporaton for any month recom-
puted wth the appcaton of the provsons of secton 7 (b) sha n no event
be ess than zero. s used n the reguatons under part I the term base
perod e perence refers to the e cess profts net ncome or defct n e cess
profts net ncome. See secton 0. 7 -3 for rues appcabe n recomputng
the e cess profts net ncome (or defct theren) n the case of successve
transactons under parts II and I .
(b) Method of rccomputaton of e cess profts net ncome of a purchasng
corporaton wth reference to that of the seng corporaton. The foowng
steps are requred for the recomputaton of the e cess profts net ncome of
a purchasng corporaton wth reference to the base perod e perence of the
seng corporaton:
(1) The e cess profts net ncome or defct n e cess profts net Income
for each month In the base perod of the purchasng corporaton and, for
the purpose of the substtute perod provded n secton 35(d), for each
month n the addtona perod endng March 31, 1950, must be determned
for the purchasng corporaton and for each seng corporaton. cept as
provded beow wth res ect to the seng corporaton for ts ta abe year In
whch the part I transacton occurred, the e cess profts net ncome or def-
ct n e cess profts net ncome of any corporaton for any month durng any
part of whch such corporaton was n e stence s determned by dvdng the
e cess profts net ncome computed under secton 33(b) (or) defct n e cess
profts net ncome computed under secton 33(c)) for the ta abe year
n whch such month fas by the number of fu caendar months In such
ta abe year. In the case of a transacton descrbed n secton 7 (a) (1) ( ),
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3 3
0. 7 -1, Regs. 130.
there Is taken Into account the porton of the e cess profts net Income
or defct propery attrbutabe to the busness or busnesses acqured by
the purchasng corporaton and propery aocabe to such purchasng
corporaton. In determnng the e cess profts net ncome or defct o
the seng corporaton for any month durng the ta abe year n whch
the part I transacton occurred, the e cess profts net ncome or defct
for such ta abe year sha be determned wthout regard to any tems
arsng after the date of the transacton and the number of months n
the ta abe year sha be determned wthout regard to the perod after
the date of the transacton. The e cess profts net ncome of any cor-
poraton for any month durng no part of whch such corporaton was
n e stence sha be zero. For the purpose of the substtute perod provded
n secton 35(d), the e cess profts net ncome for anuary, February,
or March 1950, s sub|ect to the percentages specfed n secton 35(e) (2) ( ).
(2) For each month of the purchasng corporaton s base perod (or,
f appcabe, the substtute perod provded n secton 35(d)) precedng
the date of the part I transacton, the e cess profts net ncome or
defct n e cess profts net Income of the purchasng corporaton for
that month as determned under subparagraph (1) sha be ncreased or
decreased, as the case may be, by the e cess profts net ncome or defct
n e cess profts net ncome of each seng corporaton for that month
so determned; e cept that, f the purchasng corporaton acqures ony
a part of the seng corporaton s propertes In a transacton descrbed
n secton 7 (a)(1)( ), then the Increase or decrease sha be made
for ony that porton of such seng corporaton s e cess profts net ncome
or defct n e cess profts net ncome propery attrbutabe to the busness
or busnesses acqured by the purchasng corporaton and propery aocabe
to the purchasng corporaton under paragraph (c) of ths secton.
(c) ocaton of e cess profts net ncome of seng corporaton to purchasng
corporaton. In the case of a part I transacton descrbed n secton
7 (a)(1)( ), that Is, a transacton n whch a part as dstngushed from
a or substantay a the propertes of a seng corporaton s transferred to
a purchasng corporaton, the porton of the base perod e perence of the
seng corporaton aocated to the purchasng corporaton sha be determned
fnder the rues provded In secton 0. 62-9(b) for the aocaton of the e cess
profts net ncome or defct of a component corporaton to an acqurng corpora-
ton, sub|ect to the foowng e ceptons:
(1) The agreement referred to In secton 0. 62-9(b) sha not be
requred.
(2) The Commssoner may, for good cause shown, permt the aocaton
to refect, as to certan tems, an aocaton, under the prncpe of secton
0. 62-9(a), based upon the far market vaue of the propertes (other than
cash).
(3) Cash sha not be taken nto account n makng the aocaton.
( ) The provsons of secton 0. 02-9(b) (2) whch permt aocaton
of more than 100 percent of the e cess profts net ncome of a partnershp
sha not be appcabe.
(d) Speca rues for partnershps and soe propretors. In the case of a
busness owned by a soe propretorshp or a partnershp ts e cess profts net
nfome or defct n e cess profts net Income for each month fang wthn
the purchasng corporaton s base perod (or the substtute perod provded n
secton 35(d) f appcabe) pror to the date of the part I transacton sha
he determned as If such partnershp or such busness owned by a soe pro-
pretorshp had been a corporaton. See secton 7 (d)(2). mong the ad-
|ustments whch are necessary n such a case are the foowng:
(1) reasonabe deducton for saary or compensaton to each partner
or to the soe propretor for persona servces actuay rendered sha be
aowed.
(2) The credt for dvdends receved sha be that appcabe to corpora-
tons.
(3) The treatment of capta gans and osses and of ta es (whether State,
oca, or other) sha be that appcabe to corporatons.
( ) The deducton for chartabe contrbutons sha be that aowed by
secton 23(q).
(e) Lmtaton n case of part I transacton occurrng n a ta abe year
tnng after une SO, 1950. In the case of a part I transacton occurrng n a
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0. 7 -1, Regs. 130.
3
ta abe year of the purchasng corporaton endng after une 30, 1950, for the
purpose of computng the purchasng corporaton s e cess profts credt for such
ta abe year, there s avaabe to the purchasng corporaton ony a proportonate
part of the amount of the monthy e cess profts net ncome (or defct) of the
seng corporaton whch Is otherwse avaabe to the purchasng corporaton.
Such proportonate part sha be determned by the rato whch the number of
days n the ta abe year of the purchasng corporaton after the day of the
transacton bears to the tota number of days n such ta abe year. In com-
putng the e cess profts credt of the purchasng corporaton for subsequent
ta abe years the mtaton stated n ths paragraph s not appcabe.
(f) ampes. The computaton of the average base perod net ncome of the
purchasng corporaton determned under the genera average method of secton
35(d) by computng the e cess profts net ncome wth reference to secton
7 (b) may be ustrated by the foowng e ampe:
ampe. The P Corporaton was n e stence and commenced busness pror
to anuary 1, 19 6. The S Corporaton and the S Corporaton each came Into
e stence on anuary 1, 19 7. The P Corporaton, the S Corporaton, and the
S Corporaton each makes ts ncome ta returns on the caendar year bass.
On anuary 1, 19 9, the P Corporaton purchased for cash a the propertes of
the S Corporaton, and on anuary 5,19 9, It purchased for cash a the propertes
of the S Corporaton n part I transactons. The e cess profts net Income
for each of the corporatons for the base perod ta abe years s as foows:
cess profts net ncome for ta abe year

19 6
10 7
19
19 9
P Corporaton
- 1 ,000
2 ,000
2,000
96,000
S Corporaton
0
0
1 ,000
12,000
30,000
1 ,000
; Corporaton
The e cess profts net Income for each month n such ta abe years s as foows:
cess profts net ncome for each month n caendar year
16 6
19 7
19
19 9
- 1,600
2,000
1,500
1,000
3,500
2,500
1,500
,000
0
0
Tota
-1,500
,500
7,500
,000
The e cess profts net ncome of the P Corporaton for each month as recomputed
under secton 7 (b) s the tota e cess profts net Income for that month as
shown n the above tabe, e cept that for each month n 19 6 the recomputed
e cess profts net ncome s Increased to zero. Snce the 36 consecutve months
In the years 19 7, 19 , and 19 9 have the hghest aggregate e cess profts net
Income, the average base perod net Income Is such aggregate e cess profts net
ncome dvded by 3. The average base perod net ncome of the P Corporaton
recomputed under secton 7 (b) s 0,000, determned as foows:
ggregate for months n 19 7 (12 ,500) 5 ,000
ggregate for months n 19 (12 7,500) . 90,000
ggregate for months n 19 9 (12 ,000) 96,000
ggregate for 36 months 2 0,000
ggregate dvded by 3 0,000
Ths fgure, sub|ect to the percentage prescrbed n secton 35(a), may be used
by the P Corporaton n computng ts e cess profts credt based on ncome for
the purpose of determnng ts e cess profts ta for 1950 and future e cess
profts ta ta abe years, provded a the condtons and mtatons appcabe
under secton 7 , for e ampe, the provsons of secton 0. 7 r- , are met
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3S5
0. 7 -1, Regs. 130.
Sec. 0. 7 -3. Successve Transactons. (a) Part I transacton foow-
ng part I transacton. In the case of a purchasng corporaton whch acqured
propertes of a seng corporaton, f such seng corporaton was tsef a pur-
chasng corporaton n a prevous part I transacton, the computatons under
secton 7 for the purpose of computng the e cess profts credt of the pur-
chasng corporaton n the ater part I transacton sha be made wth respect
to the seng corporaton wthout regard to the prevous part I transacton.
For e ampe, the P Corporaton acqures the property of the S Corporaton n a
part I transacton on anuary 1, 1950. The S Corporaton came nto e stence
on anuary 1. 19 9, and on the same date acqured a the propertes of the Y
Corporaton n a part I transacton. I computng the P Corporaton s e cess
profts cre t wth reference to secton 7 , any computaton requred wth
respect to the S Corporaton sha be made wthout regard to the e cess profts
net ncome (or defct theren) of the Y Corporaton.
(b) Part I transacton foowng part II transacton. (1) Component cor-
poraton not a purchasng corporaton. If a purchasng corporaton acqured
propertes of a seng corporaton n a part I transacton, f the seng cor-
poraton prevousy hart acqured propertes of a component corporaton n a
p3rt II transacton to whch secton 02(h)( ) was not appcabe, and f the
e cess profts net ncome of the purchasng corporaton s recomputed wth the
appcaton of the provsons of secton 7 (b), the e cess profts net ncome or
defct n e cess profts net ncome of the seng corporaton whch ncreases or
decreases the e cess profts net ncome or defct n e cess profts net ncome of
the purchasng corporaton under secton 7 (b), sha be determned wth the
appcaton of the rues of part II to such seng corporaton wth respect to
the prevous part II transacton. See sectons t through 0 ), and the regu-
atons thereunder. Ths rue must be foowed whether or not the seng cor-
poraton determned ts average base perod net ncome by recomputng ts
e cess profts net ncome wth the appcaton of part U.
(2) Component corporaton a purchasng corporaton. If a purchasng cor-
poraton acqured propertes of a seng corporaton n a part I transacton,
and f the seng corporaton prevousy had acqured propertes of another
corporaton n a part II transacton to whch secton 02(b)( ) and the regu-
atons thereunder are appcabe, that s, a transacton n whch the component
corporaton was a purchasng corporaton n a part I transacton precedng
the part II transacton, the computatons under secton 7 for the purpose
of computng the e cess profts credt of the purchasng corporaton n the ater
part I transacton sha be made wth respect to the seng corporaton n
such transacton wthout regard to the prevous part I transacton n whch
the component of the seng corporaton had been a purchasng corporaton.
For e ampe, the P Corporaton acqured the propertes of the S Corporaton
n a part I transacton on anuary 1, 1950. The S Corporaton prevousy had
acqured a the propertes of the C Corporaton n a part II transacton on
anuary 1,19 The C Corporaton came nto e stence on anuary 1, 19 7, and
on the same date purchased a the propertes of the D Corporaton n a part
I transacton. ny computatons requred under secton 7 wth respect
to the P Corporaton s e cess profts credt sha be made wthout regard to the
e cess profts net ncome (or defct theren) of the D Corporaton.
(c) purchasng corporaton as an acqurng corporaton under part II.
oth part II and part I may be apped n the case of a corporaton whch s
quafed both as a purchasng corporaton and as an acqurng corporaton and
whch computes ts average base perod net ncome under the genera average
method of secton 35(d).
(d) Part II transacton foowng part I transacton For rues appcabe
In the rase of a purchasng corporaton whch becomes a component corporaton
n a part II transacton, see sectons 02(b)( ), 03(c), and 0 (c) and the
recutons thereunder.
Sec. 0. 7 - . Rues for the Preventon of Dupcaton. (a) In genera.
(1) The purpose of the rues prescrbed n ths secton s to prevent certan
dupcatons n base perod ncome In cases where after December 31, 19 5, and
before December 1, 1950, assets of a purchasng corporaton are used to purchase
propertes of a seng corporaton n a part I transacton. See secton
7 (f)( ). In such cases the e cess profts net ncome of the seng corpora-
ton, or porton thereof attrbutabe to the pro ertes acqured by the purchasng
corporaton, sha be e cuded n determnng the purchasng corporaton s e cess
profts net ncome or defct and ts average base perod net ncome wth reference
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0. 7 -1, Regs. 130.
3 6
to the reeomputatons provded under part I . The ad|ustment requred under
ths secton sha he made n the cases descrbed n ths secton and In a other
cases n whch a smar ad|ustment may be requred to prevent dupcaton, In a
manner consstent wth prncpes underyng such descrbed cases.
(2) cept to the e tent that dupcaton of e perence occurs, no ad|ustment
Is necessary uader ths secton
(1) Where stock of the purchasng corporaton s ssued drecty to the
seng corporaton In e change for propertes of the seng corporaton; or
() Where propertes of the seng corporaton are acqured through a
bona fde ong-term ncrease n the capta structure of the purchasng
corporaton made n con|uncton wth and for the purpose of such acquston.
bona fde ong-term ncrease n the capta structure wthn the meanng
of ts subparagraph (whether an ncrease n equty capta or n borrowed
capta as defned n secton 39(b)) sha be deemed to have occurred ony
to the e tent that such ncrease s refected n the capta structure through-
out the perod begnnng wth the tme such ncrease s orgnay made
and endng wth the cose of the ta abe year of the purchasng corporaton
for whch the ta s computed. For the purpose of determnng whether
such ncrease s refected In the capta structure, proper ad|ustment sha
be made to emnate the effect of any oss occurrng after the orgnn
ncrease s made, and, n the case of such determnaton as of any tme
durng the ta abe year, the determnaton sha be made wthout regard to
the earnngs and profts of such ta abe year. If the ncrease n capta
structure s the resut of a part II transacton, ths subparagraph and
secton 0. 7 -2 (c) sha be apped n the ght of the facts appcabe both
to the ta payer and to the component corporaton n such transacton. For
the purpose of ths subparagraph, an ncrease n the capta structure does
not resut from the converson of nadmssbe assets nto admssbe assets,
or from the accumuaton of earnngs and profts pror to the begnnng of
the frst ta abe year whch begns after the date of the acquston.
(3) If propertes of the seng corporaton are acqured party n the man-
ner descrbed n subparagraph (2) and party n nnother manner, the ad|ustment
requred under ths secton sha be made to the e tent the acquston s made
In such other manner. See paragraph (c) beow. s to ad|ustment under regu-
atons pursuant to secton 7 (f) ( ) of the net capta addton or reducton see
secton 0. 7 -5, and as to ad|ustment under reguatons pursuant to secton
7 (f) ( ) of the base perod capta addton, see secton 0. 7 -6.
(b) ampes. The appcaton of ths secton may be ustrated by the
foowng e ampes:
ampe (7). The P Corporaton and the S Corporaton commenced busness
before anuary 1, 19 6, and make ther Income ta returns on the caendar year
bass. The P Corporaton sod certan assets for cash and on uy 1, 19u0,
t used such cash to purchase propertes of the Corporaton n a part I trans-
acton. In appyng secton 7 (b) n determnng the nverage base perod net
ncome of the P Corporaton, the rue provded n paragraph (a)(1) of ths
secton requres the e cuson of the S Corporaton s entre e perence for the
base perod. The S Corporaton s base perod capta addton and ts net capta
addton or reducton for 1950 are aso requred to be e cuded. See sectons
0. 7 -5 and 0. 7 -6.
ampe (2). The S Corporaton commenced busness before anuary 1, 19 6,
and makes ts ncome ta returns on the caendar year bass. The P Corpora-
ton was organzed on December 10, 19 . On anuary 1, 19 9, the P Corpora-
ton Issued ts stock for cash and on the same day used such cash to acqure a
the propertes of the S Corporaton n a part I transacton. In determnng
the P Corporaton s average base perod net ncome under secton 35(d), based
on a recomputaton of Its e cess profts net ncome under secton 7 (b), ths
secton does not requre the emnaton of any part of the e cess profts net
ncome (or defct) of the S Corporaton. See paragraph (a) (2) of ths secton.
Under reguatons pursuant to secton 7 (f) (1), however, the P Corporaton
w not be aowed any base perod capta addton for the cash pad n for
ts stock whch was used n acqurng the propertes of the S Corporaton. See
secton 0. 7 -f.
ampe ( ). The P Corporaton and the S Corporaton both commenced
busness before anuary 1, 19 0, and make ther ncome ta returns on the ca-
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3 7
0. 7 -1, Regs. 130.
endar year bass. efore anuary 1, 1916, the P Corporaton became the
owner of one-haf the stock of the S Corporaton. On uy 1, 1950, the S Cor-
poraton was qudated and the P Corporaton receved a of the propert-s
whch had een used In the operaton of one of two separate busnesses operated
by the S Corporaton. The acquston of such propertes quafes as a part I
transacton. In appyng secton 7 (b) n determnng the average base perod
net ncome of the P Corporaton the rue provded n paragraph (a) (1) of ths
secton requres the e cuson of the base perod e perence of the busness
operated by the S Corporaton. The S Corporaton s base perod capta add-
ton and ts net capta addton or reducton for 1950 are aso requred to be
e cuded. See sectons 0. 7 -5 and 0. 7 -6.
(c) cquston resutng n parta dupcaton. If a purchasng corpora-
ton acqures propertes of a seng corporaton n a part I transacton, and
ony a part of the tota consderaton transferred by the purchasng corporaton
conssts of stock Issued drecty by the purchasng corporaton or of cash or
other assets acqured by the purchasng corporaton through a bona fde ong-
term ncrease n ts capta structure, ony that part of the seng corporaton s
base perod e perence before the acquston whch s not attrbutabe to such
stock so ssued or to such cash or assets so acqured s to be e cuded n com-
putng the purchasng corporaton s average base perod net Income under
secton 35(d), based on a recomputaton of e cess profts net ncome under
secton 7 (b). The porton of the seng corporaton s e perence not to be
e cuded under ths secton wth respect to any part of the base perod (and of
the addtona perod through March 31, 1950, for the purpose of the substtute
perod provded n secton 35(d)) pror to the day of the transacton s an
amount whch bears the same rato to the whoe of the seng corporaton s
e perence for such part of such perod (or, n the case of a transacton descrbed
n secton 7 (a (1) ( ), the part of the seng corporaton s e perence prop-
ery attrbutabe to the propertes acqured by the purchasng corporaton) ns
the sum of the far market vaue of the stock of the purchasng corporaton
ssued drecty to the seng corporaton, pus the far market vaue of the
other assets or cash acqured n the manner descrbed n paragraph (a)(2)
of ths secton, bears to the far market vaue of the tota consderaton re-
ceved by the seng corporaton for such propertes. The ad|ustment under
ths secton n cases descrbed n ths paragraph may be ustrated by the
foowng e ampe:
ampe. The P Corporaton and the S Corporaton each commenced bus-
ness before anuary 1, 19 (5. and makes ts ncome ta returns on the bass of
the caendar year. On anuary 1, 19 , the P Corporaton n a part I trans-
acton purchased a the propertes of the S Corporaton for 100,000 n cash,
of whch 60,000 was derved by the P Corporaton from the sae of certan
assets and 0,000 was derved from the ssuance and sae of new shares of ts
stock, such new stock consttutng a bona fde ong-term ncrease n ts capta
structure. For the purpose of computng the P Corporaton s average base
perod net ncome under secton 35(d), based on a recomputaton of the e cess
profts net ncome under secton 7 (b). 60 percent of the S Corporaton s
monthy e cess profts net ncome (or defct) for 19 6 and 19 7 s to be e cuded
under ths secton.
Sec. 0. 7 -5. Net Capta udton or Redt cton Under Part I . (a) In
Genera. If the purchasng corporaton acqures propertes of a seng cor-
poraton n a part I transacton occurrng n a ta abe year endng after
une 30, 1950, and f the purchasng corporaton s average base perod net
ncome for the purpose of the e cess profts credt for any ta abe year end-
ng after the date of the transacton s computed wth the appcaton of part
I , the net capta addton or net capta reducton of the purchasng corporaton
for such ta abe year sha be computed under secton 35(g) wth the appca-
ton of the foowng rues:
(1) If the part I transacton nvoved a transacton descrbed n secton
0. 7 - (a) (2) () or (), that s, a transacton n whch there s no dup-
caton of base perod e perence, the net capta addton or net capta reducton
of the purchasng corporaton sha be computed after makng proper ad|ustment
by decreasng the day capta addton or ncreasng the day capta reducton,
as the case may be, for each day after the date of the part I transacton, to
the e tent necessary so that such amount sha not refect the transacton
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0. 7 -1, Regs. 130.
3SS
descrbed n secton 0. 7 - (a) (2). Thus, n the e ampe In secton 0. 7 - (c),
f the part I transacton had occurred n a ta abe year endng after une 30,
1950, the 0,000 derved from the ssuance and sae of new shares of stock sha
not be ncuded n determnng the amount pad n for stock under secton
35(g) (3) ( ) for such ta abe year, and the equty capta as of the begnnng
of any ta abe year begnnng after the part I transacton woud be reduced
by 0,000 for the purpose of appyng secton 35(g)(3)( ) or secton
35(g)( )( ) to such ta abe year.
(2) Under prncpes correspondng to those set forth n secton 62(|)()
and secton 0. (3-1 (e), the net capta addton or net capta reducton of the
purchasng corporaton s computed wthout regard to any capta changes of the
seng corporaton n any case sub|ect to the provsons of secton 0. 7 - uness
the case nvoves a transacton descrbed n secton 0. 7 - (a) (2) (I) n whch
no gan or oss s recognzed upon the e change of the stock for the propertes.
(3) If the part I transacton s sub|ect to the provsons of secton 0. 7 -
by reason of an e change descrbed n secton 0. 7 - (a) (2) () n whch no
gan or oss was recognzed, the purchasng corporaton sha compute ts net
capta addton or net capta reducton under the rues provded n secton
0. ( -1 as f the purchasng corporaton were an acqurng corporaton and the
seng corporaton were a component corporaton. If In such case the seng
corporaton was a party to a part II transacton occurrng before the part I
transacton, the rues set forth n secton 0. 63-2 sha aso be appcabe as f
the purchasng corporaton were an acqurng corporaton and the seng
corporaton were a component corporaton.
(b) ampe. The rues prescrbed by paragraph (a) of ths secton may be
ustrated by the foowng e ampe:
ampe. The P Corporaton and the S Corporaton each makes ts Income
ta returns on the bass of the caendar year. The P Corporaton ssued ts
stock on une 1, 1950, for 1,000,000 n cash, such new stock consttutng a bona
fde ong-term Increase n ts capta structure, and on uy 1,1950, used such cash
to acqure a the propertes of the S Corporaton n a part I transacton. The
P Corporaton computes ts e cess profts credt under part I . In computng
the day capta addton of the P Corporaton for each day of 1950 after uv 1,
1950, the 1,000,000 pad n for stock on une 1, 1950, sha be dsregarded.
In computng the equty capta of the P Corporaton on anuary 1, 1951, for
the purpose of comparng such amount wth ts equty capta on anuary 1,1950,
such equty capta on anuary 1, 1951, sha be reduced by 1,000,000, the
amount pad n for the stock. The same ad|ustment (a decrease of 1,000,000)
sha be made for such purpose n computng equty capta for the frst day of
each subsequent ta abe year. Under prncpes correspondng to those set forth
In secton 0. 63-1 (e), the net capta addton or net capta reducton of the
P Corporaton s computed wthout regard to any capta changes of the S
Corporaton.
Sec. 0. 7 -6. ase Perod Capta ddton Under Part I . (a) In gen-
era. If the purchasng corporaton acqures propertes of the seng corporaton
n a part I transacton occurrng after the begnnng of the second ta abe year
of the purchasng corporaton precedng ts frst ta abe year endng after une 30,
1950, and f the purchasng corporaton s average base perod net Income for the
purpose of the e cess profts credt for any ta abe year endng after the date
of the transacton Is computed wth the appcaton of part I , the base perod
capta addton of the purchasng corporaton for such ta abe year sha be
computed under secton 35(f) wth the appcaton of the foowng rues:
(1) If the part I transacton nvoved a transacton descrbed n secton
0. 7 (a) (2) () or (), that s, a transacton n whch there s no dup-
caton of base perod e perence, the base perod capta addton of the
purchasng corporaton sha be computed nfter makng proper ad|ustment
by decreasng the yeary base perod capta for any day specfed n secton
35(f) after the date of the part I transacton to the e tent necessary so
that such amount sha not refect the transacton descrbed n secton
0. 7 1 (a) (2). Thus, n the e ampe n secton 0. 7 - (c), f the part
I transacton had occurred after the begnnng of the second ta abe year
of the purchasng corporaton precedng ts frst ta abe year endng after
une 30, 1950, the yeary base perod capta for each day specfed n sec-
ton 35(f) nfter the date of the part I transacton sha be reduced by the
10,0( O derved from the Issuance and sae of new shares of stock.
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29. 1-2.
(2) Under prncpes correspondng to those set forth In secton 62( ) (1)
and secton 0. 6 -(d), the base perod capta addton of the purchasng
corporaton Is computed wthout regard to the base perod capta addton
or yeary base perod capta of the seng corporaton In any case sub|ect
to the provsons of secton 0. 7 - , uness the case Invoves a transacton
descrbed n secton 0. 7 - (a) (2) (1) n whch no gan or oss s recog-
nzed upon the e change of the stock for the propertes.
(3) If the part I transacton Is sub|ect to the provsons of secton
0. 7 by reason of an e change descrbed In secton 0. 7 - (a) (2) (I)
n whch no gan or oss was recognzed, the purchasng corporaton sha
compute ts yeary base perod capta or base perod capta addton wth
reference to the yeary base perod capta or base perod capta addton
of the seng corporaton under the rues provded n secton 0. 0 -1 as If
the purchasng corporaton were an acqurng corporaton and the seng
corporaton were a component corporaton. If, n such case, the seng
corporaton was a party to a part II transacton occurrng before the part
I transacton, the rues set forth n secton 0. 0 -2 sha aso be app-
cabe ns f the purchasng corporaton were an acqurng corporaton and
the seng corporaton were a component corporaton.
(6) ampe. The rues prescrbed by paragraph (a) of ths secton may be
ustrated by the foowng e ampe:
ampe. The P Corporaton and the S Corporaton each makes ts ncome
ta returns on the bass of the caendar year. The P Corporaton Issued ts
stock on une 1, 10 9, for 1,000,000 n cash, such new stock consttutng a bona
fde ong-term ncrease n ts capta structure, and on uy 1, 19 9, used such
cash to acqure a the propertes of the S Corporaton In a part I transacton.
The P Corporaton computes ts e cess profts credt under part I . In com-
putng the base perod capta addton of the P Corporaton, ts yeary base
perod capta for 1950 sha be reduced by 1,000,000, the amount pad n for
the stock. Under prncpes correspondng to those set forth n secton 0. 0 -1
(d), the base perod capta addton of the P Corporaton Is computed wthout
regard to any capta changes of the S Corporaton.
26 U. S. C. 62, 3791) and n secton 521 of the Revenue ct of 1951
(65 Stat. 557).)
T. Coeman ndrews,
pproved March 2 , 1953.
M. . Fosom,
(Fed wth the Dvson of the Federa Regster March 27,1953, : 9 a. m.)
SU C PT R .-T ON S LF- MPLOYM NT INCOM
Secton 29. 1-2: Sef-empoyment ncome.
INT RN L R NU COD
Computaton of sef-empoyment ncome and the ta appcabe
thereto where a Federa ncome ta return has been fed for a perod
of ess than 12 months. (See Rev. Ru. 9 , page .)
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29. 2-1
390
Secton 29. 1-3: Trade or busness. Rev. Ru. I
INT RN L R NU COD
mounts pad by a paper manufacturng company to ts woodsmen
empoyees for the use of chan saws owned and operated by such
empoyees n cuttng pupwood for the company, ess ther operatng
e penses, do not consttute sef-empoyment Income under secton
1 of the Interna Revenue Code.
dvce s requested whether the amounts pad by a paper manu-
facturng company to ts woodsmen empoyees for the use of chan
saws owned and operated by such empoyees n cuttng pupwood for
the company, ess operatng e penses, consttute sef-empoyment
ncome under secton 1 of the Interna Revenue Code.
In the nstant case a paper manufacturng company hres woods-
men to cut pupwood and pays them at a rate per cord. ghty per-
cent of the amount pad s consdered ta abe wages for the purposes
of sectons 1 00. 1600, and 1621 of the Interna Revenue Code wth
respect to the Federa empoyment ta es and the wthhodng of
ncome ta at the source on wages, and 20 percent s consdered pay-
ment for the use of the chan saws owned by the woodsmen.
Secton 1(c) of the Interna Revenue Code provdes n part as
foows:
Trade or usness. The term trade or busness, when used wth reference
to sef-empoyment ncome or net earnngs from sef-empoyment, sha have the
same meanng as when used n secton 23, e cept that such term sha not
Incude

(2) The performance of servce by an ndvdua as an empoyee ;
Inasmuch as the woodsmen n the nstant case perform servces as
empoyees of the company, they come wthn the above e cuson of
secton 1(c) of the Code. It s mmatera, snce the furnshng of
the saw s an ncdent of the empoyee-empoyer arrangement, that
the amounts pad to them for the use of the saws do not consttute
wages for purposes of the Federa empoyment ta es and the wth-
hodng of ncome ta at the source on wages.
ccordngy, t s hed that amounts pad by a paper manufacturng
company to ts woodsmen empoyees for the use of chan saws owned
and operated by such empoyees n cuttng pupwood for the company,
ess ther operatng e penses, do not consttute sef-empoyment n-
come under secton 1 of the Interna Revenue Code.
S CTION 2. MISC LL N OUS PRO ISIONS
Secton 29. 2-1: Returns.
INT RN L R NU COD
Refund of sef-empoyment ta n accordance wth secton 15 of the
Interna Revenue Code does not emnate the ncome on whch such
ta s based. (See Rev. Ru. 55, page 259.)
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391 1.15, Regs. 105.
C PT R 3. ST T T
SU C PT R . SIC ST T T
P RT II. ST T S OP CITIZ NS O R SID NTS OF T UNIT D ST T S
SU P RT I. COMPUT TION OF T
S CTION 11(a). GROSS ST T : D C D NT S
INT R ST
Secton 1.13, Reguatons 105: Property of Rev. Ru. 65
decedent at tme of death.
INT RN L R NU COD
Canadan tmber censes, renewabe from year to year upon pay-
ment of prescrbed annua cense fees and performance by the censee
of other condtons of the cense, consttute persona property of a
decedent rather than rea property stuated outsde the Unted States
for purposes of secton 11 of the Interna Revenue Code and the
vaue of such censes, determned under the aw of the Unted States,
s ncudbe n determnng the gross estate of a decedent, a resdent
ctzen of the Unted States, under the provsons of secton 11(a)
of the Code.
S CTION 11(c). GROSS ST T : TR NSF RS IN CON-
T MPL TION OF, OR T ING FF CT T, D T
Secton 1.15, Reguatons 105: Transfers T. D. 6016
durng fe.
TITL 2C INT RN L R NU . C PT R I, SU C PT R , P RT 1.
ST T T UND R C PT R 3 OF T INT RN L R NU COD , S
M ND D
Secton 1.15 of Reguatons 10, ), to the e tent that t reates to
estate ta consequences of transfers of communty property n the
case of decedents dyng after October 21,10 2, and before anuary 1,
19 , amended.
Washngton 25, D. O.
Concerned:
Secton 1.15 of Reguatons 105 26 CFR, part 1 , as amended by
Treasury Decson 5 3 C. . 1951-1, 72 , approved March , 1951,
s further amended by strkng therefrom the second and thrd sen-
tences of the second paragraph whch sentences commence The same
statutory provsons and If n the case of a decedent , respectvey.
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1.27, Regs. 105.
392
ecause the purpose of ths Treasury Decson s merey to em-
nate from the reguatons the provsons whch state that a dvson
of communty property between the decedent and hs spouse may cause
the vaue of such property to be ncuded n the gross estate of the
decedent under secton 11 (c) or (d), t s found that t s unneces-
sary to ssue ths Treasury Decson wth notce and pubc procedure
thereon under secton (a) of the dmnstratve Procedure ct,
approved une 11, 19 6, or sub|ect to the effectve date mtaton of
secton (c) of sad act.
secton 3791 of the Interna Revenue Code (53 Stat. 67; 26 U. S. C.
3791).)
T. Coeman ndrews,
M. . Fosom,
S CTION 11(d). GROSS ST T : R OC L
TR NSF RS
Secton 1.20, Reguatons 105: Transfers wth
power to change the en|oyment.
INT RN L R NU COD
One-haf the cash surrender vaue of an nsurance pocy on the fe
of a marred man domced n Lousana or Te as s ncudbe n the
wfe s gross estate n the event she predeceases hm. (See Rev. Ru.
, beow.)
S CTION 11(g). GROSS ST T : PROC DS OF
LIF INSUR NC
Secton 1.27, Reguatons 105: Insurance Rev. Ru.
recevabe by other benefcares.
( so Secton 1.20; Secton 1000, Secton
G.2, Reguatons 10 .)
marred man domced n Lousana or Te as who purchases an
Insurance pocy on hs fe n favor of a benefcary other than bs|
estate, possesses Incdents of ownershp n the pocy, a communty
asset, n hs own rght as to one-haf of the pocy proceeds and as
agent of the wfe as to the remanng one-haf. Upon the death
of the husband, one-haf of the proceeds of the pocy s Incudbe
In hs gross estate for estate ta purposes under secton 11(g) (2)
of the Interna Revenue Code, and the remanng one-haf of the
proceeds, n whch he had ncdents of ownershp as the agent for
hs wfe, becomes an absoute gft by the wfe for Federa gft ta
purposes. In the event the wfe predeceases the husband, one-haf
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393
( 1.27, Regs. 105.
the vaue of the pocy Is Incudbe n her gross estate as her nter-
est n a communty asset or as a revocabe trunsfer under secton
11(d) of the Code.
dvce s requested whether a marred man domced n Lousana
or Te as, who purchases an nsurance pocy on hs fe n favor of a
benefcary other than hs estate, pays the premums thereon wth
communty funds and reserves the ncdents of ownershp n the pocy,
possesses ncdents of ownershp as agent for the communty, or,
possesses ncdents of ownershp as to the entre pocy n hs own
rght, and, f upon the death of the husband ony one-haf of the
pocy proceeds are ncudbe n hs gross estate under secton
11(g) (2) of the Interna Revenue Code, a gft by the wfe to a thrd
party benefcary of the remanng one-haf of the pocy proceeds
becomes absoute for Federa gft ta purposes.
Under the aws of the State of Lousana, the husband has the
power of management and admnstraton over the one-haf nterest
n the communty property whch s an absoute ownershp vested n
the wfe at the tme the property s acqured. e derves hs manage-
ment power from artce 2 0 of the Lousana Cv Code whch
provdes as foows:
The husband s the head and master of the partnershp or communty of
gans; he admnsters ts effects, dsposes of the revenues whch they produce,
and may aenate them by an onerous tte, wthout the consent and permsson
of hs wfe.
e can make no conveyance nter vvos, by a gratutous tte, of the m-
movabes of the communty, nor of the whoe, or of a quota of the movabes,
uness t be for the estabshment of the chdren of the marrage. gratutous
tte wthn the contempaton of ths artce embraces a ttes wheren there
s no drect, matera advantage to the donor.
Nevertheess he may dspose of the movabe effects by a gratutous and par-
tcuar tte, to the beneft of a persons.
ut f t shoud be proved that the husband has sod the common property, or
otherwse dsposed of the same by fraud, to n|ure hs wfe, she may have her
acton aganst the hers of her husband, n support of her cam n one-haf of
the property, on her satsfactory provng the fraud.
The aws of the State of Te as are smar n ths respect to those of
Lousana n that the wfe has a vested nterest n communty assets
and the husband has management power over such assets. s powers
of management are derved from artce 619, ernon s Revsed Cv
Statutes, Te as, whch provdes n part as foows:
Secton 1. property acqured by ether the husband or wfe durng mar-
rage, e cept that whch s the separate property of ether, sha be deemed the
common property of the husband and wfe; and a the effects whch the husband
and wfe possess at the tme the marrage may be dssoved sha be regarded as
common effects or gans, uness the contrary be satsfactory proved. Durng
coverture the common property of the husband and wfe may be dsposed of by
the husband ony .
In both States, a fe nsurance pocy taken out on the fe of the
husband durng coverture wth communty funds, the rght to sur-
render the pocy beng retaned, s a communty asset n whch the
wfe has a vested nterest and the husband has power of management
over her nterest, and the wfe s transfer of her one-haf nterest n
the pocy s not consdered absoute pror to the death of the husband.
Secton 11 of the Interna Revenue Code provdes that the vaue
of the gross estate of the decedent sha be determned by ncudng the
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1.27, Regs. 105.
39
vaue at the tme of hs death of a property, rea or persona, tang-
be or ntangbe, wherever stuated, e cept rea property stuated
outsde the Unted States. Wth respect to fe nsurance proceeds
secton 11(g) of the Code provdes n part as foows:
(2) Recevabe bt other benefcares. To the e tent of the amount
recevabe by a other benefcares as nsurance under poces upon the
fe of the decedent ( ) purchased wth premums, or other consderaton,
pad drecty or ndrecty by the decedent, n proporton that the amount
so pad by the decedent bears to the tota premums pad for the nsurance,
or ( ) wth respect to whch the decedent possessed at hs death any of the
Incdents of ownershp, e ercsabe ether aone or n con|uncton wth any
other person.
Secton 1.27 of Reguatons 105 provdes that n determnng
whether the decedent possessed an ncdent of ownershp n a pocy or
n any part of a pocy, regard must be gven to the effect of State or
other appcabe aw upon the terms of the pocy. If a decedent
purchased a pocy of nsurance on hs fe wth funds hed by hm
and hs survvng wfe as communty property, desgnatng ther son
as benefcary but retanng the rght to surrender the pocy, and, un-
der oca aw, the proceeds upon surrender woud have nured to the
marta communty, and the wfe s transfer of her one-haf nterest
n the pocy was not consdered absoute pror to the decedent s
death, the power of surrender possessed by the decedent as agent for
hs wfe wth respect to one-haf of the pocy s not consdered an
ncdent of ownershp, and the decedent s, therefore, deemed to
possess an ncdent of ownershp n ony one-haf of the pocy.
It s the poston of the ureau that, under the aws of Lousana
and Te as, a gft by the wfe of one-haf of the pocy proceeds be-
comes absoute, for Federa gft ta purposes, upon the death of the
husband, uness he purchased the pocy wth ntent to defraud the
wfe, snce at that tme the communty s dssoved, the authorty of
the husband as statutory manager of the communty s ended, the
pocy matures, and the wfe s nterest theren s termnated; whereas,
durng the e stence of the marta communty any revocabe transfer
of rgnts s necessary ncompete snce the husband, actng for hm-
sef and as agent of hs wfe, may change the benefcary, surrender
the pocy for cash, or e ercse other ega ncdents of ownershp n
accordance wth the terms of the pocy or the aws of the State.
In vew of the foregong, t s hed that a marred man domced n
Lousana or Te as who purchases an nsurance pocy on hs fe n
favor of a benefcary other than hs estate, possesses ncdents of
ownershp n the pocy, a communty asset, n hs own rght as to
one-haf of the pocy proceeds and as agent of the wfe as to the re-
manng one-haf. Upon the death of the husband, one-haf of the
proceeds of the pocy s ncudbe n hs gross estate for estate ta
purposes under secton 11(g) (2) of the Interna Revenue Code, and
the remanng one-haf of the proceeds, n whch he had ncdents of
ownershp as the agent for hs wfe, becomes an absoute gft by the
wfe for Federa gft ta purposes. In the event the wfe predeceases
the husband, one-haf the cash surrender vaue of the pocy s n-
cudbe n her gross estate as her nterest n a communty asset or as
a revocabe transfer under secton 11 Cd| of the Code.
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395
( 1. 7(a), Regs. 105
S CTION 12(e). N T ST T : U STS, TC.,
TO SUR I ING SPOUS
Secton 1. 7(a), Reguatons 105: equests, Rev. Ru. 3
etc., to survvng spouse.
INT RN L R NU COD
The Interest In an estate whch passes to a survvng spouse pur-
suant to State aw n the form of an aowance for support dnng
the perod of settement of the deceased spouse s estate must const-
tute a vested rght of property n order to quafy under secton
12(e)(1)( ) of the Interna Revenue Code for the estate ta
marta deducton.
dvce s requested whether amounts aowed and pad pursuant to
State aw for the support of a survvng spouse durng the perod f
settement of the estate of the deceased spouse quafes as a marta
deducton for estate ta purposes under secton 12(e) (1) ( ) of the
Under the genera rue of subparagraph ( ) of secton 12(e) (1)
of the Code, the marta deducton w be aowed wth respect to
any nterest n property ncuded n the gross estate whch passes from
a decedent to hs survvng spouse as absoute owner. In order to
quafy under ths subparagraph, any rght of a wdow to an aowance
n her husband s estate must be a vested rght of property whch s not
termnated by her death or other contngency. Therefore, f a
wdow s aowance for the fu perod of settement of the estate s such
that the aowance, or any unpad baance thereof, w survve as an
asset of her estate n case she des at any tme foowng the decedent s
death, the nterest thus taken by the wdow woud ceary consttute a
deductbe nterest under secton 12(e) (1) ( ) of the Code. Whether
any nterest thus taken by a wdow satsfes the statutory requrements
n ths respect s to be determned n the ght of the appcabe pro-
vsons of the State statutes, as nterpreted by the oca courts.
There are cases, however, where t appears that the provsons of
State statutes provdng for aowances for support durng the perod
of settement of an estate do not confer upon the survvng spouse of
a decedent any vested ndefeasbe rght of property whch woud
consttute a deductbe nterest under secton 12(e) of the Code. In
many States oca courts have hed that such aowances, or any rghts
thereto, termnate pso facto upon remarrage and that death aso
termnates any rghts to subsequent aowances. Under such crcum-
stances, the nterests passng to the survvng spouses of decedents n
the forms of aowances made for ther support, pursuant to oca aw,
amount to no more than annutes payabe out of the assets of the
estates durng the perods of settement or unt pror death or re-
marrage of the survvng spouses and, as such, consttute termnabe
nterests wthn the meanng of secton 12(e)(1)( ) of the Code,
no porton of the vaues of whch quafy for the marta deducton.
In vew of the foregong, t s hed that the nterest n an estate
whch passes to a survvng spouse pursuant to State aw n the form
of an aowance for support durng the perod of settement of the de-
ceased spouse s estate must consttute a vested rght of property such
as w, n the event of her death as of any moment or tme foowng
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0.2(c), Regs. 10 .
396
the decedent s death, survve as an asset of her estate, n order to qua-
fy under secton 12(e) (1) ( ) of the Interna evenue Code for the
estate ta marta deducton.
SU P RT II. R TURNS ND P YM NT OF T
S CTION 21. R TURNS
Secton 1.65, Reguatons 105: Preparaton Rev. Ru. 9
of return.
( so Secton 1.66.)
INT RN L R NU COD
ureau reguatons, promugated pursuant to secton 21 of the In-
terna Revenue Code, provde for the fng of suppementa docu-
ments wth the fng, n dupcate, of a Federa estate ta return,
Form 706. These reguatons provde that suppementa documents,
other than a w where a decedent des testate, may be fed n dup-
cate where an e ecutor desres to submt such documents wth the re-
turn n e panaton thereof. owever, there s no specfc requre-
ment n the reguatons for the fng of dupcate copes of Lfe
Insurance Statement, Form 712. ed, the ureau w mpose no
requrement that Form 712 be fed n dupcate.
C PT R . GIFT T
S CTION 1000. IMPOSITION OF T
Secton 6.2, Reguatons 10 : Transfers
reached.
INT RN L R NU COD
gft by the wfe of one-haf the proceeds of an nsurance pocy on
the fe of the husband becomes absoute n Lousana and Te as upon
the death of the husband. (See Rev. Ru. , page 392.)
Secton 6.2 (c), Reguatons 10 : Transfers of T. D. 6015
communty property after 19 2 and on or be-
fore pr 2,19 .
TITL 26 INT RN L R NU . C PT R I, SU C PT R . P RT 6. GIFT
T UND R C PT R OF T INT RN L R NU COD , S M ND D
Secton 6.2(c) of Reguatons 10 reatng to gft ta consequences
of transfers of communty property after 10 2 and on or before pr
2,19 , amended.
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397 6.13, Regs. 10 .
Washngton 25, D. C.
Others Concerned:
Secton 6.2(c) of Reguatons 10 26 CFR, part 6 , as amended
by Treasury Decson 569 C. . 19 9-1, 226 , approved May 13,
19 9, s further amended as foows:
( ) y addng at the end of the frst paragraph thereof the
foowng:
No gft ta resuts from a transfer after December 31, 10 2, and on or before
pr 2, 19 , of separate property of ether spouse Into communty property.
( ) y strkng therefrom the second paragraph thereof.
ecause the purpose of ths Treasury Decson s merey to em-
nate from the reguatons the provsons whch state that a dvson
of communty property after 19 2 and on or before pr 2, 19 ,
consttutes a gft, t s found that t s unnecessary to ssue ths
Treasury Decson wth notce and pubc procedure thereon under
secton (a) of the dmnstratve Procedure ct, approved une 11,
19 6, or sub|ect to the effectve date mtaton of secton (c) of
sad act.
secton 1029 of the Interna Revenue Code (53 Stat. 157; 26 U. S. C.
1029).)
T. Coeman ndrews,
M. . Fosom,
S CTION 100 . D DUCTIONS
Secton 6.13, Reguatons 10 : Chartabe T. D. 596
etc., gfts.
( so Secton 6.1 .)
TITL 26 INT RN L R NU . C PT R I. SU C PT R , P RT 6. GUT
T UND R C PT R OF T INT RN L R NU COD , S M ND D
Reguatons 10 amended to conform to certan provsons of parts
1, II, and III of tte III of the Revenue ct of 1900.
Washngton 25, D. C.
Concerned:
On October 9, 1952, notce of proposed rue makng regardng cer-
tan gft ta provsons of the Revenue ct of 1950, approved Septem-
ber 23, 1950, was pubshed n the Federa Regster (17 F. R. 9017).
26335 53 26
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6.13, Regs. 10 .
39
No ob|ectons to such rues havng been receved, the amendments set
forth beow necessary to conform Reguatons 10 to such provsons
are hereby adopted:
Paragraph 1. There s nserted mmedatey precedng secton 6.12
26 CFR 6.12 the foowng:
S C. 302. MPTION OF C RT IN ORG NIZ TIONS FOR P ST
Y RS R NU CT OF 1050, PPRO D S PT M R 23,
1950 .
(a) Trade ob usness Not Unreated. For any ta abe year begn-
nng pror to anuary 1, 1951, no organzaton sba be dened e empton
under paragraph (1), (6), or (7) of secton 101 of the Interna Revenue
Code on the grounds that t s carryng on a trade or busness for proft
f the Income from such trade or busness woud not be ta abe as un-
reated busness ncome under the provsons of Suppement U of the
Interna Revenue Code, as amended by ths ct, or f such trade or bus-
ness s the renta by such organzaton of ts rea property (ncudng
persona property eased wth the rea property).
(b) Perod of Lmtatons. In the case of an organzaton whch
woud otherwse be e empt under secton 101 of the Interna Revenue
Code were t not carryng on a trade or busness for proft, the fng of
the nformaton return requred by secton 5 (f) of the Interna Revenue
Code (reatng to returns by ta -e empt organzatons) for any ta abe
year begnnng pror to anuary 1, 1951, sha e deemed to be the fng
of a return for the purposes of secton 275 of the Interna Revenue Code
(reatng to perod of mtaton upon assessment and coecton). In
the case of such an organzaton whch was, by the provsons of secton
5 (f) of the Interna Revenue Code, specfcay not requred to fe such
nformaton return, for the purposes of the precedng sentence a return
sha be deemed to have been fed at the tme when such return shoud
have been fed had t been so requred. The provsons of ths subsec-
ton sha not appy to a ta abe year of such an organzaton wth respect
to whch, pror to September 20, 1950, (1) any amount of ta was
assessed or pad, or (2) a notce of defcency under secton 272 of the
Interna Revenue Code was sent to the ta payer.
(c) Dena of Dkductons. gft or bequest to an organzaton pror
to anuary 1, 1951. for regous, chartabe, scentfc, terary, or edu-
catona purposes (ncudng the encouragement of art and the preven-
ton of cruety to chdren or anmas) otherwse aowabe as a deduc-
ton under secton 100 (a)(2)( ), or 100 (b) (2) or (3)
of the Interna Revenue Code, may not be dened under such sectons f
a dena of e empton to such organzaton for the ta abe year of the
organzaton In whch such gft or bequest was made s prevented by the
provsons of subsectons (a) or (b) of ths secton.
S C. 102. N T INCOM INT RN L R NU COD S
M ND D Y S CTION 321. R NU CT OF 1950, P-
PRO D S PT M R 23, 1950 .
The net ncome of the estate or trust sha be computed n the same
manner and on the same bass as n the case of an ndvdua, e cept
that
(a) Sub|ect to the provsons of subsecton (g), there sha be aowed
as a deducton (n eu of the deducton for chartabe, etc., contrbu-
tons authorzed by secton 23(o)) any part of the gross ncome, wth-
out mtaton, whch pursuant to the terms of the w or deed creatng
the trust, s durng the ta abe year pad or permanenty set asde for
the purposes and n the manner specfed n secton 23(o), or s to be
used e cusvey for regous, chartabe, scentfc, terary, or educa-
tona purposes, or for the preventon of cruety to chdren or anmas,
or for de estabshment, acquston, mantenance or operaton of a
pubc cemetery not operated for proft. Where any amount of the
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399
6.13, Regs. 10 .
Income so pad or set asde Is attrbutabe to gan from the sae or
e change of capta assets hed for more than s months, proper
ad|ustment of the deducton otherwse aowabe under ths subsecton
ha be made for any deducton aowabe to the trust under secton
23(ee);

(g) Rues fob ppcaton of Subsecton (a) n the Case of
Tbusts

(2) Operatons of trusts.
( ) Lmtaton on Chartabe, tc., Deducton. The amount
otherwse aowabe under subsecton (a) as a deducton sha
not e ceed 15 per centum of the net ncome of the trust (com-
puted wthout the beneft of subsecton (a)) f the trust has
engaged n a prohbted transacton, as defned n subpara-
graph ( ) of ths paragraph.
( ) Prohbted Transactons. For the purposes of ths
paragraph the term prohbted transacton means any
transacton after uy 1, 1950, n whch any trust whe hod-
ng ncome or corpus whch has been permanenty set asde or
Is to be used e cusvey for chartabe or other purposes de-
scrbed In subsecton (a)
() ends any part of such ncome or corpus, wthout
recept of adequate securty and a reasonabe rate of
Interest, to;
() pays any compensaton from such Income or corpus,
n e cess of a reasonabe aowance for saares or other
compensaton for persona servces actuay rendered, to;
() makes any part of ts servces avaabe on a pref-
erenta bass to;
(v) uses such ncome or corpus to make any substanta
purchase of securtes or any other property, for more
than an adequate consderaton n money or money s
worth, from;
(v) ses any substanta part of the securtes or other
property comprsng such ncome or corpus, for ess than
an adequate consderaton n money or money s worth, to;
or
(v) engages n any other transacton whch resuts n
a substanta dverson of such Income or corpus to;
the creator of such trust; any person who has made a substan-
ta contrbuton to such trust; a member of the famy (as
defned n secton 2 (b)(2)(D)) of an Indvdua who s the
creator of the trust or who has made a substanta contrbuton
to the trust; or a corporaton controed by any such creator
or person through the ownershp, drecty or ndrecty, of 50
per centum or more of the tota combned votng power of a
casses of stock entted to vote or 50 per centum or more of
the tota vaue of shares of a casses of stock of the corpora-
ton.
(C) Ta abe Years ffected. The amount otherwse aow-
abe under subsecton (a) as a deducton sha be mted as
provded n subparagraph ( ) ony for ta abe years subse-
quent to the ta abe year durng whch the trust s notfed by
the Secretary that t has engaged n such transacton, uness
such trust entered nto such prohbted transacton wth the
purpose of dvertng such corpus or ncome from the purposes
descrbed n subsecton (a), and such transacton nvoved a
substanta part of such corpus or ncome.
(D) Future Chartabe, tc., Deductons of Trusts Dened
Deducton Under Subparagraph (C). If the deducton of
any trust under subsecton (a) has been mted as provded In
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6.13, Regs. 10 .
00
ths paragraph, such trust, wth respect to any ta abe year
foowng the ta abe year n whch notce s receved of
mtaton of deducton under subsecton (a), may, under regu-
atons prescrbed by the Secretary, fe cam for the aow-
ance of the unmted deducton under subsecton (a), and f
the Secretary, pursuant to such reguatons, Is satsfed that
such trust w not knowngy agan engage In a prohbted
transacton, the mtaton provded In subparagraph ( ) sha
not be appcabe wth respect to ta abe years subsequent to
the year n whch such cam Is fed.
( ) Dsaowance of Certan Chartabe, tc., Deductons.
No gft or bequest for regous, chartabe, scentfc, terary, or
educatona purposes (ncudng the encouragement of art and
the preventon of cruety to chdren or anmas), otherwse
aowabe as a deducton under secton 100 (a) (2)
( ), or 100 (b) (2) or (3), sha be aowed as a deducton If
made n trust and, n the ta abe year of the trust n whch the
gft or bequest s made, the deducton aowed the trust under
subsecton (a) s mted by subparagraph ( ). Wth respect
to any ta abe year of a trust n whch such deducton has been
so mted by reason of enterng nto a prohbted transacton
wth the purpose of dvertng such corpus or ncome from the
purposes descrbed n subsecton (a), and such transacton n-
voved a substanta part of such Income or corpus and whch
ta abe year s the same, or pror to the, ta abe year of the
trust n whch such prohbted transacton occurred, such de-
ducton sha be dsaowed the donor ony f such donor or
(f such donor s an ndvdua) any member of hs famy (as
defned n secton 2 (b) (2) (D)) was a party to such prohbted
transacton.
(F) Defnton. For the purposes of ths paragraph the term
gft or bequest means any gft, contrbuton, bequest, devse,
egacy, or transfer.
(3) Cross reference. For dsaowance of certan chartabe,
etc., deductons otherwse aowabe under subsecton (a), see sec-
ton 3 13.

S C. 322. FF CTI D T OF P RT II R NU CT OF 1950,
PPRO D S PT M R 23, 1950 .
The amendments made by ths part Tsecton 321, nsertng subsecton
(g) n secton 102 of the Interna Revenue Code sha be appcabe
ony wth respect to ta abe years begnnng after December 31, 1950,
e cept that subsecton (g) (2) ( ) of secton 162 of the Interna Revenue
Code, added by secton 321(a) of ths ct, sha appy ony wth respect
to gfts or bequests (as defned n secton 102(g) (2) (F) of the Interna
Revenue Code) made on or after anuary 1, 1951.

S C. 331. MPTION OF C RT IN ORG NIZ TIONS UND R
S CTION 101(6) ND D DUCTI ILITY OF CONTRI UTIONS
M D TO SUC ORG NIZ TIONS R NU CT OF 1950,
PPRO D S PT M R 23, 1950 .
Chapter 3 s hereby amended by nsertng at the end thereof the
foowng new sectons:
S C. 3 13. R UIR M NTS FOR MPTION OF C RT IN
ORG NIZ TIONS UND R S CTION 101(0) ND FOR D DUCT-
I ILITY OF CONTRI UTIONS M D TO SUC ORG NIZ -
TIONS.
(a) Organzatons To Whch Secton ppes. Ths secton sha
appy to any organzaton descrbed n secton 101 (6) e cept
(1) a regous organzaton (other than a trust) ;
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01
6.13, Regs.10 .
(2) an educatona organzaton whch normay mantans a
reguar facuty and currcuum and normay has a reguary
enroed body of pups or students In attendance at the pace where
Its educatona actvtes are reguary carred on;
(3) an organzaton whch normay receves a substanta part
of Its support (e cusve of ncome receved In the e ercse or per-
formance by such organzaton of ts chartabe, educatona, or
other purpose or functon consttutng the bass for ts e empton
under secton 101(0)) from the Unted States or any State or pot-
ca subdvson thereof or from drect or ndrect contrbutons from
the genera pubc;
( ) an organzaton whch s operated, supervsed, controed,
or prncpay supported by a regous organzaton (other than a
trust) whch s tsef not sub|ect to the provsons of ths secton;
and
(5) an organzaton the prncpa purposes or functons of whch
are the provdng of medca or hospta care or medca educaton
or medca research.
(b) Prohbted Transactons. For the purposes of ths secton, the
term prohbted transacton means any transacton n whch an organ-
zaton sub|ect to the provsons of ths secton
(1) ends any part of ts ncome or corpus wthout the recept of
adequate securty and a reasonabe rate of nterest, to;
(2) pays any compensaton, n e cess of a reasonabe aowance
for saares or other compensaton for persona servces actuay
rendered, to;
(3) makes any part of ts servces avaabe on a preferenta
bass to;
( ) makes any substanta purchase of securtes or any other
property, for more than adequate consderaton n money or money s
worth, from;
(5) ses any substanta part of ts securtes or other property,
for ess than an adequate consderaton n money or money s worth,
to; or
(6) engages n any other transacton whch resuts n a substan-
ta dverson of ts Income or corpus to;
the creator of such organzaton (If a trust) ; a person who has made a
substanta contrbuton to such organzaton : a member of the famy
(as defned n secton 2 (b) (2) (D)) of an ndvdua who s the creator
of such trust or who has made a substanta contrbuton to such organ-
zaton ; or a corporaton controed by such creator or person through
the ownershp, drecty or ndrecty, of 50 per centum or more of the
tota combned votng power of a casses of stock entted to vote or
50 per centum or more of the tota vaue of shares of a casses of stock
of the corporaton.
(c) Dena of empton to Organzatons ngaged n Prohbted
Transactons.
(1) Genera rue. No organzaton sub|ect to the provsons of
ths secton whch has engaged n a prohbted transacton after
uy 1, 1950, sha be e empt from ta aton under secton 101(6).
(2) Ta abe years affected. n organzaton sha be dened
e empton from ta aton under secton 101(6) by reason of para-
graph (1) ony for ta abe years subsequent to the ta abe year
durng whch t s notfed by the Secretary that t has engaged n
a prohbted transacton, uness such organzaton entered nto such
prohbted transacton wth the purpose of dvertng corpus or n-
come of the organzaton from ts e empt purposes, and such trans-
acton nvoved a substanta part of the corpus or ncome of such
organzaton.
(d) Future Status of Organzaton Dened empton. ny or-
ganzaton dened e empton under secton 101(6) by reason of the
provsons of subsecton (c), wth respect to any ta abe year foowng
the ta abe year n whch notce of dena of e empton was receved,
may, under reguatons prescrbed by the Secretary, fe cam for
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6.13, Regs. 10 .
02
e empton, and If the Secretary, pursuant to such reguatons, Is sats-
fed that such organzaton w not knowngy agan engage n a pro-
hbted transacton, such organzaton sha be e empt wth respect to
ta abe years subsequent to the year n whch such cam s fed.
(e) Dsaowance op Certan Chartabe, tc., Deductons. No
gft or bequest for regous, chartabe, scentfc, terary, or educa-
tona purposes (ncudng the encouragement of art and the preventon
of cruety to chdren or anmas), otherwse aowabe as a deducton
under secton 100 (a) (2) ( ), or 100 (b) (2) or (3), sha
be aowed as a deducton f made to an organzaton whch, n the
ta abe year of the organzaton n whch the gft or bequest s made,
s not e empt under secton 101(6) by reason of the provsons of ths
secton. Wth respect to any ta abe year of the organzaton for whch
the organzaton s not e empt pursuant to the provsons of sub-
secton (c) by reason of havng engaged n a prohbted transacton wth
the purpose of dvertng the corpus or ncome of such organzaton from
ts e empt purposes and such transacton nvoved a substanta part of
such corpus or ncome, and whch ta abe year s the same, or pror
to the, ta abe year of the organzaton n whch such transacton oc-
curred, such deducton sha be dsaowed the donor ony f such donor
or (f such donor s an ndvdua) any member of hs famy (as defned
n secton 2 (b)(2)(D)) was a party to such prohbted transacton.
(f) Defnton. For the purposes of ths secton, the term gft or
bequest means any gft, contrbuton, bequest, devse, egacy, or transfer.

