Bureau of Internal Revenue Cumulative Bulletin 1951-1

Treasury Department
Interna Revenue uetn

Cumuatve uetn 19 1-1
NU RY- UN 19 1
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SP CI L TT NTION drected to the cautonary notce on ths page that pub-
shed rungs of the Iureau do not have the force and effect
of Treasury Decsons and that they are appcabe ony to facts presented n the pubshed case
Treasury Department : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn 19 1-1
NU RY- UN 19 1
IN T IS ISSU
Page
Introductory Notes
Contents .
Rungs Nos. 13 09-1361 , .
Ta Court of the Unted States, The 1-
Income Ta
Part I (Interna Revenue Code)
state and Gft Ta es CS 7n
npoyment Ta es 7-1 U
cse Ta es
Stamp Ta es, etc Tr 7C
Msceaneous Rungs ttIcc
Legsaton 1S
Commttee Reports .
Inde 2 )-2S
The rungs reported n the Interna Rerenue uetn are tor the Informaton of ta payers and ther counse as
showng the trend of offca opnon n the admnstraton of the ureau of Interna Revenue; th I rungs other than
Treasury Decsons have none of the force 01 effect of Treasury Decsons and do not commt the Deportment to
any nterpretaton of the aw whch has not been formay approved and promugated by the Secretary of the
Treasury- Fach rung embodes the admnstratve appcaton of the aw and Treasury Decsons to the entre
state of facts upon whch a partcuar case rests. It s especa y to be noted that the same resut w not neces-
sary be reached n another case uness a the matera facts arc dentca wth those of the reported case. s t s
not aways feasbe to pubsh a compete statement of the facts underyng each rung, there can be no assurance
that any new case s dentca wth the reported case. s bearng out ths dstncton, t may be observed that the
rungs pubshed from tme to tme may appear to reverse rungs prevousy pubshed. _ _
Offcers of the ureau of Interna Revenue arc especay cautoned aganst reachng a concuson n any case
merey on the bass of smarty to a pubshed rung, and shoud base ther |udgment on the appcaton of a
pertnent provsons of the aw and Treasury Decsons to a the facts n each case. Tbc-e rungs shoud be used
as ads n studyng the aw and ts forma constructon as made n the reguatons and Treasury Decsons pre-
vousy ssued. ,
In addton to pubshng a Interna Revenue Trcasurv Decsons, t s h# oaurv t rt . ( Interna
a Interna Revenue Treasury Decsons, t s the pocy of the ureau o I
Revenue to pubsh a rungs and decsons, ncudng opnons o the Chef Counse for the ureau of Interna
Revenue, whch, becaose they announce a rung or decson upon a nove queston or upon a queston n regard
to whch there csts no prevousy pubshed rung or decson, or for other reasons, are o such mportance as
to be of genera nterest It s aso Ihe pocy o the ureau to pubsh a rungs or decsons whch revoke,
modfy, amend, or a ect n any manner whatever any pubshed rung or decson. In many nstances opnons
of the Chef Counse for the ureau of Interna Revenue are not of genera nterest because they announce no
new rung or new constructon o the revenue aws but smpy appy rungs aready made pubc to certan
stuatons of fact whch are wthout speca sgnfcance. It s not the pocy of the ureau to pubsh such opnons.
Therefore, the numbers assgned to the pubshed opnons of the Chef Counse for the ureau o Interna
I evenue are not consecutve. No unpubshed rung or decson w be cted or reed upon by any otcer or
emr-ovee of the ureau of Interna Revenue as a precedent n the dsposton o other cases. Lness otherwse
specfcay ndcated, a pubshed rungs and decsons have receved the consderaton and approva o tun
Chef Counse for the ureau of Interna Revenue.
UNIT D ST T S GO RNM NT PRINTING OFFIC : W S INGTON : 19 1
For sae by Superntendent of Document U. S. Government Prntng Offce, Washngton 2 , D. C
See back of tte for prces
LI R RY
UNI RSITY OF C LIFORNI
D IS
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The Interna Revenue uetn servce conssts of uetns ssued
every other week and semannua Cumuatve uetns.
The uetns contan the rungs and decsons whch are made
pubc and a Treasury Department decsons (known as Treasury
Decsons) pertanng to Interna Revenue matters. The semannua
Cumuatve uetns contan a rungs and decsons (ncudng
Treasury Decsons) pubshed durng the prevous 6 months.
The compete uetn servce may be obtaned on a subscrpton
bass from the Superntendent of Documents, Government Prntng
Offce, Washngton 2 , D. C, for 3.2 per year; foregn, .60. Snge
copes of the uetn, 1 cents each.
Certan ssues of Cumuatve uetns are out of prnt and are,
therefore, not avaabe. Persons desrng avaabe Cumuatve u-
etns may obtan them from the Superntendent of Documents at
prces as foows:
Year
Frst 0 months
Cumuatve uetn
Second 6 months
1920
2
0. 2
3
0. 30
192 -
II-1
. 3
II-2
. 0
1929.
III-1
. 0
Yn 2
.
I -1
. 0
I -2
. 0
1936 :
I-1
. 30
_
-2
-1
.
.
1939
1939-1
1939-2
. 60
Part 1
. 0
1 Part 2
1. 00
19 0-1
. 30
1 0-2
. 60
19 1
19 1-1
.
19 1-2
. 60
19 2 -.-
19 2-1
. 0
19 2-2
. 60
19 3
1. 2
19 1
2. 2
1. 0
19 6
19 6-1
. 0
19 6-2
. 7
19 7
19 7-1
. 0
19 7-2
. 7
19 -1
. 7
19 -2
1. 00
19 9-1
. 7
19 9-2
. 7
19 0-1
.7
19 0-2
1. 0
19 1
19 1-1
.7
Contans ony neome ta rungs.
1 ouse, Senate, and conference reports on revenue bs enacted as the ct or October 3,
1913. the ct ot October 22, 191 , and tho Revenue cts o 1910 to IMS, ncusve, and ou
amendments to such cts.
Prnted In one voume.
Persons desrng to obtan the servce n dgest form may do so at
prces as foows: Dgest No. 19 (ncome ta rungs ony, pr 1919
to December 1921, ncusve), 0 cents; Dgest No. 13 (1922-2 ), 60
cents; Dgest No. 22 (192 -27), 3 cents: and Dgest (ncome ta
rungs ony, pr 1919 to December 1930, ncusve), 1. 0.
nqures n regard to these pubcatons and subscrptons shoud
be sent to the Superntendent of Documents, Government Prntng
Offce, Washngton 2 , D. C.
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INTRODUCTORY NOT S
Interna Revenue Cumuatve uetn 19 1-1, n addton to a
decsons of the Treasury Department (caed Treasury Decsons)
pertanng to Interna Revenue matters, contans opnons of the Chef
Counse for the ureau of Interna Revenue, rungs and decsons
pertanng to ncome, estate, gft, saes, e cess profts, empoyment,
soca securty, and msceaneous ta es, and egsaton affectng the
revenue statutes, as ndcated on the tte page of ths uetn, pub-
shed n uetns 1-13, ncusve, for the perod anuary 1 to une 30,
19 1. It aso contans a cumuatve st of announcements reatng to
decsons of The Ta Court of the Unted States, pubshed n the
Interna Revenue uetn Servce from anuary 1 to une 30, 19 1.
Income ta rungs are prnted n two parts. The rungs under the
Interna Revenue Code are prnted as part I, the aw headngs corre-
spondng wth the sectons of the Code, as amended, and the reguatons
headngs correspondng wth the secton headngs of Reguatons 111
or 103. Rungs under the Revenue ct of 193 and pror revenue acts
are prnted as part II, the aw headngs correspondng wth the secton
headngs of those revenue acts and the reguatons headngs corre-
spondng wth the artce headngs of the appcabe reguatons.
Rungs under ttes III and I of the Soca Securty ct and
under subchapters and C, chapter 9, of the Interna Revenue Code
n force pror to anuary 1,19 0, are pubshed under artce headngs
of Reguatons 91 and 90, respectvey; rungs under subchapters
and C, chapter 9, of the Code n force on or after anuary 1, 19 0, are
pubshed under the secton headngs of Reguatons 106 and 107,
respectvey; rungs under the Carrers Ta ng ct of 1937 and under
subchapter , chapter 9, of the Code for perods pror to anuary 1,
19 9, are pubshed under the artce headngs of Reguatons 100, and
rungs under subchapter , chapter 9, of the Code for perods subse-
quent to December 31,19 , w be pubshed under the secton head-
ngs of Reguatons 11 .
R I TIONS
The foowng abbrevatons are used throughout the uetn.
, , C, etc. The names of ndvduas.
. R. M. Commttee on ppeas and Revew memorandum.
. R. R. Commttee on ppeas and Revew recommendaton.
. T. coho Ta Unt.
. T. . oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson.
C. S. T Capta Stock Ta Dvson.
C. T. Ta es on empoyment hy carrers.
D. C. Treasury Department crcuar.
ra. T. Ta es mposed by the Soca Securty ct, the Carrers Ta ng ct of
1 37, and subchapters , , C, D, and of the Interna Revenue Code.
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I
. P. C. cess Profts T Counc rung or memorandum.
. T. state and Gft Tu Dvson.
G. C. M. Genera Counse s, ssstant Genera Counse s, or Chef Counse s
memorandum.
I. R. . Interna Revenue uetn.
I. R. C. Interna Revenue Code.
I. T. Income Ta Unt.
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses, accordng
to conte t.
Mm. Mmeograped etter.
MS. or M. T. Msceaneous Dvson. ,
O. or L. O. Soctors aw opnon.
O. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng Ta Dvson.
S. T. Saes Ta Dvson.
S . Sver Ta Dvson.
S. M. Soctor s memorandum.
SoL 0; . Soctor s opnon.
. R. Soctor s recommendaton.
S. S. T. Ta es on empoyment by others than carrers.
T. Tobacco Dvson.
T. . M. dvsory Ta oard memorandum.
T. . R. dvsory Ta ard recemmendaton.
T. C Ta Court of the Unted States.
T. D. Treasury Decson.
and y are used to represent certan numbers, and when used wth the word
doars represent sums of money.
NNOUNC M NT R L TING TO D CISIONS OF T T COURT OF T
UNIT D ST T S
In order that ta payers and the genera pubc may be nformed
whether the Commssoner has acquesced n a decson of The Ta
Court of the Unted States dsaowng a defcency n ta determned
by the Commssoner to be due, announcement w be made n the
Interna Revenue uetn at the earest practcabe date. (No an-
nouncements are made n the uetn wth respect to memorandum
opnons of the Ta Court.) Notce that the Commssoner has ac-
quesced or nonacquesced n a decson of the Ta Court reates ony
to the ssue or ssues decded adversey to the Government. Decsons
so acquesced n shoud be reed upon by offcers and empoyees of the
ureau of Interna Revenue as precedents n the dsposton of other
cases.
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CUMUL TI CONT NTS
Rung
Treasury Decsons:
(Narcotcs)..
Unted Sutes Ta Court:
1 3
C006
9631
119 2
1 19
1 302
1)22
1 673
1 99
1 699
16000
16001
16002
1 003
1C3
163 9
16360
16361
16362
16 2
16 3
16 S9
167
167 7
1702
170C6
17321
17 67
Ib 21
1 SS7S.
Rung No.
19 1- -13 6
19 1-1-13 13
19 1-1-13 1
19 1-2-13 22
19 1-2-13 2
19 1-2-13 2
19 1-3-13 3
19 1-3-13 33
19 1- -13
19 1 - -13 0
19 1- -13
19 1-6-13 61
19 1-7-13 6
19 1-7-13 67
19 1-7-13 66
19 1-C-13 63
19 1-C-13 2
19 1-9-13 0
19 1-10-13
19 1-10-13 6
19 1-11-13 96
19 1-12-13601
19 1-12-1300
19 1-13-13609
19 1-13-13013
19 1-9-13 77
19 1-1C-13 9
19 1- -13 7
19 1-2-13 17
19 1-2-13 17
19 1- -13 1
19 1-10-13
19 1-3-13 31
10 1-10-13
19 1- -13 2
1961-13-13607
19 1-2-13 17
19 1-2-13 17
19 1-2-13 17
19 1-2-13 17
19 1-2-13617
19 1-2-13 17
19 1- -13 2
19 1- -13 2
19 1- -13 2
19 1- -13 2
19 1- -13 2
19 1- -13 2
19 1- -13 2
19 1- -13 2
19 1-13-13607
19 1-13-13607
19 1-13-13607
19 1-2-13 17
19 1- -13 70
19 1-13-13607
19 1-3-13 31
19 1-7-13 6
19 1-C-13
19 1-6-13
19 1-11-13 9
19 1-11-13 9
19 1- -13 70
19 1- -13 1
19 1-10-13
19 1- -13670
19 1- -13 2
19 1-12-13600
Page
I
S9
1 7
26
1 3
1 2
111
63
16
66
3
72
I
117
SI
3
7
1 3
II
166
2
26
21
S
2
a
2
2
2
2
3
1
1
1
3
1
1
3
3
3
3
2
2
2
2,
2,
2
2
3
1
3
1
1
2,
3
1
2
1
2
Rung
Unted States Ta Court
Contnued
20
20 33
20709
20730
207 1
20 69
20913
2091
2091
213 7
21392
21393
2139
2139
21396
21397
21 93
223 9
22362
2260
2270
2322
23 6
2 066
2 10
2 106
2 393
2 39
2 39
2 602
2 73
2 07
2 07
2 076
2 077
26973
92 1
967 1
067 2
9993
103900
Offce decsons (I. T.):
0 1
0 2
0 3
0 1
0
0 6.
0 7
0 ,
0 9
0 0
0 1 ,
0 2 ,
Offce decson ( m. T.):
9
Offce decson (S. T.):
937.
Offce decsons (T.):
2 3
2
2
2 6
2 7
2
2 9
290
291
292
293
29
Rung No.
19 1- -13 1
19 1-1-13 09
19 1-6-13
19 1- -13 70
19 1-3-13 31
19 1-3-13 31
19 1-10-13
19 1-10-13
19.-,-v-:6S
19 1-1 -13607
19 1-2-13 17
19 1-2-13 17
19 1-2-13 17
19 1-2-13617
19 1-2-13 17
19 1-2-13617
19 1-7-13 6
19 1- -13 1
19 1-10-13
19 1-9-13 76
19 1-7-13 6
19 1-11-13 9
19 1-11-13 9
19 1-6-13
19 1- -13 2
19 1- -13 2
19 1- -13 70
19 1- -13 70
19 1-10-13
19 1-10-13
19 1-7-1366
19 1-7-13 6
19 1-7-13 6
19 1-7-13 6
19 1-7-13 6
19 1-13-13607
19 1- -136 2
19 1- -13 2
19 1- -13 2
19 1-1-13 1
19 1- -13 2
19 1-1-13 10
19 1-1-13 11
19 1-1-13 12
19 1-2-13 1
19 1-1-13S 3
19 1-6-13 9
19 1-S-13 71
19 1-2-13 79
19 1-10-13 7
19 1-11-13 9
19 1-12-13603
19 1-13-1360
19 1- -13 72
19 1-C-13 60
19 1-1-13 1
19 1-1-13 16
19 1-2-13629
19 1-3-13 0
19 1- -13 9
19 1- -13 6
19 1- -13 7
19 1-6-13 62
19 1-7-13 69
19 1- -13 73
10 1- -13 7
19 1- -13
( )
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I
Rung
Rung No.
Pugc
Offce decsons (T.) Con.
29
19 1-10-13 91
17
29
19 1-10-13 2
17
207
19 1-10-13 3
170
29
19 1-11-1.1 9
172
299
19 1-11-13 99
17
19 1-12-13606
170
Mmcorraphs:
19 1-13-1361
17
6023 (Supp. 1)
19.11-11-13 07
1
6 6
19 1-- 13 23
110
6 66
19 1-2-13 20
1(1
19 1-2-13 21
9
6 2
19 1-2-13 2
1
6 3
19 1-3-13 32
97
6
19. 1-2-13 19
19
19 1- -13
99
6 97
19 1-1-13 2
20
6601
19 1- -13 3
103
600 .
1961- -13.
1 1
662
19 1-6-13 1
7
6 33
19 1-p-13 90
106
60 1
19 1-12-13602
1
Rung
ecutve Orders:
1019
10200
10211
Msceaneous
Rung No.
/ 19 1-2-13 26
177
19 1-2-13 30
177
1 1-3-13 3
17
1 1-1-13 7
17
19 1- -13
179
19 1-7-13 6
1 0
19 1- -13 7
1 0
19 1- -13 3
1 2
19 1-12-1300
1 3
19 1-13-13010
1 3
19 1-13-13611
1
19 1-13-13012
1
19 1-3-13 3
6
19 1-3-13 39
30
19 1- -13 1
S
1 19 1-2-13 27
1 7
19 1-3-13 3
2 0
I 1 1 3-13 37
26
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CONT NTS OF CUMUL TI ULL TINS (I. T.) I TO ; S. T. FO ISM ND 1921: INT RN L
NU M, 1-2. II-1,11-2. IU-1. I-2. 1 -1. I -2. -. -2. I-1. I-2. II-1. T -2, I-. I1I-2.
I -1. I -2. -I. -2. I-1. I-2. II-1, -2. m-1, III-2, I -1. I -2. -1, -2. 1937-1. 1937-2,
193 -1. 193 -2. 1939-1 (P RT 1 ND P RT 2), 1939-2, 19 0-1. 19 0-2 19 1-1. 19 1-2, 19 2-1. 19 2-2; N-
M I. ULL TINS FOR 19 3, 19 , ND 19 ; S MI NNU L ULL TINS 19 6-1, 19 6-2, 19 7-1,
19 7-2, 19 -1, 19 -2, 19 9-1, 19 9-2, 19 0-1. 19 0-2, ND 19 1-1
Cumuatve uetn
Income Ta :
December 1919 (No. 1)
anuary- une 1920 (No. 2)
uy-December 1920 (No. 3)
anuary- une 1921 (No. )
uy-December 1921 (No. )
Saes Ta :
1920 (S. T. 1-20)
anuary- une 1921
uy-December 1921
Interna Revenue uetn;
anuary- une 1922 (No. 1-1)
uy-December 1922 (No. 1-2)
anuary- une 1923 (No. II-)
uy-December 1923 (No. II-2)
anuary- une 192 (No. III-)
uy-December 192 (No. III-2)...
anuary- une 192 (No. I -1)
uy-December 192 (No. I -2)...
anuary- une 1926 (No. -) ,
uy-December 1926 (No. -2)
anuary- une 1927 (No. I-1)
uy-December 1927 (No. I-2)...
anuary- une 192 (No. II-1)
uy-December 192 (No. II-2)...
anuary- une 1929 (No. III-)...
uy-December 1929 (No. III-2).
anuary- une 1930 (No. I -1)
uy-December 1930 (No. I -2)...
anuary- une 1931 (No. -)
uy-December 1931 (No. -2)
anuary- une 1932 (No. I-1)
uy-December 1932 (No. I-2)...
anuary- une 1933 (No. II-1). ...
uy-December 1933 (No. -2)..
snuary- unc 193 (No. III-1). ..
uy-December 193 (No. III-2).
anuary- une 193 (No. 1 -D...
uy-December 193 (No. I -2).
anuary- une 1936 (No. -1)....
oy-Deccmber 1936 (No. -2)..
anuary- une 1937 (1937-1)
uy-December 1 37 (1937-2)
anuary- une 193 (193S-1)
uy-December 193 (193 -2).
anuary- une 1939 (1939-1 part 1 and part 2)
uy-December 1939 (1939-2)
anuary- une 19 0 (19 0-1)
uy-December 19 0 (19 0-2)
anuary- une 19 1 (19 1-1)
anuary- une 19 2 (19 2-1)
anuary-December 19 3 (12 months)
anuary-December 19 (12 months)
anuary-December 19 (12 months)
anuary- une 19 0 (19 6-1)
uy-December 19 6 (19 6-2). .
anuary- une 19 7 (19 7-1)
uy-December 19 7 (19 7-2) .
anuary- une 19 (19 -1)
uy-December 19 S (19 -2)
anuary- une 19 9 (19 9-1)
uy-December 19 9 (19 9-2) .
anuary- une 19 0 (I9 0-1). ..
uy-December 19 0 (19 0-2).
anuary- une, 19 1 (19 1-1)
( II)
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T T COURT OF T UNIT D ST T S
CUMUL TI LIST OF NNOUNC M NTS R L TING TO
D CISIONS OF T T COURT OF T UNIT D
ST T S PU LIS D IN T INT RN L R NU UL-
L TIN S R IC FROM NU RY 1, 19 1, TO UN 30,
19 1, INCLUSI
19 1-13-13607
The Commssoner acquesces n te foowng decsons:
Ta payer
Docket No.
oume Page
etna-Standard ngneerng Co., The.

amo roadcastng Co., Inc
schre, erman Frederck

ear M Manufacturng Co., Inc
eck, Maron . urt
ade , rche L., estate of
ades, Inez ., e ecutr of estate of rche L. I adcs.
uesten, ., estate of 1
uesten, Frank, ndependent e ecutor of estate of
. uesten 1
odnc, Rchard ., admnstrator of estate of Water
.
oehmc, Inc., . O
C
Cader, r., Wam M
Campbe, ndrew II
Campbe, Chares
Campbe, oseph
Campbe, Robert
Campbe Trust No. 1, Robert ---
Campbe Trust No. 2, Robert -
Cohen, Morrs
Docket No. 1 9 3, estate ta decson.
state ta decson.
201G3
223G2
1 21
20730
20112
21066
2 066
1 063
11)3
2322
1 963
193
2322
207 1
20 33
2 39
1 999
21393
20
16000
2139
1 99
21392
16002
21396
10003
21397
20 69

1
(1)
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cquescbmces Contnued
Ta payer
Communty Pubc Servce Co.1
Conney, ames .2
Cooper, Ceska
Cummer, rthur G., estate of
Cummer et a., Nnah M. ., e ecutors of estate of
rthur G. Cummer
Cummer, W. W
Curran Reaty Co., Inc
G
Godbatt, m M., estate of
Godbatt, Ruth ., e ecutr of estate of m M.
Codbatt
Gordon, ce .
annaman, George L., estate of
annaman, arrett, admnstratr of estate of
George L. annaman.
, Water ., estate of. .
offman, atherne M.
offman, W. W. _
offman et u ., W. W.s.
opkns, ohn Randoph
eefe, rnest
rm- o Corporaton..
Langer, eanore
Langer, eanore, e ecutr of estate of R. L. Langer (.
Langer, R. L., estate of
M
Markson ros
Mken, Seth M. _
N
Ncustadt et a., gnes, trustees under w of Sgmund
Neustadt
eustadt, Sgmund, trust under w of
Docket No.
Re
ort
oume
Page
17066
/ 1 3
6006
201 6
161 2
12
93

7
1
1
7 7
03
16 2
16 9
2270
1
1
1
03
03
3 1
23 6
16
20
23 6
103900
16
6
20
1201
1 19
1
327
1 19
207 1
967 1
967 2
92 1
9931
1
1
0
327
20
0
9
9
9
160
0
1
17321
2039
1
16
9 7
31
167 7
167 6
167 6
16
16
16
1
1
1
f 119 2
1 302
19 02

39
2 3
1
9993
9993
3
3

16 3
1
03
, page , wthdrawn.
r-2, page G, wthdrawn.
Pau, r., et u ., Robert II
oard of Ta ppeas.
1 Nonacquescencc pubshed n Cumuatve uetn 19 9-
Nonacquescencc pubshed n Cumuatve uetn 19 -
state ta decson.
onacqufescence pubshed In Cumuatve uetn 10 2-2, pace 2 , wthdrawn.
1 Nonacquescence pubshed n Cumuatve uetn 19 0-1, page 7, wthdrawn.
cquescence reates to the ssue whether back pay was pad pursuant to a pror agreement or ega
obgaton wthn the meanng of secton 29.107-3 of Reguatons 111.
cquescence reates to a ssues e cept the ssue wth respect to whether the payment n 19 2 of
S33. .29 as transferee abty of a persona hodng company s deductbe as an ordnary oss or as a
ong-term capta oss.
Nonacquesccnee pubshed n Cumuatve uetn 19 1-1, page 17, wthdrawn.
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cquescences Contnued
Ta payer
Docket No.
Report
oume Page
It
Reed, ar F
Roe, dward C
Roe, r., ohn L
Roe, Sr., ohn L
Roe, Mabe C
Rose, Davd
Ryan et u ., ean ( ohn) . L.
Sage, enry
Sbey, Lndsay Cvrr Co.
Smth- rdgman Co
Sterng, arbara C
Stewart Tte Guaranty Co.
Suvan, Prsca M
Thompson et u ., Ward I.1.
Thrft, Luce
Thrft, Sr., W. T
aner, Dorothy.
oner, . P
Waggoner, Guy L
Waggoner, een
Watson et u ., rnest .
7
Z
Zmer et u ., ertram G
16001
2139
16361
10362
163 9
163
2260
1 22
223 9
20709
213 7
16360
19 67
17 67
2 73
2 106
2 10
2 07
2 076
2 07
2 077
1 6
26973
16
1
312
1
03
1
03
1
03
1
03
16
232
1
209
1
299
1
106
16
2 7
1
03
1
66
16
22
1
609
1
366
1
366
1
96
1
96
1
96
1
96
1
00
I reates to ssues other than a deducton (or Okahoma cgarette ta .
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The Commssoner does NOT acquesce n the foowng decsons:

Ta payer
auer et u ., Frederck R.
Casey, atharne omshaw.
F
Fckert, the omshaw
Langer, eanore 1
Langer, eanore, e ecutr of estate of R. L. Langer .
Langer, R. L., estate of
Mken, Seth M. .
O ford Paper Co..
urk, . P
M
0
Stenman, Php, e ecutor of estate of Isdore

Wadman
Thompson et u ., Ward I. .
Tte and Trust Co
van, Mary Stewart.
W
Wadman, Isdore, estate of
Wrght, Oe ee, e ecutr of estate of W. M.
Wrght..
Wrght, W. M., estate of
Docket No.
2 393
1 3
1 7
167 7
167 6
167 6
19102
20913
2091
2091
1 673
2 602
2 73
21 93
2 39
2 602
17021
17021
oume
Nonacquescence reates to the Issue whether back pay consttuted more than 1 percent of ta payers,
gross ncomes for 19 .
Nonacquescence reates ony to the ssue wth respect to whether the payment n 19 2 of 33, 11.29 as
transferee abty of a persona hodng company s deductbe as an ordnary oss or as a ong-term capta
oss.
Nonacquescence reates ony to a deducton for Okahoma cgarette ta .
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I
INCOM T RULINGS. P RT I
INT RN L R NU COD
C PT R 1. INCOM T
SU C PT R . G N R L PRO ISIONS
P RT II. COMPUT TION OF N T INCOM
S CTION 22(a). GROSS INCOM : G N R L
D FINITION
Secton 29.22 (a)-: What ncuded n gross ncome.
INT RN L R NDS COD
Ta refunds. Mmeograph 6 (C. . 19 9-2,11) modfed. (See
Mm. G 97, page 20.)
Secton 29.22(a)-3: Compensaton pad other 19 1-1-13 10
than n cash. L T. 0 1
( so Secton 2, Secton 29. 2-1.)
INT RN L R NU COD
Contrbutons made by an empoyer to purchase annuty contracts
for empoyees, not under a pan meetng the requrements of secton
16 (a) of the Interna Revenue Code, where the empoyees rghts
under the contracts are nonforfetabe, consttute ta abe ncome to
the empoyees for the years n whch the contrbutons are made.
I. T. 1S10 (C. . II-2, 70 (11)23)) and I. T. 2S01 (C. . I -1, 0
( 3o)) revoked.
Reconsderaton has been gven to I. T. 1 10 (C. . II-2, 70 (1923))
and I. T. 2 91 (C. . I -1, 0 (193 )) n the ght of the decsons n
Ienton . rode et a. v. Commssoner (1 T. C. 27 ); /. Ferd Ober-
wnder et a. v. Commssoner (1 7 Fed. (2d) 2 ); D. D. ubbcU et a.
v. Commssoner (1 0 Fed. (2d) 1G); and Robert P. aekctt ct a. v.
Commssoner ( T. C. 132 , affrmed, 1 9 Fed. (2d) 121).
In I. T. 1 10, supra, t was hed that no ta abe ncome was reazed
by an empoyee as a resut of the devery to hm of an unassgnabe
snge-premum penson bond purchased by an empoyer where the
bond became the absoute property of the empoyee and provded for
the pa| ment of an annua penson to the empoyee after attanng a
certan age. In I. T. 2 91, supra, a smar concuson was reached
( )
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22(b).
6
wth respect to contrbutons made by an empoyer toward the pur-
chase of retrement annuty contracts for the beneft of hs empoyees.
Secton 22(a) of the Interna Revenue Code provdes n part that
gross ncome ncudes gans, profts, and ncome derved from saares,
wages, or compensaton for persona servce, of whatever knd and n
whatever form pad. The Supreme Court of the Unted States stated
n Commssoner v. ohn . Smth (32 U. S. 177: Ct. D. 1033, C. .
19 , 9) that Secton 22(a) of the Revenue ct Revenue ct of
193 s broad enough to ncude n ta abe ncome any economc or
fnanca beneft conferred on the empoyee as compensaton, whatever
the form or mode by whch t s effected.
Secton 29.22(b) (2)- of Reguatons 111 provdes n part that f
an empoyer purchases an annuty contract whch s not under a pan
wth respect to whch hs contrbuton s deductbe under secton
23(p) (1) ( ) of the Code, the amount of such contrbuton sha be
ncuded n the ncome of the empoyee n the ta abe year durng
whch such contrbuton s made, f the empoyee s rghts under the
annuty contract are nonforfetabe.
In the above-cted rode, Oberwnder, ubbe, and ackett dec-
sons, the courts hed n genera that contrbutons made by empoyers
to purchase annuty contracts wth nonforfetabe rghts for offcers
and empoyees consttute ta abe ncome to such offcers and empoyees
for the ta abe years n whch the contrbutons were made. (See aso
Unted States v. Theodore . Drescher, 179 Fed. (2d) 63, certorar
dened, October 9, 19 0.)
In vew of the foregong, t s hed that contrbutons made by an
empoyer to purchase annuty contracts for empoyees, not under a
pan meetng the requrements of secton 16 (a) of the Interna
Revenue Code, where the empoyees rghts under the contracts are
nonforfetabe, consttute ta abe ncome to the empoyees for the years
n whch the contrbutons are made. I. T. 1 10, supra, and I. T. 2 91,
supra, are hereby revoked.
S CTION 22(b). GROSS INCOM : CLUSIONS
FROM GROSS INCOM
10 1-3-13 3
. 0.1019
CUTI ORD R 1019 D SIGN TION OF OR ND W T RS D C NT
T R TO S COM T ZON FOR T PURPOS S OF S CTION 22(b) (13)
OF T INT RN L R NU COD
Pursuant to the authorty vested n me by secton 22(b) (13) of
the Interna Revenue Code, as amended by secton 202(a) of the
Revenue ct of 19 0, approved September 23, 19 0 (Pubc Law 1 ,
1st Cong.), there s hereby desgnated, for the purposes of para-
graph (13) of secton 22(b) of the Interna Revenue Code, as an
area n whch rmed Forces of the Unted States have engaged n
combat:
orea, ncudng the waters ad|acent thereto wthn the foowng-
descrbed mts: From a pont at Lat. 39 30 N., Long. 122 .
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7
29.22(b) (9)-
southward to Lat. 33 , Long. 122 .; thence eastward to Lat.
33 N., Long. 127 .; thence northeastward to Lat. 37 0 N.,
Long. 133 .; thence northward to Lat. 0 1 N., Long. 133 .;
thence northwestward to a pont on the east coast of orea at the
|uncture of orea wth the U. S. S. R.
The date of the commencng of combatant actvtes n such area
s hereby desgnated as une 27,19 0.
arry S. Truman.
The Whte ouse,
December 20, 19 0.
(Fed wth the Dvson of the Federa Regster December 21, 19 0, 9 : 32 a. m.).
Secton 29.22 (b) (9)-: Income from dscharge 19 1-10-13 6
of ndebtedness. T. D. 39
( so Secton 29.22(b) (10)-1.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 29.
INCOM T ; T L Y RS GINNING FT R D C M R 31, 19 1
Reguatons 111 amended to conform to secton 201 of the Reve-
nue ct of 1930, reatng to e tenson of tme n the case of ds-
charge of ndebtedness.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. G.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 111 26 CFR, part 29 to secton
201 of the Revenue ct of 19 0, approved September 23, 19 0, such
reguatons are amended as foows:
Paragraph 1. There s nserted mmedatey precedng secton
29.22(b) (9)- 26 CFR 29.22(b) (9)- the foowng:
S C. 201. T NSION OF TIM IN T C S OF DISC RG
OF IND T DN SS R NU CT OF 19 0, PPRO D
S PT M R 23, 19 0 .
Secton 22(b)(9) (reatng to e cuson of certan n-
come attrbutabe to the dscharge of ndebtedness) are amended by
strkng out December 31, 1930 and nsertng n eu thereof Decem-
ber 31, 19 1 .
Par. 2. Secton 29.22(b) (9)-, as amended by Treasury Decson
07 C. . 19 0-2, 1 , approved September 12, 19 0 26 CFR
29.22(b) (9)- , s further amended by strkng from the frst para-
graph and from the thrd paragraph anuary 1,19 1 and nsertng
n eu thereof n each nstance anuary 1,19 2 .
Par. 3. There s nserted mmedatev precedng secton 29.22(b)
(10)-1 26 CFR 29.22(b) (10)-1 the foowng:
S C. 201. T NSION OF TIM IN T C S OF DISC RG
OF IND T DN SS R NU CT OF 19 0, PPRO D
S PT M R 23, 19 0 .
secton 22(b) (10) (reatng to e cuson of certan ncome
attrbutabe to the dscharge of ndebtedness) are amended by strk-
ng out December 31, 19 0 and nsertng n eu thereof December 31,
19 1 .
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29.22(b) (13)- .
S
Par. . Secton 29.22(b) (10) -1, as amended by Treasury Decson
07, approved September 12, 19 0 26 CFR 29.22(b) (10)-1 , s
further amended by strkng from the frst sentence and from the ast
sentence anuary 1, 19 1 and nsertng n eu thereof n each n-
stance anuary 1,19 2 .
Par. . Inasmuch as the amendments made by ths Treasury De-
cson merey change the dates from those specfed by pror aw to
those now specfed by secton 201 of the Revenue ct of 19 0, whch
e tends the appcaton of secton 22(b) (9) and (10) of the Interna
Revenue Code, t s hereby 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
ct.
(Ths Treasury Decson s ssued under the authorty contaned n
secton 62 of the Interna Revenue Code ( 3 Stat, 32; 26 U. S. C. 62).)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved pr 17,19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 20, 10 1, : 1 a. m.)
Secton 29.22(b) (10)-1: Income from dscharge of
ndebtedness of raroad corporatons.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 39, page 7.)
Secton 29.22(b) (13) 1: Compensaton of mem-
bers of mtary and nava forces receved pror
to anuary 1,19 9.
( so Secton 29.22(b) (13)-2; Secton 3797,
Secton 29.3797-11.)
TITL 26 INT RN L R NU C PT R I, SU C PT R . T RT 29.
Reguatons 111 amended to conform to secton 202(a) of the
Revenue ct of 1S 0, reatng to e cuson from gross ncome for
members of rmed Forces servng n combat areas.
Yashnffton 2 , D. C.
On December 13, 19 0, notce of proposed rue makng, regardng
amendments to the ncome ta reguatons made necessary by secton
202(a) of the Revenue ct of 19 0, approved September 23, 19 0, was
pubshed n the Federa Regster (1 F. R. 2 ). 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:
19 1-7-13 6
T. D. 32
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29.22 (b)(13)-.
S C. 202. INCOM T MPTIONS FOR M M RS OF T
RM D FORC S S R ING IN COM T R S R NU
CT OF 19 0, PPRO D S PT M R 23, 19 0 .
(a) cuson From Gkosb Income. Secton 22(b) (13) (reatng to
e cusons from gross ncome) s hereby amended to read as foows:
(13) ddtona aowance foe certan members of the armed
FORC S.
( ) 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 served n a combat zone after
une 2 ,19 0, and pror to anuary 1, 19 2.
( ) Commssoned Offcers. 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 served n a combat zone after
une 2 , 19 0, and pror to anuary 1, 19 2, so much of such
compensaton as does not e ceed 200.
(C) Defntons. For the purposes of ths paragraph
() the term commssoned offcer does not ncude a
commssoned warrant offcer;
() the term combat zone means any area whch the
Presdent of the Unted States by ecutve order desg-
nates, for the purposes of ths paragraph, as an area n
whch rmed Forces of the Unted States are or have
(after une 2 , 19 0) engaged n combat;
() servce s performed n a combat zone ony If per-
formed on or after the date desgnated by the Presdent
by ecutve order 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; and
(v) the term compensaton does not ncude pensons
and retrement pay.

Par. 2. Secton 29.22(b) (13)-1, as amended by Treasury Decson
6 C. . 19 -2, 1 , approved uy 20, 19 26 CFR
29.22(b) (13)-1 , s hereby further amended by changng the headng
thereof to read as foows; Compensaton of Members of Mtary
and Nava Forces Receved Pror to ant|art 1,19 9.
Par. 3. There s nserted mmedatey after secton 29.22(b) (13)-1
26 CFR 29.22(b) (13)- the foowng:
Sec. 29.22 b) (13)-2. Compensaton of Members of the rmed Forces of
the Unted States for Servce n a Combat Zone fter une 2 ,19 0, and Prob
to anuary 1, 19 2. 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 served n a combat zone after une
2 .19 0, nnd pror to anuary 1,10 2.
(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 served n a combat zone after une 2 , 19 0. and pror to
anuary 1, 19 2, 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 Is performed n a combat zone after une 2 , 19 0, and pror
to anuary 1, 19 2. Compensaton s sub|ect to e cuson whether or not t s
receved outsde a combat zone or c a year (Incudng a year after 19 1) dffer-
ent from that n whch such servce s performed. Servce s performed n a
combat zone ony f t s performed n an area whch the Presdent of the
90 290 1 2
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29.22(b) (13)- .
10
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 , 19 0) engaged n combat, and ony f t s performed on or after
the date desgnated by the Presdent by ecutve order as the date of the com-
mencng 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. If a member of the rmed Forces serves n a combat
zone 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 for the entre month.
The term commssoned offcer does not ncude a commssoned warrant
offcer, and, accordngy, a commssoned warrant offcer a entted to the e cu-
son aowed to ensted personne under secton 22(b) (13) ( ). The term
compensaton, for the purpose of ths secton, does not ncude pensons and
retrement pay. s to who are members of the rmed Forces, see secton
29.3797-11.
These e cusons are appcabe wthout regard to the marta status of the
recpent of the compensaton, and f a husband and wfe both meet the requre-
ments of the statute, then each s entted to the beneft of an e cuson. In the
case of a husband and wfe domced n a State recognzed for Federa ncome
ta purposes as a communty-property State, any e cuson from gross ncome
under secton 22(b) (13) operates before apportonment of the gross ncome of
the spouses n accordance wth communty-property aw. For e ampe, a man
and hs wfe are domced n a communty-property State an he s entted, as
a commssoned offce , to the beneft of the e cuson of 200 for each month
under secton 22(b) (13) ( ). e receves 1,000 as compensaton for .actve
servce for 3 months n a combat zone. Of such amount, 00 s e cuded from
gross ncome under secton 22(b) (.13) ( ) and ony 00 s taken nto account n
determnng the gross ncome of both husband and wfe.
member of the rmed Forces s n actve servce f he s actuay servng n
the rmed Forces. Perods durng whch a member of the rmed Forces s
absent from duty on account of sckness, wounds, eave, nternment by the enemy,
or other awfu cause are perods of actve servce. member of the rmed
Forces n actve servce n a combat zone who there becomes a prsoner of war or
mssng n acton s deemed, for the purpose of secton 22(b) (13) and ths sec-
ton, to contnue n actve servce n the combat zone for the perod for whch he
s entted to such status for mtary pay purposes. These e cusons appy to
compensaton receved by a member of the rmed Forces for servces rendered
whe n actve servce even though payment s receved subsequent to dscharge
or reease from actve servce. Compensaton credted to a decedent s account
for a perod subsequent to the estabshed date of hs death and receved by hs
estate w be e cuded under secton 22(b) (13) from the gross ncome of the
estate to the same e tent that t woud have been e cuded from the gross ncome
of the decedent f he bad ved and receved such compensaton.
Par. . Secton 29.3797-11 2G CFR 29.3797-11 s hereby amended
to read as foows:
Sec. 29.3797-11. Mtary oe Nava Forces and hmed Forces of the Unted
States. The term mtary or nava forces of the Unted States and the
term rmed Forces of the Unted States each ncudes a reguar and reserve
components of the unformed servces whch are sub|ect to the |ursdcton of the
Secretary of Defense, the Secretary of the rmy, the Secretary of the Navy, or
the Secretary of the r Force. The terms aso ncude the Coast Guard. The
members of such forces ncude commssoned offcers and the personne beow
the grade of commssoned offcer n such forces.
(Ths Treasury Decson s ssued under the authorty contaned
n sectons G2 and 3791 of the Interna Revenue Code ( 3 Stat. 32,
G7;2GU.S.C.C2,3791).)
Fred S. Martn,
ctng Commssoner of Interna Revenue.
pproved March ,19 1.
Thomas . Lynch,
ctng Secretary of te Treasury.
(Fed wth the Dvson of the Federa Regster March 13, 19 1, : a. m.)
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11 29.22(d)-7.
Secton 29.22(b) (13)-2: Compensaton of mem-
bers of the rmed Forces of the Unted States
for servce n a combat zone after une 2 ,
19 0, and pror to anuary 1,19 2.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 32, page .)
S CTION 22(d). G OSS INCOM : IN NTORI S-
L CTI M T OD
Secton 29.22(d)-: Inventores under eec- 19 1-11-13 9
tve method. I. T. 0 0
INT RN L R NU COD
Prce ndces for anuary 1C 1, pubshed by the ureau of Labor
Statstcs under date of March 13,19 1, for use by department stores
empoyng the reta nventory and eectve nventory methods.
The foowng prce ndces for anuary 19 1, pubshed by the
ureau of Labor Statstcs 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 60
(C. . 19 -1, 16), approved March , 19 , and Mmeograph 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,
19 0, and anuary 31, 19 1.
ureau of Labor Statstcs, department tore nventory prce ndces,
by depa tment groups
I anuary 19 1-1001
anuary
19 0 to
Group
anuary
19 0
anuary
19 1
anuary
19 1,
percent
chango
191.3
191.
166.3
160.7
IS3.
1 .(1
16 .6
1 .6
1 2. 2
163.6
216.
13.1
11.7
7.7
2.7
7.
10.6
1 .1
7.6
11.0
1.7
II. Shoes -
21 .0
179. 1
17 .2
197. 1
20 .2
19 .0
170.
1 7.9
166.2
I . Lades outerwear and grs wear
. Men s and boys wear
I Furnture and beddng..
II. ome furnshngs..
III. Ma|or appances and eectrca goods
I . Notons and toet artces
. Lades accessores
Tota, Groups I, U. I, I , I . and
17 .6
171.0
173.6
1 9.0
191.7
1 9.6
.2
12.1
9.3
Tota. Groups I. II, and III
Secton 29.22(d)-7: Invountary qudaton 19 1-12-13601
and repacement. T. D. 1
( so Secton 19.22(d)-7, Reguatons 103.)
TITL 2 INT RN L R NU C PT R I, SU C PT R , P RT 10 ND
P RT 29
Reguatons 103 and 111 amended to conform to Pubc Law 7 0,
ghty-frst Congress C. . 19 0-2, 2 7 , reatng to nvountary
qudaton and repacement of nventores accounted for on the
ast-n frst-out bass.
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29.22(d)-7.
12
Washngton 2 , D. C.
On October 13, 19 0, notce of proposed rue makng regardng
the amendment of Reguatons 103 and 111 to conform to Pubc Law
7 6, ghty-frst Congress C. . 19 0-2, 2 7 , approved September
, 19 0, was pubshed n the Federa Regster (1 F. R. 6 91). fter
consderaton of a reevant matter presented by nterested persons
regardng the proposed amendments, the foowng amendments are
hereby adopted:
R GUL TIONS 103 20 CFR, P RT 10
19.22 (d)-, as ast amended by Treasury Decson 7 6 C. . 19 9-2,
21 , approved November 2,19 9 26 CFR 19.22(d)- , the foowng:
PU LIC L W 736, IG TY-FIRST CONGR SS, PPRO D
S PT M R , 10 0
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 22(d)
(6) ( ) (reatng to the nvountary qudaton and repacement of
eectve nventores) s hereby amended as foows:
(1) y amendng that porton thereof precedng cause () to read
as foows:
( ) d|ustment of Net Income and Resutng Ta . If, for any
ta abe year begnnng after December 31, 19 0, and pror to anu-
ary 1, 19 , the cosng nventory of a ta payer nventoryng goods
under the method provded n ths subsecton refects a decrease
from the openng nventory of such goods for such year, and f
the ta payer eects, at such tme and n such manner and sub|ect
to such reguatons ns the Commssoner wth the approva of
the Secretary may prescrbe, to have the provsons of ths para-
graph appy, and f t s estabshed to the satsfacton of the
Commssoner, n accordance wth such reguatons, that such de-
crease s attrbutabe to the nvountary qudaton of such nven-
tory as defned n subparagraph ( ), and f the cosng nventory
of a subsequent ta abe year, endng pror to anuary 1, 19 1,
refects a repacement, n whoe or n part, of the goods so pre-
vousy qudated, the net ncome of the ta payer otherwse
determned for the year of such nvountary qudaton sha be
ad|usted as foows: .
(b) The amendments made by ths secton sha be appcabe wth
respect to ta abe years begnnng after December 31, 19 0.
Par. 2. Secton 19.22(d)-7, as added by Treasury Decson 199
C. . 19 2-2, 1 , approved December 10, 19 2, and amended by
Treasury Decsons 6 C. . 19 , 6 , approved pr 29, 19 ,
and 6 C. . 19 -2, 1 , approved uy 20, 19 26 CFR 19.22
(d)-7 , s further amer.ded as foows:
( ) y strkng from the second sentence of the frst paragraph
the foowng words: at the tme of fng hs ncome ta return for
the year of the qudaton (or, wth respect to qudatons occurrng
n a ta abe year begnnng n 19 1, at any tme pror to ugust 26,
19 ) , and by nsertng n eu thereof the foowng: at any tme
not ater than 6 months after the tme of fng hs ncome ta return
for the year of the qudaton (or, wth respect to qudatons occur-
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13
29.22 (d)-7
rng n a ta abe year begnnng n 19 1, at any tme pror to ugust
26, 19 ) .
( ) y nsertng mmedatey after the second sentence of the frst
gragraph the foowng: (For e tensons of tme, see subpart of
emuatons 111, as added by Treasury Decson 391 C. . 19 ,
7 , approved uy 1 ,19 . and amended by Treasury Decson 00
C. . 19 , 76 , approved ugust 22,19 .).
(C) y strkng from the frst sentence of the fourth paragraph the
foowng words: at the tme of fng hs ncome ta return for the
year refectng the decrease, or, wth respect to a ta abe year begnnng
n 19 1, pror to ugust 2G, 19 , and by nsertng n eu thereof the
foowng: not ater than 6 months after the tme of fng hs ncome
ta return for the year refectng the decrease, or, wth respect to a
ta abe vear begnnng n 19 1, pror to ugust 26, 19 .
(D) y nsertng n the second sentence of the fourth paragraph,
mmedatey after the words the ta payer sha attach to hs return
and make a part thereof , the foowng: or he sha furnsh sepa-
ratey to the Commssoner, .
( ) y strkng from the second sentence of the fourth paragraph,
mmedatey precedng ( ) , the word and ; by substtutng a sem-
coon for the perod at the end of such paragraph; and by addng to
such paragrapn the foowng:
and (6) n the case of an eecton made pursuant to an e tenson of tme sought
under subpart more than 6 months after the fng of the return for the year
of qudaton, the crcumstances reed upon as ustfyng the eecton at such
tme, together wth a dscosure of the e tent, f any, to whch repacements
have aready been made.
(F) y strkng from the frst sentence of the ffth paragraph the
foowng word: prospectve .
(G) y strkng the frst sentence of the eghth paragraph, and
nsertng n eu thereof the foowng:
In some cases t may appear that, at the tme f the fng of the ncome ta
return for the year of repacement, or wthn 3 years thereafter, an ad|ustment
wth respect to the ncome or e cess profts ta es for the year of the nvountary
qudaton, or for some pror, ntervenng, or subsequent ta abe year, s pre-
vented by the runnng of the statute of mtatons, by the e ecuton of a cosng
agreement, by vrtue of a court decson whch has become fna, or by reason
of some other provson or rue of aw other than secton 37G1 reatng to com-
promses and other than the Inventory repacement provsons.
GIL TIONS 111 26 CFR, P RT 29
Pah. 3. There s nserted mmedatey precedng secton 29.22(d)-,
as ast amended by Treasury Decson 7 6 26 CFR 29.22(d)- ,
the foowng:
PU LIC L W 7 6, IG TY-FIRST CONGR SS, ITRO D
S PT M R , 10 0
Unted States of merca n Congress assembed, That secton 22(d)
(6) ( ) (reatng to the nvountary qudaton and repacement of
eectve nventores) s hereby amended as foows:
(1) y amendng that porton thereof precedng cause () to read
as foows:
( ) d|ustment of Net Income and Resutng Ta . If, for any
ta abe year begnnng after December 31, 1C 0, and pror to an-
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29.22(d)-7.)
1
uary 1, 19 , the cosng Inventory of a ta payer nventoryng goods
under the method provded n ths subsecton refects a decrease
from the openng nventory of such goods for such year, and f the
ta payer eects, at such tme and n such manner and sub|ect to such
reguatons as the Commssoner wth the approva of the Secretary
may prescrbe, to have the provsons of ths paragraph appy, and
f t s estabshed to the satsfacton of the Commssoner, n
accordance wth such reguatons, that such decrease s attrbutabe
to the nvountary qudaton of such nventory as defned n sub-
paragraph ( ), and f the cosng Inventory of a subsequent ta abe
year, endng pror to anuary 1, 19 1, refects a repacement, n
whoe or n part, of the goods so prevousy qudated, the net ncome
of the ta payer otherwse determned for the year of such nvoun-
tary qudaton sha be ad|usted as foows: .
(b) The amendments made by ths secton sha be appcabe wth re-
spect to ta abe years begnnng after December 31,19 0.
Par. . Secton 29.22(d)-7, as ast amended by Treasury Decson
6 26 CFR 29.22(d)-7 , s further amended as foows:
( ) y nsertng n the second sentence of the frst paragraph, m-
medatey after the words If the ta payer notfes the Commssoner
at , the foowng: any tme not ater than 6 months after .
( ) y nsertng mmedatey after the second sentence of the frst
paragraph the foowng: (For e tensons of tme, see subpart ,
as added by Treasury Decson 391, approved uy 1 , 19 , and
amended by Treasury Decson 00, approved ugust 22, 19 .) .
(C) y strkng from the frst sentence of the fourth paragraph
the foowng words: at the tme of fng hs ncome ta return ,
and by nsertng n eu thereof the foowng: not ater than 6
months after the tme of fng hs ncome ta return .
(D) y nsertng n the second sentence of the fourth paragraph,
mmedatey after the words the ta payer sha attach to hs return
and make a part thereof , the foowng: , or he sha furnsh sepa-
ratey to the Commssoner, .
( ) y strkng from the second sentence of the fourth paragraph,
mmedatey precedng ) , the word and ; by substtutng a sem-
coon for the perod at the end of such paragraph; and by addng to
such paragraph the foowng:
and (6) n the case of an eecton made pursuant to an e tenson of tme sought
under subpart more than 0 months after the fng of the return for the year
of qudaton, the crcumstances reed upon as |ustfyng the eecton at such
tme, together wth a dscosure of the e tent, f any, to whch repacements have
aready been made.
(F) y strkng from the frst sentence of the ffth paragraph the
foowng word: prospectve .
(G) y strkng the frst sentence of the eghth paragraph and n-
sertng n eu thereof the foowng:
In some cases t may appear that, at the tme of the fng of the ncome ta
return for the year of repacement, or wthn 3 years thereafter, an ad|ustment
wth respect to the ncome or e cess profts ta es for the year of the nvountary
qudaton, or for some pror, ntervenng, or subsequent ta abe year, s pre-
vented by the runnng of the statute of mtatons, by the e ecuton of a cosng
agreement, by vrtue of a court decson whch has become fna, or by reason
of some other provson or rue of aw other than secton 3701 reatng to com-
promses and other than the nventory repacement provsons.
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1
29.23(a)- .
sectons 22, 62, and 3791 of the Interna Revenue Code ( 3 Stat. 9,32.
67; 26 U. S. C. 22, 62, 3791).)
Geo. . Schoeneman,
pproved May 22,19 1.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster May 2 ,19 1, : 1 a. m.)
S CTION 22(n). GROSS INCOM : D FINITION OF
D UST D GROSS INCOM
Secton 29.22(n)-: d|usted gross ncome.
INT RN L R NU COP
Rembursed e penses ncurred by pubc schoo teachers attendng
summer schoo. (See I. T. 0 , page 16.)
Secton 29.22(n)-: d|usted gross ncome.
INT RN L R NU COD
Forda cgarette ta pad by purchaser or consumer n connecton
wth cgarettes used n trade or busness. (See I. T. 0 2, page 17.)
S CTION 23(a). D DUCTIONS FROM GROSS
INCOM : P NS S
Secton 29.23(a)-1: usness e penses. 19 1-1-13 11
I. T. 0 2
INT RN L revenue code
Fnes pad by truck operators for voatons of State aves prescrb-
ng ma mum weghts, oads, and szes of vehces are penates whch
are not deductbe as ordnary and necessary busness e penses under
secton 23(a) (1) ( ) of the Interna Revenue Code.
Reconsderaton has been gv n to the concuson heretofore reached
by the ureau that fnes pad by truck operators for voatons of State
aws prescrbng ma mum weghts, oads, and szes of vehces are
deductbe from gross ncome as ordnary and necessary busness
e penses |nder secton 23 (a) (1) ( ) of the Interna Revenue Code.
That concuson was based upon the understandng that the fnes n
queston were pad n eu of fees whch woud have been payabe for
permts to operate overoaded or overength vehces, and that such
permts were generay granted by State hghway authortes. The
fnes were, therefore, regarded as more n the nature cf tos than
penates.
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29.23(a)- .
16
Upon reconsderaton of the queston nvoved t appears that the
premse on whch the ureau s concuson was based was erroneous.
It s therefore hed that fnes pad by truck operators for voatons of
State aws prescrbng ma mum weghts, oads, and szes of vehces
are penates whch are not deductbe as ordnary and necessary bus-
ness e penses under secton 23(a)(1)( ) of the Interna Revenue
Code. (See uvoughs udng Matera Co. v. Commssoner, 7
Fed. (2d) 17 , Ct. D. 297, C. . -, 397 (1931)), and G. C. M. 113 ,
C. . II-1, 29 (1933).)
Pursuant to authorty contaned n secton 3791(b) of the Code,
the nstant rung w not be apped to fnes ncurred or pad pror
to December 1, 19 0.
Geo. . Schoenema ,
pproved November 30, 19 0.
Thomas . Lynch,
Secton 29.23(a)-: usness e penses. 19 1-2-13 1
( so Secton 22(n), Secton 29.22(n)-; I. T. 0
Secton 29.23(a)-2.)
INT RN L R NU COD
Summer schoo e penses ncurred by a pubc schoo teacher n
order to mantan her poston are deductbe as ordnary and neces-
r.ary busness e penses under secton 23(a) (1) ( ) of the Interna
Revenue Code, and such e penses may be deducted n determnng
ad|usted gross ncome under secton 22(n) of the Code.
O. D. 92 (C. 1 . , 200 (1921)) modfed.
Reconsderaton has been gven to O. D. 92 (C. . , 209 (1921))
n the ght of the recent decson n No a Payne v. Commssoner
(1 1 Fed. (2d) 90G). ,
In O. D. 92, supra, t was hed that e penses ncurred by schoo
teachers n attendng summer schoo are n the nature of persona e -
penses ncurred n advancng ther educaton and are not deductbe
n computng net ncome.
In the case, the ta payer had taught n the pubc schoos of the
State of rgna for some 27 years and had obtaned the hghest certf-
cate ssued to pubc schoo teachers by the State board of educaton.
She was notfed of the e praton of her certfcate and that the certf-
cate coud not be renewed uness she acqured coege credts or passed
an e amnaton on fve seected books. She eected the former ater-
natve and attended summer schoo at Coumba Unversty. There-
after she sought to deduct the e penses whch she ncurred n that con-
necton as ordnary and necessary busness e penses. The Unted
States Court of ppeas for the Fourth Crcut hed that such e penses,
ncudng tuton, room rent, cost of trave, and the dfference between
the cost of vng whe at summer schoo and at home, propery con-
sttuted ordnary and necessary busness e penses ncurred n carryng
on a trade or busness whch are deductbe under secton 23(a) (1) ( )
of the Interna Revenue Code.
In reachng ts concuson, the court stressed the fact that the ta -
payer ncurred the e penses to mantan her poston; to preserve, not
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17
29.23(c)- .
to e pand or ncrease; to carry on, not to commence. Thus t s ap-
parent that the court dd not hod that a teachers attendng summer
schoo may deduct ther e penses as ordnary and necessary busness
e penses. In cases n whch the facts are smar to those present n
the case, the rue of that case w be apped. O. D. 92, supra,
s hereby modfed to conform wth ths concuson.
In genera, summer schoo e penses ncurred by a teacher for the
purpose of mantanng her poston are deductbe under secton
23(a) (1)( ) of the Code as ordnary and necessary busness e penses,
but e penses ncurred for the purpose of obtanng a teachng poston,
or quafyng for permanent status, a hgher poston, an advance n the
saary schedue, or to fuf the genera cutura aspratons of the
teacher, are deemed to be persona e penses whch are not deductbe
n determnng ta abe net ncome.
Summer schoo e penses whch are deductbe under secton
23(a) (1) ( ) of the Code may, under approprate crcumstances, be
deducted n determnng the ad|usted gross ncome of a teacher under
secton 22(n) of the Code. penses of trave, ncudng meas and
odgng, whe away from home, ncurred by a teacher n connecton
wth empoyment, are deductbe under secton 22(n) (2) of the Code.
To the e tent that other e penses, ncudng tuton, are rembursed
e penses whch quafy as deductbe tems under secton 23 (a) (1) ( )
of the Code, they may be deducted n computng ad|usted gross ncome
under secton 22(nW3) of the Code. Rembursements or e pense
aowances receved by a teacher are ncudbe n gross ncome. (See
I. T. 397 , C. . 19 9-2, 2 .)
Secton 29.23(a)-2: Traveng e penses.
INT RN L R NU COD
Summer schoo e penses of pubc schoo teachers. (See I. T. 0 ,
page 16.)
Secton 29.23(a)-1 : Nontrade or nonbusness
e penses.
INT RN L R NU COD
Items of admnstraton e penses where estate desres to deduct
other tems under secton 12 (b), I. R. C. (See I. T. 0 , page 39.)
S CTION 23(c). D DUCTIONS FROM GROSS
INCOM : T S G N R LLY
Secton 29.23(c)-1 : Ta es. 19 1-13-1360
( so Secton 22(n), Secton 29.22(n)-.) I. T. 0 2
INT RN L R NU COD
Deductbty for Federa ncome ta purposes of the Forda
cgarette ta mposed by secton 210.02 of the Forda Statutes of
19 9, effectve November 1, 19 9, and the Forda ta on mat and
other acohoc beverages mposed by secton 01. G of the Forda
Statutes of 19 9.
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29.23(c)- .
1
dvce s requested whether the ta on cgarettes mposed by sec-
ton 210.02 of the Forda Statutes of 19 9, as enacted by chapter
2G320 (No. 2), traordnary Sesson Laws of Forda, 19 9, effectve
November 1, 19 9, whch chapter amended the pror aw mposng a
ta on cgarettes, and the ta on mat and other acohoc beverages
mposed by secton 61. 6 of the Forda Statutes of 19 9 are deductbe
for Federa ncome ta purposes by the consumer.
Secton 23(c) (1) of the Interna Revenue Code provdes that n
computng net ncome there sha be aowed as deductons ta es
pad or accrued wthn the ta abe year, wth certan e ceptons not
here matera. Secton 29.23(c)-(a) of Reguatons 111 provdes
that n genera ta es are deductbe ony by the person upon whom
they are mposed.
In I. T. 36 7 (C. . 19 , 11 ) t s hed n part that the Forda
cgarette ta mposed by ouse bM No. 66 , Laws of Forda, 19 3,
approved une , 19 3, s not deductbe for Federa ncome ta pur-
poses under secton 23(c) (1) of the Interna Revenue Code for the
reason that the ta s not mposed on the consumer.
Secton 210.02 and secton 210.0 of the Forda Statutes of 19 9
provde n part as foows:
210.02. Cgarette Ta Imposed ; Coecton, Credt for Muncpa Ta , tc.
(1) n e cse or prvege ta , n addton to a other ta es of every knd
mpose by aw, s mposed upon the sae, recept, purchase, possesson, con-
sumpton, handng, dstrbuton and use of cgarettes n ths State, n the foow-
ng amounts, e cept as herenafter otherwse provded, for cgarettes of standard
dmensons:

(G) Ths ta sha he advanced and pad by the deaer to the drector drector
of tre beverage department of tte State of Forda for depost and dstrbuton
as herenafter provded upon the frst sae or transacton wthn the State,
rrespectve of whether or not such sae or transfer be to the utmate purchaser
or consumer. The seer or deaer sha coect the ta from the purchaser or
consumer, and the purchaser or consumer sha pay the ta to the seer. The
seer or deaer sha be responsbe for the coecton of the ta and the payment
of the same to the drector.

210.0 . Constructon ; emptons ; Coecton, tc.
(1) The amount of ta es advanced and pad to the State aforesad
sha be added to and coected as a part of the saes prce of the cgarettes sod
or dstrbuted, whch amount may be stated separatey from the prce of the
cgarettes on a dspay sgns, saes nnd devery sps, bs and statements whch
advertse or Indcate the prce of the product.
Under the foregong provsons of the Forda statutes, the ta on
cgarettes s requred to be coected from the purchaser or consumer.
ccordngy, t s hed that the ta mposed by secton 210.02 of the
Forda Statutes of 19 9, supra, beng a evy upon the purchaser or
consumer, s deductbe on and after November 1, 19 9, under secton
23(c) (1) of the Interna Revenue Code by the purchaser or consumer
n computng net ncome, e cept that n the case of an ndvdua who
eects the optona standard deducton (see secton 23 (aa) of the
Code), the ta s not deductbe uness pad n connecton wth cg-
arettes used n a trade or busness. In that event, the ta s deductbe
from cross ncome n computng ad|usted gross ncome. (See secton
22(n) () of the Code.)
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19
29. 1-3.
The Forda ta on mat and other acohoc beverages mposed by
secton 61. 6 of the Forda Statutes of 19 9 s mposed upon the
manufacturer or dstrbutor, and t s not deductbe for Federa
ncome ta purposes by the purchaser or consumer.
P RT I . CCOUNTING P RIODS ND M T ODS OF CCOUNTING
S CTION 1. G N R L RUL
Secton 29. 1-3: Methods of accountng. 19 1-2-13 19
( so Secton 2, Secton 29. 2-1; Secton Mm. 6
3, Secton 29. 3-1.)
mendment of Mmeograph 6 7 (C. . 19 0-1, 0), reatng to
treatment of bocked foregn ncome for Federa ncome ta purposes.
Washngton 2 , D. C, December 2 ,19 0.
Coectors of nterna Revenue, Interna Revenue gents n Charge,
eads of Fed Dvsons of the Technca Staff, and Others
Concerned:
1. Paragraph 9 of Mmeograph 6 7 (C. . 19 0-1, 0) s amended
to read as foows:
9. Tme for Makng ecton. (a) Genera rue. n eecton to use the
method of accountng prescrbed under ths mmeograph sha be made no Inter
than the tme prescrbed by aw (ncudng any e tenson thereof) for fng the
ncome ta return for the frst tn abe year for whch the eecton Is to be
appcabe.
(b) cepton for pror open years, etc. Regardess of the precedng
subparagraph, the eecton may be made wth respect to open ta abe years
endng before December 31, 19 0, sub|ect to the foowng rues: (1) the eecton
sha be made no ater than the tme prescrbed by aw (ncudng any e tenson
thereof) for fng the ta payer s ncome ta return for ts ta abe year begnnng
n 19 0 (or f more than one ta abe year of the ta payer begns n 19 0, then
for the ta abe year ast begnnng n 19 0), nnd (2) the eecton cannot be
made wth respect to any open ta abe year whch s pror to a ta abe year
() whch s cosed by any ow or rue of aw at the tme of makng the eecton
and () wth respect to Whch there are tems that woud, but for the fact that
such year s thus cosed, be affected by such eecton. Sub|ect to the foregong
rues, the ta payer makng the eecton (under the genera rue of subparagraph
(a) or ths subparagraph) sha desgnate the frst ta abe year for whch the
method of accountng provded heren sha be used, and such eecton sha
(sub|ect to the provsons of pnragraph 10) be bndng for such frst desgnated
ta abe year and a subsequent ta abe years. If such frst desgnated year
Is a ta abe year pror to the ta abe year for whch the ta payer s return s
beng fed, then the report (prescrbed n paragraph ) for such pror ta abe
year and for each ntervenng ta abe year n order sha be fed at the tme of
makng such an eecton. Where s eca crcumstances e st, request may be
made to the Commssoner for an e tenson of tme beyond that prescrbed In ths
paragraph for makng the eecton.
Geo. . Schoeneman,
Commssoner.
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29. 2-1.
20
S CTION 2. P RIOD IN W IC IT MS OF GROSS
INCOM INCLUD D
Secton 29. 2-1: When ncuded n gross ncome. 19 1- -13 2
( so Secton 22(a), Secton 29.22(a)-.) Mm. 6 97
Modfcaton of Mmeograph 0 (C. . 19 9-2, 11), reatng to
ta abe status of refunds of ta es.
Washngton 2 , D. C, anuary 30, 19 1.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Concerned:
1. In Mmeograph 6 (C. . 19 9-2,11), reatng to the ta abe
status of refunds of ta es, t s hed (frst sentence of paragraph 6)
that the recept by a ta payer of refunds of ta es, the deducton of
whch n pror years resuted n ta benefts, shoud be treated as n-
come for the ta abe year n whch such refunds are receved, e cept
as otherwse provded by Federa statutes. The second sentence of
paragraph 6 contans an e cepton to the genera rue and reads as
foows:
Ths treatment s not appcabe n the case of refunds of State ta es resutng
from renegotaton or rembursements n respect of Government contracts (see
secton 3 06, Interna Revenue Code, and I. T. 3011, C. . 19 3, 97 ).
2. The frst sentence of paragraph 6 of Mmeograph 61 makes no
dstncton, wth respect to the ta abe perod for whch ncome shoud
be reported, between ta payers reportng on the accrua bass and
those reportng on the bass of cash recepts and dsbursements. Fur-
thermore, n vew of the decsons n Western Cartrdge Co. v. Com-
mssoner (11 T. C. 216, acquescence, C. . 19 0-2, ) and Tayor
Instrument Companes v. Commssoner (1 T. C. 3 , acquescence,
C. . 19 0-2, ), t has been concuded that there s no authorty for
the above-quoted e cepton set forth n the second sentence of para-
graph 6. ccordngy, paragraph 6 of Mmeograph 61 s modfed
to read as foows:
0. ccordngy, t s hed that a refunds of ta es, the deducton of whch n
pror years resuted n ta benefts, shoud be ncuded n gross ncome for the
ta abe year n whch receved by the ta payer uness, under methods of ac-
countng permtted under secton 1 of the Interna Revenue Code, any such
refunds are to be propery accounted for as of a dfferent perod, and e cept as
otherwse specfcay provded by Federa statute.
3. Correspondence reatng to ths mmeograph shoud refer to ts
number and the symbos ndcated: Coectors of nterna revenue,
C: Co; nterna revenue agents n charge, IT: IM; heads of fed
dvsons of the Technca Staff, TS: RM.
Geo. . Scoeneman,
Commssoner.
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29. 2-1.
Secton 29. 2-1: When ncuded n gross
ncome.
19 1-9-13 77
Ct. D. 173
INCOM T INT RN L R NU COD D CISION OF SUPR M COURT
1. Cam for Refund eged Overpayment of Ta Refund by
mpoyee n 19 6 of Porton of onus Receved n 19 .
In hs 19 ncome ta return ta payer reported about 22,000
whch he had receved n that year as an empoyee s bonus. s the
resut of subsequent tgaton he was compeed under the State
court s |udgment to return appro matey 11,000 to hs empoyer.
Unt payment of the |udgment n 19 6, ta payer had at a tmes
camed and used the fu amount of the bonus uncondtonay as
hs own, n the good fath though mstaken beef that he was
entted to the whoe bonus. ed: Ta payer s not entted to have
hs 19 ta recomputed. Mstake as to the vadty of hs cam
does not e cept hm from the cam of rght nterpretaton of the
ta aws whch has ong been used to gve fnaty to an annua ac-
countng perod.
2. Decson Reversed.
Decson of the Unted States Court of Cams, 91 Fed. Supp.
1017 (19 0) reversed.
Mr. ustce ack devered the opnon of the Court.
Respondent Lews brought ths acton n the Court of Cams seekng a refund
of an aeged overpayment of hs 19 ncome ta . The facts found by the Court
of Cams are: In hs 19 ncome ta return, respondent reported about 22,000
whch he had receved that year as an empoyee s bonus. s a resut of subse-
quent tgaton n a State court, however, t was decded that respondent s
bonus had been mpropery computed; under compuson of the State court s
udgment he returned appro matey 11,000 to hs empoyer. Unt payment
of the |udgment n 19 6, respondent had at a tmes camed and used the
fu 22,000 uncondtonay as hs own, n the good fath though mstaken
beef that he was entted to the whoe bonus.
On the foregong facts the Government s poston s that respondent s 19
ta shoud not be recomputed, but that respondent shoud have deducted the
1L000 as a oss n hs 19 6 ta return. See G. C. M. 16730, -1 Cum. u.
179 (1936). The Court of Cams, however, reyng on ts own case, Grecnwad
v. Unted States, 7 Fed. Supp. 69, hed that the e cess bonus receved under a
mstake of fact was not ncome n 19 and ordered a refund based on a recacu-
aton of that year s ta . 91 Fed. Supp. 1017. We granted certorar, 3 0 U. S.
, because ths hodng confcted wth many decsons of the courts of appea,
see, e. g., aberkorn v. Unted Staes, 173 Fed. (2d) 7, and wth prncpes
announced n North mercan O v. urnet, 2 6 U. S. 17 Ct D. 99, C. .
I-1, 293 (1932) .
In the North mercan O case we sad : If a ta payer receves earnngs under
a cam of rght and wthout restrcton as 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. 2S6 U. S. at 2 . Nothng n ths
anguage permts an e cepton merey because a ta payer s mstaken as to
the vadty of hs cam. Nor has the cam of rght doctrne been mpared,
as the Court of Cams stated, by Freuer v. eerng, 291 U. S. 3 Ct. D. 7 2,
C. . III-1, 2 2 (193 ) , or Commssoner v. Wco , 327 U. S. 0 Ct. D. 166 ,
C. It. 19 6-1, 6 . The Freuer case nvoved an entrey dfferent secton of the
Interna Revenue Code, and ts hodng s nappcabe here. 291 U. S. at 3.
Supreme Court of the Unted States
Unted States of merca, pettoner, v. s R. Lews
On wrt of certorar to the Unted States Court of Cams
March 26, 19 1
OPINION
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29. 3-2.
22
nd n Commssoner v. Wco , supra, we hed that recepts from embezzement
dd not consttute ncome, dstngushng North mercan O on the ground that
an embezzer asserts no bona fde ega or equtabe cam. 327 U. S. at 0 .
Income ta es must be pad on ncome receved (or accrued) durng an annua
accountng perod. Cf. I. It. C, sectons 1, 2; and see urnet v. Sanford
rooks Co., 2 2 U. S. 3 9, 3G3 Ct. D. 277, C. . -, 363, 301 (1931) . The
cam of rght nterpretaton of the ta aws has ong been used to gve fnaty
to that perod, and s now deepy rooted n the Federa ta system. See cases
coected n 2 Mertens, Law of Federa Income Ta aton, secton 12.103. We
see no reason why the Court shoud depart from ths we-setted nterpretaton
merey because t resuts n an advantage or dsadvantage to a ta payer.1
Reversed.
Dssentng opnon by Mr. ustce Dougas.
Secton 29. 2-1: When ncuded n gross ncome.
INT RN L R NU COD
Contrbutons by an empoyer toward the purchase of annuty
contracts for empoyees. (See I. T. 0 1, page .)
Secton 29. 2-1: When ncuded n gross ncome.
INT RN L R NU COD
ocked foregn ncome. Mmeograph 6 7 (C. . 19 0-1, 0)
amended. (See Mn. 6 , page 19.)
S CTION 3. P RIOD FOR W IC D DUCTIONS
ND CR DITS T N
Secton 29. 3-1: Pad or ncurred and pad
or accrued.
INT RN L R NU COD
ocked foregn ncome. Mmeograph 6 7 (C. . 19 0-1, 0)
amended. (See Mm. 6 , page 19.)
Secton 29. 3-2: When charges deductbe. 19 1-1-13 12
I. T. 0 3
nterna revenue code
Property ta es eved under chapter 31, Genera Laws of Rhode
Isand, as amended by chapter 2330, Laws of Rhode Isand, 19 9,
effectve December 1, 19 0, accrue, for Federa ncome ta purposes,
on December 31 of each year.
dvce s requested wth respect to the accrua date, for Federa
ncome ta purposes, of property ta es eved under chapter 31,
1 It has been suenostcd that It woud bo more equtabe to reopen respondent s 19
ta return. Whe the suefcston msht work to the advantage of ths ta payer, t coud
not be ndopted as a genera souton because, u many cases, the 3-year statute of mtatons
woud precude recovery. I. R. C, secton 322(b).
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23
29. 3-2.
Genera Laws of Rhode Isand, as amended by chapter 2330, Laws of
Rhode Isand, 19 9, effectve December 1. 19 0.
Pror to amendment, secton 1 of chapter 31 of the Genera Laws
of Rhode Isand provded for the assessment of property ta es on
une 1 of each year, e cept that when the 1 th day of une fe on
Sunday, the aw provded for assessment of the ta es on une 1G.
Chapter 31 of the Genera Laws of Rhode Isand, as amended by
chapter 2330, Laws of Rhode Isand, 19 9, provdes n part as foows:
S mON 1. tF.CTORS M Y I. T T , ND ORD R TIM OF SS SSM NT ND
Patuent. . The eectors of any town quafed to voe on any proposton to
n:pose a ta or for the e pendture of money, when egay assembed, may
evy a ta for the purposes authorzed by aw, on the ratabe property of the
town, ether n a sum certan, or n a sum not ess than a certan sum and not
more than a certan sum. Sad ta sha be apportoned upon the assessed
vauatons as determned by the assessors of the town as of the 31st day of
December n each year at 12 o coek noon, sad date beng known as the date of
assessment of town vauatons.

Sec. . ssessment, When To e Made. The assessors sha assess a vau-
atons and apporton any ta evy on the nhabtants of the town and the ratabe
property theren accordng to aw, and the assessed vauaton of such ratabe
property sha be made as of the date of assessment provded n secton 1 of ths
chapter.

Sec. 61 - Ta ro certfed to ta coector. The ta evy sha be apped
to the assessment ro and the resutng ta ro certfed by the assessors to
the town cerk, town treasurer or ta coector, as the case may be, not ater
than the 1 th day of une ne t succeedng.
The genera theory of the accrua of property ta es, snce the
ssuance of G. C. M. 6273 (C. . III-1, 16 (1929)), has been that
ownershp of property on the date as of whch the assessment s made
(frequenty referred to as the assessment date) s the event whch
determnes the ta payer s abty for ta es, and, consequenty, f
the ta pa|ers books of account are kept on the accrua bass he
shoud accrue hs property ta es as of that date. (See Unted States
v. P. Chauncey nderson et a/., 269 U. S. 22, T. D. 3 39, C. . -,
179 (19-26) : G. C. M. 1 30 , C. . I -2, 0 (193 ); and G. C. M.
23 12. C. 19 3,13 .)
In Rhode Isand, ta es assessed aganst any person wth respect to
ether persona property or rea estate-consttute a en whch arses
and attaches as of the date of assessment, and they may be coected
ether out of hs rea or persona estate. (See sectons 22 and 23,
chapter 32, Genera Laws of Rhode Isand.) Thus, n Rhode Isand
both the en date and the assessment date are the same and represent
the date of fnaty as we as the ncdence of the ta es. (See
Magruder v. Frederck M. Suppee et u ., 316 U. S. 39 . Ct. D. 1 9,
C- . 19 2-1, 173.) Under the Rhode Isand aw before the amend-
ment referred to heren, the accrua date of property ta es was une
1 . e cept when that date fe on Sunday, n whch case t was une 16.
It s hed that property ta es eved under chapter 31, Genera Laws
of Rhode Isand, as amended by chapter 2330, Laws of Rhode Isand,
19 9, effectve December 1, 19 0, accrue, for Federa ncome ta pur-
poses, on December 31 of each year. For the caendar year 19 0
there w be two accrua dates of the State property ta es, one as
of une 1 , 19 0, and the other as of December 31,19 0.
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29. 3-2.
2
P RT . R TURNS ND P YM NT OF T
S CTION 3. TIM ND PL C FOR FILING R TURNS
Secton 29. 3-2: tensons of tme for fng 19 1-6-13 63
returns. T. D. 3
Tme e tended for fng ncome and e cess profts ta returns of
members of a group of affated corporatons for ta abe years
endng after une 30,19 0, and before March 1,19 1.
Washngton 2 , D. C.
Pursuant to the authorty contaned n secton 3(a)(2) of the
Interna Revenue Code, the tme for fng the return for a ta abe
year endng after une 30, 19 0, and before March 1, 19 1, by a cor-
poraton havng the prvege of makng a consodated return for
such ta abe year under secton 1 1 of the Code (as amended by
secton 301 of the cess Profts Ta ct of 19 0, approved anuary
3, 19 1) s hereby e tended to and ncudng une 1 , 19 1.
Inasmuch as ths Treasury Decson cannot effectuate ts purpose
uness t s promugated mmedatey, t s found that t s mpractca-
be 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 such ct.
sectons 3(a)(2). 62, and 3791 of the Interna Revenue Code ( 3
Stat. 2 , 32, 67; 26 U. S. C. 3(a) (2), 62, 3791).)
Geo. . Scoeneman,
pproved March 13, 19 1.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster March 13, 10 1, 11:09 a. m.)
Secton 29. 3-2: tensons of tme for fng 19 1-13-13609
returns. T. D. 3
TITL 20 INT RN L R NU . C PT R I, SU Cn TT R , P RT 29.
Tme for fng returns of ncome for 19 0 e tended n the case of
certan Unted States empoyees.
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2
29. 3-2.
Washngton 2 , D. C.
Paragraph 1. Pursuant to the authorty contaned n secton
3(a)(2) of the Interna Revenue Code, an e tenson of tme for
fng the return of ncome for the caendar year 19 0 s hereby granted
up to and ncudng September 1 , 19 1, n the case of a ctzen who
durng such caendar year was an empoyee of the Unted States or of
any agency thereof, whether cvan, mtary, or nava, and who s
requred to fe a return of ncome for such year soey because of the
amendment made to secton 2 1 of the Interna Revenue Code by sec-
ton 220 of the Revenue ct of 19 0, approved September 23, 19 0.
See sectons 29. 3-1 to 29. 3- . ncusve, of Treasury Reguatons
111 for the tme and pace for rng returns.
Par. 2. Ths Treasury Decson sha be effectve upon ts beng fed
for pubcaton n the Federa Regster.
ecause ths Treasury Decson merey reeves certan ta payers
from a requrement respectng the fng of returns of ncome for the
caendar year 19 0, t s found that t s unnecessary to ssue ths
Treasury Decson wth notce and pubc procedure thereon under
19 6, or sub|ect to the effectve date mtaton of secton (c) of such
ct.
n sectons 3, 62, and 3791 ( 3 Stat. 2 , 32, and 67; 26 U. S. C. 3, 62,
and 3791) of the Interna Revenue Code.)
Fred S. Martn,
pproved une 6, 19 1.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster une S, 19 1, S: 3 a. m.)
Secton 29. 3-2: tensons of tme for fng 19 1-13-13613
returns. T. D.
TITL 26 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. 10 1
Tme e tended for fn|r ncome and e cess profts ta returns of
members of a group of affated corporatons for ta abe years end-
ng after une 30, 10 0, and before May 1, 19 1.
Washngton 26, D. C.
Pursuant to the authorty contaned n secton 3(a) (2) of the In-
terna Revenue Code, the tme for fng the return for a ta abe year
endng after une 30, 19 0, and before May 1, 19 1, by a corporaton
havng the prvege of makng a consodated return for such ta abe
9 290 1 3
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29. - .
2G
rear under secton 1 1 of the Code (as amended by secton 301 of the
cess Profts Ta ct of 19 0, approved anuary 3, 19 1) s hereby
e tended to and ncudng uy 31, 19 1.
Inasmuch as ths Treasury Decson cannot effectuate ts purpose
uness t s promugated mmedatey, t s found that t s mpract-
cabe to ssue ths Ireasury Decson wth notce and pubc procedure
thereon under secton (a) of the dmnstratve Procedure ct, ap-
proved une 11, 19 6, or sub|ect to the effectve date mtaton of
secton (c) of such ct.
sectons 3(a) (2), 62. and 3791 of the Interna Revenue Code ( 3 Stat.
2 , 32, 67; 26 U. S. C. 3(a) (2), 62, 3791).)
Fred S. Martn,
pproved une 13, 19 1.
. . Foey,
(Fed wth the Dvson of the Federa Regster une 1 , 10 1, 9 : 00 n. m.)
S CTION .-R CORDS ND SP CI L R TURNS
Secton 29. -1: Records and ncome ta forms.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 3 , page 3 .)
SFCTTON . D CL R TION OF STIM T D
T Y INDI IDU LS
Secton 29. - : tenson of tme for fng 19 1-2-13 2
decaratons. T. D. 2
TITL 26 INT RN L R NU C TT R I. SU C PT R . T RT 29
Tme for fng the decaraton of estmated ta for 19 0 e tended
n the case of certan Unted States empoyees.
Washngton o, D. C.
Paragraph 1. Pursuant to the authorty contaned n secton (e)
of the Interna Revenue Code, an e tenson of tme for fng the deca-
raton of estmated ta for the caendar year 19 0 s hereby granted
up to and ncudng the due date of the return for such year n the ease
of a ctzen who s an empoyee of the Unted States or of any agency
(cvan, mtary, or nava) of the Unted States and who s requred
to make the decaraton of estmated ta for such year soey because
of the amendment of secton 2 1 of the Interna Revenue Code made
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27
IS no.
by secton 220 of the Revenue ct of 19 0, approved September 23,
19 0. If the ta payer fes hs return for such caendar year on or
before the due date of such return, and pays the amount of the ta
shown on such return, such return sha aso be consdered as the deca-
raton of estmated ta for such ta abe year. See sectons 29. 3-1,
29. 3-3, and 29. 3- of Treasury Reguatons 111 for the due date of
returns.
Par. 2. Ths Treasury Decson sha be effectve upon ts fng for
pubcaton n the Federa Regster.
ecause ths Treasury Decson merey reeves certan ta payers
from a requrement respectng the fng of decaratons of estmated
ta for the caendar year 19 0, t s found that t s unnecessary to ssue
ths Treasury Decson wth notce and pubc procedure thereon under
19 6, or sub|ect to the effectve date mtaton of secton (c) of such
ct
sectons 62 and 3791 ( 3 Stat. 32, 67; 26 U. S. C. 62, 3791); and secton
( 7 Stat. 1 2; 26 U. S. C. ) of the Interna Revenue Code.)
Geo. . Scoeneman,
pproved anuary 1U, 19 1.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster anuary 11, 19 1, 9 : 2 a. m.)
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: Proof of e empton on or after
anuary 1,19 3 nnua returns for accountng
perods begnnng on or after anuary 1, 19 3.
INT RN L R NU COD
SUPPL M NT . COMPUT TION OF N T INCOM
S CTION 116. CLUSIONS FROM GROSS INCOM
INT RN L R NU COD
Compensaton receved by empoyees of the Unted States or any
agency thereof for servces performed n Puerto Rco. (See I. T.
0 7, page 9.)
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29.117-7.
2S
S CTION 117. C PIT L G INS ND LOSS S
Secton 29.117-7: Gans and osses from n- 19 1-9-13 7
vountary conversons and from the sae or G. C. M. 2069O
e change of certan property used n the
trade or busness.
INT RN L R NU COD
Rea estate acqured by a fnanca nsttuton by deed n eu of
forecosure and thereafter managed and admnstered for the pur-
pose of reducng the oss thereby sustaned fas wthn the e cep-
ton contaned n secton 117(a)(1) of the Interna Revenue Code
reatng to rea property used n trade or busness and, f hed for
more than 6 months, wthn the provsons of secton 117(|) of
the Code.
G. C. M. 2 910 (C. . 19 6-1, 101) modfed.
n opnon s requested whether rea estate acqured by a fnanca
nsttuton by deed n eu of forecosure and thereafter managed and
admnstered for the purpose of reducng the oss thereby sustaned
fas wthn the e cepton contaned n secton 117(a)(1) of the
Interna Revenue Code reatng to rea property used n trade or
busness and, f hed for more than 6 months, wthn the provsons of
secton 117(|) of the Code. The nqury has caused ths cffce to
reconsder G. C. M. 2 910 (C. . 19 6-1, 101), reatng n part to the
cassfcaton of rea estate acqured by endng nsttutons through
forecosure proceedngs.
In the nstant case, a trust company acqured n 193o, by deed n
eu of forecosure, property consstng of a ot and a s -story budng.
Ths property was managed and rented by the trust company unt t
was sod n 19 9 at a oss. It s contended that the actvty of the
trust company n connecton wth the management of the property was
ceary a part of ts genera busness and, therefore, the property
shoud be e cuded from the defnton of capta assets wthn the
meanng of secton 117(a) (I) of the Interna Revenue Code. It has
been suggested that G. C. M. 2 910 (C. . 19 6-1,101) be modfed by
mtng t to the pont decded n The anawha aey ank v.
Commssoner ( T. C. 2 2, acquescence, C. . 19 6-1, 3), . e., that
propertes hed under such crcumstances by a fnanca nsttuton
are not hed prmary for sae to customers n the ordnary course of
busness.
The basc queston s whether property smar to that nvoved
n the anawha aey ank case may be used n the trade or b s-
ness of a ta payer wthn the meanng of that term as used n secton
117(|) of the Code.
The eadng decsons herenafter dscussed nvove matera statu-
tory dfferences under severa appcabe revenue acts. The Revenue
ct of 193C e cuded from capta asset cassfcaton 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 hs trade or busness.
The Revenue ct of 193 enarged the e cusons by addng to the
quoted provson the cause or property, used n the trade or bus-
ness, of a character whch s sub|ect to the aowance for deprecaton
provded n secton 23(1). Secton 1 1(a) of the Revenue ct of
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29
29.117-7.
10 2 further enarged the e cusons by addng the cause or rea
property used n the trade or busness of the ta payer. Under sec-
on 117 (|) of the Code (added by secton 1 1(b) of the Revenue
ct of 1 9 2), assets used n the trade or busness, ncudng rea estate
and mprovements thereon, are paced n a speca cass. Wth re-
spect to assets ncuded n such cass, gans n e cess of osses are
treated as capta gans, and osses n e cess of gans are deductbe
as ordnary osses.
In the anawha aey ank case, The Ta Court of the Unted
States hed that three parces of unmproved rea estate acqured by
the bank n forecosure proceedngs were capta assets wthn the
purvew of secton 117(a)(1) of the Interna Revenue Code as t
apped to the ta abe years 19 0 and 19 1. The Commssoner had
argued that the proft on the sae of these propertes shoud be ta ed
as ordnary ncome, reyng on G. C. M. 21 97 (C. . 1939-2, 1 7)
vrhch hed n substance that parces of rea estate acqured by a bank,
mortgage fnance company, etc., by forecosure are hed by the ta -
payer prmary for sae to customers n the ordnary course of ts
trade or busness and that the gans and osses resutng from the ds-
poston of such property are ordnary gans and osses. s a resut
of the decson n the anawha aey ank case, G. C. M. 21 97 was
revoked by G. C. M. 2 910, supra.
s heretofore ndcated, secton 117(a) (1) of the Code, as amended
by secton 1 1(a) of the Revenue ct of 19 2, e cudes rea property
used n the trade or busness from the defnton of capta assets.
ccordngy, acceptng the Ta Court decson n the anawha a-
ey ank case to the effect that such property s not hed prmary
for sae to customers n the ordnary course of trade or busness, the
queston arses wth respect to ta abe years begnnng after December
31, 19 1 (the ta abe years to whch the above-mentoned amend-
ments made by the Revenue ct of 19 2 are appcabe), whether
such property s used n the trade or busness of a ta payer.
The fnancng of oans and forecosng of mortgages consttute an
ntegra part of the bankng busness. In genera and n the absence
of any facts to the contrary (such as nonproductve property hed
after forecosure for nvestment purposes), rea property acqured by
forecosure shoud be consdered as used n the trade or busness of
the endng nsttuton.
The phrase property used n the trade or busness appears aso
n secton 23(1) of the Code, reatng to the aowance for depreca-
ton. In . L. Carter Co. et a. v. Commssoner (1 3 Fed. (2d)
nvovng the years 193 and 1939, the company was engaged
n the umber busness and n fnancng the budng of houses. It
furnshed the necessary materas and funds to customers who desred
to bud houses, takng a frst en note for ndebtedness. Durng the
years foowng 1929, the company frequenty found t necessary to
forecose ts en n order that t mght protect ts nvestment. It
thus acqured severa hundred houses whch t kept n repar and
rented unt a satsfactory sae coud be made. The company con-
tended that n computng ts gan or oss upon each sae, the cost
bass of the property shoud not be ad|usted to refect deprecaton.
The crcut court, n affrmng the Ta Court s hodng that the bass
shoud be ad|usted, sad:
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30
Pettoner s busness was not restrcted to the sne of budng materas, for
t aso undertook to fnance constructon. The fnancng program was not whoy
dsassocated from the umber busness, for ts tendency was to ncrease greaty
the saes of budng materas; but f It was a dstnct busness, the ta payer,
by whoesae partcpaton, engaged n both seng budng materas and
fnancng the constructon of homes. The management and admnstraton of
forecosed property s an essenta ngredent of the busness of fnancng. In-
deed the ta payer so treated these propertes, for t returned ts rentas there-
from as ordnary ncome, and deducted ts e pendtures for repars and man-
tenance as ordnary and necessary busness e penses. Itacs supped.
The fact that banks and smar fnanca nsttutons are prohbted
by statutes smar to secton 312 of the West rgna Code of
11)37, the statute nvoved n the anawha aey ank case, from
purchasng reaty (e cept for certan mted purposes) s not de-
termnatve of the appcabty of secton 7(|) of the Code. These
statutes usuay mpose two condtons frst, the rea property must
be conveyed to the fnanca nsttuton n satsfacton of ndebted-
ness or purchased at a forecosure sae and, second, the rea property
must be dsposed of wthn a stated perod. Such statutes merey
emnate the possbty that a fnanca nsttuton may enter nto
rea estate tradng as an enterprse equa n mportance to ts busness
of takng deposts and makng oans. The prohbton contaned n
them shoud not be construed n such a way as to precude an e am-
naton of a bank s rea estate actvtes n order to determne, as a
queston of fact, whether the property s used n the busness of
bankng.
On the bass of the above, t s the opnon of ths offce that the rea
property n the nstant case was used by the ta payer n ts trade or
busness wthn the meanng of that term as used n secton 117(a) (1)
and (|) of the Code. G. C. M. 2 910, supra, s modfed to the
e tent that t s nconsstent wth the vews e pressed heren.
Chares Ophant,
Chef Counse, ureau of Interna Revenue.
S CTION 12 . MORTIZ TION D DUCTION
19 1-3-13 30
. 0.10200
CUTI ORD R 10200 ST LIS ING T D F NS PRODUCTION
DMINISTR TION
y vrtue of the authorty vested n me by the Consttuton and
statutes, ncudng the Defense Producton ct of 19 0, and as Pres-
dent of the Unted States and Commander n Chef of the rmed
Forces, t s hereby ordered as foows:
Part I. Defense Producton dmnstraton
Secton 1. (a) There s hereby created an agency whch sha be
known as the Defense Producton dmnstraton.
( ) There sha be at the head of the Defense Producton dmns-
traton a Defense Producton dmnstrator, herenafter referred
to as the dmnstrator, who sha be apponted by the Presdent by
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12 .
and wth the advce and consent of the Senate. The dmnstrator
sha perform hs dutes sub|ect to the drecton, contro, and coordna-
ton of the Drector of Defense Mobzaton.
Sec. 2. (a) There are hereby deegated to the dmnstrator the
functons conferred upon the Presdent by ttes I and II and secton
70 of the Defense Producton ct of 19 0 (reatng respectvey to
prortes and aocatons, requstonng, and vountary agreements)
whch were by the provsons of part I, secton 201(a) of part II,
and part II of ecutve Order No. 10161 of September 9, 19 0,
deegated to the Secretary of Commerce, the Secretary of the Interor,
and the Commssoner of the Interstate Commerce Commsson, re-
spectvey, and those whch were by the provsons of secton 101 of
the sad ecutve Order No. 10161 deegated to the Secretary of
grcuture to the e tent that they reate to food whch has been
determned to be avaabe for ndustra needs pursuant to secton 3
of ths order; and the sad deegatons made by the sad ecutve
Order No. 10161 are hereby termnated accordngy.

(e) The dmnstrator s hereby desgnated as the certfyng
authorty for the purposes of and wthn the meanng of subsecton
(e) of secton 12 of the Interna Revenue Code, as added by secton
216 of the Revenue ct of 19 0, approved September 23, 19 0.

Sec. G. (a) To the e tent that provsons of ecutve Order No.
101C1 of September 9, 19 0, are nconsstent wth the provsons of
ths order the atter sha contro, and the sad ecutve Order No.
10161 s amended accordngy.
cept as modfed or made nappcabe by the provsons of ths
ecutve order, provsons of the sad ecutve Order No. 10161
reatng to functons vested n the dmnstrator hereby sha con-
tnue to be appcabe to such functons. ecutve Order No. 10172
C. . 19 0-2, 1 1 of October 12, 19 0, s hereby revoked. Nothng
n ths ecutve order sha affect the vadty or force of anythng
heretofore done under the sad ecutve Orders Nos. 10161 or 10172.
(6) ny offcer or agency havng by deegaton or otherwse any
functon under ths order sha have a the authorty conferred by
sectons 902 and 903 of ecutve Order No. 10161, ncudng the
authorty wth respect to subpena.
(c) orders, reguatons, rungs, certfcates, drectves, and
other actons reatng to any functon affected by ths ecutve order
sha reman n effeGt e cept as they are nconsstent herewth or are
hereafter amended or revoked under proper authorty.
(d) Nothng n ths ecutve order sha be deemed to supersede
any provson of ecutve Order No. 10193 of December 16, 19 0.
sec. 7. The provsons of sectons 2 to 6, ncusve, of ths ecutve
order sha not be effectve unt the dmnstrator frst apponted
hereunder takes offce as dmnstrator.
Part II. Defense Mobzaton oard
Sec . -There s hereby estabshed n the Offce of Defense Mob-
zaton (estabshed by ecutve Order No. 10193 of December 16,
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29.131-2.
32
19 0) the Defense Mobzaton oard, whch sha consst of the
Drector of Defense Mobzaton as Charman, the Secretares of
Defense, the Treasury, the Interor, Commerce, grcuture, and
Labor, the Charman of the Reconstructon Fnance Corporaton, the
Charman of the oard of Governors of the Federa Reserve System,
the Charman of the Natona Securty Resources oard, and such
other offcas as sad Drector may from tme to tme desgnate. The
sad oard sha be advsory to the Drector of Defense Mobzaton.
aret S. Truman.
The Whte ouse,
anuary 3,19 1.
(Fed wth the Dvson of the Federa Regster anuary 3, 19 1, 12: 03 p. 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
ta es.
INT RN L R NU COD
Puerto Rcan ncome ta wth respect to compensaton receved by
Federa empoyees for servces performed n Puerto Rco. (See I. T.
0 7, page 9.)
Secton 29.131-2: Meanng of terms. 19 1-10-13 7
( so Secton 29.131-7.) I. T. 0 9
INT RN L R Nt COD
The ta (duty) pad pursuant to Dvson III of the uebec Mnng
ct s a ta pad n eu of an ncome ta wthn the meanng of sec-
ton 131(h) of the Interna Revenue Code, and where such ta s
pad by a Canadan subsdary the ma|orty of the votng stock of
whch s owned by a domestc corporaton, t may be taken as a credt
aganst the Unted States ncome ta of the domestc corporaton
under the provsons of secton 131 (a) and (f) of the Code.
dvce s requested whether the ta (duty) pad pursuant to Dv-
son III of the uebec Mnng ct s a ta pad n eu of an ncome
ta wthn the meanng of secton 131(h) of the Interna Revenue
Code, and whether, f such a ta s pad by a Canadan subsdary the
ma|orty of the votng stock of whch s owned by a domestc corpo-
raton, t may be taken as a credt aganst the Unted States ncome
ta of the domestc corporaton under the provsons of secton 131 (a)
and (f) of the Code.
The pertnent provsons of Dvson III of the uebec Mnng ct
are as foows:
Sec. 12. Dutes. There sha be pad to the Crown, at the tme and n the
manner herenafter provded, the dutes mposed by ths dvson.
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29.131-2.
Sec. 13. Scae of Dutes. 1. From and nfter the 1st of anuary, 193 , every
mne n the Provnce of uebec sha be abe for, and the owner, manager,
boder, essee, occupant or operator of the mne sha pay, the foowng dutes:
(a) Upon annu profts n e cess of 10,000 up to 1,000,000, percent.

Sec. 1 . nnua Frofts. The annua profts sha be ascertaned and f ed
n the foowng manner:
Gross vaue. From the |rross vaue of the year s output, sod, utzed or
shpped durng the year, there sha be deducted the costs of operaton and
e penses ncurred durng the year n queston, to wt:
The uebec statute then specfes the varous knds of e penses whch
are deductbe n computng annua profts, whch deductons are
smar to those sted n I. T. 2909 (C. . I -2,13G (193 )). In I. T.
2909 t was hed that the ta mposed by the uebec Mnng ct as
thon n effect was not an ncome ta and coud not be camed as a
credt aganst Unted States ncome ta under secton 131 of the
Revenue ct of 193 .
Secton 6 of the uebec Corporaton Ta ct. recnacted wth mnor
changes n 19 7 after t was suspended durng Word War II, provdes
as foows:
In addton to the ta es on capta and upon paces of busness mentoned n
ths act. every hodng company and every mnng company whose
annua profts are not tared under the uehcc Mnng ct (chapter 196)
sha pay annuay a ta equvaent to 7 per centum of the net revenue
Itacs supped.
To the e tent that t s reevant, secton 131(a) (1) of the Interna
Revenue Code provdes n part that f a domestc corporaton chooses
to have the benefts of secton 131 of the Code, the ta mposed under
chapter 1 of the Code sha be credted wth the amount of any ncome,
war profts, and e cess profts ta es pad or accrued durng the ta abe
year to any foregn country. Secton 29.131-2 of Reguatons 111
defnes foregn country as meanng any foregn state or potca
subdvson thereof, or any foregn potca entty, whch eves and
coects ncome, war profts, or e cess profts ta es.
Secton 131(f) of the Code provdes n part that for the purposes of
secton 131 of the Code, a domestc corporaton whch owns a ma|orty
of the votng stock of a foregn corporaton from whch t receves
dvdends n any ta abe year sha be deemed to have pad the same
proporton of any ncome, war profts, or e cess profts ta es pad or
deemed to be pad by such foregn corporaton to any foregn country,
upon or wth respect to the accumuated profts of such foregn cor-
poraton from whch such dvdends were pad, whch the amount of
such dvdends bears to the amount of such accumuated profts.
Secton 131(h) of the Code, as added by secton 1 (f) of the Rev-
enue ct of 19 2, provdes n part that for the purposes of sectons
131 and 23(c) (1) of the Code, the term ncome, war profts, and
e cess profts ta es sha ncude a ta pad n eu of a ta upon n-
come, war profts, or e cess profts otherwse generay mposed by any
foregn country.
It appears that where a corporaton pays dutes on annua profts
under the uebec Mnng ct, t s not sub|ect to the 7 percent ta on
net revenue mposed by secton 6 of the uebec Corporaton Ta ct,
tufra. In other words, n the nstant case, the ta or duty pad under
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29.1 -1.
3
the uebec Mnng ct was pad n eu of the genera ta on net
revenue eved by the Provnce of uebec.
ccordngy, t s hed that the ta (duty) pad pursuant to Dvson
III of the uebec Mnng ct s a ta pad n eu of an ncome ta
wthn the meanng of secton 131(h) of the Interna Revenue Code,
and where such ta s pad by a Canadan subsdary the ma|orty
of the votng stock of whch s owned by a domestc corporaton, t may
be taken as a credt aganst the Unted States ncome ta of the
domestc corporaton under the provsons of secton 131 (a) and (f)
o the Code.
SUPPL M NT D. R TURNS ND P YM NT OF T
S CTION 1 . INFORM TION Y CORPOR TIONS
Secton 29.11 -1: Return of nformaton as 19 1- -13 13
to payment of dvdends. I. T. 0
INT RN L R NU COD
Dstrbutons of earnngs by Federa savngs and oan assoca-
tons consttute dvdend ncome to the members of the assocatons,
and nformaton returns wth respect to such dstrbutons are re-
qured to be fed by the assocatons under secton 1 S of the Interna
Revenue Code.
dvce s requested whether dstrbutons of earnngs by Federa
savngs and oan assocatons consttute dvdend ncome wth respect
to whch nformaton returns are requred to be fed by the assoca-
tons under secton 1 of the Interna Revenue Code.
Secton 1 of the Interna Revenue Code provdes n part as
foows:
(a) Dvdend Payments. very corporaton sha, when requred by the
Commssoner, render a correct return, duy verfed under oath, of ts payments
of dvdends, statng the name and address of each sharehoder, the number of
shares owned by hm, and the amount of dvdends pad to hm.
Secton 29.1 -1 of Reguatons 111 provdes n part that every do-
mestc corporaton or foregn corporaton engaged n busness wthn
the Unted States or havng an offce or pace of busness or a fsca or
payng agent n the Unted States, makng payments of dvdends and
dstrbutons (other than dstrbutons n qudaton) to any share-
hoder who s an ndvdua (ctzen or resdent of the Unted States), a
resdent fducary, or a resdent partnershp any member of whch s
a ctzen or resdent, amountng to 100 or more durng each caendar
year, sha render an nformaton return on Forms 101)(3 and 1099.
The rues and reguatons for the Federa Savngs and Loan
System, ssued by the ome Loan ank oard, Washngton, D. C,
provde that upon approva by the ome Loan ank oard of an ap-
pcaton for permsson to organze a Federa savngs and oan assoca-
ton, temporary offcers sha be eected who may thereupon secure
subscrptons to such Federa assocaton s capta consstng of
amounts contracted to be pad nto savngs accounts. Such an asso-
caton rases ts capta by acceptng payments on savngs accounts
representng share nterests n the assocaton. s of une 30 and
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3
29.1 3-1.
December 31 of each year, after payment of a e penses, credts to
genera reserves, and such credts to surpus as the board of drectors
may determne, and provson for any bonus on savngs accounts au-
thorzed by reguatons made by the ome Loan ank oard, the
board of drectors of the assocaton causes the remander of the net
earnngs of the assocaton for the 6 months perod to be dstrbuted
prompty on ts savngs accounts, rataby, as decared by the board of
drectors, to the wthdrawa vaue thereof. hoders of savngs
accounts of the assocaton are entted to equa dstrbuton of assets,
pro rata to the vaue of ther savngs accounts, n the event of voun-
tary or nvountary qudaton, dssouton, or wndng up of the
assocaton.
In order to determne whether Federa savngs and oan assocatons
are requred to fe nformaton returns on Forms 1096 and 1009 pur-
suant to the above-mentoned provsons of secton 29.1 -1 of Regu-
atons 111, t s necessary to ascertan the e act nature of the dstrbu-
tons of ther earnngs, . e., whether such dstrbutons consttute
dvdends or nterest. The dstncton between the term dvdend
and the term nterest s that nterest ordnary means a payment
arsng out of a debtor-credtor reatonshp wth respect to the use of
money at a f ed, predetermned rate, whereas a dvdend s a dstr-
buton of profts to sharehoders whch s condtoned upon the e st-
ence of profts and a dvdend decaraton by a board of drectors or
smar body.
bank depostor, as such, has no voce n the management of the
bank. owever, a member of a Federa savngs and oan assocaton,
through partcpaton n the eecton of ts board of drectors, has a
voce n the management of the assocaton. The reatonshp of ts
members to a Federa savngs and oan assocaton appears to be that
of propretors, rather than credtors, and no preferred treatment s
accorded them upon ts dssouton or qudaton.
In vew of the foregong, t s hed that dstrbutons of earnngs by
Federa savngs and oan assocatons consttute dvdend ncome to
the members of the assocatons, and nformaton returns wth respect
to such dstrbutons are requred to be fed by the assocatons under
secton 1 of the Interna Revenue Code.
S CTION 1 3. INFORM TION R UIR D FROM C RT IN
T - MPT ORG NIZ TIONS ND C RT IN TRUSTS
Secton 29.1 3-1: Informaton requred from 19 1-10-13
certan ta -e empt organzatons. T. D. 3
( so Sectons 29.1 3-2, 29.1 3-3. 29.1 3- ;
Secton , Secton 29. -1; Secton 101,
Secton 29.101-2; Secton 162, Secton
29.162-1.)
Refatons 111 amended to conform to secton 1 3, Interna Rev-
enue Code, as added by secton 3 1 of the Revenue ct of 19f0,
reatng to nformaton from certan ta -e empt organzatons and
certan trusts to be made avaabe to the pubc
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S 29.1 3-1.
36
Washngton 2 , D. C.
On February 10,19 1, notce of proposed rue makng, wth respect
to pubcty of nformaton to be requred from certan ta -e empt
organzatons and from certan trusts, was pubshed n the Federa
Regster (16 F. R. 12 7). fter consderaton of a such reevant
matter as was presented by nterested persons regardng the proposa,
the amendments to Reguatons 111 26 CFR, part 29 set forth beow
are hereby adopted. The amendments are desgned to conform Reg-
uatons 111 to secton 3 1 of the Revenue ct of 19 0 (Pubc Law
1 , 1st Cong.), approved September 23, 19 0.
Paragraph 1. There s nserted after secton 1 1 of the Interna
Revenue Code as set forth mmedatey after secton 29.1 0-1 26
CFR 29.1 0-1 the foowng:
S C. 3 1. INFORM TION TO M D IL L TO T
PU LIC R NU CT OF 1930, PPRO D S PT M R
23, 19 0 .
(a) Informaton Wth Respect to Certan Chartabe, tc.,
emptons and Deductons. Suppement D of chapter 1 (reatng
to returns and payment of ta ) Is hereby amended by addng at the end
thereof the foowng new secton:
S C. 1 3. INFORM TION R UIR D FROM C RT IN T -
MPT ORG NIZ TIONS ND C RT IN TRUSTS.
(a) Certan Ta - empt Organzatons. very organzaton de-
scrbed n secton 101(G) whch s sub|ect to the requrements of secton
(f) sha furnsh annuay nformaton, at such tme and n such man-
ner as the Secretary may by reguatons prescrbe, settng forth
(1) ts gross ncome for the year,
(2) ts e penses attrbutabe to such ncome and ncurred wthn
the year,
(3) ts dsbursements out of ncome wthn the year for the
purposes for whch t s e empt,
( ) ts accumuaton of ncome wthn the year,
( ) ts aggregate accumuatons of ncome at the begnnng of
the year,
. (6) ts dsbursements out of prncpa n the current and pror
years for the purposes for whch t s e empt, and
(7) a baance sheet showng ts assets, abtes and net worth
as of the begnnng of such year.
(b) Trusts Camng O . trr . , tc., Deductons Under Secton
102(a). very trust camng n chartabe, etc., deducton under secton
102(a) for the ta abe year sha furnsh nformaton wth respect to
such ta abe year, at such tme and n such manner as the Secretary may
by reguatons prescrbe, settng forth
(1) the amount of the chartabe, etc., deducton taken under
secton 102(a) wthn such year (showng separatey the amount
of such deducton whch was pad out and the amount whch was
permanenty set asde for chartabe, etc., purposes durng such
year),
(2) the amount pad out wthn such year whch represents
amounts for whch chartabe, etc., deductons under secton 102(a)
have been taken n pror years,
(3) the amount for whch chartabe, etc., deductons have been
taken n pror years but whch has not been pad out at the begn-
nng of such year,
( ) the amount pad out of prncpa n the current and pror
years for chartabe, etc., purposes,
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37
I 29.1 3-1.
( ) the tota ncome of the trust wthn such year and the e -
penses attrbutabe thereto, and
(6) a baance sheet showng the assets, abtes, and net worth
of the trust as of the begnung of such year.
(c) Informaton vaabe to the Pubc. The nformaton re-
qured to be furnshed by subsectons (a) and (b), together wth the
names and addresses of such organzatons and trusts, sha be made
avaabe to the pubc at such tmes and n such paces as the Secretary
may prescrbe.
(d) Penates. In the efffce of a wfu faure to furnsh the
nformaton requred under ths secton, the penates provded n
secton 1 (a) sha be appcabe.
(b) ffectve Date. The amendment made by ths secton sha be
appcabe wth respect to ta abe years begnnng after December 31,
19 9.
Sec. 29.1 3-1. Informaton Requred From Certan Ta - empt Organ-
zatons. (a) For accountng perods begnnng after December 31, 19 .). every
organzaton descrbed n secton 101(6), e cept organzatons specfcay
e empt from fng annua returns under secton (f) (see secton
29.101-2(h)), sha fe a return of nformaton on Form 1)90- . The return
sha be on the bass of the estabshed annua accountng perod of the organ-
zaton. Where the organzaton has no estabshed annua accountng perod,
te return sha be made on the bass of the caendar year. The return sha
be fed on or before the 1 th day of the ffth fu caendar month foowng the
cose of the perod for whch the return s requred to be fed, and t sha be
fed wth the coector for the dstrct n whch s ocated the prncpa pace
of busness or prncpa offce of the organzaton.
(6) Pages 3 and of the return sha set fort the name .and address of the
organzaton, and the foowng nformaton concernng the organzaton n
such deta as may be prescrbed by the Commssoner n the nstructons on
the form or ssued by hm therewth :
(1) ts gross ncome for the year n suffcent deta to show the dfferent
categores of ncome,
(2) ts e penses attrbutabe to such ncome and ncurred wthn the year,
n suffcent deta to show the dfferent categores of e pense,
(3) ts dsbursements made wthn the year out of current or accumu-
ated ncome for the purpose for whch t s e empt, separatey stng the
tota amount of dsbursements for each cassfcaton of the e empt purposes
of the organzaton,
( ) Its accumuaton of ncome wthn the year,
( ) ts aggregate accumuaton of ncome at the begnnng of the year,
(6) () ts dsbursements made out of prncpa durng the current year
for the purpose for whch t s e empt, separatey stng the tota amount
of dsbursements for each cassfcaton of the e empt purposes of the
organzaton.
(11) Its dsbursements made out of prncpa durng pror years for the
purpose for whch t s e empt,
(7) the tota of ts admnstratve and operatng e penses dsbursed out
of both prncpa and ncome,
( ) a baance sheet showng ts assets, abtes, and net worth as of
the begnnng of the year.
Sec. 20.1 3-2. Informaton Requred of Trusts Camng Chartabe or
Other Deo ctons Under Secton 102(a). For ta abe years begnnng after
December 31, 19 9, every trust camng a chartabe or other deducton under
secton 102(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- . The return sha
be fed on or before the 1 th day of the fourth month foowng the cose of
the ta abe year of the trust wth the coector for the dstrct n whch the
fducary resdes or has hs prncpa pace of busness. The return sha set
forth the name and address of the trust and the foowng nformaton con-
cernng the trust n such deta as may be prescrbed by the Commssoner n
the nstructons on the form or ssued by hm therewth:
(1) the amount of the chartabe or other deducton taken under secton
162(a) for the ta abe year, showng separatey for each cass of actvty
for whch dsbursements were made (or amounts were permanenty set
asde) the amounts whch, durng such year, were pad out (or whch were
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29.1 3-1.
3
permanenty set asde) for chartabe or other purposes under sec-
ton 102(a),
(2) the amount pad out durng the ta abe year whch represents
amounts permanenty set asde n pror years for whch chartabe or other
deductons have been taken under secton G2(a), and separatey stng
for each cass of actvty, for whch dsbursements were made, the tota
amount pad out,
(3) the amount for whch chartabe or other deductons have been
taken n pror years under secton 162(a) and whch had not been pad
out at the begnnng of the ta abe year;
( ) () the amount pad out of prncpa n the ta abe year for chartabe,
etc., purposes, and separatey stng for each such cass of actvty, for
whch dsbursements were made, the tota amount pad out,
() the tota amount pad out of prncpa n pror years for chartabe,
etc., purposes,
( ) the gross ncome of the trust for the ta abe year and the e penses
attrbutabe thereto, n suffcent deta to show the dfferent categores
of ncome and of e pense, and
(6) a baance sheet showng the assets, abtes, and net worth of the
trust as of the begnnng of tbe ta abe year.
Sec. 29.1 3-3. Pubcty of Returns. The nformaton furnshed on pages
3 and of Form 990- and the Informaton furnshed on Form 10 1- sha be a
matter of pubc record, and sha be open to pubc nspecton, durng reguar
hours of busness, n the offce of the coector for te dstrct n whch the forms
are fed. The Commssoner may use such nformaton for the purpose of makng
and pubshng statstca or other studes.
Sec. 29.1 3- . Penates. In the case of a wfu faure to furnsh the In-
formaton requred under secton 1 3 and sectons 29.1 3-1 and 29.1 3-2, the
penates provded n secton 1 (a) sha be appcabe.
Par. 2. Secton 29. -1, as amended bv Treasury Decson 3S1
C. . 19 ,1 , approved une 2( , 19 26 CFR 29. -1 , s further
amended by strkng out n the ast sentence thereof and 29.101 2.
and nsertng n eu thereof , 29.101-2, and 29.1 3-1.
Par. 3. Secton 29.101-2, as added by Treasury Decson 3 1 2G
CFR 29.101-2 , s amended by strkng therefrom wherever t appears
the e presson (Revsed May 19 ) .
Par. . Secton 29.101-2 (e), as added by Treasury Decson 3 1
26 CFR 29.101-2 (e) , s amended as foows:
( ) y nsertng n the frst sentence thereof after December 31,
19 2, the foowng: and before anuary 1,19 0, .
( ) y nsertng mmedatey after the frst sentence thereof the
foowng:
For accountng perods begnnng after December 31, 1919, the same requrements
are appcabe wth respect to a of the above-mentoned organzatons, e cept
that those organzatons whch are e empt from ta under secton 101(6) sha,
In eu of usng Form 990. fe an nformaton return on Form 090- to compy
wth the requrements of ths secton and of secton 29.1 3-1.
(C) y addng n the ast sentence thereof after Form 990 the
foowng: or Form 990- .
Par. . Secton 29.101-2 (/), as added by Treasury Decson 3 1
2G CFR 29.101-2(f) , s amended as foows:
( ) y addng n the frst sentence after Form 990 the foowng:
or Form 990- as may be approprate (see subsecton (e) of ths
secton) .
( ) y nsertng n each of the ast two sentences thereof after
Form 990 the foowng: or Form 990- .
Par. 6. Secton 29.101-2 (g), as added bv Treasury Decson 3 1
2C. CFR 29.101-2(g) , s amended by nsertng after Form 990 the
foowng: (Form 990- where appcabe for perods after 19 9) .
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39
29.162-1.
Par. 7. Secton 29.101-2( ), as added by Treasury Decson 3 1
26 CFR 29.101-2(h) , s amended by nsertng n the frst sentence
after Form 990 the foowng: and Form 990- .
Par. . Secton 29.101-2(), as added by Treasury Decson 3 1
26 CFR 29.101-2() , s amended by nsertng after Form 990 the
foowng: or Form 990- .
Par. 9. Secton 29.101-2 (; ), as added by Treasury Decson 3 1
26 CFR 29.101-2(|) , s amended by nsertng n the frst sentence
after Form 990 the foowng: or Form 990- .
Par. 10. Secton 29.162-1 (a) 26 CFR 29.162-1 (a) , s amended
by addng at the end thereof the foowng:
See secton 29.1 :1-2 reatng to the annua nformaton return that must be
fed by every trust camng a chartabe, etc., deducton under secton 102(a)
fur the ta abe year.
secton 62 of the Interna Revenue Code (63 Stat. 32; 26 U. S. C. 62)
and secton 3 1 of the Revenue ct of 19 0 (Pubc Law. 1 , 1st
Cong.).)
Geo. . Schoeneman,
pproved pr 17, 19 1.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster pr 20, 19 1, : 1 a. m.)
Secton 29.1 3-2: Informaton requred of trusts
camng chartabe or other deductons under
secton 162(a).
INT RN L R NU COD
Secton- 29.1 3-3: Pubcty of returns.
INT RN L R NU COD
Secton- 29.1 3- : Penates.
INT RN L R NU COD
SUPPL M NT . ST T S ND TRUSTS
S CTION 162. N T INCOM
Secton 29.162-1: Income of estates and 19 1-9-13 79
trusts. I. T. 0
( so Secton 23(a), Secton 29.23 (a)-1 .)
INT RN L R NU COD
n estate s entted to a deducton, under secton 23(a)(2)
of the Interna Revenue Code, n ts Federa ncome ta return for
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29.162-1.
0
a partcuar ta abe year wth respect to payments of admnstra-
ton e penses made durng that year wthout forfetng Its rght
to a deducton, n determnng the net estate under secton 12(b)
of the Code, for admnstraton e penses pad n another ta abe
year, provded the estate des the statement and waver requred by
secton 162(e) of the Code.
dvce s requested whether an estate may eect, under secton
162(e) of the Interna Revenue Code, to deduct payments of admn-
straton e penses under secton 23(a) (2) of the Code n computng
the net ncome of the estate for Federa ncome ta purposes for
the ta abe year n whch such payments are made wthout forfetng
ts rght to deduct smar payments made n another ta abe year n
determnng the net estate under secton 12(b) of the Code for
Federa estate ta purposes.
In the nstant case, payments were made by an estate n 19 9 on
account of admnstraton e penses whch were not taken as a deduc-
ton n the estate s Federa ncome ta return for such year. Smar
payments were made by the estate n 19 0. The estate desres to
deduct, under secton 23(a)(2) of the Interna Revenue Code, the
amount of such payments made n 19 0 n computng ts net ncome
for the ta abe vear 19 0, and to deduct the amount of such payments
made n 19 9 n determnng the net estate under secon 12(b)
of the Code.
Secton 162 of the Interna Revenue Code, reatng to the computa-
ton of net ncome of estates and trusts, provdes n part as foows:
Sec. 1G2. Net Income.
The net ncome of the estate or trust sha be computed In the same manner
and on the same bass as In the case of an ndvdua, e cept that

(e) mounts aowabe under secton 12(b) as a deducton In computng
the net estate of a decedent sha not be aowed as a deducton under secton
23, e cept subsecton (w), n computng the net ncome of the estate uness
there s fed, wthn the tme and n the manner and form prescrbed by the
Commssoner, a statement that the tems have not been camed or aowed
as deductons under secton 12(b) and a waver of the rght to have such
tems aowed at any tme as deductons under secton 12(b).
Secton 12(b) of the Interna Revenue Code provdes for the de-
ducton, among other thngs, of admnstraton e penses n deter-
mnng the vaue of the net estate for Federa estate ta purposes.
Such e penses woud aso consttute aowabe deductons as nontrade
or nonbusness e penses under secton 23(a) (2) of the Code n deter-
mnng the net ncome of the estate for Federa ncome ta purposes.
The purpose of secton 102(e) of the Code s to prevent an estate
from obtanng a doube deducton wth respect to the same tems of
admnstraton e penses. dmnstraton e penses are not aowabe
deductons under secton 23 of the Code uness there s fed a state-
ment to the effect that the tems representng such e penses have not
been camed or aowed as deductons n the estate ta return and a
waver of the rght to have such tems aowed at any tme as deduc-
tons n the estate ta return. So ong as there s no dupcaton of
a deducton and the provsons of secton 162(e) of the Code are com-
ped wth, there s nothng to prevent an estate from takng a
deducton for certan tems of the admnstraton e penses n com-
putng the net estate under secton 12(b) of the Code and aso takng
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29.16 -3.
a deducton for other tems of such e penses n computng the net
ncome of the estate for the partcuar ta abe year n whch payment
of such tems s made from ts gross ncome.
ccordngy, t s hed that an estate s entted to a deducton, under
secton 23(a) (2) of the Interna Revenue Code, n ts Federa ncome
ta return for a partcuar ta abe year wth respect to payments of
admnstraton e penses made durng that year wthout forfetng
ts rght to a deducton, n determnng the net estate under secton
12(b) of the Code, for admnstraton e penses pad n another
ta abe year, provded the estate fes the statement and waver re-
qured by secton 162(e) of the Code.
Secton 29.1(12-1: Income of estates and trusts.
INT RN L R NU COD
S CTION 16 . MPLOY S TRUSTS
Secton 29.16 -3: Requrements as to cover- 19 1-12-13602
age. Mm. 66 1
Integraton of deferred beneft pans of empoyers wth the od-
age and survvors nsurance benefts provded by the Soca Securty
ct mendments of 19 0.
Offtce of Commssoner of Interna Revenue,
Washngton 2 , D. C, May 3, 19 1.
eads of Fed Dvsons, Technca Staff, and Others Concerned:
Tabt-e of Contents
Paragraph
No. Sub|ect
1. Pertnent reguatons.
2. Purpose of mmeograph.
3. Introducton.
. Defntons.
. asc rue for pans meetng certan condtons.
6. enefts n case of death before retrement.
7. Norma form of retrement beneft other than a straght fe annuty.
. Norma retrement wth ess than 1 years of servce.
9. Optona retrement or severance before age 6 (CO for women).
10. Norma retrement age ower than 6 (CO for women).
11. cess pans wth mnmum compensaton eve between 1,200 and 3,600
a year.
12. Unt-beneft pans.
13. Increase for empoyee contrbutons.
1 . Money-purchase pans.
1 . Offset pans.
16. Pans wth steppod-up beneft rates.
17. Permssbe mnmum benefts and saary or wage brackets.
1 . ppcabty of Mmeograph 39.
19. Proft-sharng pans.