S C. 332. T C NIC L M NDM NTS R NU CT OF 1050,
PPRO D S PT M R 23, 1950 .

(ur) mendment of Secton 100 (a). Secton 100 (a)(2)( ) s
hereby amended by strkng out egsaton; and nsertng n eu
thereof the foowng: egsaton. For dsaowance of certan char-
tabe, etc., deductons otherwse aowabe under ths subparagraph,
see sectons 3 13 and 102(g) (2) ; .
(h) mendment of Secton 1001(b) Secton 100 (b) s hereby
amended by addng at the end thereof the foowng new paragraph:
For dsaowance of certan chartabe, etc., deductons otherwse
aowabe under paragraphs (2) and (3), see sectons 3 13 and
102(g)(2).
S C. 333. FF CTI D T S R NU CT OF 1050, P-
PRO D S PT M R 23, 1950 .
Subsectons (c) and (d) of secton 3 13 of the Interna Reve-
nue Code, added by secton 331 of ths ct. sha appy wth respect to
ta abe years begnnng after December 31, 1950, and subsecton (e)
of secton 3 13 of the Interna Revenue Code sha appy ony wth
respect to gfts or bequests (as defned n secton 3 13 of the Interna
Revenue Code) made on or after anuary 1, 1951.
Par. 2. Secton 6.13, as amended by Treasury Decson 5902 C. .
1952-1, 167 , approved May 27, 1952 26 CFR 6.13 , s further
amended as foows:
( ) y changng the headng thereof to read as foows: Char-
tabe, tc., Gfts. (a) In genera. ;
( ) y nsertng mmedatey foowng the perod at the end of
paragraph (a) the foowng: For dsaowance of certan chartabe
gfts otherwse aowabe as deductons hereunder see paragraph (b)
of ths secton. ; and
(C) y addng mmedatey succeedng paragraph (a) the foow-
ng new paragraph:
(6) Dsaowance of certan chartabe, etc., deductons Wo deducton wth
respect to a gft made on or after anuary 1, 1951, to any trust or organzaton
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03
f 6.13, Regs. 10 .
descrbed n ( ) of paragraph (a) of ths secton whch woud otherwse be
aowabe under such paragraph sha be aowed If (1) the gft s made n
trust and, for ncome ta purposes for the ta abe year of the trust n whch
the gft s made, the deducton otherwse aowabe to such trust under secton
162(a) s mted by secton 162(g)(2)( ) by reason of the trust havng en-
gaged n a prohbted transacton descrbed n secton 162(g)(2)( ); or (2)
the gft s made to any such organzaton sub|ect to secton 3 13 whch, for ts
ta abe year n whch the gft s made, s not e empt from ncome ta under
secton 101(6) by reason of havng engaged In a prohbted transacton descrbed
n secton 3 13(b).
For the purpose of secton 162(g) (2) ( ) and secton 3 13(e), the term gft
ncudes any gft, contrbuton, or other dsposton.
Reguatons 111, reatng to the ncome ta , contan the rues for the deter-
mnaton of the ta abe year of the trust for whch the deducton under secton
162(a) s mted by secton 162(g) (2) and for the determnaton of the ta abe
year of the organzaton for whch an e empton s dened under secton 3 13(c).
See sectons 29.162-3(b) and 29.3 13-1 of Reguatons 111. Such ta abe year
must begn after December 31, 1950. Generay, such ta abe year s a ta abe
year subsequent to the ta abe year durng whch the trust or organzaton has
been notfed by the Commssoner that t has engaged n a prohbted trans-
acton. owever, f the trust or organzaton after December 31, 1950, and
durng or pror to the ta abe year entered nto the prohbted transacton for
the purpose of dvertng ts corpus or ncome from the purposes descrbed In
secton 162(a) or from ts e empt purposes, as the case may be, and such trans-
acton nvoves a substanta part of such ncome or corpus, then the deducton
of the trust under secton 162(a) for such ta abe year s mted by secton
162(g)(2), or the e empton of the organzaton for such ta abe year s
dened under secton 3 13(c), whether or not the organzaton has prevousy
receved notfcaton by the Commssoner that t s engaged In a prohbted trans-
acton. In certan cases, the mtaton of secton 102(g) may be removed or the
e empton may be renstated for certan subsequent ta abe years under the rues
set forth n sectons 29.162-3(b) and 29.3 13-2 of Reguatons 111.
In cases n whch pror notfcaton by the Commssoner s not requred n
order to mt the deducton of the trust under secton 162(g)(2) or to deny
e empton of the organzaton under secton 3 13, the deducton otherwse aow-
abe under paragraph (a) of ths secton sha not be dsaowed n respect to
gfts made durng the same ta abe year of the trust or organzaton n whch
such prohbted transacton occurred or n a pror ta abe year uness the donor
or a member of hs famy was a party to the prohbted transacton. For the
purpose of the precedng sentence, the members of the donor s famy Incude
ony hs brothers and ssters, whether by whoe or haf bood, spouse, ancestors,
and nea descendants.
Par. 3. Secton 6.1 26 CF 6.1 s amended by addng at the
end thereof the foowng:
For further mtatons n the case of gfts made on or after anuary 1, 1951,
see secton 6.13(6), reatng to gfts to certan trusts and organzatons engaged
n a prohbted transacton descrbed n sectons 162(g) (2) ( ) or 3 13(b).
n sectons 1029 and 3791 of the Interna Revenue Code (53 Stat, 157,
67; 26 U. S. C. 1029,3791).)
ohn S. Ghaham,
Thomas . Lynch,
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S 03.20 , Regs. 107.1 0
C PT R 9. MPLOYM NT T S
SU C PT R . MPLOYM NT Y OT RS T N C RRI RS
P RT III. G N R L PRO ISIONS
Secton 0 .20 , Reguatons 12 : Who are
empoyees.
INT RN L R NU COD
Servces performed by physcans for a company as part-tme serv-
ces. S. S. T. 291 revoked. (See Rev. Ru. , beow.)
SU C PT R C.-T ON MPLOY RS OF IG T OR MOR
Secton 03.20 , Reguatons 107: Who are Rev. Ru.
empoyees.
( so Secton 1 26, Secton 0 .20 , Regu-
atons 12 .)
physcan engaged n the prvate practce of medcne who n
connecton therewth e amnes and treats company empoyees as a
part-tme servce for the company, s not an empoyee of the company
wthn the meanng of sectons 1 26(d) and 1607() of the Federa
Insurance Contrbutons ct and the Federa Unempoyment Ta
ct, respectvey.
S. S. T. 291, C. . 193 -1, 16, revoked.
Reconsderaton has been gven to S. S. T. 291, C. . 193 -1, 16, n
the ght of the decson n Ward Storage attery Co. v. Carey, 103
Fed. Su pp. 7.
In S. S. T. 291, supra, t s hed that a physcan engaged by the O
Company, who s requred to report each mornng at a f ed hour| to
reman on duty as ong as hs servces are needed, and who, n addton
to treatng empoyees of the company, s requred to e amne a n-
dvduas appyng for work, s an empoyee of the O Company
wthn the appcabe provsons of ttes III and I cf the Soca
Securty ct, 9 Stat. 639, approved ugust 1 ,1935.
In the Ward Storage attery Co. case, the contracts between the
physcans and the company ndcated that drect contro and super-
vson was not contempated by the company as to the detas and
means by whch the physcans accompshed ther work. The ev-
dence shows that the physcans performed ony part-tme servce for
the company and that they mantaned prvate practces to whch most
of ther tme was devoted. The physcans were free to eave the com-
pany s premses durng workng hours f an emergency case n ther
prvate practce requred ther presence. The court hed that the
physcans were not empoyees of the company wthn the meanng of
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05
130.0, Regs. 2.
the Soca Securty ct. In vew of the facts found by the court and
supported by the evdence, t was decded that no appea woud be
taken n that case.
Ttes III and I of the Soca Securty ct were ncorporated n
the Interna Revenue Code, effectve pr 1, 1939, and subsequent
to that date are cted as the Federa Insurance Contrbutons ct and
the Federa Unempoyment Ta ct, respectvey. Inasmuch as the
facts and crcumstances set forth n S. S. T. 291, C. . 193 -1, 16,
do not dffer materay from those n the Ward Storage attery
Co. case, S. S. T. 291, supra, s hereby revoked. It s the poston of
the ureau that, generay, a physcan engaged n the prvate practce
of medcne who n connecton therewth e amnes and treats company
empoyees as a part-tme servce for the company, s not an empoyee of
the company wthn the meanng of sectons 1 26(d) and 1607() of
the Federa Insurance Contrbutons ct and the Federa Unempoy-
ment Ta ct, respectvey. owever, there may be compeng
factua reasons for an nference of drect contro and supervson upon
whch an empoyer-empoyee cassfcaton may be based, thereby ds-
tngushng such cases from the Ward Storage attery Co. case.
SU C PT R D.-COLL CTION OF INCOM T T SOURC ON
W G S
Secton 05.102, Reguatons 116: cusons
from wages.
INT RN L R NU COD
Wthhodng of ncome ta at source on compensaton receved by
Unted States ctzens for servces performed on Guam. (See Rev.
Ru. , page 300.)
C PT R 9 . W R T S ND W R T R T S
S CTION 1650. W R T R T S OF C RT IN
MISC LL N OUS T S
Secton 130.0, Reguatons 2 (1912): Scope T. D. 599
of Reguatons.
( so Sectons 130.30, 130.33; Secton 3 66,
Sectons 130. , 130. 6, 130. 7; Secton
3 69, Sectons 130.51, 130.53, 130.5 ,
130.60(a), 130.6 , Reguatons 2 (19 2).)
TITL 2 INT RN L R NU . C PT R L SU C PT R C. P RT 1 0.
T S ON S F D POSIT O S ND ON C RT IN TR NSPORT TION ND
COMMUNIC TIONS S R IC S
Reguatons 2 (1 2 edton) amended to conform to the Revenue
ct of 1951.
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5 130.0, Regs. 2.
06
Washngton 25, D. C.
Concerned:
On October 29, 1952, notce of proposed rue makng was pubshed
n the Federa Regster 17 F. R. 97 7 , n order to conform Regua-
tons 2 (19 2 edton) 26 CFR, part 130 to sectons 91, 92, 93,
and 9 of the Revenue ct of 1951 (Pubc Law 1 3, 2d Cong., 1st
sess.), approved October 20,1951. fter consderaton of a reevant
matter presented by nterested persons regardng the rues proposed,
the amendments to Reguatons 2 (19 2 edton) set forth beow are
hereby adopted.
Paragraph 1. The frst paragraph of secton 130.0, as amended by
Treasury Decson 5559 C. . 19 7-1. 1(50 , approved pr 1 , 19 7
26 CFR 130.0 , s further amended as foows:
( ) y strkng n paragraph (c) the words and sectons 2, 3,
and of the cse Ta ct of 19 7, and nsertng n eu thereof the
foowng: , sectons 2, 3, and of the cse Ta ct of 19 7,
and sectons 91 and 92 of the Revenue ct of 1951, .
( ) y strkng n paragraph (d) the words and sectons 2, 3,
and of the cse Ta ct of 19 7, and nsertng n eu thereof
the foowng: , sectons 2, 3, and of the cse Ta ct of 19 7.
secton 607 of the Revenue ct of 1950, and sectons 93 and 9 of
the Revenue ct of 1951, .
Par. 2. Immedatey precedng secton 130.30 26 CFR 130.30 ,
there s nserted the foowng:
S C. 91. R DUCTION OF T ON T L GR P DISP TC S
(a) Reducton of Ta . The tabe contaned n secton 1050 (reatng
to the war ta rates of certan msceaneous ta es) s hereby amended
by strkng out the foowng:
3 65(a)(1)( ) (nsofar as t reates I Domestc teegraph, cabe, 15 per cent- I 25 per cent-
to domestc U craph, cabe, or rado domces, um. um.
and rado dspatches). I I
(b) ffectve Date. Sub|ect to the provsons of subsecton (c), the
amendments made by ths secton sha appy wth respect to amounts
pad on or after the rate reducton date (as defned n subsecton (d))
for servces rendered on or after such date.
(c) mounts Pad Pursuant to s Rendered. The amendments
made by ths secton sha not appy wth respect to amounts pad pur-
suant to bs rendered pror to the rate reducton date. In the case
of amounts pad pursuant to bs rendered on or after the rate reduc-
ton date for servces for whch no prevous b was rendered, the amend-
ments made by ths secton sha appy e cept wth res ect to such
servces as were rendered more than 2 months before such date. In
the case of servces rendered more than 2 months before such date the
provsons of sectons 1050 and 3 65 of the Interna Revenue Code n
effect at the tme such servces were rendered sha be appcabe to the
amounts pad for such servces.
(d) Rate Reducton Date. For the purposes of ths secton the
term rate reducton date means the frst day of the frst month whch
begns more than 10 days after the date of the enactment of ths ct.
Par. 3. The second paragraph of secton 130.30, as amended by
Treasury Decson 5559 26 CFR 130.30 , s further amended by add-
ng at the end thereof the foowng new sentences:
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07
130.0, Regs. 2.
The provsons of secton 1650 were further amended by secton 91 of the
Revenue ct of 1951, effectve November 1, 1951, and as so amended, the rate of
ta on amounts pad on and after that date for domestc servces specfed n
secton 3 65(a)(1)( ) rendered on and after that date was reduced. The
amendments as t reates to ths ta appes to amounts pad pursuant to bs
rendered on and after November 1, 1951, for servces furnshed on or after
September 1, 1951, for whch no prevous b was rendered.
Par. . Secton 130.33, as amended by Treasury Decson 5550
26 CFR 130.33 , s further amended by revsng the frst paragraph
of ( ) thereof to read as foows:
(6) Teegraph, cabe, and rado dspatches and messages. (1) Internatona
messages. The amount pad for each nternatona teegraph, cabe, or rado
dspatch or message s sub|ect to ta at the rate of 10 percent.
(2) Domestc messages. The amount pad for each domestc teegraph, cabe,
or rado dspatch or message s sub|ect to ta at the specfed rates for the foow-
ng perods:
(1) On and after November 1, 1951, 15 percent;
() pr 1. 19 through October 31, 1951, 25 percent;
() November 1, 19 2 through March 31, 19 , 15 percent;
(v) Pror to November 1, 19 2, 10 percent.
Par. 5. Immedatey precedng secton 130. 26 CFR 130. ,
S C. 92. MPTION OF C RT IN O RS S T L P ON
C LLS FROM T T ON T L P ON F CILITI S R -
NU CT OF 1951, PPRO D OCTOR R 20, 1951 .
(a) Teephone Cas From Members op rmed Forces n Combat
Zones. Secton 3 66 s amended by redesgnatng subsecton (c) thereof
as subsecton (d) and by nsertng after subsecton (b) the foowng
new subsecton:
(c) No ta sha be mposed under secton 3 65(a) (1) ( ) upon any
payment receved for any teephone or rado teephone message whch
orgnates wthn a combat zone, as defned n secton 22(b) (13), from
a member of the rmed Forces of the Unted States performng servce
n such combat zone, as determned under such secton, provded a cer-
tfcate, settng forth such facts as the Secretary may by reguatons
prescrbe, s furnshed to the person recevng such payment.
appy to amounts pad on or after the frst day of the frst month whch
begns more than 10 days after the date of enactment of ths ct for
teephone or rado teephone messages made on or after such date.
Par. 6. Secton 130. , as amended by Treasury Decson 5521
C. . 19 6-2,171 , approved une 1 , 19 6 26 CFR 130. , s fur-
ther amended by strkng (see aso secton 130. 6) n the second
sentence of the ffth paragraph, and by nsertng n eu thereof (see
aso secton 130. 7) .
Par. 7. Secton 130. 6 26 CFR 130. 6 s renumbered secton 130. 7
and a new secton 130. 6 s nserted to read as foows:
Sec. 130. 6. Teephone Cas From Members of rmed Forces n Combat
Zones. The e empton provded by secton 3 06(c) s appcabe to any pay-
ment receved on or after November 1, 1951, for any teephone or rado teephone
message or ca whch orgnates, on or after such date, wthn a combat zone
as defned n secton 22(b) (13), from a member of the rmed Forces of tho
Unted States performng servce n such combat zone, f a propery e ecuted
certfcate of e empton substantay n the form shown beow s furnshed the
person recevng such payment. (See aso secton 130. 7.)
Servce s performed n a combat zone ony f t s performed n an area whch
the Presdent of the Unted States has desgnated by ecutve order, for the
purpose of secton 22(b) (13), as an area n whch rmed Forces of the Unted
States are or have (after une 2 , 1950) engaged In combat, and ony f t s
performed on or after the date desgnated by the Presdent by ecutve order
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130.0, Regs. 2.
0
as the date of the commencng of combatant actvtes n such zone and on or
before the date desgnated by the Presdent by ecutve order as the date of
the termnaton of combatant actvtes n such zone.
MPTION C RTIFIC T
(Overseas teephone cas)
, 19
(Date)
I certfy that the to charges of are for teephone or rado
teephone messages orgnatng at wthn a combat
(Pont of orgn)
zone from a member of the rmed Forces of the
(Name)
Unted States performng servce n such combat zone, that the transmsson
factes were furnshed by ; that the charges are e empt
(Name of carrer)
from ta under secton 3 66(c) of the Interna Revenue Code.
(Sgnature of subscrber)
( ddress)
Note. Penaty for frauduent use. 10,000 or mprsonment or both. (Sec secton
171 of the Interna Revenue Code.)
Par. . There s nserted mmedatey precedng secton 130.50
26 CFR 130.50 the foowng:
S C. 93. MPTION OF FIS ING TRIPS FROM T ON
TR NSPORT TION R NU CT OF 1951, PPRO D
OCTO R 20, 1951 .
(a) empton. Secton 3 69(b) (reatng to e empton of certan
trps from te ta of transportaton of persons) s hereby amended by
strkng out or to amounts and nsertng n eu thereof to amounts ,
and by nsertng after the words one month or ess the foowng
, or to amounts pad for transportaton by boat for the purpose of
fshng from such boat .
appy to amounts pad on or aftet te frst day of the frst month whch
begns more than 10 days after the date of the enactment of ths ct for
transportaton on or after such frst day.
Par. 9. Secton 130.51, as amended bv Treasury Decson 5929
C. . 1952-2, 261 , approved September 2, 1952 26 CFR 130.51 ,
s further amended by revsng the second sentence of the eghth
paragraph thereof to read ns foows:
For other payments not sub|ect to ta , see sectons 130.5 and 130.60 to 130.6 .
Par. 10. Secton 130.53, as amended by Treasury Decson 5929
26 CFR 130.53 , s further amended by addng at the end of the
frst paragraph of () thereof the foowng:
(For nformaton wth respect to the e empton of amounts pad on or after
November 1, 1951, for transportaton, on or after that date, of persons on boats
chartered for fshng purposes, see secton 130.60a.)
Par. 11. Secton 130.5 , as amended by Treasury Decson 5929
26 CFR 130.5 , s further amended by deetng the words see
sectons 130.60 to 130.63 appearng n the frst, sentence thereof and
nsertng n eu thereof the words see sectons 130.60 to 130.6 .
Par. 12. Immedatey precedng secton 130.59 26 CFR 130.59
S C. 93. MPTION OF FIS ING TRIPS FROM T ON
TR NSPORT TION R NU CT OF 1951, PPRO D
OCTO R 20, 1951 .
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09
130.0, Regs. 2.
(a) empton. Secton 3 09(b) (reatng to e empton of certan
trps from the ta of transportaton of persons) s hereby amended
by strkng out or to amounts and nsertng n eu thereof to
amounts , and by nsertng after the words one month or ess the
foowng , or to amounts pad for transportaton by boat for the
purpose of fshng from such boat .
begns more than 10 days after the date of the enactment of ths ct
for transportaton on or after such frst day.
Pak. 13. Immedatey foowng secton 130.60 26 CFR 130.60 ,
Sec. 130.60a. Fshng Trps. No ta Is mposed upon an amount pad on
or after November 1, 1951, for transportaton by boat, on or after that date,
where the transportaton s for the purpose of fshng from such boat.
Par. 1 . Immedatey precedng secton 130.6 26 CFR 130.6 ,
S C. 9 . T ON TR NSPORT TION OF P RSONS R NU
CT OF 1951, PPRO D OCTO R 20, 1951 .
(a) empton of Cebtan Foregn Trave. Secton 3 69(a) of
the Interna Revenue Code (reatng to ta on transportaton of persons)
Is hereby amended by strkng out the thrd sentence and nsertng
In eu of such sentence the foowng: In the case of transportaton
by water on a vesse whch makes one or more ntermedate stops
at ports wthn the Unted States, Canada, or Me co on a voyage whch
begns or ends n the Unted States and ends or begns outsde the north-
ern porton of the Western emsphere, no part of such transportaton
sha be consdered for the purposes of the precedng sentence to be from
any port wthn the Unted States, Canada, or Me co to any other such
port If the vesse In stoppng at any such ntermedate port s not
authorzed both to dscharge and to take on passengers. port or
staton wthn Newfoundand sha not, for the purposes of the precedng
two sentences, be consdered as a port or staton wthn Canada.
begns more than ten days after the date of the enactment of ths
ct for transportaton on or after such frst day.
Pah. 15. Secton 130.6 , as amended by Treasury Decson 5929
26 CFR 130.6 , s further amended as foows:
( ) y strkng the thrd sentence n the frst paragraph thereof.
( ) y nsertng mmedatey foowng the frst paragraph the
the foowng new paragraphs:
The ta does not attach to any part of a payment made on or after November
1, 1951, for transportaton by water, on or after that date, on a vesse whch
makes one or more Intermedate stops at ports wthn the Unted States,
Canada, or Me co, on a voyage between the Unted States and a port outsde
the northern porton of the Western emsphere, provded the vesse n
stoppng at any such ntermedate port Is not authorzed both to dscharge
and to take on passengers.
In any case where the vesse n stoppng at any such ntermedate port Is
authorzed or s permtted both to dscharge and to take on passengers, the rues
set forth n the frst paragraph of ths secton appy. vesse s authorzed
both to dscharge and to take on passengers at the ntermedate port uness
there s a ega or other authortatve prohbton of such traffc. For the
purposes of the precedng sentence, an order ssued by the owner or operator
of a vesse prohbtng such vesse from ether dschargng or takng on pas-
sengers at the Intermedate port Is not a ega or other authortatve prohbton
of such traffc.
port or staton wthn Newfoundand sha not, for the purposes of the
precedng paragraphs, be consdered as a port or staton wthn Canada.
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320.60, Regs. 51.
10
(C) y nsertng mmedatey foowng e ampe 6 thereof two new
e ampes as foows:
ampe 7. purchases a steamshp tcket In New York Cty for transporta-
ton from New York Cty to Southampton, ngand. The vesse on whch
sas makes an ntermedate stop durng the course of such voyage at oston,
Mass., to take on passengers. The vesse s not, however, authorzed to ds-
charge passengers at Rch port. No tay appes to the porton of the transporta-
ton between New York Cty and oston, snce s voyage nvoved transportaton
between a port wthn the Unted States and a port outsde the northern porton
of the Western emsphere and the vesse on whch traveed was not
authorzed both to dscharge and to take on passengers at the ntermedate port
at whch t stopped.
ampe . I purchases a steamshp tcket n San Francsco for a voyage
from San Francsco to Mana. The vesse on whch he traves makes a stop
at onouu to dscharge passengers. The vesse s, however, permtted aso to
take on passengers at onouu. The ta appes to that porton of the trans-
portaton between San Francsco and onouu, snce the vesse on whch I
traveed was permtted to both dscharge and to take on passengers at onouu,
the ntermedate port at whch t stopped.
(Ths Treasury Decson s ssued pursuant to the authorty con-
taned n sectons 3 72 and 3791 of the Interna Revenue Code (53 Stat.
23, C7, 55 Stat. 722; 26 U. S. C. 3 72, 3791).)
ustn F. Wnke,
pproved February 2 , 1953.
bert P. Tutte,
(Fed wth the Dvson of the Federa Regster February 27, ar 3, :50 a. m.)
S CTION 1651. R T IL RS CIS T ON
LUGG G , TC.
Secton 320.60, Reguatons 51: Scope of ta . Rev. Ru. 5
INT N L R NU COD
competey nsuated bag, whch has no outsde pockets to ndcate
t coud t e used as a purse, handbag, or other receptace named n
secton 1651 of the Interna Revenue Code, and whch s sc constructed
as to ndcate that t s ntended soey for use n carryng or keepng
food or quds hot or cod, s not sub|ect to ta on uggage, etc. ow-
ever, where such a bag s advertsed or recommended for use n carry-
ng artces of wearng appare, or for use as any other receptace
named n secton 1651 of the Code, as we as for use n carryng or
keepng food or quds hot or cod, t s sub|ect to such ta when sod
at reta.
Secton 320.60, Reguatons 51: Scope of ta .
INT RN L R NU COD
ppcaton of ta to sadde bags. (See Rev. Ru. 59, page 6 .)
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11 101.2, Regs. 3.
C PT R 10. DMISSIONS ND DU S
SU C PT R . DMISSIONS
S CTION 1700. T
Secton 101.2, Reguatons 3: Meanng of Rev. Ru. 112
admsson.
INT RN L R NU COD
donaton made In en of a payment of a f ed charge for ad-
msson to a moton pcture theater s sub|ect to the ta on adms-
sons Imposed by secton 1700(a) of the Interna Revenue Code.
dvce s requested whether the ta on admssons mposed by sec-
ton 1700(a) of the Interna Revenue Code s appcabe wth respect
to a donaton made n eu of a payment of a f ed admsson charge
to a moton pcture theater.
In the nstant case, a theater operator dscontnued hs former prac-
tce of chargng a f ed amount for admsson to hs moton pcture
theater. Instead, he permtted admsson to certan theater per-
formances on the bass of cash donatons n amounts determned soey
by the admttees.
It s recognzed that moton pcture theaters and other entertan-
ment endeavors are operated on a bass of presentng to the pubc a
performance to whch spectators are wng and are accustomed or
e pected to pay an admsson charge. s n most other busnesses,
these entertanment feds are guded by a proft motve. These per-
formances are nvaraby presented n the type of pubc pace where
the admsson of spectators may be controed under condtons most
favorabe to the operator. Thus, t s presumed that the prvege
of admsson must be pad for. The fact that the amount so pad s
caed somethng other than an admsson charge, such as a donaton,
does not ater ts dentty as a condton to admsson, and t s n
fact an admsson charge even though the amount thereof s eft to
the dscreton of the admttee.
Under secton 1700(a) of the Code as amended by secton 01 of
the Revenue ct of 1951, the ta due on admssons s computed on
the bass of the amount actuay pad for admsson to any pace,
rather than on the bass of an estabshed prce as provded pror to
such amendment. Therefore, where an aeged donaton s a con-
dton to admsson, any amount so pad consttutes an amount pad
for admsson and s sub|ect to the ta mposed wth respect thereto.
In the nstant case, admsson s permtted upon the proposed and
accepted condton that the admttees pay for such prvege n any
amount of ther own choosng. It s hed that these aeged dona-
tons consttute amounts pad for admsson to a pace at reguar or
reduced rates and, as such, are pad n eu of a f ed admsson charge
to gan entry to the theater. Therefore, the amounts pad as do-
natons are sub|ect to the ta on admssons mposed by secton
1700(a) of the Code.
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101.5, Regs. 3.
12
Secton 101.2, Reguatons 3: Meanng of Rev. Ru. 113
admsson.
( so Secton 1701, Secton 101.15, Regu-
atons 3.)
INT RN L R NU COD
Where an organzaton acqures the soe rght to use a theater or
the rght to dspose of a of the admssons for a partcuar perform-
ance, e cept a bock retaned by the theater owner for what s usuay
referred to as house seats that are not for resae, the retenton of such
tckets by the owner does not dsturb the organzaton s soe rght to
use the theater or the rght to dspose of a the admssons wthn the
meanng of secton 101.2 of Reguatons 3. Such an arrangement
consttutes a renta and s, therefore, not sub|ect to the ta on adms-
sons mposed by secton 1700 of the Interna Revenue Code. ow-
ever, f the organzaton n turn ses admssons to the pace the ta
w appy to amounts pad for such admssons uness e empt under
secton 1701 of the Code.
Secton 101.5, Reguatons 3: Free and re- T. D. 6007
duced rate admssons.
( so Sectons 101.0, 101.1, 101.1 ; Secton
1701, Sectons 101.15, 101.16, Reguatons
3.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 101.
T S ON DMISSIONS, DU S. ND INITI TION F S
Reguatons 3 (19 1 edton) amended to conform to Pubc
Law 12 ( 2d Cong.) and the Revenue ct of 1951.
Washngton 5, D. C.
Others Concerned:
On November 15, 1952, notce of proposed ruemakng was pub-
shed n the Federa Regster (17 F. R. 10 69), n order to conform
Reguatons 3 (19 1 edton) 26 CFR, part 101 , reatng to the
ta es on admssons, dues, and ntaton fees under the provsons of
the Interna Revenue Code, to Pubc Law 12 ( 2d Cong., 1st sess.)
C. . 1951-2,351 , approved ugust 2 ,1951, and to sectons 01, 02,
03, and 0 of the Revenue ct of 1951 (Pubc Law 1 3, 2d Cong.,
1st sess.), approved October 20, 1951. fter consderaton of a
such reevant matter as was presented by nterested persons regardng
the proposa the amendments to Reguatons 3 26 CFR, part 101
Paragraph 1. The words appearng n parentheses n the headng
begnnng Part 101 mmedatey precedng Subpart . Intro-
ductory, as amended by Treasury Decson 5562 C. . 19 7-1, 165 ,
approved May 16, 19 7, are further amended to read as foows:
(Chapter 10 of the Interna Revenue Code as mended by the Revenue
cts of 19 1, 19 2, and 1951; and Chapter 9 of the Interna Revenue
Code as mended by me Revenue ct of 19 3, the Pubc Debt ct of 19 ,
and the cse Ta ct of 19 7).
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13
101 5, Regs 3.
Par. 2. The frst sentence of the frst paragraph of secton 101.0,
as amended by Treasury Decson 5562 26 CFR 101.0 , s further
amended by strkng out the words and secton 622, tte I, of the
Revenue ct of 19 2, and nsertng n eu thereof the words secton
622, tte I, of the Revenue ct of 19 2, and the Revenue ct of
1951.
Par. 3. Immedatey precedng secton 101.1 26 CFR 101.1 , there
s nserted the foowng:
S C. 03. FI CTI D T OF M NDM NTS R L TING TO
DMISSIONS R NU CT OF 1051, PPRO D OCTO R
20, 1951 .
Te amendments made by sectons 01 and 02 sha be appcabe
wth respect to amounts pad on or after the frst day of the frst month
whch begns more than ten days after the date of the enactment of
tts ct for admssons on or after such date.
S C. 0 . T ON C R TS. ROOFG RD NS. TC. R NU
CT OF 1901, PPRO D OCTO R 20, 1951 .

(b) rF CTv Date. The amendment made by subsecton (a) sha
be appcabe ony wth respect to perods after 10 antemerdan on
the frst day of the frst month whch begns more than ten days after
the date of the enactment of ths ct.
Par. . Secton 101.1, as amended by Treasury Decson 5562 26
CFR 101.1 , s further amended by addng at the end thereof the
foowng new paragraph:
The Revenue ct of 1951 made further amendments to the Code effectve
November 1. 1951. In the case of the cabaret ta , the amendment became ef-
eetve at 10 a. m. on November 1, 1951.
Par. 5. Immedatey precedng secton 101.2 26 CFR 101.2 , there
s nserted the foowng:
PU LIC L W 12 2d CONG., 1st S SS.), PPRO D
UGUST 2 , 1951
That secton 1700(a)(1) of the Interna Revenue Code s
hereby amended by addng at the end thereof the foowng new sen-
tence: No ta sha be mposed n the case of admsson free of charge
of a member of the rmed Forces of the Unted States when n unform.
Sec. 2. The amendment made by ths ct sha be appcabe to ad-
mssons on and after the frst day of the frst month whch begns more
than 10 days after the date of the enactment of ths ct.
S C. 01. R MO L OF T ON FR DMISSIONS U NU
CT OF 1951, PPRO D OCTO R 20, 1951 .
Secton 1700(a)(1) (reatng to ta on snge or season tckets) Is
hereby amended by strkng out the second, fourth, and ffth sentences
thereof.
Par. 6. Secton 101.5, as amended by Treasury Decson 56 2 C. .
19 9-1, 2 5 , approved December 30, 19 26 CFR 101.5 , s further
Sec. 101.5. Free and Reduced Rate dmssons. (a) e /nnng November
1, 1951. The ta mposed by secton 1700(a) appes to the amount actuay
pad for admsson, and no ta s due n the case of a person admtted free of
charge. Further, a chd under 12 years of age admtted for ess than 10 cents La
not abe for ta .
(6) Pror to November 1, 19 1. (1) Gaera rue, person admtted free
or at a reduced rate to any pace at a tme when and under crcumstances under
whch an admsson charge Is made to other persons, s abe to ta (e cept as
20335 53 27
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101.5, Regs. 3.
1
provded In paragraph (6) (2) of ths secton) n an amount equvaent to the
ta on the amount pad by such other persons for the same or smar accommo-
datons.
Where persons n a certan group or cass, such as students 12 years of age or
over, women, or members of a partcuar organzaton, are admtted at a prce
ess than the estabshed prce of admsson to the pubc generay, they are abe
for ta based on the estabshed prce of admsson to other persons for the same
or smar accommodatons. Women admtted free or at reduced rates to dances
or any other pace are abe for ta based on the estabshed prce of admsson
to other persons.
If tckets or cards of admsson are ssued the ta 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.
(2) ceptons. bona fde empoyee of the management of the theater or
other pace, a muncpa offcer on offca busness, or a chd under 12 years
of age, s not abe to ta If admtted free but f admtted at a reduced rate
s abe to ta on the reduced prce, e cept that a chd under 12 years of age
admtted for ess than 10 cents Is not abe for ta . ona fde empoyees are
() those persons, ncudng drectors and offcers, reguary empoyed by the
propretor of the pace or attracton or reguary engaged n work or busness
transacted there, whether ther dutes requre admsson to the pace or not,
and whether on duty at the tme admtted or not; and () other persons whose
admsson to the pace s requred for the performance of some duty to, or work
for, the propretor.
Persons n the mtary or nava forces of the Unted States when In unform,
members of the mtary or nava forces of any of the Unted Natons when n
unform, and members of the Cvan Conservaton Corps when n unform are
not abe for ta f admtted free, and f admtted at a reduced rate are abe
for ta on the reduced prce. cept as provded n the two paragraphs m-
medatey succeedng, these e emptons do not appy to admssons after
December 31, 19 7.
ffectve ugust 1,19 , the ta does not appy to the admsson free of charge
of a hosptazed member of the mtary, nava, or ar forces of the Unted
States or of a person hosptazed as a veteran by the Federa Government n
a Federa, State, muncpa, prvate or other hospta or Insttuton, provded
such member or veteran s not on eave or furough. Where t s necessary for
an attendant to accompany such member or veteran so admtted free of charge,
the ta does not appy to the admsson of the attendant f he s aso admtted
free of charge. Where the e empton s camed on behaf of a hosptazed
member or veteran propery entted thereto, who s sngy admtted, the rght
to the e empton sha be evdenced by a statement, personay sgned, of an
admnstratve offcer of the hospta or nsttuton, dentfyng by name such
member or veteran (and attendant, f any) and certfyng that the member
or veteran () s a hosptazed member of the mtary, nava, or ar forces
of the Unted States or a veteran hosptazed by the Federa Government, and
() s not on eave or furough. Where the e empton s camed on behaf
of hosptazed members or veterans who are coectvey admtted the state-
ment need not dentfy the members or veterans ndvduay, but sha specfy
the number of such members or veterans (and attendants, f any) and certfy
that the members or veterans (a) are hosptazed members of the mtary,
nava, or ar forces of the Unted States or are veterans hosptazed by the
Federa Government and (6) are not on eave or furough. In ether case
the statement evdencng the rfrht to the e empton sha be taken up by the
propretor of the pace, and retaned as part of hs records. (See secton 101.32
2( CFR 101.32 .)
ffectve October 1, 1951, to and Incudng October 31, 1951, the ta does not
appy to the admsson free of charge of a member of the rmed Forces of the
Unted States when n unform. Ths e empton appes to free admssons ony.
Newspaper reporters, photographers, teegraphers, rado announcers, and
persons of smar vocaton who are admtted free to any pace for the perform-
ance of speca dutes In connecton wth an event and whose speca dutes are
the soe reason for ther presence and free admsson, are not abe for any
ta nn admssons. Free admssons, ncudng free admssons to spoken pays,
etc.. granted 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.
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5 101.5, Regs. 3.
Par. 7. Immedatey precedng secton 101.13 there s nserted the
foowng:
S C. 0 . T ON C R TS, ROOFG D NS, TC. R NU
CT OF 1051, PPRO D OCTO R 20, 1951 .
(a) am booms and Dancehab. Secton 1700(e)(1) (reatng to
ta on cabarets, roofgardens, etc.) s hereby amended by nsertng after
the second sentence thereof the foowng new sentence: In no case
sha such term ncude any baroom, danceba, or other smar pace
where the servng or seng of food, refreshment, or merchandse s
merey ncdenta, uness such pace woud be consdered, wthout the
appcaton of the precedng sentence, as a roofgarden, cabaret, or other
smar pace .

Par. . Secton 101.1 , as amended by Treasury Decson 53 5
C. . 19 , 637 , approved une 30,19 26 CFR 101.1 , s further
amended as foows:
( ) y amendng the frst paragraph to read as foows:
The terra roofgarden, cabaret, or other smar pace ncudes any room
In any hote, restaurant, ha, or other pubc pace where musc an dancng
prveges or any other entertanment, e cept nstrumenta or mechanca musc
boue, are afforded the patrons n connecton wth the servng or seng of
f od, refreshment, or merchandse, e cept hat after 10 a. m. November 1, 1951,
such term does not ncude any baroom, danceha, or oer smar pace where
the servng or seng of food, refreshment, or merchandse s merey Incdenta,
uness such pace woud otherwse be consdered as a roofgarden, cabaret, or
other smar pace. The e cepton wth respect to barooms, dancehas, or
ether smar paces, appes ony to such of those estabshments whch are
operated prmary to furnsh musc and dancng prveges and where the
servng or seng of food, refreshment, or merchandse consttutes n fact an
ncdenta or subsdary servce n reaton to the furnshng of musc and dancng
prveges.
pubc performance furnshed at a roofgarden, cabaret, or other smar
pace sha be regarded as beng furnshed for proft for purposes of ths secton
even though the charge made for admsson, refreshment, servce, or merchandse
s not ncreased by reason of the furnshng of such performance.
( ) ampe (1) s deeted, e ampes (2) and (3) are renumbered
(1) and (2), respectvey, and the foowng s nserted as e -
ampe (3):
(3) danceha s operated from 9 p. m. unt mdnght every Frday and
Sntnrday nght. The charge for admsson vares accordng to the character
of the entertnument furnshed, so that when a name band appears, the adms-
son charge s hgher than when the musc s furnshed by a oca band. Re-
freshments consstng of sandwches, potato chps, soft drnks, and coffee are
served at tabes, and the number of patrons who can be seated at any tme s
substantay ess than the number of persons who can be accommodated for
(ancng. The servng of refreshments s mted to the perod when the dance-
ha s open. Patrons are not requred to purchase refreshments. In ths case,
the danceha Is operated prmary for the purpose of furnshng musc and danc-
ng prveges and the sae of refreshments consttutes an ncdenta servce.
mounts pad by patrons of the danceha are not sub|ect to the cabaret ta ;
however, the charge for admsson s sub|ect to the admssons ta .
Par. 9. Immedatey precedng secton 101.15 26 CFR 101.15 ,
S C. 02. MPTIONS FROM DMISSIONS T R NU
CT OF 1051, PPRO D OCTO R 20, 1951 .
(a) Ren statement of Phewab emptons. Not wthstandng sec-
ton 5 1(b) of the Revenue ct of 19 1, the provsons of secton 1701
(reatng to e emptons from the admssons ta ) sha appy to amounts
pad on or after the effectve date speced n secton 03 of ths ct
for admssons on or after such date.
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101.5, Regs. 3.
(b) mendment of Secton 1701 (a) and (b). Subsectons (a) and
(b) of secton 1701 (reatng to e emptons from admssons ta ) are
hereby amended to read as foows:
(a) Certan Regous, ducatona, ob Chartabe ntertan-
ments, tc.
(1) In genera. cept as provded n paragraph (2), any ad-
mssons a the proceeds of whch nure
( ) e cusvey to the beneft of
() a church or a conventon or assocaton of churches;
() an educatona nsttuton whch s e empt under
secton 101 (G) or whch s an educatona nsttuton of a
government or potca subdvson thereof, f such or-
ganzaton normay mantans a reguar facuty and cur-
rcuum and normay has a reguary organzed body of
pups or students n attendance at the pace where ts
educatona actvtes are reguary carred on;
() a corporaton or any communty chest, fund, or
foundaton organzed and operated e cusvey for char-
tabe purposes, e empt under secton 101(6), f such cor-
poraton or organzaton s supported, n whoe or n part,
by funds contrbuted by the Unted States or any State or
potca subdvson thereof, or s prmary supported by
contrbutons from the genera pubc;
(v) a socety or organzaton conducted for the soe
purpose of mantanng symphony orchestras or operas and
recevng substanta support from vountary contrbu-
tons ;
(v) an organzaton (organzed pror to October 1,
1951) whch s e empt under secton 101(6) and whch s
operated for the purpose of conductng an annua
chnutnuqua program of educatona, cutura, and re-
gons actvtes at a permanent ocaton
If no part of the net earnngs thereof nures to the beneft
of any prvate stockhoder or ndvdua;
( ) e cusvey to the beneft of Natona Guard organza-
tons, Reserve offcers assocatons or organzatons, posts or
organzatons of war veterans, or au ary unts or socetes
of any such posts or organzatons, f such posts, organzatons,
unts, or socetes are organzed n the Unted States or any of
ts possessons, and f no part of ther net earnngs nures to
the beneft of any prvate stockhoder or ndvdua; or
(C) e cusvey to the beneft of a poce or fre department
of any cty, town, vage, or any muncpaty or e cusvey
to a retrement, penson, or dsabty fund for the soe beneft
of members of such a poce or fre department or to a fund for
the hers of such members.
(2) None empt admssons. The e empton provded under
paragraph (1) sha not appy n (ho case of admssons to ( ) any
athetc game or e hbton uness the proceeds nure e cusvey
to the beneft of an eementary or secondary schoo or uness n the
case of an athetc game between two eementary or secondary
schoos, the eure gross proceeds from such game nure to the
beneft of a hospta for crpped chdren, (I) wrestng matches,
prze fghts, or bo ng, sparrng, or other pugstc matches or
e hbtons, (C) carnvas, rodeos, or crcuses n whch any pro-
fessona performer or operator partcpates for compensaton, or
(D) any moton pcture e hbton.
(b) grcutura Fars. ny admssons to agrcutura fars If
no part of the net earnngs thereof nures to the beneft of any stock-
hoders or members of the assocaton conductng the same f the
proceeds therefrom are used e cusvey for the mprovement, mante-
nance, and operaton of such agrcutura fars; or .
(c) dmssons to Muncpa Swmmng Poos, tc. Secton 1701
s hereby amended by strkng out the perod at the end of subsecton
(c) and nsertng n eu thereof ; or and by addng at the end of such
secton the foowng new subsectons:
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17
101.5, Regs. 3.
(d) Muncpa Swmmng Poos, tc. ny admssons to swmmng
poos, bathng beaches, skatng rnks, or other paces provdng factes
for physca e ercse, operated by any State or potca subdvson
thereof or by the Unted States or any agency or nstrumentaty
thereof f the proceeds therefrom nure e cusvey to the beneft of
the State, potca subdvson, Unted States, agency, or nstrumen-
taty. For the purposes of ths subsecton, the term State ncudes
aska, awa, and the Dstrct of Coumba ; or
(e) (1) ome and Garpkn Touts. ny admsson to a home or
garden whch s temporary opened to the genera pubc as part of a
program conducted by a socety or organzaton to permt the nspecton
of hstorca homes and gardens f no part of the net earnngs thereof
nures to the beneft of any prvate stockhoder or ndvdua.
(2) storc Stes. ny admssons to hstorc stes, houses, and
shrnes, nnd museums conducted n connecton therewth, mantaned
au operated by a socety or organzaton devoted to the preservaton
and mantenance of such hstorc stes, houses, shrnes, and museums
f no part of the net earnngs thereof nures to the beneft of any prvate
stockhoder or ndvdua.
S C. 1701. INT RN L R NU COD .

(c) Certan Concerts. ny admssons to concerts conducted by a
cvc or communty membershp assocaton f no part of the net earnngs
thereof nures to the beneft of any stockhoders or members of such
assocaton.

Par. 10. Secton 101.15, as amended by Treasury Decson 5G 2 20
CFR 101.15 , and secton 101.10, as amended by Treasury Decson
5170 tC. . 19 2-2, 2 0 , approved September 25, 19 2 20 CFR
101.10 , are strcken and the foowng s nserted n eu thereof:
Sec 101.15. emptons From Ta . (a) Scope of e empton, effectve Novem-
ber 1, 1951. The admssons ta es mposed by secton 1700 fre of two casses:
(1) ta es on admssons per se to be pad by the person payng for admsson,
and (2) ta es on charges n e cess of the reguar or estabshed prce of nd-
nssnn, whch ta es are to he pad by the person seng or dsposng of tckets
or cards of admsson at e cess prces. Secton 1701(a) confers e empton,
under certan condtons and mtatons, from ta es of one or both casses.
dmssons, or e cess charges, are not e empt merey because the proceeds
are to be used for a regous, educatona, or chartabe purpose. The prmary
condton s that a the proceeds of the admssons or e cess charges, as the
case may be, nure to the beneft of the organzatons enumerated n secton
1701(a) and the event s not of a type descrbed In secton 1701(a)(2). (See
paragraph (c) of ths secton.) It may happen that the proceeds of ad-
msson charges nure to the beneft of e empt organzatons and the proceeds
of e cess charges go to the beneft of none enpt organzatons or persons.
In that event, the ta e empton appes ony to the admsson charges. Con-
versey, the stuaton may be that the proceeds of the e cess charges, but not
of the admsson charges, nure to the beneft of e empt organzatons. In that
stuaton, the e cess charges ony are e empt from ta .
The term a the proceeds means a the net proceeds of the reguar
admsson charges or e cess charges, as the case may he, after payment of
actua and reasonabe e penses ncurred n presentng the event. Whether
certan e penses are reasonabe s to be determned on the bass of a the
facts n the matter. If the e penses are n e cess of what s reasonabe am
necessary under the crcumstances, a the proceeds woud not be deemed to
nure e cusvey to the beneft of the e en.pt organzaton. In any case
where the amount to he receved by a none enpt person or organzaton for
taent, servces, or otherwse, s based on a percentage of the net or gross
proceeds, the organzaton camng e empton sha, before e empton may
be aowed, estabsh that the ma mum amount to be receved on the percentage
bass s a reasonabe sum and not more than woud ordnary be receved
on a fat-rate bass for the same or smar taent or servces, nnd that the
contract actuay operates to the beneft of the e empt organzaton.
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101.5, Regs. 3.
1
(b) Organzaton e empt from admssons ta . (1) Genera. Under the
provsons of secton 1701(a)(1)( ), e empton s granted wth respect to
admssons, other than those specfed n secton 1701(a)(2) (see paragraph
(c) of ths secton), a the proceeds of whch nure to the beneft of certan
regons, educatona, chartabe, or other organzatons operatng on a nonproft
bass. The mere fact that an organzaton s so organzed or operated does
not afford a bass for e empton. To be entted to such e empton the
organzaton must compy wth a of the statutory requrements. There s
no requrement, e pressed or mped, that an nsttuton, socety, or organza-
ton, to be ncuded wthn these e empton provsons, must be organzed or
operatng n the Unted States.
For an organzaton to be consdered a regons, educatona, or chartabe
nsttuton, or socety, or organzaton of the knd contempated by secton
1701(a), t must have a defnte organzaton, wth offcers, drectors, or
trustees, and the usua essenta features (ncorporaton not beng essenta)
of an assocaton of ts cass. The organzaton must aso have a purpose
whch as put nto practce s regous, educatona, chartabe, or of the nature
specfed by the statute. Furthermore, no part of the net earnngs of such
organzaton sha nure to the beueft of any prvate stockhoder or ndvdua.
Other requrements whch must be met by organzatons that may be e empt
from the admssons ta are set forth n the foowng subparagraphs (2)
through ( ). .
(2) Churches or conventons or assocatons of churches. dmssons, or e -
cess charges, a the proceeds of whch (after payment of reasonabe e penses)
nure e cusvey to the beneft of a church or a conventon or assocaton
of churches are e empt from ta . (For e ceptons to ths e empton, see
paragraph (c) of ths secton.)
The term conventon or assocaton of churches Incudes a unon of churches
of the same denomnaton organzed on a regona or other bass, or a unon
of churches of dfferent denomnatons whch meet and act n concert to further
a partcuar regous purpose.
Mssons and mssonary socetes. Sunday schoo casses, chor groups, and
other assocatons formng a functona part of the organzaton of a church
fa wthn the e empton.
(3) ducatona nsttutons. dmssons, or e cess charges, a the proceeds
of whch (after payment of reasonabe e penses) nure e cusvey to the beneft
of an educatona nsttuton are e empt from the ta , provded () the educa-
tona nsttuton s e empt under secton 101 (f), or s an educatona nsttuton
of a government or potca subdvson thereof, () the nsttuton normay
mantans a reguar facuty and currcuum and normay has a reguary organ-
zed body of pups or students n attendance at the pace where ts educatona
actvtes are reguary carred on, and () no part of the net earnngs thereof
nures to the beneft of any prvate stockhoder or ndvdua. (For e ceptons
to ths e empton, see paragraph (c) of ths secton.) Generay, ths e emp-
ton appes n the case of nsttutons engaged n the presentaton of forma
nstructon, such as eementary and hgh schoos, coeges and unverstes,
through the medum of a reguar facuty and currcuum wh a reguary organ-
zed body of pups or students n attendance. owever, any educatona n-
sttuton e empt from ncome ta under secton 101(0), such as a museum, art
gaery, etc., may aso quafy under secton 17(11 (a) for an e empton from
the ta on admssons but ony f, as a substanta part of ts actvtes, such
nsttuton mantans a reguar facuty, currcuum, and student body.
ny organzaton sponsored and admnstered by an educatona nsttuton
as a part of ts educatona program, and n whch membershp s open to
any of the members thereof, s aso entted to e empton. ampes of such
organzatons are student governng bodes, athetc assocatons, dramatc cubs,
anguage cubs, scence cubs, and smar groups.
( ) Chartabe, organzatons. dmssons, or e cess charges, a the proceeds
of whch (after payment of reasonabe e penses) nure e cusvey to the beneft
of a corporaton or any communty chest, fund, or foundaton organzed and
operated e cusvey for chartabe purposes, e empt under secton 101(6). are
e empt from ta provded such corporaton or organzaton s supported, n
whoe or n part, by funds contrbuted by the Unted States or any State or
potca subdvson thereof, or s prmary supported by contrbutons from the
genera pubc, and f no part of the net earnngs thereof nures to the beneft
of any prvate stockhoder or ndvdua. (For e ceptons to ths e empton,
see paragraph (c) of ths secton.)
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19
101.5, Regs. 3.
Chartabe organzatons supported by funds contrbuted by the Unted States
or any Sate or potca subdvson thereof are entted to e empton regardess
of the e tent of the support receved and of the manner n whch the funds
are contrbuted, . e., whether as payment for specfc servces rendered by the
organzaton, by the aotment of any sum, or whatever other means may be used.
owever, chartabe organzatons supported by contrbutons receved from
the genera pubc, n order to show that they are prmary supported n such
manner, must estabsh that more than 50 percent of a the ncome receved
by the organzaton, s derved from that source. mounts pad for admsson
are not regarded as contrbutons for purposes of ths e empton.
(5) Symphony orchestra and opera organzatons. dmssons, or e cess
charges, a the proceeds of whch (after payment of reasonabe e penses) nure
e cusvey to the eneft of a socety or organzaton conducted for the soe
purpose of mantanng symphony orchestras or operas and recevng substan-
ta support from vountary contrbutons, are e empt from ta , If no part of
the net earnngs thereof nures to the beneft of any prvate stockhoder or
ndvdua. (For e ceptons to ths e empton, see paragraph (c) of ths secton.)
The name by whch an organzed group of muscans s caed s not the
test of whether or not such group s a symphony orchestra. It must have a
personne of suffcent sze and abty to render symphones capaby and such
symphones must form a ma|or part of ts reguar programs. ands and ord-
nary orchestras are not ncuded n the e empton.
(6) Chautauqua and assembes. dmssons, or e cess charges, a the pro-
ceeds of whch (after payment of reasonabe e penses) nure e cusvey to te
beneft of a socety or organzaton organzed pror to October 1, 11)51, e empt
from ncome ta under secton 101 (0) and operated for the purpose of conduct-
ng an annua Chautauqua program of educatona, cutura, and regous actv-
tes at a permanent ocaton are e empt from ta , If no part of the net earnngs
thereof nures to the beneft of any prvate stockhoder or ndvdua, (for
e ceptons to ths e empton, see paragraph (c) of ths secton.)
The term ehnuauqua program means an operaton desgned to provde a
seres of meetngs or assembes of persons who are brought together for a
common purpose, wheren a program of educatona, cutura, and regous
actvtes s carred on and durng whch courses of nstructon n ether edu-
catona, cutura, or regous actvtes are actuay partcpated n by persons
present for the program.
(7) Natona Guard and Reserve offcers assocatons or organzatons of vrar
veterans. dmssons, or e cess charges, a the proceeds of whch (after pay-
ment of reasonabe e penses) nure e cusvey to the beneft of Natona Guard
organzatons, Reserve offcers assocatons or organzatons, posts or organza-
tons of war veterans, or au ary unts or socetes of any of the foregong,
are e empt from ta , f organzed n the Unted States or any of ts possessons
and f no part of ther net earnngs nures to the beneft of any prvate stock-
hoder or ndvdua. (For e ceptons to ths e empton, see paragraph (c)
of ths secton.)
( ) Poce or fre department. dmssons, or e cess charges, a the pro-
ceeds of whch (after payment of reasonabe e penses) nure e cusvey to
the beneft of a poce or fre department (ncudng a vounteer tre department)
of any cty, town, vage, or muncpaty or e cusvey to a retrement, penson,
or dsabty fund for the soe beneft of members of such a poce or fre depart-
ment or to a fund for the hers of such members, are e empt from ta . (For
e ceptons to ths e empton, see paragraph (c) of ths secton.)
(c) None empt admssons. The e emptons provded by secton 1701(a)(1)
In the case of events hed for the beneft of the organzatons specfed theren
(paragraph (6) (2) through ( ) of ths secton) do not appy wth respect to
admssons to:
(1) ny athetc game or e hbton uness the proceeds nure e cusvey
to the beneft of an eementary or secondary schoo; or uness n the case
of -an athetc game between two eementary or secondary schoos, the entre
gross proceeds from such game nure to the beneft of a hospta for crpped
chdren. (See sec. 101.15(rf) (6).)
(2) Wrestng matches, prze fghts, or bo ng, sparrng, or other pugstc
matches or e hbtons, rrespectve of the status of the partcpants, the
character of the organzaton sponsorng the event, or to whom the adms-
son proceeds are payabe.
(3) Carnvas, rodeos, or crcuses n whch any professona performer
or operator partcpates for compensaton. It s mmatera whether the
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5 101.5, Regs. 3.
20
professona performer or operator s pad for hs servces from the adms-
son proceeds or from some other source.
( ) ny moton pcture e hbton.
(d) dmssons to specfc events e empt from ta . (1) grcutura fars.
dmssons to agrcutura fars the proceeds of whch are used e cusvey for
the mprovement, mantenance, and operaton of such fars are e empt from
ta . f no part of the net earnngs thereof nures to the beneft of any stockhoder
or member of the assocaton conductng the far.
The term agrcutura fars ncudes, n genera, a e hbtons of farm
produce, vestock, poutry, fowers, or the ke hed for the promoton or advance-
ment of agrcuture (ncudng hortcuture). It ncudes any e hbton of
anmas of a speces whose chef utty s n connecton wth agrcuture, hed
by an assocaton organzed to mprove that speces of anma and to dssemnate
knowedge concernng ts breedng.
The e empton afforded wth respect to agrcutura fars s mted to the
genera admsson charge to the far grounds or to any addtona payment for
seatng accommodatons offered n connecton wth any free event hed n con-
necton wth the far. The e empton does not e tend to admssons to any
e hbt, entertanment, or other event for whch a separate addtona admsson
charge Is made.
The foregong e empton appes ony to admssons to agrcutura fars and
does not e tend to admssons to events whch may be conducted at the far
grounds by the far assocaton when a far s not n progress, even though the
proceeds from such admssons may nure e cusvey to the beneft of the far
assocaton.
The foowng are e ampes of events regarded as agrcutura fars wthn
the meanng of the statute:
() n e hbton of artces of garden produce to stmuate a garden
movement In the communty.
() poutry show hed by a poutry fancers assocaton for the pur-
pose of teachng poutry farmers how to secure the greatest possbe egg
producton.
() horse far hed by a socety organzed to mprove the quaty of
farm anmas, the anmas e hbted beng chefy of that cass.
ampes of events whch do not quafy as agrcutura fars Incude the
foowng:
() dog show presented by a dog fancers assocaton.
() horse show hed prmary for the purpose of e hbtng fancy
rdng and drvng horses.
() food show presented by a reta grocers assocaton for the pur-
pose of e hbtng raw food products, the processes of manufacture, the
fnshed food products, and the food prepared for the tabe.
(2) Concerts. No ta s due wth respect to payments for admsson to con-
certs conducted by a cvc or communty assocaton operatng under a consttu-
ton, byaws, or other rues or reguatons provdng for a defnte cass of mem-
bershp, f no part of the net earnngs nures to the beneft of any member or
stockhoder. Ths e empton appes ony wth respect to concerts and has no
appcaton to other entertanments gven by auy such assocaton. Ths e emp-
ton appes regardess of the dsposton made of the proceeds from the
admssons.
(3) Muncpa swmmng poos, etc. dmssons to swmmng poos, bathng
benches, skatng rnks, or other paces provdng factes for physca e ercse,
whch are operated by any State or potca subdvson thereof or by the Unted
States or any agency or nstrumentaty thereof, are e empt from ta provded
the proceeds from the admsson charges nure e cusvey to the beneft of the
State, potca subdvson. Unted States, agency, or nstrumentaty. The term
State, for the purpose of ths e empton, ncudes aska, awa, and the
Dstrct of Coumba.
The e empton appes where the payment for admsson to the swmmng poo,
bathng beach, skatng rnk, or other pace provdng factes for physca e er-
cse enttes the person makng such payment to swm, skate, or otherwse use
the facty offered. The e empton does not appy, however, where the ony
prvege afforded the person payng for admsson s the rght of beng a
spectator at any event, e hbton, tournament, etc., conducted at the pace pro-
vdng such factes.
( ) ome and garden tours. dmssons to homes or gardens temporary
opened to the genera pubc as part of a program conducted by a socety or
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21
15101.5, Regs. 3.
organzaton to permt the Inspecton of hstorc homes and gardens are e empt
from ta , f no part of the net earnngs thereof nues to the beneft of any prvnte
stockhoder or ndvdua. Ths e empton appes regardess of the dsposton
made of the proceeds from the admssons.
(5) storc stes. dmssons to hstorc stes, houses, and shrnes, and
museums conducted In connecton therewth, mantaned and operated by a
socety or organzaton devoted to the preservaton and mantenance of such
hstorc stes, houses, shrnes, and museums are e empt from ta . If no part of
the net earnngs thereof nures to the beneft of any prvate stockhoder or
ndvdua. Ths e empton appes regardess of the dsposton made of the
proceeds from the admssons.
storc museums not mantaned In connecton wth hstorc stes, houses, or
shrnes are not entted to e empton wth respect to admssons thereto.
(6) thetc events. dmssons to any athetc game or e hbton the pro-
ceeds of whch nure e cusvey to the beneft of an eementary or secondary
schoo are e empt from ta . dmssons to any athetc game or e hbton be-
tween two eementary or secondary schoos are e empt from ta , provded the
entre gross proceeds from such game nure to the beneft of a hospta for crp-
ped chdren. For the purpose of ths e empton, the term secondary schoo
ncudes any hgh schoo, or the equvaent thereof, through grade 12.
(e) Scope of e empton, pror to November 1, 1951. (1) (enca rue. The
severa e emptons from the ta on admssons aowed by secton 1701 of the
Code and by the Interor Department ppropraton cts pror to October 1, M,
were termnated as of that date by secton 5 1 (b) and (c) of the Revenue ct
of 10 1. ccordngy, e cept as provded n subparagraph (2), a amounts pad
on and after October 1. 19 1, for admsson to any pace are sub|ect to ta , re-
gardess of the purpose of the entertanment or affar and regardess of the
trganzaton or person to whom the proceeds nure. chd under 12 years of
age admtted for ess than 10 cents s not abe for ta . (See secton 101. .)
(2) ceptnnn. () mounts pad on and after October 1, 19 1, for adms-
son to theaters and other actvtes operated by or under the contro of the War
Department or the Navy Department wthn posts, camps, reservatons, and other
areas mantaned by the Mtary or Nava stabshment sha be e empt from
the ta mposed by ths secton, provded the net proceeds from sad admsson
charges are used e cusvey for the wefare of the mtary or nava forces of the
Unted States. These e ceptons are not appcabe to amounts pad after
December 31, 19 7. (See sec. 11 of 1 ubc Law 3 , 0th Cong.)
() ffectve ugust 1, 10 , no ta s mposed when a hosptazed member
of the mtary, nava, or ar forces of the Unted States, or a person hosptazed
as a veteran by the Unted States In a Federa, State, muncpa, prvate, or
other hospta or Insttuton, s admtted free, provded such member or veteran
s not on eave or furough. (See secton 101.5(6) (2) 26 CFR 101.5 .)
() ffectve October 1, 1051, to and ncudng October 31, 1051, the ta does
not appy to the admsson free of charge of a member of the rmed Forces of
the Unted States when n unform. Ths e empton appes to free admssons
ony.
(/) dmssons by or for the beneft of Federa, State, or muncpa Govern-
ments. The fact that the authorty chargng admssons or recevng the proceeds
thereof s the Unted States or an agency thereof, or a State or Terrtory or
potca subdvson thereof, such as a county, cty, town, or other muncpaty,
does not make such admssons e empt, n the absence of specfc statutory
provson The Code specfcay provdes that the ta es on admsson sha be
I d by the person payng for admsson. It s not, therefore, a ta on the person
or authorty seng the admssons or recevng the proceeds therof.
Sec. 101.16. ppcaton for empton. determnaton concernng the
appcabty of an e empton provded by secton 1701 may e obtaned by the
tmey fng of a propery e ecuted appcaton for e empton on Form 755.
Ths form may be procured from any drector of nterna revenue. The appca-
ton sha show the pace and the occason wth respect to whch e empton
s requested. It sha be e ecuted by an offcer or duy authorzed agent of the
organzaton In contro of the admssons or e cess charges or, n the case of
contro by an ndvdua, the appcaton must be e ecuted by hm or hs duy
authorzed agent. Where the proceeds of the admssons or e cess charges
w nure to the beneft of an organsaton not n contro of such admssons or
e cess charges, the benefcary sha |on n e ecutng the appcaton for
e empton.
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1701.
22
The appcaton sha be fed wth the drector of Interna revenue for the
dstrct n whch s ocated the pace to whch the admssons w be sod. It
sha be fed as eary as possbe so that the organsaton may be advsed
n ampe tme pror to the date of the event of the acton taken by the drector.
The appcaton sha be accompaned by the necessary supportng data specfed
theren, so that acton can be taken wthout the necessty of addtona
correspondence.
taned n secton 3791 of the Interna Revenue Code (53 Stat. 67;
26 U. S. C. 3791).)
T. Coeman ndrews,
Comssoner of Interna Revenue.
pproved pr 15,1953-
M. . Fosom,
S CTION 1701. MPTIONS FROM T
Rev. Ru. 66
INT RN L R NU COD
ppcaton of the e empton provded by secton 1701(a)(1)
( )() of the Interna Revenue Code to admssons to games
conducted by an assocaton organzed to promote and mantan the
athetc actvtes of a h h schoo.
dvce s requested whether the e empton provded by secton
1701(a) (1) ( ) () of the Interna Revenue Code, wth respect to
admssons, the proceeds of whch nure to an educatona nsttuton,
s appcabe to admssons to athetc games conducted by an assoca-
ton organzed to promote and mantan the athetc actvtes of a
hgh schoo. It s stated that membershp n the assocaton s open
to any person n the communty and that funds derved from mem-
bershp dues, donatons and the proceeds from the games are handed,
admnstered and controed by the assocaton.
It s hed that the e empton provded by secton 1701(a)(1)( )
() of the Code s mted to organzatons engaged n the presenta-
ton of forma nstructon through the medum of a reguar facuty
and currcuum and a reguar body of pups. The assocaton de-
scrbed above, athough n operaton for the purpose of fnancay
assstng the schoo s athetc program s not consdered to consttute,
or be a part of, a schoo wthn the scope of the e empton. More-
over, secton 1701(a)(2) of the Code specfcay provdes, n part,
that the e empton afforded under sub-paragraph () above sha
not appy n the case of admssons to any athetc game or e hbton
uness the proceeds nure e cusvey to the beneft of an eementary
or secondary schoo or uness n the case of an athetc game between
two eementary or secondary schoos, the entre gross proceeds from
such game nure to the beneft of a hospta for crpped chdren.
Snce the proceeds from games conducted by the assocaton are
handed, admnstered and controed by the assocaton, such pro-
ceeds do not, wthn the meanng of the statute, nure e cusvey to
the beneft of the hgh schoo. ccordngy, the assocaton s not
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23
101.15, Regs. 3.
entted to e empton from the coecton of ta wth respect to ad-
msson charges to the games conducted by t.
empton from admssons ta may be aowabe wth respect to
games conducted by the assocaton ony f the eementary or second-
ary schoo s specfcay desgnated and becomes the benefcary of
the proceeds thereof, ether by havng the proceeds mmedatey
turned over to the schoo or by appropratng such proceeds to the
mmedate use of the schoo.
Rev. Ru. 67
INT RN L R NU COD
The e empton provded by secton 1701 (a) (1) ( ) of the Interna
Revenue Code does not appy to admssons to baseba games payed
by teams sponsored by organzatons of war veterans, where the
proceeds nure to the beneft of such organzatons.
dvce s requested whether the e empton provded by secton
1701(a) (1) ( ) of the Interna Revenue Code s appcabe to ad-
mssons to baseba games payed by teams sponsored by organza-
tons of war veterans, where the proceeds nure to the beneft of such
organzatons.
Secton 1701(a)(1)( ) of the Code provdes generay that the
ta does not appy to any admssons a the proceeds of whch nure
e cusvey to the beneft of Natona Guard organzatons, Reserve
offcers assocatons or organzatons, posts or organzatons of war
veterans, or au ary unts or socetes of any such posts or organza-
tons. owever, secton 1701(a) (2) ( ) of the Code specfcay pro-
vdes, that the above e empton sha not appy n the case of adms-
sons to any athetc game or e hbton uness the proceeds nure e -
cusvey to the beneft of an eementary or secondary schoo or uness
n the case of an athetc game between two eementary or secondary
schoos, the entre gross proceeds from such game nure to the bene-
ft of a hospta for crpped chdren.
Snce the admssons nvoved n the nstant case are to athetc
games and the proceeds from such games do not nure to the beneft
of an eementary or secondary schoo, the e empton under secton
1701(a)(1)( ), s pra, does not appy. ccordngy, amounts co-
ected as admssons to such games are sub|ect to ta .
Sectton 101.15, Rf.ouatons 3: emptons
from ta .
INT RN L R NU COD
Secton 101.15, Reguatons 3: emptons
from ta .
INT RN L R NU COD
Sae of admssons by organzaton wth soe rght to dspose of a
admssons. (See Rev. Ru. 113, page 12.)
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320.30, Regs. 51. 2
C PT R 11. DOCUM NTS, OT R INSTRUM NTS, ND
PL YING C RDS INCLUDING ST MP T S
SU C PT R .-R T ND P YM NT OF T
S CTION 1 07.-PL YING C RDS
rttce , Reguatons 66: Ta on payng Rev. Ru. 97
cards.
INT RN L R NU COD
Payng card stamps, propery aff ed to packs when removed from
the pace of manufacture, may not be redeemed once the cards have
been removed from the premses of the manufacturer.
dvce s requested whether payng card stamps whch were prop-
ery aff ed to packs of cards when removed from the pace of manu-
facture, may he redeemed by the ureau where the cards were
subsequenty returned to the manufacturer by the purchaser and the
stamps or wrappers to whch they were aff ed were n an unusabe
condton.
Secton 1 07 of the Interna Revenue Code mposes a ta of 13 cents
upon every pack of payng cards contanng not more than 5 cards,
manufactured or mported, and sod, or removed for consumpton or
sae. rtce of Reguatons 66, reatng to the ta on payng cards,
provdes n part that the ta on payng cards accrues upon remova
from the factory or pace where made, or upon sae pror to such
remova, and s to be pad by the manufacturer thereof by aff ng of
stamps before remova.
Labty for the ta s ncurred by the manufacturer of payng
cards upon remova of the cards from the pace of manufacture and
payment of the ta s evdenced by aff ng stamps to the packs of
cards. There s no provson of aw under whch payng card stamps,
propery aff ed to packs when removed from the pace of manufac-
ture, may be redeemed after the cards have been removed from the
premses of the manufacturer.
ccordngy, t s hed that the ta was propery pad upon remova
of the payng cards from the premses of the manufacturer and the
stamps may not be redeemed wth respect to the packs returned to the
manufacturer, regardess of the condton of the stamps or wrappers
to whch they were attached.
C PT R 19. R T IL RS CIS T S
S CTION 2 00. T ON W LRY, TC.
( so Secton 2 01, Secton 320. 0, Regua-
tons 51.)
INT RN L R NU COD
ets and bet buckes whch are made of, or ornamented wth
precous metas, pears, or precous or semprecous stones are sub|ect
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25
320.50, Regs. 51.
to the 20 percent ta mposed by secton 2 00 of the Interna Revenue
Code when sod at reta regardess of whether they are sod separatey
or n combnaton. owever, bets and bet buckes whch contan
no precous metas, pears, or precous or semprecous stones, and to
whch are permanenty attached mtatons of pears, or precous
or semprecous stones are n the nature of dress fndngs and are not
consdered ta abe wthn the purvew of secton 2 00 of the Code.
ets made of fur on the hde or pet are consdered to consttute
artces of fur and sub|ect to the 20 percent ta mposed by secton
2 01 of the Code, regardess of the ornamentaton thereon.
S CTION 2 01. T ON FURS
Secton 320. 0, Reguatons 51: Scope of ta .
INT RN L R NU COD
ets made of fur cn the hde or pet sub|ect to ta . (See Rev.
Ru. 9 , page 2 .)
S CTION 2 02. T ON TOIL T PR P R TIONS
INT RN L R NU COD
ppcaton of ta on toet preparatons, mposed by secton 2 0 2
of the Interna teveuue Code, as amended, to the sae of preparatons
or products ntended for use soev as a remedy for dandruff.
Mmeograph 5 2 , C. . 19 5, 3 , modfed.
dvce s requested concernng the appcaton of the ta on toet
preparatons, mposed by secton 2 02 of the Interna Revenue Code,
as amended, to the sae of preparatons or products ntended for use
as a remedy for dandruff or for the emnaton of scaes or fakes
resutng from dandruff.
Secton 2 02 of the Code mposes upon the foowng artces sod
at reta a ta of equvaent to 20 percent of the prce for whch to
sod:
Ferfmes, essences, e tracts, toet waters, cosmetcs, petroeum |ees, har
os, pomades, har dressngs, har restoratves, har dyes, aromatc cachous,
toet powders, and any smar substance, artce, or preparaton, by whatsoever
name known or dstngushed; nny of the above whch are used or apped or
Intended to be used or apped for toet purposes.
It s hed that the ta mposed by secton 2 02 of the Code does not
appy to the sae of preparatons or products used or ntended for
use as a remedy for, or as an appcaton for reef from, dandruff (n-
cudng the ncdenta emnaton of dandruff scaes or fakes), pro-
vded the abes, eafets, or other advertsng reatng thereto, are so
mted as to e cude any reference to the use of preparatons or prod-
ucts for toet purposes (such as to mprove one s persona appear-
ance).
Mmeograph 5 2 , C. . 19 5, 3 , s modfed to the e tent
nconsstent herewth.
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2 00-3195.
26
Secton 320.50, Reguatons 51: Scope or ta . ev. Ru. 11
INT RN L R NU COD
Perfume purchased n buk and dspensed through a con-operated
vendng machne s a sae at reta and sub|ect to the ta on toet
preparatons Imposed by secton 2 02 of the Interna Revenue Code,
computed n accordance wth secton 2 03 of the Code.
dvce s requested whether the dspensng of perfume through a
con-operated machne by nsertng a con theren consttutes a sae
at reta wthn the meanng of secton 2 02 of the Interna Revenue
Code.
Secton 320.50 of Reguatons 51 provdes n part that the ta at-
taches to the sae by the retaer of the artces enumerated n secton
2 02 of the Code and smar artces commony or commercay known
as toet artces. Secton 2 02 of the Code, among other artces, m-
poses a ta upon perfume sod at reta.
It s hed that the dspensng of perfume through a con-operated
machne by nsertng a con theren consttutes a sae at reta wthn
the meanng of secton 2 02 of the Code. ccordngy, the owner of
the machne from whch the perfume s dspensed, s the person se-
ng the perfume at reta and s abe for reportng and payng the
ta wth respect thereto whch may be computed n accordance wth
secton 2 03 of the Code on the bass of the tota returns from the
machne durng each month rather than on ndvdua saes.
INT RN L R NU COD
The sae of cod cream by a manufacturer to doctors or hosptas for
use for toet purposes n tre same form as purchased s a sae at reta
wthn the meanng of secton 2 02 of the Interna Revenue Code and
therefore sub|ect to the ta mposed thereunder; however, a sae of
cod cream by a manufacturer, usuay n buk, to doctors, hosptas,
or druggsts for further manufacturng purposes, such as the use of
the cod cream as a component matera n the compoundng of medc-
na ontments, s not consdered to be a sae at reta wthn the mean-
ng of secton 2 02 of the Code and s not sub|ect to the ta thereunder,
provded, that the manufacturer has n hs possesson a statement from
the purchaser showng that the cod cream was purchased for such use.
C PT R 26. LI UOR
S CTIONS 2 00-3195. LI UOR
Rev. Ru. 20
INT RN L R NU COD
Crmna convcton under secton 3110 of the Interna Revenue
Code for the possesson of goods ntended for use n voatng the pro-
vsons of the nterna revenue aws affrmed n a case where evdence
obtaned as a resut of search and sezure wthout a warrant was
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27
2 00-3195.
rued admssbe snce, under the crcumstances, the sezng offcers
had probabe cause to beeve that a voaton of the aw was takng
pace.
ttenton s caed to the per curam opnon of the Unted States
Court of ppeas for the Fourth Crcut n the case of Water
e ander Godette v. Unted States (199 Fed. (2d) 331), decded
October 11, 1952 (No. 6 36), affrmng a crmna convcton, under
secton 3116, tte 26, Unted States Code, for the possesson of 12,000
pounds of sugar whch was ntended for use n voatng the provsons
of the nterna revenue aws.
In the case of Unted States v. Iarvn et a. (91 Fed. Supp. 2 9),
the court sad that secton 3116 defnes a crmna offense as we as
a forfeture. In the Godette case, supra, an appeate court has, for
the frst tme, affrmed a convcton under ths secton. ence, whe
the offense s punshabe as a msdemeanor, ths secton may be used
to advantage n the prosecuton of persons possessng property whch
n,ay be shown to have been ntended for use n voatng the nterna
revenue aws.
The Godette opnon s aso mportant because the court rued ad-
mssbe n the crmna proceedngs, under the crcumstances n ths
case, evdence obtaned as a resut of the search and sezure, wthout a
warrant, of the truck contanng the 12,000 pounds of sugar. The
ega search and sezure ssue was the prncpa pont rased n the
appeate court.
The opnon n the Godette case, supra, reads as foows:
Water e ander Godette was found guty n a tra before the |udge wthout
a |ury n the dstrct court of voatng 20 U. S. C. . secton 3116, of possessng
property, to wt, 12,000 pounds of sugar contaned In 120 bags, whch was
ntended for use n voatng the provsons of the nterna revenue aws, and
was sentenced to pay a fne of o00. Durn the tra the defendant moved the
dstrct |udgt to suppress the evdence whch was secured by the sezure and
search of the truck on the ground that the search was made n voaton of the
fourth amendment to the Federa Consttuton; but the moton was dened and
the man queston on ths appea reates to the proprety of that acton In vew
of the crcumstances attendng the sezure.
On r ctoher 25, 1951, certan Government offcers raded a arge ct st
ocated n the woods about three-quarters of a me from Godette s resdence,
n the neghborhood of North arow, N. C. fter destroyng the st and
arrestng severa persons, the offcers proceeded by automobe to New ern,
N. C. n route they met the defendant drvng a truck but dd not at frst
recognze hm. Whe passng the truck they observed that t was heavy
aen and that the contents were covered wth tarpaun. They turned around
and foowed the truck for haf a me and were abe to see that the truck was
carryng some substance contaned n bags. They then pued up aong sde
the truck and recognzed the drver as Godette whom they had known as a
man wth a bad record and reputaton for the ct manufacture of whsky
and fnancng others engaged n ths occupaton. They then sgnaed hm to
stop by usng the sren. The defendant stopped hs truck and upon beng asked
f he had sugar on hs truck, reped that he dd have sugar contaned n 120
one hundred pound bags. e permtted the nvestgators to e amne the sugar.
e dened, however, that t was hs sugar statng that he bad gotten t for
one ohn Carter who operated a sma grocery store at North arow; and
he e hbted a h of sae made out to Carter from a baker n Greenve, N. C,
n an amount of 1,0 0. t the tra Carter testfed that the defendant had
rever haued any sugar for hm and that the sugar n queston was not ntended
for hm and that hs gross busness at bs store was between 200 and 300 per
week. The baker who sod the su rar testfed that he had sod sugar to the
defendant a number of tmes before the day of the sezure.
We thnk that the sezure of the truck and the sugar under these crcumstances
dd not amount to an unreasonabe search and sezure n voaton of the amend-
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1 2.630a, Regs. 3.
2
ment. It has been frmy estabshed snce the decson n Carro v. Unted
States, 267 D. S. 132, 5 S. Ct. 2 0, 69 L. ed. 5 3, that the search of an automobe
wthout warrant and the sezure theren of ct quor or matera for the
ct manufacture of quor, whch s sub|ect to sezure under the acts of Con-
gress, does not voate the amendment, f made upon probabe cause or the beef,
reasonaby arsng out of crcumstances known to the offcers, that the vehce
contans such artces. In that case the court hed that when the securng of a
search warrant s reasonaby practcabe, t must be used, but when sezure s
mpossbe, e cept wthout warrant as n the case of a movng vehce on the
hghway, the sezng offcer may proceed wthout warrant If he has reasonabe
cause for beef that the contents of the vehce offend the aw.1
There was probabe cause n the pondng case. The offcers had ust destroyed
a arge st n the genera neghborhood of the defendant s resdence; the sugar
truck was proceedng to that secton of the communty; the drver of the truck
was reputed to be a voator of the quor aws and ths fact was known to the
offcers; the truck was oaded wth 6 tons of sugar and the ony e panaton
was that the goods were ntended for a sma neghborhood grocery store. No
force was used n the course of the transacton. The defendant stopped hs truck,
when requested to do so, and consented to the nspecton of hs oad. These
crcumstances ed the offcers reasonaby to beeve that a voaton of the aw
was takng pace and they woud have been recreant to ther duty f they had
not made the sezure and hed the property unt an e haustve nvestgaton
coud be made. See, usty v. Unted States, 2 2 U. S. 69 , 51 S. Ct. 2 0, 75 L. ed.
629; rnegar v. Unted States, 33 D. S. 160, 69 S. Ct. 1302, 93 L. ed. 1S79; Grce
v. Unted States, Cr., 1 6 Fed. (2d) 9; Robnson v. Unted States, 5 CIr., 16
Fed. (2d) 271; Pearson v. Unted States, 10 Cr., 150 Fed. (2d) 219; Ray v. Unted
States, 5 Cr., Fed. (2d) 65 .
When the case came to tra the evdence not ony showed the crcumstances
of the sezure, as above set out, but the neghborhood grocer, n whose name the
sugar had been bed, testfed that the sugar dd not beong to hm. Moreover,
the baker, who sod the sugar to the defendant, testfed that he had made
smar saes of sugar to the defendant on pror occasons. Nether the defend-
ant nor any one on hs behaf testfed as to the purpose for whch ths arge
amount of sezed sugar had been acqured, or the use to whch t woud be put;
and t was proved that sugar had been used for the ct manufacture of quor
n the neghborhood. Takng a these crcumstances nto consderaton, t s
obvous that there was suffcent evdence before the court to |ustfy the verdct
of guty.
ffrmed.
Secton 1 2.630a, Reguatons 3: Genera. Rev. Ru. 36
( so Secton 1 2.630b, Reguatons 3; Sec-
tons 17 .296,17 .29 , Reguatons 7; Sec-
ton 1 5. 15, Reguatons 10; Secton
176.11, Reguatons 2 ; and Secton
192.390, Reguatons 1 .)
INT RN L R NU COD
1. Purpose. Secton 309 of the Tarff ct of 1930, as amended, 19
U. S. C. 1309, and sectons 1 2.630a-1 2.630b of Reguatons 3, In-
dustra coho, sectons 17 .296-17 .29 of Reguatons 7, Wne,
1 In Unted States v. Rabnowtz, 339 U. S. 66. 70 S. Ct. 30, 9 L. ed. 653, the court
rea ed the strct rue that requres a search warrant soey upon the bass ot the pract-
cabty of procurng It rather than upon the reasonabeness of the search after a awfu
arrest. The court sad, 339 D. S. at page 66, 70 S. Ct. at page 35 : rue of thumb
requrng that a search warrant aways be procured whenever practcabe may be appeang
from the vantage pont of easy admnstraton. ut we cannot agree that ths requrement
shoud be crystazed Into a sne qua non to the reasonabeness of a search. It Is
fancous to |udge events retrospectvey and tus to determne, consderng the tme
eement aone, that there was tme to procure a search warrant. Whether there was tme
may we be dependent upon consderatons other than the tckng off of mnutes or hours.
The udgment of the offcers as to when to cose the trap on a crmna commttng a crme
In ther presence or who they have reasonabe cause to beeve Is commttng a feony Is
not determned soey upon whether there was tme to procure a search warrant. Some
fe bty w be accorded aw offcers engaged In day batte wth crmnas for whose
restrant crmna aws are essenta.
Orgnay Issued ns IR-Mmeograph 126, dated February 6, 1953.
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29
( 1 2.630a, Regs. 3.
secton 1 5. 15 of Reguatons 10, Warehousng of Dsted Sprts,
and secton 176.11 of Reguatons 2 , Drawback on Dsted Sprts
and Wnes, authorze the wthdrawa of acoho, wne, and dsted
sprts, free of ta or wth beneft of drawback, for use on certan ves-
ses and arcraft, and secton 192.390 of Reguatons 1 , Fermented
Mat Lquors, authorzes the wthdrawa of fermented mat quors,
free of ta , for use on certan vesses and arcraft. The purpose of
ths rng s to provde a current stng of those countres whose ves-
ses of war, and arcraft engaged n foregn trade, may wthdraw
acohoc quors, free of ta or wth beneft of drawback, pursuant to
secton 309 of the Tarff ct pf 1930 as amended, n accordance wth
Treasury Decson 530 6, approved uy 16, 1952, 17 F. R. 6732.
2. Suppes for vesses. Secton 10.59 of Customs Reguatons of
19 3, as amended, and as further amended by Treasury Decson 530 6,
supra, provdes, n part, as foows:
10.50 empton from customs dutes and nterna-revenue ta . (a) ves-
se sha not be consdered to he actuay engaged n the foregn trade, or n
trade between the tantc and Pacfc ports of the Unted States, or between
the Unted States and ts possessons, as the case may be, for the purpose of
wthdrawng suppes from bonded warehouses free of duty and nterna-revenue
ta pursuant to secton 309(a), Tarff ct of 1930. as amended, uness t s
(1) Operatng on a reguar schedue n a cass of trade whch enttes It to
the prvege;
(2) ctuay transportng passengers or merchandse to or from a foregn
port, a port on the opposte coast of the Unted States, or between a port n a
possesson of the Unted States and a port n the Unted States or n another
of ts possessons;
(3) Proceedng n baast to another domestc port to ade passengers or
cargo for a foregn port, and ts ast carrage of passengers or cargo pror to
departure from thp port of wthdrawa was n foregn trade; or
( ) Departng In baast from the port at whch the wthdrawa s made
for a foregn port, a port on the opposte const of the Unted States, a port
n one of the possessons of the Unted States (or f the port of wthdrawa
s n a possesson of the Unted States, for a foregn port, the Unted States,
or another possesson of the Unted States) for the purpose of adng passeng-
ers or cargo at the port of destnaton for transportaton n a cass of trade
specfed n secton 309(a), Tarff ct of 1930, as amended, for whch cass
of trade the vesse s sutabe and seaworthy at the tme of eavng the port
of wthdrawa and from whch t s not dverted pror to such adng.

(d) The prvege sha be accorded to vesses of war of the foowng countres:
WT D W L OF SUPPLI S FOR SS LS
rgentna
ustraa
egum
raz
Canada
Che
Coomba
Cuba
Denmark
The Domncan Repubc
thopa
Fnand
France
Great rtan
Greece
at
Inda
Ireand
Me co
The Netherands
New Zeaand
Ncaragua
Norway
Panama
Span
Sweden
Thaand
Turkey
Unon of South frca
Uruguay
enezuea
2C335 1 53 2
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Regs. No. 5.
30
3. Suppes and equpment for arcraft of foregn regstry. In ac-
cordance wth secton 309(d) of the Tarff ct of 1930, as amended by
the Customs dmnstraton ct of 193 , the Secretary of Commerce
has found and has advsed the Secretary of the Treasury that the be-
ow sted countres e tend to arcraft regstered n the Unted States
and engaged n foregn trade, prveges substantay recproca to
hose gven arcraft regstered n such foregn country and engaged n
foregn trade by secton 309 (a) of such act:
ustraa France
ahama Isands Israe
egum Tbe Netherands
ermuda Norway
Canada Sweden
Denmark Swtzerand
cuador Unted ngdom
. For gudance of offcas concerned. ssstant Dstrct Comms-
soners, coho and Tobacco Ta , shoud be guded by the above n
actng upon appcatons to wthdraw acoho, wnes, and dsted
sprts, free of ta or wth beneft of drawback, for use on certan ves-
ses and arcraft, and appcatons to wthdraw fermented mat quors,
free of ta , for use on certan vesses and arcraft, pursuant to the
provsons of aw and reguatons referred to above.
5. Correspondence. Correspondence reatng to ths Revenue Ru-
ng shoud refer to the number thereof and the symbos O: T: PPt.
Reguatons No. 5 ( coho Ta ct.) T. D. 5977
TITL 27 INTO IC TING LI UORS. C PT R I. P RT 5. L LING ND
D RTISING OF DISTILL D SPIRITS
Requrements for abeng dsted sprts
Washngton 25, D. C.
Dstrct Commssoners, ssstant Dstrct Commssoners, coho
and Tobacco Ta , and Others Concerned:
1. Notce of pubc hearng to be hed n Washngton, D. C, on
December 19, 1952, wth respect to certan proposas to amend Regu-
atons No. 5, Reatng to Labeng and dvertsng of Dsted
Sprts, was pubshed n the Federa Regster on December 3, 1952
(17 F.R. 1090 ).
2. Upon the concuson of the sad hearng and after consderaton
of a reevant matera submtted by nterested persons n connecton
therewth regardng the proposas, the foowng amendments to sec-
ton 5 (27 CFR 5.35) are hereby adopted:
(a) y deetng the present subsectons (a) and (b) of secton 35
(27 CFR 5.35), and nsertng n eu thereof the foowng new sub-
secton (a):
(a) ofd hy . On abes of domestc dsted sprts, there sha he stated
the phrase hotI ed hy , mmedatey foowed by the name (or trade name) of
the botter and the pace where such dsted sprts are botted. If the botter
s the actua bona fde o erator of more than one bottng pant engaged n
bottng the same brand of dsted sprts, there may be stated Immedatey
foowng the name (or trade name) of such botter the addresses of the pants
at whch such product s botted: Prordrd, That the State of dstaton Is
stated as provded by subsecton (e) of ths secton: Provded further,
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31
17 .139, Rege. 7.
(1) That, where dsted sprts are botted by or for the dster thereof,
there may be stated, n eu of the phrase botted by , foowed by the botter s
name (or trade name) and address, the phrase dsted by , foowed by the
name (or trade name) under whch the partcuar sprts were dsted, and
the address (or addresses) of the dster;
(2) That, where dsted sprts are botted by or for the rectfer thereof,
there may be stated, n eu of the phrase botted by , foowed by the botter s
name (or trade name) and address, the phrases bended by , made by , pre-
pared by , manufactured by , or produced by (whchever may be approprate
to the act of rectfcaton nvoved), foowed by the name (or trade name) under
whch the dsted sprts were rectfed, and the address (or addresses) of the
rectfer.
(b) y reetterng the present subsecton (c) as subsecton (b)
and by amendng the phrase by subsectons (a) and (b) n the frst
sentence of paragraph ( ) of that subsecton to read by subsecton
(a) .
(c) y deetng the present subsectons (d) and (e) and nsertng
n eu thereof a new subsecton (c) as foows:
(c) otted for . In addton to the requrements of (a) and (b) of ths
secton, there may aso be stated the name and address of the person for whom
the dsted sprts are botted, Immedatey preceded by the words botted for
or dstrbuted by , or other smar statement.
and by reetterng the present subsectons (f), (g), and (h) as sub-
sectons (d), (e),and (f), respectvey.
3. These amendments reeve restrctons presenty contaned n
the reguatons and sha become effectve on the date of pubcaton n
the Federa Regster.
(Ths Treasury Decson s ssued pursuant to and under the author-
ty contaned n secton 5 of the Federa coho dmnstraton ct
as amended ( 9 Stat. 9 1); eorganzaton Pan No. I, paragraph
2 (5 Stat. 1232); 1950 Reorganzaton Pan No. 26 ( 6 Stat. 12 0);
secton 3170 of the Interna Revenue Code (53 Stat. 373); and secton
161 of the Revsed Statutes (5 U. S. C. 22)).
ohn S. Graham,
pproved anuary 2 , 1953.
M. . Fosom,
(Pubshed n the Federa Regster February , 1953)
Secton 17 .139, Reguatons 7: Neutrazng, Rev. Ru. 25
sterzng, and preservng agents.
( so Sectons 17 .20 , 17 205, 17 .206, Regu-
atons 7.)
INT RN L R NU COD
Materas approved for use n manufacture of wnes
1. The foowng materas have been approved for use by wne-
makers n fterng, carfyng, purfyng, or other cear treatment of
wnes, wthn the mtatons and condtons set forth heren and n
sectons 17 .139, 17 .20 , 17 .205, and 17 .206 of Reguatons 7. The
procedure stated n paragraph 2 of ths Revenue Rung must be
observed, and the records referred to n paragraph must be
mantaned.
Orgnay ssued as IR-Mmeograph 106, dated anuary 16, 1953.
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17 .139, Regs. 7.
32
nd of matera
ctvated carbon.
ctvated carbon
ntfoam (Scone
compound).
sbestos, shredded....
Carbon
Charcoa (bone)
Ctrc acd.
Datomaceous earth
( -fow; Sod; Su-
percc; Soka Foe).
ggs (abumen c r
yoks).
Geatn
Gypsum (same as ca-
cum sufate see
above).
ydrated me (same
as cacum hydro -
de see above).
ydrogen pero de
Purpose for whch used
To carfy and purfy
wne.
To remove e cess coor n
whte wnes.
To reduce the foam n
ferm enters.
To carfy wne .
To carfy and purfy
wne.
To purfy wne
To stabze grape wne..
In fter ng and carfyng
wne.
To carfy wne
To reduce the sufur d-
o de content of ds-
tng matera.
Lmtatons
May be used n accordance
wth secton 17 .20 , Reg-
uatons 7.
wth secton 17 .206, Reg-
uatons 7. ppcaton
must be fed.
May not affect the basc
composton of the wne.
uatons 7.
Mav be used n accordance
uatons 7.
uatons 7.
uatons 7.
ot to e ceed 2 pounds per
ton.
Fnshed wne, when mar-
keted, must not contan
more than 2 grams per
ter of potassum sufate,
as wne contanng n e -
cess of ths amount s con-
sdered n|urous to heath
by the Food and Drug
dmnstraton. ppca-
ton must be fed.
w th secton 17 .20 , Reg-
uatons 7.
uatons 7.
uatons 7. ppcaton
must be fed.
atons 7.
uatons 7.
uatons 7.
None of the matera may be
contaned n the dstate.
entonte (Wyomng
cay).
Cacum carbonate
Cacum hydro de (hy-
drated me).
Cacum hydro de (hy-
drated me).
Cacum sufate (gyp-
sum);
To carfy wne
To reduce e cessve nat-
ura acdty n wne.
To reduce e cessve nat-
ura acdty n wne.
To factate pressng
|uce from pup, pee
and cu oranges n
makng dstng ma-
tera.
Producton of Spansh
type or For sherry
wne;
To carfy wne.
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33
17 .139, Regs. 7.
nd o|
Isnga
Mnera o.
Fvrpftf for (rfttt
To carfy -wne
Mnera o.
Used on surface of wne
n storage tanks to pre-
vent the access of ar
to the wne.
To remove ob|ectonabe
teste and odor of wne.
Ntrogen gas To mantan pressure
durng fterng and
bottng of champagne.
To prevent o daton
of wne.
Oak chps (uncharred In agng and bakng
and untreated). sherry wne n redwood
cooperage.
To treat wne.
Oak chps (uncharred
and untreated).
OIvro (fney dvded Fterng, carfyng and
metac sver). purfyng wne.
O ygen . In bakng sherry wne...
Pcctno To carfy wne.
Thosfates.
To start secondary fer-
mentaton n manufac-
turng champagne and
sparkng wnes.
Potassum metabsu-
fte.
Sterzng and
servng wne.
pre-
Protovac Casen T -20 Carfcaton of wne
(Neutra Sodum
Casenate).
Sodum Metabsufte. Sterzng and preserv-
ng wne.
Sparkood (powdered Carfcaton of wne
agar and fter ad).
mattotu
uatons 7.
None of the o may be con-
taned n the fnshed wne
when marketed.
May not affect basc com-
poston of wne and none
of the mnera o may be
contaned n the fnshed
wne.
May not be contaned n
champagne or st wne.
Fnshed product must have
the favor and coor usu-
ay deveoped by the
storage and bakng of
sherry wne n oak cooper-
age. ppcaton must be
fed.
May not change the compo-
ston and character of the
wne, other than that ac-
compshed durng the
usua storage of wne n
oak cooperage. pp-
caton mutt be fed.
uatons 7.
May be used provded t
does not cause changes n
the wne other than those
occurrng durng the usua
storage n wooden cooper-
age over a perod of tme.
ppcaton must be fed.
One pound per 100 gaons
of wne, n accordance wth
secton 17 .20 , Regua-
tons 7.
Sma quantty ony may be
used. (The use of am-
monum phosfate, ammo-
num sufate, or potassum
acd phosfate as yeast food
n the producton of st
wne s not permtted.)
uatons 7.
w:th secton 17 .20 , Reg-
uatons 7.
uatons 7.
Two pounds to 1,000 gaons
of wne, n accordance
uatons 7.
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S 17 .139, Regs. 7. 3
nd o matera Purpose for tchkh used Lmatont
Sufurc acd To effect a favorabe May not be contaned n
yeast deveopment n dstate,
dstng matera.
Sufur do de Sterzng and preserv- May be used n accordance
ng wne. wth secton 17 .139, Reg-
uatons 7.
Tannn Carfyng grape wne May be used n accordance
uatons 7. ppcaton
must be fed.
Urea To factate fermenta- Not e ceedng 2 pounds per
ton of wne. thousand gaons of must.
May be used as a yeast
food.
Zeote (nert carbona- For carfcaton and re- May be used n accordance
ceous matera). mova of metac com- wth secton 17 .20 , Reg-
ponents of tartrates. uatons 7.
2. It s the responsbty of the wnemaker to see that materas
empoyed n the fterng, carfyng, purfyng, or other treatment
of wnes are used wthn the mtatons prescrbed heren and n the
reguatons. Faure of the wnemaker to observe such mtatons n
the use of the materas may ncur abty for rectfcaton ta or the
mposton of penates. The foowng procedure s prescrbed to
factate compance wth the requrements of the reguatons:
a. ppcaton not requred. If the wnemaker desres to use a
matera specfcay named n the above st, for one of the purposes
authorzed by secton 17 .139 or 17 .20 of Reguatons 7, he need
not fe an appcaton for permsson to use such matera, provded
the matera s used wthn the prescrbed mtatons.
b. ppcaton must be fea. If the wnemaker desres to use a
matera for a purpose authorzed by secton 17 .139 or 17 .20 of
Reguatons 7, and the matera s named n the above st, but the
wnemaker s doubtfu whether the quantty he desres to use w
change the basc composton of the wne or emnate characterstc
eements of the wne, or f the wnemaker desres to use a quantty n
e cess of that specfcay stated n the st, an appcaton, n trp-
cate, contanng a fu statement regardng the proposed use of the
matera shoud be submtted to the ssstant Dstrct Commssoner,
TT. When deemed essenta, sampes of each knd of wne before
and after fterng, carfyng, purfyng, or other treatment, wth
some of the matera shoud be submtted to the assstant dstrct com-
mssoner for e amnaton by the dstrct aboratory. fter approva
or dsapprova by the assstant dstrct commssoner, the orgna
appcaton w be returned to the wnemaker, one copy w be re-
taned for the assstant dstrct commssoner s records and the re-
manng copy w be forwarded to the ead, coho and Tobacco
Ta Dvson, Washngton, D. C, marked ttenton: O: T: PPt .
c. ppcaton must be fed. If the wnemaker desres to use tan-
nn or ctrc acd under the provsons of secton 17 .205 of Regua-
tons 7, or matera to remove e cess coor n wnes under the pro-
vsons of secton 17 .20G of Reguatons 7, an appcaton must be
fed as requred n such sectons.
d. ppcaton must be fed. If the wnemaker desres to use a
matera bearng the statement ppcaton must be fed n the
above st, an appcaton must be fed, even though the matera
s used wthn the stated mtatons.
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35
15 17 .139, Regs. 7.
e. ppcaton must be fed. Where the wnemnker desres to use
matera ether than that specfcay named n Reguatons 7, or n
the above st (but e cudng sufur n ts varous forms), he must
fe appcaton, n trpcate, wth the assstant dstrct commssoner,
settng forth the name and descrpton of the matera, the purpose,
the manner and e tent to whch t s to be used, together wth any
pertnent nformaton n regard to ts composton. sampe of
the matera shoud be submtted wth the appcaton. The app-
caton, n trpcate, wth the sampe of the matera, w be for-
warded to ths offce by the assstant dstrct commssoner. Two
copes of the appcaton w be returned to the assstant dstrct
commssoner wth advce whether the appcaton s approved or ds-
approved and f approved, the mtatons to be observed. The assst-
ant dstrct commssoner w retan one copy of the appcaton and
return one copy to the wnemaker.
3. Where an appcaton covers the use of materas n wnes n-
tended for use as dstng matera, the appcaton shcud be ac-
companed by a statement contanng the nformaton requred by
secton 1 1.191 of Reguatons 5.
. record of the purchase and recept of materas ntended for
the cear treatment of wnes must be kept, as requred by secton
17 .127 of Reguatons 7, and n addton where materas are used
under the provsons of secton 17 .139 or 17 .205 the record of use
requred by such sectons must be kept.
5. The foowng materas, not specfcay descrbed n Regua-
tons 7, have been approved as ngredents for wne, wthn the stated
mtatons (t s not necessary for wnemakers to fe appcatons
before usng such materas, but the producton record (Form 701)
must ceary show the use) :
md o matera Purpote fnr aen wed
rewers chps Fermentaton and sweet-
enng of nonstandard
wne.
Raw cane sugar 1 sed n sugar-water so-
uton for fermentaton
of natura wne.
De trose.
Fermentng and sweet-
enng of wne.
ops Manufacture of honey
wne to factate fer-
mentaton and the pro-
ducton of a market-
abe product.
6. Correspondence n regard to ths Revenue Rung shoud refer
to the number thereof and to the symbos O : T : PPt.
Lm atont
rewers chps are cassed
as corn sugar. Wne
must be abeed to show
the use of com sugar.
pproved provded the sugar
does not contan suffcent
moasses favor or coor
to affect the favor and
coor of the wne, and the
su ;ar contans not ess
than 95 percent of actua
sugar cacuated on a dry
bass. May not be used
for sweetenng wne after
fermentaton.
May be used ony where the
aw and reguatons au-
thorze the use of de trose
sugar.
May be used n quanttes
not e ceedng 1 pound of
hops for each 1,000 pounds
of honey.
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1 5.5 , Regs. 10.
36
Secton 1 5.5 , Reguatons 10: Determnaton T. D. 6002
of tare Method of determnaton.
( so Sectons 1 5.590, 1 5.600, 1 5.001, 1 5.695,
Reguatons 10.)
TITL 20 INT RN L R NU . C PT R I. SUIC PT tt C, P RT 1 5.
W R OUSING OF DISTILL D SPIRITS
Revsed Instructons for use of Form 1520 and Form 1619
Washngton 25, D. C.
1. Sectons 1 5.5 1 5.590,1 5.600. 1 5.601, and 1 5.695 of Regua-
tons 10, Warehousng of Dsted Sprts (26 CFR, part 1 5; 15
F. R. 5233), as amended, are hereby amended to read as foows:
Supaet Wthdrawa of Dsted Sprts From Warehouse

D T RMIN TION OF T R
Sec. 1 5.5 . Method of De-eumnaton. When packages of sprts are to be
ndvduay gauged for wthdrawa from the warehouse, the actua tare of the
package w be determned : Provded, That the average ncrease n tare may be
determned and used to estabsh the tare at the tme of gauge for wthdrawa
where t s shown to the satsfacton of the assstant dstrct commssoner (1)
that, due to shortage of crtca materas, the propretor has been unabe to
nsta huk gaugng tanks for gaugng dsted sprts dumped from packages, as
provded n subpart CC, (2) that the voume of ta pad wthdrawas s not
sufcent to |ustfy the nstaaton and use of buk gaugng tanks, or (3) that,
n the case of sma ots, t s not feasbe to dump the sprts nto buk gaugng
tanks of arge capactes. Wrtten appcaton to use the average tare method
of gaugng dsted sprts for ta payment w e made to the assstant dstrct
commssoner by the warehouseman. (53 Stat. 75; 20 U. S. C. 3176.)
S c. 1 5.51 0. verage Tare Method. Ths method of determnng tare may be
used ony for ots of sprts of the same knd and cooperage warehoused wthn
a per od of 10 days of each other at proofs not dfferng more than 10 percent.
Packages whch have teen changed n cooperage to prevent oss or to change
the knd of cooperage may not he ncuded as a part of a ot contanng pnekages
not so changed, even though a pnekages nvoved contan the same knd of sprts
orgnay warehoused wthn the same 10 days at proofs not dfferng more than
10 percent. The average ncrease n tare for a ot of sprts w he estabshed
by fndng (e actua tare, as descrbed In secton 1 5.5 ), for not ess than 20
pen cut of Ihe pnekages to be gauged for wthdrawa, and determnng the actua
ncrease n tare for such packages. Where te average tare method s used,
however, no rnsng of packages w be permtted. The words verage tare
taken w be entered conspcuousy on Form 1520 by the propretor and the
number of packages to be used as a bass for the determnaton w be stated
thereon as 20 percent, 25 percent, 33 percent, or 50 percent, of those to be
wthdrawn. The packages to be used for the determnaton w be seected at
random by the storekecpor-RaUfcer. Where appcaton of the percentage to the
number of packages to be wthdrawn resuts u a fracton, the fracton w e
counted as an addtona package. Not ess than two packages may be weghed
to determne the average ncrease n tare of nny ot of fve packages or ess.
The actua tare found w be entered by the storekeeper-gauger on Form 1520
1 Denotes the ssstnnt Dstrct Commssoner. coho and Tobacco Ta , pursuant to
Reorganzaton Pan No. 1 of 02 (17 I . R. 22 3),
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37
1 5.5 , Regs. 10
for those packages for whch It was determned, and an astersk ( ) w be
paced to the eft of the sera number of such packages. The actua ncrease n
tare of each such package w be noted n the proper coumn of Form 1520 by
the storekeeper-ganger, who w add these Increases together and dvde by the
number of packages weghed to determne the average ncrease n tare to be
apped to the other packages of the ot to be wthdrawn. If the overage ncrease
so found contans a fracton of a pound ess than twenty-fve hundredths (0.25),
t w he dropped; f twenty-fve hundredths (0.25) or any ntermedate fracton
to and ncudng Feventy-fve hundredths (0.75), t w be caed one-haf pound;
f above seventy-fve hundredths (0.75), t w he caed 1 pound. The average
Increase n tare thus ascertaned w he regarded as the ncrease of each of the
remanng packages enumerated n 1 e appcaton for wthdrawa and w be
added to the entry tare of each such package to determne the wthdrawa tare.
(53 Stat. 375; 26 U. S. C. 3170.)
Subpart Ta patd Wthdrawas n Packaoes
Sec. 1 -r.(;00. ppcaton, Form 170. ppcaton for In payment au wth-
drawa of dsted sprts In packages from a bonded warehouse sha be made
by the propretor on Form 179, n quadrupcate. Uness the packages are to
be wthdrawn on the orgna gauge, the prupretor w Indcate on the form the
met h d of gauge desred, . c, whether actua or average tare, or whether a pack-
ages of the ot w be dumped n a gaugng tank for huk gauge and subsequent
remova by ppene or n packsges under the provsons of sectons 1 5.620-
1 5.630. If the propretor eects an ndvdua gauge of each package, he sha
aso nd .cate on the Form 179 whether he desres the packages to be rnsed
befnre the sprts are gauged or whether he desres to ta pay wthout rnsng.
If the packages are not rnsed before gaugng, recovery of sprts by rnsng of
the packages at the tme of dumpng for bottng or rectfcaton w be precuded.
The propretor s eectons as to method of gauge and whether the packages w
be rnsed may not he chnnred once gaucng of the sprts has begun. Where the
sprts are to e drawn nto packages from a storage tank, the propretor sha
stste, n addton to other appcabe data on the form, the estmated quantty
to e wthdrawn. Separate appcatons sha be fed for the wthdrawa of
sprts from storage tanks. Lkewse a separate appcaton sha be fed for
each ot of sprts n packages dumped for buk gauge n a gaugng tauk n
accordance wth secton 1 5.020. copes of the appcaton w be devered
to the storekeeper-ganger at the warehouse. (53 Stat. 29 as amended, 335, 373
as amended. 375: 20 II. S. C. 2 00. 2S 2, 3170, 3170.)
Sec. 1 5.601. Preparaton of Form 1520. cept where sprts are to be
wthdrawn n packages fed from warehouse storage tanks at the tme of
wthdrawa, the propretor w prepare Form 1520, n qnntnpoare, coverng
the packages shown n the appcaton, Form 179. The propretor w enter
n the headng of the Form 1520 a the nformaton caed for and w show
as to each package the necessary detas of the entry gauge n the coumns
beaded Sera Nos. of Packages or Tank Cars, nd of Sprts, Orgna
Ta abe Gaon Last Gauge, Date of Orgna ntry for Depost and, f
the packages are to be gauged by the average tare method, Tare on ntry
Gauge. If the Last Gauge was estabshed by a Form 169 , the sera number
of the form w be entered n coumns 11 and 12. In the event a regauge s
to be made upen wthdrawa of packages whch have remaned n the ware-
house for a perod not e ceedng 30 days from the date of the orgna gauge
the propretor w note on Form 1520 the reason for requestng a regauge.
copes of the Form 1520 w be devered to the storekeeper ganger wth the
Form 179. (53 Stat. 335. 373 as amended, 375; 20 U. S. C. 2 S2, 3170, 3176.)
Subpart FF Transfers n ond etween Interna Revenue onded
Warehouses
.
transfers retween warehouses n same dstrct
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1 5.5 , Regs. 10.1
3
Sec. 1 5.395. Thansekhs n Packages. When the propretor of tbe shppng
warehouse desres to make shpment of sprts n orgna packages, or n pack-
ages prevousy fed from warehouse storage tanks, or of bended brandes n
packages ted n the brandy bendng department, he w prepare an orgna
and fve copes of Form fng In the headng ar.d gvng detas as to
sera numbers of packages, date of orgna entry for depost, orgna gauge and
ast gauge (f other than the orgna). In the case of bended brandes the
propretor sha aso show on Form 1019 the date and sera number of the
Form 16S5 coverng the bendng of the brandes, the date of the orgna entry
of the odest brandy n the bend and the date of the orgna entry of the
youngest brandy n the bend. Tbe propretor sha e ecute on the s copes
of Form 236 a descrpton of the packages to be transferred and w gve a
coes of Forms 236 and 1610 to the storekeeper-gauger. Upon recept of the
Forms 236 and 1619 the storekeeper-gauger w wegh and e amne the pack-
ages and where It s determned that any package bears evdence of unusua
oss that cannot be satsfactory e paned, or of tamperng, such package
w be detaned pendng further nvestgaton n accordance wth the appcabe
provsons of sectons 1S5. S0 1 5. 96. The storekeeper-gaugpr w enter the
shppng gross weghts on Form 1619. The quantty to be transferred sha
not e ceed the ma mum stated n the appcaton. Upon wthdrawa for trans-
fer to noncontguous premses, the word Transferred foowed by the date
of transfer, the number of the recevng warehouse, and the Sate In whch
such warehouse s ocated, w be pany and duraby stenced on the Gov-
ernment head of the package In etters and fgures not ess then one haf nch
n heght. These marks may be abbrevated as foows:
Trans. -1-50
1. It. W. -N. Y.
Forms 236 and 1619 w be dsposed of n accordance wth the provsons of
secton 1 5.706. (53 Stat. 300 as amended, 332, 375; 26 U. S. C. 2 01, 2 75, 3176.)
2. The purposes of these amendments are (a) to amend the nstruc-
tons contaned n reguatons reatve to the recordng of the orgna
tare of packages of dsted sprts on Form 1520, Report of Sprts
Ganged, and Form 1619, Report of Packages Transferred etween
onded Warehouses, and (b) to carfy the ntent of reguatons
wth respect to packages whch may be ncuded n one ot when
average tare s to he taken,
3. It s found that compance wth the notce and pubc rue-
makng procedure and effectve date requrements of the dmns-
tratve Procedure ct (5 U. S. C. 1001 et seq.) s unnecessary n con-
necton wth the ssuance of these amendments for the reason that the
changes made mpose no addtona requrements on the ndustry, but
reate merey to agency procedure or carfy e stng requrements.
. Ths Treasury Decson sha be effectve upon ts pubcaton
n the Federa Regster. (Ths Treasury Decson s ssued under the
authorty contaned n 53 Stat. 29 as amended, 300 as amended, 332,
335,373 as amended, 375; 2G U. S. C. 2 00,2 01,2 75,2 2,3170, 3176.)
T. Coeman ndrews,
M. . Fosom,
(Pubshed In the Federa Regster pr 7, 1053)
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IS 1 5.1055, egs. 10.
Secton 1 5.1055, Reguatons 10: Storekeeper- T. D. 597
gauger s report.
( so Secton 1 5.1056, Reguatons 10.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R C. P RT 1 5.
W R OUSING OF DISTILL D SPIRITS
Requrements for semannua report of sprts In warehouses
prescrbed.
Washngton 26, D. C.
To Dstrct Commssoners, ssstant Dstrct Commssoners, coho
1. Subpart of Reguatons 10, Warehousng of Dsted Spr-
ts (26 CFR, part 1 5,15 F. R. 5233) s hereby amended as foows:
Subpart Semannua Reports or Sprts n Warehouses
Sec. 1 5.1055. Storekeeper-gamer s Report. The storekeeper-gauger sha
prepare a report, n trpcate, on orn 332, by knds, seasons, and years of
producton, of stocks of dsted sprts on depost n the nterna revenue bonded
warehouse at the cose of busness on une 30 and December 31 of each year.
Form 332 sha be prepared as ndcated by the headngs of the coumns and
nes and n accordance wth the Instructons prnted on the form or ssued n
respect thereto and by ths part. In the case of bended brandy the season and
year of the odest brandy n the bend sha be consdered the season and year
of the bended brandy. The orgna and one copy w be forwarded to the
assstant dstrct commssoner1 on or before the tenth day of the month suc-
ceedng the date for whch the report was prepared, and the remanng copy
sha be retaned n the offce of the storekeeper-gauger at the warehouse. (53
Stat. 37r ; 26 U. S. C. 3176.)
Sec. 1S5.1056. ssstant Dstrct Commssoners Report. ach assstant ds-
trct commssoner1 sha prepare a summary report, n dupcate, on Form 332,
by knds, seasons, and years of producton, of dsted sprts n nterna revenue
bonded warehouses at the cose of busness on une 30 and December 31 of each
year, for each State wthn hs dstrct. Form 332 sha be prepared as nd-
cated by the headngs of the coumns and nes and n accordance wth the n-
structons prnted on the form or ssued n respect thereto and by ths part.
The orgna of the summary report on Form 332 wth the orgnas of the
Forms 332 submtted by sorekeeper-gaugers for each nterna revenue bonded
warehouse wthn the State sha be forwarded to the Commssoner not ater
than the ast day of the month succeedng the date for whch the report was
rendered. The dupcate copes of Form 332 sha be retaned by the assstant
dstrct commssoner. (53 Stat. 375; 20 U. S. C. 3176.)
2. The purpose of the proposed amendment s to requre store-
keeper-gaugers and assstant dstrct commssoners to report by knds,
seasons, and years of producton, stocks of dsted sprts on depost
n nterna revenue bonded warehouses at the cose of busness on
December 31 of each year, n addton to the reportng of such stocks
annuay as of une 30.
3. It s found that compance wth the notce, pubc rue-makng
procedure, and effectve date requrements of the dmnstratve Pro-
cedure ct (5 U. S. C. 1001, et seq.) s unnecessary n connecton wth
Pursuant to Reorpnnznton Pan No. 1 of 1052 (17 F. R. 22 3) the offce of Dstrct
Supervsor has been aboshed and the offce of ssstant Dstrct Commssoner. coho
ud Tobacco Ta , created n pace thereof.
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190.122, Regs. 15.
0
the ssuance of these reguatons for the reason that the change made
s of an admnstratve nature and does not mpose any requrement
on the ndustry.
. Ths Treasury Decson sha be effectve upon the date of pub-
caton n the Federa Regster.
53 Stat. 375; 20 U.S. C. 3176.)
ohn S. Graham,
Thomas . Lynch,
(Pubshed In the Federa Regster anuary 23, 11)53)
Secton 190.122, Reou.atons 15: Recevng T. D. 5996
tanks.
( so Secton 190. CSa, Reguatons 15.)
TITL 26 INT RN L R NI . C PT R I, SU C PT R C, P RT 190.
R CTIFIC TION OF SPIRITS ND WIN S
mendment of requrement for vodka recevng tanks at rectfyng
pants.
Washngton 25, D. C.
1. Sectons 190.122 and 190. G a of Reguatons 15 (26 CFR, part
190) are amended to read as foows:
Subpart I qupment