9 200
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29.16 -3.
2
1. Pertnent reguatons. Secton 29.16 -3 of Reguatons 111 pro-
vdes that a cassfcaton of empoyees under any pan whch resuts
n reatvey or proportonatey greater benefts for empoyees earn-
ng 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 16 (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 for ths purpose the tota Soca Securty ct
beneft of an empoyee, n vew of the suppementary benefts provded
by such aw, may be consdered as 1 0 percent of the prmary nsur-
ance benefts provded thereby. See aso the second paragraph of
secton 29.16 - of Reguatons 111 as to dfferences n proportonate
benefts or contrbutons whch may be consdered nondscrmnatory
wthn the meanng of secton 16 (a)( ) of the Code because of
ntegratng wth benefts provded under State or Federa aw.
2. Purpose of mmeograph. Mmeograph 39 (C. . 19 3, 99)
set forth the rues for determnng whether a pan s ntegrated wth
the Soca Securty ct benefts so that t woud be consdered not
dscrmnatory under the provsons of the reguatons ndcated n
paragraph 1 on the bass of that ct as then n effect. Integraton
rues for ths purpose on the bass of the od-age and survvors nsur-
ance (often referred to as O SI) benefts provded by the Soca
Securty ct mendments of 19 0 are set forth n ths mmeograph.
3. Introducton. Under the O SI provsons as amended, the
monthy od-age nsurance benefts to whch an nsured ndvdua
w be entted n most cases upon retrement n the future after reach-
ng age 6 w be equa to 0 percent of the frst 100 of hs average
monthy wage pus 1 percent of the ne t 200 of hs average monthy
wage. The ma mum od-age nsurance beneft, payabe n the case
of an egbe retred worker whose average monthy wage s 300, w
be 0 a month, or 26 percent of hs average monthy wage. s n-
dcated n the reguaton referred to above, the tota benefts under
the O SI provsons wth respect to an empoyee may be consdered
for ntegraton purposes as equa n vaue to 1 0 percent of hs od-age
equvaent to a straght fe annuty begnnng at age 6 (or at ater
retrement) of 120 a month, or 0 percent of average monthy wage.
It shoud be noted that empoyees covered under the O SI prov-
sons must contrbute under the Federa Insurance Contrbutons ct.
ctuara cost estmates contaned n the report of the Commttee on
Ways and Means on . R. 6000 ( . Rept. No. 1300, 1st Cong., 1st
sess.; C. . 19 0-2, 2 ) and the report of the Commttee on Fnance
(S. Rept. No. 1669, 1st Cong., 2d sess.; C. . 19 0-2, 302) ndcate
that the aggregate empoyee and empoyer contrbutons under the
scae provded n that ct as amended w, n the ong run, appro -
mate the cost of the O SI benefts. Snce -the empoyee and
empoyer contrbutons under that ct are equa, t may be con-
sdered that n the ong run contrbutons of empoyees w n the
aggregate pay appro matey haf the cost of the O SI benefts. It
s recognzed, however, that empoyees retrng n the near future w
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29.16 -3.
contrbute much ess than haf the cost of ther O SI benefts. c-
cordngy, n deveopng the rues set forth beow, t was assumed that
empoyee contrbutons under O SI w pay for benefts equvaent to
a straght fe annuty of 2 : percent of average monthy wage, ony
one-s teenth of the tota O SI benefts for an empoyee whose
average monthy wage s 300.
It shoud aso be noted that the assumpton that O SI benefts are
equa n vaue to 1 0 percent of the od-age nsurance benefts gves
due aowance n the average stuaton for a O SI suppementary
and survvors benefts. The 1 0 percent referred to n the above-cted
reguaton aows for much more than the vaue of the wfe s benefts,
snce ony a fracton of the nsured ndvduas entted to od-age
nsurance benefts have wves entted to wfe s benefts. It has beeu
estmated that on the average a O SI benefts, ncudng those pay-
abe n case of death of the nsured ndvdua before or after age 0 ,
have a vaue equa to appro matey 1 0 percent of the od-age n-
surance benefts. Therefore, the ntegraton mt deveoped by as-
sumng such 1 0 percent of od-age nsurance benefts s propery
appcabe ony to pans whch do not provde death benefts attrbut-
abe to empoyer contrbutons n case of death ether before or after
retrement. pproprate ad|ustments of such mts are set forth n
paragraphs C and 7 of ths mmeograph for pans whch do provde
such death benefts.
. Defntons. Certan terms used n ths mmeograph w have
the meanng ndcated beow:
a) The term pan means a penson pan as defned n secton
29.16 -1 (a) of Reguatons 111, or an annuty pan as defned n sec-
ton 29.23(p)- of Reguatons 111, e cept when used as part of the
term proft-sharng pan.
(b) The term ntegrated, as apped to a pan or benefts under
a pan, means that dfferences n proportonate benefts favorng em-
poyees earnng above any specfed rate of compensaton as compared
wth those earnng beow such rate resutng from a cassfcaton
and/or dfference n beneft rates under such pan w be consdered
appro matey offset by the O SI benefts, so that the pan s not
consdered dscrmnatory under the provsons of the reguatons
referred to n paragraph 1 by reason of such dfferences.
(c) The term mnmum compensaton eve means the mnmum
rate of compensaton requred for egbty or beow whch com-
pensaton s e cuded n the computaton of benefts n an e cess pan.
(d) The term e cess pan means a pan under whch empoyees
earnng beow a mnmum compensaton eve, such as 3,600 a year,
are e cuded, ether by an egbty requrement or by basng benefts
ony on compensaton n e cess of the eve.
(e) The term 3,600 e cess pan means an e cess pan n whch
the mnmum compensaton eve s 3,600 a year.
(/) The term average annua compensaton means the average
obtaned by dvdng the tota compensaton of an empoyee from the
empoyer durng a perod of years (as e paned beow) by the num-
ber of years n such perod. The perod of years used n determnng
such average may ncude fractons of a year and may be any one
of the foowng, or the one of two or more of the foowng whch
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29.1G -3.

resuts n the hghest average for each empoyee, provded that a
unform rue s used for a empoyees:
(1) The tota perod of servce of each empoyee.
(2) The tota perod of partcpaton n the pan for each em-
oyee, provded that where such perod s ess than years a
efnte perod of at east fve consecutve years or the tota perod
of servce of ths empoyee wth the empoyer (f ess than
years) must be used.
(3) defnte perod of at east fve consecutve years (e cept
that f the tota perod of servce of an empoyee s ess than such
defnte perod, the tota erod of servce may be used for such
empoyee).
For ths purpose, t s not acceptabe to defne the -year perod as
the perod whch w produce the hghest average. owever, the
-year perod endng at actua retrement, or at the earer of actua
retrement or norma retrement age, or at the age of years before
norma retrement age, s acceptabe.
. asc rue for pans meetng certan condtons. 3,600 e cess
pan s ntegrated f the norma annua retrement beneft for any em-
poyee cannot e ceed 37 /2 percent of hs average annua compensaton
n e cess of 3,G00, provded that the pan conforms to a of the
foowng condtons:
(a) There are no benefts payabe n case of death before retrement.
(For other cases, see paragraph 6.)
(b) 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 7.)
(c) No empoyee can become egbe for norma retrement bene-
fts before competon of 1 years of servce wth the empoyer. (For
other cases, see paragraph .)
(d) Norma retrement age s not ower than age G for men and
not ower than age 60 for women, and f benefts of any knd are pay-
abe n case of retrement or severance of empoyment before norma
retrement age, such benefts are appropratey ad|usted n accordance
wth paragraph 9. (For other cases, see paragraph 10.)
(e) The empoyees do not contrbute. (For other cases, see para-
graph 13.)
6. enefts n case of death before retrement. 3,600 e cess pan
whch conforms to the condtons sted n paragraph 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 nd-
vdua 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 norma
annua retrement beneft for any empoyee cannot e ceed 33 percent
of hs average annua compensaton n e cess of 3,600.
ampe. 3,600 e cess pan whch conforms to the condtons
of paragraph e cept that the benefts are provded by means of typ-
ca retrement annuty or retrement ncome contracts, wth the death
benefts caed for by the contracts payabe to the empoyee s bene-
fcary n case of the empoyee s death before retrement, s ntegrated
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29.16 -3.
f the norma annua retrement beneft for any empoyee s 33 per-
cent of hs average annua compensaton n e cess of 3,600. ,
7. Norma form of retrement beneft other than a straght fe an-
nuty. 3,600 e cess pan whch conforms to the condtons sted
n paragraph or the condtons of paragraph 6 e cept that the norma
form of retrement beneft s one of these sted beow s ntegrated
f the norma annua retrement beneft for any empo3 ee cannot e -
ceed the rate determned n accordance wth the ne t sentence apped
to hs average annua compensaton n e cess of 3,600. The ma mum
rate whch may be apped s determned by mutpyng the rate set
forth n paragraph (37 percent) or n paragraph 6 (33 percent),
whchever s approprate, by the percentage set forth beow opposte
the norma form of retrement beneft provded by the pan:
rcrcent
nnuty for 10 years certan nnt fe thereafter 90
nnuty for 1 years certan and fe thereafter 0
nnuty for 20 years certan and fe thereafter 70
Lfe annuty wth nstament refund 0
Lfe annuty wth cash refund 7
(The terra cash refund refers to refund of the accumuated empoyer con-
trbutons, and does not refer to refund of ony the empoyee contrbutons,
often referred to as modfed cash refund; See paragraph 13.)
ampe. 3,600 e cess pan whch conforms to a of the con-
dtons sted n paragraph e cept that the norma form of retre-
ment beneft s an annuty for 10 years certan and for fe thereafter
and benefts equa to the reserve are payabe n case of the empoyee s
death before retrement s ntegrated f the norma annua retrement
beneft for any empoyee s 30 percent (33 percent mutped by
90 percent) of hs average annua compensaton n e cess of 3,000.
. Norma retrement wth ess than 1 years of servce. 3,600
e cess pan whch conforms to condtons (d) and (e) sted n para-
graph s ntegrated f the norma annua retrement beneft for any
empoyee who retres after at east 1 years of tota servce cannot
e ceed an amount determned n accordance wth paragraph , 6, or 7,
whchever s approprate, and the norma annua retrement beneft
for any empoyee who retres wth ess than 1 years of tota servce
cannot e ceed one-ffteenth of such amount mutped by hs actua
number of years of servce.
ampe. 3,600 e cess pan whch conforms to a the condtons
sted n paragraph e cept (c) thereof s ntegrated f t provdes
norma annua retrement benefts of 37 percent of average annua
compensaton n e cess of 3,600, reduced by 2 percent of such
average annua compensaton for each year that the empoyee s tota
servce at norma retrement s ess than 1 years.
9. Optona retrement or severance before age 6 (60 for women).
If a 3,600 e cess pan provdes benefts attrbutabe to empoyer con-
trbutons n case of retrement or severance of empoyment before
norma retrement age 6 for men or 60 for women, such benefts must
be mted as foows n order to be ntegrated:
(a) If the eary retrement or severance benefts are pad n the form
of a deferred annuty begnnng at such norma retrement age, the
annua benefts must not e ceed the ma mum amounts of norma
retrement benefts, determned n accordance wth paragraphs
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29.16 -3.
G
through , mutped by the rato that the actua number of years of
servce of the empoyee at retrement or severance bears to the tota
number of years of servce he woud have had f he had remaned n
servce unt norma retrement age.
(b) If the eary retrement or severance benefts are pad n the
form of an annuty begnnng at eary retrement or severance, or at
any tme before age 6 (60 for women), the annua benefts must not
e ceed the ma mum amounts determned n accordance wth sub-
paragraph (a), above, reduced by one-ffteenth thereof for each year
that the age of the empoyee at the tme such annuty benefts begn s
ess than age 6 (60 for women). If the eary retrement or severance
benefts are pad n any other form, the vaue thereof must not e ceed
the actuara vaue at the tme of retrement or severance of the ma -
mum benefts determned n accordance wth subparagraph (a), above.
(c) The requrements of subparagraphs (a) and (b) as to reducton
for eary retrement or severance w be consdered satsfed f the
vaue of benefts provded for an empoyee on eary retrement or
severance cannot e ceed the reserve at such tme wth respect to hs
norma retrement benefts, provded that such reserve s no arger
than t woud have been f such norma retrement benefts had been
funded by eve premums payabe over the entre perod from hs
commencement of servce to such norma retrement age. In pans
where the norma retrement benefts are funded by typca eve pre-
mum annuty or nsurance contracts, ths test s satsfed.
ampe. 3,600 e cess pan provdes for norma annua retre-
ment benefts upon retrement at age 6 wth at east 1 years of
servce of 30 percent of average annua compensaton n e cess of
3,600 on a 10 years certan and fe form. The benefts are funded
by means of typca eve premum retrement annuty or retrement
ncome contracts wth respect to each empoyee. In case of death
before retrement, the empoyee s benefcary receves the benefts caed
for by the contracts wth respect to hm, and n case of separaton
from servce for other reason before norma retrement age, the con-
tracts wth respect to the empoyee are assgned to hm. Such pan
s ntegrated.
10. Norma retrement age ower than 6 GO for women). 3,600
e cess pan n whch the norma retrement age s ower than age 6
for men or 60 for women s ntegrated f the norma annua retrement
benefts or the eary retrement or severance benefts for any empoyee
cannot e ceed the amount determned n accordance wth paragraphs
through 9 as though norma or earer retrement under the terms
of the pan were eary optona retrement n a pan provdng are
-6 (60 tor women) as norma retrement age. ternatvey, a 3,600
e cess pan wth such ower norma retrement age s ntegrated f the
norma annua retrement benefts for any empoyee cannot e ceed the
rate determned n accordance wth paragraphs through , reduced
by one-tenth thereof for each year that the norma retrement age s
ower than age 6 (60 for women), apped to hs average annua
compensaton n e cess of 3,600; f benefts are provded n case of
retrement or severance of empoyment before norma retrement age,
such benefts must be further reduced n the same manner as provded
n paragraph 9, adapted for ths purpose by substtutng the norma
retrement ages for C (60 for women) n paragraph 9(6).
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7
29.16 -3.
ampe. 3,600 e cess pan provdes for norma annua retre-
ment benefts upon retrement at age 60 wth 1 years of servce of
1 percent of average annua compensaton n e cess of 3,600 on a
10 years certan and fe form. In case of death or separaton from
servce for other reason before norma retrement age, a beneft equa
to the reserve accumuated under a typca eve premum fundng
method s pad. Such pan s ntegrated, because the rate for norma
retrement benefts s fve-tenths of the ma mum rate determned n
accordance wth paragraph 7, and the eary retrement or severance
benefts are appropratey reduced.
11. cess pans wth mnmum compensaton eve between 1,200
and 3,600 a year. noncontrbutory e cess pan n whch the mn-
mum annua compensaton eve s ower than 3,600 but not ower
than 1,200 s ntegrated f the annua retrement benefts for any
empoyee cannot e ceed an amount determned as foows:
(a) Dvde 630 by the mnmum annua compensaton eve. The
fracton thus obtaned shoud then be mutped by eght-nnths f
the pan provdes benefts n case of death before retrement descrbed
n paragraph 6. and shoud aso be appropratey ad|usted n the
manner provded n paragraphs 7 and 10 where the pan contans pro-
vsons 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 cess 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
n (a)) provded by the pan on the porton of average annua com-
pensaton between te mnmum annua compensaton eve and 3,600.
bvde ths amount by 3,600. dd the percentage thus obtaned to
the approprate percentage set forth or determned n accordance wth
paragraph , 6, 7, or 10. The resutng 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 sub-
paragraphs (a) and (b) shoud then be ad|usted for cases of norma
retrement wth ess than 1 years of servce or eary retrement or
severance n the manner set forth n paragraphs and 9.
ampe. noncontrbutory e cess pan n whch the mnmum
compensaton eve s 3,000 a year provdes norma annua retre-
ment benefts upon retrement at age 6 wth at east 1 vea s of
servce of 1 percent of average annua compensaton n e cess of
.000 but not n e cess of 3,600 pus 32/2 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
norma retrement, benefts equa to the reserve accumuated on a
typca eve fundng method are pad. Such pan s ntegrated; ths
s determned as foows:
(a) Step (1) : 630 dvded by 3,000 equas 0.21.
(2) : 0.21 tmes eght-nnths tmes 00 percent equas 16. percent
Thus, the 1 percent rate provded by the pan does not e ceed the
ma mum permssbe rate.
(b) Step (1) : 1 percent of 600 equas 00.
(2) : 90 dvded by . ,000 equns 2 /2 percent.
(3) : percent pus 30 percent equas 32 /2 percent.
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29.16 -3.

Thus, the 321/2 percent rate provded by the pan does not e ceed the
ma mum permssbe rate.
12. Unt-beneft pans. n e cess pan of the unt-beneft type n
whch norma retrement age s not ower than age G for men and
GO for women s ntegrated:
(a) Where 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 the approprate mnmum compensaton eve
for each year of such servce, past or future, f such rate does not
e ceed one-thrteth of the rate determned n accordance wth para-
graph , G, 7, or 11.
(o) Where the rate of norma retrement beneft for each year of-
credted servce s apped to the annua compensaton n e cess of
the approprate mnmum compensaton eve averaged over a mted
perod of years and such perod s permtted under the terms of para-
graph (/), f such rate does not e ceed the rate determned n ac-
cordance wth paragraph , 6, 7, or 11 dvded by the number of years
between the earest possbe entrance age nto the pan and age G ,
e cept that such dvsor need not e ceed .
(c) Where the rate of norma retrement beneft for each year of
credted future servce s apped to the actua compensaton n e cess
of the approprate mnmum compensaton eve n each such year,
and the rate of norma retrement beneft for each year of credted
pror servce s apped to the annua rate of compensaton n e cess
of the approprate mnmum compensaton as of the date of ncepton
of the pan or as of some earer date or to the average of such com-
pensaton for a mted perod pror to the date of ncepton, f (1)
the rate for future servce credts does not e ceed the ma mum rate
descrbed n subparagraph (a), above, and (2) the rate for pror
servce credts does not e ceed the rate determned n accordance
wth paragraph , G, 7, or 11 dvded by the ma mum number of
years of tota servce whch can be credted under the pan for any
empoyee who s entted to pror servce credts, e cept that such
dvsor sha not be ess than 30 nor need t be greater than , and
(3) the tota pror servce credts of any empoyee, e pressed as a
percentage of the compensaton used for pror servce credts, do not
e ceed nne-te ths of the rate determned n accordance wth para-
graph ,6,7, or 11.
In case of norma or eary retrement benefts begnnng before age
6 (GO for women) the approprate ma mum rate or rates determned
n accordance wth subparagraph (a), (b), or (c), above, shoud be
reduced by one-ffteenth thereof for each year that the age of the
empoyee at the tme such benefts begn s ess than age G (GO for
women). The requrements of the prevous sentence w be con-
sdered satsfed wth respect to benefts payabe n the case of eary
retrement or severance of empoyment f the benefts on such eary
retrement or severance are actuaray equvaent to the norma retre-
ment benefts accrued to the tme of such eary retrement or severance
or are equa n vaue to the reserve for norma retrement benefts
accumuated under a typca eve premum fundng method or unt
credt cost method.
ampe. 3,G00 e cess pan whch conforms to condtons (a),
(b), and (d) sted n paragraph provdes norma annua retrement
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9
29.16 -3.
benefts equa to fve-s ths of 1 percent of the annua rate of compen-
saton n e cess of 3,600 as of the date of ncepton of the pan mut-
ped by the number of years of credted servce pror to such date pus
I percent of actua compensaton n e cess of 3,600 durng each year
of credted servce subsequent to such date. n empoyee who has
pror servce credts can receve more than years of tota credted
servce under the pan, but no empoyee has more than 0 years of pror
servce credted under the pan. The benefts under ths pan nte-
grate ; ths s determned as foows:
(1) Rate of beneft for each year of future servce (1 per-
cent) does not e ceed one-thrteth of 37 percent equas 1 per-
cent apped to actua compensaton n e cess of 3,600 each year.
s ths of 1 percent) does not e ceed one forty-ffth of 37
percent equas fve-s ths of 1 percent apped to the annua rate of
compensaton n e cess of 3,600 as of the date of ncepton of the
pan.
(3) The argest pror servce credt any empoyee has s O
tmes fve-s ths of 1 percent equas 33 percent whch does not
e ceed nne-tenths of 37 percent.
13. Increase for empoyee contrbutons. contrbutory e cess
pan of the fat-percentage or unt-beneft type s ntegrated f the
annua retrement beneft for any empoyee whose benefts do not
commence before age 6 (60 for women) cannot e ceed the appcabe
amount determned n accordance wth the above rues, ncreased by
one-tenth of hs aggregate contrbutons e cusve of those appcabe
to the current cost of nsurance or death benefts n e cess of the reserve
or cash vaue. If the benefts commence before age 6 (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 6 (60 for women). Such ncreases are appcabe regardess
of the form of retrement beneft or provson for death benefts. It
shoud aso be noted that where the pan provdes for return of ony
empoyee contrbutons and nterest thereon n case of death before
or after retrement, such as when the retrement benefts are on a
modfed cash refund form, the reductons n otherwse aowabe
mts as set forth n paragraphs 6 and 7 are not requred.
ampe. n e cess pan n whch the mnmum compensaton
eve s 3,600 requres years of servce for partcpaton and pro-
vdes for norma retrement at age 6 or upon competon of 10 years
of partcpaton, whchever s ater. Norma annua retrement bene-
fts of 33 percent of annua compensaton, averaged over the entre
terod of partcpaton, n e cess of 3,600, on a 10 years certan and
fe form, are provded and funded by means of typca annua
premum retrement ncome contracts wth respect to each partc-
pant. In case of death before retrement, the partcpant s benefcary
receves the death benefts caed for by the contracts wth respect
to hm. In case of other severance before retrement, the partcpant
receves a percentage, but not more than 100 percent, of-the vaue of
the contract at such tme. ach partcpant s requred to make
reguar contrbutons of percent of hs annua compensaton n
e cess of 3,600, one-thrd of whch s apped to the cost of current n-
(2) ate of beneft
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29.16 -3.
0
surance protecton; f such cost s more than such one-thrd, the partc-
pant s requred to make an addtona contrbuton of the dfference.
Such pan s ntegrated, snce the norma annua retrement beneft
of any partcpant cannot e ceed the appcabe mt determned as
foows:
00 37 30
Increase for empoyee contrbutons:
Mo 10 years 3
Tota, 33 of average annua partcpatng compensaton n e cess
of 3,000.
Note that the ncrease for empoyee contrbutons must be apped
to the same compensaton as such contrbutons were, even though an
average over a shorter perod woud have been acceptabe for the part
of the beneft consdered to have been attrbutabe to empoyer
contrbutons.
1 . Money-purchase pans. n e cess pan whch provdes benefts
wth respect to servce after the ncepton of the pan from empoyer
contrbutons of a f ed amount or f ed percentages of each empoyee s
compensaton after the effectve date of the pan s ntegrated f (a)
the rate of empoyer contrbutons used for the beneft of any em-
poyee cannot e ceed n any year one-fourth of the ma mum rate
of beneft determned n accordance wth paragraph or 11, apped
to the actua compensaton n that year n e cess of the approprate
mnmum compensaton eve (the ad|ustments caed for by para-
graphs 6 through 10 are not appcabe to the rate so determned, snce
these w automatcay be refected n the amount of beneft produced
by such contrbutons), and (b) the benefts for pror servce of any
empoyee do not e ceed the amounts acceptabe for pror servce
credts n an ntegrated unt-beneft e cess pan, as set forth n para-
graph 12(c) (2) and (3).
ampe. n e cess pan provdes that the empoyer w con-
trbute wth respect to each empoyee 9 percent of hs actua compen-
saton n e cess of 3,600 each year after the date of ncepton of the
pan unt he reaches age G for the purchase of a retrement annuty
for such empoyee. In addton, each empoyee who has pror servce
at the date of ncepton of the pan w receve norma annua retre-
ment benefts on a straght fe annuty form commencng at age G
of 1 percent of hs compensaton n e cess of 3,600 for the 12 months
pror to the ncepton of the pan mutped by the number of years
of such pror servce rendered after age 30 and before age 6 . No
empoyee has more than 33 years of pror servce credted under the
pan. In case of severance or death before retrement, the empoyee
or hs benefcary receves ony the accumuaton of the empoyer s 9
percent contrbutons. Ths pan s ntegrated; ths determnaton s
arrved at as foows:
(1) ate of empoyer contrbuton for future servce benefts
(9 percent) does not e ceed one-fourth of 37 /2 percent equas
9 percent apped to the annua compensaton n e cess of 3,600
each year.
(2) Rate of beneft for each year of pror servce (1 percent)
does not e ceed one thrty-ffth of 37y2 percent equas 1.07 percent
apped to the annua compensaton n e cess of 3,600 for the
12 months pror to the ncepton of the pan.
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29.16 -3.
(3) The ma mum pror servce credt to whch any empoyee
s entted s 33 percent, whch does not e ceed nne-tenths of
371, percent.
1 . Offset pans. pan n whch no empoyee and no porton of
compensaton s e pcty e cuded by reason of a mnmum com-
ton requrement and n whch a the provsons ncudng the
t 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 under O SI s often referred to as an offset pan.
n otfset pan whch conforms to condtons (a), (b), and (e) sted
n paragraph s ntegrated f the offset does not e ceed 1 0 percent
of the od-age nsurance benefts to whch the empoyee s, or woud on
appcaton be, mmedatey entted. If the pan s as descrbed n the
precedng sentence e cept that t provdes for death benefts of the
form descrbed n paragraph 6, the offset must not e ceed 12 percent
of such od-age nsurance benefts. If the pan s as descrbed above
e cept that the norma form of retrement benefts s one of those
sted n paragraph 7, the offset must not e ceed such 1 0 percent or
12 percent, whchever s appcabe, mutped by the approprate
percentage set forth n paragraph 7, of such od-age nsurance benefts.
If beneft payments under the pan can commence before age 6 ,
ether of the foowng methods of appyng the offset w satsfy
ntegraton requrements:
(a ppy no offset to the benefts pad before age G , n whch
case the fu offset (not e ceedng the acceptabe percentage of the
empoyee s od-age nsurance beneft as set forth above) may be ap-
ped to the benefts payabe after age 6 .
(b) Offset a beneft payments by unform amounts not e ceedng
the actuara equvaent of the acceptabe percentage set forth above
of the od-age nsurance benefts to whch the empoyee coud become
entted at age 6 , on the assumpton that ether:
(1) e receves no more wages from covered empoyment under
O SI, or
(2) e contnues to receve wages n covered empoyment unt
age 6 at a rate no hgher than he was recevng |ust before
beneft payments began. Where the net norma retrement benefts
are funded by eve annua premums, and n case of eary re-
trement or severance no more than the reserve accumuated at
such tme from such premums s vested, ths aternatve s gen-
eray satsfed.
ampe. pan coverng a empoyees regardess of earnngs
provdes norma annua retrement benefts at age 6 . on an nsta-
ment refund form, of 0 percent of average annua compensaton
ess 100 percent of the od-age nsurance beneft to whch the empoyee
s, or woud on fng appcaton be, entted. In case of death before
retrement, there s a beneft eqcra to the reserve or the tota pror
eontrrbutorts, whchever s greater. No other benefts are payabe
before age 6 . Such pan s ntegrated because the offset of 100 percent
of od-age nsurance benefts does not e ceed the ma mum offset per-
mssbe n a pan of ths type. Such ma mum offset for ths type
of pan s determned as foows:
0 123 100
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29.16 -3.
2
Note that f the pan had been dentca wth that descrbed n the
e ampe e cept that the retrement benefts were on a cash refund form
nstead of an nstament refund form, the pan woud not be nte-
grated, snce the 100 percent offset woud be more than the ma mum
permssbe, determned as foows:
7 12 93.7
16. Pans wth stepped-up beneft rates. pan n whch no em-
poyee and no porton of compensaton s e cuded by reason of a mn-
mum compensaton requrement and n whch a the provsons appy
unformy to a covered empoyees regardess of the rate of compensa-
ton, e cept that a hgher rate of beneft or of empoyer contrbutons
(and possby of empoyee contrbutons) s appcabe to compensa-
ton above a specfed eve, such as 3,600 a year, than to compensa-
ton beow such eve may be tested for satsfacton of ntegraton
requrements as though t were two separate pans one provdng
the ower ate of beneft or of empoyer contrbutons (and empoyee
contrbutons, f any) on a compensaton, and the second provdng
for the baance of the hgher rates on the compensaton n e cess of
the specfed eve. The frst pan then does not nvove ntegraton
requrements, snce t provdes unform rates and knds of benefts
on a compensaton, and the second pan may be treated as an
e cess pan for conformance to the rues set forth n the precedng
paragraphs.
ampe 1. pan n whch a empoyees who have attaned age
30 are covered and n whch the norma retrement age s 6 provdes
for norma annua retrement benefts (a) wth respect to pror serv-
ce, one-haf of 1 percent of the frst 3,600 and y2 percent of the
e cess over 3,600 of the annua rate of compensaton as of the effectve
date of the pan mutped by the number of years of servce pror
to such date, e cudng servce before age 30 or after age 6 ; and
( ) wth respect to future servce, one-haf of the empoyee s aggre-
gate contrbutons. ach empoyee s requred to contrbute 1 percent
of the frst 3,600 pus percent of the e cess over 3,600 of hs annua
compensaton durng each year of partcpaton. Thus, the norma
annua retrement benefts wth respect to future servce are equa
to one-haf of 1 percent of the frst 3,600 pus 2 percent of the e cess
over 3,600 of each year s actua annua compensaton. There are
no benefts payabe n case of death before retrement e cept a return
of empoyee contrbutons wth nterest and the ony death beneft
after retrement s the e cess, f any, of such contrbutons and nter-
est over the retrement benefts receved before death, . e., a modfed
cash refund form. No empoyee whose annua rate of compensaton
on the effectve date of the pan e ceeds 3,600 has more than 32 years
of pror servce credts. Such pan s ntegrated, determned as
foows:
The beneft rate of one-haf of 1 percent of a compensaton for
both past and future servce and the empoyee contrbuton rate of
1 percent of a compensaton may be emnated for the purpose of
testng conformance to ntegraton requrements snce they appy
unformy to a covered empoyees.
There reman an e cess beneft rate of 1 percent of annua compen-
saton n e cess of 3,600 as of the effectve date of the pan for each
year of pror servce and an e cess beneft rate of y2 percent of actua
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29.16 -3.
annua compensaton n e cess of 3,000 for each year of future
servce and an e cess empoyee contrbuton rate of 3 percent of actua
annua compensaton n e cess of 3,600.
The 1 percent rate for past servce benefts on the e cess over 3,600
ntegrates, snce t does not e ceed one thrty-ffth of 3T. percent
equas 1.07 percent of the rate of compensaton n e cess of 3,600 as
of the effectve date of the pan. No empoyee s entted to more than
32 percent of such e cess past servce credts, whch does not e ceed
nne-tenths of 37. percent.
The Yz percent rate for future servce benefts ntegrates because
t does not e ceed:
3o 37. 1.2 ,
pus ncrease for e cess empoyee contrbutons:
n 3 0.307o
Tota, 1. 3 of actua compensaton n e cess of 3,600 each year.
Note that the rue set forth above s appcabe ony f the ower rate
of beneft appes to compensaton startng from the frst doar. If
a porton of the compensaton s e cuded even n appyng the ower
rate of beneft, the pan s an e cess pan and must be tested for ntegra-
ton n accordance wth the precedng paragraphs. The procedure
descrbed n paragraph 11 w usuay be appcabe n ths type of
case.
ampe 2. pan whch conforms to a the condtons sted n
paragraph provdes norma annua retrement benefts of 1 percent
of average annua compensaton n e cess of 1,200 a year but not n
e cess of 3,600 pus 0 percent of average annua compensaton n
e cess of 3,600 a year, ouch pan s not ntegrated; ths determna-
ton s made as foows:
The 1 percent rate does not e ceed the mnmum rate permssbe
n accordance wth paragraph 11(a). owever, the 0 percent rate
shoud be tested as foows :
1 of ( 3,600 1,230) 360
360- 3,600 10 .
10 37 7
Therefore, the 0 percent rate apped to average annua compensaton
n e cess of 3,600 s n e cess of the ma mum ntegrated rate of
73/2 percent.
It shoud aso be noted that the rues set forth above n ths para-
graph do not appy to stepped-up or mutpe pans n whch, asde
from dfferences n rate o retrement benefts, the benefts provded
for hgher pad empoyees are more favorabe than those for ower
ad empoyees n any respect, such as retrement age, death bene-
ts. form of annuty, rate of vestng, fundng medum, fundng
method, or any other factor whch makes them noncomparabe. In
such cases, the benefts for hgher pad empoyees must be tested for
ntegraton wth O SI benefts wthout regard to the benefts pro-
vded for ower pad empoyees, uness the dfferences are such that
they can be evauated actuaray on a unform bass, such as dfferences
n retrement age or form of retrement benefts.
On the other hand, f the hgher pad empoyees are covered by
two or more pans, more than one of whch nvoves ntegraton wth
O SI benefts, the benefts under a of the pans whch nvove nte-
graton must be taken nto account n testng for conformance wth
ntegraton requrements.
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29.16 -3.

17. Permssbe mnmum benefts and saary or wage brackets.
pan s ntegrated f t conforms to the rues set forth n paragraphs
through 16 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 n-
crease for empoyee contrbutons as set forth n paragraph 13, or
for mnmum empoyer contrbutons wth respect to any empoyee of
G0 a year. owever, such mnmum 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.
pan n whch the benefts are not e pressed precsey n terms of
percentages of compensaton but are appro matey reated to com-
pensaton by use of a beneft schedue whereby unform benefts are
provded for a empoyees whose saary fas nto a partcuar bracket
s ntegrated f the beneft provded n each bracket meets the requre-
ments of the precedng paragraphs when apped to the saary at the
mdpont of the bracket, provded that the brackets do not cover a
range of more than 00 of annua compensaton. Larger brackets
are permssbe n the hgher saary ranges but ony f the beneft n
each bracket woud meet the requrements of the precedng paragraphs
when apped to the saary 200 above the bottom of the bracket.
ampe. 3,GOO e cess pan provdes norma annua retre-
ment benefts at age 0 after 1 years of servce on a 10 years certan
and fe form, wth benefts equa to the reserve accumuated n case
of death before retrement. It s ntended to provde norma annua
retrement benefts of appro matey 30 percent of average annua
compensaton (for the years precedng retrement) n e cess of
3,600, wth a mnmum beneft of 2 0 a year.
I3eow are set forth three scaes of benefts desgned to mpement
the beneft formua of the pan. The beneft scae n coumn (3)
ustrates an acceptabe appcaton of the mnmum beneft and saary
brackets, n accordance wth the rues of ths paragraph. The beneft
scae n coumn ( ) s unacceptabe, because the benefts have been but
on top of the 2 0 mnmum so as to use part of such mnmum as a
toerance. Tbe beneft scae n coumn ( ) s unacceptabe because,
where the brackets are arger than 00, the benefts do not ntegrate
at a pont 200 above the bottom of the bracket.
(1)
(2)
(3)
( )
( )
verage annua saary for years before retrement
Md-
pont
nnua retrement beneft
eeept-
abc
Unacceptabe
3, 00
.200
,000
.000
, 00
6, 00
0.200
0, 00
7, 00
2 0
2 0
300
20
0
600
7 0
60
1,1 0
2 0
2 0
2 0
300
20
0
660
0
1.020
1,200
t .000.OI to , 00
300
20
0
660
7 0
900
1,0 0
1,260
1. 00.01 to ,200
.200.01 to S .600
,000.01 to .1,000
,000.01 to ,600
.1,100.01 to 7,200
7,200.01 to 7, 00
ach addtona 600
ISO
1 0
1 0
These saares are not the actua mdponts of the brackets, but represent the saares at whch ntegraton
must be tested.
1 . ppcabty of Mmeograph - 30. pan w aso be nte-
grated (even f t does not conform to the above rues) f t satsfes
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29.16 -3.
the requrements of Mmeograph 39, svpra, regardess of whether
t was put nto effect before or after the enactment of the Soca
Securty ct mendments of 19 0. pan whch nvoves ntegra-
ton wth O SI benefts and whch the ureau of Interna Revenue
has rued pror to the date of ths mmeograph meets the requrements
of secton 16 (a) of the Code w be consdered to satsfy the requre-
ments of Mmeograph 39 uness such rung s wthdrawn or mod-
fed or the pan has oeen amended so as to affect ts ntegraton subse-
quent to ts submsson for such rung.
pan of the unt-beneft or money-purchase type or combnaton
thereof w be ntegrated f the benefts wth respect to servce p-or
to the effectve date of the pan satsfy paragraph of Mmeograph
39 and the benefts wth respect to servce subsequent to such date
conform to the appcabe rues of ths mmeograph. so, a unt-
beneft or money-purchase type pan or combnaton thereof whch
s amended w be ntegrated f the benefts wth respect to servce
pror to the effectve date of the amendment satsfy paragraph of
Mmeograph 39 and the benefts wth respect to servce subsequent
to such date conform to the appcabe rues of ths mmeograph.
pan whch satsfed the requrements of Mmeograph : 9 but
whch s amended so that t fas to satsfy such requrements w
be ntegrated f t conforms to the rues of ths mmeograph n a
respects e cept to the e tent that benefts aready vested on the effec-
tve date of the amendment (or aready funded by such date on a
typca eve annua fundng to retrement method, even f not then
vested) e ceed the benefts whch conform to the approprate mts
of ths mmeograph.
pan whch provdes that the benefts w be computed n accord-
ance wth mtatons of Mmeograph 39 or the mtatons of ths
mmeograph, whchever w produce the hgher beneft n each case,
s not ntegrated.
ampe 1. pan put nto effect December 31, 19 2, effectve
as of anuary 1, 19 2, provded norma annua retrement benefts
begnnng at age 6 of three-fourths of 1 percent of the annua rate
of compensaton as of anuary 1, 19 2, n e cess of 3,000 mutped
by the number of years of servce pror to such date pus 1 percent
of annua compensaton n e cess of 3,000 for each year of servce
after such date. The pan s amended as of uy 1, 19 1, changng
annua beneft credts for servce subsequent to such date to 1 percent
of the compensaton n e cess of 3,600. There are no benefts n
case of death before retrement, and the norma form of annuty s
a straght fe annuty. Such pan, as amended, s ntegrated, be-
cause the benefts wth respect to servce before the effectve date of
the amendment satsfy the requrements of Mmeograph 39 and
the benefts wth respect to servce subsequent to such date satsfy the
rue set forth n paragraph 12 of ths mmeograph.
ampe 2. pan dentca wth the orgna pan descrbed n
e ampe 1 s amended, retroactve to anuary 1, 19 0, changng the
annua beneft credts for servce subsequent to such date to /t per-
cent of the compensaton n e cess of 3,000. Such pan s not nte-
grated, because the beneft credts for servce after the effectve date
of the amendment do not meet the requrements of ether Mmeograph
S 39 or of ths mmeograph.
19. Proft-sharng pans. None of the above rues appes to proft-
sharng pans, as defned n secton 29.16 -1 (a) of Reguatons 111.
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29.202-1.
6
proft-sharng pan whch e cudes empoyees or a porton of com-
pensaton by a mnmum compensaton requrement w be consdered
ntegrated ony f ether (a) the empoyer has no other pan nvovng
ntegraton wth O SI benefts and such proft-sharng pan provdes
benefts ony upon retrement or separaton from servce and a con-
trbutons are aocated on a nondscrmnatory bass when made, and
the amount of empoyer contrbutons pus forfetures aocated to any
partcpant n any year does not e ceed one-fourth of the beneft rate.
determned n accordance wth paragraph or 11 apped to the actua
compensaton n e cess of the mnmum compensaton eve e cept
that a mnmum aocaton not e ceedng G0 may be provded for each
partcpant n any year that aocatons are made; or (b) t was put
nto effect pror to the date of ths mmeograph and the ureau of
Interna Revenue has rued that such pan meets the requrements of
secton 16 (a) of the Code and such rung has not been wthdrawn
or modfed as to any year and such pan contnues as so rued upon
wthout any change whch coud ncrease the aocatons wth respect
to hgher pad empoyees. The reference to proft-sharng pans n
paragraph 7 of Mmeograph 30 s emnated to the e tent ncon-
sstent herewth.
20. Correspondence from the foowng regardng the procedure
prescrbed heren shoud refer to the number of ths mmeograph and
the symbos ndcated: Coectors of nterna revenue. C: Co; n-
terna revenue agents n charge, IT: PS; heads of fed dvsons of
the Technca Staff, TS: CWS.
Geo. . Schoeneman,
Commssoner,
SUPPL M NT G. INSUR NC COMP NI S
S CTION 202. D UST D NORM L-T
N T INCOM
Secton; 29.202-1: Reserve and other pocy 19 1-6-13 61
abty credt for ad|usted norma-ta net T. D. 31
ncome.
TITL 20 INT RN L R NU C PT R I. SU C PT R , P RT 29.
Fgure to be used In determnng reserve and other pocy abty
credt for fe usurance companes.
Offce of the Secretary of the Treasury,
Washngton, D. C, March 7, 19 1.
To Offcers and mpoyees of the Treasury Department and Others
Concerned:
Paragraph 1. y vrtue of the authorty vested n me by secton
202(b) of the Interna Revenue Code, as amended by secton 163 of
the Revenue ct of 19 2 ( 3 Stat. 71, 6 Stat. 70; 26 U. S. C. 19 6
ed., 202(b)) and as further amended by secton 01 of the Revenue
ct of 19 0, approved September 23, 19 0, t s hereby determned
that the fgure to be used n computng the reserve and. other pocy
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29.2 1-1.
abty credt of fe nsurance companes for the ta abe year
19 0 sha be .9063.
Pak. 2. It s found that notce and pubc procedure are unneces-
sary, snce the fgure announced n ths Treasury Decson s computed
from nformaton contaned n the ncome ta returns of fe nsur-
ance companes for the year 19 9 whch are not open to pubc n-
2secton. The pubc accordngy cannot effectvey partcpate n
e determnaton of such fgure.
. .Foey,
(Fed wth the Dvson of the Federa Regster March 0, 10 1, 11:2 a. m.)
SUPPL M NT . POSS SSIONS OF T UNIT D ST T S
S CTION 2 1. INCOM FROM SOURC S WIT IN
POSS SSIONS OF UNIT D ST T S
Secto 29.2 1-1: Ctzens of the Unted 19 1-6-13 9
States and domestc corporatons derv- I. T. 0 6
ng ncome from sources wthn a pos-
sesson of the Unted States.
INT RN L R NU COD
domestc corporaton dong busness n Gunra whch satsfes
the condtons set forth n secton 2 1(a) of the Interna Revenue
Code Is e empt from Unted States ncome ta wth respect to ts
ncome derved from Guam but s requred to fe returns and pay
ncome ta to the government of Guam by reason of the dua system
of ta aton created by the Organc ct of Guam (6 Stat. 3 ; C. .
10 0-2, 21 ).
dvce s requested whether the ta abe status of a domestc cor-
poraton dong busness n Guam whch satsfes the condtons set
forth n secton 2 1(a) of the Interna Revenue Code s affected by
the enactment of the Organc ct of Guam (6 Stat. 3 ; C. . 19 0-2,
21 ), approved ugust 1, 19 0.
Under secton 3 of the Organc ct of Guam, Guam s decared to be
an unncorporated terrtory of the Unted States wth the capta
and seat of government ocated at the cty of gana. It s further
provded n that secton that the government of Guam sha consst of
three branches, e ecutve, egsatve, and |udca, and ts reatons
wth the Federa Government sha be under the genera admnstra-
tve supervson of the head of such cvan department or agency of
the Government of the Unted States as the Presdent may drect.
Secton 31 of the ct. whch was paced n operaton as of anuary
1, 19 1, by ecutve Order 10211 (page 1 , ths uetn), reads as
foows:
Sec. 31. 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.
Secton 30 of the ct provdes n part that a Federa ncome ta es
derved from Guam sha be covered nto the treasury of Guam and
hed n account for the government of Guam and sha be e pended
for the beneft and government of Guam n accordance wth the annua
budgets.
0 290 1
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S 29.2 1-1.

Under secton 2 1 (a) of the Interna Revenue Code, a domestc
corporaton whch satsfes the condtons stated theren s ta abe ony
wth respect to ncome from sources wthn the Unted States. Those
condtons are n substance that (1) 0 percent or more of the corpora-
ton s gross ncome was derved from sources wthn a possesson of
the Unted States, and (2) 0 percent or more of ts gross ncome was
derved from the actve conduct of a trade or busness wthn a posses-
son of the Unted States.
The sand of Guam was ceded to the Unted States by Span n
accordance wth artce II of the Treaty of Peace between the Unted
States and Span (30 Stat. 17 ), sgned at Pars on December 10,
1 9 , and procamed pr 11, 1 99. Guam has been a possesson of
ths country ever snce ts acquston. though t s decared to be
an unncorporated terrtory by secton 3 of the Organc ct of
Guam, t has the same ega status as the rgn Isands and as that of
Puerto Rco pror to enactment of the Revenue ct of 19 0, and such
status s not smar to that of aska and awa.
Secton 2 1(d) of the Interna Revenue Code, as amended by secton
221(a) of the Revenue ct of 19 0, provdes that, as used n secton
2 1 of the Code, the term possesson of the Unted States does not
ncude the rgn Isands of the Unted States and that such term,
when used wth respect to ctzens of the Unted States, does not n-
cude Puerto Rco. Guam s not mentoned n that secton of the Code.
owever, secton 29.2 1- of Reguatons 111 provdes n part that
the term possesson of the Unted States, as used n sectons 2 1 and
2 2 of the Code, ncudes Guam but does not ncude the rgn
Isands. Secton 3797(a)(9) of the Code provdes that the term
Unted States, when used n a geographca sense, ncudes ony the-
States, the Terrtores of aska and awa, and the Dstrct of
Coumba.
Inasmuch as Guam s not e cepted from the provsons of secton
2 1 of the Code, the ureau s of the opnon that t shoud be con-
sdered a possesson of the Unted States, for Federa ncome ta pur-
poses, regardess of ts cassfcaton as an unncorporated terrtory
by the Organc ct of Guam. It foows, therefore, that a domestc
corporaton whch satsfes the condtons set forth n secton 2 1(a)
of the Code s ta abe, for Federa ncome ta purposes, ony wth
respect to ncome derved from sources wthn the Unted States.
The effect of secton 31 of the Organc ct of Guam s to set up a
separate ncome ta system for Guam whch s a dupcate of the
Federa ncome ta system. That secton s substantay the same
as a provso contaned n the Nava ppropratons ct of 1921 ( 2
Stat. 122), reatng to the rgn Isands, whch eads as foows:
Provded furt er. That the ncome ta aws now n force n the Unted States
of merca and those whch may hereafter be enacted sha be hed to be kewse
n force n the rgn Isands of the Unted States, e cept that the proceeds
of such ta es sha be pad nto the treasures of sad sands.
I. T. 29 6 (C. . I -2,109 (193 )) hods n part that the Unted
States and the rgn Isands are separate and dstnct ta ng |urs-
dctons athough ther ncome ta aws arse from an dentca statute
appcabe to each. It s stated n that rung that t w be necessary,
n some sectons of the aw (Revenue ct of 193 ), to substtute the
words rgn Isands for the words Unted States n order to
gve the aw proper effect n those sands. It s beeved that the same
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29.2 1-1.
prncpes are appcabe to Guam n vew of the above-mentoned
provsons of the Organc ct of Guam.
ccordngy, t s hed that a domestc corporaton dong busness
n Guam whch satsfes the condtons set forth n secton 2 1(a) of
the Interna Revenue Code s e empt from Unted States ncome ta
wth respect to ts ncome derved from Guam but s requred to fe
returns and pay ncome ta to the government of Guam by reason
of the dua system of ta aton created by the Organc ct of Guam.
Secton 29.2 1-1: Ctzens of the Unted States 19 1- -13 71
and domestc corporatons dervng ncome I. T. 0 7
from sources wthn a possesson of the Unted
States.
( so Secton 116; Secton 131, Secton 29.131-1.)
INT RN L R NU COD
Federa ncome ta abty of empoyees of the Unted States
or any agency thereof wth respect to amounts receved for servces
performed n Puerto Rco, as affected by amendments to the Interna
Revenue Code contaned n the Revenue ct of 10 0.
dvce s requested regardng the Federa ncome ta abty of
empoyees of the Unted States or any agency thereof wth respect to
amounts receved by them for servces performed n Puerto Rco, as
affected by amendments to the Interna venue Code contaned n
the Revenue ct of 19 0.
For hstorca reasons whch are fuy dscussed n I. T. 37 (C. .
19 6-1, 1 3), a dstncton has been made, for Federa ncome ta
purposes, between (1) those ctzens of the Unted States whose ct-
zenshp s derved from the coectve naturazaton provsons of the
Organc ct of Puerto Rco (39 Stat. 9 1) and reated cts, or by
order of the Dstrct Court of the Unted States for Puerto Rco, and
(2) those ctzens of the Unted States whose ctzenshp s derved
from sources other than the foregong. The members of the frst
group have heretofore been sub|ect to Federa ncome ta aton ony
wth respect to ncome derved from sources wthn the ncorporated
Unted States (the States, the Terrtores of aska and awa, and
the Dstrct of Coumba), e cept that when resdng theren they
were ta ed n the same manner as other ctzens of the Unted States.
(See secton 2 2(a) of the Interna Revenue Code pror to ts amend-
ment by secton 221(b) of the Revenue ct of 19 0.) The members
of the second group are sub|ect to Federa ncome ta aton wth
respect to ncome from whatever source derved, e cept ncome whch
s specfcay e empted by statute. statutory e empton was here-
tofore provded n the case of members of the second group who derved
a arge porton of ther ncome from sources wthn Puerto Rco (or
other possessons of the Unted States), these ndvduas, ke those
of the frst group, beng sub|ect to ta aton ony wth respect to n-
come derved from sources wthn the ncorporated Unted States.
(See secton 2 1(d) of the Code pror to ts amendment by secton
221(a) of the Revenue ct of 19 0.)
The e empton whch was formery appcabe to amounts pad by
the Unted States or any agency thereof to ctzens of the second group
for servces performed n the possessons of the Unted States was
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29.2 1-1.
60
removed by secton 2 1 (|) of the Code, as added by secton 220 of
the Revenue ct of 19 0. effectve for ta abe years begnnng after
December 31, 19 9. Secton 2 1 (|) of the Code provdes as foows:
(|) mpoyees of Unted States. For the purposes of ths secton, amounts
pad for servces performed by a ctzen of the Unted States as au empoyee of
the Unted States or any agency thereof sha be deemed to be derved from
sources wthn the Unted States.
For ta abe years begnnng after December 31,19 0, the dstncton
between the ctzens of the two above-mentoned groups was removed
by the ndcated amendments and by secton 11C(1) of the Code, as
added by sectoa 221(c) of the Revenue ct of 19 0. Secton 116(1)
of the Code provdes n part as foows:
Sec. 11C. cusons Fbom Gboss Income.
In addton to the tems specfed n secton 22(b), the foowng tems sha
not be ncuded n gross ncome and sha be e empt from ta aton under ths
chapter chapter 1 of the Code :

(1) Income Fbom Sources Wthn Puerto Rco.
(1) Resdent or Puerto Rco fob entre ta are year. In the case of
an ndvdua who s a bona fde resdent of Puerto Rco durng the entre
ta abe year, ncome derved from sources wthn Puerto Rco (e cept
amounts receved for servces performed as an empoyee of the Unted States
or any agency thereof) ; but such ndvdua sha not be aowed as a
deducton from hs gross ncome any deductons propery aocabe to or
chargeabe aganst amounts e cuded from gross ncome under ths para-
graph. Itacs supped.
Indvduas who are not ctzens of the Unted States but who are
resdents of Puerto Rco durng the entre ta abe vear are aso
covered by the provsons of secton 116(1) of the Code. ence,
for ta abe years begnnng after December 31, 19 0, amounts pad
by the Unted States or any agency thereof to ts empoyees for
servces performed n Puerto Rco are sub|ect to Federa ncome
ta aton whether the empoyee s a member of one of the groups of
ctzens of the Unted States prevousy descrbed, or s an aen
resdent of Puerto Rco for the entre ta abe year.
ccordngy, the compensaton of empoyees of the Unted States
or any agency thereof who are members of the above-mentoned
second group of ctzens s sub|ect to Federa ncome ta aton for
ta abe years begnnng on and after anuary 1, 19 0, whereas the
compensaton of such empoyees who are members of the frst group
of ctzens, as we as of those who are aens resdent n Puerto
Rco throughout the ta abe vear, s sub|ect to Federa ncome ta -
aton for ta abe years begnnng on and after anuary 1,19 1. The
wthhodng of Federa ncome ta at the source under secton 1622
of the Code wth respect to the compensaton of a Unted States
empoyees n Puerto Rco s requred on and after anuary 1, 19 1.
ctzen of the Unted States, an aen resdent of the Unted
States, or an aen resdent of Puerto Rco for the entre ta abe
year s egbe for a credt aganst hs Federa ncome ta for hs
ncome ta pad or accrued to Puerto Rco, sub|ect to the condtons and
mtatons of secton 131 (b) of the Code. It shoud be noted that, by
the terms of secton 131(d) of the Code, ta payers who otherwse
report ther ncome on the cash.bass may nevertheess accrue the
ta credt so as to appy t aganst the Federa ta wth respect
to the ncome for the same year as that to whch the Puerto Rcan
, ncome ta appes. It shoud be further noted, however, that by
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61
20.322-7.
the terms of secton 23(aa) of the Code, a ta payer camng the
standard deducton (ncudng computaton of hs ta by use of the
ta tabes) s negbe for the ta credt under secton 131 of the
Code. Therefore, a ta payer camng ths credt may not cam
the standard deducton or compute hs ta by use of the ta tabes.
SUPPL M NT O. O RP YM NTS
S CTION 322. FUNDS ND CR DITS
Secton 29.322-7: Lmtatons upon the credt- 19 1-0-13 0
bg and refundng of ta es pad. T. D. 37
( so Secton 19.322-7, Reguatons 103.)
TITL 20 INT RN L R NU . C PT R I. SU C PT R , P RT 20 ND
P RT 10
Perod of mtatons on cam for refund when waver s fed
Fcvton 322(b) (3), Interna Revenue Code.
Washngton 2 , D. C.
In order to conform Reguatons 111 26 CFR, part 29 and Regua-
tons 103 20 CFR, part 19,19 0 Supp. to Pubc Law 716 ( 1st Cong.,
2d sess.) C. . 19 0-2, 217 , approved ugust 1 , 19 0, such regu-
atons are amended as foows:
29.322-1 of Reguatons 111 26 CFR 29.322-1 and secton 19.322-1
of Reguatons 103 26 CFR 19.322-1, 19 0 Supp. the foowng:
PU LIC L W 71C ( 1st CONG., 2d S SS.), PPRO D UGUST 1 ,
19 0
e t enacted by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed, That (a) secton 322(b)(3)
of the Interna Revenue Code s hereby amended by strkng out the ast
sentence and nsertng n eu thereof the foowng: Notwthstandng
the foregong provsons of ths paragraph, the perod wthn whch a
cam for credt or refund may be fed, or credt or refund aowed or
made f no cam s fed, sha not e pre pror to two years after the
tme the ta was pad, but f a cam s fed, or credt or refund aowed
or made f no cam s fed, more than s months after the e praton
of the perod wthn whch the Commssoner may make an assessment
pursuant to such agreement or any e tenson thereof, the amount
of the credt or refund sha not e ceed the porton of the ta pad durng
the two years mmedatey precedng the fng of the cam, or, f no
cam s fed, mmedatey precedng the aowance of the credt or
refund.
(b) The amendment made by subsecton (a) sha be appcabe to
ta abe years begnnng after December 31, 19 1, and, sub|ect to the
provsons of the second sentence of secton 109(c) of the Revenue ct
of 19 2 (added by secton 09(a) of the Revenue ct of 19 3 and
amended by secton 2 of ths ct), the amendment sha aso be app-
cabe to ta abe years begnnng after December 31, 1923, and before
anuary 1, 19 2.
Sec. 2. The second sentence of secton 169(e) of the Revenue ct of
19 2 Is hereby amended to read as foows: provson havng the
effect of secton 322(b) (3), as amended, of the Interna Revenue Code
and a provson havng the effect of the amendment made by subsecton
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29.322-7.
62
(b) of ths secton, sha be deemed to be Incuded In the revenue aws
respectvey appcabe to ta abe years begnnng after December 31,
1923, but such provsons sha be effectve wth respect to ta abe years
begnnng pror to anuary 1,19 2, ony f at some tme after February
2 , 19 , the Commssoner may assess the ta for such ta abe year
soey by reason of havng made (ether before, on, or after February
2 , 19 ) an agreement wth the ta payer pursuant to secton 270(b)
of the Interna Revenue Code or the correspondng provson of the
appcabe pror revenue aw to e tend beyond the tme prescrbed u
secton 27 of such Code or the correspondng provson of such pror
revenue aw the date wthn whch the Commssoner may assess
the ta .
Pak. 2. Paragraph (61 of secton 29.322-7 of Reguatons 111, as
amended by Treasury Decson 1G C. . 19 0-2, 62 , approved
December ,19 0 26 CFR 29.322-7 , s further amended as foows:
( ) y strkng out that part of the sentence comprsng the sec-
ond undesgnated paragraph begnnng wth the word mtatons
and nsertng n eu thereof the foowng: precedng provsons of
ths paragraph ( ) sha appy to such credt or refund.
( ) y strkng out the thrd undesgnated paragraph and nsert-
ng n eu thereof the foowng:
The perod wthn whch a cam for credt or refund may be fed, or credt
or refund aUowed or made f no cam s fed, sha not e pre pror to 2 years
after the tme the ta was pad, but f a cam s fed, or credt or refund aowed
or made f no cam s fed, more than 6 months after the e praton of the
perod wthn whch the Commssoner may make an assessment pursuant to
such agreement or any e tenson thereof, the amount of tte credt or refund
shaU not e ceed the porton of the ta pad durng the 2 years mmedatey
precedng the fng of the cam, or, f no cam s fed, mmedatey precedng
the aowance of the credt or refund.
Pah. 3. Paragraph (d) of secton 19.322-7 of Reguatons 103, as
amended by Treasury Decson 39 C. . 19 , 360 , approved
ugust 11, 19 26 CFR 19.322-7 , s further amended by addng
n the frst sentence thereof after Reguatons 111 the foowng:
, as amended, .
29.322-7 of Reguatons 111 26 CFR 29.322-7 coverng ta abe years
begnnng after December 31,193 , set forth n ths Treasury Decson
are hereby made appcabe to ta abe years begnnng after December
31, 1923. and pror to anuary 1, 1939 (such years beng covered by
Reguatons 6 ,69,7 ,77, 6,9 , and 101).
ecause of the technca nature of the amendments made heren, t
s found that t s unnecessary to ssue ths Treasury Decson wth
notce and pubc procedure thereon under secton (a) of the d-
mnstratve Procedure ct, approved une 11,19 6, or sub|ect to the
effectve date mtaton of secton (c) of sad ct.
n secton 62 of the Interna Revenue Code ( 3 Stat. 32/26 U. S. C.
62) and correspondng provsons of pror nterna revenue aws.)
Geo. . Scoeneman,
Commssoner.
pproved pr ,19 1.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster pr 11, 19 1, : 2 a. n.)
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03
6.
SU C PT R D C SS PROFITS T
P RT I. R T ND COMPUT TION OF T
S CTION 6. R G S P RIOD N T INCOM -
D PR SS D INDUSTRY SU GROUPS
19 1-1-13 0
T. D. 29
TITL 26 INT RN L R NU C PT R I, SU C PT R , P RT 0.
C SS PROFITS T S; T L Y RS NDING FT R UN 30, 10 0
Tentatve determnatons of depressed ndustry subgroups and the
tentatve ad|usted rates of return therefor; tentatve ndustry base
perod yeary rates of return and tentatve ndustry base perod
rates of return.
Offce of the Secretary of the Treasury,
Washngton 2- , D. C, February 2,19 1.
To Offcers and mpoyees of the Treasury Department and Others
Concerned:
Paragraph 1. y vrtue of the authorty vested n me by secton
6(h) of the Interna Revenue Code, added by secton 101 of the
cess Profts Ta ct of 19 0, approved anuary 3,19 1, t s hereby
tentatvey determned that the foowng ndustry subgroups are
depressed ndustry subgroups, and the tentatve ad|usted rates of
return therefor (computed to the nearest thousandth) are hereby
determned as foows:
Tentatve ad|usted
rate 0/ return
Industry subgroup (Percent)
1. The Manufacture of rcraft and Parts, ncudng rcraft
ngnes 11. 3
Ths ndustry subgroup s Standard Industra Cassfcaton
No. 372,1 consstng of the foowng: 3721 ( rcraft), 3722 ( r-
craft engnes and engne parts), 3723 ( rcraft propeers and
propeer parts), and 3729 ( rcraft parts and au ary equp-
ment, not esewhere cassfed).
2. The Manufacture of ngnes and Turbnes, e cept utomotve,
rcraft and Raway 12.
No. 3 1, consstng of the foowng: 3 11 (Steam engnes,
Turbnes, and Water Whees), and 3010 (Dese and sem-
Dese engnes; and other nterna-combuston engnes, not
esewhere cassfed).
3. The Manufacture of Metawerkng Machnery, ncudng Machne
Toos 10.
No. 3 ,1 consstng of the foowng: 3 1 (Machne toos),
3 2 (Metaworkng machnery, e cept machne toos), and
3 3 (Machne too accessores and other meta workng ma-
chnery ; sma power-drven cuttng and shapng toos and too
hoders ; and precson measurng toos).
1 Shp and oat udng and Reparng 10.
No. 373,1 consstng of the foowng: 3731 (Shp budng and
reparng), and 3732 ( oat budng and reparng).
. The Manufacture of Wnes 7.
No. 20 (Wnes).
See footnote at end of tabe.
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6.
6
Tentatve act usted
rate of return
Industry subgroup Percent)
6. Photographc Studo , Incudng Commerca Photography . 6
No. 723,1 consstng of the foowng: 7231 (Photographc
studos, e cept commerca photography), and 7232 (Commer-
ca photography).
7. Teegraph Communcaton. Wre and Rado 1.
No. 211 (Teegraphc communcaton, wre and rado).
. Transportaton by r 3. 0
No. ,1 consstng of the foowng: 312 (Certfed carrers),
r 13 (Uncertfed carrers). 21 ( r carrage, e cept common
carrers), 2 ( rports and tyug feds), and .|S3 ( rport
termna servces).
1 References nre to the Standard Industra Cassfcaton Manua prepared by the
Dvson of Statstca Standards, ureau o the udget.
Par. 2. y vrtue of the authorty vested n me by secton 7(d)
of the Interna Revenue Code, added by secton 101 of the cess
Profts Ta ct of 19 0, approved anuary 3, 10 1, the tentatve n-
dustry base perod yeary rates of return and the tentatve ndustry
base perod rates of return (each computed to the nearest thousandth)
are hereby determned for the foowng ndustry cassfcatons as
foows:
Tentatve ndustry base perod rates of return
Tentatve base perod yeary
Tentatve
Ma|or
rates of return (percent)
base perod
croon
Industry cassfcaton
rate of
number
return
GRICULTUR , FOR STRY, ND FIS RI S
10 6
19 7
19 3
19 9
(percent)
01 an 107..
Farms and agrcutura servces, huntng,
12.
12.
12.7
11.9
12.
trappng.
0
Forestry.. ........ ... .
6.1
.2
9.2
10.7
.
09
Fsheres
0.1
2.1
.
.
.
10 .
mnng
.2
11.
13.
.7
10.1
11
nthracte mnmr
6.
.
.0
.
6.2
12
tumnous coa and gnte mnng
6.3
1 .6
1 .
7.7
11. S
13
Crude petroeum and natura n e tracton...
.1
0.7
11.
11.2
10,0
1
Nonmotac mneras e cept fues
11.9
1 .2
1 .0
1 .9
1 .2
11 and 16..
CONTR CT CONSTRUCTION
P. 6
n.
13.7
1 .
12.2
17
M NUF CTURING
12.6
1 .2
1 .1
0.7
13.1
20
1 .
I . 2
12.
13.2
1 .
21
Tobacco manufactures
9.7
9.R
11.1
IL.f
10.7
22
2 .0
23.2
20.6
10.3
10.2
23
ppare and other fnshed products made
21.
16.7
10.
.0
13.
from fabrcs.
2
Lumber and wood products
16.0
23.0
10.6
11.
17.
2
Furnture and f tures ...... ....
10.
.
1 .6
13.7
1 .3
20
Prntng, pubshng, and aed ndustres
17.
23.2
IS. 1
13.7
1 .1
27
IS. 6
1 .7
13.
13.2
1 .1
2
Chemcas and aed products . ..
17.3
17.6
16.2
1 .
16.7
20
6.1
.7
11.3
6.6
.3
30
1 . 6
12.
13.
9.0
13.2
31
10.3
1 .9
10.2
.3
13.3
1 .
10.3
17.2
10.3
16.
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6 6.
Tentatve ndustry base perod rates of return Contnued
Ma|or
rroap
---.( T
3 and 3 ..
.n T ..

f
Industry cassfcaton
ancfactcrng contnued
rrmary meta Industres and fabrcated meta
products (e cept ordnance, machnery, and
transportaton equpment).
Ordnance and accessores
Machnery (e cept eectrca)
ectrca machnery, equpment, and suppes.
Transportaton equpment -
Professona, scentfc, and controng nstru-
ments; photographc and optca poods;
watches and cocks; Incudng msceane-
ous manufacturng ndustres.
TR NSPORT TION. COMMUNIC TION, ND OT R
P UC UTILITI S
Raroads
Loca and nterurhan raways and bus nes..
Truckng and warehousng
zhway transportaton not esewhere cass-
fed.
Water transportaton
Transportaton by ar
Ppe ne transportaton -
Servces Incdenta to transportaton
Teecommuncatons
Uttes and santary servces
W OL S L TR D
Whoesae trade
md
R T IL TR D
udng materas and farm equpment
Genera merchandse
Food
utomotve deaers and gasono servce sta-
tons
ppare and accessores
Furnture, home furnshngs, and equpment..
atnz and drnkng paces
us reta store -
FIN NC , INSUR NC , ND R L ST T
ankng
Credt agences other than banks
Securty and commodty brokers, deaers, e -
changes, and servces
Insurance carrers ...
Insurance acnts, brokers, and servce
odng and other nvestment companes
S R IC S
otes, roomng houses, camps, and other
odgng paces
Persona servces
Msceaneous busness servces..
utomobe repar servces and
Msceaneous repar servces
Rado broadcastng, ncudng facsme broad-
castng, and teevson
Moton pctures
musement and recreaton servces e cept mo-
ton pctures .
Other servces.
Tentatve base perod yeary
rates of return (percent)
19 6
10 7
19
19 0
9.3
1 .
16.
12.9
.
11.6
1 .
7.1
9.
16.0
17.2
1 .7
.2
1 .
1 .6
13.6
1.
13.
1 .6
21.
11.9
13.
13.
12.
1.1
3.9
. .3
.0
.1
(2.9)
2.2
1.7
11.
12.2
1 .0
12.7
2 .1
1 .1
12.1
. 10.
9.1
9.9
.1
.
1 (2.f.)
1 (3. 7)
1.3
.3
11.1
10.
10.
9.1
.1
10.0
7.1
7.2
0.1
.1
.9
.0
7.0
6.3
6.1
6.
16.
1 .3
12.6
9.7
1 .3
16.3
1 .3
10.0
20.9
17.
If.. 7
13.2
1 .
13.9
12.9
1 .
27.
33.0
27.3
1 .7
19.
1 .
11.6
7.
16.9
12.
9.1
6.
12.6
6. 6
.7
6.2
113
10.7
9.1
6.
.9
Z.
,
.
.
3.3
.
. 1
2.S
1.
1.
2.
2.
2.
2.
3.2
R. 3
9.
10.0
10.3
.1
. 2
.3
.
.9
.6
6.0
.
9.6
.
.1
7.
11.7
11.1
9.1
11.
12.
13.1
1.3.0
1 .2
1 .
13.7
12.
10.6
10.
13.
13.3
1 .6
2 .9
1 .
12.
10.1
19.
1 .6
9.2
.
21.3
13.6
11.9
12.0 1
.
9.7
10.3
.3
1 P rtntbescs ndcate negatve rnto of return.
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3 .736(a)-2.
66
Par. 3. It s found that notce and pubc procedure are mprac-
tcabe and unnecessary because the tentatve determnatons an-
nounced heren are computed ony by specfc formuae e pressy pre-
scrbed n sectons 6 and 7 of the Interna Revenue Code and be-
cause sectons G (h) and 7 (d) of the Interna Revenue Code requre
that such tentatve determnatons be procamed on or before March
1,19 1.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster February 2, 19 1, 2: 9 p. m.)
S CTION 7. INDUSTRY S P RIOD R T S OF
R TURN
INT RN L R NU COD
Tentatve ndustry base perod yeary rates of return and tentatve
ndustry base perod rates of return. (See T. D. 29, page 63.)
C PT R 2. DDITION L INCOM T S
SU C PT R C SS PROFITS T
P RT I
S CTION 736. R LI F FOR INST LLM NT R SIS T -
P Y RS ND T P Y RS WIT INCOM FROM LONG-
T RM CONTR CTS
Secton 3 .736 (a)-2: ecton to compute e cess 19 1-12-13603
profts ncome on straght accrua bass. I. T. 0 1
INT RN L R NU COD
For the purpose of determnng the e cess profts credt based on
nvested capta pursuant to secton 71 of the Interna Revenue
Code, unreazed profts attrbutabe to nstament saes made In
ta abe years begnnng after December 31, 1939, may be ncuded
In earnngs and profts of ta payers whch have estabshed eg-
bty for reef under secton 730(a) of the Code and secton
3 .730(a)- of Reguatons 112. Unreazed profts attrbutabe
to Instament saes made n ta abe years begnnng pror to an-
uary 1, 19 0, may not be ncuded n earnngs and profts for such
purpose.
Reconsderaton has been gven the poston of the ureau wth re-
spect to the treatment of unreazed profts attrbutabe to nsta-
ment saes made n ta abe years begnnng after December 31, 1939,
for the purpose of determnng the e cess profts credt based on
nvested capta pursuant to secton 71 of the Interna Revenue Code
n cases n -whch ta payers have estabshed egbty for reef under
secton 736(a) of the Code and secton 3 .736(a)- of Reguatons
112. Such reconsderaton was necesstated by the decsons n m-
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67
29.3797-11.
oreFs ome Furnshngs, Inc., v. Commssoner (1 9 Fed. (2d)
60 ) : usck s redt ewery Co., Inc., v. Commssoner (179 Fed.
(2d) 29 , certorar dened, 339 U. S. 967); and ohn reuner Co. v.
Commssoner (179 Fed. (2d) 6 , certorar dened, 339 U. S. 967).
eretofore the ureau has mantaned the poston that unreazed
profts attrbutabe to nstament saes made n ta abe years begn-
nng after December 31,1939, as we as unreazed profts attrbutabe
to such saes made n ta abe years begnnng pror to anuary 1,19 0,
may not be ncuded n earnngs and profts for the purpose of deter-
mnng the e cess profts credt based on nvested capta. In the
above-cted cases t was hed that unreazed profts attrbutabe to
nstament saes made n ta abe years begnnng after December 31,
1939, may be ncuded n earnngs and profts for such purpose. ow-
ever, n the decsons n ohn reuner Co. v. Commssoner, supra;
May, Stem Co. v. Commssoner (1 1 Fed. (2d) 07, certorar de-
ned, 3 0 U. S. 1 ); and adey Furnture Co. v. Unted States ( 7
Fed. Supp. 90) the courts uphed the ureau s poston that unrea-
zed profts attrbutabe to nstament saes made n ta abe years
begnnng pror to anuary 1,19 0, are not to be ncuded n earnngs
and profts for the purpose of computng the e cess profts credt based
on nvested capta. (See aso Whte rothers Co. v. Conmssoner,
1 0 Fed. (2d) 1, certorar dened, 3 0 U. S. 2 .)
In vew of the foregong, t s hed that for the purpose of deter-
mnng the e cess profts credt based on nvested capta pursuant to
secton 71 of the Interna evenue Code, unreazed profts attrbut-
abe to nstament saes made n ta abe years begnnng after Decem-
ber 31, 1939, may be ncuded n earnngs and profts of ta payers
whch have estabshed egbty for reef under secton 736(a) of
the Code and secton 3 .736(a)-1 of eguatons 112. It s hed fur-
ther that unreazed profts attrbutabe to nstament saes made n
ta abe years begnnng pror to anuary 1,19 0, may not be ncuded
n earnngs and profts for such purpose.
C PT R 3 . MISC LL N OUS PRO ISIONS
S CTION 3797. D FINITIONS
Secton 29.3797-11: Mtary or nava forces
and rmed Forces of the Unted States.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 32, page .)
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ST T ND GIFT T S
ST T T
S CTION 11(a). G OSS ST T : D C D NTS
INT R ST
Secton 1.13, eguatto s 10 : Property of 19 1-10-13 9
decedent at tme of death. Ct. D. 1739
ST T T INT RN L R NU COD ICTORY LI RTY LO N CT-
D CISION OF CIRCUIT COURT
L Gross state emptons aue of Unted States onds
Owned by Nonresdent en Decedent.
The prncpa, pus accrued Interest, of Unted States bonds ssued
after March 1, 19 1, physcay ocated n the Unted States and
benefcay owned at the tme of hs death by a nonresdent aen
not engaged n busness n the Unted States, s e empt from Fed-
era estate ta by vrtue of secton of the ctory Lberty Loan
ct of March 3, 1010.
2. Decson Reversed.
Decson of the Ta Court (0 T. C. 33 (19 7)) reversed.
Unted States Court of ppeas for the Second Crcut
ttate of ar andorf, The Frst Natona Dank of oston, Custodan and
Statutory ecutor, pettoner, v. Commssoner of Interna Revenue,
respondent
171 Fed. (2d) 0
Petton to revew a decson of The Ta Court of the Unted States
efore Swan, Chase, and Frank, Crcut udges
December 21, 19
OPINION
Swan, Crcut udge: Ths appea nvoves the Federa estate ta of the
estate of ar andorf, a nonresdent aen not engaged n busness n the
Unted States. t the date of hs death on November 19, 19 3, he was the bene-
fca owner of 1 0,000 of Unted States bonds physcay ocated here, of whch
73,000 were ssued after March 1, 19 1. The queston for decson s whether
the prncpa, pus accrued nterest, of the bonds ssued after March 1, 19 1,
was propery ncudbe n the decedent s gross estate. The Commssoner
rued that t was, producng the defcency n sut, and the Ta Court confrmed
hs rung. The pettoner contends that these bonds are e empt from the
federa estate ta by vrtue of secton of the ctory Lberty Loan ct of
March 3, 1910, whch appears at 31 U. S. C, secton 7 0. It rees upon the
egsatve hstory of ths statute, a |udca determnaton thereof n 1927, and
the ong contnued admnstratve practce of the Treasury Department pror
to amendment of ts reguatons n 19 1.
Secton of the ctory Lberty Loan ct of March 3, 1919, 0 Stat. 1311,
reads as foows:
(69)
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S 1.13, Regs. 10 .
70
Sec. . That secton 3 of the Fourth Lberty ond ct s hereby amended
to read as foows:
Sec. 3. That, notwthstandng the provsons of the Second Lberty ond
ct or of the War Fnance Corporaton ct or of any other ct, bonds, notes,
and certfcates of ndebtedness of the Unted States and bonds of the War
Fnance Corporaton sha, whe benefcay owned by a nonresdent aen
ndvdua, or a foregn corporaton, partnershp, or assocaton, not engaged n
busness n the Unted States, be e empt both as to prncpa and nterest from
any and a ta aton now or hereafter mposed by the Unted States, any State,
or any of the possessons of the Unted States or by any oca ta ng authorty .
Consderaton of the meanng of ths statute shoud start wth the Frst Lberty
ond ct of pr 2 , 1017, 0 Stat. 33. Secton 1 thereof provded that the
bonds ssued thereunder
sha be e empt, both as to prncpa and nterest, from a ta a-
ton, e cept estate or nhertance ta es, Imposed by authorty of
the Unted States, or ts possessons, or by any State or oca ta ng
authorty; .
Secton 7 of the Second Lberty ond ct of September 2 , 1917, 0 Stat. 291,
provded a smar e empton from a ta aton now or hereafter mposed
e cept (a) estate or nhertance, and (b) surta es, e cess profts and war-
profts ta es. It shoud be noted that estate or nhertance ta es are e cses
on the bondhoder s prvege of transferrng the bonds at death, whe sur-
ta es, e cess profts and war-profts ta es are drect property ta es; and that
the egsators apparenty thought t necessary to e cept both casses n order
to take them out of the genera words of e empton. The Thrd Lberty ond
ct of pr ,191 , 0 Stat. 02, amended certan sectons of the Second Lberty
ond ct but not secton 7. These three cts, whe grantng certan e emptons
from ta aton treated a bondhoders ake for purposes of ta aton, whether
they were aens or ctzens, resdent or nonresdent.
The dea that a speca e empton shoud be granted to foregn Investors n
Unted States bonds frst appeared n secton 3 of the Fourth Lberty ond ct of
uy 9,191 , 0 Stat. . Ths provded:
Sec 3. That notwthstandng the provsons of the Sscond Lberty ond ct, as
amended by the Thrd Lberty ond ct, or of the War Fnance Corporaton
ct, bonds and certfcates of ndebtedness of the Unted States payabe n any
foregn money or foregn moneys, and bonds of the War Fnance Corporaton
payabe n any foregn money or foregn moneys e cusvey or n the aternatve,
sha, f and to the e tent e pressed n such bonds at the tme of ther ssue, wth
the approva of the Secretary of the Treasury, whe benefcay owned by a
nonresdent aen ndvdua, or by a foregn corporaton, partnershp, or assoca-
ton, not engaged n busness n the Unted States, be e empt both as to prncpa
and nterest from any and a ta aton now or hereafter mposed by the Unted
States, any State, or any of the possessons of the Unted States, or by any
oca ta ng authorty.
It w be observed that the e empton from any and a ta aton granted to
bonds payabe n foregn money contaned no e cepton of estate or Inhertance
ta es or of surta es, e cess profts or war profts ta es. Secton 3 of the Fourth
Lberty ond ct was amended by secton of the ctory Lberty Loan ct of
March 3, 1919, 0 Stat. 1311, aready quoted. Ths amendment struck out the
requrements that the e empted bonds be payabe n foregn money; n other
words, t e tended the e empton to a Unted States bonds, whether or not
payabe n foregn money, whe benefcay owned by a nonresdent aen not
engaged n busness n the Unted States. t the same tme secton 1 of the
ctory Lberty Loan ct, 0 Stat. 1300, whch added a new secton to the
Second Lberty ond ct, provded that the notes heren authorzed may be
ssued e empt, both as to prncpa and Interest, from a ta aton (e cept
estate or nhertance ta es), and pursuant to subdvson (b)(2) graduated
ncome tn es mght aso be e cepted. The use of the same words of e empton n
dfferent sectons of the same statute wth an e pressy decared e cepton In one
case and not n the other, s a strong ndcaton that the Congress thought the
e cepton necessary n order to e cude estate and nhertance ta es from the
broad words of the e empton provson. nd ths s borne out by the remarks
of Senator Smmons, charman of the Senate Fnance Commttee, n connecton
wth secton 3 of the Fourth Lberty ond ct as reported In 66 Congressona
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71
1.13, Regs. 10 .
Record S691. It Is further substantated by the proposa of Congressman Parker
of New ersey to emnate the quafyng words e cept estate or nhertance
ta es from secton 1 of the ctory Lberty Loan ct as an nducement to
weathy nvestors to end ther money to the Unted States. The dscusson
and re|ecton of ths amendment s evdence that the members of the ouse
were aware that the ncuson or omsson of ths e cepton cause was controng
npon whether or not the e empton embraced the estate ta . nd the omsson
of the e cepton n secton whch came up before the ouse mmedatey after
the vote on the Parker amendment must therefore be regarded as evdence of a
deberate ntenton to make the e empton appcabe to the estate ta n the
case of bonds, notes and certfcates of ndebtedness of the Unted States bene-
fcay owned by nonresdent aens.
s eary as 1920 the Interna Revenue ureau had taken the poston that
Unted States bonds hed n trust for a nonresdent aen at the tme of hs death
shoud not be ncuded n the decedent s gross estate for the purpose of the
estate ta .3 nd on anuary , 192 , shorty after udge no s decson n
Farmers Loan t Trust Co. v. owers, 22 Fed. (2d) 6 (D. C. S. D. N. Y.), that
Unted States bonds owned by to nonresdent aen not engaged n busness n the
Unted States were e empt from the Federa estate ta , Treasury Reguatons 70,
artce 11 was amended by addng the foowng new sentence:
In case the decedent was a nonresdent aen not engaged In busness n
the Unted States, bonds, notes, and certfcates of ndebtedness of the
Unted States, and bonds of the War Fnance Corporaton, benefcay
owned by such aen, shoud not be ncuded.
Ths provson contnued substantay unchanged unt 19 1 when t was
amended by addng at the end
however, bonds, notes, and certfcates of ndebtedness of the Unted States,
ssued on or after March 1, 19 1, whch such decedent benefcay owned,
shoud be ncuded n the gross estate.
Mr. Thomas. I desre to ask the Scnntor from North Carona w.t the provson
of the aw Is wth reference to the ta aton of bonds whch are hed by foregn nonresdents
Mr. Smmons. The present aw mposes the same ta upon bonds owned by nonresdent
aens that It does npon bonds owned by ctzens of ths country.
Mr. Thomas. I was unabe to attend the meetngs of the Fnance Commttee havng
consderaton of ths b, and I therefore woud ke to be Informed why the change Is
now proposed whereby ths e empton Is to tak e effect
Mr. Smmons. The Senator from Coorado w reca that In the ast berty bond
b we Inserted a provson authorzng the ssuance of a certan number of those bonds
payabe n foregn money or moneys. That was done for the purpose of stabzng e change
and for the addtona purpose of furnshng an nducement or ncentve to foregn Investors
to buy these bonds. The testmony before the Ways and Means Commttee showed that
It was Impractcabe to Induce foregners to Invest In these bonds f they were sub|ect to
Federa and State ta aton, and If we were to secure such purchasers for these bonds from
abroad t woud be necessary to reeve them from ta aton.
Mr. Thomas. May I ask whether any of the former ssues were purchased wth foregn
money or by foregn nvestors
Mr. Smmons. I thnk not: but I understand none were so sod.
Mr. Thomas. In other words, the purpose of ccton 3 Is to pace a bonds upon an
equaty wth regard to the e empton feature
Mr. Smmons. bonds sod to nonresdent aens, so ong ns the benefca Interest
In the bond Is owned by them so It s a corporaton.
Mr. Thomas. s we ns those whch arc to be authorzed by ths b
Mr. Smmons. rs. The bonds that are authorzed by ths b to be pad for n foregn
money and od to foregners, to nonresdent aens, woud not be sub|ect to ta aton at
a. whe the bonds sod In our own markets are sub|ect to the surta and the nhertance
ta .
1 Mr. Paekeb. It has been thought a great thng to reeve the frst seres
of these notes from a ta es e cept estate or Inhertance ta es. There are n ths country
severa gentemen worth a great many mon doars, one at east worth severa hundreds
of mons of doars, and they are often not young, but ook to the tme soon when they
may de and when that nhertance ta w have to be pad. I have forgotten how
much t Is.
Mr. TcnrN. Twenty-fve percent Is the hghest.
Mr. Pabkeb of New ersey. That Is enough so that If we want these men to gve ther
mons and hundreds of mons to our oans, et the aw provde that oans sha bear
Interest at between 2 and 3 percent, not ess than 2 and not more than 3, but that they
sha be free from ta aton, nterest and prncpa, that estate and nhertance ta es
sha not affect them, and that the credt and obgatons of the Unted States sha
never be mpeached by any foregn country, or by any market, and, east of a, by tsef.
67 Cong. Rcc. 2 0-90.
1 1920 Corporaton Trust Company s War Ta Servce, sectons 322-323.
The Government took no appea from ths decson. Ths ta payer appeaed from
adverse rungs on other ssues, reported n 1 Fed. (2d) 700, and ts appea was sustaned.
Farmers Loan d Trust Co. v. owers, 2 dr., 20 Fed. (2d) 1 . Of course the e empton
of the bonds was not an Issue on the appea.
T. D. 11 , II-1 Cum. u. 310.
Treas. Reg. 10 , sec. 1.13 (10 2).
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1.2, Regs. 10 .
72
Despte ths egsatve and admnstratve hstory, the respondent contends
that secton of the ctory Lberty Loan ct e emptng the bonds from any
and a ta aton does not Incude, and was not ntended by Congress to ncude,
the Federa estate ta . The argument rests on the dstncton between a drect
ta on property and an estate ta , whch s an e cse ta . The respondent urges
that t s the prncpa and nterest of the bonds as property not the bond-
hoder s prvege of passng them on at death, whch the statute e empts. e
rees on urdock v. Ward, 17 U. 9. 139, reatng to the Federa nhertance
ta Imposed by the War Revenue ct of 1S9 , 30 Stat. , and Pummer v.
Coer, 17 U. S. 11 , reatng to the New York nhertance ta . Those cases sup-
port the proposton that a provson e emptng Unted States bonds from ta a-
ton as to prncpa and nterest, cthout more, reates e cusvey to drect
ta aton of them as property. The cted cases woud be persuasve, f Congress
had not shown an ntent to use the phrase e upt from a ta aton to ncude
estate ta es by e pressy e ceptng them n one secton of the statute and not n
the other, and f the Treasury Department had not for 20 years construed the
statute as grantng e empton wth respect to the estate ta .
The Commssoner has taken two competey contradctory postons n e -
emptng bonds ssued pror to March 1. 19 1, whe denyng e empton to those
ssued after that date. ther the ctory Lberty Loan ct dd not grant
e empton wth respect to the Federa estate ta , n whch case the Treasury
reguatons pror to 19 1 were nvad, or t dd grant such e empton, n whch
case there was no ega |ustfcaton for the ta ng offcas to dfferentate
between bonds ssued before March 1, 19 1, and those ssued after that date.
For reasons aready stated we beeve that the statute dscoses the ntent of
Congress to grant e empton from the Federa estate ta wth respect to bonds
benefcay owned by a nonresdent aen decedent. Sectons and of the
Pubc Debt ct of 19 1, Stat. 9, upon whch the Treasury purports to base ts
vote face as to bonds ssued after March 1, 19 1, deat ony wth ncome ta es
and has no bearng, In our opnon, on the e tent of the e empton granted by
the ctory Lberty Loan ct of 1919 wth respect to estate or nhertance ta es.
Consequenty the 19 1 change n the artce 1.13 of the reguatons fnds no
statutory support and s nvad.
The order s reversed and the cause remanded.
S CTION 930 CUTOR, N T ST T , MONT ,
COLL CTOR
Secton 1.2, Reguatons 10 : Descrpton 1931-7-13 6G
of ta . T. D. 3 :
( so Secton 11 (c), (d), and (); Sec-
tons 1.1 , 1.16, 1.17, 1.1 , 1.19, and
1.21, Reguatons 10 .)
TITL 26 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
Reguatons 10 amended to conform to Pubc Law 37 ( 1st
Cong., 1st sess.) C. . 19 9-2, 27 and Tubc Law 701 ( 1st Cong.,
2d sess.) C. . 10 0-2, 2 S .
Washngton 2o, D. C.
On November 1 , 19 0, notce of proposed rue makng, regardng
the estate ta provsons of Pubc Law 37 ( 1st Cong.. 1st sess.)
C. . 19 9-2, 27 , approved October 2 , 1919, and Pubc Law 761
T. D. 0 0, 1011-1 Cum. u. 10 .
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1.2, Regs. 10 .
( 1st Cong., 2d sess.) C. . 19 0-2, 2 , approved September 6,
19 0, was pubshed n the Federa Regster (1 F. R. 7 0). 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 10 2G CFR, part 1 , reatng to the estate ta ,
to Pubc Laws 37 and 761, ghty-frst Congress.
Paragraph 1. There s nserted mmedatey before secton 1.2 2G
CF 1.2 the foowng:
PCI3LIC L W 37 ( 1st CONG., 1st S SS.), ITRO D OCTO R
2 ,19 9
e t enacted by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed,

S C. 10. MPTION FROM T DDITION L ST T T
FOR C RT IN M M RS OF RMD FORC S.
(a) Subchapter of chapter 3 of the Interna Revenue Code (reatng
to addtona estate ta ) s amended by addng at the end thereof the
foowng new secton:
S C. 939. C RT IN M M RS OF RM D FORC S.
The ta mposed by secton 93 sha not appy to the transfer of the
net estate of a ctzen or resdent of the Unted States dyng on or after
D|cenber 7, 19 1, and before anuary 1, 19 7, whe In actve servce as
a member of the mtary or nava forces of the Unted States or of any
of the other Unted Natons f such decedent
(1) was ked n acton; or
(2) ded as a resut of wounds or other In|ures, or of dsease,
suffered whe n ne of duty by reason of a hazard to whch he was
sub|ected as an ncdent of mtary or nava servce.
(b) If the refund of any overpayment resutng from the appcaton
of ths secton Is prevented on the date of the enactment of ths ct,
or wthn one year from such date, by the operaton of nny aw or rue
of aw (other than secton 3761 of the Interna Revenue Code, reatng
to compromses), refund of such overpayment may, nevertheess, be made
If cam therefor s fed wthn one year from the date of the enactment
of ths ct. No nterest sha be pad on any overpayment resutng
from the appcaton of ths secton.
Par. 2. Secton 1.2, as amended by Treasury Decson 699 C. .
19 9-1,1 1 , approved May 13,19 9 26 CFR 1.2 , s further amended
( ) by strkng the headng thereof whch reads as foows: Genera
Descrpton. , and by nsertng n eu thereof the foowng: De-
scrpton of Ta . (a) In ffcnera ; and ( ) by addng at the end of
such secton the foowng:
(b) empton from addtona estate ta for certan members of the rmed
Forces. Secton 939 of the Interna Revenue Code, as added by secton 10 of
Pubc Law 37 ( 1st Cong.), provdes that the addtona estate ta does not
appy to the transfer of the net estate of a ctzen or resdent of the Unted
States dyng after December 0, 19 1, and before anuary 1, 19 7, 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 If the decedent was ether (1) ked n acton
or (2) ded as a resut of wounds or other n|ures, or of dsease suffered whe
n ne of duty by reason of a hazard to whch he was sub|ected as an Incdent of
mtary or nava sen-ce.
If the offca record of the mtary force of whch the decedent was a member
at the tme of hs death states that death resuted from wounds or In|ures
receved or dsease contracted whe n ne of duty, such fact sha, n the
3S290 01 G
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1.2, Regs. 10 .
7
absence of evdence estabshng the contrary, be presumed to be estabshed
for the purposes of the e empton. Moreover, wounds, n|ures, or dsease
suffered whe In ne of duty w be consdered to have been caused by a hazard
to whch the decedent was sub|ected as an ncdent of mtary or nava servce
uness the hazard whch caused such wounds, n|ures, or dsease was ceary
unreated to such servce.
person was n actve servce as a member of the mtary or nava forces of
the Unted States or of any of the other Unted Natons f he was at the tme of
hs death actuay servng n such forces, not necessary n the fed or n the
theater of war. Personne n the nactve reserves or on retrement are not n
actve servce. Perods durng whch a person s absent from duty on account
of sckness, wounds, eave, nternment by the enemy, or other awfu cause are
perods of actve servce.
For the purposes of ths secton the mtary and nava forces of the Unted
States Incude (but are not necessary mted to) the rmy, the Navy, tht
Marne Corps, the Coast Guard, the rmy Nurse Corps, Femae, the Navy Nurst
Corps, Femae, the Women s rmy u ary Corps or the Women s rmy Corps,
the Women s Reserve ranch of the Nava Reserve, the Marne Corps Women s
Reserve, and the Coast Guard Reserve, ncudng the Coast Guard Women s
Reserve. owever, the e empton Is not aowed to the estate of a decedent
whose ony mtary status was of a mted character, such as that of a member
of the rmy Specast Corps or of certan temporary members of the Const
Guard Reserve. For the purposes of ths secton the term member of the m-
tary or nava forces of any of the other Unted Natons ncudes
any decedent whose dutes and status n the servce of any of the Unted Natons
other than the Unted States corresponded to those of any member of the mtary
or nava forces of the Unted States as defned n ths secton.
If refund of the addtona estate ta pad by an estate entted to the
e empton provded by secton 939 s prevented on October 2 , 19 9, the date of
enactment of Pubc Law 37 ( 1st Cong.), or wthn 1 year from such date by
the operaton of any aw or rue of aw (ncudng a pror |udca determnaton)
other than secton 3761, of the Interna Revenue Code, reatng to compromses,
refund of such ta may nevertheess be made f cam therefor s fed wthn
1 year from October 2 , 19 9.
No nterest sha be pad on any overpayment resutng from the appcaton
of secton 10 of Pubc Law 37 .
Par. 3. The headng of secton 11(c) of the Interna Revenue Code,
whch secton of the Code s set forth mmedatey after secton 1.1
26 CFR 1.1 , s amended to read as foows: (c) Transfers n
Contempaton of, or Takng ffect at Death as orgnay en-
acted ; see the amendments, set forth beow, made by secton 7, Pubc
Law 37 , approved October 2 ,19 9 . .
Par- . There s nserted mmedatey after secton 3 1 of the Reve-
nue ct of 19 (nserted by Treasury Decson 699, approved May
13, 19 9) and precedng secton 302(c) of the Revenue ct of 1926
(as orgnay enacted), whch precede secton 1.1 26 CFR 1.1 ,
the foowng:
PU LIC L W 37 ( 1st CONG.. 1st S SS.), PPRO D
OCTO R 2 , 19 0
Unted States of merca n Congress assembed,

S C. 6. R LIN UIS M NT OF POW RS IN C S OF R CIPRO-
C L TRUSTS.

(c) In the case of a decedent who renqushed on or before De-
cember 31, 19 0, a power descrbed n secton 1000(g) of the Interna
Revenue Code, such renqushment sha, for the purposes of secton
11(d) of such Code, be deemed not to have been made In contem-
paton of the death of such decedent f such renqushment, by vrtue
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1.2, Regs. 10 .
of the enactment of ths secton, s not deemed a transfer of property
for the purposes of the gft ta . The provsons of ths subsecton sha
be appcabe wth respect to estates of decedents dyng after February
10, 1039.
S C. 7. TR NSF RS T ING FF CT T D T .
(a) Secton 11(c) of the Interna Revenue Code (reatng to trans-
fers n contempaton of or takng effect at death) s hereby amended to
read as foows:
(c) Transfers n Contempaton of, ok Takno ffect at, Death.
(1) Genera rue. To the e tent of any nterest theren of
whch the decedent has at any tme made a transfer (e cept n case
of a bona fde sae for an adequate and fu consderaton n money
or money s worth), by trust or otherwse
( ) n contempaton of hs death. ny transfer of a
matera part of hs property n the nature of a fna dspos-
ton or dstrbuton thereof, made by the decedent wthn two
years pror to hs death wthout such consderaton, sha,
uness shown to the contrary, be deemed to have been made n
contempaton of death wthn the meanng of ths subchapter;
or
( ) under whch e hns retaned for hs fe or for any
perod not ascertanabe wthout reference to hs death or for
any perod whch does not n fact end before hs death () the
possesson or en|oyment of, or the rght to the ncome from,
the property, or (11) the rght, ether aone or n con|uncton
wt any person, to desgnate the persons who sha possess
or en|oy the property or the Income therefrom; or
(C) ntended to take effect In possesson or en|oyment at
or after hs death.
(2) Transfers takng effect at death transfers tror to
October , 19 9. n nterest n property of whch the decedent
made a transfer, on or before October 7,19 9, Intended to take effect
n possesson or en|oyment at or after hs death sha not be In-
cuded n hs gross estate under paragraph (1) (C) of ths subsec-
ton uness the decedent has retaned a reversonary nterest n
the property, arsng by the e press terms of the nstrument of
transfer and not by operaton of aw, and the vaue of such re-
versonary nterest Immedatey before the death of the decedent
e ceeds per centum of the vaue of such property. For the pur-
poses of ths paragraph, the term reversonary nterest ncudes
a possbty that property transferred by the decedent ( ) may
return to hm or hs estate, or ( ) may be sub|ect to a power of
dsposton by hm, but such term does not ncude a possbty that
the ncome aone from such property may return to hm or become
sub|ect to a power of dsposton by hm. The vaue of a reversonary
Interest mmedatey before the death of the decedent sha be
determned (wthout regard to the fact of the decedent s death) by
usua methods of vauaton, ncudng the use of tabes of mortaty
and actuara prncpes, pursuant to reguatons prescrbed by the
Commssoner wth the approva of the Secretary. In determnng
the vaue of a possbty that property may be sub|ect to a power
of dsposton by the decedent, such possbty sha be vaued as
f t were a possbty that such property may return to the de-
cedent or hs estate.
(3) Transfers takng effect at death transfers after
October 7, 19 9. n nterest n property transferred by the de-
cedent after October 7, 19 9, sha be Incuded n hs gross estate
under paragraph (1) (C) of ths subsecton (whether or not the
decedent retaned any rght or nterest n the property transferred)
f and ony f
( ) possesson or en|oyment of the property can, through
ownershp of such Interest, be obtaned ony by survvng the
decedent; or
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1.2, Regs. 10 .
76
( ) under aternatve contngences provded by the terms
of the transfer, possesson or en|oyment of the property can,
through ownershp of such nterest, be obtaned ony by sur-
vvng the earer to occur of () the decedent s death or ()
some other event; and such other event dd not n fact occur
durng the decedent s fe.
Notwthstandng the foregong sentence, an Interest so transferred
sha not be ncuded n the decedent s gross estate under paragraph
(1) (C) of ths subsecton f possesson or en|oyment of the property
coud have been obtaned by any benefcary durng the decedent s
fe through the e ercse of a power of appontment (as defned
n secton 11(f)(2)) whch n fact was e ercsabe mmedatey
pror to the decedent s death.
(b) The amendment made by subsecton (a) sha be appcabe
wth respect to estates of decedents dyng after February 10,1039. The
provsons of secton 11(c) of the Interna Revenue Code, as amended
by subsecton (a), sha (e cept as otherwse specfcay provded n
such secton or n the foowng sentence) appy to transfers made on,
before, or after February 26, 1926. The provsons of secton 11(c)
(1) ( ) of such Code sha not, n the case of a decedent dyng pror to
anuary 1, 1930, appy to
(1) a transfer made pror to March , 1931; or
(2) a transfer made after March 3, 1931, nnd pror to une 7,
1932, uness the property transferred woud have been ncudbe
n the decedent s gross estate by reason of the amendatory anguage
of the |ont resouton of March 3, 1931 ( 0 Stat. 1 16).
No nterest sha be aowed or pad on any overpayment resutng from
the appcaton of subsecton (a) wth respect to any payment made
pror to the date of the enactment of ths ct.
(c) as amended by Pubc Law 761, 1st Cong., approved Septem-
ber 6, 19 0 If refund or credt of any overpayment resutng from the
appcaton of subsectons (a) and (b) s prevented on the date of the
enactment of ths ct, or wthn one year from such date, by the opera-
ton of any aw or rue of aw (other than secton 3760 of the Interna
Revenue Code, reatng to cosng agreements, and other than secton
3761 of such Code, reatng to compromses), refund or credt of such
overpayment may, nevertheess, be made or aowed f cam therefor
s fed wthn one year from the date of the enactment of ths ct. Ths
subsecton sha not appy wth respect to a transfer of property n case
(1) the decedent retaned for s fe or for any perod not ascertan-
abe wthout reference to hs death or for any perod whch dd not n
fact end before hs death ( ) the possesson or en|oyment of, or the
rght to the ncome from, the property, or ( ) the rght, ether aone or
n con|uncton wth any person, to desgnate the persons who shoud
possess or en|oy the property or the ncome therefrom, and (2) refund
or credt of any overpayment resutng from the appcaton of subsec-
tons (a) and (b) was prevented on or before anuary 16, 19 9, by the
operaton of any aw or rue of aw.
S C. . T -FR R L S OF C RT IN LIF ST T S.
In the case of a transfer of property made pror to une 7,1932, under
whch the grantor retaned (1) the possesson or en|oyment of, or the
rght to the ncome from, the property, or (2) the rght, ether aone
or n con|uncton wth any person, to desgnate the persons who sha
possess or en|oy the property or the Income therefrom, then an assgn-
ment by the grantor of such possesson, en|oyment, or rght to
ncome, or a renqushment by hm of such rght of desgnaton,
sha, f made pror to 19 1, not be deemed to have been made
n contempaton of death wthn the meanng of chapter 3 of such Code.
The foregong provsons sha not appy
( ) f the transfer was made after March 3, 1931, and pror to
une 7, 1932, and If the property transferred woud have been In-
cudbe n the grantor s gross estate upon hs death by reason of
the amendatory anguage of the |ont resouton of March 3, 1931
( Stat. 1 10) ; or
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1.2, Regs. 10 .
( ) If the property transferred woud have been ncudbe n
the grantor s gross estate under secton 11(d) o the Iuterua
Revenue Code had he ded on October 7,10 9.
Par. . Secton 1.1 , as amended by Treasury Decson G99 20
CFR 1.1 . s further amended by changng (2) of the frst sentence
to read: (2) transfers ntended to take effect n possesson or en|oy-
ment at or after the decedent s death Tsee secton 1.17); .
Par. C. Secton 1.10, as amended bv Treasury Decson 2 C. 13.
19 3, 1113 , approved March 19, 19 3 20 CF 1.10 , s further
amended by nsertng at the end thereof the foowng:
Secton S of Pubc Law 37S ( 1st Cong.) provdes that n the case of property
transferred by the decedent pror to une 7, 1032, wth retenton or reservaton
of the possesson or en|oyment of, or the rght to the ncome from, the property,
or the rght, ether aone or n con|uncton wth any person, to desgnate the
person or persons who sha possess or en|oy the property or the ncome there-
from, an assgnment by the decedent of such possesson, en|oyment, or rght to
ncome, or renqushment by hm of such rght of desgnaton, sha, f made dur-
ng hs fetme and pror to 10 1, not be deemed to have been made n contempa-
ton of death. Ths provson of secton does not appy
(1) to any transfer made after March 3, 1031, and before une 7, 1032,
whch, had the decedent ded mmedatey pror to the tme of the assgn-
ment or renqushment, woud have been consdered a transfer descrbed n
secton 1.1 (b) (1) or 1.10(b) (1) ; or
(2) f the property transferred woud have been ncudbe In the dece-
dent s gross estate under secton 11(d) had he ded on October 7, 10 0.
Par. 7. Secton SI.17. as amended by Treasury Decson 7 1 C. R.
19 9-2.11 , approved September 0,19 9 20 CF 1.17 , s amended
to read as foows:
Sec. 1.17. Transfers Intended to Take ffect at on fter the Decedent s
D Tn (a) Introductory. cept In the case of a bona fde sae for an adequate
and fu consderaton n money or money s worth and e cept as otherwse pro-
vded n secton 11(c)(2) (appcabe to transfers made pror to October ,
19 9) secton 11(c)(1)(C) requres the ncuson n the gross estate of a
decedent of the vaue of an nterest n property of whch he has made a transfer
ntended to take effect n possesson or en|oyment at or after hs death. The
rues appcabe to transfers made after October 7, 19 9, are set forth n (6) of
ths secton and those appcabe to transfers made pror to October , 19 9, are
set forth n (c) of ths secton.
(o) Transfers made after Octohcr 7, 7.9. .O. transfer of an nterest n prop-
erty by the decedent durng hs fe f made after October 7, 19 9, Is ntended
to take effect n possesson or en|oyment at or after hs death f and ony f
(1) possesson or en|oyment of the property can, through ownershp of
such nterest, be obtaned ony by survvng the decedent (secton S(c) (3)
( )); or
(2) under aternatve contngences provded by the terms of the transfer,
possesson, or en|oyment of the property can, through ownershp of such n-
terest, be obtaned ony by survvng the earer to occur of () the decedent s
death or () some other event; and such other event dd not n fact occur
durng the decedent s fe (secton 11(c) (3) ( )).
Notwthstandng the foregong rues, an nterest n property transferred by the
decedent s not ncudbe n the gross estate under ths paragraph f possesson
or en|oyment of the property was obtanabe by any benefcary durng the
decedent s fe through the e ercse of a power of appontment, as denned n
secton 11(f)(2), whch was In fact e ercsabe mmedatey pror to the
decedent s death.
The foregong rues are to be apped In the ght of crcumstances e stng
mmedatey pror to the decedent s death. For the purpose of rue (2), the e -
presson some other event ncudes the e praton of a term of years or the
happenng or faure to happen of a certan or uncertan event (ncudng the
possbe e ercse of a power whch s not a ta abe power of appontment as
defned n secton 11(f) (2)).
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1.2, Regs. 10 .
7
Where separate Interests are transferred to each of severa benefcares, the
above rues are to be separatey apped to each nterest Thus, If benefcary
receves an nterest whch enabes hm to obtan possesson or en|oyment of
the property ony by survvng the decedent and benefcary obtans an n-
terest whch enabes hm to obtan possesson or en|oyment of the property ony
on the occurrence of some event unreated to the decedent s death, t s ony the
transfer of the nterest to benefcary whch s Intended to take effect n pos-
sesson or en|oyment at or after the decedent s death. See aso e ampes (2)
and ( ) beow. Lkewse, f the decedent gave hs son the mmedate rght to
receve the ncome from the property unt years after the decedent s death,
and the rght to the corpus upon the e praton of such term, t s ony the trans-
fer of the atter nterest whch s ntended to take effect n possesson or en|oy-
ment at or after the decedent s death.
The foowng e ampes ustrate the appcaton of the foregong prncpes.
It s assumed that n each case the transfer s made after October 7, 10 9.
ampe (1). The decedent transferred property n trust, provdng for an
estate for fe n hs daughter, and a remander to the chdren of the daughter.
No part of the property s ncudbe under ths secton. The daughter can
possess and en|oy the property through ownershp of the fe estate wthout
survvng the decedent. The same Is true of the daughter s chdren wth respect
to ther remander nterest.
ampe (2). The decedent transferred property n trust, to pay the ncome
to hs wfe durng her fe, and at her death to pay the corpus to the decedent
If vng, nnd f not, to hs chdren. The decedent was survved by hs wfe. The
vaue of the transferred property, ess the outstandng fe estate n the wfe,
Is ncudbe n the decedent s gross estate snce the chdren cannot obtan
possesson or en|oyment of the property, through ownershp of ther Interest,
e cept by survvng the decedent.
ampe (3). The decedent transferred property In trust to accumuate the n-
come durng hs fe and at hs death to dstrbute the prncpa and accumu-
ated ncome to hs son or the son s estate. Whe the decedent retaned no
rght or nterest n the property, the transfer s ta abe snce possesson or
en|oyment of the property cannot be obtaned e cept by survvng the decedent.
ampe ( ). The decedent transferred property n trust provdng for pay-
ment of the ncome to hs wfe unt her death, at whch tme the son was to
receve the corpus. If the son predeceased the wfe the corpus was to revert to
the decedent f vng at hs wfe s death; and If the decedent was not then
vng, t was to pass to or s estate. The decedent was survved by hs wfe,
hs son, and . Nether the nterest transferred to the wfe nor to the son Is
ncudbe n the decedent s gross estate under ths secton snce each coud,
through ownershp of hs nterest, obtan possesson or en|oyment of the property
even though the decedent was vng. The nterest transferred to , however,
s ncudbe under secton 11(c)(3)( ) (to the e tent of the vaue of s
nterest mmedatey after the decedent s death) snce s possesson or en|oy-
ment of the property, f t materazes, coud be obtaned ony by survvng
the decedent. Secton 11(c) (3) ( ) has no appcaton to ths e ampe.
ampe ( ). The decedent transferred property In trust, to accumuate the
ncome unt hs son reached the age of 30, or unt the decedent s pror death.
Upon the frst to occur of these events the son was to receve the corpus. The
decedent s death n fact occurred before hs son attaned the age of 30. The
transfer s ta abe under secton 11(c)(3)( ) snce the son coud obtan
possesson or en|oyment ony by survvng the earer to occur of the decedent s
death or the son s attanng age 30, and snce the decedent s death In fact
occurred frst.
ampe (6). The decedent transferred property n trust provdng for ac-
cumuaton of the Income durng hs fe, and at hs death to pay the entre fund
to hs chdren or ther ssue. s wfe was gven the unrestrcted power to
ater, amend, or revoke the trust. The wfe survved the decedent and dd not
n fact e ercse her power durng the decedent s fe. Under the ast sentence
of secton 11(c) (3) the transfer s not ta abe snce possesson or en|oyment
of the property was obtanabe durng the decedent s fe through the e ercse
of the wfe s power, whch was a power of appontment as defned n secton
11(f) (2) of the Interna Revenue Code, and was n fact e ercsabe mmed-
atey pror to the decedent s death.
(c) Transfers made pror to October , 19 9. (1) In genera. transfer of
an nterest n property made by the decedent pror to October , 10 9 (whether
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1.2, Regs. 10 .
made before or after the enactment of the Revenue ct of 1916), Is not Intended
to take effect n possesson or en|oyment at or after hs death uness possesson
or en|oyment of the transferred property can, through ownershp of such
nterest, be obtaned ony by survvng the decedent. For the purpose of de-
termnng whether ths requrement Is satsfed, the prncpes ustrated n
e ampes (1) to ( ) of (b) of ths secton are appcabe. Where possesson
or en|oyment of the transferred property can be obtaned ether by survvng the
decedent or through the occurrence of some other event (as, for e ampe, the
e ercse of a power), the transfer sha not be consdered as ntended to take
effect n possesson or en|oyment nt or after the decedent s death uness, from
a consderaton of ts terms and crcumstances as a whoe, the other event Is
deemed to be unrea, n whch case such other event sha be dsregarded.
owever, not every nterest n property of whch the decedent made a transfer
before October , 19 9, ntended to take effect n possesson or en|oyment nt or
after hs death, s ncudbe In hs gross estate under secton 11(c)(1)(C).
Secton 11(c) (2) provdes that an Interest so transferred sha be ncuded n
the gross estate under secton 11(c) (1) (C) ony f the decedent has retaned
a reversonary nterest n the transferred property arsng by the e press terms
of the nstrument of transfer and not by operaton of aw, and the vaue of
such reversonary nterest mmedatey before the death of the decedent e ceeds
percent of the vaue of the transferred property. For e ampe, where a de-
cedent, pror to October , 19 9, transferred property n trust, reservng the
ncome to hmsef for fe and provdng that at hs death the corpus shoud be
dstrbuted to hs nece If vng and, If not, to hs estate, and the decedent s
nece n fact survved hm, the transfer s ntended to take effect n possesson
or en|oyment at or after hs death. owever, the transferred property s
ncudbe n the gross estate under secton 11(c)(1) (C) If, and ony f, the
vaue of the decedent s reversonary nterest mmedatey before hs death
e ceeded percent of the vaue of the transferred property. ( ven though not
ncudbe under secton 11(c)(1)(C), the transferred property may, depend-
ng upon the date of transfer and the date of the decedent s death, be Incudbe
under secton 11(c) (1) ( ) ; n ths connecton, see secton 1.1 .)
The term reversonary nterest Incudes a possbty that property trans-
ferred by the decedent may return to hm or hs estate and a possbty that
property transferred by the decedent may become sub|ect to a power of dsposton
by hm. The term reversonary nterest s not used n a technca sense; t
ncudes any reserved rght under whch the transferred property sha or may
be eturned to the grantor. The term does not, however, ncude rghts to ncome
ony, such as a rght to receve the Income from a trust after the death of another
person, (For reguatons concernng the effect of reservaton of rghts over
ncome from the transferred property, see sectons 1.1 and 1.19.)
reversonary nterest w be consdered to arse by the e press terms of
the nstrument of transfer f the nstrument contans an e press dsposton
whch affrmatvey creates a reversonary Interest, even though the terms of
the dsposton do not refer to the decedent or hs estate, as such. For e ampe,
where a dsposton whch, n terms, s to the ne t of kn of the decedent con-
sttutes, under the appcabe oca aw, a reversonary nterest In the decedent s
estate, such reserved reversonary nterest w be consdered to arse by the
e press terms of the nstrument and not by operaton of aw.
The vaue of the decedent s reversonary nterest sha be computed as of
the moment mmedatey before hs death wthout regard to whether the e ec-
utor eects to have the gross estate vaued as provded under secton S(|)
and wthout regard to the fact of the decedent s death. Such vaue sha be
ascertaned accordng to recognzed vauaton prncpes appcabe n deter-
mnng the vaue for estate and gft ta purposes of future or condtona Interests
n property. See secton 1.10(1) (3). possbty that the decedent may be
abe to dspose of property under certan condtons sha be deemed to be as
vauabe as a rght to the return of the property to hm under those condtons.
The vaue of the reversonary nterest sha be ascertaned as though the
decedent were, mmedatey before hs death, makng a gft of the property and
retanng the reversonary nterest. See, for e ampe, secton 0.10(g) of Regu-
atons 10 , pertanng to the gft ta . If a reversonary Interest does not have
an ascertanabe vaue under the appcabe vauaton prncpes, It Is consdered
to have a vaue of zero. Thus, f a reversonary Interest consstng of a rght
enforceabe n equty to compe a trustee to appy trust corpus for the support
and mantenance of the grantor woud be consdered to have a vaue of zero for
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1.2, Regs. 10 .
0
gft ta purposes were t beng retaned under a transfer by gft, t s to be
smary vaued for the purposes of ths secton.
In determnng whether the vaue of a reversonary Interest e ceeds percent,
It s to be compared wth the entre vaue of the transferred property, ncudng
nterests whch are not dependent upon survvorshp of the decedent. Thus, f
transferred property n trust wth the ncome payabe to for s fe and
wth the remander payabe to uness predeceases , n whch event the
property sha return to , and des durng s fe, the vaue of s rever-
sonary nterest mmedatey before hs death sha be compared wth the entre
vaue of the trust corpus, wthout deducton of the vaue of s outstandng fe
estate.
reversonary nterest whch, for nstance, e sts n ony one-haf of the
corpus of a trust sha be compared wth the vaue of such one-haf. ssume,
for e ampe, that the decedent transferred property n trust pror to October 6,
19 9, provdng that the ncome shoud be pad to hmsef for fe and that, upon
hs death, the property shoud be dstrbuted to hs chdren. The trust nstru-
ment further provded that the decedent shoud have the rght, upon the pror
death of hs wfe, to request the return of one-haf of the property. The decedent
was survved by hs wfe. If the vaue of the decedent s reversonary nterest
e ceeded percent of the vaue of the one-haf of the corpus n whch t e sted,
such one-haf Is ncudbe n the decedent s gross estate under secton
11(c) (1) (C), but the other one-haf s not ncudbe under that secton. (Such
other one-haf may, however, dependng upon the date of transfer and the date
of the decedent s death, be Incudbe under secton S(c) (1) ( ).)
(2) Retroactve operaton. The rue (set forth n subparagraph (1)) that an
nterest n property of whch the decedent, pror to October , 19 9, made a
transfer ntended to take effect n possesson or en|oyment at or after hs death
s to be ncuded n hs gross estate ony f he e pressy reserved a reversonary
nterest havng a vaue n e cess of percept of the vaue of the transferred
property resuts from the addton of secton 11(c) (2) of the Interna Revenue
Code made by secton 7(a) of Pubc Law 37 ( 1st Cong.), approved October 2 ,
19 9, and s appcabe wth respect to estates of decedents dyng after February
10, 1939, the date of enactment of the Interna Revenue Code.
Secton 7(b) of Pubc Law 37 provdes that no Interest sha be aowed or
pad on any overpayment resutng from the appcaton of secton 7(a) of
such Pubc aw wth respect to any payment made pror to October 2 , 19 9.
Where refund or credt of any overpayment resutng from the appcaton of
secton 7(a) of Pubc Law 37 s prevented on or before October 2 , 19 0, by
the operaton of any aw or rue of aw (ncudng a |udca determnaton but
not ncudng secton 3760, reatng to cosng agreements, and not ncudng
secton 3761, reatng to compromses), secton 7(c) of such Pubc aw provdes
that refund or credt of such overpayment may, nevertheess, be made or aowed
f cam therefor s fed on or before October 2 ,19 0:
Provded however, That n case such overpayment reates to a transfer of
property under whch the decedent retaned for hs fe or for any perod not
ascertanabe wthout reference to hs death or for any perod whch dd not
n fact end before hs death ( ) the possesson or en|oyment of, or the rght
to the ncome from, the transferred property, or ( ) the rght, ether aone or
n con|uncton wth any person, to desgnate the persons who shoud possess
or en|oy such property or the ncome therefrom, the foowng condton s aso
met: Such refund or credt was not prevented on or before anuary 16, 19 9,
by the operaton of any aw or rue of aw.
(3) Certan transfers between November 11, 193 , and anuary 29, 19 0.
Where the transfer was made durng the perod between November 11, 193
(that beng the date upon whch the Supreme Court of the Unted States rendered
ts decsons n the cases of Icverng v. St. Lous Unon Trust Co. (296 U. S. 39)
and ecker v. St. Lous Unon Trust Co. (296 U. S. )), and anuary 29, 19 0
(that beng the date upon whch such Court rendered ts decsons n everng v.
aock and companon cases (309 U. S. 10 )), and the Commssoner, whose
determnaton theren sha be concusve, determnes that such transfer s
cassfabe wth the transfers Invoved n such two cases decded on November
11, 193 , rather than wth the transfer nvoved n the case of en v. Unted
States (2 3 U. S. 231), prevousy decded by such Court, then the property so
transferred sha not be ncuded n the decedent s gross estate under the prov-
sons of ths secton, f the foowng condton s aso met: Such transfer sha
have been fnay treated for a gft ta purposes, both as to the caendar year
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1.2, Regs. 10 .
of snch transfer and subsequent caendar years, ns a gft n an amount measured
by the v;.ue of the property undmnshed by reason of a provson n the nstru-
ment of transfer by whch the property, n whoe or n part, s to revert to the
decedent shoud he survve the donee or another person, or the revertng thereof
s condtoned upon some other contngency termnabe by decedent s death.
Par. . Secton 1.1 , as amended by Treasury Decson 7-11 20
CFR 1.1 , s farther amended as foows:
( ) y strkng therefrom the headng and the frst paragraph
(whch ends wth the words term of years ) and nsertng n eu
thereof the foowng:
.Sec. 1.1 . Transfers Wth Possesson or n|oyment Retaned. (a) Gen-
era rue. cept n the case of a bona fde sae for an adequate and fu con-
sderaton n money or money s worth, secton 11(e)(1)( ) requres the
ncuson n the gross estate of the vaue of a property transferred by the
decedent, whether n trust or otherwse, f the decedent retaned or reserved
the use, possesson, rght to the ncome, or other en|oyment of the transferred
property (1) for hs fe; or (2) for any person not ascertanabe wthout
reference to hs death; or (3) for such a perod as to evdence hs ntenton
that t shoud e tend at east for the duraton of hs fe and hs death occurs
before the e praton of such perod. cept as provded n paragraph (6) of
ths secton, such property s ncudbe wthout regard to the date when the
transfer was made, whether before or after the enactment of the Revenue ct
of 1916.
reservaton for a perod not ascertanabe wthout reference to hs death
may be ustrated by a reservaton of the rght to receve, n quartery pay-
ments, the ncome of the transferred property where none ot the ncome between
the ast quartery payment and the decedent s death was to be receved by hm
or hs estate. Ths e presson aso ncudes a reservaton of the rght to receve
the ncome from transferred property after the death of another person who n
fact survved the decedent; but n such a case the amount to be ncuded n the
gross estate under ths secton does not ncude the vaue of the outstandng
ncome nterest n such other person. owever, f such other person predeceased
the decedent, the reservaton may be consdered to be for the decedent s fe or
for such a perod as to evdence hs Intenton that t shoud e tend at east
for the duraton of hs fe.
( ) y nsertng at the end of such secton the foowng:
( ) states of decedents dyng hefore anuary 1, 19 0. In the case of a
decedent who ded before anuary 1, 19 0, property sha not be ncuded n
the gross estate under ths secton uness transferred
(1) after March 3, 1931, and before une 7, 1932, and the retenton or
reservaton by the decedent was ( ) for hs fe or ( ) for such a perod as
to evdence hs ntenton that It shoud e tend at east for the duraton
of hs fe, and hs death occurs before the e praton of such perod; or
(2) on or after une 7,1032.
Pak. 9. Secton 1.19, as amended by Treasury Decson 7 1 2G
CFR 1.19 , s further amended as foows:
( ) y strkng therefrom the headng and the frst three para-
graphs (ncudng subparagraphs (1) and (2) of the thrd paragraph)
and nsertng n eu thereof the foowng:
Sec. 1.19. Transfers Wth Rght Retaned to Desgnate Who Shat
Possess or n|oy. (a) Genera rue. cept n the case of a bona fde sae for
an adequate and fu consderaton n money or money s worth, secton
11(c)(1)( ) requres the ncuson n the gross estate of the vaue of a
property transferred by the decedent, whether n trust or otherwse, f there
s retaned by or reserved to hm (1) for hs ffe, or (2) for any perod not
ascertanabe wthout reference to hs death, or (3) for such a perod as to
evdence hs Intenton that t shoud e tend at east for the duraton of hs fe
and hs death occurs before the e praton of such perod, the rght ether aone
or n con|uncton wth any other person or persons to desgnate the person or
persons who sha possess or en|oy the transferred property or the ncome
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1.2, Regs. 10 .
2
therefrom. cept as provded In (6) of ths secton, such property s n-
cudbe wthout regard to the date when the transfer was made, whether before
or after the enactment of the Revenue ct of 1916.
The rghts of desgnaton descrbed n secton 11(c) (1) ( ) ncude a re-
served power to desgnate the person or persons who sha, durng the decedent s
fe or durng any esser perod descrbed n such secton, receve the ncome
from the transferred property or who sha, durng any such perod, possess or
en|oy non-ncome-producng property. Such rghts of desgnaton do not, how-
ever, ncude powers over the transferred property tsef not affectng the en|oy-
ment of the ncome durng the decedent s fe. (See, however, secton 1.20.)
( ) y nsertng at the end of such secton the foowng:
(6) states of decedents dyng before anuary 1, 19 0, In the case of a
decedent who ded before anuary 1, 10 0, property sha not be ncuded n
the gross estate under ths secton uness transferred
(1) after March 3, 1931, and before une 7, 1932, and the rght of
desgnaton was retaned by or reserved to the decedent aone ( ) for
hs fe or ( ) for such a perod as to evdence hs ntenton that t shoud
e tend at east for the duraton of hs fe and hs death occurs before
the e praton of such perod; or
(2) on or after une 7, 1932.
Par. 10. Secton 1.21 26 CF 1.21 s amended ( ) by changng
the headng to read: Power Renqushed n Contempaton op
Death. (a) In genera and ( ) by addng at the end thereof the
foowng:
(6) Certan recproca trusts. Secton 6(c) of Pubc Law 37 ( 1st Cong.)
provdes a speca rue appcabe n the case of property transferred n trust
pror to anuary 1, 19 0, f and to the e tent that such property may be deemed
to have been transferred n trust by the decedent nstead of by the nomna
grantor of such property (b7 reason of the fact that the decedent made a re-
cproca transfer of property n trust). Under ths rue, a renqushment by
the decedent, durng hs fetme and pror to 19 1, of a power (as descrbed
n secton 1.20) or rght of desgnaton (as descrbed n secton 1.19) wth
respect to such property sha not be deemed to have been made n contempaton
of death. Ths rue sha not appy uness a gft ta was pad wth respect
to the recproca transfer by the decedent and was not credted or refunded.
Ths rue aso does not appy to the assgnment by the decedent of a reserved
fe estate or other nterest (as dstngushed from a power or rght of desgna-
ton) n the property whch may be so deemed to have been transferred by hm.
(See, however, secton 1.16.)
(Ths Treasury Decson s ssued under authorty contaned n
secton 3791 of the Interna Revenue Code ( 3 Stat. 67; 26 U. S. C.
3791) and pursuant to the provsons of Pubc Laws 37 and 761, 1st
Cong.)
Fred S. Martn,
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster March 1 , 19 1, : a. m.)
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6.1, Regs. 10 .
GIFT T
S CTION 1000. IMPOSITION OF T
Secton 6.1, Reguatons 10 : Imposton 19 1-7-13 67
of ta . T. D. 33
( so Sectons 6.2 and 6.3, Reguatons
10 ; rtce 3, Reguatons 79 (1936
edton).)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 6 ND
P RT
Reguatons 10 and Reguatons 79, 1030 edton, amended t9 con-
form to Pubc Law 37 (Sst Cong., 1st sess.) C. . 10 0-2, 270 .
Washngton 2 , D. C.
On November 1 , 19 0, notce of proposed rue makng, regardng
the gft ta provsons of Pubc Law 37 ( 1st Cong., 1st sess.)
C. . 19 9-2, 27 , approved October 2 , 19 9, was pubshed n
the Federa Regster (1 F. R. 7 ). No ob|ecton to the rues
proposed havng been receved, the amendments set forth beow are
hereby adopted. Such amendments are necessary n order to conform
Reguatons 10 26 CFR, part 6 and Reguatons 79, 1936 edton
26 CFR, 193 ed., part , reatng to the gft ta , to Pubc Law
37 .
R GUL TIONS 10
Paragraph 1. There s nserted mmedatey precedng secton 6.1
26 CFR 6.1 the foowng:
PU LIC L W 37 ( 1st CONG., 1st S SS.), PPRO D
OCTO R 2 , 10 9
e t macted by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed,

S C. 6. R LIN UIS M NT OF POW RS IN C S OF R CIP-
ROC L TRUSTS.
(a) Secton 1000 of the Interna Revenue Code (reatng to mposton
of gft ta ) s hereby amended by addng at the end thereof the foowng
new subsecton:
(g) Certan- Recproca Trusts. In the case of property n a trust
created pror to anuary 1, 19 0, f nnd to the e tent that such property
may be deemed to have been transferred to such trust by a person other
than the nomna grantor of such property (by reason of the fact that
such person has made a recproca transfer of property n trust), then a
renqushment by such person on or before December 31, 10 0, of any
power over such property or over the ncome therefrom sha not be
deemed a transfer of property for the purposes of ths chapter. In the
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6.1, Regs. 10 .

event of such renqushment, the recproca transfer made by the person
renqushng such power sha be deemed, for the purposes of ths
chapter, to have been a competed gft at the tme such recproca transfer
was made. Ths subsecton sha appy ony f, at the tme such person
made the aforesad recproca transfer of property, a aw was n effect
mposng a ta upon the transfer of property by gft and a gft ta was
pad wth respect to such recproca transfer, and not credted or re-
funded.

S C. . T -FR R L S OP C RT IN LIF ST T S.
In the case of a transfer of property made pror to une 7,1932, under
whch the grantor retaned (1) the possesson or en|oyment of, or the
rght to the ncome from, the property, or (2) the rght, ether aone or
n con|uncton wth any person, to desgnate the persons who sha pos-
sess or en|oy the property or the ncome therefrom, then an assgnment
by the grantor, of such possesson, en|oyment, or rght to ncome, or a
renqushment by hm of such rght of desgnaton, sha, f made n
19 9 or 19 0, not be deemed a transfer of property for the purposes of
chapter of the Interna Revenue Code, and sha, f made pror to 19 1,
not be deemed to have been made n contempaton of death wthn the
meanng of chapter 3 of such Code. The foregong provsons sha not
appy
( ) f the transfer was made after March 3, 1931, and pror to
une 7, 1032, and f the property transferred woud have been ncud-
be n the grantor s gross estate upon hs death by reason of the
amendatory anguage of the |ont resouton of March 3, 1931 (
Stat. 1 16) ; or
( ) f the property transferred woud have been ncudbe n the
grantor s gross estate under secton 11(d) of the Interna Revenue
Code had he ded on October 7,19 9.
Par. 2. Secton 6.1, as amended by Treasury Decson 11 C. .
19 0-2, 76 , approved October , 19 0 26 CFR 6.1 , s further
amended by strkng therefrom the second sentence and nsertng n
eu thereof the foowng:
The statute ta es a such transfers of property (to the e tent that they
e ceed the deductons authorzed by secton 100 ) other than the foowng:
gfts specfed n secton 1003(b) (2) and (3) ; reeases before uy 1, 19 1, of
powers to appont created on or before October 21, 19 2, the date of enactment
of the Revenue ct of 19 2; certan renqushments of powers over dscretonary
trusts descrbed n secton 1000(e) and over recproca trusts descrbed n secton
1000(g) ; and, as descrbed n secton 6.2(d), the assgnment or renqushment
n 19 9 or 19 0 of certan reserved rghts over ncome from property transferred
before March ,1931, and, n certan cases, before une 7,1932.
Par. 3. Secton 6.2, as amended by Treasury Decson 11 26
CFR 6.2 , s further amended as foows:
( ) y strkng the seventh sentence of paragraph (a) (ncudng
the parentheses encosng such sentence) and nsertng n eu thereof
the foowng:
( owever, for speca provsons wth respect to the e ercse or reease of
powers of appontment, see paragraph (6) of ths secton and for speca pro-
vsons wth respect to the assgnment or renqushment of certan reserved
rghts over ncome from property transferred before March , 1931, or une
7,1932, see paragraph (d) of ths secton.)
( ) y addng at the end of such secton the foowng:
( I) Transfers of certan fe estates and other rghts over ncome. Secton
of Pubc Law 37 ( 1st Cong.) provdes that n the case of property transferred
pror to une 7, 1932, wth retenton or reservaton by the transferor of the
possesson of, or the rght to the ncome from, the property, or the rght, ether
aone or n con|uncton wth any person, to desgnate the person or persons
who sha possess or en|oy the property or the ncome therefrom, an assgnment
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G.1, Regs. 10 .
by the transferor of such possesson, en|oyment, or rght to ncome, or re-
nqushment hy hm of such rght of desgnaton, sha, f made durng 19 9 or
1900, not be deemed a transfer of property sub|ect to gft ta . Ths provson
of secton does not appy
(1) to any transfer made after March 3, 1931, and before une 7, 1932,
whch, had the transferor ded mmedatey pror to the tme of the assgn-
ment or renqushment, woud have been consdered a transfer descrbed
n secton 1.1 (6) (1) or 1.19(6) (1) of Reguatons 10 ; or
(2) f the property transferred woud have been Incudbe n the trans-
feror s gross estate under secton 11(d) had he ded on October 7, 19 9.
Par. . Secton G.3. as amended bv Treasury Decson 606 C. .
19 -1, 129 , approved March , 19 26 CFR 6.3 , s further
amended as foows:
( ) y strkng therefrom the headng, whch reads Cessaton or
Donor s Domnon and Contro. , and nsertng n eu thereof the
foowng: Cessaton of Donor s Domnon and Contro, (a) In
genera.
( ) y nsertng mmedatey before the ast paragraph (whch
paragraph begns Secton 1000(e) ) the foowng subheadng: ( )
Renqushment of powers over certan dscretonary trusts.
(C) y addng at the end thereof the foowng:
(c) Renqushment of powers over certan recproca trusts. Secton 1000(g),
as added by secton 6 of Pubc Law 37 ( 1st Cong.), provdes n the case
of property In a trust created before anuary 1, 19 0, to the e tent that such
property may be deemed to have been transferred to such trust by a person
other than the nomna grantor (by reason of the fact that such person made
a recproca transfer of property n trust), that a renqushment by such
person (that s, by the constructve grantor) on or before December 1, 19. 0,
of any power over such property or over the ncome therefrom sha not be
treated as a gft for the purposes of the gft ta statute. In the event of such
renqushment, the recproca transfer made by the person renqushng the
power sha be deemed, for the purposes of gft ta , to have been a competed
gft at the tme such recproca transfer was made.
The provsons of secton 1000(g) are appcabe ony f, at the tme the re-
cproca tranrfer was made by the person renqushng the power, a gft ta
aw was n effect and a gft ta was pad wth respect to such recproca transfer,
and not credted or refunded. Secton 1000(g) aso does not appy to the assgn-
ment of a fe estate or other nterest n property (as dstngushed from the
renqushment of a power) whch has been created n a recproca trust. See,
however, secton 0.2(d).
R GUL TIONS 79. 1936 D.
Par. . There s nserted mmedatey precedng artce 1 26 CFR,
193 ed., .1 the foowng:
PT LIC L W 37 ( 1st CONG., 1st S SS.), PI-RO D OCTO R
2 , 19 9
e t enacted hy the Senate and ouse of Representatves of the
Unted States of merca n Congress assemhed,

S C. 6. R LIN UIS M NT OP POW RS IN C S OF R CIPRO-
C L TRUSTS.

(b) Secton 01 of the Revenue ct of 1932 (mposng a gft ta ) Is
hereby amended by addng at the end thereof the foowng new sub-
secton :
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6.1, Regs. 10 .
6
(d) Certan Recproca Trusts. In the cnse of property trans-
ferred n trust pror to anuary 1, 19 0, f and to the e tent that such
property may be deemed to have been so transferred by a person other
than the nomna grantor of such property (by reason of the fact that
such person has made a recproca transfer of property n trust), then
a renqushment by such person of any power over such property or
over the ncome therefrom sha not be deemed a transfer of property
for the purposes of ths tte. In the event of such renqushment on
or before December 31, 19 0, the recproca transfer made by the person
renqushng such power shn be deemed, for the purposes of ths tte,
to have been a competed gft at the tme such recproca transfer was
made. Ths subsecton sha appy ony f, at the tme such person made
the aforesad recproca transfer of property, a aw was n effect mposng
a ta upon the transfer of property by gft and a gft ta was pad wth
respect to such recproca transfer, and not credted or refunded.
Par. 6. rtce 3, as amended by Treasury Decson 69 C. . 19 ,
1 , approved ugust 1 , 19 26 CFR, 193 ed., .3 , s further
amended by addng at the end thereof the foowng:
Secton 01(d), as added by secton 6 of Pubc Law 37 (Sst Cong.), provdes
n the case of property transferred n trust pror to anuary 1,19 0, to the e tent
that such property may be deemed to have beea transferred by a person other
than the nomna grantor (by reason of the fact that such other person made a
recproca transfer of property n trust), that a renqushment by such person
(that s, by the constructve grantor) of any power over such property or over
the ncome therefrom sha not be treated as a gft for the purposes of the gft
ta provsons. In the event of such renqushment before anuary 1, 19 1, the
recproca transfer made by the person renqushng such power sha be deemed,
for the purposes of the gft ta provsons, to have been a competed gft at the
tme such recproca transfer was made.
The provsons of secton 01(d) are appcabe ony f, at the tme the recpro-
ca transfer was made by the person renqushng the power, a gft ta aw was In
effect and a gft ta was pad wth respect to such recproca transfer, and not
credted or refunded. Secton 01(d) aso does not appy to the assgnment of
a fe estate or other nterest n property (as dstngushed from the renqush-
ment of a power) whch has been created n a recproca trust.
(Ths Treasury Decson s ssued under authorty contaned n
sectons 1029 and 3791 of the Interna Revenue Code ( 3 Stat. 1 7,
67, 26 U. S. C. 1029, 3791), sectons 01 and 30 of the Revenue ct
of 1932 ( 7 Stat. 2 , 2 9), approved une 6, 1932, and pursuant to
Pubc Lnw 37 ( 1st Cong., 1st sess.), approved October 2 , 19 9.)
Fred S. Martn,
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster March 1 , 19 1, : a. n.)
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MPLOYM NT T RULINGS
INT RN L R NU COD
C PT R 9, SU C PT R . F D R L INSUR NC CONTRI UTIONS
CT
Reguatons 12 . 19 1-9-13 1
( so Subchapter D (Coecton of Income Ta at Mn. CG2
Source on Wages) and Subchapter (Genera
Provsons), Reguatons 116.)
Perods of mtaton. Changes effected by Soca Securty ct
mendments of 19 0 wth respect to ta es under Federa Insurance
Contrbutons ct and ncome wthhodng ta on wages.
Washngton 2 , D. C, March 30,19 1.
Coectors of Interna Revenue and Others Concerned:
1. The purpose of ths mmeograph s to set forth the changes ef-
fected by those provsons of the Soca Securty ct mendments of
19 0 reatng to the perods of mtaton upon assessment, coecton,
credtng, and refundng of Federa Insurance Contrbutons ct
ta es and ncome wthhodng ta on wages.
2. Pror to the effectve date of the Soca Securty ct mendments
of 19 0, the perods of mtaton for assessment, coecton, credtng,
and refundng of the Federa Insurance Contrbutons ct ta es and
ncome wthhodng ta on wages were prescrbed by sectons 3312 and
3313 of the Interna Revenue Code. Secton 3312 prescrbed generay
a -year mtaton perod upon assessment of such ta es and a -year
mtaton perod for brngng a proceedng n court for coecton
wthout assessment. Secton 3313 prescrbed a -year mtaton
perod upon the credtng and refundng of the ta es erroneousy or
egay assessed or coected.
3. Secton 207(a) of the Soca Securty ct mendments of 19 0
adds new sectons 163 and 1636 to subchapter of chapter 9 of the
Code, prescrbng new perods of mtaton appcabe to Federa In-
surance Contrbutons ct ta es and ncome wthhodng ta on wages
wth respect to remuneraton pad durng any caendar year after
19 0. The effect of these new sectons s to make sectons 3312 and 3313
of the Code no onger appcabe to such ta es mposed wth respect to
remuneraton pad durng 19 1 and subsequent years.
assessment and coecton
. Subsecton (a) of the new secton 163 provdes generay that
the amount of any Federa Insurance Contrbutons ct ta es or n-
come wthhodng ta on wages sha be assessed wthn years after
( 7)
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Regs. 12 .

the return was fed, and no proceedng n court wthout assessment for
the coecton of such ta sha be begun after the e praton of
such perod. Subsectons (b) and (c) of secton 163 provde that
such ta may be assessed, or a proceedng n court may be begun wth-
out assessment, at any tme n the case of a fase or frauduent re-
turn wth ntent to evade ta or a faure to fe a return, and n the
case of a wfu attempt n any manner to defeat or evade ta . Sub-
secton (d) thereof provdes that where the assessment of any such
ta s made wthn the perod of mtaton propery appcabe thereto,
such ta may be coected by dstrant or by a proceedng n court, but
ony f begun (1) wthn 6 years after the assessment of the ta , or
(2) pror to the e praton of any perod for coecton agreed upon
n wrtng by the Commssoner and the ta payer.
R FUNDS ND CR DITS
. Subsecton (a)(1) of the new secton 1636 provdes generay that
a cam for credt or refund must be fed wthn 3 years after the re-
turn s fed e cept that f no return s fed such cam must be fed
wthn 2 years after the ta s pad. In any event a refund or credt
may be camed wthn such 2-year perod. Uness a cam s fed
wthn the appcabe 2-year or 3-year perod of mtaton, whchever
e pres the ater, no credt or refund may be aowed or made after the
e praton of such perod. Subsecton (a) (2) provdes that the
amount of the credt or refund may not e ceed the porton of the ta
pad (a) wthn 3 years mmedatey precedng the fng of the cam,
m a case where a return was fed and the cam was fed wthn 3 years
thereafter, or ( ) durng the 2 years mmedatey precedng the fng
of the cam, n a case where no return was fed or where the cam
was not fed wthn 3 years from the tme the return was fed. In a
case where no cam s fed the amount of the credt or refund may not
e ceed the porton of the ta pad (a) durng the 3 years mmedatey
precedng the aowance of the credt or refund, where such aowance
s made wthn 3 years from the tme the return was fed; or () f no
return was fed or the aowance s not made wthn 3 years from the
tme the return was fed, durng the 2 years mmedatey precedng
the aowance of the credt or refund. Subsecton ( ) of secton 1636
provdes that the perod of mtaton prescrbed by subsecton (a) of
such secton sha appy to any penaty or sum assessed or coected
wth respect to the Federa Insurance Contrbutons ct ta es or the
ncome wthhodng ta on wages.
6. Subsectons (e) and (c) of sectons 163 and 1636, respectvey,
provde that for purposes of the perods of mtaton prescrbed n
such sectons a return for any perod endng wth or wthn a caendar
year whch s fed before March 1 of the succeedng caendar year
sha be consdered fed (and ta wth respect to such a return pad
before such March 1 sha be consdered pad) on March 1 of such
succeedng caendar year.
7. Secton 20 (b) of the Soca Securty ct mendments of 19 0
adds to chapter 3 of the Interna evenue Code secton 3 12 reatng
to the mtgaton of the effect of the statute of mtatons n case of
reated ta es under the Sef- mpoyment Contrbutons ct (sub-
chapter of chapter 1 of the Code) and the Federa Insurance Con-
trbutons ct. d|ustments to amounts treated as wages under the
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S9
ogs. 12 .
Federa Insurance Contrbutons ct may affect the ta under the
Sef- mpoyment Contrbutons ct by reason of the effect of such
amounts on the 3,600 mtaton provsons appcabe n determnng
sef-empoyment ncome sub|ect to the ta under the atter ct, and
aso n vew of the fact that an tem of ncome may be reported errone-
ousy as ta abe under one ct when t shoud have been reported
under the other ct. Secton 3 12 provdes, n effect, that f assess-
ment, credt, or refund, under ether of the two cts s barred by the
statute of mtatons or any other aw (other than secton 3761 of the
Code, reatng to compromses), then the assessment, credt, or refund,
as the case may be, whch s not barred under the one ct w refect
the barred ad|ustment whch otherwse woud have been made under
the other ct.
. It w be noted that the perods of mtaton upon assessment,
coecton, credtng, and refundng of the ta mposed by the Federa
Unempoyment Ta ct are not affected by the Soca Securty ct
mendments of 19 0.
9. Correspondence reatng to ths mmeograph shoud refer to the
number thereof and the symbos mT: RR.
Geo. . Schoeneman,
Commssoner.
Secton 1 01: Deducton of ta from wages.
Reguatons 12 , Secton 0 .30 : Coec-
ton of, and abty for, empoyee ta .
Wthhodng tabe combnng Federa Insurance Contrbutons ct
ta and Federa ncome ta as to weeky wages pad on and after an-
uary 1,19 1. (See m. T. 9, page 136.)
Secton 1 26: Defntons. 19 1-2-13 22
Reguatons 12 . T. D. 23
( so Secton 1 26; Reguatons 106, Secton
02.217.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R D, P RT 0 .
MPLOY T ND MPLOY R T UND R T F D R L INSUR NC
CONTRI UTIONS CT; PPLIC L ON ND FT R NU RY 1. 19 1
Waver under secton 1 26(b) (9) ( ) and secton 1 26(1) of the
Interna Revenue Code of e empton from Federa Insurance Con-
trbutons ct ta es by an organzaton e empt from ncome ta
under secton 101(6) of the Interna Revenue Code.
Washngton 2 , D. C.
Paragraph 1. On November 17, 19 0, there was pubshed n the
Federa Regster (1 F. R. 7 3 ) notce of proposed rue makng re-
gardng the proposed reguatons reatng to secton 1 26(b) (9) ( )
and secton 1 26(1) of the Interna Revenue Code, added by secton
20 of Soca Securty ct mendments of 19 0. No ob|ecton to the
raes proposed havng been receved, the reguatons set forth beow
are hereby adopted:
S200 1 7
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Regs. 12 .
90
Tabe of Contents
Secton
0 .1 2G(1)-1. Scope of reguatons.
0 .1 26()-2. Who may wave e empton.
0 .1 26(1)-3. Form and effect of waver.
0 .1 20(1)- . Termnaton of waver by organzaton.
0 .1 20()- . Termnaton of waver by Commssoner.
S CTION 20 (a), (e), ND (g) OF T SOCI L S CURITY
CT M NDM NTS OF 19 0
D FINITION OF MPLOYM NT
(a) ffectve anuary 1, 19 1, secton 1 20(b) of the Interna
Revenue Code s amended to read as foows:
(b) mpoyment. The term empoyment means nny
servce, of whatever nature, performed after 10 0 by an em-
poyee for the person empoyng hm ; e cept that
such term sha not ncude

(9) ( ) Servce performed by a duy ordaned, commssoned,
or censed mnster of a church n the e ercse of hs mnstry or
by a member of a regous order n the e ercse of dutes requred
by such order;
( ) Servce performed In the empoy of a regous, chartabe,
educatona, or other organzaton e empt from Income ta under
secton 101(6), but ths subparagraph sha not appy to servce per-
formed durng the perod for whch a certfcate, fed pursuant to
subsecton (1), Is In effect f such servce Is performed by an em-
poyee (I) whose sgnature appears on the st fed by such organ-
zaton under subsecton (1). or () who became an empoyee of
such organzaton after the caendar quarter n whch the certfcate
was fed;

(11) ( )
( ) Servce performed In the empoy of a schoo, coege, or
unversty If such servce s performed by a student who s enroed
and s reguary attendng casses at such schoo, coege, or un-
versty ;

(1 ) Servce performed as a student nurse n the empoy of a
hospta or a nurses tranng schoo by an ndvdua who s enroed
and s reguary attendng casses n n nurses tranng schoo char-
tered or approved pursuant to State aw; and servce performed
as an nterne n the empoy of a hospta by an Indvdua who has
competed a four years course n a medca schoo chartered or ap-
proved pursuant to State aw;

(e) Secton 1 26 of the Interna Uevenue Code Is amended by
Insertng the foowng:

(1) empton of Rf.gous, Chartabe, tc., Organzatons.
(1) Waver of e empton by organzaton. n organzaton
e empt from ncome ta under secton 101(G) may fe a certfcate
(n such form and manner, and wth such offca, as may be pre-
scrbed by reguatons made under ths subchapter) certfyng that t
desres to have the nsurance system estabshed by tte II of the
Soca Securty ct e tended to servce performed by Its empoyees
and that at east two-thrds of ts empoyees concur n the fng
of the certfcate. Such certfcate may be fed ony f t Is accom-
paned by a st contanng the sgnature, address, and soca secu-
rty account number (f any) of each empoyee who concurs In the
fng of the certfcate. Such st may be amended, at any tme
pror to the e praton of the frst month foowng the frst caendar
quarter for whch the certfcate s In effect, by fng wth such
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91
Regs. 12 .
offcn a suppementa st or sts contanng the sgnature, address,
and soca securty account number (f any) of each addtona
empoyee who concurs n the fng of the certfcate. The st and
any suppementa st sha be fed In such form nnd manner as may
be prescrbed by reguatons made under ths subchapter. The cer-
tfcate sha be n effect (for the purposes of subsecton (b) (9) ( )
and for the purposes of secton 210(a) (0) ( ) of the Soca Securty
ct) for the perod begnnng wth the frst day foowng the cose
of the caendar quarter n whch such certfcate s fed, but n
no case sha such perod begn pror to anuary 1,19 1. The perod
for whch the certfcate Is effectve may be termnated by the organ-
zaton, effectve at the end of a caendar quarter, upon gvng two
years advance notce n wrtng, but ony f, at the tme of the recept
of such notce, the certfcate has been n effect for a perod of not
ess than eght years. The notce of termnaton may be revoked
by the organzaton by gvng, pror to the cose of the caendar
quarter specfed n the notce of termnaton, a wrtten notce of
such revocaton. Notce of termnaton or revocaton thereof sha
b3 fed n such form and manner, and wth such offca, as may be
prescrbed by reguatons made under ths subchapter.
(2) Termnaton of waver perod by commssoner. If the
Commssoner fnds that any organzaton whch fed a certfcate
pursuant to ths subsecton has faed to compy substantay wth
the requrements of ths subchapter or s no onger abe to compy
therewth, the Commssoner sha gve such organzaton not ess
than s ty days advance notce In wrtng that the perod covered
by such certfcate w termnate at the end of the caendar quarter
specfed n such notce. Such notce of termnaton may be re-
voked by the Commssoner by gvng, pror to the cose of the ca-
endar quarter specfed n the notce of termnaton, wrtten notce
of such revocaton to the organzaton. No notce of termnaton
or of revocaton thereof sha be gven under ths paragraph to an
organzaton wthout the pror concurrence of the Federa Securty
dmnstrator. .
(3) No renewa op waveb. In the event the perod covered
by a certfcate fed pursuant to ths subsecton s termnated by
the organzaton, no certfcate may agan be fed by such organza-
ton pursuant to ths subsecton.

(g) The amendments made by subsectons (e)
nf ths secton sha be appcabe ony wth respect to servces per-
formed after 19 0.
S CTION 20 OF T SOCI L S CURITY CT M NDM NTS
OF 10 0
D FINITION OF MPLOY
(a) Secton 1 20(d) of the Interna Revenue Code s amended to read
as foows:
(d) mpoyee. The term empoyee means
(1) any offcer of a corporaton ; or
(2) any Indvdua who, under the usua common aw rues
appcabe In determnng the empoyer-empoyee reatonshp, has
the status of an empoyee; or
(3) nny ndvdua (other than an Indvdua who Is an em-
poyee under paragraph (1) or (2) of ths subsecton) who per-
forms servces for remuneraton for any person
( ) as an agent-drver or commsson-drver engaged n
dstrbutng meat products, vegetabe products, frut products,
bakery products, beverages (other than mk), or aundry or
dry-ceanng servces, for hs prncpa;
( ) as a fu-tme fe nsurance saesman :
(C) as a home worker performng work, accordng to
specfcatons furnshed by the person for whom the servces
are performed, on materas or goods furnshed by such person
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Regs. 12 .
92
whch nre requred to be returned to such person or a person
desgnated by hm, f the performance of such servces s sub-
|ect to censng requrements under the aws of the State n
whch such servces are performed; or
(D) ns a traveng or cty saesman, other than as an
agent-drver or commsson-drver, engaged upon a fu-tme
bass n the soctaton on behaf of, and the transmsson to,
hs prncpa (e cept for sde-ne saes actvtes on behaf of
some other person) of orders from whoesaers, retaers, con-
tractors, or operators of hotes, restaurants, or other smar
estabshments for merchandse for resae or suppes for use
In ther busness operatons;
If the contract of servce contempates that substantay a of such
servces are to be performed personay by such ndvdua; e cept
that an ndvdua sha not be ncuded n the term empoyee under
the provsons of ths paragraph If such ndvdua has a substanta
nvestment n factes used n connecton wth the performance
of such servces (other than n factes for transportaton), or
f the servces are n the nature of a snge transacton not part of
a contnung reatonshp wth the person for whom the servces
are performed.
(b) The amendment made by ths secton sha be appcabe ony
wth respect to servces performed after 10 0.
Secton 0 .1 20 (1)-1. Scope of Reguatons. These reguatons
reate to the provsons of secton 1 20(b) (9) ( ) and secton 1 26(1)
of the Federa Insurance Contrbutons ct, added by secton 20 (a)
and (e) of the Soca Securty ct mendments of 10 0, approved
ugust 2 , 19 0. Such provsons reate to the waver of e empton
from the ta es mposed under the Federa Insurance Contrbutons
ct by an organzaton whch s e empt from ncome ta under sec-
ton 101(G) of the Interna Revenue Code and whch desres to have
the nsurance system estabshed by tte II of the Soca Securty ct
e tended to servces performed by ts empoyees.
Sec. 0 .1 26()-2. Who May Wave empton. ny organza-
ton that s e empt from ncome ta under secton 101(6) of the
Interna Revenue Code may wave ts e empton from the ta es m-
posed under the Federa Insurance Contrbutons ct by fng a
certfcate on Form SS-1 , provded that at east two-thrds of the
empoyees of the organzaton concur n the fng of the certfcate.
The organzaton must be e empt from ncome ta under secton 101 (G)
for the ta abe vear n whch the certfcate s fed; otherwse, the
Form SS-1 fed by the organzaton s vod.
If the perod covered by the certfcate s termnated by the organza-
ton, no certfcate may agan be fed by the organzaton under secton
1 26(1).
Sec. 0 .1 26(1)-3. Form and ffect of Waver. The certfcate
on Form SS-1 sha be fed wth the coector of nterna revenue for
the dstrct n whch s ocated the prncpa offce or prncpa pace of
busness of the organzaton. The organzaton sha certfv n the
certfcate that t desres to have the nsurance system estabshed by
tte II of the Soca Securty ct e tended to servce performed by ts
empoyees and that at east two-thrds of ts empoyees, determned on
the bass of the facts e stng as of the date the certfcate s fed, con-
cur n the fng of the certfcate.
ndvduas who are empoyees of the organzaton wthn the
meanng of secton 1 26(d) of the Federa Insurance Contrbutons
ct, as amended by secton 20 of the Soca Securty ct mendments
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Regs. 12 .
of 19 0, sha be ncuded n determnng whether two-thrds of the
empoyees of the organzaton concur n the fng of the certfcate;
e cept that there sha not be ncuded (1) those empoyees who at
the tme of the fng of the certfcate are performng for such or-
ganzaton servces ony of the character specfed n paragraphs (9)
( ), (11) ( ), and (1 ) of secton 1 26(b) of the Federa Insurance
Contrbutons ct, as amended by secton 20 of the Soca Securty
ct mendments of 19 0, and (2) those aen empoyees who at the
tme of the fng of the certfcate are performng servces for such
organzaton under an arrangement whch provdes for the perform-
ance ony of servces outsde the Unted States not on or n connecton
wth an mercan vesse or mercan arcraft. s used n the pre-
cedng sentence, the term aen empoyee does not ncude an em-
poyee who s a ctzen of Puerto Rco or of the rgn Isands, and
the term Unted States ncudes Puerto Rco and the rgn Isands.
The certfcate may be fed ony f t s accompaned by a st on
Form SS-1 a, contanng the sgnature, address, and soca securty
account number (f any) of each empoyee who concurs n the fng
of the certfcate. The st accompanyng the certfcate may be
amended, at any tme pror to the e praton of the frst month fo-
owng the frst caendar quarter for whch the certfcate s n effect,
by fng a suppementa st or sts on Form SS-1 a Suppement,
contanng the sgnature, address, and soca securty account number
(f any) of each addtona empoyee who concurs n the fng of the
certfcate.
The certfcate sha be n effect for the perod begnnng wth the
frst day foowng the cose of the caendar quarter n whch the certf-
cate s fed, but n no case sha the effectve perod begn pror to
anuary 1,19 1. Thus, f the certfcate s fed on or before Decem-
ber 31,19 0, t w be n effect wth respect to servces performed n
the empoy of the organzaton on and after anuary 1, 19 1. For
termnaton of the waver, see secton 0 .1 26(1)- and secton
0 .1 26()- . The certfcate s not termnated f the organzaton
oses ts e empton under secton 101(6) of the Interna Revenue
Code, but contnues effectve wth respect to any subsequent perods
durng whch the organzaton s so e empt.
Servce performed n the empoy of an organzaton whch has duy
fed a certfcate s not e cepted from empoyment under secton
1 26(b) (9) ( ) of the Federa Insurance Contrbutons ct, durng
the perod for whch the certfcate s n effect, f such servce s per-
formed by an empoyee (1) whose sgnature appears on the st fed by
the organzaton on Form SS-1 a, or on Form SS-1 a Suppement,
or (2) who becomes an empoyee of the organzaton after the caendar
quarter n whch the certfcate s fed. Consequenty, the ta es m-
posed under the Federa Insurance Contrbutons ct w appy to
the organzaton and to each empoyee whose servces consttute em-
poyment and whose sgnature appears on the accompanyng st or on
any suppementa st or sts fed wthn the prescrbed tme, com-
mencng wth the frst day foowng the cose of the caendar quarter
n whch the certfcate s fed (but n no event pror to anuary 1,
19 1). Such ta es w aso appy mmedatey wth respect to servces
whch consttute empoyment performed by any ndvdua who enters
the empoy of the organzaton on or after the frst day foowng the
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Regs. 12 .
9-1
cose of the caendar quarter n whch the certfcate s fed. The re-
empoyment by the organzaton of a former empoyee after the cer-
tfcate becomes effectve sha be consdered for the purposes of such
ta es as a new empoyment, regardess of whether or not such ndvd-
ua concurred n the fng of the certfcate.
In the case of a certfcate fed by an organzaton n 19 0, an n-
dvdua who performed servces for such organzaton durng the
caendar quarter n whch the certfcate was fed and who contnued
to perform servces for such organzaton n the ne t caendar quarter
sha not be consdered to have begun a new empoyment soey by
reason of the change made by secton 20 of the Soca Securty ct
mendments of 19 0 n the defnton of the term empoyee n secton
1 26(d) of the Federa Insurance Contrbutons ct.
Sec. 0 .1 26(1)- . Termnaton of Waver by Organzaton.
The perod for whch the certfcate s n effect may be termnated by
the organzaton upon gvng 2 gears advance notce n wrtng to
the Commssoner of Interna Revenue of the organzaton s desre
to termnate the effect of the certfcate at the end of a specfed ca-
endar quarter, but ony f, at the tme of the recept of such notce, by
the Commssoner, the certfcate has been n effect for a perod of
not ess than years.
In computng the effectve perod whch must precede the date of
recept of the notce of termnaton, there sha be dsregarded any
perod or perods as to whch the organzaton s not e empt from n-
come ta under secton 101(6) of the Interna Revenue Code.
The notce of termnaton may be revoked by the organzaton by
gvng, pror to the cose of the caendar quarter specfed n the notce
of termnaton, a wrtten notce to the Commssoner of such revo-
caton.
Sec. 0 .1 26(1)- . Termnaton of Waver by Commssoner.
The perod for whch the certfcate s n effect may be termnated by
the Commssoner of Interna Revenue, wth the pror concurrence of
the Federa Securty dmnstrator, upon a fndng by the Comms-
soner that the organzaton has faed to compy substantay wth
the requrements of the Federa Insurance Contrbutons ct or s no
onger abe to compy therewth. The Commssoner sha gve the
organzaton not ess than 60 days advance notce n wrtng that the
perod covered by the certfcate w termnate at the end of the ca-
endar quarter specfed n the notce of termnaton.
The notce of termnaton may be revoked by the Commssoner,
wth the pror concurrence of the Federa Securty dmnstrator, by
gvng wrtten notce of revocaton to the organzaton pror to the
cose of the caendar quarter specfed n the notce of termnaton.
Par. 2. ffectve anuary 1,19 1, Reguatons 106, as amended 26
CFR, part 02 , reatng to the empoyees ta and the empoyers ta
under the Federa Insurance Contrbutons ct (subchapter of
chapter 9 of the Interna Revenue Code), are modfed to the e tent
such reguatons are nconsstent wth the reguatons promugated
under paragraph 1 of ths Treasury Decson.
ecause of the short perod of tme remanng n 19 0 and because
t s contempated by the Soca Securty ct mendments of 19 0
that certfcates under secton 1 26(1) of the Interna Revenue Code
may be fed n 19 0 so as to be n effect commencng anuary 1, 19 1,
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9
Regs. 12 , 0 .20 .
t s found that t s mpractcabe and unnecessary to ssue ths Treas-
ury Decson sub|ect to the effectve date mtaton of secton (c) of
the dmnstratve Procedure ct, approved une 11, 19 6.
(Ths Treasury Decson s ssued pursuant to the authorty con-
taned n secton 1 29 of the Interna evenue Code ( 3 Stat. 17 ;
26 U.S. C. 1 29).)
Geo. . Scoeneman,
Commssoner of Interna evenue.
pproved December 27, 19 0.
Thomas . Lynch,
(Ped wth the Dvson of the Federa Regster December 29,1900, : 1 a. m.)
Secton 1 26: Defntons.
Reguatons 12 , Secton 0 .20 : Who are em-
poyees.
( so Subchapter D (Coecton of Income Ta at
Source on Wages), Secton 1621; Reguatons
116, Secton 0 .10 .)
Status after 19 0 of fu-tme fe nsurance saesmen for Federa
empoyment ta purposes ncudng ncome ta wthhodng.
1. The purpose of ths mmeograph s to outne the changes, re-
atng to the status of fu-tme fe nsurance saesmen, effected n
the Federa Insurance Contrbutons ct (subchapter , chapter 9,
Interna Revenue Code) by the Soca Securty ct mendments of
19 0.
2. ffectve wth respect to servces performed after 19 0, secton
1 26(d) of the Federa Insurance Contrbutons ct s amended to
read, n part, as foows:
mpoyee. The term empoyee means
(1) any offcer of a corporaton; or
(2) any ndvdua who, under the usua common-aw rues appcabe
n determnng the empoyer-empoyee reatonshp, has the status of an
empoyee; or
(3) any ndvdua (other than an ndvdua who s an empoyee under
paragraph (1) or (2) of ths subsecton) who performs servces for
remuneraton for any person

( ) as a fu-tme fe nsurance saesman;

f the contract of servce contempates that substantay a of such servces
are to be performed personay by such ndvdua; e cept that an ndvdua
sha not be ncuded n the term empoyee under the provsons of ths
paragraph f such ndvdua has a substanta nvestment n factes used
n connecton wth the performance of such servces (other than n factes
for transportaton), or f the servces are n the nature of a snge trans-
acton not part of a contnung reatonshp wth the person for whom
the servces are performed.
19 1-2-13 21
Mm.6 71

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Regs. 12 , 0 .20 .
9G
3. n ndvdua whose entre or prncpa busness actvty s de-
voted to the soctaton of fe nsurance or annuty contracts pr-
mary for one fe nsurance company s a fu-tme fe nsurance
saesman. To determne the status of a fu-tme or part-tme fe
nsurance saesman, wth respect to servces performed after Decem-
ber 31,19 0, t w frst be ascertaned whether the ndvdua, under
the usua common-aw rues appcabe n determnng the empoyer-
empoyee reatonshp, has the status of an empoyee. If such s found
to be the case the ndvdua w be an empoyee for the purposes of
the ta es mposed by the Federa Insurance Contrbutons ct, for
the purposes of the ta mposed by the Federa Unempoyment Ta
ct (e cept n the case of an nsurance saesman compensated soey
by way of commsson ), and aso for the purposes of ncome ta wth-
hodng under secton 1622 of the Interna Revenue Code.
. If, under the usua common-aw rues appcabe n determnng
the empoyer-empoyee reatonshp, the fu-tme fe nsurance saes-
man s not determned to be an empoyee, then the statutory test pro-
vded n secton 1 26(d) (3) ( ) of the Federa Insurance Contrbu-
tons ct (quoted above n paragraph 2) w be appcabe n deter-
mnng whether such saesman s an empoyee for purposes of that ct.
In the event the saesman s found, by the appcaton of such statu-
tory test, to be an empoyee, then he w be so consdered ony for
purposes of the Federa Insurance Contrbutons ct. fu-tme
fe nsurance saesman found to be an empoyee by the appcaton of
the statutory test provded n secton 1 26(d) (3) ( ) w not be con-
sdered to have the status of an empoyee for purposes of the ta m-
posed by the Federa Unempoyment Ta ct or for purposes of n-
come ta wthhodng under secton 1622 of the Interna Revenue Code
nasmuch as such statutory test was not made appcabe for the two
atter purposes by the Soca Securty ct mendments of 19 0.
Determnatons reatve to the status of fu-tme fe nsurance saes-
men for purposes of the ta mposed by the Federa Unempoyment
Ta ct and for purposes of ncome ta wthhodng under secton
1622 of the Interna Revenue Code w contnue to be based on the
appcaton soey of the usua common-aw rues.
. The Soca Securty ct mendments of 19 0 amend chapter 1
of the Interna Revenue Code by the addton of subchapter , Ta
on Sef- mpoyment Income, whch mposes a ta on the sef-empoy-
ment ncome of every ndvdua for each ta abe year begnnng after
December 31,19 0. Thus, f a fu-tme fe nsurance saesman s not
an empoyee for purposes of the Federa Insurance Contrbutons ct,
as amended, the provsons of subchapter . chapter 1, of the Code
(Ta on Sef- mpoyment Income) are appcabe.
6. Reguatons reatng to the ta es mposed by the Federa Insur-
ance Contrbutons ct, as amended by the Soca Securty ct
mendments of 19 0, are now n the course of preparaton and w
be made avaabe at the earest practcabe date.
number and to the symbos mT: RR.
Geo. . Schoeneman,
Commssoner.
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Regs. 12 , 0 .20 .
Secton 1 26: D fntons. 19 1-3-13 32
Reguatons 12 , Secton 0 .20 : Who are em- Mm. 6 3
poyees.
Source on Wages), Secton 1G21; Reguatons
116, Secton 0 .10 .)
Status after 1030 of traveng or cty saesmen for Federa em-
poyment ta purposes Incudng ncome ta wthhodng.
1. The purpose of ths mmeograph s to outne the changes, re-
atng to the status of traveng or cty saesmen, effected n the
Federa Insurance Contrbutons ct (subchapter , chapter 9, In-
terna Revenue Code) by the Soca Securty ct mendments of
19 0.

(2) any ndvdua who, under the usua common-aw rues appcabe
n determnng the empoyer-empoyee reatonshp, has the status of an
empoyee; or
(3) any ndvdua who performs servces for remuneraton
for any person

(D) as a traveng or cty saesman, other than as an agent-drver
or commsson-drver, engaged upon a fu-tme bass n the soctaton
on behaf of, and the transmsson to, hs prncpa (e cept for sde-
ne saes actvtes on behaf of some other person) of orders from
whoesaers, retaers, contractors, or operators of hotes, restaurants,
or other smar estabshments for merchandse for resae or suppes
for use n ther busness operatons;
paragraph f such ndvdua has a substanta Investment n factes used
acton not part of a contnung reatonshp wth the person for whom the
servces are performed.
3. To determne the status of a traveng or cty saesman wth
respect to servces performed after December 31, 19 0, t w frst be
ascertaned whether the ndvdua, under the usua common-aw
rues appcabe n determnng the empoyer-empoyee reatonshp,
as the status of an empoyee. If such s found to be the case, the
ndvdua w be an empoyee for purposes of the ta es mposed by
the Federa Insurance Contrbutons ct, for purposes of the ta
mposed by the Federa Unempoyment Ta ct, and aso for pur-
poses of coecton of ncome ta at source on wages.
the empoyer-empoyee reatonshp, a traveng or cty saesman s
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Regs. 12 , 0 .20 .
PS
determned not to be an empoyee, then the statutory test provded
n secton 1 26(d) (3) (D) of the Federa Insurance Contrbutons
ct (quoted above n paragraph 2) w be appcabe n determnng
whether such saesman s an empoyee for purposes of that ct. In
the event the saesman s found, by the appcaton of such statutory
test, to be an empoyee, then he w be so consdered ony for purposes
of the Federa Insurance Contrbutons ct.
. traveng or cty saesman found to be an empoyee by the
appcaton of the statutory test provded n secton 1 26(d) (3) (D)
w not be consdered to have the status of an empoyee for purposes
of the ta mposed by the Federa Unempoyment Ta ct or for
purposes of coecton of ncome ta at source on wages nasmuch as
such statutory test was not made appcabe for the two atter pur-
poses by the Soca Securty ct mendments of 19 0. Determna-
tons reatve to the status of traveng or cty saesmen for purposes
of the ta mposed by the Federa Unempoyment Ta ct and for
purposes of coecton of ncome ta at source on wages w con-
tnue to be based on the appcaton soey of the usua common-aw
rues.
6. n ndvdua who performs servces after 19 0 as a traveng
or cty saesman, other than as an agent-drver or commsson-drver,
and who s not an empoyee under the usua common-aw rues, w
be consdered an empoyee of hs prncpa (for purposes of the Fed-
era Insurance Contrbutons ct ony) f a of the foowng con-
dtons e st:
(a) f hs servces are performed on a fu-tme bass for hs
prncpa, e cept for sde-ne saes actvtes performed on behaf
of some other person;
(6) f hs servces consst of soctng orders on behaf of, and
transmttng such orders to, hs prncpa;
(c) f the customers socted by hm are whoesaers, retaers,
contractors, or operators of hotes, restaurants, or other smar
estabshments;
(d) f the orders socted by hm from such customers are for
merchandse for resae or for suppes for use n the busness
operatons of the customers;
(e) f the arrangement under whch he agrees to perform such
servces contempates that substantay a of the servces are to be
performed by hm personay;
(/) f he has no substanta nvestment n factes used n
connecton wth the performance of the servces, other than n
factes for transportaton; and
(g) f hs servces are part of a contnung reatonshp wth
hs prncpa and not n the nature of a snge transacton.
7. The foowng e ampes, n each of whch t has been estabshed
from facts not stated heren that the saesman s not an empoyee under
the usua common-aw rues, ustrate the appcaton of the foregong
tests:
ampe 1. Saesman s prncpa busness actvty s the socta-
ton of orders from reta pharmaces on a contnung fu-tme bass
on behaf of the whoesae drug company. does, however, occa-
sonay soct orders for drugs on behaf of the Y and Z companes.
s contract of servce wth the company contempates that substan-
tay a of the servces to whch the arrangement reates are to be
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Regs. 12 , 0 .20 .
performed by hm personay, and he has no nvestment n factes
other than n an automobe. meets a the condtons set forth n
tests (a) to ( 7), ncusve, and s, therefore, an empoyee of the
company for purposes of the Federa Insurance Contrbutons ct,
as amended, wth respect to servces performed after 19 0. s not an
empoyee of ether the Y or Z company.
ampe 2. Saesman s prncpa busness actvty s the socta-
ton of orders from reta hardware stores on behaf of the R too com-
pany and the S cookng utens company. reguary socts orders
on behaf of both companes. does not meet test (a) snce he s not
performng servces on a fu-tme bass prmary for any one prnc-
pa and, consequenty, he s not an empoyee of ether the R or S com-
pany for purposes of the ct, as amended.
ampe 3. Saesman C s prncpa busness actvty s the house-
to-house soctaton of orders on behaf of the T company. C occa-
sonay socts orders on behaf of the same company from reta
stores and restaurants. C does not meet test (c) snce he s prmary
engaged n soctng orders on a fu-tme bass from househoders
rather than from whoesaers, retaers, et a., and he s not, therefore,
an empoyee of the T company for purposes of the ct, as amended.
. The, Soca Securty ct mendments of 19 0 amend chapter 1
December 31,19 0. Thus, t may be stated generay f a traveng or
cty saesman s not an empoyee for purposes of the Federa Insur-
ance Contrbutons ct, as amended, the provsons of subchapter ,
chapter 1, of the Code (Ta on Sef- mpoyment Income) w be
consdered to be appcabe. Determnatons whether ta abty s
ncurred n partcuar cases under subchapter , chapter 1, of the Code
shoud be made wth due regard to the appcabe ncome ta prov-
sons of the Code snce an ndvdua s status as a sef-empoyed nd-
vdua s ntay dependent upon whether he s engaged n a trade or
busness. Doubtfu cases shoud be submtted to the ureau for spe-
cfc rungs.
9. The provsons of ths mmeograph are not to be used n determn-
ng the status of fu-tme fe nsurance saesmen wth respect to whch
secton 1 26(d) (3) ( ) of the Federa Insurance Contrbutons ct,
as amended by the Soca Securty ct mendments of 19 0, s ap-
pcabe. (See Mm. 6 71 )page 9 , ths uetn.)
10. Correspondence reatng to ths mmeograph shoud refer to
the number thereof and the symbos mT: RR.
Geo. . Schoeneman,
Commssoner.
Secton 1 26: Defntons. 19 1- -13
Reguatons 12 , Secton 0 .20 : Who are em- Mm. 6 6
poyees.
116, Secton 0 .10 .)
Status after 10 0 of home workers for Federa empoyment tu
purposes Incudng Income ta wthhodng.
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Regs. 12 , 0 .20 .
100
Washngton 2 , D. ., anuary ,19 1.
1. The purpose of ths mmeograph s to outne the changes reat-
ng to the status of home workers, effected n the Federa Insurance
Contrbutons ct (subchapter , chapter 9, Interna Revenue Code) ,
by the Soca Securty ct mendments of 19 0.

(2) any ndvdua who, under the usua common aw rues appcabe n
determnng the empoyer-empoyee reatonshp, has the status of an
empoyee; or
(3) any ndvdua who performs servces for remuneraton
for any person
.
(C) as a home worker performng work, accordng to specfcatons
furnshed by the person for whom the servces are performed, on mate-
ras- or goods furnshed by such person whch are requred to be returned
to such person or a person desgnated by hm, f the performance of such
servces s sub|ect to censng requrements under the aws of the State
n whch such servces are performed;
-
n connecton wth the performance of such servces (other than n fac-
tes for transportaton), or f the servces are n the nature of a snge
transacton not part of a contnung reatonshp wth the person for whom
the servces are performed.
3. ffectve wth respect to remuneraton pad after 19 0, secton
1 26(a) of the Federa Insurance Contrbutons ct s amended to
Wages. The term wages means a remuneraton for empoyment, ncud-
ng the cash vaue of a remuneraton pad n any medum other than cash ;
e cept that such term sha not ncude

(10) Remuneraton pad by an empoyer n any caendar quarter to an
empoyee for servce descrbed n subsecton (d) (3) (C) (reatng to home
workers), If the cash remuneraton pad n such quarter by the empoyer
to the empoyee for such servce s ess than 0.
. To determne the status of a home worker, wth respect to serv-
ces performed after December 31, 19 0, t w frst be ascertaned
whether the ndvdua, under the usua common-aw rues appcabe
n determnng the empoyer-empoyee reatonshp, has the status of
an empoyee. If such s found to be the case the ndvdua w be
an empo| ee for the purposes of the ta es mposed by the Federa
Insurance Contrbutons ct, for purposes of the Federa Unempoy-
ment Ta ct, and aso for the purposes of coecton of ncome ta
at source on wages.
. If, under the usua common-aw rues appcabe n determnng:
the empoyer-empoyee reatonshp, the home worker s determned
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101
Regs. 12 , 03.20 .
not to be an empoyee, then the statutory test provded n secton
1 26(d) (3) (C) of the Federa Insurance Contrbutons ct (quoted
above n paragraph 2) w be appcabe n determnng whether such
home worker s an empoyee for purposes of that ct. In the event
the home worker s found, by the appcaton of such statutory test,
to be an empoyee, then he w be so consdered ony for purposes of
the Federa Insurance Contrbutons ct.
6. home worker found to be an empoyee by the appcaton of
the statutory test provded n secton 1 20(d) (3) (C) w not be con-
sdered to have the status of an.empoyee for purposes of the ta
mposed by the Federa Unempoyment Ta ct or for purposes of
coecton of ncome ta at source on wages nasmuch as such statu-
tory test was not made appcabe for the two atter purposes by the
Soca Securty ct mendments of 19 0. Determnatons reatve to
the status of home workers for purposes of the ta mposed by the
Federa Unempoyment Ta ct and for purposes of coecton of
ncome ta at source on wages w contnue to be based on the app-
caton soey of the usua common aw rues.
7. n ndvdua who performs servces after 19 0 as a home
worker, and who s not an empoyee under the usua common-aw
rues, w be consdered an empoyee of the person for whom the
servces are performed (for purposes of the Federa Insurance Con-
trbutons ct ony) f a of the foowng condtons e st:
(a) f the work s performed accordng to specfcatons fur-
nshed by the person for whom the servces are performed on
materas or goods furnshed by such person whch arc requred
to be returned to such person or a person desgnated by hm;
(o) f the performance of the servces s sub|ect to censng
requrements, mposed ether upon the home worker or upon the
person for whom the servces are performed, under the aws of
the State n whch the servces are performed;
( ) f the contract or arrangement under whch the servces
as home worker are performed contempates that substantay
a of the servces are to be performed personay by the home
worker who enters nto the contract or arrangement;
(d) f the home worker has no substanta nvestment n fac-
tes used n connecton wth the performance of the servces, other
than n factes for transportaton; and
(e) f the home worker s servces are a part of a contnung
reatonshp wth the person for whom the servces are performed
and not n the nature of a snge transacton.
. t the present tme the performance of certan servces by certan
home workers s sub|ect to censng requrements under the aws of
Puerto Rco and the foowng States:
Caforna. Mchgan. Rhode Isand.
Connectcut. Mssour. Tennessee.
Inos. New ersey. Te as.
Indana. New York. est rgna.
Mane. Oho. Wsconsn.
Maryand. Oregon.
Massachusetts. Pennsyvana.
9. In each case where t s determned that a home worker s an
empoyee wth respect to servces performed after December 31, 19 0,
soey by the appcaton of the statutory test provded n secton
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Regs. 12 , 0 .20 .
102
1 26(d) (3) (C) of the Federa Insurance Contrbutons ct, as
amended, the provsons of secton 1 26(a) (10) of such ct (quoted
above n paragraph 3) w be apped n determnng the abty,
f any, whch has been ncurred for the ta es mposed by that ct
wth respect to the remuneraton pad to the empoyee.
10. The foowng e ampes, n each of whch t has been estabshed
from facts not stated heren that the home workers are not empoyees
under the usua common-aw rues, ustrate the appcaton of the
statutory test:
ampe 1. The M Company, Rchmond, a., s engaged n pur-
chasng an artce n buk, n varous szes and coors, from manufac-
turers. The home workers, resdng n rgna, receve at the M
Company s premses the artces and certan enveopes n buk, take
these to ther homes, nsert one artce n each enveope, and stape
the enveopes together n groups of s each n accordance wth n-
structons receved from the M Company, thus assembng the fna
packages to be sod by the M Company. The home workers are pad
on a pece-work bass, payment for the work beng made upon devery
to the company of the competed packages. Snce rgna has no
censng requrements reatng to home workers, the workers do not
meet the condtons of test (o). Therefore, the home workers are
not empoyees of the M Company wthn the meanng of secton
1 26(d) (3) (C) wth respect to servces performed after 19 0.
ampe 2. ome worker s a former empoyee of the N Com-
pany, Chcago, 111., whch company s engaged n the manufacture
of goves. t the suggeston of the company she has set up a shop
n her home n Gary, Ind., where e perencea workers are avaabe,
and she obtans eather sttchng work on a contract bass. She has
an agreement wth the company to sttch appro matey 200 pars of
goves per week, whch both she and the company understand s more
work than she can do aone. She vsts the premses of the N Com-
pany once each week, obtans a quantty of cut eather goves, and
takes them to her home where she and other workers sew them. She s
remunerated at the rate of 0.2 per par of goves fnshed and re-
turned to the N Company. The equpment used by the ndvdua
conssts of speca eather needes and thread whch are furnshed to
her by the N Company. s contract of servce does not contempate
that substantay a such servces are to be performed personay by
her, and, therefore, she does not meet the condtons of test (c)
and s not an empoyee of the N Company for purposes of the Federa
Insurance Contrbutons ct, as amended, wth respect to servces
performed after 19 0. owever, s aso not an empoyee of the N
Company because the home work censng aws of Indana do not
appy to the manufacture of eather goves.
ampe 3. s engaged on a contnung bass n knttng or
crochetng tops for sppers manufactured by the O Company, M-
waukee, Ws. She apped to the O Company for work, was gven
nstructons concernng the type of work to be done and the manner
n whch t was to be performed and was nformed that the work
must meet the standard of the O Company. of the matera and
equpment necessary for the performance of the servces are supped
by the O Company and must be returned to the company. s re-
qured to perform personay the servces connected wth the knttng
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103
Regs. 12 , 0 .20 .
or crochetng of the spper tops. The servces are sub|ect to censng
requrements under the aws of Wsconsn. She s pad for the work
on a pece-work bass. meets a the condtons of the statutory
test and, therefore, she s an empoyee of the O Company for pur-
poses of the Federa Insurance Contrbutons ct, as amended, wth
respect to servces performed after 19 0. s pad appro matey
1 0 durng the frst caendar quarter for the work competed for
the O Company, but durng the second quarter she s prevented by
ness from workng steady and s pad by the O Company 37. 0
for work competed durng that quartery perod. Labty for the
ta es mposed by the Federa Insurance Contrbutons ct s ncurred
wth respect to the remuneraton pad to by the O Company dur-
ng the frst quarter, snce the amount pad s more than 0. ow-
ever, athough her status s st that of an empoyee, no abty for
the ta es mposed by that ct s ncurred by the O Company wth re-
spect to the remuneraton whch s ess than 0 pad to durng the
second quartery perod, by reason of the provsons of secton 1 26 (a)
(10) of the ct.
11. The Soca Securty ct mendments of 19 0 amend chapter 1
December 31,19 0. Thus, t may be stated generay f a home worker
s not an empoyee for purposes of the Federa Insurance Contrbu-
tons ct, as amended, the provsons of subchapter , chapter 1,
of the Code (Ta on Sef- mpoyment Income) w be consdered
to be appcabe. Determnatons whether ta abty s ncurred n
partcuar cases under subchapter , chapter 1, of the Code shoud
be made wth due regard to the appcabe ncome ta provsons of
the Code snce an ndvdua s status as a sef-empoyed ndvdua
s ntay dependent upon whether he s engaged n a trade or bus-
ness. Doubtfu cases shoud be submtted to the ureau for specfc
rungs.
Gr.O. . SC O N M N,
Commssoner.
Secton 1 26: Defntons. 19 1- -13 3
Reguatons 12 , Secton 0 .20 : Who are em- Mn. 6601
poyees.
116, Secton 0 .10 .)
Status after 19 0 of ngent-drvers and commsson-drvers for
Federa empoyment ta purposes ncudng ncome ta wthhodng.
Washngton 2 , D. C, anuary SI, 19 1.
L The purpose of ths mmeograph s to outne the changes reatng
to the status of agent-drvers and commsson-drvers effected n the
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Regs. 12 , 0 .20 ,
10
Federa Insurance Contrbutons ct (subchapter , chapter 9. In-
terna Revenue Code), by the Soca Securty ct mendments of
19 0.

(2) any Indvdua who, under the usua common-aw rues appcabe n
determnng the empoyer-empoyee reatonshp, has the status of an em-
poyee; or
(3) any ndvdua who performs servces for remuneraton for
any person
( ) as an agent-drver or commsson-drver engaged n dstrbutng
meat products, vegetabe products, frut products, bakery products,
beverages (other than mk), or aundry or dry-ceanng servces, for
hs prncpa;

acton not part of a contnung reatonshp wth the person for whom the
servces are performed.
3. To determne the status of an agent-drver or commsson-drver
wth respect to servces performed after December 31, 19 0, t w
frst be ascertaned whether the ndvdua, under the usua common-
aw rues appcabe n determnng the empoyer-empoyee reaton-
shp, has the status of an empoyee. If such s found to be the case,
the ndvdua w be an empoyee for purposes of the ta es mposed
by the Federa Insurance Contrbutons ct, for purposes of the ta
mposed by the Federa Unempoyment Ta ct, and aso for purposes
of coecton of ncome ta at source on wages.
the empoyer-empoyee reatonshp, an agent-drver or commsson-
drver s determned not to be an empoyee, then the statutory test pro-
vded n secton 1 26(d) (3) ( ) of the Federa Insurance Contrbu-
tons ct (quoted above n paragraph 2) w be appcabe n deter-
mnng whether such drver s an empoyee for purposes of that ct,
In the event the drver s found, bv the appcaton of such statutory
test, to be an empoyee, then he w be so consdered ony for purposes
of the Federa Insurance Contrbutons ct.
. n agent-drver or commsson-drver found to be an empoyee
by the appcaton of the statutory test provded n secton
1 26(d) (3) ( ) w not be consdered to have the status of an em-
poyee for purposes of the ta mposed by the Federa Unempoyment
Ta ct or for purposes of coecton of ncome ta at source on wages
nasmuch as such statutory test was not made appcabe for the two
atter purposes by the Soca Securty ct mendments of 19 0. De-
termnatons reatve to the status of an agent-drver or commsson-
drver for purposes of the ta mposed by the Federa Unempoyment
Ta ct and for purposes of coecton of ncome ta at source on
wages w contnue to be based on the appcaton soey of the usua
common-aw rues.
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10
Regs. 12 , 0 .20 .
6. n ndvdua who performs servces after 19 0 as an agent-
drver or commsson-drver, and who s not an empoyee under the
usua common-aw rues, w be consdered an empoyee of hs prnc-
pa (for purposes of the Federa Insurance Contrbutons ct ony)
f a of the foowng condtons e st:
(a) f he s engaged n dstrbutng meat products, vegetabe
products, frut products, bakery products, beverages (other than
mk), or aundry or dry-ceanng servces, for hs prncpa;
(6) f the contract or arrangement under whch the servces
as agent-drver or commsson-drver are performed contempates
that substantay a of the servces are to be performed person
ay by the agent-drver or commsson-drver who enters nto the
contract or arrangement;
(c) f he has no substanta nvestment n factes used n
connecton wth the performance of the servces, other than n
factes for transportaton; and
(d) f the servces are part of a contnung reatonshp wth
the prncpa and not n the nature of a snge transacton.
7. The term agent-drver or commsson-drver ncudes an nd-
vdua who operates hs own truck or the truck of the person for whom
he performs servces, serves customers desgnated by hs prncpa as
we as those socted on hs own ntatve, ses whoesae or reta,
and whose compensaton s a commsson on hs saes or the dfference
between the prce he charges hs customers and the prce he pays to hs
prncpa for the product or servce.
. The foowng e ampes, n each of whch t has been estabshed
from facts not stated heren that the agent-drver and commsson-
drver are not empoyees under the usua common-aw rues, ustrate
the appcaton of the foregong tests:
ampe 1. gent-Drver s engaged on a contnung bass n
dstrbutng meat products for hs prncpa, the Company. s
contract of servce wth the Company contempates that substan-
tay a of the servces to whch the arrangement reates are to be
performed personay and he has no nvestment n factes other than
n a sma devery truck. meets a of the condtons set forth n
tests (a) to (d), ncusve, and s. therefore, an empoyee of the
Company for purposes of the Federa Insurance Contrbutons ct,
as amended, wth respect to servces performed after 19 0.
ampe 2. Commsson-Drver s engaged n dstrbutng bak-
ery products for hs prncpa, the Y Company. owever, under the
arrangement under whch the servces are performed t s not contem-
pated that the servces are to be performed personay by . Snce
s arrangement for the performance of the servces does not meet
the condtons of test (b). he s not an empoyee of the Y Company
wthn the meanng of secton 1 2G(d) (3) ( ).
9. The Soca Securty ct mendments of 19 0 amend chapter 1
December 31, 19 0. Thus, t may be stated generay f an agent-
drver or commsson-drver s not an empoyee for purposes of the
Federa Insurance Contrbutons ct, as amended, the provsons of
subchapter , chapter 1, of the Code (Ta on Sef- mpoyment In-
0 200 1
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Regs. 12 , 0 .21 .
106
come) w bo consdered to be appcabe. Determnatons whether
ta abty s ncurred n partcuar cases under subchapter , chap-
ter 1, of the Code shoud be made wth due regard to the appcabe
ncome ta provsons of the Code snce an ndvdua s status as a
sef-empoyed ndvdua s ntay dependent upon whether he s
engaged n a trade or busness. Doubtfu cases shoud be submtted
to the ureau for specfc rungs.
10. Correspondence reatng to ths mmeograph shoud refer to the
number thereof and to the symbos mT: RR.
Geo. . ScTO N M N,
Commssoner.
Secton 1 26: Defntons. 19 1-10-13 90
Reguatons 12 , Secton 0 .21 : Mnsters Mn. 6633
of churches and members of regous orders.
( so Subchapter D (Coecton of Income Ta
at Source on Wages), Secton 1621; Regua-
tons 116, Secton 0 .102.)
Status after 19 0 of duy odnn ed, commssoned, and censed
mnsters of churches for purposes of the Federa Insurance Con-
trbutons ct and ncome ta wthhodng.
Washngton , D. C, pr 12,19 1.
1 26(b)(9)( ) of the Federa Insurance Contrbutons ct, as
amended by the Soca Securty ct mendments of 19 0, provdes,
n part, for the e cepton from empoyment of Servce performed
by a duy ordaned, commssoned, or censed mnster of a church
n the e ercse of hs mnstry .
2. The e cepton appes to the servces whch are ordnary the
dutes of such mnsters. The dutes of mnsters ncude:
(a) the mnstraton of sacerdota functons and the conduct
of regous worshp; and
(b) the contro, conduct, and mantenance of regous organ-
zatons (ncudng the regous boards, socetes, and other n-
tegra agences of such organzatons), under the authorty of
a regous body consttutng a church or church denomnaton.
3. What consttutes the conduct of regous worshp or the mnstra-
ton of sacerdota functons depends on the tenets and practces of
a partcuar regous body consttutng a church or church denom-
naton.
. Servces performed by a mnster n the contro, conduct, and
mantenance of a regous organzaton reate to drectng, managng,
or promotng the actvtes of such organzaton. ny regous or-
ganzaton s deemed to be under the authorty of a regous body
consttutng a church or church denomnaton f t s organzed and
dedcated to carryng out the tenets and prncpes of a fath n ac-
cordance wth ether the requrements or sanctons governng the
creaton of nsttutons of the fath. The term regous organ-
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107 Regs. 12 , 0S.21 .
zaton has the same meanng and appcaton as s gven to the term
for ncome ta purposes.
. The foowng genera rues have been adopted to determne
whether the servces of a duy ordaned, commssoned, or censed
mnster of a church are performed n the e ercse of hs mnstry
wthn the meanng of secton 1 26(b) (9) ( ) :
(a) Where a mnster s performng servces n the conduct of
regous worshp or the mnstraton of sacerdota functons, such
servces are consdered to be n the e ercse of hs mnstry and
therefore e cepted from empoyment whether or not they are per-
formed for a regous organzaton.
(6) Where a mnster s performng servces for an organzaton
whch s operated as an ntegra agency of a regous organzaton
under the authorty of a regous body consttutng a church or church
denomnaton, a servces performed by the mnster n the conduct
of regous worshp, n the mnstraton of sacerdota functons, or
n the contro, conduct, and mantenance of such organzaton (as
defned n paragraph above), are consdered to be n the e ercse of
hs mnstry and therefore e cepted from empoyment.
(c) Where a mnster, pursuant to an assgnment or desgnaton
by the regous body consttutng hs church, s performng servces
for an organzaton whch s nether a regous organzaton nor
operated as an ntegra agency of a regous organzaton, a servces
performed by the mnster, rrespectve of whether or not they nvove
the conduct of regous worshp or the mnstraton of sacerdota
functons, are consdered to be n the e ercse of hs mnstry and
therefore e cepted from empoyment.
(d) Where a mnster s performng servces for an organzaton
whch s nether a regous organzaton nor operated as an ntegra
agency f a regous organzaton and the servces are not performed
pursuant to an assgnment or desgnaton by hs eccesastca supe-
rors, then ony the servces performed by the mnster n the conduct
of regous worshp or the mnstraton of sacerdota functons are
consdered to be n the e ercse of hs mnstry.
6. For purposes of ncome ta wthhodng, the foregong rues and
prncpes aso are appcabe n determnng whether the remunera-
ton of a mnster s e cuded from wages under secton 1621(a) (9)
of the Interna Revenue Code, as amended by the Soca Securty ct
mendments of 19 0.
7. The ncuded and e cuded rues contaned n sectons 1 26(c)
and 1622 (g) of the Interna Revenue Code shoud be apped where,
durng the same payro perod and for the same empoyer, a mnster
performs not ony servces n the e ercse of hs mnstry but aso
servces whch are not n the e ercse of hs mnstry.
. In the event you are unabe to determne the status of a duy
ordaned, commssoned, or censed mnster n a partcuar case ths
offce w gve consderaton to the matter upon the submsson of com-
pete nformaton.
Geo. . Sctof. f.man-,
Commssoner.
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Regs. 106, 02.20 .
10
Secton 1 26: Defntons. 19 1-2-13 20
Reguatons 106, Secton 02.20 : Who are em- Mm. 6 66
poyees.
( so Subchapter C (Federa Unempoyment Ta
ct), Secton 1607; Reguatons 107, Secton
03.20 ; Subchapter D (Coecton of Income
Ta at Source on Wages), Secton 1621; Regu-
atons 116, Secton 0 .10 .)
Status of certan rea estate and securtes saesmen for pur-
poses of the Federa empoyment ta es and the Income ta wth-
hodng under secton 1C22 of the Interna Revenue Code.
Mmeograph 0 (C. . 10 3, 1CG3) revoked and Mmeograph
7 (unpubshed) revoked.
Washngton 2 , D. C, December ,19 0.
1. In Mmeograph 0 (C. . 19 3, 1066), t s hed that rea
estate saesmen who perform servces for brokers under the customs
and practces descrbed theren are empoyees of the brokers for pur-
poses of the empoyment ta es mposed by ttes III and I of the
Soca Securty ct, the Federa Insurance Contrbutons ct, and
the Federa Unempoyment Ta ct.
2. It was decded by the Unted States Court of ppeas for the
ghth Crcut n the case of Dmmtt-Rckhoff- ayer Rea state
Co. v. ames P. Fnnegan, Coector of Interna Revenue, that rea
estate saesmen were not empoyees of the company under appcabe
common-aw tests and the remuneraton pad to them was not sub|ect
to Federa empoyment ta es. In that case each saesman was en-
gaged pursuant to a contract under whch the company agreed that
t woud make avaabe to the saesman the factes of ts offce and
ts stngs of property for sae; that t woud assst hm by advce
and cooperaton; that t woud furnsh hm wth necessary busness
cards, forms, and statonery; and that t woud dvde wth hm,
accordng to a f ed schedue, any commssons resutng from saes
whch he procured. The company furnshed each saesman a manua
e panng ts busness poces n deta. The saesman, on hs part,
agreed to work dgenty for the company. ach saesman provded
the cense requred of hm by State aw, and pad the dues for hs
membershp n the oca rea estate e change. ach saesman pro-
vded hs means of transportaton and pad a e penses ncurred by
hm n the soctaton of busness. The saesmen generay reported
to the offce day and attended weeky saes meetngs, but ths was
not mandatory. They took turns n keepng the offce open on Sat-
urday afternoons and Sundays. They were not requred to keep f ed
hours. They were not permtted to se rea estate for other brokers
nor to make saes n ther own names and ther own behaf. saes
were cosed n the name of the company and a commssons on saes
were pad to the company and were dvded once a month among the
saesmen who had earned them. On October 9, 19 0, the Supreme
Court of the Unted States refused certorar to revew ths decson.
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109
Regs. 106, 02.20 ,
3. Rea estate saesmen are not empoyees for purposes of empoy-
ment ta es and ncome ta wthhodng under secton 1622 of the In-
terna Revenue Code where the facts are substantay smar to those
set forth n Mmeograph 0 , supra, or the Dmmtt case n the ab-
sence of other substanta evdence of an empoyee-empoyer rea-
tonshp.
. Mmeograph 0 , supra, s hereby revoked.
. It has been the poston of the ureau generay, as stated n
Mmeograph 7 (unpubshed), that securtes saesmen who per-
form ther servces for deaers pursuant to reguatory egsaton and
the estabshed customs and practces n seng securtes are sub|ect
to a suffcent degree of contro wth respect to the manner and method
of the performance of ther servces to consttute them empoyees of
the deaers for purposes of the ta es mposed by the Federa Insurance
Contrbutons ct and the Federa Unempoyment Ta ct. Ths
cassfcaton was appcabe aso for purposes of the ncome ta wth-
hodng under secton 1622 of the Interna Revenue Code. Ths pos-
ton was based upon the fact that reguatory aws n most of the States
contempate that a deaer, n order to se or purchase unsted or over-
the-counter securtes, stocks, and bonds, sha be censed. The bus-
ness of the deaer s reguated by the rues of the Federa Securtes
and change Commsson, the provsons of varous securty acts
or bue sky reguatons of the State or States n whch the deaer
may operate, and the reguatons of varous deaer organzatons.
The deaer has teephone and wre connectons wth other securtes
e change members and n the furtherance of hs busness he engages
saesmen. The deaer furnshes the saesmen wth desk space, tee-
phone and teegraph factes, quotaton, statstca and bookkeepng
servces, and cerca assstance. accounts coverng transactons
handed by a saesman are carred n the name of the deaer who re-
ceves and dsburses a moneys coectbe and payabe n connecton
wth the busness. The deaer requres the saesman to conform to hs
poces, the ma|or porton of whch are based upon Federa, State, or
oca stock e change rues and reguatons. The saesman, who s
usuay censed to a partcuar deaer, uses the servces furnshed by
the deaer and s compensated on a commsson bass for the servces
performed by hm n the purchase and sae of securtes. e usuay
agrees to work dgenty and to abde by a aws, rues, and regua-
tons under whch the deaer operates hs busness.
6. The rue stated n Mmeograph 7 has been reconsdered and
t s now the poston of the ureau that generay securtes saesmen
who perform ther servces under crcumstances and condtons such as
those present n the Dmmtt case are not empoyees for purposes of
the empoyment ta es and the ncome ta wthhodng, n the absence
of other substanta evdence of an empoyee-empoyer reatonshp.
7. Mmeograph 7 (unpubshed) s hereby revoked.
. If doubt e sts as to the appcabty of ths mmeograph n any
case, the compete facts n the case shoud be presented to the ureau
wth a request for a rung.
9. Inqures reatve to the contents of ths mmeograph shoud refer
to the number hereof and to the symbos mT: RR.
Geo. . Schoeneman,
Commssoner.
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Regs. 11 , 11.303. 110
Secton 1 26: Defntons.
Reguatons 106, Secton 02.217: Organzatons
e empt from ncome ta .
Waver of e empton by 101(6) organzatons, Reguatons 106
amended. (See T. D. 23, page 9.)
C PT R 9, SU C PT R . R ILRO D R TIR M NT T CT
Secton 1 01: Deducton of ta from Compen- 19 1-2-13 23
saton. Mm. 6 6
Reguatons 11 , Secton 11.303: Coecton
of, and abty for, empoyees ta .
( so Subchapter D (Coecton of Income Ta
at Source on Wages), Secton 1622; Regua-
tons 116, Secton 0 .201.)
Rate of e change appcabe for purposes of the Raroad Re-
trement Ta ct and the wthhodng of ncome ta n connecton
wth the converson of remuneraton -n terms of Unted States
doars, where empoyees are compensated n Canadan currency.
Washngton # , D. C, December ,19 0.
1. Where empoyees are compensated n Canadan currency the
empoyer, n fng empoyer s ta returns, Form CT-1, must report
the amount of compensaton nvoved n terms of Unted States
currency. Pror to October 1, 19 0, the computaton of the amount
of compensaton nvoved n terms of Unted States doars was made
by the use of the offca rate of e change. fter the empoyees tota
remuneraton had been converted nto terms of Unted States doars,
abty was ncurred for the ta es mposed by the Raroad Retre-
ment Ta ct upon so much of the tota remuneraton pad as was
not n e cess of 300 Unted States doars for any caendar month.
2. The Canadan Contro oard reeased contro of e change rates
for Canadan currency effectve at the begnnng of busness on
October 2, 19 0. Inasmuch as an offca rate of e change no onger
e sts and nternatona e change transactons are now based upon a
free rate, nqures have been receved as to what rate shoud now be
used n connecton wth the converson of Canadan doars to mer-
can doars for purposes of reportng the ta abe compensaton of
empoyees on empoyer s ta returns, Form CT-1, when such em-
poyees are compensated n Canadan currency.
3. mpoyers, who compensate empoyees n Canadan currency
and who fnd t mpractcabe to utze the rate of e change n
effect on the date compensaton s pad, may compute the amount of
compensaton pad n terms of Unted States doars by usng; ether
the openng or cosng e change rate quoted by the Federa Reserve
bank servng the empoyer s dstrct on the frst busness day of each
payro perod as the converson factor for a compensaton pad dur-
ng such payro perod. fter the empoyees tota remuneraton
has been converted nto terms of Unted States doars, abty s
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I
Regs. 116.
ncurred for the ta es mposed by the Raroad Retrement Ta ct
upon so much of the tota remuneraton pad as s not n e cess of
300 n terms of Unted States currency for any caendar month.
. The rue set forth n the precedng paragraph reatve to the
converson of Canadan currency to Unted States doars aso s
appcabe for purposes of the ncome ta wthhodng under secton
1622 of the Interna Revenue Code, as amended. The 300 mta-
ton mentoned theren pertans ony to the ta es mposed by the
Raroad Retrement Ta ct and has no appcaton to the wth-
hodng of ncome ta under secton 1022 o the Interna Revenue
Code.
. Correspondence reatve to ths mmeograph shoud refer to ts
number and to the symbos raT: RR.
Geo. . Schoeneman,
Commssoner.
C PT R 9, SU C PT R C F D R L UN MPLOYM NT T CT
Secton- 1607: Defntons.
Reguatons 107, Secton 03.201: Who are em-
poyees.
Status of rea estate and securtes saesmen. (See Mm. 6 66,
page 10 .)
C PT R 9, SU C PT R D. COLL CTION OF INCOM T T
SOURC ON W G S
Reguatons 116.
Perods of mtaton upon assessment, coecton, credtng, and re-
fundng of ta changed by the Soca Securty ct mendments of
19 0. (See Mm. 6G2 , page 7.)
Sectons 1621, 1622. 162 , 1626, and 1627.
Reguatons 116 (Sectons 0 .101, 0 .102,
0 .10 , 0 .10 , 0 .107, 0 .201, 0 .202,
0 .203, 0 .209, 0 . 01, 0 .601, 0 . 0
amended, 0 .607, and 0 .703 added.)
TITL 20 INT RN L R NU . C PT R I. SU C PT R D, T RT 0 .
COLL CTION OF INCOM T T SOURC ON W G S
Reguatons 110 amended to conform to tbe Soca Securty ct
mendments of 19 0 and to the Revenue ct of 19 0.
Washngton 2 , D. C.
In order to conform Reguatons 116 26 CFR, part 0 to the
Soca Securty ct mendments of 19 0, approved ugust 2 , 19 0,
and to the Revenue ct of 19 0, approved September 23, 19 0, such
reguatons are hereby amended as foows:
19 1-1-13
T. D. 2
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egs. 116.
112
Pahagrap 1. There s nserted mmedatey after secton 1621(a)
of the Interna Revenue Code as set forth precedng secton 0 .101
26 CFR 0 .101 the foowng:
RM D FORC S S R ING IN COM T R S. R NU
CT OF 19 0, PPRO D S PT M R 23, 19 0.

(b) Wthho||ng of Income Ta on Wages. ffectve wth respect
to wages pad after October 31, 19 0, secton 1021(a) (reatng to defn-
ton of wages for ncome ta wthhodng purposes) s hereby amended
by nsertng before paragraph (2) thereof the foowng:
(1) for actve servce as a member of the rmed Forces of the
Unted States performed pror to anuary 1, 19 2, n a month durng
any part of whch such member performed servce n a combat zone
as determned under secton 22(b) (13), or .

S C. 221. R SID NTS OF PU RTO RICO. R NU CT OF
19 0, PPRO D S PT M R 23, 19 0.

(f) Wthhodng or Ta on Wages.
(1) Secton 1621(a)(6) (reatng to coecton of ncome ta at
sources of wages) s hereby amended to read as foows:
(6) for servces performed by a nonresdent aen ndvdua,
other than ( ) a resdent of a contguous country who enters and
eaves the Unted States at frequent ntervas, or ( ) a resdent of
Puerto Rco f such servces are performed as an empoyee of the
Unted States or any agency thereof, or .
(2) Secton 1621(a) ( ) (reatng to coecton of Income ta at
source on wages) s hereby amended by strkng out subparagraph
( ) thereof and nsertng n eu thereof the foowng:
( ) for servces for an empoyer (other than the Unted States
or any agency thereof) performed by a ctzen of the Unted States
wthn a possesson of the Unted States (other than Puerto Rco),
f t s reasonabe to beeve that at east 0 per centum of the remu-
neraton to be pad to the empoyee by such empoyer durng the ca-
endar year w be for such servces, or
(C) for servces for an empoyer (other than the Unted States or
any agency thereof) performed by a ctzen of the Unted States
wthn Puerto Rco, f t s reasonabe to beeve that durng the
entre caendar year the empoyee w be a bona fde resdent of
Puerto Rco, or .

(k) ffectve Date. The amendments made by subsec-
ton (f) sha be appcabe wth respect to wages pad on or after anu-
ary 1, 19 1 .
S C. 209(c) OF T SOCI L S CURITY CT M NDM NTS OF
19 0 PPRO D UGUST 2 , 19 0 .
(c) (1) Secton 1021(a) ( ) of the Interna Revenue Code s amended
to read as foows:
( ) for servce not In the course of the empoyer s trade or bus-
ness performed n any caendar quarter by an empoyee, uness the
cash remuneraton pad for such servce s 0 or more and such
servce s performed by an ndvdua who s reguary empoyed by
such empoyer to perform such servce. For the purposes of ths
paragraph, an ndvdua sha be deemed to be reguary empoyed
by an empoyer durng a caendar quarter ony f ( ) on each of
some twenty-four days durng such quarter such ndvdua performs
for such empoyer for some porton of the day servce not n the
course of the empoyer s trade or busness, or ( ) such ndvdua
was reguary empoyed (as determned under cause ( )) by such
empoyer n the performance of such servce durng the precedng
caendar quarter, or .
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113
Regs. 116.
(2) Secton 1021(a) of the Interna Revenue Code s amended by
strkng out paragraph (9) thereof and nsertng n eu thereof the fo-
owng :
(9) for servces performed by a duy ordaned, commssoned,
or censed mnster of a church n the e ercse of hs mnstry or by
a member of a regous order n the e ercse of dutes requred by
such order, or
(10) ( ) for servces performed by an ndvdua under the age
of eghteen n the devery or dstrbuton of newspapers or shoppng
news, not ncudng devery or dstrbuton to any pont for subse-
quent devery or dstrbuton, or
( ) for servces performed by an ndvdua n, and at the tme
of, the sae of newspapers or magaznes to utmate consumers, under
an arrangement under whch the newspapers or magaznes are to be
sod by hm at a f ed prce, hs compensaton beng based on the re-
tenton of the e cess of such prce over the amount at whch the
newspapers or magaznes are charged to hm, whether or not he s
guaranteed a mnmum amount of compensaton for such servce,
or s entted to be credted wth the unsod newspapers or magaznes
turned back, or
(11) for servces not n the course of the empoyer s trade or
busness, to the e tent pad n any medum other than cash, or
(12) to, or on behaf of, an empoyee or hs benefcary ( ) from
or to a trust e empt from ta under secton 16 (a) at the tme of
such payment uness such payment s made to an empoyee of the
trust aa remuneraton for servces rendered as such empoyee and
not as a benefcary of the trust, or ( ) under or to an annuty
pan whch, at the tme of such payment, meets the requrements
of secton 16 (a) (3), ( ), ( ),and (6).
(3) The amendments made by paragraphs (1) and (2) sha be
appcabe ony wth respect to remuneraton pad after 19 0.
Par. 2. There s nserted mmedatey after secton 1 20(h) as set
forth precedng secton 0 .101 26 CFR 0 .101 the foowng:
S C. 20 (d) NT) (g) OP T SOCI L S CURITY CT M ND-
M NTS OF 19 0 PPRO D UGUST 2 ,10 0 .
(d) Secton 1 26(h) of the Interna Revenue Code s amended to read
as foows:
(h) grct|tuka Labor. The term agrcutura abor ncudes a
servce performed
(1) On a farm, n the empoy of any person, n connecton wth
cutvatng the so, or n connecton wth rasng or harvestng any
agrcutura or hortcutura commodty, ncudng the rasng,
shearng, feedng, carng for, tranng,.and management of vestock,
bees, poutry, and fur-bearng anmas and wdfe.
(2) In the empoy of the owner or tenant or other operator of
a farm, n connecton wth the operaton, management, conserva-
ton, mprovement, or mantenance of such farm and ts toos and
equpment, or n savagng tmber or cearng and of brush and other
debrs eft by a hurrcane, f the ma|or part of such servce s per-
formed on a farm.
(3) In connecton wth the producton or harvestng of any-eom-
modty defned as an agrcutura commodty n secton 1 (g) of the
grcutura Marketng ct, as amended, or n connecton wth the
gnnng of cotton, or n connecton wth the operaton or mante-
nance of dtches, canas, reservors, or waterways, not owned or
operated for proft, used e cusvey for suppyng and storng water
for farmng purposes.
( ) ( ) In the empoy of the operator of a farm In handng,
pantng, dryng, packng, packagng, processng, freezng, gradng,
storng, or deverng to storage or to market or to a carrer for trans-
portaton to market, n ts unmanufactured state, any agrcutura or
hortcutura commodty; but ony f such operator produced more
than one-haf of the commodty wth respect to whch such servce s
performed.
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Regs. 116.
11
( ) In the empoy of a group of operators of farms (other than
n cooperatve organzaton) In the performance of servce descrbed
n subparagraph ( ), but ony f such operators produced a of the
commodty wth respect to whch such servce s performed. For the
purposes of ths subparagraph, any unncorporated group of opera-
tors sha be deemed a cooperatve organzaton f the number of
operators comprsng such group s more than twenty at any tme
durng the caendar quarter n whch such servce s performed.
(C) The provsons of subparagraphs ( ) and ( ) sha not be
deemed to be appcabe wth respect to servce performed n connec-
ton wth commerca cannng or commerca freezng or n connec-
ton wth any agrcutura or hortcutura commodty after Its dev-
ery to a termna market for dstrbuton for consumpton.
( ) On a farm operated for proft f such servce s not n the
course of the empoyer s trade or busness or s domestc servce
n a prvate home of the empoyer.
s used n ths secton, the term farm ncudes stock, dary, poutry,
frut, fur-bearng anma, and truck farms, pantatons, ranches, nur-
seres, ranges, greenhouses or other smar structures used prmary
for the rasng of agrcutura or hortcutura commodtes, and
orchards.

(g) The amendments made by subsectons (c), (d), (e), and (f) of
ths secton sha be appcabe ony wth respect to servces performed
after 10 0.
Par. 3. Secton 0 .101 26 CFR 0 .101 s amended as foows:
( ) y nsertng n the frst sentence of the second paragraph of
secton 0 .101(b), mmedatey after the words No wthhodng s
requred , the foowng: pror to anuary 1,19 1, .
( ) y addng at the end of the second paragraph of secton
0 .101(b) the foowng: s to wthhodng n respect of these pay-
ments on and after anuary 1, 19 1, see secton 0 .102(m).
(C) y strkng out the frst and second sentences of the thrd para-
graph of secton 0 .101(b) and nsertng n eu thereof the foow-
ng:
Retrement pay for servce n the mtary or nava forces of the Unted States
s sub|ect to wthhodng uness such pay s e cuded from gross ncome under
secton 22(b)( ). Where such retrement pay (not e cuded from gross In-
come under secton 22(b)( )) Is pad to a nonresdent aen ndvdua, wth-
hodng s requred ony In the case of such amounts pad on or after anuary
1, 19 1, to a nonresdent aen ndvdua who s a resdent of Puerto Rco.
(D) y revsng the ast sentence of secton 0 .101(f) to read as
foows:
It s mmatera that the Interna Revenue Code, or any ct of Congress, or the
aw of any State or of Puerto Uoo, requres or permts such deductons and the
payment of the amounts thereof to the Unted States, a State, a Terrtory, Puerto
Rco, or the Dstrct of Coumba, or any potca subdvson of any one or more
of the foregong.
( ) y nsertng n the second sentence of secton 0 .101(h), m-
medatey after the words Unted States , the foowng: (ncudng
Puerto Rco as f a part of the Unted States) .
(F) y nsertng at the end of secton 0 .101(h) the foowng new
sentence:
See secton 0 .102(h) (3) for the treatment of wages pad for servces performed
by a ctzen of the Unted States n Tuerto Rco.
Par. . Secton 0 .102. as amended by Treasury Decson 7 9 C. .
19 9-2, 119 , approved November 10, 19 9 2G CFR 0 .102 , s fur-
ther amended as foows:
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11
Regs. 116.
( ) y changng secton 0 .102(b) to read as foows:
(b) Compensaton of members of the rmed Forces of the Unted States. Re-
muneraton pad before anuary 1, 10 0, for servces performed as a member
of the rmed Forces of the Unted States Is e cepted from the defnton of the
term wages. Remuneraton pad on or after November 1, 19 0, for actve
servce, as a member of the rmed Forces of the Unted States, performed n
a month durng any part of whch such member served n a combat zone (as
determned under secton 22(b) (13)) s e cepted from the defnton of the
term wages and s, therefore, not sub|ect to wthhodng. For the purposes
of the e ceptons, the rmed Forces of the Unted States ncude the reguar and
reserve components thereof. Tensons and retrement pay, f ncudbe n gross
ncome under chapter 1 of the nterna Revenue Code, are not wthn the e -
ceptons from tte defnton of the term wages and hence consttute wages sub-
|ect to wthhodng.
other remuneraton pad on or after anuary 1, 19 0, for servces per-
formed as a member of the rmed Forces of the Unted States consttutes wages
sub|ect to wthhodng.
( ) y strkng out secton 0 .102(c), and by nsertng n eu
thereof the foowng subsecton:
(c) Remuneraton pad for agrcutura abor (1) In cncra. The term
wages does not ncude remuneraton for servces whch consttute agrcutura
abor as defned n secton 1 20(h). The term agrcutura abor as so denned
ncudes servces performed before anuary 1, 19 1, of a character descrbed
n paragraphs (2), (3), ( ), and ( ) of ths subsecton, and ncudes servces
performed on or after anuary 1, 19 1, of a character descrbed n paragraphs
(2), (3), ( ), ( ), and (6) of ths subsecton. In genera, however, the term
agrcutura abor does not ncude servces performed n connecton wth
forestry, umberng, or andscapng.
The term farm as used n the reguatons n ths subsecton ncudes stock,
dary, poutry, frut, fur-bearng anma, and truck farms, pantatons, ranches,
nurseres, ranges, orchards, and such greenhouses and other smar structures
as are used prmary for the rasng of agrcutura or hortcutura commodtes.
Greenhouses and other smar structures used prmary for other purposes (for
e ampe, dspay, storage, and fabrcaton of wreaths, corsages, and bouquets)
do not consttute farms.
(2) Servces descrbed n secton 2G(h) (1). Remuneraton pad for servces
performed on a farm by an empoyee of any person n connecton wth any of the
foowng actvtes s e cepted as remuneraton for agrcutura abor:
() The cutvaton of the so;
() The rasng, shearng, feedng, carng for, tranng, or management
of vestock, bees, poutry, fur-bearng anmas, or wdfe; or
( ) The rasng or harvestng of any other agrcutura or hortcutura
commodty.
Remuneraton pad for servces performed on or after anuary 1, 19 1, n
connecton wth the producton or harvestng of mape sap, or n connecton wth
the rasng or harvestng of mushrooms, or n connecton wth the hatchng of
poutry s e cepted ony f such servces are performed on a farm. Thus, servces
performed n connecton wth the operaton of a hatchery, f not operated as
part of a poutry or other farm, do not consttute agrcutura abor. Servces
perforned n the processng (as dstngushed from the gatherng) of mape sap
nto mape srup or mape sugar do not consttute agrcutura abor, even though
such servces are performed on a farm. See paragraph ( ) of ths subsecton
for provsons reatng to such servces performed before anuary 1, 19 1.
(3) Servces descrbed n secton 1 26(h) (2). The remuneraton pad for the
foowng servces performed by an empoyee n the empoy of the owner or
tenant or other operator of one or more farms s e cepted as remuneraton for
agrcutura abor, provded the ma|or part of such servces Is performed on a
farm:
() Servces performed n connecton wth the operaton, management,
conservaton, mprovement, or mantenance of any of such farms or ts toos
or equpment; or
() Servces performed In savagng tmber, or cearng and of brush and
other debrs, eft by a hurrcane.
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Regs. 110.
116
The servces descrbed In () above may ncude, for e ampe, servees performed
by carpenters, panters, mechancs, farm supervsors, rrgaton engneers, book-
keepers, and other sked or semsked workers, whch contrbute n any way
to the conduct of the farm or farms, as such, operated by the person empoyng
them, as dstngushed from any other enterprse n whch such person may be
engaged. Snce the servces descrbed n ths paragraph must be performed
n the empoy of the owner or tenant or other operator of the farm, the e cepton
does not e tend to remuneraton pad for servces performed by empoyees of a
commerca pantng concern, for e ampe, whch contracts wth a farmer to
renovate hs farm propertes.
( ) Servces descrbed n secton 1 26(h) (3) . Remuneraton pad for serv-
ces performed by an empoyee n the empoy of any person n connecton wth
any of the foowng operatons s e cepted as remuneraton for agrcutura abor
wthout regard to the pace where such servces are performed:
() The gnnng of cotton;
() The hatchng of poutry, f such servces are performed before
anuary 1, 19 1;
() The rasng or harvestng of mushrooms, f such servces are per-
formed before anuary 1, 19 1;
(v) The operaton or mantenance of dtches, canas, reservors, or water-
ways used e cusvey for suppyng or storng water for farmng purposes,
but, n the ease of such servces performed on or after anuary 1, 19 1,
ony f such dtches, canas, reservors, or waterways are not owned or
operated for proft;
(v) The producton or harvestng of mape sap or the processng of mape
sap nto mape srup or mape sugar (but not the subsequent bendng or
other processng of such srup or sugar wth other products), f such serv-
ces are performed pror to anuary 1,19 1; or
(v) The producton or harvestng of crude gum (oeoresn) from a vng
tree or the processng of such crude gum nto gum sprts of turpentne and
gum rosn, provded such processng s carred on by the orgna producer
of such crude gum.
See paragraph (2) of ths subsecton for provsons reatng to servces per-
formed on or after anuary 1, 19 1, n connecton wth the hatchng of poutry,
the rasng or harvestng of mushrooms, or the producton or harvestng of
mape sap.
( ) Servces descrbed n secton 1 26(h) ( ). () Remuneraton pad for
servces performed pror to anuary 1, 19 1, by an empoyee n the empoy
of a farmer or a farmers cooperatve organzaton or group n the handng,
pantng, dryng, packng, packagng, processng, freezng, gradng, storng, or
deverng to storage or to market or to a carrer for transportaton to market,
of any agrcutura or hortcutura commodty, other than fruts and vegetabes
(see subdvson () beow), produced by such farmer or farmer-members of
such organzaton or group of farmers s e cepted, provded such servees are
performed as an acdent to ordnary farmng operatons.
Generay servces are performed as an ncdent to ordnary farmng opera-
tons wthn the meanng of ths paragrap f they are servces of the character
ordnary performed by the empoyees of a farmer or of a farmers cooperatve
organzaton or group as a prerequste to the marketng, n ts unmanufactured
state, of any agrcutura or hortcutura commodty produced by such farmer
or by the members of such farmers organzaton or group. Servces perform-
ed by empoyees of such farmer or farmers organzaton or group n the handng,
pantng, dryng, packng, packagng, processng, freezng, gradng, storng, or
deverng to storage or to market or to a carrer for transportaton to market,
of commodtes produced by persons other than such farmer or members of such
farmers organzaton or group are not performed as an ncdent to ordnary
farmng operatons.
() Remuneraton pad for servces performed pror to anuary 1, 19 1, by
an empoyee In the empoy of any person n the handng, pantng, dryng, pack-
ng, packagng, processng, freezng, gradng, storng, or deverng to storage
or to market or to a carrer for transportaton to market, of fruts and vegetabes,
whether or not of a pershabe nature, s e cepted as remuneraton for agr-
cutura abor, provded such servees are performed as an Incdent to the prepa-
raton of such fruts and vegetabes for market. For e ampe, If servees n
the sortng, gradng, or storng of fruts, or In the ceanng of beans, are per-
formed as an ncdent to ther preparaton for market, remuneraton pad for
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117
Regs. 116.
such servces may be e cepted whether the servces are performed n the empoy
of a farmer, a farmers cooperatve, or a commerca hander of such com-
modtes.
() Remuneraton pad for servces performed on or nfter anuary 1, 19 1,
by an empoyee n the handng, pantng, dryng, packng, packagng, processng,
freezng, gradng, storng, or deverng to storage or to market or to a carrer
for transportaton to market, of any agrcutura or hortcutura commodty s
e cepted as remuneraton for agrcutura abor If
( ) Such servces are performed by the empoyee n the empoy of an
operator of a farm or n the empoy of a group of operators of farms (other
than a cooperatve organzaton) ;
( ) Such servces are performed wth respect to the commodty n ts
unmanufactured state; and
(C) Such operator produced more than one-haf of the commodty wth
respect to whch such servces are performed durng the pay perod, or such
group of operators produced a of the commodty wth respect to whch
such servces are performed darng the pay perod.
The term operator of a farm as used n ths paragraph means an owner,
tenant, or other person, n possesson of a farm and engaged n the operaton of
such farm.
The servces descrbed n ths paragraph do not consttute agrcutura abor
t performed n the empoy of a cooperatve organzaton. The term organza-
ton ncudes corporatons, ont-stock companes, and assocatons whch are
treated as corporatons under the Interna Revenue Code. For the purposes of
ths paragraph, any unncorporated group of operators sha be deemed a co-
operatve organzaton f the number of operators comprsng such group s more
than 20 at any tme durng the caendar quarter n whch the servces nvoved
are performed.
Processng servces whch change the commodty from ts raw or natura state
do not consttute agrcutura abor. For e ampe, the e tracton of |uces
from fruts or vegetabes s a processng operaton whch changes the character
of the fruts or vegetabes from ther raw or natura state and, therefore, does
not consttute agrcutura abor. On the other hand, servces rendered n the
cuttng and dryng of fruts or vegetabes are processng operatons whch do
not change the character of the fruts or vegetabes and, therefore, consttute
agrcutura abor, f the other requste condtons are met. Servces performed
wth respect to a commodty after ts character has been changed from ts raw
or natura state by a processng operaton do not consttute agrcutura abor.
The term commodty refers to a snge agrcutura or hortcutura product,
for e ampe, a appes are to be treated as a snge commodty, whe appes and
peaches are to be trerfted as two separate commodtes. The servces wth re-
spect to each such commodty are to be consdered separatey n determnng
whether the condton set forth n (C) above has been satsfed. The porton of
the commodty produced by an operator or group of operators wth respect to
whch the servces descrbed n ths subparagraph are performed by a partcuar
empoyee sha be determned on the bass of the pay perod n whch such serv-
ces were performed by such empoyee.
(v) The servces descrbed n Mbdvsons (), (), and (), above, do not
ncude servces performed n connecton wth commerca cannng or commerca
freezng, or n connecton wth any commodty after ts devery to a termna
market for dstrbuton for consumpton. Moreover, snce the servces descrbed
n such subdvsons must be rendered n the actua handng, pantng, dryng,
packng, packagng, processng, freezng, gradng, storng, or deverng to storage
or to market or to a carrer for transportaton to market, of the commodty, such
servces do not, for e ampe, ncude servces performed as stenographers, book-
keepers, cerks, and other offce empoyees, even though such servces may be n
connecton wth such actvtes. owever, to the e tent that the servces of such
ndvduas are performed n the empoy of the owner or tenant or other operator
of a farm and are rendered n ma|or part on a farm, they may be wthn the
provsons of paragraph (3) of ts subsecton.
(0) Servces descrbed n secton 1 26(h) ( ). Remuneraton pad for serv-
ces not n the course of the empoyer s trade or busness or for domestc servces
n a prvate home of the empoyer s e cepted as remuneraton for agrcutura
abor f such servces are performed on or nfter anuary 1, 19 1, on a farm
operated for proft. For provsons wth respect to remuneraton pad for such
servces performed before anuary 1, 19 1, see subsectons (d) and (e) of ths
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Regs. 116.
11
secton. Generay, a farm Is not operated for proft If t Is occuped by the
empoyer prmary for resdenta purposes, or s used prmary for the peasure
of the empoyer or hs famy such as for the entertanment of guests or as a
hobby of the empoyer or hs famy.
(C) y revsng the headng of secton 0 .102(e) to read as fo-
ows: (e) Remuneraton for servce not n the course of empoyer s
trade or busness (1) Payments made before 19 1 for casua abor.
(D) 1 y nsertng mmedatey after the provsons of secton
0 .102(e) as so amended the foowng:
(2) Payments made after 10 0. () To the e tent the compensaton pad after
3(1 0 for servces not n the course of the empoyer s trade or busness s pad n
any medum other than cash, t s not sub|ect to wthhodng under secton 1622.
Cash remuneraton pad after 19 0 for servce not n the course of the empoyer s
trade or busness performed n any caendar quarter by an empoyee s e cepted
from the term wages f
( ) the cash remuneraton pad for such servce s ess than 0, or
( ) such servce s performed by an ndvdua who s not reguary
empoyed by such empoyer to perform such servce.
() Cash remuneraton for servce not n the course of the empoyer s trade or
busness performed n any caendar quarter by an empoyee does not come wthn
the e cepton f both of the foowng condtons are met:
( ) the cash remuneraton pad for such servce s 0 or more, and
( ) such servce Is performed by an ndvdua who s reguary empoyed
by such empoyer to perform such servce.
() n ndvdua performng servce not n the course of the empoyer s trade
or busness s deemed to be reguary empoyed by such empoyer durng the
caendar quarter ony f
( ) on each of some 2 days durng such quarter such ndvdua per-
forms, for such empoyer for some porton of the day, servce not n the
course of the empoyer s trade or busness, or
( ) such ndvdua was reguary empoyed (as determned under cause
( )) by such empoyer n the performance of such servce durng the pre-
cedng caendar quarter.
Cv) The cash test refers to the cash pad for servces performed durng a
caendar quarter, regardess of when pad. The term cash remuneraton
ncudes checks and other monetary medums of e change.
The term not In the course of the empoyer s trade or busness Incudes serv-
ce that does not promote or advance the empoyer s trade or busness. Remu-
neraton pad for servce performed n the course of the empoyer s trade or
busness does not come wthn the e cepton from the term wages.
Remuneraton pad for servces performed for a corporaton does not come
wthn ths e cepton.
For provsons reatng to domestc servce and to servce performed on a farm
operated for proft, see secton 0 .102 (c) and (d).
( ) y nsertng n the ast sentence of the frst paragraph of
secton 0 .102(f)(1), mmedatey before the words even though
such corporaton , the words or of Puerto Rco .
(F) y strkng out the words Canada and Me co n the frst
sentence of the frst paragraph of secton 0 .102(g) and nsertng
n eu thereof the foowng: Canada, Me co, and Puerto Rco, .
(G) y nsertng at the end of secton 0 .102(g) the foowng
new paragraph:
Wthhodng s not requred n the case of wages pad to a nonresdent aen
ndvdua for servces performed n Puerto Rco for an empoyer (other than
the Unted States or any agency thereof), even though such aen ndvdua s
a resdent of Puerto Rco at the tme when such servces are performed. Wages
pad for servces performed by a nonresdent aen ndvdua who s a resdent
of Puerto Rco are sub|ect to wthhodng f such servces are performed as an
empoyee of the Unted States or any agency thereof. The pace of performance
of such servces Is mmatera, provded such aen ndvdua Is a resdent of
Puerto Rco at the t - 3 of performance. Wages representng retred pay for
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119
Regs. 116.
servce n the mtary or nava forces of the Unted States are sub|ect to wth-
hodng under the mtatons specfed n secton 03.101(b), n the case of an
aen resdent of Tuerto co.
( ) y changng the headng of secton 0 .102(h) (2) to read as
foows: r (2) Remuneraton pad on or after anuary 1, 19 S, to ct-
zens resdent n foregn countres.
(I) y strkng out of secton 0 .102(h) (2) the ffth paragraph,
vrhch paragraph begns wth the words Remuneraton pad on or
after anuary 1, 19 , for servces .
( ) y nsertng mmedatey after the ast paragraph of secton
0 .102(h)(2) the foowng:
(3) Remuneraton pad on or after anuary 1, 19 , to ctzens n possessons
of the Unted States. Remuneraton pad on or after anuary 1, 19 , and be-
fore anuary 1, 10 1, for servces for an empoyer performed wthn a possesson
of the Unted States by a ctzen of the Unted States s not sub|ect to wth-
hodng, f t s reasonabe to beeve that at east SO percent of the remuneraton
to be pad to the empoyee by such empoyer durng the caendar year w be for
such servces.
Remuneraton pad on or after anuary 1, 10 1, for servces for an empoyer
(other than the Unted States or any agency thereof) performed by a ctzen of
the Unted States wthn a possesson of the Unted States, other than Puerto
Rco, s not sub|ect to wthhodng, f t s reasonabe to beeve that at east SO
percent of the remuneraton to be pad to the empoyee by such empoyer durng
the caendar year w be for such servces.
Wthhodng s requred n the case of remuneraton pad on or after anuary
1, 19 1. to a ctzen of the Unted States for servces performed as an empoyee
of the Unted States or any agency thereof n any possesson of the Unted States,
ncudng Puerto Rco.
Remuneraton pad on or after anuary 1, 19 1, for servces performed wthn
Puerto Rco for an empoyer (other than the Unted States or any agency thereof)
by a ctzen of the Unted States s not sub|ect to wthhodng, f t s reasonabe
to beeve that durng the entre caendar year the empoyee w be a bona fde
resdent of Puerto Rco.
The reasonabe beef mentoned In secton 1021(a) ( ) (C) wth respect to the
empoyee s bona fde resdence In Puerto Rco may be based upon any evdence
reasonaby suffcent to nduce such beef, even though such evdence m ht be
nsuffcent, upon coser e amnaton by the Commssoner or the courts, fnay
to estabsh such bona fde resdence n Puerto Rco so as to |ustfy the e empton
from ta provded for n secton 116(1).
In addton, the empoyer may, n the absence of cause for a reasonabe beef
to the contrary, presume that an empoyee w bo a bona fde resdent of Puerto
Rco durng the entre caendar year
(I) n every case e cept where the empoyee s known by the empoyer to
have mantaned hs abode at a pace outsde Puerto Rco at some tme durng
the current or the precedng caendar year; or
() n every case where the empoyee fes wth the empoyer a statement
(contanng a decaraton under the penates of per|ury that such state-
ment s true to the best of the empoyee s knowedge and beef) that such
empoyee has at a tmes durng the current caendar year been a bona fde
resdent of Puerto Rco and that he ntends to reman a bona fde resdent
of Puerto Rco durng the entre remanng porton of such current caendar
year.
The statement sha be retaned by the empoyer and sha be avaabe
at a tmes for nspecton by nterna revenue offcers.
( ) y revsng the headng of secton 0 .102() to read as fo-
ows: (f) Compensaton pad before 19 1 for servces performed as
a mnster of the gospe.
(L) y nsertng n the frst sentence of secton 0 .102(), m-
medatey after the word Compensaton , the foowng pad before
10 1 .
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Regs. 116.
120
(M) y nsertng mmedatey after the provsons of secton
0 .102() the foowng:
( ) Compensaton pad after 19 0 for servces performed by a mnster or by a
member of a regous order. Compensaton pad after 19 0 for servces per-
formed by a (Iny ordaned, commssoned, or censed mnster of a church n
the e ercse of hs mnstry, or by a member of a regous order In the e ercse
of dutes requred by such order, s not sub|ect to wthhodng under secton
1022. The dutes of mnsters ncude the mnstraton of sacerdota functons
and the conduct of regous worshp, and the contro, conduct, and mantenance
of regous organzatons (ncudng the regous boards, socetes, and other
ntegra agences of such organzatons), under the authorty of a regous body
consttutng a church or church denomnaton.
(k) Compensaton for devery or dstrbuton of newspapers or shoppng
necs. Compensaton pad after 10 0 for servces performed by an ndvdua
under the age of 1 n the devery or dstrbuton of newspapers or shoppng
news, not ncudng devery or dstrbuton (as, for e ampe, by a regona ds-
trbutor) to any pont for subsequent devery or dstrbuton, s not sub|ect
to wthhodng under secton 1022. Thus, the compensaton, rrespectve of the
form thereof, for servces performed by an ndvdua under the age of 1 n
makng house-to-house devery or sae of newspapers or shoppng news, ncud-
ng handbs and other smar types of advertsng matera, s e cepted.
The compensaton for ncdenta servces by the ndvdua who makes a house-
to-house devery, such as servces In assembng newspapers, are consdered to
be wthn the e cepton. The e cepton contnues ony durng the tme the
ndvdua s under the age of 1 .
(1) Compensaton for sae of newspapers or magaznes. Compensaton pad
after 10 0 for servces performed by an ndvdua n, and at the tme of, the
sae o newspapers or magaznes to utmate consumers, under an arrangement
under whch the newspapers or magaznes are to be sod by hn at a f ed prce,
hs compensaton beng based on the retenton of the e cess of such prce over
the amount at whch the newspapers or magaznes are to be charged to hm,
s not sub|ect to wthhodng under secton 1022. Ths compensaton s e cepted
whether or not the ndvdua s guaranteed a mnmum amount of compensaton
for such servces or s entted to be credted wth the unsod newspapers or
magaznes turned back. Moreover, the compensaton s e cepted wthout regard
to the age of the ndvdua. Compensaton for servces performed other than
at the tme of sae to the utmate consumer are not wthn the e cepton. Thus,
the compensaton for the servces of a regona dstrbutor whch are antecedent
to but not mmedatey part of the sae to the utmate consumer s not wthn
the e cepton. owever, compensaton for ncdenta servces by the ndvdua
who makes the sae to the utmate consumer, such as servces n assembng
newspapers or n takng newspapers or magaznes to the pace of sae, s con-
sdered to be wthn the e cepton.
(m) Remuneraton from certan trusts or annutes. The remuneraton pad
after 19 0 to or on behaf of an empoyee or hs benefcary, from a trust e empt
from ta under secton 16 (a) at the tme of such payment, uness such payment
s made to an empoyee of the trust as remuneraton for servces performed as
such empoyee and not as a benefcary of the trust, and the remuneraton pad
after 19 0 to or on behaf of an empoyee or hs benefcary, under an annuty
pan whch meets the requrements of secton 16 (a) (3), ( ), ( ), and (6)
at the tme of such payment, s not sub|ect to wthhodng under secton 1622.
Remuneraton pad after 19 0 on behaf of an empoyee or hs benefcary to a
trust e empt from ta under secton 16 (a) at the tme of such payment (sub-
|ect to the e cepton In respect of an empoyee of the trust) s not sub|ect to wth-
hodng at the tme of such payment under secton 1022. Remuneraton pad
after 19 0 on behaf of an empoyee or hs benefcary to an annuty pan whch
meets the requrements of secton 10 (a) (3), ( ), ( ), and (6) at the tme of
such payment s not sub|ect to wthhodng at the tme of such payment under
secton 1622.
Par. . Secton 0 .10 2G CFR 0 .10 s amended by changng
the second sentence of the frst paragraph thereof to read as foows:
The term Incudes offcers and empoyees, whether eected or apponted, of the
Unted States, a State, Terrtory, Puerto Rco, or any potca subdvson
thereof, or the Dstrct of Coumba, or any agency or nstrumentaty of any
one or more of the foregong.
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121
Regs. 116.
Par. 6. Secton 0 .10 26 CFR 0 .10 s amended as foows:
( ) y Insertng n the fourth paragraph of secton 0 .10 , m-
medatey after the words Unted States , the foowng: (ncud-
ng Puerto Rco as f a part of the Unted States) .
( ) y nsertng n the ast paragraph of secton 0 .10 , mmed-
atey after the States, Terrtores, the foowng: Puerto Rco, .
Par. 7. Secton 0 .107, as amended bv Treasury Decson 700
C. . 19 9-2, 123 , approved November 10, 19 9 20 CFR 0 .107 ,
s further amended as foows-:
( ) y redesgnatng (e) of such secton as (f).
( ) y nsertng mmedatey after secton 0 .107(d) the foow-
ng:
(e) Te term mtary or nava forces of the Unted States and the term
rmed Forces of te Unted States each ncudes a reguar and reserve com-
poaent of the unformed servces whch are sub|ect to the |ursdcton of the
Secretary of Defense, the Secretary of the rmy, the Secretary of the Navy, or
the Secretary of the r Force. The terms aso ncude the Coast Guard. The
members of such forces ncude commssoned offcers and the personne beow
the grade of commssoned offcer In such forces.
Par. . There s nserted mmedatey precedng secton 0 .201 20
CFR 0 .201 the foowng:
S C. M. P RC NT G M T OD OF WIT OLDING. R -
NU CT OF 19 0, PPRO D S PT M R 23, 19 0.
Secton 1022(a) (reatng to percentage method of wthhodng) a
hereby amended by strkng out 1 per centum and nsertng n eu
thereof 1 per centum .
S C. 1 2. W G R C T WIT OLDING. R NU CT
OF 19 0, PPRO D S PT M R 23, 19 0.
The tabes contaned n secton 1622(c) (1) (reatng to wage bracket
wthhodng) are hereby amended to read as foows:
// the payro perod vcth respect to an empoyee s weeky
nd the number of wthhodng e emptons camed s
t
ut
The amount ot ta to be wthhed sha be
10 or
mora
0
m_r
IM.