Sec. 100.122. Recevng Tanks. Where rectfed products are produced by
redstaton, such as gn or cordas, or where sprts are redsted, the rec-
tfer must provde a requste number of recevng tanks. Where vodka s
produced, a recevng tank or tanks may be provded therefor, f desred. ach
recevng tank sha be constructed of meta or other sutabe matera and
equpped wth a sutabe devce whereby the contents can be accuratey deter-
mned. Manher.ds, nets, and outets of such tanks must be provded wth
factes for ockng wth Government ocks. ach tank sha have pany and
egby panted thereon wo ds Indcatng ts use, as Gn Recevng Tank, Cor-
da Recevng Tank, eads and. Tas Recevng Tank, odke ecevns
Tank, etc., foowed by ts sera number and capacty n gaons. Recevng
tanks must be ocated n the rectfyng room. (53- Stat. 300 as amended, 31 ,
370; 20 U. S. C. 2 01, 2 29, 3170.)
Subpart Y Rectfcaton

T - MPT OD
Sec. 190. 0 a. Producton. odka may be produced e empt from the rect-
fcaton ta n accordance wth the procedure prescrbed by secton 190. 0,Sb.
odka so produced must be ether (a) prompty drawn from the processng or
recevng tank or tanks nto meta, porcean or gass contaners or paraffn-
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1
190.2 6, Regs. 15.
ned contaners, gauged, stamped, and removed to the fnshed products room
or 16) transferred from such tank or tanks to a bottng tank, gauged, and botted
and removed to the nsed products room or conveyed by ppene to a con-
tguous tazpad bottng house or rectfyng pant for bottng. (See sectons
190.615 to 100.672.) (53 Stat. 20 as amended, 300 as amended, 375; 26 U. S. C.
2 00, 2 01, 3176.)
2. The purpose of these amendments s to emnate the requrement
that vodka produced at the rectfyng pant must be run nto a recev-
ng tank pror to beng drawn nto prescrbed contaners or trans-
ferred to a bottng tank. Snce vodka s produced at rectfyng
pants by the treatment of dsted sprts wth charcoa n processng
tanks, the depost of the fnshed vodka n a recevng tank pror to
packagng or transfer to a bottng tank s an unnecessary requrement.
The use of such a tank w be optona.
3. It s found that compance wth the notce, pubc ruemakng
procedure, and effectve date requrements of the dmnstratve
Procedure ct (5 U. S. C. 1001 et seq.), s unnecessary n connecton
wth the ssuance of these reguatons for the reason that the changes
made are of a berazng character.
. Ths Treasury Decson sha be effectve mmedatey upon the
date of ts pubcaton n the Federa Regster.
53 Stat. 29 as amended, 300 as tended, 31 , 375; 26 U. S. C. 2 00,
2 01,2 29, 3176.)
T. Coeman ndrews,
Commssoner of Interna Reren r,
L RT P. TuTTL ,
(Pubshed n the Federa Regster March 3, 1003)
Secton 190.2 6, Reguatons 15: randng, T. D. 5995
abeng, etc.
( so Sectons 190.252,190. 36,190.900,190.90 .
190.90 , Reguatons 15.)
TITL 2C INT RN L R NU . C PT R I, SUUC PT R C, P RT 100.
R CTIFIC TION OF SPIRITS ND WIN S
Rectfcaton under trade names
Washngton 5, D. C.
To Dstrct Commssoners, ssstant Dstrct Commssoners, coho
1. Reguatons 15, Rectfcaton of Sprts and Wnes (26 CFR, part
190; 15 F. R. 790), as amended, are hereby further amended as
foows:
(a) Sectons 190.2 6,190.252,190. 36, 190.900,190.903, and 190.90
are amended; and
(b) Sectons 190.900a and 190.900b are added.
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190.2 6, Regs. 15.
2
Subpakt M- Requrements Governng Changes n Name, r OP Tonsmp,
Contro, Locaton, Premses, and qupment
Sec. 100.2 0. Markng Packages and Cases. Where there s a change In the
ndvdua, frm, or corporate name of the rectfer, he must, upon recept of the
assstant dstrct commssoner s authorzaton, as provded n secton 190.316,
mark under such new name the sprts rectfed or botted thereunder, as provded
n subpart II of ths part, uness the sprts are rectfed or botted under a trade
name or stye other than the name n whch the rectfyng pant s quafed and
operated, a| provded n subpart NN. (53 Stat. 309, 31 , 327 as amended, 329,
373 as amended, 375, 39 ; 20 U. S. C. 2 12, 2 31, 2S57, 2 01, 3170, 3170, 3270.)
TR D N M S

Sec 190.252. Markng Contaners. The packages and cases of sprts may be
marked under the trade name n whch tbey were rectfed or botted as provded
n subpart NN of ths part. (53 Stat. 329, 373 as amended, 375; 20 U. S. C. 2 01,
3170, 3176.)
SUUP RT G UGIN ND DUMPING SPIRITS FOR R CTIFIC TION

Sec. 190. 36. Markng Processng Tanks. In every case where sprts are
dumped nto processng tanks or receptaces, the number of (he formua under
whch the sprts are to be rectfed w be marked egby upon such tanks or
receptaces: Provded, That where sprts are not to be rectfed n the processng
tanks or receptaces n whch orgnay dumped, such tanks w be abeed to
show the knd of sprts and the sera number and date of the Form 122 pursuant
to whch the sprts were dumped, n eu of the number of the formua: nd
provded further. That where packages of sprts are dumped under the crcum-
stances descrbed n secton 190. 3 the rectfer w not be requred to mark the
formua number on processng tanks or receptaces. (53 Stat. 375; 20 L . S. C
3170.)
Suur RT NN Operatng Under New Name or Rectfyng and I ott|ng
Under Dfferent Trade Names
Sec. 190.900. uafcaton of Propretor. Whenever the propretor of a rec-
tfyng pant desres to change the ndvdua or corporate name, or the trade
name or stye, n whch the rectfyng pant s operated, he must, e cept as pro-
vded In sectons 190.900a nnd 1909001), secure approva of such change n the
manner prescrbed n sectons 190.2 0-190.256 pror to the commencement of
operatons. (53 Stat. 375; 20 U. S. C. 3176.)
Sec. 190 900a. Trade Name Rectfcaton. Where the rectfer desres to
rectfy partcuar sprts under a trade name or stye other than the name n
whch the rectfyng pant s quafed.and operated, and such trade name or
stye has been specfed on an approved Form 27-R and on the rectfer s Federa
coho dmnstraton ct permt, he may rectfy such sprts under such ap-
proved trade name wthout fng r amended notce on Form 27- or changng
the name under whch the rectfyng pant s then quafed and operated. Form
122 Suppementa w be prepared. In dupcate, coverng the partcuar sprts
whch the rectfer desres to rectfy under such trade name. r the headng of
the form w be shown the formua number and the trade name under whch
the sprts are to be rectfed, and In the body of the form w be shown the
quanttes of each knd of sprts, whch prevousy have been dumped for
rectfcaton pursuant to Form 122 and whch t s desred to rectfy under the
formua and trade name specfed. The rectfer w submt both copes of Form
122-Suppementa to the Government offcer, who w nspect the sprts de-
scrbed on the form and verfy the entres. If the otcer s satsfed that the
entres are correct, he w approve both copes of the form and return them
to the propretor who w retan one copy on fe at the rectfyng pant avaabe
for e amnaton by Government offcers. The orgna copy of Form 122-Suppe-
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3
1S0.2 6, Regs. 15.
menta w be attached to the processng tank In whch the sprts are rectfed,
and sha reman attached to the tank unt the rectfed sprts are transferred
to packages or to a bottng tank for bottng pursuant to Form 237, at whch
tme the Form 122-Suppementa w be removed from the processng tank and
attached to the Form 237. The rectfer sha state on Part 1 of Form 237 the
trade name or stye under whch the sprts were rectfed. The sptrts so
rectfed may be abeed bended by , made by , prepared by , manufactured
by , or produced by (whchever may be approprate to the act of rectfcaton
nvoved), foowed by the trade name or stye under whch the sprts were
rectfed, and the address (or addresses) of the rectfer, n accordance wth
Reguatons 5 (27 CFR, part 5) Issued under the Federa coho dmnstraton
ct (53 Stat. 375; 26 U. S. C. 3176.)
Sec. 190.900b. Trade Name ottng. Where the rectfer desres to botte
partcuar sprts under a trade name or stye other than the name n whch
the rectfyng pant s quafed and operated, or the name under whch the
sprts were rectfed pursuant to Form 122-Suppementa, and such trade name
or stye has been specfed on an approved Form 27- and on the rectfer s
Federa coho dmnstraton ct permt, and he has secured certfcates of
abe approva (Form 16 9) or certfcates of e empton from abe approva
(Form 1650) for the abeng of sprts under such trade name or stye, he sha
ppecfy on Form 230 or Form 237, as the ease may be, hs ntent to botte and
abe the partcuar sprts covered by the form under such name or stye. Upon
approva of the form n the usua manner, he may so botte and abe the par-
tcuar sprts covered by Form 230 or Form 237, as the case may be, wthout
fng an amended notce on Form 27- or changng the name under whch the
rectfyng pant s then quafed and operated. (53 Stat. 375; 26 U. . O. 3176.)
Sec. 190.903. Maskng Packages and Cases. The packages or cases w be
marked under the ndvdua or corporate name or trade name or stye n whch
the rectfyng pant s beng operated: Provded, That where sprts are rectfed
pursuant to secton 190.900a, or are botted pursuant to secton 190.900b, under
a trade name other than that n whch the rectfyng pant Is quafed and
operated, such trade name may be marked on the packages or cases as the name
of the rectfer or botter, as the case may be, n eu of the name n whch
the rectfyng pant s beng operated: Provded further. That where such sprts
are botted for a certan deaer they may be marked In accordance wth secton
190.79 . The packages and cases sha be further marked n accordance wth
sectons 190.797 and 190.79 . (53 Stat. 375; 26 U. S. C. 3176.)
Sec. 190.90 . Records. Separate records on Form 5 and Form 1 2, w not
be requred for operatons under a new ndvdua or corporate name or under
each trade name or stye. The rectfer sha, however, note on Form 5 the
ndvdua or corporate name or the trade names or styes under whch opera-
tons were conducted durng the month, and the dates of operaton under each.
The storekeeper-gauger w make a smar notaton on Form 1 2. In the case
of sprts rectfed pursuant to the provsons of secton 190.900a, or botted
pursuant to secton 190.900b, the propretor w show on Form 5 the trade
name under whch the partcuar sprts were rectfed or botted. (53 Stut.
375; 26 U. S. C. 3176.)
2. The purpose of these amendments s to authorze the rectfcaton
(concurrenty wth reguar operatons) of partcuar sprts under a
trade name or names other than the name under whch the rectfyng
pant s then quafed and operated, n eu of fng an amended
notce on Form 27- , Notce by Rectfer, and changng the name
under whch the rectfyng pant s quafed and operated.
3. It s found that compance wth the notce, pubc ruemakng
Procedure, and effectve date requrements of the dmnstratve
rocedure ct (5 U. S. C. 1001 et seq.) s unnecessary n connecton
wth the ssuance of these reguatons for the reason that the changes
made are of a berazng character.
. Ths Treasury Decson sha be effectve upon the date of ts
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171.2, Msc s.

n 53 Stat. 309, 31 , 327 as amended, 329, 373 as amended, 375, 39 ;
26 U. S. C. 2 12, 2 31, 2 57, 2 G1, 3170, 3176, 3270.)
T. Coeman ndrews,
bert P. Tute,
(Pubshed In the Federa Regster March 3, 11)53)
Secton 171.2, Msceaneous Reguatons Reat- Rev. Ru. 37
ng to Lquor : asc permt procedure under Fed-
era coho dmnstraton ct.
INT RN L R NU COD
1. Purpose. The purpose of ths Revenue Rung s to prescrbe
unform procedure to be foowed by hoders of basc permts under
the Federa coho dmnstraton ct and by dstrct offces of the
ureau wth respect to changes of ocaton of permttees.
2. uthorty. Secton 171.2 of the Msceaneous Reguatons
Reatng to Lquor, governng asc permt procedure under Fed-
era coho dmnstraton ct (as amended by T. D. 9 2, C. .
19 0- 2, 26, approved uy 9, 19 0, 5 F. R. 25 9; T. D. 5039, C. .
19 1- 1, P1, approved February 12, 19 1, 6 F. R. 950; T. D. 5152,
C. . 19 2-1, ,3 . approved une 3, 19 2, 7 F. R. 267; and T. D.
0550, C. . 19 7-1, 1 3, approved March 5, 19 7, 12 F. R. 16 9),
ssued pursuant to secton 2(d) of the Federa coho dmnstra-
ton ct, 27 U. S. C. 202(d), secton 3170, Interna Revenue Code,
and 5 U. S. C. 22, provdes, among other thngs, that the procedure
prescrbed by Reguatons 3, Industra coho, for the ssuance,
amendment, and dena of permts, under part II of subchapter C of
chapter 26 of the Interna Revenue Code s e tended to the ssuance,
amendment, dena, revocaton, suspenson, and annument of basc
permts under the Federa coho dmnstraton ct, nsofar as
such procedure s not n confct wth the provsons of such act.
3. Reguatons 3 procedure made appcabe. s regards changes
n ocaton of persons hodng basc permts under the Interna Reve-
nue Code, sectons 1 2.2C7 and 1 2.295 of Reguatons 3 requre the
fng of appcatons for new basc permts. In vew thereof, and
snce such procedure s not n confct wth any provson of the Fed-
era coho dmnstraton ct, t s fet that t shoud be made
appcabe to a changes of ocaton of permttees under the Federa
coho dmnstraton ct.
. Unform, procedure prescrbed. Some dstrcts have foowed
ths procedure, whe others have foowed the practce of the former
Federa coho dmnstraton n amendng e stng permts to
recognze such changes. s a means of assurng unform procedure
n a dstrcts, changes of ocaton of basc permttees under the Fed-
era coho dmnstraton ct no onger w be recognzed by the
Orgnay Issued as I Mmeograph 125, dacd February , 1053.
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5
S 171.213. Msc. Regs.
amendment of e stng permts. ereafter, any permttee under the
Federa coho dmnstraton ct who moves from one ocaton
to another w be requred to fe appcaton for a new basc permt
to cover the authorzed operatons at the new ocaton.
5. Use of Form 16 3. Form 16 3, ppcaton for mended
asc Permt Under the Federa coho dmnstraton ct, w
contnue to be used to report any change of address (resutng from
the redesgnaton of a street name, street number, or budng) whch
does not nvove a change of ocaton. It w not be used to report
changes of ocaton, and w be appropratey revsed to conform wth
ths revsed procedure.
6. Correspondence. ny correspondence reatve to ths Revenue
Rung shoud refer to ts number and the symbos O: T: P.
Secton 171.213, Msceaneous Reguatons T. D. G005
Reatng to Lquor: Transferred between
bonded premses by tank cars, tank trucks,
or tank barges.
( so Reguatons 3, , 5,10,15, and Gaugng
Manua.)
TITL 26 INT RN L R M. . C PT R I. SU C PT R C, P RTS 171, 1 2,
1 3, 1 , 1 3, 1 6. ND 190
Removas of dsted sprts and acoho, n buk contaners, at
whoe or fractona degrees of proof.
Washngton 25, D. C.
On anuary 1,1953, a notce of proposed ruemakng was pubshed
n the Federa Regster (1 F. R. 3 ) to amend Msceaneous Regu-
atons Reatng to Lquors, Reguatons 3, Reguatons , Regua-
tons 5, Reguatons 10, Reguatons 15, and the Gaugng Manua
(parts 171, 1 2, 1 3, 1 , 1 5, 190, and ISO, chapter 2G of the Code
of Federa Reguatons). No ob|ectons to the rues proposed havng
been receved, the amendments to such reguatons set forth beow
are hereby adopted:
1. Sectons 171.213 and 171.217 of Msceaneous Reguatons
Reatng to Lquor (26 CFR, part 171) are amended as foows:
Subpart G Natona mergency Transfers of Dsted SrtTS

G UaNG OF DISTILL D SPI ITS

Sec. 171.213. Transferred Retwffn o ded Pemses rt Tank Cars, Tank
Trucks, or Tank I5arc.es. When dsted sprts of any proof are transferred
by tank cars, tank trucks, or tank barges, between dsteres, Interna revenue
bonded warehouses, ndustra acoho pants, and ndustra acoho bonded
warehouses, and when dsted sprts of 100 or more of proof are removed,
free of ta , from any such premses for transfer by tank cars, tank trucks, or
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171.213, Msc. Regs.
6
tank barges to a denaturng pant, for denattraton, such dsted sprts sha
be gauged n a sutabe weghng tank n the shppng premses at the tme of
shpment and In the recevng premses at the tme of recept: Provded, That
where the shppng or recevng premses, or both, are not equpped wth a
weghng tank, the sprts transferred In tank cars or tank trucks may be weghed
on raroad car or tank truck scaes, as the case may be, ocated on the bonded
premses, by weghng the.raroad car or tank truck both before and after fng
or emptyng, or both, as the case may be: nd provded further, That where the
shppng or recevng premses, or both, are not equpped wth a weghng tank,
or raroad car or tank truck scaes, the sprts may be gauged by vouvae n
accuratey cabrated tanks, but, In any event, they must be gauged (ether by
weght or by voume) n both the shppng and recevng premses: nd provded
further, That dsted sprts transferred from an ndustra acoho pant or
ndustra acoho bonded warehouse to an nterna revenue bonded warehouse
n tank cars for storage n the nterna revenue bonded warehouse n such tank
cars, sha be gauged at, and removed from, the Interna revenue bonded ware-
house n accordance wth the provsons of Reguatons 10 (26 CFR, part 1 5)
appcabe to tank cars of sprts transferred n bond to Interna revenue bonded
warehouses. (65 Stat. 116; 26 U. S. C. 31 3.)
Sec. 171.217. Determnaton of Proof. The proof of dsted sprts drawn
off Into contaners other than tank cars, tank trucks, tank shps, and tank barges,
or by ppene, under the provsons of ths subpart, sha be ad|usted to a whoe
or compete degree. Where removas are to be made under the provsons of
ths subpart In tank cars, tank trucks, tank shps, tank barges, or by ppene,
the proof of the dsted sprts may be ad|usted to a whoe or compete degree
of proof pror to gauge for remova or the dsted sprts may be removed
wthout such reducton. Where the proof of sprts removed n tank cars, tank
trucks, tank shps, tank barges, or by ppene, for ta payment, Is ot ad|usted
to a whoe degree of proof, the fractona degree of proof, If any, sha be deter-
mned to the nearest tenth, whch sha be used n determnng the ta abe
gaons n accordance wth ths subpart and tabe of the Gaugng Manua
(26 CFR, part 1 6). Where the proof of dsted sprts removed n tank cars,
tank trucks, tank shps, tank barges, or by ppene, for purposes other than ta -
payment, s not ad|usted to a whoe degree, the proof sha be determned to
the nearest tenth but sha be rounded to a whoe degree In accordance wth
secton 1 6.20 of the Gaugng Manua and such whoe degree sha be the proof
of remova: Provded, That, where the propretor or the consgnee so desres,
the fractona proof may be stated as the proof of the sprts and used n deter-
mnng the proof gaorge of the sprts, n eu of the whoe degree of proof.
Where dsted sprts are to be transferred n bond to an nterna revenue
bonded warehouse n a tank car and the consgnee desres to ta pay the sprts
n the tank car wthn 30 days after fng, and wthout regauge, the dsted
sprts sha be reduced to a whoe or fat degree of proof before beng drawn
nto the tank car, or the proof gaonage sha be determned by use of the frac-
tona degree of proof. In any such case the storekeeper-gauger sha make
notaton on Form 1520, that the dsted sprts were reduced to a whoe degree
of proof or, If they were not so ad|usted, the fractona degree of proof at whch
wthdrawn. (65 Stat. 116; 26 D. S. C. 31 3.)
2. Secton 1 2. 05 of Reguatons 3 (26 CFR, part 1 2: 7 F. ,
1 5 ), Industra coho, as amended, s amended as foows:
Operaton of Industra coho Pants

DR WING OFF, G UGING, ND R MO L OF LCO OL

Sec. 1S2. 05. Gaugng of coho. acoho drawn from recevng tanks
w he carefuy gauged by the propretor by weghng and proofng the sprts
n accordance wth ths part and the Gaugng Manua (26 CFR, part 1 6), and
the detas thereof sha be entered by the propretor on Form 1 0. ntres
sha be made as ndcated by the headngs of the varous coumns and nes
and n accordance wth the Instructons prnted on the form or ssued In respect
thereto and as requred by ths part. Packages sha be marked In accordance
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( 171.213, Msc. Regs.
wth ths part. The storekeeper-gauger w verfy the proof, weght, and ga-
onage of a acoho wthdrawn and w see that the nstructons In the Gaugng
Manua respectng the proofng of acoho are strcty foowed n order that the
proof may be accuratey determned. The proof of the acoho sha he ad|usted
to a whoe or compete degree of proof before beng removed from the recevng
tanks for fng approved contaners such ns drums or barres, bottes, contan-
ers made of tn, gass, or smar substance and stee contaners havng a capacty
of not more than 10 wne gaons. Where removas from recevng tanks are to
be made n tank cars, tank trucks, tank shps, tank barges, or by ppene, the
proof of the acoho may be ad|usted to a whoe or compete degree of proof
pror to gauge for remova or the acoho may be removed wthout such reduc-
ton. Where the proof of acoho removed n tank cars, tank trucks, tank shps,
tank barges, or by ppene, for ta payment, s not so ad|usted to a whoe or
compete degree, the fractona degree of proof. If any, sha be determned to
te nearest tenth, whch sha he used n determnng the ta abe gaons n
accordance wth ths part and tabe of the Gaugng Manua. Where the proof
of acoho removed n tank cars, tank trucks, tank shps, tank barges, or by
ppene, for purposes other than ta payment. Is not ad|usted to a whoe or
compete degree, the proof sha be determned to the nearest tenth but sha
he rounded to a whoe degree n accordance wth secton 1 6.20 of the Gangng
Manua and such whoe degree sha be the proof of remova: Provded. That,
where the propretor or the consgnee so desres, the fractona proof may be
stated as the proof of the acoho and used n determnng the proof gaonage,
n eu of the whoe degree of proof. The acoho n the recevng tank must be
thoroughy agtated before takng the proof. The proof determned after such
agtaton w be regarded as the proof of acoho run nto a packages fed
from the recevng tank and a acoho removed from such tank by ppene or
In tank cars or tank trucks. owever, the proof of the acoho n the recevng
tank w be checked severa tmes whe the acoho s beng drawn off. The
propretor sha provde, at hs own e pense, accurate hydrometers, hydrometer
cups, and thermometers for the purpose of gaugng acoho. coho to be
transferred by ppene or n raroad tank cars or tank trucks for shpment
sha be ganged n a weghng tank as provded n secton 1 2. 07. (53 Stat.
307, 307, 35 , 3G , 375; 20 U. S. C. 2 0 , 3103, 3105, 312 . 3176.)
3. Secton 1 3.515 of Reguatons (26 CFR, part 1 3; 15 F. R.
533 ), Producton of Dsted Sprts, s amended as foows:
Subpart W Ta payment, Remova, and Transfer of Dsted Sprts Fkom
Cstkrn Room

drawng off, gaugng, and remova of sprts

Sec. 1 3.515. Gaugng of Sprts. dsted sprts drawn from recevng
csterns w be carefuy gauged by the storekeeper-gauger by weghng and
proofng the sprts n accordance wth ths subpart and the Gaugng Manua
(26 CFR, part 1 6), and the detas thereof w be entered on the report of
gauge, Form 1520. ntres sha be made as ndcated by the headngs of the
varous coumns and nes and n accordance wth the nstructons prnted on
the form or ssued n respect thereto and as requred by ths part. The store-
keeper-gauger sha, n every nstance, note on Form 1520 the proof of dstaton
of the sprts gauged. The proof of sprts sha be ad|usted to a compete or
whoe degree before beng removed from the recevng csterns n casks, barres,
or smar wooden packages or drums or smar meta packages. Where re-
movas from recevng csterns are to be made n tank cars, tank trucks, or by
ppene, the proof of the sprts may be ad|usted to a whoe or compete degree
o proof pror to gauge for remova or the sprts may be removed wthout such
reducton. Where the proof of sprts removed n tank cars, tank trucks, or
by ppene, for ta payment, s not ad|usted to a whoe or compete degree, the
fractona degree of proof, f any, sha be determned to the nearest tenth, whch
sha be used n determnng the ta abe gaons In accordance wth ths part and
tabe of the Gaugng Manua. Where the proof of sprts removed In tank
cars, tank trucks, or by ppene, for purposes other than ta payment, s not ad-
usted to a whoe or compete degree, the proof sha he determned to the
nearest tenth but sha be rounded to a whoe degree n accordance wth secton
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171.213, Msc. Regs.)

1 6.20 of the Gangng Manua and such whoe degree sha be the proof of re-
mova: Provded, That, where the propretor or the consgnee so desres, the
fractona proof may be stated as the proof of the sprts and need n determnng
the proof gaonage, In eu of the whoe degree of proof. Where sprts are to
be transferred n bond to an Interna revenue bonded warehouse n a tank car
and the consgnee desres to ta pay the sprts n the tank car wthn 30 days
after fng, and wthout regauge, the sprts sha be reduced to a whoe degree
of proof before beng drawn nto the tank car, or the proof gaonage sha be
determned by use of the fractona degree of proof. In any such case the
storekeeper-gauger sha make notaton on Form 1520 that the sprts were
reduced to a whoe degree of proof or, f they were not so ad|usted, the frac-
tona degree of proof at whch wthdrawn. The sprts n the cstern must be
thoroughy agtated before takng the proof. The proof determned after such
agtaton w be regarded as the proof of sprts run nto a packages fed
from the cstern and a sprts removed by ppene or n tank cars or n tank
trucks. owever, the proof of the sprts n the cstern w be checked severa
tmes whe sprts are beng drawn off. Dsted sprts to be transferred by
ppene or n tank cars or tank trucks for shpment w be gauged n a weghng
tank as provded n sectons 1 3.517, 1 3.519, and 1 3555. (53 Stat. 20 as
amended, 307, 333, 335 as amended, 355, 375, 92 ; 26 U. S. C. 2 00, 2 0 , 2 7 ,
2 3, 3070, 3176, 017.)
. Sectons 1 .561 and 1 .565 of Reguatons 5 (26 CFR, part
1 ; 15 F. R. 5552), Producton of randy, are amended as foows:
Subpart Ta payment, Remova, and Tbansfeb of bandy Fbom Dstery

DR WING OFT, G UGING, ND R MO L OF NDY

Sec. 1 .561. Gaugng of bandy. brandy drawn from recevng tanks
w be carefuy gauged by the storekeeper-gauger by weghng and proofng the
brandy n accordance wth ths subpart and the Gaugng Manua (26 CFR, part
1 (5), and the detas thereof entered on the report of gauge, Form 1520. ntres
sha be made as ndcated by the headngs of the varous coumns and nes and
n accordance wth the nstructons prnted on the form or ssued n respect
thereto and as requred by ths part. The storekeeper-gauger sha, n every
nstance, note on Form 1520 the proof of dstaton of the brandy gauged. The
proof of brandy sha be ad|usted to a whoe or compete degree before beng
removed from the recevng tanks n casks, barres, or smar wooden packages
or drums or smar meta packages. Where removas from recevng tanks
are to be made n tank cars, tank trucks, or by ppene, the brandy may be ad-
usted to a whoe or compete degree of proof pror to gauge for remova or the
brandy may be removed wthout such reducton. Where the proof of brandy
removed n tanks cars, tank trucks, or by ppene, for ta payneut, s not so ad-
usted to a whoe or compete degree, the fractona degree of proof, f any, sha
be determned to the nearest tenth, whch sha be used n determnng the ta abe
gaons n accordance wth ths part and tabe of the Gaugng Manua. Where
the proof of brandy removed n tank cars, tank trucks, or by ppene, for pur-
poses other than ta payment, s not ad|usted to a whoe or compete degree,
the proof sha be determned to the nearest tenth but sha he rounded to a
whoe degree n accordance wth secton of the Gaugng Manua and such
whoe degree sha be the proof of remova: Provded, That, where the pro-
pretor or the consgnee so desres, the fractona proof may be stated as the
proof of the brandy, and used n determnng the proof gaounge, n eu of the
whoe degree of proof. Where brandy Is to be transferred n bond to an nterna
revenue bonded warehouse n a tank car and the consgnee desres to ta pny
the brandy n the tank car wthn 30 days after fng, and wthout regauge, the
brandy sha be reduced to a whoe degree of proof before beng drawn nto the
tank car, or the proof gaonage sha be determned by use of the fractona
proof. In any such case the storekeeper-gauger sha make notaton on Form
1520 that the sprts were reduced to a whoe degree of proof or, f they were
not so ad|usted, the fractona degree of proof at whch wthdrawn. The brandy
n the recevng tank must be thoroughy agtated before takng the proof. The
proof determned after such agtaton w be regarded as the proof of brandy
run nto a packages fed from the recevng tank and a brandy removed by
ppene or n tank cars or n tank trucks. owever, the proof of the brandy
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171.213. Msc. Regs.
n the recevng tank w be checked severa tmes whe brandy s beng drawn
off. randy to be transferred by ppene or n tank cars for shpment w be
gauged n a weghng tnnk as provded n secton 1 .502. (53 Stat. 307, 333,
335 as amended, 375, 92 ; 26 U. S. O. 2 0 , 2 7 , 2 3, 3176, 017.)
Sec. 1 .565. Upon Wthdrawa From Storage Tanks. When brandy s
transferred to storage tanks n the brandy depost room after t has been gauged,
t w be regauged by weghng tanks upon remova, uuess t s drawn nto
packages and gauged. The proof of brandy removed from storage tanks n the
brandy depost room sha be ad|usted or determned n accordance wth the
provsons of secton 1 .561. (53 Stat. 307, 333, 335 as amended, 375; 26 U. S. C.
2 0 , 2 7 , 2 3, 3176.)
5. Reguatons 10 (26 CFR, part 1 5; 15 F. R. 5233), Warehousng
of Dsted Sprts, as amended, are amended as foows:
a) Sectons 1 5.377,1 5.576, 1 5.622, and 1 5.660 are amended; and
b) Secton 1 5.377a s added.
Subpart S Depost of Sprts n Warehouse

sprts receved n casks or other approved contaners

Sf . 1 5.377. amnaton of Tank Cars. The storekeeper-gauger w care-
fuy e amne each tank car of sprts upon ts arrva at the warehouse for
evdence of oss and w determne f the reas aff ed at the shppng premses
are ntact. Where the tank car bears evdence of tamperng, or of unusua oss
that cannot be satsfactory e paned, t w be temporary detaned pendng
further nvestgaton n accordance wth the appcabe provsons of sectons
1 5. 0-1 5. 96. Where the tank car boars no evdence of tamperng, or of un-
nmn oss that cannot be satsfactory e paned, the sprts may be ta pad on
the fng gauge, wthn 30 days of the date of fng, n accordance wth sectons
v .377a and 1 5.660. Where the sprts are not to be so ta pad, they w be
gauged n a gaugng tank, or by voumetrc measurement n the tank car, and
reported on Form 1520 coverng the transfer. Where the sprts are ess than
100 of proof and are gauged n a gaugng tank, they w be mmedatey re-
turned to the tank car for storage theren n the warehouse pendng ta payment
or further transfer n bond n accordance wth secton 1S5.392. Where the sprts
are 160 or more of proof, they may be returned to the tank car, or transferred
to warehouse storage tanks n accordance wth secton 1 5.392. Where, after
gauge, the sprts are retaned n or returned to the tank car, the car w be
seaed pendng ta payment or further transfer n bond. Where the sprts are
not ta pad on the fng gauge wthn 30 days of the date of fng, they must be
regauged pror to ta payment. (53 Stat. 29 as amended, 335 as amended, 3 0
as amended, 375; 26 U. S. C. 2S00, 2 3, 2901, 3176.)
Sec. 1 5.377a. Ta payment on Fng Gauge. When sprts are receved In
bond n a tank car they may be ta pad wthout regange ony where the sprts
were reduced to a whoe degree of proof when the car was fed, or the fractona
degree of proof was used n determnng the proof gaonage drawn nto the
car, and such fact was noted by the storekeeper-ganger on the Form 1520 coverng
the fng gauge. (53 Stat. 29 as amended, 335 as amended, 375; 20 U. S. C.
2 00, 2 3, 3176.)
Subpart Wthdrawa of Dsted Sprts From Warehouse

DR WING OFF SPIRITS FROM G UGING O STOR G T N S

Sec. 1 5.576. d|ustng I roof. The proof of dsted sprts n warehouse
gaugng tanks and storage tanks sha be ad|usted to a whoe degree of proof
pror to fng packages such us barres or drums: Provded, That such ad|ust-
ment w not be requred pror to fng such packages from gaugng tanks when
the proof of the sprts s ess than 100 . d|ustng the proof to tenths
of a degree, ether above or beow the whoe degree, w not be permtted.
Where sprts are to be transferred by ppene from gaugng tanks to tanks
n the bottng-n-bond department or are to be removed from gaugng or storage
tanks In tank cars, tank trucks, or by ppene, the proof of the sprts may be
ad|usted to a whoe or compete degree pror to gauge tor transfer or remova
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171.213, Msc. Regs.
50
or the sprts may be transferred or removed wthout such reducton. Where
the proof of sprts removed n tank cars, tank trucks, or by ppene, for ta -
payment, s not ad|usted to a whoe degree of proof, the fractona degree of
proof, f any, sha be determned to the nearest tenth, whch sha be used
n determnng the ta abe gaons n accordance wth ths part and tabe
of the Gaugng Manua (26 CFR, part 1 6). Where the proof of sprts removed
n tank cars, tank trucks, or by ppene, for purposes other than ta payment, s
not ad|usted to a whoe degree, the proof sha be determned to the nearest tenth
but sha be rounded to a whoe degree n accordance wth secton 1 6.20 of the
Gaugng Manua and such whoe degree sha be the proof of remova: Provded,
That where the propretor or the consgnee so desres, the fractona proof may
be stated as the proof of the sprts and used In determnng the proof gaonage
of the sprts, In eu of the whoe degree of proof. Where sprts are to be
transferred n bond to an nterna revenue bonded warehouse n a tank car
and the consgnee desres to ta pay the sprts n the tank far wthn 30 days
after fng, and wthout regauge, the sprts sha be reduced to a whoe or fat
degree of proof before beng drawn nto the tank car, or the proof gaonage
sha be determned by use of the fractona degree of proof. In any such case
the storekeeper-gauger sha make notaton on Form 1520 that the sprts were
reduced to a whoe degree of proof or, f they were not so ad|usted, the fractona
degree of proof at whch wthdrawn. (53 Stat. 307, 375; 26 D. S. C. 2 0 , 3176.)
Subpart CC Ta pad Wthdrawas by Gauge Tank

Sec. 1 5.622. Gauge and Ta payment. If the sprts to be wthdrawn are
n packages, the storekeeper-gauger, upon recept of the Form 179 and Form
1520, w carefuy e amne and supervse the weghng of each package and
enter the weghts on Form 1520. Where t s determned that any package
bears evdence of unusua oss that cannot be satsfactory e paned, or of
tamperng, such package w be detaned pendng further nvestgaton n
accordance wth the appcabe provsons of secton 1 5. 0-1 5. 96. When
the contents of the packages have been dumped nto the gaugng tank, the
empty packages, ncudng the char and wood chps, f any, w be thoroughy
rnsed: Provded, That f the contents of the packages dumped for buk gaug-
ng are to be drawn from the gaugng tank for shpment n as many of the
orgna packages as may be requred, the packages to be used as shppng con-
taners need not be rnsed f a decaraton to that effect has been made by the
propretor pror to the dumpng of the sprts, n whch event recovery of sprts
by rnsng at the tme of dumpng for bottng or rectfcaton w be pre-
cuded. Water of any temperature may be used to rnse the packages. The
rnsngs w be added to the sprts dumped from the packages nto the gaugng
tank pror to gaugng: Provded, That where the propretor does not wsh to
add any or a of the rnse water to the sprts n the gaugng tank, such rnse
water must be poured on the ground or nto a sewer n the presence of the
storekeeper-gauger. The temperature of water used for rnsng must be marked
on the packages used as shppng contaners n accordance wth secton 1 5.62 .
Loose char and wood chps, f any, coected from packages, the contents of whch
have been dumped nto buk gaugng tanks after rnsng, must be destroyed
In accordance wth secton 1 5.902, uness added to the packages whch are to
be used as shppng contaners. The tare of any shppng contaner must
ncude the weght of oose char and wood chps whch are paced theren.
fter the packages have been dumped and rnsed, a marks and brands sha
be obterated, e cept where the packages are to be used for shppng of sprts
dumped therefrom for gaugng, n whch case, ony the knd of cooperage, sera
number of the package, the word Fed, the date of fng, and the orgna
proof and proof gaons need be obterated. The sprts n the gaugng tank
w be gauged wth an offca hydrometer and the detas of the gauge and the
number of the gaugng tank entered by the storekeeper-gauger on Form 1520.
The proof of the sprts sha be ad|usted or determned In accordance wth
the provsons of secton 1 5.576. If the sprts to be wthdrawn are con-
taned n a storage tank or tank car, they w be drawn nto the gaugng
tank, gauged and reported n the same manner as packages dumped for buk
gaugng. Four copes of Form 179 wth the storekeeper-ganger s report thereon,
duy e ecuted, and four copes of Form 1520 w be devered by the store-
keeper-gauger to the propretor of the warehouse. One copy of Form 1520 w
be retaned by the storekeeper-gauger pendng ta payment of the sprts rep-
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51
171.213, Msc. Regs.
resented thereby. (53 Stat. 20 as amended, 335, 335 as amended, 375; 26
I . S. C. 2S00, 2 2, 2 3, 3176.)
Subpart DD Ta pad Wthdrawas n Tank Cabs and Tank Trucks

IN T N C S R C I D IN OND

Sec. 1S5.6C0. Procedure. Where sprts are receved n bond In tank cars at
an nterna revenue bonded warehouse and ta pad thereat, the procedure pre-
scrbed n sectons 1 5.6r 0-1 5.6r 7 for the ta payment of tank cars of sprts
fed from warehouse storage tanks w be foowed, e cept that f the sprts
n the tank car are ta pad wthn 30 days after tng, they need not be
resauged but may be ta pad on the fng gauge under the provsons of
sectons 1 5.377 and 1 5.377a. (53 Stat. 20 as ameuded, 335 as amended, 375;
26 U. S. C. 2S00, 2 S3, 3176.)
6. Sectons 1 6.20 and 1 6.23 of the Gaugng Manua (26 CFR,
part 1 6; 15 F. R. 7 7), are amended as foows:
Subpart Prescrbed Tabes
Sec. 1 0.20. Tabe 1, Showng the True Pebcents of Proof Sprts for nt
Indcaton of the ydrometer at Temperatures etween Zero and 100 F.
Ths tabe shows the true percent of proof of dsted sprts for ndcatons of
the hydrometer key to occur n practce at temperatures between zero and
100 F. The eft hand coumn contans the readng of the hydrometer and on
the same horzonta ne, n the body of the tabe, n the Temperature coumn
correspondng to the readng of the thermometer s the corrected readng or
True percent of proof. The tabe s computed for tenths of a percent. Where
dsted srrts or acoho are gauged n packages, f the decma s ess than
fve t w be dropped; f t s fve or over a unt w be added. Thus coumn
ndcaton 11 , the true percent, 110. , s caed 110; coumn 09 , ndcaton
117, the true percent of proof 113.5, Is caed 11 . Where dsted sprts or
acoho are gauged for ta payment n buk for remova by ppene, tank car, tank
truck, tank shp, or tank barge wthout ad|ustment of the proof to a whoe or
compete degree, the proof sha be determned to the nearest tenth of a
degree and such fractona proof w be used n determnng the ta abe gaons.
Thus coumn 71 , ndcaton 103, the true percent, 100. , w be recorded and
used to cacuate the ta abe gaons. The proof of dsted sprts or acoho
wthdrawn n tank cars, tank trucks, tank shps, tank barges, and by ppe-
ne, for purposes other than ta payment, sha be determned to the nearest
tenth of a degree; however, e cept where the propretor or consgnee desres
to remove dsted sprts or acoho at a fractona degree, f the decma s
ess than fve t w be dropped; f t s fve or over, a unt w be added.
Thus coumn 71 , Indcaton 103, the true percent, 100. , s caed 190; coumn
71 , ndcaton 10 , the true percent of proof, 191.5, s caed 102. Where frac-
tona readngs are ascertaned, the proper Interpoatons w be made, e. g.,
for a hydrometer readng of 151, temperature 71 a , the true percent of proof
woud be 1 7.0, or for a hydrometer readng 179. , temperature 75 , the true
percent of proof woud be 175.0. (53 Stat. 307, 333, 335 as amended, 373 as
amended. 375, 07 ; 26 U. S. C. 2 0 , 2 7 , 2 3, 3170, 3176, 3791.)
Sec. 1 6.23. Tabe , Showng the Fractona Part of a Gaon Per Pound
at ach Percent and ach Tenth Percent of Proof of Sprtuous Lquor.
Ths tabe provdes a method for use n ascertanng the wne gaon (at 00 F.)
and/or proof gaon contents of contaners of sprts by mutpyng the net
weght of the sprts by the fractona part of a gaon per pound shown n the
tabe for sprts of the same proof. Fractona gaons beyond the frst decma
w be drop|ed f ess than 0.05 or w be added as 0.1 f 0.05 or more. Ths
tabe may aso be used for ascertanng the quantty of water requred to reduce
to a gven proof. To do ths, dvde the proof gaons of sprts to he reduced
by the fractona part of a proof gaon per pound of sprts at fhe proof to whch
the sprts are to be reduced, and subtract from the quotent the net weght of
the sprts before reducton. The remander w be the pounds of water needed
U reduce the sprts to the desred proof.
ampe. It s desred to ascertan the quantty of water needed to reduce
1,000 pounds of 200 proof sprts, 302.6 proof gaons, to 100 proof:
302.6 dvded by 0.2796 equas 1,0 2.11 pounds, weght of sprts after
reducton.
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323.22, Regs. 59.
52
1.0S2.11 mnus 1,000 equas 2.11 pounds, weght of water requred to
reduce to desred proof.
The sght varaton between ths tabe and tabes 2, 3, and 5 on some cacuatons
s due to the droppng or addng of fractons beyond the frst decma on those
tabes. (53 Stat. 307, 333, 335 as amended, 373 as amended, 375, 67 ; 26 U. S. C.
2 0 , 2 7 , 2 3, 3170, 3176, 3791.)
7. Secton 190.566 of Reguatons 15 (26 CFR, part 190; 15 F. R.
790), Rectfcaton of Sprts and Wnes, s amended as foows:
Subpart Gauge, Return, and Ta payment of Rectfed Sprts
G UO OF R CTIFI D SPIRITS

Seo. 190.506. d|ustment of Proof. The proof of rectfed sprts sha be
ad|usted to a whoe degree of proof n accordance wth the provsons of the
Gaugng Manua (26 CFR, part 1 6), preparatory to fng barres or bottes.
d|ustng the proof to tenths of a degree, ether above or beow the whoe or
compete degree, w not be permtted: Provded, That when sprts are beng
prepared for bottng and are to be botted and abeed In tenths of a degree of
proof, such as 6. , the proof of the sprts sha be ad|usted to such tenths of a
degree of proof. If the proof s so ad|usted to tenths, the fractona degree of
proof sha be used In determnng the ta abe gaons, for payment of the
rectfcaton ta , n accordance wth the Gaugng Manua. The proof n each
nstance sha be verfed as to accuracy by the Government offcer. (53 Stat 300
as amended, 329, 375 ; 26 U. S. O. 2 01, 2 61, 3176.)
. These reguatons sha be effectve on the 31st day after pubca-
ton n the Federa Regster.
n 53 Stat. 29 as amended, 300 as amended, 307, 329, 333, 335, 335 as
amended, 3 0 as amended, 355,357, 35 , 36 , 373 as amended, 375, 67,
92; 65 Stat. 116; 26 U. S. C. 2 00, 2 01, 2 0 , 2 61, 2 7 , 2 2, 2 3.
2901, 3070, 3103, 3105, 312 , 3170, 3176, 3791, 017, and 31 3.)
T. Coeman ndrews,
pproved pr 10, 1953.
M. . Fosom,
ctng /Secretary of the Treasury.
(Pubshed n the Federa Regster pr 16, 1953)
C PT R 27. OCCUP TION L T S
SU C PT R .-SP CI L PRO ISIONS
P RT I . COIN-OP R T D MUS M NT ND G MING D IC S
S CTION 3267. T ON COIN-OP R T D MUS M NT
ND G MING D IC S
Secton 323.22, Reguatons 59: Rates and Rev. Ru. 0
computaton of ta .
INT RN L R NU COD
mechanca horse or other smar devce whch s actvated by
the nserton of a con s consdered to be a con-operated amusement
devce wthn the meanng of secton 3267 of the Interna Revenue
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53
323.22. Rr s 59.
Code, and persons who mantan for use, or permt the use of such
devces, on premses occuped by them, ncur abty for the speca
ta of 10 per year wth respect to each such devce.
Secton 323 22, Reguatons 59: ates and Rev. Ru. 5
computaton of ta .
INT RN L R NU COD
Con operated st or movng pcture machnes are consdered to be
con-operated amusement devces for purposes of the speca 10 ta
under secton 32(S7 of the Interna Revenue Code; however, con-
operated rado and teevson sets are prmary nstruments for
recevng communcatons, and are not consdered to be amusement
devces sub|ect to such ta abty.
dvce s requested concernng the appcaton of the speca ta
under secton 3267 of the Interna Revenue Code to the mantenance
for use of con-operated st or movng pcture devces, and of con-
operated rado and teevson sets.
foows:
(a) Rate. very person who mantans for use or permts the use of, on any
pace or premses occuped by hm, a con-operated amusement or gamng devce
sha pay a speca ta as foows:
(1) 1U per year u the case of a devce defned n cause (1) of subsecton
(b) :

(b) Defnton. s used n ths Part, the term con operated amusement
and gamng devces means (1) any amusement or musc machne operated by
means of the nserton of a con, token, or smar ob|ect .
Machnes operated by the nserton of a con, for whch the vewer
may wtness st or movng pctures, ceary fa wthn the purvew
of secton 3267 of the Code, as con-operated amusement devces.
owever, rado and teevson sets, athough used for amusement
or entertanment, are prmary nstruments for recevng commu-
ncatons by whch the stener or vewer s enabed to receve the
sound and mages beng transmtted on the ar waves. The nserton
of a con n a rado or teevson set does not pace n operaton a
devce that by tsef produces musc, a pay, or any other form of
entertanment. Rather, n such a case, the con merey contros a
mechansm that permts the use of the rado or teevson set for the
recepton of a program that s produced esewhere and s broadcast
generay to be receved by a sets tuned n to the broadcast wave-
band, regardess of whether any partcuar set s con-operated.
(See Dunbar v. Spratt-Snyder Co. et aL, 226 N. . 22.) Moreover,
a con nserted n such a set usuay serves to permt the operaton
of the set for a gven perod of tme and, therefore, s an amount
pad n effect as a renta for the use of the set for the tme aotted.
In vew of the foregong, t s hed that con-operated st or mov-
ng pcture machnes are consdered to be con-operated amusement
devces for purposes of the speca 10 ta under secton 3267 of
the Interna Revenue Code. owever, con-operated rado and tee-
vson sets are prmary nstruments for recevng communcatons
and, therefore, are not consdered to be amusement devces sub|ect
to such ta abty.
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5 325.21, Regs. 132. 5
P RT . OWLING LL YS, ND ILLI RD ND POOL T L S
S CTION 326 . T ON OWLING LL YS, ND
ILLI RD ND POOL T L S
Secton 323.31, Reguatons 59: Persons abe Rev. Ru. 6
for ta .
INT RN L R NU COD
owng aeys mantaned e cusvey for the use of members
of the rmed Forces on property owned by the Unted States are
not e empt from the speca occupatona ta mposed by secton
326 (a) of the Interna Revenue Code where, as a condton prece-
dent to usng the aeys, a charge Is coected from the payers and
pad to pnsetters. The amount coected from the payers Is con-
sdered to consttute a charge for the use of the aeys wthn the
meanng of the aw.
dvce s requested whether the e empton from the speca occupa-
tona ta mposed by secton 326 (a) of the Interna Revenue Code,
as added by Pubc Law 576, ghty-second Congress, C. . 1952-2,
361, wth respect to bowng aeys mantaned e cusvey for the use
of the rmed Forces, s appcabe where a charge of 10 cents a game
s coected from payers and pad to pnsetters.
Secton 326 (a) of the Code provdes, n part, that the speca ta
of 20 per year sha not appy for any perod after une 30, 1952,
wth respect to any bowng aey, bard tabe, or poo tabe man-
taned e cusvey for the use of members of the rmed Forces on any
property owned, reserved, or used by, or otherwse acqured for the
use of, the Unted States f no charge s made for ther use.
It s hed that an amount coected from a payer usng a bowng
aey and pad to a pnsetter consttutes a charge made for ts use
wthn the meanng of the statute where the charge s a condton
precedent to the use of the aey. ccordngy, the e empton from
the speca ta provded by secton 326 (a) of the Code, as added by
Pubc Law 576, supra, does not appy where, under the crcumstances
stated, amounts are coected from payers for the use of the bowng
aeys, even though the amounts coected are n turn pad to pnsetters.
C PT R 27 . W G RING T S
SU C PT R v-T ON W G S
S CTION 32 5. T
( so Secton 325.26; Secton 3290, Secton
325. 1.)
INT RN L R NU COD
Sut or merchandse cubs operated pursuant to a pan whereby
some partcpants may, by drawng or other eement of chance, re-
ceve merchandse havng a reta vaue n e cess of ther payments,
Orgnay Issued as IR-Mmeograph 1 , dated March 11,1953.
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55
325.21, Regs. 132.
and a other partcpants receve merchandse havng a reta vaue
equvaent to the amount of ther payments, do not consttute ot-
teres conducted for proft for purposes of the wagerng ta es.
Mmeograph CS1 , C. . 1952-1, 210, revoked.
1. Further consderaton has been gven to the appcabty of the
wagerng ta es mposed by sectons 32 ) and 3290 of the nterna
Revenue Code wth respect to the operaton of sut and merchandse
cubs as set forth n Mmeograph G 1 , C. . 1952-1, 210, wheren t
was hed that cubs operated n the manner descrbed beow meet the
defnton of a ottery conducted for proft for the purposes of the
wagerng ta es and, therefore, a sums paced wth or advanced to
merchants n the operaton of such cubs consttute wagers sub|ect to
the wagerng ta :
One hundred persons pay 1 a week for a perod of 0 weeks, and after the
second week one person s name s drawn from a members st and t e wnner
receves 30 worth of merchandse for the 2 pad n and s m.t requred to make
any further payments. The second person receves 30 worth of merchandse
for the 3 pad n, and so on unt the 30 weeks e pre. owever, each member
In the cub receves the fu 30 n trade, credt, or payment on account. Shoud
any member drop out before the e praton of the 30-week perod, he receves
the amount he has pad n trade, credt, or on account.
2. Secton 32 5 of the Interna Revenue Code mposes a ta on,
among other wagers, any wager paced n a ottery conducted for
proft, and secton 325.21(f) of Reguatons 132, pertanng to the
wagerng ta , states, n part, that n genera a ottery conducted for
proft ncudes any scheme or method for the dsposton of przes
among persons who have pad or promsed a consderaton for a chance
to wn such przes. Secton 325.26(a) of Reguatons 132 states that
the ta s mposed at the rate of 10 percent of the amount of any ta -
abe wager, and that the amount of the wager s the amount rsked by
the bettor, rather than the amount whch he stands to wn.
3. The ureau has gven further study to sut and merchandse cubs
n whch the partcpants make perodc payments to be apped on the
purchase of merchandse pursuant to a pan under whch some partc-
pants may, by drawng or other eement of chance, receve as a prze
merchandse havng a reta vaue n e cess of ther payments, and a
other partcpants receve merchandse havng a reta vaue equva-
ent to the amount of ther payments, whch amount s no more than
they woud ordnary pay for the same merchandse f they were not
members of the cub.
. It s now the poston of the ureau that where sut or merchan-
dse cubs are operated n the manner descrbed n paragraph 3, the
sums paced wth merchants n the operaton of such cubs do not
consttute wagers wthn the meanng and ntent of the aw nvoved.
Therefore, snce no wager s nvoved, such operaton woud not fa
wthn the scope of the wagerng ta aw, and the 10 percent e cse
ta and the 50 per year occupatona ta mposed by sectons 32S5
and 3290 of the Interna Revenue Code woud not appy. owever,
ths rung s appcabe ony to such cubs as are operated under the
crcumstances set forth n paragraph 3, that s, where the partcpant
receves merchandse havng a reta vaue at east equvaent to hs
payments.
5. The rung set forth n Mmeograph 0S1 , supra, s revoked.
6. Correspondence reatng to the contents of ths Revenue Rung
shoud refer to ts number and the symbos T: R: St
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325.50, Regs. 132. 56
SU C PT R .-OCCUP TION L T
S CTION 3290. T
Secton 325. 1, Reguatons 132: Person
abe for ta .
INT RN L R NU COD
Sut or merchandse cubs. (See Rev. Ru. 52, page 5 .)
S CTION 3291. R GISTR TION
Secton 325.50, Reguatons 132: Regstry, Ct. D. 1755
return, and payment of ta .
occupatona ta es nterna revenue code decson op supreme
COURT
Wagerng Ta CoN TrnmoN .rrT.
The occupatona ta provsons of the Revenue ct of 1951, whch
evy a ta on persons engaged n the busness of acceptng wagers
and requre such persons to regster wth the coector of nterna
revenue, are not unconsttutona. They do not nfrnge the poce
power whch s reserved to the States, nor do they voate the
prvege aganst sef-ncrmnaton.
Supreme Coubt of the Unted States
The Unted States of merca, appeant, v. oseph ahrger
On appea from the Unted Staes Dstrct Court for the astern Dstrct
of Pennsyvana
March 9, 1953
OPINION
Mr. ustce Reed devered the opnon of the Court.
The ssue rased by ths appea s the consttutonaty of the occupatona
ta provsons of the Revenue ct of 1951,1 whch evy a ta on persons engaged
1 26 U. S. C. (supp. ) sec. 32 5 :
(a) Wagers.
There sha be Imposed on wagers, as defned In subsecton (b), an e cse ta equa to
10 per centum of the amount thereof.

(d) Persons Labe for Ta .
ach person who Is engaged In the busness of acceptng wagers sha be abe for and
sha pay the ta under ths subchapter on a waeers paced wth hm. ach person who
conducts any wagerng poo or ottery ha be abe for and sha pay the ta under ths
subchapter on a wagers paced In such coo or ottery,
(e cusons From Ta .
No ta sha be Imposed by ths subchapter (1) on any wager paced wth, or on any
wafer paced In a wagerng poo conducted by. a pnrmtnc wagerng enterprse censed
under State aw, and (2) on any wager paced n a con-operated devce wth respect to
whch an occupatona ta s Imposed by secton 3207.
26 U. S. C. (supp. ) sec. 3200:
speca ta of 50 per year sha be pad by each person who s abe for ta under
subchapter or who Is engaged n recevng wagers for or on behaf of any person so
abe.
26 D. S. C. (supp. ) sec. 3291:
(a) ach person requred to pay a speca ta under ths subchapter sha regster wth
the coector of the dstrct
(1 | hs name nnd pace of resdence:
(2) f he s abe for ta under subchapter , each pace of busness where the actvty
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57
325.50, Regs. 132.
n the busness of acceptng wagers, and requre such persons to regster wth
the coector of nterna revenue. The unconsttutonaty of the ta s asserted
on two grounds. Frst, t s sad that Congress, under the pretense of e er-
csng ts power to ta has attempted to penaze ega ntrastate gambng
through the reguatory features of the ct (20 U. S. C. (supp. ) sec. 32S 1)
and has thus nfrnged the poce power whch s reserved to the States.
Secondy, t s urged that the regstraton provsons of the ta voate the
prvege aganst sef-ncrmnaton and are arbtrary and vague, contrary to
the guarantees of the ffth amendment.
The case comes here on appea, n accordance wth 1 IT. S. C. secton 3731,
from the Unted States Dstrct Court for the astern Dstrct of Pennsyvana,
where an nformaton was fed aganst appeee aenng that he was n the
busness of acceptng wagers and that be wfuy faed to regster for and pay
the occupatona ta n queston. ppeee moved to dsmss on the ground
that the sectons up n whch the ndctment was based were unconsttutona.
The dstrct court sustaned the moton on the authorty of our opnon n
Unted States v Constantne, 29G U. S. 2 7 Ct. D. 1053, C. . I -2, 03 (1935) .
The court reasoned that whe the sub|ect matter of ths, egsaton so far
as revenue purposes s concerned s wtn the scope of Federa authortes,
the ta was unconsttutona n that the nformaton caed for hy the regs-
traton provsons was pecuary appcabe to the appcant from the stand-
pont of aw enforcement and vce contro, and therefore the whoe of the
egsaton was an nfrngement by the Federa Government on the poce
power reserved to the States by the teuth amendment Unted States v.
ahrper, 105 F. Supp. 322, 323.
The resut beow s at odds wth the poston of the seven other dstrct
courts whch have consdered the matter, and, n our opnon, s erroneous.
In the term foowng the Constantno opnon, ths court ponted out n
Sonznsy v. Unted States, 300 U. S. 500 Ct. D. 1217, C. . 1037-1, 351 , at
513 (n case nvovng a ta on a mted cass of ob|ectonabe frearms aeged
to be prohbtory n effect and to dscose unmstakaby the egsatve purpose
to reguate rather than to ta ), that the sub|ect of the ta n Constanne was
descrbed or treated as crmna by the ta ng statute. The ta n the Con-
stantne case was a speca addtona e cse ta of 1,000, paced ony on persons
who carred on a quor busness n voaton of State aw. The wagerng ta
wth whch we are here concerned appes to a persons engaged n the busness
of recevng wagers regardess of whether such actvty voates State aw.
The substance of respondent s poston wth respect to the tenth amendment
s that Congress has chosen to ta a specfed busness whch s not wthn ts
power to reguate. The precedents are many uphodng ta es smar to ths
wagerng ta as a proper e ercse of the Federa ta ng power. In the Lcense
Ta Cases, 5 Wa. 02, the controversy arose out of ndctments for seng
ottery tckets and retang quor n varous States wthout havng frst
obtaned and pad for a cense under the Interna Revenue ct of Congress.
The ob|ectng ta payers urged that Congress coud not consttutonay ta or
reguate actvtes carred on wthn a State. 1 . 70. The court ponted out
that Congress had no power of reguaton nor any drect contro (5 Wa., at
71, 72) over the busness there nvoved. The court sad f the censes
whch mnkes htm so abe Is carred on. and the name and pace of resdence of each person
who Is engaged n recevng wag rs for tm or on Ls behaf: and
(3) If he s engaged n recevng wngers for or on behaf of any person abe for ta
under subchapter , the name and pace of resdence of each such person.
26 O. S. C. (supp. ) sec. 329 :
(a) F LnR to Pat Ta
ny person who does any act whch mnkes hm abe for speca ta under ts sub-
chapter, wthout havng pad ch tu . sha, besdes brng abe to the payment of the
ta , be fned not ess than 1,000 and not more than 5,000.