1
I
m
n
f
a
a
13
1
16
17
1S
1
S20
21
22
23
2
2
26
27
ra.
29
30
31....
1 of
/-
0
0
SO
0
0
0
0
0
0
to
2. 0
.10
0
0
0
0
0
0
0
0
0
2.60
.30
0
0
0
0
0
0
0
II
(1
2. 0
. 0
0
0
0
0
0
0
0
0
(1
. .00
.70
0
0
0
0
0
0
0
0
0
3.20
. 0
0
0
0
0
0
0
0
0
II
3.20
1.00
0
0
0
0
0
(1
0
0
0
3. SO
1.20
0
0
1)
0
0
0
0
0
II
3.70
1. 0
0
0
0
0
0
0
0
0
II
3.60
1.G0
0
0
0
0
0
0
0
0
0
.10
1.70
0
0
0
0
0
0
0
0
0
.20
1.90
0
0
(1
0
0
0
0
0
0
. 0
2.10
0
0
(1
0
0
0
0
0
0
.60
2.30
0
0
0
0
0
0
0
0
0
. 0
2.60
.20
0
0
0
0
0
0
0
0
.00
2.60
.30
0
0
0
0
0
0
0
0
S.10
2. 0
. 0
0
0
0
0
0
0
0
0
S.30
3.00
.70
0
0
0
0
0
0
0
0
6.60
.70
Ifo
.90
0
0
0
0
0
0
0
0
0
0
1.10
0
0
0
0
0
0
0 200 1-
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Regs. 116. 122
If the payro perod wth respect to an empoyee s weeky Contnued
nd the wages
are
-
; f-.
t east
ut ess
than
0
1
o
3
6
7
9
10 or
more
The amount of ta to be wthhed sha be
32
33
.90
6.00
3. 0
3.70
1.20
1. 0
to
0
0
0
0
0
0
0
0
33
13
0
0
0
0
0
0
0
3
3
6.20
3.90
1.60
0
u
0
0
0
0
0
0
3
36
6. 0
.10
1. 0
0
0
0
0
0
0
0
0
136
37
6.60
.30
2.00
0
0
0
0
0
0
0
0
137
3
6. 0
. 0
2.10
0
0
0
0
0
0
0
0
ML .......
3
6.90
.60
2.30
0
0
0
0
0
0
0
0
S39
1 0
7.10
. 0
2. 0
.2f
0
0
0
0
0
0
0
m
1
7.30
7. 0
.00
.20
2.70
2.90
. 0
. 0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
M
2
S 2
3
7.70
.30
3.00
.70
0
0
0
0
0
0
0
3
1
7. 0
.00
6. 0
.70
3.20
3. 0
.90
1.10
0
0
0
0
0
0
0
0
0
0
0
0
0
1
6
0
1
6
. a;
.90
3.60
3. 0
1.30
1. 0
0
0
0
0
0
0
0
0
0
0
0
0
1 0...
7
. 0
6.10
0
0
0
7...

.60
6.20
3.90
1.60
0
0
0
0
0
0
( .
.
.70
6. 0
.10
. to
0
0
0
0
0
0
0
1
0
P.(
9.1(
6.60
6. 0
.30
. 60
2.00
2.20
0
0
0
0
0
0
0
0
0
0
0
0
s
1 0
1
9.30
7.00
.70
2.30
0
0
0
0
0
0
0
1...
S 2
9. 0
9.60
9. 0
.OO
10.20
7.10
7.30
7. 0
7.70
7.90
. 0
.00
.20
. 0
6.60
2. 0
2.70
2.90
3.10
3.20
.20
. 0
.60
. 0
.90
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2
1 3

1
1 6
1
1 7
I. 0
.00
.20
. 0
.70
9.00
6.70
3. 0
1.10
1.30
1.60
1.70
2.10
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1 7

10. 0
10.70
.90
6.10
6. 0
6.70
3.60
3. 0
. 10
. 0
16
. 9
S69
60
II. 00
11.30
0
0
160
62
62.
f
11.70
12.10
1.. 0
12. 0
9. 0
. .m
10.10
10.60
7.10
7. 0
7. 0
.20
. 0
2.60
0
3.20
3. 0
.20
. 0
.90
1.20
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
66
6.10
. 0
.90
66
6
16 ..
70
70
172
13. 10
1 . 0
.SO
1 .20
10. 0
11.20
11.60
11.90
. 0
.90
9.20
9.60
6.20
6. CO
6.90
7.30
3.90
.30
.60
.00
1.60
2.00
2.30
2.70
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
72
S7
7
76
76
7
. 0
7
0
1 .60
12.30
12.60
10.00
10.30
7.70
.00
.30
6.70
3.00
3. 0
.70
0
0
0
0
0
1 2
1 .90
1.1C
0
0
0
o
2
f
1 .30
1 .70
10.00
If . 0
16. 70
13.00
13. 0
13.70
1 .10
1 . 0
11. 70
11.00
11. 0
. 0
6.10
6. 0
0. 0
7. It
7. 0
3. 1
.10
. 0
. 0
.20
1. 0
1. 0
2.20
2. 0
2.90
0
0
0
0
0
0
0
0
0

6
.70
9.10
9. 0
9. C
6
S
o

190
11.60
12.10
.20
.60
0
0
0
0
0
0
90
92
92
9
17.10
17. 0
17. 0
12. 0
1 . 0
1 .20
16. 0
16.10
12.6C
12. 0
13.20
13. 0
10.20
10. 0
10.90
11. 0
7.90
.20
.60
9.20
6.60
.90
6.30
0.90
3.30
3.00
.00
.60
.90
1.30
1.70
2.30
0
0
0
0
0
0
0
0
0
0
0
0
9
IS:::::::

100
100
10
11 . 0
20.30
21.20
22.10
23.00
23.90
2 . 0
17.00
17.90
1 . 0
19.70
20.60
21. 0
22. 0
1 .70
1 .60
16. 0
17. 0
1 .30
19.20
0.10
12. 0
13.30
1 .20
1 .10
16.00
16.90
17. 0
10.10
11.00
11.90
12. 0
13.70
1 .60
1 . 0
7. 0
.70
9.60
10. 0
. 0
12.30
13.20
. 0
0. 0
7.30
.20
9.10
10.00
10.90
3.20
.10
.00
.90
6. 0
7.70
.60
.90
1. 0
2.70
.60
. 0
6. 0
6.30
0
0
0
0
0
0
0
10
110.
11
110
120
. 0
11
12
1.30
2.20
3.10
.00
120
12
130
. 0
1.70
130
13
13
U 0
2 .70
20.60
23.30
2 .20
21.00
21.90
1 . 70
19.60
10. 0
17.30
1 .10
1 .00
11. so
12.70
9.60
10. 0
7.20
.10
.90
2.60
3. 0
1 0
1
6.F0
1 . .
1 0
27.90
29.70
31. 0
26.60
27. 0
29.20
23.30
2 .10
26.90
21.00
22. fO
2 .60
1 .70
20.10
22. 3f
16. (
1 .20
20.00
1 .10
1 .90
17. 70
11.70
13. 0
1 .30
9. 0
11.20
13.00
7.10
f.90
10.70
. 0
6.60
. 0
1 0
160
160
170
170
1 0
33. 0
3 . 10
31.00
12. 0
2 . r
30. 0
20. 0
2 .20
2 .10
2 . 90
21. 0
23.60
19. 60
. 30
17. 10
1 .90
1 . 0
10.00
12. 60
.30
10.20
12.00
1 0
190
190
200
1 percent o the e cess
00 pus-
r.eo
200 and o
ver ...
36.00
33.70
31. (d
29.1C
26.S0
2 . a
22.20
19.10
1 .10
12.90
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123 Regs. 116.
// the payro perod wth reaped to an empoyee s bhceeky
nd the wages
0
1
r
3
(
6
7
g
11
10 or
more
t east
ut ess
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egs. 116. 12
If the payro perod wth respect to an empoyee s btceey Contnued
to
2
30
32
3
36
3
0
2

6

0
62

6

60
62
6
66
6
70
72
7
76
7
30.
.20
to
SO
0
0
to
0
0
0
0
0
-
.20
0
u
0
0
0
0
0
0
0
3
f.60
.60
0
0
0
0
0
0
0
0
36. .
.00
.90
0
0
0
0
0
0
0
0
0
3 .
6.30
1.30
0
0
0
0
0
0
0
0
0
0
6.70
1.70
0
0
0
0
0
0
0
0
0
2
7.00
2.00
0
0
0
0
0
0
0
0
0

7. 0
2. 0
0
0
0
0
0
0
0
0
0

7.70
2.70
0
0
0
0
0
0
0
0
0
.
.10
3.10
0
0
0
0
0
0
0
0
0
0
. 0
3. 0
0
0
0
0
0
0
0
0
0
2
. 0
3. 0
0
0
0
0
0
0
0
0
0
.
9.20
.20
0
0
0
0
0
0
0
0
0
9. 0
. 0
0
0
0
0
0
0
0
0
0
6
9. DO
.90
0
0
0
0
0
0
0
0
0

10.30
.30
.30
0
0
0
0
0
0
0
0
60
10.60
.60
.60
0
0
0
0
0
0
0
0
62-
11.00
6.00
1.00
0
0
0
0
0
0
0
0
6
11.30
6.30
1.30
0
0
0
0
0
0
0
0
66 _
11.70
6.70
1.70
0
0
0
0
0
0
0
0
12.10
7.10
2.10
0
0
0
0
0
0
0
0
70
12. 0
7. 0
2. 0
0
0
0
0
0
0
0
0
72.
12. 0
7. 0
2. 0
0
0
0
0
0
0
0
0
7
13.10
.10
3.10
0
0
0
0
0
0
0
0
76
13. 0
. 0
3. 0
0
0
0
0
0
0
0
0
7
13.90
.90
3.90
0
0
0
0
0
0
0
0
0
1 .20
9.20
.20
0
0
0
0
0
0
0
0
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12 Regs. 116.
If the payro perod wth respect to an empoyee s semmonthy Contnued
nd the wages
t east
ut ess
than
10 or
more
0
tsa
1 .60
P.60
.60
to
to
to
0
. 0
0
SO
:
fc2
.
1 .90
P. 90
. 90
0
0
0
0
0
0
0
0
.
6
1 .30
10.30
.30:
.30
0
0
0
0
0
0
n
m

1 .70
10.70
. 70
.70
0
0
0
0
0
0
0

90
16.00
11.00
0.00
1.00
0
0
0
0
0
0
0
WO
m
16. 0
11. 0
6. 11
1. 0
0
0
0
0
0
0
0
92
:d
16. 70
11.70
6. 70
1.70
0
0
0
0
0
0
0
M
96
17.10
12.10
7.
2.10
0
0
0
0
0 .
II
0
96
9
17. 0
12. 0
7.60
2. 0
0
0
0
0
0
0
0
9
100
17. 0
12. 0
7. 0
2. 0
0
0
0
0
0
0
0
two
102
1 .20
13.20
.20
3.20
0
0
0
0
0
0
0
102
10
1 . 0
13. 0
. 0
3. 0
0
0
0
0
0
0
tw
106
1 .90
13.90
.90
3.90
0
0
0
0
0
0
0
106
10
IP. 30
1 .30
0.30
.30
0
0
0
0
0
0
0
10
110
19.60
1 .60
9.00
.60
0
0
0
n
0
0
0
|no
112
20.00
1 .00
10.00
.00
0
0
0
0
0
0
0
112
11
20.30
1 .30
10.30
.30
.30
0
0
0
0
0
0
11
116
20.70
1 .70
10. 70
.70
.70
0
0
0
0
o
n
116
11
21.10
16.10
11.10
6.10
1.10
0
0
0
0
0
n
11
120
21. 0
16. 0
11. 0
6. 0
1. 0
0
0
0
0
0
n
120
12
22.00
17.00
12.00
7.00
2.00
0
0
0
0
0
0
12
12
22.70
17.70
12.70
7.70
2.70
0
0
0
0
0
0
12S
132
23. 0
1 . 0
13. 0
. 0
3. 0
0
0
0
0
0
0
132
136
2 .10
19.10
1 .10
9.10
.10
0
0
0
0
0
0
136
1 0
2 . 0
19. 0
1 . 0
9. 0
. 0
0
0
0
0
0
0
1 0
1
2 . 60
20.60
1 .60
10.60
.60
.60
0
0
0
0
II
1 -
1
26.30
21.30
16.30
11.30
6.30
1.30
0
0
0
0
0
M
1 2
27.00
22.00
17.00
12.00
7.00
2.00
0
0
0
0
0
1 2
1. 6
27.70
22.70
17.70
12.70
7.70
2.70
0
0
0
0
0
1 6
feo
2 . 0
23. 0
1 . 0
13. 0
. 0
3. 0
0
0
0
0
0
1160
16
2P. 20
2 .20
19.20
1 .20
9.20
.20
0
0
0
0
0
16 ..
16
2P.90
2 .90
19.90
1 .90
9.90
.90
0.
0
0
0
II
16
172.
30.60
2 .60
20.60
1 .60
10.60
.60
.60
0
0
0
II
172.
176
31.30
26.30
21.30
16. 30
11.30
6.30
1.30
0
0
0
0
17f
1 0
32.00
27.00
22.00
17.00
12.00
7.00
2.00
0
0
0
0
W -
1
32. 0
27. 0
22. 0
17. 0
12. 0
7. 0
2. 0
0
0
0
0
11
1
33. 0
2 . 0
23. 0
1 . 0
13. 0
. 0
3. 0
0
0
0
II
1
192
3 .20
29.20
2 .20
19.20
1 .20
9.20
.20
0
0
0
n
192..
196
3 .90
29.90
2 .90
19.90
1 .90
9.90
.90
0
0
0
0
MS- --
200
3 .60
30.60
2 .60
20.60
1 .60
10.60
.60
.60
0
0
0
S200
210
36.90
31.90
26.90
21.90
16.90
11.90
6.90
1.90
0
0
0
(21(1
220 ...
3 .70
33.70
2 .70
23.70
1 .70
13.70
.70
3.70
0
0
0
fan
0. 0
3 . 0
30. 0
2 . 0
20. 0
1 . 0
10. 0
. 0
. 0
0
0
230
2 0 ...
2.30
37.30
.12.30
27.30
22.30
17.30
12.30
7.30
2.30
0
0
2 0
2 0
.10
39.10
3 .10
29.10
2 .10
19.10
1 .10
9.10
.10
0
0
S2 0
260
.90
0.90
3 .00
30.90
2 .90
20.90
1 .90
10.90
.90
.90
0
1260
270.
7.70
2.70
37.70
32.70
27.70
22.70
17.70
12.70
7.70
2.70
0
270
2 0
P. 0
. 0
39. 0
3 . 0
29. 0
2 . 0
19. 0
1 . 0
P. SO
1. . II
0
2 (1
290
1.30
6.30
1.30
36.30
31.30
26.30
21.30
16.30
11.30
6.30
1.30
.10
3.10
3 .10
33.10
2f. n
23.10
1 .10
1 . 10
. 10
3.10
300
120
. 0
0. 0
. 0
P. 0
3 . 0
30. SO
2 . 0
20. 0
1 . SO
10. 0
. 0
. 320
3 0
P. 0
. 0
P. 0
. 0
39. 0
3 . 0
2 . 0
2 . 0
IP. 0
M. 0
P. 0
M 0
360
63.00
.00
3.00
.00
3.00
3 .00
33. 00
2 .00
23.00
1 .00
13.00
nm
3 0
66.60
61.60
6.60
1.60
0.60
1.60
36. 60
31.60
2f.0O
21.60
16.00
3 0
00.
70. 20
6 . 20
60. 20
. 20
0.20
.20
0. 20
3 . 20
30.20
2 . 20
20.20
00
20.
73. 0
6 . 0
63. 0
. 0
3. 0
. 0
3. 0
3 . 0
33. 0
2 . 0
23. 0
. 20
0
77. 0
72. 0
67. 1
62. 0
7. 0
2. 0
7. 0
2. 0
37. 0
32. 0
27. 0
1)
60
1.00
76.00
71.00
66.00
61.00
6.00
61.00
6.00
1.00
36.00
31.00
fm
0
.60
79.60
7 .60
69.60
6 .60
P.60
.60
9.60
.60
3P.60
3 .00
0
00
.20
3.20
7 .20
73.20
6 .20
63. 20
.20
3.20
.20
3.20
3 .20
1 percent of the eccss over 00 pus
.00 0.00
I
70.00
6 .00 60.00
.00 I a 00 I .00 -10.00
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R s. e. 126
// the payro perod wth respect to an empoyee s monthy
nd the wages
t east
6..
MO..
6 ..
M ._
72..
76...
0...
...
...
92...
ut ea
than
I0O.
10
10
112
116
120
12
12
132
m
1 0
1
11
1 2
1 6
160.
16
1 W
172.
176
190
19
1
192
196
200
20
20
212
21
220
22
22
232
236
2 0
2
2 6
26 .
272
2 0
2
296
30
312.
320
32
330
3
3 2
360
36
376
3
392
00
20
0
60
0
00
20
6
00
6
RS
72
79
0

92
99
100
10
10
112
116
120
12
12
132
136....
1 0
1
1
1 2
1 6
160
SfU
16
172
176
1 0
1
1
192
196
200
20
20
212
216
220
22
22
232
236
2 0
12 .
2 6
29 .
272
2S0
296
30
312
320
32
336
3
3 2
360
36
376
3
392
00
20
0
90
0
00
20
0
0
1
2
3
f
7
9
10 or
The amount of ta to be wthhe
sha
1 o
0
0
0
0
0
0
0
0
0
0
0
0
0
10. 0
. 0
0
0
1 0
0
o
o
11.20
1.20
0
0
0
0
0
0
0
o
0
11.90
1.90
0
0
0
0
0
0
0
0
0
12.60
2.60
0
(1
0
0
0
0
0
0
o
13. 30
3. 30
0
0
0
0
0
0
0
0
o
1 .00
.00
0
0
0
0
0
0
0
o
o
. 1 . 0
. 0
0
0
0
0
0
0
o
o
o
. M 0
.60
0
0
0
0
0
0
0
0
o
IP. 20
6.20
0
0
0
0
0
0
0
o
0
16.90
6.90
0
0
0
0
0
0
0
0
0
0
17.60
7.90
0
0
0
0
0
0
0
0
. 1 . 0
0
0
0
0
0
0
0
0
0
o
19. 10
9.10
0
0
0
0
0
0
0
o
o
19. C
9. 0
0
0
0
0
0
0
0
o
0
. 20.60
10.60
.60
0
0
0
0
0
0
o
n
(,
21 20
11.
1.20
0
0
0
0
0
0
o
22.00
12.00
2.00
0
0
0
0
0
0
0
0
22. 70
12. 70
2. 70
0
0
0
0
0
0
0
0
23. 0
13. 0
3. 0
0
0
0
0
0
0
0
c
2 . 10
1 . 10
. 10
0
0
0
0
0
0
0
0
2 . 0
1 . 0
. 0
0
0
0
0
0
0
0
o
2 . OC
1 .90
. 60
0
0
0
0
0
0
0
0
26. 0
16. 30
6.30
0
0
0
0
0
0
0
o
27.00
17.00
7.00
0
0
0
0
0
0
0
0
27.70
17.70
7. 70
0
0
0
0
0
0
0
o
2 . 0
1 0
0
0
0
0
0
0
0
0
0
29.20
19.20
9. 20
0
0
0
0
0
0
0
0
29.90
19.90
ago
0
0
0
0
0
0
0
n
30.60
20. 90
10. 60
.60
0
0
0
0
0
0
0
31.30
21.30
11.3C
L30
0
0
0
0
0
0
o
32.00
22.00
12 00
2.00
0
0
0
0
0
0
0
32. 0
22. 0
12. 0
2. 0
0
0
0
0
0
0
0
33. 0
23T 0
13.60
3.60
0
0
0
0
0
0
0
3 . 20
3 .20
1 .20
. 20
0
0
0
0
0
0
0
3 .90
2 . 90
1 .90
.90
0
0
0
0
0
0
0
3 .60
2 60
1 .90
.6C
0
0
0
0
0
0
0
36, 0
26. 0
16. 0
9. 0
0
0
0
0
0
0
o
37.10
27. 10
17.10
7.10
0
0
0
0
0
0
0
37. 0
27. 0
17. 0
7. 0
0
0
0
0
0
0
0
3 . 0
2 . 0
1 . 0
.60
0
0
0
0
0
0
0
39.20
29.20
19.20
9.20
0
0
0
0
0
0
0
0.00
30.00
20.00
10.00
0
0
0
0
0
0
0
0.70
30.70
20.70
10.70
.70
0
0
0
0
0
0
1. 0
31. 0
21. 0
11. 0
L 0
0
0
0
0
0
0
2.10
32. 10
22 10
12. 10
2.10
0
0
0
0
0
0
2. 0
32. 0
22. 0
12. 0
2. 0
0
0
0
0
0
0
3.90
33.90
2a 90
13. 90
3.90
0
0
0
0
0
0
. 0
3 . 0
2 . 0
1 . 0
. 0
0
0
0
0
0
0
6. 0
36. 0
26. 0
16. SO
6. 0
0
0
0
0
0
0
.20
3 .20
2 .20
1 . 20
. 20
0
0
0
0
0
0
9. 70
39. 70
29. 70
19. 70
9. 70
0
0
0
0
0
0
1. 10
1.10
31. 10
21.10
11. 10
1. 10
0
0
0
0
0
2.60
2 60
32.60
22.60
12.60
2.60
0
0
0
0
0
.00
.00
3 .00
2 .00
1 .00
. 00
0
0
0
0
0
. 0
. 0
3 . 0
2 . 0
1 . 0
. 0
0
0
0
0
0
6. 90
6.90
36.90
26.90
16. 9C
6.90
0
0
0
0
0
.30
.30
3 .30
2 .30
1 .30
.30
0
0
0
0
0
9. 0
9. 0
39. 0
29. 0
19. 0
9. SO
0
0
0
0
0
61.20
1.20
1. 20
31.20
21. 20
11.20
I. 20
0
0
0
0
-2. 60
2.60
2.60
32.60
22.60
12.60
2.60
0
0
0
0
6 . 10
. 10
. 10
3 .10
2 . 10
1 . 10
. 10
0
0
0
0
6 . 0
6 . 0
. 0
3 . 0
2 . 0
IS. 0
6. 0
0
0
0
0
67.00
7.00
7.00
37.00
27.00
17.00
7.00
0
0
0
0
6 . 0
6 . 0
. 0
3 . 0
2 . 0
IS. 0
. 0
0
0
0
0
69. 0
99. 0
9. 0
39. 0
29. 0
19. 0
9. 0
0
0
0
0
71.30
61.30
1. 30
1.30
31.30
21. 30
11.30
1.30
0
0
0
73. 0
63. 0
3. 0
3. 0
33. 0
23. 0
13. 0
3. 0
0
0
0
77. 0
67. 0
7. 0
7. 0
37. .
27. 0
17. 0
7. 0
0
0
0
1.00
71.00
61.00
1.00
1.00
31.00
21.00
11.00
1.00
0
0
.60
7 .60
6 .60
. 60
. 60
3 .60
2 . 60
1 .60
. 60
0
0
.20
7 .20
6 . 20
.20
. 20
3 . 20
2 . 20
IS. 20
. 20
0
0
91. 0
1.10
71. SO
61. 0
1. SO
1. SO
31. SO
21. SO
11. 0
1. 0
0
9 . 0
. 0
7 . 0
66. |
6 . 0
. 0
3 . 0
2 . 0
16. 0
. 0
0
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127 Regs. 116.
If the payro perod wth respect to an empoyee s monthy Contnued
nd the wages
ut ess
than
n.000 and over.
The amount of ta to t
60
99.00
9. 00
79.00
69.00
9.00
9.00
39.00
29.00
19.00
9.00
0
,.
0
102.60
92. 60
2.60
72.60
62.60
2.60
2.60
32.60
22.60
12.60
2.60
100.20
96. 20
6. 20
76.20
66.20
6.20
6.20
36.20
26.20
16. 20
6.20

6 0
111.60
101.60
91.60
1.60
71.60
61.60
61.60
1.60
31.60
21.60
11.60
fW
6 0
11 . SO
10 . 0
9 . 0
. 0
7 . 0
6 . 0
. 0
. 0
3 . 0
2 . 0
1 . 0
S
720
126.00
116.00
106.00
96.00
6.09
76.00
66.00
6.00
6.00
36.00
26.00
ran
700
133.20
123. 20
113. 20
103. 20
93. 20
3.20
73. 20
63.20
3.20
3.20
33.20
.
soo
1 0. 0
130. 0
120. 0
110. 0
100. 0
90. 0
0. 0
70. 0
60. 0
0. 0
0. 0
0
1 7. eo
137.60
127.60
117.60
107. 00
97.60
7. 60
77.60
67.60
7. 60
7.60
wo
0
16 . 0
1 . 0
13 . 0
12 . 0
11 . 0
10 . 0
9 . 0
. 0
7 . 0
6 . 0
. 0
- )
920 .
162.00
1 2.00
1 2.00
132.00
122.00
112.00
102.00
92.00
2.00
72.00
62. 00
RT
960
169. 20
1 9.20
1 9.20
139. 20
129.20
119.20
109.20
99. 20
S9. 0
79.20
69.20
m
1,000....
176. 0
166. 0
1 0. 0
1 6, 0
136. 0
126. 0
116 0
106. 0
96. 0
6. 0
76 0
1 percent of the e cess over 1,000 pus-
ISO. 00 170.00 160.00 1 0.00 1 0.00 130.00 120.00 1110.00 100.00 9a 00
// the payro perod wth respect to an empoyee s a day payro perod or a
msceaneous payro perod
3d toe waees d-
rdtd by the num.
btt of days n such
rcrod arc-
ut es
than
. 2.00..
2.2 ..
2. 0..
2.7 ..
3.00..
3.2 ..
3. 0..
3.7 ..
.00..
.2 ..
O..
.7 ..
.00..
.2 ..
. 0..
.7 ..
6.00..
6.2 ..
6. 0..
6.7 ..
7.00..
7.2 ..
7. 0..
7.7 ..
.OO..
.2 ..
. 0..
.7 . _
9.00..
9.2 ..
9. 0..
.7 ...
10.00..
0
1
2
3
6
7
9
10 or
The
mount of ta to be wthhed sha be
the foc
wne amount mutped by
more
the number of days n
erod
of
0
0
0
0
0
0
0
0
0
0
van
0. 0
.0
0
0
0
0
0
0
0
0
0
.
. 10
0
0
0
0
0
0
0
0
0
.
. 1
0
0
0
0
0
0
0
0
0
. 0
.20
0
0
0
0
0
0
0
0
II
.
.26
0
0
0
0
0
0
0
0
0
.60
.30
0
0
0
0
0
0
0
0
0
.6
.30
0
0
0
0
0
0
0
0
0
.70
.3
.0
0
0
0
0
0
0
0
11
.7
. 0
.10
0
0
0
0
0
0
0
0
. 0
.
.16
0
0
0
0
0
0
0
0
.
. 0
.1
0
0
0
0
0
0
0
II
.CO
.
.20
0
0
0
0
0
0
0
0
.CO
.60
.2
0
0
0
0
0
0
0
0
.9
.6
.30
0
0
0
0
0
0
0
0
1.00
.70
.3
.0
0
0
0
0
0
0
II
1.0
7
. 0
.0
0
0
0
0
0
0
0
1.10
7
.
.10
0
0
0
0
0
0
II
1.1
. 0
. 0
. 1
0
0
0
0
0
0
II
1.20
. 6
.66
.20
0
0
0
0
0
0
II
1.2
.90
.60
.2
0
0
0
0
0
0
0
1.30
.9
.60
.30
0
0
0
0
0
0
0
1.3
1.00
.66
.36
0
0
0
0
0
0
II
1.3
1.0
.70
. 0
.0
0
0
0
0
0
1)
1. 0
1. 10
.7
.
. 10
0
0
0
0
0
0
1.
1. 1
. 0
.60
. IS
0
0
0
0
0
0
1. 0
1.20
. 6
. 0
.20
0
0
0
0
0
0
1.
1.20
.90
.
.26
0
0
0
0
0
0
1.60
1. 2
.9
.60
.30
0
0
0
0
0
0
1.6
1.30
1.00
.6
.3
0
0
0
0
0
0
1.70
1.3
1.0
.70
.3
.0
0
0
0
0
0
1.7
1. 0
1.0
.7
. 0
.10
0
0
0
0
0
1. 0
1.
1. 10
. 0
.
. 1
0
0
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0
0
1.
1.60
1.20
.
.6
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0
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0
0
0
1.9
1.60
1.30
.9
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.30
0
0
0
0
0
2.0
1.70
1.36
1.0
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. 0
.0
0
0
0
0
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Regs. 116.
12
If the payro perod wth respect to an empoyee s a day payro perod or a
msceaneous payro perod Contnued
nd the wages d-
vded by the num-
ber o days n such
perod are
nd the number of wthhodng e emptons camed r
0
1
2
3
6
7
9
10 or
more
t east
ut ess
than
The amount of ta to be wthhed sha be the foowng amount mutped by
the number of days n such perod
11. 0
12.00
2. 10
2.20
2.30
2. 0
2. 0
2.
2.6
2.7
2.
2.9
3.00
3. 10
3.20
3.30
3. 0
1. 0
1.90
1.9
2.0
2. 1
2. 2
2.36
2. 0
2. 0
2.60
2.70
2. 0
2
2.9
3.0
3.1
3.2
3.3
3.66
3.70
3.90
. 10
.2
. 6
.60
. 0
6.00
1.
1.
1.6
1.76
1. 0
1.90
2.00
1. 1
0. 0
0. 6
0. 1
.2
.30
. 0
. 0
.60
.70
.7
.
.9
1.0
0
0
0
0
0
0
0
0
0
0
12.00
12. 0
1. 20
1.30
1. 0
1. 0
1.60
1.66
1.76
1. 6
.90
1.00
1.0
1.1
1.26
1.36
1.
1. 0
1.60
1.70
1. 0
1.90
1.9
2.0
2.1
2.2
2.3
2. 6
2 7
2.90
3. 10
3.2
3.
3.6
3. 0
.00
6
.76
. 6
.90
1.00
1.10
1.20
1.30
1.3
1.
1.
1.6
1.7
1. 0
1.90
2.0
2 2
2. 0
2.60
2.7
2.9
3.1
3.30
3. 0
3.66
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
12. 0
13.00
13.00
13. 0
. 10
.16
.26
.36
.
.
.60
.70
. 0
.90
1.00
1.0
1. 1
1.2
1. 0
1.
1.76
13. 0
1 .00
1 .00
1 . 0
1 . 0
16.00 ...
16.00
16. 0
2. 10
220
2.26
2.36
2.
2. 6
2.6
2.70
2. 0
2.90
3.0
3.20
3. 0
3.66
3.7
.10
.20
.30
. 0
. 6
. 6
.6
.7
.
.90
1.0
1.2
16.00
16.00
16. 0
17.00
17.60
1 .00
1 . 0
19.00
19. 0
20.00
1. 96
2.0
.0
.1
.2
.3
. 0
. 0
.60
.7
.90
19.60
20.00 ..
21.00
21.00
3.
3.
3.70
3. 6
.0
.26
. 0
.60
.7
2. 10
2. 20
2.30
2. 0
2. 0
2.
2.70
2.90
3.0
3.2
3. 0
3. 0
3. 0
3.9
. 1
.30
1. 1
1.20
1.30
1. 0
1.60
1.60
1.70
1.90
.10
.20
.2
. 0
.60
22.00
22.00
23.00
2 .00
23.00
2. 10
2.2
2.
2.60
2. 0
3.00
1. 0
1. 0
1. 0
1.9
2. 1
2.30
2. 0
2.70
1.10
1.2
1. 6
1.6
1. 0
2.00
2.1
2.3
.7
.9
2 .00
1. 9
2 .00
2. 10
2.30
2.
2.6
2.
3.00
1.10
1.30
1. 0
1.66
1.
2. 00
26.00
26.00
3. 9
.10
.30
.
.66
2 .00
27.00
27.00
2 .00
. 9
2 .00
29.00
29.00
. 1
.30
3. 1
3.36
30.00
1 percent of the e cess over 30 pus
S. 10 2. 7 2.
. 0
6. 0
.7
. 0
.10
3.7
3.
2.10
S C. 1 3. FF CTI D T OF P RT I . R NU CT OF
19 0, I RO D S PT M R 23, 19 0.
The amendments made by ths part sectons 1 1, 1 2. and 1 3,
Revenue ct of 19 0 sha be appcabe ony wth respect to wages pad
on or after October 1, 19 0.
Par. 9. Secton 0 .201, as amended by Treasurv Decson 6
C. . 19 9-1, 1 6 , approved anuary 7, 19 9 26 CFR 0 .201 , s
further amended as foows:
( ) y nsertng n the second sentence of the ffth paragraph of
such secton (whch paragraph begns wth the words In usng the
percentage method wth respect to wages pad on or after May 1,
19 ), mmedatey after May 1, 19 , the foowng: and before
October 1,19 0, .
( ) v nsertng n the frst sentence of the e ampe n such ffth
paragraph, mmedatey after pr 30, 19 , the foowng: and
before October 1, 19 0, .
(C) y nsertng mmedatey precedng the ast paragraph of
secton 0 .201 the foowng new paragraph:
The steps n computng the ta under the percentage method wth respect to
wages pad on or after October 1, 19 0, are dentca wth those n computng the
ta wth respect to wages pad on or after May 1, 19 , and before October 1,
19 0. e cept that the mutper used n step 3 must correspond to the percentage
fgure appcabe under secton 1022(a) as amended.
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129
Itegs. 116.
Par. 10. Secton 0 .202, as amended by Treasury Decson G
26 CFR 0 .202 , s further amended as foows:
( ) y nsertng n e ampes ( ) and (G) n secton 0 .202(a),
mmedatey after pr 30, 19 , the foowng: and before Octo-
ber 1, 19 0, .
( ) y nsertng n the ast sentence of the e ampe n secton
0 .202(b), mmedatey after May 1, 19 , the foowng: and
before October 1, 19 0,
(C) y nsertng n e ampe ( ) of secton 10 .202(d), mmed-
atey after May 1,19 S, the foowng: and before October 1,19 0, .
(D) y nsertng n e ampe (6) of secton 0 .202(d). mmedatey
after pr 30, 19 , the foowng: and before October 1, 19 0/ .
Par. 11. Secton 0 .203, n,s amended bv Treasury Decson G
26 CFR 0 .203 , s further amended as foows:
( ) y nsertng n the ast sentence of secton 0 .203(a), m-
medatey after May 1. 19 , the foowng: and before October 1,
19 0. .
( ) v nsertng the foowng new sentence at the end of secton
0 .203(a) :
Wth respect to wages pad on or after October 1, 10 0. the wage bracket tabes
appcabe under secton 1622(c) ns amended are to be used.
(C) y nsertng n the ast sentence of the e ampe n secton
0 .203(c), mmedatey after May 1, 19 S. the foowng: and
before October 1, 19 0. .
(D) y nsertng the foowng new sentence at the end of the
e ampe n secton 0 .203(c) :
In the case of wages pad on or after October 1. 10. 0, the amount of the ta
requred to be deducted and wthhed under ths method sha he determned n
the same manner, e cept that the approprate fgure n the tabe appcabe under
secton 1022(c) (1) as amended sha he used.
( ) y nsertng n e ampe ( ) n secton 0 .203(e), mmedatey
after pr 30,19 , the foowng: and before October 1. 19 0, .
(F) y nsertng n e ampe (G) n secton 0 .203(e), mmedatey
after May 1, 19 , the foowng: and before October 1. 19 0, .
(G) y nsertng n the ast sentence of secton 0 .203(f), m-
medatey after May 1, 19 , the foowng: and before October
1, 19 0, .
Par. 12. Secton 0 .209(a), as amended by Treasury Decson G
26 CFR 0 .209 , s further amended by strkng out the ast sentence
of the ast paragraph a fat rate of 1 percent , and by nsertng n
eu thereof the foowng: the appcabe rate under secton 1622(a)
as amended .
Par. 13. There s nserted mmedatey precedng secton 0 . 01
26 CFR 0 . 01 the foowng:
RM D FORC S S R ING IN COM T R S. R NU
CT OF 19 0, PPRO D S PT M R 23, 10 0.

(c) Recedtts. Sectons 102 (a) (reatng to recepts for
empoyees) are hereby amended by addng at the end of each the foow-
ng: In the case of compensaton pad for servce as a member of the
rmed Forces, the statement sha show, as wnges pad durng the caen-
dar year, the amount of such compensaton pad durng the caendar year
whch s not e cuded from gross ncome under chapter 1 (whether or
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Reg : 116.
130
not such compensaton consttuted wages as defned n secton 1021(a)) ;
such statement to be furnshed f any ta was wthhed durng the caen-
dar year or If any of the compensaton pad Is ncudbe under chapter
1 n gross ncome.
S C. 200(b)(3) OF T SOCI L S CURITY CT M NDM NTS
OF 10 0 PPRO D UGUST 2 , 19 0 .
(3) Secton 102 of the Interna Revenue Code s amended by addng
at the end thereof the foowng new subsecton :
(d) ppcaton of Secton. Ths secton sha appy ony wth re-
spect to wages pad before anuary 1. 10 1. For correspondng pro-
vsons wth respect to wages pad after December 31, 19 0, see secton
1633.
S C. 1633. R C IPTS FOR MPLOY S S DD D Y S CTION
206(a). SOCI L S CURITY CT M NDM NTS OF 19 0, ND
M ND D Y S CTION 202(c), R NU CT OF 19 0;
PPLIC L WIT R SP CT TO W G S P ID FT R
D C M R 31, 19 0 .
(a) Requrements. very person requred to deduct and wthhod
from an empoyee a ta under secton 1 00 or 1022, or who woud have
been requred to deduct and wthhod a ta under secton 1622 f the em-
poyee had camed no more than one wthhodng e empton, sha fur-
nsh to each such empoyee n respect of the remuneraton pad by such
person to sneh empoyee durng the caendar year, on or before anuary
31 o| the succeedng year, or. f hs empoyment s termnated before
the cose of such caendar year, on the day on whch the Inst payment
of remuneraton s made, a wrtten statement showng the foowng:
(1) the name of such person, (2) the name of the empoyee (and hs
soca securty account number f wages as defned n secton 1 26(a)
have been pad), (3) the tota amount of wages as defned n secton
1621 fa). ( ) the tota amount deducted and wthhed as ta under
secton 1622, ( ) the tota amount of wages as defned n secton 1 26(a),
and (6) the tota amount deducted and wthhed as ta under secton
1 00. In the case of compensaton pad for servce as a member of the
rmed Forces, the statement sha show, as wages pad durng the
caendar year, the amount of such compensaton pad durng the caendar
year whch s not e cuded from gross Income under chapter 1 (whether
or not such compensaton consttuted wages as defned n secton
1621 (a)) ; such statement to be furnshed If any ta was wthhed durng
the caendar year or If any of the compensaton pad s ncudbe under
chapter 1 I gross ncome.
(b) Statements to Consttute Informaton Returns. The state-
ments requred to be furnshed hy ths secton n respect of nny re-
muneraton sha be furnshed at such other tmes, sha contan such
other nformaton, and sha be n such form as the Commssoner,
wth the approva of the Secretary, may by reguatons prescrbe.
dupcate of any such statement f made and fed In accordance wth
reguatons prescrbed hy the Commssoner wth the approva of the
Secretary sha consttute the return requred to be made n refpect
of such remuneraton under secton 1 7.
(c) tenson of Tme. The Commssoner, under such reguatons
as he may prescrbe wth the approva of the Secretary, may grant to
any person a reasonabe e tenson of tme (not n e cess of thrty days)
wth respect to the statements requred to be furnshed under ths
secton.
S C. 163 . P N LTI S S DD D Y S CTION 206(a), SOCI L
S CURITY CT M NDM NTS OF 19 0: PPLIC L WIT
R SP CT TO W G S P ID FT R D C M R 31,19 0 .
(a) Penates for Frauduent Statement or Faure to Furnsh
Statement. In eu of any other penaty provded by aw (e cept the
penaty provded by subsecton (b) of ths secton), any person re-
qured under the provsons of secton 1033 to furnsh a statement who
wfuy furnshes a fase or frauduent statement, or who wfuy
fas to furnsh a statement n the manner, at the tme, and showng
the nformaton requred under secton 1033, or reguatons, prescrbed
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131
Regs. 116.
thereunder, sha for each such faure, upon convcton thereof, be
fned not more than 1,000, or mprsoned for not more than one year,
or both. v
(b) ddtona Penaty. In addton to the penaty provded by sub-
secton (a) of ths secton, any person requred under the provsons
of secton 1033 to furnsh a statement who wfuy furnshes a fase or
frauduent statement, or who wfuy fas to furnsh a statement n
the manner, at the tme, and showng the nformaton requred under
secton 1633, or reguatons prescrbed thereunder, sha for each such
faure be sub|ect to a cv penaty of .10. Such penaty sha be
assessed and coected n the same manner as the ta mposed by secton
1 10.
Par. 1 . Secton 0 . 01, as amended by Treasury Decson 7 9,
approved November 10,19 9 26 CFR 0 . 01 , s further amended as
foows: ,
( ) y revsng the headng of secton 0 . 01(a) to read as fo-
ows: (a) Wages pad before anuary 1, 19 1.
( ) y nsertng n the second sentence of secton 0 . 01(a), m-
medatey after anuary 1,19 G, the foowng: and before anuary
1,19 1. .
(C) y redesgnatng (b), (c), and (d) of secton 0 . 01 as (d),
(e). and (f), respectvey.
(D) y nsertng mmedatey after secton 0 . 01(a) the foow-
ng:
(b) Wages pad after December SI, 19 0. Wth respect to wages pad on or
after anuary 1, 19 1, every person requred to deduct and wthhod from an
empoyee a ta under secton 1622, or who woud have been requred to deduct
and wthhod a ta under secton 1622 f the empoyee had camed no more than
one wthhodng e empton, Is requred to furnsh to each such empoyee, n re-
spect of the remuneraton pad by such person to such empoyee durng the caen-
dar year, the orgna and dupcate of Form W-2 showng the foowng: (1)
the name of such person, (2) the name of the empoyee (and hs soca securty
account number f wages as defned n secton 1 26(a) have been pad), (3) the
tota amount of wages as defned n secton 1621(a), ( ) the tota amount de-
ducted and wthhed as ta under secton 1622, ( ) the tota amount of wages as
defned n secton 1 26(a), and (6) the tota amount deducted and wthhed as
ta under secton 1 00.
For e ampe, f- the tabe method s used, a wthhodng statement must be
furnshed each empoyee whose earnngs durng any payro perod re equa to
or n e cess of the smaest wage for whch ta must be wthhed from empoyees
camng one e empton. If the percentage computaton method s used, a wth-
hodng statement must be furnshed each empoyee whose wages durng any
payro perod are n e cess of one wthhodng e empton for such payro perod
as shown n the percentage method wthhodng tabe contaned n secton
f22(b)(). Statements prepared n substantay ke form and sze as
Form -2, but n no case arger than by 3 Inches, w be acceptabe f
approved by the Commssoner.
The statement on Form W-2 sha be furnshed to the empoyee on or before
anuary 31 of the succeedng caendar year, or. f hs empoyment s termnated
before the cose of such caendar year, on the day on whch the ast payment of
wages s made.
See the reguatons under the Federa Insurance Contrbutons ct, effectve
on and after anuary 1, 10 1, for the requrements as to the furnshng of a
statement n cases where such statement s requred soey by reason of the ta
under secton 1 00 of such ct.
(c) Statements for members of the rmed Forces of the Unted States. Sec-
ton 162 (a) and secton 1633(a) contan certan speca provsons whch are
appcabe to caendar years after 19 9 n the case of members of the rmed
Forces of the Unted States In actve servce after une 2 , 19 0. In such case,
Form W-2 sha be furnshed to each such member of the rmed Forces of the
Unted States f any ta has been wthhed durng the caendar year from the
remuneraton of such member or If any of the remuneraton pad durng the
caendar year for such actve servce s ncudbe under chapter 1 n the gross
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Regs. 116.
132
ncome of such member. Form W-2, In the case of such member, sha show, as
wages pad durng the caendar year, the amount of the remuneraton pad durng
the caendar year whch s not e cudabe under chapter 1, from the gross ncome
of such member, whether or not such remuneraton consttutes wages as defned
n secton 1621(a) and whether or not pad for such actve servce.
( ) y strkng out of the frst and second sentences of secton
0 . 01(d) (as redesgnated by subparagraph (C) of ths paragraph)
the words Wthhodng Recept and by nsertng n eu thereof the
foowng word: statement .
(F) y nsertng n the frst sentence of such secton 0 . 01(d).
mmedatey after requred by secton 162 (a) , the foowng: or
secton 1633 .
(G) y strkng out of secton 0 . 01 (e) (as redesgnated by sub-
paragraph (C) of ths paragraph) the words Wthhodng Recepts
and by nsertng n eu thereof the foowng word: statements .
( ) y revsng secton 0 . 01(f) (as redesgnated by subpara-
graph (C) of ths paragraph) to read as foows:
(f) Penates for frauduent statement or faure to furnsh statement. (1)
Wages pad after December 31, 19 0. Secton 163 mposes crmna and cv
penates for the wfu faure to furnsh a statement In the manner, at the
tme, and showng the nformaton requred under secton 1633 or reguatons
prescrbed thereunder or for wfuy furnshng a fase or frauduent statement.
The crmna penaty s a ne of not more than 1,000 or mprsonment for not
more than 1 year, or both, for each such voaton. The cv penaty s a fne
of 0 for each such voaton. The cv penaty sha be assessed and coected
n the same manner as the ta mposed by secton 1 10. These penates are n
eu of any other penates provded by. aw respectng the faure to furnsh a
statement or the furnshng of a fase or frauduent statement.
(2) Wages pad before anuary 1, 19 1. Secton 1626 mposes crmna and
cv penates for the wfu faure to furnsh a stateuent n the manner, at the
tme, and showng the nformaton requred under secton 162 or reguatons
prescrbed thereunder or for wfuy furnshng a fase or frauduent statement
The crmna penaty s a fne of not more than 1,000 or mprsonment for not
more than 1 year, or both, and the cv penaty Is a fne of not more than 0
for each such voaton. Such penates are n eu of any other penates pro-
vded by aw respectng the faure to furnsh a statement or the furnshng of a
fase or frauduent statement.
Par. 1 . Secton 0 .601, as amended by Treasury Decson 79
C. . 19 0-2, 1 , approved uy 12.19 0 26 CFR 0 .601 , s further
amended by nsertng n the seventh paragraph, mmedatev before
the words or potca subdvson , the foowng Puerto Rco, .
Par. 16. There s nserted mmedatev after the provsons of sec-
ton 0 .606, as added by Treasury Decson 760, approved November
10, 19 9 26 CFR 0 .606 , the foowng:
S C. 163 . P RIOD OF LIMIT TION UPON SS SSM NT ND
COLL CTION OF C RT IN MPLOYM NT T S T S DD D
Y S CTION 207(a), SOCI L S CURITY CT M NDM NTS
OF 19 0, PPRO D UGUST 2 ,19 0 .
(a) Genera Rue. The amount of any ta mposed by subchapter
of ths chapter or subchapter D of ths chapter sha (e cept as other-
wse provded n the foowng subsectons of ths secton) be assessed
wthn three years after the return was fed, and no proceedng n court
wthout assessment for the coecton of such ta sha be begun after the
e praton of such perod.
(b) Fase Return or No Return. In the case of a fase or fraduent
return wth ntent to evade ta or of a faure to fe a return, the ta
may be assessed, or a proceedng n court for the coecton of such ta
may be begun wthout assessment, at any tme.
(c) Wfu ttempt to vade Ta . In case of a wfu attempt In
any manner to defeat or evade ta , the ta may be assessed; or a pro-
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133
Regs. no.
ceedng n court for the coecton of such ta may be begun wthout
assessment, at any tme.
(d) Coecton fter ssessment. Where the assessment of any
ta mposed by subchapter of ths chapter or subchapter D of ths
chapter has been made wthn the perod of mtaton propery app-
cabe thereto, such ta may be coected by dstrant or by a proceedng
n court, but ony f begun (1) wthn s years nfter the assessment of
the ta , or (2) pror to the e praton of any perod for coecton agreed
upon n wrtng by the Commssoner and the ta payer.
(e) Date of Fng of Return. For the purposes of ths secton, f
a return for any perod endng wth or wthn a caendar year s fed
before March 1 of the succeedng caendar year, such return sha be
consdered fed on March 1 bf such succeedng caendar year.
(f) ppcaton of Secton. The provsons of ths secton sha ap-
py ony to those ta es mposed by subchapter of ths chapter, or sub-
chapter D of ths chapter, whch are requred to be coected and pad
by makng and fng returns .
(g) ffectve Date. The provsons of ths secton shn not appy to
nny ta mposed wth respect to remuneraton pad durng any caendar
year before 19 1.
Sec. 0 .607. Perod of Lmtaton Cton ssessment of Ta . Secton 1G3
provdes, n genera, for a 2-year perod of mtaton on the assessment of the
ta requred to be wthhed durng any caendar year after 19 0. Ths perod
of mtaton s measured from the date the return s fed, e cept that If a
return for any perod endng wth or wthn a caendar year s fed before March
1 of the succeedng caendar year, such return sha be deemed fed on March
1 of such succeedng caendar year. For e ampe, f quartery returns are
fed for the four quarters of 19 1 on pr 30, uy 31, and October 31, 19 1, and
on anuary 31. 19 2, the perod of mtaton for assessment wth respect to the
ta requred to be reported on each such return s measured from March 1 . 19 2.
owever, f any of such returns s fed after March 1 , 19 2, the perod of
mtaton for assessment of the ta requred to be reported on that return
s measured froL. the date t s n fact ted. In the case of a fase or frauduent
returr wth ntent to evade ta or of a faure to fe a return, and n the case
of a wfu attempt n any manner to defeat or evade ta , the ta requred to
be reported on the return may be assessed at any tme.
Par. 17. There s nserted mmedatey precedng secton 0 .702
26 CFR 0 .702 the foowng:
S C. 207(b) (2) OF T SOCI L S CURITY CT M NDM NTS OF
19 0 PPRO D UGUST 2 , 19 0 .
(2) Secton 3313 of the Interna Revenue Code s amended as foows:
( ) y nsertng mmedatey after the words and gft ta es,
where those words frst appear n the secton, the foowng: and
e cept as otherwse provded by aw n the case of empoyment
ta es under subchapters and D of chapter 9, ; and
) I y nsertng mmedatey after the words and gft ta es ,
where those words appear n the parenthetca phrase, a comma
and the foowng: and other than such empoyment ta es .
S C. 1036. P RIOD OF LIMIT TION UPON R FUNDS ND
CR DITS OF C RT IN MPLOYM NT T S S DD D
Y S CTION 207(a), SOCI L S CURITY CT M NDM NTS
OF 19 0, PPRO D UGUST 2 , 19 0 .
(a) Genera Rue. In the case of any ta mposed by subchapter
of ths chapter or subchapter D of ths chapter
(1) Perod of mtaton. Uness a cam for credt or refund
s fed by the ta payer wthn three years from the tme the return
was fed or wthn two years from the tme the ta was pad, no
credt or refund sha be aowed or made after the e praton of
whchever of such perods e pres the ater. If no return s fed,
then no credt or refund sha be aowed or made after two years
from the tme the ta was pad, uness before the e praton of such
perod a cam therefor s fed by the ta payer.
(2) Lmt on amount of credt or refund. The amount of the
credt or refund sha not e ceed the porton of the ta pad
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Regs. 116.)
13
( ) If a return was fed, and the cam was fed wthn
three years from the tme the return was fed, durng the
three years mmedatey precedng the fng of the cam.
( ) If a cam was fed, and () no return was fed, or ()
If the cam was not fed wthn three years from the tme the
return was fed, durng the two years Immedatey precedng
the fng of the cam.
(C) If no cam was fed and the aowance of credt or
refund s made wthn three years from the tme the return
was fed, durng the three years, mmedatey precedng the
aowance of the credt or refund.
(D) If no cam was fed, and (1) no return was fed or ()
the aowance of the credt or refund s not made wthn three
years from the tme the return was fed, durng the two years
mmedatey precedng the aowance of the credt or refund.
(b) Penates, tc. The provsons of subsecton (a) of ths secton
sha appy to any penaty or sum assessed or coected wth respect to
the ta mposed by subchapter of ths chapter or subchapter D of ths
chapter.
(c) Date of Fng Return and Date of Payment of Ta . For the
purposes of ths secton
(1) If a return for any perod endng wth or wthn a caendar
year s fed before March 1 of the succeedng caendar year, such
return sha be consdered fed on March 1 of such succeedng
caendar year; and
(2) If a ta wth respect to remuneraton pad durng any perod
endng wth or wthn a caendar year s pad before March 1 of
the succeedng caendar year, such ta sha be consdered pad
on March 1 of such succeedng caendar year.
(d) ppcaton of Secton. The provsons of ths secton sha
appy ony to those ta es mposed by subchapter of ths chapter, or
subchapter D of ths chapter, whch are requred to be coected and
pad by makng and fng returns.
(e) ffectve Date. The provsons of ths secton sha not appy
to any ta pad or coected wth respect to remuneraton pad durng
any caendar year before 19 1 or to any penaty or sum pad or co-
ected wth respect to such ta .
Par. 1 . There s nserted mmedatey after the provsons of sec-
ton 0 .702 26 CFR 0 .702 the foowng:
Sec. 0 .703. Lmtatons Upon Credts and Refunds (a) In genera. Un-
ess a cam for credt cr refund of an overpayment Is fed wthn 3 years from
the tme the return was fed, or wthn 2 years from the tme the ta was pad,
the Commssoner s prohbted, after both perods have e pred, from aowng
or makng a credt or refund of such overpayment. If no return s fed, the
Commssoner s prohbted from aowng or makng a credt or refund of the
overpayment after 2 years from the tme the ta was pad uness before the e -
praton of such 2-year perod a cam therefor s fed.
(b) Lmtaton on amount of credt or refund. The mtatons on the amount
of credt or refund sha be determned n accordance wth secton 1630(a)(2).
(c) Penates. The provsons of ths secton as to the ta requred to be de-
ducted and wthhed are aso appcabe to any penaty or other sum assessed
or coected wth respect to such ta . ;
(d) Date of fng return and payment of ta .- For the purposes of ths secton,
f a return for any perod endng wth or wthn a caendar year s fed before
March 1 of the succeedng caendar year, t sha be deemed fed on March 1
of such succeedng caendar year. Lkewse, f any ta requred to be dedveted
and wthhed durng any perod endng wth or wthn a caendar year s pad be-
fore March 1 of the succeedng caendar year, such ta sha be deemed pad on
March 1 of such succeedng caendar year.
(e) ppcabty of secton. The provsons of ths secton sha appy ony
to ta es requred to be wthhed on or after anuary 1,19 1.
Par. 19. There s nserted mmedatey precedng secton 0 . 0
26 CFR 0 . 0 the foowng:
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13
Regs. 116.
S C. 1631. F ILUR OF MPLOY R TO FIL R TURN S
M ND D Y S CTION 209(d), SOCI L S CURITY CT
M NDM NTS OF 19 0; PPLIC L TO R TURNS FIL D
FT R D C M R 31, 19 0 .
In case of a faure to make and fe any return requred under ths
chapter wthn the tme prescrbed by aw or prescrbed by the Comms-
soner n pursuance of aw, uness t s shown that such faure s due to
reasonabe cause and not to wfu negect, the addton to the ta or
ta es requred to be shown on such return sha not be ess than o.
Pak. 20. Secton 0 . 0 , as amended bv Treasury Decson 79
C. . 19 0-2, 2 , approved uy 6,19 0 26 CFR 0 . 0 , s further
amended as foows:
( ) y redesgnatng (a) and (b) of such secton as (b) and (c),
respectvey.
( ) y nsertng mmedatey after the headng of the secton the
foowng:
(a) If an empoyer fas to fe a return wthn the tme prescrbed n secton
0 .601 or secton 0 .602, uness t s shown that the faure s due to reasonabe
cause and not to wfu negect, the addton to the ta or ta es requred to be
shown on such return sha not be ess than . The addton to the ta or ta es
sha be computed as provded by secton 3612(d) and f ess than . sha be
ncreased to . The provsons of ths paragraph sha be appcabe ony wth
respect to returns fed after December 31,19 0.
(C) y addng at the end of secton 0 . 0 (b) (as redesgnated by
subparagraph ( ) of ths paragraph) the foowng:
The provsons of ths paragraph sha be appcabe ony wth respect to re-
turns fed before anuary 1, 19 1, and to the ta requred to be shown on such
returns.
(D) y strkng out of secton 0 . 0 (c) (ns redesgnated by sub-
paragraph ( ) of ths paragraph) the etter a wthn the paren-
theses and by nsertng n eu of such a the etter b .
( ) y addng at the end of such secton 0 . 0 (c) the foowng
new sentence: The provsons of ths paragraph sha be appcabe
ony wth respect to returns fed before anuary 1, 19 1, and to the
ta requred to be shown on such returns/
ecause the amendments made by ths Treasury Decson are neces-
sary to conform Reguatons 116, reatng to wthhodng of ncome
ta at source on wages, to the changes n aw made by the Soca Se-
curty ct mendments of 19 0 and by the Revenue ct of 19 0,
whch changes are appcabe n part to wage payments made on and
after October 1, 19 0, n part to wage payments made on and after
November 1, 19 0, and n part to wage payments made on and after
anuary 1,19 1, t s found that t s mpractcabe to ssue ths 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 that ct.
n sectons 1 29 and 3791 ( 3 Stat. 17 , 67; 26 U. S. C. 1 29, 3791) and
secton 1627 ( 7 Stat. 13 ; 26 U. S. C. 1627) of the Interna Revenue
Code.) _ _
Or O. . Sc O N M N,
pproved anuary 22, 19 1.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster anuary 29, 19 1, : a. m.)
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Regs. 116, 0 .201.
13
Secton 1621: Defntons.
Reguatons 116, Secton 0 .102: cusons
from wages.
Status after 19 0 of duy ordaned, commssoned, and censed
mnsters. (See Mm. 6633, page 106.)
Reguatons 116, Secton 0 .10 : mpoyee.
Status of rea estate and securtes saesmen. (See Mm. 6 66,
page 10 .)
Status after 19 0 of fu-tme fe nsurance saesmen. (See Mn.
6 71, page 9 .)
Status after 19 0 of traveng or cty saesmen. (See Mm. 6 3,
page 97.)
Status after 19 0 of home workers. (See Mm. 6 6, page 99.)
Status after 19 0 of agent-drvers and commsson-drvers. (See
Mm. 6601, page 103.)
Secton 1622: Income ta coected at source. 19 1- -13 72
Reguatons 116, Secton 0 .201: Requre- m. T. 9
ment of wthhodng.
( so Subchapter (Federa Insurance
Contrbutons ct). Secton 1 01; Regua-
tons 12 , Secton 0 .30 .)
Tabe whch may be used by empoyers In wthhodng Federa
ncome ta and Federa Insurance Contrbutons ct ta from
weeky wages pad on and after anuary 1, 19 1.
mpoyers have requested permsson to use a tabe whch com-
bnes amounts to be wthhed as Federa ncome ta and Federa In-
surance Contrbutons ct ta on weeky wages pad on and after
anuary 1, 19 1.
Permsson s hereby granted to empoyers to use the foowng tabe
n wthhodng Federa ncome ta and Federa Insurance Contrbu-
tons ct ta from weeky wages pad on and after anuary 1, 19 1:
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137
Regs. 116, 0 .201.
Weeky Wthhodng Tabe Combnng Income Ta and mpoyees Fkdeba|
Insuhance Contrbutons ct Ta Percent)
Ths tabe to be used ony f wages for ncome ta wthhodng and wage for
empoyees F. I. C. . ta are dentca
1
If wag
esare-
nd tbe number of wthhodng e emptons camed Is
2
3

6
7
9
10
tenst
ut ess
than
The amount of ncome ta and F. I. O. . ta to be wthhed sha be
10
13.00
W.r
of
o
I ft
1 o
I of
1 of
m of
m of
M of
WSof
wac
wacca
wa-er
w r
wage
wart
wntt
waa-M
113.00-...
13.07
2. GO
0.30
0.20
0 20
0.20
O20
0.20
0.20
0.20
0.20
0. 20
3.67
1 .3
2.7
.39
.21
.21
.21
.21
.21
.21
.11
.21
.21
1 .3
1 .00
2. 2
. 2
.22
.22
.22
.22
.22
.22
.22
.22
.23
1 .00
1 .67 . .
3.03
.73
.23
.2
.2
.23
.23
.23
.23
.23
.23
1 .67
16.3
3. 12
.7
.2
.2
.2
.2
.2
.2
.2
.2
.2
I . 3
17.00
3.2
.9
.26
.26
.2
.26
.2
. 26
.26
. 2
.2
17.00
17.67
3. 6
1.06
.26
.26
.26
.26
.26
26
.26
26
.26
7.67
1 .3
3. 1
1.17
.27
.27
.27
.27
.27
.27
.27
.27
.27
11 .3
19.00
3.
1.2
.2
.2
.2
.2
.2
.2 .
.2
.2
.2
19.00
.79
1. 9
.29
.29
.29
.20
.29
.29
.29
.29
.29
19.67
20.3
190
1. 6
.30
.30
.30
.30
.30
.30
.30
.30
.30
ML 3
21.00
.01
1.71
.31
.31
.31
.31
.31
.31
.31
.31
.31
I. 00
21.67
.22
1.92
.32
.32
.32
.32
.32
.32
.32
.32
.32
I. 67
22.3
.29
1.9
.33
.33
.3
.33
.33
.33
.33
.33
.33
M. 3
23.00
.
2.0
.3
.3
.3
.3
.3
.3
.
.3
.3
33.00
13.67
. 6
2.2
.36
.36
.36
.36
.36
.36
.3
.3
.3
13.67
2 .
.6
2.3
.36
.36
.36
.36
.36
.36
.36
.36
.36
1 .3
2 .00.
.77
2. 7
.37
.37
.37
.37
.37
.37
.37
.37
.37
1 .00.
2 .67
.9
rag
.3
.3
.3
.3
.3
.3
.3
.3
.3
1 .67
26.3
6.07
2.73
.39
.39
.39
.39
.39
.39
.39
.39
.39
16.3
27.00.....
6.20
2.90
.60
. 0
. 0
. 0
. 0
. 0
. 0
. 0
. 0
17.00
27.67
6. 1
.01
.71
. 1
. 1
. 1
. 1
. 1
. 1
. 1
. 1
17.67
2 .3
6. 6
3. 12
.7
. 2
. 2
. 2
. 2
. 2
. 2
. 2
. 2
3 __...
29.00
6. 3
3.23
.93
. 3
. 3
. 3
. 3
. 3
. 3
. 3
. 3

29.67
6.7
.
1.1
.
.
.
.
.
.
.
.
29.67
30.3
6.
3. 1
1. 17
. 6
. 6
. 6
. 6
.
.
.
.
. 6
31.00.....
96
.66
1.36
. 6
. 6
. 6
. 6
. 6
. 6
. 6
31.00.
31.67
6.17
3. 7
1. 7
. 7
. 7
. 7
. 7
.
. 7
. 7
. 7
. 7
1.67 I
313
6.2
.90
1. 6
.
.
.
.
.
.
.
2 3 ____.
33.00
6.39
3.99
1.69
. 9
. 9
. 9
. 9
. 9
. 9
. 9
. 9
33 0
6. 0
.20
1.90
. 0
. 0
.60
. 0
. 0
. 0
. 0
.60
133 67
3 .3
6.6
.29
1.9
. 1
. 1
. 1
.61
. 1
. 1
. 1
. 1
3 I
.00
6.72
. 2
2.12
. 2
. 2
. 2
. 2
. 2
. 2
. 2
. 2
S
3 . 7
6.93
.63
2.33
. 3
. 3
. 3
. 3
. 3
. 3
. 3
. 3
3 .67
tn|
7.02
.6
2.3
.
.
.
.6
.
.
.
.
36
37.00
7.16
. 6
2. 6
. 6
.
. 6
.
. 6
.
. 6
. 6
37.00
37.67
7.3
.96
2.66
.66
. 6
. 6
.66
. 6
.66
. 6
.66
.67: :
3 .3
7. 1
6.07
2.73
. 7
. 7
. 7
.67
. 7
. 7
. 7
. 7

39.00
7.
. 1
2.
.
.
.
.
.
.
.
.
39.00
39.67
7.60
39
3.09
.79
. 9
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. 9
. 9
. 9
. 9
. 9
39.67
0.3
7. 0
6. 6
3.12
.7
.60
.60
.60
.60
.60
.60
.60
0.1
1.00
7.91
.61
3.31
1.01
.61
.61
.61
.61
.61
.61
.61
1
1.67
. 12
6. 2
3.62
1.12
.62
.62
.62
.62
.62
.62
.62
1.07
2.3
.19

3. 1
1.17
.63
.63
.63
.63
.63
.63
.63
13
3.00
.3
9
3.6
1.3
.6
.6
.6
.6
.6
.6
.6
3.00
3.67
.
6 1
3.
1.
.6
.6
.6
.6
.6
.6
.6
13.67
.3
.
62
3.90
1. 6
. 6
.66
.66
.66
.66
.66
.66
.3
.00
.67
6.37
.07
1.77
.67
.67
.67
.67
.67
.67
.67
tM
.67
.
6
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1.9
.6
.6
.
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.6
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.67
I 0
.97
663
.29
1.9
. 9
.69
. 9
.69
.69
.69
.69
U
7.00
9. 10
6. 0
. 0
2. 10
.70
.70
.711
.70
.70
.70
.70
7.00
7.67
9. 31
6.91
.61
2.31
.71
.71
.71
.71
.71
.71
.71
7.67
.3
9.36
7.02
.6
2.3
.72
. 72
.72
.72
.72
.72
.72
M
9.00
9. 3
7.13
. 3
2. 3
.73
.73
.71
.73
.73
.73
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9.0O....;
9.67
9.6
7.3
.0
2.7
.7
.7
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.7-1
.7
.7
.7
9.67
0 M
9.7
7. 1
6.07
2.73
7
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.7
.7
.7
.7
.7
0.1
1.00
9.
7. 6
6.26
2.9(
.76
.76
.76
.76
.76
.76
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1 0
1.67
10.07
7.77
. 7
3.07
.77
.77
.77
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.77
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1.67 .
2.3
10. 1
7. 0
. 6
3.12
.7
.7
.7
.7
.7
.7
.7
2.1
63.00
10.29
7. 9
6. 9
3.29
.99
.70
.79
.70
.79
.70
.79
3.00
3.67
10. 0
.10
6. 0
3. SO
1.20
.SO
. 0
.30
.so
.SO
. 0
63.f7
6 .3
10. 3
.19
6.
3. 1
1.17
. 1
. 1
. 1
. 1
. 1
. 1
.3
.00
10.62
.32
6.02
3.72
1. 2
. 2
. 2
. 2
. 2
. 2
. 2
.00
.67
10. 3
. 3
6.23
3. 9.1
L63
. 3
. 3
. 3
. 3
.S3
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6 .67
66.3
10.92
.
6.2
3.91)
L 6
.
.
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.
.
.
6.3
7.00
11.0
.7
6.
.0.
1.7
.
.
.
.
.
.
0 W
7.67
11.26
. 6
6. 6
.26
1.96
. 6
. 6
. 6
. 0
. 6
. 6
M7.
.3
11.31
.97
6.63
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1.9
. 7
. 7
. 7
. 7
. 7
. 7
3
9.00
11.3
9. OS
6. 7
.
2.1
.
.
.
.
.
.
9.67
11. 9
9.29
6.99
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2.39
. 9
. 9
. 9
. 9
. 9
.60
290 61 10
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Regs. 116, 0 .201.
13
Weeky Wthhodng Tabe Combnng Income Ta and mpoyees Federa
Insurance Contmbutons ct Ta (1 Percent) Contnued
If wages are
ut ess
0
1
3
3
6
7
10
than
The amount o ncome ta and F. I. C. . ta to be wthhed sha be
00.3
11.70
9.36
7.02
C .6
2.3
0.90
.90
0.90
0.9C
0.90
0.90
01.00
11.91
9.01
7.31
.01
2.61
.91
.91
.91
.91
.91
.91
61.07
11.92
9.02
7.32
.02
2.02
.92
.92
.92
.92
.92
.92
02.3
12.09
9.7
7. 1
.07
2. 73
.93
.93
.93
.93
.93
.93
03.00
12.2
9.9
7.6
.3
3.0
.9
.9
.9
.9
.9
.9
03.f7
12.1
9.9
7.6
6.3
3.0
.9
.9
.9
.9
.9
.9
0 .3
12.
10.1
7. 0
. 6
3.12
.96
.96
.96
.96
.96
.96
t.00
12.67
10.37
.07
.77
3. 7
1.17
.97
.97
.97
.97
.97
C .07
12.6
10.3
.0
.7
3.
1. 1
.9
.9
.9
.9
.9
0 .3
12. 7
10. 3
.19
.
3. 1
1.17
.99
.99
.99
.99
.99
07.00
13. 10
10. 0
6. 0
6.10
3. 0
1. 0
1.00
1.00
1.00
1.00
1.0U
07.07
13. 11
10. 1
. 1
0.11
3. 1
1. 1
1.01
1.01
1.01
1.01
1.01
0 .3
13.26
10.92
.
0.2
3.90
1. 6
1.02
1.02
1.02
1.02
1.02
09.00
13. 3
11. 13
. 3
6. 3
.23
1.93
1.03
1.03
1.03
1.03
1.03
09.07
13.
11.1
.
6.
.2
1.9
1.0
1.0
1.0
1.0
1.0
70.3
13.6
11.31
.97
6.63
.29
1.9
1.0
1.0
1.0
1.0
L0
71.00
13. 6
11. 0
9.20
6.96
. 6
2.2
1.06
1.06
1.06
1.06
1.00
71.07
13. 7
11. 7
9.27
6.97
. 7.
2.27
1.07
1.07
1.07
1.07
1.07
72.3
1 .0
11.70
9.30
7.02
.6
2.3
1.0
1.0
1.0
1.0
1.03
73.00
1 .19
11. 9
9. 9
7.29
.99
2.09
1.09
1.09
1.09
1.09
1.09
73.07
1 .20
11.90
9.60
7.30
.00
2.70
1.10
1.10
1.10
1.10
1.10
7 .3
1 . 3
12.09
P. 7
7. 1
.07
2.73
1.11
1.11
1.11
1.11
1.11
7f.00
1 .62
12.32
10.02
7.72
. 2
3.12
1.12
1.12
1.12
1.12
1.12
7 .07
1 .63
12.33
10.03
7.73
. 3
3.13
1.13
1.13
1.13
1.13
1.13
70.3
1 .62
12.
10.1
7. 0
. 6
3.12
1.1
1.1
1.1
1.1
1.1
77.00
If. 0
12.7
10.3
.0
.7
3.
1.1
1.1
1.1
1.1
1.1
77.07
1 .06
12.76
10.36
.06
.76
3. 0
1.16
1.16
1.16
1.16
1.16
7S.3
1 . 21
12. 7
10. 3
.19
.
3. 1
1.17
1.17
1.17
1.17
1.17
70.00
1 .3
13.0
10.7
.
0.1
3.
1.
1.1
1.1
1.1
1.1
79.07
1 .39
13.09
10.79
. 9
G. 19
3. 9
1. 9
1.10
1.19
1.19
1.19
0.3
1 .00
13.26
10.92
.
0.2
3.90
1. 0
1.20
1.20
1.20
1.20
1.00
1 . 1
13. 1
11. 21
.91
0. 1
.21
1.91
1.21
1.21
1.21
1.21
1.07
1 . 2
13. 2
11.22
.92
6. 2
.22
1.92
1.22
1.22
1.22
1.22
2.3
1 .99
13.6
11.31
.97
6.63
.29
1.9
1.23
1.23
1.23
1.23
3.00 .
1G. 1
13.
11.
9.2
6.9
.6
2.3
1.2
1.2
1.2
1.2
3.07
10.1
13.
11.
9.2
6.9
.6
2.3
1.2
1.2
1.2
L2
.3
10.3
1 .0
11.70
9.36
7.02
.0
2.3
1.26
1.26
1.26
1.26
.00
10. 7
1 .27
11.97
9.67
7.37
6.07
2.77
1.27
1.27
1.27
1.27
.07
10.6
1 .2
11.9
9.6
7.3
6.0
2.7
1.2
1.2
1.2
1.2
0.3
16.77
1 . 3
12.09
9.7
7. 1
.07
2.73
1.29
1.29
1.29
1.29
7.00
17.00
1 .70
12.30
10.00
7.70
6. 0
3.10
1.30
1.30
1.30
1.30
7.07
17.01
1 .71
12.31
10.01
.7.71
. 1
3.11
1.31
1.31
1.31
1.31
.3
17.10
1 . 2
12.
10.
7. 0
6. 6
3.12
1.32
1.32
1.32
1.32
9.00
17.33
1 .03
12.73
10. 3
.13
. 3
3. 3
1.33
1.33
1.33
1.33
9.07
17. 3
1 .0
12.7
10.
.1
.
3.
1.3
1.3
1.3
1.3
90.3
17.
1 .21
12. 7
10. 3
.19
.S
3. 1
1.3
1.3
1.3
1.3
91.00
17. 70
1 . 6
13.16
10.66
. 6
6. 10
3. 6
1. 6
1.30
1.36
1.36
91.07
17.77
1 . 7
13.17
10. 7
. 7
6.17
. 17
1. 7
1.37
1.37
1.37
92.3
17.9-1
1 .60
13.26
10.92
.
0.2
3.90
1.66
1.3
1.3
1.3
93.00
1 .09
1 . 79
13. 9
11.19
. 9
6. 9
.29
1.99
1.39
1.39
1.39
93.67
1 . 10
1 . 0
13. 0
11.20
.90
6.60
.30
2.00
1. 0
1. 0
1. 0
9 .3
1 .33
1 .99
13.6
11.31
.97
6.63
.29
1.9
1. 1
1. 1
1. 1
9 .00
1R 2
16. 22
13.92
11.62
9.32
7.02
.72
2.32
1. 2
1. 2
1. 2
9 .67
1 . 3
16.23
13.93
11. 63
9.33
7.03
.73
2.33
1. 3
1. 3
1. 3
9P.3
16.72
16.3S
1 .0
11.70
9.36
7.02
. 6
2.3
1.
1. 1
1.
97.00
1 .9
10.0
1 .2
11.9
9.0
7.3
.0
2.7
1.
1.
1.
97.07
1 .96
16.60
1 .26
11.96
9.66
7.36
.06
2.70
1. 6
1. 6
1. 6
9 .3
19.11
16.77
1 . 3
12.09
9.7
7. 1
.07
2.73
1. 7
1. 7
1. 7
99.00
19.2
16.9
1 .6
12.3
10.0
7.7
6.
3.1
1.
1.
1.
S99.07
19.29
10.99
1 . 69
12.39
10.09
7.79
6. 9
3.19
1. 9
1. 9
1. 9
100.3
19. 0
17. 16
1 . 2
12.
10.1
7. 0
. 0
3.12
1. 0
1. 0
1. 0
101.00
20.01
17.61
1 .31
13.01
10.71
. 1
0.11
3. 1
1. 1
1. 1
1. 1
101.67
20.02
17.62
1 .32
13.02
10. 72
. 2
0.12
3. 2
1. 2
1. 2
1. 2
102 3
20.03
17.63
1 .33
13.03
10.73
. 3
0. 13
3. 3
1. 3
1. 3
1. 3
nw.oo
20.0
17.6
1 .3
13.0
10.7
.
6.1
3.
1.
1.
1.
103.67....
20.0
17.0
1 .3
13.0
10. 7
.
0.1
3.
1. -
1.
1.
10 .3 .
20.00
17.66
1 . 36
13.06
10.76
. 6
0.10
3. 0
1. 0
1. 6
1. 6
10 .00....
20.07
17.07
1 .37
13.07
10.77
. 7
6.17
3. 7
1. 7
1. 7
1. 7
10 .67....
20.9
1 .
16.2
13.9
11.6
9.3
7.0
.7
2.
1.
1.
106.3 ....
2a 99
1 . 9
10.29
13.99
11.69
9.39
7.09
.79
2, 9
1. 9
1. 9
t east
9.67....
60.3 ....
61.00
61.67 .
02.3 ....
63.00
03.67
6 .3 ....
0 .00
6 .07....
66.3 ....
67.00 ...
67.07....
6 .3
09.00
09.07
70.3 ....
71.00
71.07....
72.3 ....
73.00....
73.07....
7 .3 ....
7 .00....
S7 .67-...
76.3 ....
77 00....
77.07....
7 .3 ....
79.00
S 79.67
0.3 ....
1.00....
1.67....
2.3 ....
3.00....
3.07....
.3
.00
6 .07
60.3
7.00....
7.07
.3
SSS.OO
S 9.07
90.3
91 .( I
91.07
92.3
93.00
93.07
9 .3
9 . 10
96.67....
90.3
97 0
07.07....
96.3 ....
99.0
t.G7
100.3 ...
101.00...
101.07...
102.3 ...
103.00...
103.67...
10 .3 ...
10 .00...
10 .07
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139
Regs. 116, 03.201.
Weeky Wthhodng Tabe Combnng Income Ta and mpoyees Federa
Insurance Contrbutons ct Ta (1 Percknt) Contnued
If wages are
t east
ut ess
0
1
2
3
6
7
9
10
than
The amount of Income ta and F. I. C. . ta to be wthhed sh be
10 .3 ....
107.00
21.00
f.eo
16 30
1 .00
11.70
9 0
7.10
.90
2. 0
1.60
1.60
S1C7 00.
107.67
21.01
1 .61
16.31
1 .01
11. 71
9. 1
7.11
. 1
2. 1
1.01
1.01
107.67....
10 .3
21.02
1 . 62
16.32
1 .02
11.72
9. 2
7.12
. 2
1 2
1.62
1. 62
10 -3 ....
not.oo
21. O
1 .63
16. S3
11.03
11.73
9. 3
7.13
. 3
2. 3
1.63
1.63
109.00
109.67....
21.0
1 .6
16.3
1 .0
11. 7
9.
7. 1
.
2.
1. 6
1. 6
oe.67_...
110.3
21.
19. 11
10.77
1 . 3
12.09
9.7
7. 1
.07
2.73
1. 6
1.6
110-3 ....
n o
2LS6
19. 6
17.26
1 .96
12.66
10.36
.06
6. 76
3. 61
L66
1.66
m.oo.
111.67
21.67
19. 7
17. 27
1 .97
12.67
10.37
.07
6.77
3. 7
1.67
1.67
S111.S7.
112.3
21. 9
19.
17. 2
1 .9
12. 6
10.3
.0
7
3.
1.6
1.6
112.3
113.00
21.99
19. 9
17. 29
1 .99
12.69
10.39
.09
79
3. 0
1.0.9
1.69
SI 13.00
.113.67
22.00
19.60
17.30
1 .00
12. 70
10. 0
. 10
. 0
3. 0
1.70
1.70
1113.67
11 .3
22.01
19.61
17.31
1 . 01
12.71
10. 1
.11
. 1
3. 1
1.71
1. 71
M.
116.00
22.02
19.62
17.32
1 .02
12.72
10. 2
.12
. 2
3. 2
1.72
1.72
U .00_
11 .67
22.93
20. 3
1 .23
1 .93
13.63
11.33
9.03
6.73
. 3
2. 13
L73
t S.67
116.3
22.9
20.
1 .2
1 .9
13.6
11.3
9.0
6.7
.
2. 1
1.7
n, :
117.00
22.9
20.
1 .2
1 .9
13.6
11.3
9.0
6.7
.
2. 1
1.7
f 117.00..:
117.67
22.96
20. 6
IS. 26
1 .90
13.66
11.36
9.06
6 76
. 6
2. 10
1.76
117. 7....
11 -3 ....
22.97
20. 7
1 .27
1 .97
13. 67
11.37
9.07
6.77
. 7
Z17
1.77
11 ..._
119.00....
22.9
20.
1- 2
1 .9
13.6
11.3
9.0
7
.
2. 1
1.7
119.00....
119.67....
22.99
20. 9
1 .29
1 .99
13. 69
11.39
9.09
679
. 9
2.19
1.79
119.67
I13D.S ....
23. 0
21.0
1 .72
16 3
1 .0
11.70
9.3
7.02
.6
2.3
1. 0
1120 M.._.
121.00....
23.91
21. 1
19.21
16.91
1 . 61
12.31
10.01
7.71
. 1
111
1. 1
121.00....
121.67...-
23. 92
21. 2
19. 22
1 . 92
1 .62
12.32
10.02
7.72
. 2
3. 12
1. 2
12I.67_._.
122.3
23.93
21. 3
19.23
16 93
1 . 63
12.33
10.03
7.73
. 3
3.13
1. 3
122 _
123.00....
23.9
21.
19.2
16.9
1 . 6
12.3
10.0
7.7
.
3. 1
1.
123.00....
123.67
23.9
21.
19. 2
16 96
1 . 66
12.3
10.0
7.7
.
3.1
1. 6
123.67.
12 .3 ....
23.96
21. 6
19. 26
16. 96
1 .66
12.36
10.06
7.76
6
3. 16
1.
12 M.
12 .00
23.97
21.67
19.27
16. 97
1 .67
12.37
10.07
7.77
7
3. 17
1. 7
12 .00
12 .67
2 .
22.
20. 1
17.
1 .
13. 2
10.9
.6
6.3
.0
1. 3
12 .f7_
126-3
2 . 9
22. 9
20. 19
17. 9
1 . 9
13. 29
10.99
. 69
6.39
.00
1. 9
12R -..-
127.00
2 .90
22. 0
20.20
17.90
1 .60
13.30
11.00
.70
(. 0
.10
1.90
127.00....
127.67....
2 . 91
22. 1
20. 21
17.91
1 .61
13.31
11.01
.71
6 1
. 11
1. 91
127. 7_...
12 .3
2 .92
22. 2
2a 22
17.92
1 .62
13. 32
11.02
.72
6 2
. 12
L93
12 .3 .
129.00
2 .93
22. 3
20.2
17.93
1 .63
13.33
11.03
.73
6 3
. 13
L93
129.00....
129.67
2 .9
22.
20.2
17.9
1 .6
13.3
11.0
.7
6.
. 1
1.9
129.67
130.3
2 .36
23.01
20.67
1 . S3
1 .99
13. 66
11.31
.97
6.63
.29
1.9
130.3 ....
131.00
2 . 6
23. 6
21.16
1 . 6
16. 6
1 .26
11.96
9.66
7.36
.06
2.76
131.00....
131.67
2 . 7
23. 7
21.17
1 . 7
16. 7
1 .27
11.97
9.67
7.37
.07
2.77
131.67....
132.3
2 .
23.
21.1
1 .
16.
1 .2
11.9
9.6
7.3
.0
2.7
132.3 ....
133.00
2 . 9
23. 9
21.19
1 . 9
16. 9
1 .21
11.99
9.69
7.39
.09
2.79
133.00....
133.67
2 .90
23. 0
21.20
1 .10
16.60
1 .30
12.00
9.70
7. 0
.10
2. 0
13 .3 ....
2 . 91
23. 1
21.21
1 . f
16.61
1 . 31
12.01
9.71
7. 1
11
2. t
13 .3 ....
13 .00....
26.92
23. 2
21.22
If.:-:
16 62
1 .32
12.02
9.72
7. 2
6.12
2. 2
)M percent of the e cess over 13 p.us
13 .00 anc
26.33
23.91
21.6
19.31
16 97
1 .63
12. 29
9.96
7.61
27
293
The foregong tabe c6nforms to the provsons of the Interna
Revenue Code. Snce the Code provdes no tabe method of deter-
mnng the amount of empoyees1 ta un er the Federa Insurance
Contrbutons ct, the wage brackets shown n the tabe are functons
of the y2 percent Federa Insurance Contrbutons ct ta rate, and
amounts of ta used n th b tabe are shown to the nearest cent. The
tabe s desgned to cover weeky wages under 13 , but t can be
e tended to wages of 13 and over by utzng the same wage brackets
and addng the Federa Insurance Contrbutons ct ta at 1 per-
cent to the ncome ta to be wthhed. It shoud be noted that the
ncome ta for wage brackets such as 12 .3 to 12 and 12 to
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Regs. 116, 12 .
1 0
12 .67 s determned by reference to the ta tabe provded by the
Code (see page 20 of Crcuar , Rev. an. 19 1, mpoyers Ta
andbook). owever, n the case of wage brackets such as 129.67
to 130.3 , whch fa wthn more than one bracket of the ncome ta
wthhodng tabe provded by the Code, the ncome ta s determned
n accordance wth the percentage method (see page 19 of Crcuar ,
Rev. an. 19 1), whch permts the roundng of wages to the nearest
doar for purposes of computng the amount to be wthhed.
The use of the combned wthhodng tabe resuts n the correct .
aggregate wthhodng ony f wages for ncome ta and for Federa
Insurance Contrbutons ct ta wthhodng are dentca. Te
combned tabe shoud not be used wth respect to wages n e cess r
of 3,600 pad on and after anuary 1, 19 1, or n other nstances
where the wages dffer.
For purposes of empoyer s quartery Federa ta returns (Form
9 1), the ureau of Interna Revenue w nterpose no ob|ecton, n
the case of empoyers usng the combned wthhodng tabe, to (1)
determnng the amount of Federa Insurance Contrbutons ct ta
wthhed by appyng the percent Federa Insurance Contrbu-
tons ct ta rate to tota ta abe wages for Federa Insurance
Contrbutons ct purposes, and (2) determnng the amount of
ncome ta wthhed by subtractng the amount of Federa Insurance
Contrbutons ct ta wthhed from the tota ta wthhed.
Wth respect to empoyees annua recepts on Form W-2 for 19 1
and thereafter, on whch empoyers are requred to show (1) tota
Federa Insurance Contrbutons ct wages pad, (2) empoyees
ta deducted under the Federa Insurance Contrbutons ct, (3)
tota wages sub|ect to the ncome ta wthhodng, and ( ) ncome
ta wthhed therefrom, no ob|ecton w be nterposed to determn-
ng empoyees ta deducted under the Federa Insurance Contrbu-
tons ct from each empoyee s wages n the year by appyng the 1 U
percent rate to wages, not n e cess of 3,600, under such ct, and
determnng the amount of ncome ta wthhed by subtractng the
empoyees ta so determned from the tota ta wthhed from the
empoyee s wages n the year.
Secton 1622: Income ta coected at source.
Reguatons 116, Secton 0 .201: Requre-
ment of wthhodng.
Rate of e change appcabe n connecton wth the converson of
Canadan currency to Unted States doars. (See Mm. 6 6 ,
page 110.)
C PT R 9, SU C PT R . G N R L PRO ISIONS
Reguatons 116 and 12 .
Sectons 163 and 1636, added by the Soca Securty ct, mend-
ments of 19 0, prescrbe new perods of mtaton appcabe to Fed-
era Insurance Contrbutons ct ta es and ncome wthhodng ta
on wages wth respect to remuneraton pad durng any caendar year
after 19 0. (See Mm. 662 , page 7.)
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CIS T RULINGS
INT RN L R NU COD
C NG IN N M OF MISC LL N OUS T UNIT
19 1- -13
Mm. 660
Change n name of Msceaneous Ta Unt
Treasory Department,
Washngton 2 , D. C, February 13,19 1.
eads of Fed Dvsons of the Technca Staff, and Others Con-
cerned:
1. ffectve March 1,19 1, the name of the Msceaneous Ta Unt
of the ureau s changed to the cse Ta Unt and the unt sha be
so addressed or referred to n a offca correspondence, reports, forms,
etc.
2. stng stocks of statonery, forms, etc., bearng the od name of
the unt w contnue to be used unt they are e hausted but, to the
e tent practcabe, the desgnaton Msceaneous Ta Unt appear-
ng thereon shoud be bocked out and the new name of the unt nserted
n ts stead.
3. d-Mmeograph, Co. No. 29 , Revsed, dated February ,19 ,
reatng to symbos for use n correspondence, s amended by changng
the symbos prescrbed for use n correspondence wth the Msceane-
ous Ta Unt to the foowng:
CIS T UNIT
T: DC Deputy Commssoner.
T: M Msceaneous Dvson.
T: ST Saes Ta Dvson.
T: T Tobacco Dvson.
Geo. . Schoeneman,
Commssoner.
(M)
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Regs. 9, 323.0, etc.
1 2
ST MP T S
19 1-2-13 2
Mm. 6 2
Speca-ta stamp ssued for vaue n e cess of ta abty
N
Washngton 2 , D. C, December 2 ,19- 0.
In many nstances a ta payer fes Form 11 or Form 11- and pays
speca ta for a perod onger than that for whch abty has been
ncurred or fes Form 11- and pays ta for more unts of the same
cassfcaton than were beng mantaned for use or operated, and the
speca-ta stamp s ssued accordngy. s an aternatve to havng
the ta payer remt speca ta for the correct abty and a new stamp
ssued for the shorter perod, or correct number of unts nvoved, and
subsequenty fe a cam for redempton of the orgna stamp, the
procedure set forth beow shoud be foowed:
The ta payer may be advsed of hs prvege to fe a cam on Form
3 for aowance n part of the vaue of the speca-ta stamp. If the
ta payer desres to fe the cam he shoud be requested to fe amended
Form 11 or Form 11- . The amended form shoud be submtted wth
the cam to be processed n the usua manner. The foowng or other
approprate endorsement shoud be made n nk or n type on the stamp,
Cam for refund fed, foowed by the name and tte of the
endorser and the date. The stamp shoud be returned mmedatey
to the ta payer and posted on the premses where the busness s con-
ducted. The foowng statements shoud aso be made on the reverse
of the cam : (1) Stamp has been propery endorsed and returned to
the ta payer, and (2) amended Form 11 or Form 11- s on fe.
Correspondence n regard to ths mmeograph shoud be addressed
to the attenton of T, f reatng to occupatona ta stamps for
quors, and to the attenton of MT, f other occupatona ta stamps
are nvoved. Reference shoud aso be made to ths mmeograph
number.
Geo. . Sctoenema|t,
Commssoner.
Reguatons 9, Sectons 323.0, tc. 19 1-3-13 33
T. D. 27
TITL 26 INT RN L R NU C TT R I. SU C PT R C. P RT 23.
SP CI L T S WIT R SP CT TO COIN-OP R T D MUS M NT ND G M-
ING D IC S, OWLING LL Y S, ILLI RD T L S, ND POOL T L S
Increase n rate of ta on con-operated gamng devces, and a-
bty of Federa agences or nstrumentates.
Washngton 2 , D. C.
In order to conform Reguatons 9 26 CFR, part 323 , reatng
to speca ta es wth respect to con-operated amusement and gamng
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1 3
Regs. 9, 323.0 etc.
devces, bowng aeys, bard tabes, and poo tabes, to the Revenue
ct of 19 0 (Pubc Law 1 , 1st Cong., 2d sess.), approved Septem-
ber 23,19 0, such reguatons are hereby amended as foows:
Paragraph 1. Secton 323.0 s amended as foows:
( ) y strkng out n paragraph (a) (such part beng added by
secton of the Revenue ct of 19 1), and nsertng n eu thereof
the foowng: , s amended, .
( ) y strkng out n paragraph (b) (such part beng added by
secton 6 of the Revenue ct of 19 1), and nsertng n eu thereof
the foowng: , as amended. .
Par. 2. Immedatey precedng secton 323.20 26 CFR 323.20 there
s nserted the foowng:
S C. 603. T ON COIN-OP R T D G MING D IC S. R -
NU CT OF 19 0 (PU LIC L W 1 , 1st CONG., 2d S SS.),
PPRO D S PT M R 23, 1990.
(a) Increase n Ta on Sot Machnes. Secton 3267(a) (reatng
to rate of ta ) s hereby amended by strkng out 100 wherever ap-
pearng theren and nsertng n eu thereof 1 0 .
(b) ffectve Date. The amendment made by ths secton sna take
effect on the frst day of the frst month whch begns more than ten
days after the date of enactment of ths ct.
S C. 60 . F D R L G NCI S OR INSTRUM NT LITI S.
R NU CT OF 19 0 (PU LIC L W 1 , 1st CONG., 2d
S SS.), PPRO D S PT M R 23, 19 0.
Subchapter of chapter 27 (reatng to occupatona ta es) s hereby
amended by addng at the end thereof the foowng new secton:
S C. 32 3. F D R L G NCI S OR INSTRUM NT LITI S.
ny ta Imposed by ths chapter sha appy to any agency or nstru-
mentaty of the Unted States uness such agency or nstrumentaty s
granted by statute a specfc e empton from such ta .
Par. 3. Secton 323.20. as amended by Treasury Decson 203 C. .
19 2-2, 276 , approved December 22,19 2 26 CFR 323.20 , s further
emended by strkng out so much of such secton as precedes paragraph
(b) and nsertng n eu thereof the foowng:
Sec. 323.20. ffectve Dates of Ta . The effectve dates of the rates of ta
wth respect to con-operated amusement and gamng devces mposed by secton
3267, added to the Interna Revenue Code ay secton of the Revenue ct of
19 1, ncudng changes made n such rates by secton 617 of the Revenue ct of
19 2 and secton 603 of the Revenue ct of 19 0, are as foows:
(a) e cept as ndcated by (c) beow, the rates of ta appcabe wth respect
to framng devces operated by m. ans of the nserton of a con, token, or smar
ob|ect are:
(1) October 1,19 1, through une 30, 19 3. 0 per annum ;
(2) uy 1. 19 3. through ctober_31, 19 0. 100 per annum ;
(3) On and after November 1, 19o0, 1 0 per annum.
Par. . Immedatey precedng secton 323.30 there s nserted the
foowng:
S C. 60 . F D R L G NCI S OR INSTRUM NT LITI S.
R NU CT OF r 0 (PU LIC L W 1 , 1st CONG., 2d
S SS.), PPRO D S PT M R 23, 19 0.
Subchapter of chapter 27 (reatng to occupatona ta es) Is hereby
amended by addng at the end thereof the foowng new secton:
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Regs. 9, 323.0, etc. 1
S C. 22S3. F D R L G NCI S OR INSTRUM NT LITI S.
ny ta mposed by ths chapter sha appy to any agency or nstru-
mentaty of the Unted States uness such agency or nstrumentaty s
granted by statute a specfc e empton from such ta .
Par. . Secton 323.21 26 CFR 323.21 s amended, and secton
323.31, as amended by Treasury Decson 311 C. . 191 , 663 ,
approved March 1 , 101 26 CFR 323.31 , s further amended, by
addng at the end of each the foowng:
ny agency or nstrumentaty of the Unted States, such as an rmy e -
change, Navy e change, etc.. s abe to such speca ta uness granted by ;
statute a specfc e empton therefrom.
Par. 6. Secton 323.22. as amended by Treasury Decson 203 26 r
CFR 323.22 , s further amended f.
( ) y strkng out so much of the paragraph desgnated (d) as
precedes n the case of and nsertng n eu thereof the foowng:
(d) ffectve October 1, 10 1, through une 30, 10 3, 0, effectve uy 1,
10 3, through October 1, 1000, 100, and effectve on and after November 1,
19 0, 1 0, per year.
( ) y addng after the thrd paragraph begnnng wth s the
ta became effectve on October 1,19 1, the foowng:
Those persons who pror to November 1, 1930, pad or ncurred the speca
ta abty at the rate of 100 per year for gamng devces and contnued to
mantan for use such devces on November 1, 10 0. are abe for addtona
ta for the perod November 1, 10 0. through une 30, 10 1, at the ncreased
rate of 0 per annum. The addtona ta abty for the -month perod from
November 1. 10 0, through une 30, 10 1, sha be computed on the bass of
eght-twefths of 0, or 33.3 , for each devce.
ecause ths Treasury Decson makes technca amendments to the
reguatons, 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, 1916, or
sub|ect to the effectve date mtaton of secton 1(c) of sad ct.
taned n secton 3791 of the Interna Revenue Code ( 3 Stat. 67;
26 U. S. C. 3791).)
Geo. . Scoeneman,
Thomas . Lynch,
ctng Secretary of the Trcasur /.
(Fed wth the Dvson of the Federa Regster anuary 19, 19 1, S: 3 a. m.)
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1
Regs. , rts. 2, ete.
N RCOTICS
Reguatons (Narcotcs), rtces 2, tc. 19 1- -13 6
(Narcotcs) T. D.
TITL 2 INT RN L R NU . C PT R I. SU C PT R C, P RT 1 1.
R GUL TIONS UND R T RRISON N RCOTIC L W, S M ND D
Defnton of nnrcotc drugs. Forms 67 and 713 emnated.
Oath on Form 67 not requred. Sworn statement concernng oss
of narcotcs not requred.
Offce of Commssoner of Narcotcs,
Washngton 26, D. C.
Narcotc Reguatons 26 CFR, part 1 1 reatng to narcotcs
sub|ect to the arrson Narcotc Law. but ony as prescrbed and made
appcabe to the Interna Revenue Code bv Treasury Decson
C. . 1930-1 (part 1), 39 , approved February 11, 1939 26 CFR
Cum. Supp.. page 7 are amended as foows:
Paragraph 1. rtce 2(b) (26 CFR 1 1.2(b)) s amended by n-
sertng mmedatey foowng the comma after the word sonpe-
cane the foowng: opate, .
Par. 2. rtce (26 CFR 1 1. ) s amended to read as foows:
Sec. 1 1. . Manneb and Tme of Regstraton, very person requred to
regster sha e ecute and fe wth the coector for the dstrct n whch he pro-
poses to engage In any actvty nvovng use of narcotc drugs, an appcaton
for regstraton on Form 67 and pay the speca ta or ta es enumerated n
artce 13 (26 CFR 1 1.13). Form 67 sha be e ecuted by new appcants and
approved by the coector before the actvty s commenced. Renewa appca-
tons sha be e ecuted and fed on or before the succeedng uy 1, and annuay
thereafter as ong as abty s ncurred. Ths form may be obtaned from
the coector.
Par. 3. rtce (a) (26 CFR 1 1. (a)) s amended to read as fo-
ows:
Sec . 1 1. . Investgaton of ppcants. (a) new appcatons on Form
67 sha be referred by the coector to the approprate narcotc dstrct super-
vsor for nvestgaton, report, and recommendaton. Renewa appcatons on
Form 67 sha aso be referred by the coector to the approprate narcotc ds-
trct supervsor for nvestgaton, report, and recommendaton, f the coector s
n doubt as to the appcant s beng awfuy entted to engage n the actvty for
whch he seeks regstraton.
Par. . rtce 6 (26 CFR 1 1.6) s amended to read as foows:
Sec. 1 1.6. vdence of uafcaton. The appcaton of every person sha
show that, under the aws of the |ursdcton n whch he s operatng or proposes
to operate, he s egay quafed or awfuy entted to engage n the actvtes
for whch regstraton s sought.
Par. . rtce 9 (26 CFR 1 1.9) s hereby repeaed.
Par. 6. rtce 10 (26 CFR 1 1.10) s amended to read as foows:
Sec. 1 1.10. Inventokt Requ|ed. very person makng appcaton for
regstry or reregstry n any cass (see art. 13, 26 CFR 1 1.13), e cept casses I
and II, sha, as of December 31 precedng the date of hs appcaton or any date
between December 31 and the date of appcaton for such regstry or reregstry,
prepare n dupcate an nventory of a narcotc drugs and preparatons on hand
at the tme of makng such nventory. The nventores sha be prepared on the
reverse sde of Form 67 , copes of whc may be obtaned from coectors upon
request. If the ta payer s engaged n busness n more than one cass, a sep-
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Regs. , rts. 2, etc.
1 6
arate nventory sha be prepared for each cass.. cass regstrant s not re-
qured to make an nventory of preparatons or remedes e empt under secton 6,
but he s requred to make an nventory of a none empt narcotc drugs and
preparatons n hs possesson. dupcate copy of the nventory sha be kept
on fe by the maker for a perod of 2 years.
Par. 7. rtce 3 (a) (26 CFR 1 1.3 (a)) s amended by strkng
from the second sentence thereof the number 67 - and nsertng n
eu thereof the number 67 .
Par. . rtce 1 (26 CFR 1 1. 1) s amended by strkng from the
frst sentence the number 67 - and nsertng n eu thereof the
number 67 .
Par. 9. rtce 93 (26 CFR 1 1.93) s amended by strkng from the
ast sentence the number 713 and nsertng n eu thereof the num-
ber 67 .
Par. 10. rtce 1 6(a) (26 CFR 1 1.1 6(a)) s amended by strk-
ng from the second sentence the number 713 and nsertng n eu
thereof the number 67 .
Par. 11. rtce 19 (26 CFR 1 1.19 ) s amended to read as
foows:
Sec. 1 1.19 . Procedure tn Case of Loss. (a) Where, through breakage of
the contaner or other accdent, otherwse than n transt, narcotcs are ost or
destroyed, the person havng tte thereto sha make a sgned statement as to
the knds and quanttes of narcotcs ost or destroyed and the crcumstances
nvoved, and mmedatey forward the statement to the narcotc dstrct super-
vsor. copy of such statement sha be retaned and fed wth the other nar-
cotc records. See append for st of narcotc dstrct supervsors, ther head-
quarters and States embraced.
(b) Where narcotcs are ost by theft, or otherwse ost or destroyed n
transt, the consgnee sha mmedatey upon ascertanment of the occurrence
fe wth the narcotc dstrct supervsor, a sgned statement of the facts, ncud-
ng a st of the narcotcs stoen, ost, or destroyed, and documentary evdence
that the oca authortes were notfed. copy of the statement sha be retaned
and fed wth the other narcotc records of the consgnee.
(c) oss n transt does not authorze a vendor to dupcate a shpment on
the same order form. separate order form coverng each and every shpment
of narcotcs s requred.
Ths Treasury Decson s ssued under the authorty contaned n
sectons 2 1, 2 9, and 2606 of the Interna Revenue Code ( 3 Stat.
270, 277,2 3; 26 U. S. C. 2 1, 2 9, 2606).
ecause the amendments made by ths Treasury Decson reduce the
number of forms requred under certan condtons and the ncuson
of opates as part of the defnton of narcotc drugs, s a matter of
statutory aw, t s found unnecessary to ssue ths Treasury Decson
wth notce and pubc procedure thereon under secton (a) of the
dmnstratve Procedure ct, approved une 11, 19 6, or sub|ect to
the effectve date mtaton of secton (c) of sad ct.
Ths Treasury Decson sha be effectve upon ts fng for pubca-
ton n the Federa Regster.
Geo. . Scoeneman,
G. W. Cunn gham,
ctng Commssoner of Narcotcs.
pproved November 2 , 19 0.
. . Foey, r.,
(Fed wth the Dvson of the Federa Regster December , 19 0, 12:20 p. m.)
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1 7
Regs. 2 (19 2), 130.63.
TR NSPORT TION T S
TR NSPORT TION OF P RSONS
Reguatons 2 (19 2), Secton 130.63: Mem- 19 1-9-13 2
bers of mtary and nava servce. T. D. 36
TITL 26 INT RN L R NU . C PT R I. SU C PT R C. P RT 130.
T S ON S F D POSIT O S ND ON C RT IN TR NSPORT TION ND
COMMUNIC TIONS S R IC S
empton of furough trave of servce personne
Offce of Commssoner of Interna Revenue.
Washngton 2 , D. C.
In order to conform Reguatons 2 (19 2 edton) 26 CFR, part
130 , to Pubc Law , ghty-frst Congress, second sesson page
177, ths uetn , approved December 1 ,19 0, such reguatons are
amended as foows:
130.63 26 CFR 130.63 the foowng:
PU LIC L W 7 ( 1st CONG.. 2d S SS.), PPRO D
D C M R 1 , 19 0
Unted States o/ merca n Congress assembed. That effectve wth
respect to amounts pad after the date of enactment of ths ct
(a) Secton 12 of the ct of ugust , 10 7, entted n ct to
termnate certan ta provsons before the end of Word War II (61
Stat. 919), s hereby repeaed.
(b) Secton 3 69(f)(2) of the Interna Revenue Code s hereby
amended to read as foows:
(2) empton of members of mtary and nava servce.
The ta mposed by ths secton sha not appy to the payment for
transportaton or factes furnshed under speca tarffs pro-
vdng for fares of not more than 2.02 cents per me appcabe
to round-trp tckets sod to personne of the Unted States rmy,
r Force, Navy, Marne Corps, and Coast Guard traveng n un-
form of the Unted States at ther own e pense when on offca
eave, furough, or pass, ncudng authorzed cadets and mdshp-
men, ssued on presentaton of propery e ecuted certfcate.
Par. 2. Secton 130.63, as amended bv Treasury Decson 60
C. . 19 -1,1 0 , approved February 2 , 19 26 CFR 130.63 , s
further amended as foows:
( ) y strkng out the capton and nsertng n eu thereof the
foowng:
Sec 130.63. Mempfrs pf Mtary and Nava Servce. (a) mounts pad
pror to anuary 1, 19 t .
( ) y strkng out the ast sentence and nsertng n eu thereof
the foowng:
Ths paragraph (a) sha not appy wth respect to amounts pad after December
31, 19 7.
(6) mounts pad on or after December 16. 19 0. Under the provsons of
secton 3 C9(f;(2), as amended by Pubc Law 7 (Sst Cong., 2d seas.), the
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Regs. 113 (19 3), 1 3.11, etc. 1
ta does not appy to amounts pad after December 1 , 19 0, for transportaton
or for seatng or seepng accommodatons furnshed under speca tarffs pro-
vdng for fares of not more than 2.02 cents per me appcabe to round-trp
tckets sod to personne of the Unted States rmy, r Force, Navy, Marne
Corps, and Coast Guard, ncudng authorzed cadets and mdshpmen, traveng
n unform of the Unted States at ther own e pense when on offca eave,
furough, or pass. person camng e empton under ths secton w be re-
qured to e hbt to the agent of the carrer a propery e ecuted certfcate to
sow that he s traveng on offca eave, furough, or rass, but the submsson
of an e empton certfcate on Form 731, revsed, s not necessary n such case.
ecause the amendment to secton 3 69(f) (2) of the Interna Reve-
nue Code became effectve on December 1G, 19 0. the date foowng;
the date of approva of Pubc Law 7 ( 1st Cong., 2d sess.), and
because of the technca nature of the amendments made heren, t s
found that t s mpractcabe and unnecessary to ssue ths Treasury
Decson wth notce and pubc procedure thereon under secton (a)
of the dmnstratve Procedure ct, approved une 11, 19 6, or
sub|ect to the effectve date mtaton of secton (c) of sad ct.
Ths Trsasury Decson sha be effectve as of December 16, 19 0.
taned n sectons 3 72 and 3791 of the Interna Revenue Code ( 3
Stat. 23. 67, Stat. 722; 26 U. S. C. 3 72, 3791).)
G O. . Sc O NF.M N,
Commssoner of Inferna Revenue.
pproved pr 3,19 1.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster pr 9, 19 1, S: a. m.)
TR NSPORT TION OF PROP RTY
Reguatons 113 (19 3), Secton 1 3.11,1 3.13(a), 19 1-3-13 3
and 1 3.30. T. D. 2G
TITL 2C INT R L R NU C TT R I. SU C PT R C-P RT 1 3. T
WIT R SP CT TO T TR NSPORT TION OF PROP RTY
Ta on transportaton whch begns and ends n Unted States
Washngton 2 , D. C.
In order tc conform Reguatons 113 26 CFR, part 1 3 , reatng
to the ta on the amount pad for the transportaton of property, to
the Revenue ct of 19 0 (Pubc Law 1 , 1st Cong., 2d sess.), ap-
proved September 23. 19 0, such reguatons are amended as foows:
Paragraph 1. There s nserted mnedatev precedng secton
1 3.10 26 CFR 1 3.10 the foowng:
S C. 607. TR NSPORT TION W IC GINS ND NDS
WIT IN T UNIT D ST T S. R NU CT OF 19 0
(PU LIC L W 1 , 1st CONG., 2d S SS.), PPRO D
S PT M R 23, 19 0.

(b) Transportaton of Property. The frst sentence of secton
3 7 (a) (reatng to ta on transportaton of property) s hereby
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1 9 Regs. 113 (1 3), U 1 3.11, etc.
amended to read ns foows: There sha be Imposed upon the amount
pad wthn or wthout the Unted States for the transportaton of prop-
erty by ra, motor vehce, water, or ar from one pont n the Unted
States to another, a ta equa to 3 per centum of the amount so pad,
e cept that, n the case of coa, the rate of ta sha be cents per short
ton.
(c) ffectve Date. The amendments made by ths secton 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 the enactment of ths ct
for transportaton whch begns on or after such frst day.
Par. 2. Secton 1 3.11 26 CFR 1 3.11 s amended to read as
foows:
Sec 1 3.11 Scope of Ta . Secton 3 7 (a) mposes a ta upon (a) amounts
pad wthn the Unted States after December 1, 19 2, for transportaton, org-
natng on or after such date, of property by ra, motor vehce, water, or ar
from one pont n the Unted States to another, and (6) amounts pad wthout
the Unted States, on or after November 1, 19 0, for transportaton, orgnatng
on or after such date, of property by ra, motor vehce, water, or ar from one
pont n the Unted States to another. The ta appes ony to amounts pad
to a .erson engaged n the busness of transportng property for hre.
Par. 3. Secton 1 3.13(a), as amended bv Treasury Decson 3
C. . 19 , 6 7 , approved pr 1, 19 26 CFR 1 3.13 , s further
amended as foows:
( ) y nsertng n the second undesgnated paragraph mmed-
atey foowng the word wthn the words or wthout .
( ) y amendng the fourth undesgnated paragraph to read as
foows:
Wth respect to amounts pad wthn the Unted States, the ta appes ony
to amounts pad after December 1, 19 2, for transportaton whch orgnated
on or after that date. No ta attaches to payments for transportaton org-
natng pror to the frst moment of December 1, 19 2. Payments made pror
to December 2, 19 2, are not ta abe regardess of when the transportaton
occurs.
Wth respect to amounts pad wthout the Unted States, the ta appes to
amounts pad on or after November 1, 19 0, for transportaton orgnatng on or
after that date.
(C) y nsertng at the end thereof the foowng paragraph:
Where a payment coverng the entre movement of property from a pont wth-
out the Unted States to a pont wthn the Unted States Is made to the orgnatng
carrer or freght forwarder outsde the Unte States and such carrer or freght
forwarder pays an amount wthn the Unted States for that part of the trans-
portaton movement whch takes pace wthn the Unted States, a statement
to the effect that the transportaton wthn the Unted States s part of a trans-
portaton movement from wthout the Unted States and that payment coverng
the entre movement was made outsde the Unted States sha be endorsed on the
approprate shppng papers. Such endorsement sha consttute authorty to
the carrer wthn the Unted States not to coect the ta .
Par. . Secton 1 3.30 26 CFR 1 3.30 s amended by strkng
from the frst sentence the words n the Unted States .
ecause of the short perod of tme between September 23, 19 0,
the date of approva of the Revenue ct of 19 0, and November 1,
19 0, the date upon whch, pursuant to such ct, the amendment of
secton 3 7 (a) becomes effectve, t s found that t s mpractcabe
to ssue ths Treasury Decson wth notce and pubc procedure
thereon under secton (a) of the dmnstratve Procedure ct, ap-
proved une 11, 19 6, or sub|ect to the effectve date mtaton of
secton (c) of sad ct.
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Regs. 113 (19 3), 1 3.11, etc.) 1 0
Stat. 23 and 67, Stat. 722; 26 U. S. C. 3 72, 3791).)
Geo. . Schoeneman,
pproved anuary 12. 19 1.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster anuary 17, 19 1, : 6 a. m.)
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1 1 Regs. 6 (19 0), 316. .
M NUF CTUR RS CIS T S
S CTION 3 03(c), S M ND D. UTOMO IL S, TC., P RTS OR
CC SSORI S
Reguatons 6 (19 0), Secton 316. . 19 1-6-13 60
S. T. 937
Rebuders of used automobe engnes may, n eu of usng actua
vaues of ndvdua engne bocks accepted n part payment of re-
but engnes sod on an e change bass, ascrbe to bocks of a
makes, types, and modes so accepted a unform vaue of 3 percent
of the e change prce n the computaton of ta payabe under
secton 3 03(c) of the Interna Revenue Code.
Rebuders of used automobe engnes customary operate on an
e change bass, that s, saes of rebut engnes are made pre-
domnanty ony to purchasers who, n addton to payng a cash
amount, usuay known as the e change prce, aso turn n or e -
change an equvaent number of used engne bocks whch are capabe
of beng rebut.
In those cases where a customer does not turn n a usabe engne
bock for each rebut engne purchased, the rebuder empoys varous
methods to encourage trade-ns, such as quotng ether (1) an out-
rght prce aganst whch a credt s aowed f a usabe engne bock
s ater furnshed; (2) an e change prce pus a depost charge,
whch charge s refunded f a usabe engne bock s ater turned n;
or (3) an e change prce to whch s added a stated amount n the
absence of a trade-n. These credts, depost charges, etc., may
e ceed the vaue of the usabe engne bock, accordng to the e tent
to whch the rebuder wshes to penaze a faure to turn n an
acceptabe used bock.
It has been the poston of the ureau that the sae of a rebut
engne by the rebuder s sub|ect to manufacturers e cse ta under
secton 3 03(c) of the Interna Revenue Code and that the ta s due
on the entre sae prce, that s, the sum of the cash payment pus the
vaue of the engne bock accepted n e change. The courts have
sustaned ths nterpretaton of the aw. owever, because of the
practces n the ndustry rected above, dffcutes have been en-
countered by ta payers, as we as by the ureau, n estabshng the
vaue of the engne bock accepted n e change for purposes of
computng abty for ta .
ecause of such dffcutes and to avod the necessty for each re-
buder of automobe engnes to estabsh the vaues of the varous
makes, types, and modes of traded-n bocks, the ureau has made
a thorough survey of the probem n order to provde rebuders of
used engnes wth a defnte and unform bass upon whch to compute
ther abty for ta on saes of such engnes.
In eu of usng actua vaues of ndvdua engne bocks accepted
n part payment of rebut engnes sod on an e change bass, re-
buders may ascrbe to bocks of a makes, types, and modes so ac-
cepted a unform vaue of 3 percent of the e change prce. Under
ths method, the ta payabe under secton 3 03(c) of the Interna
Revenue Code w be computed at percent of the sum of the e change
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Regs. 6 (19 0), 316. .
1 2
prce pus 3 percent thereof where the ta s passed on as a separate
tem, or at one twenty-frst of such sum where the ta s not bed
separatey.
rebuder eectng to make returns and pay the ta due on saes
of rebut engnes under the method outned n the precedng para-
graph must (1) foow such method wth respect to a makes, types,
and modes of engne bocks, regardess of ther condton, and (2)
contnue to use such method unt, upon request made to the Comms-
soner, permsson s granted to do otherwse. Snce under ths
method unform vaues are ascrbed to a makes, types, and modes
of bocks deat n, wthout regard to condton, any bona fde e tra
charge for mssng parts or defects wth respect to partcuar bocks
sha not be taken nto consderaton n the computaton of ta a-
bty, because such charge s then consdered to be merey an ad|ust-
ment of the vaue of the used engne bock rather than a part of the
e change prce.
rebuder not eectng to utze the foregong method must use the
actua vaues of each cass (. e., make, type, and mode) of used engne
bocks accepted n e change n the computaton of hs ta abty.
In ths nstance, a bona fde e tra charge for mssng parts or defects
wth respect to a partcuar bock may or may not enter nto the
computaton of ta abty, dependng upon the method of opera-
tons. Thus, f the vaues ascrbed to the varous casses of bocks are
apped unformy to a bocks of each cass, regardess of condton,
such e tra charge sha be e cuded n the ta computaton. owever,
f n makng hs return of ta a rebuder paces upon bocks havng
defects or mssng parts, vaues ower than those appyng to ther
respectve casses, e tra charges by reason of such defects or mssng
parts are consdered ad|ustments of the e change prce and are prop-
ery ncudbe n computng the ta . Moreover, n ths nstance the
ta payer shoud obtan a rung from the Commssoner approvng the
vauatons ascrbed by hm to the varous casses of bocks. y so
dong, the ta payer w be assured that hs payments of ta are cor-
recty computed and thus emnate the rsk of ncurrng an accrued
addtona ta abty wth respect to past transactons.
Where a sae s made at an outrght prce, that s, where there s no
used engne bock traded n on the sae of a rebut engne, ta s due
at the rate of percent of the tota sae prce where the ta s passed
on as a separate tem, or at one twenty-frst of such prce where the
ta s not bed separatey. owever, where n such case a used en-
gne bock s subsequenty turned n and an ad|ustment n the orgna
charge s made between the partes, the transacton w be treated as
a sae on an e change bass. In that event, the utmate ta abty
of the rebuder shoud be determned n accordance wth whchever
of the methods herenbefore outned s beng foowed by the rebuder
wth respect to hs saes of rebut engnes on an e change bass.
rebuder s entted to a credt aganst hs ta abty computed
on the above bases n the amount of ta pad by the manufacturer of
any new automobe parts used by hm n the rebudng process. No
ta credt s aowed for used parts purchased or savaged for use n
the rebudng process.
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1 3
Regs. (19 1). 31 .6 .
T S ON G SOLIN , LU RIC TING OIL, ND M TC S
Reguatons (19 ), Secton 31 .6 : Credts 19 1-11-13 96
and refunds. T. D. 0
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 31 .
T S ON G SOLIN , LU RIC TING OIL, ND M TC S
Credt or refund of ta pad on certan suppes for certan
vesses.
Washngton , D. C.
In order to conform Reguatons (19 ed.) 26 CFR, part 31 ,
reatng to ta es on gasone, ubrcatng o, and matches under
chapter 29 of the Interna Revenue Code, to the provsons of secton
609 of the Revenue ct of 19 0 (Pubc Law 1 , 1st Cong., 2d sess.),
approved September 23, 19 0, such reguatons are hereby amended
as foows:
Paragraph 1. There s nserted mmedatey foowng secton 3 3
set forth wth certan other provsons of the Interna Revenue Code
precedng secton 31 .6 26 CFR 31 .6 the foowng:
S C. 609. RTICL S SOLD FOR US OF IRCR FT NG O D
IN FOR IGN TR D R NU CT OF 10 0, PPRO D
S PT M R, 23, 10 0 .
ffectve wth respect to artces purchased (by the user thereof) on
or after the frst day of the frst month whch begns more than ten days
after the date of the enactment of ths ct, secton 3 3(a) (3) ( ) (11)
(reatng to refunds n the case of artces used or resod for use as
shps stores, etc.) s hereby amended to read as foows:
() used or resod for use for any of the purposes, but sub-
|ect to the condtons, provded In secton 3 1; .
Par. 2. Secton 31 .6 , as amended by Treasury Decson 67 C. .
19 -2,1 7 , approved November 23,19 26 CFR 31 .6 , s further
amended by strkng out the thrd paragraph from the end (whch
paragraph begns wth The provsons of secton 3 1 ) and nsert-
ng n eu thereof the foowng:
Under the provsons of secton 3 3(a) (3) ( ) (I), pror to November 1,
19 0, no credt or refund was aowabe wth respect to ta pad on artces
Id for use on certan arcraft, even though t was known at the tme of the
sae that the artces woud be so used. y vrtue of the provsons of secton
609 of the Revenue ct of 19 0, a manufacturer may be aowed a refund, or
may take credt aganst the ta shown to be due upon any subsequent monthy
return, n the amount of ta pad by hm wth respect to the sae of any artce
whch s used, or resod for use on or after November 1, 19 0, for any of the
purposes, but sub|ect to the condtons, provded n secton 3 1. (See secton
31 2 .) Refund or credt w be made or aowed In such cases ony upon the
submsson of the evdence requred by the precedng paragraphs reatng to
transactons wthn the scope of secton 3 3(a) (3) ( ).
Where artces are sod by the manufacturer n accordance wth the provsons
of secton 317 (b) of the Tarff ct of 1930, as added by the ct approved une
2 ,193 , for use as suppes (ncudng equpment) upon.or n the mantenance
or repar of, arcraft regstered n any foregn country and actuay engaged
9 290 1 11
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Regs. (19 ), 31 .6 .
1
In foregn trade or trade between the Unted States and any of ts possessons,
the manufacturer who pad the ta to the Government may be aowed a refund
or may take credt aganst the ta due upon any subsequent monthy return,
provded he has n hs possesson the evdence outned In secton 31 .29.
ecause of the technca nature of the amendment made heren, t
s found that t s unnecessary to ssue ths Treasury Decson wth
notce and pubc procedure thereon under secton (a) of the dmn-
stratve Procedure ct, approved une 11, 19 6, or sub|ect to the
effectve date mtaton of secton (c) of sad ct.
Stat. 19, G7; 20 U. S. C. 3 0,3791).)
Geo. . Scoenem vn,
pproved May 9,19 1.
Thomas . Lynch,
(Fed wth the Dvson of the Federa Regster May 1 , 19 1, : 7 a. m.)
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MISC LL N OUS RULINGS
19 1- -13 1
. 0.10211
CUTI ORD R 10211 PL CING IN OP R TION T PRO ISIONS OP
S CTION 31 OF T ORG NIC CT OF GU M
Whereas secton 31 of the Organc ct of Guam (Pubc Law 630,
1st Cong. C. . 19 0-2,21 ), approved ugust 1,19 0, 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.
nd whereas secton 3 of the sad Organc ct of Guam provdes:
Cpon the 21st day of uy 19 0, the annversary of the beraton of the sand
of Guam by the rmed Forces of the Unted States n Word War II, the authorty
and powers conferred by ths ct sha come nto force. owever, the Presdent
s authorzed, for a perod not to e ceed one year from the date of enactment of
ths ct, to contnue the admnstraton of Guam n a or n some respects as
provded by aw. ecutve order, or oca reguaton n force on the date of
enactment of ths ct The Presdent may, n hs dscreton, pace n operaton
a or some of the provsons of ths ct f practcabe before the e praton of
the perod of one year.
Now, therefore, by vrtue of the authorty vested n me by secton 3
of the sad Organc ct of Guam, t s hereby ordered that the prov-
sons of secton 31 of the sad ct sha be n operaton as of anu-
ary 1, 19 1.
arry S. Truman.
The Whte ouse,
February 6,19 1.
(Fed wth the Dvson of the Federa Regster February 6, 10 1, 12:0 p. m.)
R N GOTI TION CT, S M ND D
19 1-11-13 97
Mm.6023
(Suppement 1)
Renegotaton rebates
Washngton 2 , D. C, May 3, 19 1.
Concerned:
1. Secton 201(c), secton 201 (d), and secton 201 (k), tte II, of
the Renegotaton ct of 19 1 (Pubc Law 9, 2d Cong., chapter 1 ,
stsess.; page 1 0, ths uetn), approved March 23, 19 1, reads as
foows:
(1 )
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Msc.
1 6
S C. 201. FUNCTIONS UND It WORLD W R II R N GOTI TION
CT.
(c) mendment of the Renegotaton ct. Subsecton (a) ( ) (D)
of the Renegotaton ct s amended by nsertng at the end thereof the
foowng: net renegotaton rebate sha not be repad uness a cam
therefor has been fed wth the oard on or before the date of Its abo-
ton, or uness a cam sha have been fed wth the dmnstrator of
Genera Servces () on or before une 30, 19 1, or () wthn nnety
days after the makng of an agreement or the entry of an order under
subsecton (c)(1) determnng the amount of e cessve profts, whch-
ever s ater. cam sha be deemed to have been fed when receved
by the oard or the dmnstrator, whether or not accompaned by a
statement of the Commssoner of Interna Revenue showng the amor-
tzaton deducton aowed for the renegotated year upon the recomputa-
ton made pursuant to secton 12 (d) of the Interna Revenue Code.
(d) Transfer of Certan Functons. powers, functons, and
dutes conferred upon the War Contracts Prce d|ustment oard by
subsecton (a)( ) (D) of the Renegotaton ct, sub|ect to the amend-
ment thereof by subsecton (c) of ths secton, are hereby transferred to
the dmnstrator of Genera Servces.
(k) ffectve Date of Secton. Ths secton sha take effect s ty
days after the date of the enactment of ths ct.
2. In vew of the amendment .of the Renegotaton ct prescrbed
n secton 201(c) of the Renegotaton ct of 19 1, the provson con-
taned n the ast sentence of paragraph 3 of Mmeograph 6023 (C. .
19 6-2, 1 7), requrng the ta pa rer to attach to ts cam for a re-
negotaton rebate a statement by the offce of the Commssoner of
Interna Revenue showng the tota amortzaton deducton whch s
aowed for the renegotated year, w not be appcabe on and after
the effectve date of such secton (60 days after March 23, 19 1).
owever, nasmuch as the ta payer w be requred to fe such a
statement n support of any cam for renegotaton rebate fed wth
the oard or the dmnstrator of Genera Servces, the procedure
under whch the ta payer may request and receve a statement of the
amortzaton deducton aowed for a renegotated year after there has
been a recomputaton of the amortzaton deducton n connecton
wth a determnaton of ncome and e cess profts ta abty for the
renegotated year, gvng effect to an eecton under secton 12 (d)
of the Code to use the shortened amortzaton perod, and for the
computaton of the Federa ta beneft after there has been a determ-
naton by the dmnstrator of Genera Servces of the amount of
the gross renegotaton rebate, w be contnued.
Geo. . Scoe:.-eman,
Commssoner.
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1 7 Regs. , , 7, and 10.
DISTILL D SPIRITS
INT RN L R NU COD
Reguatons , , 7, and 10. 19 1-2-13 2
T.D. 2
TITL 26 INT RN L R NU . C PT R I. SU C PT R C, P RTS 17 , 1 3
1 . ND 1 3
(Reguatons , , 7, and 10)
Washngton , D. C.
To Dstrct Supervsors and Others Concerned:
1. In order to authorze the temporary use of tank trucks, as an
emergency measure, upon the showng of the unavaabty of tank
cars, for the transportaton of dsted sprts (ncudng brandy),
produced at 160 of proof or more, transferred n bond between
regstered dsteres, frut dsteres, and nterna revenue bonded
warehouses and of brandy wthdrawn from frut dsteres or nterna
revenue bonded warehouses for the fortfcaton of wne, the fo-
owng reguatons are hereby prescrbed:
2. Reguatons Producton of Dsted Sprts (26 CFR, part
1 3; 1 F. R. 33 ) are amended as foows:
subpart w ta patment, remova, and transfer of d tn ed sprts from
Cstern Room

T MPOR RY use of tank trucks for transfers n bond
Sec. 1 3. 06a. Genera. Upon a showng of the unavaabty of tank cars
for the transportaton of dsted sprts, produced at 160 of proof or more,
authorzed by sectons 1 3. 3(b)(3), 1 3. 6(b), 1 3. 7(c)(3), 1 3. 91(b),
1 3. 92(b)(2), S3. 9 (b), 1 3. 96(a)(2), 1 3. 99(b), 1 3. 00(b)(3), and
1 3. 03(b), the dstrct supervsor, as an emergency measure, may authorze
the temporary use of tank trucks for such transportaton, sub|ect to the pro-
vsons of sectons 1 3. 06b-1 3. 06g and the appcabe provsons of ths part
governng the transfer n bond of dsted sprts n tank cars. ( 3 Stat. 31 ,
33 as amended, 37 ; 26 T . S. C. 2 20, 2 3, 3176.)
Sec. 1 3. 0Cb. Type of Motor Carrer. Transportaton by tank trucks author-
zed by secton 1 3. 06a sha be made (a) by a motor carrer censed under the
Motor Carrer ct of 193 or an appcabe State aw, or a prvate carrer em-
poyed by, or actng as agent for, the consgnor or consgnee, who s actvey and
reguary engaged generay n the egtmate busness of transportaton, who
possesses adequate factes to nsure safe devery at destnaton of any ds-
ted sprts transported by hm, and who s approved by the dstrct supervsor;
or (6) by the consgnor or consgnee actng as a prvate carrer. ( 3 Stat. 31 ,
33 as amended, 37 ; 26 U. S. C. 2 20, 2S 3, 3176.)
Sec. 1 3. 06c. Constructon of Tank Trucks. very tank truck used to trans-
port dsted sprts In bond must conform to the foowng requrements: The
tank sha be securey and permanenty attached to the frame or chasss of the
truck or traer and sha be securey constructed. Interor bukheads or stffeu-
ers must have proper dranage cut-outs. Manhoe covers, outet vaves, vents
or pressure reef vaves, and a other openngs sha be equpped for seang so
as to prevent unauthorzed access to the contents of the tank. Outets of each
compartment must be so arranged that devery of any compartment w not
afford access to the contents of any other compartment. Parta devery, by
meter or otherwse, w not be permtted. There sha be but one consgnor per
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Regs. , , 7, and 10.
1
oad and the entre contents of a compartments sha be devered to one con-
sgnee, uness the dstrct supervsor, for good cause, authorzes the use of
separate compartments for dfferent consgnors or consgnees. Cabrated charts,
prepared or certfed by competent and recognzed authortes or engneers, show-
ng the capacty of each compartment n wne gaons for each nch of depth sha
be carred n each truck. ach tank truck sha aso be equpped wth a route
board, at east 10 by 12 Inches, constructed of substanta matera and per-
manenty attached thereto by round-headed or carrage bots, nutted and rveted,
battered or weded. ach tank truck must have permanenty and egby marked
or panted thereon ts number, capacty n wne gaons, and the name of the
owner, n etters at east nches n heght. If the tank truck conssts of two
or more compartments, each compartment must be dentfed by a etter of the
aphabet, such as , , etc., and the capacty n wne gaons of each com-
partment must be marked thereon. Provson sha aso be made for protecton,
aganst the weather, of the abe by the use of ceuod or equay substanta
matera. The prescrbed abe (as requred by secton 1 3. 00f) w be aff ed
to such route board. Tank trucks sha be so constructed that the contents of
each compartment w dran competey, even when the ground s not perfecty
eve. Sutabe adders and catwaks, permanenty attached, must be provded n
order to permt ready e amnaton of manhoes and other openngs. Provson
sha be made for the proper groundng of tank trucks when fng or emptyng.
( 3 Stat. 31 , 33 as amended, 37 ; 26 U. S. C. 2 20. 2 3, 3170.)
Sec. 1 3. 06d. ond Transportaton by Motor Carrer. Motor carrers, as
defned n secton 1 3. 06b, desrng to transport dsted sprts n bond, n tank
trucks, must fe wth the dstrct supervsor a bond on Form 9, ond To Trans-
port Specay Denatured or Ta -Free coho, modfed to read ond To
Transport Dsted Sprts . The pena sum of the bond sha be at the rate of
7 ,000 for each such tank truck and not more than 200,000 for the tota of a
tank trucks used. The bond sha be fed n trpcate, appropratey modfed.
( 3 Stat. 31 , 33 as amended, 37 ; 26 U. S. C. 2 20, 2 3, 3176.)
Sec. 1 3. 06e. ond Transportaton by Consgnor ob Consgnee. con-
sgnor or consgnee, n order to transport dsted sprts n bond, n tank trucks
controed and operated by such consgnor or consgnee, must fe wth the dstrct
supervsor a bond on Form 9, propery modfed, n the pena sum specfed n
secton 1 3. 06d, provded that n eu of fng such bond, the consgnor or con-
sgnee may fe consent of surety, Form 1 33, on hs bond. Form 30, 30 , or Form
1 71, as the case may be, e tendng the terms thereof to cover the ta , together
wth penates and nterest, for whch he may b2come abe, on a dsted
sprts transported by hm n tank trucks. If the transportaton s by the con-
sgnor or consgnee dster and the ma mum of hs bond s not suffcent
when computed as set forth n secton 1 3. 06d, an addtona bond on Form 9
n a suffcent pena sum must be furnshed to cover the addtona abty.
If the transportaton s by the consgnee warehouseman and the ma mum of
hs bond s not suffcent when computed as set forth n secton 1 3. 06d, an
addtona bond on Form 9 or 1 71 n a suffcent pena sum must be furnshed
to cover the addtona abty. ( 3 Stat. 31 , 33 as amended, 37 ; 26 T . S. C.
2 20, 2 3, 3176.)
Seo. 1 3. 0Cf. Remova n Tank Trucks. Tank trucks used for the trans-
portaton of dsted sprts n bond must be fed n the mmedate presence
of the storekeeper-gauger. Pror to fng, the storekeeper-gauger sha deter-
mne whether the tank truck s propery marked and may be effectvey seaed.
If the tank truck does not meet such requrements, ts use for the transporta-
ton of dsted sprts n bond w not be permtted. Immedatey after fng,
the storekeeper-gauger sha sea the tank truck n such a manner as w secure
a openngs affordng access to the contents of the tank. The storekeeper-
gauger w enter on Form 1 20, coverng the descrpton and gauge of the
dsted sprts, the number of nches of dsted sprts oaded nto each com-
partment and the temperature thereof at the tme of fng, the name of the
carrer, the number of the tank truck, the State cense number of the truck, the
drver s fu name, and the drver s permt number and State Issung the same,
the destnaton, the date of shpment, and the sera numbers of the cap seas
used. Forms 230 and 1 20 w be dsposed of n accordance wth secton
1 3. 72 or 1 3. S0, as the case may be. The consgnor sha securey attach to
the route board of the tank truck a abe showng the name, regstry number,
and ocaton (cty or town and State) of the shppng regstered dstery;
the name, regstry number, and ocaton (cty or town and State) of the recev-
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1 9
Regs. , , 7, and 10.
ug Interna revenue bonded warehouse, frut dstery, or other regstered ds-
tery, as the case may be, foowed by the date of shpment; and the quantty
n wne and proof gaons contaned n each compartment. (Such abe sha
be destroyed upon emptyng the tank truck.) ( 3 Stat. 31 , 33 as amended,
37 ; 26 U. S. C. 2 20, 2 3, 3176.)
Sec 1 3. 06g. Recepts n Tank Trucks. Where dsted sprts for reds-
taton are receved n tank trucks from a dstery or from an nterna revenue
bonded warehouse, the seas must be broken by the storekeeper-gauger at the
recevng dstery and no dsted sprts may be removed from the tank truck
ecept In the presence of such offcer. The storekeeper-gauger w carefuy
e amne the tank truck for evdence of oss, and gauge and report the quantty
receved n accordance wth the appcabe provsons of secton 1 3. 39. When
the gauge of sprts receved dscoses dscrepances between the shppng and
recevng gauges, the appcabe procedure prescrbed by secton 1 3. 0 w be
foowed. ( 3 Stat 31 , 33 as amended, 37 ; 26 U. S. C. 2 20, 2 3, 3176.)
3. Reguatons Producton of randy (26 CFR, part 1 ; 1
F. R. 2) are amended as foows:
SC P T Ta P YM NT, R MO L ND TR NSF R OF R NDY FROM DISTILL RY

T 1IPO Y U6 OF T N T UC S FOR TR NSF RS IN OND ND R MO LS FO
FO TIFIC TION OF WIN
Sec. 1 . 3a. Genera. Notwthstandng the prohbton n secton 1 . 3,
and anon a showng of the unavaabty of tank cars for the transportaton of
brandy, produced at 160 of proof or more, authorzed by sectons S . 3 (b) (2),
1 . 37(b), and 1 . 39(b), the dstrct supervsor, as an emergency measure,
may authorze the temporary use of tank trucks for such transportaton, sub|ect
to the provsons of sectons 1 . 3b-1 . 3g and the appcabe provsons of
ths part governng the transfer n bond of brandy and the remova of brandy
for the fortfcaton of wne, In tank cars. ( 3 Stat 31C as amended, 33 as
amended, 37 ; 26 U. S. C. 2 2 , 2 3, 3176.)
Sec. 1 . 3b. Type of Motob Carrer. Transportaton by tank trucks author-
zed by secton 1 . 3a sha be made (o) by a motor carrer censed under the
Motor Carrer ct of 193 or an appcabe State aw, or a prvate carrer em-
poyed by, or actng as agent for. a consgnor or consgnee, who s actvey and
reguary engaged generay n the egtmate busness of transportaton, who
possesses adequate factes to nsure safe devery at destnaton of any brandy
transported by hm, and who s approved by the dstrct supervsor; or (6)
b the consgnor or consgnee actng as a prvate carrer. ( 3 Stat. 316 as
amended, 33 as amended, 37 ; 26 U. S. C. 2 2 , 2 3, 3176.)
Sc. 1 . 3c. Constructon of Tank Trucks. very tank truck used to
transport brandy n bond, or for remova for the fortfcaton of wne, must
conform to the foowng requrements: The tank sha be securey and per-
manenty attached to the frame or chasss of the truck or traer and sha be
securey constructed. Interor bukheads or stffeners must have proper dran-
age cut-outs. Manhoe covers, outet vaves, vents or pressure reef vaves,
and a other openngs sha be equpped for seang so as to prevent unauthorzed
access to the contents of the tank. Outets of each compartment must be so
arranged that devery of any compartment w not afford access to the contents
of any other compartment Parta devery, by meter or otherwse, w not
be permtted. There sha be but one consgnor per oad and the entre contents
of a compartments sha be devered to one consgnee, uness the dstrct super-
vsor, for good cause, authorzes the use of separate compartments for dfferent
consgnors or consgnees. Cabrated charts, prepared or certfed by competent
and recognzed authortes or engneers, showng the capacty of each compart-
ment n wne gaons for each Inch of depth sha be carred n each truck.
ach tank truck sha aso be equpped wth a route board at east 10 by 12
nches, constructed of substanta matera and permanenty attached thereto
by round-headed or carrage bots, nutted and rveted, battered or weded. ach
tank truck must have permanenty and egby marked or panted thereon ts
number, capacty n wne gaons, and the name of the owner, n etters at east
nches n heght. If the tank truck conssts of two or more compartments,
web, compartment must be dentfed by a etter of the aphabet, such as ,
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Regs. , , 7, and 10.
160
, etc., and the capacty n wne gaons of each compartment must be marked
thereon. Provson sha aso be made for protecton, aganst the weather, of
the abe by the use of ceuod or equay substanta matera. The prescrbed
abe (as requred by secton 1 . 3f) w be aff ed to such route board. Tank
trucks sha be so constructed that the contents of each compartment w dram
competey, even when the ground s not perfecty eve. Sutabe adders
and catwaks, permanenty attached, must be provded n order to permt ready
e amnaton of manhoes and other openngs. Provson sha be made for
the proper groundng of tank trucks when fng or emptyng. ( 3 Stat. 316
as amended, 33 as amended, 37 ; 26 U. S. C. 2 2 , 2 S3, 3170.)
Sec. 1 . 3d. ond Transportaton by Motor Carrer. Motor carrers, as
defned n secton 1 . 3b, desrng to transport, n tank trucks, brandy n
bond or for remova for fortfcaton of wne, must fe wth the dstrct super-
vsor a bond on Form 9, ond To Transport Specay Denatured or Ta -Free
coho, modfed to read ond To Transport Dsted Sprts . The pena
sum of the bond sha be at the rate of 7 ,000 for each tank truck and not
more than 200,000 for the tota of a tank trucks used. The bond sha be
fed n trpcate, appropratey modfed. ( 3 Stat. 310 as amended, 33 as
amended, 37 ; 20 U. S. C. 2 2 , 2 S3, 3176.)
Sec. 1 . 3e. ond Transportaton by Consgnor or Consgnee. con-
sgnor or consgnee, n order to transport brandy n bond, or to remove brandy
for fortfcaton of wne, n tank trucks controed and operated by such con-
sgnor or consgnee, must fe wth the dstrct supervsor, a bond on Form 9,
propery modfed, n the pena sum specfed n secton 1 . 3d, provded that
n eu of fng such bond, the consgnor dster or consgnee dster or ware-
houseman may fe consent of surety, Form 1 :33, on hs bond, Form 30, Form
30 , or Form 1 71, as the case may be, e tendng the terms thereof to cover the
ta , together wth penates and nterest for whch he may become abe, on
a brandy transported by hm n tank trucks. If the transportaton s by the
consgnor or consgnee dster and the ma mum of hs bond, Form 30 or
Form 30 , s not suffcent when computed as set forth n secton S . 3d, an
addtona bond on Form 0 n a suffcent pena sum must be furnshed to cover
the addtona abty. If the transportaton s by the consgnee warehouse-
man, and the ma mum of hs bond, Form 1 71, s not suffcent when computed
as set forth n secton 1 . 3d, an addtona bond on Form 9 or on Form 1- 71,
n a suffcent pena sum must be furnshed to cover the addtona abty. If
the transportaton s by the consgnee wnemakcr, he may fe a consent of surety
on hs bond, Form 700- , and an addtona bond on Form 9 n a suffcent
pena sum to cover the addtona abty. ( 3 Stat. 310 as amended, 33 as
amended, 37 ; 26 U. S. C. 2 2 , 2 3, 3176.)
Sec. 1 . 3f. Remova n Tank Trucks Tank trucks used for the trans-
portaton of brandy n bond or for remova of brandy for fortfcaton of wne
must be fed n the mmedate presence of the storekeeper-gauger. Pror to
fng, the storekeeper-gauger sha determne whether the tank truck s
propery marked and may be effectvey seaed. If the tank truck does
not meet such requrements, ts use for the transportaton of brandy
w not be permtted. Immedatey after fng, the storekeeper-gauger sha
sea the tank truck n such a manner as w secure a openngs affordng access
to the contents of the tank. The storekeeper-gauger w enter on Form 1 20,
coverng the descrpton and gauge of the brandy, the number of nches of brandy
oaded nto each compartment and the temperature thereof at the tme of fng,
the name of the carrer, the number of the tank truck, the State cense number
of the truck, the drver s fu name, and the drver s permt number and State
ssung the same, the destnaton, the date of shpment, and the sera numbers
of the cap seas used. Forms 236 and 1 20 w be dsposed of n accordance
wth secton 1 .612 or 1 .020, as the case may be. The consgnor sha se-
curey attach to the route board of the tank truck a abe showng the nnme,
regstry number, and .oeaton (cty or town and State) of the shppng frut
dstery; the name, regstry number and ocaton (cty or town and State)
of the recevng nterna revenue bonded warehouse, regstered dstery, or
other frut dstery, o bonded wnery, as the case may be, foowed by the date
( 3
S C 3g. Recepts n Tank Trucks. Where brandy for redstaton
Is receved n tank tru .s from a dstery or an Interna revenue bonded ware-
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161
Regs. , , 7, and 10.
house, the seas must be broken by a storekeeper-ganger at the frut dstery
and no brandy may be removed from the tank truck e cept n the presence of
such offcer. The storekeeper-ganger w carefuy e amne the tank truck for
evdence of oss, and gauge and report the quantty receved n accordance wth
the appcabe provsons of secton 1 . . Where the gauge of brandy receved
dscoses dscrepances between the shppng and recevng gauges, the appcabe
procedure prescrbed by secton 1 . w be foowed. ( 3 Stat. 33 as
amended, 37 ; 26 U. S. C. 2 3, 3176.)
. Reguatons 7 Producton, Fortfcaton, Ta payment, tc., of
Wnes (26 CF , part 17 ; 10 F. R. 12307) are amended as foows:
Subpart The Fobtfcaton of Wnk
M NN R OF PROCURING R NDY FROM FRUIT DISTILL RI S ND INT RN L
R NU OND D W R OUS S

T MPO Y US OF T N TRUC S FO PROCUR M NT OF NDY
Sec. 17 . 67a. Genera. Upon a showng of the unavaabty of tank cars
for the transportaton of brandy, produced at 160 of proof or more, from frut
dsteres and nterna revenue bonded warehouses to a bonded wnery for the
fortfcaton of wne, authorzed by secton 17 . 9, the dstrct supervsor, as an
emergency measure, may authorze the temporary use of tank trucks for such
transportaton, sub|ect to the provsons of Reguatons (26 CFR, part 1 )
or Reguatons 10 (26 CFR, part 1 ), as the case may be, and the appcabe
provsons of ths part governng the procurng of brandy from frut dsteres
and nterna revenue bonded warehouses n tank cars. ( 3 Stat. 33 as amended,
3 as amended, 3 0 as amended, 3 1, 3 2 as amended, 3 as amended, 3 as
amended, 37 , 77; 26 U. S. C. 2 3, 3031, 3032, 3033, 3036, 30 , 30 , 3176, 3001.)
Sec. 17 . 67b. Recepts n Tank Trucks. Where brandy s receved n tank
trucks from a frut dstery or nterna revenue bonded warehouse the seas
must be broken by a Government offcer assgned to the bonded wnery and no
brandy may be removed from the tank truck e cept n the presence of such
offcer. The Government offcer w carefuy e amne the tank truck for ev-
dence of oss, and gauge and report the quantty receved n accordance wth
the appcabe provsons of secton 17 . 66. Where the gauge of brandy re-
ceved dscoses dscrepances between the shppng and recevng gauges, the
appcabe procedure prescrbed by secton 17 . 67 w be foowed. ( 3 Stat.
33 as amended, 3 0 as amended, 3 as amended, 3 1, 37 , 77 ; 26 U. S. C.
2 3, 2901, 3031, 3033, 3176, 3901.)
. Reguatons 10 Warehousng of Dsted Sprts (26 CFR, part
1 ; 1 F. R. 233) are amended as foows:
Subpart Wthdrawa of Dsted Sprts Fbom Warehouse

temporary use of tank trucks for teansfebs n bond and removas fob
fobtfcaton of wne
Sec. 1 . 79a. Genera. Notwthstandng the prohbton n secton 1 . 61,
and upon a showng of the unavaabty of tank cars for the transportaton of
dsted sprts, produced at 160 of proof or more, authorzed by sectons
1 .690(d), 1 .72 , and 1 . 6 , the dstrct supervsor, as an emergency measure,
may authorze the temporary use of tank trucks for such transportaton, sub|ect
to the provsons of sectons 1 . 79b-1 . 79g and the appcabe provsons of
ths part governng the transfer n bond of dsted sprts and the remova of
brandy for fortfcaton of wne, n tank cars. ( 3 Sta 332, 33 as amended,
37 ; 26 U. S. C. 2S7 , 2 S3, 3176.) 1
Sec 1 . 79b. Type of Motob Cabreb. Transportat n by tank trucks au-
thorzed by secton 1 . 79a sha be made (a) by a moto1 carrer censed under
the Motor Carrer ct of 193 or an appcabe State a , or a prvate carrer
empoyed by, or actng as agent for, the consgnor or consgnee, who s actvey
and reguary engaged generay n the egtmate busness of transportaton,
who possesses adequate factes to Insure safe dever at destnaton of any
dsted sprts transported by hm, and who s approva by the dstrct super-
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Regs. , , 7, and 10.
1C2
vsor; or (6) by the consgnor or consgnee actng as a prvate carrer. ( 3 Stat.
332, 33 as amended, 37 ; 26 U. S. C. 2 7 , 2 3, 3176.)
Sec. 1 . 79c. Constructon of Tank Trucks. very tank truck used to
transport dsted sprts n bond must conform to the foowng requrements:
The tank sha be securey and permanenty attached to the frame or chasss of
the truck or traer and sha be securey constructed. Interor bukheads or
stffeners must have proper dranage cut-outs. Manhoe covers, outet vaves,
vents or pressure reef vaves, and a other openngs sha be equpped for sea-
ng so as to prevent unauthorzed access to the contents of the tank. Outets of
each compartment must be so arranged that devery of any compartment w not
afford access to the contents of any other compartment. Parta devery, by
meter or otherwse, w not be permtted. There sha be but one consgnor per
oad and the entre contents of a compartments sha be devered to one con-
sgnee, uness the dstrct supervsor, for good cause, authorzes the use of separate
compartments for dfferent consgnors or consgnees. Cabrated charts, prepared
or certfed by competent and recognzed authortes or engneers, showng the
capacty of each compartment n wne gaons for each nch of depth sha be
carred n each truck. ach tank truck sha aso be equpped wth a route board,
at east 10 by 12 Inches, constructed of substanta matera and permanenty
attached thereto by round-headed or carrage bots, nutted and rveted, battered
or weded. ach tank truck must have permanenty and egby marked or
panted thereon ts number, capacty n wne gaons, and the name of the owner
n etters at east nches n heght. If the tank truck conssts of two or more
compartments, each compartment must be dentfed by a etter of the aphabet,
such as , , etc., and the capacty n wne gaons of each compartment
must be marked thereon. Provson sha aso be made for protecton, aganst the
weather, of the abe by the use of ceuod or equay substanta matera. The
prescrbed abe (as requred by secton 1 . 79f) w be aff ed to such route
board. Tank trucks sha be so constructed that the contents of each compartment
w dran competey, even when the ground s not perfecty eve. Sutabe
adders and catwaks, permanenty attached, must be provded n order to permt
ready e amnaton of manhoes and other openngs. Provson sha be made
for the proper groundng of tank trucks when fng or emptyng. ( 3 Stat. 333
as amended, 37 ; 20 U. S. C. 2 3, 3176.)
Sec. 1 . 79d. ond Tbansportaton bt Motob Cabbeb. Motor carrers, as
defned n secton 1 . 79b, desrng to transport dsted sprts In bond, n t;nk
trucks, must fe wth the dstrct supervsor a bond on Form 9, ond To
Transport Specay Denatured or Ta -Free coho , modfed to read ond To
Transport Dsted Sprts . The pena sum of the bond sha be at the rate of
7 ,000 for each such tank truck and not more than 200,000 for the tota of a
tank trucks used. The bond sha be fed n trpcate, appropratey modfed.
( 3 Stat. 33 as amended, 37 ; 26 U. S. C 2 3, 3176.)
Sec. 1 . 79e. ond Transportaton by Consgnor or Consgnee. con-
sgnor or consgnee, n order to transport dsted sprts n bond, or to remove
brandy for fortfcaton of wne, n tank trucks controed and operated by such
consgnor or consgnee, must fe wth the dstrct supervsor, a bond on Form 9,
propery modfed, n the pena sum specfed n secton 1 . 79d, provded that
n eu of fng such bond, the consgnor warehouseman or consgnee dster
or warehouseman may fe consent of surety, Form 1 33, on hs bond, Form 30,
Form 30 , or Form 1 71, as the case may be, e tendng the terms thereof to
cover the ta , together wth penates and nterest, for whch he may become
abe, on a dsted sprts transported by hm n tank trucks. If the trans-
portaton s by the consgnor or consgnee warehouseman and the ma mum of
hs bond, Form 1 71, s not suffcent when computed as set forth n secton
1 . 79d, an addtona bond on Form 9 or 1071 n a suffcent pena sum must
be furnshed to cover the addtona abty. If the transportaton Is by the
consgnee dster, and the ma mum of hs bond, Form 30 or Form 30 , s not
suffcent when computed as set forth n secton S . 79d, an addtona bond
on Form 9 or on Form 30, or Form 30IG, as the case may be, n a suffcent pena
sum must be furnshed to cover the addtona abty. If the transportaton
s by the consgnee wnemaker, he may fe a consent of surety on hs bond.
Form 700- , and an addtona bond on Form 9 n a suffcent pena sum to
cover the addtona abUty. ( 3 Stat. 33 as amended, 37 ; 20 U. S. C. 2 S3,
3170.)
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163
Regs. , , 7, and 10.
Sec. 1 . 79f. Remova n Tank Trucks. Tank trucks used for the trans-
portaton of dsted sprts n bond or for remova of brandy for the fortfcaton
of wne must be fed In the mmedate presence of the storekeeper-gauger.
Pror to fng, the storekeeper-gauger sha determne whether the tank truck
s propery marked and may be effectvey seaed. If the tank truck does not
meet such requrements, ts use for the transportaton of dsted sprts (n-
cudng brandy) w not be permtted. Immedatey after fng, the store-
keeper-gauger sha sea the tank truck n such a manner as w secure a open-
ngs affordng access to the contents of the tank. The storekeeper-gauger w
enter on Form 1 20, coverng the descrpton and gauge of the dsted sprts,
the number of Inches of dsted sprts oaded nto each compartment and the
temperature thereof at the tme of fng, the name of the carrer, the number
of the tank truck, the State cense number of the truck, the drver s fu name,
and the drver s permt number and State ssung the same, the destnaton, the
date of shpment, and the sera numbers of the cap seas used. Forms 236
and 1 20 w be dsposed of n accordance wth secton 1 .700 or 1 .711, as
the case may be. The consgnor sha securey attach to the route board of the
tank truck a abe showng the name, regstry number and ocaton (cty or
town and State) of the shppng nterna revenue bonded warehouse; the name,
regstry number and ocaton (cty or town and State) of the recevng nterna
revenue bonded warehouse, regstered dstery, frut dstery, or bonded
wnery, as the case may be, foowed by the date of shpment; and the quantty
n wne and proof gaons contaned n each compartment (Such abe sha
be destroyed upon emptyng the tank truck.) ( 3 Stat. 33 as amended, 37 ;
26 U. S. C. 2 3,3176.)
Sec. 1 . 79g. Recepts n Tank Trucks. Where dsted sprts are re-
ceved n tank trucks from a dstery or another nterna revenue bonded
warehouse, the seas must be broken by a storekeeper-gauger at the ware-
house and no dsted sprts may be removed from the tank truck e cept n
the presence of such offcer. The storekeeper-gauger w carefuy e amne
the tank truck for evdence of oss, and gauge and report the quantty re-
ceved n accordance wth the appcabe provsons of secton 1 .369. Where
the gauge of dsted sprts receved dscoses dscrepances between the
shppng and recevng gauges, the appcabe procedure prescrbed by secton
1 . 6 w be foowed. ( 3 Stat. 333, 33 as amended, 3 0 as amended, 37 ,
92; 26 U. S. C. 2 79, 2 3, 2901,3176, 017.)
6. It s found that compance wth the notce, pubc rue-makng
Procedure, and effectve date requrements of the dmnstratve
rocedure ct ( 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.
7. Ths Treasury Decson w be effectve upon the date of pub-
caton n the Federa Regster.
n 3 Stat 31 , 316 as amended, 332, 333, 33 as amended, 3 0 as
amended, 3 as amended, 3 0 as amended, 3 1, 3 2 as amended, 3
as amended, 3 as amended, 37 , 77, 92; 26 U. S. C. 2 20, 2 2 ,
2 7 , 2 79, 2 3, 2901, 3031, 3032, 3033, 3036, 30 , 30 , 3176, 3901,
017.)
Geo. . Schoeneman,
Thomas . Lynch,
(Pubshed n the Federa Regster anuary , 19 1)
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Regs. 7, 17 .1 3, etc.
16
Reguatons 7, Sectons 17 .1 3, tc. 19 1- -13
T. D. S30
TITL 20 INT RN L R NU . C rT R I, SU C PT R C. P RT 17 .
PRODUCTION, FORTIFIC TION, T -P YM NT, TC., OF WIN S
mendng Reguatons 7
Treasurt Department,
Washngton 2 , D. C.
1. Sectons 17 .1 3, 17 .1 , 17 .1 , and 17 .1 0 of Reguatons 7
(26 CFR, part 17 ), Producton, Fortfcaton, Ta -Payment, tc.,
of Wnes, approved September 21, 19 , as amended, are hereby
amended as foows:
Secton 17 .1 3(2) s amended by addng at the end thereof the
sentence The tota sods content of the fnshed wne sha not e ceed
22 grams per 100 cubc centmeters.
Secton- 17 .1 (a) s amended by deetng from the ast sentence
thereof the phrase provded the unfermented sugar content of the
wne s not ncreased beyond 1 percent of the weght of the wne.
and nsertng n eu thereof the phrase provded the tota sods con-
tent of the wne does not e ceed 22 grams per 100 cubc centmeters.
Secton 17 .1 (b) s amended by deetng the phrase nor may the
wne have an unfermented sugar content n e cess of 1 percent of the
weght of the wne. and nsertng n eu thereof the phrase nor may
the wne have a tota sods content of more than 22 grams per 100
cubc centmeters.
Secton 17 .1 (6) s amended by deetng from the ast sentence
thereof the phrase provded the unfermented sugar content of the
wne s not ncreased beyond 1 percent by weght, or 20 percent by
weght where the wne s made from frut (other than grapes) havng
a natura acd content not ess than 7. parts per thousand. and n-
sertng n eu thereof the phrase provded the tota sods content
of the wne does not e ceed 22 grams per 100 cubc centmeters.
Secton 17 .1 (c) s amended by deetng the phrase nor may the
wne have an unfermented sugar content n e cess of 1 percent by
weght, or 20 percent by weght where the wne s made from frut
(other than grapes) havng a natura acd content not ess than 7.
parts per thousand. and nsertng n eu thereof the phrase nor
may the wne have a tota sods content of more than 22 grams per
100 cubc centmeters.
Secton 17 .1 9(6) s amended to read: Wnes sweetened wth dry
sugar n e cess of the 11 percent mtaton must be marked or abeed
Wne, Sweetened wth cess Sugar, the bank to be fed
n wth the name of the frut, berry, or other agrcutura product
used.
2. The purpose of these amendments s to prescrbe standards for
the sods content of wnes, ameorated or sweetened wth sugar or a
sugar and water souton, consstent wth those contaned n Treasury
Decson 797 C. . 19 0-2, 200 amendng Federa coho d-
mnstraton Reguatons (27 CFR, part ), Labeng and dver-
tsng of Wne, effectve anuary 2 , 19 1 (1 F. R. 7 6).
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16 Regs. 10, IS 1 . , 1 .69 .
3. It s found that compance wth the notce and pubc rue-mak-
ng procedure of the dmnstratve Procedure ct ( U. S. C. 1001
et seq.) s unnecessary n connecton wth the ssuance of these amend-
ments for the reason that the changes made are of a berazng
character.
. Ths Treasury Decson sha be effectve anuary 2 ,19 1, or on
the date of ts pubcaton n the Federa Regster, whchever date s
ater.
3 Stat. 3 , as amended, 3 , as amended, 373, 37 , 77; 26 U. S. C.
30 , 30 , 3171, 3176, 3901.)
Geo. . Schoeneman,
pproved February 1 , 19 1.
Thomas . Lynch,
(Pubshed In the Federa Regster February 17,19 1)
Reguatons 10, Sectons 1 . and 1 .69 . 19 1-1-13 1
T. D. 22
TITL 2 INT RN L R NU . C PT R I, SU C PT R C. P RT 1 .
W R OUSING OF DISTILL D SPIRITS
(Reguatons 10)
Washngton 2 , D. C.
L Reguatons 10, Warehousng of Dsted Sprts (26 CFR,
part 1 ; 1 F. R. 233), are hereby amended by strkng out the date
December 31, 19 0 from the frst sentence of secton 1 . and
from the second sentence of secton 1 .69 , and by nsertng, n eu
thereof, the date une 30, 19 1 .
2. The purpose of the proposed amendments s to e tend the use
of the average tare method of gaugng packages of dsted sprts
for ta payment unt the cose of busness une 30,19 1.
procedure, and effectve date requrements of the dmnstratve Pro-
cedure ct ( U. S. C. 1001 et seq.) s unnecessary n connecton wth
the ssuance of these reguatons for the reason that the change made
s of a berazng character.
. Ths Treasury Decson w be effectve upon the date of pub-
caton n the Federa Regster.
3 Stat. 300 as amended, 332,37 ; 26 U. S. C. 2 01, 2 7 , 3176.)
Geo. . Schoeneman,
Thomas . Lynch,
(Pubshed n the Federa Regster December 27, 19 0)
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Regs. 17, 173.3, 173. .) 166
Reguatons 10, Sectons 1 . and 1 .69 . 19 1-12-1360
T. D. 2
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 1 .
W R OUSING OF DISTILL D SPIRITS
(Reguatons 10)
Washngton 2 , D. C.
1. Reguatons 10, Warehousng of Dsted Sprts (26 CFR,
part 1 ; 1 F. R. 233), are hereby amended by strkng out the
date une 30, 19 1 from the frst sentence of secton 1 . and
from the second sentence of secton 1 .69 , and by nsertng, n eu
thereof, the date December 31,19 1.
2. The purpose of the proposed amendment s to e tend the use
of the average tare method of gaugng packages of dsted sprts
for wthdrawa unt the cose of Dusmess December 31, 19 1.
procedure, and effectve date requrements of the dmnstratve Pro-
cedure ct ( U. S. C. 1001 et seq.) s unnecessary n connecton wth
the ssuance of these reguatons for the reason that the change made
s of a berazng character.
. Treasury Decson 22 page 16 , ths uetn (1 F. R. 932 )
s hereby revoked.
. Ths Treasury Decson w be effectve upon the date of pubca-
ton n the Federa Regster.
n 3 Stat. 300, as amended, 332, 3 ; 26 U. S. C. 2 01, 2 7 . 3176.)
Geo. . Schoeneman,
Thomas . Lynch,
(Pubshed n the Federa Regster May 20, 19 1)
Reguatons 17, Sectons 173.3 and 173. . 19 1-1-13 13
T. D. 21
TITL 26 INT RN L R NU . C PT R I, SU C PT R C P RT 173.
DISPOSITION OF SU ST NC S US D IN T M NUF CTUR OF DISTILL D
SPIRITS
mendng Reguatons 17
Offce of Commssoner of Interna Revenue.
Washngton 2 , D. C.
1. Secton 173.3(b) of Reguatons 17 (26 CFR. part 173), approved
uy 11, 19 , reatng to the dsposton of substances used n the
manufacture of dsted sprts s hereby amended to read as foows:
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167
Regs. 17, 173.3, 173. .
Secton 173.3. Defntons.
(b) Substance sha mean and Incude, but not by way of mtaton, any of
the foowng whch are used In the manufacture of dsted sprts: ny grade
or type of sugar, srup, or moasses derved from sugarcane, sugar beets, corn,
sorghum, or any other source; starch; potatoes; gran or corn mea, corn chops,
cracked corn, rye chops, mddngs, shorts, bran, or any other gran dervatve;
mat; mat sugar, or mat srup; oak chps, charred or not charred; charred kegs
or barres; yeast; cder; honey; fruts; grapes; berres; frut, grape, or berry
|uces or concentrates; wne; carame; burnt sugar; gn favor; Chnese bean
cake or Chnese wne cake; urea; ammonum phosphate, ammonum carbonate,
ammonum suphate, or any other yeast food; or any other fermentabe matera
of the character used n the manufacture of dsted sprts, or any chemca or
other matera sutabe for promotng or acceeratng fermentaton; or any com-
bnaton of such materas or chemcas.

( 3 Stat. 30 , 373, as amended, 37 ; 26 U. S. C. 2 11, 3170, 3176.)
2. Secton 173. of Reguatons 17 (26 CFR, part 173), approved
uy 11, 19 , reatng to dsposton of substances used n the manu-
facture of dsted sprts s hereby amended to read as foows:
Sec. 173. . Records To e Mantaned. very person n the Unted States who
dsposes of any substance, as defned n secton 173.3(b), and who has been
requred to render returns under the provsons of secton 173. (a), sha keep at
hs pace of busness such books, records, documents, papers, Invoces, bs of
adng, etc., reatng to or connected wth any such dsposton, as w enabe
such person to make the return provded for by secton 173. (a). Such books,
records, documents, papers, Invoces, bs of adng, etc., sha be kept ready
avaabe for, and open to, nspecton by any offcer or empoyee of the coho
Ta Unt of the ureau of Interna Revenue durng the hours of busness of such
person. ( 3 Stat 30 , 373, as amended, 37 ; 26 U. S. C. 2 11, 3170, 3176.)
3. The purposes of these amendments are as foows:
(a) To ncude n the defnton of Substances the words charred
kegs and barres, n order that returns may be requred from dstrbu-
tors of such contaners.
(6) To emnate anguage orgnay ncuded whch specfed mn-
mum quanttes of raw materas on whch records were to be man-
taned by dstrbutors. The quanttes to be recorded are now
desgnated by the demand etters and no records are requred of
persons not under demand to make returns.
. Ths Treasury Decson sha be effectve on the thrty-frst day
after the date of ts pubcaton n the Federa Regster.
3 Stat. 30 ,373, as amended, 37 ; 26 U. S. C. 2 11,3170,3176.)
Geo. . Schoeneman,
Thomas . Lynch,
ctng Secretary.of the Treasury.
(Pubshed In the Federa Regster December 1 , 19 0)
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Msc.
16
TO CCO ND SNUFF-
19 1-2-13 29
T. 2
Tobacco and snuff manufactured n and removed from domestc factores durng
the month of November 19 0, compared th the same month of 19 1)
Manufactured
Ta -pad
Removed
Ta -free
November
W u
November
19 9
November
19 0
November
1 9
November
19 0
November
19 9
Pounds
3,2 , S
7,317
232,020
2,91 ,7
, 9 , 176
3,2 ,1 3
Pounds
3, m, 02
02,102
211,0 3
3,00 , 1
9.0 , 2
3, 7.3
Pound
Pounds
3,21 ,321
3 .962
22 ,97
3,0 ,7 6
9,0 6,930
3, 1,970
Pounds
Pounds
Pug
3, 196, 7
337, 9
231,301
2, SS , 93
, 763, 71
3,2 9, 19
99.132
6, 210
120, 07
9. 19
Scrap chewng
3,230
213,719
1,2)0
13, 771
1 9, 11
990
Smokng
Snuff
Tota
19,063.29
19,671, S03
1 ,6 ,039
19, 39,907
373, 1
373. 0
19 1- -13 6
T. 2
the month of December 19 0, compared wth the same month of 19 9
Manufactured
Ta -pad
Removed
Ta -free
December
19 0
December
19 9
December
19 0
December
19 9
December
19 0
December
19 9
Pounds
Pounds
2,90 .0S6
32, 7
219. 730
3,0 6,219
6,970.
3, 0 , 23
Pounds
2, 99,62
269.777
21 , 12
2,7 ,6 0
. 7,396
3,0 ,170
Pounds
2, 1 , 2 3
331,097
21 ,906
2,920, 7
6,9 1. 7 1
3, 29. 912
Pounds
Pounds
136,910
1 6,096
Pug
6 2, 7
3 1,6 7
219,200
2,6 ,7
,62 , 3
2.99 ,062
1 0.0 3
93,92
Snuf
1 ,26
303, 016
2. 93
1.2 7
1 6.76
1,0 1
Tota
1 , 20,07
17,11 , 7
1 ,27 , 29
16,761, 6
6 1, 2
32,009
U fgures are sub|ect to revson unt ncorporated In tbe tota for the caendar year to bo pubshed
In the Commssoner s annua report.
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169
Msc.
19 1-6-13 62
T. 290
the month of anuary 19 1, compared wth the same month of 19 0
Manufactured
Ta -pad
tcmovod
Ta -free
anuary
19 1
anuary
10 0
anuary
19 1
anuary
anuary
19 1
anuary
19 0
19 0
Poundt
3, 0 , 3
1. 0
237,3 7
3. 7,976
. 10,002
3. 70S. 3 7
Pound
3, 01,297
90.033
220.31
3, 3 7.13
, 2.0 2
2.933. 290
Poundt
Pounds
a, sun, 01
02. 1 9
219, 32
Pound
Fount)
12.6 1
92.0 2
Pug.
3. 3 , 7 3
399.0 6
2 0,197
3, 9. 021
,2 .330
3, 717. 279
110, 1.1
60, 20
Twst
Scrap chewng
3, 1 , 3 7
.297,70
2, 923,217
13,10
200, 11
2.300
6 0
11 . 2 2
16
Smokng ...
Snuf
Tota
19, 09, 01
1 ,9 1,620
19,03 ,072
1 , 7, 2
392, 02
231.021
19 1- -13 7
T. 293
the month of February 19 1, compared wth the same month of 19 0
Manufactured
Ta -pad
Removed
Ta frco
February
1961
February
19 0
February
19 1
February
1USU
F-bruary
19 1
February
19 0
Twst
Pound
3,3 . 7
307. 9
227. 321
3,129. 399
7,7 .09
3.292, 06
Poundt
3,09 ,10
.2 7
211 , 016
3,2G1,303
7.91 , 37
2.92 ,119
Poundt
3. OS . 36
310,333
222,133
3,039,901
7, 62.290
3,2 0,
Pounds
2,9 6,
322, 16
210. 90
3.1 0, 3
7, 0 .036
2,907. 92
Poundt
0. (10
36, 3
Pounds
3 .0
,210
Sna
13,010
233, 96
1,170
26
1 9,916
7
Tota
1 .1 0,1 3
17, 67,2 0
17.33 ,677
17,37 ,26
30 ,009
270,211
03 290 1 12
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Msc.
170
19 1-10-13 93
T.297
the month of March 19 1, compared wth the same month of 19 0
Manufactured
Ta -pad
Removed
Ta -free
March
1 61
March
19 0
March
19 1
March
1960
March
19 1
March
19 0
Poundt
3, 3 . 1
22.092
230,710
3,329,0 1
. 7 , 1
3, 6 , 23
Poundt
Founds
Pounds
3, 99, 701
379,769
226, 22
3,6 7, 1
9,9 3,997
3,713. 236
Pounds
Poundt
Pug
3,7 7,631
1,907
229,390
3,222,69
3 .11
233,
3.17 ,626
.32 , 3
3, 06, 97
217. 12
.630
93. 13
93,3 6
Twst
Scrap chewng
3, 626, 27
10,19 .7
31. 979
627. 727
2, 3
922
199,326
1,361
Smokng _
Snuff
3,7 7,117
U 076, 9uo
22,031,07
1 , 10,
21, 21,136
36,9 3
3 ,766
19 1-12-13606
T.300
the month of pr 19 1, compared wth the same month of 19 0
Manufactured
Ta -pad
Removed
Ta -free
pr 19 1
pr 19 0
pr 19 1
pr 19 0
pr 19 1
pr I M
Poundt
3,0 , 611
379,331
212, 173
3, 03 , 67
, 732, 33
3. 299, 1
Pounds
Pounds
2,92 ,
31 ,992
21 , 72
Pounds
Poundt
,306
6,2 2
Poundt
Pug
2,903,9 6
1 , 307
207. 3
2, 2 , 712
,39a 762
3,363, 69
3, 020. 397
337, 239
200, 27
2. 907, 769
, 2 2, 0
3,373, 61
3 . 93
93, 6
Twst
Fne-cut chewng
Scrap chewng
2, 93 , 2
b, 106, 07
21, 9 1
792
1 .272
669
Snuff
3, 236, S37
61 ,036
2.3 6
Tota
1 . 706, 1
1 ,09 .639
17, 73 , 7
1 , 122, 9
672. 9 0
276,036
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171
IMso.
CIG R TT S ND SM LL CIG RS
19 1-1-13 1
T. 2 3
Cgarettes and sma cgars manufactured n and removed from domestc factores
durng the month of November 19 0, compared wth the same month of 19 9
Sma cearcttes
Large cgarettes
Sma cgars
1990
19 9
19 0
19 3
19 0
Manufactured
3 72 . 62,373
29, 2 ,2 700
2, 36, 17, 13
32,1 ,10 ,203
29, 7,360. 22
2,21 , 60,273
3.100
67, 00
2 .200
22,6 0
0. 12,130
6, 99,910
36,000
, 63. 210
,927. 90
Removed ta-pad
Removed ta -free .
19 1-3-13 0
T.2 6
durng the month of December 19 0, compared wth the same month of 191,9
Sma cgarettes
Large cgarettes
Sma cgars
19 0
19 9
19 0
19 9
19 0
19 9
Manufactured . .
27,219,77 ,730
2 ,000,31 , 6
2,61 ,006,60
26, 12,991,6 2
2 ,77 ,090.6 6
2, 31, 2, 3
2,600
6 , 00
300
110,020
11 , 720
200,000
,0 0, 20
, 1 , 00
6,000
, , 0
Removed ta-pad
6, 7 1, 20
Removed ta -free
19 1- -13 7
T. 2 9
durng the month of anuary 19 1, compared wth the same month of 19 0
Sma cgarettes
Largo cgarettes
Sma cgars
19 1
19 0
19 1
19 0
19 1
19 0
Manufactured .
30,301,971,073
33, 7 , 07,170
2,3 ,070, 20
31, 01, 2 , 09
29, 2 9, 1 , 210
1,972,6 0,9 3
7,000
7, 0
600
0,330
1,930
7, 06 , 300
0, 90,0 0
6, 90,030
, 777,030
2,000
fgure arr sub|ect to revson unt ncorporated n the tota for the caendar year to be pubshed
In the Commssoner s annua report.
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Msc.
172
19 1- -13 73
T. 292
Cgarettes and sma cgars manufactured n and removed from domestc
factores durng the month of February 19 1, compared th the same month
of 19 0
ma cgarettes
Large cgarettes
Sma cgars
1911
1C 0
1961
19 0
19 1
19 0
Manufactured..
31, S 1.OC6. 9
2 ,3 7,361,007
3,003,06 ,3
27. 39, ,03
2 . 6 ,031, 1
2,177, 63 ,22
,900
39,000
39, 00
6,29 . 20
, 19.620
6, 1,910
3,733,100
Removed ta -pad.....
39,700
6,000
19 1-9-13
T. 29
durng the month of March 19 1, compared wth the same month of 19 0
Sma cgarettes
Large cgarettes
Sma cgars
19 1
19 0
19 1
19 0
19 1
19 0
Manufactured ..........
33, 62, 293,61
30,100, 7 , 16
3, 99, 997,1 1
3 ,076, 07,793
32,036,161, 7
2,1 6,0 ,3
92, 0
91,3 0
300
01, 00
3,6 0
,000
,7 7, 700
,0 2, 00
12,000
3,6 6,070
,166,390
30,000
Removed ta -pad..........
Removed ta -free.......
10 1-11-13 9
T.29
Cgarettes and sma cgars manufactured n and removed from domestc
factores durng the month of pr 19 1, compared wth the same month of
19 0
Sma cgarettes
Large cgarettes
Sma cgars
1961
19 0
19 1
19 0
19 1
19 0
Manufactured. _..
32,9 ,112,201
29, 23, 969, 99
3.1 , 62 , 79
27,09 ,611,379
2 , 2 , 76 , 3
1,97 , 030,192
6 ,600
6 ,300
300
29,200
30,0 0
, 6 a 690
,092,710
,000
2. 61, 00
, 2,1 0
Removed ta -free
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Lfo Msc.
L RG CIG RS
19 1-1-13 16
T. 2
Large cgars manufactured n and removed from domestc factores durng the
month of October 19 0, compared wth the same month of 19 9
October 1930
October 10 9
Removed:
Ta -pad
M. 322. 3S2
611. 0,071
Cass
2,20 , 1
1 . 793,0 7
2,7 0. 00
17,099,6 0
17 , 7 1, 929
3,331, 36
223,707. 2
10,092,7 2
7. 2 .960
Cass
Cass C
1 9,11 ,00
69, 00,27
Cass D
222,711, 32
Cass F
11. 239.9 9
,7 3. 32
Cass
Tota ta -pad
09, 213,079
,73 , 3
93.62 . 1
. 0. 6
19 1- -13 9
T. 2 7
month of November 1900, compared wth the same month of 19 /9
November 19 0
November 19 9
Removed:
Ta -pad
1 . 107. 2
01. 9 . 203
Cass ...
1, , 10
1 , 2 , 7
2, 93 , 0
1 , 006, 9
179,0 9, 22
,200, 727
239,276,07
12, 179,211
9. 706. 037
Cass C _.
190, 01,66
6, 90,0
Cass D .
Cass
231, 210, 276
13, 79 , 90S
21,2 3,010
Cass P
Cass O _
Tota ta -pad
29. S12. 913
3,9 ,027
19, 9 6. 907
3, 9 ,722
Ta -free
D fgures are sub|ect to revson unt ncorporated n the tota for the caendar year to be puksbed
Uo Commssoner s annua report.
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Msc.
17
19 1-7-13 69
T. 291
month of December 19 0, compared wth the same month of 19 9
December 19 0
December 19 9
Removed:
Ta-pad
3 , MO, 3 1
3 9, 27 . 7 9
Cass
1, 31,269
13,09 , 63
12 ,100,667
1, 799,36
17 , 9 ,1 1
1,030,7 3
6,230,196
2,166,333
13,906,6 1
119, 292. 192
,139. 119
1 3.962, 93
S, 190, 2
6,92 , 03
Cass
Cass D
Cass F
Cass
366,6 2, 93
6, 17,600
37 , S3, 23
1,716,
19 1-10-13 91
T. 29
month of anuary 19 1, compared wth the same month of 19 0
anuary
19 1
anuary
two
,377.0 9
3 ,030.7
Removed:
Ta -pad
1,31 . 72
1 ,672, 90
17 .032. 361
6. 6.9 0
1 .0 1,9
11, 377, 13
3, 92 . 01
1.323. 3 1
16,9 1,901
1 0.31 ,
0, 0, 0
1 1,931. 09
7,1 6, 173
,077, 117
Cass F
1, . 6
6, ,6 0
392. 62 , 903
2,0 2,09
19 1-10-13 92
T. 296
month of February 19 1, compared th the same month of 19 0
February 19 1
February I960
Removed:
71. 290,161
69.09 ,133
Ta -pad
1, 36, 3
12,2 2,9 0
162.07 . 03
,107, 39
1 2,3 . 1
,33 ,679
,6 2, 93
1,617, 720
1 ,2 3,260
136,722, 303
,107,990
191,3 9,276
7, 6 9, 316
,0 6, 7
16, 267, 97
6, 12, 70
00, 66,722
3, 3,600
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17
Msc.
19 1-11-13 99
T. 299
month of March 19 1, compared wth the same month of 19 0
March 19 1
March 19 0
femoved:
Ta -pad
92,092. 37
0 .31 , 1
Cass .
1. 7 ,72
11. .11
1 7,62 .07
.3 6, 212
177, 19 . 060
, 60G, 7 6
.723, 39
1, 73 .
16.33 .223
1 9, 2 1, 99
9, 203, 3
197. 932, 79
10,9 6, 0 9
6.121, 0U
Cass
Cass
Cass F
Cass O
Tota ta -pad
07, 19, 7
7,1 , 99
31. 61 , 630
3,22 . 0
19 1-13-1361
T. 301
month of pr 19 1, compared wth the same month of 19 0
pr
19 1
. pr
19 0
Man ofac ured . .......... ... ....
6,06 ,600
379,97 , 3
Re coved:
Ta -pad
Cass
1,19 , 939
13.6 9.322
1 0. 7U, 92
3, 7 1.620
19 .2 .300
9,166,
.21 .6 6
1. 3 , 71
1 . 37. 2U1
136. 163,99
2, 9 0
17 . 3, 70
7, 2 ,7 3
. 7, 2
Cass
Cass C
Cass D
Cass
Cass F
Cass
Ta -free
Tota a -rad
1 .00 . 2 1
10,3 1,6 6
3 3. 13 , 96
3, , 20
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1

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L GISL TION
19 1-2-13 26
. . 9 0. PU LIC L W 7 , IG TY-FIRST CONGR SS
C PT R 1137, S COND S SSION
n ct To e empt furough trave of servce personne from the
ta on transportaton of persons.
Unted States of merca n Congress assembed, That effectve wth
respect to amounts pad after the date of enactment of ths ct
(a) Secton 12 of the ct of ugust , 19 7, entted n ct to
termnate certan ta provsons before the end of Word War 11
(61 Stat. 919), s hereby repeaed.
(b) Secton 3 69(f )(2) of the Interna evenue Code s hereby
amended to read as foows:
(2) MPTION OF M M RS OF MILIT RY ND N L S R IC . The tn
Imposed by ths secton sha not appy to the payment for transportaton or
factes furnshed under speca tarffs provdng for fares of not more than
2.026 cents per me appcabe to round-trp tckets sod to personne of the
Unted States rmy, r Force, Navy, Marne Corps, and Coast Guard trave-
ng n unform of the Unted States at ther own e pense when on offca
eave, furough, or pass, ncudng authorzed cadets and mdshpmen, ssued
on presentaton of propery e ecuted certfcate.
pproved December 1 ,19 0.
19 1-2-13 30
. R. 9913. PU LIC L W 907, IG TY-FIRST CONGR SS
C PT R 119 , S COND S SSION
n ct To prevent penates and addtons to ta n case of faure
to meet requrements wth respect to estmated ta by reason of n-
creases mposed by the Revenue ct of 1930.
Unted States of merca n Congress assembed, That secton 1 of
the Interna Revenue Code (reatng to penates wth respect to fa-
ure to fe returns, pay ta , etc.,) s amended by reetterng subsecton
(e) as subsecton (f) and by addng after subsecton (d) a new sub-
secton (e) as foows:
(e) In the case of ta abe years begnnng pror to October 1, 19 0, and endng
after September 30, 19 0, the penates prescrbed by ths secton sha not be
appcabe f the ta payer faed to meet the requrements of secton 29 (d) (2)
(reatng to substanta underestmate of estmated ta ), by reason of the n-
crease n norma ta and surta on ndvduas mposed by secton 101 of the
evenue ct of 19 0.
Sec. 2. Paragraph (2) of subsecton (d) of secton 29 of the In-
terna Revenue Code s amended by addng at the end of paragraph
(177)
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(2) a new sentence readng as foows: In the case of ta abe years
begnnng pror to October 1, 19 0, and endng after September 30,
19 0, the addtons to ta prescrbed by ths subsecton sha not be
appcabe f the ta payer faed to meet the 0 per centum and 66
per centum requrements of ths paragraph by reason of the ncrease
m norma ta and surta on ndvduas mposed by secton 101 of the
Revenue ct of 19 0.
pproved anuary 2,19 1.
19 1-3-13 3
. . R S. . PU LIC L W 90 , IG TY-FIRST CONGR SS
ont Resouton mendng secton 3 0 of the Interna Revenue
Code.
Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed. That secton 3 0 of the
Interna Revenue Code s hereby amended by addng at the end thereof
the foowng new subsecton:
(f) ddtona Tme To e Dsregarded. In the case of an ndvdua servng
n the rmed Forces of the Unted States, or servng n support of such rmed
Forces, n an area desgnated by the Presdent of the Unted States by ecu-
tve order as a combat zone for the purposes of secton 22(b) (13), at any tme
durng the perod desgnated by the Presdent by ecutve order as the perod
of combatant actvtes n such zone for the purposes of such secton, or hos-
ptazed outsde the States of the Unon and the Dstrct of Coumba as a re-
sut of n|ury receved whe servng n such an area (urng such tme, the perod
of tme dsregarded under ths secton, notwthstandng the mtatons of sub-
sectons (a) and (c), sha ncude the perod of servce n such area, pus the
perod of contnuous hosptazaton outsde the States of the Unon and the
Dstrct of Coumba attrbutabe to such n|ury, and the ne t one hundred and
eghty days thereafter.
pproved anuary 2,19 1.
19 1- -13 7
. R. 7303. PU LIC L W 91 , IG TY-FIRST CONGR SS
n ct To amend secton 120 of the Interna Revenue Code
Unted States of merca n Congress assembed That secton 120
of the Interna Revenue Code (reatng to unmted deducton for
chartabe and other contrbutons) s hereby amended by strkng
out n respect of precedng ta abe years and nsertng n eu
thereof n respect of such year or precedng ta abe years .
Sec. 2. The amendment made by ths ct sha be appcabe to
ta abe years begnnng after December 31,19 2.
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19 1-1-13
. , 970 . PU LIC L W 919, IG TT-FIRST CONGR SS
n ct To amend secton 22(d) (6) of the Interna Revenue Code
Unted States of merca n Congress assembed, That secton
22(d) (6) (reatng to the nvountary qudaton and repacement of
eectve nventores) of the Interna evenue Code s hereby amended
as foows:
(a) y amendng the tte of subparagraph ( ) thereof to read as
foows:
( ) d|ustment of Net Income and Resutng Ta . Tears begnnng
pror to anuary 1, 19 .
(b) y strkng out n subparagraph ( ) thereof anuary 1,19 1
and by nsertng n eu thereof anuary 1, 19 3 .
(c) The amendments made by ths secton sha be appcabe wth
respect to ta abe years begnnng after December 31, 19 0.
S C. 2. LI UID TIONS IN T L Y RS NDING FT R UN 30,
19 0, ND PRIOR TO NU RY 1, 19 .
(a) In Genera. Secton 22(d) (6) of the Interna Revenue Code
s hereby amended by the addton of the foowng subparagraph:
(F) Years ndng fter une 30, 19 0, and Pror to anuary 1, 19 .
() d|ustment of Net Income and Resutng Ta . If, for any
ta abe year endng after une 30, 19 0, and pror to anuary 1,
19 , the cosng nventory of a ta payer nventoryng goods under
the method provded n ths subsecton refects a decrease from the
openng Inventory of such goods for such year, and f the ta payer
eects, at such tme and n such manner and sub|ect to such regu-
atons as the Commssoner wth the approva of the Secretary may
prescrbe, to have the provsons of ths paragraph appy, and f t
s estabshed to the satsfacton of the Commssoner, n accordance
wth such reguatons, that such decrease s attrbutabe to the
nvountary qudaton of such nventory as defned n subpara-
graph ( ) (as modfed by cause () of ths subparagraph), and
f the cosng nventory of a subsequent ta abe year, endng pror
to anuary 1, 19 0, refects a repacement, n whoe or n part, of the
goods so prevousy qudated, the net ncome of the ta payer other-
wse determned for the year of such nvountary qudatons sha
be ncreased by an amount equa to the e cess, f any, of the aggre-
gate cost of such goods refected n the openng nventory of the
year of nvountary qudaton over the aggregate repacement cost,
or decreased by an amount equa to the e cess, f any, of the aggre-
gate repacement cost of such goods over the aggregate cost thereof
refected n the openng nventory of the year of the nvountary
qudaton. The ta es mposed by ths chapter and by chapter 2
for the year of such qudaton, for precedng ta abe years, and
for a ta abe years ntervenng between the year of qudaton
and the year of repacement sha be redetermned, gvng effect to
such ad|ustments. ny ncrease n such ta es resutng from such
ad|ustments sha be assessed and coected as a defcency but wth-
out nterest, and any overpayment so resutng sha be credted or
refunded to the ta payer wthout nterest.
() Defnton of Invountary Lqudaton. For the purposes of
ths subparagraph the term nvountary qudaton sha have the
meanng gven to t n subparagraph ( ) and, n addton, t sha
mean a faure, as referred to n that subparagraph, on the part of
the ta payer due, drecty and e cusvey, to dsrupton of norma
trade reatons between countres. For the purposes of ths sub-
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paragraph the words enemy and war , as used In subpara-
graph ( ), sha be Interpreted, pursuant to reguatons prescrbed
by the Secretary, In such a way as to appy to crcumstances, occur-
rences and condtons, ackng a state of war, whch are smar, by
reason of a state of natona preparedness, to those whch woud
e st under a state of war.
( ) ppcaton of Subparagraphs (C) and ( ). Subpara-
graphs (C) and ( ), to the e tent that they refer to any ta payer
sub|ect to the provsons of subparagraph ( ) or to the ad|ustments
specfed n or resutng from the effect of subparagraph ( ), sba
be as appcabe to a ta payer sub|ect to the provsons of ths
subparagrap or to ad|ustments specfed n or resutng from the
effect of ths subparagraph as though they specfcay referred to
ths subparagraph. For ths purpose, and wth respect to the ta -
abe years covered by ths subparagraph, the reference n subpara-
graph ( ) to secton 73 (d) sha be taken as a reference to
secton 0(d).
(b) ffectve Date. The amendment made by ths secton sha
be appcabe wth respect to ta abe years endng after une 30, 19 0.
19 1-7-13 6
. . R S. 7. PU LIC L W 2, IG TY-S COND CONGR SS
C PT R 2, FIRST S SSION
onUesouton mendng secton 012 of the Interna Reve-
nue Code.
Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed, That secton 012 of the
Interna Revenue Code (reatng to powers of the ont Commttee
on Interna Revenue Ta aton to obtan data) s hereby amended
by addng at the end thereof the foowng new subsecton:
(c) Subsectons (a) and (b) sha be apped n accordance wth ther pro-
vsons wthout regard to Reorganzaton Pan Numbered 26 of 19 0 or to any
other reorganzaton pan becomng effectve on, before, or after the date of the
enactment of ths subsecton.
pproved February 2 , 19 1.
19 1- -13 7
. R. 172 . PU LIC L W 9, IG TY-S COND CONGR SS
C PT R 1 , FIRST S SSION
n ct To provde for the renegotaton of contracts, and for other
purposes.
Unted States of merca n Congress assembed, That ths ct may
be cted as the Renegotaton ct of 19 1 .
TITL I R N GOTI TION OF CONTR CTS

S C. 102. CONTR CTS SU CT TO R N GOTI TION.

(d) Suspenson of Certan Proft Lmtatons. Notwthstand-
ng any agreement to the contrary, the proft-mtaton provsons
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of the ct of March 27, 193 ( Stat. 03, 0 ), as amended and
suppemented, and of secton 0 (b) of the Merchant Marne ct,
1036, as amended and suppemented ( 6 U. S. C. 11 (b)), sha not .
appy, n the case of such ct of March 27, 193 , to any contract or
subcontract f any of the recepts br accruas therefrom are sub|ect to
ths tte, and, n the case of the Merchant Marne ct, 1936, to any
contract or subcontract entered nto after December 31, 19 0, f any
of the recepts or accruas therefrom are sub|ect to ths tte.

TITL II MISC LL N OUS PRO ISIONS
S C. 20L FUNCTIONS UND R WORLD W R II R N GOTI TION CT.

(c) mendment of the Renegotaton ct. Subsecton (a) ( )
(D) of the Renegotaton ct s amended by nsertng at the end
thereof the foowng: net renegotaton rebate sha not be repad
uness a cam therefor has been fed wth the oard on or before the
date of ts aboton, or uness a cam sha have been fed wth the
dmnstrator of Genera Servces () on or before une 30, 19 1, or
() wthn nnety days after the makng of an agreement or the entry
of an order under subsecton (c) (1) determnng the amount of e ces-
sve profts, whchever s ater. cam sha be deemed to have been
fed when receved by the oard or the dmnstrator, whether or
not accompaned by a statement of the Commssoner of Interna
Revenue showng the amortzaton deducton aowed for the renego-
tated year upon the recomputaton made pursuant to secton 12 (d)
of the Interna Revenue Code.
(d) Transfer of Certan Functons. powers, functons, and
dutes conferred upon the War Contracts Prce d|ustment oard by
subsecton (a) ( ) (D) of the Renegotaton ct, sub|ect to the amend-
ment thereof by subsecton (c) of ths secton, are hereby transferred
to the dmnstrator of Genera Servces.

(f) Refunds. refunds under subsecton (a)( )(D) of the
Renegotaton ct (reatng to the recomputaton of the amortzaton
deducton), a refunds under the ast sentence of subsecton () (3)
of such ct (reatng to e cess nventores), and a amounts fnay
ad|udged or determned to have been erroneousy coected by the
Unted States pursuant to a determnaton of e cessve profts, wth
nterest thereon n the ast mentoned case at a rate not to e ceed
per centum per annum as may be determned by the dmnstrator of
Genera Servces or hs duy authorzed representatve computed to
the date of certfcaton to the Treasury Department for payment,
sha be certfed by the dmnstrator of Genera Servces or hs duy
authorzed representatve to the Treasury Department for payment
from such appropratons as may be avaabe therefor: Provded,
That such refunds sha be based soey on the certfcate of tfte dmn-
strator of Genera Servces or hs duy authorzed representatve.

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S C. 203. M NDM NT OF S CTION 3 06 OF T INT RN L R NU
COD .
Secton 3 06(a) (1) of the Interna Revenue Code s hereby
amended by strkng out subparagraphs ( ), (13), and (C) and
nsertng n eu thereof the foowng:
( ) The term renegotaton ncudes any transacton whch Is a
renegotaton wthn the meanng of the Federa renegotaton act appcabe
to such transacton, 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.
( ) The term e cessve profts Incudes any amount whch consttutes
e cessve profts wthn the meanng assgned to such term by the appcabe
Federa 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.
(C) The term subcontract Incudes any purchase order or agreement
whch s a subcontract wthn the meanng assgned to such term by the
appcabe Federa renegotaton act.
(D) The term Federa renegotaton act ncudes secton 03 of the
S th Suppementa Natona Defense ppropraton ct (Pubc 2 , 77th
Cong., 2d sess.), as amended or suppemented, the Renegotaton ct of
19 , as amended or suppemented, and the Renegotaton ct of 19 1, as
amended or suppemented.

pproved March 23, 19 1.
19 1-9-13 3
. R. 22G . PU LIC L W 12, IG TY-S COND CONGR SS
C PT R 19, FIUST S SSION
n ct To authorze the payment of nterest on seres savngs
bonds retaned after maturty, and for other purposes.
Unted States of merca n Congress assembed, That subsecton
(b) of secton 22 of the Second Lberty ond ct (31 U. S. C.
7 7c(b)) s amended by nsertng (1) after (b) and addng the
foowng new paragraph:
(2) The Secretary of the Treasury, wth the approva of the Presdent, Is
authorzed to provde by reguaton that owners of seres savngs bonds there-
after maturng may, at ther opton, retan the matured bonds and earn nterest
upon the maturty vaues thereof for not more than ten years at rates consstent
wth the provsons of paragraph (1).
Sec. 2. ffectve wth respect to ta abe years endng after the date
of the enactment of ths ct, secton 2 of the Interna Revenue Code
s amended
(1) by nsertng after stated ntervas n the frst sentence
of subsecton (b) the foowng: or ownng an obgaton
descrbed n paragraph (2) of subsecton (d) ;
(2) by nsertng after acquston n the ast sentence of
subsecton (b) the foowng: (or, n the case of an obgaton
descrbed n paragraph (2) of subsecton (d), the date of acqu-
ston of the seres bond nvoved) ; and
(3) by addng at the end of such secton the foowng new
subsecton:
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(d) Matured Unted States Savngs onds. In the case of a ta payer who
(1) hods a seres Unted States savngs bond at the date of maturty,
and
(2) pursuant to reguatons prescrbed under the Second Lberty ond
ct retans hs nvestment n the maturty vaue of such seres bond n an
obgaton, other than a current Income obgaton, whch matures not more
than ten years from the date of maturty of such seres bond,
the ncrease n redempton vaue (to the e tent not prevousy ncudbe n
gross ncome) n e cess of the amount pad for such scres bond sha be n-
cudbe n gross ncome n the ta abe year n whch the obgaton s fnay re-
deemed or n the ta abe year of fna maturty, whchever s earer. The pro-
vsons of ths subsecton sha not appy to a corporaton, and sha not appy n
the case of any ta abe year for whch the ta payer s net ncome s computed
upon the bass of the accrua method of accountng or for whch an eecton made
by the ta payer under subsecton (b) s appcabe.
pproved March 2G, 19 1.
19 1-12-1360
. R. 136. PU LIC L W 29, IG TY-S COND CONGR SS
n ct owng the consumer of gasone to deduct, for ncome
ta purposes, State ta es on gasone mposed on the whoesaer and
passed on to the consumer.
Unted States of merca n Congress assembed, That secton 23(c)
(3) of the Interna Revenue Code (reatng to deducton of reta
saes ta es) s hereby amended to read as foows:
(3) Gasone and reta saes ta es. In the case of a ta mposed by
any State, Terrtory, Dstrct, or possesson of the Unted States, or any
potca subdvson thereof, upon persons engaged n seng tangbe per-
sona property at reta, or upon persons seng gasone or other motor
vehce fues ether at whoesae or reta, whch s measured by the gross
saes prce or the gross recepts from the sae or whch s a stated sum
per unt of such property sod, or upon persons engaged n furnsh-
ng servces at reta, whch s measured by the gross recepts for furnshng
such servces, f the amount of such ta s separatey stated, then to the
e tent that the amount so stated s pad by the consumer (otherwse than
n connecton wth the consumer s trade or busness) to hs vendor such
amount sha be aowed as a deducton n computng the net ncome of
such consumer as f such amount consttuted a ta mposed upon and pad
by such consumer.
Sec. 2. The amendment made by ths ct sha appy to ta abe
years begnnng after December 31, 19 0.
19 1-13-13G10
. R. 2G . PU LIC L W 3 , IG TY-S COND CONGR SS
n ct To amend secton 10 of Pubc Law 37 , ghty-frst Con-
gress IC. . 19 9-2, 27 .
e f enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That subsecton (b)
of secton 10 of the ct entted n ct to amend certan provsons
of the Interna Revenue Code , approved October 2 , 19 9 (Pubc
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Law 37 C. . 19 9-2, 27 ), s hereby amended (1) by strkng out
wthn one year from such date and nsertng n eu thereof at
any tme pror to anuary 1, 19 2 , and (2) by strkng out wthn
one year from the date of the enactment of ths ct and nsertng n
eu thereof pror to anuary 1, 19 2 .
pproved May 17, 19 1.
19 1-13-13G11
. R. 310C. PU LIC L W 3 , IG TY-S COND CONGR SS
n ct To amend secton 1 3(b) of the Interna Revenue Code
Unted States of merca n Congress assembed, That, effectve wth
respect to ta abe years begnnng after December 31, 19 9, secton
1 3(b) of the Interna Revenue Code (reatng to speca returns re-
qured 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 n the case of a ta abe year f a the net
ncome for such year, determned under the appcabe prncpes of the aw of
trusts, s requred to be dstrbuted currenty to the benefcares.
19 1-13-13612
. R. 3336. PU LIC L W 3 , IG TY-S COND CONGR SS
C PT R 10 , FIRST S SSION
n ct To suspend certan Import ta es on copper
Unted States of merca n Congress assembed, That the mport
ta mposed under secton 3 2 of the Interna Revenue Code sha
not appy wth respect to artces (other than copper sufate and
other than composton meta provded for n paragraph 16 7 of the
Tarff ct of 1930, as amended, whch s sutabe both n ts compo-
ston and shape, wthout further refnng or aoyng, for processng
nto castngs, not ncudng as castngs ngots or smar cast forms)
entered for consumpton or wthdrawn from warehouse for consump-
ton durng the perod begnnng pr 1, 19 1, and endng wth the
cose of February 1 , 19 3, or the termnaton of the natona emer-
gency procamed by the Presdent on December 16, 19 0, whchever
s earer: Provded, That when, for any one caendar month durng
such perod, the average market prce of eectroytc copper for that
month, n standard shapes and szes, devered Connectcut aey,
has been beow 2 cents per pound, the Tarff Commsson, wthn
ffteen days after the concuson of such caendar month, sha so
advse the Presdent, and the Presdent sha, by procamaton, not
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ater than twenty days after he has been so advsed by the Tarff Com-
msson, revoke such suspenson of the mport ta mposed under
secton 3 2 of the Interna Revenue Code.
In determnng the average market prce of eectroytc copper for
each caendar month, the Tarff Commsson s hereby authorzed and
drected to base ts fndngs upon sources commony resorted to by
the buyers of copper n the usua channes of commerce, ncudng,
but not mted to, quotatons of the market prce for eectroytc
copper, n standard shapes and szes, devered Connectcut aey,
reported by the ngneerng and Mnng ourna s Meta and
Mnera Markets.
S 2W 61 t
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COMMITT R PORTS
19 1-2-13 27
C SS PROFITS T CT OF 10 0
ouse of Representatves Report No. 31 2, 1st Cong., 2d Sess.
December 2, 19 0
Mr. Doughton, from the Commttee on Ways and Means, submtted the foow-
ng report -to accompany . R. 9 27 :
The Commttee on Ways and Means, to whom was referred the b ( . R.
9 27) to provde revenue by mposng a corporate e cess profts ta , and for
other purposes, havng consdered the same, report favoraby thereon wthout
amendment and recommend that the b do pass.
I. Geneba Statement
Ths b provdes for rasng revenue by the evyng, coecton, and payment
of corporate e cess profts ta es wth retroactve effect to uy 1, 19 0. It thus
carres out the mandate mposed upon the Commttee on Ways and Means by
secton 701(a) of the Revenue ct of 19 0 whch provdes as foows:
The ouse Commttee on Ways and Means and the Senate Commttee on
Fnance are hereby drected to report to the respectve ouses of Congress a b
for rasng revenue by the evyng, coecton, and payment of corporate e cess
profts ta es wth retroactve effect to October 1, or uy 1, 19 0, sad b to
orgnate as requred by artce I, secton 7, of the Consttuton. Sad b sha
be reported as eary as practcabe durng the ghty-frst Congress after Novem-
ber 1 , 19 0, If the Congress s n sesson n 19 0 after such date; and f the
Congress s not n sesson n 19 0 after November 1 , 19 0, sad b sha be
reported durng the frst sesson of the ghty-second Congress, and as eary as
practcabe durng sad sesson.
The e cess profts ta provded for n ths b Is the second step n the fnancng
of the vasty e panded mtary program resutng from hosttes n orea.
The frst step n ths e panded program was taken n the Revenue ct of
19 0 when corporaton and ndvdua ncome ta es were ncreased to provde
an estmated ncrease In revenue of . bon annuay. It s estmated that
ths b w produce about 3 bon under the eves of corporate profts e stng
n the caendar year 19 0 anC about .6 bon under the eves of corporate
profts whch may reasonaby be e pected In the caendar year 19 1. Snce
commtments and obgatons are now beng made at a rate consderaby above
current e pendtures and snce many tems of mtary procurement have to be
ordered ong n advance of deveres, e pendtures for the fsca year 19 2
and ater years w be substantay above current eves.
The Congress has |ust receved a request for addtona funds whch woud
ncrease the mtary and atomc energy appropratons by another 1 bon.
Ths, f added to appropratons aready acted upon, w ncrease mtary appro-
pratons for the fsca year 19 1 to a tota of 1. bon.
One of the man ob|ectves n mposng an e cess profts ta s to reach cor-
porate profts whch have been swoen by the ncreased tempo of the economy.
n e cess profts ta seects for addtona ta those corporatons whose profts
are hgher than they probaby woud have been n the absence of hosttes and
a arge mtary budget. y mtng the credt based upon Income to percent
of the base-perod earnngs, the b w reach some profts whch are beng
sustaned at the reatvey hgh eves of the base perod by the ncreased tempo
of the defense economy. To ncrease the ordnary corporate ncome ta , n eu
(1 7)
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of mposng an e cess profts ta . woud create a hardshp for those corpora-
tons whose profts are decnng and whch have reazed no henefts from the
defense boom. It s recognzed that In a war economy there are many such
corporatons ard your commttee fet that It woud be unfar to ncrease ther
ta wthout frst coectng addtona ta es from those corporatons whose n-
comes have actuay been ncreased or sustaned by the defense program.
Your commttee beeves that an e cess profts ta enacted at ths tme shoud
not be too severe n character. It s key that an emergency w contnue
for an ndefnte perod. Under these condtons speca care must be taken not
to freeze producton at ts present eve or n ts present pattern. The ta must
not nterfere unduy wth the norma ad|ustments of busness to changes n the
demands for ts products or wth the e panson of the ndustra capacty of the
Naton. tensve reef provsons have been ncorporated n the b whch
t s beeved w aevate prompty most hardshp cases whch may arse under
ths ta .
The commttee opened pubc hearngs on the e cess profts ta proposa on
November 1 and hearngs were cosed on November 22. Immedatey after the
enactment of the Revenue ct of 19 0 the staffs of the ont Commttee on In-
terna Revenue Ta aton and the Treasury Department began workng on ths
ta and consuted wth groups representng varous ndustres as to the probems
nvoved n such a ta .
II. Revenue stmates
It s estmated that ths b w yed 3 bon n a fu year of operatons
wth corporate profts at the eve e stng n the caendar year 1930. It s
beeved that ths woud resut n the mposton of an e cess profts ta on
about 70.000 corporatons.
Wth the eve of corporate profts whch may reasonaby be e pected In the
caendar year 19 1, t s estmated that ths b w yed .6 bon n a fu
year of operaton. On ths bass about 0,000 corporatons w be sub|ect to
e cess profts ta .
III. Ma|or Pbovsons of Genera ppcaton
1. The rate, base, and years of appcaton.
Ths b has the effect of Imposng an e cess profts ta rate of 7 percent.
Ths can be compared to an e cess profts rate of percent at the end of
Word War II after aowance s made for the 10 percent postwar refund pro-
vded for by that ta . owever, the combned rate of the corporate Income and
e cess profts ta es under your commttee s b cannot e ceed 67 percent of the
corporaton s net ncome. Under the Word War II ta a smar ceng mted
the combned rate of the two ta es to somewhat more than 72 percent after
aowance for the postwar refund.
s n the case of the Word War II ta , the ta payer s gven the choce of the
hgher of two aternatve bases n determnng what proporton, f any, of hs
ncome s to be sub|ected to e cess profts ta . The prmary credt, or the credt
key to be generay used, s an average earnngs credt based on average
ncome n the years 19 6 to 19 9. The aternatve s a credt based on a rate
of return on nvested capta. smar choce was presented n the Word
War II ta .
Your commttee conceves of ths ta as prmary a ta on Increased profts
due to the outbreak of hosttes and to arge mtary e pendtures. Ths
accounts for the prmary emphass upon the average earnngs base. owever,
t s beeved that a mnmum rate of return free of e cess profts ta shoud
be aowed ta payers who happened to have poor earnng e perence n the base
perod. Therefore, ta payers are offered an nvested capta credt as an ater-
natve whch paces a oor on the rate of return assured before the mposton
of e cess profts ta es.
In secton 701 of the Revenue ct of 19 0 the ouse requred ths commttee
to report out an e cess profts ta effectve as of uy 1. 19 0. or October 1, 19 0.
fter consderaton of these two aternatve effectve dates your commttee
concuded that an e cess profts ta shoud be effectve as of uy 1, 19 0. Ths
s appro matey the date of the outbreak of hosttes and antedates the sub-
stanta ncrease n corporate profts durng the thrd and fourth quarters of
19 0 whch resuted from the wave of buyng foowng the start of hosttes.
Your commttee beeves that ths ncrease n purchases was n arge measure
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n antcpaton of ncreased mtary e pendtures and the resutng smaer
producton key to be avaabe to the cvan economy. Increased profts
arsng from such causes are as propery attrbutabe to the outbreak of hosttes
as profts arsng drecty from addtona mtary e pendtures themseves.
Ths e cess profts ta s made effectve In 19 0 for caendar year corporatons
by mposng an e cess profts ta for that year equa to one-haf the ta whch
woud be mposed n subsequent years. The ta does not appy to fsca years
whch end pror to uy 1, 19 0. When a fsca year begns pror to and ends
after that date, the ta Imposed w be a proporton of the ta computed on the
bass of the fu year s ncome. The porton s to be determned by dvdng the
number of days In the ta abe year whch are after une 30, 19 0, by the tota
number of days In the ta abe year. Fsca years begnnng after une 30, 19 0,
are fuy ta abe. These rues are smar to those apped for 19 0 n makng
the changes n the corporate norma ta and surta rates n the Revenue ct of
19 0.
2. Reaton to corporate ncome ta .
The e cess profts ta provded by ths b s computed as an addtona ta
over and above the corporate ncome ta . The consodated return prvege s
made avaabe as In the Word War II statute. In genera the computaton of
the e cess profts ta s as foows:
(a) Frst, the ncome ta s mposed on the entre amount of ta abe net
ncome.
(6) Second, the norma ta net ncome, after certan ad|ustments, s
reduced by the e cess profts credt (that s, the porton of the corporaton s
ncome whch for the purposes of ths ta s consdered norma) and any
unused e cess profts credt carred forward or back to the ta abe year.
The resut Is caed the ad|usted e cess profts net ncome.
(c) Thrd, an addtona ta at the rate of 30 percent s mposed on ths
ad|usted e cess profts net ncome. Ths, when added to the corporate n-
come ta rate of percent on ncome n e cess of 2 ,000, accounts for the
7 percent rate on e cess profts.
Under the Word War II e cess profts ta the so-caed two-basket approach
was foowed. The corporate ncome ta was mposed ony on ncome whch
was not sub|ect to the e cess profts ta and the e cess profts ta (comparabe
to the 7 percent ta referred to above) was mposed on ncome n e cess of the
e cess profts credt-
Substantay the same ta burdens are acheved under ether type of com-
putaton, but the type used n ths b Is beeved to be the smper. Under ths
approach the ncome ta can be computed wthout regard to the e cess profts
ta , and subsequent ad|ustments n the e cess profts credt w not requre a
recomputaton of the Income ta . so, the method provded n ths b permts
the compete consodaton of returns and procedures for assessng and coectng
the ncome ta and the e cess profts ta , whch shoud reduce substantay the
burden of admnstraton and ta payer compance. Under the proposed pro-
vsons the ncome ta and the e cess profts ta woud be treated as one ta
for the purpose of the computaton of nterest on refunds or defcences, the
statute of mtatons, credt and refund, the sendng of 90-day etters, etc
S. The mnmum credt.
The b provdes for a mnmum credt of 2 ,000. ny ta payer whch upon
computng ts e cess profts ta credt under ether the average earnngs or
nvested capta method fnds that ts credt s ess than 2 ,000 may rase Its
credt to ths amount The Word War II aw provded a ta payers wth a
specfc e empton of 10,000.
The mnmum credt has a number of advantages over the specfc e empton
athough the prmary purpose of both s the same, namey, to reeve sma
corporatons from e cess profts ta and to encourage ther growth, to prevent
sma corporatons from beng dscrmnated aganst as compared to ther unn-
corporated compettors, and to make t unnecessary for them to compute an
e cess profts ta . mnmum credt and specfc e empton of the same sze
are equay effectve n removng these sma busnesses from the appcaton of
an e cess profts ta . owever, because the benefts arsng from the mnmum
credt are avaabe ony to sma busness, ths type of credt s much ess costy
In terms of revenue than a specfc e empton. In fact a mnmum credt of
2 ,000 s much ess of a dran on revenues than a specfc e empton of 10,000.
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190
. verage earnngs credt.
For ta payers on a caendar-year bass the base perod under ths b s the
-year nterva 19 6 to 10 9. s a genera rue ta payers are permtted to
emnate one of the base-perod years. The norma ta net ncome of the re-
manng years s then ad|usted n a manner descrbed beow and averaged.
The resutng average base perod net ncome s then reduced by 1 percent for
the purposes of the credt.
Under the Word War II nw the base perod was 1936 to 1939, and the credt
was 9 percent of the average earnngs n ths perod. It was necessary to
substtute the perod 19 6 to 19 9 for the 1936 to 1939 base n ths b both
because of the arge number of busnesses whch have been started recenty and
because of the substanta changes whch have occurred n the busnesses n
e stence between 1930 and 1939. The perod 19 6 to 19 9 s the ony recent
-yeur, nonwar perod avaabe. owever, t s a perod of unusua busness
prosperty whch to a substanta degree was but on the deferred demands,
the accumuated savngs of Word War II, and arge postwar defense e pend-
tures. Snce ths unprecedented eve of busness actvty coud hardy have
been e pected to contnue permanenty, the use of the ncome of the years 19 6
through 19 9, wthout ad|ustment, woud produce a genera overstatement of
the ta payers earnng capacty n the absence of hosttes n orea or a arge
program of mtary e pendtures. For ths reason your commttee beeves
that a 1 percent cut-back n average base perod Income s a moderate
ad|ustment.
In addton to emnatng the poorest year n ts base perod, the ta payer Is
permtted to count the earnngs of any remanng defct year as zero. The com-
parabe Word War II ad|ustments were consderaby ess bera. Under that
aw the earnngs f the poorest year coud be rased to 7 percent of the average
of the other 3 years. Ths s ony three-fourths of the upward revson whch
occurs n the seecton of the best 3 out of years. Moreover, there was no pro-
vson n the Word War II aw aowng addtona defct years to be counted
as zero.
Ths b provdes that the average earnngs credt may be ncreased for n-
vestments made ate n the base perod. though no smar provson was
contaned n the Word War II aw, an ad|ustment of ths character s needed to
pace corporatons where nvestments were made ate n the base perod on a
comparabe bass wth corporatons where nvestments were made pror to, or n
the eary part of, the base perod. Investments eary n the base perod are fuy,
or argey, refected In the base-perod earnngs, but nvestments made n the
atter haf o the base perod, w at best be ony partay refected n the base
perod earnngs and may not affect those earnngs at a.
For ths reason the average earnngs credt s ncreased to refect one-haf of
te net addtons to capta n 19 and a of the net addtons to capta n
19 9. When the addtona nvestment takes the form of equty capta or re-
taned earnngs, the base perod credt s, n effect, ncreased by 12 percent of
the amount of the nvestment. Ths s the same rate of return aowed for net
addtons to capta n the years n whch the e cess profts ta s appcabe
and s the ma mum rate of return aowed those usng the nvested capta
base. When the addton takes the form of borrowed capta, the credt s
ncreased by 133 percent of the nterest payabe on the new funds. Ths s the
same ad|ustment aowed on borrowed capta n the case of addtons durng
e cess profts ta years and to ta payers usng the nvested capta base. The
theory and operaton of ths ad|ustment w be e paned beow.
Ta payers usng fsca years endng after December 31 but before pr 1
w use the ast four ta abe years endng pror to pr 1, 19 0. The use of
the corporaton s actua ta abe years s desrabe n tsef and the ncuson
of the frst quarter of 19 0 n the base perod does not appear to be ob|ectonabe.
owever, ta payers whose fsca years end after March 31 and before December
31 are requred to use as ther base perod the months begnnng on anuary
1, 19 0, and endng December 31, 19 9. In these cases the use of the corpora-
ton s actua ta abe years woud nvove ether the e cuson of a porton
of the caendar year 19 9 and the ncuson of a correspondng part of 19 ,
or the ncuson of a porton of the caendar year 19 0 whch ncudes or borders
upon the months affected by the hosttes In orea. Therefore, such corpo-
ratons are requred to construct by proraton four caendar years n order to
compute ther base perod credt. For Instance, for base perod purposes, the
10 0 ncome of a corporaton wth a ta abe year endng November 30, w con-
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sst of eeven-twefths of the Income of the corporaton s 10 6 fsca year and
one-twefth ot Its 19 7 fsca year. The ncome of the other base perod years
w have a smar composton. The 19 9 ncome for base perod purposes w
consst of eeven-twefths of the corporaton s ncome n the 19 9 fsca year
and one-twefth of the ncome of ts 19 0 fsca year. Ths w reduce to a
mnmum the effect of the orean hosttes upon ther base perod ncome.
. Invested capta credt.
Under the b, ta payers usng the aternatve of an Invested capta credt
nstead of the average earnngs credt determne ther nvested capta and on
ths base are aowed rates of return varyng wth the sze of the nvestment n
the case of equty capta and retaned earnngs, and wth the rate of nterest
payabe n the case of borrowed capta.
(o) Rates of return on equty capta and retaned earnngs. The rates of
return aowed on equty capta and retaned earnngs under your commttee s
b and the Worf War II statute are shown n tabe 1.
Tabe 1. Rates of return aowed on equty capta and retaned earnngs under
your commttee s b and the Word War II statute1
Capta to whch rate appes
Rates under ths
b
Rates under Word
War 11 aw
(In mons)
Under 1
12 percent.
percent.
6 percent.
percent.
to 10
10 percent
Over 10
percent. .
Under the Word War II statute the capta n each bracket aso ncuded one-haf of the borrowed capta.
It was beeved necessary to provde for more bera rates of return under
your commttee s b than under the Word War II aw to aow for the genera
ncrease n rates of return on nvested capta whch has occurred snce the pre-
Word War II perod. Thus the rates of return were ncreased on the average
by sghty more than 0 percent.
(6) Rate of return on boroccd capta. Under ths b the rate of return
aowed on borrowed capta s 133 percent of the nterest rate payabe on 100
percent of these borrowed funds. Ths s accompshed by aowng the fu
deducton of nterest payments and by aso ncreasng the nvested capta credt
by one-thrd of the nterest payments. Under ths b the mnmum amount
by whch the credt s to be ncreased s 1 percent of the borrowed capta (m-
ted to obgatons wth a term of years or more), and the ma mum by whch
t s to be ncreased s 3 percent of the tota borrowed capta, but no mtatons
are paced on the nterest deducton.
The Word War II statute provded that one-haf of the ta payer s borrowed
capta be taken nto consderaton n computng the nvested capta credt.
The capta taken nto account was mutped by statutory rates of return shown
above n the tabuaton on equty capta and retaned earnngs n computng
the nvested capta credt. owever, one-haf of the nterest pad on borrowed
capta was dsaowed n computng the e cess profts ta net ncome. The
effect of ths, takng nto consderaton both the addton to the credt and the
dsaowance of one-haf of the nterest payments, was to aow a rate of return
on borrowed capta hafway between the nterest rate and the appcabe statu-
tory rate of return on nvested capta. Thus, the margn aowed to the ta -
payer to compensate for rsk was one-haf the dfference between ts nterest rate
and the statutory rate of return on nvested capta. Ths margn became
smaer as the nterest rate ncreased, and dsappeared atogether where the
Interest equaed or e ceeded the statutory rate of return.
Under ths b, f funds are borrowed at an nterest rate of G percent, the
aowance for borrowed capta s one and one-thrd of G percent, or percent.
Of ths percent, 6 percent Is aowed as an nterest deducton and 2 percent
as an Increase n the Invested capta credt. Under the Word War II aw,
the rate of return where funds were borrowed at 6 percent vared from 7 percent
where tota nvested capta was ess than mon to , percent where tota
Invested capta e ceeded 10 mon. In ths case the nterest deducton was
mted to 3 percent and the baance of the aowance, varyng from percent
to 2 percent, was refected n an ncreased nvested capta credt. The mar-
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n aowed In e cess of the 6 percent Interest payment, to compensate the ta -
payer for rsk, s 2 percent under ths b and vared from 1 percent to a mnus
percent under the Word War II aw.
Wth an nterest rate of 3 percent on borrowed funds the rate of return on
borrowed capta s percent under ths b and vared from percent to |
percent under the Word War II aw. Under the reatvey ow nterest rate of
3 percent, after aowance s made for the amount whch must be pad out as
nterest on the borrowed funds, the remanng rate of return woud be 1 percent
under ths b and vared from 1 percent to 2 percent under te Word War II
aw.
Tabes 2 and 3 compare the rate of return aowed on borrowed capta under
the b and under the Word War II aw for a range of nterest rates whch
ncudes practcay a rates at whch funds are borrowed by corporatons.
Tube 2 makes the comparson before any ad|ustment for the porton of the
rate of return requred to meet nterest payments. Tabe 3 makes the compar-
son after nterest payments have been deducted.
Tabe 2. Rate of return on borroced capta aowed under your commttee s
b and under the Yord War 11 aw before nterest payments
ate of nterest payabe

Word War II aw
3 percent
to percent.
3 percent
to percent.
-3 to 6 percent.
p-Tccnt
C srcent
to O percent.
2 to 7 percent.
percent
| -a percent .
6 to 7M percent.
f to percent.
10- percent
12 percent
7 to percent.
7 2 to percent.
13 percent
Tabe 3. Rate of return on borrowed capta aowed under your comm tce
b and under the Word War II aw after nterest payments
Rate o. nterest payabe