(c) WI.T-PTL oatons.
The penates prescrbed by secton 2707 wth respect to the ta Imposed by secton 2700
sha appy wth respect to the ta mposed by ths subchapter.
Unted States v. Smth, 106 F. Supp. 0 (D. C. S. D. Ca.) : Unted States v. atrr.
105 F. Supp. 91 (D. C. N. D. Ca.): Unted States v. Forrester. 105 F. Supp, 13
(D. C. N. D. Ga.) ; Unted States v. Robnson, 107 F. Supp. 3 (D. C. . D. Mch.) ; Unted
States v. rnod, ordan, and naate, No. 7 (D C. . D. a.). September 1 . r.2.
Unted States v. Penn. No. 2021 (D. C. M. D. . C), May 1052. Combs v. Snyder, 101
F. Supp. 531 (D. D. C). affrmed, 3 2 U. S. 939.
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325.50, Regs. 132.
5
were to be regarded as by themseves gvng authorty to carry on the censed
busness t mght be Impossbe to reconce the grantng of them wth the
Consttuton. P. 71.
ut t s not necessary to regard these aws as gvng such authorty.
So far as they reate to trade wthn State mts, they gve none, and can
gve none. They smpy e press the purpose of the government not to
Interfere by pena proceedngs wth the trade nomnay censed, f the
requred ta es are pad. The power to ta Is not questoned, nor.the power
to mpose penates for non-payment of ta es. The grantng of a cense,
therefore, must be regarded as nothng more than a mere form of Imposng
a ta , and of mpyng nothng e cept that the censee sha be sub|ect to
no penates under natona aw, f he pays t Id., at 71.
ppeee woud have us say that because there Is egsatve hstory ndcatng
a congressona motve to suppress wagerng, ths ta s not a proper e ercse
of such ta ng power. In the Lcense Cases, supra, It was admtted that the
Federa cense dscouraged the actvtes. The ntent to curta and hnder,
as we as ta , was aso manfest n the foowng cases, and In each of them
the ta was uphed: eaze ank v. Fenno, Wa. 533 (ta on paper money
ssued by State banks) ; McCray v. Unted States, 195 T . S. 27, 59 (ta on
coored oeomargarne) ; Unted States v. Doremus, 2 9 U. S. 6, and gro v.
Unted States, 276 U. S. 332 (ta on narcotcs) ; Sonznsky v. Unted State , 300
T . S. 506 (ta on frearms) ; Unted States v. Sanchez, 3 0 T . S. 2 (ta on
marhuana) Ct. D. 1735, C. . 1950-2, 139 .
It s conceded that a Federa e cse ta does not cease to be vad merey
because t dscourages or deters the actvtes ta ed. Nor s the ta nvad
because the revenue obtaned s neggbe. ppeee, however, argues that
the soe purpose of the statute s to penaze ony ega gambng n the
States through the guse of a ta measure. s wth the above e cse ta es
whch we have hed to be vad, the nstant ta has a reguatory effect. ut
regardess of ts reguatory effect, the wagerng ta produces revenue. s
such t surpasses both the narcotcs and frearms ta es whch we have found
vad.
It s a omatc that the power of Congress to ta s e tensve and sometmes
fas wth crushng effect on busnesses deemed unessenta or nmca to the
pubc wefare, or where, as n deangs wth narcotcs, the coecton of the
ta aso s dffcut. s Is we known, the consttutona restrants on ta ng
are few. Congress cannot ta e ports, and t must mpose drect ta es by
the rue of apportonment and ndrect ta es by the rue of unformty.
Lcense Ta Cases, supra, 71. The remedy for e cessve ta aton s n the
hands of Congress, not the courts. eaze ank v. Fenno, Wa. 533, 5 .
Speakng of the creaton of the ank of the Unted States, as an nstru-
ment for carryng out Federa fsca poces, ths Court sad n McCuoc v.
Maryand, Wheat. 316, 23:
Shoud Congress, n the e ecuton of ts powers, adopt measures whch
are prohbted by the consttuton; or shoud Congress, under the prete t
of e ecutng ts powers, pass aws for the accompshment of ob|ects not
entrusted to the government; t woud become the panfu duty of ths
There are suggestons In the debates that Congress sought to hnder, f not prevent
the type of gambng ta ed. See 97 Cong. ec. 6 92 :
Mr. offman of Mchgan. Then I w renew my observaton that It mght f propery
construed be consdered an addtona penaty on the Iega actvtes.
Mr. Cooper. Certany, and we mght Induge the hope that the Imposton of ths
type of ta woud emnate that knd of actvty. 97 Cong. ec. 12236 : If the oca
offca does not want to enforce the aw and no one catches hm wnkng at the aw. he
may keep on wnkng at t, but when the Federa Government dentfes a aw voator and
the oca newspnper gets hod of t and the oca church organzatons get hod of It and
the peope who do want the aw enforced get hod of t, they say. Mr. Sherff, what about
It We understand that there Is a pace down here censed to se quor. e says, Is
that so I w put hm out of busness.
One of the Indca whch appeee offers to support hs contenton that the wagerng
ta s not a proper revenue measure a that the ta amount coected under It was
.371. 09 as compared wth an e pected amount of 00,000,000 a year. The fgure of
,371, 69, however, s reatvey arge when It s compared wth the 3,501 coected under
the ta on aduterated and process or renovated butter and fed cheese, the 91 ,910
coected under the tn on narcotcs. Incudng marhuana and speca ta es, and the 2 ,911
coected under the ta on frearms transfer and occupatona ta es. (Summary of Interna
Revenue coectons, reensed by urenu of Interna Revenue, October 3. 1952.)
ut see the argument for defendant In the Ch Laor Ta Case, 259 U. S. 20, 30.
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59
325.50, Regs. 132.
trbuna, shoud a case requrng such a decson come before It, to say
that such an act was not the aw of the and. ut where the aw Is not
prohbted, and s reay cacuated to effect any of the ob|ects entrusted
to the government, to undertake here to nqure Into the degree of ts
necessty, woud be to pass the ne whch crcumscrbes the |udca de-
partment, and to tread on egsatve ground. Ths court dscams a
pretensons to such a power.
The dffcuty of sayng when the power to ay unform ta es s curtaed,
bocause ts use brngs a resut beyond the drect egsatve power of Congress,
fas gven rse to dverse decsons. In that area of abstract deas, a fna
defnton of the ne between State and Federa power has baffed |udges and
egsators.
Whe the Court has never questoned the above-quoted statement of Mr.
Chef ustce Marsha n the ank case, the appcaton of the rue has brought
varyng hodngs on consttutonaty. Where Federa egsaton has rested
on other congressona powers, such as the Necessary and Proper Cause or
the Commerce Cause, ths Court has generay sustaned the statutes, despte
ther effect on matters ordnary consdered State concern. When Federa
power to reguate s found, ts e ercse s a matter for Congress. Where
Congress has empoyed the ta ng cause a greater varaton n the decsons
has resuted. The dvson n ths Court has been more acute. Wthout any
swfc dfferentaton between the power to ta and other Federa powers,
the ndrect resuts from the e ercse of the power to ta have rased more
doubts. Ths s strkngy ustrated by the shftng course of ad|udcaton
n ta aton of the handng of narcotcs. The ta ground n the eaze ank
case, supra, recognzed that strcty State governmenta actvtes such as the
rght to pass aws were beyond the Federa ta ng power. That case aowed
a ta , however, that obterated from crcuaton a State hank notes.
reason was that the |udca cannot prescrbe to the egsatve departments
of the Government mtatons upon the e ercse of ts acknowedged powers.
Id., at 5 . The ta cases cted above n the thrd precedng paragraph foowed
that theory. It Is hard to understand why the power to ta shoud rase more
doubts because of ndrect effects than other Federa powers.
Penaty provsons n ta statutes added for breach of a reguaton concernng
actvtes n themseves sub|ect ony to State reguaton have caused ths Court
to decare the enactments nvad.10 I ness there are provsons, e traneous
to any ta need, courts are wthout authorty to mt the e ercse of the ta ng
power. the provsons of ths e cse are adapted to the coecton of a
vad ta .
Nor do we fnd the regstraton requrements of the wagerng ta offensve.
that s requred s the fng of names, addresses, and paces of busness.
McCunch v. Maryand, Wheat. 310. 72, uphed the creaton of a hnnk under the
renssary nd proper cause. eaze ank v. Fenno, Wa. 533. 5 . depends party on
the aternate ground of the Federa power to provde money for crcuaton. In re Raper,
1 3 D. S. I, the use of the mas by pane s that advertsed the Lousana Lottery was
barred. The Lottery Cane, 1 U S. 321, approved the same resut through the com-
merce power. That power wns enough to bar transportaton of pctures of prze fghts,
Weber v. Freed, 239 U. S. 325: to seze contrabnnd eggs after shpment hnd ended,
pnUte ag Co. v. Unted States, 220 . S. 5, 56: and to bar transportaton of women
for mmora purposes, Camnett v. Unted States, 2 2 U S. 70. Whe n Unted Rtntm
v. utter, 297 U. S. 1, 6 . 73, n use of a ta for reguaton was dsapproved, an enactment
that resuted In reguaton under the Commerce Cause met |udca favor. Mufnrd v.
Fmth. 3( 7 IT. S. 3 , 7 : Wckard v Fhurn, 317 . S. 111. v. Waace. 25 ) U. S. ,
67. and Tru er v. Crooks. 200 U. S 75. based on ta aton, hed ta es that reguated the
gran markets were unconsttutona as an nterference wth State power. In Chcat|o
oard of Trade v. OUtn. 2f2 D. . . reguatons based on the Commerce Cause were
uphed. The departure from ths ne of decsons In ammer v. Daoenhart. 2 7 U. S.
251, wns reversed In Unted States v. Darby. 312 . S. 100, 115-12 , where we sad :
Whatever ther motve and purpose, reguatons of commerce whch do not nfrnge some
consttutona prohbton are wthn the penary power conferred on Congress by the
Commerce Cause. Id., at 115. The power of Congress over nterstate commerce
e tends to those actvtes ntrastate whch so affect nterstate commerce or the e ercse of
the power of Congress over It as to make reguaton of them approprate means to the
attanment of a egtmate end, the e ercse of the granted power of Congress to reguate
Interstate commerce. Id., at 11 .
Unted States v. n Fuey Moy. 2 1 D. S. 39 . 02: Unted States v. Dnremus, 219
0. S. 6: Under . Unted States. 2 U. S. 5 : f/ro v. Unted States, 27G U. S. 332.
Cf. New York v. Unted States. 320 U. S r.72, 5S2, 5 7-5 .
Cf. McCuoeh v. Iaryand. Wheat., at 22
Chd Mor Ta Cane. 2.r I . S. 20. 3 , 3 ; v. Waace, 259 U. S. , 63, 70;
Unted States v. Constantne, 290 U. S. 2S7.
ut see Under v. Unted States, 26 C. . 5, 1 ; Truster v. Crooks, 209 C. S. 76.
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I 325.50, Regs. 132.
60
Ths s qute genera n ta returns. Such data are drecty and Intmatey
reated to the coecton of the ta and are obvousy supportabe as n ad
of a revenue purpose. Sonznsky v. Unted States, 300 U. S. 506, at 513. The
regstraton provsons make the ta smper to coect.
ppeee s second asserton s that the wagerng ta s unconsttutona because
t s a dena of the prvege aganst sef-ncrmnaton as guaranteed by the
ffth amendment.
Snce appeee faed to regster for the wagerng ta , t s dffcut to see how
he can now cam the prvege even assumng that the dscosure of voatons
of aw are caed for. In Unted States v. Suvan, 27 U. S. 250 T. D. 02 ,
C. . I-2, 177 (1927) , defendant was convcted of refusng to fe an ncome
ta return. It was assumed that hs ncome was derved from busness n
voaton of the Natona Prohbton ct. Id., at 263. s the defendant s
ncome was ta ed, the statute, of course, requred a return. See Unted State
v. Ssco, 262 U. S. 165. In the decson that ths was contrary to the Const-
tuton, we are of the opnon that the protecton of the ffth amendment was
pressed too far. If the form of return provded caed for answers that the
defendant was prveged from makng he coud have rased the ob|ecton n the
return, but coud not on that account refuse to make any return at a. 27
U. S., at 263.
ssumng that respondent can rase the sef-ncrmnaton ssue, that prvege
has reaton ony to past acts, not to future acts that may or may not be com-
mtted. Wgmore (3d ed.. 19 0) secton 2259(c). If respondent wshes to
take wagers sub|ect to e cse ta es under secton 32 5, supra, he must pay an
occupatona ta and regster. Under the regstraton provsons of the wagerng
ta , appeee s not compeed to confess to acts aready commtted, he Is merey
nformed by the statute that n order to engage n the busness of wagerng
n the future he must fuf certan condtons.
Fnay, we consder respondent s contenton that the order of dsmssa was
correct because a convcton under the sectons In queston woud voate the
Due Process Cause because the cassfcaton s arbtrary and the statutory
defntons are vague. The appcabe defntons are 20 U. S. C. (supp. ) sec-
ton 32 5 (b), (d) and (e). The arbtrarness s sad to arse from ds-
crmnaton because some wagerng actvtes are e cuded. The Consttuton
does not requre that a ta statute cover a phases of a ta ed or censed
busness. Respondent predcates vagueness of the statute upon the use, n
defnng the sub|ect of the ta , of the descrpton engaged n the busness
of wagerng and usuay n secton 32 5(b) (2). We have no doubt the def-
ntons make cear the actvtes covered and e cuded.
Reversed.
Concurrng opnon by Mr. ustce ackson : dssentng opnons by Mr.
ustce ack, wth whom Mr. ustce Dougas concurs, and by Mr. ustce
Frankfurter.
26 . S. C. see. 2011 et teg., requre regstraton by tobacco manufacturers, deaers
and pedders of the name, or stye, pace of resdence, trade, or busness, and pace where
such trade or busness a to be carred on. 20 U. S. C. sec. 2S10 requres the possessor
of dstng appuratus to regster the partcuar pace where such st or dstng
apparatus u set up the owner thereof, hs pace of resdeuce , See aso
26 U. S. C. sec. 3270.
Cf. Davt . Unted States, 32 D. S. 5 2, 500 ; Shapro v. Unted States, 335 C. S. 1,
5 : see . Fougera Co. v. Cty o) ew York, 22 N. Y. 209. 2 1. 120 S. . 092.
These defenses are open under the demurrer to facts aeged In the Indctment and the
|udgment of dsmssa athough the opnon of the Dstrct Court reed ony upon usurpa-
ton of state poce power by the federa enactment. Unted States v. Curts Wrght
Corp., 299 II. . 30 . 330. Compare Unted States v. The curon rass Co., No. 30, tuto
Term, decded November 10,1952 Ct. D. 1751. L . . 1952-25, 30 .
20 0. S. C. (supp. ) sec. 32S5 :
(b) Defntons.
For the purposes of ths chapter
(1) The term wager means ( ) any wager wth respect to a sports event or a contest
paced wth a person engaged In the busness of acceptng such wagers, ( ) any wager
paced In a wagerng poo wth respect to a sports event or a contest, f such poo Is con-
ducted for proft, and (C) nny wager paced In a ottery conducted for proft.
2) The term ottery Incudes the numbers-game, pocy and smar types of wngerng.
The term does not Incude ( ) any game of a type In whch usuay (1) the wagers are
paced, (II) the wnners are determned, and () the dstrbuton of pres or other
property a made, n the presence of a persons .heng wagers In such game, and ( )
any drawng conducted by an organsaton e empt from ta under secton 101. f no part
of the net proceeds derved from such drawng Inures to the beneft of any prvate
sharehoder or Indvdua.
Steward Machne Co. . Davt, 301 U. S. 6 , 5M Ct. D. 1230, C. . 19 7-1, .
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61 316.60, Regs. 6.
C PT R 29. M NUF CTUR RS CIS ND IMPORT
T S
SU C PT R M NUF CTUR RS CIS T S
S CTION 3 03. T ON UTOMO IL S, TC.
Secton 316.2 , Reguatons 6: Saes to Rev. Ru. 99
States or potca subdvsons thereof
and to the Unted States.
INT RN L R NU COD
n automobe sod to a county sherff for hs offca use, where
payment s made from hs persona funds, s sub|ect to the ta
Imposed under secton 3 03(b) of the Interna Revenue Code.
dvce s requested whether the ta mposed under secton 3 03(b)
of the Interna Revenue Code s appcabe to the sae of an auto-
mobe to a county sherff for use n hs offca capacty where payment
s not made from pubc funds.
Secton 3 2(3) of the Interna Revenue Code, as amended, pro-
vdes that no ta attaches to artces enumerated under chapter 29
of the Code when sod for the e cusve use of any State, Terrtory
of the Unted States, or any potca subdvson of the foregong,
or the Dstrct of Coumba.
Snce the automobe n queston was sod to the county sherff
and payment therefor was made from hs persona funds rather than
from pubc funds t s not consdered that the sae of the automobe
was made to a State or potca subdvson thereof for ts e cusve
use wthn the meanng of secton 3 2(3) of the Code. Therefore,
t s hed that the sae of the automobe to the county sherff s sub|ect
to the ta mposed under secton 3 03(b) of the Code.
Secton 316.50, Reguatons G: Scope of ta . Rev. Ru. 100
INT RN L R NU COD
traer equpped wth vng or seepng factes, though of the
fodng type, the upper porton of whch s made of canvas or fabrc
matera supported by coapsbe bows, frames, or smar devces,
s consdered to be a house traer wthn the purvew of secton
3 03(b) of the Interna Revenue Code, as amended by secton 1(b)
of the Revenue ct of 1951, and saes thereof on or after November
1, 1951, by the manufacturer, producer, or mporter are not sub|ect
to the ta mposed by that secton of the Code.
20335 53 30
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316.55, Regs. 6.
62
Secton 316.55, Reguatons 0: Defnton Rev. Rn. 21
of parts or accessores.
INT RN L R NU COD
Carfcaton of S. T. 9 1 (C. . 1952-1, 215) wth respect to the
casses of ftng acks whch are ta abe as parts or accessores
under secton 3 03(c) of the Interna Revenue Code.
Carfcaton of S. T. 9 1 (C. . 1952-1, 215) s requested as to the
casses of ftng |acks whch are ta abe as parts or accessores under
secton 3 03(c) of the Interna Revenue Code.
It s stated n S. T. 9 1, supra, that there are a number of factors
to be consdered n arrvng at a decson as to the ta abty of ftng
|acks, and each case must be determned on ts facts. It was concuded
that a |ack whch has no pecuar characterstcs mtng ts use to
motor vehces but whch s hed out by the manufacturer as especay
desgned for such use s ta abe under secton 3 03(c) when sod by
the manufacturer. In addton |acks whch (1) are sod and chefy
used n connecton wth a ta abe motor vehce or (2) are amost
unversay sod and used n motor vehce trade channes are presumed
to be ta abe under secton 3 03(c) when sod by the manufacturer.
The fact that a |ack s mechanca rather than hydrauc does not,
standng aone, estabsh ta abty.
Upon further consderaton of the queston nvoved, t s hed that
a tng |ack, ether the mechanca or hydrauc type, whch s n-
ch.ded as orgna equpment for a vehce enumerated n subsecton
(a) or (b) of secton 3 03 of the Code when the vehce s sod by the
manufacturer, s deemed to be an accessory for the vehce and, as such,
s ncudbe n the bass of the vehce for computng the ta app-
cabe to the sae.
It s further hed that the foowng casses of |acks are ta abe under
secton 3103(c) of the Code when sod separatey by the |ack manu-
facturer: (1) scssors |acks; (2) bumper |acks, ether the mechanca
or hydrauc type, whch are prmary desgned to be carred as
accessores n vehces enumerated n subsecton (a) or (b) of secton
3 03 of the Code as dstngushed from the more rugged and heaver
types of bumper |acks desgned and adapted for use as servce equp-
ment n garages, repar shops, etc.; and (3) screw, ratchet or other
types of mechanca |acks havng a cosed heght of ten nches or ess
whch are prmary desgned, or prmary adapted, or hed out by
the manufacturer as beng prmary desgned or adapted, to be carred
as accessores n vehces enumerated n subsecton (a) or (b) of secton
3 03 of the Code. (Certan portabe, hand hydrauc |acks, other than
bumper or scssors types, are not ta abe because of ther desgn and
constructon for use as genera purpose toos n ndustry and com-
merce, and as servce or mantenance equpment n garages and repar
shops; however, where such |acks are sod as orgna equpment, as
stated above, or where they are hed out by a manufacturer as beng
especay desgned to be carred as accessores for such vehces they
are ta abe under secton 3 03(c) of the Code.)
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G3
316.55, Rcge. 6.
Secton 316.55, Reguatons 6: Defnton Rev. Ru. 2
INT RN L R NU COD
Carfcaton of S. T. 9 , L R. . 1952-17, 1 , wth respect to the
far market prce for ta computaton purposes, of custom-made
automobe seat covers sod by a manufacturer or fabrcator ony
at reta.
Carfcaton of S. T. 9 , C. . 1952-2, 255, s requested -wth
respect to the far market prce of custom-made automobe seat
covers sod by a manufacturer or fabrcator at reta for the purpose
of computng the ta on automobe parts or accessores mposed by
secton 3 03(c) of the Interna Revenue Code.
S. T. 9 , supra, hods that where a manufacturer furnshes the
matera and produces automobe seat covers for the consumer therof,
accordng to ndvdua desgn and measurement (. e. a fabrcator of
custom-made seat covers), the sae by the manufacturer of such seat
covers s ta abe under secton 3 03(c) of the Code, as amended, re-
gardess of whether they are nstaed by the manufacturer or by
other persons.
Secton 3 1(b)(1) of the Code, provdes that where a manu-
facturer ses an artce at reta, the ta sha be computed on the
prce for whch such artces are sod by manufacturers or producers
n the ordnary course of trade as determned by the Commssoner.
Such determnaton has been made wth respect to automobe seat
covers and t has been found to represent 75 percent of the reta st
prce n those cases where the manufacturer ses ony at reta. In
addton, n determnng the prce for whch an artce s sod, secton
3 1(a) of the Code, provdes, nter aa that charges for nstaaton
sha be e cuded. The ad|ustments specfed n secton 3 1(a) of the
Code must be taken nto consderaton by the Commssoner n deter-
mnng a far market prce under secton 3 1(b) of the Code. (See
G. CM. 2111 , C. . 1939-1 (Part 1), 351.)
Therefore, where a bona fde nstaaton charge s made separate ,
n addton to the reta prce of the seat covers, such charge s not
to be ncuded n the sae prce of the seat covers for the purpose of
computng the ta . It s understood, however, that the stated prce
charged for custom-made seat covers ordnary ncudes the e pense
of nstaaton. ssumng that the tota charge for the seat covers
s 5 and that a separate charge for nstaaton s not made, but
that the e pense of nstang the seat covers s 5, the ta shoud be
computed as foows: Frst, the prce of 5 shoud be reduced to
33.75 by appcaton of the 75 percent as determned above. Then
the dscounted prce shoud be ad|usted to 2 .75 by deductng the
nstaaton e pense of 5. If the ta s not ncuded n the reta prce
of 5, the ta s to be computed at percent of 2 .75. Where the
ta s ncuded n the prce of 5, the ta may be computed at 2/27
( /10 ) of 2 .75 n order to provde for e cuson of the ta from
the prce on whch t s based.
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316.55, Regs. 0.
6
Secton 316.55, Reguatons 6: Defnton Rev. Ru. 59
( so Secton 1651, Secton 320.60, Regu-
atons 51.)
INT RN L R NU COD
Sadde bags, prmary desgned or adapted for use on motorcyces,
are consdered accessores for such vehces and when sod separatey
by the manufacturer are sub|ect to a ta of percent under secton
3 03(c) of the Code. owever, under secton 3 03(b) of the Code,
when such bags are ncuded as orgna equpment for motorcyces
sod by the manufacturer, a ta of 10 percent attaches to the saes
prce of the motorcyces ncudng the prce charged for the bags.
Such bags, as are ta abe under the aforementoned provsons of aw,
are not sub|ect to the 20 percent e cse ta on uggage, etc., under
secton 1651 of the Code, when sod at reta.
cyce and other sadde bags whch are not desgned or adapted
for use on motorcyces but whch are offered, promoted, advertsed,
or sod for use as bags for carryng toet artces or artces of wearng
appare or for use as other receptaces named n secton 1651 of the
Code, are sub|ect to the ta mposed under such secton when sod at
reta. owever, bcyce sadde bags whch have features of desgn
and constructon ndcatng that they are ntended for the soe pur-
pose of carryng schoo books, pens, pencs, and unches, and whch
are offered, promoted, advertsed, and sod for such purposes are not
sub|ect to ta .
Secton 316.55, Reguatons 6: Defnton of Rev. Ru. 7
parts or accessores.
INT RN L R NU COD
Racks whch are custom-made to ft bodes of devery trucks for
the purpose of hodng trays fur bread or oer artces consttute
parts or accessores of automobe truck bodes wthn the meanng
of secton 3 03(c) of the Interna Revenue Code and are sub|ect
to ta upon sae by the manufacturer.
dvce s requested concernng the appcaton of the ta on auto-
mobe parts or accessores, mposed by secton 3103(c) of the Interna
Revenue Code, as amended, to the sae by a manufacturer of racks
whch are custom-made to ft bodes of devery trucks for the purpose
of hodng trays for bread or other artces. It s stated that the
manufacturer furnshes the abor and matera for the racks and
es them at reta to the utmate consumers thereof.
Secton 3 03(c) of the Code mposes a ta of percent on the sae
by the manufacturer of parts or accessores for artces ta abe under
subsectons (a) and (b) of secton 3103 of the Code.
It s hed that the racks n queston are parts or accessores of auto-
mobe truck bodes wthn the meanng of secton 3 03(c) of the Code.
ccordngy, saes of the racks by te manufacturer to the consumers
thereof are sub|ect to ta , regardess of whether they are nstaed
by the manufacturer or by other persons.
Secton 3 1(b) (1) of the Code, provdes that where a manufacturer
ses an artce at reta, the ta sna be computed on the prce for
whch such artces are sod by manufacturers or producers n the
ordnary course of trade as determned by the Commssoner. Such
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65
3 06.
determnaton has been made wth respect to the above-descrbed racks
and t has been found to represent 75 percent of the reta st prce
n those cases where the manufacturer ses ony at reta. In add-
ton, n determnng the prce for whch an artce s sod, secton
3 1(a) of the Code, provdes, nter aa that charges for nstaaton
sha be e cuded. The ad|ustments specfed n secton 3 1(a) of
the Code must be taken nto consderaton by the Commssoner n
determnng a far market prce under secton 3 1(b) of the Code.
(See G. C. M. 2111 , C. . 1939-1 (Part 1), 351.)
Therefore, where a bona fde nstaaton charge s made separatey,
n addton to the reta prce of the racks, such charge s not to be
ncuded n the sae prce of the racks for the purpose of computng
the ta . owever, where the reta prce charged for custom-made
racks ncudes the e pense of nstaaton the ta shoud be computed
as foows: Frst, assumng a reta prce of 0a doars, such prce
shoud be reduced to 30ar doars by the appcaton of the 75 percent
as determned above. Then the dscounted prce of 30a; doars shoud
be ad|usted by deductng therefrom the nstaaton e pense. If the
ta s not ncuded n the reta prce of 0 doars, the ta s to be
computed at percent of the dscounted prce after ad|ustment for
nstaaton e pense. Where the ta s ncuded n the reta prce of
0a; doars the ta may be computed at two twenty-sevenths ( /10 )
of the dscounted prce after ad|ustment for nstaaton e pense, n
order to provde for e cuson of the ta from the prce on whch t
s based. (See Rev. Ru. 2, page 63, ths uetn.)
Secton 316.55, Reguatons 6: Defnton of e v. u. 101
parts or accessores.
INT RN L R NU COD
Co sprngs of the types used n automobe dstrbutors or fue
pumps, are not generay consdered automobe parts or accessores
wthn the meanng of secton 3 03(c) of the Interna Revenue Code.
manufacturer of such sprngs s not abe for the ta mposed by
that secton on hs saes or such co sprngs. owever, such a sprng
s sub|ect to ta f t s desgned and manufactured for the speca
purpose of beng used as, or to repace, a component part of a ta abe
body, chasss, or vehce and, by reason of some characterstc, s
usabe ony for that purpose and s not such a commerca artce
as woud be sod for genera use. Motor e haust and ntake vave
sprngs, cutch sprngs, and drag-nk sprngs are deemed to be pr-
mary desgned and adapted for use as automobe parts, and, there-
fore, sub|ect to such ta .
S CTION 3 06. CIS T S IMPOS D Y T
R NU CT OF 19 1
ev. u. 116
INT RN L R NU COD
Power awn mowers of the househod type, as that term s used
n secton 3 06(a)(3) of the Interna Revenue Code, ncude those
wth a cuttng wdth of ess than 2 nches, uness the mower by reason
of ts desgn and constructon s prmary adapted for another pur-
pose, such as mowng gof greens.
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316.20 , Regs. 6. 66
SU C PT R C.-G N R L DMINISTR TI PRO ISIONS
S CTION 3 3. CR DITS ND R FUNDS
Secton 316.20 , Reguatons 6: Credts and Rev. u. 1
refunds.
INT RN L R NU COD
ppcaton of the credt or refund provsons of secton
3 13(a) (3) ( ) and ( ) of the Interna Revenue Code, where an
artce, wth respect to whch manufacturers e cse ta was pad
under chapter 29 of the Code, Is purchased by a contractor and In-
staed n the fufment of a constructon, repar, or mantenance
contract between such contractor and a potca subdvson of a
State.
dvce s requested concernng the appcaton of the credt or
refund provsons of secton 3 3(a) (3) ( ) and ( ) of the Interna
Revenue Code, where an artce, wth respect to whch manufacturers
e cse ta was pad under chapter 29 of the Code, s purchased by a
contractor and nstaed n the fufment of a constructon, repar,
cr mantenance contract between such contractor and a potca sub-
dvson of a State.
Under secton 3 13(a) (3) ( ) and ( ) of the Code, a credt aganst
ta under chapter 29 of the Code, or a refund, may be aowed to
a manufacturer, producer, or mporter, n the amount of the ta pad
by hm wth respect to the sae of any artce to any vendee, f the
manufacturer, producer, or mporter has n hs possesson evdence
as the reguatons may prescrbe that such artce was by any person
resod for the e cusve use of any State, Terrtory of the Unted
States, or any potca subdvson of the foregong, or the Dstrct
of Coumba, and that the manufacturer, producer, or mporter has
repad or agreed to repay the amount of such ta to the utmate
vendor or has obtaned the consent of the utmate vendor to the
aowance of the credt or refund.
It s hed that where an artce s purchased by a contractor and
nstaed n the fufment of a constructon, repar, or mantenance
contract between such contractor and a potca subdvson of a
State, and where the artce remans n substantay unatered form
and becomes the property of the potca subdvson, the artce s
consdered to have been resod for the e cusve use of the potca
subdvson wthn the meanng of secton 3 3(a) (3) ( ) of the Code.
ccordngy, under the crcumstances stated, a credt or refund s
aowabe to the manufacturer n the amount of ta pad by hm wth
respect to the sae of the artce, provded the cam for credt or re-
fund s supported by evdence prescrbed by secton 316.20 of Regu-
atons 6.
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67 130. , Regs. 2.
C PT R 30. TR NSPORT TION ND COMMUNIC TION
SU C PT R . T L GIt P , T L P ON , R DIO, ND C L
F CILITI S
S CTION 3 65. IMPOSITION ND R T OF T
Secton 130.3 , Reguatons 2: Rate and app- Rev. Ru.
caton of ta .
INT RN L NU COD
Teevson program servce furnshed over wres eadng from
a centra teevson recevug antenna to premses of subscrbers
consttutes wre and equpment servce wthn the meanng of
secton 3 65(a) (2) ( ) of the Interna Revenue Code, as amended,
and a charges made n connecton wth the furnshng of such
servce are sub|ect to ta .
dvce s requested whether the ta on wre and equpment servce
mposed by secton 3 65(a) (2) ( ) of the Interna Revenue Code, as
amended, appes to amounts pad for a teevson program servce
whch s furnshed to subscrbers ocated n areas where drect recep-
ton s obstructed. The servce s furnshed over wres eadng from
a centra teevson recevng antenna to premses of the subscrbers.
Secton 3 65(a)(2)( ) of the Code, as amended, mposes a ta
equvaent to per centum of the amount pad for any wre and
equpment servce.
Secton 130.3 (b)(3) of Reguatons 2, provdes that wre and
equpment servce ncudes channes furnshed between a pont of
orgn and the subscrber s premses over whch are gven stock and
bond market quotatons and reports, racng resuts, baseba scores
and other sportng resuts, news tems, musca programs, weather
reports, the tme, etc. Secton 130.3 (c) cf such reguatons provdes
that n determnng the amount of ta due there sha be ncuded
a charges made n coecton wth the furnshng of the servce
such as charges for equpment, nstruments, and other apparatus, and
nstaaton charges.
ccordngy, t s hed that a teevson program servce furnshed
over wres eadng from a centra recevng antenna to premses of
subscrbers consttutes wre and equpment servce wthn the meanng
of secton 3 65(a)(2)( ) of the Code, as amended, and that a
charges made n connecton wth the furnshng of such servce are
sub|ect to ta .
S CTION 3 66. MPTION FROM T
Secton 130. , Reguatons 2: Servces fur-
nshed to the Unted States, States, or potca
subdvsons thereof.
nterna revenue code
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130.77, Re s. 2.) G
SU C PT R C.-TR NSPORT TION OF P RSONS
S CTION 3 69. T ON TR NSPORT TION
OF P RSONS, TC.
INT RN L NU COD
The amount pad at a port of entry n the Unted States for the
purchase of a tcket for transportaton to a destnaton esewhere n
he Unted States, whether a one-way or a round-trp tcket, s sub|ect
to the ta on transportaton of persons under secton 3 09 of the
Interna Revenue Code, even though such transportaton s part of a
contnuous nternatona |ourney from a foregn country to a dest-
naton n the Unted States.
Secton 130.51, Reguatons 2: Scope of ta .
INT RN L NU COD
Reguatons 2 amended. (T. D. 599 , page 05.)
Secton 130.61, Reguatons 2: Transportaton Rev. Ru. 60
and factes furnshed to the Unted States,
to States, or potca subdvsons thereof.
INT RN L R NU COD
Payment for the transportaton of a teacher to a State conventon
as a deegate of a teachers assocaton whch payment s made from the
treasury of the assocaton, the funds of whch are derved from ts
members, s not e empt from ta under secton 3 69(f) of the Interna
Revenue Code as a payment for transportaton furnshed to a State or
a potca subdvson thereof.
SU C PT R D. DMINISTR TI PRO ISIONS
S CTION 3 71. R FUNDS ND CR DITS
Secton 130.77, Recuaton-s 2: Credts. Rev. Ru. 9
INT RN L R NU COD
ppcaton of te refund and credt provsons of secton 3-171
of the Interna Revenue Code, where the vaue of an unused porton
of a round-trp transportaton tcket, on whch the ta mposed by
secton 3 ( of the Code has been pad, Is credted by the carrer
a| anst the purchase of a tcket for nonta abe transportaton.
carrer n the Unted States sod a round-trp passage tcket to
ermuda wth respect to whch the ta on the transportaton of per-
sons, mposed by secton 3109 of the Interna Revenue Code, was
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69
1 3.13, Regs. 113.
coected and ncuded n the return fed by the carrer. The pur-
chaser of the round-trp tcket, after arrvng n ermuda, decdes to
contnue on to Nassau and n purchasng a tcket to such destnaton,
from the carrer s agent n ermuda, s aowed a credt for the vaue
of the unused return tcket from ermuda to the Unted States. The
transportaton ta s not asserted upon the tcket ssued n ermuda,
snce the payment for that tcket (ncudng the amount aowed as a
credt n the purchase thereof) consttutes a nonta abe payment made
outsde the Unted States for transportaton not begnnng and endng
wthn the Unted States. ecause a porton of the amount orgnay
pad n the Unted States for the round-trp tcket s thus apped n
ermuda upon the purchase of nonta abe transportaton advce s
requested whether, n aowng such credt, the carrer may ncude an
aowance for that porton of the ta whch s propery aocabe to
the vaue of the unused return tcket. If so, advce s aso requested
whether the carrer s entted to a credt for such ta ad|ustment on
ts subsequent return.
The ta on the transportaton of persons, mposed by secton 3 G9
of the Code, appes, wth certan e ceptons not matera heren, to
amounts pad wthn the Unted States for the transportaton by ra,
motor vehce, water, or ar wthn or wthout the Unted States, and
to amounts pad wthout the Unted States for transportaton by
smar means whch begns and ends n the Unted States.
Under the provsons of secton 3 71(c) of the Code, any person
makng a refund of any payment on whch the ta has been coected,
may repay therewth the amount of ta coected on such payment,
and the amount of ta so repad may be credted aganst the ta under
any subsequent return.
The aowance by the carrer of the vaue of the unused return tcket
as a credt n the purchase of nonta abe transportaton n ermuda
consttutes, to the e tent of such credt, a refund of a transportaton
payment wthn the meanng of secton 3 71(c). ccordngy, n
such case, the carrer may aow the passenger a credt for that por-
ton of the ta orgnay pad on the round-trp tcket whch s
propery aocabe to the vaue of the unused return tcket. The
carrer, n turn, s entted to a credt for such ta ad|ustment on ts
subsequent return.
SU C PT R -TR NSPORT TION OF PROP RTY
S CTION 3 75. TR NSPORT TION OF PROP RTY
Secton 1 3.13, Reguatons 113: ppcaton Rev. Ru. 6
of ta .
INT RN L R NU COD
ppcaton of the ta on the transportaton of property, mposed
by secton 3 75 of the Interna Revenue Code, to amounts pad by a
barge ne for the towng of barges, and reated servces.
dvce s requested concernng the appcaton of the ta on the
transportaton of property, mposed by secton 3 75 of the Interna
evenue Code, under the foowng crcumstances.
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1 2.13(a), etc., Itegs. 113. 70
towng company, pursuant to a subcontract wth a barge ne,
tows oaded barges from a pckup staton to unoadng ponts and re-
turns the empty barges to the pckup staton. It aso tows oaded
barges from oadng areas to the pckup staton, swtches barges both
oaded and empty wthn the same harbor or dock area, rescues barges
both oaded and empty whch have bown oose from ther moorngs,
and repars barges both oaded and empty. charge for watng
tme s aso made by the towng company where a tug s requred to
stand by before performng towng servces. The barge ne coects
the ta from the shpper or consgnee on ts charges for the compete
transportaton movement.
In genera, the towng of a barge ether oaded or empty consttutes
transportaton of property by water wthn the meanng of secton
3 75 of the Code, and accordngy s ta abe. owever, the ta m-
posed by ths secton does not appy to amounts pad by one carrer to
another for towng a barge whch at the tme s carryng cargo wth
respect to whch the transportaton charges are beng coected from
the shpper or consgnee by the carrer for whom such barge s beng
towed. Furthermore, the ta does not appy to the amounts pad by
one carrer to another for towng an empty barge to a oadng pont or
from an unoadng pont f such towage s ncdenta to the fuf-
ment of a contract for the transportaton of property by the carrer
for whom the empty barge s beng towed. Where the towng servces
are not ta abe the ta does not appy to charges pad by a carrer
for standby or watng tme.
The ta appes to amounts pad by one carrer to another for tow-
ng servces whch are not ncdenta to the fufment of a contract
for the transportaton of property, such as the rescue of barges whch
have bown oose from ther moorngs. owever, amounts pad by
one carrer to another for the repar of barges are not ta abe f such
charges are bed separatey.
Secton 1 3.13(a), etc., Reguatons 113: pp- T. D. 59C0
caton of ta .
TITL 26 INT RN L R NU C PT R I, SU C PT R C. T RT 1 3.
T WIT S CT TO T TR NSPORT TION OF PROP RTY
Transportaton of matera e cavated In the course of construc-
ton work.
Offce of Cosmssoner of Interna Revenue,
Washngton 25, D. C.
Concerned:
On October 9, 1952, notce of proposed rue makng to conform
Reguatons 113 26 CFR, part 1 3 , reatng to the ta on the amount
pad for the transportaton of property, to secton 95 of the Revenue
ct of 1951, approved October 20, 1951, was pubshed n the Federa
Regster (17 F. R. 9019). fter consderaton of a reevant matter
presented by nterested persons, the amendments to such reguatons
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71
( 1 3.13(a). etc., Reps. 113.
1 3.10 the foowng:
S C. 05. TR NSPORT TION OF M T RI L C T D IN
T COURS OF CONSTRUCTION WOR R NU CT OF
1951, PPRO D OCTO R 20, 1951 .
(a) mendment of Secton 3 75. Secton 3 75 (reatng to ta
on transportaton of property) Is hereby amended by addng at the
end thereof the foowng: The ta Imposed by ths secton sha
not appy to the transportaton of earth, rock, or other matera e ca-
vated wthn the boundares of, and n the course of, a constructon
pro|ect and transported to any pace wthn, or ad|acent to, the bound-
ares of such pro|ect. The determnaton as to the appcabty of
the ta mposed by secton 3 75 n the case of the transportaton of
any e cavated matera, other than transportaton to whch the
amendment made by ths subsecton appes, sha be made as f ths
subsecton had not been enacted and wthout nferences drawn from
the fact that the amendment made by ths subsecton s not e pressy
appcabe to the transportaton of such other e cavated matera.
(b) ffectve Date. The amendment made by subsecton (a)
sha appy to amounts pad on or after the frst day of the frst month
whch begns more than ten days after the date of enactment of ths
ct for transportaton on or after such frst day.
Par. 2. Secton 1 3.13(a), as amended by Treasury Decson 5 26,
approved anuary 12, 1951, s further amended by redesgnatng
cause (3) n the frst sentence of the eghth undesgnated paragraph
as cause ( ) and by nsertng after cause (2) the foowng: (3)
to an amount pad for the transportaton of matera e cavated
wthn the boundares of, and n the course of, a constructon pro|ect,
where the transportaton s to any pace wthn, or ad|acent to, the
boundares of such pro|ect (see secton 1 3.16); .
Par. 3. Immedatey foowng secton 1 3.15, there s nserted
the foowng new secton:
Sf.c. 1 3.16. cavated Matera. The ta does not appy to an amount
pad on or after November 1,1951, for the transportaton, orgnatng on or after
that date, of earth, rock, or other matera e cavated wthn the boundares of,
and n the course of, a constructon pro|ect and transported to any pace wthn,
or ad|acent to, the boundares of such pro|ect.
To come wthn the e empton It s necessary that two condtons be met,
namey, (1) that the property be earth, rock, or other matera e cavated wthn
the boundares of, and n the course of, a constructon pro|ect, and (2) that
the transportaton of the e cavated matera be wthn the boundares of the
constructon pro|ect or to a pace ad|acent thereto.
In determnng the boundares of a constructon pro|ect, consderaton w
be gven to the type of constructon operaton whch Is Invoved and the area
whch a requred to perform and carry out the necessary work. For e ampe,
n the case of a road-budng operaton, the boundares of the pro|ect woud
embrace the area covered by the ength and wdth of the roadway, pus any
ad|onng rght-of-way. In the case of the constructon of an arport, the
bonndares woud ncude the outermost mts of the arport.
taned n sectons 3 72 and 3791 of the Interna Revenue Code (53 Stat.
23 and 67,55 Stat. 722; 26 U. S. C. 3 72,3791).)
ohn S. Graham,
Thomas . Lynch,
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5 1 3.20, Regs 113
72
Secton 1 3.20, Reguatons 113: Unted States Rev. Ru. 69
Government: Genera provsons.
INT RN L R NU COD
The ta on the transportaton of property appes to charges pad
by a prvate shpper for the transportaton of property consgned to
the Reconstructon Fnance Corporaton, or to such Corporaton n
care of a prvate concern. The specfc e empton from ta provded
by the statute creatng the Reconstructon Fnance Corporaton and
enuncated n M. T. 21, C. . 1I , 5) , appes ony where the
charges for transportaton are pad drecty to the currer by such
Corporaton.
dvce s requested concernng the appcaton of the ta on the
transportaton of property, mposed by secton 3 75 of the Interna
Revenue Code, to charges pad by a prvate shpper wth respect to
shpments consgned to the Reconstructon Fnance Corporaton, or
to such Corporaton n care of a prvate concern.
Secton 307 of the Revenue ct of 19 3, effectve une 1,19 , term-
nated the genera e empton from ta on the transportaton of prop-
erty to or from the Government of the Unted States. (Se_ Mn.
619 , C. . 19 7-2, 210.) owever, pursuant to the prov-ons of
secton 307(c) of the Revenue ct of 19 3, as amended, tb Secre-
tary of the Treasury has contnued the e empton wth respect, to the
transportaton of property to or from the Government of the Unted
States on Unted States Government bs of adng. (See authorza-
ton of the Secretary of the Treasury, dated une 20, 19 7, C. .
19 7-2, 211.)
In M. T. 21, C. . 19 , 59 , t s hed that the specfc e empton
from Federa ta es provded by statutes creatng certan agences or
nstrumentates of the Unted States sted theren, was not term-
nated or otherwse affected by secton 307 of the Revenue ct of 19 3.
Wth respect to the ta on the transportaton of property such spe-
cfc e empton s mted to transportaton charges pad drecty y
such agences or nstrumentates.
ccordngy, amounts pad to a carrer for the transportaton of
property to or from agences or nstrumentates of the Unted States
Government are sub|ect to ta uness (1) the shpments are made or
Unted States Government bs of adng, Standard Form 1103, or
(2) the transportaton charges are pad drecty to the carrer by one
of the Government agences sted n M. T. 21, supra. Under secton
3 75(b) of the Interna Revenue Code amounts pad for the transpor-
taton of property to or from any corporaton created by ct of Con-
gress to act n matters of reef under the treaty of Geneva of ugust
22,1 6 ( mercan Natona Red Cross) are e empt.
In vew of the fact that the Reconstructon Fnance Corporaton s
one of the Government agences sted n M. T. 21, amounts pad d-
recty to a carrer by such Corporaton for the transportaton of
property are e empt from ta . owever, such e empton does not
e tend to charges pad to a carrer by a prvate shpper for transpor-
taton of property consgned to the Reconstructon Fnance Corpora-
ton, or to such Corporaton n care of a prvate concern, and charges
so pad are sub|ect to ta .
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73 20.2.
C PT R 3 . INFORM TION ND R TURNS
SU C PT R . DISCO RY OF T LI ILITY
S CTION 360 . R TURNS S TO FORM TION, TC.,
OF FOR IGN CORPOR TIONS
Secton 20.2 (formery 20D.1), T. D. 917, Rev. Ru. 77
C. . 1939-2,139: Informaton returns.
INT RN L R NU COD
company that furnshes advce and nformaton to a awyer,
whch enabes hm to advse hs cent wth respect to the formaton,
organzaton, or reorganzaton of any foregn corporaton, s re-
qured to fe an nformaton return as provded n secton 360 of the
dvce s requested whether a company that furnshes advce and
nformaton to a awyer, whch enabes hm to advse hs cent wth
respect to the formaton, organzaton, or reorganzaton of any for-
egn corporaton, s requred to fe an nformaton return pursuant to
secton 360 of the Interna Revenue Code.
foows:
(a) Requrement. Under reguatons prescrbed by the Commssoner wth
the approva of the Secretary, any attorney, accountant, fducary, bank, trust
company, fnanca nsttuton, or other person, who ads, asssts, counses, or
advses n, or wth respect to, the formaton, organzaton, or reorganzaton
of any foregn corporaton, sha, wthn 30 days thereafter, fe wth the Com-
mssoner a return.
(b) Fobm and Contents of Return. Such return sha be n such form, and
sha set forth under oath, n respect of each such corporaton, to the fu
e tent of the nformaton wthn the possesson or knowedge or under the contro
of the person requred to fe the return, such nformaton as the Commssoner
wth the approva of the Secretary prescrbes by reguatons as necessary for
carryng out the provsons of the ncome ta aws. Nothng n ths secton
sha be construed to requre the fng by an attorney-at-aw of a return wth
respect to any advce gven or nformaton obtaned through the reatonshp of
attorney and cent.
The reguatons promugated under the above-mentoned secton of
the aw, as set forth n Treasury Decson 917, C. . 1939-2, 139,
provde that the returns sha be made on Form 959, and must be
fed wthn 30 days after gvng such ad, assstance, counse, or
advce n every such case, (1) regardess of the nature of the counse
or advce gven, whether for or aganst the formaton, organzaton,
or reorganzaton of the foregn corporaton, or the nature of the ad
or assstance rendered and (2) regardess of the acton taken upon
the advce or counse, that s, whether the foregn corporaton s
actuay formed, organzed, or reorganzed. If such ad or assst-
ance s gven through subordnates or empoyees, then the return of
the empoyer s suffcent and the empoyees need fe no return.
company furnshng advce and nformaton wth respect to the
formaton, organzaton, or reorganzaton of any foregn corporaton,
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5 3672.
7
s consdered to be wthn the meanng of the term other person
as contempated by the statute. The fact that such servce s rendered
by a company soey to a member of the ega professon engagng
ts servces and that no drect contact s made by the company wth
cents of the attorney n no way aters such poston, nor does
the fng of the nformaton return by the company under such
crcumstances consttute a voaton of an attorney-cent reatonshp.
d or assstance of ths nature furnshed by a company does not
pace t n the category of a cerk, empoyee, or subordnate of an
attorney utzng such servces.
ccordngy, t s hed that where a company furnshes advce and
nformaton to a awyer, whch enabes hm to advse hs cent wth
respect to the formaton, organzaton, or reorganzaton of any for-
egn corporaton, t s requred to fe an nformaton return as pro-
vded n secton 360 of the Interna Revenue Code.
C PT R 3C COLL CTION
SU C PT R .-LI N FOR T S
S CTION 3G70. PROP RTY SU CT TO LI N
Rev. Ru. 9
INT RN L R NU COD
mony payments granted by decree are sub|ect to dstrant for
Federa ncome ta es ncurred after the entry of such decree and
monthy payments thereof may be reached by servce of evy on the
former husband. Where such amounts are pad to the ta payer from
an amony trust created pursuant to a dvorce decree, the Government
may reach by dstrant the ncome from such trust n the hands of the
trustee for satsfacton of unpad ta es of the benefcary.
S CTION 3672. LIDITY G INST MORTG G S,
PL DG S, PURC S RS, ND UDGM NT CR DITORS
Ct. D. 1757
F D R L T S INT RN L R NU COD R IS D ST TUT S D CISION
OF SUPR M COURT
Lens Prorty Federa Len and Town Len Insovent
Corporaton.
en of the town of M arose from assessments on pr 1, 19 7,
and pr 1, 19 , of ad vaorem ta es upon certan machnery of
ta payer corporaton for the years 19 7 and 19 . The corporaton
was thereafter decared Insovent and a recever was apponted.
The recever sod the property after the town had hd n the property
at ts own ta saes on September 25, 19 , and September 2 ,
19 9, but had never taken possesson. The Federa en was for
empoyment, wthhodng, and ncome ta es whch became due
between 19 .S and une 30, 19 . Notce of en was fed on ugust
6, 19 . ed: Whatever the ta proceedngs of the town may
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75
3672.
amount to for the purposes of the State, they were not such as re-
suted In makng the town a |udgment credtor wthn the meanng
of secton 3672 of the Interna Revenue Code. Congress ntended
the term |udgment credtor n that secton to appy ony to |udg-
ments of courts of record. The ta payer had not been dvested by
the town of ether tte or possesson. The town, therefore, had ony
a genera, unperfected en. Where the en of the town and that
of the Federa Government are both genera, and the ta payer s
nsovent, secton 3 66, Revsed Statutes, ceary awards prorty
to the Unted States.
Supreme Coubt of the Unted States
The Unted States of merca, pettoner, v. Gbert ssocates, Inc.
On wrt of certorar to the Supreme Conrt of the State of New ampshre
pr 6, 1953
OPINION
Mr. ustce Mnton devered the opnon of the Court.
Ths case nvoves the queston of whether the town of Wapoe, New amp-
shre, or the Federa Government has the pror rght to a fund n the hands
of a State court recever of the respondent-ta payer, an nsovent corporaton.
The Supreme Court of New ampshre hed the town was entted to prorty,
97 N. . 11, 90 . 2d 99, and we granted certorar, U. S. 911.
The cams of both arse from ta ens. The town s en grew out of an
assessment of an ad vaorem ta upon certan machnery of Gbert ssocates,
Inc., the respondent, for the years 19 7 and 19 n the amounts of 612.95
and 690. 5, respectvey. The corporaton was thereafter decared Insovent,
and a temporary recever was apponted ugust 12, 19 9, and made permanent
anuary 30, 1950. The town s ta es were assessed pr 1, 19 7, and pr 1,
19 . On September 25, 19 , the town sod the ta payer s property at a ta
sae to pay the ta es accrued for the year 19 7. On September 2 , 19 9, the
town sod the same property at a ta sae for ta es accrued for the year 19 .
The record does not dscose the nature of these ta -sae proceedngs. We are
nformed that the town bd n the property at ts own saes. t east, the town
never took possesson of the property, whch was ater sod by the recever, cre-
atng the fund nvoved here. The Federa Government s en was for empoy-
ment, wthhodng, and ncome ta es that became due between 19 3 and une 30,
19 , n the sum of 3,171.97. Notce of ths en was fed n the offce of the
cerk of the Unted States Dstrct Court for the Dstrct of New ampshre on
ugust 6,19 .
Under secton 3672 of the Interna Revenue Code, 56 Stat. 79 , 26 U. S. C.
(19 6 ed.) secton 3672, the en of the Unted States sha not be vad as
aganst any mortgagee, pedgee, purchaser, or |udgment credtor unt notce
thereof has been fed by the coector . In the offce of the cerk of the
Unted States dstrct court for the |udca dstrct n whch the property sub-
|ect to the en s stuated . The Supreme Court of New ampshre hed
that snce notce of the Government s en was not fed unt ugust 6, 19 ,
and the town s ta es were assessed on pr 1, 19 7, and pr 1, 19 , respec-
tvey, and such ta assessments are n the nature of a |udgment under the
aw of New ampshre, the town was a |udgment credtor wthn the meanng
of secton 3672, and the Government s en was not vad as aganst the town s.
Was the town a udgment credtor wthn the meanng of secton 3672 The
New ampshre Supreme Court n the nstant case sad:
It s setted by our decsons that the assessment of a ta s n the
nature of a |udgment, enforced by a warrant nstead of an e ecuton.
oody v. Watson, 6 N. . 162, 167; affrey v. Smth, 76 N. . 16 , 171;
Nottngham v. Company, N. . 19. See aso, utomatc Sprnker Corp.
v. Marston, 9 N. . 375. 97 N. . 11, 1 , 90 . 2d 99, 502.
We woud not queston or presume to say what the nature and effect of a
ta proceedng s n New ampshre. The State s free to gve ts own nter-
pretaton for the purpose of Its own nterna admnstraton. Unted States
v. Wadd Co., 323 U. S. 353 Ct. D. 162 , C. . 19 5, 59 . See aso oward v.
Commssoners of Lousve Snkng Fund, 3 U. S. 62 .
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I 3672.
76
The Supreme Court of New ampshre freey concedes, however, as It must
that the meanng of a federa statute s for ths Court to decde. Unted States
v. Securty Trust t Savngs Rank, 3 0 U. S. 7 Ct. D. 1736, C. . 11)50-2, 151 .
Congress enacted secton 3672 to meet the harsh condton created by te hod-
ng n Unted States v. Snyder, 1 9 U. S. 210, when federa ens were few, that
a secret federa ta en was good aganst a purchaser for vaue wthout notce.
cardna prncpe of Congress n ts ta scheme s unformty, as far as
may be. Therefore, a |udgment credtor shoud have the same appcaton n
a the states. In ths nstance, we thnk Congress used the words |udgment
credtor n secton 3672 n the usua, conventona sense of a udgment of a
court of retod, snce a states have such courts. We do not thnk Congress
had n mnd the acton of ta ng authortes who may be actng udcay as n
New ampshre and some other states, where the end resut s somethng n
the nature of a udgment, whe n other states the ta ng authortes act
qnas-|utcay and are consdered admnstratve bodes.
We concude that whatever the ta proceedngs of the town of Wapoe may
amount to for the purposes of the State of New ampshre, they were not such
proceedngs as resuted n makng t|e town a |udgment credtor wthn the
meanng of secton 3672.
Whe the town was not a |udgment credtor, t was the hoder of a genera en
on a the ta payer s property. So was the Unted States a genera cnhoder
on a the ta payer s property. ut snce the ta payer was nsovent, the I nted
States cams the beneft of another statute to gve t prorty, secton 3 66 of th 5
Revsed Statutes, 31 U. S. C. (11) 0 ed.) secton 191, the provsons of whch are
set forth n the margn.5
s s usua n cases ke ths, the town asserts that ts en Is a perfected
and specfc en whch s mpedy e cepted from ths statute. Ths Court has
never actuay hed that there s such an e cepton. Once agan, we fnd t
unnecessary to meet ths ssue because the en asserted here does not rase the
queston.
In cams of ths type, specfcty requres that the en be attached to
certan property by reducng t to possesson, on the theory that the Unted
States as no cam aganst property no onger n the possesson of the debtor.
heus on v. Smth 2 Wheat. 3 )( . Unt such possesson, t remans a geuerat
en. There s no ground for the contenton here that the town had perfected
Us en by reducng the property to possesson. The record reveas no such
acton. The mere attachment of the town s en before the recordng of the
federa cr docs not, contrary to the hodng of the Supreme Court of New
ampshre, gve the town prorty over the Unted States. The ta payer had
not been dvested by the towu of ether tte or possesson. The town, there-
See concurrng opnon ot Mr. ustce ackson In Unted Stoes v. Securty Trust
avngs ank, supra, at p. 52.
The decsons have arrved at the concuson that assessments are udgments for pur-
poses of preventng coatera attacks upon them, ascertanng rghts to a hearng In
connecton wth them, or decdng under oca procedure on the appcabe method of
coectng them. These rases, pror to the Instant decson, have never actuay decared
that the status of a technca udgment credtor has be n created. Peope e ret, ardnq
. art, 32 III. (17, 163 N. . 7(1 ); otfgham . ru-market Mfg. Co., N. . 19,
. 70 ): feo/e e re. Genn a Ins. Co. v. Ferguson, 3 N. Y. 9 ; Wams v.
Weaver, 75 N. Y. 30 : State . Geoga Co.. 112 N. C. 3 . 17 S. . 10; fow Tannng Co.
. Commonweath, 123 a. (110, 90 S. . 7S0. ut see bbard v. Cark, 5(1 N. It. 155,
hodng that It Is not a |udgment. 1 Cooey, Ta aton ( th ed.. 192 1, 91-92, ponts out
that assessments, though they may be enough ke |udgments to defntey estabsh a
demand for ta es, are not technca |udgments.
Frst Natona ank of Rrmscn v. ayes, 1 (1 Iowa 92. 171 N. W. 715: e ander T.
Commonweath, 137 a. 77. 120 . . 21)6; Weyerhaeuser Tmber Co. . Perre County,
97 Wash. u , . 107 P. 35; Smson Tmber Co. v. ason County, 112 Wash. 603, 192 P. 99 .
Sec. 3070. Property ub|ect to eu.
If any person abe to pay any ta negects or refuses to pay tte same after demand,
the amount (ncudng any Interest, penaty, addtona amount, or addton to such ta ,
together wth any costs tmt may accrue n addton thereto) sha be a en n favor of the
Unted States upon a property and rghts to property, whether rea or persona, beongng
to s ch person. Sec. 3670 I. It. C, 20 U. S. C. (19 0 ed.) sec. 3070.
R. S. sec. 3 06. Whenever any person Indebted to the Unted States Is Insovent, or
whenever the estnte of any derensed debtor. In the hands of the e ecutors or admnstrators,
s nsuffcent to pay a the debts due from the deceased, the debts due to the Unted sha
be frst satsfed : and the prorty hereby estabshed sha e tend as we to cases In whch
a debtor, not bavns suffcent property to pay a hs debts, makes a vountary assgn-
ment thereof, or In whch the estate and effects of an abscondng, conceaed, or absent
debtor are attached by process of aw, as to cases In whch an act of bankruptcy U
commtted.
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3 05.
fore, had ony a genera, unperfected en. Unted Sates v. Wadd Co., supra;
Inos v. Campbe, 329 U. S. 3tS2, 370. Where the en of the town and that
of the Federa Government are both genera, and the ta payer s nsovent, secton
3 66 ceary awards prorty to the Unted States. Unted tutes v. Te as,
31 U. S. 0, Ct D. 153 , C. . 19 2-1, 3 5 .
The |udgment of the Supreme Court of New ampshre Is
Reversed.
Dssentng opnon by Mr. ustce Frankfurter, wth whom Mr. ustce Reed
ons.
C PT R 3 . MISC LL N OUS PRO ISIONS
S CTION 3 05. INCOM T DU D T S POSTPON D
IN C S OF C IN TR D CT CORPOR TIONS
T. D.5959
TITL 26 INT RN L R NU C TT R I. SU C PT R , P RT 72.
R GUL TIONS UND R S CTION 3S0 OF T INT RN L R NU COD
Treasury Decson 5279 C. R. 19 3, 952 , reatng to perod of
tme dsregarded under secton 3N0 of the Interna Revenue Code
n determnng whether certan nets are tmey performed, amended
to conform to secton (51 of the Revenue ct of 1951.
Offce of Commssoner of Inntf.rna Revenue,
Washngton 25, D. C
Others Concerned:
On October 29, 1952, there was pubshed n the Federa Regster
(17 F. R. 97 9) a notce of proposed rue nukng to conform Treasury
Decson 5279 C. . 19 3, 952 , approved uy 10, 19 3, as amended
by Treasury Decson 5010 LC. . 19 -1, 9 , approved March 15,
19 26 CFR, part 72 , to secton 61 of the Revenue ct of 1951,
reatng to postponement of tme for performng certan acts n
case of Chna Trade ct co poratons, approved October 20,1951. No
ob|ecton to the proposed rues havng been receved, the amendments
Paragraph 1. Immedatey precedng the capton Pubc Law 90
(Seventy-seventh Congress), pproved March 7, 19 2 , whch pre-
cedes secton 72.0 26 CFR 72.0 , the foowng s nserted:
S C. 61 . TIM FOR P RFORMING C RT IN CTS POSTPON D
IN C S OF C IN TR D CT CORPOR TIONS R NU
CT OF 1951, PPRO D OCTO R Zd, 1951 .
Secton 3 0 (reatng to postponement of ncome ta ( .ue dates n
the case of Chna Trade ct corporatons) s hereby amended to read
as foows:
S C. 3 05. INCOM T DU D T S POSTPON D IN C S OF
C IN TR D CT CORPOR TIONS.
In the case of any ta abe year begnnng after December 31, 19 ,
and endng before October 1, 1953, no Federa ncome ta return of, or
pavment of any Federa ncome ta by, any corporaton organzed under
the Chna Trade ct of 1922 ( 2 Stat. 9, U. S. C, Tte 15, chapter ),
as amended, sha become due unt December 31, 1953, but ony wth
26335 53 31
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5 3 05.)
7
respect to any such corporaton and any such ta abe year whch the
Secretary may determne reasonabe under the crcumstances n Chna
pursuant to such reguatons as he may prescrbe. Such due date sha
be sub|ect to the power of the Secretary to e tend the tme for fng
such return or payng such ta , as In other cases.
Par. 2. Secton 72. 06, as amended by Treasury Decson 5610 26
CFR 72. 06 , s further amended by strkng therefrom paragraph
(a) and nsertng n eu thereof the foowng new paragraph:
(a) Income ta . (1) In genera. Secton 3 05, Immedatey pror to amend-
ment by secton 61 of the Revenue ct of 1951, approved October 20, 1051,
provded that n the case of any ta abe year begnnng after December 31,
19 0, no Federa ncome ta return of, or payment of any Federa Income ta
by, any corporaton organzed under the Chna Trade ct, 1922, shoud become
due unt December 31, 19 7. Secton 3 05, as amended by secton 61 of the
Revenue ct of 1951, provdes wth respect to any ta abe year begnnng after
December 31,19 , and endng before October 1, 1953, that the Federa Income
ta return of, or the payment of Federa ncome ta by, a corporaton organzed
under such Chna Trade ct sha not become due unt December 31, 1953, f,
n the case of any such ta abe year of any such corporaton, the appcaton of
such postponed due date Is determned by the Secretary under reguatons to
be reasonabe n vew of the crcumstances n Chna.
The due dates (December 31, 19 7, or December 31, 1953, whchever s app-
cabe) thus prescrbed are e pressy sub|ect to the power of the Commssoner
to e tend, as n other cases, the tme for fng the Income ta return or payng
the Income ta . See sectons 53(a)(2) and 56(c)(1); and, the reguatons
thereunder.
(2) Specfc rues appcabe to ta abe years begnnng after December SI,
19 , and endng before October 1, 1953. The postponement of the due date to
December 31, 1953, permtted by secton 3 05 sha appy wth respect to
(I) any ta abe year begnnng after December 31, 19 , and endng be-
fore October 1, 1953, of any corporaton organzed under the Chna Trade
ct, 1922, as amended, If durng such ta abe year condtons n Chna have
been generay so unsetted as to mtate aganst the norma commerca
operatons and corporate actvtes of such corporaton, e cept
( ) n the case of any such ta abe year of any such corporaton n
respect to whch the stuaton Is such that, despte such unsetted con-
dtons, the books of account and busness records are avaabe so as
to permt the fng of a proper return and the corporaton has other-
wse been n a poston to carry on ts commerca operatons and
corporate actvtes and to make a proper dstrbuton of ts earnngs or
profts, If any, so as to permt the certfcaton requred by secton
262(b) ; or
( ) In the case of any such ta abe year of any such corporaton dur-
ng whch a the commerca operatons and corporate actvtes of such
corporaton have been carred on n ong ong, Macao, or Tawan; and
(II) any such ta abe year of any such corporaton e cepted under ()
( ) or ( ) n respect of whch the corporaton satsfes the Commssoner
that speca crcumstances e st, reated to the unsetted condtons n
Chna, whch warrant such postponement.
sectons 62 and 3791 (53 Stat. 32, 67; 26 U. S. C. 62, 3791) of the
Interna Revenue Code and n secton 3 05 of such Code, as amended
by secton 61 of the Revenue ct of 1951.)
ohn S. Graham,
Thomas . Ltnch,
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3 06.
S CTION 3 06. MITIG TION OF FF CT OF R N GOTI -
TION OF W R CONTR CTS OR DIS LLOW NC OF
R IM URS M NT
Rev.Ru. 53
INT RN L R NU COD
Treatment for Federa ncome ta purposes of prce ad|ustments
made by contractng offcers of the Government n pursuance of prce
redetermnaton causes emboded n Government contracts and the
aowance of credts aganst such prce ad|ustments, under secton
3.S06 of the Interna Revenue Code, of the Federa ncome ta es
attrbutabe to such prce ad|ustments.
dvce s requested as to the poston of the ureau wth respect
to the treatment of refunds made to contractng offcers of the Govern-
ment n pursuance of a prce redetermnaton cause emboded n a
Government contract.
Secton 50 of the Revenue ct of 19 2 added secton 3 06 to the
Interna Revenue Code. Secton 3 06 of the Code, as amended, pro-
vdes for the mtgaton of effect of renegotaton of war contracts or
dsaowance of rembursement. Subsectons (a)(1) ( ) and ( )
of ths secton were amended by secton 203 of the Renegotaton ct
of 1951 (Pubc Law 9, 2d Cong., C. . 1951-1, 1 0) approved
March 23,1951, to read:
( ) The term renegotaton Incudes any transacton whch s a
renegotaton wthn the meanng of the Federa renegotaton act
appcabe to such transacton, any modfcaton of one or more con-
tracts wth the Unted States or any agency thereof, and any agreement
wth the Unted States or any agency thereof n respect of one or more
such contracts or subcontracts thereunder.
(1 ) The term e cessve profts ncudes any amount whch con-
sttutes e cessve profts wthn the meanng assgned to such term by
the appcabe Federn renegotaton act, any part of the contract prce
of a contract wth the Unted States or any agency thereof, any part
of the subcontract prce of a subcontract under such a contract, and
any profts derved from one or more such contracts or subcontracts.
ccordngy, any modfcaton of one or more contracts wth the
Unted States or any agency thereof and any agreement wth the
Unted States or any agency thereof n respect of one or more such
contracts or subcontracts thereunder s a renegotaton as that
term s defned n secton 3 06(a)(1)( ) of the Interna Revenue
Code, as amended; and any part of the contract prce of such a
contract or subcontract s e cessve profts as that term s defned
n secton 3 06(a) (1) ( ) of the Interna evenue Code, as amended.
Secton 3 00(a)(1) of the Interna Revenue Code, as amended,
provdes that a payment or repayment wthn a ta abe year endng
after December 31, 19 1, of e cessve profts pursuant to a renego-
taton sha be treated as a reducton of the prce of the contracts or
subcontracts for the ta abe year for whch such prce was receved or
accrued. Secton 3 06(b) (1) of the Code requres that there sha be
credted aganst the amount of e cessve profts emnated through
renegotaton the amount by whch the Federa ncome ta for the
pror ta abe year s decreased by reason of the e cessve profts
emnated. Subsecton (c) of secton 3 06 of the Code provdes that,
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3 06.
0
f a credt s aowed under subsecton (b) wth respect to a pror
ta abe year, no other refund or credt under the nterna revenue
aws founded on the appcaton of subsecton (a) sha be made on
account of the amount aowed wth respect to such ta abe year. If
the amount aowabe under subsecton (b) e ceeds the amount aowed
under such subsecton, the e cess sha, for the purposes of the nterna
revenue aws reatng to credt or refund of ta , be treated as an over-
payment for the pror ta abe year whch was made at the tme the
payment, repayment, or offset was made.
ased on the foregong, any refund made to the Unted States or
any agency thereof n pursuance of a prce redetermnaton cause n
a Government contract s a renegotaton under the provsons of
secton 3 06(a), and accordngy the ta payer s entted to a credt
aganst the e cessve profts of the amount of the decrease n Federa
ncome ta es attrbutabe to such e cessve profts and s requred
to pay or repay to the Unted States ony the amount of the e cessve
profts remanng after there has been credted aganst such e cessve
profts the amount of the Federa ncome ta es attrbutabe thereto.
In case a repayment under a prce redetermnaton cause s deter-
mned pror to the tme the ta payer fes ts ncome ta return, con-
sderaton shoud be gven to I. T. 3611, C. . 19 3, 97 . Ths rung
reads n part as foows:
In gvng effect to the prncpes apped by secton 3S06 of the Code n case
the renegotaton agreement determnes reduced contract prces to be charged
darng the year of the agreement or subsequent thereto, or a repayment s to be
made n eu thereof whch s not appcabe to profts for a year for whch an
ncome ta return has been fed, and on whch profts ncome and e cess profts
ta es have not been assessed or pad, the practce of the ureau has been to
permt the ta payer to reduce the gross ncome to be reported n the returns
for such years to conform wth the reduced prce or, n case of repayment, to
permt a deducton to be taken In computng net ncome, provded, e cessve
profts determned to have been reazed and receved by the ta payer are repad
to the Government. Lkewse, n case the reduced contract prces are determned
for the mmedatey precedng ta abe year or a repayment s to be made n eu
thereof, and the competed ncome and e cess profts ta returns for such year
have not been fed at the tme of such determnaton, the ta payer has been
permtted to report the gross Income for such precedng year to conform wth
the reduced prces agreed upon or to take a deducton n computng net ncome,
as the case may be, provded the ta payer repays to the Government the e cessve
profts determned to have been reazed. No deducton from gross ncome s
aowed for any other ta abe year for the amount of such e cessve profts so
repad. Ths method of treatment w contnue to be foowed, sub|ect to the
condton that the e cessve profts be pad or repad to the Unted States or
credted aganst amounts due and payabe from the Unted States, and no deduc-