Wor.d War II aw
1 percent
W to 3 percent.
1 to | percent.
Y to 2 percent.
0 to 1 percent.
y to 1 percent.
1 percent
percent
z3 percent ,
2 percent .....
1 to Y percent.
3 percent
Wz to 0 percent.
-2 to - percent.
- y to -1 percent.
comparson of the dfferent rates of return for nterest payments shown
on tnbe 2 ndcates that n the case of both the provsons under ths b
and under the Word War II aw the rate of return ncreases as the nterest
rate rses. owever, under the provson n the b the rate of return rses
at a more rapd rate. The rate of return aowed here s sghty smaer than
the Word War II aowance for the 2 percent nterest rate. owever, for
the 3 percent nterest rate, whch represents the owest rate at whch funds
are usuay borrowed by corporatons, the rate of return s the same as that
aowed under the pror aw where the borrowed capta was a part of nvested
capta e ceedng 10 mon. For funds borrowed at nn nterest rate of
percent, the two methods gve appro matey the same rate of return. For
nterest rates of C percent and above, the rates of return under the provsons
of ths b are more generous for a casses of ta payers tau those under
the Word War II aw.
comparson of the rate of return after reducton for the rate requred for
nterest payments, as shown In tabe 3, ndcates that under the b ths margn
to compensate for rsk s qute sma where the nterest rate s sma but ncreases
substantay .as the nterest rate, and presumaby the rsk, ncrease. Under
the Word War II aw tho reverse was true; the ower the nterest rate the
wder the margn gven for rsk. Under the Word War II method when the
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Interest rate reached percent there was tte or no margn for reef. When
the nterest rate reached 6 to percent even the nterest payments mght not
he covered and when the nterest rate was above percent t was never covered.
In consderng the rate of return to be aowed for borrowed capta, your
commttee beeved that the aowance shoud at east cover the nterest pay-
ments whch must be made for the use of the borrowed funds. Ths s generay
recognzed as not representng ncome to the borrower and s not treated as
such under the ncome ta aws. The Word War II aw n many cases dd not
cover these nterest payments.
owever, t s recognzed that the fu deducton of nterest payments s
not a suffcent aowance for borrowed capta. The use of borrowed funds by
a corporaton ncreases the rsk of the stockhoders and therefore your com-
mttee beeves t s proper to compensate the stockhoders for ths addtona
rsk. Moreover, the addtona rsk tends to vary wth the nterest rate whch
must be pad for the use of the borrowed funds. It s prmary for these
reasons that the b provdes that the nterest payments are deductbe and
that an addtona percentage based on te nterest rate s added to the credt.
The one-thrd margn s added to the credt because ths gves neary the same
rate of return as under the Word War II aw for the owest nterest rates
customary pad.
(c) Defnton of borrocet capta. orrowed capta under your comndttee s
b s ndebtedness (not ncudng nterest) whch s evdenced by a bond, note,
b of e change, debenture, certfcate of Indebtedness, mortgage, deed of trust,
or condtona saes contract and s empoyed n the trade or busness. Ths
s substantay the same as the defnton appearng n the Word War II
statute e cept for the addton of condtona saes contracts. Such contracts
are n reaty a form of borrowng whc have been used e tensvey and your
commttee beeves that ther omsson from the defnton of borrowed capta
woud work a hardshp on ta payers borrowng substanta amounts n ths
manner.
(d) Computaton of nvested capta. Under Word War II aw the so-caed
hstorca capta approach was used to determne the nvested capta of
the corporaton. In genera ths nvoved a determnaton of the money and
property orgnay pad-n to the corporaton for stock and as pad-n surpus
pus net accumuatons of earnngs (earnngs n e cess of osses and dvdends)
ess any dstrbutons of capta.
Under your commttee s b the nvested capta of a corporaton Is de-
termned by deductng from ts tota assets, now on ts books, the tota of ts
abtes now on ts books, and restorng any net defct n the perod 10 6
to 19 9, or 19 0 to 19 9, whchever perod as the greater net defct. The
vaue of the assets s determned by takng ther ad|usted bass for gan . Ths
s the vaue used for deprecaton purposes and s ther cost, n the case of
assets acqured before March 1, 1913, or Marc 1, 1913, vaue, whchever s
hgher, pus or mnus ad|ustments for deprecaton and capta mprovement snce
ther acquston or snce March 1, 1913. Ths aso s the vaue whch s paced
on an asset for ta purposes when t s sod at a gan.
Your commttee s b shfts from the hstorca capta approach to the asset
approach because t s beeved that t w be much easer for the ta payer
to determne the bass of hs present assets than to determne the amount org-
nay pad n for stock and surpus. speca advantage of the partcuar asset
bass u.sod s that the bass for gan s ready avaabe for deprecabe assets.
Ony n one respect s there any sgnfcant dfference n the vauaton whch
w be readed for nvested capta under these two approaches.
Under the hstorca nvested capta approach of the Word War II statute,
a net defct, that s, any defct remanng after offsettng defcts of oss years
aganst earnngs of proftabe years, dd not decrease pad-n capta or pad-n
surpus. Under the asset approach n ths b a net defct ncurred pror to
19 6 or 19 0 (dependng on whch s more advantageous to the ta payer) does
have the effect of reducng capta or surpus pad n pror to that date. ow-
ever, a net defct for the perod snce 19 0 or 19 0 reduces nether capta or
surpus pad n at any tme, nor earnngs and profts reazed pror to 19 0 or
19 6. Thus, under your commttee s b, corporatons wth recent net defcts
are treated more favoraby than under Word War II aw whereas under the
Word War II aw corporatons wth net defcts over the whoe span of ther
e stence are treated more favoraby than under your commttee s b. The
provson n the b s beeved preferabe because t removes, as to recent defcts,
dscrmnaton between corporatons wth, prevousy accumuated earnugs and
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those wthout such earnngs, because It tends to favor new corporatons some-
what more than the od aw, and because current stockhoders of corporatons
wth a net-defct poston estabshed some tme ago are key to have dscounted
ths defct poston n buyng ther stock.
(e) dmssbe and nadmsche assets. Under the Word War II statute the
capta to whch the varous rates of return were apped to determne the nvested
capta credt was reduced for certan so-caed nadmssbe assets. These assets
were e cuded because the ncome reazed from them was not sub|ect to e cess
profts ta . Stock n a corporaton was an nadmssbe asset because dvdends
receved on such stock were not ncudbe n e cess profts ta net Income. State
and oca government obgatons and partay ta e empt Federa obgatons
were aso treated as nadmssbes because nterest receved on them was not
ncudbe n e cess profts ta net ncome. owever, n the case of these
obgatons the ta payer had the opton to treat them as admssbe assets f t
ncudes n ts e cess profts ta net ncome the nterest receved on these
obgatons.
Ts b makes no ma|or change n admssbe and Inadmssbe assets e cept
to deny the opton to treat State and oca government obgatons and partay
ta e empt Federa obgatons as admssbe assets. Your commttee beeved
that the grantng of ths opton gves an undue advantage to hoders of these
obgatons. The nterest rate payabe on such obgatons s qute generay
around 2 percent to 3 percent. To aow rates of return of percent to 12 per-
cent, the rates provded for nvested capta, gves the hoders of these obga-
tons an opportunty to nppy the e cess of the rate of return aowed over the
rate of return receved on these obgatons to ncome on other assets.
6 . ct capta changes n the ta pears.
Under your commttee s b both the ta payer usng the average earnngs
credt and the ta payer usng the nvested capta credt are aowed to ncrease
ther credt fr net addtons to nvestments snce 19 9. ddtons n the form
of equty capta or accumuated earnngs are aowed a fat rate of return of 12
percent. ddtons n the form of borrowed capta are aowed a rate of return
of 133 percent computed n the same manner as n the case of the nvested
capta base.
Reductons n Invested capta n the ta perod under the b are permtted
to decrease pror addtons n the ta perod at the same rate at whch these
ncreases were prevousy made n the case of ether the average earnngs ta -
payer or nvested capta ta payer. ny addtona reductons n the ta years
decrease the credt of both nvested capta and average earnngs ta payers. For
the nvested capta ta payer the rates of return used n connecton wth any
such reductons are the rates used n budng up ts nvested capta credt n-
tay. For the average earnngs ta payer the rates of return used are 12 per-
cent n the case of equty capta and retaned earnngs and one-thrd of the
nterest payments n the case of borrowed capta.
The Word War II statute was much ess generous and aso was Inconsstent
n the aowance for addtons to capta n e cess profts ta years. In the ense
of the average earnngs ta payer no aowance was made for nvestments n the
ta years f they took the form of borrowed capta or accumuatons of retaned
earnngs. n ncrease In ts credt was aowed at an percent rate of return
f the addtons took the form of pad-n capta or pad-n surpus and a 6 percent
rate of return was used for reductons of ths type.
In the case of the nvested capta ta payer the Word War II statute provded
that retaned earnngs and borrowed capta be ncuded n the ordnary compu-
taton of nvested capta at the reguar rates for such capta. ddtons to
pad-n capta or pad-n surpus were aso ncuded n the credt at the ordnary-
rates but as a speca Incentve they were ncuded at 12, percent of ther vaue.
Ths had the same effect as provdng for them a 10 percent, I percent, or 6 ,
percent rate of return, dependng on the nvested capta bracket of the
corporaton.
Your commttee beeves that the more generous provsons provded n ths
b are necessary snce the emergency may be of ong duraton and addtona
productve factes be needed.
7. Net ncome n the ta abe year.
Net ncome for the purposes of the e cess profts ta Is an ad|usted verson of
the net Income to whch the 2 percent corporate norma ta s apped. Chef
among the ad|ustments s an e cuson of capta gans and osses, both ong
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19
d short term, and gans and osses on ths sae or e change of assets used
n the trade or busness whch fa wthn the scope of secton 117(|) of the
Code. Casuaty osses are not e cuded because such osses are key to have a
serous effect upon the corporaton s ta payng capacty n the year of the oss.
Ths e cuson s based on the sporadc character of the recepts. The Word
War II aw e cuded ony ong-term gans and osses but ogc requres the e cu-
son of short-term gans and osses, and osses on the sae or e change of secton
117(|) assets as we.
Ths b, ke the Word War II aw, e cudes certan other types of sporadc
ncome, such as
1. Income arsng out of the retrement or repurchase at ess than the Issue
prce of bonds, and other evdences of ndebtedness, outstandng for more
than 6 months;
2. Income arsng from the recovery of bad debts n cases where no deduc-
ton has been camed n a year for whch an e cess profts ta was mposed
under the Word War II aw or woud be Imposed under ths b; and
3. Refunds of ta es pad under the grcutura d|ustment c of 1933.
The net ncome of the e cess profts ta year s aso corrected by the emnaton
of deductons arsng out of the retrement at a premum of bonds and other
evdences of ndebtedness outstandng for more than 6 months. The ad|ustment
was aowed under the Word War II aw, but ony n the correcton of the base
perod net Income. Under the b t s aso used to ad|ust the net ncome of the
ta perod.
s n the Word War II aw, the net Income of fe nsurance companes s ad-
|usted for contrbutons made to pocyhoders reserves so as to conform ncome
for e cess profts ta purposes wth ncome used for the corporate norma and
surta es. Ta payers n certan e tractve ndustres are aso permtted to e -
cude a porton of ther ncome from e cess output as under the Word War
II egsaton.
The b foows the precedent of the Word War II aw n aowng a fu 100
percent credt for dvdends receved from domestc corporatons. Whe the
Word War II aw aso aowed a fu credt for dvdends n knd, the b re-
strcts the credt for such dvdends to the ad|usted bass of the dstrbuted prop-
erty n the hands of the dstrbutng corporaton. Ths conforms the treatment
of dvdends n knd under the e cess profts ta and the corporate norma and
surta es as revsed by secton 122 of the Revenue ct of 19 0.
The b contans a provson aowng the correcton of the net ncome of
the e cess profts ta years for other abnormates. Ths provson s smar
to secton 721 of the Word War II aw. Generay, ncome appearng n par-
tcuar e cess profts ta years s reaocated under ths provson f t s attrb-
utabe to events that occurred or work that was done n other years. Such an
ad|ustment s made ony f the ncome of the cass deemed to be abnorma re-
ceved n the ta abe year s more than 11 percent of the average amount of the
ncome of the same cass receved durng the four prevous ta abe years. In
approprate cases such an e cess w be attrbuted to other years under regua-
tons to be prescrbed by the Secretary of the Treasury.
d|ustments of ths type are mted to ncome arsng out of
1. cam, award, ad|ustment, or decree;
2. poraton, dscovery, or prospectng whch e tended over a perod of
more than 12 months;
3. The sae of patents, formuas, or processes deveoped over a perod of
more than 12 months; or
. Income whch s ncudbe n the ta abe year rather than another year
by reason of a change n the ta payer s method of accountng.
The equvaent provson n the Word War II aw (secton 721) aso permtted
ad|ustments wth reference to certan other types of ncome, partcuary that
resutng from the sae of tangbe property arsng out of research and de-
veopment whch e tended over a perod of more than 12 months. Ths prov-
son In the od aw was a potenta oophoe of ma|or dmensons. ecause there
appeared to be no means of restrctng such an ad|ustment to truy mertorous
cases other than by the ntroducton of a arge degree of admnstratve dscre-
ton of the type requred by the genera reef cause of the Word War II aw
(secton 722), and because the need for a reaocaton of such ncome seemed to
materay ess than n the other casses of ncome descrbed above, ths tem
has been omtted from the st of abnorma types of ncome for whch a reaoca-
t w can be made under ths b.
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19G
s a resut of testmony receved at the recent hearngs of the Commttee on
Ways and Means, provsons have been ncuded n the b desgned to correct
the ncome of ta payers usng the nstament bass of accountng or ta payers
who report ncome under ong-term contracts on the competed contract bass,
essees from contracts whch obgate them to assume the ta es due on the rentas
pad to the essor, and banks usng the reserve method of accountng for bad
debts.
Under the nstament bass method of accountng Income arses when the
payments made under the contracts are receved. In the absence of a reef
measure, many ta payers now usng ths method woud probaby be requred to
pay unusuay arge ta es durng the frst years of the e cess profts ta perod
because the recept of payments arsng out of saes made n earer years w
e ceed substantay the voume of new busness. Ths s e pected to occur be-
cause the voume of Instament purchnses was very heavy n 191S, 10-19, and 19 0
and w probaby dmnsh sharpy n 19 1 and subsequent years as a resut
of the appcaton of contros to nstament purchases and the deveopment of
scarctes among the commodtes ordnary sod by the nstament method.
To prevent ths resut, the b permts a ta payer whch s on the Instament
bass for ncome ta purposes to eect to report ts Income on an accrua bass
for the e cess profts ta . Ths has the effect of e cudng from the e cess profts
net ncome of the ta abe years the payments arsng out of saes made durng
the years n whch the ta dd not appy. Such an eecton when made s
rrevocabe.
smar remedy s provded for ta payers who receve payments under
ong-term contracts and account for such recepts under the competed contract
method as ncome for the year n whch the contract Is competed. The b
permts such ta payers to eect to report ther ncome from ong-term contracts
upon the percentage of competon method of accountng for the purpose of the
e cess profts ta . Ths eecton when made s aso rrevocabe.
In certan cases raroads have entered nto eases whch requre the essee
to pay a stated renta to the essor free of ta . Such eases were usuay entered
Into many years ago when ta es were not as mportant an tem as they are
now. The ncrease n ta es mposed automatcay rases the ncome, before
ta es, receved by the essor corporaton nnd may serve as the bass for the m-
poston of an e cess profts ta whch the essee w be obgated to assume.
To emnate hardshp the b provdes that n such cases the amount of ta
pad by the essee sha be e cuded from the ncome of the essor corporaton and
that no deducton sha be aowed to the essee. The provson appes ony
where the ease was entered nto pror to December 1, 1930, for a term of more
than 20 years.
For ncome ta purposes banks have been permtted to use the reserve method
of accountng for bad debts. The banks whch eected to use ths method, be-
gnnng n 19 7, have for the most part accumuated reserves whch equa or
approach the ma mum aowabe under the e stng rungs. The fact that
the reserves have reached or approached the aowabe ma mum, pus the prob-
abty that osses from bad debts w be abnormay ow durng the e cess
profts ta years, means that the deductons n the e cess profts ta perod
w be comparatvey ow. To permt an equtabe comparson between the
base-perod net ncome and the ncome of the e cess profts ta years, the b
permts banks usng the reserve method of accountng for bad debts to cam
a deducton for the purpose of determnng e cess profts ta net ncome on the
bass of debts whch become worthess n whoe or n part durng the ta abe year.
. Net ncome n the hasc perod.
The equtabe cacuaton of e cess profts by a comparson between a base-
perod e perence and the ncome of the ta abe ye:r requres the remova of
abnormates not ony from the ncome of the ta abe year but from the ncome
of the base perod as we. Many of the provsons n the b for ad|ustng the
ncome of base-perod years are smar to those used n the ta abe years. mong
these are the e cuson of gans and osses from the sae or e change of short-term
assets, ong-term capta assets, nnd assets fang wthn the scope of secton
117( ), as we as ncome arsng from the retrement or repurchase at ess than
the ssue prce of bonds and other evdences of Indebtedness outstandng for more
than 6 months.
Deductons for premums pad and e penses nvoved n the retrement of
bonds and other evdences of ndebtedness outstandng for more than 13 months
are emnated n the base perod as n the ta abe year and provson s made
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197
for the emnaton of the deducton for the repayment of processng ta es to
vendees whch paraes the ad|ustment for processng ta refunds n the
ncome of the e cess profts ta year.
100 percent credt for dvdends receved s aowed n computng the net
ncome of the base-perod year and the rue apped to dvdends n knd s
the same as that now used under the corporate norma and surta es.
In addton the b contans a genera provson appyng to |udgments, n-
tangbe drng and deveopment costs, casuaty osses and other abnorma
deductons n the base-perod years. For any cass of such abnorma deduc-
tons, the amount n e cess of 11 percent of the average amount of deductons
of such cass for the four prevous ta abe years may be emnated under regu-
atons prescrbed by the Secretary, provded that n the base-perod year the
deductons of the cass dsaowed e ceed percent of the average e cess profts
net ncome for a the ta payer s base-perod years computed wthout the ds-
aowance of any cass of deducton under ths provson. For the purposes of
the atter mtaton, a defct of any of these years s counted as zero.
Ths provson s smar to those used n the Word War II aw e cept that
the atter emnated ony the e cess over 12 percent of the average of the de-
ductons for the four prevous ta abe years and the percent mtaton de-
scrbed above was not used. Smary, the Word War II aw does not permt
the dsaowance of such abnorma deductons uness the ta payer estabshes
that the dsaowance s not a cause or a consequence of an ncrease n the
gross ncome of the ta payer durng ts base perod, or of a decrease n the
amount of some other deducton n the base perod or a cause or a consequence
of a change at any tme n the type, maner of operaton, sze or condton of
the busness engaged In by the ta payer. The b aso foows the precedent
of the Word War II aw n mtng the amount of the deductons dsaowed
to the e cess over the deductons of the same cass n the ta payer s e cess
profts ta year.
The ncome of the base-perod years s ad|usted to conform to that of the
ta abe years n the case of ta payers who eect to change from the nstament
bass to the accrua method of accountng or to substtute the percentage of
competon method for the competed contract method of accountng for payments
under ong-term contracts. The base-perod Income of essees whch are
obgated to pay the ta due on the payment to a essor under a ong-term con-
tract s ad|usted n the base perod to conform wth the ta perod. anks
usng the reserve method of accountng for bad debts are aowed durng the
base perod to substtute deductons for debts, whch became worthess n
whoe or n part wthn those years, for the arger deductons then made to
estabsh such reserves.
0. Genera reef.
(o) Provsons of pror ate. Secton 722, the genera reef provson of the
Word War II aw, was desgned to ad hardshp cases by provdng such
corporatons wth a substtute, or constructve average, base perod net ncome.
Secton 722 deat wth three prncpa casses of cases (1) corporatons whch
bad suffered some adversty durng ther base perod, (2) corporatons whch
had made changes durng the base perod resutng n an ncrease n ther
proft potentas, and (3) corporatons whch were not n e stence durng the
base perod and, therefore, had no base perod net ncome at a.
In each nstance the secton provded that a hypothetca base perod earnngs
credt be taor made for the partcuar ta payer and that certan assumptons
he made n conecton wth the case. ach case was a probem n research, and
the ega or ta resut generay was ntertwned wth compcated accountng
and economc probems. most every factor whch had any nfuence on the
Partcuar busness was pertnent to the case and the tme and e pense nvoved
In reconstructng the average base perod earnngs credt was tremendous.
These compe reef provsons of the Word War II aw have resuted n
e tended deay n the settement of reef cams whch dscrmnated aganst
ta payers who had nether the tme nor the fnanca resources necessary for
the estabshment of ther cases. Moreover, the determnaton of what the
ta payer s base perod ncome woud have been n the absence of the camed
abnormaty was argey a matter of sub|ectve |udgment, and a great dea of
compant has arsen on ths account. ence ths b reduces to a mnmum
the amount of admnstratve dscreton nvoved n the ad|ustment of the
hardshp cases whch may be e pected to arse under an e cess profts ta .
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19S
(6) Reducton n hardshp case under the b. Snce corporatons In gen-
era had a hgh eve of profts durng the past years, and snce the b s
more bera n a number of ma|or respects than the Word War II aw, the
number of hardshp cases whch w arse shoud be substantay ess than
f the od aw were reenncted under current condtons.
Provsons of the b whch may be e pected to reduce the need for reef are
(1) the substtuton of a 2 ),000 mnmum credt for the 10,000 specfc
e empton of the pror aw; (2) the opton granted the ta payer to emnate
the worst year n ts base perod for the purpose of computng ts average base
perod net ncome; (3) the treatment of a defct n any remanng base perod
year as zero for the purpose of computng the average base perod net ncome;
( ) the substtuton of a -year carry-forward and a 1-year carry-back of the
unused e cess profts credt and net operatng osses for the 2-year carry-
forward and the 2-year carry-back used under the Word War II aw; ( ) the
ncrease of the average base perod net ncome for capta addtons made n
the atter part of the base perod, for whch there was no comparabe ad|ust-
ment n the pror aw; and (6) the ad|ustment of the average base perod net
ncome for capta addtons after the base perod, on the same bass as prev-
ousy aowed ta payers on the nvested capta base.
(c) Genera reef provsons of the h. The b provdes automatc formuas
for each of the most mportant types of cases whch arose under the od sec-
ton 722. The use of such formuas permt an ob|ectve computaton of the e act
amount of reef to be granted n each case, rather than eavng the e tent
of reef dependent upon an attempted anayss of a the varyng factors of each
case, wth uncertanty and dsparty among ta payers the nevtabe resut. It
s beeved that the proposed approach to the determnaton of reef probems
w avod n arge measure the dffcutes of proof and the sub|ectve determ-
natons whch characterzed the admnstraton of secton 722 and w emnate
the deays whch attended the provson of reef for hardshp cases under the
Word War II aw.
(1) bnormates durng the base perod. Secton 722(b) (1) and (2)
of the pror aw provded reef n cases where the ncome of the ta payer s
base perod years was abnorma because of a physca nterrupton to produc-
ton, such as a fre, strke, or food, or because of a depresson n the busness of
the ta payer resutng from temporary economc crcumstances such as a severe
prce war. Your commttee s b provdes reef n these same areas. ow-
ever, the b does not retan that part of secton 722(b)(2) whch provded
reef n cases where the busness of the ta payer was depressed because of
the fact that an ndustry of whch such ta payer was a member was depressed
due to temporary economc events unusua to such ndustry. Your commttee
beeves such a provson unnecessary n vew of the fact that an abnorma
depresson n the ta payer s own case s gven as a ground for reef. More-
over, the determnaton of the e stence, cause, and effect of a depresson n
nny ndustry as a whoe nvoves dffcut questons of proof whch t s beeved
desrabe to avod.
If the year n whch an abnormaty e sts s the ta payer s owest year
of earnngs durng the base perod, t w be emnated automatcay from
the average base perod net ncome computaton. owever, f the year or
years n whch the abnormaty occurs s ncuded In the three hghest years,
then the ta payer may substtute for hs actua ncome n the year or years
n whch there was an abnormaty of the above types an amount determned
by reference to an nde based on the base perod yeary rate of return for
the ndustry to whch the ta payer beonged n the year of the abnormaty.
The use of ndustry ndces emnates the dffcut task of provng what
the earnngs of an abnorma year woud have been had the abnormaty not
e sted. Instead the ta payer w substtute for the actua ncome of the
abnorma year an amouut whch bears the same reaton to hs aggregate
earnngs e perence n the norma years of the base perod as the earnngs
nde for the ndustry n that year bears to the aggregate of the ndustry s
ndces n the ta payer s norma years.
The substtuton provded for n such case woud not be made under the
b uness the substtuted ncome n the year of the abnormaty s more than
10 percent hgher than the actua ncome for that year. Such a mtaton
s desrabe n order to avod burdenng the admnstraton of the ta wth
trva cams and to mt reef to cases where hardshp ceary e sts.
Ths proposa may be ustrated by the foowng e ampe:
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199
Ta payer s earnngs
Ta payer s ndustry
nde
1M6
00
3,000
1,000
,000
100
110
120
12
IMS
m
bnormaty.
In ths case, the ta payer frst emnates hs 19 6 e perence as beng the
poorest of hs base-perod years. It then estabshes that an abnormaty e sted
n 19 because of a strke. The earnngs substtuted for 19 s the amount
whch bears the same reaton to the sum of the ta payer s earnngs for ts two
norma years ( 3,000 pus ,000) as the rato between ts ndustry nde for
19 (120) and the aggregate of the Industry Indces for the two norma years
(110 pus 12 ). The amount so computed woud be appro matey 3, 70.
In cases where the ta payer has two abnorma years after emnaton of the
worst year, substtuted earnngs are computed for each of the abnorma years
separatey, on the bass of ts reaton to the one norma year.
Under the b, n order to quafy for ths form of reef, the ta payer must
treat as norma at east one year n ts base perod, after emnaton of ts
poorest year. Ths mtaton s necessary n order to provde at east one
year upon whch to base an earnngs comparson.
For the purpose of affordng ths form of reef, the Naton s ndustry w
be grouped accordng to about 0 ma|or cassfcatons whch w be generay
n accord wth the cassfcaton reguary used by the Treasury Department n
compng pubshed statstcs from corporaton Income ta returns. Such a
cassfcaton s n preparaton at ths tme and your commttee hopes that t
w be possbe to ncude t n the b pror to Its enactment. In order to pro-
vde for the possbty of such ncuson provng mpractca, the b drects
the Secretary of the Treasury to determne and procam the cassfcatons not
ater than March 1, 19 1.
It s further provded that the Secretary of the Treasury sha determne and
procam an nde for each ndustry cassfcaton whch sha be based on the
reatve average rate of return of each ndustry n the ndvdua caendar years
of the base perod. The rate of return for an ndustry for any perod sha
be obtaned by dvdng the sum of ts aggregate net ncome for such perod
and the aggregate nterest deducton for such perod by the average of the
aggregate tota assets of the members of the Industry for such perod.
The Secretary sha aso determne and procam a base-perod rate of return
for each ndustry cassfcaton. That rate w be used for the purpose of
computng an average base-perod ncome for corporatons whch changed ther
products or servces durng the base perod and for new corporatons. These
addtona reef provsons are descrbed at a ater pont n ths report.
Recognzng that there w be nevtabe deays n the fna determnaton
of ndustry earnngs statstcs, your commttee has provded that the Secretary
sha determne and procam for each ndustry cassfcaton tentatve base
perod yeary rates of return, tentatve ndces based thereon, and a tentatve
base-perod rate of return. These tentatve fgures w form the bass of ta -
payers returns unt such tme as fna fgures are announced.
(2) New products or servces ntroduced n the base perod. For corpora-
tons whch commenced busness on or before the frst day n the base perod
and whch added new products or servces n the base perod, for whch an
ad|ustment was authorzed by secton 722(b)( ) of the Word War II aw,
your commttee s b provdes reef by means of a formua.
In genera, a corporaton whch before the end of the base perod made a
Substanta change n ts busness by ntroducng a new product or new servce
s gven as an aternatve credt a return equa to the average of ts ndustry.
The reef provded s, n effect, the same as that dscussed beow for a new
corporaton whch enters the new ne of busness; that s the corporaton receves
an aternatve earnngs base a rate of return on ts tota assets equa to
the average rate of return e perenced by ts ndustry n the base perod. The
Industry base perod rate of return determned n the manner descrbed n con-
necton wth the ad|ustments provded for corporatons wth base perod
abnormates.
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200
To quafy for reef under ths provson the change n product or servce
must have been substanta and must have taken pace n the base perod and
after the ta payer s frst year n the base perod. The concept of what const-
tutes a change In product or servce was deveoped under the pror e cess profts
ta aw, and t s beeved that the e perence thereunder was generay
satsfactory.
The reef s avaabe f the foowng tests are met:
( ) The new product or servce produces more than one-thrd of the
ta payer s net ncome by the end of the thrd year (or earer) foowng
the year n whch the product or servce was ntroduced; and
( ) The ta payer s net ncome for any one of the frst three years n
whch t meets the quafcaton descrbed n ( ) s more than 2 percent
greater than the ta payer s average net ncome for the base perod year
or years precedng the year of change to the new product or servce.
The credt under ths formua s based on the assets used by the corporaton
In ts busness at the end of the base perod, or at the end of the year for whch
t frst quafes under ths formua, f such year s after the base perod. In
ether case the ndustry rate of return to be apped s the average rate of
return for the ndustry n the base perod. The credt thus determned woud
be the ta payer s credt under ths formua for subsequent years. ny changes
n nvestment after that tme woud be refected n the corporaton s credt n
the same manner as n the case of the ordnary corporaton.
Your commttee beeves that the measure of reef granted by ths provson
s proper n that n no case does t gve a rate of return n e cess of the average
base perod rate of return of the other members of the ta payer s ndustry.
greater rate of return s not approprate under a reef provson.
Your commttee s aware of the fact that the reef provded by secton
722(b) ( ) of the pror aw was avaabe n severa areas beyond that Invovng
soey a change n products or servce to whch the present b s mted. Those
areas, for whch speca provson s not made n your commttee s b, were
changes n the character of the ta payer s busness resutng from (1) a
change n the operaton or management of the busness, (2) a dfference n the
capacty for producton or operaton, (3) a dfference n the rato of nonborrowed
capta to tota capta, and ( ) the acquston pror to the end of the base
perod of a or part of the assets of a compettor, wth the resut that the
competton of such compettor was emnated or dmnshed. ma|or porton
of the od secton 722(b) ( ) was devoted to the treatment of corporatons whch
commenced busness durng the base perod. Your commttee has combned
the treatment of such corporatons wth the treatment of corporatons whch
commence busness subsequent to the base perod. The reef to be provded n
such cases s dscussed beow under the headng New Corporatons.
The reasons whch have ed your commttee not to provde speca reef for
the other so-caed hardshp cases referred to above are as foows:
( ) For corporatons ncreasng ther capacty for producton or operaton
n the base perod, the b contans three provsons heretofore dscussed
whch are appcabe as a means of provdng reef. These are
() The addtona aowance for new equty capta, retaned earn-
ngs, and new borrowed capta, added to the busness n the atter part
of the base perod;
() The aternatve growth credt under whch corporatons whch
had ess than 20 mon of assets at the begnnng of the base perod and
whch meet certan quafcatons evdencng growth w be gven the
hgher of 10 9 or the average of 10 and 19 0 as ther base perod
earnngs credt; and
() The addton to the earnngs credt on account of retaned earn-
ngs and new borrowed capta (as we as new equty capta as pro-
vded under the pror aw) added after the base perod, whch permts
the e panson of capacty and operatons to be refected n the credt.
Your commttee beeves that the above provsons make speca reef un-
necessary n ths area.
( ) The provson of reef n cases nvovng changes n management
or operaton has been emnated for severa reasons. Such changes do not
of themseves prove that the character of the busness has atered. de-
termnaton of that nature proved e tremey dffcut under the pror aw
and nvoved the very type of sub|ectve |udgments whch your commttee
Is convnced shoud be avoded n the new aw. Furthermore, t s beeved
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201
that the type of change n management or operaton, for whch the pror aw
was ntended to provde an ad|ustment, w resut, n the usua case, n n-
creased earnngs and profts durng the base perod whch, of course, w be
refected n the average base perod earnngs wthout any speca ad|ustment.
Moreover, f such changes are accompaned by capta addtons, wbc fre-
quenty w be the case, your commttee has provded an ad|ustment for
those addtons to the e tent that they were made n the atter part of the
base perod. Changes of hs type are accompaned typcay by a change n
the ta payer s products or servces, and the b aso provdes reef for such
a change n the manner aready dscussed.
(C) Your commttee has emnated as a ground for reef the dfference
durng the base perod n the rato of debt capta to other capta. t the
tme such reef was enacted as a part of the od secton 722(b) ( ) t was
thought that there woud be a substanta number of such cases because the
base perod of 1936-39 was characterzed In part by recovery from a severe
economc depresson. Ths stuaton was not a characterstc of the base
perod, 19 0- 9, provded n ths b. Moreover your commttee has been n-
formed that a comparatvey nsgnfcant number of cases arose under the
pror provson.
reducton n debt n reaton to other capta s accompaned ether by a
net ncrease n capta or a net decrease n capta wth a resutant con-
tracton n operatons. In the former case, that of an addton to capta,
another porton of the b provdes for an ad|ustment to base-perod earnngs
to the e tent that such addtons were made n the atter part of the base
perod. Wth respect to the atter case, an actua contracton n operatons,
your commttee s unabe to dscover any adequate reason for grantng reef.
(D) Your commttee has emnated any speca reef ad|ustment n the
case of an acquston by the ta payer before the end of the base perod
of a or part of the assets of a compettor whch resuted n the emnaton
or dmnshment of the competton of the compettor. It s beeved that
such a provson mposes an amost mpossbe burden of proof and that an
accurate evauaton, ased on fact rather than opnon, of the e tent to
whch earnngs are affected by such a change n the compettve reatons of
any partcuar ndustry Is vrtuay mpossbe. Moreover, f an acquston
of ths type does n fact resut n ncreased earnngs to the ta payer n the
base perod such earnngs w be refected n ts average base perod earn-
ngs. If the acquston s accompaned by an addton to capta durng
the atter part of the base perod, the b provdes an ad|ustment to base-
perod earnngs for such an addton. To the e tent the acquston s not
accompaned by an addton to capta but s merey the resut of a shft n
assets, your commttee does not beeve that there s any vad cam for
reef.
(d) arant proft cyces and sporadc ncome. For the purpose of determn-
ng the appcabe ndustry nde or base-perod rate of return for any 12-month
perod, a ta payer sha be a member of that ndustry to whch s attrbutabe the
argest amount of the ta payer s average gross recepts (as defned n the b)
durng that perod.
When the perod 1936-39 was seected as the base perod for the .revous
e cess profts ta , t was consdered far because t represented a perod of mod-
erate prosperty for busness n genera. Nevertheess, for some busness t was a
perod durng whch the profts cyce of the partcuar ndustry was at ts ow
phase and ths fact was ncuded as a ground for reef n secton 722(b) (3) ( ).
The busness cyce n genera Is an e tremey dffcut concept and the dstnc-
ton between the genera cyce and the cyce of an ndvdua ndustry s even
more dffcut to use. ence the e perence wth ths secton of the aw was
especay tryng for ta payers and admnstrators ake. The perod 19 0- 9,
recommended for the base perod n the proposed ta , s a perod whch s so
nfused wth temporary stmu that the ordnary busness cyce concepts w not
appy. udng constructon, by far the prncpa varant cyce ndustry n-
voved n the Word War II ta , was at a peak durng the years 19 0 19, and
shoud need no such genera reef provson now. Your commttee s not aware
of any other ndustry, whch, because of varant cyce condtons durng the
proposed base perod, requres such treatment. For these reasons and n vew
of the other reef measures beng proposed, It s beeved that no speca provson
for varant cyce cases need be made.
9 200 1 1
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Secton 722(b) (3) ( ) whch provded for reef In cases where the ta payer
was sub|ect to sporadc and ntermttent perods of hgh producton and profts
whch were nadequatey represented n the base perod kewse has been omtted.
Such reef was avaabe ony when such nadequate representaton was due to
reasons generay prevang n the ndustry of whch the ta payer was a part.
s has aready been ndcated, the determnaton of what s norma for an ndus-
try as a whoe Is a dffcut task and argey con|ectura n nature. For ths
reason, most ta payers whose ncome was of a sporadc nature sought reef under
secton 722(b) (1) or (2). Inasmuch as your commttee has made provson
for reef n these atter areas, a new provson of the 722(b) (3) ( ) type does
not appear necessary.
(e) Deferment of taw n reef cases. The b provdes for the deferment of
a porton of the ta n cases nvovng cams for reef under the provsons
reatng to abnormates n the base perod, change of product or servces n the
base perod and new corporatons. In order for the ta payer to quafy for such
deferment, ts ad|usted e cess profts net ncome computed wthout regard to those
provsons must be more than 0 percent of ts norma ta net Income for the
ta abe year.
If the ta payer who cams the benefts of the reef sectons referred to and
who quafes n the above manner computes ts ta on the bass of tentatve
Industry ndces or rates of return, t may defer 0 percent of the amount of the
camed reducton n ta . If the same computaton s based on fna ndces or
rates of return, 100 percent of the camed reducton n ta may be deferred.
When the ta payer has satsfed the Commssoner that t has vad grounds for
reef and that t has seected the proper ndustry for comparson the amounts
deferred, f propery computed, w never be coected.
10. ternatve oass for new corporatons.
Unke the Word War II aw whch treated the two separatey, the present
b combnes the reef treatment of a new corporatons whether they com-
menced busness durng or subsequent to the base perod.
s n the case of the reef provsons aready descrbed, an aternatve credt
s provded n such cases whch w make t unnecessary for the ta payer to
reconstruct a hypothetca base perod e perence as under the od secton
722. corporaton whch commenced busness at any tme after the begnnng
of the base perod (and whch was not an acqurng corporaton whose treatment
Is dscussed wth reference to part II) s permtted under the b to use as an
aternatve credt an amount determned by appyng the average base perod
rate of return for the ta payer s ndustry to the amount of the ta payer s tota
assets. When the ta payer s frst three ta abe years ended n the base perod, the
ndustry base perod rate of return apped to the ta payer s tota assets at the
end of the base perod and the amount so determned s the credt for subsequent
e cess profts ta ta abe years, ad|usted for retaned earnngs and for net add-
tons or reductons to capta n such years. When the ta payer s frst, second, or
thrd ta abe year ends after the base perod, the credt s determned for each
of those years by appyng the ndustry average base perod rate of return to the
ta payer s tota assets as of the end of each of such years and the credt so deter-
mned for the thrd year s retaned n subsequent years, sub|ect to ad|ustment
for retaned earnngs and capta changes.
The ta payer s tota assets, gross recepts and ndustry cassfcaton for the
purpose of the new corporaton ad|ustment are dentca to those prevousy
descrbed wth reference to the ad|ustment for abnormates n the base perod.
The base perod rate of return for each ndustry cassfcaton s to be determned
and procamed by the Secretary of the Treasury n the same manner as n the
determnaton of ndustry ndces.
Tour commttee s convnced that the ad|ustment provded for a new corpora-
ton under ts b, namey, an aternatve credt equvaent to the average base
perod rate of return of the other members of ts ndustry s an equtabe measure
of reef. Frst, t provdes a foor based on the ndustry s average earnngs
e perence beow whch the new corporaton s credt w not be aowed to fa;
and, secondy, t prevents the grantng of a credt n e cess of the Industry s aver-
age earnngs e perence, whch woud be napproprate n a reef provson.
Of course, a new corporaton whch has an e cess profts credt, based on ts
actua average base perod earnngs or nvested capta, that s hgher than the
credt computed under the reef ad|ustment descrbed above, uses ts own actua
credt.
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1. ternatve bass for growng corporatons.
Recognzng that the e cess profts credts based ether on the average ncome
of the best 3 years n the base perod or on nvested capta may not be satsfactory
for corporatons e perencng an unusuay rapd growth durng the base perod,
the commttee has provded n the b for an aternatve credt for such ta payers.
Ths credt s computed from the ncome of the ast 2 or the ast 12 months u the
ta payer s base perod whchever s hgher. The aternatve s avaabe ony
to corporatons whch commenced busness before the begnnng of ther base
perod snce t s desgned to provde reef ony to estabshed busnesses e per-
encng unusua growth. Speca treatment for new busnesses s provded n
another porton of the b.
The theory upon whch the aternatve credt for growng busness s based s
that by the end of the base perod the ta payer w have reached or w be ap-
proachng maturty so that ts ncome for the ast months of the base perod w
be reasonaby representatve of ts norma earnngs. Ths ogc woud ead to the
e cusve use of the fna year n the base perod, 19 9. owever, n many n-
dustres 19 9 earnngs were substantay ess than those of 19 , and n those
ndustres a growng corporaton mght receve a arger credt based upon the
e perence of the ast 2 years than one based on the snge year 19 9. Therefore,
the b permts a ta payer whch quafes as a growng busness to use the ast
2 years nstead of the ast year of ts base perod f the substtuton w produce
a arger aternatve credt.
To quafy for the aternatve credt a ta payer commencng busness before
the begnnng of ts base perod must meet two ma|or tests. One of these
s desgned to e cude from the benefts of ths provson arge corporatons
whose earnngs e perence does not ustfy the provson of addtona reef
on account of growth durng the base perod. The aternatve credt s ava-
abe ony f the ta payer had tota assets of not more than 20 mon at the
begnnng of ts base perod. For ths purpose tota assets means the sum
of the cash and other property used n the ta payer s busness, vaued at Us
ad|usted bass for determnng gan upon sae or e change.
The second test s desgned to mt the benefts of the aternatve credt
to corporatons e perencng a decree of growth durng the base perod whch
s substantay n e cess of the growth of ndustry n genera. For ths
purpose two Indces are used, payros and gross recepts, and the ta payer
may quafy for the aternatve bass under ether one of them. If the ta -
payer s tota payro for the ast haf of the base perod s 130 percent or more
of ts tota payro durng the frst haf of the base perod, t can quafy as
a growng corporaton. owever, a ta payer who fas to meet ths test may
quafy for the aternatve credt f Its gross recepts for the ast haf of the
base perod are 1 0 percent or more of ts gross recepts for the frst haf of
ts base p9rod. The use of the aternatve gross recepts test s |ustfed by
the fact that a corporaton may ncrease ts physca voume of producton
materay by ntroducng addtona equpment and new operatng procedures
whch do not nvove a correspondng ncrease n ts abor force. The per-
centages used n the payro and gross recepts tests are suffcenty arge so
that ony those ta payers w be abe to quafy for the aternatve credt
whose busness has grown substantay more rapdy than the average dur-
ng the base perod years.
The Word War II aw contaned a much more genera ad|ustment for
growth n the base perod. The so-caed growth formua used under that aw
permtted the ta payer to use as an aternatve bass a credt computed by
addng to the average Income of the ast haf of the base perod 0 percent of
the dfference between the average ncome for the frst and second haves of the
base perod, sub|ect to the mtaton that the aternatve credt coud not e ceed
the net ncome of the hghest ta abe year n the base perod. Whe ths
formua may have been usefu as a devce for provdng reef for corporatons
e perencng unusuay rapd growth under the condtons whch e sted from
1936 through 1939, the appcaton of the formua n the years 19 0 through
19 9 woud beneft many ta payers whose growth was no more than average
and woud resut n the wdespread use of the year 19 as the soe bass for the
cacuaton of the base-perod Income credt. The aternatve bases provded n
ths b w brng reef ony to corporatons whose assets at the begnnng
of the base perod are not more than 20 mon and whch can quafy under
tests whch ndcate ceary that the corporaton was growng substantay more
rapdy than busness n genera.
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12. Carry-overs of net operatng osses and unused e cess profts credts.
The b permts the use of the net operatng oss carry-back and carry-forward
In cacuatng the net ncome of an e cess profts ta year. For ths purpose
the same rue s used as under the corporate norma ta and surta , that s,
the carry-back Is mted to 1 year and amounts not so absorbed are carred
forward unt e hausted over a perod of not more than years. Ths compares
wth a carry-back of 2 years and a carry-forward of 2 years used under the Word
War II aw after 10 2. Thus the averagng perod under the b w be 7 years
as compared wth years under the prevous aw. The change w reduce mate-
ray the dscrmnaton that mght arse aganst corporatons e perencng un-
usua fuctuaton In ncome durng the e cess profts ta perod and cuts down
the need for the reaocaton of ncome between ndvdua e cess profts ta
years.
net operatng oss n the base perod may be carred forward to the e cess
profts ta years.
The net operatng oss carry-over or carry-back s not used for computng
the e cess profts ta net ncome of the ta payer n ts base perod years.
Snce a ta payers are permtted to seect the best 3 out of a possbe years
n ther base perod, and snce a number of ta payers are permtted to base
ther credt on the e perence of one or two of ther base perod years, the
appcaton of the oss carry-over woud be undesrabe because t woud reduce
the ncome of the years whch have been seected as an approprate test of
the ta payer s norma earnng power by ad|ustment for osses n the other
years, ncudng years outsde the base perod tsef.
Lke the Word War II aw ths b provdes for a carry-back and carry-
forward of an unused e cess profts credt The carry-back Is for 1 year and
the carry-forward for , thus producng the same 7-year averagng perod used
under the net operatng oss carry-over for both Income and e cess profts ta
purposes. The unused e cess profts ta credt ad|ustment under the Word
War II aw was mted to a carry-back of 2 years and a carry-forward of
2 years, thus producng an averagng perod of years whch conformed to
the net operatng oss carry-over provsons of that aw.
For a ta abe year begnnng before uy 1, 19 0, and endng after une 30,
19 0, the unused e cess profts credt s a proporton of the credt based on
the e perence of the ta payer durng the entre year whch s determned
by the number of days n the ta abe year after une 30, 19 0, dvded by the
tota number of days n the year.
The b provdes that a credt whch s the resut of the appcaton of
the 2 ,000 mnmum credt sha not be counted for purposes of the unused
e cess profts carry-over.
I . Other Important Provsons
1. Mnmum credt for certan reguated ndustres.
Your commttee s b provdes a mnmum e cess profts ta credt whch s
avaabe for certan specfed types of reguated ndustres. Ths credt s an
aternatve to the average earnngs credt and the nvested capta credt for
such ta payers.
Ths mnmum credt conssts of the corporate norma ta and surta payabe
by the corporaton for the ta abe year n queston, pus percent or 6 percent
of the sum of the equty capta, retaned earnngs, and borrowed capta of the
corporaton, ess nterest payabe on the borrowed capta.
The 6 percent rate of return s avaabe to pubc uttes suppyng the
foowng types of servces or products:
(a) teephone servces,
(6) eectrca energy,
(c) gas,
(d) water,
(e) transportaton on an ntrastate, suburban, muncpa, or nterurban
eectrc raroad, troey system, or bus system, where the rates charged by
such corporatons are sub|ect to reguaton by a governmenta body.
The percent rate of return s avaabe to pubc uttes suppyng the
(a) raroads reguated by the Interstate Commerce Commsson;
(b) ar transportaton reguated by the Cv eronautcs oard.
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The effect of ths mnmum credt for certan pubc uttes s to gve assurance
that an e cess profts ta w not be mposed unt after the reguated ndustres
earn a rate of return of percent or G percent after payng corporate norma
ta es and surta es. Your commttee beeves that ths s approprate In vew
of the fact that the profts of these ndustres n the base perod years were hed
down we beow the profts earned by unreguated ndustres. Moreover, there
s consderabe evdence that rate ad|ustments for these ndustres agged con-
sderaby behnd ncreases n ther cost of dong busness. Your commttee aso
beeves that where ndustres are reguated by other governmenta bodes pro-
rdng ony a far rate of return, t s undesrabe to consder profts aowed by
such reguated bodes as e cessve for purposes of an e cess profts ta . The
S and 6 percent rates of return provded for n ths mnmum credt w be
appro matey the average rates of return customary aowed for the reguated
ndustres n queston.
. Strategc mneras.
The b provdes the same e empton from the e cess profts ta as dd the
Word War II aw wth respect to that part of the ncome of domestc corporatons
whch s attrbutabe to the mnng n the Unted States of certan strategc
mneras. The mneras concerned are: ntmony, chromte. manganese, ncke,
patnum, qucksver, sheet mca, tantaum, tn, tungsten, fuorspar, fake
graphte, vermcute, and vanadum.
S. empt ncome from certan mnng and tmber operatons, and from natura
gas propertes.
The b contnues the reef whch was afforded by secton 73 of the Word
War II aw wth respect to certan mnng, tmber, and natura gas operatons.
Sach reef s accompshed by e emptng from e cess profts ta a certan porton
of current ncome. Generay, ths porton s determned by mutpyng the
norma unt proft durng a defned base perod by a specfed porton of current
producton n e cess of norma output durng such base perod, or n the case
of coa and ron mnes, tmber propertes, and natura gas propertes, by mut-
pyng current e cess producton by one-haf of the current net ncome per unt.
The b aso retans the speca treatment of ncome derved from any agency
of the Government as a bonus for producton of mneras or tmber n e cess of
a specfed quota.
f. Foregn corporatons and ncome from abroad.
For ncome ta : purposes foregn corporatons are dvded nto two groups:
resdent and nonresdent foregn corporatons. Nonresdent foregn corporatons
are sub|ect to ncome ta ony on certan ncome derved from sources wthn the
Unted States. Ths ncome s ta ed at a unform rate of 30 percent wthout
deductons. Resdent foregn corporatons nre sub|ect to ncome ta es upon a
ncome derved from sources wthn the Unted States at the rates appcabe to
domestc corporatons.
The 30 percent gross-ncome ta on nonresdent foregn corporatons s mposed
rather than the ordnary corporate-ncome ta snce the |ursdcton of the
Unted States over such corporatons s mted to the sources of ther ncome
whch are wthn the Unted States. The ack of |ursdcton over the corporaton
tsef not ony precudes the mposton of a ta upon the net ncome of non-
resdent foregn corporatons but aso the mposton of an e cess profts ta .
Therefore, the b foows the precedent of the Word War II statute and
specfcay e empts such corporatons.
Resdent foregn corporatons are sub|ect to the e cess profts ta under your
commttee s b as under the Word War II statute. If such corporatons we-e
nonresdent foregn corporatons durng any of the base perod years, ony the
nvested capta credt s avaabe to them. Ths was aso the case under the
Word War II statute.
though secton 2 1 corporatons, that Is corporatons dervng a arpe porton
of ther ncome from sources wthn the possessons of the Unted States, are
domestc corporatons, they, ke resdent foregn corporatons, are sub|ect to
federa ta aton ony upon ncome derved from sources wthn the Unted States.
Therefore, under your commttee s b, as under Word War II statute, these
corporatons receve the same e cess profts ta treatment as resdent foregn
corporatons.
The Word War II statute provded an e empton for domestc corporatons
where 0 percent or more of the ncome of the corporaton over the ast 3 years
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was derved from sources outsde the Unted States, and where 0 percent or
more of ts gross ncome was derved from the actve conduct of a trade or
busness. though not mted to Western emsphere trade corporatons, any
such corporaton, not fng a consodated return wth another domestc corpo-
raton, was effectvey e empted from e cess profts ta under ths provson.
Your commttee s b contnues ths e empton whch s consstent wth the
preferenta treatment conferred on Western emsphere trade corporatons
under ncome ta aw.
Under Word War II aw, dvdends receved from foregn corporatons by
domestc corporatons were Incuded n the e cess profts ta net ncome of both
average-earnngs and nvested-capta ta payers. In the case of average-
earnngs ta payers, any such dvdends receved durng the base perod were
ncuded n computng ther average-earnngs credts. owever, n the case of
nvested-capta ta payers, stock n foregn corporatons, as we as stock n
domestc corporatons, was e cuded from nvested capta. Ths treatment ds-
crmnated aganst the nvested-capta ta payer whch was compeed to ncude
n ncome sub|ect to e cess profts ta dvdends receved from foregn corpora-
tons, even though ts e cess profts ta credt was computed In such a manner
as to e cude any return for the stock n such corporatons. nother consequence
of the Word War II statute aso appears unfortunate. The ncuson of dv-
dends from foregn corporatons n the e cess profts ta net ncome of both the
average earnngs and the nvested-capta ta payers dscouraged the return of
ths ncome to the Unted States, even though busness purposes mght dctate
such a transfer. Your commttee s b e cudes dvdends from foregn cor-
poratons from e cess profts ta net Income, as we as the earnngs on whch
the average-earnngs credt s computed, and aso e cudes the stock n foregn
corporatons from the assets on whch the nvested-capta credt s computed.
Under your commttee s b, as under the Word War II statute, domestc
corporatons operatng branches abroad are sub|ect to e cess profts ta on
the ncome derved from such branches n the year n whch t Is earned. ow-
ever, any ta es pad a foregn country wth respect to such foregn operatons
whch s n e cess of the ta credt aowed by the Unted States for purposes
of the norma ta and surta s aowed as a credt aganst e cess profts ta
sub|ect to certan mtatons. The ta treatment accorded branches s the
same as that provded by the Word War II statute.
. Persona servce corporatons.
The Word War II aw provded that persona-servce corporatons coud eect
to be e empted from the e cess profts ta f the stockhoders of such corpora-
tons agreed to take up as part of ther ncome for ndvdua-ncome-ta pur-
poses the pro rata share of the undstrbuted profts of the persona-servce
corporaton. Ths dd not, however, e empt a persona-servce corporaton
from the corporate norma ta or surta . persona-servce corporaton was
defned as a corporaton whose ncome was to be ascrbed prmary to the
actvtes of sharehoders who are reguary engaged n the actve conduct of
the affars of the corporaton and who are the owners of at east 70 percent of
the stock of the corporaton. Your commttee s b retans ths provson of the
Word War II statute unchanged.
6. Corporatons competng contracts under Merchant Marne ct.
Under secton 0 of the Merchant Marne ct, 1930, as amended, If any con-
tractng party n ts ta abe year competes one or more contracts or subcontracts
for the constructon of a vesse under such ct, such party s requred to pay to
the Martme oard any proft n e cess of 10 percent of the tota contract prces
of such contracts and subcontracts. The e cess profts so pad to the Martme
oard, together wth a other recepts of the oard, are paced n a revovng
constructon fund and are avaabe for further shp constructon.
The treatment accorded such profts by secton 726 of the Word War II aw Is
contnued by your commttee s b.
s a genera rue the amount receved by the contractng party and recaptured
by the Martme oard woud be e cuded n computng the e cess profts ta under
secton 30 of the b. In computng the aternatve ta provded by secton
of the b the ta payer w be requred to ncrease ts e cess profts net ncome
and ts norma ta net ncome by the amount of the payments to the Martme
oard. The ta computed upon ths bass s then reduced by the amount of such
payments, and the remander consttutes the ta whch s to be pad f t s
ess than the ta computed under secton 30.
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7. Speca provsons reatng to the e cess profts ta credt for raroad essor-
essee corporatons.
Your commttee s b provdes that where amost a of the propertes of one
raroad have been eased to another raroad pror to uy 1, 19 0, under a
ease for more than 20 years, whch requres the essee raroad to pay the Fed-
era ncome ta es of the essor raroad, the e cess profts ta credt may be
equtaby apportoned between the corporatons pursuant to an agreement
tetween the corporatons whch s approved by the Secretary of the Treasury.
. Rccomputaton of the earnngs credt n the case of corporate reorganzatons.
In the case of certan corporate reorganzatons durng the base perod or
subsequent to the base perod, the e perence of the corporaton pror to the
reorganzaton may be aggregated for purposes of d-terronng e cess profts
credts based on earnngs. Ths s provded for n part II of the e cess profts
ta subchapter. In genera the reorganzatons deat wth n part II are the
type wth respect to whch gan or oss s not recognzed. In addton to the
genera type of case where substantay a the assets of one corporaton are
taken over by another corporaton, part II provdes rues for the rccomputaton
of base perod net ncome n the case where substantay a the assets of a
partnershp or a soe propretorshp are acqured by a corporaton as we as
the cases where ony part of the assets of a corporaton are spt off nto a new
corporaton or ony part of the assets of the partnershp are paced n a
cororaton.
In genera, f a the propertes of the corporaton are taken over by another
corporaton n an e change to whch part II s appcabe, the od corporaton Is
no onger entted to use ts busness e perence pror to the e change for pur-
poses of computng average base perod net ncome. Instead, the corporaton
whch acqures the propertes may use the e perence of the corporaton
whch gave them up f ths w ncrease the acqurng corporaton s average base
perod net ncome. In a case where ony part of the assets of a corporaton go
over to a new corporaton n an e change n whch gan or oss s not recognzed,
the od corporaton oses that porton of ts base perod e perence whch s
aocabe to the assets t oses n the e change, and the acqurng corporaton
may utze such e perence n computng ts average base perod net ncome.
The aocaton s proportonate to the far market vaue of the assets uness the
partes to the e change agree on a dfferent aocaton and the Secretary consents
to t.
Where a corporaton computes ts e cess profts ta credt smpy on the
bass of ts e cess profts net ncome durng the base perod, the effect on part II
s to provde that after the corporaton acqures assets n an e change descrbed
In part II t sha recompute ts e cess profts net ncome for each month of the
base perod pror to the e change by combnng ts own earnngs e perence dur-
ng those months wth the earnngs e perence of the corporaton whose assets
t acqured. If the corporaton whose assets were acqured was not n e stence
(urng a month In the base perod n whch the acqurng corporaton was n
e stence, then the recomputaton descrbed above s made by combnng the
earnngs of the acqurng corporaton wth 1 percent of the equty capta of the
corporaton whose assets were acqured (after ad|ustment for nadmssbe
assets).
The aternatve earnngs credt based on growth s avaabe, for purposes of
the recomputaton provded by part II, to a corporaton (f t meets the terms
of part II through an e change of the genera type n whch t acqures a the
assets of another corporaton) f both the acqurng corporaton and the corpora-
ton whose assets t acqures were n busness at the begnnng of the base perod.
ven f one of the corporatons was not n busness from the begnnng of the
base perod, the provsons of part II aow the growth aternatve wth respect
to the ncome of the corporaton whch was n busness from the begnnng of
the base perod f the part II e change takes pace after the cose of the base
perod.
In the case of an e change of the genera type descrbed In part II whch n-
voves a spttng of the assets of one corporaton nto two corporatons, the two
corporatons are entted to the growth aternatve f the e change takes
pace after the base perod and the corporaton n busness durng the base
perod was entted to t. If the e change takes pace durng the base perod,
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the payro and gross recepts are aocated between the two corporatons for
the perod pror to the e change for purposes of determnng egbty under
the growth aternatve.
In genera, a corporaton Is permtted to nse the aternatve average base
perod net ncome provded for new corporatons after an e change of the type
descrbed n part II f nether t nor one of the other corporatons from whch
It acqured assets n the e change was n e stence, or, f any such corpora-
ton had acqured assets n a pror e change from another corporaton, f that
corporaton was not n e stence at the begnnng of the base perod of the
acqurng corporaton. The method used tor determnng the acqurng cor-
poraton s aternatve average base perod net ncome provded for new corpora-
tons n such a case s to combne the aternatve average base perod net ncomes
of a of the corporatons determned n accordance wth the provson deang
wth new corporatons.
In the case of the type of e change descrbed n part II n whch the assets
of one corporaton are spt among two corporatons the base perod earnngs
e perence of the one corporaton pror to the e change s aocated among
the corporatons n busness after the e change n proporton to the far mar-
ket vaue of the assets of the od corporaton whch are hed by each of the
corporatons after the e change. owever, n eu of requrng that ths deter-
mnaton be made, the earnngs e perence may be aocated n dfferent propor-
tons If a of- the partes to the reorganzaton agree to the aocaton and the
Secretary consents to t. If no such agreement s reached or consented to,
a fna determnaton of the far market vaue of the propertes dstrbuted sha
be bndng on a partes camng a rght to the credt of the od corporaton.
In order to prevent doube countng of base perod earnngs e perence n appy-
ng the recomputaton rues provded by part II, the Secretary s authorzed to
ssue reguatons provdng for reducton of the average base perod net ncome ot
the ta payer and ad|ustments of transferred capta addtons and reductons to
the e tent necessary In eases where, n genera, the ta payer acqured stock n a
component corporaton for other than ts own stock.
d|ustment s provded for both net capta addtons durng the ast 2 years
of the base perod and net capta addtons and reductons after the cose of
the base perod n the case of partes to an e change descrbed n part II.
The rues for recomputaton of average base perod net ncome provded n part
II do not appy In the case of a foregn corporaton.
9. ass for computaton of the nvested-capta credt after ntercorporate
qudatons.
Part III of the e cess profts ta subchapter provdes rues for the determna-
ton of the bass of assets acqured In ntercorporate qudatons for purposes
of the determnaton of the nvested capta credt s used In part III, the
term Intercorporate qudaton means the recept of property at any tme
by a corporaton n compete qudaton of another corporaton where, In genera,
gan or oss s not recognzed as a resut of the e change. Part III appes the
genera prncpe that where the transferee In an ntercorporate qudaton re-
ceves property n e change for stock vhch had a cost bass n the hands of the
transferee, the property receved by the transferee sha have an ad|usted bass
for e cess profts ta purposes determned by the cost bass of the stock prevousy
hed by the transferee.
In the ordnary case ths determnaton of the ad|usted bass of the property
receved by the transferee s made at the tme the transferee obtaned ownershp
o 0 percent of the stock of the transferor, the bass beng reduced by subsequent
deprecaton, etc., of the assets n the hands of the transferor. ssets acqured
by the transferor after the transferee obtaned contro go over to the transferee
on qudaton at ther bass to the transferor. Provson s made for regua-
tons to be prescrbed by the Secretary wth respect to the appcaton of part I
to cases where there s a seres of transferees of property, cases where the
transferor or transferee s a foregn corporaton, cases where the stock of the
transferor s acqured by the transferee from another corporaton, cases where
the ntercorporate qudaton e tends over a ong perod, and cases where any
other determnaton may be necessary under part III.
The secton provdes specfcay for the treatment of a statutory merger or
consodaton as a qudaton for purposes of the part where pror to the
transacton the contnung corporaton acqured stock n the other corporaton.
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S CTION Y S CTION N LYSIS OF T ILL
TITL I. C SS PROFITS T
S CTION 101 IMPOSITION OF C SS PROFITS T
Secton 101 of the b adds to chapter 1 of the Interna Revenue Code a new
subchapter I) mposng an e cess profts ta upon ncomes of corporatons,
effectve wth respect to ta abe years endng after une 30, 19 0. Ths new
subchapter s dvded nto three parts. The provsons of part I, entted Rate
and Computaton of Ta , are numbered as sectons 30 through of the
Interna Revenue Code. The provsons of part II, entted cess Profts
Credt ased on Income n Connecton Wth Certan changes, are numbered
as sectons 61 through 0 of such Code. The provsons of part III, entted
d|usted ass of ssets Receved n Certan Intercorporate Lqudatons,- are
numbered as secton 70 of such Code.
Part I. Rate and Computaton of Ta
S CTION 30. IMPOSITION OF T
Subsecton (a) of secton 30 mposes for each ta abe year endng after une
30,19 0, a ta upon the ad|usted e cess profts net ncome, as defned n secton
31, of every corporaton (e cept corporatons e empt under secton 2).
bates
The e cess profts ta mposed under subsecton (a) of secton 30 s an
amount equa to the esser of the foowng: (1) 30 percent of the ad|usted
e cess profts net ncome, or (2) an amount whch when added to the ta under
chapter 1 (other than secton 102 and subchapter D) equas 07 percent of the
corporaton s surta net ncome computed wthout regard to the credt pro-
vded n secton 20(h) for dvdends pad on certan preferred stock and the
credt provded n secton 2CU) for Western emsphere trade corporatons.
The reference to the credt provded n secton 2C() w have appcaton to
those cases where a Western emsphere trade corporaton s sub|ect to the e cess
profts ta by reason of beng a member of an affated group of corporatons
Cng a consodated return under secton 1 1.
The e cess profts ta s mposed n addton to the other ta es mposed by
chapter 1 of the Interna Revenue Code. Such other ta es ncude the norma
ta on corporatons mposed by secton 13, the ta on speca casses of corpora-
tons mposed by secton 1 (appcabe n eu of secton 1.3 wth respect to
certan corporatons for certan ta abe years) and the surta on corporatons
mposed by secton 1 . The ta on the amount representng ad|usted e cess
profts net ncome s therefore the sum of the ta es mposed by chapter 1 (other
than subchapter D) and the ta mposed by subchapter D. Provson for
computaton of the ta n the case of a short ta abe year s made n secton
33(a)(2).
Subsecton (b) of secton 30 provdes that n the case of a ta abe year
begnnng before uy 1, 1C 0, and endng after une 30. 19 0. the e cess profts
ta sha be the porton of a tentatve ta determned under subsecton (a)
whch the number of days n the ta abe year after une 30, 19 0, bears to the
tota number of days In the ta abe year.
Subsecton (c) of secton 30 provdes that In the case of a mutua nsurance
company other than fe or marne, f the gross amount receved from Interest,
dvdends, rents, and premums (ncudng deposts and assessments) s over
7 ,000 but ess than 12 ,000, the e cess profts ta sha be an amount whch
bears the same proporton to the amount otherwse ascertaned under secton
30 as the e cess over 7 ,000 of such gross amount bears to 0,000.
D F RM NT OF P YM NT
The payment of e cess profts ta may be deferred under subsecton (d) of
secton 30 f the ta payer, n accordance wth reguatons prescrbed by the
Secretary, cams on ts return the benefts of secton 2, reatng to abnor-
mates durng the base perod, secton 3, reatng to change n product or
servces, or secton , reatng to new corporatons, and f wthout regard to
oe appcaton of such sectons the ad|usted e cess profts net ncome of the
ta payer for the ta abe year e ceeds 0 percent of ts norma ta net ncome
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210
for such year. In such event the amount of e cess profts ta payabe at the
tme prescrbed for payment may be redfced In an amount equa to the foow-
ng percentages: (1) 0 percent of the amount of the reducton of ta camed
as a resut of the appcaton of sectons 2, 3, or f such sectons are
apped on the bass of tentatve rates of return for ndustry cassfcatons pro-
camed by the Secretary n accordance wth secton (d) ; or (2) 100 percent
of the amount of the camed reducton n ta , f such sectons are apped on
the bass of the fna rates of return for ndustry cassfcatons procamed by
the Secretary n accordance wth sectons (b) and (c). The effect of ths
subsecton s to stay coecton of the amount of the camed reducton n ta
(or 0 percent thereof n cases where the tentatve rates of return for the
ndustry cassfcatons are used), and the amount of the ta shown on the
return, computed wthout the benefts of sectons 2, 3, or , s the amount
assessed at the tme the return s fed.
Subsecton (d) further provdes that f the reducton n ta camed n accord-
ance wth the subsecton e ceeds the reducton n ta as fnay determned, the
amount of such e cess sha be payabe wthn 1 year after such fna determna-
ton. The statute of mtatons provded n sectons 27 and 276 wth respect
to coecton of ta es Is suspended, as to the reducton n ta under ths sub-
secton, for the perod begnnng wth the date such ta woud be payabe but
for ths subsecton and endng 60 days after a fna determnaton as to the
camed reducton.
S CTION 31. D FINITION OF D UST D C SS PROFITS N T INCOM
Secton 31 defnes the term ad|usted e cess profts net ncome. d|usted
e cest profts net ncome In the case of any ta abe year w be the e cess
profts net ncome, as defned n secton 33, mnus the sum of (1) the ta payer s
e cess profts credt aowed under secton 3 and (2) ts unused e cess profts
credt ad|ustment computed n accordance wth secton 32. If such sum s ess
than 2 ,000, t sha be ncreased to 2 ,000.
S CTION 32. UNUS D C SS PROFITS CR DIT D USTM NT
Secton 32 provdes for the unused e cess profts credt ad|ustment and
defnes such ad|ustment as the sum of the unused e cess profts credt carry-overs
and carry-back to the ta abe year n queston.
The unused e cess profts credt for any ta abe year endng after uno 30,
19 0, s to be the e cess of the ta payer s e cess profts credt for such ta abe
year over ts e cess profts net ncome for such year. If the ta abe year s
a short year (that s, one of ess than 12 months), the unused e cess profts
credt w be that porton of the unused credt determned under the above
genera rues as the number of days n the ta abe year s of the number of days
n the 12-month perod endng wth the cose of the ta abe year. If the ta abe
year Is one whch began before uy 1, 10 0, and ends after une 30, 19 0, the
unused e cess profts credt sha be an amount whch s such porton of the
unused e cess profts credt determned under the above rues as the number of
days n the ta abe year after une 30, 19 0, s of the tota number of days
n such ta abe year.
The unused e cess profts credt, determned n the above manner, sha frst
be carred back to the frst precedng ta abe year as an unused e cess profts
credt carry-back. The unused credt may then be carred over to the fve
succeedng ta abe years as an unused e cess profts credt carry-over. The
unused e cess profts credt carry-over to the frst succeedng ta abe year
w be the e cess of the unused credt over the ad|usted e cess profts net
ncome of the frst precedng ta abe year. The ad|usted e cess profts net
Income for such frst precedng ta abe year sha be determned for such purpose
by computng the unused e cess profts credt ad|ustment for such frst precedng
ta abe year wthout regard to the unused credt n queston and wthout regard
to the ast sentence of secton 31 whch provdes for a mnmum e cess profts
credt pus unused e cess profts credt ad|ustment of 2 ,000. Thus, f a
caendar-year ta payer has an unused e cess profts credt of 100,000 for 19 2,
ts unused e cess profts credt carry-over to 10 3, f any, w be the e cess of
100,000 over ts 19 1 ad|usted e cess profts net ncome, such 19 1 ad|usted
e cess profts net ncome beng determned by computng ts 19 1 unused e cess
profts credt ad|ustment wthout regard to ts 10 2 unused e cess profts credt
and c otherwse usng ts actua e cess profts credt and unused e cess prots
credt ad|ustment.
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211
If tbe precedng yenr s one whch befrnn pror to uy 1, 10 0, the amount
by whch the unused credt s to be reduced for purposes of computng the carry-
over sha be an amount whch s such part of tbe reducton computed under
the above genera rues as the number of days n such ta abe year after une
SO, 1930, s of the tota number of days n such ta abe year.
In determnng the unused e cess profts credt carry-over to the second, thrd,
fourth, and ffth ta abe years, the unused e cess profts credt n addton sha
te reduced by the ad|usted e cess profts net ncome for each of tbe ntervenng
ta abe years. The ad|usted e cess profts net ncome for any ntervenng
ta abe year sha be determned, for such purpose, (1) by computng the unused
cvwss profts credt ad|ustment for such ntervenng year wthout regard to
the unnsed e cess prots credt n queston and wthout regard to any unused
e cess profts credt for any year subsequent to the year of such unused credt,
and (2) by dsregardng the provsons of secton 31 provdng for a mnmum
e cess profts credt pus unused e cess profts credt ad|ustment of 2 ,000.
The order n whch an unused credt may be used as a carry-back or a carry-
over s mandatory under the provsons of secton 32. The unused credt um
frst be carred back to the frst precedng year and then forward to the frst
succeedng year, then to the second succeedng year, and so on t the ffth
succeedng year.
There w be no unused e cess profts credt carry-back to a ta abe year
whch ends pror to uy 1, 19 0. Lkewse, an unused e cess profts credt w
not be decreased by reference to any ta abe year endng pror to uy 1, 19 0,
for purposes of computng the unused e cess profts credt carry-over.
S CTION 33. C SS PROFITS N T INCOM
Subsecton (a) of secton 33 defnes e cess profts net ncome. Irrespectve
of whch of the aternatve methods provded n the b for computng the e cess
profts credt s used, e cess profts net ncome s to be computed by ncreasng or
decreasng norma ta net ncome by the ad|ustments provded n secton
133(a)(1). cept as e pressy provded n such secton, ad|ustments are not
requred to be made n deductons whch are mted, for e ampe, by net ncome
(such as the deducton for chartabe contrbutons under secton 23(q)).
DI ID NDS C I D
Under subparagraph ( ) of secton 33(a)(1), the credt for dvdends
receved provded by secton 26(b) s to be recomputed n transformng norma
ta net ncome nto e cess profts net ncome. Wth respect to dvdends of
oth domestc and foregn corporatons, the credt s to be aowed wthout
mtaton, e cept that (1) the mtaton of secton 26(b) reatng to dvdends
n knd receved after ugust 31, 19 0, sha appy, (2) no credt sha be aowed
wth respect to dvdends (actua or constructve) on stock of foregn persona
hodng companes, and (3) no credt sha be aowed wth respect to dvdends
on stock whch s not a capta asset. In the case of a ta payer usng the e cess
profts credt based on ncome, a ke ad|ustment s provded n secton 33(b) (6)
for the computaton of e cess profts net ncome for ta abe years begnnng
or endng wthn the base perod.
DIS LLOW NC OF C RT IN CR DITS
Dnder subparagraph ( ) of secton 33(a) (1), norma ta net ncome s to be
Increased, n computng e cess profts net ncome, by the amount aowed as
credts under secton 26(h) (reatng to credt for dvdends pad on certan
preferred stock) and secton 20(1) (reatng to Western emsphere Trade
Corporatons).
G INS ND LOSS S FROM S L S OR CTI NG S OF C PIT L SS TS, TC.
Uder subparagraph (C) of secton 33(a) (1), there are to be e cuded, n the
transformaton of norma ta net ncome nto e cess profts net ncome, gans
and osses from saes or e changes of (1) capta assets and (2) property used
o the trade or busness, as that term s defned n secton 117(|) (1).
In the case of a ta payer usng the e cess profts credt based on ncome, an
ad|ustment comparabe to that of subparagraph (C) s provded n secton
33(b)(2) for the computaton of e cess profts net ncome for ta abe years
t egunng or endng wthn the base perod. owever, unke the ad|ustment
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provded by subparagraph (C), the base perod ad|ustment under secton
33(b) (2) embraces a gans or osses (whether or not from sae or e change)
to whch secton 117( ) s appcabe.
INCOM F OM TTR M NT O DISC O OF ONDS, TC.
Under subparagraph (D) of secton 33(a) (1), there s e cuded, n the trans-
formaton of norma ta net ncome nto e cess profts net ncome, ncome de-
rved from the retrement or dscharge by the ta payer of any bond, debenture,
note, or certfcate or other evdence of ndebtedness whch has been outstandng
for more than 6 months. Where bonds were ssued at a premum, the e cuson
provded by subparagraph (D) reates ony to premum unamortzed on the
date of retrement or dscharge. In such case there s not to be e cuded from
ncome the accrued amortzaton of bond premum for that porton of the ta abe
year precedng such retrement or dscharge. In the case of a ta payer usng
the e cess profts credt based on ncome, a ke ad|ustment Is provded n secton
33(b)(3) for the computaton of e cess profts net ncome for ta abe years
begnnng or endng wthn the base perod.
R FUNDS ND INT ST ON GRICULTUR L D USTM NT CT T S
Under subparagraph ( ) of secton 33(a) (1). there Is e cuded, In the com-
putaton of e cess profts net ncome, ncome attrbutabe to refunds of gr-
cutura d|ustment ct ta es and nterest upon such refunds. No smar
ad|ustment s provded under secton 33(b), reatng to ad|ustments In base-
perod ncome.
D DUCTIONS ON CCOUNT OF R TIR M NT OR DISC RG OF OND, 1CTC.
Under subparagraph (F) of secton 33(a)(1), there are dsaowed, n
computng e cess profts net ncome, deductons for osses and e penses resutng
from the retrement or dscharge by the ta payer of any bond, debenture, note
or certfcate, or other evdence of ndebtedness whch has been outstandng for
more than 6 months. Where bonds were ssued at a dscount, the dsaowance
provded by subparagraph (F) reates ony to dscount unamortzed on the date
of retrement or dscharge. In the case of a ta payer usng the e cess profts
credt based on ncome, a ke ad|ustment s provded n secton 33(b) ( ) for
the computaton of e cess profts net ncome for ta abe years begnnng or
endng wthn the base perod.
R CO RI S OF D D TS
Under subparagraph (G) of secton 33(a) (1), there Is e cuded, n the com-
putaton of e cess profts net ncome, ncome attrbutabe to the recovery of a
bad debt, uness a deducton from gross ncome was aowed wth reference to
such debt for a ta abe year for whch an e cess profts ta was Imposed under
ths ct or under the Word War II e cess profts ta . No smar ad|ustment
s provded under secton 33(b), reatng to ad|ustments n the base perod
ncome.
LIF INSU NC COMP NI S
Under subparagraph ( ) of secton 33(a)(1), the norma ta net ncome
of a fe Insurance company s to be decreased, n arrvng at e cess profts net
ncome, by the e cess of the product of the fgure determned and procamed
under secton 202(b) and the e cess profts net ncome computed wthout regard
to subparagraph (F) over the ad|ustment for certan reserves provded n secton
202(c).
NONT L INCOM OF C RT IN INDUSTRI S WIT DF.PL T L R SOURC S
Subparagraph (I) of secton 33(a)(1) provdes for e cuson, n the com-
putaton of e cess profts net ncome, of nonta abe ncome from certan mnng
and tmber operatons and from natura gas propertes, as descrbed n secton
1. No smar ad|ustment s provded under secton 33(b), reatng to ad-
|ustments n base perod ncome.
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N T OP TING LOSS D DUCTION D USTM NT
Subparagraph ( ) of secton 33(a) (1) provdes that, In transformng norma
ta net ncome nto e cess profts net ncome, the net operatng oss deducton
sha be ad|usted so as to coordnate t wth the other ad|ustments requred n the
computaton of e cess profts net ncome.
T S P ID Y L SS
Subparagraph ( ) of secton 33(a) (1) requres that ad|ustments be made n
the norma ta net ncome of both the essor and the essee n the case of a ease
for a term of more than 20 years entered nto pror to December 1, 19 0, whore-
under the essee s obgated to pay any porton of the ncome ta es mposed upon
the essor wth respect to rentas under the ease or to remburse the essor there-
for. Subparagraph ( ) provdes (1) that such payment or rembursement sha
be e cuded by the essor n the computaton of ts e cess profts net ncome, nnd
2) that no deducton for such payment or rembursement sha be aowed to the
essee n the computaton of ts e cess profts net ncome. In the case of ether
a essor or essee usng the e cess profts credt based on ncome, a ke ad|ust-
ment s provded n secton 33(b) (11) for the computaton of e cess profts net
ncome for ta abe years begnnng or endng wthn the base perod.
D D TS IN C S OF N S
Subparagraph (L) of secton 33(a) (1) provdes that, n computng the e cess
profts net ncome of n bank (as defned In secton 10 ) whc uses the reserve
method of accountng for had debts, there sha he aowed (n eu of the amount
aowabe under the reserve method) a deducton for debts whch became worth-
ess wthn the ta abe year, n whoe or n part, wthn the meanng of secton
23 (k). In the case of a bank usng the e cess profts credt based on ncome,
a ke ad|ustment s provded n secton 33(b) (12) for the computaton of e cess
profts net ncome for ta abe years begnnng or endng wthn the base perod.
Lke the other ad|ustments descrbed n secton 33(a)(1), ths ad|ustment s
mandatory; the use of the reserve method by a bank for the purposes of sub-
chapter D s dened.
T L Y L SS T N 12 MONT S
Paragraph (2) of secton 33(a) provdes a method for pacng the e cess
profts net ncome of a ta abe year of ess than 12 months upon an annua bass
and s to appy n eu of the provsons of secton 7(c). These provsons
correspond to secton 711(a) (3) of the Word War II e cess profts ta .
T L T GINNING IN S P IOD ND NDING FT R UN 30, 1930
In the case of a ta abe year begnnng n the base perod and endng after
une 30, 19 0, the e cess profts net ncome for such ta abe year w be com-
puted under subsecton (b) for purposes of computng the average base perod
net ncome, but the e cess profts net ncome for such year w be computed
under subsecton (a) of secton 33 for the purpose of computng ad|usted e cess
profts net ncome under secton 31.
T L Y RS IN S P RIOD
Subsecton (b) of secton 33 defnes e ces profts net ncome for ta abe years
begnnng or endng wthn the base perod ; ths defnton s appcabe for the
purpose of computng the average base perod net ncome. The ad|ustments
provded n subsecton (b) are to be apped to norma ta net ncome, as defned
n secton 13(a) (2).
The ad|ustments provded by paragraphs (3), ( ), (G), (11), and (12) of
secton 33(b) are dentca wth ad|ustments provded tnder secton 33(a)
fur ta abe years under subchapter D, and have been dscussed above. The
ad|ustment provded n paragraph (2) s smar to that provded under secton
133(a) (1) (C), wth one e cepton: the ad|ustment under paragrap (2) em-
braces a gans or osses to whch secton 117( ) s appcabe.
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21
Paragraph (1) of secton 33(b) provdes that the net operatng oss deduc-
ton sha not be aowed for the purpose of computng the average base perod
net ncome.
Paragraph ( ) of secton 33(b) requres e cuson of refunds by the ta -
payer to ts vendees of any amount attrbutabe to ta es under the grcutura
d|ustment ct,
Paragraph (7) of secton 33(b) provdes a speca rue appcabe n com-
putng the average base perod earnngs of a ta payer usng the nstament
bass provded n secton , but ony If the ta payer has made the eecton pro-
vded under secton 3(a). In such case, Income from nstament saes s to
be recomputed for e cess profts ta purposes under the accrua method as f
the ta payer had for a ta abe years reported Income on such method. The
provsons of paragraph (7) do not appy In the computaton of the base perod
capta addton under secton 3 (f).
Paragraph ( ) of secton 33(b) provdes a speca rue appcabe n com-
putng the average base perod earnngs of a ta payer whch eects (as pro-
vded under secton 3(b)) to compute Income from ong-term contracts upon
the percentage of competon method. In such case, ncome from ong-term
contracts s to be recomputed for e cess profts ta purposes under the per-
centage of competon method and as If the ta payer had for a ta abe years
reported such ncome on such method. The provsons of paragraph ( ) do
not appy n the computaton of the base perod capta addton under secton
3 (f).
NORM L D DUCTIONS
In the determnaton of e cess profts net Income for any year n the base
perod, certan deductons may be dsaowed n whoe or In part under the
crcumstances descrbed n paragraphs (9) and (10) of subsecton (b). Deduc-
tons may be dsaowed ony to the e tent that the tota deductons of a cass
e ceed by 1 percent the average amount of deductons of the same cass for
four prevous ta abe years (or f the ta payer was not n e stence for four
prevous ta abe years, certan succeedng ta abe years).
The cassfcaton of deductons for ths purpose s to be made n accordance
wth reguatons Issued by the Secretary for the determnaton of the cassfca-
ton of deductons for any ta abe year or years wthn, or begnnng or endng
wthn, the base perod. Paragraph (0) sts severa types of deductons whch
may consttute one or more casses of deductons. mong the deductons sted
are deductons attrbutabe to a cam, award, |udgment, or decree aganst the
ta payer, or Interest on such Items; deductons attrbutabe to Intangbe
drng and deveopment costs pad or ncurred In or for the drng of wes
or the preparaton of wes for the producton of o or gas, and for deveopment
costs n the case of mnes; deductons under secton 23(f) for osses arsng from
fres, storms, shpwreck, or other casuaty, or from theft, or arsng from the
demoton, abandonment, or oss of usefu vaue of property, not compensated
for by nsurance or otherwse. The cassfcaton of deductons Is made on the
bass of ta abe years but must be consstenty apped.
The dsaowance of such deductons s sub|ect to the foowng condtons:
(1) Deductons of any cass to be dsaowed for a ta abe year must
e ceed percent of the average e cess profts net ncome for the ta abe years
n the base perod, computed wthout the dsaowance of any such cass of
deductons.
(2) The tn payer must estabsh that the amount of the deductons of any
cass to be dsaowed n the ta abe year s not a cause or a consequence of
an ncrease n the gross ncome of the ta payer n ts base perod or a decrease
In the amount of some other deducton n Its base perod, and are not a cause
or a consequence of a change at any tme n the type, manner of operaton,
sze, or condton of the busness engaged n by the ta payer.
(3) The amount of deductons of any cass to be dsaowed for any ta abe
year do not e ceed the amount by whch deductons of such cass for such
ta abe year e ceed the deducton of such cass for the ta abe year for
whch the e cess profts ta s beng computed.
( ) If the ta payer s average base perod net Income s determned under
secton 3 (e), reatng to the aternatve based on growth, the amount to
be taken Into account for the purpose of determnng the tota payro of the
ta payer sha not be dsaowed.
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21
S CTION 3 . C SS TROFITS CR DIT LLOW NC
DOM STIC CORPOR TIONS
Subsecton (a) of ths secton provdes that n the case of a domestc corpora-
ton the e cess profts credt for any ta abe year mry be computed In one of two
ways. It may be the amount determned under secton 3 (reatng to e cess
profts credt based on ncome) or the amount determned under secton 30
(reatng to e cess profts credt based on nvested capta), whchever amount
resuts n the esser e cess profts ta for the ta abe year for whch the ta s
beng computed. Speca rues are provded, nnder part II of subchapter D, for
the determnaton of the e cess profts credt u the case of certan reorganzatons.
FOR IGN CORPOR TIONS
In the case of a foregn corporaton engaged In trade or busness wthn the
Unted States whch was n e stence on anuary 1,19 0, an opton s aso gven
to compute ts e cess profts credt under ether secton 3 or 30. The opton
s avaabe, however, ony f ts frst ta abe year under ths subchapter begns
on or before uy 1,19 0. nnd ony f at some tme durng ench ta abe year whch
began or ended n the base perod t was engaged n trade or busness wthn
the Unted States. Where a foregn corporaton does not satsfy the above con-
dtons, the e cer 3 profts credt for any ta abe year sha be the e cess profts
credt based on ts nvested capta under secton 30.
R GUL T D PU LIC UTILITI S
Your commttee has provded an addtona aternatve method of computng
the e cess profts credt n the case of a reguated pubc utty (as defned n
secton 0). In such a case the e cess profts credt for any ta abe year sha
be an amount computed under secton 3 , 30, or 0, whchever resuts n the
esser e cess profts ta for the ta abe year.
R ILRO D L SSOR-L SS CORPOR TIONS
n e cepton to the rue provded for the computaton of the e cess profts
credt under secton 3 (a) n the case of domestc corporatons s provded for
raroad corporatons sub|ect to part I of the Interstate Commerce ct, f they
meet certan condtons. Where substantay a the raroad propertes of such
a raroad corporaton have been eased for a term of more than 20 years to
another such raroad corporaton or corporatons pursuant to an agreement en-
tered Into pror to uy 1, 19 0, whch agreement requres the essee to pay the
ta es of the essor, the aggregate of the1 e cess profts credt and the unused e cess
profts credt ad|ustment of ench such corporatons may be equtaby apportoned
by agreement, f approved by the Secretary, among each of such corporatons.
S CTION 3 . C SS PROFITS CR DIT S D ON INCOM
MOUNT OF C DIT
In the case of a domestc corporaton, the e cess profts credt based on ncome
for any ta abe year s the sum of the foowng:
(a) percent of the average base perod net ncome.
(6) If the average base perod net ncome s determned under secton
3 (d) or under secton 2 (reatng to abnormates In the base perod)
the amount of the base perod capta addton computed under subsecton (f).
(c) 12 percent of the net capta addton for the ta abe year as defned n
subsecton (g) (1).
(d) The credt for addtons to borrowed capta provded n subsecton
00(1).
From ths amount there s subtracted the sum of 12 percent of the net capta
reducton (as defned n subsecton (g)(2)) pus the amount of the borrowed
capta reducton computed under subsecton (h)(2) for the ta abe year.
In the case of a foregn corporaton the e cess profts credt s percent of
e average base perod net ncome.
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216
S P RIOD ND M T OD OF COMPUT TION OF T R G S P RIOD N T INCOM
Subsectons (b), (c), and (d) provde rues for determnng the base perod
and for computng a genera average of the ncome attrbutabe thereto.
In the usua case, the average base perod net ncome s determned by com-
putng the e cess profts net ncome for each month n the base perod . The
e cess profts net ncome for any month durng any part of whch the ta payer
was n e stence s the e cess profts net ncome for the ta abe year n whch
such month fas dvded by the number of fu caendar months n such year.
In no case s the e cess profts net ncome for any month to be ess than zero
but where the ta payer was not n e stence for any part of a month t sha be
zero for that month.
fter computng the e cess profts net ncome for each month of the base perod,
there s emnated from the base perod whchever of the foowng 12 months
resuts n the hgher average base perod net ncome
(a) The 12 consecutve months, the emnaton of whch produces the
hghest average base perod net ncome, or
(6) The 12 months whch reman after retanng n the base perod the 36
consecutve months whch produce the hghest average base perod net
ncome.
The aggregate of the e cess profts net ncome for each of the remanng 30
months s then computed and ths amount s dvded by 3.
The term base perod means the perod begnnng anuary 1, 10 6, and end-
ng December 31, 19 9. owever, n the case of a ta payer whose frst ta abe
year under subchapter D was preceded by a ta abe year whch ended after
December 31, 19 9, and before pr 1, 19 0, and whch began before anuary
1,19 0, the term base perod means the perod of consecutve months endng
wth the cose of such precedng year.
Rues for the computaton of the average base perod net Income n the case
of certan reorganzatons are set forth n part II of subchapter D.
R G S P RIOD N T INCOM LT RN TI S D ON GROWT
Subsecton (e) of secton 3 provdes, n genera, that a corporaton whose
growth durng the base perod s demonstrated by a substanta ncrease n tota
payro or n gross recepts may take as ts average base perod net ncome the
hgher of ts e cess profts net ncome for the ast year n the base perod or the
average e cess profts net ncome for the ast 2 years n the base perod.
The egbty requrements for appcaton of the subsecton are specfed n
paragraph (1) of the subsecton. The subsecton s appcabe ony to ta payers
whch were n busness durng the entre base perod, and whose tota assets, as
of the begnnng of the base perod, dd not e ceed 20,000,000. Tota assets for
ths purpose are defned n paragraph (3) of the subsecton as the sum of
e.sh and property other than cash used n the ta payer s busness. Property
other than cash Is ncuded n an amount equa to ts ad|usted bass for determn-
ng gan upon sae or e change.
ta payer quafes for the benefts of ths subsecton ony f ts tota payro
for the ast haf of ts base perod s 30 percent greater than ts tota payro
for the frst haf of ts base perod, or ts gross recepts for the ast haf of ts base
perod are 0 percent greater than ts gross recepts for the frst haf of ts base
perod. The defntons of tota payro and gross recepts for ths purpose
are provded n paragraphs ( ) and ( ) of the subsecton. Tota payro ncudes
saares, wages, commssons, and other compensaton pad or ncurred by the
ta payer for persona servces actuay rendered by empoyees, but e cudes any
amount aowabe as a deducton under secton 23(p). reatng to contrbutons to
an empoyees trust or annuty pan and compensaton under a deferred-payment
pan, and aso e cudes compensaton pad n any medum other than cash. The
term gross recepts s defned as the sum of
(a) the tota amount receved or accrued from the sae, e change, or other
dsposton of 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 Its trade or busness;
(6) the gross ncome attrbutabe to a trade or busness reguary carred
on by the ta payer, receved or accrued, but e cudng therefrom
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217
(1) ncome from the sae, e change, or other dsposton of property,
(2) ncome from dscharge of the ta payer s ndebtedness,
(3) dvdends, and
( ) ncome attrbutabe to recovery of bad debts.
In determnng the amount of tota payro or gross recepts for any perod, an
aocaton on a monthy bass s made n the case of any ta abe year fang
party wthn and party wthout the base perod.
The computaton of the average base perod net ncome n the case of any ta -
payer entted to the aternatve average base perod net ncome based on growth
s set forth, n paragraph (2) of subsecton (e), as foows: (1) compute an
e cess profts net ncome for each of the ast 2 months n the ta payer s base
perod n the manner provded n the second sentence of secton 3 (d) (1) whch
aocates to each month a porton of the e cess profts net ncome for the ta abe
year n whch such month fas and provdes that the e cess profts net ncome
for any month sha not be ess than zero; (2) compute the tota of the e cess
profts net Income for such 2 months; (3) dvde the tota e cess profts net
ncome for such 2 months by 2; ( ) compute the tota e cess profts net ncome
for the ast 12 months n the base perod. The aternatve average base perod
net ncome based on growth s the arger of the amounts determned under (3)
or ( ). The computaton may be ustrated as foows: ssumng that a ta -
payer reportng ncome on a caendar year bass, whch has met the requrements
of the subsecton, has an e cess profts net ncome of 00,000 for the caendar
year 19 , and an e cess profts net ncome of 120,000 for the caendar year
19 9, the aternatve average base perod net ncome s computed under ths
subsecton as foows:
(1) The e cess profts net ncome for each month n 19 s ,000, and
for each month n 19 9 s 10,000.
(2) The tota e cess profts net ncome for the 2 months s 210,000.
(3) One-haf of such tota e cess profts net ncome s 10 ,000.
( ) The tota e cess profts net ncome for the ast 12 months amounts
to 120,000.
The sum ascertaned under ( ) s greater than the sum ascertaned under (3) and
therefore the former (. e., 120,000) consttutes the aternatve average base
perod net ncome determned under ths subsecton.
Ta payers usng the aternatve average base perod net ncome determned
under ths subsecton are not entted to the base perod capta addton com-
puted under subsecton (f).
C PIT L DDITIONS IN S P RIOD
In genera, the purpose of subsecton (f) of secton 3 s to provde an up-
ward ad|ustment, refectng an ncrease n capta pror to the ta perod, n
the average base perod net ncome of the ta payer determned under secton
3 fd) or secton 2. Ths ad|ustment s not avaabe where the average base
perod net ncome s determned under secton 3, , or 0. The b does
not provde a comparabe downward ad|ustment to refect a decrease n capta
pror to the ta perod.
The capta changes for whch ad|ustment s provded n subsecton (f) s
mted to those occurrng n the ast two ta abe years of the ta payer whch
precede ts frst ta abe year under the new subchapter D. In genera, the
capta changes n the nter of these 2 years are gven greater weght than
those n the earer year. In the case of a ta payer on a caendar-yoar bass,
the 2 years covered by subsecton (f) are the caendar years 19 and 19 9; for
convenence, these caendar years are used n ths dscusson.
The prncpa steps n the determnaton of the addton provded by sub-
secton (f) are as foows: (1) n ad|ustment s computed at the rate of 12
percent of the net base perod capta addton or reducton as defned n
subsecton (f)(2). (2) The base perod borrowed capta addton or reduc-
ton s compnted as provded n subsecton (f) (3). (3) The ad|ustments
computed n steps (2) and (3) are combned as provded n subsecton (f) (1) ;
f the net ad|ustment s greater than zero, t s added, as provded n subsecton
(a)(1)( ), to the average base perod net ncome determned under secton
3 (d) or secton 2.
9 290 t 13
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In computng the ad|ustment descrbed above as step (1) It Is frst necessary
to determne for each of 3 perods (the 2-year perod 19 and 19 9, 19 aone,
and 19 9 aone; or for the perods descrbed n subsecton (f) f the ta payer
was not n e stence and on the caendar year bass throughout 19 and 19 9)
the net ncrease n equty capta as defned n secton 37(c) (reduced by any
net ncrease n nadmssbe assets as defned n secton 0) or the net decrease
n equty capta (reduced by any net decrease n nadmssbe assets). If
there s a net ncrease over the 2-year perod, ths ad|ustment s postve, and
s 12 percent of ( ) the amount of that net ncrease, reduced by ( ) one-hat
of so much of the net ncrease (f any) for 19 as s not offset by any net de-
crease for 19 9. Conversey, f there s a net decrease over the 2-year perod,
ths ad|ustment s negatve, and s 12 percent of the dfference between ( ) that
net decrease and ( ) one-haf of so much of the net decrease (f any) for 19
as s not offset by any net ncrease for 19 9.
The computaton of the ad|ustment for changes n borrowed capta descrbed
above as step (2) requres the determnaton of the ncrease or decrease n
borrowed capta, as defned n secton 39(c), n the same 3 perods. The
ad|ustment for each of these perods s then determned by dvdng the
amount of the ncrease or decrease n the perod by 3, and mutpyng the
quotent by the average nterest rate on borrowed capta for the frst day of
the perod (f a decrease) or for the day foowng the cose of the perod (f
an ncrease). If the ad|ustment so determned for the 2-year perod s postve
t s reduced by one-haf of so much of the ad|ustment for 19 (f postve) as
s not offset by any negatve ad|ustment for 19 9; or, f the ad|ustment for the
2-.vear perod s negatve t s reduced by one-haf of so much of the ad|ustment
for 19 (f negatve) as s not offset by any postve ad|ustment for 19 9.
C PIT L C NG S
Subsecton (g) of secton 3 provdes rues for the computaton of net
capta addtons and reductons durng e cess profts ta years. In com-
putng the e cess profts credt based on ncome for any ta abe year, 12 percent
of the net capta addton for the ta abe year s ncudbe. owever, as
provded n secton 3 (a)(1), the e cess profts credt so computed sha be
reduced by 12 percent of the net capta reducton for the ta abe year.
Paragraphs (1) and (2) provde that for purposes of secton 3 the net
capta addton or reducton for the ta abe year sha be the e cess, dvded
by the number of days n the ta abe year, of the aggregate of the day capta
addtons or reductons, as the case may be, for each (ay of the ta abe year
over the aggregate of the day capta reductons or addtons, respectvey, for
each day of the ta abe year.
Paragraph (3) provdes that for the purposes of secton 3 the day capta
addton for any day of the ta abe year sha be the sum of: ( ) the aggregate
of the amounts of money and property pad n for stock, or as pad-n surpus,
or as a contrbuton to capta, after the begnnng of the ta abe year and
pror to such day, and ( ) the amount, f any, by whch the equty capta (as
defned n secton 37(c)) at the begnnng of the ta abe year e ceeds the
equty capta at the begnnng of the ta payer s frst ta abe year under sub-
chapter D of chapter 1. Where property s pad n t sha be ncuded n an
amount equa to ts bass (unad|usted) for determnng gan upon sae or
e change. If the unad|usted bass of the property s a substtuted bass, such
bass sha be ad|usted, wth respect to the perod before the property was pad
n, by an amount equa to the ad|ustments proper under secton 113(b)(2).
Para-graph ( ) provdes that for the purposes of secton 3 the day capta
reducton for any day of the ta abe year sha be the sum of: ( ) dstrbutons
to sharehoders prevousy made durng such ta abe year whch are not out
of the earnngs and profts of such ta abe year, and ( ) the amount, f any,
by whch the amount of the equty capta (as defned n secton 37(c)) at the
begnnng of the ta payer s frst ta abe year under subchapter D of chapter 1
e ceeds the amount of the equty capta at the begnnng of the ta abe year.
The amount ascertaned under paragraph (3) or ( ) sha be reduced by the
ncrease or decrease, as the case may be, n nadmssbe assets (as defned n
secton 0) of the ta payer from the begnnng of ts frst ta abe year under
subchapter D of chapter 1 to the begnnng of such day.
Secton 37(g) provdes speca rues appcabe to subsecton (g) wth re-
spect to dstrbutons to sharehoders.
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DDITIONS ND R DUCTIONS IN ORROW D C PIT L
Subsecton (h) (1) of secton 3 descrbes the computaton of the credt
for addtons to borrowed capta whch, under secton. 3 (a) (1) (D), s to
be Incuded n computng the e cess profts credt based on ncome. Ths add-
ton s an amount equa to (1) one-thrd of the e cess of the average borrowed
capta for the ta abe year (as determned under secton 39(c)) over the day
borrowed capta for the frst day of the ta payer s frst ta abe year under
subchapter D, mutped by (2) the average Interest rate for the ta abe year.
Ths addton to the credt s mted, however, to an amount equa to 3 per-
cent of such e cess.
Under secton 3 (a)(1) the amount of the e cess profts credt based on
ncome s to be reduced by the amount of the borrowed capta reducton for
the ta abe year. Subsecton (h)(2) of secton 3 descrbes the computa-
ton of ths reducton. The borrowed capta reducton Is computed In a
manner whch Is, In effect, the reverse of the computaton of the borrowed
capta addton. The reducton s sub|ect to the same 3 percent mtaton
as n the case of the borrowed capta addton.
Subsecton (h) (3) of secton 3 provdes that the average Interest rate for
any ta abe year sha be computed by dvdng the tota nterest accrued for
such year wth respect to borrowed capta by the amount of the average bor-
rowed capta for such year.
S CTION 3 . C SS PROFITS CR DIT S D ON IN ST D C PIT L
Ths secton provdes that the e cess profts credt for any ta abe year computed
under ths secton sha be the sum of the foowng:
(1) The basc equty capta credt computed under secton 37. Ths credt
s determned by appyng the rate schedue n the tabe n secton 37(a) to
the ad|usted equty capta for the year.
(2) The new capta credt, f any, computed under secton 3 (a). Ths
credt s an nmount equa to 12 percent of the net new capta addton for
the ta abe year, and s aowed to those ta payers whch, under the rate
schedue n secton 37(a) wth respect to ther ad|usted equty capta, woud
otherwse be gven a credt wth respect to such new capta of ess than 12
percent.
(3) The borrowed capta credt, If any, computed under secton 39.
The credt so computed s reduced by the amount computed under secton
0, reatng to nadmssbe assets.
S CTION 37. SIC UITr C PIT L CR DIT
Subsecton (a) of ths secton provdes that the basc equty capta credt
for any ta abe year (the amount ncuded n the e cess profts credt under
secton 3G) sha be determned by appyng the rates specfed In such sub-
secton to the ad|usted equty capta for the year. Such rates nre 12 per-
cent of the ad|usted equty capta whch Is not over mon, 10 percent of
the ad|usted equty capta over mon but not over 10 mon, and
percent of the e cess of the ad|usted equty capta over 10 mon.
Subsecton (b) defnes ad|usted equty capta, whch s the amount to
whch the rates specfed In subsecton (a) are apped. The ad|usted equty
capta s the sum of the equty capta, as defned n subsecton (c), the
capta addton for the ta abe year computed under subsecton (d), and the
recent oss ad|ustment computed under subsecton (f). Such sum s reduced
by the capta reducton for the ta abe year computed under subsecton (e).
If the ad|usted equty capta so computed s over mon, such amount s
further reduced by the net new capta addton computed under secton 3 .
The amount of such net new capta addton s, therefore, not sub|ect to
the 10 percent or percent rate under secton 37(a), but s ony sub|ect to
the 12 percent rate under secton 37(a) (by remanng n the ad|usted equty
capta, f the amount thereof s ess than mon) or the 12 percent rate
under secton 3 (a) (If subtracted from the ad|usted equty capta sub|ect
to the rate schedue under secton 37(a)). ccordngy, any corporaton wth
|usted equty capta of mon or ess w not have to compute the net
new capta addton under secton 3 , snce t w receve the 12 percent rate
under secton 37(a).
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Subsecton (c) defnes equty capta as of any tme ns the tota of the ta -
payer s assets hed at such tme reduced by the tota of ts abtes at such
tme. For ths purpose, the amount attrbutabe to each asset s the ad|usted
bass of such asset fpr determnng gan upon sae or e change under the aw-
appcabe to the ta abe year for whch the e cess profts credt s beng
determned, or n the case of money, the amount thereof. The term ab-
tes means a abtes of the corporaton, absoute and not contngent, and
ncudes abtes assumed by the corporaton, whether or not n connecton
wth assets hed by the ta payer, nnd any abtes to whch property hed
by the ta payer s sub|ect, but does not ncude the obgaton of the corpora-
ton on ts capta stock. The term aso ncudes such reserves as the reserve
for bad debts referred to n secton 23(k). The determnaton of the equty
capta under ths secton sha be made n accordance wth sound accountng
prncpes, and sha be consstent wth the proper method of accountng used
n determnng the ta payer s net ncome.
In the case of an nsurance company, s reserves sha be treated as abtes
oud not as assets.
Ordnary the equty capta as of the begnnng of the ta abe year may
ready be determned from the baance sheet of the corporaton as of the
cose of the precedng ta abe year. Provson s further made n determn-
ng ad|usted equty capta for capta addtons and capta reductons durng
the ta abe year. It may be noted that the earnngs of the current ta abe
year are not refected n the capta addton for that year, but that such
earnngs, to the e tent retaned by the ta payer, w be refected n the
assets hed by the ta payer at the begnnng of ts ne t ta abe year, and w
therefore be ncuded n determnng the equty capta under subsecton (c)
as of the begnnng of the ne t ta abe year. owever, n determnng such
equty capta as of the begnnng of such ne t ta abe year, subsecton (g) (2)
requres that an ad|ustment be made to reduce the equty capta by certan
dstrbutons made n the frst 60 days of such year.
Under subsecton (d), the capta addton for the ta abe year s the aggre-
gate of the day captn addton for each day of the ta abe year dvded by the
number of days n such year. The day capta addton for each day of the
ta abe year s the aggregate of the money and property pad n after the
begnnng of such ta abe year and pror to such day for stock, or as pad-n
surpus, or as a contrbuton to capta. Such property s ncuded n determnng
the day capta addton n a manner consstent wt ts ncuson n determnng
equty capta under subsecton (c). fter the cose of the ta abe year n
whch such addton s made, the equty capta (as of the begnnng of the ne t
ta abe year) used n determnng the ad|usted equty capta for the ne t
ta abe year w refect any such addton remanng u the hands of the
corporaton.
Under subsecton (e), the capta reducton for the ta abe year s the aggre-
gate of the day capta reducton for each day of the ta abe year, dvded by
the number of days n such year. The day capta reducton for each day
of the ta abe year s the amount of the dstrbutons prevousy made durng
the ta abe year whch are not out of the earnngs nnd profts of such ta abe
year. The determnaton of the amount of such dstrbuton sha be consstent
wth the effect of such dstrbuton on the amount of the equty capta deter-
mned under subsecton (c). fter the cose of the ta abe year, the equty
capta (as of the begnnng of the ne t ta abe year) used n determnng the
ad|usted equty capta for the ne t ta abe year w refect the effect of such
prevous dstrbutons.
Subsecton (f) provdes for the determnaton of the recent oss ad|ustment,
whch s a f ed amount ncuded n determnng ad|usted equty capta. The
recent oss ad|ustment s determned by reference to a recent oss perod
whch conssts of the base perod or the perod begnnng anuary 1, 19 0, and
endng December 31, 19 9, whchever perod produces the hgher recent oss
ad|ustment. The recent oss ad|ustment s the e cess of the net operatng osses
for the ta abe years durng the recent oss perod over the net ncomes for the
ta abe years durng such perod. The net operatng osses are those determned
under secton 122(a), under the aw appcabe to the year n whch the oss
was sustaned, and the net Income for each such year s the net ncome computed
wth the e ceptons, addtons, and mtatons provded n secton 122(d) (but
wthout regard to paragraph (0) of secton 122(d)) under the aw appcabe to
such ta abe year. If ony part of a ta abe year s ncuded n the recent oss
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221
perod, proTson s made for the proraton to the recent oss perod, on the bass
of the number of months n such ta abe year fang wthn the recent oss perod,
of the net operatng oss or net ncome for such ta abe year. Further provson
s made n the case of component corporatons as defned n secton 61(b).
The recent oss ad|ustment for such corporatons, determned wthout regard
to any perod after the date of the transacton n whch such corporaton became
a component corporaton of the ta payer, s made avaabe to the ta payer,
and the amount so made avaabe to the ta payer Is not aowed to the component
corporaton, or to any other corporaton wth respect to the component corpo-
raton, for any ta abe year endng after the date such corporaton became a
component corporaton of the ta payer. The determnaton of the recent oss
perod for the ta payer sha be made wth respect to both the recent oss ad|ust-
ment of the ta payer Itsef and to the recent oss ad|ustment avaabe to t wth
respect to ts component corporaton; the recent oss perod used by the ta -
payer must be the same for both the computatons reatng to ts own recent
osses and the computatons reatng to those of ts component corporaton.
Snbsecton (g) provdes rues for the appcaton of ths secton, secton 3
(reatng to capta changes), and secton 3 (g) (reatng to capta changes
n the case of the e cess profts credt based on Income).
Paragraphs (1), (2), and (3) of ths subsecton, reatng to dstrbutons to
sharehoders, dstrbutons n frst 60 days of the ta abe year, and the com-
putaton of earnngs and profts of the ta abe year (for the purpose of deter-
mnng- the capta reducton for the ta abe year), correspond to secton
71 (c) (1), (2), and (3) of the former e cess profts ta aw.
Paragraph ( ), reatng to e changes, provdes rues for the determnaton of
the amount of property pad n for stock or as pad-n surpus or as a contrbuton
to capta. The purpose of ths paragraph s to make the determnaton of the
capta addton resutng from such pad-n property consstent wth the treat-
ment such property w receve at the begnnng of the ne t ta abe year n the
determnaton of equty capta under subsecton (c). Subparagraph ( ) thereof
corresponds n prncpe to secton 760 of the former aw. n e ampe of the
appcaton of ths subparagraph Is the case of property pad n for stock n a
transacton to whch secton 112(b) ( ) s appcabe. ssumng that the prop
erty has a bass of 100,000 n the hands of the transferor, s sub|ect to a
mortgage for 60,000, and s receved by the corporaton sub|ect to the mortgage,
ths subparagraph provdes that the amount of property pad n for the stock sha
be the 100,000 bass In the hands of the transferor, reduced by the 60,000
mortgage to whch the property s sub|ect, or a net amount of 0,000 whch w
be treated as the property pad n for the stock.
Subparagraph ( ) provdes a rue appcabe In a case n whch bonds of the
ta payer are pad n for stock. For e ampe, assume that bonds of the ta -
payer are pad n for stock n a transacton n whch, f property other than bonds
were pad n, such property woud have the same bass n the hands of the
ta payer as n the hands of the transferor. The face amount of the bonds,
rather than ther bass n the hands of the bondhoder, Is treated as the amount
pad n for such stock.
Paragraph ( ) provdes a speca rue n the case of a ta payer eectng under
secton 3 to use a method of accountng for e cess profts ta purposes
dfferent from the method used for ncome ta purposes. In the case of such a
ta payer, nvested capta s determned n a manner consstent wth the method
of accountng eected for e cess profts ta purposes under secton 3, e cept
wth respect to Instament saes made pror to the frst e cess profts ta ta abe
year n the case of a ta payer eectng under secton 3(a), and e cept as to
contracts begun before the frst e cess profts ta ta abe year n the case of a
ta payer eectng under secton 3(b). For e ampe, f a ta payer on the
caendar year bass eects under secton 3(a) to use the accrua method of
accountng for e cess profts ta purposes, ts equty capta as of the begnnng
of ts 19 0 ta abe year s computed by treatng ts accounts recevabe wth
respect to nstament saes as havng an ad|usted bass determned under secton
(d), and ts equty capta as of the begnnng of ts ta abe year 19 1 woud
be computed by determnng the ad|usted bass of ts accounts recevabe wth
respect to Instament saes made before 19 0 In the same manner as the com-
putaton for 19 0, and by determnng the ad|usted bass of ts accounts recevabe
wth respect to Instament saes made after 19 9 (whch are reported on the
accrua bass for e cess profts ta purposes) In the same manner as In the case
of a ta payer reportng on the accrua bass for a purposes.
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S CTION 3 . C PIT L C NG S
N W C PIT L C DII
Secton 3 (a) provdes, n effect, that the credt for new equty nvestment
nnd retaned earnngs durng the e cess profts ta ta abe years sha be deter-
mned at a 12 percent rate and not at any esser rate provded n secton 37(a).
The new capta credt whch s added to the .basc equty capta credt n deter-
mnng the e cess profts ta credt of a ta payer whch eects the nvested cap-
ta method s 12 percent of the net new capta addton whch s defned n
secton 3 (b) as the e cess, dvded by the number of days n the ta abe year,
of the aggregate of the day new capta addtons for each day of the ta abe
year over the aggregate of the day capta reductons. The net new capta
addton sub|ect to such 12 percent rate s not aso sub|ect to the rate specfed
n secton 37. Secton 3 mts the avaabty of the new capta credt to
those corporatons wth ad|usted equty capta n e cess of ,000,000 for the
ta abe year, snce corporatons wth ad|usted equty capta of ,000,000 or
ess are not sub|ect to a rate of ess than 12 percent.
D ILY N W C PIT L DDITION D FIN D
The term day new capta addton s defned In secton 3 (c) to mean the
aggregate of the amounts of money or property (other than e cuded capta)
pad n for stock, or as pad-n surpus, or as a contrbuton to capta after the
begnnng of the e cess profts ta ta abe year and pror to the day of computa-
ton, pus the amount by whch the equty Invested capta (other than the e -
cuded capta), e ceeds the equty capta at the begnnng of the ta payer s
frst e cess profts ta ta abe year. It s further provded that the property
pad n sha be ncuded for the purpose of determnng the day new capta
addton n an amount equa to ts unad|usted bass for determnng gan upon
sae or e change, and that f such bass s a substtuted bass t sha be ad|usted
wth respect to the perod before t was pad, by an amount equa to the ad|ust-
ments proper under secton 113(b) (2).
CLUD D C PIT L
s ndcated, certan capta s e cuded n determnng the day new capta
addton, both from the amounts of money and property pad n after the be-
gnnng of the e cess profts ta ta abe year and from the amount of ncrease
n the ta payer s equty nvested capta over that of ts frst e cess profts ta
ta abe year. cuded capta s defned by secton 3 (d). It consttutes
capta whch has been added as a resut of varous types of ntercorporate trans-
actons whch resut n mere rearrangements of capta structure and do not
actuay ncrease the amount of capta empoyed n the producton of ncome
sub|ect to e cess profts ta . Incuded among these, for e ampe, are trans-
actons whereby a corporaton has acqured addtona capta (money or prop-
erty) from another corporaton n a nonta abe e change under secton 112(b)
(3), ( ), ( ), or (10), or secton 371 of the Code, f both the ta payer nnd the
transferor corporaton are members of the same controed group. nother
e ampe Is where the ta payer has acqured addtona capta (as money or
property pad n) from another corporaton, If both the other corporaton and
the ta payer are members of the same controed group of corporatons.
It s further provded that n determnng the amount to be e cuded on account
of property pad In pursuant to ntercorporate transactons of the knd mentoned,
the bass of the property sha be ts unad|usted bass for determnng gan upon
sae or e change and f such unad|usted bass s a substtuted bass t sha be
ad|usted wth respect to the perod before the property was pad n by an amount
equa to the ad|ustment proper under secton 113(b) (2).
S CTION 39. ORROW D C rT L CR DIT
G N R L RUL
Subsecton (a) of secton 39 provdes the genera rue for the aowance of
the credt for borrowed capta (as defned n subsecton (c)). The credt Is
equa to one-thrd of the deducton nowabe for the ta abe year wth respect
to nterest on the borrowed capta pus one-thrd of the nterest eement accrued
or pad on condtona saes contracts, f not aowabe as an nterest deducton.
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The credt, however, may not e ceed an amount equa to 3 percent of the average
borrowed capta for such year. The credt aso may not be ess than an amount
equa to 1 percent of the average borrowed capta for such year as computed
by takng nto account ony ndebtedness evdenced by obgatons the orgna
maturty of whch were for a term of years or more. Thus, f the average
borrowed capta for the year s 100,000 and nterest whch s aowabe as a
deducton amounts to 0,000, the amount of the credt Is 2,000. owever, such
credt may not e ceed 3,000 (3 percent of 100,000) regardess of the actua
amount of the aowabe Interest deducton.
INSUR NC COMP NI S
Subsecton (b) provdes a speca rue for computng the borrowed capta
credt of nsurance companes. In the case of such companes, the credt s
that aowed n subsecton (a) for nterest on borrowed capta pus an amount
equa to 1 percent of the mean of the pro rata unearned premums (determned
at the begnnng and end of the ta abe year) pus, n the case of fe nsurance
companes, an amount equa to one-thrd of the product of the mean of the
amount of the ad|usted fe nsurance reserves and the average rate of nterest
assumed n computng such reserves and one-thrd of the product of the mean
of the amount of reserves on nsurance and annuty contracts (or contracts
arsng out of nsurance and annuty contracts) whch do not nvove, at the
tme wth reference to whch the computaton s made, fe, heath, or accdent
contngences, and the average rate of nterest assumed n computng such re-
serves. The mean of the ad|usted fe nsurance reserves and the mean of the
reserves on contracts whch do not nvove fe, heath, or accdent contngences
sha be determned at the begnnng and end of the ta abe year, and the rate
of nterest assumed n computng such reserves sha be cacuated as provded
n secton 201(c) ( ).
D FINITION OF O OW D C PIT L
Subsecton (c) defnes average borrowed capta and day borrowed capta.
verage borrowed capta s the aggregate of the day borrowed capta for each
day of the ta abe year, dvded by the number of days n such year. Day bor-
rowed capta for any day of the ta abe year s the amount, as of the begnnng
of the day. of the outstandng ndebtedness (not ncudng nterest) of the ta -
payer evdenced by n bond, note, b of e change, debenture, certfcate of n-
debtedness, deed of trust, or condtona sae contract. Where property of the
ta payer s sub|ect to a mortgage or other en, the ndebtedness secured by the
mortgage or en s consdered as the ndebtedness of the ta payer whether or not
the ta payer assumed the mortgage or agreed to pay the ndebtedness.
S CTION 0. DMISSI L ND IN DMISSI L SS TS
Under sectons 36 and 0 of the b, the e cess profts credt based on nvested
capta sha be reduced by an amount whch s the same percentage of Invested
capta as the nadmssbe assets are of the tota of admssbe and nadmssbe
assets. The terms admssbe and nadmssbe assets are defned n secton
0 and the computaton to determne the percentage of reducton s made n
accordance wth the provsons of such secton.
Inadmssbe assets are
(1) Stock n corporatons, e cept stock n a foregn persona hodng com-
pany, and e cept stock whch s not a capta asset; and
(2) 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.
dmssbe assets are a assets other than nadmssbe assets.
For the purpose of determnng the rato of nndmssbes to the tota of ad-
mssbes and nadmssbes, secton 0(b) provdes that the amount attrbutabe
to each asset sha be determned, under reguatons prescrbed by the Secretary,
by ascertanng the ad|usted bass thereof for each day of the ta abe year and
addng such day amounts. The ad|usted bass sha be the ad|usted bass for
determnng gan upon sae or e change under the aw appcabe to the ta abe
year.
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S CTION 1. FOR IGN CORPOR TIONS IN ST D C PIT L
In the case of a foregn corporaton or a corporaton entted to the benefts
of secton 2 1 whch computes ts e cess profts credt by the nvested capta
method under secton 30, the nvested capta s to be based ony on the assets
of the ta payer hed by t n the Unted States. Ths secton provdes that the
e cess profts credt sha be the basc equty capta credt computed under
secton 37, reduced by the amount computed under secton 0, reatng to
nadmssbe assets. In computng the basc equty capta credt, the ad|usted
equty capta for any ta abe year s the aggregate of the equty capta as of
the begnnng of each day of such ta abe year dvded by the number of days n
such year. In arrvng at the e cess profts credt of such corporatons, the term
Unted States assets means assets hed by the ta payer n the Unted States
determned n accordance wth rues and reguatons prescrbed by the Secretary,
and Unted States abtes are those drecty reated to such Unted States
assets.
If the Secretary determnes that the Unted States assets of the ta payer can-
not satsfactory be segregated from ts other assets, or that the Unted States
abtes of the ta payer cannot satsfactory be segregated from ts other
abtes, then the ad|usted equty capta of the ta payer sha be an amount
whch s the same percentage of the equty capta of the ta payer, determned
under secton 37(c) as of the ast day of the ta abe year, whch the net ncome
for the ta abe year from sources wthn the Unted Sates s of the tota net
ncome of the ta payer for such year.
S CTION 2. R G S P RIOD N T INCOM NORM LITI S DURING
S I tOD
Correspondng n scope generay to secton 722(b) (1) and (2) of the pror
e cess profts ta aw, secton 2 s a reef measure whch provdes a means for
ad|ustng certan abnormates n the ta payer s net ncome for a base perod
year or years.
LIGI ILITY
The egbty requrements are set forth n subsecton (a) and provde frst,
that the ta payer must have commenced busness pror to anuary 1,19 6, thereby
beng negbe for the new corporaton formua provded by secton ; second,
that the ta payer estabsh ether (1) that ts norma base perod producton,
output, or operaton was nterrupted or dmnshed because of events unusua and
pecuar n ts e perence, or (2) that ts base perod busness was depressed
because of temporary economc crcumstances unusua n ts e perence; and
thrd, that an ad|ustment under ths secton w ncrease the net ncome for the
year or years n queston by at east 10 percent. The abnormates nvoved
are those generay assocated wth secton 722(b) (1) of pror aw, such as the
re, strke, or food whch nterrupts or dmnshes producton or operaton; and
those under secton 722(b)(2), such as a severe prce war. In order for the
secton to be appcabe, t s necessary that one year of the base perod be con-
sdered as unaffected by an abnormaty.
COMPUT TION OF R G S P RIOD N T INCOM
In genera, the computaton of an average base perod net ncome under ths
secton s made as foows:
(a) The ta payer s paced on a caendar year bass for the years 10 0
through 10 9;
(6) There s emnated that caendar year the emnaton of whch w
resut n the hghest average e cess profts net ncome (or the owest
average defct) for the remanng three caendar years;
(c) If any of the remanng three caendar years s affected by an ab-
normaty, an amount of substtute e cess profts net ncome for such year
or years (but not more than 2 years) s determned by appcaton of
ndustry ndces;
(d) The resut obtaned by dvdng the aggregate of the e cess profts
net Income and the substtuted e cess profts net ncome for the three
caendar years by three s the average base perod net ncome under ths
secton.
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If. after emnaton of the poorest caendar -ear, one of the three remanng
caendar years s affected by an abnormaty, the substtute e cess profts net
ncome for such caendar year s determned by appyng to the average e cess
profts net Income of the two remanng caendar years the rato of the ndustry
nde for such year to the average of the ndustry Indces for the two remanng
caendar years.
Ths may be ustrated by assumng a case n whch the years 19 G and 10-17
were affected by an abnormaty and the e cess profts net ncome for 10 6
was the owest for the years. The year 19 0 woud be emnated and a subst-
tute e cess profts net ncome woud be determned for the year 19 7. ssumng
that the ndustry nde for 19 7 s 100 and that the average of the ndces for
19 and 10 9 s 12 , the rato of the nde for 10 7 to the average of the ndces
for 19 and 10 0 s 100/12 . The substtute e cess profts net ncome for
19 7 woud be an amount equa to 100/12 ths of the average e cess profts net
ncome for 19 and 19 0.
D T MIN TION OF PPLIC L IND
In the appcaton of ths secton the ta payer s to empoy the nde pro-
camed by the Secretary, n accordance wth secton , for that ndustry
cassfcaton to whch the argest porton of the ta payer s gross recepts s
attrbutabe. Gross recepts are defned n subsecton (e) n terms substantay
smar to those used n secton 3 (e) ( ), reatng to the aternatve average
base perod net ncome based on growth.
Subsecton (f) provdes that the return sha be fed and the ta computed
wthout regard to ths secton and that the ta payer may wthhod payment
of the amount of ndcated reducton n ta abty n accordance wth the
provsons of secton 30(d).
S CTION 3. C NG IN PRODUCT OR S R IC S
Secton 3 s comparabe to parts of secton 722(b) ( ) of the pror e cess
profts aw and provdes a means whereby the ta payer whch ntroduced a
dfferent product or servce durng the ast 3 years of the base perod may
compute an aternatve overage base perod net ncome.
LIGI ILITY
In subsecton (a) a ta payer s entted to the benefts of ths secton f It
commenced busness on or before anuary 1, 10 , and f durng the perod
begnnng anuary 1, 10 7, and endng December 31, 19 9, t made a sub-
stanta change In the products or servces furnhed. The ta payer Is re-
qured by paragraph (2) to estabsh that durng one of the three consecutve
ta abe years Immedatey foowng the change, ts net Income attrbutabe
to the new product or servce e ceeded one-thrd of ts tota net ncome for
such year. Paragraph (3) Imposes a requrement, to the effect that the ta -
payer s net ncome, for any one of the ta abe years n whch t aso meets
the requrement of paragraph (a) (2), must be more than 12 percent of ts
net ncome for the ta abe year precedng the year of change.
R G S P I0D R T INCOM
Under the provsons of subsecton (b), the ta payer computes ts average
base perod net ncome by mutpyng the amount of ts tota assets, taken as
of the ast day of the ta abe year n whch t frst concurrenty meets the
tests provded n subsecton (a) (2) and (3), by the average base perod rate
of return for ts ndustry. In the event that t satsfes these requrements
pror to the begnnng of 19 0, the tota of Its assets as of December 31, 19 9,
s used rather than at any earer date. Consstent wth the other provsons
of the aw, subsecton (c) provdes that the ta payer s assets sha be vaued at
ther bass for determnng gan upon sae or e change and the ta payer, as
provded n subsecton (e) and (f), respectvey w use rates of return based
upon statstcs procamed by the Secretary and w determne ts ndustry
cassfcaton upon the bass of gross recepts n a manner smar to that used
n other reef provsons and n secton 3 (e) ( ) reatng to the average base
perod net ncome based upon growth.
In order to prevent dupcaton of beneft, subsecton (g) dsaows any capta
addtons or reductons, whch were made pror to the date upon whch the ta -
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payer s tota assets were determned for the purpose of computng ts average
base perod net ncome under ths secton.
S CTION . R G S P RIOD N T INCOM N W CORPOR TION
Under the provsons of ths secton, every corporaton sub|ect to the e cess
profts ta whch commenced busness durng ts base perod, or durng the
e cess profts ta perod, may compute an average base perod net ncome based
upon the average base perod rate of return for ts ndustry.
COMPUT TION OF R G S P RIOD N T INCOM
The average base perod net ncome for a new corporaton s computed as
foows:
(a) For each of the frst three ta abe years foowng the commencement
of busness, f such year s a year sub|ect to ta under subchapter D. the
amount determned by mutpyng the - tota assets at the end of such
year by the base perod rate of return for the ta payer s ndustry
cassfcaton for such year.
(6) For succeedng ta abe years, the amount determned by mutpyng
the tota assets at the end of the ta payer s thrd ta abe year foowng the
commencement of busness as of December 31, 10 9, whchever date s ater,
by the base perod rate of return for the ta payer s ndustry cassfcaton.
ssets are ncuded for purposes of ths computaton n an amount equa to the
bass for gan upon sae or e change. The rate of return to be used s that pro-
camed by the Secretary, n accordance wth secton , for the ndustry cass-
fcaton to whch s attrbutabe the ma|or porton of the ta payer s gross recepts
for the partcuar ta abe year n whch fas the date as of whch the tota assets
are determned.
To prevent dupcaton of beneft, provson s made n subsecton (f) for the
emnaton of any base perod capta addtons or reductons and capta changes
made pror to the date upon whch the ta payer s tota assets are taken nto
account. Capta addtons and reductons, made after the date on whch tota
assets are computed, are, however, avaabe to the ta payer as In any other case.
In common wth sectons 2 and 3, gross recepts are defned n subsecton (g)
to conform wth the concept set out n secton 3 (e), reatng to the aternatve
average based upon growth, and the rues for the deferment of payment of ta
are smar to those empoyed n secton 2(f) and 3 (h).
S CTION 3. INDUSTRY S P RIOD R T S OF R TURN
Ths secton provdes for the determnaton of Industry cassfcatons and
Industry rates of return to be apped n determnng an average base perod
net ncome In the case of ta payers entted to the benefts of secton 2, reatng
to abnormates durng the base perod, secton 3, reatng to change n roduct
or servces, and secton , reatng to new corporatons.
INDUSTRY CL SSIFIC TION
Subsecton (a) of secton provdes that the Secretary, not ater than
March 1, 19 1, sha determne and procam a cassfcaton of corporate ta -
payers by Industry, such cassfcaton to be generay n accord wth the cass-
fcaton reguary used by the Treasury Department n compng pubshed
statstcs from corporaton ncome ta returns,
INDUSTRY T S OF R TURN
Subsecton (b) of secton -1 provdes that the Secretary sha determne and
procam for each ndustry cassfcaton the rate of return for each of the four
caendar years 19 0 through 19 9 and ndces based thereon. The rate of return
for each ndustry s obtaned by dvdng the sum of the aggregate net ncome
and aggregate nterest deductons shown on the returns of a corporatons n the
partcuar ndustry cassfcaton fng ncome ta returns for such a year by
the average of the aggregate tota assets of such corporatons for such year.
Subsecton (c) of secton provdes that the Secretary sha determne and
procam for each ndustry cassfcaton a rate of return for the -month perod
endng December 31, 19 9, obtaned by dvdng the sum of the aggregate net
ncome for such perod and the aggregate nterest deducton for such perod
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shown on the returns of a corporatons In the partcuar ndustry cassfcaton
fng ncome ta returns for ta abe years In such perod by the average of the
aggregate tota assets of such corporatons for such perod.
Pror to such tme as the yeary rates of return and the base perod rate of
return for each ndustry cassfcaton are determned and procamed, tentatve
rates of return for each ndustry cassfcaton procamed by the Secretary not
ater than March 1, 19 1, sha be n effect for the purposes of deferment of ta
under secton 30(d).
S CTION 6. R GUL T D PU LIC UTILITI S
Reguated pubc uttes are gven an aternatve e cess profts credt for any
ta abe year under ths secton. Ths credt for any ta abe year s an amount
whch s the sum of the norma and surta es mposed for the ta abe year on the
reguated pubc utty, pus a specfed rate of return on the sum of the ad|usted
equty capta and the average borrowed capta for such ta abe year, ess the
deducton aowed for the year wth respect to nterest on ndebtedness ncuded
n borrowed capta. The rate apped n determnng the credt s 6 percent n
the case of a corporaton engaged n the furnshng or sae of teephone servce,
eectrc energy, gas, water, transportaton on an ntrastate, muncpa, suburban,
or nterurban eectrc raroad or an ntrastate, muncpa, or suburban trackess
troey system or muncpa or suburban bus system, but ony f the rates of such
furnshng or sae have been estabshed or proved by State or potca sub-
dvson thereof or by an agency or nstrumentaty of the Unted States or by
a pubc servce or pubc utty commsson. In the case of raroads or ar-
nes, sub|ect to the |ursdcton of the Interstate Commerce Commsson or Cv
eronautcs oard, respectvey, the rate sha be percent.
The e cess profts credt so computed for any ta abe year sha be reduced by
the amount computed under secton 0 reatng to Inadmssbe assets.
S CTION 7. P RSON L-S R IC CORPOR TIONS
Secton 7 provdes speca treatment for persona-servce corporatons.
Such corporatons may eect not to be sub|ect to the e cess profts ta , and n such
event the undstrbuted ncome of the corporaton w be ta ed to ts sharehoders.
Secton 7(a) defnes a persona-servce corporaton as a corporaton whose
ncome s attrbutabe prmary to the actvtes of sharehoders who are regu-
ary engaged n the actve conduct of the affars of the corporaton and are the
owners at a tmes durng the ta abe year of at east 70 percent n vaue of each
cass of the stock of the corporaton, and n whch capta (whether nvested or
borrowed) s not a matera ncome producng factor. For the purpose of the
stock-ownershp requrement an ndvdua s consdered as ownng, at any
tme, the stock owned at such tme by hs spouse or mnor chd. The term
persona-servce corporaton does not ncude any foregn corporaton, nor any
corporaton 0 percent or more of whose gross ncome conssts of gans, profts,
or ncome derved from tradng as a prncpa.
Subsecton (b) of secton 7 provdes that a persona-servce corporaton may
eect n ts Income ta return under chapter 1 for any ta abe year not to be
sub|ect to the e cess profts ta and n such event t w be e empt from such
ta for such ta abe year. new eecton must be made for each ta abe year
and may be made ony n ts ncome ta return for such year. If the cor-
poraton so eects for any ta abe year ts undstrbuted net ncome s requred
to be ncuded n the gross ncome of the persons who were sharehoders of
the corporaton on the ast day of the corporaton s ta abe year for whch such
eecton was made. If a corporaton s a member of an affated group of
corporatons fng consodated returns under secton 1 1 of the Code, t sha
not be e empt under secton 7 for such year.
The treatment of the undstrbuted ncome of the corporaton for ta purposes
both wth respect to the corporaton and ts sharehoders s prescrbed n
suppement S.
S CTION . MPTION FROM T FOR MINING OF STR T GIC MIN R LS
Ths secton e empts from e cess profts ta that porton of the ad|usted
e cess profts net ncome whch s attrbutabe to the mnng by a domestc
corporaton n the Unted States of antmony, chromte, manganese, ncke,
patnum, qucksver, sheet mca, tantaum, tn, tungsten, fuorspar, fake graph-
te, vermcute, and vanadum. The ta on the remanng porton of the ad-
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usted e cess profts net ncome Is an amount whch bears the same rato to
the ta computed wthout regard to ths secton as such remanng porton bears
to the entre ad|usted e cess profts net ncome.
S CTION 9. C PIT LIZ TION OF D RTISING, TC., P NDITUR S
Secton 9 permts a ta payer, under certan mtatons, to captaze
e pendtures for advertsng and good-w promoton made n the base perod
whch the ta payer had prevousy deducted as an e pense. Ony e pend-
tures whch, under rues and reguatons prescrbed by the Secretary, may be
determned to be n the nature of a capta nvestment arc aowed to be
captazed.
If a ta payer makes an eecton under ths secton, Its norma-ta net Income
for each base-perod ta abe year n whch advertsng and good-w e pend-
tures were deducted sha be recomputed as f that porton of such e pendtures
whch s permtted to be captazed had been captazed n such ta abe year.
ence, the net ncome for each such year w be ncreased by the amount of
the deducton dsaowed, and, n the case of a corporaton eectng the nvested
capta credt, the captazed e pendtures w be refected n equty capta.
Snce the revenue aws appcabe to each ta abe year are retroactvey
amended by ths secton n order to make the eecton here provded govern the
deductbty of advertsng and good-w e pendtures In such pror ta abe
years, the deductons taken are deemed to have been dsaowed, and the ta -
payer must pay the addtona ncome ta whch woud have been due f the
treatment n the pror ncome ta ta abe year had been n accordance wth the
eecton provded for n ths secton, pus nterest thereon. Ths prevents a
ta payer from obtanng the benefts of both a deducton and a captazaton
wth respect to the same tem.
If no provson or rue of aw prevents correcton of the effect of dsaowng
such deductons, any addtona ncome ta , whch woud have been due f
such deductons had been captazed, w be coected as a defcency for the
partcuar base-perod ta abe year. If, however, correcton of the effect of
such treatment s barred, correcton w be made by means of the ad|ustment
provded under secton 0(b).
ta payer eectng under ths secton must captaze a such e pendtures
deducted for base-perod ta abe years whch may be regarded as a capta
nvestment. It s further provded that amounts aowed as a deducton on
account of such e pendtures n ta abe years pror to the base perod may not,
under any crcumstances, be captazed.
In order to secure a treatment of e pendtures for advertsng and good-w
promoton n ta abe years sub|ect to ta under subchapter D of chapter 1,
unform wth the treatment accorded smar e pendtures n base-perod years,
subsecton (b) provdes that a ta payer whch has eected to captaze e pend-
tures whch t has shown to be propery consdered capta nvestments, must
captaze for ncome and e cess profts ta purposes any smar capta e -
pendtures n subsequent ta abe years.
The eecton provded by secton 9 s avaabe wth respect to e pendtures
to estabsh, mantan, or ncrease the crcuaton of a newspaper, magazne,
or other perodca notwthstandng the provsons of secton 20 (b)(2) of
the Revenue ct of 19 0.
S CTION 0. D USTM NT IN C S OF POSITION INCONSIST NT WIT PRIOR
INCOM T LI ILITY
Ths secton authorzes the same ad|ustment to the e cess profts ta mposed
by the b as secton 73 of the Code (as amended by secton 2_ 7, R. . 19 2)
authorzed to the e cess profts ta mposed by chapter 2 of the Code. The
ad|ustment Is to be made n certan cases n whch the treatment of an tem
or transacton for e cess profts ta purposes s nconsstent wth the pror
erroneous treatment of such tem or transacton for ncome ta purposes, and
correcton of the error s prevented by some provson or rue of aw such as the
statute of mtatons, res ad|udcata, etc
S CTION 1. NONT L INCOM FROM C RT IN MINING ND TIM R
OP R TIONS ND FROM N TUR L-G S PROP RTI S
Ths secton provdes speca treatment, ke that contaned In secton 73
of the Word War II e cess profts ta , for the Increased producton over norma
output n the case of certan mneras, tmber, and natura gas. In genera,
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229
the secton provdes a speca deducton n computng the e cess profts net
ncome where the producton n e cess of norma e ceeds percent of the est-
mated reserves. In ascertanng the amount of the speca deducton the ta -
payer (1) determnes the unts of e cess output, whch Is defned as the e cess
of producton for the ta abe year over the norma output; (2) ascertans the
percentage rato of the e cess output to recoverabe reserves; (3) ascertans
the unts of e empt e cess output whch s a prescrbed percentage (rangng
from 20 to 100 percent) of the e cess output, ncreasng as the rato of e cess
output to recoverabe reserves ncreases; and ( ) mutpes the unts of e empt
e cess output by the norma unt proft whch s defned as the average proft
for the base perod per unt of output. The amount so ascertaned s deductbe
n computng the e cess profts net ncome.
The percentages of the e cess producton mutped by the norma unt of
proft to be aowed are as foows:
100 percent of the e cess output e ceeds 0 percent of the estmated re-
coverabe unts.
90 percent f such e cess output e ceeds 33 but not 0 percent of such
estmated recoverabe unts.
percent f such e cess output e ceeds 20 but not 2 percent of such
20 percent f such e cess output e ceeds but not 10 percent of such est-
mated recoverabe unts.
The foowng e ampe w ustrate the method of computaton as apped to
a partcuar case:
ampe
Company
Unt output:
Norma unt output tons 200,000
Ta abe year unt output do 00, 000
cess over norma do 300, 000
Norma unt proft, per ton 1
Proft on e cess nnt output 300,000
Recoverabe unts: stmated recoverabe unts, as defned n the
b tons._ 2,300,000
empt e cess output: Percent e cess unt output of estmated recov-
erabe unts, as defned n the b percent 13. 0
Snce the e cess unt output (300,000 tons) e ceeds 12 percent but not 1
percent of estmated recoverabe unts (2,300,000), 0 percent of such e cess
unts output measured n terms of norma unt of proft ( 300,000), or 120,000,
w be aowed as a deducton n computng e cess profts net ncome.
The secton aso prescrbes addtona speca rues for computng the de-
ducton n the case of coa and ron mnes, tmber propertes, and natura gas
propertes. Fnay, the secton provdes speca treatment for the amount of
ncome derved from bonus payments made by any agency of the Unted
States Government on account of producton of mneras or tmber n e cess
of a specfed quota. In any case n whch Income attrbutabe to e cess output
ncudes such bonus payments, the ta payer may eect ether to receve the
benefts provded wth respect to e empt e cess output or to treat such bonus
ncome as nonta abe.
S CTION 2. MPT CORPOR TIONS
Secton 2 e empts from the ta Imposed by subchapter D of chapter 1: ( )
corporatons e empt from Income ta under secton 101 (whether or not sub-
|ect to ta under Supp. U) ; (6) foregn persona hodng companes as defned
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In secton 331; (c) reguated nvestment companes, hs defned n secton 361
wthout the appcaton of secton 361(b) ( ) ; (d) persona hodng companes,
as defned n secton 01; (e) foregn corporatons not engaged n trade or
busness wthn the Unted States; (/) domestc corporatons satsfyng the
foowng condtons: (1) 9 percent or more of the gross Income of such domestc
corporaton for the 3-year perod Immedatey precedng the cose of the ta abe
year (or for such part of such perod durng whch the corporaton was n
e stence) was derved from sources other than sources wthn the Unted
States; and (2) 0 percent or more of Its gross ncome for such perod or such
part thereof was derved from the actve conduct of a trade or busness;
and (g) any corporaton sub|ect to the provsons of tte I of the Cv ero-
nautcs ct of 193 , n the gross ncome of whch for any ta abe year endng
after une 30, 19 0, there s ncudbe compensaton receved from the Unted
States for the transportaton of ma by arcraft f, after e cudng from ts
gross ncome such compensaton, ts ad|usted e cess profts net ncome for
such year s zero or ess. Such e cuson from gross ncome for such year sha
aso be made n computng the unused e cess profts credt ad|ustment for
any other ta abe year, but ony for the purpose of determnng whether the
corporaton s e empted by secton 2(g) from the ta mposed by subchapter
D for such other ta abe year.
S CTION 3. INST LLM NT SIS T P Y RS ND T P Y RS WIT INCOM
FROM LONG-T RM CONTR CTS
Subsecton (a) of ths secton provdes that n the case of a ta payer whch
reports ncome on the nstament bass, such ta payer may eect, n ts return for
the ta abe year for the purposes of subchapter D of chapter 1, to compute ts
ncome from nstament saes on the bass of the ta abe perod for whch such
ncome s accrued. The eecton s Irrevocabe when once made and appes to
a subsequent ta abe years to whch ths subchapter s appcabe. If the
ta payer eects to come wthn ths provson the ncome from nstament saes
for each ta abe year under ths subchapter sha, for the purpose of computng
the ta under ths subchapter for a ta abe years (ncudng pror ta abe
years), be ad|usted to conform to such eecton. owever, no amount sha be
ncuded n computng e cess profts net ncome for any e cess profts ta abe
year on account of nstament saes made n ta abe years endng before uy
1, 19 0.
Subsecton (b) of secton 3 provdes that any ta payer computng ncome
from contracts the performance of whch requres more than 12 montbs may
eect, n ts return for the ta abe year, for the purposes of the ta mposed by
subchapter D of chapter 1, to compute, n accordance wth reguatons pre-
scrbed by the Secretary, such ncome upon the percentage of competon
method of accountng. Such eecton s to be made n accordance wth such
reguatons and sha be rrevocabe when once made, and sha aso appy to a
subsequent ta abe years to whch such subchapter s appcabe. The net n-
come of the ta payer for each year to whch such subchapter s appcabe pror
to the year wth respect to whch the eecton s made sha be ad|usted for the
purpose of computng the ta under such subchapter for a ta abe years (n-
cudng pror ta abe years). Income descrbed n secton 3(b) sha not be
consdered abnorma ncome under secton .
Subsecton (c) of secton 3 provdes that f an ad|ustment specfed n sub-
secton (a) or subsecton (b) of secton 3 s, wth respect to any ta abe year,
prevented, on the date of the eecton by the ta payer under subsecton (a) or
subsecton (b), as the case may be, or wthn 2 years from such date, by any
provson or rue of aw (other than subsecton (c) and other than secton 3761,
reatng to compromses), such ad|ustment sha nevertheess be made f n
respect of the ta abe year for whch ad|ustment s sought a notce of defcency
s maed or a cam for refund s fed, as the case may be, wthn 2 years after
the date such eecton s made. If at the tme of the mang of such notce of
defcency or the fng of such cam for refund, the ad|ustment s so prevented,
then the amount of the ad|ustment authorzed by subsecton (c) sha be mted
to the ncrease or decrease n any ta mposed by chapter 1 prevousy determned
for such ta abe year whch resuts soey from the effect of subsecton (a) or
subsecton (b), as the case may be, and such amount sha be assessed and co-
ected, or credted or refunded, n the same manner as f t were a defcency or
an overpayment, as the case may be, for such ta abe year and as f on the date
of such eecton, 2 years reman before the e praton of the perod of mtaton;
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231
upon the assessment or the fng of cam for refund for the ta abe year. The
ta prevousy determned sha be ascertaned In accordance wth secton 0(d).
The amount to be assessed and coected under ths secton n the same manner
as f t were a defcency or to be refunded or credted n the same manner as
f t were an overpayment, sha not be dmnshed by any credt, e empton, gan
or oss, other than one resutng from the effect of subsecton (a) or subsecton
(b), as the case may be. Such amount, If pad, sha not be recovered by a cam
or sut for refund, or sut for erroneous refund based upon any tem, ncuson,
deducton, credt, e empton, gan or oss, other than one resutng from the effect
of subsecton (a) or subsecton (b), as the case may be.
S CTION . NORM LITI S IN INCOM IN T L P RIOD
Secton makes ad|ustments wth respect to certan abnormates n ncome
In the ta abe perod. In genera, the provson corresponds to secton 721, as
amended, n the Word War II e cess profts ta aw. The prncpa changes
ncude redefnton of the casses of Income descrbed n subsecton (a)(2),
the reducton of the percentage of gross ncome referred to n subsecton (a) (1)
and (3) to 11 percent, carfcaton of the technca provsons of subsecton
(a) (3), and the emnaton of subsecton (f) of the pror aw whch Is obsoete
n vew of other provsons of ths b.
The separate casses of Income defned In subsecton (a) (2) hnve been reduced
to four casses, as foows: ( ) Income arsng out of a cam, award, |udgment,
or decree, or Interest on any of the foregong; ( ) ncome resutng from e -
poraton, dscovery, or prospectng, or any combnaton thereof, e tendng over
a perod of more than 12 months; ncome from the sae of patents, formuas, or
processes, or any combnaton thereof, deveoped over a perod of more than 12
months; and (C) ncome ncudbe n gross ncome for the ta abe year rather
than for a dfferent ta abe year by reason of a change n the ta payer s method
of accountng. Subparagraph (C) of subsecton (a) (2) of the pror aw has
been redefned and restrcted as appears n subparagraphs (I ) nnd (C) of sub-
secton (a) (2) of ths secton. The cassfcatons under the pror aw wth
respect to ncome from ong-term contracts, ncome to a essor upon termnaton
of a ease, and ncome consstng of dvdends on stock of foregn corporatons
were emnated as obsoete.
S CTION . CORPOR TIONS COMPL TING CONTR CTS UND R M RC NT
M RIN CT. 1936
Under secton 0 of the Merchant Marne ct, 1930, as amended, f any con-
tractng party wthn an ncome ta ta abe year competes one or more con-
tracts or subcontracts for the constructon of a vesse under such ct, such party
s requred to pay to the Federa Martme oard proft n e cess of 10 percent of
the tota contract prces of such contracts and subcontracts.
Secton provdes, n cases where e cess amounts are requred to be repad
to the Federa Martme oard under the above Merchant Marne ct, an ater-
natve ta whch s to be pad f t s ess than the ta computed under secton 30.
s a genera rue the amounts receved by the contractng party and recaptured
by the Federa Martme oard woud be e cuded from net ncome n computng
the e cess profts ta under secton 30. In computng the aternatve ta pro-
vded for by secton the ta payer w be requred to ncrease ts norma ta
net ncome by the amount of the payments to the Federa Martme oard. The
ta computed upon hs bass s then reduced by the amount of the payments to
the Federa Martme oard, nnd the remander consttutes the ta whch Is
to be pad If It s ess than the ta computed under secton 3 .
Pabt II. cess Peofts Credt ased on Income n Connecton Wth
Certan changes
Ths part, whch Is comparabe to the suppement of the Word Wnr II
aw, s drected essentay at the probem of provdng for a proper determna-
ton of the average base perod net ncome of a ta payer whch s a contnu-
ng corporaton n a reorganzaton nvovng the transfer to It of propertes
from other corporatons n whose hands the propertes had a base perod
e perence. ssentay part II provdes that, n the type of transactons
specfed n the part, the Income e perence of the propertes n the base perod
In the hands of the transferor corporatons sha be consdered as the Income
e perence of the transferee for those years. In vew of the adopton under
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secton 3 (whch secton determnes the amount of the e cess profts credt
based on ncome and the manner n whch the average base perod net ncome
s computed) of severa methods of determnng a ta payer s average base
perod net ncome whch are aternatve to the determnaton of average base
perod net ncome based soey upon e cess profts net Income (whether the
e cess profts net ncome was earned durng the base perod, or s attrbuted
to an acqurng corporaton under ths part), speca rues are provded n
order that an acqurng corporaton under ths part may determne Its egbty
for such aternatve methods after the reorganzaton and, In such a case,
the manner n whch those methods are then to be made avaabe to t. ues
havng a smar purpose were ncorporated n Suppement of the Word War
II aw but they have had to be superseded by the above referred to speca rues
In vew of the changes whch have been made n the nature of the aternatve
methods themseves. In other respects ths part dffers from Suppement
of the Word War II aw ony n that one addtona type of transacton has
been added to the st of transactons set forth as gvng use to an appcaton
of the part and n that a number of the sectons of the suppement have had
to be revsed n order to conform them to some of the detaed changes whch
have been made by ths subchapter n the Word War II aw.
S CTION 61. D FINITIONS
Secton 01(a) defnes the term acqurng corporaton for purposes of
part II. n acqurng corporaton s defned as a corporaton whch has
acqured property from one or more other corporatons n a statutory merger
or consodaton, n a ta -free qudaton, or n any one of s sted types of
transactons whch, generay, have the same practca effect as a statutory
merger or consodaton. These transactons are referred to n ths report,
uness otherwse noted, as part II transactons. cept for one addton, part
II transactons are the same as and are defned n the same terms as the trans-
actons specfed n suppement of the Word War II aw. The one addton
made by your commttees s the ncuson n the s sted transactons of a
transacton n whch a corporaton acqures part, as dstngushed from sub-
stantay a, of the propertes of one or more corporatons or partnershps
n an e change to whch secton 112(b) ( ), or so much of secton 112 (c) or (e)
as refers to secton 112(b)( ), s appcabe. Snce a part II transactons
nvove a suffcent contnuty of nterest to |ustfy treatng the acqurng
corporaton as standng n the pace of ts predecessors, suc transactons must
satsfy the requrements of secton 112 wth respect to such transactons n order
that the transferee corporaton may be treated as an acqurng corporaton.
Wth respect to the s sted typos of transactons, t s to be noted that
n two of them, Incudng the case where substantay a of the propertes
of a corporaton are transferred soey n e change for votng stock of the
transferee, the transferor corporaton must be competey qudated n pursu-
ance of the pan under whch the transfer s made and the transfer must have
the effect of a statutory merger or consodaton. Smary, t s provded
n the case |ust descrbed, that the votng stock requrement can be met even
though abtes are assumed by the acqurng corporaton or property s taken
sub|ect to a abty n connecton wth the transacton.
In the case of two of the s sted types of transactons, the transfer may
be made by a partnershp, the transfer n one case beng of substantay a
of the partnershp s assets, the transfer n the other ense beng of a part of
the partnershp assets. Subsecton (f) of secton 01 provdes, n connecton
wth the former type of transfer, that a busness owned by a soe propretorshp
sha be consdered a partnershp. Secton 02(g) provdes, wth respect to
both types of transfers, that computatons wt respect to a partnershp are to
be made as f the partnershp had been a corporaton.
For purposes of part II and, therefore, for purposes of the defnton of
acqurng corporaton, secton 0-| defnes the term corporaton as not n-
cudng a foregn corporaton.
Secton 01(b) defnes the term component corporaton to mean the cor-
poraton or partnershp whch s absorbed or the propertes of whch are
transferred In a transacton descrbed In connecton wth the defnton of an
acqurng corporaton n secton 01(a).
Secton 01(d) specfcay provdes, for purposes of the e cess profts credt
am for purposes of the secton prescrbng an aternatve average base perod
net ncome n the case of new corporatons, that an acqurng corporaton sha
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be consdered to have been In e stence for any perod durng whch t or any
of ts component corporatons was n e stence. sentence has been added
to ths secton provdng, for purposes of the aternatve average base perod
not ncome n the case of new corporatons, that n any part II transacton,
other than the transfer by a corporaton of part of ts propertes, the com-
ponent corporaton sha be deemed not to have been n e stence pror to the
day after the transacton. It s the purpose of ths sentence to entte the
transferrng corporaton, n the event that t agan commences busness to
new corporaton treatment n the computaton of ts average base perod net
Income.
The provson of the od aw wth respect to component corporatons of
component corporatons as aso been retaned. Ths provson (secton 01(e))
provdes that the term component corporaton, wth respect to a gven trans-
acton, ncudes a corporaton whch, n an earer transacton, was a component
corporaton of the corporaton whch, n the transacton n queston, becomes a
component corporaton.
Secton 01(c) ncorporates the substance of secton 7 0(c) of suppement
of the Word War II aw, wth certan addtons made necessary by the ncu-
son n the st of permtted transactons of the transacton n whch a corpora-
ton acqures a part of the property of another corporaton. In genera, t s
the purpose of the secton to provde that a corporaton whch transfers sub-
stantay a ts propertes n a part II transacton sha take no account of
ts e cess profts net ncome for any part of ts base perod pror to the day of
the transacton, or ts capta addtons or capta reductons of the ta perod
pror to the day of the transacton, n computng ts e cess profts credt for
any year after the year of the transacton. n addton has been made to the
secton to provde for a smar oss by the component corporaton of ts aterna-
tve average base perod net ncome computed as a new corporaton. In the case
of a transacton nvovng a transfer by a corporaton of part of ts propertes,
the rue has been modfed to provde that the transferrng corporaton oses ony
that porton of ts e cess profts net ncome for the base perod or of ts aterna-
tve average base perod net ncome computed as a new corporaton whch s
aocabe to the partcuar propertes transferred. smar provson reates
to the capta addton or capta reducton of the ta perod of the transferrng
corporaton. Secton 02(e) provdes the rue of aocaton appcabe to these
provsons.
Subsecton (c), as under the Word War II aw, aso provdes the rue for
the determnaton of the e cess profts credt of the component corporaton for
the year of the part II transacton, where that year s a year sub|ect to the
e cess profts ta . smar rue s provded n the case of a transfer by a
corporaton of ony part of ts propertes. Under ths rue so much of the
component corporaton s average base perod net ncome as was avaabe to t
pror to the day after the transacton can be used by t as the number of days
n the ta abe year pror to the day after the transacton bears to the tota
number of days n the year. In the case of a transfer by a corporaton of ony
part of ts propertes, t s provded, n effect, that the amount of the average
base perod net ncome made avaabe for purposes of ths computaton sha be
such part of the corporaton s tota average base perod net ncome as s aocabe
to the propertes transferred. The determnaton of the effect of a part II trans-
acton on the e cess profts credt of an acqurng corporaton for the year n
whch the transacton occurred s provded for n secton 02(f) (2).
Secton 01(c) provdes, fnay, that the e cess profts net ncome of the
component corporaton for any part of the base perod after the day of the
transacton, where such transacton occurred durng the base perod, sha not
be avaabe for use n any manner by the acqurng corporaton.
S CTION C2. R COMrUT TION OF C SS PROFITS N T INCOM
Secton 02 provdes the rues appcabe to an acqurng corporaton In a
part II transacton In the determnaton of ts average base perod net ncome
for purposes of computng ts e cess profts credt based on ncome. Secton
02(a) provdes that the average base perod net ncome of an acqurng cor-
poraton sha be ts average base perod net ncome computed under secton
33 wthout reference to the recomputaton of ts e cess profts net ncome pro-
vded for by secton 02, or Its average base perod net ncome computed under
secton 3o after such recomputaton, whchever s the greater. Secton 32(b)
9 200 1 1C
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provdes for the recomputaton of the e cess profts net Income of the acqurng
corporaton for any month of ts base perod pror to the transacton for purposes
of the genera average provded for by secton 3 (d). Secton 62 (c) and
(d) provdes speca rues appcabe to the determnaton of the acqurng cor-
poraton s aternatve average base perod net ncome based, respectvey, on
growth, under secton 3 (e), or as a new corporaton under secton .
Secton 62(a) provdes, n genera, that the e cess profts net ncome of an
acqurng corporaton recomputed under the secton s the e cess profts net
ncome for each month of the acqurng corporaton s base perod ncreased
or decreased, as the case may be, by the addton or reducton resutng from
ncudng the e cess profts net ncome for that month of a component
corporatons.
Secton 62(b) provdes the method n whch ths recomputaton Is to be
effected. The recomputed e cess profts net ncome of the acqurng corporaton
for each month n ts base perod sha be ts e cess profts net ncome for that
month computed under secton 3 (d) (1) (wthout regard to that part of that
secton whch provdes that the e cess profts net ncome for any month sha
not be ess than zero) pus the e cess profts net ncome of the component cor-
poraton for such month of the acqurng corporaton s base perod, kewse
computed under secton 3 (d)(1). The e cess profts net ncome of the ac-
qurng corporaton for any month as thus recomputed n no event sha be ess
than zero. In makng ths determnaton, f, for any fu month of the acqurng
corporaton s base perod durng whch such corporaton was n e stence,
ether actuay or, under secton 61(d) by reason of a component corporaton s
e stence,, ether the acqurng corporaton or any component was not actuay
In e stence, the e cess profts net ncome of that corporaton for such month
sha be 1 percent of ts equty capta at the cose of the day before the transac-
ton or at the cose of the base perod, whchever Is earer, reduced by the rato
of ts nadmssbe assets.
Under the method of recomputaton provded above a number of dffcut prob-
ems presented by the Word War II aw w necessary be removed. The
method s dependent n the frst nstance on the defnton of base perod con-
taned n secton 3 (b). The manner n whch the e cess profts net ncome
for any month s determned Is prescrbed by secton 3 (d)(1) by reference
to the e cess profts net ncome for the ta abe year n whch such month
fas.
There Is Incorporated In the above method of recomputaton a provson,
appcabe to the secton contaned In the Word War II aw whch provded
for a smar constructon of Income n certan cases, desgned to provde for
an ad|ustment where, by reason of the acquston by one corporaton of stock
In another, the equty capta of the corporaton whose stock s acqured s
ncreased wthout a correspondng decrease n the equty capta of the ownng
corporaton. In such cases the Secretary s gven authorty to prescrbe regu-
atons ad|ustng the e cess profts net ncomes of such corporatons.
US Y C UIRING CORPOR TION OF LT RN TI R G S P RIOD N T INCOM
S D ON GROWT PRO ID D FOR IN S CTION 30 ( )
Secton 62(c) deas wth the effect of a part II transacton upon the rght of
ether an acqurng corporaton or, n the case of a transfer by a component
corporaton of a part of ts propertes, of Its rght to the use of the growth
aternatve provded n secton 3 (e).
(1) In the case of a part II transacton (other than one n whch a component
corporaton transfers ony a part of Its assets), f the acqurng corporaton
and a of the component corporatons were n actua e stence and had com-
menced busness more than months before the cose of the acqurng cor-
poraton s base perod, the acqurng corporaton may be entted to the use
of the growth aternatve. For purposes of determnng ts quafcaton to use
the growth aternatve, the acqurng corporaton sha combne wth Its tota
payro and gross recepts for any porton of ts base perod precedng such trans-
acton the tota payro and gross recepts of the component corporatons for
such perod, and t sha aso combne ts tota assets at the begnnng of the base
perod wth those of the component corporatons. The acqurng corporaton
sha not, n the event the transacton occurred durng ts base perod, be entted
to the use of the growth aternatve n ts computaton of average base perod
net ncome uness t recomputes Its e cess profts net ncome n the manner
provded for by secton 62(b).
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(2) In the case of a pnrt II transacton (other than one In whch a com-
ponent corporaton transfers ony a part of ts assets), f some but not a of
the corporatons whch were partes to the transacton were n actua e stence
and had commenced busness more than months before the cose of the ac-
qurng corporaton s base perod and were entted to the growth aternatve
pror to the transacton, the acqurng corporaton sha not be entted to the
use of the growth formua, whether or not t recomputes ts e cess profts net
ncome under secton 62(b), where the transacton occurs durng ts base
perod. Iowever, f the transacton occurs after the cose of the acqurng cor-
poraton s base perod, the acqurng corporaton sha be entted to retan the
growth aternatve wth respect to the e cess profts net ncome of any corpora-
ton entted to t for purposes of the recomputaton of ts e cess profts net ncome
pro-vded for by secton G2(b).
(3) In the case of a part II transacton In whch the component corporaton
transfers ony a part of Its assets, where the component corporaton was n
e stence and had commenced busness more than months before the cose
of the acqurng corporaton s base perod and was entted to the use of the
growth aternatve pror to such transacton (f such transacton occurred after
the cose of the base perod of the component corporaton), both the component
corporaton and the acqurng corporaton sha be entted to the use of the
growth formua wthout reference to the tests wth respect to quafyng there-
under. If such a transacton occurred durng the base perod of the acqurng
corporaton, the component s payro and gross recepts for the perod pror
to the transacton are to be aocated between the partes n the same rato as
that provded In secton 02(e) for the aocaton of e cess profts net ncome
and average base perod net ncome computed under secton (the new cor-
poraton provson). The acqurng corporaton s to be consdered as havng
commenced busness at the tme the component corporaton commenced bus-
ness for purposes of quafyng for the growth aternatve, and for the purposes
of the tota assets mtaton on use of the growth aternatve. oth the compo-
nent and the acqurng corporaton are to be consdered as havng the tota
assets of the component corporaton as of the date appcabe for purposes of the
growth formua.
( ) The Secretary s authorzed to prescrbe by reguatons such rues as may
be necessary to Insure that gross recepts, for purposes of the tests prescrbed
by secton 3 (e), are not dstorted by reason of transactons between companes
n cases descrbed n paragraphs (1) and (2) above.
S Y C UIRING CORPOR TION OF LT RN TI R G S P RIOD N T INCOM
PRO ID D FO N W CORPOR TIONS IN S CIION
Secton 62(d) provdes that an acqurng corporaton n a part II transacton
(other than a transacton descrbed n secton 61 (a) (1) ( )) sha be entted
to determne ts average base perod net ncome as provded n secton (re-
atng to new corporatons) If It was not n e stence (ether actuay or con-
structvey) pror to anuary 1, 19 6. owever, the rues provded n secton
are modfed wth respect to such acqurng corporatons to the foowng
e tent:
(1) Where a the corporatons whch are partes to the transacton have
competed at east three ta abe years pror to the transacton, the average
base perod net ncome of the acqurng corporaton Is determned, for
purposes of secton , by addng together the average base perod net
ncomes prevousy determned for the corporatons under secton .
(2) Where one or more but not a of the corporatons whch are partes
to the part II transacton have competed three ta abe years before the
transacton, the average base perod net ncome of the acqurng corporaton
s determned, for purposes of secton , by totang the average base perod
net ncomes (prevousy determned under secton 1 ) of the corporatons
whch have competed three ta abe years, and addng to ths tota an average
base perod net ncome amount for each corporaton whch had not competed
three ta abe years. The average base perod net ncome amount for these
atter corporatons s computed by appyng the ndustry rate of return to
the tota assets of each mmedatey pror to the part II transacton, usng
the method specfed n secton .
Secton 62(d) aso provdes that an acqurng corporaton n a transacton
descrbed n secton 61(a)(1)( ) may compute ts average base perod net
ncome by reference to secton ony to the e tent provded n secton 62(e)
(reatng to the aocaton rue for such acqurng corporaton).
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LLOC TION IL
Secton 62(e) provdes a rue, appcabe to those part II transactons n whch
a corporaton transfers ony a part of ts propertes, under whch that porton
of the component corporaton s tota e cess profts net ncome for any month
of the base perod whch s aocabe to the propertes transferred and whch
s to be used by the acqurng corporaton n the recomputaton of ts e cess
profts net ncome can be determned. Ths rue s to the effect that that porton
of the component corporaton s tota e cess profts net ncome for any month
sha be used whch the far market vaue of the assets transferred bears to the
far market vaue of the tota assets of the component corporaton as they
e sted at the cose of the day before the transacton. In eu of ths rue,
the subsecton specfcay provdes that an amount agreed upon by the ac-
qurng corporaton, by the component corporaton and by any other corporaton
a party to the transacton sha be used, provded the Secretary consents thereto.
In cases where such agreement s not obtaned, t s provded that a fna
determnaton of the far market vaues upon whch the aocaton rests sha
be bndng upon a partes camng a rght to the credt of the component
corporaton
Rues smar to the above are set forth appcabe to the aocaton, n the case
of such a transacton, of the aternatve average base perod net ncome com-
puted for the component corporaton as a new corporaton and avaabe to t as
of the cose of the day before the transacton.
In the event that the partes and the Secretary agree to an aocated amount
of ether the component corporaton s e cess profts net ncome or of ts ater-
natve average base perod net ncome as a new corporaton, the secton provdes
that the tota of such aocated tems appcabe to a of the partes to the trans-
acton sha not be n e cess of 100 percent,
PRO ISION INST DUPLIC TION OF S P RIOD RNINGS ND C PIT L DDITIONS
ND R DUCTIONS
Secton 62(f) (1) s desgned to prevent mproper dupcatons of base perod
Income and capta addtons and reductons n cases n whch, pror to the trans-
acton whch consttutes a corporaton an acqurng corporaton for purposes of
part II and subsequent to December 31, 19 (whether or not durng ts base
perod), such corporaton uses ts assets to acqure some or a of the stock of the
corporaton whch becomes the component corporaton of such acqurng corpora-
ton. The secton contempates, for e ampe, that, after the absorpton of the
corporaton whose stock was so acqured, the part of ts base perod ncome for the
base perod years before the acquston of ts stock whch s attrbutabe to such
stock sha be e cuded by the ta payer n the recomputaton by t of ts e cess
profts net ncome as provded n secton 62(b), and that, n determnng the
amount of the day capta addton and reducton of the corporaton whose stock
was acqured whch s to be transferred to the acqurng corporaton, such day
capta addton and reducton sha be ad|usted by the porton thereof attrbutabe
to the prevousy acqured stock. The specfc stuatons presented are compe .
oth the manner n whch the e cess profts net ncome of the acqurng corpora-
ton s to be reduced and the transferred capta addton and reducton ad|usted,
and the amounts of such reducton and ad|ustment, are, therefore, to be deter-
mned n accordance wth reguatons prescrbed by the Secretary. The Secretary
s authorzed to prescrbe n such reguatons the specfc stuatons n whch
specfed ad|ustments under ths secton are to be made. If the acquston of
such stock by the corporaton s n e change soey for ts own stock, no emna-
tons or ad|ustments are necessary, and accordngy secton 62(f) (1) Is made
nappcabe. In case the acquston s n e change party for ts own stock and
party for other property, secton 62(f) (1) s appcabe ony to the part of the
acquston attrbutabe to such other property. There are not ncuded n the
operaton of ths provson cases n whch the ta payer acqures stock whch has
n the hands of the ta payer a bass determned by reference to the bass of stock
prevousy acqured by the ssuance of the ta payer s own stock.
MINIMUM LIMIT TIONS ON R G S P RIOD N T INCOM OF C UIRING
CORPOR TION UND R P RT II
Secton 62(h) provdes, as dd a smar provson of the Word War II aw,
that, n certan mted cases, the average base perod net ncome of the acqurng
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237
corporaton sha not be ess than that of ts quafed component havng the
greatest average base perod net ncome, or than that of ts own, computed
wthout regard to the recomputaton of ts e cess profts net ncome n the manner
provded n secton 62(b). Ths provson Is mted to part II transactons
occurrng n ta abe years endng after une 30, 19 0, and requres that at the
begnnng of the frst ta abe year of the ta payer endng after une 30, 19 0,
and at a tmes thereafter unt such transacton, ether the ta payer or one of
the quafed component corporatons n the transacton must have owned nt east
7 percent of each cass of stock of each of the other corporatons nvoved. The
term quafed component corporaton s defned as a component corporaton n
e stence at the begnnng of ta payer s base perod.
S CTION G3. COMPUT TION OF D ILY C PIT L DDITIONS ND R DUCTIONS
FT R T TR NS CTION
In the case of an acqurng corporaton whose average base perod net ncome
Is computed under secton 3. ), based upon the redetermnaton of the e cess profts
net ncome of the acqurng corporaton n the manner provded n secton 02(b),
secton 03(a) provdes that ts day capta addtons and day capta reduc-
tons for each day after the part II transacton are computea by takng nto ac-
count the transferred capta addtons or reductons of the component corporaton
as f they were capta addtons or reductons of the acqurng corporaton. The
secton s essentay smar to the one contaned n the Word War II aw.
The transferred capta addton of the component corporaton s ts day
capta addton before reducton on account of nadmssbe assets, but computed
by dsregardng money or property pad nto the component by the acqurng
corporaton or any other component corporaton and dsregardng stock n the
acqurng corporaton or any other component corporaton pad n by sharehoders
of the acqurng corporaton or other component corporaton. The transferred
capta reducton of the component corporaton s ts day capta reducton before
reducton on account of nadmssbe assets, but computed by dsregardng ds-
trbutons to the acqurng corporaton or any other component corporaton.
In addton to provdng for the carry-over to the acqurng corporaton of the
day capta addtons and reductons of the component corporaton, ad|usted
as descrbed above, secton 03(a) aso provdes that, n computng the day cap-
ta addton of the acqurng corporaton, money or property pad n by any of ts
component corporatons and stock n any of ts component corporatons pad n by
ther sharehoders sha be dsregarded. so, n computng the day capta
reducton of the acqurng corporaton, dstrbutons by t to any of ts com-
ponent corporatons whch are not out of earnngs and profts arc dsregarded.
The ad|ustments provded n ths secton are to be made to the day capta
addtons and day capta reductons of the acqurng corporaton as computed
before reducton on account of nadmssbe assets.
Secton 03(b) provdes that the rues outned above sha aso appy n
computng the day capta addtons or reductons of a component corporaton
whch was, tsef, an acqurng corporaton n an earer transacton whch
ocenrred n a ta abe year of such component corporaton endng after une
30,19 0.
S CTION 0 . D USTM NT OF S P RIOD C PIT L DDITIONS
Secton 6 provdes that where one or more of the corporatons whch were
partes to a part II transacton had prevousy had base perod capta addtons
(as defned n secton 3 (f)), for purposes of the recomputaton provded n sec-
ton 62, the Secretary sha prescrbe reguatons for the treatment of these
capta addtons n a manner consstent wth secton 3 (f).
Pabt III
S CTION 70. D UST D SIS OF SS TS R C I D IN C RT IN
INT RCORPOR T LI UID TIONS
Secton 70 provdes rues appcabe to the determnaton of equty capta
n the case of a corporaton whose assets and abtes have been affected by
certan ntercorporate qudatons. The rues here deveoped are substantay
the same as those appearng In secton 761 of the Interna Revenue Code for use
n computng nvested capta under Word War II e cess profts ta provsons.
They have been adapted, however, to the net asset concept of equty capta
presented by the MIL
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23
If one corporaton purchases for cash a or a part of the capta stock of
another corporaton, or otherwse acqures such stock at a gan or oss bass de-
termned to be a cost bass, and thereafter qudates n a ta -free transacton
the corporaton whose stock was so acqured, the dstrbutee n the qudaton
w be consdered as havng acqured for equty capta purposes the assets of
the qudated corporaton as a bass for determnng gan equa to the cost to the
dstrbutee of the stock nvoved n the qudaton.
Under subsecton (a) (1), the bases of the severa corporate assets affectng
the qudaton are to be rewrtten, for equty capta purposes ony, to conform
to the cost bass of the stock to whch they end vaue. Ths rewrtng of bass
s to be effected wth respect to the cost of a shares acqured as of the date on
whch the acqurng corporaton procures contro of the other corporaton. Sub-
secton (e) defnes contro to be based upon 0 percent ownershp. If add-
tona shares are acqured subsequent to the date of acquston of contro, the
bases of corporate assets are to be rewrtten further wth respect to the cost of
such subsequent acqustons. If the acqurng corporaton never attans con-
tro as defned n the secton, the rewrtng of bass wth respect to the cost of
such shares as were acqured sha be effected as of the moment mmedatey pror
to the qudaton.
Under subsecton (a) (2), the rewrtten bass sha, for equty capta purposes,
become the equty capta bass of any property acqured n a ta -free e change
for the property on whch the bass was rewrtten.
Under subsecton (a) (3), any ad|ustment of bass n the hands of the qu-
dated corporaton subsequent to the acquston of contro of ts stock and
pror to ts qudaton sha, for equty capta purposes, be made wth respect
to the rewrtten bass.
Under subsecton (a) ( ), the rewrtten bass n the hands of the qudated
corporaton w become the equty capta bass n the hands of the dstrbutee
In qudaton.
Subsecton (c) s devoted to the purpose of renderng statutory mergers and
consodatons sub|ect to the rues speed out n the secton wth respect to
qudatons.
It s ntended to vest In the Secretary broad reguatory powers under whch
detaed rues and reguatons may be deveoped such as woud adequatey m-
pement the provsons of the secton and render them effectve wthn the pur-
pose to whch they are devoted regardess of the varatons or compe tes
presented by partcuar cases.
TITL II. MISC LL N OUS M NDM NTS ND PRO ISIONS
Tte II of the b, consstng of sectons 201, 202, 203, 20 , and 20 , amends e -
stng provsons of the Interna Revenue Code n respect of consodated returns,
foregn ta credt, and e pendtures for advertsng and good w, and makes
certan technca amendments to such Code.
S CTION 201. CONSOLID T D R TURNS
Secton 201 of the b amends secton 1 1 of the Interna Revenue Code, reat-
ng to consodated returns, effectve wth respect to ta abe years endng after
une 30, 19 0. Secton 1 1 as so amended woud provde an affated group of
corporatons the prvege of fng a consodated return for each ta abe year
n eu of separate returns by each corporaton. Ths dffers from e stng aw
ony n that such groups w no onger be requred to fe a consodated ncome
ta return separatey from a consodated e cess profts ta return. The cor-
porate ncome ta es currenty Imposed by chapter 1 of the Code and the e cess
profts ta mposed by new secton 30 (added to the Code by secton 101 of
the b) w be reported on a snge return.
Under new secton 31 (added to the Code by secton 101 of the b), the ta -
payer s afforded a credt to be apped aganst ts e cess profts net ncome
n arrvng at ts ad|usted e cess profts net ncome. If such credt, con-
sstng of the sum of the e cess profts credt aowabe and unused e cess profts
credt ad|ustment aowabe, s ess than 2 ,000, secton 31 provdes that t
sha be ncreased to 2 ,000. Secton 1 1(c) as amended provdes that, n the
case of an affated group of corporatons fng a consodated return, such sum,
f t s ess than 2 ,000 for the entre group, sha not be ncreased under secton
31 to an amount n e cess of 2 ,000 for such entre group. Ths corresponds
to the rue under the Word War II aw aowng an affated group of corpora-
tons fng consodated returns ony one specfc e empton.
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239
sde from these substantve cmnges n secton 1 1 for ta abe years endng
after une 30, 19 0, and severa cerca amendments to the secton, the other
genera rues and provsons of the secton are contnued unchanged.
S CTION 202. FOR IGN T CR DIT
Ths secton amends secton 131 of the Code so that where a credt for the ta
pd to a foregn country or possesson of the Unted States s aowed aganst
the corporate norma and surta es, the porton, f any, of such foregn ta not
used as a credt nganst the corporate norma and surta es by reason of the
mtatons of secton 131(b), w be avaabe ns a credt aganst the e cess
profts ta sub|ect to substantay the same prncpes of mtaton as are
appcabe for norma and surta purposes.
S CTION 203. P NDITUR S FOR D RTISING ND GOOD WILL
Secton 203 of the b makes approprate amendments to secton 23(a) (1) (C)
of the Code to conform t wth the addton of secton - 9 to the Interna Uevenue
Code.
S CTION 20 . T C NIC L M NDM NTS
Ths secton of the b amends secton 3779 of the Interna Revenue Code
(reatng to e tenton of tme for payment of ta es by corporatons e pectng
carry-backs) and secton 37 0(a) (reatng to tentatve carry-back provsons)
n order to make those sectons appcabe to the e cess profts ta mposed under
ths b n the same manner as those sectons were appcabe to the e cess
profts ta durng Word War II. smar amendment s made to secton
11 (b) ( ) ( ) (reatng to defnton of gross ncome from property wth respect
to percentage depeton n certan cases). Ths secton of the b aso repeas
secton 3S07 of the Code, reatng to perod of mtatons n case of reated ta es
under chapter 1 and chapter 2 of the Code, and secton 122(d)(6), reatng to
an e cepton n the computaton of the net operatng oss deducton. The
amendments made by ths secton are appcabe wth respect to ta abe years
endng after une 30, 19 0, that s, ta abe years sub|ect to the e cess profts ta .
S CTION 20 . FILING OF R TURNS FOR T L Y RS NDING FT R UN
30, 1930, ND FOR D C M R 31, 1930
Ths secton of the b provdes that, n the case of a corporaton sub|ect to
the e cess profts ta for a ta abe year endng after une 30, 1930, but pror to
December 31, 19 0, the date for fng the return and payng the ta mposed by
chapter 1 for such ta abe year Sha be March 1 , 19 1.
Under these provsons every such corporaton sub|ect to the ta es Imposed
hy chapter 1 of the Code s requred to fe a return for ts ta abe year endng
after une 30, 19 0, but before December 31, 19 0, even though under e stng
aw t may have fed a return for such year. The return requred by ths secton
of the b sha consttute the return for the ta abe year for a purposes of the
Code, must meet the requrements of secton 2(a), and sha be fed as requred
by secton 3(b)(2) and other reevant provsons of the Code. Thus, such a
retnrn sha consttute the return for the purposes of suppement L, reatng
to the assessment and coecton of defcences; suppement M. reatng to n-
terest and addtons to the ta ; and suppement O, reatng to overpayments.
o return wth respect to the ta es Imposed by chapter 1 for such ta abe year
whch s fed on or before the date of the enactment of ths ct sha be con-
sdered for any of such purposes, or for any other purpose, of the Code as the
return for such year.
The provsons of secton 0(a) of the Code (reatng to the tme of payment)
w not be appcabe to the payment of ta es for such ta abe year. Instead,
such ta es sha be due and payabe on March 1 , 19 1. The provsons of secton
Mb) of the Code (reatng to Instament payments) are, however, not affected
and the ta es for the ta abe year requred by ths secton of the b to be pad
on March 1 , 19 1, can, at the eecton of the ta payer, be pad n four equa
Instaments. The amendment made to secton 0(b) of the Code by secton
206( ) of the Revenue ct of 19 0, effectve wth respect to ta abe years endng
or after December 31, 19 0, w not appy n computng the amount of the
nstament payments, snce ths secton of the b deas ony wth ta abe years
endng pror to December 31,19 0.
Secton 20C further provdes that a payments, f any, made pror to the enact-
ment of ths ct wth respect to the ta es for such a ta abe year mposed by
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chapter 1 of the Code, to the e tent that they have not been credted or refunded,
sha be deemed to be payments made at the tme of the fng of the return
requred by ths ct on account of the ta es for such year determned wth the
amendments made by ths ct. The amount whch w be so credted w
ncude, n addton to the ta tsef, any amounts pad as nterest, penates, or
addtons to the ta .
In treatng such ta es as pad at the tme of the fng of the return requred
by ths secton, such payment (n the event the return s fed before the due
date prescrbed by ths secton) w be sub|ect to the provsons of secton
322(b) ( ) of the Code, whch secton provdes speca rues appcabe for certan
purposes where a ta payment s made at the tme of fng a return whch s
fed before ts due date.
19 1-3-13 36
Senate Report No. 2070, ghty-frst Congress, Second Sesson. Caendar No. 2070
December 1 , 19 0
Mr. George, from the Commttee on Fnance, submtted the foowng report
to accompany . R. 9 27 :
The Commttee on Fnance, to whch was referred the b ( . R. 9 27) to
provde revenue by mposng a corporate e cess profts ta and for other pur-
poses, havng consdered the same, reports favoraby thereon wth amendments
and recommends that the b, as amended, do pass.
I. Genera Statement
Your commttee s b provdes for the rasng of revenue by the evyng,
coecton, and payment of a corporate e cess profts ta effectve as of uy 1,
19 0, and for a 2 percentage pont ncrease n the corporate ncome ta rate
wth respect to ta abe years begnnng on and after uy 1, 19 0. Ths b s
the second step n the fnancng of the vasty e panded mtary program re-
sutng from hosttes n orea and the crtca nternatona stuaton, and
carres out the mandate mposed on the Commttee on Fnance by secton 701(a)
of the Revenue ct of 19 0, whch provded as foows:
The ouse Commttee on Ways and Means and the Senate Commttee on
Fnance are hereby drected to report to the respectve ouses of Congress a
b for rasng revenue by the evyng, coecton, and payment of corporate
e cess profts ta es wth retroactve effect to October 1, or uy 1, 19 0, sad
b to orgnate as requred by artce I, secton 7, of the Consttuton. Sad
b sha be reported as eary as practcabe durng the ghty-frst Congress
after November 1 , 19 0, f the Congress s n sesson n 19 0 after such date;
and f the Congress s not n sesson n 19 0 after November 1 , 19 0, sad b
sha be reported durng the frst sesson of the ghty-second Congress, and as
eary as practcabe durng sad sesson.
It Is estmated that your commttee s b w produce about 3,200,000,000
under the eves of corporate profts e stng n the caendar year 19 0 and
between ,000,000,000 and ,000,000,000 under the eves of corporate profts
whch may reasonaby be e pected n the caendar year 19 1. The comparabe
estmate for the ouse b s about 3,000,000,000 under the eves of corporate
profts e stng n the caendar year 19 0.
The substanta Increases made snce uy n the mtary and reated programs
Indcate that budgetary e pendtures n the fsca year 19 2 w be very sub-
stantay above the current eve of recepts. The ag In e pendtures behnd
appropratons may we keep e pendtures In the fsca year 19 1 cose to the
eve of recepts whch w be avaabe after the passage of your commttee s
b. owever, further substanta ncreases n ta es must be made ne t year
f recepts are even to approach the antcpated eves of e pendtures.
The frst step n ncreasng recepts to meet the e panson n e pendtures was
taken n the Revenue ct of 19 0 when corporaton and Indvdua Income ta es
were ncreased to provde an estmated , 00,000,000 of addtona annua
revenue. Your commttee s b represents te second step. ddtona revenues
w, no doubt, be requred ne t year.
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One of the man advantages of an e cess profts ta n perods of arge m-
tary e panson s that t seects for addtona ta those corporatons whose
profts are hgher than they probaby woud have been n the absence of host-
tes and a arge mtary budget. y mtng the average earnngs credt to
S- percent of the base perod earnngs, your commttee s b w aso reach
some profts whch have been sustaned at the reatvey hgh eves of the base
perod by the ncreased tempo of the defense economy. The 2 percentage pont
ncrease n the corporaton ncome ta rate, however, w aso gve assurance
that a corporatons wth ncomes of 2 ,000 and over w share, at east to
some e tent, n the addtona ta burden resutng from the present emergences.
Your commttee beeves that an e cess profts ta enacted at ths tme
shoud be so framed as not to nterfere unduy wth the norma e panson of
the ndustra capacty of the Naton. Your commttee s b has attempted to
aevate most of the hardshp cases under the e cess profts ta by provdng
automatc reef provsons. In addton your commttee s b provdes an
over-a mtaton so that the ncome ta and e cess profts ta together w
not tnke more than 60 percent of any ta payer s ncome. Ths provson w
ad substantay those ta payers wth nadequate credts where the automatc
reef provsons are not avaabe or are nadequate.
II. Revenue stmates
It s estmated that your commttee s b w yed 3,200,000,000 n a fu
year of operatons wth corporate profts at the eve e stng n the caendar
year 19 0. The ouse b under smar assumptons as to corporate profts
woud have yeded about 3,000,000,000. It s beeved that wth such a eve
of corporate profts an e cess profts ta woud be mposed on about 70,000
corporatons.
Wth the eve of corporate profts whch may reasonaby be e pected n the
caendar year 1031. t s estmated that your commttee s b w yed between
.000.000,000 and ,000,000,000 n a fu year of operaton. On ths bass about
0,000 corporatons w be sub|ect to e cess profts ta .
III. M O P O ISIONS OF GeN L PLIC TION
1. The rate, the base, and the years of appcaton.
Your commttee s b ncreases the surta rate under the reguar corporate
ncome ta by 2 percentage ponts. Thus the tota corporate ncome ta rate
on Income n e cess of 2 ,000 s to be 7 percent for years begnnng on and
after uy 1, 19 0. Snce no ncrease s made n the corporate norma ta rate,
the tota ta rate on ncome of 2 ,000 and ess remans at 2 percent, the rate
provded by present aw for 19 1 and subsequent years.
The ouse b provded for no ncrease n the corporate surta rate. Thus,
the tota corporate rate woud have remaned at percent for 19 1 and sub-
sequent years. Your commttee deemed t desrabe to ncrease the ncome ta
rate from percent to 7 percent n order to provde more revenue and to gve
assurance that a corporatons wth ncomes n e cess of 2 ,000 w share n
the addtona ta burdens t s necessary to mpose on corporatons at ths tme.
Your commttee s b aso mposes an addtona e cess profts ta rate of 30
percent whch together wth the reguar corporate norma ta and surta rep-
resents a tota rate of 77 percent when fuy effectve. Ths 30 percent addtona
ta on e cess profts represents no change from the ouse b. The combned
rate of 77 percent on ad|usted e cess profts net ncome s comparabe to the e -
cess profts ta rate of percent at the end of Word War II after aowance s
made for the 10 percent postwar refund provded by that ta . owever, the
combned rate of the corporate ncome ta and the e cess profts ta , under
your commttee s b, eanmot e ceed 00 percent of the corporaton s ncome.
Ths 00 percent rate can be compared to the 67 percent ceng on corporaton
surta net ncome provded by the ouse b. Your commttee s b provdes
a ower ceng rate than the ouse b because your commttee reazed that,
despte ts care n provdng for reef n hardshp cases, some corporatons w
have nadequate e cess profts credts. Under the Word War II ta n smar
ceng mted the combned rate of the corporate ncome ta and e cess profts
ta to sghty more than 72 percent after aowance for the postwar credt.
s In the case of the Word War II ta , the ta payer s gven the choce under
your commttee s b of the hgher of two aternatve bases n determnng what
proporton, f any, of Its ncome s to be sub|ected to e cess prufts ta . The pr-
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mary credt, that Is, the credt key to be generay used, s an average earnngs
credt, based on average ncome n the years 19 0 to 19 0. The aternatve Is
a credt based on a rate of return on nvested capta. smar choce s
presented n the ouse b and was provded n the Word War II ta .
Your commttee conceves of ths ta as prmary n ta on Increased profts
due to the outbreak of hosttes and to arge mtary e pendtures. Ths
accounts for the prmary emphass upon the average earnngs base. owever,
t s beeved that a mnmum rate of return, free of e cess profts ta , shoud
be aowed ta payers who happened to have poor earnng e perence n the
base perod. Therefore, ta payers are offered an nvested capta credt as an
aternatve whch paces a foor on the rate of return assured before the mpo-
ston of e cess profts ta es.
In secton 701 of the Revenue ct of 19 0 the Senate requred ths commttee
to report out an e cess profts ta effectve as of uy 1, 19 0, or Octobor 1, 19 0.
fter consderaton of these aternatve effectve dates, your commttee has con-
cuded that an e cess profts ta shoud be effectve as of uy 1, 19 0. Ths
date s the same effectve date as provded by the ouse b. Ths s appro -
matey the date of the outbreak of hosttes n orea and antedates the sub-
stanta ncrease n corporate profts durng the thrd and fourth quarters of
19 0 whch resuted from the wave of buyng foowng the start of hosttes.
The e cess profts ta s made effectve n 19 0 for caendar-year corporatons
by mposng for that year one-haf the addtona ta es whch w be mposed
for subsequent years. Thus, the e cess profts ta rate appcabe to these
caendar-year corporatons n 19 0 s 1 percent whch, when combned wth
the corporate norma ta and surta , w represent a tota rate of 7 percent
on those caendar-year corporatons n 19 0.
The e cess profts ta does not appy to fsca-year corporatons wth respect
to years endng pror to uy 1, 10 0. In the case of a fsca-year corporaton
wth a year begnnng pror to and endng after uy 1, 19 0, the e cess profts
ta mposed w be a percentage of the 30 percent e cess profts ta rate com-
puted on the bass of the fu year s ncome. The percentage s to be determned
on a pro rata bass by dvdng the number of days n the fsca year whch are
after une 30, 19 0, by the tota number of days n the fsca year. These rues
are smar to those apped for 19 0 n makng the changes n the corporate
norma ta and surta rates n the Revenue ct of 19 0.
The 2 percentage pont ncrease n the reguar corporate surta rate s made
effectve under your commttee s b wth respect to ta abe years begnnng
on and after uy 1, 19 0. Thus the tota norma ta and surta rate for the
caendar year 19 0 remans at 2 percent. owever, the tota norma ta and
surta rate of percent provded by the Revenue ct of 19 0 s rased to 7
percent for ta abe years begnnng on or after uy 1,19 0.
Your commttee s b provdes that the e cess profts ta sha termnate as
of December 31, 19 2. The ouse b provded no termnaton date. Your
commttee beeves that a termnaton date of ths type s desrabe n order to
assure the revew of the e cess profts ta n the near future. For fsca-year
corporatons wt years begnnng before anuary 1, 19 3, and endng after
December 31,19 2, the same procedures w be used wth respect to the termna-
ton of the ta as have prevousy been descrbed n the case of the Inta m-
poston of the e cess profts ta for these corporatons.
2. Reatonshp of the e cess profts ta to the ncome ta .
The e cess profts ta provded by your commttee s b s computed as an
addtona ta over and above the other corporate ncome ta es. The conso-
dated return prvege s made avaabe as n the Word War II statute. In
genera the computaton of the e cess profts ta s as foows:
(a) Frst, the ncome ta s mposed on the entre amount of ta abe net
ncome.
(6) Second, the norma ta net ncome, after certan ad|ustments, Is
reduced by the e cess profts credt (that s, the porton of the corporaton s
ncome whch for the purposes of ts ta s consdered norma) and any
unused e cess profts credt carred forward or back to the ta abe year.
The resut s caed the ad|usted e cess profts net ncome.
(c) Thrd, an addtona ta at the rate of 30 percent s mposed on ths
ad|usted e cess profts net ncome. Ths, when added to the corporate n-
come ta of 7 percent represents a 77 percent rate on ad|usted e cess profts
net ncome.
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Ths s the same approach as was used under the ouse b. Under the Word
War II e cess profts ta the so-caed two-basket approach was foowed.
The corporate ncome ta was mposed ony on ncome whch not sub|ect to the
e cess profts ta , and the e cess profts ta (comparabe to the 77 percent ta
referred to above) was mposed on ncome n e cess of the e cess profts credt.
Substantay the same ta burdens are acheved under ether type of computa-
ton, but the type used n your commttee s b and n the ouse b s beeved
to be the smper. Under ths approach the other ncome ta es can be computed
wthout regard to the e cess profts ta , and subsequent ad|ustments n the e -
cess profts credt w not requre a recomputaton of the other ncome ta es.
so ths method permts the compete unfcaton of procedures for assessng
and coectng the other ncome ta es and the e cess profts ta , whch shoud
reduce substantay the burden of admnstraton and ta payer compance.
Under the provsons of your commttee s b and the ouse b the ncome ta
and the e cess profts ta w be treated as one ta for the purpose of the com-
putaton of nterest on refunds or defcences, the statute of mtatons, credt
and refund, the sendng of 00-day etters, etc.
S. The mnmum credt under the e ces profts ta .
Your commttee s b ana the ouse b provde for n mnmum credt of
2 ,000. ny ta payer whch upon computng ts e cess profts ta credt under
ether the nverage earnngs or nvested capta method fnds that ts credt s
ess than 2 ,000 may rase ts credt to ths amount. s dstngushed from ths
procedure the Word War II aw provded a ta payers wth a specfc e empton
of 10,000.
The mnmum credt has a number of advantages over the specfc e empton,
athough the prmary purpose of both s the same; namey, to reeve sma cor-
poratons from e cess profts ta and to encourage ther growth, to prevent sma
corporatons from beng dscrmnated aganst as compared to ther unncor-
porated compettors, and to make t unnecessary for them to compute an e cess
profts ta . mnmum credt and specfc e empton of the same sze are equay
effectve n removng these sma busnesses from the appcaton of an e cess
profts ta . owever, because the benefts arsng from a mnmum credt are
avaabe ony to sma corporatons, t s possbe to provde a much arger mn-
mum credt than specfc e empton wth no addtona dran on revenues.
2 ,000 mnmum credt, for e ampe, s ess e pensve n terms of revenue than
a 10,000 specfc e empton. ;
. verage earnngs credt under the e cess profts ta .
For ta payers on a caendar-year bass the base perod under your commttee s
b s the -year nterva 19 6 to 10 9. Ta payers are permtted to emnate
the poorest of the base-perod years. The norma ta net ncome of the reman-
ng years s then ad|usted n a manner descrbed subsequenty and averaged.
The resutng average base perod net ncome s then reduced by 1 percent for
the purposes of the credt. These provsons are the same as n the ouse b.
(a) Seecton of the base perod and percent of earnngs taken nto account.
Under the Word Wnr II aw the base perod was 1930 to 1939, and the credt
was 9 percent of the average earnngs n ths perod. It was necessary to sub-
sttute the perod 19 0 to 19 9 for the 1930 to 1939 base n your commttee s b
both because of the arge number of busnesses whch have been started recenty
and because of the substanta changes whch have occurred n the busnesses
currenty n operaton whch were n e stence n the perod 1930 to 1939. The
perod 10 6 to 19 0 s the ony recent -year nonwar perod avaabe. owever,
t s a perod of unusua busness-prosperty whch to a substanta degree was
but on the deferred demands, the accumuated savngs of Word War II, and
arge postwar defense e pendtures. Snce ths unprecedented eve of busness
actvty coud hardy have been e pected to contnue permanenty, the use of the
ncome of the years 19 6 through 10 9, wthout ad|ustment, woud produce a gen-
era overstatement of the ta payers earnng capacty n the absence of host-
tes n orea or a arge program of mtary e pendtures. For ths reason your
commttee beeves that a 1 percent cut-back n average base perod ncome s a
moderate ad|ustment.
(6) Countng defct years as zero years. In addton to emnatng the poorest
year n ts base perod, the ta payer s permtted to count the earnngs of any
remanng defct year as zero under both your commttee s b and the ouse
b. The comparabe Word War II ad|ustments were consderaby ess bera.
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Under that aw the earnngs of the poorest year coud be rased to 7 percent of
the average of the other 3 years. Ths s ony three-fourths of the upward
revson whch occurs n the seecton of the best 3 out of years. Moreover,
there was no provson n the Word War II aw aowng addtona defct years
to be counted as zero.
(c) Capta addtons durng the atter base perod years. Under your com-
mttee s b and the ouse b the average earnngs credt may be ncreased for
nvestments made ate n the base perod. though no smar provson was
contaned n the Word War II aw, an ad|ustment of ths character s needed to
pace corporatons where nvestments were made ate n the base perod on a
comparabe bass wth corporatons where nvestments were made pror to, or n
the eary part of, the base perod. Investments eary n the base perod are
fuy, or argey, refected n the base perod earnngs, but nvestments made n
the atter haf of the base perod woud at best be ony partay refected n the
base perod earnngs and may not affect those earnngs at a.
For ths reason the average earnngs credt s ncreased to refect one-haf of
the net addtons to capta n 10 and a of the net addtons to capta n 19 9.
Under your commttee s b the average earnngs credt s ncreased by 12 per-
cent of such Investments, rrespectve of whether they tnke the form of equty
capta, retaned earnngs, or borrowed capta. Ths s the same rate of return
aowed for net addtons to capta n the years n whch the e cess profts ta s
appcabe and s the ma mum rate of return aowed those usng the nvested
capta base. Ths provson of your commttee s b dffers from the comparabe
provson n the ouse b ony n the rate of return accorded borrowed capta.
Under your commttee s b a 12 percent rate of return s provded for such
capta. Under the ouse b the credt was ncreased by 133 percent of the
nterest payabe on the new funds. Ths change s n conformance wth the
change made by your commttee n the rate of return on borrowed capta ncuded
n an nvested capta credt. The reasons for ths change are dscussed beow.
(d) Fsca-year corporatons. Ta payers usng fsca years endng after De-
cember 31 but before pr 1 w use the ast four ta abe years endng pror to
pr 1, 10 0, as ther base perod. The use of the corporaton s actua ta abe
years s desrabe n tsef, and the Incuson of the frst quarter of 10 0 rn the
base perod does not appear to be ob|ectonabe because profts n that quarter
were not materay out of ne. owever, ta payers whose fsca years end after
March 31 and before December 31 are requred to use as ther base perod the
months begnnng on anuary 1, 10 G, and endng December 31, 10 0. In these
cases the use of the corporaton s actua ta abe years woud nvove ether the
e cuson of a porton of the caendar year 10 0 and the ncuson of a corre-
spondng part of 10 . or the ncuson of a porton of the caendar year 19 0
whch ncudes or borders upon the months affected by the hosttes n orea.
Therefore, such corporatons are requred to construct by proraton four caendar
years n order to compute ther base perod credt. For nstance, for base perod
purposes, the 19 6 ncome of a corporaton wth a ta abe year endng November
30 w consst of eeven-twefths of the ncome of the corporaton s 19 0 fsca
year and one-twefth of Its 19 7 fsca year. The ncome of the other base perod
years w have a smar composton. The 19 9 Income for base perod purposes
w consst of eeven-twefths of the corporaton s ncome In the 19 9 fsca year
and one-twefth of the ncome of ts 19 0 fsca year. Ths w reduce to a
mnmum the effect of the orean hosttes upon base perod ncome. Smary,
a corporaton havng a fsca year endng on May 31, w have a 19 9 ncome
consstng of fve-twefths of ts 19 9 fsca year and seven-twefths of Its 19 0
fsca year. The provson of your commttee s b deang wth the base perod
of fsca-year ta payers s the same as under the ouse b.
. Invested capta credt.
Under your commttee s b the e cess profts credt of a corporaton computng
ts credt by reference to nvested capta s the sum of the nvested capta credt
reduced by nadmssbe assets pus the new capta credt. The nvested capta
of a corporaton ncudes equty capta, retaned earnngs, and borrowed capta.
(a) Rates of return on nvested capta. The rates of return under your com-
mttee s b for equty capta, retaned earnngs, and borrowed capta are
shown n tabe 1.
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2
Tabe 1. Rates of return a oecd on equty capta, retaned earnngs, and bor-
rowed capta under your commttee s b and the Word War 11 statute
1
quty capta, retaned enrnnrs. and
borrowed capta1 rate brackets
Rate under Fnance Commttee b
Rate under Word
War II aw
(In mhont
R percent,
f percent.
percent.
OverO
Under the Word War II statute the capta In each bracket ncuded ony one-haf of the borrowed
capta
s n the ouse b, It Is beeved necessary to provde for more bera rntes
of return than under the Word War II aw to now for the genera ncrease n
rates of return on nvested capta whch has occurred snce the pre-Word War
II perod.
The rates of return aowed on equty capta and retaned earnngs are the
same as those aowed under the ouse b. The rates o return aowed on
borrowed capta, however, dffer from those provded n the ouse b. Your
commttee s b treats borrowed capta n the same manner as other forms of
nvested capta; that Is, 100 percent of such capta s ncuded aong wth the
other forms of nvested capta n computng the 12 percent, 10 percent, or per-
cent rate appcabe. owever, the nterest payment on such borrowed capta
s not aowed as a deducton In computng e cess profts ta net ncome. Ths
dffers from the procedure foowed under the Word War II statute ony
n two respects. Under the Word War II statute 0 percent, nstead of 100
percent, was ncuded wth the other forms of nvested capta, and one-haf
of the nterest payments, nstead of no nterest payments, was aowed as a de-
ducton n computng e cess profts ta net ncome.
Under the ouse b the rate of return on borrowed capta woud have been
computed entrey separatey from other forms of nvested capta. The rate
of return woud have been 133 percent of the nterest rate payabe on 100 percent
of these borrowed funds. Ths woud have, been accompshed by aowng the
fu deducton of nterest payments and by aso ncreasng the nvested capta
credt by one-thrd of the nterest payments. Under the ouse b the mnmum
amount by whch the credt woud have been ncreased was 1 percent of the bor-
rowed capta (mted to obgatons wth a term of years or more), and the
ma mum by whch t woud have been ncreased was 3 percent of the tota bor-
rowed capta, wthout mtatons on the nterest deducton.
Your commttee has shfted the method of computng the rate of return to be
aowed on borrowed capta from that of the ouse b because t was beeved
that, after corporate norma ta es and surta es are taken nto consderaton, the
rate of return aowed under the ouse b for borrowed capta w provde tte
ncentve for a corporaton to e pand durng the e cess profts ta perod by the
use of borrowed capta.
(6) Defnton of equty capta and retaned earnngs. Under your com-
mttee s b the nvested cnpta of a corporaton s generay determned by
deductng from ts tota assets on ts books at the end of the base perod the
tota of ts abtes on ts books at the same tme, pus any recent oss ad|ust-
ment. The determnaton of the date upon whch a abty s ncurred s to
foow sound accountng prncpes and rues smar to those appcabe n the
computaton of the ta payer s earnngs or profts. cept for cash, the term
assets appes ony to property havng a bass for gan or oss upon sae or
e change. The vaue of the assets s determned n the case of a assets other
than ntangbe assets by takng ther ad|usted bass for gan.
The vaue of ntangbe assets under your commttee s b s determned wth-
out regard to the vaue of the property as of March 1, 1013. Ths represents a
change from the ouse b. Under the ouse b the vaue of these assets was
determned by takng ther ad|usted bass for gan whch woud have been
the March 1, 1913, vaue where ths was hgher than cost. Your commttee
changed ths because most of these assets, not beng sub|ect to deprecaton,
have not been vaued as of March 1, 1913, and to do so woud be qute dffcut,
ntangbe assets are defned as secret processes and formuae, good w, trade-
marks, trade brands, franchses, and other ke property.
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Tour commttee has aso added a provson whch e cudes from nvested cap-
ta the assets whch are not hed n good fath for the purposes of the busness.
The purpose of ths mtaton s to dsaow In computng nvested capta
those assets whch are not requred n the busness and whch have the prncpa
effect of reducng e cess profts ta .
The recent oss ad|ustment referred to above, whch s added to the net assets,
s any net defct n the perod 19 6 to 19 0, or 19 0 to 19 9. The net defct s
the e cess, f any, of operatng osses over net ncome n the perod. Ths pro-
vson s the same as n the ouse b.
In addton to contnung the ouse provson reatng to the computaton of
equty capta and retaned earnngs by deductng abtes from assets, and
addng the recent oss ad|ustment, your commttee s b provdes the ta payer
wth the aternatve of compntng ts nvested capta under the so-caed hs-
torca capta approach provded n the Word War II statute. Ths aterna-
tve was not provded under the ouse b. Under ths hstorca capta
approach, the equty capta and retaned earnngs represent the money and
property prevousy pad n for stock or pad n for surpus pus the accumuated
earnngs and profts of the corporaton as of the begnnng of ts ta abe year.
The ma|or dfference between ths approach and that of the asset approach s
the treatment of defcts. Under the hstorca capta approach a net defct
that s, any defct remanng after offsettng defcts of oss years aganst earn-
ngs of proftabe years does not decrease pad-n capta or pad-n surpus.
Under the asset approach, aso In ths b, a net defct ncurred pror to 19 6
or 19 0 (dependng on whch Is more advantageous to the ta payer) has the effect
of reducng capta or surpus pad n pror to that date. owever, a net defct
under the asset approach for the perod snce 19 0 or 19 6 reduces nether cap-
ta nor surpus pad In at any tme, nor earnngs and profts reazed pror to
19 0 or 19 6. Thus, under the asset approach, corporatons wth recent osses
are treated more favoraby than under the hstorca capta approach, whe
ta payers wth net defcts over the whoe span of ther e stence are treated
more favoraby under the hstorca capta approach. Your commttee recog-
nzed that t was desrabe to provde favorabe treatment for corporatons wth
net defcts snce 19 0 or 19 6 even though they had earnngs pror to that tme
whch woud offset these defcts, snce such corporatons are key to have a
very unfavorabe average earnngs base and aso are key to fnd ther nvested
capta base depeted as a resut of these osses. For these reasons the pro-
vsons of the ouse b permttng corporatons to use the asset approach was
contnued. owever, t was aso recognzed that there were certan casses of
corporatons havng osses over the entre span of ther e stence whch woud
ose the advantage of addng back ther net defct merey because most of the
osses were ncurred pror to 19 0. Furthermore, the asset approach s ess
favorabe to corporatons adoptng percentage depeton. For ths reason your
commttee aso gves corporatons the aternatve of computng ther capta
under the hstorca capta approach.
In the case of nsurance companes other than fe, your commttee amended
the b to provde that 0 percent of ther reserves shoud be treated as borrowed
capta n computng the nvested capta base. Your commttee aso added a
specfc provson whch provdes for the ncuson of organzaton e penses n
the case of these nsurance companes n the computaton of equty capta for
purposes of computng ther nvested capta credt. provson has aso been
added whch permts face-amount certfcate companes to ncude 0 percent
of the mean of the amount of ther reserves on ther outstandng nvestment
certfcates.
(c) Defnton of borrowed capta. orrowed capta, under your commttee s
b, s ndebtedness (but not ncudng nterest) whch s evdenced by a bond,
note, b of e change, debenture, certfcate of Indebtedness, mortgage, deed of
trust, bank oan agreement, or condtona saes contract. Ths s substantay
the same defnton as appears n the ouse b. owever, your commttee s
b mts the amount to be consdered as borrowed capta to outstandng In-
debtedness ncurred n good fath for the purposes of the busness. No such
mtaton was contaned In the ouse b athough the report of the ouse
commttee ndcated that It was ntended to mt ndebtedness treated as bor-
rowed capta to ndebtedness empoyed n the trade or busness. The defn-
ton of borrowed capta n both the ouse b and your commttee s b s
substantay the same as the defnton appearng n the Word War II statute
e cept for the addton of condtona saes contracts and bank oan agreements.
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Condtona saes contracts are a form of borrowng whch has been used e -
tensvey, and your commttee beeves that ther omsson from the defnton
of borrowed capta woud work a hardshp on ta payers borrowng substanta
amounts In ths manner. The category of Indebtedness evdenced by n bank oan
agreement, added by your commttee s b, ncudes such ndebtedness owng to
a bank, and does not ncude the ndebtedness of a bank to ts depostors.
(d) dmssbe and nadmssbe assets. Under the Word War II statute the
capta to whch the varous rates of return were apped to determne the n-
vested capta credt was reduced for certan so-caed nadmssbe assets.
These assets were e cuded because the ncome reazed from them was not sub-
|ect to e cess profts ta . Stock n a corporaton was an nadmssbe asset
because dvdends receved on such stock Were not ncudbe n e cess profts
ta net ncome. State and oca government obgatons and partay ta -e empt
Federa obgatons were aso treated as nadmssbes because nterest receved
on them was not ncudbe n e cess profts ta net ncome. owever, n the
case of these ob atms the tp nnyer had te opton to treat them as admssbe
fssets f t ncuded n ts e cess profts ta net ncome the nterest receved on
these obgatons.
The ouse b makes no ma|or change n admssbe and Inadmssbe assets
e cept to deny the opton to treat State and oca government obgatons and
partay ta -e empt Federa obgatons as admssbe assets. The grantng
of ths opton gves an undue advantage to hoders of these obgatons. The
nterest rate payabe on such obgatons s qute generay around 2 percent to
3 percent. To aow rates of return of percent to 12 percent, the rates provded
for nvested capta, gves the hoders of these obgatons an opportunty to
appy the e cess of the rate of return aowed over the rate of return receved on
these obgatons to ncome on other assets. Your commttee s b makes no
sgnfcant change n ths provson of the ouse b.
6. yet capta changes n the ta years.
Under your commttee s b, both the ta payer usng the average earnngs
credt and the ta payer usng the nvested capta credt, f the atter s com-
puted under the asset approach, are aowed to ncrease ther credt for net
addtons to Investments snce 19 9. ddtons to nvested capta In the case
of the average earnngs ta payer nnd n the ease of the nvested capta ta payer
computng ts equty capta nnd retaned earnngs under the asset approach
are aowed a fat rate of return of 12 percent. The ta payer computng ts
nvested capta base under the hstorca capta approach adds any net capta
addtons n the ta perod to the nvested capta whch t had at the end of
19 9 and receves a rate of return on these net capta addtons of 12 percent,
10 percent, or percent, dependng upon ts rate bracket.
Reductons n nvested capta n the ta perod, under your commttee s b,
are permtted to decrease pror addtons n the ta perod at the same rate at
whch these ncreases were prevousy made. Thus, n the case of the average
earnngs ta payer nnd the nvested capta ta payer usng the asset approach
the e cess profts credt s reduced by 12 percent of any reductons whch offset
addtons prevousy made n the ta perod. In the case of the nvested capta
ta payer usng the hstorca capta approach, the rate of return by whch the
e cess profts ta s reduced depends upon ts top nvested capta rate bracket
whch may be 12 percent, 10 percent, or percent. ny reductons n e cess
of the addtons n the ta years decrease the credt of both types of nvested
capta ta payers and aso average earnngs ta payers. For a nvested capta
ta payers the rates of return used n connecton wth any such reductons are
the rates used n budng up ther nvested capta credt ntay. For the
average earnngs ta payer, the rate of return used s 12 percent n the case of
the e addtona reductons.
The provsons of your commttee s b, descrbed above, dffer from those of
the ouse b n two mportant respects. Frst, under your commttee s b
borrowed capta receves the same rate of return as other forms of nvested
capta whe under the ouse b ts rate of return depends on the nterest
rate at whch t was borrowed. Second, the nvested capta ta payer usng the
hstorca asset approach s not gven the fat 12 percent rate of return wth
respect to addtons made durng the ta years but rather s requred to use the
rate of return t ast used In computng ts nvested capta credt. oth of
these changes n your commttee s b arse from changes made In the method of
computng the nvested capta credt and have been prevousy dscussed.
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The Word War II statute wns much ess generous than ether your commt-
tee s b or the ouse b, and aso was nconsstent n the aowance for add-
tons to capta n e cess profts ta years. In the case of the average earnngs
ta payer no aowance was made for Investments n the ta years f they took
the form of borrowed capta or accumuatons of retaned earnngs. n n-
crease n ts credt was aowed at an percent rate of return f the addtons
took the form of pad-n capta or pad-n surpus and a 6 percent rate of return
wns used for reductons of these types.
In the case of the nvested capta ta payer the Word War II statute pro-
vded that retaned earnngs and borrowed capta be ncuded n the ordnary
computaton of nvested capta at the reguar rates for such capta. ddtons
to pad-n capta or pad-n surpus were aso ncuded n the credt at the ord-
nary rates but as a speca ncentve they were ncuded at 12 percent of ther
vaue. Ths had the same effect as provdng for them a 10 percent, 7 percent,
or 6 percent rate of return, dependng on the nvested capta bracket of the
corporaton.
Your commttee beeves that the more generous provsons provded n ths
b are necessary snce the emergency may be of ong duraton requrng sub-
stanta ncreases n productve factes.
7. Net ncome n the ta abe year.
(a) Genera. The net ncome used n the e cess profts ta s an ad|usted
verson of the net ncome to whch the 2 percent corporate norma ta s ap-
ped. Chef among the ad|ustments s nn e cuson of capta gans and osses,
both ong- and short-term. Ths e cuson s based upon the sporadc character
of the recepts. The Word War II aw e cuded ony ong-term gans and
osses. Logc requres the e cuson of short-term gans and osses as we.
though casuaty osses are aso sporadc they are not e cuded because they
are key to have a serous effect upon the corporaton s ta payng capacty n
the year of the oss. For smar reasons net osses on the sae or e change of
assets used n a trade or busness fang wthn the scope of secton 117(|)
of the Code are not e cuded from the e cess profts ta net ncome under the
commttee s b athough they were e cuded under the ouse b.
Lke the Word War II aw, the commttee s b e cudes certan other types
of sporadc ncome, such as
1. Income arsng out of the retrement or repurchase at ess than the
ssue prce of bonds, and other evdences of ndebtedness, outstandng for
more than 6 months;
2. Income arsng from the recovery of had debts n cases where no
deducton has been camed n a year for whch an e cess profts ta was
mposed under the Word War II aw or woud be mposed under ths b;
and
3. Refunds of ta es pad under the grcutura d|ustment ct of 1933.
The commttee s b e cudes so much of the ta payer s nterest deducton
as represents nterest on the ndebtedness ncuded n the tnypayer s borrowed
capta f t uses the nvested capta bass. Interest reductons were aowed
n fu n the ouse b. The dfference refects the change n the treatment
of borrowed capta under the nvested capta credt. The dsaowance of the
nterest deducton n the Fnance Commttee b s consstent wth the ncuson
of 100 percent of borrowed capta n the ta payer s nvested capta base.
The net ncome of the e cess profts ta year s aso corrected by the em-
naton of deductons arsng out of the retrement at a premum of bonds and
other evdences of ndebtedness outstandng for more than 6 months. Such an
ad|ustment was aowed under the Word War II aw, but ony n the correcton
of the base perod net ncome. Under the b the ad|ustment s aso made n
the ncome of the ta perod.
s n the Word War II aw, the not ncome of fe nsurance companes s
ad|usted for contrbutons to pocyhoders reserves so as to conform ncome
for e cess profts ta purpose3 wth ncome used for the corporate norma and
surta es. If the company computes ts e cess profts credt on the nvested
capta bass, the ad|ustment for contrbutons to pocyhoders reserves s re-
duced by 0 percent because haf such reserves are ncuded n borrowed capta
used n cacuatng the nvested capta credt.
Ta payers n certan e tractve ndustres are permtted to e cude a porton
of ther ncome from e cess output, as under the Word War II egsaton
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2 9
as we as amounts receved ns ncentve payments to encourage e poraton,
deveopment, and mnng for defense purposes.
The b foows the precedent of the Word War II aw n aowng n fu
100 percent credt for dvdends receved from domestc corporatons. Whe
the Word War II aw aso aowed a fu credt for dvdends n knd, the b
restrcts the credt for such dvdends to the ad|usted bass of the dstrbuted
property In the hands of the dstrbutng corporaton. Ths conforms the treat-
ment of dvdends n knd under the e cess profts ta wth that undo;- the
corporate norma and surta es as revsed by secton 122 of the Itcvenue ct
of 10 0.
The b contans a provson aowng the correcton of the net ncome of the
e cess profts ta years for other abnormates. Ths provson s smar to
secton T21 of the Word War II aw. Generay, ncome appearng n partcuar
e cess profts ta years s reaocated under ths provson f t s attrbutabe to
events that occurred or work that was done n other years. Such an ad|ustment
s made ony f the ncome of te cass deemed to be abnorma receved n the
ta abe year s more than 11 percent of the average amount of the ncome of
the same cass receved durng the frur prevous tn abe years. Ia approprate
cases such nn e cess w be attrbuted to other years under reguatons to be
prescrbed by the Secretary of the Treasury.
d|ustments of ths type are mted to ncome arsng out of
1. cam, award, |udgment, or decree:
2. poraton, dscovery, or prospectng whch e tended over a perod
of more than 12 months;
3. The sae of patents, formuas, or processes deveoped over a perod
of more than 12 months: or
. Income whch s ncudbe n the tn abe year rather than another
year by reason of a change n the ta payer s method of accountng.
The equvaent provson n the Word War II aw (secton 721) aso permtted
ad|ustments wth reference to certan other types of ncome, partcuary that
resutng from the sae of tangbe property arsng out of research and deveop-
ment whch e tended over a perod of more than 12 months. Ths provson
n the od aw was a potenta oophoe of ma|or dmensons. ecause there ap-
peared to be no means of restrctng eu h an ad|ustment to truy mertorous
oases other than by the ntroducton of a arge degree of admnstratve ds-
creton of the tvpe requred by the genera reef cause of the Word War II
aw (secton 722), and because of the need for a reaocaton of such ncome
seemed to be materay ess than for the other casses of ncome descrbed
sbove, the b omts ths tem from the st of abnorma types of ncome for
whch a reaocaton can be made.
The b aso contans a number of other provsons desgned to ad|ust the
e cess profts ta net ncome of specfc casses of ta payers.
(6) Instament bass ta payers, The b permts ta payers usng the n-
stament bass method of accountng for ncome ta purposes to eect to
report ther ncome on an accrua bass for the e cess profts ta . Under the
ouse b ths eecton s open ony to ta payers recevng ncome from n-
stament saes. The Fnance Commttee b aso permts such nn eecton n
the case of ta payers whose prncpa busness conssts of the purchasng of
nstament saes obgatons.
nder the nstament bass method of accountng, ncome arses when the
Payments made under the contracts are receved. In the absence of the eecton
Provded n ths b, many ta payers usng ths method woud probaby he re-
qured to pay unusuay arro ta es durng the frst years of the e cess profts
ta perod because the recept of payments arsng nut of saes n earer years
w e ceed substantay the voume of new busness. Ths s e pected to
wur because the voume of nstament purchases was very heavy n 19 . 1919,
and 10 0, and s e pected to dmnsh sharpy n 19 1 and subsequent years as
a resut of the appcaton of contros to nstament purchases and the deveop-
ment of scarctes among the commodtes ordnary sod by the nstament
method. smar resut woud obtan n the case of ta payers whose prncpa
busness conssts of purchasng nstament saes obgatons.
The eecton provded under the b permts such ta payers to e cude from
tne e cess profts net ncome of the ta abe years payments arsng out of saes
made durng the years In whch the ta dd not appy. Such nn eecton when
made s rrevocabe and appes to a subsequent tn abe years to whch the
e cess profts ta s appcabe.
0 S200 1 17
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(c) Long-term contracts. smar eecton s provded for ta payers who
receve payments under ong-term contracts and who, under the competed con-
tract method, account for such recepts as ncome for the year n whch the
contract s competed. The b permts such ta payers to eect to report ther
ncome from ong-term contracts under the percentage of competon method
of accountng for the purpose of the e cess profts ta . Ths eecton when
made s aso rrevocabe and appes to subsequent ta abe years.
(d) Long-term eases. speca ad|ustment s provded n the case of ong
term eases whch requre the essee to pay a stated renta to the essor free of
ta . Such eases are found n the raroad ndustry and were usuay entered
nto many years ago when ta es were not as mportant an tem as now. Under
such eases an ncrease n ta es automatcay rases the Income before ta es
receved by the essor corporaton and may serve as the bass for the mposton
of an e cess profts ta , whch the essee w be obgated to assume. To em-
nate the resutng hardshp the b provdes that the amount of ta pa d by the
essee be e cuded from the ncome of the essor corporaton, and that no deduc-
ton be aowed to the essee.
s under the ouse b, ths ad|ustment s avaabe ony n the case of a
ease for a term of more than 20 years. The commttee s b aso provdes that
an agreement for the ease of raroad propertes sha be consdered to be a
ease for such term as the tota number of years durng whch the ease may be
renewed and contnued automatcay.
To quafy for ths ad|ustment It Is necessary that the ease be entered nto
pror to December 1, 19 0.
(e) ad debt reserves of banks. Panks whch have eected to use the reserve
method of accountng for bad debts for ncome ta purposes substtute for e cess
profts ta purposes a deducton for debts whch became worthess In whoe or
n part wthn the ta abe year. Ths s desrabe because the hanks whch
eected to use the reserve method for ncome ta purposes begnnng n 10 7
have for the most part accumuated reserves that equa or approach the ma mum
aowabe under the e stng rungs. In vew of ths stuaton and because of
the probabty that Iossps from bad debts w be comparatvey ow durncr the
e cess profts ta years t s key that the deductons under the reserve method
w be abnormay ow durng the e cess profts ta perod. The deducton of
such osses as they occur w provde a more equtabe resut.
(/) ocked ncome. Speca raes are provded under the b for the treat-
ment of bocked Income arsng pror to 1031. These rues are dscussed beow.
. Net ncome n the base perod.
The cacuaton of e cess profts by a comparson between base perod ncome
and the ncome of the ta abe year requres the remova of abnormates not
ony from the ncome of the ta abe year but from the ncome of the base perod
years as we. Many of the provsons n the b for ad|ustng the ncome of
base perod years are smar to those used n the ta abe years. mong these
are the e cuson of gans and osses from the sae or e change of both ong-
and short-term capta assets, and ncome nsng from the retrement or repur-
chase at ess than the ssue prce of bonds and other evdences of ndebtedness
outstandng for more than G months.
owever, gans and osses from the sae or e change of assets used n the
trade or busness (secton 117(|) assets) are e cuded from the ta payer s
base perod net ncome, as under the ouse b, even though they are not e -
cuded n the determnaton of ncome n the e cess profts ta years. The e -
cuson of such pans and osses n the base perod years s |ustfed because t
s desred to obtan a norma earnngs e perence for the ta payer. Snce
srch pans and osses are apt to be sporadc and frequenty are szabe, ther
ncuson woud dstort the ta payer s base perod net ncome. On the other
hand the e cuson of such tems from the ncome of the e cess profts ta years
woud ead to the dsaowance of substanta osses whch, because of the hgh
rate mposed, mght prove to be a serous embarrassment to a hard-pressed
ta payer.
Deductons for premums pad and e penses nvoved n the retrement of
bonds and other evdences of ndebtedness outstandng for more than 6 months
are emnated from the ncome of the base perod years as from the ncome
of the ta abe year. Provson s made for the emnaton of the deducton
based on the repayment of processng ta es to vendees, whch paraes the ad-
|ustment for processng ta refunds n the ncome of the e cess profts ta year.
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100 percent credt for dvdends receved s aowed n computng the net
ncome of the base-perod year and the rue apped to dvdends n knC s the
same as that now used under the corporate norma and surta es.
In addton the b contans a genera provson appyng to cams, awards,
and |udgments aganst the ta payer, ntangbe drng nnd deveopment costs
of o or gas wes, deveopment costs n the case of mnes, casuaty osses, and
deductons of other casses sub|ect to reguatons prescrbed by ths Secretary.
For any cass of such abnorma deductons, the amount n e cess of 113 percent
of the average amount of deductons of such cass for the four prevous ta abe
years s to be emnated under reguatons prescrbed by the Secretary, provded
that n the base-perod year the deductons of the cass dsaowed e ceed per-
cent of the average e cess profts net ncome for a the ta payer s base-perod
years computed wthout the dsaowance of any cass of deducton under ths
provson. For the purposes of the atter mtaton, a defct n any of these
years s counted as zero.
Ths provson s smar to the correspondng porton of the Word War II
aw e cept that the atter emnated ony the e cess over 12 percent of the av-
erage of the deductons for the four prevous ta abe years, and dd not ncude
the percent mtaton descrbed above.
The b, ke the Word War II aw, does not permt the dsaowance of such
abnorma deductons uness the ta payer estabshes that the ncrease n the
deducton s not (a) a cause or a consequence of ether (1) an ncrease n the
ta payer s gross ncome n ts base perod or (2) a decrease n the amount of
some other deducton n ts base perod, whch ncrease or decrease s substanta
n reaton to the amount of the ncrease n the deductons of such cass, or (6)
a consequence of a change at any tme n the type, manner of operaton, sze,
or condton of the busness engaged n by the ta payer.
The b aso foows the precedent of the Word War II aw n mtng the
amount of the deductons dsaowed to the e cess over the deductons of the
same cass n the ta payer s e cess profts ta year.
The ncome of the base-perod years s ad|usted to conform to that of the ta -
abe years n the case of ta payers who eect to change from the nstament bass
to the accrua method of accountng, or to substtute the percentage of compe-
ton method for the competed contract method of accountng for payments under
ong-term contracts. The base-perod ncome of essees whch are obgated to pay
the ta due on the payment to a essor under a ong-term contract s ad|usted n
the base perod to conform wth the ta perod. Ranks usng the reserve method
of accountng for bad debts durng the base perod substtute deductons for debts
whch became worthess n whoe or n part wthn those years for the arger
deductons nade to estabsh such reserves.
Lfe nsurance companes deduct ther contrbutons to pocyhoder s reserves
n computng ther base perod net ncome as n computng the ncome of ther
e cess profts ta years.
In addton to the foregong provsons whch foow, n genera outne the
correspondng provsons of the ouse b, the Fnance Commttee b permts
. n ad|ustment of the assessments pad by banks durng the base perod to the
Federa Depost Insurance Corporaton. Fubc Law 707 of the ghty-frst
Congress, second sesson, recognzed that the assessments pad n pror years
had resuted n the accumuaton of a suffcent reserve and made provson 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. a resut of ts use, the FDIC assessments actuay payabe
a the e cess profts ta years probaby w be much ess than those pad n the
base perod years. Under the commttee s b the deducton for FDIC assess-
ments n the ta payer s base perod years w be reduced proportonay wth the
credt aowed aganst the FDIC assessment n the e cess profts ta year.
9. Genera reef.
(a) Provsons of Word War II aw Secton 722. the genera reef provson
of the Word War II aw, was desgned to ad hardshp cases by provdng such
corporatons wth a substtute, or constructve average, base perod net ncome.
Secton 722 deat wth three prncpa casses of cases (1) corporatons whch
had suffered some adversty durng ther base perod, (2) corporatons whch had
made changes durng the base perod resutng In an ncrease n ther proft poten-
tas, and (3) corporatons whch were not n e stence durng the base perod
and, therefore, had no base perod net ncome at a.
In each nstance the secton provded that a hypothetca base perod earnngs
credt be taor made .for the partcuar ta payer and that certan assumptons
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be made n connecton wth the case. ach case was a probem In research, and
the ega or ta resut generay was ntertwned wth compcated accountng and
economc probems. most every factor whch had any Infuence on the partc-
uar busness was pertnent to the case and the tme and e pense nvoved n
reconstructng the average base perod earnngs credt were tremendous.
These compe reef provsons of the Word War II aw have resuted n
e tended deay n the settement of reef cams whch dscrmnated aganst
ta payers who had nether the tme nor the fnanca resources necessary for the
estabshment of ther cases. Moreover, the determnaton of what the ta payers
base perod ncome woud have been n the absence of the camed abnormaty
was argey a matter of sub|ectve udgment, and a great dea of compant has
arsen on ths account. ence ths b reduces to a mnmum the amount of
admnstratve dscreton nvoved n the ad|ustment of the hardshp cases whch
may be e pected to arse under an e cess profts ta .
(6) Reducton n hardshp cases under the b. Snce corporatons n genera
had a hgh eve of profts durng the past years, and snce the b s more
bera n a number of ma|or respects than the Word War II aw, the number of
hardshp cases whch w arse shoud be substantay ess than f the od aw
were reenacted under current condtons.
Provsons of the b whch may be e pected to reduce the need for reef are
(1) the substtuton of a 23,000 mnmum credt for the 10,000 specfc e emp-
ton of the pror aw; (2) the opton granted the ta payer to emnate the worst
year In Its base perod for the purpose of computng ts average base perod net
ncome; (3) the treatment of a defct n any remanng base perod year as zero
for the purpose of computng the average base perod net ncome; ( ) the subst-
tuton of a -year carry-forward and a 1-year carry-back of the unused e cess
profts credt and not operatng osses for the 2-year carry-forward and the 2-year
carry-back used under the Word War II aw; ( ) the prvege of carryng over
to 19 0 and 19 1 operntng osses ncurred durng the base perod whch have not
been utzed to offset the ncome of other years; (6) the ncrease of the average
base perod net ncome for capta addtons durng the atter part of the base
perod; (7) the ad|ustment of the average base perod net ncome for capta
addtons after the base perod wth a broader appcaton and hgher rates than
the equvaent provson of the Word War II aw; and ( ) the provson that
the combned rate of the corporate ncome ta and the e cess profts ta cannot
e ceed 60 percent of the corporaton s ncome.
(c) Genera reef provsons n the b. The b provdes automatc formuas
for each of the most mportant types of cases whch arose under secton 722 of
the Word War IT aw. These formuas permt an ob|ectve computaton of the
amount of reef granted n each case, thus avodng the practce of makng the
e tent of the reef dependent upon an attempted anayss of a the varyng
factors n the ndvdua case wth the resutng uncertanty, deays, and dsparty
of treatment among ta payers whch characterzed the appcaton of the genera
reef provsons of the Word War II aw.
(t) bnormates durng the base perod.
Secton 722(b) (1) and (2) of the pror aw provded reef when the ncome
of the ta payer s base perod years was substantay abnorma because of a
physca nterrupton to producton, such as a fre, strke, or food, or because of a
depresson n the busness of the ta payer resutng from temporary economc
crcumstances unusua n the case of the ta payer, such as a severe prce war.
Your commttee s b provdes reef n these same areas. owever, the b does
not retan that part of secton 722(b) (2) whch provded reef n cases where
the busness of the ta payer was depressed because the ndustry of whch the
ta payer was a member was depressed duo to temporary economc events nnusna
to such ndustry. Provson s made n another porton of the b for the reef
of ta payers whose ndustry was depressed durng the base perod.
If an abnormaty e sted n the ta payer s owest year of earnngs durng
the base perod, ths year w be emnated automatcay from the average
base perod net ncome computaton. owever, f an abnormaty occurs n
one of the remanng perods of 12 months or ess n the base perod, the ta -
payer may, If t was n busness at the begnnng of ts base perod, substtute
for ts actua e cess profts net ncome for the perod of the abnormaty an
amount determned by mutpyng ts tota assets for the ast day of the perod
of the abnormaty by the rate of return for ts ndustry for that perod. Ths
formua provdes reef wthout ntroducng the dfcut task of provng what
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the ta payer s earnngs woud have been n the abnorma perod had the
abnormaty not e sted.
If an abnormaty s present In more than one of the three best years n the
ta payer s base perod, a dfferent formua s used. In such cases, a substtute
average base perod net ncome Is computed by mutpyng the average of the
amounts of the ta payer s tota assets on the ast day of each of ts base
perod years precedng ts frst e cess profts ta ta abe year by the base
perod rate of return for the ta payer s ndustry.
The substtute average base perod net ncome descrbed above woud be
avaabe ony f the ta payer s average base perod net ncome n the event of
the substtuton e ceeded 110 percent of the ta payer s average base perod net
ncome computed wthout ad|ustment for the abnormaty. Smary, a sub-
sttute e cess profts net ncome may be used for a snge abnorma year ony f
t e ceeds 110 percent of the ta payer s e cess profts net ncome for that year
computed wthout such substtuton. Such a mtaton s desrabe n order to
avod burdenng the admnstraton of the ta wth trva cams.
Ta payers havng abnormates n more than one of ther best 3 years may
not ad|ust ther substtute average base perod net ncome for changes n capta
durng the ast 2 years of the base perod, snce ther substtute ncome s not
dependent prmary upon ther own earnngs record. owever, the ta payer
whch has ony one abnorma year remanng after the emnaton of ts worst
year, and, therefore, whch uses an average base perod net ncome computed
argey from ts own earnngs record, may cam the ad|ustment for capta
addtons, provded the year of the abnormaty s 19 6 or 19 7, and may cam
an ad|ustment for capta addtons n 19 9 where the year of the abnormaty s
19 .
The ouse b used a somewhat dfferent formua whch aowed the ta payer
to substtute for the actua ncome of the year or years of the abnormaty an
amount whch bore the same reaton to the ta payer s earnngs n ts norma-
years durng the base perod as an earnngs nde for the ta payer s ndustry
n that year bore to the aggregate of the ndustry nde es n the ta payer s
norma years. The ouse formua coud not be apped uness one of the ta -
payer s base perod years was free of abnormaty. Moreover, the substtuted
amounts mght be napproprate f the year to year canges n the ta payer s
earnngs durng the base perod were not smar to the changes n the nde of
the ta payer s ndustry. Fnay, the system of nde es used under the ouse
b was somewhat compe .
The formuas contaned n the Fnance Commttee s b are smper snce
they merey appy an ndustry average rate of return to the ta payer s tota
assets. The possbty of erratc resuts arsng out of the dfference between
the year to year changes n the ta payer s profts and those of hs ndustry s
emnated, and reef s avaabe even n the case where each of the ta payer s
base perod years contans an abnormaty.
The ndustry rates of return used under ths and other provsons of the b
w be determned and procamed by the Secretary of the Treasury. For
ths purpose the Naton s ndustry w be grouped nto the 01 casses shown n
append . Ths s a sghty modfed verson of a cassfcaton deveoped
by the ureau of the udget for genera use n the Federa Government, and
the descrpton of the casses appears n the Standard Industra Cassfcaton
Manua prepared by the ureau s Dvson of Statstca Standards.
The computaton w he based on data reguary comped from ncome ta
returns by the Treasury Department n preparng the Statstcs of Income.
The ndustry rate of return for an ndvdua year w be computed by dvdng
the sum of the aggregate net ncome and the aggregate nterest deducton shown
on the ncome ta returns fed by the corporatons n the ndustry by the aggre-
gate tota assets of such corporatons as of the cose of the ta abe year for
whch the returns were fed. Snce nterest s added to net ncome n the ca-
cuaton of the rate of return whch the ta payer appes to hs assets, the
amount of nterest accrued by the ta payer durng a snge year of abnormaty
s subtracted n determnng hs substtuted ncome of that year. Smary,
when the ta payer uses a substtuted avernge base perod net ncome t makes
an approprate ad|ustment to emnate 1 year s nterest.
The ndustry base perod rates of return w be computed by aggregatng the
net ncome and the nterest deductons reported by the corporatons n the
ndustry durng the -year perod 19 (1 through 19 9 and dvdng by te aggre-
gate of tha sum of the tota assets of these corporatons for the years n
queston.
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Snce t w not be possbe to assembe mmedatey the data necessary for
computng the fna rates of return for the ast year or years n the base perod,
or for the entre base perod, provson s made n the b for the cacuaton of
tentatve rates of return. These are to be procamed pror to March 1, 1 1,
and w be used unt the fna rates have been procamed. The fna rates w,
of course, supersede the tentatve rates and appcatons for ad|ustments based
on the atter w be redetermned when the fna rates are avaabe.
The ta payer ad|ustng ony one of hs three best years w use the rate of
return for the ndustry to whch s attrbutabe the argest amount of ts gross
recepts n that year. The ta payer usng the ndustry rate of return for the
entre base perod w use the rate for the ndustry accountng for the argest
amount of the ta payer s gross recepts n the approprate perod.
Fsca year ta payers ad|ustng a ta abe year begnnng n 19 and endn
In 19 0 w use the rate of return for the ta payers ndustry cassfcaton for
the caendar year 19 6. Those ad|ustng a ta abe year begnnng n 19 9 and
endng n 19 0 w use the rate of return for the caendar year 19 9. In other
cases fsca year ta payers w use the nde for the caendar year n whch
fas the greater number of days n such ta abe year.
Snce the rates of return are computed on the bass of tota assets, the ta -
payer usng such rates w appy them to ts tota assets. The atter means
the sum of the cash and property other than cash or nadmssbe assets used by
the ta payer for a bona fde busness purpose. Such property s to be vaued at
ts ad|usted bass for determnng gan on sae or e change e cept that n
the case of certan ntangbe property the bass sha be determned wthout
reference to the vaue on March 1, 1913.
The ta payer desrng to ad|ust ts base perod net ncome under these pro-
vsons w make an appcaton wth ts return, or fe a cam for refund wthn
the perod of mtatons appcabe to cams for refund, or fe an appcaton to
offset a defcency proposed aganst t. If a ta payer fes a petton wth the
Ta Court for redetermnaton of a defcency, such appcaton must be fed
not ater than the date of the fng of the orgna petton. The purpose of
requrng the ta payer to fe an appcaton or make a cam s to provde the
Treasury Department wth fu and tmey knowedge of the ta payer s grounds
for reef. Ths repaces a provson contaned n the ouse b whch woud
have deferred a percentage of the ad|ustment n the ta camed by the ta payer
on the bass of the abnormaty.
The defntons of tota assets, gross recepts, ndustry cassfcaton, and
base perod rate ot return descrbed above are generay smar under the
formuas deveoped for other hardshp cases. The ta payer s cam for ad|ust-
ment under those provsons w be made n the same manner and w be
sub|ect to the same speca rue concernng the statute of mtatons whch
appes when an ad|ustment s made for abnorma years.
(f) yew products or servces ntroduced n the hase perod.
Corporatons whch commenced busness before the base perod and made sub-
stanta changes n ther products or servces durng the ast 30 months of the
base perod may eect a substtute base perod net ncome. Ths provson s
Intended to repace the new products ad|ustment authorzed under secton
722(b)( ) of the Word War II aw. Corporatons whch commenced busness
after the begnnng of the base perod are not egbe under ths provson, but
may quafy for a substtute net ncome under the new corporaton rues de-
scrbed beow.
The concept of a change n product or servce was deveoped under the Word
War II aw and t s beeved that the e perence thereunder was generay
satsfactory.
To quafy for reef under the new product provson the change n prod-
ucts or servces must-have been substanta n the sense that by the end of the
thrd year (or earer) foowng the year n whch the products or servces were
ntroduced, the gross ncome from such products must aggregate to more than 0
percent of the ta payer s gross ncome n that year. The ouse b used a test
of 33 percent of the ta payer s net ncome. Wtnesses appearng at your com-
mttee s hearngs ponted out the dffcutes nvoved n the aocaton of net
ncome to partcuar products and servces. ence a test usng gross rather
than net ncome has been substtuted.
To quafy for reef under ths provson the ta payer must aso demonstrate
that ts net ncome n any one of the ta abe years n whch t has met the per-
centage of grows ncome test was u e cess of 12 percent of the arcrage e cess
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profts net Income durng the base perod year or years precedng the frst change
n product or sen-ce used n quafyng under the gross ncome test.
The ta payer who quafes under the afore-mentoned test pror to anuary 1,
r 0, may use a substtute average base perod net ncome computed by mut-
pyng ts tota assets for the ast day of ts ast pre-e cess profts ta year or
of the earest year n whch the ta payer quafes for reef, whchever day s
Inter by the base perod rote of return n ts ndustry and ad|ustng for 1 year s
nterest. If the year n whch the ta payer frst meets these tests ends after
the base perod, the substtute average base perod net ncome s computed by
mutpyng the tota assets for the ast day of snch ta abe year by the base
perod rate of return for the ta payer s ndustry cassfcaton.
ta payer who obtaned reef under the new product provson may obtan an
ad|ustment for new capta addtons n the ta perod ony n those years whch
foow the year n whch the ta payer quafes for reef under the new prod-
uct provson but s gven no ad|ustment for capta addtons n the base perod.
It s ntended that, where a ta payer estabshes that t has made severa sub-
stanta changes n products or servces durng the ast 30 months of ts base
perod, the aggregate effect of such changes may be consdered n determnng
whether the egbty requrements of the secton are met. The gross ncome
and net ncome tests can be met n a partcuar year by consderng a such sub-
stanta changes whch were made durng the three precedng years.
() Increase n capacty durvc the base perod.
corporaton whch commenced busness before ts base perod and made sub-
stanta changes n ts capacty durng the ast 3G months of the base perod may
aso eect a substtute average base perod net ncome. Ths provson s Intended
to repace the equvaent porton of secton 722(b) ( ) of the Word War II aw.
To quafy for reef the ta payer must have added to ts factes n a man-
ner whch
(o) resuted n an ncrease of 100 percent or more n ts productve
capacty, or
(6) resuted n an ncrease of 0 percent or more n Its productve ca-
pacty and the ad|usted bass of the ta payer s tota factes after te
addton or repacement e ceeds by 0 percent or more the ad|usted bass of
the ta payer s tota factes pror to such addton or repacement, or
(c) the unad|usted bass of the ta payer s tota factes after such add-
ton or repacement e ceeded by 100 percent or more the unad|usted bass
of the ta payer s tota factes pror to such addton or repacement.
These tests must be comped wth pror to the end of the ta payer s base perod.
For the purpose of these tests the term factes means rea property and
tangbe deprecabe property hed by the ta payer for a bona fde busness
purpose.
These tests w confne reef to ta payers whose capacty has undergone a
change whch s suffcenty great to make ts base perod earnngs e perence
a poor bass for evauatng ts earnngs durng the e cess profts ta perod.
Ta payers who quafy under one of the afore-mentoned tests may eect to
use an average base perod net ncome cacuated by mutpyng the base perod
rate of return for the ta payer s ndustry cassfcaton by the ta payer s tota
assets for the ast day n ts ast pro-e cess profts ta year. Snce the aterna-
tve net ncome s computed on the bass of the assets as of the cose of the base
perod, no ad|ustment need be made for capta addtons durng the base perod.
Snce the rate of return of the ta payer s ndustry cassfcaton Is cacuated
by addng the sum of the net profts and the nterest pad (urng the base perod
years and dvdng by the tota assets of the Industry n those years, the ater-
natve average base perod net ncome s reduced by an amount equa to the tota
nterest pad or accrued by the ta payer n the fna year of ts base perod.
There was no equvaent provson n the ouse b, but numerous wtnesses
who appeared before the commttee ponted out the need for an ad|ustment based
on substanta changes n capacty and stressed the dscrmnaton whch woud
resut f an aternatve bass were provded n the new product cases whe no
ad|ustment was made for substanta changes n capacty.
(v) Depressed ndustres.
The b provdes a substtute average base perod net ncome n cases where
the ta payer s ndustry was depressed durng the base perod. The Word War
II aw contaned secton 722(b) (3) ( ) whch permtted the reconstruct on of a
hypothetca base perod ncome when the ta payer coud show that the ndustry
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of whch t was a part was depressed durng the base perod. Reef was ava-
abe ony when the depresson was characterstc of the entre ndustry to whch
the ta payer beonged, and ths s aso true of the provson contaned n ths b.
The ouse b made no speca provson for reef for depressed ndustres,
and t was brought to the attenton of the commttee that because of ths oms-
son some vta ndustres wou have a very poor base perod earnngs record.
Moreover, n many .cases the ndvdua frms n these ndustres woud have an
nadequate nvested capta credt. ence t appeared desrabe to make speca
provson for the depressed ndustry cases.
The e stence of a depresson u the ta payer s ndustry durng the base perod
s to be determned by comparng the ndustry s average rate of return durng
the years 19 6 through 10 0 wth ts average rate of return durng the perod
1030 through 19 9.
Under the b a depressed ndustry s one n whch the average rate of return
on tota assets durng the years 19 G through 19 9 s ess than 60 percent of the
average rate of return for the ndustry over the perod 1936 through 19 9. It s
beeved that ths entrance test w confne the appcaton of the provson to
ta payers n ndustres whose base perod earnugs were substantay beow
norma.
Ta payers n such ndustres are permtted to use a substtute average base
perod net ncome computed by mutpyng ther average tota assets durng the
base perod by 0 percent of the depressed ndustry s average rate of return
(hrng the perod 1930 through 19 9.
The speca aternatve average base perod net ncome for ta payers n de-
pressed ndustres s, of course, avaabe on an eectve bass.
For purposes of the depressed ndustry test, ta payers w be cassfed n
genera conformty to the three-dgt cassfcaton of ndustres used by the
Treasury Department n compng ts Statstcs of Income data for the years
103 through 19 7, usng such combnatons of subgroups as the Secretary de-
termnes are necessary to provde reasonaby comparabe data over the perod
;;36 through 19 9. The ta payer s ndustry cassfcaton w be the one from
whch t derves the ma|orty of Its gross recepts.
Snce the rate of return of the ta payer s ndustry cassfcaton s cacuated
by addng the sum of the not profts and the nterest pad durng the base perod
years and dvdng by the tota assets of the ndustry n those years, the aterna-
tve average base perod net ncome s reduced for the average yeary nterest
pad or accrued by the ta payer.
The depressed ndustry formua aso provdes reef for the type of case
covered under 722(b) (3) (LI) of the Word War II aw. These are cases n
whch the ndustry s characterzed by sporadc and ntermttent perods of hgh
profts and such profts fa to appear n the base perod. ence the ndustry rate
of return n the base perod years may be e pected to fa we beow ts ong-
term average. The ouse b dd not provde reef u cases of ths type.
(f) Oer types of abnormates n the base perod.
Secton 722 of the Word War II aw aso permtted the reconstructon of the
ta payer s base perod e perence on the bass of (a) changes n management
or methods of operaton (722(b) ( )), (6) changes n the rato of debt capta
to other capta (722(b) ( )) and (c) cases where a ta payer acqured, pror
to the end of the base perod, a or part of the assets of a compettor wth a
resutng emnaton or dmnshmcnt of the competton of the compettor
(722(b) ( )). No specfc formuas arc provded for such cases under the com-
mttee s b or under the ouse b.
The constructon of a reef formua for cases nvovng changes n manage-
mrnt or methods of operaton nvoves e treme technca dffcutes, snce the
e stence of changes of ths type does not tsef prove that the character or earn-
ng capacty of the busness as been atered materay. The determnaton of
t.e effect of such changes proved e tremey dffcut under the Word War II aw
and nvoved the very type of sub|ectve |udgments whch are beng avoded n
ths b. When changes of ths type actuay do resut n substantay ncreased
earnngs, the effects usuay appear comparatvey qucky and as a resut w
be refected n the average base perod Income of the ta payer wthout speca
ad|ustment. Moreover, f such changes are accompaned by the ntroducton of
new products or a change n pant capacty, reef s avaabe under specfc
formuas contaned In the b.
Tour commttee has not ncuded n ths b a reef formua based on the
changes durng the base perod u Ue rato of debt capta to other capta. t
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the tme such reef was enacted as a part of the od secton 722(b) ( ), t was
thought that there woud be a substanta number of such cases because the base
perod, 1936-30, was characterzed n part by recovery from a severe economc
depresson. Ths stuaton was not a characterstc of the base perod, 19 6- 9,
used n ths b. Moreover, your commttee has been Informed that a compara-
tvey nsgnfcant number of cases arose under the pror provson.
reducton n debt n reaton to other capta s accompaned ether by a net
ncrease n capta or a net decrease n capta wth a resutant contracton n
operatons. In the former case, that of on addton to capta, another porton of
the b provdes for an ad|ustment to base-perod earnngs to the e tent that
truch addtons were made n the atter part of the base perod. Wth respect to
the atter cose, an actua contracton n operatons, your commttee s unabe
to dscover any adequate reason for grantng reef.
Your commttee has not provded a speca reef ad|ustment n the case of an
acquston by the ta payer before the end of the base perod of a or part of
the assets of a compettor whch resuted n the emnaton or dmnshment of
the competton of the compettor. It s beeved that an accurate evauaton,
based on fact rather than opnon, of the e tent to whch earnngs are affected
by such a change n the compettve reatons of any partcuar ndustry s
vrtuay mpossbe. Moreover, f an acquston of ths type does n fact resut
n ncreased earnngs to the ta payer n the base perod such earnngs w be
refected n ts average base perod net ncome. If the acquston s accompaned
by an addton to capta durng the atter part of the base_perod or a change n
. product or capacty, the b provdes specfc reef formuas. To the e tent the
acquston s not accompaned by an addton to capta but s merey the resut
of a shft n assets no vad cam for reef e sts.
10. ternatve oass for nctc corporatons.
Unke the Word War II aw, the present b combnes the reef treatment
for new corporatons whch commenced busness durng the base perod wth
those whch commenced busness subsequent to the base perod. In both cases
an aternatve average base perod net ncome s provded whch w make t
unnecessary for the ta payer to reconstruct a hypothetca base perod e perence
as he dd under secton 722 of the Word War II aw.
cept n the case of an acqurng corporaton, whch s deat wth n part II
of the b, and certan negbe corporatons, an aternatve average base perod
net ncome s provded for a corporaton whch commenced busness at any tme
after the begnnng of ts base perod. The aternatve s computed by appyng
the average base perod rate of return for the ta payer s ndustry cassfcaton
to the amount of the ta payer s tota assets. If the ta payers frst three ta abe
years ended n the base perod, the ndustry rate of return s apped to the ta -
payer s tota assets on the ast day of the base perod. Ths aternatve net n-
come may then be ad|usted for retaned earnngs, or net capta addtons or
reductons subsequent to the cose of the base perod. When the ta payer s frst,
second, or thrd ta abe year ends after the base perod, the credt s determned
for each of these years by appyng the ndustry average base perod rate of return
to the ta payer s tota assets for each of such years. The credt for subsequent
years s determned n a smar manner on the bass of tota assets at the cose
of the ta payer s thrd year or ts ast pre-e cess profts ta year, whchever s
ater. new corporaton aso receves an ad|ustment for subsequent capta
addtons n the ta perod.
Snce the rate of return of the ta payer s ndustry cassfcaton s cacuated
by addng the sum of the net profts and the nterest pad durng the base perod
years and dvdng by the tota assets of the Industry n those years, the aterna-
tve average base perod net ncome s reduced for 1 year s nterest pad or ac-
crued by the ta payer.
Ths ad|ustment s, of course, avaabe to the ta payer at hs eecton and
provdes a foor based on the average earnngs e perence of the ta payer s
ndustry durng the base perod.
The provson contaned n the Fnance Commttee b dffers from that found
n the ouse b prmary because of the dena of the new corporaton ad|ust-
ment n certan cases where ta payers mght transfer assets between corporatons
n order to obtan the beneft of the ndustry average rate of return avaabe to
new corporatons.
11. ternatve bass for growng corporatons.
Recognzng that the e cess profts credt based ether on the average ncome
of the best 3 years n the base perod or on nvested capta may not be satsfac-
290 1 1
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tory for corporatons e perencng an unusuay rapd growth durng the base
perod, the Fnance Commttee b, ke the ouse b, provdes an aternatve
average base perod net ncome for such ta payers. Ths aternatve s ava-
abe ony to a corporaton whch commenced busness before the begnnng of
Its base perod. Corporatons commencng busness at a ater date are provded
for under the new corporatons aternatve descrbed above.
The ouse b provded that growng corporatons mght compute ther
average base perod net ncome from the Income of the ast 2 or the ast 12
months n the base perod, whchever s hgher. The Fnance Commttee b
contans a thrd aternatve consstng of an amount determned on the bass
of 0 percent of the ta payer s earnngs n 10 0 and 0 percent of the ta payer s
earnngs n 19 9.
The theory upon whch the aternatve credt for growng busness s based
s that by the end of the base perod ta payers who have been n busness snce
19 w have reached or be approachng maturty. Ths ogc ceary |ustfes
the deveopment of an aternatve average base perod net ncome from the
e perence of the fna year In the base perod, 19 9. The ouse report ndcates
that the opton to use nstead an average based on 19 and 19 9 resuted from
recognton of the fact that n many ndustres the 19 9 earnngs were sub-
stantay ower than those for 19 . Testmony at the hearngs of ths com-
mttee brought out the fact that n some cases corporatons whch were obvousy
e perencng substanta growth durng the base perod dd not reach a proftabe
status unt 19 0 and, therefore, coud not obtan a rea beneft under the ouse
provson. ence, the opton permttng the ta payer to deveop an average base
perod net Income from hs e perence n the years 19 9 and 19 0 was added,
but snce the commttee recognzed that the 19 0 earnngs naht be Infated by
the busness boom whch occurred durng 19 0 the ta payer s requred to ds-
count ts 19 0 earnngs e perence by 20 percent.
Under the Fnance Commttee b, as under the ouse b, the aternatve
based on growth s avaabe ony f the ta payer had tota assets of not more
than 20,000,000 at the begnnng of ts base perod. Ts restrcton s desgned
to e cude from the benefts of the growth provson arge corporatons whose
earnngs e perence does not |ustfy addtona reef on account of growth.
foor amendment w be offered to provde further berazaton as to the
quafcaton for determnng growth under ths provson.
The commttee b has added to the mtaton based on sze the provso that,
when the ta payer s one of a group of corporatons meetng the test of affaton
provded In secton 1 1 of the Interna Revenue Code, the assets of the ta t ayer
sha be added to those of the other affated corporatons for the purpose of
the mtaton n queston. Corporatons whch are affated n ths manner
are egbe to fe consodated returns, and the aggregaton of ther assets for
the purpose of ths test s necessary n order to prevent dscrmnaton aganst
affated corporatons whch eect to fe consodated returns.
In addton to meetng the nssets test descrbed above, a corporaton desrng
to use the aternatve based on growth must quafy under a test desgned to
mt the benefts of the provson to corporatons e perencng a degree of growth
durng the base perod substantay n e cess of the growth of ndustry n
genera. For ths purpose two ndces are used: Payros and gross recepts.
If the ta payer s tota payro for the ast haf of the base perod s 130 percent
or more of ts tota payro durng the frst haf of the base perod, t can quafy
as a growng corporaton. owever, a ta payer who fas to meet the payro
test may quafy f ts gross recepts for the ast haf of ts base perod are ISO
percent or more of ts gross recepts for the frst haf of ts base perod. The
use of the aternatve gross recepts test s |ustfed by the fact that a corpora-
ton may ncrease ts physca voume of producton materay by ntroducng
addtona equpment and new operatng procedures whch do not Invove a
correspondng ncrease In ts abor force. The percentages used n the payro
and gross recepts tests are suffcenty arge so that ony those ta payers w
be abe to quafy whose busness has grown substantay more rapdy than
the average durng the base perod years.
The Word War II aw contaned a much more genera ad|ustment for growth
In the base perod. The so-caed growth formua used under that aw per-
mtted the ta payer to use as an aternatve credt computed by addng to the
average ncome of the ast haf of the base perod 0 percent of the dfference
between the average ncome for the frst and second haves of the base perod,
sub|ect to the mtaton that the aternatve credt coud not e ceed the net
ncome of the hghest ta abe year h the base perod. Whe ths formua may
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have been usefu as a devce for provdng reef for corporatons e perencng
unusuay rapd growth under the condtons whch e sted from 1936 through
1939, the appcaton of the formua n the years 19 6 through 19 9 woud beneft
many ta payers whose growth was no more than average and woud resut
n the wdespread use of the year 19 as the soe bass for the cacuaton of
the base-perod ncome credt. The aternatve bases provded n ths b w
brng reef ony to corporatons whch can quafy under tests whch ndcate
ceary that the corporaton was growng substantay more rapdy than
busness n genera.
It. Carry-overs of net operatng osses and unused e cess profts credts.
The b permts the use of the net operatng oss carry-back and carryforward
n cacuatng the net Income of an e cess profts ta year. Wth the e ceptons
dscussed beow the same rue s used as under the corporate norma ta and
surta , that s, the carry-back s mted to 1 year and amounts not so absorbed
are carred forward unt e hausted over a perod of not more than years.
Ths compares wth a carry-back of 2 years and a carry-forward of 2 years used
under the Word War II aw after 19 2. Thus the averagng perod under the
b w be 7 years as compared wth years under the prevous aw. The
change w reduce materay the dscrmnaton that mght arse aganst
corporatons e perencng unusua fuctuatons n ncome durng the e cess
profts ta perod and cuts down the need for the reaocaton of ncome between
ndvdua e cess profts ta years.
Generay, a net operatng oss n the base perod can be carred forward to
the e cess profts ta perod under the formua descrbed above. Ths foows
the provson n the ouse b. owever, t was ponted out at your com-
mttee s hearngs that In some cases ta payers ncurrng substanta operatng
osses In the eary years of the base perod have not been abe to offset such osses
aganst the earnngs of pror years. They woud thus be unabe to carry them
forward nto the e cess profts ta perod because the change from a 2-year
carry-forward to a -year carry-forward was not made unt 19 0. Therefore,
the commttee s b provdes, at the eecton of any ta payer usng the base
perod credt, for the carry-forward to the years 19 0 and 19 1 of osses durng
the base perod whch have not otherwse been offset aganst the Income of
ater years.
The net operatng oss carry-over or carry-back Is not used for computng the
e cess profts ta net ncome of the ta payer n ts base perod years. Snce a
ta payers are permtted to seect the best 3 out of a possbe years n ther base
perod, and snce a number of ta payers are permtted to base ther credt on the
e perence of one or two of ther base perod years, the appcaton of the oss
carry-over woud be undesrabe because t woud reduce the ncome of the
years whch have been seected as an approprate test of the ta payer s norma
earnng power by ad|ustment for osses n the other years, ncudng years out-
sde the base perod tsef.
Lke the Word War II aw ths b provdes for a carry-back and carry-
forward of an unused e cess profts credt The carry-back s for 1 year and
the carry-forward for , thus producng the same 7-year averagng perod used
under the net operatng oss carry-over for both ncome and e cess profts ta
purposes. The unused e cess profts ta credt ad|ustment under the Word
War II aw was mted to a carry-back of 2 years and a carry-forward of 2
years, thus producng an averagng perod of years whch conformed to the net
operatng oss carry-over provsons of that aw.
For a ta abe year begnnng before uy 1, 19 0, and endng after une 30,
19 0, the unused e cess profts credt s the same percentage of such credt, com-
puted as f a of such year were sub|ect to the e cess profts ta , whch the
number of days n the ta abe year after une 30, 19 0, bears to the tota number
of days n the year.
The b provdes that any unused porton of the 2 ,000 mnmum credt sha
not be counted for purposes of the unused e cess-profts carry-over.
n unused e cess-profts credt cannot be carred back from a perod after a
corporaton has dstrbuted substantay a of ts assets.
I . Other Important Provsons
Mnmum credt for certan reguated ndustres.
Tour commttee s b provdes a mnmum e cess profts ta credt whch s
avaabe for ta payers n certan specfed types of reguated ndustres. Ths
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260
credt Is an aternatve to the average earnngs credt and the nvested capta
credt for such ta payers.
In genera, ths mnmum credt conssts of 6 percent or 7 percent of the stun of
the equty capta, retaned earnngs, borrowed capta, the corporate norma
ta and surta payabe by the corporaton for the ta abe year n queston, ess
nterest payabe on the borrowed capta. quty capta and retaned earnngs
of the reguated ndustres avang themseves of ths aternatve credt are
reduced by the so-caed nadmssbe assets (dscussed esewhere n ths report).
owever, the norma ta and surta under your commttee s b are not reduced
by nadmssbe assets.
The C percent rate of return s avaabe to reguated ndustres suppyng the
(a) eectrc energy,
(6) gas,
(c) water,
(d) transportaton on an ntrastate, suburban, muncpa, or nterurban
eectrc raroad, troey system, or bus system, or
(e) transportaton by trucks or busses,
where the rates charged by such corporatons are sub|ect to reguaton by a
governmenta body.
The C percent rate of return s aso avaabe to a reguated ndustry suppyng
the foowng types of servces or products:
(a) transportaton of o or other petroeum products or gas by ppene
f the corporaton s sub|ect to the |ursdcton of the Interstate Commerce
Commsson or the Federa Power Commsson, and
(6) raroads reguated by the Interstate Commerce Commsson,
(c) transportaton by water sub|ect to the |ursdcton of tbe Interstate
Commerce Commsson or the Federa Martme oard under the Intercoasta
Shppng ct of 1933.
The 7 percent rate of return s avaabe to reguated ndustres suppyng the
(a) teephone and teegraph servces where the rates charged are sub|ect
to reguaton by a governmenta body, or
(6) ar transportaton sub|ect to the |ursdcton of the Cv eronnutcs
oard.
In the case of nterstate truckng, busses and raroads, and In the case of
ar transportaton the equty capta and retaned earnngs on whch the rate
of return s computed under ths aternatve credt s the same as that of an
ordnary corporaton determnng the vaue of ts assets under the asset
approach. In the case of a other reguated Industres recevng the benefts
of ths provson where tbe corporate books of account are mantaned n accord-
ance wth systems prescrbed by a reguatory body or mantaned n accordance
wth the unform systems prescrbed by the Federa Power Commsson or the
Natona ssocaton of Raway and Uttes Commssoners, the equty capta
and retaned earnngs are the sum of the average outstandng common and pre-
ferred capta stock accounts and the capta surpus and earned surpus accounts
as shown on the corporaton s books.
The use of ths aternatve credt, n addton to beng mted to corporatons
suppyng the types of servces or products descrbed above, s mted to corpora-
tons dervng 0 percent or more of ther gross ncome from reguated sources.
Where a pubc utty suppes servces or products n one or more ntercon-
nected and coordnated systems and where the reguaton to whch the corpora-
ton s sub|ect n part of ts operatng terrtory n effect contros rates n the
unreguated terrtory, and these rttes are as favorabe to the users n the unregu-
ated terrtores as the rates n the reguated terrtory, the whoe nterconnected
and coordnated system or systems are consdered to be reguated.
Snce ony some of the members of an affated group egbe to fe a con-
sodated return may be reguated ndustres to whch the speca aternatve
credt s avaabe, your commttee found It necessary to specfy n the b how
consodated returns shoud be handed n such cases. In the case descrbed
above the reguated ndustres whch are egbe for the mnmum credt may
be spt-off and one consodated return may be fed for one of the groups. If,
however, a the members of the affated group n such a case fe a snge
consodated return, none of the reguated ndustres nvoved may cam the
speca mnmum credt.
though mantanng the basc structure of the aternatve credt provded
In the ouse b for reguated ndustres, your commttee has revsed the ouse
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261
provson consderaby as the resut of testmony on ths provson of wtnesses
appearng n the commttee hearngs. Probaby the most mportant change
s that rasng the rate of return aowed arnes from percent to 7 percent,
that aowed teephone and teegraph servces from 6 percent to 7 percent, and
that aowed raroads from percent to 6 percent. Tour commttee beeves
that ths revson of rates s more neary In ne wth the rates provded by the
respectve reguatng agences than the rates provded by the ouse b. n-
other ma|or change from the ouse b s that provdng that most of the
uttes may compute ther equty capta and retaned earnngs n the manner
provded by ther reguatng bodes rather than by the means provded for ord-
nary corporatons usng the Invested capta base. Your commttee beeves that
t s desrabe to aow corporatons to compute ther rate of return n ths manner
snce ths s a bass on whch ther rate of return s computed for reguatory
purposes by other governmenta bodes and aso because these corporatons are
more famar wth ths type of computaton.
Your commttee aso found that n some States reguaton of uttes Is dee-
gated to oca authortes wth the resut that some uttes are reguated n
urban but not rura areas. Nevertheess, n these cases the rates charged n the
reguated areas generay determne the rates n the unreguated areas. Ths
accounts for the fact that your commttee has changed the ouse b to provde
that uttes of ths type are to be consdered reguated uttes for the pur-
poses of ths aternatve credt. In other cases uttes carry on one or more
of the reguated servces descrbed prevousy but aso carry on some subsdary
actvty whch s not sub|ect to reguaton. For e ampe, an eectrc utty
may we carry on a sma coa-mnng operaton aong wth the suppyng of
eectrca energy. It was to provde for such cases that your commttee changed
the ouse b to grant the mnmum credt to ndustres where the reguated
servces represent 0 percent or more of the tota gross recepts of such a
company.
The effect of ths mnmum credt s to gve assurance that an e cess profts
ta w not be mposed on the specfed reguated ndustres unt after they earn
a rate of return of 6 percent or 7 percent after payng corporate norma ta es
and surta es (ncudng the 2 percent addtona ta for consodated returns).
Your commttee beeves that ths s approprate n vew of the fact that the
profts of these ndustres n the base perod years were hed down we beow
the profts earned by unreguated ndustres. Moreover, there s consderabe
evdence that rate ad|ustments for these Industres agged consderaby behnd
ncreases n ther costs of dong busness. Your commttee aso beeves that
where ndustres are reguated by governmenta bodes provdng ony a far
rate of return t s undesrabe to consder profts aowed by such reguatory
bodes as e cessve for purposes of an e cess profts ta , especay where the
corporatons are hed to a reatvey ow rate of return. owever, t shoud be
cear that n estabshng the rates of return provded by ths mnmum credt
your commttee s not n any way attemptng to set a rate of return whch woud
be proper for reguatve purposes but ony s concerned wth the probem of
estabshng unformty for purposes of determnng ncome whch shoud be
sub|ected to e cess profts ta .
t. empton of strategc mneras from the e cess profts ta .
n e empton s provded under your commttee s b for domestc corpora-
tons mnng strategc mneras wth respect to the ncome attrbutabe to
such mnng n the Unted States.
Strategc mneras as used n ths provson ncude antmony, chromte,
manganese, ncke, patnum (Incudng the patnum group metas), quck-
sver, sheet mca, tantaum, tn, tungsten, vanadum, fuorspar, fake graphte,
vermcute, ong-fber asbestos n the form of amoste, chrysote or crocdote,
bery, cobat, coumbte, corundum, damonds, kyante (f equvaent n grade
to Indan kyante), moybdenum, monaztc, quartz crystas, and uranum. In
addton strategc mneras ncude any other mneras whch the agency
created to carry out the dutes under secton 303(a) of the Defense Producton
ct of 19 0 certfes as beng essenta to the defense effort of the Unted States
and as not beng normay produced n apprecabe quanttes n the Unted
States.
Ths provson s the same as that n the ouse b e cept that moybdenum
has been added to the st of e empt mneras by your commttee because of ts
strategc mportance to defense producton.
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Tu Word War II statute provded for the e empton of antmony, chronte,
manganese, ncke, patnum, qucksver, sheet mca, tantaum, tn, tungsten,
fuorspar, fake graphte, vermcute, and vanadum. The addtona mneras
e empted by the ouse b were ncuded after consutaton wth the Natona
Securty Resources oard.
The ouse b aso provded for the e empton of certan crtca mneras.
Crtca mneras under the ouse b were descrbed as mneras whch the
agency admnsterng the Defense Producton ct of 10 0 certfes as essenta
to the defense effort and whch are mned from
(1) Mnera propertes deveoped and brought nto producton after une
2 , 10 0. or
(2) Mnera propertes not n producton on une 2 but n producton
pror to that date, or
(3) Mnera propertes from whch durng the perod 10 0 to 10 9 the
ncome was ess than the deductons.
Your commttee s b ncudes no provson for the e empton of any crtcn
mneras, because It s beeved that margna producers of crtca mneras,
wth whch the ouse b was prmary concerned, can better be provded an
ncentve to produce by provson for subsdes or bonus payments. Moreover,
the provson descrbed beow deang wth the e empton of a porton of the
ncome from the so-caed e cess output of mnng propertes w provde
substanta reef for these crtca mneras.
3. empt ncome from certan mnng and tmoer operatons and from natura
gas propertes.
Your commttee s b, ke the ouse b, contnues the reef whch was
provded by secton 73 of the Word War II statute wth respect to certan
mnng, tmber, and natura gas propertes. The reef under ths provson
s provded by e emptng from e cess profts ta a certan porton of the cur-
rent ncome from these propertes. Generay ths porton s determned by
mutpyng the norma unt proft durng the norma perod 10 0 to une 30,
10 0 (103G to 1030 n the case of the Word War II statute) by a specfed
proporton of current producton n e cess of norma output durng the base
perod. In the case of coa and ron mnes, tmber propertes, and natura gas
propertes, the e empt porton s determned by mutpyng current e cess
producton by one-haf of the current net ncome per unt.
The Word War II statute aso contaned a provson provdng parta e -
empton for coa and ron mnes and tmber propertes not n operaton durng
the base perod. One-s th of the net ncome n the current ta abe year of
these propertes was e empt from e cess profts ta . The ouse b contnued
ths provson wthout change. Your commttee s b makes severa changes
n ths provson. The e empton from e cess profts tn for propertes comng
under the provson s ncreased from one-s th to one-thrd of the net ncome
from such property In order to provde a greater ncentve for the openng up
of new propertes. Natura gas and meta mnng propertes not In operaton
durng the norma perod (the ta abe years ncuded n the perod anuary 1,
10 0, to une 30, 10 0) aso are gven the benefts of ths provson n order to
pace them n a smar ta poston wth compettve propertes n operaton
durng the base perod. Meta mnng propertes n operaton n the norma
perod but havng an aggregate oss for ths perod are aso gven the reef
provded by ths provson.
The ouse b contaned a provson whch dupcated secton 73 (c) of the
Word War II aw. The effect was to e empt from the e cess profts ta certan
bonus payments made by agences of the Unted States Government for the pro-
ducton of mneras and tmber n e cess of a specfed quota or for the recovery
of mnera products from mne tangs n certan specfed cases. The anguage
used n the ouse b obvousy refects the system of ncentve payments used
durng Word War II. Snce the methods of stmuatng the e tractve ndus-
tres durng the current emergency have not yet been speed out, the commttee s
b substtutes a provson whch s couched n much more genera anguage.
The provson referred to s secton 33(a) (1) (P), whch e empts amounts pad
to the ta payer by the Unted States or any of ts agences for the encouragement
of e poraton, deveopment, or the mnng of crtca and strategca mneras
or metas. Ths e empton s appcabe whether the payment s made by
grant or oan and whether or not t s repayabe.
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263
If. Foregn corporatons and ncome from abroad.
(a) Resdent and nonresdent foregn corporatons. For Income ta purposes
foregn corporatons are dvded nto two groups: Resdent and nonresdent
foregn corporatons. Nonresdent foregn corporatons are sub|ect to Income
ta ony on certan ncome derved from sources wthn the Unted States. Ths
ncome s ta ed at a unform rate of 30 percent wthout deductons. Resdent
foregn corporatons are sub|ect to ncome ta es upon a ncome derved from
sources wthn the Unted States at the rates appcabe to domestc corporatons.
The 30 percent gross Income ta on nonresdent foregn corporatons s Imposed
rather than the ordnary corporate ncome ta snce the |ursdcton of the
Unted States over such corporatons s mted to the sources of ther ncome
whch are wthn the Unted States. The ack of |ursdcton over the corpora-
ton tsef not ony precudes the Imposton of a ta upon the net ncome of non-
resdent foregn corporatons but aso the Imposton of an e cess profts ta .
Therefore, your commttee s b, ke the ouse b, foows the precedent of the
Word War II statute and specfcay e empts such corporatons.
Resdent foregn corporatons are sub|ect to the e cess profts ta under your
commttee s b and the ouse b as under the Word War II statute. If
such corporatons were nonresdent foregn corporatons durng any of the base
perod years, ony the nvested capta credt s avaabe to them. Ths
was aso the case under the Word War II statute.
(6) Corporatons dervng most of ther ncome from Unted States posses-
sons. though secton 2 1 corporatons that s, corporatons dervng a arge
porton of ther ncome from sources wthn the possessons of the Unted
States are domestc corporatons, they, ke resdent foregn corporatons, are
sub|ect to Federa ta aton ony upon ncome derved from sources wthn the
Unted States. Therefore, your commttee s b ke the ouse b foows the
precedent of the Word War II statute and gves these corporatons the same
e cess profts ta treatment as resdent foregn corporatons.
(c) Western emsphere trade and smar corporatons. The Word War II
statute provded an e empton for a domestc corporaton where 9 percent or
more of ts ncome over the ast 3 years was derved from sources outsde the
Unted States, and where 0 percent or more of ts gross ncome was derved
from the actve conduct of a trade or busness. though not mted to Western
emsphere trade corporatons, any such corporaton, not fng a consodated
return wth another domestc corporaton, was effectvey e empted from e cess
profts ta under ths provson. Tour commttee s b ke the ouse b con-
tnues ths e empton. Ths Is consstent wth the preferenta treatment con-
ferred on Western emsphere trade corporatons under ncome ta aw.
Tour commttee s b has aso amended the provson reatng to the fng
of consodated returns to provde groups of affated corporatons wth the
opportunty to make a new decson as to whether or not they desre to fe a
consodated return wth respect to ta abe years endng after une 30. 19 0.
Whe ths provson s not mted to affated groups Incudng a Western
emsphere trade corporaton, ts prmary effect w be to gve such groups an
opportunty to fe a separate return for ther Western emsphere trade cor-
poraton, and thus receve an e empton from the e cess profts ta wth respect
to the ncome of such a corporaton.
(d) Dvdends receved from foregn corporatons. Under Word War II aw,
dvdends receved from foregn corporatons by domestc corporatons were n-
cuded In the e cess profts ta net ncome of average-earnngs ta payers both
for the base and ta perod. On the other hand, they were not ncuded n the
e cess profts net ncome of nvested capta ta payers n the ta perod but the
stock n the foregn corporaton was e cuded from nvested capta. The
ncuson of dvdends from foregn corporatons n the e cess profts ta net
ncome of the average earnngs ta payer tends to dscourage the return of ths
ncome to the Unted States, even though busness purposes mght dctate such
a transfer. Tour commttee beeves that both the average earnngs credt ta -
payer and the nvested capta ta payer shoud be treated the same. ccord-
ngy foregn dvdends are e cuded from e cess profts net Income n the ta
perod n both cases. In addton, such dvdends are e cuded from the base
Perod Income of the average earnngs ta payer, and the foregn stock s
e cuded from nvested capta n the case of the ta payer computng hs ta
a ths manner.
(f) Foregn taw credt Under your commttee s b, as under the Word War
II statute, domestc corporatons operatng branches abroad are sub|ect to
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e cess profts ta on the Income derved from such branches n the year n whch
t s earned. owever, any ta es pad a foregn country wth respect to such
foregn operatons whch s n e cess of the ta credt aowed by the Unted
States for purposes of the norma ta and surta s aowed as a credt aganst
e cess profts ta sub|ect to certan mtatons. The ta treatment accorded
branches s the same as that provded by the ouse b and the Word War II
statute.
(/) ocked ncome. Ta payers dervng ncome from sources wthn a foregn
country are permtted under the b to e cude such porton of the ncome as
woud, but for monetary, e change, or other restrctons mposed by the foregn
country, have been ncudbe n the gross Income of the ta payer pror to ts frst
e cess profts ta year. ecause of the practce of foregn natons n past years
to Impose restrctons on the converson of foregn earnngs nto doars, n-
come propery attrbutabe to the base perod years woud be ncuded n net
ncome for e cess profts ta purposes n the event that such ncome becomes
convertbe nto doars. Your commttee beeves that t woud be unfar to
sub|ect such past profts to e cess profts ta .
The Secretary s drected to prescrbe rues for a reasonabe aocaton of the
bocked ncome whch arose pror to the end of the base perod n cases where
specfc dentfcaton cannot be made.
speca rue s prevded for the reaocaton of Income whch arose durnsr
the frst e cess profts ta year but became unbocked n ater years. Such
an ad|ustment s necessary because of a dfference n the amount of ta mposed.
Deductons propery aocabe to Income whch s e cuded under ths pro-
vson are not aowed.
The bocked ncome provson was added to the b by a foor amendment
n the ouse. Wth the e cepton of the carfyng amendment permttng the
Secretary to estabsh rues for the aocaton of ncome n doubtfu cases, the
provson n the commttee b conforms wth the foor amendment.
. Optona e empton for certan ar-ma subsdes n the case of arnes.
rnes, under your commttee s b, may e cude ar-ma subsdes pad by
the Federa Government f the arnes have no ad|usted e cess profts ta net
Income when these ar-ma subsdes are not taken nto consderaton. It has
been ponted out that a 7 percent rate of return on tota assets, whch s the rate
provded for arnes under the mnmum credt for reguated ndustres. Is sub-
stantay beow the rate of return aowed by the Cv eronautcs oard n the
case of overseas arnes. The e cuson of ar-ma subsdes as descrbed
above was a part of the Word War II statute. Therefore, your commttee has
restored ths Word War II provson. The ouse b contans no such provson.
G. Persona-servce corporatons.
The Word Word War II aw provded that persona-servce corporatons
coud eect to be e empted from the e cess profts ta f the stockhoders of such
corporatons agreed to take up as part of ther ncome for ndvdua-ncome-ta
purposes the pro rata share of the undstrbuted profts of the persona-servce
corporatons. Ths dd not, however, e empt a persona-servce corporaton
from the corporate norma ta or surta . persona-servce corporaton was
defned as a corporaton whose ncome was to be ascrbed prmary to the actv-
tes of sharehoders who are reguary engaged n the actve conduct of the
affars of the corporaton and who are the owners of at east 70 percent of the
stock of the corporaton. Your commttee s b, ke the ouse b, retans ths
provson of the Word War II statute unchanged.
7. Merchant Marne ct.
(a) Corporatons competng contracts under ths ct. Under secton 0 of
the Merchant Marne ct, 1930, as amended, f any contractng party n ts
ta abe year competes one or more contracts or subcontracts for the constructon
of a vesse under ths ct, t s requred to pay to the Martme oard any proft
n e cess of 10 percent of the tota contract prces of the contracts and subcon-
tracts. These profts pad to the Martme oard, together wth a other recepts
of the oard, are paced n a revovng constructon fund and are avaabe for
further shp constructon.
s a genera rue under your commttee s b the amount receved by the
contractng party and recaptured by the Martme oard w be e cuded n
computng the e cess profts ta . n aternatve computaton requres the ta -
payers to ncrease ther e cess profts net ncome and norma ta net ncome
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hT the amount of the payments to the Martme oard. The ta computed upon
ths bass s then reduced by the amount of such payments, and the remander
consttutes the ta whch s to be pad, f t s ess than the ta computed under
the frst method. Ths ta treatment s the same as that accorded by the ouse
b and the Word War II statute.
( ) Ta treatment of shpper s funds authorzed under the ct. Under ttes
and II of the Merchant Marne ct, certan statutory reserve nnd con-
structon funds are authorzed wheren shppers are requred or permtted to
make deposts of vesse earnngs nnd certan gans from the requstonng,
snkng, or other dsposton of vesses. These deposts are ntended to provde
for the repacement of mercan merchant vesses and to nsure performance
of certan contractua obgatons under agreements wth the Martme dmn-
straton and other agences of the Government. Tnder the ouse b, these
funds are not Incuded n the shppers nvested capta credts or ther average
earnngs bases. Snce these funds beong to the shppers, your commttee be-
eves that t s nequtabe to e cude them n the computaton of ther e cess
profts credts. Therefore, your commttee s b has nmended the ouse b to
provde that deposts of ths type (other than capta gans) made durng the
base perod sha be ncuded n the ta payer s ncome to the e tent that they
e ceed the deposts by each such ta payer n the current ta abe year. In the
ease of the nvested capta credt, your commttee s b provdes that a of
these deposts made by any ta payer pror to ts current ta abe year sha be
ncuded n computng ts nvested capta credt n the same manner as retaned
earnngs of the ordnary corporaton usng the nvested capta credt. ow-
ever, the Invested capta credt wth respect to such addtons s to be reduced
to the e tent that the addtona credt s offset by addtona deposts durng the
current ta abe year.
. Speca provsons reatng to the e cess profts ta credt for raroad corpo-
ratons.
The ouse b provdes that where substantay a of the propertes of one
raroad have been eased to another raroad pror to uy 1, 10 0, under a ease
for more than 20 years, whch requres the essee raroad to pay the Federa
ncome ta es of the essor raroad, the e cess profts ta credt may be equt-
aby apportoned between the corporatons pursuant to an agreement between
the corporatons whch Is approved by the Secretary of the Treasury. Your
commttee s b has retaned ths provson but amended It to provde the same
treatment for eases where the eases are automatcay renewed and where
the whoe term, Incudng the renewa perod, e ceeds 20 years. Where such
eases have been frst entered nto pror to December 31, 19 0 (changed from
uy 1,19 0, n the ouse b), they are to be consdered as havng been entered
nto pror to such date even though renewed after such date. Your commttee s
b aso makes the benefts of ths provson avaabe where more than one
essee s nvoved.
Your commttee has added another provson to the b provdng that the In-
vested capta credt of a raroad (formery a essor) sha ncude the far
vaue of betterments and addtons made by a essee raroad to property of the
essor raroad If the ease has been canceed.
9. Rccomputaton of the earnngs credt n the case of corporate reorganzatons.
In the case of certan corporate reorganzatons durng the base perod or
subsequent to the base perod, the e perence of the corporaton pror to the
reorganzaton may be aggregated for purposes of determnng e cess profts
credts based on earnngs. Ths s provded for n part II of the e cess profts ta
subchapter. In genera the reorganzatons deat wth n part II are the type
wth respect to whch gan or oss s not recognzed. In addton to the genera
type of case where substantay a the assets of one corporaton are taken over by
another corporaton, part II provdes rues for the recomputaton of base perod
net ncome n the case where substantay a the assets of a partnershp or a
soe propretorshp are acqured by a corporaton and n cases where ony part
of the assets of the partnershp are paced In a corporaton or where ony part
of the assets of the corporaton are spt off nto a new corporaton.
Your commttee s amendment of part II makes t cear that part II aso covers
those corporate reorganzatons under secton 112(g)(1)(D) whch are com-
raony known as spt-ups, where the assets of a corporaton arc spt up among
tvro or more new corporatons foowed by the qudaton of the corporaton
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orgnay transferrng the assets. The ncuson by your commttee n the def-
nton of ths type of transacton n secton 61(a) of a reference to secton
112(b) ( ) s suffcenty broad to cover ths type of a case, as we as the case
where the transferrng corporaton, foowng a transfer n a reorganzaton of
ony a part of ts propertes n e change for the stock of the acqurng corpora-
ton, retans that stock as ts own. Your commttee s amendment aso changes
the above defnton so as to e cude transfers of assets by a corporaton whch
s e empt from Income ta under secton 101 of the Code.
The ouse b provded that a corporaton dd not meet the defnton of an
acqurng corporaton wthn the meanng of part II even though t acqured sub-
stantay a the propertes of another corporaton and the soe consderaton for
the transfer was votng stock n the corporaton whch acqured the propertes
uness the corporaton transferrng the assets was forthwth competey qudated
n pursuance of the pan under whch the acquston was made. Your com-
mttee s amendment of part II drops the requrements that the corporaton trans-
ferrng the propertes be forthwth qudated.
In genera, f a the propertes of the corporaton are taken over by another
corporaton n an e change to whch part II s appcabe, the od corporaton
s no onger entted to use ts busness e perence pror to the e change for
purposes of computng average base perod net ncome. Instead, the corporaton
whch acqures the propertes may use the e perence of the corporaton whch
gave them up f ths w resut n a ower ta for the acqurng corporaton. In a
case where ony part of the assets of a corporaton go over to a new corporaton
n nn e change n whch gnn or oss s not recognzed, the od corporaton oses
that porton of ts base perod e perence whch s aocabe to the assets t oses
n the e change, and the acqurng corporaton may utze such e perence n
computng ts average base perod net ncome.
Where a corporaton computes ts e cess profts ta credt smpy on the bass
of ts e cess profts net ncome durng the base perod, the effect on part II s
to provde that, after the corporaton acqures assets n an e change descrbed
n part II, t sha recompute ts e cess profts net ncome for each month of the
base perod pror to the e change by combnng ts own earnngs e perence
durng those months wth the earnngs e perence of the corporaton whose assets
t acqured. If the corporaton whose assets were acqured was not In e stence
durng a month n the base peroc n whch the acqurng corporaton was n
e stence, then the recomputaton descrbed above s made by combnng the
earnngs of the acqurng corporaton wth 1 percent of the equty capta of the
corporaton whose assets were acqured (after ad|ustment for nadmssbe
assets).
In addton to provdng rues for the recomputaton of e cess profts net ncome
for purposes of the earnngs credt, part II aso provdes for the recomputaton
of e cess profts net ncome and the attrbuton of payro, gross recepts, and
tota assets n the case of the aternatve earnngs credt based on growth. It
provdes rues for the recomputaton of e cess profts net ncome and rues for
the determnaton of average base perod net Income n the case of part II trans-
actons Invovng corporatons wth base perod abnormates. It aso provdes
rues for the computaton of average base perod net Income n the case of part II
transactons nvovng corporatons whch have had changes n the products or
servces furnshed durng the base perod, corporatons whch have had ncreases
n capacty for producton or operaton durng the base perod, new corporatons,
and corporatons whch were members of depressed ndustres durng the base
perod. Tour commttee s amendment has added the provsons deang wth
base perod abnormates, changes n products or servces, ncreases n capacty,
and depressed Industres, and t has aso revsed the treatment n the ouse b
wth respect to the growth aternatve and wth respect to new corporatons. In
cne partcuar, the treatment of acqurng corporatons n part II transactons
wth respect- to the growth aternatve has been revsed so as to make t cear
that a corporaton whch Is created ncdent to a part II transacton s not dened
the growth aternatve by reason of beng a now corporaton.
In the case of the type of e change descrbed n part II n whch the assets of
one corporaton are spt among two corporatons the base perod earnngs e per-
ence of the one corporaton pror to the e change s nocated among the corpora-
tons In busness after the e change n proporton to the far market vaue of
the assets of the od corporaton whch are hed by each of the corporatons after
the e change. The ouse b permtted aocaton of the earnngs e perence In
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267
dfferent proporton f a the partes to the reorganzaton agreed to the dfferent
aocaton and the Secretary consented to t. Your commttee s amendment of
part II carfes the aocaton provsons by permttng the determnaton of the
far market vaue of the propertes nvoved and the determnaton of the dvson
of such vaue among the partes by agreement between the partes to the trans-
acton wth the Secretary s consent and by permttng, n eu of an aocaton
based on far market vaue, an aocaton based on the earnngs e perence of the
assets transferred where the partes to the transacton agree to the aocaton
and t s estabshed to the satsfacton of the Secretary that the aocaton fary
represents an dentfabe earnngs e perence of each group of assets transferred
or retaned. Tour commttee s amendment retans the provson of the ouse
b that the aocaton as among the component corporaton and any acqurng
corporatons sha not e ceed 100 percent of the e cess profts net ncome (or
average base perod net ncome) of the corporaton whose assets are transferred,
but your commttee s amendment provdes an e cepton to ths rue n the case
where part of the assets of a partnershp were transferred to a component corpo-
raton or corporatons n a part II e change whch occurred before December
1,19 0. In such a case the earnngs e perence of the assets transferred may be
nsed n the determnaton of e cess profts net ncome by the acqurng corpora-
ton even though ths earnngs e perence may represent an amount n e cess of
the net ncome of the partnershp whe t hed the assets, f t s estabshed to
the satsfacton of the Secretary that such an aocaton represents an dentfabe
earnngs e perence of such transferred assets.
In order to prevent doube countng of base perod earnngs e perence n
appyng the recomputaton rues provded by part II, the Secretary s authorzed
to ssue reguatons provdng for reducton of the average base perod net ncome
of the ta payer and ad|ustments of transferred capta addtons and reductons
to the e tent necessary n cases where, n genera, the ta payer acqured stock
n a component corporaton for other than ts own stock. Ths provson s
carred over from the Word War II aw and serves to prevent a ta payer usng
assets whch have had a base perod earnngs e perence n ts hands from pur-
chasng stock of a corporaton hodng other assets whch have smary had a
base perod earnngs e perence and subsequenty acqurng that atter e perence
by reason of a part II transacton. The stuatons where the possbty of doube
countng may arse are compe . Certan cases have been brought to the atten-
ton of your commttee where, despte the compe ty of the facts, t woud appear
that doube countng was not nvoved. In vew of the dffcuty of ths queston,
however, the matter can ony be determned n accordance wth reguatons-
Tour commttee s amendment e tends the prncpe of carryng over to an
acqurng corporaton the e perence of a component corporaton durng the
base perod by provdng that, n the case of part II transactons before De-
cember 1, 19 0, abnorma ncome receved n the ta perod whch s attrbutabe
to a year of the component corporaton durng or pror to the base perod sha
be treated n the same manner as though the busness of the component durng
such perod had been the busness of the acqurng corporaton.
d|ustment s provded for both net capta addtons durng the ast 2 years
of the base perod and net capta addtons and reductons nfter the cose of
the base perod In the case of partes to an e change descrbed In part II.
Tour commttee s amendment revses the provsons of the ouse b deang
wth net capta addtons and net capta reductons n the case of part II
transactons so as to conform them wth the other amendments of your com-
mttee deang wth the treatment of capta addtons and reductons of ta -
payers usng the earnngs credt. The amendment aso revses the treatment of
the base perod capta condtons n the case of part II transactons so as to
provde more specfc rues and so as to conform wth the amendments deang
wth the treatment of base perod capta addtons of earnngs credt ta payers
n genera.
10. ass for computaton of the nvested-capta credt after ntercorporate
qudatons.
Part III of the e cess profts ta subchapter provdes rues for the determna-
ton of the nvested capta n the case of certan e changes and qudatons.
These rues correspond to those provded by suppement C of the Word War
II aw.
(N o secton-by-secton anayss of the b s presented.)
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19 1-3-13 37
ouse of Representatves Report No. 3231, ghty-frst Congress, Second Sesson
December 22, 19 0
Mr. Donghton, from the commttee of conference, submtted te foowng
conference report to accompany . R. 9 27 :
The commttee of conference on the dsagreeng votes of the two ouses on
the amendments of the Senate to the b ( . R. 9 27) to provde revenue by
Imposng a corporate e cess profts ta , and for other purposes, havng met,
after fu and free conference, have agreed to recommend and do recommend to
ther respectve ouses as foows:
ST T M NT OF T M N G RS ON T P RT OF T OUS
The managers on the part of the ouse at the conference on the dsagreeng
votes of the two ouses on the amendments of the Senate to the b ( . R. 9 27)
to provde revenue by mposng a corporate e cess profts ta , and for other
purposes, submt the foowng statement In e panaton of the effect of the
acton agreed upon by the conferees and recommended n the accompanyng
conference report:
mendment No. 1: Ths amendment provdes that the e cess profts ta
Imposed by the b sha not appy to ta abe years begnnng on or after an-
uary 1, 19 3. The ouse recedes wth an amendment provdng that the ta
sha not appy to ta abe years begnnng on or after uy 1, 19 3.
mendments Nos. 2 and 3: These amendments are cerca. The ouse
recedes.
mendment No. : The ouse b provded that the e cess profts ta sha
not e ceed an amount whch when added to the norma ta and surta for the
ta abe year s equa to 67 percent of the corporaton s surta net ncome. The
Senate amendment provdes that the ta sha not e ceed an amount equa to
the e cess of 60 percent of the e cess profts net Income for the ta abe year
over the norma ta and surta es whch woud be Imposed for the ta abe year
If the ta base appcabe to the norma ta and surta were the amount of
the e cess profts net ncome. The ouse recedes wth an amendment subst-
tutng 62 percent for the 60 percent provded n the Senate amendment.
mendment No. : Ths amendment s cerca. The ouse recedes.
mendment No. 6: The Senate amendment provded for computaton of the
ta n the case of a fsca year begnnng before anuary 1,19 3, and endng after
December 31, 19 2. The ouse recedes wth an amendment conformng to the
acton taken on amendment No. 1.
mendment No. 7: Ths amendment s cerca. The ouse recedes.
mendment No. : Ths amendment strkes out the provson n the ouse
b whch provded certan rues wth respect to payment of the ta In the case
of ta payers camng the beneft of certan reef provsons contaned n the
ouse b. The rues to be apped n such case are contaned n the pro-
vsons nserted by Senate amendment No. 1 . The ouse recedes.
mendment No. 9: Ths amendment provdes a number of cross references.
The ouse recedes.
mendments Nos. 10 and 11: These amendments are cerca. The ouse
recedes.
mendment No. 12: Ths amendment provdes that there sha be no un-
used e cess profts credt for a ta abe year begnnng after the ast ta -
abe year for whch the e cess profts ta s mposed. The ouse recedes wth
an amendment conformng to the acton taken on amendment No. 1.
mendment No. 13: Ths amendment provdes that the unused e cess profts
credt for any ta abe year sha be computed wthout regard to the deducton
aowed for the year under secton 23(s) of the Interna Revenue Code, reatng
to net operatng osses. The ouse recedes.
mendment No. 1 : Ths amendment provdes for the computaton of the
unused e cess profts credt for a ta abe year begnnng before anuary 1,
19 3, and endng after December 31, 19 2. The ouse recedes wth an amend-
ment conformng to the acton taken on amendment No. 1,
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269
mendment No. 1 : Ths Is a technca amendment. The ouse recedes.
mendment No. 16: Ths amendment provdes, n effect, that there sha not
be an unused e cess profts credt carry-back for any perod durng whch
the ta payer has dstrbuted substantay a of ts assets n qudaton or for
any perod durng whch the ta payer has converted substantay a of ts
assets nto assets not hed n good fath for the purposes of the busness. The
ouse recedes.
mendment No. 17: Ths amendment strkes the provson of the ouse b
whch e cuded, for purposes of computng e cess profts net ncome for ta -
abe years endng after | une 30, 19 0, certan gans and osses to whc sec-
ton 117(|) of the Interna Revenue Code s appcabe. Under the ouse
b, there woud be e cuded osses, as we as gans, from the vountary
sae of property used n the trade or busness, but osses resutng from fre,
theft, food, and smar casuates woud be aowed. The effect of the Senate
amendment s to aow certan osses from the vountary sae of busness prop-
ertes as ordnary osses, whch the ouse provson woud have dsaowed.
The ouse recedes. The conferees, however, have agreed that the treatment
for e cess profts ta purposes of secton 117(|) osses s a sub|ect matter whch
must have further study.
mendment No. 1 : Ths amendment makes a carfyng change n the pro-
vson of the ouse b deang wth e cusons of ncome attrbutabe to the
recovery of bad debts. The ouse recedes.
mendment No. 19: Ths amendment provdes for the amount of the ad|ust-
ment to be made of the norma-ta net ncome n the case of an nsurance com-
pany computng the e cess profts credt based upon nvested capta. The ouse
recedes.
mendments Nos. 20, 21, 22, 23, 2 . 2 , 26, and 27: These are cerca amend-
ments. The ouse recedes.
mendment No. 2 : The ouse b provded an ad|ustment, n computng
e cess profts net ncome, for the net operatng oss ad|ustment. The Senate
amendment (1) strkes out ths provson of the ouse b, (2) makes appropr-
ate amendments n the ad|ustment to refect the changes made by the Senate
wth respect to borrowed capta, and (3) provdes, at the eecton of any
ta payer usng the base perod credt, for the carry forward to the years 19 0 and
19 1 of osses durng the base perod whch have not otherwse been offset
aganst the ncome of other years.
The ouse recedes wth an amendment to aow any ta payer computng
nvested capta by means of the hstorca credt aso to carry forward to 19 0
and 19 1 osses durng the base perod whch have not otherwse been offset
n other years.
mendment No. 29: The ouse b provdes that n the case of ong-term enses,
where the essee s obgated to pay ta es mposed upon the essor wth respect
to the rentas thereunder, such ta es sha be e cuded by the essor, and sha
not be deducted by the essee, n computng e cess profts net ncome. The
Senate amendment provdes that the term of a ease of raroad propertes
entered to pror to December 1, 19 0, sha ncude the years for whch such
ease may be renewed or contnued. The ouse recedes.
mendment No. 30: Ths s a cerca amendment. The ouse recedes.
mendment No. 31: Ths amendment makes a carfyng change n the pro-
vsons reatng to the treatment of bocked Income. The ouse recedes.
mendments Nos. 33 and 3 : These are conformng amendments to the treat-
ment accorded borrowed capta under Senate mendment No. 12 . The ouse
recedes wth an addtona conformng amendment.
mendment No. 3 : Ths amendment provdes that, n computng e cess profts
net ncome, ad|ustment sha be made to e cude any payments made to a ta -
payer by the Unted Sates or any agency or nstrumentaty thereof for the en-
couragement of e poraton, deveopment, or mnng of crtca and strategc
mneras or metas for defense purposes. The ouse recedes.
mendments Nos. 36 and 37: These are cerca amendments. The ouse
recedes.
mendments Nos. 3 , 39, and 0: These are conformng amendments to Senate
amendments Nos. 190 to 19 . The ouse recedes.
mendment No. 1: Ths Is a cerca amendment. The ouse recedes.
mendment No. 2: Ths amendment strkes out a provson of the ouse b,
the prncpe of whch Is set forth n secton 1(h), as added by Senate amend-
ment No. 12 .
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270
mendment No. : Ths nmeudment strkes out a provson of the ouse b,
the prncpe of whch s set forth n secton 1(h), as added by Senate amend-
ment 12 .
mendment No. : Ths s a carfyng amendment. The ouse recedes wth
an amendment reatng to the treatment of abnorma deductons arsng n dffer-
ent ta abe years from the same e traordnary event (such as cams and awards
arsng n dfferent ta abe years from a snge re).
mendment No. 6: Ths s a carfyng amendment. The ouse recedes.
mendment No. 7: Ths Is a technca amendment strkng out as unnecessary
a ouse provson. The prncpe e pressed In ths provson, of not treatng
as an abnorma deducton ncreased payros In the case of a growng corpora-
ton, s covered by other provsons of the same secton of the b wth respect
to a types of deductons whch may be the cause or consequence of Increased
ncome. The ouse recedes.
mendment No. : The ouse b provdes that In the case of ong-term
enses, where the essee Is obgated to pay ta es mposed upon the essor wth
respect to the rentas thereunder, such ta es sha be e cuded by the essor, and
sha not be deducted by the essee, In the computaton of average base perod
net ncome. The Senate amendment provdes that the term of a ease of ra-
road propertes entered nto pror to December 1, 19 0, shn ncude the years
for whch such ease may be renewed or contnued. The ouse recedes.
mendment No. 9: Ths amendment provdes that wth respect to banks the
deducton for FDIC assessments n the ta payer s base perod years w be re-
duced proportonay wth the credt aowed, pursuant to Pubc Law 797 of the
ghty-frst Congress, aganst the FDIC assessment n the e cess profts ta year.
The ouse recedes.
mendment No. 0: Ths amendment adds to secton 33 (b) of the b as t
passed the ouse a new paragraph (1 ) whch provdes, for purposes of com-
putng average base perod net ncome n the case of a fe nsurance company,
that there be deducted from the norma-ta net ncome an amount equa to the
e cess of (1) the product of ( ) the fgure determned and procamed under
secton 202(b) of the Interna Revenue Code and ( ) the e cess profts net n-
come computed wthout regard to the paragraph, over (2) the ad|ustment for
certan reserves provded n secton 202(c) of the Code. Ths provson s com-
parabe to secton 33(a) (1) ( ) (appcabe to e cess profts ta ta abe years)
of the b as t passed the ouse. The ouse recedes.
mendments Nos. 1, 2, 3, , , and 0: These amendments are of a tech-
nca and cerca nature and the ouse recedes.
mendment No. 7: Ths amendment reates to the acton on amendment No.
219 (addng a new paragraph ( ) to secton 1 1(e) of the Code) and amend-
ment No. 221 (addng a new subsecton ( ) to secton 1 1 of the Code) reatng
to the fng of consodated returns. It provdes that n the case of a reguated
pubc utty whch has made and fed a consent descrbed n secton 1 1(e) ( )
or (|) appcabe to the ta abe year, the e cess profts credt s. for purposes of
fng a consodated return, to be determned n accordance wth sudh consent.
The ouse recedes.
mendments Nos. , 9, CO, 01, 02, 03, and 6 : These amendments are cerca
or carfyng n nature. The ouse recedes.
mendment No. 6 : Ths amendment corresponds to amendment No. 29 and
amendment No. . The ouse recedes.
mendment No. 66: Ths amendment added a provson under whch the e cess
profts credt based on ncome woud be computed under secton 713 (but wthout
the beneft of subsecton (f) or secton 722) of the Code for the ast ta abe year
of the ta payer begnnng pror to anuary 1,19 6, f the amount so computed s
greater than percent of the average base perod net ncome computed as
provded n the b. There was no comparabe provson n the oose bL
The Senate recedes.
mendment No. 67: Ths s a technca conformng amendment. The ouse
recedes wth a carfyng nmendment
mendments Nos. OS, 69, 70, 71, and 72: These are technca conformng
amendments. The ouse recedes.
mendment No. 73: Ths nmendment provdes for cross references. The
ouse recedes wth a conformng amendment.
mendment No. 7 : Ths s a technca draftng amendment. The ouse
recedes.
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271
mendment No. 7 : Ths amendment affects secton 3 (e) whch s to be
added to the Code and whch provdes for an aternatve average base perod net
ncome for growng corporatons. Under the ouse b ths provson was ava-
abe ony to corporatons whch commenced busness before the begnnng of the
base perod. The Senate amendment made the provson appcabe f the ta -
payer commenced busness before May 1, 10 6.
The ouse b aso made the growth provson avaabe ony If (1) the ta -
payer had tota assets of not more than 20,000,000 at the begnnng of ts base
perod and f (2) the tota payro of the ta payer for the ast haf of ts base
perod was 130 percent or more of ts tota payro for the frst haf of ts base
perod or ts gross recepts for the ast haf of ts base perod were 1 0 percent
or more of ts gross recepts for the frst haf of ts base perod.
The Senate amendment retans the above gross recepts and payros tests, and
modfes the 20,000,000 asset test by requrng that there be added to the assets
of the ta payer, for the purposes of ths test, the assets of other affated corpora-
tons wth whch the ta payer has the prvege of fng consodated returns
for ts frst e cess profts ta ta abe year under the new aw.
The Senate amendment aso added a second set of tests (as an aternatve to
the 20,000,000 assets, payros and gross recepts tests) whch f met quafy the
ta payer for reef under ths secton. These tests are based on growth as
evdenced prmary by ncreased saes of a product or cass of products of a knd
not generay avaabe to the pubc at any tme pror to 19 6. Teevson sets
are an e ampe of such a product. product whch s a modfcaton of an
od product, such as an mprovement or change n stye, s not a product of the
type referred to. product whch was generay avaabe pror to 19 6, a-
though not avaabe at a tmes pror thereto, s aso not ntended to be covered.
The ouse recedes wth amendments renstatng the requrement thnt the ta -
payer must have commenced busness pror to the begnnng of ts base perod
and reducng somewhat the quafcatons for growth corporatons based on saes
of a new product.
mendments Nos. 76 and 77: These amendments reate to the reef provded
corporatons whch quafy as growth corporatons.
The ouse b provded that n the case of a corporaton quafyng for reef
under the growth provson, ts average base perod net Income under ths pro-
vson mght be based on ts ncome for the ast 12 months of ts base perod or
the average for the ast 2 months of ts base perod, whchever s hgher.
mendment No. 76 strkes out the provson for takng the hgher of these two
aternatves and amendment No. 77 provdes for two addtona aternatves, mak-
ng four n a under ths provson. The thrd aternatve, as added by the
Senate amendment, s based on the ta payer s e cess profts net Income for the
ast 6 months of 19 9 and 0 percent of the ta payer s e cess profts net ncome
for the frst 6 months of 19 0 (or n the case of a ta payer on a fsca year bass,
a weghted part of the ta payer s e cess profts net ncome for the frst 6 months
of 19 0). The fourth aternatve, as added by the Senate amendment, s based
on the e cess profts net ncome for the ast 6 months of 19 and the frst 6 months
of 19 0 (weghted as above descrbed).
The ouse recedes as to amendment No. 76 and a so recedes as to amendment
No. 77 wth an amendment restrctng the use of the fourth method as an a-
ternatve for computng average base perod net ncome under ths provson to
ony those corporatons whch quafy as growth corporatons under the provson
reatng to a new product and whose e cess profts net ncome for 19 9 s 2
percent or ess than the e cess profts net ncome for 19 .
mendment No. 7 : Ths amendment reates to the defnton of tota assets
for the purposes of the growth provson test based on 20,000,000 of tota assets.
Under the ouse b ony such assets were counted as were used n the ta -
payer s busness. The Senate amendment substtutes for ths e presson the
requrement that the assets be hed by such ta payer for the purposes of the
busness. The ouse recedes.
mendment No. 79: Ths amendment s made necessary by the provsons
of Senate amendment No. 7 under whch the 20,000,000 asset test for pur-
poses of the growth formua s to be determned wth reference to the assets
of an affated group. The ouse recedes.
mendments Nos. 0, 1, 2, and 3: These are cerca amendments. The
ouse recedes.
mendment No. : Under the ouse b, the base perod capta addton
as determned by treatng borrowed capta n a manner smar to ts treat-
ment n determnng the nvested capta credt. Ths amendment strkes out
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272
the provsons of the ouse b and substtutes provsons whch, n the treat-
ment of borrowed capta, correspond to the treatment of borrowed capta for
the purpose of determnng the net capta addton or reducton under the
Senate b. The ouse recedes wth amendments conformng to the 7 percent
mtaton on the ncuson of borrowed capta (see amendment No. 12 ).
mendments Nos. to 9 , ncusve: These amendments reate to the deter-
mnaton of the net capta addton or reducton appcabe n determnng
the e cess profts credt based on ncome. mendments Nos. and 91 are
cerca amendments. mendments Nos. 6, 7, 90, and 93 reate to the ad|ust-
ment for an ncrease or decrease n nadmssbe assets. Under the ouse b,
ths ad|ustment was made on a day bass. Under the Senate b, amendment
No. 93 provdes rues for determnng such ncrease or decrease for the ta abe
year, amendments 6 and 7 provde for the ad|ustment based on such determ-
naton, and amendments 90 and 93 strke out the provsons for a day ad|ust-
ment. mendment strkes out a provson n the ouse b for the determna-
ton of the amount of property pad n as a capta addton, a smar rue
beng ncuded n secton 1 of the Senate b (see amendment No. 12 ), and
amendment 9 strkes out a cross-reference whch appears n the provsons
nserted by amendment No. 9 . mendments Nos. 9 and 92 provde for the
ncuson of borrowed capta n determnng the net capta addton or reduc-
ton. mendments Nos. 92 and 9 aso provde speca rues n the case of
an ncrease n nadmssbe assets by, or oans to, a member of a controed
group. The ouse recedes wth amendments necessary to refect the ncuson
of ony 7 percent of the borrowed capta.
mendment No. 96: Ths amendment s made necessary by amendments
to 9 , ncusve, whch ncude borrowed capta n determnng net capta
addton or reducton. Under the ouse b, borrowed capta was not so
ncuded, but subsecton (h) of secton 33 provded speca rues for addtons
and reductons n borrowed capta. mendment No. 96 strkes out subsecton
(h), borrowed capta beng ncuded under amendments to 9 n computng
net capta addton or reducton. The ouse recedes.
mendment No. 97: Ths amendment provdes the genera rue for determn-
ng the e cess profts credt based on nvested capta. Under the ouse b,
the nvested capta credt s the sum of the basc equty capta credt, the
new capta credt, and the borrowed capta credt ad|usted for nadmssbe
assets. The Senate b provdes that the nvested capta credt sha be the
sum of (1) the Invested capta credt, reduced by the Inadmssbe asset ad|ust-
ment, and (2) the new capta credt. These changes are made necessary by
the change made n the treatment of borrowed capta and by the provson n
secton 37(b) reatng to the eecton of the hstorca nvested capta method.
The ouse recedes.
mendment No. 9S: Ths amendment provdes rues for the computaton
of the e cess profts credt based on nvested capta n the case of foregn
corporatons engaged In a trade or busness n the Unted States and corpora-
tons entted to the benefts of secton 2 1. The ouse recedes, wth a carfyng
amendment to secton 36(b)(1)( ) and technca amendments to secton
36(b) (1) ( ) and 36(b) (1) ( ) to conform wth the 7 per centum ncuson
for borrowed capta.
mendments Nos. 99, 100, 101, 102, and 103: These are technca amendments
made necessary by amendment 10 . Under these amendments, the rates for
determnng the nvested capta credt appy to the nvested capta determned
for the ta payer: under the ouse b these rates apped ony to the ad|usted
equty capta. The ouse recedes.
mendment No. 10 : Ths amendment reates to secton 37(b), whch n
the ouse b defned ad|usted equty capta. Under the ouse b, the rates
provded n secton 37(a) apped to the amount so determned under secton
37(b). mendment No. 10 strkes out secton 37(b) of the ouse b and
nserts a new secton 37(b), paragraph (1) of whch provdes that the nvested
capta sha be, e cept n the case of a mutua nsurance company (other than
fe or marne), the ad|usted nvested capta determned under paragraph
(2) of secton 37(b), or at the eecton of the ta payer n ts return for the
ta abe year the hstorca nvested capta determned under secton S (see
amendment No. 206), paragraph (2) of whch provdes that the ad|usted n-
vested capta s determned n a manner smar to that used n determnng
ad|usted equty capta under secton 37(b) of the ouse b, but wth the
addton thereto of the average borrowed capta for the ta abe year, and
paragraph (3) of whch provdes the manner for determnng the nvested
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273
cnptn In the case of a mutua Insurance company (other than fe or marne).
The ouse recedes wth an amendment provdng for the ncuson, n deter-
mnng ad|usted nvested capta, of ony 7 percent of the average borrowed
capta for the ta abe year, and wth an amendment conformng to the acton
on amendment No. 20 .
mendment No. 10 : Ths amendment carfes the provsons of secton 37(c)
of the ouse b, defnng equty capta as the e cess of the ad|usted bass of
the tota assets hed by the ta payer over the tota of Its abtes, by provdng
that such assets shoud ncude ony those hed n good fath for the purposes
of the ta payer s busness. The purpose of ths mtaton s to dsaow n
computng nvested capta those assets whch are not requred n the busness
and whch have the prncpa effect of reducng e cess profts ta . Smar
provsons are contaned esewhere n the b wth respect to the other determ-
natons made n computng the e cess profts credt. The ouse recedes.
mendment No. 100: Ths amendment provdes speca rues for determnng
the equty capta of an nsurance company (other than mutua and other than
fe or marne). The ouse recedes wth a carfyng amendment.
mendment No. 107: Ths amendment e cudes from the defnton of ab-
tes for purposes of determnng equty capta of a bank, as defned n secton
10 . the reserves for bad debts. The ouse recedes.
mendments Nos. 10 and 109: These are cerca amendments to conform
to amendment No. 12 . The ouse recedes.
mendment No. I: Ths amendment conforms to amendment No. 10 , and
provdes that the new capta credt sha not be aowed n the case of a ta -
payer usng the hstorca nvested capta determned under secton (see
amendment No. 206), or n the case of a mutua nsurance company (other than
fe or marne). The ouse recedes.
mendment No. 112: Ths amendment reates to the determnaton of the
net new capta addton under secton 37(b). Under the ouse b, the day
capta reducton used n determnng the net new capta addton was deter-
mned under secton 37(e) and there was no ad|ustment n such determnaton
for any ncrease n nadmssbe assets. The amendment by the Senate provdes
for such ad|ustment, and further provdes that the day capta reducton used
for purposes of secton 3 (b) sha be determned under secton 3 (d) (see
amendment No. 119). The ouse recedes wth an amendment made necessary
by the amendment to amendment No. 10 wth respect to the ncuson of
ony 7 per centum of the average borrowed capta.
mendments Nos. 113 and 11 : These are cerca amendments. The ouse
recedes.
mendment No. 11 : Ths s a cerca amendment to conform to amendment
No. 12 . The ouse recedes.
mendments Nos. 116 and 117: These are cerca amendments. The ouse
recedes.
mendment No. 11 : Ths s a technca amendment to conform to the change
n the treatment of borrowed capta provded by amendment No. 12 . It further
provdes for treatment of e cuded borrowed capta smar to that accorded
e cuded equty capta n determnng the day new capta reducton. The
ouse recedes, wth an amendment reducng the amount of the e cess n the
ncrease n day borrowed capta to be taken nto account to 7 per centum.
mendment No. 119: Ths amendment nserts a new subsecton (d) n secton
3 to provde the rues for determnng the day capta reducton for purposes
of secton 3 . The ouse recedes wth an amendment conformng to the change
to amendment No. 10 wth respect to average borrowed capta.
mendment No. 120: Ths amendment Is a change n the desgnaton of a
subsecton. The ouse recedes.
mendment No. 122: Ths s a conformng amendment (see amendment No.
12 ). The ouse recedes.
mendment No. 123: Ths s a conformng amendment made necessary by
amendment No. 11 , and provdes, for borrowed capta, a defnton of e cuded
borrowed capta. The ouse recedes.
mendment No. 12 : Ths amendment strkes out secton 39 of the ouse b,
whch reated to the determnaton of the borrowed capta credt, and nserts
a new secton 39, reatng to borrowed capta. Under the ouse b, the
borrowed capta credt generay was an amount equa to one-thrd of the
amount of Interest pad or ncurred wth respect to borrowed capta for the
0 200 1 10
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current ta abe year, wth certan ma mum and mnmum mtatons and wth
certan speca provsons reatng to nsurance companes. Under the Senate
amendment, secton 39 defnes average borrowed capta for the ta abe year
and day borrowed capta for any day. Under other Senate amendments, 100
percent of-the ndebtedness consttutng borrowed capta s ncudbe n the
same manner as equty capta In computng the borrowed capta credt, and
provson s made for the dsaowance of the nterest deducton attrbutabe
to such borrowed capta (see, for e ampe, amendments Nos. 33 and 3 , and 10 ).
Under secton 39(b) (1) of the b as amended by the Senate, the defnton of
borrowed capta ncudes ony ndebtedness ncurred n good fath for the
purposes of the busness. The Senate amendment ncudes n borrowed capta
the amount of the ta payer s ndebtedness to a bank whch s evdenced by a
bank oan agreement. It aso contans speca provsons for a 0 percent
ncuson wth respect to unearned premums of nsurance companes, certan
reserves of fe nsurance companes, and certan reserves of face-amount certf-
cate companes. In the case of the other Senate amendments wth respect to
borrowed capta, the ouse has, n genera, receded wth amendments provdng
for ony 7 percent ncuson wth respect to borrowed capta. The ouse
recedes wth respect to mendment No. 12 , wth amendments provdng for an
ncrease from 0 percent to 66 percent wth respect to nsurance company
unearned premums, fe nsurance company reserves, and face-amount certfcate
company reserves. The effect of these amendments s to retan as borrowed
capta taken nto account n computng the e cess profts credt n such cases
the orgna 0 percent amount (7 percent of 66 percent).
mendment No. 12 : Ths s a technca amendment The ouse recedes.
mendment No. 126: Ths s a carfyng amendment. The ouse recedes.
mendment No. 127: Under the ouse b, secton 1 contaned the prov-
sons wth respect to the computaton of the nvested capta credt n the case
of foregn corporatons and corporatons entted to the benefts of secton 2 1.
Under the Senate amendment, provsons wth respect to such corporatons are
contaned n secton 36(b) (see amendment No. 9 ). mendment No. 127
strkes out secton 1 of the ouse b. The ouse recedes.
mendment No. 12 : Ths amendment Is a new secton contanng defntons
and rues appcabe to secton 3 , reatng to the e cess profts credt based
on ncome; secton 37, reatng to the nvested capta oredt; secton 3 ,
reatng to the new capta credt; and secton 0, reatng to admssbe and
nadmssbe assets. Subsecton (a) provdes a defnton of equty capta as
the equty capta defned n secton 37(c). Subsecton (b) corresponds to a
porton of secton 37(d) of the ouse b, strcken by amendment No. 10 .
Subsecton (c) s desgned to prevent ta avodance by ncudng ony money
and property pad n good fath for the purposes of the ta payer s busness.
Subsecton (d), (e), (f), and (g), respectvey, correspond to secton 37(g)
of the ouse b, strcken by amendment No. 109. Subsecton () modfes the
genera rue for vauaton of certan ntangbe assets, and subsecton ( ) pro-
vdes a speca rue for certan raroad propertes acqured upon re|ecton
of a ease. The ouse recedes.
mendment No. 129: The ouse b provded that n the case of certan
abnormates n net ncome durng base perod years, the year affected by a
substanta abnormaty mght be reconstructed by appyng to the ta payer s
net ncome n norma years n the base perod the rato of the ndustry rate of
return for the abnorma years to the ndustry rate of return for the ta payer s
norma years. The Senate amendment (1) strkes out these provsons of the
ouse b and (2) provdes, n genera, for reef In the case of abnormates by
appyng the ndustry rate of return for the perod of abnormaty to the ta -
payer s tota assets. In the event that no more than 12 months are affected
by an abnormaty (other than the perod emnated under secton 3 (d)) a
substtute e cess profts net ncome s determned for the perod of the ab-
normaty by the use of the appcabe ndustry rate of return. In the event
that more than 12 months n the ta payer s base perod (other than the perod
emnated under secton 3 (d)) are affected by an abnormaty, the average
base perod net ncome s determned by appyng the base perod rate of
return for the years 19 6 through 19 9 to the ta payer s average assets durng
the base perod. The provson s ntended to be appcabe ony to perods
n whch the e cess profts net ncome of the ta payer s affected by an ab-
normaty. The ouse recedes.
mendment No. 130: The ouse b provded that ta payers whch Intro-
duced a dfferent product or servce durng the ast 3 years of the base perod
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mght compute an aternatve credt on the bass of the ndustry rate of return
as apped to ther assets. The Senate amendment (1) strkes out the provsons
of the ouse b and (2) substtutes provsons desgned, n genera, to provde
smar reef. The appcaton of the provsons has been carfed n order to
permt a ta payer who ntroduces more than one new product or servce to
aggregate the ncome from a such products or servces for the purpose of
quafyng under the secton. Other changes have been made n the quafcaton
requrements, n the method of computng average base perod net ncome, and
n provsons reatng to capta addtons and reductons. The ouse recedes.
mendment No. 131: Ths amendment, for whch there s no correspondng
provson In the ouse b, n genera permts a ta payer whch has effected
a substanta ncrease n ts capacty for. producton or operaton durng the
ast 36 months of the base perod to compute an average base perod net ncome
by appyng the ndustry base perod rate of return to ts assets as of the end
of the base perod. The ouse recedes wth an amendment emnatng a pro-
vson reatng to a change n operatons and management.
mendment No. 133: Ths s a technca amendment. The ouse recedes.
mendment No. 13 : Ths amendment strkes out certan provsons of secton
of the ouse b reatng to the method of computng average base perod
net Income for new corporatons, and nserts new rues for the computaton.
The ouse recedes.
mendments Nos. 133,136,137, 13 , and 130: These are technca amendments
to the provsons reatng to rues for appcaton of the new corporaton secton.
The ouse recedes.
mendment No. 1 0: Ths amendment, for whch there s no correspondng
provson In the ouse b, provdes that certan corporatons, under certan
crcumstances, are not egbe for the benefts of the new corporaton provson.
The ouse recedes.
mendment No. 1 1: Ths amendment adds cross-references. The ouse
recedes.
mendment No. 1 2: Ths amendment strkes out secton of the ouse b,
reatng to ndustry base perod rates of return, for whch provson s made n
Senate amendment No. 1 . The ouse recedes.
mendment No. 1 3: Ths amendment adds a new secton provdng reef for
depressed ndustry subgroups. Under the Senate amendment a depressed n-
dustry subgroup s one n whch the average rate of return on tota assets durng
the years 19 6 through 19 9 s ess than 60 percent of the average rate of return
of the ndustry subgroup over the perod 1936 through 10 9. The Senate amend-
ment woud permt a ta payer n such an ndustry subgroup to use an average
base perod net ncome computed by mutpyng ts average tota assets durng
the base perod by 0 percent of the depressed ndustry subgroup s average rate
of return durng the perod 1936 through 19 9. There was no correspondng
provson n the ouse b. The ouse recedes wth amendments havng the
foowng effect The comparatve perods for determnng whether the ndus-
try subgroup was depressed and the rate of return to be aowed n computng
the average base perod net Income are mted to the perods 193 through 19
(nstead of 1936 through 19 9) and 19 0 through 19 (Instead of 19 0 through
19 9). Under the Senate amendment the ndustry rate of return for the short
perod was requred to be ess than 60 percent of the rate of return for the ong
perod. Ths s changed to 63 percent. carfyng amendment s aso made
wth respect to the effect of renegotaton n connecton wth the statstcs to be
used.
mendment No. 1 : Ths amendment repaces secton of the ouse b,
reatng to ndustry rates of return and Industry cassfcatons. The amendment
carfes the method of rate determnaton and prescrbes the ndustry cassf-
catons to be used n provdng reef for abnormates n the base perod, change
In product, ncrease In capacty, and new corporatons. The ndustry cassf-
catons are the same (to the e tent avaabe statstca data w permt) as the
Standard Industra cassfcatons deveoped by the ureau of the udget The
cassfcaton of ndvdua corporatons s to be made n accordance wth the
specfcatons shown n the Standard Industra Cassfcaton Manua (prepared
by the Dvson of Statstca Standards, ureau of the udget). The amend-
ment requres the ta payer to make appcaton wth hs return, or wthn a pre-
scrbed perod, for the benefts of sectons 2 to 0. The ouse recedes wth
an amendment wth respect to the effect of renegotaton n connecton wth the
statstcs to be used.
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276
mendment No. 1 : Ths amendment reates to the mnmum e cess profts
credt for reguated pubc uttes. The amendment appes to a uttes cov-
ered by the ouse b and aso to reguated pubc uttes engaged n the fur-
nshng or sae of (1) sewerage dsposa servces, (2) transportaton by motor
vehce, and (3) transportaton by common carrer by water, sub|ect to the |urs-
dcton of the Interstate Commerce Commsson or Federa Martme oard.
Under the ouse b the percentage used n computng the credt for common
carrers by raroad, and for common carrers by ar, was percent. Under the
Senate amendment ths was ncreased to 7 percent n the case of ar carrers
and 6 percent n the case of raroads. Under the ouse b the percentage for
teephone and teegraph companes was 6 percent, whch s ncreased to 7 percent
by the Senate amendment. The uttes added by the Senate amendment use the
6 percent rate.
Under the ouse b ad|usted equty capta was computed n the manner
provded n secton 37(b) of the ouse b. Under the Senate amendment, n
certan cases where corporate books of account are mantaned n accordance
wth systems of accounts prescrbed by an approprate reguatory body, the ad-
|usted nvested capta s the sum of the average outstandng common and pre-
ferred stock accounts and the capta surpus and earned surpus accounts as
recorded on the corporate books of account.
The amendment aso (1) made technca and carfyng changes, (2) e panded
and carfed the defnton of the term reguated pubc utty , and (3) In-
cuded provsons reatng to consodated returns of reguated pubc uttes.
The ouse recedes wth carfyng amendments.
mendments Nos. 1 6 and 1 7: These amendments change, secton numbers.
The ouse recedes.
mendment No. 1 : Ths amendment conforms to amendment No. 1 2. The
ouse recedes.
mendment No. 1 9: Ths amendment ncudes perte as a strategc mn-
era. The ouse recedes.
mendment No. 1 0: Ths amendment ncudes moybdenum and beryum as
strategc mneras. The ouse recedes wth an amendment mtng the ncu-
son to moybdenum.
mendment No. 1 1: Ths amendment ncudes trona as a strategc mnera.
The Senate recedes.
mendment No. 1 2: The ouse b e tended the benefts of secton of the
ouse b (secton 0 of the Senate b) to corporatons engaged n mnng
crtca mneras as defned n subsecton (b) (2). Ths amendment strkes out
subsecton (b)(2), and conformng changes are made by amendments Nos. 1
and 1 . The ouse recedes.
mendment No. 1 3: Ths s a cerca amendment. The ouse recedes.
mendment No. 1 : Ths amendment conforms to the change made by amend-
ment No. 1 2. The ouse recedes.
mendments Nos. 1 , 1 6, and 1 7: These are cerca amendments. The
ouse recedes.
mendments Nos. 1 to 1 , ncusve: These are amendments to secton 1
of the ouse b, reatng to nonta abe ncome from certan mnng and tmber
operatons, and from natura gas propertes. mendment No. 1 changes the
secton number. mendments Nos. 1 9, 160, 161, 162, 163, 16 , 16 , 166, 16 .
169,170,179,1 2,1 3, and 1 are carfyng amendments. Under the ouse b
the ta abe years begnnng after December 31, 19 , and not endng after une
30 19 0, are referred to as the base perod for the purposes of ths secton.
Under these amendments, such perod s referred to as the norma perod.
mendment No. 167 adds she to the st of nonmetac substances desgnated
as mneras for the purposes of ths secton. mendments Nos. 172, 173, 17 ,
and 1 0 are cerca amendments. mendment No. 171 permts a ta payer wth
more than one mnera property to eect to treat ts propertes as one mnera
property. mendments Nos. 17 , 176, 177, 17 , and 1 1 appy to a meta or coa
mnng property the rue, appcabe under the nouse b n the case of a coa
mnng or ron mnng property, for the determnaton by reference to unt net n-
come of the nonta abe ncome from e empt e cess output. mendment No.
1 reates to nonta abe ncome from e empt e cess output n the case of a
property not n operaton durng the norma perod. Under the ouse b,
such nonta abe ncome was one-s th of the net ncome (computed wth the a-
owance for depeton) In the case of a coa mnng or ron mnng property or
from a tmber bock. Under the Senate amendment, t s one-thrd of such net
ncome n the case of a meta or coa mnng property or a tmber bock or a nat-
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277
ora gas property, and a speca rue s provded for consderng certan meta
mnng propertes as not havng been n operaton durng the norma perod.
The ouse recedes.
mendment No. 1 7 : Ths s a carfyng amendment. The ouse recedes.
mendment No. 1 : Ths amendment e empts from the e cess profts ta
any corporaton sub|ect to certan provsons of the Cv eronautcs ct of
193 f, after e cudng from gross ncome the amount of certan compensaton
for the transportaton of ma by arcraft, Its ad|usted e cess profts net ncome
for the year s zero or ess. The ouse recedes.
mendments Nos. 190, 191. 192, and 193: These amendments e tend the scope
of secton (a) (secton 3(a) of the ouse b) so as to permt deaers n
nstament saes obgatons the same eecton wth respect to reportng ncome
on the accrua bass for e cess profts ta purposes as s afforded ot-er ta payers
computng ncome on the nstament bass. The ouse recedes.
mendments Nos. 19 , 19 , 196, 197, 19 , 199, and 200: These are cerca
mendment No. 201: Ths amendment reates to casses of abnorma ncome
attrbutabe to other ta abe years. The Senate recedes.
mendments Nos. 202, 203, and 20 : These are cerca amendments. The
ouse recedes.
mendment No. 20 : Ths amendment provdes for ad|ustments n the de-
termnaton of e cess profts credts wth respect to deposts under the Merchant
Marne ct of 1936. The Senate recedes.
mendment No. 206: Ths amendment makes avaabe a hstorca Invested
capta credt smar to that provded for under the Word War II e cess profts
ta aw. Secton (a), (b). and (c) corresponds to sectons 71 , 716, and
717, respectvey. Secton (d). provdng for the addton to equty Invested
capta, corresponds to secton 71 (a) of pror aw and secton (e), descrb-
ng the reductons In equty nvested capta, s the counterpart of secton 71 (b).
Rues for the appcaton of the secton, comparabe to secton 71 (e) of pror
aw, are set forth n secton (f). The ouse recedes, wth an amendment
reducng the day borrowed capta to 7 percent n conformty wth the amend-
ment to secton 37(b) (2).
mendment No. 207: Ths amendment snbsttutes a new part II for part II
(of subchapter D of chapter 1 of the Interna Revenue Code) contaned n the
ouse b, deang wth e cess profts credt based on ncome In connecton wth
certan e changes. The Senate amendment revses the provsons of the ouse
part, wth addtons made necessary by other Senate amendments. The Senate
amendment aso makes a number of technca and carfyng changes. The
ouse recedes wth technca and carfyng amendments.
mendments Nos. 20 , 209, and 210: These are technca amendments. The
ouse recedes.
mendment No. 211: Ths amendment adds to the b two new sectons
(sectons 71 and 72) reatng to e changes and to the nvested capta ad|ust-
ment at the tme of ta -free ntercorporate qudatons, respectvey. These
sectons reate to the hstorca nvested capta provsons, and correspond to
the provsons of suppement C of chapter 2 of the Code. The ouse recedes.
mendment No. 212: Ths amendment adds a new tte II Increase n
corporaton surta to the b. Ths tte Increases the rate of surta upon
the corporaton surta net ncome of corporatons for ta abe years begnnng
on or after uy 1, 19 0, from 20 to 22 percent, and makes the necessary con-
formng changes n the aw wth respect to mutua nsurance companes other
than fe or marne, resruated nvestment companes, busness ncome of certan
ta -e empt organzatons, and the credts of corporatons. Secton 203 of tte
II amends secton 10 (f)(2) (reatng to fsca year ta payers) to make t
cear that the ncreased surta rate has no effect n the case of ta payers wth
ta abe years begnnng before uy 1, 19 0, and endng after une 30, 19 0.
The ouse recedes.
mendments Nos. 213, 21 , 21 , 216, and 217: These are cerca amendments.
The ouse recedes.
mendment No. 21S: Under the ouse b persona servce corporatons and
certan corporatons (otherwse e empt from the e cess profts ta mposed by
the b) whch were members of an affated proup of corporatons fng a
consodated return under secton 1 1 were ncuded wthn the defnton of the
term ncudbe corporaton f such corporatons made and fed consents,
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27
for the ta abe year or any pror ta abe years begnnng after December 31.
19 3, to be treated as ncudbe corporatons. Ths amendment changes the
reference to ta abe years begnnng after December 31, 19 3, to ta abe years
endng after une 30,19 0. The effect of the amendment Is to permt such corpo-
ratons to make a new eecton as to whether they w be members of an affated
group for ta abe years endng after une 30, 19 0. The ouse recedes.
mendments Nos. 219 and 221: These amendments reate to the ncuson of
reguated pubc uttes n an affated group of corporatons makng a conso-
dated return for a ta abe year n eu of separate returns.
mendment No. 219 adds to secton 1 1(e) a new paragraph ( ) whch pro-
vdes that the term ncudbe corporaton does not ncude reguated pubc
uttes entted to compute ther e cess profts credt under secton e cept
such a utty whch has made and fed a consent to compute ts e cess profts
credt wthout regard to secton .
mendment No. 221 adds to secton 1 1 a new subsecton (|) whch, despte
the provsons of the paragraph added by amendment No. 219, permts two or
more reguated pubc uttes to be consdered as ncudbe corporatons for the
purposes of the appcaton of subsecton (d) (reatng to defnton of affated
group ) to such reguated pubc uttes aone f each such reguated pubc
utty has made and fed a consent to compute ts e cess profts credt under
secton ony.
consent under secton 1 (e) ( ) or ()) Is to be made and fed at such tme
and n such manner as may be prescrbed by the Secretary and s to be app-
cabe to the ta abe year for whch fed and to each consecutve subsequent
ta abe year for whch a consodated return s fed.
The ouse recedes.
mendments Nos. 220, 222, 223, 22 , 22 , 226, 227, and 22 : These are cerca
mendment No. 229: Ths amendment reates to the amortzaton of emergency
factes. The Senate recedes.
mendment No. 230: Ths s a cerca amendment. The ouse recedes wth
a cerca amendment.
mendment No. 231: Ths amendment reates to the same sub|ect as amend-
ment No. 3 , namey payments made by the Unted States for the encouragement
of e poraton, deveopment, or mnng, of strategc or crtca mneras for
defense purposes, but amends secton 22(b) of the Code so as to e cude such
payments fror norma ta net ncome and surta net ncome. The ouse
recedes wth a cerca amendment and wth an amendment makng ths pro-
Tson appcabe to ta abe years begnnng after December 31, 19 0.
R. L. Doughton,
ere Coopeh,
ohn D. Dnge,
Wbub D. Ms,
Dane . Ref.d,
Rot O. Woodbdff,
Rchard M. Smpson,
Manager on the Part of the Souse.
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IND
ccountng methods, bocked foregn ncome, Mm. 6 7
amended
d|usted gross ncome, summer schoo e penses of pubc
schoo teachers
dmnstraton e penses, estates, deducton for ncome and
estate ta purposes for dfferent years
ffated corporatons:
tenson of tme for fng returns for ta abe years end-
ng after une 30, 19 0, and before March 1, 19 1
tenson of tme for fng returns for ta abe years end-
ng after une 30, 19 0, and before May 1, 19 1
cohoc beverages, mat and other, deductbty of Forda ta .
mendments:
Reguatons 116
Sectons 0 .101, 0 .102, 0 .10 , 0 .10 . 0 .107,
0 .201. 0 .202, 0 .203. 0 .209, 0 01 0 .601,
0 .607 (added), 0 .703 (added), 0 . 0
Reguatons 113 (19 3)
Sectons 1 3.11, 1 3.13(a), 1 3.30
Reguatons 111
Sectons 29.22 (b)(9)-, 29.22(b) (10)-1.
Sectons 29.22(b) (13)-1, 29.22(b) (13)-2 (added),
29.3797-11.. -
Secton 29.22 (d)-7 -
Sectons 29. -1, 29.101-2. 29.1 3-1 (added).
29.1 3-2 (added), 29.1 3-3 (added), 29.1 3-
(added), 29.162-1
Secton 29.322-7 -
Reguatons. 10
Sectons 6.1, 6.2, 6.3
Reguatons 106
Modfed by Reguatons 12
Reguatons 10
Sectons 1.2, 1.1 , 1.16, 1.17, 1.1 , 1.19, 1.21..
Reguatons 103
Secton 19.22(d)-7
Secton 19.322-7
Reguatons 79 (1936 ed.)
rtce 3
Reguatons 9
Sectons 323.0, 323.20, 323.21, 323.22, 323.31
Reguatons (19 )
Secton 31 .6
Reguatons 17
Sectons 173.3, 173.
Reguatons 10
Sectons 1 . 79a, 1 . 79b, 1 . 79c, 1 . 79d,
1 . 79e, 1 . 79f, 1 . 79g
Sectons 1 . , 1 .69 .
Sectons 1 . , 1 .69
Rung No.
13 19
13 1
13 79
13 63
13613
1360
13
13 3
13 6
13 6
13601
13
13 0
13 67
13 22
13 66
13601
13 0
13 67
13 33
13 96
13 13
13 2
13 1
1360
(279)
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mendments Contnued
Reguatons 7
Sectons 17 .1 3, 17 .1 , 17 .1 , 17 .1 9...
Sectons 17 . 67a, 17 . 67b
Reguatons
Sectons 1 . 3a, 1 . 3b, 1 . 3c, 1 . 3d,
1 . 3c, 1 . 3f, 1 . 3g
Reguatons (Narcotcs):
rtces 2(b), , (a), 6, 9 (revoked), 10, 3 (a), 1,
93, 1 6(a), 19
Reguatons
Sectons 1 3. 06a, 1 3. 06b, 1 3. 06c, 1 3. 06d,
1 3. 06e, 1 3. 06f, 1 3. 06g
mortzaton:
mergency factes, desgnaton of certfyng authorty..
Statement of amount aowed for renegotated year
nnutes, ncuson n gross ncome of contrbutons by em-
poyer to purchase contracts for empoyees
rmed Forces of the Unted States:
Compensaton for servce n a combat zone
Compensaton for servce n a combat zone, orea and
ad|acent waters
Tme for performng certan acts postponed by reason of
war
utomobe engnes, rebut, unform vaue ascrbed to engne
bocks accepted n part payment
anks, rea estate acqured by deed n eu of forecosure and