ton from gross ncome w be aowed for any other ta abe year for the amount
of such e cessve profts so repad. (See L T. 3577, C. . 19 2-2, 163.)
ccordngy, t s hed that where a ta payer has entered nto a
prce redetermnaton agreement wth a contractng offcer of the
Government whch provdes for reduced contract prces to be charged
for the mmedatey precedng ta abe year for whch a competed
ncome ta return has not been fed and wth respect to whch profts
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29.3 13-1.
ncome and e cess profts ta es have not been pad or assessed, the
ta payer w be permtted to take a deducton for such e cessve
profts n computng the net ncome n such return, provded the e -
cessve profts determned to have been reazed and receved by the
ta payer are repad to the Government. ta payer w not be
entted to set up and deduct a abty for e cessve profts merey
because t s performng a contract contanng a prce redetermnaton
cause and there s a probabty that e cessve profts may be deter-
mned under such contract at a ater date. In the case of any amounts
repayabe under a prce redetermnaton cause whch, however, are
defntey determnabe at the tme the compete ncome and e cess
profts ta return for the year such profts were reazed and receved
by the ta payer s fed, the ta payer w be permtted to reduce the
contract prces to be reported n the return for such year or to take a
deducton n computng the net ncome to be reported n such return
by the amounts whch can be defntey determned, provded such
e cessve profts are repad to the Government. In case no amount
of e cessve profts has been determned or repad pror to the tme
the ncome and e cess profts ta returns for the year n whch the
contract prces were receved or accrued were fed, t s consdered
that no bass e sts at the tme the returns are fed for determnng
the amount by whch the contract prces shoud be reduced am that,
or the purpose of reportng ta abe ncome from the appcabe
Government contracts under sectons 1, 2, and 3 of the Interna
Revenue Code, the ta payer s requred to report n fu the contract
prces n the ta abe year n whch receved or accrued, dependng
upon the method empoyed n keepng the books, uness, upon sub-
msson of a the facts and crcumstances, permsson s granted by
the Commssoner for reportng ncome on a dfferent bass. If, at a
ater date, the ta payer s requred to repay e cessve profts n pur-
suance of a prce redetermnaton cause emboded n a Government
contract, ad|ustment shoud be made under secton 3 06 of the Code
as the facts warrant.
S CTION 3 13. R UIR M NTS FOR MPTION OF
C RT IN ORG NIZ TIONS UND R S CTION 101(6) ND
FOR D DUCTI ILITY OF CONTRI UTIONS M D TO
SUC ORG NIZ TIONS
Secton 29.3 13-1: Dena of e empton to organ-
zatons engaged n prohbted transactons.
INT RN L R NU COD
empton status of trust where empoyees of donor corporaton
derve benefts from organzatons to whch trust contrbutons are
made. (See Rev. Ru. 96, page 26 .)
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P RT II. DMINISTR TI M TT RS
R GUL TIONS ST LIS ING OFFIC OF DIR CTOR
OF PR CTIC
Tte 31, Subtte , Part 1 , Code of Federa
Reguatons : Secton 1 .1, Drector of Practce.
The genera notce, pubc rue makng, and effectve date requre-
ments of secton of the dmnstratve Procedure ct do not appy
to these reguatons because they pertan to agency organzaton.
uthorty : Sectons 1 .1 to 1 .C ssued under secton 3, 23 Stat.
25 ; 5 U. S. C. 2G1.
1 .1. Drector of Practce. The Commttee on Practce and the
offce of ttorney for the Government are aboshed, and there s
estabshed n the ureau of Interna Revenue n ther pace and stead
the offce of Drector of Practce. The Drector of Practce sha be
under the drecton and supervson of the Commssoner of Interna
Revenue, e cept that decsons of the Drector n ndvdua cases
reatng to enroment, dsbarment, or dscpnary measures sha not
be sub|ect to change by the Commssoner.
1 .2. Dutes. cept as provded for n secton 3, the powers, func-
tons, and dutes heretofore e ercsed and performed by the Com-
mttee and the ttorney are conferred upon and assgned to the
Drector.
1 .3. Customhouse brokers. The powers, functons, and dutes
heretofore e ercsed and performed by the Commttee and the ttor-
ney under Part 11 of ths Subtte (reatng to customhouse brokers)
are conferred upon and assgned to the Commssoner of Customs to be
e ercsed through such offcers and empoyees of the ureau of Cus-
toms as he may desgnate.
1 . . ppeas. Revew of dsbarment recommendatons by the
Secretary of the Treasury provded for n ths Subtte sha reman
n fu force and effect, and n addton decsons of the Drector of
Practce or the Commssoner of Customs denyng enroment or
censng as a customhouse broker may be appeaed to the Secretary
of the Treasury.
1 .5. Reaton to other reguatons. Parts 10, 11, 12, and 13 of
ths Subtte are modfed and amended to the e tent necessary to
brng them nto conformty wth the reguatons n ths part.
1 .6. ffectve date. The reguatons n ths part sha be effectve
mmedatey.
otn W. Snyder,
Dated anuary 9, 1953.
( 3)
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Rev. Ru. 2
Pubcaton In the Interna Revenue uetn of communcatons
to fed offces of the Interna Revenue Servce.
1. Purpose.
The purpose of ths Revenue Rung s to estabsh a system for n-
creased pubcaton n the Interna Revenue uetn of communca-
tons to fed offces nvovng substantve ta aw, procedures affectng
ta payers rghts or dutes, or ndustry reguaton. Such pubcaton
has the foowng ob|ectves:
(a) to nform, through the Interna Revenue uetn, a e am-
nng offcers and other ureau personne of communcatons to
any fed offce from the Washngton headquarters whch are n-
tended to be precedents or gudes;
(b) to provde a source, namey, the Interna Revenue uetn,
n whch such communcatons w be found and may be kept n
a permanent, nde ed reference work; and
(c) to make avaabe to the pubc communcatons to fed
offces whch are ntended to be used as precedents or gudes.
The standards for the pubcaton of such communcatons are stated
n paragraph beow. Consderaton s aso beng gven to the n-
creased pubcaton of rungs addressed to ta payers or ther repre-
sentatves, and the procedure wth respect thereto w be made the
sub|ect of a subsequent announcement. Pendng the ssuance of such
announcement, pubcaton of rungs to ta payers or ther representa-
tves w contnue under present standards.
IS. Use to be made of the Interna Revenue uetn.
The uetn w be used to advse nterna revenue empoyees of
Srecedents and gudes n the appcaton of aws admnstered by the
ureau. Other meda used n the past for ths purpose w be grad-
nay dscontnued as the need for them s emnated through the
greater use of the uetn. ccordngy, n the future, nterna reve-
nue empoyees w fnd t necessary not ony to study the uetn
more carefuy, but aso to have copes avaabe for reference. It w
be the responsbty of supervsory offcers to see that the uetn s
avaabe to a empoyees concerned. Matters reatng soey to nter-
na management (as dstngushed from rungs on substantve ta
aw, procedures affectng ta payers rghts or dutes, or ndustry
reguaton) w contnue to be ssued n mmeographed or mutthed
form and w not be pubshed n the uetn.
3. stabshment of Revenue Rung (Rev. Ru.) Seres.
ffectve wth the frst ssue of the uetn for 1953, each ureau
announcement pubshed n the uetn as a rung or a statement of
procedure w be desgnated as a Revenue Rung (Rev. Ru.). Ths
desgnaton w be used n eu of former desgnatons such as . T.,
m. T., G. C. M., IR-Mm., I. T., S. T, etc. No change w be made
n the desgnatons or abbrevatons of Treasury Decsons, other De-
OrgtaOy Issued as I -Mmeograph 9. dated December 23, 1952.
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5
partmenta ssuances, or pubshed court decsons. The desgnaton
IR-Mm. and other desgnatons may contnue to be used for nterna
purposes as the need e sts.
. Pubcaton standards.
egnnng n 1953, every communcaton ssued to a fed offce dea-
ng wth substantve ta aw, procedures affectng ta payers rghts or
dutes, or ndustry reguaton w be deemed to be of a character
potentay pubshabe, wth the foowng e ceptons:
(a) those nvovng questons specfcay and ceary covered
by statute or reguatons;
(b) those nvovng questons specfcay covered by rungs,
opnons, or court decsons prevousy pubshed n the uetn;
(c) those deang wth ssues upon whch court acton s pend-
ng and pubcaton woud be pre|udca to the best nterest of the
Government;
(d) those n whch the facts nvoved are so unque or specfc
that the ssue s not key to arse agan;
(c) those whch consttute determnatons of fact rather than
nterpretatons of aw;
(/) those deang wth the acceptabty under the aw and
reguatons of contaners, abes, and advertsng nvovng a-
cohoc beverages or tobacco products;
(g) those deang wth tobacco operatons, such as the dspos-
ton of abandoned, sezed, or condemned tobacco products;
h) those deang wth secret formuae or busness practces;
) those deang wth nformers and nformers rewards; or
(|) those whch n the nterest of a wse admnstraton of the
Revenue Servce shoud not be pubshed, but ony f a memo-
randum statng the reasons therefor s attached to the fe and
the Commssoner approves the determnaton of nonpubcaton.
5. Form of pubcaton.
It w be the practce to pubsh as much of the communcaton as
s necessary for a proper understandng of the poston stated or the
nstructon gven. In vew of the e pected ncrease n the number of
matters to be pubshed, Revenue Rungs w be pubshed ether n
dgest form or n fu-te t form, dependng upon the nature of the
communcaton and the ssue nvoved. dgest may be ether a bref
statement of the concusons reached or a bref statement of the facts
together wth such concusons. The fu-te t form of pubcaton
w not necessary be taken verbatm from the ureau rung or
opnon as ssued, but t w contan the basc eements of the dscus-
son theren where that s necessary to an understandng of the poston
taken.
6. Procedure for pubcaton.
ffectve anuary 2, 1953, the foowng responsbtes and pro-
cedures are estabshed:
(a) It w be the responsbty of each ssstant Commssoner
and each Dvson ead n Washngton headquarters, as we as
of the Chef Counse, to see that each matter ssued to any fed
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S6
offce nvovng substantve ta aw, procedures affectng ta -
payers rghts or dutes, or ndustry reguaton, whch orgnates
n an offce under hs supervson, s duy consdered for pubca-
ton. Generay, ths means that the eads of the foowng D-
vsons w be responsbe for observng the prescrbed procedures
and the referra to the uetn and ng nayss ranch of
the necessary papers for pubcaton: coho and Tobacco Ta
Dvson, ppeate Dvson, udt Dvson, Coecton Dvson,
Integence Dvson Speca Technca Servces Dvson, Tech-
nca Pannng Dvson, and Technca Rung Dvson.
(b) ach person n any of the above-named Dvsons or Offces
who s ntay charged wth the preparaton of a communcaton
or nstructon ntended for the fed, whch nvoves substantve
ta aw, procedures affectng ta payers rghts or dutes, or n-
dustry reguaton, w prepare the prescrbed form wth respect
to that communcaton or nstructon. In genera ths procedure
w appy to a communcatons to be sent to any fed offce,
e cept those reatng e cusvey to matters of nterna manage-
ment. The prescrbed form w be attached to the fe when the
proposed communcaton s forwarded for revew and sgnature.
If, upon revew, revson of the communcaton becomes neces-
sary, the queston of pubcaton shoud be reconsdered based
upon the revson requred. s a resut| f the recommendatons
on the prescrbed form no onger preva, a new form shoud be
prepared and attached to the fe, and the form ntay prepared
may be destroyed. Where there s doubt whether or not the
matter shoud De referred to the uetn and Rung nayss
ranch for consderaton as to pubcaton, the queston shoud
be resoved n favor of such reference. If t s determned that
the matter s not to be pubshed, the fe w not be referred to
the uetn and Rung nayss ranch, but the competed
form wth respect to the recommendaton as to pubcaton w
be paced n the fe. Where the reason for nonpubcaton s
n the nterest of a wse admnstraton of the Revenue Servce,
the memorandum requred under Paragraph above must be
prepared and attached to the fe, and the fe forwarded to the
uetn and Rung nayss ranch for reference to the Offce
of the Commssoner.
(o) Competon of the form wth respect to pubcaton requres
the determnaton as to the manner n whch the communcaton
shoud be pubshed. Where the matter s to be pubshed n
dgest form, a dgest w be prepared for reference to the uetn
and Rung nayss ranch.
(d) Standards prevousy n effect for referra to the Chef
Counse s offce for revew of communcatons to fed offces w
contnue n effect; but n vew of the broader scope of pubca-
ton under ths Revenue Rung, t s not ntended that merey be-
cause a communcaton s to be consdered for pubcaton t s
to be automatcay referred to the Chef Counse s offce pror
to ssuance. owever, n determnng whether or not a matter
shoud be so referred, offcas havng responsbty for ssung
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such communcatons w gve consderaton to the added m-
portance whch may attach to such communcaton f pubshed,
especay wth the vew that rungs whch may be cted as estab-
sh ng ega prncpes shoud be so revewed before ssuance.
(e) Where a communcaton s to be referred to the uetn
and Rung nayss ranch for consderaton as to pubcaton,
the Washngton eadquarter s fe, together wth an e tra copy
of the communcaton, w be transmtted to that ranch m-
medatey after sgnature and reease of the sgned communca-
ton. fter the fe has served ts purpose n the uetn and
Rung nayss ranch, t w be returned to the orgnatng
offce wth a copy of the pubshed Revenue Rung or a notaton
of nonpubcaton.
(/) The uetn and Rung nayss ranch w, upon re-
cevng matera recommended for pubcaton, anayze such
matera and determne whether to adopt the recommendatons
wth respect to pubcaton. If that ranch concurs n the
recommendaton for pubcaton, t w (1) prepare the ru-
ng for pubcaton n approprate form and conte t, (2) pre-
pare a dgest for research and reference purposes n the Centra
Lbrary (usng or revsng any dgest of the communcaton
whch may be n the fe), (3) seect proper Code Cassfcaton
headngs for the fng of dgest cards n the Lbrary, ( ) pre-
pare the matter for pubcaton, ncudng a syabus where
necessary, (5) refer the matera prepared for pubcaton to
the Offce of the Chef Counse for revew, (6) prepare fna
copy of the uetn matera and refer t to the uetn Sec-
headngs and prepare the nde cards to be dstrbuted to
ureau offces for research use, as herenafter descrbed, and
( ) where approprate, advse the fed offce to whch the com-
muncaton was addressed of pubcaton n the uetn.
(ff) If the ead of the uetn and Rung nayss ranch
does not concur n the recommendaton for pubcaton, t w
be hs responsbty to take approprate steps to obtan agree-
ment by the offcas concerned.
(h) The uetn and Rung nayss ranch w submt
the matera prepared for pubcaton, wth the necessary fes,
to the Offce of the Chef Counse for revew.
() If the Chef Counse agrees that the matter submtted
shoud be pubshed, he w so sgnfy and return the fe to the
ead of the uetn and Rung nayss ranch. If the
Chef Counse beeves t nadvsabe to pubsh such matter,
he w return t, statng hs reasons therefor. It w be the
responsbty of the ead of the uetn and Rung nayss
ranch to take approprate steps to obtan agreement by the
offcas concerned.
(; ) The uetn and Rung nayss ranch w be re-
sponsbe for the seecton of nde headngs and the prepara-
ton of nde cards to serve ureau personne for research and
reference purposes. The nde cards w contan pertnent
Reproducton
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sub|ect headngs, a bref statement of the matter pubshed, and
the uetn ctaton for ts pubcaton. Wth respect to the
contents of each ssue of the uetn the cards w be repro-
duced as a set and copes thereof furnshed by the Prntng and
Reproducton ranch to each Dstrct Commssoner, Dstrct
Counse, Chef Inspector, and Drector. It w be the respon-
sbty of each such offcer to see that the cataog of such
cards be made avaabe and kept current for fed offcers under
hs |ursdcton. compete set of such cards w be man-
taned n the uetn and Rung nayss ranch. ach pub-
shed rung, order, and decson w have an nde card for
each of ts sub|ect headngs (to be fed accordng to the apha-
betca sequence of the headng) and a master card for the pub-
shed- matter tsef (to be fed accordng to the numerca
sequence of the rung or decson). n nta suppy of such
nde cards w be furnshed to the offces concerned. mted
number of addtona sets may be furnshed upon request.
7. P. S. No. 2 dated uy 29, 19 , authorzed the ssuance of a
Penson Trust Dvson Informaton Servce as an ad to offcers,
empoyees of the ureau of Interna Revenue, and others concerned.
Under the provsons of ths mmeograph, such reeases w be ds-
contnued. ccordngy, P. S. No. 2 s hereby revoked.
. Correspondence reatng to the contents of ths Revenue Rung
shoud refer to ts number and to the symbos T: S: .
Rev. RuL 10
Procedure regardng requests for rungs or cosng agreements on
specfc matters.
Mmeograph 963 (C. . 1939-2, 59) superseded.
1. Reconsderaton has been gven to Mmeograph 963 (C. .
1939-2, 59) reatng to consderaton by the ureau of requests by
ta payers for rungs or advce on matters affectng ta abty. The
poces and requrements herenafter set forth govern the submsson
to the Washngton headquarters offce of the ureau of requests for
rungs or cosng agreements on such matters and the handng of
those requests.
2. Rungs w be made on prospectve transactons where the aw
or reguatons provde for a determnaton of the effect of a proposed
transacton for ta purposes, as n the case of a transfer comng under
the provsons of sectons 1250 and 1251 of the Interna Revenue
Code, or an e change comng under the provsons of secton 112 ()
of the Code.
3. In cases of prospectve transactons other than those descrbed
n paragraph 2, the ureau has dscretonary authorty to make ru-
ngs (or to recommend the approva of cosng agreements pursuant to
secton 3760 of the Interna Revenue Code). That dscreton w be
e ercsed n the ght of a reevant crcumstances, ncudng the bus-
ness or other reasons motvatng the transacton, and wth a vew to
Orgnay ssued as Itt-Mmeograph 100, dated anuary 12, 1953.
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ssung rungs (or recommendng approva of cosng agreements)
ony to the e tent consstent wth a wse admnstraton of the revenue
system.
. Ordnary rungs w not be ssued where the determnaton
requested s prmary one of fact, e. g., (1) market vaue of property,
(2) whether compensaton s reasonabe n amount, ( 5) whether a
transfer s one n contempaton of death, ( ) whether retenton of
earnngs and profts by a corporaton s for the purpose of avodng
surta on ts sharehoders, or (5) whether a transfer or acquston s
wthn secton 15 (c) or secton of the Interna Revenue Code.
5. The Washngton headquarters offce of the ureau w rue on
competed transactons affectng a return or returns to be fed, uness
the queston s one of fact or otherwse unsutabe for ssuance of a
headquarters rung. (See, however, the e cepton n the foowng
paragraph.) It s not ntended that ureau fed offces be prevented
from renderng assstance n the fng of returns.
G. In order to conform to the ureau s pocy of decentrazaton of
the e amnaton and audt of ta returns, a request for a rung on a
queston nvoved n a return or returns aready fed generay w
be referred to the ureau fed offce havng |ursdcton of the return
or returns for consderaton n connecton wth the e amnaton and
audt of such return or returns or other approprate acton. request
for a rung on a queston affectng a return or returns to be fed may
aso be handed n ths manner f the dentca ssue s nvoved n a
return or returns aready fed for a ta abe perod or perods wth
respect to whch the statutory perod of mtaton on assessment or
refund of ta has not e pred. The person requestng the rung w
be advsed of the reference of the request to the fed offce. It s not
ntended to prevent the fed offce to whch the request s referred from
seekng advce or nformaton from the Washngton headquarters
offce before takng acton.
7. equests for rungs shoud be submtted n dupcate. Requests
reatng to prospectve transactons shoud not contan aternatve
pans. ach request for a rung on a prospectve or competed trans-
acton must, ncude the foowng:
(a) The compete facts regardng the transacton, ncudng
the names and addresses of a the nterested partes, together
wth a copy of each contract or other document necessary to pre-
sent such facts. If the sub|ect matter s a corporate reorganza-
ton, dstrbuton, or smar or reated transacton, there shoud
aso be submtted the corporate baance sheet nearest to the date
of the transacton (the most recent baance sheet f the trans-
acton s prospectve).
(b) fu and precse statement of the busness reasons, f any,
for the transacton.
(c) If the ta payer s contendng for a partcuar determna-
ton, an e panaton of the ground for such contenton, together
wth a memorandum of reevant authortes.
. It s the pocy of the ureau to process requests for rungs n
reguar order and as e pedtousy as possbe. Compance wth a re-
quest for consderaton of a partcuar case ahead of ts reguar order
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90
tends to deay the dsposton of other cases. owever, requests for
processng ahead of the reguar order, made n wrtng and showng
the cear need for such treatment, w be gven consderaton as the
partcuar crcumstances warrant.
9. ta payer or hs representatve who desres an ora dscusson of
the case shoud ndcate such desre n wrtng when fng the request
or shorty thereafter n order that the conference may be arranged for
that stage of the consderaton of the case when t w be most hepfu.
Snce a conference s usuay more hepfu durng earer stages of a
case, the ta payer or hs representatve shoud not request that the
conference be deferred unt ureau acton (whether or not n accord
wth the ta payer s contenton) s mmnent. More than one confer-
ence shoud not be sought uness the ta payer has mportant new mat-
ter to present, or uness the probems nvoved requre consderaton of
the case by dfferent Dvsons or Offces of the Interna Revenue Serv-
ce. If the ureau fnds that addtona conferences are necessary the
ta payer or hs representatve w be so advsed.
10. request by or on behaf of a ta payer must be sgned by the
ta payer or hs duy authorzed representatve. Requests shoud be
addressed to the Commssoner of Interna Revenue, Washngton 25,
D. C. If the matter s beng handed by a representatve of the ta -
payer, the conference and practce requrements regardng the fur-
nshng of power of attorney and evdence of enroment to practce,
etc., must be met.
11. ven though a request for a rung s wthdrawn the ureau
may furnsh ts vews or other nformaton wth respect to the matter
to ts fed offces.
12. The ta payer shoud attach to hs return the rung (or a copy
thereof) wth respect to any transacton whch has been consummated
and whch s reevant to the return beng fed. Under ureau pro-
cedure e amnng offcers w compare the facts wth the representa-
tons upon whch the rung was based, n order to determne whether
there has been a msstatement or omsson of a matera fact, or
whether the transacton upon whch the rung was based was actu-
ay carred out n a manner materay dfferent from that represented.
13. If n any case t s the opnon of the fed offce that a concuson
contrary to that e pressed n the rung s ndcated, the fndngs and
recommendaton of the fed offce shoud be forwarded to the Wash-
ngton headquarters for consderaton of the matter pror to further
acton by the fed offce. Otherwse, the fed offce shoud appy the
outstandng rung n the computaton of the ta abty.
1 . Snce each rung represents the ureau s concuson as to the
appcaton of the aw to the entre state of facts nvoved, Revenue
offcers are cautoned aganst reachng the same concuson n other
cases uness the facts and crcumstances are substantay the same.
Furthermore, ureau personne shoud, of course, n ths connecton
consder the effect of subsequent egsaton, reguatons, court dec-
sons, and rungs.
15. Mmeograph 963 (C. . 1939-2, 59) s hereby superseded.
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ev. Ru. 26
Symbos for use n correspondence orgnatng n, or addressed to,
Washngton headquarters offces.
There s set forth beow a st of symbos to be used n correspond-
ence orgnatng n, or addressed to, the varous offces n the Washng-
ton headquarters of the ureau of Interna evenue.
OFFIC OF T COMMISSION R
C Commssoner
I ssstant Commssoner (Inspecton)
O ssstant Commssoner (Operatons)
T ssstant Commssoner (Technca)
ssstant to the Commssoner
C:I Informaton Offcer
C :T Technca dvsor
C: DMINISTR TI SSIST NT TO T COMMISSION R
C: : dmnstratve Servces Dvson
C: : C Communcatons ranch
C: : P Prntng and Reproducton ranch
C: : PP Pubcatons Secton
C: : PD Dstrbuton Secton
C: : PD Dupcatng Secton
C: : PD:S Stenographc and Typng Unt
C: : S Space Procurement and Utzaton ranch
C: : SR Records Secton
C: : Suppes and qupment ranch
C: : utomotve qupment and Teephone Rec-
ords Secton
C: : C Contnung Servce Contracts Secton
C: : P Purchases and Invocng Secton
C: : SP Statonery Purchase Secton
C: : FSS Statonery Stock Issue Secton
C: : L Surpus qupment and Labor Secton
C: : udget and Fnance Dvson
C: : udget ranch
C: : C Computaton and Compaton Secton
C: : F Fnance ranch
C: : P S ccountng Systems Secton
C: : F Centra ccountng Secton
C: : FR Reports Secton
C: :P Personne Dvson
C: :P mpoyee Reatons ranch
C: :PC Poston Cassfcaton ranch
C: :PR Recrutment and Standards ranch
C: :S Statstca Dvson
C: :SCP Card Punch and erfyng ranch
C: :SC Codng ranch
C: :SP Producton Statstcs ranch
C: :SR Research and Compaton ranch
C: :S Statstca udtng ranch
C: :T Tranng Dvson
C: :TD Departmenta Instructons ranch
C: :TD ookkeepng and ccountng Secton
C: :TDS Stenographc, Typng, and Secretara Secton
C: :T ecutve and Supervsory Deveopment ranch
C: :TF Fed Supervson and Coordnaton ranch
C: :TP Program Deveopment ranch
C: :TPS Servce Secton
C: :TPSC Correspondence, Fes, and Records Unt
C: :TPSP Prntng and Pubcatons Unt
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I
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I
R
0
SSIST NT COMMISSION R (INSP CTION)
dmnstratve Dvson
nayss and pprasa Dvson
Lason and Speca Investgatons Dvson
Personne vauaton Dvson
Pannng and Programng Dvson
Revew Dvson
SSIST NT COMMISSION R (OP R TIONS)
0: T coho and Tobacco Ta Dvson
0: T: ssstant to ead of Dvson
0: T: -RI Records Identfcaton
0: T: asc Permt and Trade Practce ranch
0: T: dvertsng Secton
0: T: P Permt and Labe Secto-
O: T: T Trade Practce Secton
0: T: nforcement ranch
0: T: amnng and Coordnatng Secton
O: T: F Frearms Secton
O: T: P Pardon and Paroe Secton
0: T: R Raw Materas Secton
0: T: T Technca Laboratory Secton
O: T: P Permssve ranch
0: T:PF Fed Secton
O: T: PL Laboratory Secton
O: T: P P Pannng and Procedure Secton
0: T:PPS Statstca Unt
0: T:PPR Reguatons Unt
0: T:PPt Pant Secton
0: T:PPtR Reguatory Unt
0: T:PPtT Ta Unt
0: T:PPtD Drawback Unt
0: T:T Tobacco Ta ranch
0: p ppeate Dvson
0: p: cess Profts Ta Counc
0: udt Dvson
O: : udt Servces ranch
0: : F Fes Secton
0: : R Returns Inspecton and ankruptcy Secton
0: :D Denquent ccounts and Returns ranch
O: :P Pannng and Procedure ranch
0: :P udt Procedure Secton
O: : PF Forms and Manuas Secton
0: :U Unform udt ranch
0: :U en Returns Secton
0: :UC Corporaton udt Secton
O: : U state and Gft udt Secton
0: :UI Indvdua udt Secton
0: :U Wage and cse udt Secton
0:C Coecton Dvson
0:C: Coecton ccountng ranch
0:C: C Contro Secton
0:C: C ssessment Unt
0:C: CC Compromse Unt
O: C: CO Overassessment Unt
O: C: CR Read|ustment Unt
0:C: R Revenue ccounts Secton
0:C: RC Coecton ccounts udtng Unt
0:C: RR Refund ccounts udtng Unt
0:C: RS Statstca Unt
0:C: S Stamp Secton
0:C:P Coecton Procedures ranch
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SSIST NT COMMISSION R (OP R TIONS) Con.
0:M Fed Management and Pannng Dvson
O: M: udget Management ranch
0:M:S Genera Servces ranch
O: M: O Operatons Contro Staff
0:1 Integence Dvson
T SSIST NT COMMISSION R (T C NIC L)
T:I Offce of Internatona Ta Reatons
T:S Speca Technca Servces Dvson
T:S: uetn and Rungs nayss ranch
T:S: ngneerng and auaton ranch
T: S: pprasa Secton
T: S: C Court Defense Secton
T: S: state and Gft Ta auaton Secton
T: S: N Natura Resources Secton
T: S: P Pubc Uttes Secton
T: S: O empt Organzat ons ranch
T: S: OR Revew Secton
T:S: 01 Secton 1
T:S: 02 Secton 2
T:S: 03 Secton 3
T:S: 0 Secton
T:S: 05 Secton 5
T: S: P Penson Trust ranch
T:S:R Reorganzaton and Dvdend ranch
T:P Technca Pannng Dvson
T:P: Technca nayss ranch
T: P: P Technca Program ranch
T:R Technca Rung Dvson
T:R:C Corporaton Ta Rung ranch
T:R: mpoyment Ta Rung ranch
T:R: 1 Rung Secton 1
T: R: 2 Rung Secton 2
T:R: 3 Rung Secton 3
T: R: S Servce Secton
T:R: cse Ta Rung ranch
T:R: dmssons and Communcatons Secton
T: R: S Saes Ta Secton
T: R: Se Servce Secton
T:R: St Stamp and Speca Ta Secton
T: R.- T Transportaton Ta Secton
T:R:I Indvdua Income Ta Rung ranch
T: R: G state and Gft Ta Rung ranch
CC C I F COUNS L
CC: T coho and Tobacco Ta Lega Dvson
CC: ppeas Dvson
CC:C Cv Dvson
CC:C1 Cams Dvson
CC: n nforcement Dvson
CC:I Interpretatve Dvson
CC:L Lbrary
CC:LR Legsaton and Reguatons Dvson
CC:M Ma and Records Secton
CC:R Revew Dvson
2 333 53 32
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Rev. Ru. 35
Standard abbrevatons for the names of the dstrct comms-
soners dstrcts and symbos for the ppeate Dvson offces.
Set forth beow are the standard abbrevatons prescrbed by the
bureau for the names of the varous dstrct commssoners dstrcts
and the symbos prescrbed for use by the ppeate Dvson offces
of the varous dstrcts. ach dstrct commssoner s dstrct and
each offce of the ppeate Dvson w pace the approprate sym-
bo on a memoranda, etters, communcatons, forms, reports, docu-
ments, acton memoranda and supportng statements, and other papers
requrng such dentfcaton under e stng procedure.
The standard abbrevatons prescrbed for the dstrct comms-
soners dstrcts are:
Dstrct
tanta
atmore
rmngham
oston
uffao
Cbcago
Ceveaud
Daas
Denver
Detrot
Los ngees
Lousve
New York Cty
Phadepha
St. Lous
St. Pau
Seatte
Standard abbrevaton
TL
L
I
OS
U
C I
CL
D L
D
D T
L
LOU
NYC
P I
ST.L
ST.P
S
tanta.
atmore.
rmngham
oston
uffao
Daas
Denver
Detrot
Los ngees.
Lousve...
The symbos prescrbed for use by the ppeate Dvson offces are:
DhtrUt ppeate offce ppeate nmbo
tanta DC- p: TL t:
C.reensboro DC- p: TL Gbr:
acksonve DC- p: TL a :
atmore DC- p: L a:
Washngton DC- p: L Wash:
Rchmond. DC- p: L Rch:
untngton DC- p: L unt:
fUrmngham DC- p: IR r:
New Oreans DC- p: IR NO:
f oston.... DC- p: OS os:
ew aven. DC p: OS N :
uffao DC- p: UF uf:
Chcago / ca ,- DC- p:C I Ch:
- Mwaukee DC- p:C I Mw:
Ceveand /Ceveand DC- p:CL Ce:
ICncnnat DC- p:CL Cn:
)aas DC- p:D L Da:
M,0, ,1011 - DC- p:D L ou:
Okahoma Cty DC- p:D L Ok:
Denver DC- p:D N Den:
Detrot... DC- p: D T Det:
fLos ngees DC- p:L L :
Iban Francsco DC- p:L SF-
Lousve I)( p:LOU Lou:
Indanapos DC- p:LOU Ind:
UNashve DC- p:LOU Nash|
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95
DUtret
New York Cty.
Phadepha
Phadepha.
Pttsburgh..
Newark
New York Cty
DC- p:NYC NYC:
DC- P:P I Ph:
DC- p:P I Pgh:
DC- p:P I Nwk:
ppeate symbo
St. Lous
f
St. Lous
ansas Cty
DC- p:ST. L St. L:
DC- p:ST. L CMo:
DC- p:ST. P St. P:
DC- p:ST. P Omaha:
St Pau
Seatte.
St. Pau.
Omaha..
Seatte..
.Portand
DC- p:S Sea:
DC- p:S Port:
Inqures reatng to ths Revenue Rung shoud refer to the num-
ber hereof, attenton O: P.
Powers of attorney n Federa ta matters, e cept those concernng
acoho and tobacco ta s.
1. The purpose of ths Revenue Rung s to prescrbe procedures
for the processng and handng of powers of attorney and reated
fes n a Federa ta matters, e cept those concernng acoho and
tobacco ta es.
2. gents and attorneys representng ta payers n connecton wth
Federa ta matters and contractng partes on nson ct e cess
proft cases are requred to fe approprate powers of attorney n
accordance wth the provsons of Conference and Practce Requre-
ments, ureau of Interna Revenue, revsed February 19 2, C. .
19 2-1, 3 . Ordnary, under the reorganzaton the powers au-
thorzng representaton n Federa ta cases (e cept acoho and
tobacco ta cases) w be fed n the offce of the drector of nterna
revenue n whch the case s under consderaton; and powers au-
thorzng representaton before the ureau n connecton wth ureau
rungs and smar matters of a specfc nature whch do not drecty
affect fed operatons w be fed wth the ureau n Washngton,
marked for the attenton of the Power of ttorney Cerk, Offce of
Drector of Practce. ny powers receved drecty from ta payers
or ther representatves n the offces of the dstrct commssoner,
such as powers fed n cases pendng n the ppeate Dvson, w be
forwarded to the approprate drector of nterna revenue for record-
ng and dsposton n accordance wth the provsons of ths mmeo-
graph. When the power n an ncome, profts, or gft ta case, or a
nson ct case, covers more than 1 ta year, suffcent authentcated
copes of such power w be requred n order that ether the orgna
or a copy thereof may be paced wth the return, report or case record
for each ta year under consderaton.
3. Upon recept n ther offces of powers of attorney, drectors of
nterna revenue w prepare approprate card records on card Forms
7 7 and 7 of the names of the ta payers and of the names of the
attorney or attorneys, and such cards w be arranged aphabetcay
under the names of the attorney or attorneys or the agent or agents to
whom the powers of attorney or substtuted powers of attorney have
been granted and under the names of the ta payers e ecutng the
OrtgnaUy Issued as IR-Mneograph 133, dated February 5, 1953.
Rev. Ru. 70
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96
nstruments. The orgna powers of attorney, e cept genera
powers and powers coverng a years, w be paced wth the re-
turns or case records. In those ncome, profts, or gft ta cases, or
nson ct cases, nvovng more than 1 ta year, ether the orgna
or an authentcated copy of the power w be paced wth the return
or case record for each year under consderaton. The orgna gen-
era powers and powers coverng a years w be fed n a speca
power of attorney fe, and authentcated copes thereof w be paced
wth the return or case record for each ta year under consderaton.
. ffectve mmedate , the practce of forwardng card Forms
7 7 and 7 to the ureau, as heretofore requred, w be dscontnued;
and no record of powers of attorney w be mantaned n the ureau,
e cept n nstances where the powers of attorney are fed wth or are
forwarded drecty to the ureau. In such nstances (a) approprate
card records of the names of the ta payers and of the names of the
attorney or attorneys w be prepared on Forms 7 7 and 7 and
retaned by the Power of ttorney Cerk, Offce of Drector of Practce
n the ureau; (b) the powers reatng to rungs and smar matters
not drecty affectng fed operatons, after beng propery recorded
by the Power of ttorney Cerk, Offce of Drector of Practce n the
ureau, w be paced wth the admnstratve fe n the ureau; and
(c) those powers whch ether affect or may be of assstance n fed
operatons, suc as those coverng a Federa ta es, after beng
propery recorded n the ureau w be forwarded by the Power of
ttorney Cerk, Offce of Drector of Practce, to the approprate
drector of nterna revenue for processng and dsposton n ac-
cordance wth the standard procedure outned above. The fed offces
w advse the ureau, attenton Power of ttorney Cerk, Offce of
Drector of Practce, wth respect to the revocaton of an orgna
power of attorney, or a substtuted power of attorney, ony n those
cases enumerated above where records of the orgna power are man-
taned n the ureau.
5. Upon the transfer of a case from the offce of one drector of
nterna revenue to that of another drector of nterna revenue,
the orgna power of attorney w be transferred wth the case record.
6. The card records and other fes reatng to powers of attorney
mantaned n the offces of drectors of nterna revenue w be ava-
abe for the nformaton of and ad to the Interna Revenue Servce as
a whoe. IR Form 7003 w be used by the ureau and the fed servce
n requestng and suppyng routne nformaton reatng to powers
of attorney. ureau requests of the fed and a fed requests
of the ureau for such nformaton w be routed through the Power
of ttorney Cerk, Offce of Drector of Practce n the ureau, who,
n approprate cases, w aso verfy the enroment status of the at-
torney or agent concerned.
7. mpoyees charged wth the duty of managng the powers of
attorney fes and others concerned shoud be famar wth the prov-
sons of Department Crcuar 230 (Revsed), Laws and Reguatons
Governng the Recognton of gents, ttorne3 S, and Other Persons
Representng Camants efore the Treasury Department, C. .
19 7-2, 2 , and Conference and Practce Requrements, ureau of
Interna Revenue, revsed February 19 2, svpra.
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97
3657.
. Mmeograph 66, C. . 1939-2, 61, and a other pror nstruc-
tons nsofar as they are nconsstent wth the provsons of ths Rev-
enue Rung are hereby revoked.
9. ny nqures pertanng to ths Revenue Rung shoud be ad-
dressed for the attenton of C: .
S CTION 3657. P YM NT Y UNIT D ST T S NOT S
ND C RTIFIC T S OF IND T DN SS
Rev. Ru. 51
INT RN L R NU COD
Treasury bs whch, by the terms of ther ssue, may be ac-
cepted by drectors of nterna revenue, at maturty vaue, whether
at or before maturty, n payment of ncome and profts ta es may
be surrendered to any Federa Reserve bank or branch, actng as
fsca agent of the Unted States, 15 days or ess before the date on
whch the ta es become due. ank recepts ssued to the owners
thereof may be accepted by drectors In eu of the Treasury bs.
The dfference between the purchase prce and the redempton or
sae prce Is ordnary gan or oss to the owner of such bs.
Under the provsons of Treasury Department Crcuar 1 , as
amended, Treasury bs whch, by the terms of ther ssue, are accept-
abe n payment of ncome and profts ta es, may be accepted by d-
rectors of nterna revenue, at maturty vaue, whether at or before
maturty, on or before the date the ta es become due, provded they
are accompaned by the ta returns or by statements of ta es due.
owever, an owner of such Treasury bs may surrender them to a
Federa Reserve bank or branch at face vaue, not more than 15 days
pror to the date on whch the ta es become due. The bank w then
pace the bs n a suspense account and ssue recepts therefor whch
the ta payer may forward to the approprate drector together wth
ta returns or statements of ta es due. The drector may accept such
recepts n eu of the actua Treasury bs.
Treasury bs are ssued on a dscount bass redeemabe at maturty
vaue on a specfed date. For the purposes of ta aton the amount
of dscount at whch they are orgnay sod by the Unted States s
consdered to be nterest. The ncome derved from such bs by
ther owners, whether nterest or gan from ther sae or other dspo-
ston, does not have any e empton, as such, and oss from ther sae
or other dsposton does not have any speca treatment, as such, under
the Interna Revenue Code, or aws amendatory or suppementary
thereto. The bs are sub|ect to estate, nhertance, gft, or other
e cse ta es, whether Federa or State, but are e empt from a ta a-
ton now or hereafter mposed on the prncpa or nterest thereof by
any State, or any of the possessons of the Unted States, or by any
oca ta ng authorty. For the purposes of Federa ncome ta es,
Treasury bs are e cuded from consderaton as capta assets by the
provsons of secton 117(a)(1)(D) of the Interna Revenue Code.
Under secton 2(c) of the Code the amount of dscount at whch the
bs are orgnay sod by the Unted States sha not be consdered
to accrue as nterest pror to the redempton, sae, or other dsposton
thereof. Therefore, the owner of Treasury bs (other than nsur-
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3761.
ance companes) shoud ncude n hs ta return, as ordnary gan or
oss for the year n whch the transacton occurred, the dfference be-
tween the prce pad, whether on orgna ssue or on subsequent pur-
chase, and the amount actuay receved upon the redempton, sae, or
other dsposton of the bs.
S CTION 3761. COMPROMIS S
Rev. Ru.117
INT RN L R NU COD
ursdcton and procedure reatng to offers n compromse of
abtes under the nterna revenue aws.
SUMM RY
Introducton.
1. Purposes.
2. Scope of Ths Revenue Rung.
Investgaton and Processng of Cabfs.
3. Investgaton of Compromse Cases.
(a) Reports Coverng Re|ecton or Wthdrawa of Offers.
(1) Ta Cases.
(2) d aorem Penaty Cases.
(3) Specfc Penaty Cases.
(6) Reports Coverng cceptance of Offers.
(1) Ta Cases.
(2) d aorem and Specfc Penaty Cases,
(c) Coatera Informaton.
. Procedure for the Processng, Re|ecton, and ccepance of Offers In
Compromse.
(a) Offers Re|ected or Wthdrawn.
(1) uthorty to Process Re|ected and Wthdrawn Offers.
(2) mended Offers.
(3) Re|ecton Memorandum and Letter to Proponent.
( ) Wthdrawa Memorandum and Letter to Proponent.
(5) Post Revew of Offers.
(6) Informa Conference wth Proponent.
(7) Conference of ssstant Dstrct Commssoner, ppeate,
wth Proponent.
(b) Offers ccepted by Drector Labty Less Than 500.
(1) Genera.
(2) Post Revew of Offers.
(c) Offers Recommended for cceptance by Drector of Interna Reve-
nue Labty of 500 or More.
(d) Procedure n Cases Invovng ont ursdcton.
(1) Cases to be Referred to Integence Dvson, Offce of the
Drector.
(2) Cases to e Referred to ssstant Dstrct Commssoner,
ppeate.
(3) Cases to be Referred to Dstrct Counse.
(e) eadquarters Procedure.
(1) pproved Cases.
(2) Cases Returned for Further Consderaton.
5. Defaut n Payment.
(a) ccepted Offers Labty Less Than 500.
(6) ccepted Offers Labty 500 or More.
Chef Coun e Cases
6. ursdcton of the Chef Counse.
7. Processng Procedure and Reports of Investgaton.
. Cases Invovng Crmna Proceedngs.
9. Preparaton of Memoranda and Letters.
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99 IS 3761.
Getter a .
10. Responsbty for Coecton.
11. Schedue of Offers n Compromse.
12. Deegaton of uthorty.
13. Revocaton of Pror Inconsstent Instructons and Procedures.
1 . Correspondence.
15. ffectve Date.
I ITS
hbt Ttus Purpose or Use
Re|ecton or Wthdrawa Memo- Re|ecton memorandum.
randum.
Re|ecton or Wthdrawa Memo- Wthdrawa memorandum.
randum.
C . bstract and Statement d vaorem penaty cases.
D bstract and Statement Specfc penaty cases.
Schedue of ccepted Offers n Schedung of accepted offers.
Compromse.
F bstract and Statement Ta offers.
G . Form Letter Re|ecton etter Ta cases.
Form Letter . Re|ecton etter Penates ony.
I.. Form Letter. . Wthdrawa etter Depost ap-
ped on abty.
Form Letter . Wthdrawa etter Depost re-
funded.
Form Letter cceptance etter Denquency
penaty.
L Form Letter cceptance etter Cash offer.
M Form Letter cceptance etter Instament
offer.
N Form Letter Defaut etter Ta cases.
O Form Letter . ... Speca depost account etter
Defauted offer.
P..... Schedue of Offers n Com pro- oucher for speca depost ac-
mse. count.
..... Schedue of Re|ected or Wth- Schedues re|ected offers.
drawn Offers n Compromse.
R Schedue of ccepted Offers n Schedues offers accepted by d-
Compromse. rectors.
INTRODUCTION
1. Purposes. The purposes of ths Revenue Rung are:
(a) To prescrbe new |ursdctona nes over certan offers n
compromse comng wthn the provsons of secton 3761 of the
Interna Revenue Code:
(6) To prescrbe revsed procedures, pursuant to Reorganza-
ton Pan No. 26 of 1950, Reorganzaton Pan No. 1 of 1952, and
Treasury Department Oder No. 150-25, wth respect to the
nvestgaton, processng, and dsposton of certan offers n
compromse;
(c) To transfer to the drectors of nterna revenue certan
dutes, functons, and responsbtes wth respect to the proc-
essng and dsposton of offers n compromse; and,
(d) To set forth the authorty of the drectors of nterna rev-
enue wth respect to offers n compromse covered by ths Revenue
Rung.
2. Scope of ths Revenue Rung:
(a) The |ursdctona and procedura provsons of ths Rev-
enue Rung sha appy
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3761
500
(1) To offers n compromse comng wthn the |ursdcton
of the Chef Counse ony to the e tent provded n para-
graphs 6,7, , and 9 heren; and,
(2) To a other offers n compromse fed pursuant to
secton 3761 of the Interna Revenue Code, e cept those cases
arsng under aws reatng to:
( ) narcotcs, smokng opum, and marhuana; and,
( ) acoho, tobacco ta , and frearms.
(b) Offers n compromse not comng wthn the |ursdctona
and procedura provsons of ths Revenue Rung w he handed
n accordance wth e stng nstructons.
IN STIG TION ND rtOC SSING OF C S S
3. Investgaton of compromse cases. The drectors of nterna
revenue w have nvestgatve |ursdcton over a offers n compro-
mse cases comng wthn the scope of ths Revenue Rung. The
reports coverng the nvestgatons w generay foow the pattern
outned n the attached e hbts, as ndcated beow:
(a) Reports coverng re|ecton or wthdrawa of offers:
(1) Ta cases
( ) For re|ecton cases, see e hbt .
( ) For wthdrawa cases, see short form report,
e hbt .
(2) d vaorem penaty cases
For re|ecton or wthdrawa cases, see e hbt C.
(3) Specfc penaty cases
For re|ecton or wthdrawa cases, see e hbt D.
(b) Reports coverng acceptance of offers:
(1) Ta cases
For acceptance cases, see e hbt F. In cases nvovng
abtes of 500 or more, the nterna revenue agent w
aso prepare Form 7251-C. See e hbt .
(2) d vaorem and specfc penaty cases
For acceptance cases, see e hbts C and D.
(c) Coatera nformaton:
Coatera nformaton whch the nterna revenue agent
beeves shoud be made a part of the fe, but whch shoud not
be ncuded n the statement supportng the recommendaton
for acceptance or re|ecton of the offer, shoud be ncuded n
the transmtta etter accompanyng the report of nvestga-
ton.
. Procedure for the processng, re|ecton, and acceptance of offers
n compromse. The procedures to be foowed n the processng, re-
|ecton, or acceptance of offers n compromse are revsed n the man-
ner and to the e tent set forth n the foowng subparagraphs.
(a) Offers re|ected or vnthdrawn. (1) uthorty to process
re|ected and wthdrawn offers. The drector w process re|ected
and wthdrawn offers n compromse; sub|ect, however, to the
provsons of paragraph (a) (7) heren. The processng w n-
cude ( ) the ad|ustment of the accounts n those cases where the
proponent authorzes appcaton of the amounts on depost
aganst the abtes, and ( ) the schedung and refundng of
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51)1
3761.
the amounts n the speca depost account n those nstances where
the proponent does not authorze the amounts on depost to be ap-
ped aganst the abtes. Form 7 79, as revsed (Schedue of
Re|ected or Wthdrawn Offers n Compromse), (e hbt ), w
be used as a voucher for re|ected or wthdrawn offers.
(2) mended offers. In nstances where the proponent has
tendered an amended offer, no forma acton w be necessary on
the pror offer nasmuch as the amended offer supersedes the pror
offer or offers.
(3) Re|ecton memorandum and etter to proponent. In those
cases where the drector concudes that the ofer shoud be re|ected,
he w sgn the re|ecton memorandum (e hbt ) or abstract
and statement (e hbt C or D), and ssue to the proponent a
re|ecton etter (e hbt G or ). One carbon of the etter w
be forwarded to the Commssoner of Interna Revenue, ttenton:
O: , Washngton 25, D. C.
( ) Wthdrawa memorandum and etter to proponent. Where
the proponent wthdraws an offer, the drector w sgn the wth-
drawa memorandum or abstract and statement (e hbt , C,
or D), and ssue the approprate type of etter to the proponent.
One carbon of the etter w be forwarded to the Commssoner
of Interna Revenue, ttenton: O: , Washngton 25, D. C. If
the proponent authorzes the appcaton of the amount deposted
wth the offer on the abty sought to be compromsed, the etter
w be n the form shown n e hbt I attached. If such appca-
ton s not authorzed by the proponent, the etter to the pro-
ponent w be n the form shown n e hbt attached.
(5) Post revew of offers. Post revew of cases nvovng re-
|ected and wthdrawn offers n compromse w be conducted
n accordance wth nstructons to be ssued.
(6) Informa conference wth proponent. Where the propo-
nent dsagrees wth the recommendatons of the nterna revenue
agent, the proponent, upon ora or wrtten request ether before
or after re|ecton, may be granted an nforma conference n the
drector s offce. It w be the duty of the conferee to arrve at
an ndependent concuson as to the suffcency of the offer made
by the proponent.
(7) Conference of ssstant Dstrct Commssoner, ppeate,
wth proponent. Where the proponent does not agree wth the
re|ecton or proposed re|ecton, and nether the nterna revenue
agent nor the conferee of the drector s offce has been abe to
convnce the proponent of the correctness of the concuson
reached, the proponent w be apprzed of hs prvege of sub-
mttng a request n wrtng for a hearng before the ssstant
Dstrct Commssoner, ppeate. Such request shoud be ad-
dressed to the drector. The proponent shoud aso be nformed,
however, that such a request w not necessary stay acton by
the drector to coect the abty due. Upon recept from the
proponent of the request for a hearng, the drector w forward
the case to the ssstant Dstrct Commssoner, ppeate, for
consderaton. The ssstant Dstrct Commssoner, ppeate,
w arrange a conference for a tme whch w be mutuay con-
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3761.
502
venent, and after such conference w prepare a memorandum
settng forth the facts, ssues dscussed, and the reasons for the
concuson reached. Ths memorandum, together wth the entre
fe, w be returned to the drector for processng of the case
by hm n accordance wth the concuson reached by the ssstant
Dstrct Commssoner, ppeate, and the procedure outned n
paragraph (a), (6),or (c) heren.
(b) Offers accepted by drector Labty ess than 500. (1)
Genera. Where the drector concudes that the offer shoud be
accepted and the unpad amount of ta (ncudng any nterest,
penaty, addtona amount, or addton to the ta ) s ess than
500, he w prepare and sgn an approprate abstract and state-
ment and approve the case for acceptance. ( hbts C and F.)
etter w be prepared and maed by the drector to the pro-
ponent, notfyng the proponent of the acceptance of the offer.
( hbt , L, or M.) Copes of such etter and the abstract and
statement w be forwarded to the Commssoner of Interna
Revenue, ttenton: 0: , Washngton 25, D. C, for fng n
accordance wth secton 3761(b) of the Code. In cases accepted
by the drector and nvovng ncome, e cess-profts, decared
vaue e cess-profts, capta stock, estate or gft ta es (other than
cases nvovng penates or nterest ony), a copy of the abstract
and statement w aso be forwarded to the Informaton Offcer,
()ffce of the Commssoner, to compy wth ecutve Order 103 6
and reated T. D. 5927, both approved ugust 20, 1952, C. .
1952-2, 29 . fter recept of payment n fu n accordance wth
the terms of the offer, the drector w prepare Form 7 7 -D,
Schedue of ccepted Offers n Compromse (e hbt R), ad|ust
the account of the proponent, and, where appcabe, abate the
abty compromsed. P orm 7 7 -D w be used as a voucher
for accepted offers.
(2) Post revew of offers. Post revew of offers accepted by the
drector n compromse of abtes of ess than 500 w be
conducted n accordance wth nstructons to be ssued.
(c) Offers recommended for acceptance by drector of nterna
revenue Labty of 500 or more. Where the drector con-
cudes that the offer shoud be accepted, and ether (1) the unpad
amount of ta (ncudng any nterest, penaty, addtona amount,
or addton to the ta ) s 500 or more, or (2) the offer s n com-
promse of a specfc penaty, the drector w prepare and sgn
an approprate schedue and abstract and statement. ( hbts
and C, D, or F.) The compromse fe w be forwarded to the
Commssoner of Interna Revenue, ttenton: O: , Washng-
ton 25, D. C, for revew and approva, or dsapprova, of the
recommendaton for acceptance. In those cases where the offer
s based n whoe or n part on doubt as to abty, the returns
w aso be forwarded to Washngton wth the case.
(d) Procedure n cases nvovng |ont |ursdcton. (1) Cases
to be referred to Integence Dvson, Offce of the Drector.
Where ( ) the merts of the ad vaorem fraud penaty are n-
voved, (U) the case s one n whch the speca agent has recom-
mended asserton of the penaty, and (C) the udt Dvson of
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503
15 3761.
the drector s offce contempates recommendng acceptance of the
offer, the entre fe w be forwarded by the udt Dvson to
the Integence Dvson for concurrence or comment. If the
Integence Dvson concurs n the recommended dsposton of
the offer, the offer w be processed n accordance wth para-
graph (6) or (c). If no agreement s reached as to the ds-
Soston of the offer, the entre fe w be forwarded to the
rector for consderaton. Fna decson wth respect to the
dsposton of the ad vaorem fraud penaty s vested n the drec-
tor n those dstrcts n whch the speca agents are under the
|ursdcton of the drector ; n other dstrcts the fna decson s
vested n the dstrct commssoner.
(2) Cases to be referred to ssstant Dstrct Commssoner,
ppeate. Where an offer s based n whoe or n part on doubt
as to abty, and such abty was determned by the former
Technca Staff, the former ppeate Staff, or the ppeate
Dvson, the offer and reated fe w be forwarded by the drec-
tor to the ssstant Dstrct Commssoner, ppeate, for con-
sderaton. The ssstant Dstrct Commssoner, ppeate, n
connecton wth hs consderaton of the case, may ca upon the
drector to conduct any nvestgaton consdered necessary, and
w prepare a memorandum settng forth the facts, ssues ds-
cussed, and the reasons for the concusons reached. Ths mem-
orandum, together wth the entre fe, w be forwarded to the
drector for processng of the case by hm n accordance wth the
concusons reached by the ssstant Dstrct Commssoner,
ppeate, and the procedure outned n subparagraph (a),
(5), or (c) heren.
(3) Cases to be referred to dstrct counse. The drector w
refer to the dstrct counse for an opnon any offer whch the
drector fnds to nvove a doubtfu queston of aw or wth respect
to whch for any other reason n the |udgment of the drector such
an opnon shoud be obtaned.
(e) eadquarters procedure. (1) pproved cases. The of-
fers n compromse recommended for acceptance by the drector
w be revewed n the offce of the ssstant Commssoner (Op-
eratons), Washngton 25, D. C, and, f such recommendatons are
approved, the offers w be forwarded to the Chef Counse for
revew, and then to the Commssoner for approva. If approved
by the Commssoner, a etter w be prepared and maed n
Washngton notfyng the proponent of the acceptance of the of-
fer. In cases accepted by the Commssoner and nvovng ncome,
e cess profts, decared vaue e cess-profts, capta stock, estate
or gft ta es (other than cases nvovng penates or nterest ony),
a copy of the abstract and statement w be forwarded to the
Informaton Offcer, Offce of the Commssoner, to compy wth
ecutve Order 103 6 and reated T. D. 5927, supra. Copes
of the etter maed to the proponent, ncudng copes of the
schedue and abstract and statement, w be retaned by the
ssstant Commssoner (Operatons), for compance wth sec-
ton 3761(b) of the Code, and the preparaton of the requred
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3761.
50
documents n accordance wth other estabshed procedures. The
compromse fe, ncudng the orgna schedue and the abstract
and statement, a copy of the etter maed to the proponent, and
any returns or reated papers whch had been forwarded to Wash-
ngton, w be returned to and retaned by the drector havng
|ursdcton of the case.
(2) Cases returned for further consderaton. In the event
the recommendaton of the drector for acceptance of the offer
s returned by the ureau for further consderaton, the compro-
mse fe w be accompaned by a memorandum contanng the
reasons for such acton and any nstructons whch may be con-
sdered approprate.
5. Defaut n payment:
(a) ccepted offers Labty ess than 500. Where an n-
stament offer n compromse whch has been accepted by the
drector s n defaut, the drector has the opton under the specfc
prnted terms of the offer, by reason of hs deegated authorty,
ether (1) to proceed by sut to coect the baance due on the
offer; or (2) to termnate the offer, appy the amount deposted
on the offer aganst the ta abty, and proceed to coect the
baance due. ( hbts N and O.) Where the proponent s n
defaut, the drector may renvestgate the proponent s fnanca
condton, and, f t appears to be n the best nterests of the
Government to permt the proponent to make payment of the
baance due on a revsed bass, a etter w be prepared by the
drector advsng the proponent that payments on the offer w
be accepted on the revsed terms suggested by the proponent, and
that acton ookng toward decarng the offer n defaut w be
hed n abeyance pendng payments under the revsed terms.
owever, f t appears to be n the best nterests of the Govern-
ment to decare the offer n defaut and proceed wth the coecton
of the baance due on the abty, the drector w advse the
proponent by etter that the arrangements ookng toward the
compromse of the abty have been termnated. Copes of such
etters decarng the offer n defaut w be forwarded to the
offces whch prevousy receved copes of the acceptance etter.
(b) ccepted offers Labty 500 or more. It s the respon-
sbty of the drector to advse the Commssoner of the defaut
n the terms of an accepted nstament offer n compromse n-
vovng a abty of 500 or more. Where the drector advses
the Commssoner that payments on such an accepted nstament
offer n compromse are n defaut, the Commssoner has the
opton, under the specfc prnted terms of the offer, ether (1) to
proceed by sut to coect the baance due on the offer; or (2) to
termnate the offer, appy the amount deposted on the offer
aganst the ta abty, and proceed to coect the baance due.
Where a proponent s n defaut and he submts a etter to the
drector or to the Commssoner requestng permsson to make
payments on the offer on a revsed bass, the Commssoner may re-
quest nformaton from the drector as to the current fnanca
condton of the proponent, the drector s recommendaton as to
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505
3761.
the acton to be taken on the offer and hs reasons therefor. If,
upon recept of the report of the drector, t appears to be n the
drector or the proponent tnat payments on the offer w be ac-
cepted on the new terms, and that acton ookng toward decarng
the offer n defaut w be hed n abeyance pendng payment
under the revsed terms. owever, f t appears to be n the best
nterests of the Government to decare the offer n defaut and
proceed wth the coecton of the baance due on the abty, the
ureau w advse the proponent by etter that the arrangements
ookng toward the compromse of the abty have been term-
nated. Copes of such etters decarng the offer n defaut, or
revsng the terms of the offer, w be forwarded to the offces
whch prevousy receved copes of the acceptance etter.
6. ursdcton of the Chef Counse. The Chef Counse w repre-
sent the Commssoner n the consderaton of offers n compromse of
abty n the foowng cases:
(a) Cases n whch recommendatons for prosecuton are pend-
ng n the Chef Counse s offce, the Department of ustce, or
offces of Unted States attorneys, ncudng cases n whch crm-
na proceedngs have been nsttuted but not dsposed of and
reated cases n whch offers n compromse have been submtted
or are pendng;
(6) Cases m whch the ta payer s n recevershp or s n-
voved n a proceedng under any provson of the ankruptcy
ct;
(c) Cases n whch the ta payer s deceased (a casses of ta es,
ncudng estate ta , and gft ta where donor s deceased);
(d) Cases nvovng proposas to dscharge property from the
effect of ta ens;
(e) Cases nvovng nsovent banks;
(/) Cases nvovng assgnments for the beneft of credtors;
(g) Cases nvovng qudaton proceedngs; and
(h) Other cases n whch court proceedngs are pendng.
7. Processng procedure and reports of nvestgaton. In those
cases descrbed n tems (6) through ( ) of paragraph 6, the drector
of nterna revenue w record the offer n compromse n accordance
wth e stng procedures and forward the orgna of the offer and the
Form 33, Statement of Fnanca Condton and Other Informaton,
to the Chef Counse, ureau of Interna Revenue, Washngton 25,
D. C, advsng that he s retanng the dupcate copy of the offer
and fnanca statement for nvestgaton. Upon competon of the
report, t w be revewed and transmtted by the drector to the Chef
Counse wth hs recommendaton as to acceptance or re|ecton.
. Cases nvovng crmna proceedngs. In those cases descrbed
n tem (a) of paragraph 6, the offer w be recorded n accordance
wth e stng procedures and the orgna thereof w be forwarded to
C I F COUNS L C S S
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3761.1
506
the Chef Counse. In such cases no nvestgaton w be made uness
specfcay requested by the Chef Counse.
9. Preparaton of memoranda and etters. In cases to be con-
sdered by the Chef Counse s offce, the re|ecton and acceptance
etters, re|ecton memorandums, and abstracts and statements recom-
mendng acceptance w be prepared n that offce n accordance wth
e stng procedure.
G N R L
10. Responsbty for coecton:
(a) The Government s nterests as determned by the drector
w govern n estabshng whether or not coecton of the abty
w be suspended durng consderaton of an offer n compromse.
(6) It s aso the responsbty of the drector to coect any
amount due under the terms of an offer n compromse.
11. Schedue of offers n compromse. Forms 79 (Revsed), 7 7 ,
7 7 -D, and 7 79 (Revsed) w be used as vouchers to support the
account and the records of the drectors. Form 79 (Revsed), Sched-
ue of Offers n Compromse, (e hbt P), n addton to servng as a
voucher to the speca depost account, w be used as a means of trans-
mttng the st of offers n compromse to the Commssoner of In-
terna Revenue, Washngton 25, D. C, wth the ccount Current,
Standard Form 1019. No offers w be forwarded to the Comms-
soner for contro purposes. Forms 79 (Revsed), w be used ony
as vouchers. Form 7 79 (Revsed), Schedue of Re|ected or Wth-
drawn Offers n Compromse, (e hbt ), w be used as a voucher
ony and w aways be prepared n the offces of the drectors. Form
7 7 , Schedue of ccepted Offers n Compromse, w be contnued
n use and w aways be prepared n Washngton for the schedung
of offers whch are accepted by the Commssoner. Form 7 7 -D,
Schedue of ccepted Offers n Compromse, (e hbt R), w be
provded for the use of the drectors n nstances where the offer s
accepted by the drector.
12. Deegaton of authorty. There s hereby deegated to each off-
cer and empoyee of the ureau of Interna Revenue who s authorzed
or requred heren to e ercse or perform any functon or functons,
such authorty, duty, and power as s necessary to the performance of
such functon or functons.
13. Revocaton of pror nconsstent nstructons and procedures.
pror mmeographs, nstructons, and procedures whch ae ncon-
sstent wth the provsons of ths Revenue Rung are, to the e tent of
such nconsstency, superseded or revoked.
. Correspondence. Correspondence reatng to the contents of
ths Revenue Rung shoud refer to ts number and to the symbos
0: .
15. ffectve date. Ths Revenue Rung w be effectve wth re-
spect to a offers n compromse comng wthn ts |ursdcton and
whch are fed on or after uy 1, 1953. Offers n compromse fed
pror to uy 1, 1953, w be processed n accordance wth e stng
procedures by the offces now havng |ursdcton of such offers, e cept
as otherwse drected by the ssstant Commssoner (Operatons).
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507
I IT
(Re|ecton memorandum)
1271
T . . TR SURY D P RTM NT
R CTION OR WIT DR W L M MOR NDUM
UR U OF INT RN L R NU
In re: Offer to compromse abty of:
YZ Company
Southand, Fa.
Labty as foows:
Case No
Symbos
Offce
Date
Cty acksonve, Fa.
Coecton Dstrct Forda
Yeas
Date
ssessed
Ta
Interest
Penaty
TOT L
ssessed
ssessed
ssessed
12-31- 9
12-31-56
6-15-52
I. T. ,500.00
607. 50
-0-
5, 107. 50
6-15-52
I. T. 1 ,000.00
1, 050. 00
15, 050. 00
Totas
1 , 500. 00
1, 657. 50
20, 157. 50
nd of ta .. Income
Recommend offer be re|ected
mount of offer.__. M -
Number of pendng offers One _
Date notce of en fed uy 15, 1952
(Sgnatures of person preparng memo-
randum and
revewers wth date thereof)
Recommendaton approved for reasons
stated herenafter:
(Drector of Interna Revenue)
I. SUMM SY
The ta payer a seekng to compromse under the authorty of secton 761
of the Interna Revenue Code assessed ncome ta es, ncudng nterest, for the
caendar years ended December 31, 19 9, and December 31, 1950, totang
20,157.50, pus accrued Interest. The amount of the offer s 10,000 cash, to-
gether wth waver of refunds and other provsons on Form 656 (Revsed an-
uary 1951). Ths appears to be the frst offer submtted by the ta payer.
The offer Is based on doubt as to coectbty. It Is recommended for re-
|ecton for the reason that the corporaton has assets or equtes n assets based
on forced sae vaues totang 32,000 from whch the tota amount of the
abty s coectbe.
II. Facts as to Labty
revew of the evdence of record ndcates that the ta abty has been
correcty determned. No ob|ecton was taken to the determnaton of the a-
bty by the ta payer. The ta therefore s hed to be egay due.
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SOS
III. Facts as to Coecttbty
The ta payer corporaton Is a canner and dstrbutor of seafoods of a knds,
partcuary specazng n canned shrmp, oysters, turte soup, crabmeat, oyster
gumbo, and shrmp gumbo. It was ncorporated under the aws of the State
of Forda n 193 and ts fnanca structure conssts of common stock of 5,000
a ssued and outstandng and hed by ohn Smth and wfe, Mrs. ane Smth,
who are offcers of the company.
Form 33, subscrbed and sworn to under date of ugust 31, 1952, by the
Presdent of the corporaton, was submtted, whch dscoses the foowng assets
and abtes:
Present book
sse:s ca.ut
Cash S666. 55
ccounts recevabe 30, 227. 73
Merchandse nventory 17, 69. 30
Rea estate 15, 610. 31
Furnture and f tures 729. 35
Machnery and equpment . , 6 5. 06
Trucks and devery equpment 1, 175. 59
utomobes 1, 005. 3,/
Securtes 2,500.00
oats. - -- 7,201.66
Pant suppes . 6, 31.2
Far market
pa U
666. 55
2 , 000. 00
17, 69. 30
Forced sae
vaue
666. 55
20, 6 9. 7
17, 69. 30
1 , 000. 00 15, 000. 00
2, 500. 00 2, 500. 00
7, 300. 00 , 720. 16
3, 31. 2 1, 000. 00
Tota assets 17 ,102.7 117,767.13 66, 05.79
Labtes
ccounts payabe 9 , 02. 2
Notes payabe 32, 600. 00
Mortgage 25, 000. 00
ccrued rea estate ta es 535. 16
Pror years ncome ta and nterest 2 , 06. 3
Tota abtes.
1 0, 9 . 23
Net worth
Capta stock ssued and outstandng 5, 000. 00
Defct (7, 1. 5)
Net defct - - (2, 1. 5)
n nvestgaton dscoses that the vauatons paced by the ta payer on ts
assets, wth the e cepton of the forced sae vaue of ts boats, are substantay
correct. The ta payer estmated the forced sae vaues of the unencumbered
boats to be ,720.16, whereas t appears that appro matey 25,000 coud be
obtaned for them at an mmedate sae.
detaed anayss of the forced sae vaues of the assets of the ta payer
based upon the nformaton contaned n the Form 33, the nvestgaton of the
ta payer s fnanca condton, and the addtona nformaton obtaned at a
conference wth representatves of the ta payer under date of October 31, 1952,
s as foows:
Cash. The representatves for the ta payer stated that the bank baance s
usuay ow and the amount shown on the statement s representatve of the
sum usuay avaabe.
ccounts recevabe. detaed schedue of the accounts recevabe was sub-
mtted by the accountant for the ta payer corporaton pror to the above-men-
toned conference. Ths schedue dscosed tota accounts recevabe of
59,GC3.03, a reserve for bad debts of 23, 65.30 and a net book vaue of 36,227.73.
The representatves for the ta payer agreed at the conference that a forced
sae vaue of 20,0 9.7 for the good accounts appears reasonabe.
Inventory. The nventory of 17, 69.30 s pedged wth the Peopes ank,
Southand, Fa., as parta securty for a oan of 22,000.
The rea estate, furnture, and f tures, devery equpment and machnery
and equpment, together wth three or four of the boats are pedged wth the
Peopes ank, Southand, Fa., for a oan of 25,000. There appears to be no
reazabe equty In these assets.
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509
Unted Staes onds. The Form 33 shows Unted Sates Savngs onds wth
a forced sae vaue of 2,500. It Is aeged that 1,5(10 of these bonds were
ost n a hurrcane sometme ago and the proponent s endeavorng to obtan
dupcates for them.
Pant suppes. The representatves for the ta payer are n agreement as
to the forced sae vaue of the pant suppes.
oats. The ta payer corporaton n the supportng documents fed wth the
Form 33, stated that Mr. C. . Roe of Uoe Marne ngne Co., Southand, Fa.,
was n ther opnon one of the best nformed men, as to the vaue of boats,
on the Guf Coast. Ths appears to be true. Inqury of Mr. ( . .1. Uoe ds-
cosed that n bs opnon the boats had a far market vaue of 7,300, but a
forced sae vaue n e cess of the ,720.10 stated n the Form 33. ased on
the conversaton wth Mr. Roe the boats appear to have a forced sae vaue
of at east 25,000.
ccounts payabe. The accounts payabe represent current amounts owed for
suppes, nventores, repars to boats, and msceaneous e penses. These
accounts do not have prorty over the ta en of the Government.
Sotes payabe. The notes payabe consst of 22,000 owed the Peopes ank,
Southand, Fa., whch s partay secured by the nventory of the ta payer and
an unsecured note n the amount of 10,000 due the Second Natona ank of
Southand. Fa.
Mortgage. Ths tem represents the amount due the Peopes ank, Southand,
Fa., whch s secured by the rea estate, furnture and f tures, trucks, and
machnery and equpment.
Pror years ncome ta es and nterest. Ths tem ncudes nterest accrued
on the unpad assessment.
In summaton of the foregong and based on the forced sae vaue agreed to
by the representatves for the ta payer, t appears that the ta abty s co-
ectbe n fu from the foowng assets:
Forced gae vahc
Cash 60 . 55
ccounts recevabe 20,0 0. 7
Unted States onds 1,500. 00
Pant suppes 1,000.00
oats ,720.16
Tota 32, 530. 9
The ta payer dscosed the foowng osses on the Form 33:
Long
Caendar year 1050 ( 2 ,03 .55)
Caendar year 1051 ( 7 .31)
Perod an. 1, 1952, to uy 31, 1052 (1 ,12 . 0 )
Pror to termnaton of the conference hed on October 31, 1952, the repre-
sentatves of the corporaton stated that upon recept of notfcaton of re|ecton
of the offer they woud work out a method of payment of the abty on an
nstament bass.
Mr. Smth, presdent of the corporaton, stated that whe the corporaton
has had some bad years recenty he s of the opnon that by reducng ts e -
penses and obtanng some workng capta t mght be abe to show a proft as
he antcpates the Industry to show a turn for tte better.
I . Concuson
In vew of the foregong, t s recommended that the offer be re|ected.
panatory. Note. Ths hbt s based soey on doubt as to coectbty.
In such cases t s not necessary to show n deta how the ta abty was
determned.
In cases nvovng doubt as to abty, part II, Facts as to Labty, shoud
show brefy the ssues, pertnent facts, contentons of proponent, and concusons
reached. In such cases t Is suffcent under part III, Facts as to Coectbty,
merey to show that the queston of coectbty s not n ssue and that the
abty s coectbe a fu.
26335 53 3
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510
I IT
(Wthdrawa memorandum)
Form 1271
. S. TR SURY D P RTM NT
Interna Revenue Servce
R CTION OR WIT DR W L M MOR NDUM
In re: Offer to compromse abty of:
YZ Company
Southand, Fa.
Labty as foows:
Case No...
Symbos
Offce .
Cty.
Date .
acksonve, Fa.
Coecton Dstrct,
Forda
Year
Date
ssessed
Ta
Interest
Penaty
Tota
ssessed
19 9
3/15/51
5, 000
300

S5, 300
Totas
5, 000
300

5,300
nd of ta ..
Income
mount of offer. 99
Number of pendng offers...9.ne .
Date notce of en fed / / .
ecommendaton of e amnng
offcers
Recommend offer be consdered wthdrawn
(Sgnatures of person preparng memo-
randum and revewers wth date thereof)
Recommendaton approved for reasons
stated herenafter:
(Drector of Interna Revenue)
I. Summary
The nby sought to be compromsed represents a defcency appcabe to the
return fed by the ta payer for the year 19 9. There Is no dspute as to the
proprety of the abty whch s hed to be egay due.
The ta payer s present fnanca condton was revewed wth hm and, based
on nformaton whch he furnshed t appeared that snce the tme he submtted
hs offer hs fnanca condton has mproved to such an e tent that f gven
a reasonabe perod of tme he coud qudate the tota abty outstandng
aganst hm. The ta payer wthdrew hs offer and agreed to aow a
moneys aready pad on the offer to be apped agnnst the unpad abty.
e further stated he woud make arrangements for payment of the baance
due.
The ta payer s etter of wthdrawa, whch Is In the fe, states In part as
foows:
In vew of the fact that I have been advsed that my offer cannot be recom-
mended for acceptance, I hereby wthdraw the sad offer and request that you
appy the 1,000 pad on the offer aganst the abty owng for the year 19 9.
In vew of the foregong, the offer Is consdered wthdrawn n accordance wth
the ta payer s request.
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511
I IT C
( d vaorem penaty cases)
bstract and Statement
TR SURY D P RTM NT
Offce of the
DIR CTOR OF INT RN L R NU
( ddress)
Unted States
S.
(Name and address of proponent)
Compromse Case
No
Dstrct
Not n Sut
Charge:
Terms of offer:
ssessment:
Statement:
(To be used If
accepted)
(To be used If
re|ected or
wthdrawn)
Lnty Incurred under the provsons of secton of the
Interna Revenue Code, for fuure to fe ta re-
turn. Form , wthn the tme requred, for the (perod
or year).
The ta payer Is seekng to compromse under authorty of
secton 3701, Interna Revenue Code, and submts
, together wth waver provsons on Form
6 6, to compromse abty n the amount of ,
representng unpad denquency penaty or penates.
The ta payer s return for the perod nvoved has (not) been
audted and cosed. The ta , (nonpayment penaty), and
Interest have been pad n fu.
Ta abe
perod
Ta
pad
Dae due Date fed
Unpad
penaty
Offer
The offer s substantay n conformty wth the requrements
of secton f 220, Part , Interna Revenue Manua. There-
fore, t s recommended that ths offer be accepted wth
waver of refund mted to the amounts whch may have been
pad on the penaty or penates and the case cosed.
The offer s re|ected snce (1) t Is not In conformty wth
the requrements of secton 5220, I art , Interna Revenue
Manua, or (2) reasonabe cause has been ceary estabshed
and the penaty w be abated, or (3) the offer has been
wthdrawn.
pproved:
( cceptance) (Re|ecton) (Wthdrawa)
Recommended by:
(Sgnatures of person
preparng memorandum
and revewers.)
Date
Drector of Interna Revenue
For use of ureau empoyees ony.
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512
I IT D
(Specfc penaty cases)
OST CT ND ST T M NT
TR SURY D P RTM NT
Offce of the
DIR CTOR OF INT RN L R NU
( ddress)
Unted States Compromse Case
No
vs- Dstrct
(Name and address of proponent) Not n Sut
Charge: oaton of secton , Interna Revenue Code, through
faure to:
(State the nature of the voaton)
T UMS OF OFF R
Under authorty of secton 37(51, Interna Revenue Code, the ta payer sub-
mts , to compromse the specfc penaty Imposed by secton
, of the Code, for faure to compy wth the aw.
SS SSMF.NT
The specfc penaty n ths case has not been assessed. The ta , and ad
vaorem penaty where appcabe, n the tota amount of , have
been pad n fu, or the documentary stumps, n the amount of . ,
have been propery aff ed and canceed.
ST T M NT
(a) cceptance s recommended snce t appears that the offer Is substan-
tay n conformty wth the requrements of secton 5227, et a., Part , Inter-
na Revenue Manua ; or
(b) Re|ecton s recommended for the reason that (1) addtona evdence
submtted dscoses that the specfc penaty shoud not be asserted, (2) the offer
Is nsuffcent to compromse the penaty ncurred, or (3) It s a second offer
nadvertenty submtted coverng the same offense whch has prevousy been
compromsed; or
(c) Offer s wthdrawn.
pproved: Recommended y: Date
( cceptance (For (For (Sgnatures of person
recommended) re|ecton) wthdrawa)
preparng abstract
and statement, and
revewers)
Check paragraph appcabe.
For use of ureau empoyees ony.
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513
Rev. une 19 S)
I IT
(Schedue of accepted offers n compromse)
TR SURY D P RTM NT
Offce of the
COMMISSION R OF INT RN L R NU
W S INGTON. D. C
The Commssoner or Interna Revenue
I submt for your consderaton the foowng schedue of offers n compromse,
whch I recommend for acceptance:
Cse
No.
Name or Ta payer
mount or
L ILTTT
MO NT Or OTtRS
(Name and address of
proponent)
13, 933.70
5,000 consstng of 1,000 cash
wth offer, 1,000 payabe on
Nov. 1, 1953, and baance pay-
abe 500 every 6 months there-
after, wth nterest at the rate of
6 percent per annum on a de-
ferred payments from the date
ths offer s accepted unt the
respectve payments ae made n
fu, together wth waver of re-
funds, defaut agreements and
other provsons on Form 656-C
(Revsed pr 1950). The ta -
payer has aso e ecuted a co-
atera agreement wth respect to
addtona payments from future
earnngs.
Tota number of cases, 1; Tota abty, 13,933.70; Tota offers, 5,000
In accordance wth the provsons of Treasury Department Order No. 150-25
the offers n compromse sted on ths schedue have been consdered and they are
hereby accepted.
Date)
Commssoner
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51
I IT F
(Ta offers)
Fo 72 9 TR SURY D P RTM NT
Offce of
( ddress)
STR CT ND ST T M NT
In re: Offer n Compromse:
Labty of
Labty as foows:
ohn Doe
( ddress)
Symbos:
Dstrct:
Not n sut.
Yeas
Ta
Date
ssessed
6 Interest
ssessed
INT R ST
cC t D TO
Penaty
Tota
6/30/53
19
11, 000. 00
6/15/52
2, 1 5. 00
S7 R 70
13, 933. 70
Tota..
11, 000. 00

2, 1 5. 00
7 a 70
13, 93a 70
mount of offcr.. ,000 _
nd of ta . .c .Ia. .
Date notce of en fed. 9/20/52
Is case pendng before The Ta Court of
U. S.T. No _
Was coecton of ta barred at tme offer
fed No
Was bond fed _No
cceptance recommended by:
(Sgnatures of pe son
(DaT
preparng memoran-
(Date)
_dum and revewers.)_ _
(Da t )
(Date)
(Date)
Terms of offer: 5,000 consstng of 1,000 cash wth offer, 1,000 payabe on
November 1, 1953, and baance payabe 500 every s months thereafter, wth
nterest at the rate of 6 percent per annum on a deferred payments from the
date ths offer s accepted unt the respectve payments are made n fu, together
wth waver of refunds, defaut agreement and other provsons on Form 656-C
(Revsed pr 1950). The ta payer has aso e ecuted a coatera agreement
wth respect to addtona payments from future ncome.
I (accept) (recommend acceptance) for the reasons emboded n the attached
statement.
(Date
Drector of Interna Revenue.
In re: ohn Doe.
I. Summauy
The ta payer Is seekng to compromse under the authorty of secton 3761
of the Interna Revenue Code, nn unpad ncome a abty ncudng Interest
for the year 11150, totang 13,933.70. The amount of the offer s 5,000,
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515
sstng of 1,000 cash wth offer, 1,0U0 payabe on November 1,1053, and baance
payabe 500 every 6 months thereafter, wth Interest at the rate of 6 percent
per annum on a deferred payments from the date ths offer s accepted unt
the respectve payments are made n fu, together wth waver of refunds,
defaut agreement and other provsons on Form 656-C (Revsed pr 1950).
In addton to the foregong, the ta payer has agreed to pay a graduated per-
centage of hs future Income n e cess of 7,500 to the Drector for the years 195
to I960, ncusve, such amount not to e ceed the tota unpad ta abty, n-
cudng assessed and accrued nterest.
The offer Is recommended for acceptance for the reason that It appears to
be n e cess of the sum coectbe from a forced sae of a of the ta payer s
assets and gves adequate consderaton to hs earnng capacty and future
prospects.
II. Facts as to Labty
The ta payer fed an ncome ta return for the year 1950 dscosng a net
ncome of 16,000 and a ta abty of 153, whch was pad. s a resut of
an nvestgaton, a defcency n the amount of 11,000 was asserted. The ta -
payer fed a petton wth The Ta Court of the Unted States but as he faed
to prosecute the petton t was dsmssed for ack of prosecuton. The court s
order was entered on March 31, 1952. s the ta ab.ty has been assessed
pursuant to an order of The Ta Court of the Unted States, whch has become
fna, the ta s egay due.
III. Facts as to Co CT n.rrT
Ta payer s 50 years of age, marred, and has two chdren, ages s and two,
dependent upon hm for support e s actvey engaged as presdent of the
C, Inc.
The
dscoses the foowng
sworn statement of assets and abtes as of March 31, 1953,
ook vaue
150. 00
500. 00
1 , 500. 00
ud
(1) Cash
(2) Land contract
(3) Resdence -
( ) 1 st r . -C:-In- --Pfd: ..M.o. oo
(5) 21 0 snares C, Inc
common stock
(6) utomobe
(7) Lfe nsurance (cash vaue)
( )
2, 1 0. 00
600. 00
, 961. 7
ousehod furnture 2, 500. 00
Forced gae
eauc
150. 00
200. 00
12, 575. 00
500. 00
none
300. 00
, 961. 7
500. 00
ncumbrances
and
crrmptont
11, 575. 00
, 61. 7
300. 00
Reazabe
equty
150. 00
200. 00
1, 000. 00
500. 00
none
300. 00
100. 00
200. 00
Tota assets 27, 151. 7 19, 1 6. 7 16, 736. 7 2, 50. 00
Labtm .
(9) ank oan, Second Na-
tona ank 600. 00
(10) ank oan, Frst Natona
ank 250. 00
(11) dwn ack 1, 16.00
(12) Current bs 1, 33 . 6
(13) Mortgage payabe and
contract payabe 11, 575. 00
(1 ) Lfe nsurance oan , 61. 7
(15) Income ta abty 13, 933. 70
Defct (6, 23. 56)
Tota 27, 151. 7
(1) The nvestgaton made of the ta payer s fnanca condton ndcates the
ta payer has ony a sma amount of cash on hand at a tmes.
(2) The ta payer sod hs former home ocated at 200 ank venue,
, Oho, durng October 1952. The saes prce was 3,500,
the purchaser assumng the outstandng mortgage on the property of 2,500,
pad 350 n cash and gave the ta payer a and contract In the amount of 650
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516
to cover the baance. The purchaser s payng the ta payer 20 per month on
the contract. Ths sum, the ta payer states, s beng pad to The Reaty Com-
pany for the purpose of repayng an advance made by that company to the ta -
payer at the tme he purchased hs new home. Mr. Doe n a sworn statement
submtted by hm, shows ths contract as havng no forced sae vaue. Whe
such contracts usuay have very tte resae vaue, nevertheess t s beeved
that n vew of the fact the purchaser s makng the payments thereon, a buyer
coud be found who woud be wng to pay somewhere between 200 and 250
for the contract.
(3) In uy 1950, the ta payer purchased a new home for 1 ,500 ocated at
500 Whte venue, , Oho. e pad 2,000 cash, 000 of
whch was borrowed from The Reaty Compauy, and the baance was fnanced
by a and contract n the sum of 12,500 gven to the seer. Subsequenty, the
ta payer secured an ,000 frst mortgage on the property and pad ths sum
on the and contract, whch together wth monthy payments made by hm, has
reduced the and contract to ts present vaue of 3,575. The frst mortgage
bears nterest at the rate of percent and the and contract at 5 percent per
annum. The property was purchased n Mrs. Doe s name. It appears that f
an mmedate sae were made of the property, no more than 12,575 coud be
reazed, for the reason that t was purchased new by the ta payer and there are
a number of other homes of the same type n the ocaty, unsod. purchaser,
to be nterested n the ta payer s property, very key woud demand a substan-
ta dscount, otherwse such a purchaser woud buy one of the new homes.
( ) C, Inc., was ncorporated n pr 19- for the purpose of engagng n
the stock brokerage busness. The ta payer s orgna Interest n the company
was one-fourth, but he ater returned some stock to be ssued as a bonus wth
preferred stock whch the company ssued to provde workng capta. t the
tme of the ssuance of the preferred stock, the ta payer was fnancay unabe
to acqure any of t hmsef. In 1950, a dsagreement arose between the prncpa
actve offcers and stockhoders of the corporaton and Mr. Green, one of the
prncpa stockhoders, e pressed hs desre to wthdraw from the company and
se hs stock. The ta payer, on October 30, 1950, purchased 25 shares of the
preferred stock hed by Mr. Green at ts par vaue of 100 per share, or 2,500.
The ta payer rased the amount necessary for the purchase of ths stock by per-
mttng 2,000 of hs saary to reman n the busness and aso by the appcaton
of a sma dvdend receved on hs stock aganst the purchase prce. Subse-
quenty, the ta payer sod 7 shares of the preferred stock back to the frm for
700 and purchased 300 shares of common stock at 2.23 a share. The preferred
stock and addtona common stock was purchased by Mr. Doe n hs wfe s name.
The baance sheet of C, Inc., as of March 31,1953, foows:
ssets
Cash 1 ,6 2. 5
onds and stocks 72,0 9.29
ccrued nterest recevabe 37 .33
Notes recevabe offcers and empoyees 11.7 7.50
ccounts recevabe (customers) 63,527. 6
Investments . 975. ( )
furnture, f tures and equpment 9,20 .7
Prepad e pense 957.
Treasury stock ,101.36
Surpus (oss) (12,2 9.3 )
1 9, 913. 92
Labtes
ccounts payabe 76,622. 6
Notes payabe bank 50,100.00
Reserve for ta es State and Federa 1952 1,05 . 91
Saesmen drawng account 1,379. 33
Reserve for deprecaton 3,600. 0
Soca securty mpoyees abty 2 . 37
Soca securty C, Inc 2 .37
Preferred stock ( 71 shares Par vaue 100) 7,100.00
Common stock (3,000 shares Cass and 7,000 shares Cass ) 10.000.00
1 9,9a 92
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517
summary of the operatng statement of the C, Inc., for the months
ended March 31,1953, foows:
Gross earnngs 67, 395. 56
Less: penses 91,20 .03
Net oss 23, 12. 7
The ta payer stated that he antcpated the oss of the C, Inc., for the
caendar year 1953 woud e ceed 26,000.
From the foregong baance sheet, t s ceary evdent that the common stock
has no vaue based on book fgures and that the preferred stock s worth sub-
stantay ess than ts par vaue. Furthermore, ths company s a persona
servce corporaton and any sae of the stock woud necessary have to be nnde
to one of the other stockhoders, snce an outsde purchaser woud not be n-
terested n acqurng the stock uness he coud obtan contro of the brokerage
busness.
The ta payer paces a far market vaue on the 1 shares of preferred stock of
900 and no forced sae vaue. It appears that one of the other stockhoders
mght be wng to pay 500 for ths stock f sezed and offered for sae. ny
vaue paced on stock of ths character s hghy specuatve.
(5) s prevousy stated, the ta payer s orgna nterest n C, Inc., was
one-fourth, or 2,500 shares. e ater returned 50 shares to the corporaton to
be ssued as a bonus wth the preferred stock whch the corporaton ssued
to provde workng capta. In December 1950 he sod 350 shares at book vaue
of 2.50 per share, whch reduced hs hodngs to 1.700 shares. e ater re-
acqured 1 0 shares at the same prce. In the atter part of 1951, the ta -
payer sod 7 shares of preferred stock to the corporaton and purchased an
addtona 300 shares of common stock at 2.23 per share. The ta payer at the
present tme, therefore, owns 2,1 0 shares of the common stock.
It s noted that there has been some actvty n the purchase and sne of
the common stock of the corporaton, but ts actvty merey represents read-
|ustments of stock hodngs between the prncpa offcers and stockhoders.
The recent ad|ustments resuted from a dsagreement between the offcers and
the retrement from actve partcpaton n the affars of the corporaton of
Mr. Green.
The ta payer, n hs sworn statement of assets and abtes, sted the com-
mon stock as havng no far market or forced sae vaue. Ths tem appears to
be correcty vaued.
n anayss of the above shown baance sheet of C, Inc., as of March 31,
1953, ceary ndcates that based on book vaues, the stock has no vaue. Fur-
thermore, wth an operatng oss for the -month perod ended March 31, 1953, of
23, 12. 7, and an antcpated oss for the caendar year 1953 of 26,000 or more,
the future prospects of the corporaton do not appear very brght.
The ta payer submtted two etters dated May 20, 1953, and May 21, 1953,
from offcers of C, Inc., and Mr. ack, vce presdent of the Frst Natona
ank, respectvey, for the purpose of showng the market vaue of the common
stock. The pertnent parts of these etters are quoted beow:
Wth reference to the shares of Cass common stock of C, Inc., whch
are owned by Mr. Doe we (offcers of company) wsh to advse you that n our
opnon the ony market for ths stock s among the other stockhoders of the
company. The company s dependent u on the persona actvtes of ts of-
fcers for Its profts and we do not beeve the stock coud be sod for any prce
other than that whch we, as offcers, were wng to pay for t. We therefore be-
eve t has ony a nomna vaue at the present tme and that ts vaue woud
be materay essened by reason of the severance of Mr. Doe s reatons wth
the company.
We have your etter of May 20 statng that you are negotatng wth the
Drector of Interna evenue n regard to a ta cam for 1950 ncome ta , and
that n your negotatons you have represented to the Drector that the Cass
common stock of C, Inc., has no vaue-as coatera to a oan at ths bank;
and you ask that we so ndcate to you.