operated to reduce oss, appcaton of secton 117(|), I. R. C...
onds:
Seres , retaned after maturty, payment of nterest
(P. L. 12) ...
Unted States, ssued after March 1, 19 1, owned by non-
resdent aen at tme of death, ta abe status
onus, empoyee s, porton repad to empoyer n ater year
randy, producton, Reguatons amended
usness e penses:
Fnes pad by truck operators for voatons of State aws
prescrbng ma mum weghts, oads, etc
Pubc schoo teachers attendng summer schoo
C
Canadan currency converson to Unted States doars, rate of
e change appcabe
Capta gans and osses, rea estate acqured by fnanca nst-
tuton by deed n eu of forecosure and operated to reduce
oss
Cgarette ta , Forda, by whom deductbe
Cgarettes. (See cse ta es.)
Cgars. (See cse ta es.)
Cams for credt or refund, mtaton perod when waver s
fed -.-
Con-operated gamng devces, ncrease n rate of ta and
abty of Federa agences or nstrumentates
Commttee reports:
cess Profts Ta ct of 19 0
Conference ( . Rept. 3231)
ouse of Representatves Report No. 31 2
Senate Report No. 2679
Rung No.
13
13 2
13 2
13 6
13 2
13 39
13 97
13 10
13 6
13 3
13 3
13 60
13 7
13 3
13 9
13 77
13 2
13 11
13 1
13 23
13 7
1360
13 S0
13 33
13 37
13 27
13 36
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2 1
Rung No.
Compensaton:
Contrbutons by empoyer to purchase annuty contracts
for empoyees
Members of rmed Forces:
Servce n a combat zone
Servce n a combat zone, orea and ad|acent waters.
Servces performed n Puerto Ico by Federa em-
poyees
Contracts, renegotaton, Renegotaton ct of 19 1 (P. L. 9).
Contrbutons:
Chartabe, secton 120, I. R. C, amended.
Purchase of annuty contracts by empoyer for empoyees,
ncuson n gross ncome
Copper, suspendng certan mport ta es (P. L. 3 )
Corporatons:
ffated, e tenson of tme for fng returns for ta abe
vears endng after une 30, 19 0, and before May 1,
19 1
empt, nformaton requred to be furnshed to be made
avaabe to the pubc
Raroad, e tenson of tme for e cuson of ncome from
dscharge of ndebtedness
Court decsons:
Commssoner; state of ar andorf, Te Frst Natona
ank of oston, Custodan and Statutory ecutor, v
andorf, state of ar, The Frst Natona ank of oston,
Custodan and Statutory ecutor, v. Commssoner
Leurs; Unted Sates v
Unted States v. Lews ..
Credt or refund of ta pad on certan suppes for certan
vesses
Credts aganst ta :
Lmtaton perod when waver s fed
Puerto Rcan ncome ta on compensaton of Federa
empovees for servces performed n Puerto Rco
uebec Mnng ct ta (duty) pad pursuant to Dvson
III -
D
Decaratons of estmated ta for 19 0 Federa empoyees n
possessons of Unted States, e tenson of tme for fng
Department stores empoyng the reta nventory and eectve
nventory methods, prce ndces for anuary 19 1
Depressed ndustry subgroups, tentatve determnatons and
tentatve ad|usted rates of return
Dscharge of ndebtedness, e tenson of tme for e cuson of
ncome
Dsted sprts:
Dsposton of substance used n manufacture, Reguatons
17 amended
Producton, Reguatons amended
Warehousng, Reguatons 10 amended
Dvdends, dstrbutons of earnngs by Federa savngs and oan
assocatons, nformaton returns
Drvers, agent and commsson, status after 19 0
13 10
13 6
13 3
6
13 71
9
13 7
1 0
13 7
17
13 10
13612
1
13 63
2
13613
2
13
3
13 6
7
13 9
69
13 9
69
13 77
21
13 77
21
13 96
1 3
13 0
61
13 71
9
13 7
32
13 2
26
13 9
11
13 0
63
13 0
7
13 13
166
13 2
1 7
13 1
16
13 2
1 7
1360
166
13 3
3
13 3
103
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2 2
Rung No.
mergency factes, amortzaton, desgnaton of certfyng
authorty
mpoyees trusts, ntegraton of deferred beneft pans wth
od-age and survvors nsurance benefts provded by Soca
Securty ct mendments of 19 0..
mpoyment ta es:
Interna Revenue Code-
mpoyees, rea estate and securtes saesmen, status...
ome workers, status after 19 0 .
Lfe nsurance saesmen, fu-tme, status after 19 0...
Lmtaton perods changed by the Soca Securty ct
mendments of 19 0
Mnsters, duy ordaned, commssoned, and censed,
status after 19 0
Raroad Retrement Ta ct
Compensaton pad n Canadan currency con-
verted nto Unted States doars, rate of e -
change appcabe
Reguatons 12 , rues governng waver of e empton
by 101(6) organzatons
Traveng or cty saesmen, status after 19 0
Waver of e empton by 101(6) organzatons
state ta :
Refund cam fng date, certan members of rmed Forces
(P. L. 3 ).
Reguatons 10 amended to conform to Pubc Laws 37
and 761, ghty-frst Congress
Unted States bonds ssued after March 1, 19 1, owned by
nonresdent aen at tme of death, ta abe status
states, admnstraton e penses, deducton for ncome and
estate ta purposes for dfferent years
stmated ta :
Decaratons for 19 0, Federa empoyees n possessons of
Unted States, e tenson of tme for fng
Preventon of penates for faure to meet requrements for
ncreases mposed by Revenue ct of 19 0
cess profts credt, based on nvested capta, unreazed
profts attrbutabe to nstament saes
cess Profts Ta ct of 19 0:
Commttee reports
Conference ( ouse Rept. 3 31)
ouse of Representatves Report No. 31 2
Senate Report No. 2679..
cess profts ta , tentatve determnatons of depressed
ndustry subgroups, etc
cse Ta Unt, changng name of Msceaneous Ta Unt to..
cse ta es:
Manufacturers ta es
utomobe engnes, rebut, unform vaue ascrbed to
engne bocks accepted n part payment
Credt or refund of ta pad on certan suppes for
certan vesses
Stamp ta es
Con-operated gamng devces, ncrease n rate of ta
and abty of Federa agences or nstrumentates.
Narcotcs, Reguatons , amended
Speca-ta stamp ssued for vaue n e cess of ta
abty..
13 39
13602
13 3
13 20
13
13 21
13 1
13 90
13 23
13 22
13 32
13 22
13610
13 66
13 9
13 79
13 2
13 30
13603
13 37
13 27
13 36
13 0
13
13 60
13 96
13 33
13 6
13 2
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2 3
cse ta es Contnued
Tobacco ta es
Manufactured n andre moved from domestc factores
Cgarettes
November, 19 0 and 19 9
December, 19 0 and 19 9
anuary, 19 1 and 19 0
February, 19 1 and 19 0 -.-
March, 19 1 and 19 0 -
pr, 19 1 and 19 0
Cgars
Large
October, 19 0 and 19 9
anuarv, 19 1 and 19 0
February, 19 1 and 19 0
March, 19 1 and 19 0
pr, 19 1 and 19 0 - -
Sma
anuary, 19 1 and 19 0 -
February, 19 1 and 19 0 -
pr, 19 1 and 19 0
Snuff-
anuary, 19 1 and 19 0
pr, 19 1 and 19 0
Tobacco
anuary, 19 1 and 19 0 -
pr, 19 1 and 19 0
Transportaton ta es
Transportaton of persons, Reguatons 2 (1M2)
amended
Transportaton of property, Reguatons 113 (19 3)
amended
ecutve Orders:
Desgnatng orea and ad|acent waters as a combat zone
for purposes of secton 22(b) (13), I. R. C. ( . O. 1019 ).
stabshng the Defense Producton dmnstraton ( . O.
10200) -
Pacng n operaton the provsons of secton 31 of the
Organc ct of Guam ( . O. 10211) .
empt organzatons, nformaton requred to be furnshed to
be made avaabe to the pubc
penses, nonbusness, deducton of admnstraton e penses by
an estate for ncome and estate ta purposes for dfferent
years
tenson of tme:
Decaratons of estmated ta for 19 0, Federa empoyees
n possessons of Unted States
cuson of ncome from dscharge of ndebtedness
Returns for 19 0, Federa empoyees n possessons of
Unted States....... --
Rung No.
13 1
13 0
13 7
13 73
13
13 9
13 16
13 9
13 G9
13 91
13 92
13 99
1361
13 1
13 0
13 7
13 73
13
13 9
13 29
13 0
13 62
13 7
13 93
13606
13 29
13 6
13 62
13 7
13 93
13600
13 2
13 3
13 3
13 39
13 1
13
13 79
13 2
13 6
13009
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2
tenson of tme Contnued
Returns of affated corporatons:
Ta abe years endng after une 30, 19 0, and before
March 1, 19 1
May 1, 19 1-..
F
Federa empoyees:
Compensaton for servces performed n Puerto Rco
In possessons of Unted States, e tenson of tme for fng
decaratons of estmated ta for 19 0
Possessons of Unted States, e tenson of tme for fng
returns for 19 0
Federa savngs and oan assocatons, dstrbutons of earnngs,
nformaton returns
Fnes, truck operators, voatons of State aws prescrbng
ma mum weghts, oads, etc
Forda, cgarette ta and ta on mat and other acohoc bever-
ages, by whom deductbe
Foregn ncome, bocked, Mm. 617 amended
Foregn ta es, uebec Mnng ct ta (duty) pad pursuant to
Dvson III
Furough trave:
emptng servce personne from ta on transportaton of
persons
Servce personne, e empton
G
Gasone, ubrcatng o, and matches, Reguatons t.19 )
amended
Gasone ta es, State, mposed on whoesaer and passed on to
consumer
Gft ta , Reguatons 10 and Reguatons 79 (1936 ed.)
amended to conform to Pubc Law 37 , ghty-frst Con-
gress
Gross ncome:
cusons, compensaton of members of rmed Forces
for servce n a combat zone
When ncuded
Contrbutons by empoyer to purchase annuty
contracts for empoyees -.
Porton of empoyee s bonus repad to empoyer n
ater year
Ta refunds
Guam:
Domestc corporaton dong busness n, effect of Organc
ct of Guam upon ta abe status
Organc ct
II
ome workers, status after 19 0, changes effected by Soca
Securty ct mendments of 19 0
I
Industry base perod rates of return, tentatve determnatons-.
Industry subgroups, depressed, tentatve determnatons and
tentatve ad|usted rates of return
Informaton at source, dstrbutons of earnngs by Federa
savngs and oan assocatons
:No.
13 63
13613
13 71
13 2
13609
13 3
13 11
1360
13 19
13 7
13 26
13 2
13 96
1360
13 67
13 6
13 10
13 77
13 2
13 9
13 1
13
13 0
13 0
13 3
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2
Instament bass ta payers, unreazed profts attrbutabe to
nstament saes, e cess profts credt based on nvested
capta
Insurance companes, fe, fgure to be used n computng re-
serve and other pocy abty credt, ta abe year 19 0
Interest, seres bonds retaned after maturty (P. L. 12)
Inventores:
ectve method, prce ndces for anuary 19 1 for use
by department stores
Last-n frst-out bass, nvountary qudaton and repace-
ment v
Invested capta, e cess profts credt based on, unreazed
profts attrbutabe to nstament saes
ont Commttee on Interna Revenue Ta aton, appcaton
of subsectons (a) and (b) of secton 012, I. R. C
orea, desgnaton as a combat zone for purposes of secton