Ton are correct n your statement n that we shoud have to consder that
such stock woud hare no market whatsoever, outsde of the present stoch-
2G335 53 -3
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51
hoders, possby ten n number, a of whom are actvey engaged n the operaton
of the busness. It s possbe that we mght end you a nomna amount say,
a few hundred doars and take the stock as coatera; but, even n such a
case, the oan woud be consdered by us as based upon your character and
reputaton rather than upon the possbe reazabe vaue of the coatera n
the event you dd not pay the oan.
The ta payer owns ony Cass common stock. The snge dfference between
Cass and Cass stock s a preference as to dvdends. oth stocks share
equay n the event of dssouton.
(6) The ta payer, owns a 19 6 Pymouth automobe whch has an estmated
forced sae vaue of 300.
(7) statement of the ta payer s fe nsurance poces s as foows:
Poky mount Lean rau Loan t| rttsf
Y Z Company 10, 000 , 61. 7 , 61. 7 None
f 1,000 100. 00 100
M N Company 5, 000 Term pocy None
. 2,500 Term pocy None
( ) The househod furnture has been acqured over a perod of 25 years. It
conssts of the usua furnture found n a modest home. The ta payer owus no
vauabe antques, curos, tapestres, etc. It s estmated the furnture bas a
forced sae vaue not n e cess of 500. Under secton 361)1 of the Interna
Revenue Code the ta payer s entted to an e empton of 300, thus ndcatng
a reazabe equty n ths asset of appro matey 200.
(9) , (10), (11), and (12) These abtes represent unsecured debts whch do
not have prorty over the Government s ta cam.
(13) and (1 ) These tems were fuy e paned under tems 3 and 7.
(15) Ths tem represents the unpad Income ta abty made the sub|ect
of the offer n compromse.
s prevousy stated, the ta payer s actvey engaged as presdent of the
brokerage frm of C, Inc. s gross ncome for the years 1950, 1951, and 1952
amounted to ,600, ,500, and ,000, respectvey. The evdence of record
ndcates that C, Inc., showed a substanta ncrease n busness for the years
1951 and 1952 whch enabed the stockhoders to ncrease ther saares. For the
-month perod ended March 31,1953, however, the fe ndcates that the corpora-
ton had suffered a severe oss (appro matey 2 ,000). The ta payer stated at
the conference that t was unkey that the actve off ers and stockhoders, of
whch he s one, w receve n e cess of the basc saary of 500 per month
for the year 1953. e further stated that t may be necessary to substantay
reduce ther compensaton.
statement of the ta payer s recepts and dsbursements for the 12 months
ended March 31,1953, s as foows:
Recept
Saary 7, 500
Dvdends 920
Loans from banks c 50
Tota recepts 9, 270
DsburMcmenU
Cub dues, etc 22
Ta es 3
Traveng necessary to busness L0O0
Insurance d 700
Payments on home 2,0 0
Interest 20
Lvng e penses 3, 05
Tota dsbursements 9, 270
Ts t. m Incudes saary for 0 montbs at the annua rate of ,000 and 3 months
at the rate of 16.000.
These dvdends were receved by the ta payer from the C. Inc., as of September 30,
1952, and apped on Ihe purchase prce of ts stock.
Ths tem represents two unsecured oans obtaned n 1952; 250 from the Frst
Natona ank and r (o from the Second Natona ank.
Represents parta payment of fe Insurance premums after appyng avaabe cash
surrender vaue remanng n poces Ths tem aso Incudes accdent Insurance premums,
Insurance on home, and nsurance on automobe.
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519
I . Concuson
n e amnaton of the baance sheet shown heren dscoses that the vaue of
te ta payer s equty n assets s not n e cess of 2, 00, and there s consderabe
doubt as to whether or not such an amount woud be reazed from a forced sae.
The ta payer s earnngs, whe comparatvey hgh for the years 1951 and 19. 2,
have been reduced for the year 1953, n vew of the serous oss sustaned by the
brokerage rm of whch the ta payer s a member. The ta payer s saary snce
anuary 1, 1953, has been at the rate of 500 per month, or 0,000 per annum.
Due to the nature of the ta payer s busness, stock brokerage, t s essenta
that he mantan busness contacts, necesstatng membershp n soca cubs and
dong consderabe entertanng n connecton wth securng accounts for the rm.
Under such crcumstances, t does not appear that the ta payer can dmnsh
certan e penses to any apprecabe e tent and st mantan hs busness con-
tacts. Consderng the nature of the ta payer s assets and the e pense of a
forced sae, the amount offered appears to be at east 3,000 n e cess of the tota
forced sae vaue of hs assets avaabe for the payment of the ta abty and
gves adequate consderaton to hs present earnng capacty. In addton to the
foregong, the ta payer has e ecuted the foowng coatera agreement:
C OMMISSION OF INT RN L R NU ,
Washngton, D. C.
The undersgned ta payer has submtted an offer dated ,
n the amount of 5,000, to compromse ncome ta abty, ncudng nterest,
for the year 19 . The purpose of ths etter s to amend the above offer to
provde that as further consderaton for ts acceptance ths proponent e pressy
agrees:
(1) It s understood and agreed that In addton to the reguar annua nsta-
ments specfed n the offer I w pay out of annua ncome begnnng wth the
caendar year 195 addtona amounts each year as foows:
(a) Nothng wth respect to the frst 7,500 of annua ncome,
(6) 20 per cent of annua ncome n e cess of 7,500 and not n e cess of
10,000,
(c) 30 per cent of annua Income n e cess of 10,000 and not n e cess of
15,000, end
(d) 50 per cent of annua ncome n e cess of 15,000.
(2) It s understood and agreed that the term annua ncome as vsed heren
means ad|usted gross ncome as defned n secton 22(n) of the Interna Revenue
Code, pus any porton of capta gans whch are not sub|ect to ta , pus other
nonta abe ncome, and ncudes a earnngs, profts, or gans from any source
whatsoever, ess the amount of Federa ncome ta pad whch s appcabe to
such ncome and payments made on offer In compromse.
(3) It s understood and agreed that the annua payments provded for n
the foregong paragraphs sha be pad to the Drector of Interna Revenue,
wthout notce by hm, on or before March 15 ne t foowng the cose of the
caendar year; such payments to be accompaned by a tworn statement whch
sha refer to ths agreement and set forth the annua Income computed n
accordance herewth. In the event my annua ncome s not suffcent to requre
a payment under the terms of ths coatera agreement I sha nevertheess
furnsh tbe Drector a statement of my ncome for the precedng caendar year.
my books, records, and accounts w be open at a reasonabe tmes for
Inspecton to verfy the ncome set forth n the statement.
( ) It s understood and agreed that the aggregate of a the reguar specfed
Instaments pus the addtona amounts, whch may be pad from ncome under
the terms of ths coatera agreement, sha not e ceed 13,933.70 pus Interest
on each nstament to the date of payment.
(5) It s understood and agreed that Interest sha be pad wth respect to any
annua payments based on ncome the same as s requred to be pad on the
reguar annua nstaments.
(6) s a part of ths offer, t s agreed that upon notce of acceptance of the
offer n compromse the undersgned ta payer waves any and a rght, n the
event of defaut n payment of the annua payments herenabove descrbed, to
contest n court or otherwse the amount of the abty sought to be compro-
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520
msed, and that n the event of such defaut the Commssoner of Interna
Revenue, at hs opton, (1) may proceed Immedatey by sut to coect any
payment or payments n defaut, or (2) may dsregard the amount of ths offer
and appy a amounts prevousy pad hereunder aganst the amount of the
abty sought to be compromsed and may, wthout further notce of any knd,
assess and/or coect by dstrant or sut (the restrctons aganst assessment
and/or coecton beng specfcay waved) the baance of such abty.
(7) It s understood that ths agreement sha be of no force or effect uness
the offer n compromse dated s accepted.
ohn Doe
In vew of the foregong, It s recommended that the offer be accepted.
I IT G
(Re|ecton etter Ta cases)
(On offce etterhead)
(Sautaton)
Ths refers to the (orgna) (amended) offer of , submtted to
compromse your ta abty, ncudng nterest (and
ad vaorem penaty), for the (fsca) year(s) (perod
).
Carefu consderaton has been gven to the above offer and It s hereby re|ected
for the reason that the ta s egay due and (the tota amount) (an amount
n e cess of that offered) (s) (appears to be) coectbe. There s no authorty
n the aw for the acceptance of an offer n compromse of a ta egay due (f t
can he coected) (for an amount ess than can be coected).
It s requested that you prompty take up the matter of payment of the a-
bty wth ths offce.
ery truy yours,
(On carbons ony):
1 cc sst. Commssoner (Operatons).
I IT 1
(Re|ecton etter Penates ony)
(Sautaton)
Ths refers to your offer of submtted n compromse of (here
state nature of penay and year or other perod nvoved).
( ere state the bass of the re|ecton, such as, You have subsequenty estab-
shed reasonabe cause for deay n fng your return ; or The amount of the
offer s nsuffcent to compromse the penaty Incurred, etc.)
Your offer s therefore re|ected and a check coverng the amount submtted s
encosed.
ery truy yours,
(On carbons ony):
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521
I IT I
(Wthdrawa etter Depost apped on abty)
(Sautaton)
Ths refers to the offer of 1,000 submtted to compromse your Income ta
abty, ncudng nterest, for the year 19 9.
Ths offce s n recept of a etter dated November 1, 1952, from you, whch
In vew of the fact that I have been advsed that my offer cannot be
recommended for acceptance, I hereby wthdraw the sad offer and request
that you appy the 1,000 pad on the offer aganst the abty owng for
the year 19 9.
In vew of the above, the offer s hereby consdered as wthdrawn and the
amount deposted wth the offer w be apped aganst your unpad abty.
If you have not aready done so, It s requested that you prompty take up the
matter of payment of the baance due on the abty wth ths offce.
ery truy yours,
(On carbons ony) :
I IT
(Wthdrawa etter Depost refunded)
(Sautaton)
Ths refers to the offer of 1,000 submtted to compromse your ncome ta
abty, ncudng nterest and ad vaorem penaty for the year 19 9.
Ths offce s n recept of a etter dated November 1, 1952, from you, whch
1 hereby wthdraw my offer of 1,000 to compromse my unpad ncome
ta abty for the caendar year 19 9.
In vew of the above, the offer s hereby consdered as wthdrawn.
If you have not aready done so, t s requested that you prompty take up
the matter of payment of the abty wth ths offce.
ery truy yours,
(On carbons ony):
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522
I IT
( cceptance etter Denquency penaty)
(On approprate etterhead)
(Sautaton)
Ths refers to your offer submtted n compromse of denquency penaty
abty, as shown beow :
Ta return(s) nvoved:
Perod(s) :
mount of offer:
mount of denquency penaty abty:
The offer, wth the waver or refund provsons mted to the amount whch
may have been pad on the penaty, has been accepted.
The amount offered havng been pad, the case Is consdered cosed, and no
further acton on your part s necessary.
ery truy yours,
(On carbons ony):
I IT L
( cceptance etter Cash offer)
(Sautaton)
Ths refers to the ( amended) cash offer of ,
whch, together wth waver of refunds and other provsons on Form 656, was
submtted to compromse your abty for .
The offer referred to above has been accepted.
ery truy yours,
(On carbons ony) :
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523
I IT M
( cceptance etter Instament offer)
(Sautaton)
Ths refers to the ( amended) offer of , whch,
together wth waver of refunds, nterest and defaut agreement, and other
provsons on Form 65( -0, was submtted to compromse your abty for
Under the terms of the above-ndcated offer the sum of s to
be pad as foows:
Interest at the rate of 6 percent per annum s payabe on a deferred payments
from the date of ths etter unt the respectve
payments are made n fu.
s a part of ths offer you agree that upon notce to you of the acceptance
of ths offer n compromse of the abty aforesad, you sha have no rght n
the event of defaut n payment of any nstament of prncpa or nterest due
under the terms of the offer, to contest n court or otherwse the amount of the
abty sought to be compromsed and that n the event of such defaut the
Commssoner of Interna Revenue at hs opton, (1) may proceed mmedatey
by sut to coect the entre unpad baance of the offer or (2) may dsregard the
amount of such offer and appy a amounts prevousy pad thereunder aganst
the amount of the abty sought to be compromsed and may, wthout further
notce of any knd, assess and/or coect by dstrant or sut (the restrctons
aganst assessment and/or coecton beng specfcay waved) the baance of
such abty.
The offer referred to above has been accepted upon the terms proposed. De-
ferred payments shoud be made to ths offce.
ery truy yours,
(On carbons ony):
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52
I IT N
(Defaut etter Ta cases)
(On approprate etterhead)
(Sautaton)
Ths refers to a etter dated n whch you were advsed
that your (orgna) (amended) offer of , together wth waver
of refunds, nterest and defaut agreements, and other provsons on Form 656-C
to compromse your abty for for the (year) (perod),
had been accepted upon the terms proposed.
Under the terms of the above-mentoned offer, the sum of
was to have been pad as foows: ( uote terms shown on offer) together
wth nterest at the rate of 6 percent per annum on a deferred payments from unt the respectve payments are made In fu.
The records of ths Offce Indcate that ony has been pad on
the offer.
Snce you have faed to make payments In accordance wth the terms of the
offer as set forth n etter dated there s an absence of
mutuaty n the ntenton of the partes and, therefore, no compromse was
effected. The arrangements ookng to the compromse of your ta abty are
therefore termnated.
The defaut agreement contaned In the offer provdes that In case of defaut
the (Commssoner) (Drector) of Interna Revenue, at hs opton, may ds-
regard the amount of such offer and appy a the amounts prevousy pad
thereunder aganst the amount of the abty sought to be compromsed and may,
wthout further notce of any knd, assess and/or coect by dstrant or sut
(the restrctons aganst assessment and/or coecton beng specfcay waved)
the baance of such abty.
It s requested that you prompty take up the matter of payment of the abty
wth ths offce.
ery truy yours,
(On carbons ony):
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525
I IT O
(Speca depost account etter Defauted offer)
Commssoner of Interna Revenue,
ttenton: Coecton Dvson,
Washngton 25. D. O.
Sub|ect: Offer In compromse termnated
In re: (Name)
( ddress)
nd of ta :
Tear or perod:
The above-named ta payer has defauted In payment of Instaments due under
the terms of (hs) (ts) (orgna) (amended) offer of (
cash wth offer, and nstament payments n the tota amount of ),
as ndcated n the attached etter to the ta payer.
You are advsed that the amount deposted wth the offer (and the nstaments
pad) have been transferred from the Speca Depost ccount to Interna Revenue
Coectons and apped aganst the ta payer s outstandng abty.
ncosure:
1 cc etter to ta payer.
Note. The orgna and one copy of ths etter w be attached to the drector s
monthy ccount Current.
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526
I IT P
( oucher for speca depost account)
SC DUL OF OFF RS
IN COMPROMIS
Cass of ta
Commssoner or Interna Revenue,
ttenton: Coecton Dvson
Washngton 25, D. C.
The offers n compromse (Forms 656) sted beow have been receved.
Form No. 79
TR SURY D P RTM NT
Interna Revenue Servce
pproved by Comptroer Genera U. S.
Mar. 27, 192
Number of tems
Tota amount,
From:
(Offce ocaton)
Drector.
Date
Sera Number
on Document
Name or Proponent
mount
For Use or Genera ccount-
ng Omc
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527
I IT
(Schedues re|ected offers)
SC DUL OF R CT D OR WIT DR WN OFF RS IN
Form No. 7 79 COMPROMIS
TR SURY D P RTM NT
Interna Revenue ureau
pproved by Comptroer Genera U. .
Mar. 27,1925
ttenton: Coecton Dvson,
Washngton 25, D. C.
From: Drector of Interna Revenue
Schedue No..
Page No.
Number of pages
Number of tems
Tota amount, .
(Offce ocaton)
The foowng offers n compromse (Form 656) have been e amned and re-
|ected or wthdrawn as of the respectve dates opposte each tem beow. The
respectve amounts have been refunded to the persons sted, under the provsons
of secton 3971(b) of the Interna Revenue Code.
Date
Drector.
Number
or Item
Date or
Rk| ecton
Sera
Number on
Document
Name or Person ntted
to Refund
mount
Check
No.
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52
I IT
(Schedue offers accepted by drectors)
SC DUL OF CC PT D OFF RS IN COMPROMIS
Form No. 7 7
TR SURY D P RTM NT
Interna Revenue ureau
pproved by the Comptroer Genera, T . .
Mar. 27,1 25
_ ttenton: Coecton Dvson,
Washngton 25, D. C.
From: Drector of Interna Revenue
Schedue No_
Page No_.
Number of pages_
Number of tems_
Tota amount, .
Check No.
tota of ths schedue
(Offce ocaton)
.coverng
The foowng offers n compromse have been e amned and accepted as of the
respectve dates opposte each tem beow. The respectve amounts have been
wthdrawn from the speca depost account and deposted as nterna revenue
coectons, n accordance wth the provsons of secton 3971(b| of the Interna
Revenue Code.
Drector.
Number or
Item
Date or
CC NC
Sera
Number on
Document
Name of Person Whose Labty as
een Compromsed
mount
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P RT III. MISC LL N OUS
. It. 56 . PU LIC L W , IG TY-T IRD CONGR SS
C PT R , FIRST S SSION
n ct To contnue unt the cose of une 30,195 , the suspenson
of certan mport ta es on copper.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That the ct entted
n ct to suspend certan mport ta es on copper , approved May 22,
1951 (Pubc Law 3 , 2d Cong.) C. . 1951-1, 1 , s hereby
amended by strkng out February 15,1953, or the termnaton of the
natona emergency procamed by the Presdent on December 16,
1950, whchever s earer and nsertng n eu thereof une 30,
195 .
pproved February 1 ,1953.
Ct. D. 1759
1. Res. udcata stoppe by udgment.
The Ta Court, pursuant to stpuatons fed, entered forma
decsons that there were no defcences for the ta abe years In
queston. The ssue was the bass for deprecaton of ta payer s
easehod property. The Court hed no hearng, no stpuatons of
fact were entered nto, no brefs were fed or argument had. Ta
payer ater broug .t sut n Dstrct Court on the same ssue for sub-
sequent years, camng that the Ta Court decsons were res
|udcata of the ssue. ed: The Ta Court decsons were ony
a pro forma acceptance by t of an agreement between the partes to
sette ther controversy. On the record, It s not determnabe
whether the agreement was based on the merts or on some co-
atera consderaton. stoppe by |udgment Incudes matters n
a second proceedng whch were actuay presented and determned
In an earer sut. |udgment entered wth the consent of the
partes may nvove a determnaton of questons of fact and aw
by the court, but uness a showng s made that that was the case,
the |udgment has no greater dgnty, so far as coatera estoppe
Is concerned, than any |udgment entered ony as a compromse of
the partes.
2. Decson Reversed.
Decson of the Unted States Court of ppeas, ghth Crcut,
199 F. 2d 12 (1952), reversng decson of the Unted States Dstrct
Court, . D. Mssour, 97 F. Supp. 595 (1951), reversed.
Supreme Court of the Unted States
Unted States of merca, pettoner, v. Internatona udng Company,
a Corporaton
On wrt of certorar to the Unted States Court of ppeas for tbe ghth Crcut
May , 1953
OPINION
Mr. ustce Dougas devered the opnon of the Court.
Respondent, a Mssour corporaton, owns a easehod of a pot of ground
together wth an offce budng erected on t. In 19 2 the Commssoner assessed
(r,29)
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Msc. 530
defcences aganst respondent for the ta abe years 1933, 193 , and 1939,
determnng tat t had camed an e cessve vaue as ts bass for deprecatng
the property. These defcences were predcated on a bass of 3 5,000 amortzed
over the fe of the ease. Respondent, who camed a base of 00,000 amortzed
over a shorter perod, fed pettons for revew wth the Ta Court. Meanwhe
respondent fed a petton under ch. of the ankruptcy ct whch ended
In a contnued pan of reorganzaton. though the coector fed proof of
cam for the defcences n those proceedngs, he ater wthdrew the cam
under a stpuaton that the wthdrawa was wthout pre|udce and dd not
consttute a determnaton of or pre|udce the rghts of the Unted States
to any ta es wth respect to any year other than those nvoved n the cam.
Shorty thereafter respondent and the Commssoner fed stpuatons n the
pendng Ta Court proceedngs statng that there Is no defcency n Federa
ncome ta due from respondent for the ta abe years In queston, that the
ta abty for each of the years was n, and that the |eopardy assessment
was abated.1 The Ta Court, pursuant to the stpuaton, entered forma
decsons that there were no defcences for the ta abe years n queston. The
Ta Court, however, hed no hearng; no stpuatons of fact were entered nto;
no brefs were fed or argument had. The ssue as to the correctness of the bass
of deprecaton used by respondent was, however, the bass of ts appea to the Ta
Court. nd so, when the Commssoner n 19 assessed defcences for the years
19 3,19 , and 19 5, chaengng once more the correctness of the bass of deprec-
aton, respondent pad the defcences and brought ths sut to recover, aegng
nter aa that the decsons of the Ta Court for the years 1933, 193 , and 1939
were res |udcata of the fact that the bass for deprecaton was 00,000. The ds-
trct court hed aganst respondent. 97 F. Supp. 595. The court of appeas re-
versed. 199 F. 2d 12. ecause of a confct between that decson and rapp
v. Unted tvtes, 177 F. 2d 1, decded by the Court of ppeas for the Tenth
Crcut, we granted certorar.
The governng prncpe s stated n Cromwe v. County of Sac, 9 U. S.
351, 352-353. |udgment s an absoute bar to a subsequent acton on the
same cam.
ut where the second acton between the same partes s upon a dfferent
cam or demand, the |udgment n the pror acton operates as an estoppe
ony as to those matters n ssue or ponts controverted, upon the determnaton
of whch the fndng or verdct was rendered. In a cases, therefore, where
It s sought to appy the estoppe of a |udgment rendered upon one cause of
acton to matters arsng n a sut upon a dfferent cause of acton, the nqury
must aways be as to the pont or queston actuay tgated and determned
n the orgna acton, not what mght have been thus tgated and determned.
Ony upon such mattt rs s the udgment concusve n another acton.
nd see Tat v. Western d. II. Co., 2 9 . . 620, 623 Ct. D. 6 3. C. . II-1,
351 (1933) 1; Mercod Corp. v. Md-Contnent Co , 320 U. S. 661,671; Commssoner
v. Stamen, 333 . S. 591, 597-59 Ct. D. 169 , C. . 19 -1, 7 . stoppe by
|udgment, or coatera estoppe as t s often caed, s appcabe n the federa
ncome ta fed. 2 at v. Western Md. R. Co., supra, 62 ; Commssoner v.
Sunncn, supra, 59 .
We concude that the decsons entered by the Ta Court for the years 1933,
193 , and 193 ) were ony a pro forma acceptance by the Ta Court of an agree-
ment between the partes to sette ther controversy for reasons undscosed.
There s no showng ether n the record or by e trnsc evdence (see Russe
v. Pace, 9 U. . 000. 00 ) that the ssues rased by the peadngs were
submtted to the Ta Court for determnaton or determned by that court.
They may or may not have been agreed upon by the partes. Perhaps, as
the court of apens nferred, the partes dd agree on the bass for deprecaton.
Perhaps the settement was made for a dfferent reason, for some e gency
The tpuntoa for the year 1033, whch Is typca, reads as foows:
It s hereby stpuated tha there s no defcency n Federa Income ta due from the
pettoner fur the ta abe year 1033 and that the foowng statement shows the pettoner s
Federa ncome ta abty for the ta abe year 1U33 :
Ta nty None
ssessment t|copardy) : anuary 23, 19 2 (not pad) S2, 1 .12
ssessment to be abated.
2,1 .12
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531
I Msc.
arsng out of the bankruptcy proceedng. s the case reades us, we are
unabe to te whether the agreement of the partes was based on the merts
or on some coatera consderaton. Certany the |udgments entered are res
|udcata of the ta cams for the years 1933, 193 and 1939, whether or not
the bass of the agreements on whch they rest reached the merts. ut uness
we can say that they were an ad|udcaton of the merts, the doctrne of
estoppe by |udgment woud serve an un|ust cause: t woud become a devce
by whch a decson not shown to be on the merts woud forever forecose
Inqury nto the merts. stoppe by |udgment ncudes matters n a second
proceedng whch were actuay presented and determned n an earer sut.
See Commssoner v. Sunnen, supra, 59 . |udgment entered wth the consent
of the partes may Invove a determnaton of questons of fact and aw by
the court. ut uness a showng s made that that was the case, the |udgment
has no greater dgnty, so far as coatera estoppe s concerned, than any
udgment entered ony as a compromse of the partes.
Reversed.
L RG CIG RS
Large cgars manufactured n and removed from domestc factores durng the
month of October 1952, compared wth the same month of 1951
1962
1961
Removed:
Ta -pad
57 , 962, 332
562,963,2 3
Cass
2,995,615
17,20 , 576
210,090, 29
59, 52. 22
23 ,701,939
11. 710, 7 2
0 0.15
2,012, 2
22. 566,365
1 6, 2 1. 200
50. 597, 61
2 0,693, 60
11,77 ,911
7.319,790
Cass C
Cass D
Cass
Cass F
Cass O
Tota ta-pad
6 ,195,550
17,309,326
627,250, 01
5, 6 ,972
Ta -free
Note. These f|rures are sub|ect to revson unt ncorporated n the tota for the caendar year to be
pubshed n the Commssoner s annua report.
TO CCO ND SNUFF
Tobacco and snuff manufactured n and removed front domestc factores durng
the mmth of November 1952, compared wth the same month of 1951
Manufactured
Ta -pad | Ta -free
Removed
1962
1961
1962
1961
1952
1961
Pounds
Pounds
3, 775, 73
76, 23
2 , 223
3, 356,636
9, 2 2.676
3, 52 , 369
Pounds
Pounds
Pounds
176,666
115,006
Pounds
63,5 9
3 ,935
Pne
2, 37, 206
02,003
223. 39
2.91 .99
6, 2. 5 3
2,902.66
2,633, 56
290.631
225,90
2, 69, 03
6, 6 , 133
2, 9 5, 5 3
3,603, 231
37,171
23 , 0 7
3, 110, 2
9,039.697
3, 571. 370
Twst
Scrap chewng
2,92
337,272
. 500
5,5
210,377
6. 79
Smokng
Snuff
Tota
16,122,7 3 20,62 ,011
15, 653,1 5
19,996, 9 0
036,95
315,2
Note. These fgures are sub|ect to revson unt ncorporated n the tota for the caendar year to be
pubshed n the Comm.ssoner s annua report.
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Msc. 532
CIG R TT S ND SM LL CIG RS
Cgarettes and sma cgars manufactured In and removed from domestc fac-
tores durng the month of November 1952, compared wth the same month
of 1951
Sma cgarettes
Large cgarettes
Sma cpars
1952
1961
1962
1961
1962
1951
Manufactured
3 , 62,713,209
30, 3 6, 966, 17
3, 07,775,6 7
3 ,017, 7, 0
33,993, 660, 73
3,707,965,156
12 ,260
166,760
00
65,300
55,700
600
f, 109. S 0
6,252,150
I95,U00
6,62 .390
6, 96,220
12,000
emovcd ta free .
Note. These fpures are sub|ect to revson unt ncorporated n the tota for the caendar year to be
pubshed n the Commssoner s annua report.
TO CCO, SNUFF, CIG RS, CIG R TT S, TC.
Rev. Ru. 11
The pubcaton n the Interna Revenue uetn of the tabes cover-
ng the manufacture and wthdrawa of (1) tobacco and snuff, (2)
cgarettes and sma cgars, and (3) arge cgars s now dscontnued.
In the future, such tabes w be prepared as the necessary statstca
data become avaabe and w be furnshed upon request to those
nterested. Requests to be paced on the mang sts, specfyng the
partcuar tabe or tabes desred, shoud be addressed to the Com-
mssoner of Interna Revenue, Washngton 25, D. C, for the attenton
of the Informaton Ofcer.
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IND
Paw
batement of ta , members of rmed Forces, Reguatons 111 amended.. 26
bbrevatons and symbos, dstrct commssoners and ppeate Dvson
offces 9
ccessores, automobe, ta abty of ftng |acks 02
ccountng perod, change n, annuazaton of sef-empoyment ncome .
d vaorem property ta es on mnera-bearng ands pad by essee 173
ddtons to bad debt reserves by deaers n persona property reportng
ncome from nstament saes on the nstament method, Reguatons
130 amended 35
d|usted bass, dscharge of corporate ndebtedness, Reguatons 111
amended 2
d|ustment of bass of property for deprecaton, etc., processng of eec-
tons fed by ta payers 171
d|ustment of bass of property for deprecaton, obsoescence, amortza-
ton, and depeton, Reguatons 111 amended 163
dmnstraton and procedure:
ursdcton reatng to offers n compromse 0
Powers of attorney n certan Federa ta matters 95
ffated corporatons:
Consodated ncome ta returns, caendar year 1952 and fsca year
endng n 1953 227
coho ta :
cohoc quors, wthdrawas free of ta or wth beneft of drawback
by certan foregn arcraft and vesses 2
Dsted sprts, abeng and advertsng of, Reguatons No. 5
amended 31
Federa coho dmnstraton ct, revson of basc permt pro-
cedure
Gaugng, dsted sprts and acoho, Reguatons 3, , 5, 10, 15,
Gaugng Manua, and Msceaneous Reguatons Reatng to Lquor
amended to permt removas of dsted sprts and acoho n buk
contaners at whoe or fractona degrees of proof 5
Instructons for recordng tare on Forms 1520 and 1619, Reguatons
10 amended 36
Rectfcaton of sprts:
Requrement for vodka recevng tanks at rectfyng pants, Regu-
atons 15 amended 0
arous trade names. Reguatons 15 amended 1
Removas, dsted sprts and acoho, Reguatons 3, , 5, 10, 15,
Gaugng Manua, and Msceaneous Reguatons Reatng to Lquor
amended to permt removas of dsted sprts and acoho n buk
contaners at whoe or fractona degrees of proof 5
Wnes, neutrazng, sterzng, and preservng agents 31
ens (nonresdents), ctzens of Guam, ta abe status 303
ens (resdent), e tenson of tme for fng decaratons of estmated ta . 97
mony, payments sub|ect to dstrant 7
mendments:
Gaugng Manua:
Sectons 1 6.20, 1 6.23 5
Mm. 66 1 (C. . 1951-1, 1) 29
Msceaneous Reguatons Reatng to Lquor:
Sectons 171.213, 171.217 5
Reguatons 3:
Secton 1 2. 05 5
20335 53 35 (533)
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mendments Contnued Pa
Reguatons :
Secton 1 3.515 - - 5
Reguatons 5:
Sectons 1 .561, 1 .565 5
Reguatons No. 5 ( coho Ta ct) 30
Reguatons 10:
Sectons 1 5.377, 1 5.377a (added), 1 5.576, 1 5.622, 1 5.660-.. 5
Sectons 1 5.5 , 1 5.590, 1 5.600, 1 5,601, 1 5.695 36
Sectons 1 5.1055, 1 5.1056 (added) 39
Reguatons 15:
Sectons 190.122, 190. 6 a 0
Sectons 190.216, 190.252, 190 36, 190.900, 190.900a (added),
190.900b (added), 190.903, 190.90 1
Secton 190.566 5
Reguatons 2 (19 2):
Sectons 130.0, 130.33, 130. , 130. 6 (added), 130. 7 (renum-
bered), 130.51, 130.53, 130.5 , 130.60(a) (added), 130.6 . 05
Reguatons 3:
Sectons 101.0, 101.1, 101.5, 101.1 , 101.15, 101.16. 12
Reguatons 105:
Secton 1.15. .- --- 391
Reguatons 10 :
Secton 6.2(c) 396
Sectons 6.13, 6.1 397
Reguatons 111:
Sectons 29.12-2, 29.12-5 (added), 29.25-3, 29.51-2, 29. 02-1.... 9
Sectons 29.22(a)-13(a), 29.22(b)(15)-1 (added), 29.23(a)-,
29.113 (a)-, 29.113(b)()- 30
Sectons 29.22(a)-23 (added), 29.101 (12)-1, 29.101 (12)-2
(added), 29.101(12)-3 (added), 29.101(12)- (added), 29.1 - . 110
Sectons 29.22(b) ( )-2, 29.23(k)-5, 29.23(r)- (added),
29.23(r)-2 (added), 29.23(dd)- (added), 29.101 (2)-,
29.101(2)-2 (added), 29.101( )-1, 29.101( )-2 (added),
29.101( )-3 (added), 29.110-1 (added), 29.113(b)()-
(added) 9
Sectons 29.22(b) (9)-, 29.22(b) (9)-2, 29.22(b) (10)-1, 29.113
(b)(3)-,29.113(b)(3)-2 2
Sectons 29.22(b) (13)-2, 29.15 -1 (added) 26
Sectons 29.23(m)-, 29.11 -1 - 5
Secton 29.23(q)- --- 55
Secton 29.23( )- 56
Sectons 29.33(aa)-, 29. 02-1 60
Sectons 29.2 -10 (added), 29.113(b)(1)-1, 29.117-7 65
Sectons 29. 2-1, 29.275-1 303
Sectons 29. 7-1, 29.10 - (added), 29.10 -5 (added), 29.10 -6
(added), 29.10 -7 (added), 29.10 - (added), 29.10 -9 (added). 122
Secton 29.102- 119
Sectons 29.112(a)-, 29.112(h) 11)-1 (added), 29.112(b)()-2
(added), 29.112(g)-, 29.112(g)-2, 29.112(g)-5, 29.113(a)-2,
29.113(a) (23)- (added) 1 2
Sectons 29.112(f)-, 29.112(0-2, 29.112(0-3 (added), 29.112(n)-
1 (added), 29.113(a)(9)-,29.113(b)()-, 29.117- , 29.275-1... 1 6
Sectons 29.113(b)(1)-1, 29.113(d)- (added) 163
Sectons 29.117-1, 29.117-12 (added) 195
Secton 29.117-7 - 1 3
Secton 29.117-11 (added) 1 7
Sectons 29.122-1, 29.122-2, 29.122-3, 29.122- - 197
Sectons 29.127(c)-,29.127(d)-, 29.127(0-1, 29.131-1,29.275-1,
29.322-7 206
Sectons 29.131-1, 29.131- , 29.131- , 29.131-10 (added) 220
Sectons 29.153-2, 29.162-1, 29.162-3 (added) 253
Sectons 29.162-1, 29. 21-1 - --- 261
Sectons 29.165-3, 29.165- 2 9
Sectons 29.201-1, 29.201-5, 29.201-6, 29.202-2, 29.203 -1,
29.203 -2 - 297
Secton 29.361-1 -- --- 07
Secton 29.373-1 10
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535
mendments Contnued Pa
Reguatons 130:
Secton 0. 30-2... 122, 312
Secton 0. 33(a)-2 297, 320, 3 2
Sectons 0. 33(a)-2, 0. 33(b)-2, 0. 35-1, 0. 35- , 0. 35-5,
0. 35-6, 0. 3.5-7, 0. 3 - , 0. 0-1, 0- 2-1, 0. 2-3,
0. 2- (added), 0. 3-2, 0. -2, 0. 5-2, 0. 53-2 321
Secton 0. 33(a)-2(p) 30
Secton 0. 33(b)-2 3
Sectons 0. 35-1, 0. 59(a)- (added) 3 5
Sectons 0. 35-0, 0. 35-7, 0. 2-3 3 7
Sectons 0. -1, 0. -2, 0. S-3 352
Sectons 0. 9-3, 0. 5 -1.. 356
Secton 0. 53-2 5
Secton 0. 5 -1 9
Secton 0. 55-2 35
Secton 0. 59(b)- (added) 359
Secton 0. 59(c)- (added) 361
Sectons 0. 61-6, 0. 61-7, 0. 61- (added), 0. 62-1, 0. 02-
2, 0. 62- , 0. 62-9, 0. 62-15 (added), 0. 63-1, 0. 6 -1... 36
Sectons 0. 62-1, 0. 62-9, 0. 63-3 (added), 0. 6 -3 (added),
0. 7 -1 through 0. 7 -6 (added) 372
Treasury Decson 5279 (C. . 19 3, 952) as amended by Treasury
Decson 5610 (C. . 19 -1, 9 ) 77
Treasury Decson 5 7 (C. . 1952-1, 7)..
rmed Forces:
batement of ta , Reguatons 111 amended 26
Canceaton of ndebtedness of certan members upon death, sef-
empoyment ncome records 259
Compensaton for servce n combat zone. Reguatons 111 amended 26
Members, recognton of gan from sae or e change of resdence,
Reguatons 111 amended 1 6
ssets, nadmssbe or operatng for e cess-profts ta purposes, Regua-
tons 130 amended 321
ssgnments (ncome); servces rendered for beneft of e empt organzaton. 1
ttorney for the Government:
boton of the offce of 3
ttorneys and agents, powers of attorney n certan Federa ta matters 95
utomobes:
Parts or accessores, ta abty of ftng |acks 62
Purchased for purposes of easng, sod 1 5
verage base perod net ncome, computaton of, Reguatons 130 amended. 359
ad. debts, reserve for, mutua savngs banks, budng and oan assoca-
tons, and cooperatve banks, Reguatons 111 amended 9
anks:
Capta addtons or reductons for e cess-profts ta purposes, Regua-
Deductbty of Pennsyvana ta on shares 39
Insured, when amounts credted by Federa Depost Insurance Corpo-
raton are ncudbe n ncome 71
ase perod, catastrophe durng, Reguatons 130 amended 359
ase perod net ncome:
ased on growth, Reguatons 130 amended 321
Consodaton of newspapers, Reguatons 130 amended 361
ase perod years, substtute -month perod for ta payers havng a ta -
abe -year begnnng n 19 9 and endng after March 31, 1950, Regua-
ass:
d|ustments:
Certan assets of mutua savngs banks, budng and oan assoca-
tons, and cooperatve banks, Reguatons 111 amended 9
Unharvested crop, Reguatons 111 amended 65
ocaton of, to mortgaged property dstrbuted to stockhoders n a
compete corporate qudaton 162
Lfe nsurance poces contrbuted to a partnershp 23
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ass of property: Page
d|ustment for deprecaton, etc., processng of eectons fed by-
ta payers 171
d|ustment for deprecaton, obsoescence, amortzaton, and depe-
ton, Reguatons 111 amended 163
onds:
Interest. Seres F and G redeemed for Treasury bonds of 197 - 3 76
udng and oan assocatons, mutua savngs banks, cooperatve banks,
Reguatons 111 and 130 amended 9
usness e pensee:
Deductbe, acceptabty of an appro maton of actua e penses
attrbutabe to vng accommodatons furnshed managng partner
or owner 62
Lega e penses ncurred n connecton wth tgaton arsng out of a
contested eecton 36
C
Campagn e penses, canddate seekng to estabsh that he was fary
eected and entted to hod offce, deductbty 36
Canceaton of ndebtedness of certan members of rmed Forces upon
death does not emnate ncome 259
Capta:
ase perod, addton or reducton for e cess-profts ta purposes,
Reguatons 130 amended. 321
orrowed, determnaton of unearned premums for frst day of frst
ta abe year 3
Capta assets:
Stocks, coapsbe corporatons, Reguatons 111 amended 1 7
Treasury bs ssued for use n payment of ta 97
Capta e pendtures:
Costs of preventng probabe osses from future storms 1
Creaton fees pad to the sponsor of an nvestment pan 37
Capta gans and osses:
Crops, unharvested, sod wth and, Reguatons 111 amended 3 2
Deaers n securtes, Reguatons 111 amended 195
Improper accumuaton of surpus, Reguatons 111 amended 119
Property 117(|) treatment, automobes purchased for purposes of
easng 1 5
Property, sae of so 1
Sae of unmatured crops pror to December 31, 1950 179
Saes of vestock, Reguatons 111 amended 1 3
Unharvested crop sod wth and, Reguatons 111 amended 65
Carryover and carryback, net operatng oss, Reguatons 111 amended 197
Carryover, net operatng oss, Reguatons 130 amended 320
Casuaty (osses). (See Losses, casuaty or theft.)
Catastrophe durng base perod, Reguatons 130 amended 359
Chartabe contrbutons (see aso Contrbutons (deductbty)):
Corporatons, Reguatons 111 amended 55
Chna Trade ct corporatons, ncome ta due dates postponed 77
Cgarettes:
Manufactured n and removed from domestc factores:
November, 1952 and 1951 - 532
Cgars:
Large:
October, 1952 and 1951 531
Sma:
November, 1952 and 1951 532
Cams for refund or abatement:
Certan members of rmed Forces, ncome remans unchanged 259
Receved March 17, 1952 306
Cosng agreements, procedure regardng requests for
Coa royates, computaton for e cess-profts ta purposes n base perod,
Reguatons 130 amended. 321
Coapsbe corporatons, sae or e change of stocks, Reguatons 111
amended . 1 7
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Commttee on Practce: Page
boton of the offce of
Compensaton:
Members of rmed Forces, combat zone, Reguatons 111 amended.. 3
Retroactve ad|ustments resutng from suspenson of wage and saary 26
contros 0
Servces performed n Guam by Unted States ctzens 300
Compensaton (receved):
Saares, fees, etc., assgned to e empt organzaton 1
Sckness or n|ures, payments n e cess of workmen s compensaton. 20
Computaton of ta by coector, head of househod fng Form 10 0 ,
Reguatons 111 amended 9
Computaton of ta , fsca year ta payers, Reguatons 111 and 130
amended 122
Consodated returns; affated corporatons, caendar year 1952 and fsca
year endng n 1953..- 227
Constructve recept of ncome, banks, amounts credted by Federa Depost
Insurance Corporaton 71
Contracts, renegotaton, ad|ustment of ncome, and e cess-profts ta es.. 79
Contrbutons, chartabe, by corporatons, Reguatons 111 amended 55
Contrbutons (deductbty):
Trusts, contrbutng to chartabe or educatona organzatons beneft-
ng empoyees of creator corporaton 26
Cooperatve banks, budng and oan assocatons, mutua savngs banks,
Cooperatves:
empt, ta treatment for years begnnng after December 31, 1951,
Fanners marketng and purchasng assocaton further e tenson of
tme for fng return, Form 990-C for ta abe year begnnng n
1952 6
Corporatons:
ffated, consodated ncome ta returns, caendar year 1952 and
fsca year endng n 1953 227
Chartabe contrbutons, Reguatons 111 amended 55
Deducton for ta es under secton 102(d)(1)( ), I.R.C., effect of
net operatng oss carryback 120
Dstrbutons of stock pursuant to a pan of reorganzaton, Regua-
tons 111 amended 1 2
Domestc, ncome from foregn corporatons for technca, engneer-
ng, scentfc, and smar servces, Reguatons 130 amended 321
empt, Reguatons 111 and 130 amended 9
Impropery accumuatng surpus, ong-term capta gans, computa-
ton of surta , Reguatons 111 amended 119
Not sub|ect to e cess-profts ta for a years endng after une 30,
1950, Reguatons 130 amended 356
Persona servce, eecton as to ta abty, Reguatons 130 amended.. 356
Undstrbuted secton 102 net ncome, effect of net operatng oss
carryback on computaton of 120
Correspondence:
bbrevatons and symbos, dstrct commssoners and ppeate
Dvson offces 9
Symbos of Washngton headquarters offces 91
Cost of goods sod, merchandse wthdrawn from stock for persona use.. 20
Court decsons:
son, Martha L., v. Unted Sates 39
Carro, ames .,; Unted Stotes v 251
Gbert ssocates Inc.; Unted States v 7
arman, . . Coa Corporaton; Commssoner v 50
teay, dwn ., e a. v. Commssoner 6
Internatona udng Co., Inc.; Unted States v 529
ahrger, oseph; Unted Sates v 56
Stevenson-Chsett, Inc.; Unted Staes v 39
Watson, rnest ., et u . v. Commssoner 179
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Pag
Credts aganst net ncome, dvdends deductbe n computng net ncome. 6
Credts aganst ta :
Cuban ta on operatng capta and e cess-profts 225
Foregn ta es, mtaton for ncome and e cess-profts ta purposes,
Guananan ncome ta on compensaton of Unted States ctzens for
servces performed on Guam 300
Phppnes ta upon net ncome of nonresdent aen ndvduas 22
Transportaton ta , unused porton of tcket returned 6
Crmna prosecuton of persons possessng property ntended for use n
voatng nterna revenue aws 26
Crops, unharvested, sod wth and, Reguatons 111 amended 65
Cuban ta on operatng capta and e cess-profts, credt aganst Unted
States ncome ta 225
D
Damages, dsabty payments under empoyers beneft pan 20
Deaers n securtes, sae or e change of securty hed for nvestment.
Decaratons. (See stmated ta .)
Deductons:
usness e penses:
Cost of merchandse wthdrawn from stock for persona use 20
pendtures attrbutabe to payments by Unted States for
mnng strategc mneras, Reguatons 111 amended 30
Premums on fe nsurance poces purchased by a partner for
beneft of copartners 63
Chartabe,etc., mtaton by certan trusts, Reguatons 111 amended. 253
Cost of certan mnng machnery and equpment 50
mpoyees trusts:
orrowng capta or nvestng n securtes of empoyer creatng
trust or cosey reated entty 2 7
pense , medca, by ta payers aged 65 or over, Reguatons 111
amended 56
Gft, ta , gfts for regous, chartabe, scentfc, terary, or educa-
tona purposes, Reguatons 10 amended 397
Loss from embezzement, when to be taken 39
Medca e penses, premum for heath and accdent nsurance 59
Net operatng oss, Reguatons 111 amended 197
Optona standard, rght to change eecton, Reguatons 111 amended. 60
Ta es, Pennsyvana, shares of banks 39
Trust ncome, accumuated for beneft of deceased members of the
rmed Forces, Reguatons 111 amended 261
Unharvested crop sod wth and, Reguatons 111 amended 65
When to e taken:
ccrua date of Massachusetts franchse ta on utty corpora-
tons 1
ccrua date of rea property and tangbe persona property
ta es eved by State of Mchgan 79
cessve compensaton requred to be returned to empoyer... 6
Retroactve wage ncreases resutng from suspenson of contros._ 0
Deferred beneft pans, ntegraton wth od-age and survvors nsurance
benefts _ 29
Defcences:
Computaton of nterest, waver of restrcton on assessment and co-
ecton 305
Perod for assessment, ncome pursuant to award of Interstate Com-
merce Commsson, Reguatons 111 amended 303
Dependents, gross ncome, Reguatons 111 amended 9
Depeton:
Cost of certan mnng machnery and equpment 50
Mnera-bearng ands, ad vaorem property ta es pad by essee..... 173
Mnera products e tracted from mne dumps of waste matera
Percentage:
Ores contanng two or more mneras 176
Uranum mneras 177
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Depeton Contnued Page
Remova of so 1
Transportaton of ore and mneras from mne to treatment pant,
Deprecaton:
utomobes, eased 1 5
ureau pocy on ad|ustments 3
Gudes as to ad|ustments
Drector of Practce:
stabshment of the offce of._ 3
Dsabty benefts. (See Compensaton (receved).)
Dscharge of ndebtedness (ncome), e cusons from gross ncome, Regua-
Dsted sprts n bonded warehouses, reports requred, Reguatons 10
amended 39
Dsted sprts, requrements for abeng and advertsng, Reguatons No.
5 amended 31
Dstrant, amony payments 7
Dstrbuton of prncpa cash n eu of nonta abe stock dvdends by a
trust 263
Dstrbutons (corporatons), accrua of fraud penates 17
Dstrbutons of stock pursuant to a pan of reorganzaton, recognton of
gan, Reguatons 111 amended 1 2
Dvdends:
Dstrbutons to mnorty stockhoders, temporary waver of dvdends
by ma|orty stockhoder 17
Nonta abe stock, dstrbuton by a trust of prncpa cash n eu of.. 2C3
Patronage, e empt cooperatves, treatment for ta purposes, Regua-
Receved credt:
d|ustment for e cess-profts ta purposes, Reguatons 130
amended 3
Dvdends deductbe n computng net ncome 6
Due date, ncome ta , Chna Trade ct corporatons, postponed 77
ecton as to ta abty, persona servce corporatons, Reguatons 130

amended 356
ecton, optona standard deducton, rght to change, Reguatons 111
amended . 60
ecton to ncrease e cess-profts net ncome by the amount of nterest on
certan Government obgatons, Reguatons 130 amended 321
ectons fed by ta payers, bass of property, ad|ustment for deprecaton,
etc. 171
ectons (manner and effect) to report sae on nstament bass 2
mbezzed funds, when oss deductbe 39
mpoyees, Federa, compensaton for servces performed on Guam 300
mpoyees trusts (see aso Trusts, empoyees ):
nnuty pans, quafcaton for e empton from ncome ta as em-
Foyees trusts 267
ntegraton of deferred beneft pans wth od-age and survvors nsur-
ance benefts 29
Penson and annuty pans of raroad empoyers, ntegraton wth the
benefts of the Raroad Retrement ct 290
Penson pans, quafcaton for e empton from ncome ta as em-
poyees trusts 267
Procedure wth respect to advance rungs 265
Proft-sharng pans, quafcaton for e empton from ncome ta as
empoyees trusts 267
Stock bonus pans, quafcaton for e empton from ncome ta as
empoyees trusts 267
mpoyment ta es:
mpoyer-empoyee, professons, physcan engaged part-tme to treat
company empoyees 0
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mpoyment ta es Contnued Fm
Refunds, sef-empoyment ta , cctan members of rmed Forces upon
death 259
Sef-empoyment ncome record , refund of ta to certan members of
rmed Forces upon death 259
state ta :
Communty property:
Lfe nsurance pocy purchased n favor of thrd party benefcary,
Lousana and Te as 392
Transfers, decedents dyng after Octo 3r 21, 19 2, and before
anuary 1, 10 S, Reguatons 105 amended 391
Insurance, fe, ncdents of ownershp n fe nsurance purchased n
favor of thrd party benefcary, Lousana and Te as 392
Marta deducton, wdow s aowance, support durng settement
perod 395
Persona property, Canadan tmber censes 391
Returns, requrement for dupcate fng of Form 712, Lfe Insurance
Statement 396
states and trusts, deductons for trust ncome payabe to deceased mem-
bers of the rmed Forces, Reguatons 111 amended 261
stmated ta , e tenson of tme for fng, aen resdents 97
vdence obtaned wthout a search warrant 26
cess-profts credt, reguated pubc uttes, Reguatons 130 amended.. 352
cess-profts ta :
d|usted e cess-profts net ncome:
Payments by Unted States for mnng strategc mneras, Regu-
atons 130 amended 30
ffated corporatons, average base perod net ncome, ncrease n
capacty for producton 350
ase perod catastrophe, Reguatons 130 amended 359
ase perod net ncome:
I actes eased by parent, purchased by subsdary pror to cose
of consodated base perod 350
Transton from war producton, Reguatons 130 amended 3 5
orrowed capta, determnaton of unearned premums for frst day
of frst ta abe year 3
Capacty for producton, ncrease n base perod 350
Computaton of, fsca year ta payers. Reguatons 130 amended 122
Consodated base perod net ncome, ncrease n capacty for produc-
ton by purchase of eased factes 350
Consodaton of newspapers, Reguatons 130 amended 361
cess-profts credts:
ased on ncome:
Loans to foregn subsdary, Reguatons 130 amended 3 7
Part II transactons Reguatons 130 amended 36
Invested capta, ad|usted; method of computaton, reguated
pubc uttes 355
Ta abe acqustons under part I , Reguatons 130 amended.. 372
cess-profts net ncome of fe nsurance companes, Reguatons 130
amended 297
Lfe nsurance companes, e cess-profts net ncome, ta abe years
begnnng n 1952, Reguatons 130 amended 297
Mnng, natura resources, etc., transportaton ncuded n term
mnng , Reguatons 130 amended 5
Reef for new corporatons. Reguatons 130 amended 312
Rue for determnng, corporatons not sub|ect to e cess-profts ta for
a years endng after une 30, 1950, Reguatons 130 amended 356
War producton, transton to peacetme operatons, average base
perod net ncome, Reguatons 130 amended 3 5
cess-profts ta credt, based on ncome, Reguatons 130 amended 321
cess-profts ta net ncome:
Computaton of, Reguatons 130 amended 3 2
cuson of bocked foregn ncome, Reguatons 130 amended 3 2
change of property, recovery of war osses, apanese prewar bonds,
remova of tradng restrctons .... 20
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cse ta es:
dmssons ta es:
thetc games:
Proceeds for beneft of veterans organzaton 23
Proceeds not e cusvey for beneft of eementary or second-
ary schoos 22
Donatons n eu of f ed charge 11
Free or reduced rate admssons, Reguatons 3 (19 1) amended. 12
Theater, renta to organzaton, house seats retaned by owner.. 12
Con-operated amusement devces, mechanca horse 52
Con-operated st or movng pcture machnes and rado and tee-
vson sets 53
Communcaton ta :
Teevson, wre and equpment servce, programs drect to sub-
scrbers premses 67
Communcatons servces, Reguatons 2 amended 05
Documentary ta es:
Payng card stamps, redempton 2
Import ta es, copper, suspenson of ta e tended (P. L. ) 529
Manufacturers ta es:
utomobe accessores, custom-rade racks for devery trucks-. 6
utomobe seat covers 63
utomobes, parts and accessores:
Co sprngs for dstrbutors or fue pumps 65
Sae to county sherff for offca use, payment not made
from pubc funds 61
Ta abty of ftng |acks 62
Traers, fodng type, wth vng or seepng factes 61
Lawn mowers, power, househod type 65
Motorcyces, parts or accessores, sadde bags. 6
Refund or credt, constructon contract wth potca subdvson. 66
Occupatona ta :
owng aeys, e cusvey for members of rmed Forces 5
Gambng hed consttutona 56
Pcture machnes as con-operated amusement devces 53
Rado sets as con-operated amusement devces 53
Retaers ta es:
ets and bet buckes 2
cyces, sadde bags 6
Luggage:
Insuated food bags 10
Sadde bags 6
Toet preparatons:
Cod cream used n compoundng medcna ontments 26
Dandruff remedes 25
Perfume dspensed through vendng machnes 26
Teevson sets as con-operated amusement devces 53
Transportaton of persons:
Credt aowabe on unused return tcket 6
Tckets purchased n Unted States for contnuaton of |ourney
from a foregn country 6
Transportaton of property:
Matera e cavated m the course of constructon work 70
Transportaton servces, Reguatons 2 amended 05
Transportaton ta :
Deegate of teachers assocaton to State conventon 6
Property:
Shpments to or from Unted States Government 72
Towng of barges and reated servces 69
Wagerng ta , appcaton to sut cubs and merchandse cubs 5
cusons from gross ncome for servces performed on Guam 300
empt corporatons and assocatons:
Soca cub operatng bar or restaurant 109
Status under secton 3 13 upon recept of contrbutons from a corpo-
raton through a trust where ts empoyees receve enefts 26
Ta treatment for years begnnng after Deccm er 31, 1951, Regua-
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Page
empt corporatons, Reguatons 111 and 130 amended 9
empt e cess output, determnaton of nonta abe ncome, Reguatons
130 amended 321
empt ncome of nterest receved upon redempton or sae of certan
Treasury bs... 97
emptons:
Gross ncome of dependent, Reguatons 111 amended 9
Marta status of dvorcee who remarres before e praton of a stp-
uated watng perod 67
penses:
Lega, ncurred n connecton wth a contested eecton 36
Medca, denta, etc., by ta payers aged 65 or over, Reguatons 111
amended 56
Medca, premum for heath and accdent nsurance 59
Nonbusness, custody fees pad to the custodan of a sponsored nvest-
ment pan 37
Ordnary and necessary, cost of certan mnng machnery and equp-
ment 50
tenson of tme:
Decaratons of estmated ta , aen resdents 97
Fng of corporaton ncome ta returns .
Fng of empt Cooperatve ssocaton Income Ta Return:
Form990-C 5
Form 990-C for ta abe year begnnng n 1952 6
F
Farmers cooperatve marketng and purchasng assocaton, tme e tended
for fng Form 990-C 5
Farmng, crops, uuharvested, sod wth and, Reguatons 111 amended - 65
Fees, deductbty, pad to custodan of sponsored nvestment pan 37
Fsca year ta payers, computaton of ta , Reguatons 111 and 130
amended 122
Foregn corporatons:
Income from, by domestc corporatons for technca, engneerng,
scentfc, and smar servces, Reguatons 130 amended 321
Informaton reatve to formaton, returns requred 73
Foregn ncome, bocked, e cuson from e cess-profts net ncome, Regua-
Foregn ta es:
Cuba, ta on operatng capta and e cess-profts, credt aganst Unted
States ncome ta - 225
Lmtaton of credt aganst Unted States ncome and e cess-profts
ta , Reguatons 111 amended 220
Phppnes ta upon net ncome- of nonresdent aen ndvduas, credt
aganst Unted States ncome ta 22
Forfetures and sezures, sugar ntended for use n voatng provsons of
nterna revenue aws 26
Form 332, requred of dsted sprts n bonded warehouses, Reguatons
Oamended 39
Forms, ncome and e cess-profts ta , reproducton of 7
G
Gan or oss:
ass, mortgaged property receved by stockhoders n a compete
corporate qudaton 162
Recognton of gan:
Dstrbutons of stock on reorganzaton, Reguatons 111 amended. 1 2
Sae or e change of ta payer s resdence, Reguatons 111 amended. 1 f
Recognton, recovery of war osses, apanese prewar bonds 20
Recognzed, prncpa resdence sod on nstament bass 3
Sae or e change of stock, coapsbe corporatons, Reguatons 111
amended 1 7
Gan or oss from redempton, sae or dsposton of Treasury bs ssued for
use n payment of ta ... . ... .......... 97
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Gft ta : p m
Communty property :
Gft by wfe of nsurance proceeds on fe of husband n favor of
thrd party benefcary 392
Transfers after 19 2 and on or before pr 2, 19 , Reguatons
10 amended... 396
Deductons for gfts for regous, chartabe, scentfc, terary, or
educatona purposes, Reguatons 10 amended 397
Gfts ta abe, wfe s communty nterest n nsurance proceeds on fe of
husband n favor of thrd party benefcary 392
Gross ncome:
ward from Interstate Commerce Commsson, when ncuded, Regua-
Dvdend payments to mnorty stockhoders, temporary waver of
dvdends by ma|orty stockhoder 17
cusons:
Compensaton for servces for beneft of e empt organzaton 1
Income from dscharge of ndebtedness, Reguatons 111
amended 2
Members of rmed Forces, servce n combat zone, Reguatons
111 amended 26
Payments to encourage e poraton, deveopment, and mnng
for defense purposes, Reguatons 111 and 130 amended 30
Proceeds from partners fe nsurance poces receved by a
partnershp 23
Incusons:
Payments n e cess of workmen s compensaton 20
Proceeds from sae of so 1
Treasure-trove, year reduced to undsputed possesson 17
When ncuded:
Compensaton receved under cam of rght 6
Credts to nsured banks by Federa Depost Insurance Corpo-
raton 71
Interest on Seres F and G savngs bonds and Treasury bonds
of 197 - 3 76
Guam, ta status of ncome derved by Unted States ctzens for servces
performed on 300
ead of househod, Reguatons 111 amended 9

usband and wfe:
Change of eecton wth respect to optona standard deducton,
ont returns, smpfed computaton of 1952 ta 15
I
Income pursuant to award of Interstate Commerce Commsson, perod
for assessment of defcences, Reguatons 111 amended 303
Informaton at source, ndctment for faure to fe Form 1099 251
Inspecton of returns:
Commttee on the udcary, ouse of Representatves 9
ouse Commttee on Government Operatons 95
Senate Commttee on Government Operatons 9
Senate Commttee on Interstate and Foregn Commerce 91
Senate Commttee on Rues and dmnstraton
Senate Commttee on the udcary 92
Instament saes:
Deducton for addton to bad debt reserve by deaers usng the
acerua method, Reguatons 130 amended 35
ecton to use, when e ercsed 2
Recognzed gan from sae of prncpa resdence 3
Insurance:
Premums, fe nsurance poces, purchased by a partner for beneft
of copartners- ... 63
Proceeds, receved by a partnershp as benefcary of partners
poces 23
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Insurance companes: Pag
Lfe:
d|usted norma-ta net ncome, ta abe years begnnng n
1952, Reguatons 111 amended 297
Reserve nterest credt, ta abe years begnnng n 1952, Regu-
atons 111 amended 297
Insurance premums, heath and accdent, deductbty as medca e -
penses 59
Interest on defcences, orgna waver of restrcton on assessment and
coecton superseded by a second waver pror to assessment 305
Interest receved from redempton or sae of Treasury bs ssued for use
n payment of ta 97
Interest, receved, Seres F and G savngs bonds and Treasury bonds of
197 - 3 76
Inventores (LIFO), prce nde es for anuary 1953, for use by depart-
ment stores 35
Inventory method, eectve, use of by specaty stores 3
Invountary converson:
Property condemned for temporary use, amounts receved as rentas. 16
Recognton of gan, Reguatons 111 amended 1 6
ont returns, husband and wfe, smpfed computaton of 1952 ta 15

udgment, decson on stpuaton, appcabty to same ssue n subse-
quent years 529
L
Labeng, dsted sprts, Reguatons No. 5 amended 30
Leases, mnera-bearng ands, ad vaorem property ta es pad by essee,
depeton 173
Legsaton:
ghty-thrd Congress:
Pubc Law - 529
Lessor, coa property, computaton of e cess output, Reguatons 130
amended 321
Lens for ta es:
mony payments sub|ect to dstrant 7
Prorty, Federa and town 7
Lfe nsuranca companes:
d|usted norma-ta net ncome, ta abe years begnnng n 1952,
Reserve nterest credt, ta abe years begnnng n 1952, Reguatons
111 amended 297
LIFO. stores, speca, use of department store prce nde es under
LIFO method 3
Lmtaton perod, cams for refund, receved March 17, 1952 306
Lqudaton, bass of mortgaged property receved by stockhoders 162
Lvestock, sae, of, capta gans and osses, Reguatons 111 amended 1 3
Losses:
Casuaty or theft, hgh water or food damage on the Great Lakes 1
mbezzed funds, when deductbe 39
Net operatng, carryover and carryback, Reguatons 111 amended.. 197
Net operatng oss carryover, Reguatons 130 amended . 320
War, recoveres, ncuson n gross ncome, Reguatons 111 amended.. 206
M
Machnery and equpment, mnng, depeton aowance 50
Manufacturers ta , ta abty of ftng |acks, automobe parts or ac-
cessores 62
Marta status, dvorcee who remarres before e praton of stpuated
watng perod 67
Medca e penses:
Premum for heath and accdent nsurance 59
Ta payers aged 65 or over, Reguatons 111 amended 56
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Page
Merchandse wthdrawn from stock for persona use, cost Incuded n
proft and oss schedue 20
Mchgan accrua date of rea property and tangbe persona property ta es. 79
Mnera products e tracted from mne dumps of waste matera, depeton. _
Mnes:
Deveopment and e poraton e pendtures 177
Percentage depeton where ores contan two or more mneras 176
Strategc mneras, payments to encourage mnng for defense purposes,
Transportaton of ore and mneras from mne to treatment pant,
Mtgaton of effect or mtaton, renegotaton of war contracts 7
Mutua savngs banks, budng and oan assocatons, and cooperatve
banks, Reguatons 111 and 130 amended 9
N
Natura resources, ad vaorem property ta es pad by essee, depeton 173
Net operatng oss:
Carryback, effect on deducton for ta es provded by secton 102
(d)(1)( ) I. R. C - 120
Carryover, Reguatons 130 amended 320
Deductons, Reguatons 111 amended 197
New Zeaand, ncome ta conventon, wthhodng reguatons 23
Newspapers, consodaton, e cess-profts ta , Reguatons 130 amended.. 361
Nonbusness e penses:
Custody and creaton fees pad by subscrbers n a sponsored nvest-
ment pan 37
Deductbty of ega e penses ncurred n tgaton arsng out of a
contested eecton 36
Norway, ngdom of, ncome ta conventon, wthhodng reguatons 22

O
Optona ta tabe:
ecton to use 60
ead of househod, Reguatons 111 amended 9
P
Partnershps:
Dstrbutons, ncrease due to accommodatons of managng partner
of a hote who ves on the premses 62
Ta abty of proceeds from nsurance poces contrbuted by partners. 23
Payment of ta :
Farmers cooperatve marketng and purchasng assocaton, e tended. 5
Farmers cooperatve marketng and purchasng assocaton, tme
further e tended 6
Treasury bs or depostary recepts therefor 97
Penates:
Faure to fe nformaton return 251
Fraud, accrua as abtes 17
Penson and annuty pans, ntegraton wth od-age and survvors nsurance
benefts 290
Perod for assessment of defcences, ncome pursuant to award of Interstate
Commerce Commsson, Reguatons 111 amended 303
Persona e penses, resdent partner or owner of hote 62
Persona servce corporatons, nformaton returns, utzaton of schedue
PS (Form 1120) 1951 - 356
Phppnes ta on net ncome of nonresdent aen ndvduas, credt
aganst Unted States ncome ta 22
Pans, annuty, penson, proft-sharng, and stock bonus, quafcaton
under secton 165(a) of Interna Revenue Code 267
Possesson of Unted States:
Guam, ncome ta and wthhodng ta on ncome receved by Unted
States ctzens for servces performed on 300
Status of ctzens of Guam for Federa ncome ta purposes 303
Practce, Drector of:
stabshment of the offce of - 3
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Fan
Premums, heath and accdent nsurance, deductbty as medca e penses. 59
Procedure, requests from ta payers for rungs, prospectve and consum-
mated transactons
Procedures, pubcaton of -
Pubc aws:
ghty-thrd CongTess:
No. , e tendng suspenson of mport ta on copper 629
Pubc uttes:
ccrua date of Massachusetts franchse ta 1
Reguated, computaton of ad|usted nvested capta 355
Pubcaton, ureau rungs and procedures -
R
Raroads, ncome from dscharge of ndebtedness e cuded from gross
ncome, Reguatons 111 amended 2
Rea estate:
Condemnaton of property for 5 years consttutes takng of a ease-
hod nterest 16
Prncpa resdence sod on nstament bass 3
Recognton of gan:
Invountary converson, Reguatons 111 amended 1 6
Sae or e change of ta payer s resdence, Reguatons 111 amended 1 6
Recoveres, war oss, ncuson n gross ncome, Reguatons 111 amended. 206
Redempton of stocks and bonds, savngs bonds Seres F and U n payment
for Treasury bonds of 197 - 3 76
Refunds (see aso Cams (refund or abatement)):
Transportaton ta , unused porton of round-trp tcket 6
Reguated nvestment companes, Reguatons 111 amended to ncude
certan regstered management companes 307
Reguated pubc uttes, e cess-profts credt, Reguatons 130 amended. 352
Reguatons (see aso mendments: Reguatons):
Chna Trade ct corporatons, ncome ta due dates, postponed 77
Wthhodng:
Unted States-New Zeaand ncome ta conventon . 23
Unted States-Norway ncome ta conventon 22
Renegotaton. (See War contracts.)
Rent receved, amounts receved as resut of condemnaton of property
for temporary use of Unted States 16
Reorganzaton, dstrbutons of stock, recognton of gan, Reguatons
111 amended 1 2
Reports, requred of dsted sprts n bonded warehouses, Reguatons
10 amended 39
Reproducton of ncome ta returns . 7
Resdence (see aso Rea estate):
Recognton of gan from sae or e change and purchase of new res-
dence, Reguatons 111 amended 1 6
Returns:
ffated corporatons, consodated ncome ta return, caendar year
1952 and fsca year endng 1953 227
Corporaton ncome ta , e tenson of tme for fng
empt Cooperatve ssocaton, Form 990-C, e tenson of tme for
fng 5
Informaton:
Certan trusts, camng chartabe, etc., deductons under secton
162(a), Reguatons 111 amended 253
Company advsng as to formaton of foregn corporatons 3
Faure to fe 251
Utzaton of schedue PS (Form 1120) 1951 356
Inspecton by Commttee on the udcary, ouse of Representatves. 9
Inspecton by Senate Commttee on Government Operatons 9
Inspecton by Senate Commttee on Interstate and Foregn Commerce. 91
Inspecton by Senate Commttee on Rues and dmnstraton
Inserton by Senate Commttee on the udcary 92
ont:
Dvorcee who remarres before e praton of a stpuated watng
perod 67
usband and wfe, smpfed computaton of 1952 ta . 15
Reproducton of 7
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Page
Rungs:
Pubcaton of
Requested by ta payers, procedure wth respect to
S
Saares, retroactve ncreases resutng from suspenson of contros 0
Saes of vestock, capta gans and osses, Reguatons 111 amended 1 3
Saes or e changes:
Remova of tradng restrctons on apanese prewar bonds resuts n
recovery of war osses 20
Stocks, coapsbe corporatons, Reguatons 111 amended 1 7
Search and sezure for possesson of property ntended for use n voatng
nterna revenue aws 26
Securtes and change Commsson, orders of e changes and dstrbu-
tons, system group defned, Reguatons 111 amended 310
Sef-empoyment ta :
Computaton of ta , change n accountng perod, return fed for
fractona part of year
arnngs or ncome, amounts pad for use of chan saws furnshed by
empoyees 390
Senate Commttee on Rues and dmnstraton, nspecton of returns
Snuff:
Standard deducton, optona standard deducton, method of eecton,
Statute of mtatons:
ssessment of defcences, award from Interstate Commerce Com-
msson . 303
Members of rmed Forces, recognton of gan from sae or e change
of resdence, Reguatons 111 amended 1 6
Stores, specaty, use of eectve nventory method 3
Surta :
Corporatons mpropery accumuatng supus 6
Long-term capta gans, Reguatons 111 amended 119
Symbos and abbrevatons, dstrct commssoners and ppeate Dvson
offces 9
Symbos, correspondence, Washngton headquarters offces 91
T
Ta Court of the Unted States, The:
Decsons of, st of acquescences and nonacquescences 3-7
Ta rates, head of househod, Reguatons 111 amended 9
Ta tabe, 1952, |ont returns, husband and wfe 62
Ta es:
Comptatcn of deducton for ta es provded by secton 102(d)(1)( ),
I. R. C, effect of net operatng oss carryback 120
Deductons:
ccrua date of franchse ta on utty corporatons, State of
Massachusetts 1
ccrua date of rea property and tangbe persona property,
State of Mchgan - 79
Pennsyvana ta on shares of banks 39
Foregn:
Cuba, ta on operatng capta and e cess profts, credt aganst
Unted States ncome ta 225
Phppnes ta on net ncome of nonresdent aen ndvduas,
credt aganst Unted States ncome ta 22
Payment by Treasury bs or depostary recepts therefor 97
Propery, ad vaorem, on mnera-bearng ands pad by essee 173
Theft, osses from embezzement, when deductbe 39
Tobacco:
Tobacco products, dscontnuance of pubcaton of statstca tabes 532
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Transportaton ta , refund and crdt of unused porton of round-trp tcket. 6
Treasury bs surrendered to Federa Reserve banks n payment of ta 97
Trusts:
Dstrbuton of prncpa cash n eu of nonta abe stock dvdends by. 263
mpoyees :
orrowng capta or nvestng n securtes of empoyer creatng
trust or cosey reated entty 2 7
Increased wage mtatons, Reguatons 111 amended 2 9
Money purchase pans 2
Suspenson of penson benefts caused by postretrement empoy-
ment whch suspends soca securty beneft payments 2
Msceaneous:
mony, ncome sub|ect to dstrant 7
Contrbutons to chartabe or educatona organzatons 26
Trusts and estates:
Deductons, chartabe, etc., mtaton by certan trusts, Reguatons
111 amended 253
Deductons for trust ncome payabe to deceased members of the
rmed Forces, Reguatons 111 amended 261
W
Wages, retroactve ncreases resutng from suspenson of contros 0
Wavers, orgna superseded before assessment, nterest on defcences 305
War contracts, renegotaton, ad|ustment of ncome and e cess-profts
ta es 79
War osses:
Recoveres, etc 206
Recovery occurred on date restrctons aganst tradng n apanese
prewar bonds were removed 20
Western emsphere trade corporaton as a subsdary of a domestc
corporaton, determnaton of ther respectve ncomes 1 1
Wne, materas approved for use n fterng, carfyng, purfyng, or other
cear treatment of wnes. 31
Wthhodng, ncome ta at source, payments n e cess of workmen s
compensaton 20
Wthhodng of ta at source:
Guam, ncome of Unted States ctzens for servces performed on 300
Reguatons under Unted States-New Zeaand ncome ta conventon. 23
Reguatons under Unted States-Norway ncome ta conventon 22
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Internal Revenue Service Cumulative Bulletin 1953-1

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Copyright:

Internal Revenue Service Cumulative Bulletin 1953-1

Uploaded by

Copyright:

Interna Revenue uetn

Cumuatve uetn 1953-1

Pard-Parker Co., Inc -

eaver Trust Company, et a., e ecutors of estat of

Manufacturng Co., The

ecton as to ta abty, persona servce corporatons, Reguatons 130

ead of househod, Reguatons 111 amended 9

ont returns, husband and wfe, smpfed computaton of 1952 ta 15

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