22(b)(13;, L R. C _
Legsaton:
ghty-second Congress
Pubc Law No. 2... -
Pubc Law No. 9
Pubc Law No. 12
Pubc Law No. 29
Pubc Law No. 3
Pubc Law No. 3
Pubc Law No. 3
Pubc Law No. 7 .
Pubc Law No. 907
Pubc Law No. 90
Pubc Law No. 91
Pubc Law No. 919
Lfe nsurance companes, fgure to be used n computng re-
serve and other pocy abty credt, ta abe year 19 0
Lmtaton perod, credt or refund when waver s fed
Lqudatons, secton 22(d)(6), I. R. C, amended
M
Manufacturers ta es. (See cse ta es.)
Mnsters, duy ordaned, commssoned, and censed, status
after 19 0...
Msceaneous Ta Unt, change n name
N
Narcotcs, Reguatons amended
Nonbusness e penses, deducton of admnstraton e penses by
an estate for ncome and estate ta purposes for dfferent
years
Organc ct of Guam:
ffect upon ta abe status of domestc corporaton dong
busness n Guam
Pacng n operaton the provsons of secton 31
13 00
13
13 16
13 79
13 9
13 1
Pape
13603
06
13 61
6
13 S3
1 2
13 9
11
13601
11
13G03
66
13 0
1 0
13 3
6
13 6
1 0
13 7
1 0
13 3
1 2
1360
1 3
13610
1 3
13611
1
13612
1
13 26
177
13 30
177
13 3
17
13 7
17
13
179
13 61
6
13 0
61
13
179
106
1 1
1
7
1
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2 6
Penates:
Fnes pad by truck operators for voatons of State aws
prescrbng ma mum weghts, oads, etc
Preventon for faure to meet requrements for ncreases
mposed by Revenue ct of 19 0
Possessons of Unted States:
Compensaton of Federa empoyees for servces performed
n Puerto Rco
ffect of Organc ct of Guam upon ta abe status of do-
mestc corporaton dong busness n Guam
Federa empoyees
tenson of tme for fng decaratons of estmated
ta for 19 0 _
tenson of tme for fng returns for 19 0
Organc ct of Guam
Property ta es, Rhode Isand, eved under chapter 31 of
Genera Laws as amended, accrua
Pubc aws:
ghty-frst Congress
No. 7 , e emptng furough trave of servce per-
sonne from the ta on transportaton of persons
No. 907, preventng penates and addtons to ta n
case of faure to meet requrements wth respect
to estmated ta by reason of ncreases mposed by
the Revenue ct of 19 0
No. 90 , amendng secton 3 0 of the Interna
Revenue Code
No. 91 , amendng secton 120 of the Interna Reve-
nue Code
No. 919, amendng secton 22(d)(6) of the Interna
Revenue Code
ghty-second Congress
No. 2, amendng secton 012 of the Interna Revenue
Code
No. 9, provdng for the renegotaton of contracts,
and for other purposes
No. 12, authorzng the payment of nterest on seres
bonds retaned after maturty, and for other
purposes
No. 29, aowng consumer to deduct State ta es on
gasone mposed on whoesaer and passed on to
consumer
No. 3 , amendng secton 10 of Pubc Law 37 ,
ghty-frst Congress
No. 3 , amendng secton 1 3(b) of the Interna
Revenue Code
No. 3 , suspendng certan mport ta es on copper
Puerto Rco, compensaton receved by Federa empoyees for
servces performed n
uebec, ta (duty) pad pursuant to Dvson III of uebec
Mnng ct
Raroad corporatons, e tenson of tme for e cuson of ncome
from dscharge of ndebtedness
Raroad Retrement Ta ct. (See mpoyment ta es.)
Rung No.
13 11
13 30
13 71
13 9
13 2
13609
13 1
13 12
13 26
13 30
13 3
13 7
13
13 6
13 7
13 3
1360
13610
13611
13612
13 71
13 7
13 6
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2 7
Rates of return, ndustry base perod, tentatve determnatons.
Rea estate, acqured by fnanca nsttuton by deed n eu
of forecosure and operated to reduce oss, appcaton of sec-
ton 117(|), L R. C .......
Rebates, renegotaton, statement of amortzaton aowed
for renegotated year
Refunds:
Lmtaton perod when waver s fed
Repayment to empoyer n ater year of porton of em-
poyee s bonus
Ta es, ta abe status
Reguatons. (See mendments: Reguatons.)
Renegotaton of contracts, Renegotaton ct of 19 1 (P. L. 9).
Renegotaton rebates, statement of amortzaton aowed for
renegotated year --
Returns:
ffated corporatons
March 1, 19 1, e tenson of tme for fng
May 1, 19 1, e tenson of tme for fng
ocked foregn ncome, Mm. 6 7 amended
Decaratons of estmated ta for 19 0, Federa empoyees
n possessons of Unted States, e tenson of tme for fng
Federa empoyees, n possessons of Unted States, e ten-
son of tme for fng for 19 0
Informaton
Dstrbutons of earnngs by Federa savngs and oan
assocatons
Requred from certan ta -e empt organzatons and
certan trusts
Trusts camng chartabe, etc., deductons (P. L. 3 )..
Preventon of penates for faure to meet requrements for
ncreases mposed by Revenue ct of 19 0
Revenue ct of 19 0, amendment of Reguatons 116 to con-
form to
Rhode Isand, property ta es eved under chapter 31 of Genera
Laws as amended, accrua
S
Saesmen:
Lfe nsurance, fu-tme, status after 19 0
Rea estate and securtes, status after 19 0
Traveng or cty, status after 19 0
Snuff. (See cse ta es).
Soca Securty ct mendments of 19 0, Reguatons 110
amended to conform to
Speca-ta stamp ssued for vaue n e cess of ta abty
Stamp ta es. (See cse ta es.)
T
Tabe, wthhodng, combnng ncome ta and F. L C. . ta ,
weeky wages .
Ta Court of the Unted States, The:
Decsons of, st of acquesceuces and nonacquescences
Rung No. Page
13 0
13 7
13 97
13 0
13 77
13 2
13 7
13 97
13 63
13613
13 19
13 2
13609
13 3
13
13011
13 30
13
13 12
13 21
13 20
13 32
13
13 2
13 72
13607
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Ta es:
Foregn uebec Mnng ct ta (duty), Dvson III
Refunds, ta abe status :
Rhode Isand property, eved under chapter 31 of Genera
Laws as amended accrua
State gasone, mposed on whoesaer and passed on to
consumer
Teachers, pubc schoo, summer schoo e penses
Tobacco. (See cse ta es.)
Transportaton of persons, Reguatons 2 (10 2) amended
Transportaton of property, Reguatons 113 (19 3) amended
Traveng e penses, pubc schoo teachers attendng summer
schoo
Truck operators, fnes pad for voatons of State aws prescrb-
ng ma mum weghts, oads, etc
Trusts:
Camng chartabe, etc., deductons, nformaton returns
mpoyees , ntegraton of deferred beneft pans wth od-
age and survvors nsurance benefts provded by Soca
Securty ct mendments of 19 0
W
Wavers, mtaton perod for credt or refund n cases covered by..
Wne, producton, fortfcaton, ta -payment, etc., Reguatons
7 amended
Wthhodng of ta at source:
Converson of Canadan currency to Unted States doars,
rate of e change appcabe
ome workers, status after 19 0
Lfe nsurance saesmen, fu-tme, status after 19 0
Lmtaton perods changed by the Soca Securty ct
mendments of 19 0
Mnsters, duy ordaned, commssoned, and censed,
status after 19 0
Rea estate and securtes saesmen, status after 19 0
Reguatons 116 amended to conform to the Soca Securty
ct mendments of 19 0 and the Revenue ct of 19 0
Tabe combnng ncome ta and F. I. C. . ta , weeky
wages
Traveng or cty saesmen, status after 19 0
Rung No.
13 7
13 2
13 12
1360
13 1
13 2
13 3
13 1
13 11
13
13611
13602
13 0
13 2
13
1 7
16
13 23
13 3
13
13 21
110

9
13 1
ST
13 90
13 20
106
10
13
111
13 72
13 32

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Bureau of Internal Revenue Cumulative Bulletin 1951-1

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Copyright:

Bureau of Internal Revenue Cumulative Bulletin 1951-1

Uploaded by

Copyright:

Treasury Department

Interna Revenue uetn

etna-Standard ngneerng Co., The.

schre, erman Frederck

The Commssoner does NOT acquesce n the foowng decsons:

Stenman, Php, e ecutor of estate of Isdore

anks, rea estate acqured by deed n eu of forecosure and

orea, desgnaton as a combat zone for purposes of secton

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